Omnibus Budget Reconciliation Act of 1989
PL 101-239 (H.R.3299), enacted 12/19/1989

103 STAT. 2106 
PUBLIC LAW 101-239—DEC. 19,1989 
Public Law 101-239 
101st Congress 
An Act 
Dec. 19,1989 
rH.R. 3299] 
Omnibus Budget 
Reconciliation 
Act of 1989. 
Agricultural 
Reconciliation 
Act of 1989. 
To provide for reconciliation pursuant to section 5 of the concurrent resolution on the 
budget for the fiscal year 1990. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
'Omnibus Budget Reconciliation Act 
This Act may be cited as the 
of 1989". 
SEC 2. TABLE OF CONTENTS. 
Title I—Agriculture and related programs. 
' ' 
Title n—Student loan and pension 
fiduciary 
amendments. 
Title m—Regulatoiy agency fees. 
« 
Title rV—Civil service and postal service programs. 
Title V—Veterans programs. 
Title VI—Medicare, medicaid, maternal and child health, and other health provi-
sions. 
Title Vn—Revenue provisions. 
Title Vin—Human resource and income security provisions. 
Title DC—Ofbhore oil pollution compensation fimd. 
Title X—Miscellaneous and technical Social Securi^ Act amendments. 
Title XI—^Miscellaneous. 
TITLE I—AGRICULTURE AND RELATED 
PROGRAMS 
SEC 1001. SHORT TITLE; TABLE OF CONTENTS. 
7 use 1421 note. 
(a) SHORT TITLE.—This title may be cited as the "Agricultural 
Reconciliation Act of 1989". 
(b) TABLE OF CONTENTS.—The table of contents is as follows: 
Sec. 1001. Short title; table of contents. 
Sec. 1002. Soybean, sunflower, and safflower planting program; feed grain acreage 
limitation program. 
Sec. 1003. Reduction of deficiency p^rments for 1990 crops. 
Sec. 1004. Repayment of advance deficiency payments. 
Sec. 1005. Reduction of expenditures under the export enhancement program and 
for targeted export assistance. 
Sec. 1006. Purchases of Financial Assistance Corporation stock by Farm Credit 
Spmtem institutions. 
Sec 1007. Adjustments in dairy price support program. 
SEC 1002. SOYBEAN, SUNFLOWER, AND SAFFLOWER PLANTING PRO-
GRAM; FEED GRAIN ACREAGE UMITATION PROGRAM. 
(a) PLANTING OF SOYBEANS, SUNFLOWERS, AND SAFFLOWERS ON 
PERMTITED ACREAGE.—Effective only for the 1990 crops, subsection 
(e) of section 504 of the Agricultural Act of 1949 (7 U.S.C. 1464(e)) is 
amended to read as follows: 
"(e)Notwithstandinganyotherprovisionof this Act— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2107 
"(1) Effective for the 1990 crops, the Secretary shall, subiect to 
paragraph (2), permit producers on a farm to plant soybeans, 
-
sunflowers, or safflowers on a portion specified by the producer 
Oljut in any event not more than 25 percent) of the producers* 
• 
1990 wheat, feed grain, upland cotton, extra long staple cotton, 
and rice permitted acreage, as determined by the Secretary. 
"(2XA) The Secretary shall establish a sign-up period during 
which the producers on a farm, participating in the 1990 crop 
wheat, feed grain, upland cotton, extra long staple cotton, or 
rice price support and production adjustment program, must 
state their intentions regarding use of the increased planting 
provision under paragraph (1). 
"(B) After termination of the sign-up period under subpara-
graph (A), the Secretary shall estimate whether, based on the 
anticipated additional soybean, sunflower, and safflower plant-
ings for the crop, the average market price for the 1990 crop of 
soybeans will be below 110 percent of the loan rate established 
for the 1989 crop of soybeans. 
"(C) If the Secretary estimates that the average market price 
for the 1990 crop of soybeans will be below 110 percent of such 
loan rate, the Secretary shall reduce the percentage of per-
mitted acreage on the rarm that may be planted to soybeans, 
sunflowers, and safflowers to a level, or prohibit such plantings, 
,, ^ 
, -
as necessaiy to ensure that the average soybean market price 
does not fall below 110 percent of such loan rate. 
"(D) The Secretary shall submit to the Conmiittee on Agri-
culture of the House of Representatives and the Committee on 
Agriculture, Nutrition, and Forestry of the Senate a statement 
^ 
setting forth the reasons for any reduction in the permitted 
planting percentage, or prohibition on such plantings, under 
this paragraph. 
"(3XA) For the purposes of determining the farm acreage base 
or the crop acreage bases for the farm, any acreage on the farm 
on which soybeans, simffowers, or safflowers are planted imder 
this subsection shall be considered to be planted to the program 
crop for which soybeans, sunflowers, or safflowers are 
sul^tituted. 
"(B) The Secretary may not make program benefits other 
than soybean or sunflower seed price support loans and pur-
chases available to producers with respect to acreage planted to 
soybeans, sunflowers, or safflowers under this subsection and 
shall ensure that the crop acreage bases established for the 
farm and the farm acreage base are not increased due to such 
plantings.", 
(b) FEED GRAIN ACREAGE LIMITATION PROGRAM.—Effective only 
for the 1990 crop of feed grains, section 105C(fKlXC) of such Act 
(7 U.S.C. 1444e(fXlXC)) is amended— 
(1) by striking "(C)", "1990", "(i)", and "(u)" and inserting 
"(CXi)", "1989", ^'(D", and "(H)", respectively; and 
(2) by adding at the end the following new clause: 
"(ii) In tiie case of the 1990 crop of feed grains, if the Secretary 
estimates, not later than September 30, 1989, tiiat the quantity of 
com on hand in the United States on the flrst dav of the marketing 
year for that crop (not including any quantity of com of that crop) 
ivill be 
"(D more than 2,000,000,000 bushels, the Secretary shall pro-
vide for an acreage limitation program (as described in para-
103 STAT. 2108 
PUBLIC LAW 101-239—DEC. 19, 1989 
7 use 1433d. 
Disaster 
assistance. 
graph (2)) under which the acreage planted to feed grains for 
harvest on a farm would be limited to the feed grain crop 
acreage base for the farm for the crop reduced by not less than 
12 y2 percent nor more than 20 percent; 
"(II) less 
than 
2,000,000,000 
bushels 
but 
more 
than 
1,800,000,000 bushels, the Secretary shall provide for an acreage 
limitation program (as described in paragraph (2)) under which 
the acreage planted to feed grains for harvest on a farm would 
be limited to the feed grain crop acreage base for the farm for 
the crop reduced by not less than 10 percent nor more than 12 y2 
percent; or 
"(III) 1,800,000,000 bushels or less, the Secretary may provide 
^- 
for an acreage limitation program (as described in paragraph 
(2)) under which the acreage planted to feed grains for harvest 
on a farm would be limited to the feed grain crop acreage base 
for the farm for the crop reduced by not more than 10 percent.". 
SEC. 1003. REDUCTION OF DEFICIENCY PAYMENTS FOR 1990 CROPS. 
(a) IN GENERAL.—Effective only for the 1990 crops, title IV of the 
Agricultural Act of 1949 (7 U.S.C. 1421 et seq.) is amended by adding 
at the end the following new section: 
"SEC. 425. REDUCTION OF DEFICIENCY PAYMENTS FOR 1990 CROPS. 
"(a) IN GENERAL.—Notwithstanding any other provision of law, 
the amount of deficiency pajonents made available to producers of 
the 1990 crops of wheat, feed grains, upland cotton, and rice under 
sections 107D(c), 105(Xc), 103A(c), and lOlA(c), respectively, shall be 
reduced by— 
"(1) in the case of wheat, 2.33 cents per bushel; 
"(2) in the case of corn, 2.33 cents per bushel (and a com-
parable amount for other feed grains, as determined by the 
Secretary); 
"(3) in the case of upland cotton, .515 cents per pound; and 
"(4) in the case of rice, 5.15 cents per hundredweight. 
"(b) APPUCATION TO AnvANCif DEFICIENCY PAYMENTS.—To the 
extent practicable, the Secretary shall apply the reduction required 
under subsection (a) to any advance deficiency payment made avail-
able to producers of the 1990 crops under section 107C.". 
O
t
>
) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Effective only for the 1990 crpps of wheat, feed grains, 
upland cotton, and rice, section 107(XaX2XG) of such Act 
(7 U.S.C. 1445b-2(aX2XG)) is amended— 
(A) by inserting after "subsection" the following: "(taking 
into consideration any reduction in the payment made 
under section 425)"; and 
(B) by striking "finalUy" and inserting "finally". 
(2) Effective only for the 1986 through 1990 crops of feed 
grains, 
section 
105acXlXDXi) 
of 
such 
Act 
(7 
U.S.C. 
1444e(cXlXDXi)) is amended by striking "subsection (aX4)" and 
inserting "subsection (aX3)". 
SEC. 1004. REPAYMENT OF ADVANCE DEFICIENCY PAYMENTS. 
(a) DELAY IN REFUND.—Paragraph (4) of section 201(b) of the 
Disaster Assistance Act of 1988 (7 U.S.C. 1421 note) (as amended by 
section 602 of the Disaster Assistance Act of 1989 (Public Law 
101-82; 103 Stat. 587)) is amended to read as follows: 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2109 
"(4) Effective only for the 1988 crops of wheat, feed grains, upland 
cotton, and rice, if the Secretary determines that any portion of the 
advance deficiency payment made to producers for the crop under 
section 107C of such Act must be refunded, such refimd shall not be 
required— 
"(A) prior to December 31, 1989, if such producers suffered 
losses of 1988 or 1989 crops due to a natural disaster in 1988 or 
1989; or 
"(B) prior to July 31, 1990, for that portion of the crop for 
which a disaster payment is made under subsection (a).". 
(Jb) RATIONALE.—^For purposes of section 202 of Public Law 100-119 
(2 U.S.C. 909), the amendment made by subsection (a) is a necessary 
(but secondary) result of a significant policy change. 
SEC 1005. REDUCTION OF 
EXPENDITURES UNDER THE EXPORT 
ENHANCEMENT PROGRAM AND FOR TARGETED EXPORT 
ASSISTANCE. 
(a) EXPORT ENHANCSiifENT PROGRAM.—During fiscal year 1990, the 
Commodity Oedit Corporation shall not, except to the extent pro-
vided for under section 4301 of the Agricultural Competitiveness 
and Trade Act of 1988 (Public Law 100-418; 7 U.S.C. 1446 note), 
make available to exportiers, processors, or foreign importers imder 
the authority of section 5(f) of the Commodity Oedit Corporation 
Charter Act (15 U.S.C. 714c(f)) more than $566,000,000 in commod-
ities of the Commodity Credit Corporation to enhance the export of 
United States commodities by making the price of such commodities 
competitive in the world market. 
(b) TARGETED EXPORT ASSISTANCE.—Section 1124(a) of the Food 
Security Act of 1985 (7 U.S.C. 1736s(a)) is amended— 
(1) by strildi^ "and" at the end of paragraph (2); and 
(2) by striking paragraph (3) and inserting the following: 
"(3) for the fiscal year 1989, the Secretary shcdl use under this 
section not less than $325,000,000 of the funds of, or commod-
ities owned by, the Corporation; and 
"(4) for the fiscal year 1990, the Secretary shall use under this 
section not less than $200,000,000 of the funds of, or commod-
ities owned by, the Corporation.''. 
SEC 1006. PURCHASES OF FINANCIAL ASSISTANCE CORPORATION STOCK 
12 USC 2278b-9 
BY FARM CREDIT SYSTEM INSTITUTIONS. 
note. 
(a) DELAYED EFFECTIVE DATE FOR STOCK PURCHASE REQUIRE-
MENT.—Notwithstanding any other provision of law, the amend-
ments to section 6.29 of the Farm Credit Act of 1971 (12 U.S.C. 
2278b-9) made by section 646 of the Rural Development, Agri-
culture, and Related Agencies Appropriations Act, 1989 (Public Law 
100-460; 102 Stat 2266) shall be effective on October 1,1992. 
(b) PAYMENTS.— 
(1) FOUR ANNUAL PAYMENTS.—Notwithstanding any other 
provision of law, the Financial Assistance Corporation shall 
pay, out of the Financial Assistance Ck>rporation Trust Fund 
(hereinafter in this section referred to as the "Trust Fund") 
established under section 6.250)) of the Farm Credit Act of 1971 
(12 U.S.C. 2278b-5a))), to each of the institutions of the Farm 
Credit System that purchased stock in the Financial Assistance 
Corporation under section 6.29 of the Farm Oedit Act of 1971, 
four annual payments as provided in this subsection. 
103 STAT. 2110 
PUBLIC LAW 101-239—DEC. 19, 1989 
(2) TIMING OP PAYMENTS.—The annual payments provided for 
by this subsection shall be made available as soon as practicable 
after October 1 of each of the calendar years 1989 through 1992. 
^
. 
(3) CALCULATION OP PIRST PAYMENT.—The first annual pay-
ment made available under this subsection shall be in an 
amount equal to— 
(A) a percentage equal to 1.5 times the avereige rate of 
interest received by the Financial Assistance Corporation 
I « 
on assets of the Trust Fund from March 30, 1988, through 
September 30,1989; times 
(B) the difference between $177,000,000 and 4.4 percent of 
the cumulative amoimt of the bonds issued by the Financial 
Assistance Corporation through September 30,1989. 
(4) CALCULATION O
P REMAINING PAYMENTS.—The second, third, 
and fourth annual pa3anents made available under this subsec-
tion shall be in an amoimt equal to— 
(A) a percentage equal to the average rate of interest 
received by the Financial Assistance Corporation on assets 
, 
of the Trust Fund during each of the fiscal years 1990 
through 1992; times 
(B) the difference between $177,000,000 and 4.4 percent of 
the cumulative amount of the bonds issued by the Financial 
Assistance Corporation through September 30 of each of 
such fiscal years. 
(5) DISTRIBUTION OP ANNUAL PAYMENTS.—Annual pa3nnents 
due under this subsection shall be made available to each 
f, 
institution described in paragraph (1) in an amount equal to the 
total amount of annual pa3rments to be made available times 
the ratio of the amount of stock each institution purchased 
divided by $177,000,000. 
SEC. 1007. ADJUSTMENTS IN DAIRY PRICE SUPPORT PROGRAM. 
Effective only for calendar year 1990, section 201(dXl) of the 
Agricultural Act of 1949 (7 U.S.C. 1446(dXl)) is amended— 
(1) in subparagraph CO-
C
A
) in clause (ii), by inserting after "Except as provided 
in" the following: "clause (iii) and"; and 
V ^
* 
- 
(B) by adding at the end the following new clause: 
"(iii) In carrying out this paragraph during calendar year 
1990, the Secretary shall offer to purchase butter for not more 
than $1.10 per pound, except that the Secretary may allocate 
the rate of price support between the purchase prices for nonfat 
dry milk and butter in such other manner as the Secretary 
determines will result in the lowest level of expenditures by the 
Commodity Credit Corporation and shall notify the Committee 
on Agriculture of the House of Representatives and the 
Committee on Agriculture, Nutrition, and Forestry of the 
Senate of such determination."; and 
^ 
(2) in subparagraph (DXi)— 
(A) by striking "each of the calendar years 1988 and 
1990" and inserting "calendar year 1990"; and 
(B) by striking "shall reduce by" and inserting "may 
reduce by not more than". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2111 
TITLE II—STUDENT LOAN AND PENSION 
FIDUCIARY AMENDMENTS 
Subtitle A—Student Loan Reconciliation 
Amendments 
SEC. 2001. SHORT TITLE. 
This subtitle may be cited as the "Student Loan Reconciliation 
Amendments of 1989". 
SEC. 2002. INTERNSHIP DEFERMENTS AND FORBEARANCE. 
(a) DEFERMENTS.— 
(1) FEDERALLY INSURED STUDENT LOANS.—Section 427(aX2XCXi) 
of the Higher Education Act of 1965 (20 U.S.C. 1077(aX2XCXi)) is 
amended by inserting before the semicolon at the end thereof 
the following: ", except that no borrower shall be eligible for a 
deferment under this clause, or a loan made under this part 
(other than a loan made under 428B or 428C), while serving in a 
medical internship or residency program". 
(2) FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.— 
Section 428(bXlXMXi) of such Act (20 U.S.C. 1078(bXlXMXi)) is 
amended by inserting before the semicolon at the end thereof 
the following: ", except that no borrower shall be eligible for a 
deferment under this clause, or loan made under this part 
(other than a loan made imder 428B or 428C), while serving in a 
medical internship or residency program". 
(3) LOAN AGREEMENTS.—Section 464(cX2XAXi) of such Act (20 
U.S.C. 1087dd(cX2XAXi)) is amended by inserting before the 
semicolon at the end thereof the following: ", except that no 
borrower shall be eligible for a deferment imder this clause, or a 
loan made imder this part (other than a loan made imder 428B 
or 428C), while serving in a medical internship or residency 
program". 
(4) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply to any loan made, insured, or guaranteed under 
part B or part £ of title IV of the Higher Education Act of 1965, 
mcluding a loan made before the enactment of this Act, and 
shall take effect on January 1, 1990, except that such amend-
ments shall not apply with respect to any portion of a period of 
deferment granted to a borrower under section 427(aX2XCXi), 
428(bXlXMXi), or 464(cX2XAXi) of the Higher Education Act of 
1965 for service in a medical internship or residency prc^am 
that is completed prior to the effective date of this section. 
(b) FORBEARANCE.— 
(1) FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.— 
Section 428 of the Higher Education Act of 1965 (20 U.S.C. 1078) 
is amended— 
(A) in subsection (bXl)— 
(i) in subparagraph (D, by striking "and" at the end 
thereof; 
(ii) in subpara^aph (U), by striking the period at the 
end thereof and inserting "; and"; and 
(iii) by adding at the end thereof the following new 
subparagraph: 
Student Loan 
Reconciliation 
Amendments of 
1989. 
20 u s e 1001 
note. 
Health care 
professionals. 
20 u s e 1077 
note. 
103 STAT. 2112 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(VXi) provides that, upon written request, a lender shall 
grant a borrower forbearance, renewable at 12-month inter-
vals for a period equal to the length of time remaining in 
the borrower's medical or dental internship or residency 
program, on such terms as are otherwise consistent with 
the regulations of the Secretary and agreed upon in writing 
by the parties to the loan, with the approval of the insurer, 
it the borrower— 
. ,,. 
"(I) is serving in a medical or dental internship or 
residency program, the successful completion of which 
* *' ^**^ 
is required to begin professional practice or service, or 
is serving in a medical or dental internship or resi-
dency program leading to a degree or certificate 
ST.-,*. 
awarded by an institution of higher education, a hos-
pital, or a health care facility that offers postgraduate 
training; and 
* 
"(II) has exhausted his or her eligibility for a 
deferment under section 427(aX2XCXvii) or subpara-
graph (MXvii) of this paragraph; and 
"(ii) provides that no administrative or other fee may be 
* 
charged in connection with the granting of a forbearance 
under clause (i), and that no adverse information regarding 
a borrower may be reported to a credit bureau organization 
- 
solely because of the granting of a forbearance under clause 
V 
(i).";and 
(B) by amending subsection (cX3) to read as follows: 
"(3) 
FORBEARANCE.—A guaranty 
agreement 
under 
this 
subsection— 
"(A) shall contain provisions providing for forbearance in 
accordance with subsection (bXlXV) for the benefit of the 
student borrower serving in a medical or dental internship 
* 
or residency program; and 
"(B) may, to the extent provided in regulations of the 
' 
Secretary, contain provisions that permit such forbearance 
for the benefit of the student borrower as may be agreed 
upon by the parties to an insured loan and approved by the 
'' 
- 
insurer. 
Such regulations shall not preclude guaranty agencies from 
permitting the parties to such a loan from entering into a 
forbearance agreement solely because the loan is in default.". 
20 use 1078 
(2) EFFECTIVE DATE.—The amendments made by this subsec-
note. 
tion shall apply with respect to loans made before, on, or after 
the date of enactment of this Act. 
SEC. 2003. CHANGES IN THE SUPPLEMENTAL LOANS FOR STUDENTS 
^ 
PROGRAM. 
(a) RESTRICTIONS ON S L S PROGRAM AT INSTITUTIONS WITH HIGH 
COHORT DEFAULT RATES.— 
(1) RESTRICTION.—Section 428A(a) of the Higher Education 
Act of 1965 (20 U.S.C. 1078-l(a)) is amended— 
(A) by striking "(a) AUTHORFTY TO BORROW.—Graduate 
and professional students"; and inserting the following: 
"(a) AUTHORITY To BORROW.— 
"(1) 
STUDENT 
EUGIBIUTY.—Graduate 
and 
professional 
students"; 
'« 
(B) by indenting the remaining text of subsection (a) two 
em spaces; and 
«
^ 
*. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2113 
' 
(C) by adding at the end thereof the following: 
"(2) INSTITUTIONAL ELIGIBILITY.—Funds may not be borrowed 
under this section by any undergraduate student who is en-
rolled at any institution during any fiscal year if the cohort 
default rate for such institution, for the most recent fiscal year 
for which such rates are available, equals or exceeds 30 percent. 
The Secretary shall notify institutions to which such restriction 
applies annually, and specify the fiscal year covered by the 
restriction. The Secretary shall afford any institution to which 
such restriction applies an opportunity to present evidence 
contesting the accuracy of the calculation of the cohort default 
rate for such institution.". 
(2) DEFINITION.—Section 435 of such Act (20 U.S.C. 1085) is 
amended by adding at the end thereof the following new 
subsection: 
"(m) COHORT DEFAULT RATE.—The term 'cohort default rate' 
means, for any fiscal year in which 30 or more current and former 
students at the institution enter repajonent on loans under section 
428 or 428A received for attendance at the institution, the percent-
age of those current and former students who enter repayment on 
such loans received for attendance at that institution in that fiscal 
year who default before the end of the following fiscal year. For any 
fiscal year in which less than 30 of the institution's current and 
former students enter repayment, the term 'cohort default rate' 
means the average of the rate calculated under the preceding 
sentence for the 3 most recent fiscal years. In the case of a student 
who has attended and borrowed at more than one school, the 
student (and his or her subsequent repayment or default) is attrib-
uted to each school for attendance at which the student received a 
loan that entered repajrment in the fiscal year. A loan on which a 
payment is made by the school, its owner, agent, contractor, em-
ployee, or any other entity or individusd affiliated with such school, 
in order to avoid default by the borrower, is considered as in default 
for purposes of this subsection. Any loan which has been rehabili-
tated before the end of such following fiscal year is not considered as 
in default for purposes of this subsection. The Secretary shall pre-
scribe regulations designed to prevent an institution from evading 
the application to that institution of a default rate determination 
under this subsection through the use of such measures as branch-
ing, consolidation, change of ownership or control, or any similar 
device.". 
(3) EFFECTIVE DATE.— 
(A) Except as provided in subparagraph (B), the amend-
ments made by this subsection shall apply to loans made on 
or £ifter January 1, 1990, and before October 1, 1991. Regu-
lations prescribed by the Secretary under the last sentence 
of section 435(m) of the Higher Education Act of 1965 (as 
added by such amendmente) shall apply with respect to 
measures described in such sentence that are used on or 
after October 1,1989. 
(B) The amendments made by this subsection shall not be 
applied to prevent an individual who is enrolled on the date 
of enactment of this Act in a program of instruction for 
which the individual has obtained a loan under section 
i= 
428A of the Higher Education Act of 1965 from receiving 
additional loans under such section to cover the cost of 
Regulations. 
20 u s e 1078-1 
note. 
103 STAT. 2114 
PUBLIC LAW 101-239—DEC. 19, 1989 
R^ulations. 
20 use 1078-1 
note. 
20 u s e 1094. 
20 u s e 1078-1 
note. 
attendance at that eligible institution to complete that 
^' 
program of instruction. 
(C) If, on or after November 8, 1989, the duration of any 
program of instruction is extended, subparagraph (B) shall 
not permit a student enrolled in such program of instruc-
tion to receive additional loans under such section 428A 
during the extension. 
(b) MAXIMUM LOAN AMOUNTS.— 
(1) AMENDMENT.—Section 428A(bXl) of the Higher Education 
Act of 1965 (20 U.S.C. 1078-l(bXl)) is amended to read as 
follows: 
"(1) ANNUAL UMIT.—Subject to paragraphs (2) and (3), the 
maximum amount a student may borrow in any academic year 
or its equivalent (as defined by regulation by the Secretary), or 
in any period of 9 consecutive months, whichever is longer, is 
$4,000, except that in the case of a student who has not success-
fully completed the first year of a program of undergraduate 
education and who is not enrolled in a program that is at least 
one academic year in length, as determmed in accordance with 
regulations prescribed by the Secretary, such maximum amount 
shall be— 
"(A) $2,500 for a student who is determined, in accord-
ance with such regulations, to be enrolled in a program 
whose length is at least % of an academic year; 
"(B) $1,500 for a student who is determined, in accord-
ance with such regulations, to be enrolled in a program 
whose length is less than %, but at least Vs, of an academic 
year; and 
"(C) zero for a student who is determined, in accordance 
with such regulations, to be enrolled in a program whose 
length is less than Va of an academic year.". 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to loans made on or after January 1, 1990, and 
before October 1,1991. 
(c) COMPLETION OF HIGH SCHOOL EQUIVALENCY REQUIRED.— 
(1) ABILTTY-TO-BENEFIT STUDENTS INELIGIBLE FOR SLS PROGRAM 
UNTIL GED COMPLETION.—Section 428A(aXl) of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1078-l(aXl)) is further amended by 
adding at the end thereof the following new sentence: "No 
student who is admitted on the basis of the ability to benefit 
from the education or training provided by the institution (as 
determined under section 484(d)) shall be eligible to borrow 
funds under this section until such student has obtained a 
certificate of high school equivalency or a high school diploma.". 
(2) GED PROGRAM REQUIRED FOR ABILITY-TO-BENEFIT STU-
DENTS.—Section 487(a) of the Higher Education Act of 1965 is 
amended by adding at the end thereof the following new 
paragraph: 
"(11) In the case of any institution which admits students on 
the basis of their ability to benefit from the education or 
training provided by such institution (as determined under 
section 484(d)), the institution will make available to such stu-
dents a program proven successful in assisting students in 
obtaining a certificate of high school equivalency. . 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply with respect to periods of enrollment beginning 
on or after January 1,1990. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2115 
SEC. 2004. ADDITIONAL REQUIREMENTS WITH RESPECT TO DISBURSE-
MENT OF STUDENT LOANS. 
(a) AMENDMENT.—Part B of title IV of the Higher Education Act 
of 1965 is amended by inserting after section 428F (20 U.S.C. 1078-6) 
the following new section: 
"REQUIREMENTS FOR DISBURSEMENT OF STUDENT LOANS 
"SEC. 428G. (a) MULTIPLE DISBURSEMENT REQUIRED.— 
20 use 1078-7. 
"(1) Two DISBURSEMENTS REQUIRED.—The proceeds of any loan 
made, insured, or guaranteed under this part that is made for 
any period of enrollment shall be disbursed in 2 or more install- 
„ 
ments, none of which exceeds one-half of the loan. 
"(2) MINIMUM INTERVAL REQUIRED.—The intervgd between the 
first and second such installments shall be not less than one-
half of such period of enrollment, except as necessary to permit 
the second installment to be disbursed at the beginning of the 
second semester, quarter, or similar division of such period of 
enrollment. 
"(b) DISBURSEMENT AND ENDORSEMENT REQUIREMENTS.— 
"(1) SLS LOANS TO FIRST-YEAR STUDENTS.—The first install-
ment of the proceeds of any loan made under section 428A that 
is made to a student borrower who has not successfully com-
pleted the first year of a program of undergraduate education 
shall not (regardless of the amount of such loan or the duration 
of the period of enrollment) be presented by the institution to 
the student for endorsement until— 
"(A) 30 days after the borrower begins a course of study; 
/ 
and 
"(B) the institution certifies that the borrower continues 
to be enrolled and in attendance at the end of such 30-day 
period, and is maintaining satisfactory progress; 
but may be disbursed to the eligible institution prior to the end 
of such 30-day period. 
"(2) OTHER STUDENTS.—The proceeds of any loan made, in-
sured, or guaranteed under this part that is made to any 
student other than a student described in paragraph (1) shall 
not be disbursed more than 30 days prior to the beginning of the 
period of enrollment for which the loan is made. 
"(c) METHOD OF MULTIPLE DISBURSEMENT.—Disbursements under 
subsection (a)— 
"(1) shall be made in accordance with a schedule provided by 
the institution (under section 428(aX2)(AXiXni)) that complies 
with the requirements of this section; and 
"(2) may be made directly by the lender or, in the case of a 
loan under sections 428 and 428A, may be disbursed pursuant to 
the escrow provisions of section 428(i). 
"(d) WITHHOLDING OF SECOND DISBURSEMENT.— 
"(1) WITHDRAWING STUDENTS.—A lender or escrow agent that 
is informed by the borrower or the institution that the borrower 
has ceased to be enrolled before the disbursement of the second 
or any succeeding installment shall withhold such disburse-
ment. Any disbursement which is so withheld shall be credited 
to the borrower's loan and treated as a prepayment thereon. 
"(2) STUDENTS RECEIVING OVER-AWARDS.—If the sum 
of a 
disbursement for any student and the other financial aid 
obtained by such student exceeds the amount of assistance for 
103 STAT. 2116 
PUBLIC LAW 101-239—DEC. 19, 1989 
which the student is eligible under this title, the institution 
such student is attending shall withhold and return to the 
lender or escrow agent the portion (or all) ci such installment 
that exceeds such eligible amount. Any portion (or all) of a 
disbursement installment which is so redimed shall be credited 
to the borrower's loan and treated as a prepayment thereon. 
"ie) EXCLUSION OF FLUS» CONSOUOATION, AND FOBEIGN STUDY 
LOANS.—^The provisions of this section shall not apply in the case of 
a loan made under section 4 2 ^ or 428C or made to a student to 
cover the cost of attendance at an eUgiUe institution outside the 
United States. 
"(0 BEGINNING OF PERIOD OF ENBOLLMENT.—^For purposes of this 
section, a period of enndlmoit begins on the first day that classes 
begin fbr the applicable period of enrollment.". 
C
b
) OoNFOBMiNG AMENDMENTS.— 
(1) TRANSMITTAL OF INSTITUTION SCHEDULES TO LENDERS.— 
Section 428(aX2XAXD of the H i c ^ Education Act of 1965 (20 
U 
JS.C. 1078(aX2XAXD) is amended— 
(A) by striking "and" at the end of clause CD; and 
(B) by inserting after dause (ID the following: 
*VID sets forth a schedule for di^ursement of 
the proceeds (tf the loan in installments, consistent 
with the requirements of section 428G; and". 
(Zi FEDERALLY INSURED LOANS.—Section 427(aX4) of the Higher 
Education Act of 1965 (20 UJS.C. 1077(aX4)) ia amended to read 
as follows: 
'X4) the fimds borrowed by a student are disbursed in accord-
ance with section 428G.". 
(3) STAFFORD LOANS.—Section 428(bXlXO) of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1078(bXlXO)) is amended to read as 
- 
follows: 
"(O) inrovides that the proceeds of the loans will be dis-
bursed in accordance with the requirements of section 
428G;". 
20 use 1077 
(c) EFFECTIVE DATE.-The amendments made by this section shall 
iqiply with req;)ect to loans made to cover the cost of instruction for 
periods of enrollment bqpnning on or after January 1,1990. 
SEC low. DEFAULT BEDUCnON PROGRAM. 
(a) AMENDMENT.—Section 428F of the Higher Education Act of 
1965 (20 UJS.C. 1078-6) is amended to read as follows: 
"DEFAULT R
E
D
U
C
T
I
O
N P
R
O
G
R
A
M 
"SEC. 428F. (a) PROGRAM REQUIREMENTS.— 
*X1) AUTHORITY TO ESTABLISH A DEFAULT REDUCTION PRO-
GRAM.—^The Secretary shall, in accordance with the require-
ments of this section, establish a default reduction program fcnr 
borroweis who have one or more loans under part B of this title 
which are in de&ult, as defined in section 435(1), as of the date 
of enactment of this section. Such program shall be commenced 
on, March 1,1990, and shall last for six months. 
*\2) EuGraniTY FOR THE BENEFITS OF THE DEFAULT REDUCTION 
P
R
O
G
R
A
M
.
—
^
I
n order to be eligible for the benefits of the default 
reduction program, a borrower who has a loan or loans which 
are in default shall contact the hcdder of such loan or loans 
note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2117 
during the default reductioii invgram and shall pay in full all 
remaining principal and intenrest on such loan or loans. 
''(3) BENEFITS OF THE DEFAULT BEDUcnoN PBOGRAM.—For each 
borrower meeting the requirement of paragraph (2)— 
"(A) no penalties shall be chaiged on defaulted loans 
whkh are paid in fiil^ 
''(B) the guaranty agency shall report to the appropriate 
credit bureau or biueaus that the loan has been paid in full; 
and 
*\0 notwithstanding section 484, eligibility to receive 
additional assistance under this title shall be reestablished. 
"(4) SBCBETART'S SHASB OF BEPAYifENTS.—The Secretary's 
equitable share for purposes of section 428(cX2XD) of amounts 
paid by any borrower under paragraph (2) of this subsection 
shall be 81.5 percent of the principal amount outstanding on the 
loan at the time <^ repayment, multiplied by the reinsurance 
percentage in effect when the payment under the guaranty 
agreement was made with respect to such loan. 
'(b) OTHER REPAYMENT INCENTIVES.— 
'XD SALE OF LOAN.— 
"(A) Upon securing consecutive payments for 12 months 
of amounts owed on a loan for which the Secretary has 
made a payment under paragraph (1) of section 428(c), the 
guaranty agency (pursuant to an agreement with the Sec-
retary) or the Secretaxy shall, if practicable, sell the loan to 
an eligible lender. Sucn loan shall not be sold to an eligible 
lender who has been found bv the guaranty agency or the 
Secretary to have substantially fiaued to exercise the due 
diligraice required of lenders under this part 
"(B) An agreement between the guaranty agency and the 
Contracts. 
Secretary for purposes of this paragraph shall provide— 
'Xi) for tne repayment by uie agency to the Secretary 
of 81.5 percent of the amount of the principal balance 
outstanding at the time of such sale, multiplied by the 
reinsurance percentage in effect when payment under 
the guaranty agreement was made with respect to the 
loan; and 
**(u) for the reinstatement by the Secretary (D of the 
obligation to reimburse such agenpy for the amount 
expended by it in dischaige of its insurance obligation 
under its loan insurance program, and (ID of the obliga-
tion to pay to the holder of such loan a spedal allow-
ance pursuant 
to 
section 438. 
"(Q A loan which does not meet the requir^nents of 
subparagraph (A) may also be eligible for sale under this 
paragraph upon a determination that the loan was in de-
fault due 
to 
clerical or data processing error and would not, 
in the absence of such error, be in a delinquent status. 
"(2) USE OF PROCEEDS OF SALES.—Amounts received by the 
Secretary pursuant to the sale of such loans by a guaranty 
ageiu7 under this paragraph shall be deducted 
finmi 
the calcula-
tions d the amount of reimbursement for which the agency is 
eligible under paragraph (l)(BXii) oi this section for the fiscal 
year in which the amount was received, notwithstanding the 
fact that the default occurred in a prior fiscal year. 
"(3) BORROWER EUGranjTV.—Any borrower whose loan is sold 
under paragraph (1) shall not be precluded by section 484 firom 
103 STAT. 2118 
PUBLIC LAW 101-239—DEC. 19, 1989 
receiving additional loans under this title (for which he or she is 
otherwise eligible) on the basis of defaulting on the loan prior to 
such loan sale. 
"(4) APPUCABILITY OF GENERAL LOAN CONDITIONS.—A loan 
which is sold under this paragraph shall, so long as the bor-
rower continues to make scheduled repayments thereon, be 
subject to the same terms and conditions and qualify for the 
same benefits and privileges as other loans made under this 
part.". 
20 use 1078-6 
(b) PUBLICITY.—The Secretary of Education shall, from funds 
^°^- 
available through student loan collections, commencing not less 
than 30 days before the beginning of the default reduction program 
required by the amendment made by this section, and continuing 
throughout the duration of such program, widely publicize (through 
various communications media) the availability of the default reduc-
tion program. 
SEC. 2006. SANCTIONS AGAINST LENDERS AND INSTITUTIONS. 
(a) SANCTIONS BY SECRETARY ON LENDERS.—Section 432 of 
the 
Higher Education Act of 1965 (20 U.S.C. 1082) is amended by adding 
at the end thereof the following new subsection: 
"(j) AUTHORITY OF THE SECRETARY TO TAKE EMERGENCY ACTIONS 
AGAINST LENDERS.— 
"(1) IMPOSITION OP SANCTIONS.—If the Secretary— 
ii 
"(A) receives information, determined by the Secretary to 
be reliable, that a lender is violating any provision of this 
s 
title, any regulation prescribed under tlus title, or any 
*
> 
applicable specitil arrangement, agreement, or limitation; 
(B) determines that immediate action is necessary to 
prevent misuse of Federal funds; and 
"(C) determines that the likelihood of loss outweighs the 
f 
importance of following the limitation, suspension, or 
termination procedures authorized in subsection (h); 
Mail. 
the Secretary shall, effective on the date on which a notice and 
statement of the basis of the action is mailed to the lender (by 
registered mail, return receipt requested), take emergency 
action to stop the issuance of guarantee commitments and the 
{)ayment of interest benefits and special allowance to the 
ender. 
"(2) LENGTH OF EMERGENCY ACTION.—An emergency action 
under this subsection may not exceed 30 da^s unless a limita-
tion, suspension, or termination proceeding is initiated against 
the lender under subsection (h) before the expiration of that 
period. 
"(3) OPPORTUNITY TO SHOW CAUSE.—The Secretary shall pro-
vide the lender, if it so requests, an opportunity to show cause 
that the emergency action is unwarranted.". 
O
t
»
) SANCTIONS BY GUARANTY AGENCIES.—Section 428(bXl) (20 
U.S.C. 1078(bXl)) is amended— 
(1) by inserting "emergency action," before "limitation," each 
place it appears in subparagraphs (T) and (U); and 
(2) by inserting "take emergency action," before "limit, sus-
pend," in subpareigraph (U). 
(c) SANCTIONS AGAINST INSTITUTIONS AND INSTITUTIONS' AGENTS.— 
Section 487(cXl) of the Higher Education Act of 1965 (20 U.S.C. 
1094(cXl)) is amended— 
(1) in subparagraph (C), by striking "and" at the end thereof; 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2119 
(2) in subparagraph (D)— 
(A) by striking "or any regulation prescribed under this 
title," and inserting in lieu thereof a comma and "any 
regulation prescribed under this title, or any applicable 
special arrangement, agreement, or limitation,'; and 
(B) by striking out the period at the end thereof and 
inserting in lieu thereof a semicolon; and 
(3) by adding at the end thereof the following new 
subparagraphs: 
"(E) an emergency action against £ui institution, under 
Mail, 
which the Secretary shall, effective on the date on which a 
notice and statement of the basis of the action is mailed to 
the institution (by registered mail, return receipt re-
quested), withhold funds from the institution or its students 
and withdraw the institution's authority to obligate funds 
under any program under this title, if the Secretanr— 
"(i) receives information, determined by the Sec-
retary to be reliable, that the institution is violating 
any provision of this title, any regulation prescribed 
under this title, or any applicable special arrangement, 
agreement, or limitation, 
"(ii) determines that immediate action is necessary to 
prevent misuse of Federal funds, and 
"(iii) determines that the likelihood of loss out-
weighs the importance of the procedures prescribed 
under subparagraph (D) for limitation, suspension, or 
termination, 
except that an emergency action shall not exceed 30 days 
unless limitation, suspension, or termination proceedings 
are initiated by the Secretary against the institution within 
that period of time, and except that the Secretary shall 
provide the institution an opportunity to show cause, if it so 
requests, that the emergency action is unwarranted; 
(F) the limitation, suspension, or termination of the 
Contracts, 
eligibility of an individual or an organization to contract 
with any institution to administer any aspect of an institu-
tion's student assistance program under this title, or the 
imposition of a civil penalty under paragraph (2XB), when-
ever the Secretary has determined, after reasonable notice 
and opportunity for a hearing on the record, that such 
organization, acting on behalf of an institution, has violated 
or failed to carry out any provision of this title, any regula-
tion prescribed under this title, or any applicable special 
arrangement, sigreement, or limitation, except that no 
period of suspension under this subparagraph shall exceed 
60 days unless the organization and the Secretary agree to 
an extension, or unless limitation or termination proceed-
ings are initiated by the Secretary against the individual or 
organization within that period of time; and 
"(G) an emergency action against an individual or an 
Ck)ntracts. 
organization that has contracted with an institution to 
Mail, 
administer any aspect of the institution's student assistance 
program under this title, under which the Secretary shall, 
effective on the date on which a notice and statement of the 
basis of the action is mailed to such individual or organiza-
tion (by registered mail, return receipt requested), withhold 
funds from the individual or organization and withdraw the 
103 STAT. 2120 
PUBLIC LAW 101-239—DEC. 19, 1989 
individual or organization's authority to act on behalf of 
an institution under any program under this title, if the 
Secretarjr— 
"(i) receives information, determined by the Sec-
retary to be reliable, that the individual or organiza-
tion, acting on behalf of an institution, is violating any 
provision of this title, any regulation prescribed under 
this title, or any applicable special arrangement, agree-
ment, or limitation, 
"(ii) determines that immediate action is necessary to 
prevent misuse of Federal funds, and 
"(iii) determines that the likelihood of loss out-
weighs the importance of the procedures prescribed 
under subparagraph (F), for limitation, suspension, or 
termination, 
except that an emergency action shall not exceed 30 days 
unless the limitation, suspension, or termination proceed-
ings are initiated by the Secretary against the individual or 
organization within that period of time, and except that the 
Secretary shall provide the individual or organization an 
opportunity to show cause, if it so requests, that the emer-
gency action is unwarranted.". 
SEC. 2007. EFFECT OF LOSS OF ACCREDITATION. 
(a) STATUS AS EUGIBLE INSTITUTION FOR STAFFORD STUDENT LOAN 
PROGRAM.—Section 435 of the Higher Education Act of 1965 (20 
U.S.C. 1085) is amended— 
(1) in subsection (aXl), by striking "The term" and inserting 
"Subject to subsection (n), the term"; and 
(2) by adding at the end thereof the following: 
"(n) IMPACT OF Loss OF AccREDriATiON.—An institution may not 
be certified or recertified as an eligible institution under subsection 
(a) of this section if such institution has— 
"(1) had its institutional accreditation withdrawn, revoked, or 
otherwise terminated for cause during the preceding 24 months; 
or 
"(2) withdrawn from institutional accreditation voluntarily 
under a show cause or suspension order during the preceding 24 
months; 
unless— 
"(A) such accreditation has been restored by the same 
accrediting agency which had accredited it prior to the 
withdrawal, revocation, or termination; or 
"(B) the institution has demonstrated its academic integ-
rity to the satisfaction of the Secretary in accordance with 
section 1201(aX5) (A) or (B) of this Act". 
(b) STATUS AS EUGIBLE INSTITUTION FOR OTHER TITLE IV PRO-
GRAMS.—Section 481 of the Higher Education Act of 1965 (20 U.S.C. 
1088) is amended— 
(1) in subsection (aXD, by striking "For the purpose" and 
inserting "Subject to subsection (e), for the purpose"; and 
(2) by adding at the end thereof the following: 
"(e) IMPACT OF Loss OP ACCREDIFATION.—An institution may not 
be certified or recertified as an institution of higher education under 
subsection (a) of this section if such institution has— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2121 
"(1) had its institutional accreditation withdrawn, revoked, or 
otherwise terminated for cause during the preceding 24 months; 
or 
"(2) withdrawn from institutional accreditation voluntarily 
under a show cause or suspension order during the preceding 24 
months; 
unless— 
"(A) such accreditation has been restored by the same 
accrediting agency which had accredited it prior to the 
withdrawal, revocation, or termination; or 
"(B) the institution has demonstrated its academic integ-
rity to the satisfaction of the Secretary in accordance with 
section 1201(aX5) (A) or (B) of this Act.'\ 
(c) EuGiBLE INSTITUTION ACCREDITATION RULE.—Section 481(a) of 
the Higher Education Act of 1965 (20 U.S.C. 1088(a)) is amended by 
inserting after paragraph (2) the following new paragraph: 
"(3) Whenever the Secretary determines eligibility under para-
graph (1), the Secretary shall not recognize the accreditation of any 
eligible institution of higher education under this subsection if the 
institution of higher education is in the process of receiving a new 
accreditation or changing accrediting agency or association unless 
the eligible institution submits to the Secretary all materials relat-
ing to the prior accreditation, including materials demonstrat-
ing reasonable cause for changing the accrediting agency or 
association.". 
SEC. 2008. REVISION OF NATIONAL STUDENT LOAN DATA SYSTEM. 
Section 485B of the Higher Education Act of 1965 (20 U.S.C 
1092(b)) is amended to read as follows: 
"NATIONAL STUDENT LOAN DATA SYSTEM 
"SEC. 485B. (a) DEVELOPMENT OF THE SYSTEM.—The Secretary shall 
20 use I092b. 
consult with a representative group of gfuaranty agencies, eligible 
lenders, and eligible institutions to develop a mutually agreeable 
proposal for the establishment of a National Student Loan Data 
System containing information regarding loans made, insured, or 
guaranteed imder part B and loans made under part E. The 
information in the data system shall include (but is not limited to)— 
"(1) the amount and type of each such loan made; 
"(2) the names and social security numbers of the borrowers; 
"(3) the guaranty agency responsible for the guarantee of the 
loan; 
"(4) the institution of higher education or organization 
responsible for loans made under part E; 
' (5) the eligible institution in which the student was enrolled 
or accepted for enrollment at the time the loan was made, and 
anv additional institutions attended by the borrower; 
'(6) the total amount of loans made to any borrower and the 
remaining balance of the loans; 
"(7) the lender, holder, and servicer of such loans; 
"(8) information concerning the date of any default on the 
loan and the collection of the loan, including any information 
concerning the repajrment status of any defaulted loan on which 
the Secretary has made a payment pursuant to section 43(Ka) or 
the guaranty agency has made a payment to the previous holder 
of the loan; 
103 STAT. 2122 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(9) information regarding any deferments or forbearance 
granted on such loans; and 
"(10) the date of cancellation of the note upon completion of 
repayment by the borrower of the loan or payment by the 
S^inretary pursuant to section 437. 
"(b) ADDITIONAL INFORMATION.—For the purposes of research and 
polipy analysis, the proposal shall also contain provisions for obtain-
mg additional data concerning the characteristics of borrowers and 
the extent of student loan indebtedness on a statistically valid 
sample of borrowers under part B. Such data shall include— 
"(1) information concerning the income level of the borrower 
and his family and the extent of the borrower's need for student 
financial assistance, including loans; 
"(2) information concerning the l^pe of institution attended 
by the borrower and the year of the program of education for 
which the loan was obtained; 
"(3) information concerning other student financial assistance 
received by the borrower; and 
"(4) information concerning Federal costs associated with the 
student loan program under part B of this title, including the 
costs of interest subsidies, special allowance payments, and 
other subsidies. 
"(c) VERIFICATION.—^The Secretary may require lenders, guaranty 
agencies, or institutions of higher education to verify information or 
obtain eligibility or other information through the National Student 
Loan Data System prior to making, guaranteeing, or certifying a 
loan made under part B or part E. 
"(d) REPORT TO CONGRESS.—^The Secretary shall prepare and 
submit to the appropriate committees of the (Jongress, m each fiscal 
year, a report descnbing the results obtained by the establishment 
and operation of the student loan data system authorized by this 
section.". 
SEC 2009. INFORMATION USED IN EXEROSE OF AID ADMINISTRATOR 
DISCRETION. 
Section 479A(a) of such Act (20 U.S.C. 1987tt(a)) is amended to 
^ read as follows: 
"SEC. 479A (a) IN GENERAL.—Nothing in this title shall be inter-
preted as limiting the authority of the financial aid administrator, 
on the basis of adequate documentation, to make adjustments on a 
case-by-case basis to the cost of attendance or the data required to 
calculate the expected student or parent contribution (or both) to 
allow for treatment of an individual eligible applicant with special 
circumstances not addressed by the data elements in subparts 1 and 
2 of part A and parts B, C, and E of this title. However, this 
authority shall not be construed to permit aid administrators to 
deviate from the contributions expected under subparts 1 and 2 of 
part A and parts B, C, and E in the absence of specisd circumstances. 
SpcK^ial circumstances shall be conditions that differentiate an 
individual student from a class of students rather than conditions 
Records. 
that exist across a class of students. Adequate documentation for 
such ckyustments shsdl substantiate such special circumstances of 
individual students. In addition, nothing in this title shall be inter-
preted as limiting the authority of the student financial aid adminis-
trator in such cases to request and use supplementary information 
about tibe financial status or personal circumstances of eligible 
applicants in selecting recipients and determining the amoimt of 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2123 
awards under subparts 1 and 2 of part A and parts B, C, and E of 
this title.". 
Subtitle B—Fiduciary Responsibilities 
SEC. 2101. CIVIL PENALTIES ON VIOLATIONS BY FIDUCIARIES. 
(a) IN GENERAL.—Section 502 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1132) is amended by adding at the 
end thereof the following new subsection: 
"aXD In the case of— 
"(A) any breach of fiduciary responsibility under (or other 
violation of) part 4 by a 
fiduciary, 
or 
"(B) any knowing participation in such a breach or violation 
by any other person, 
the Secretary shall assess a civil penalty against such fiduciary or 
other person in an amount equal to 20 percent of the applicable 
recovery amount. 
"(2) For purposes of paragraph (1), the term 'applicable recovery 
amount' means any amount which is recovered from a fiduciary or 
other person with respect to a breach or violation described in 
paragraph (1)— 
"(A) pursuant to any settlement agreement with the Sec-
retary, or 
"(B) ordered by a court to be paid by such fiduciary or other 
person to a plan or its participants and beneficiaries in a 
judicial proceeding instituted by the Secretary under subsection 
(aX2)or(aX5). 
"(3) The Secretary may, in the Secretary's sole discretion, waive or 
reduce the penalty under paragraph (1) if the Secretary determines 
in writing that— 
"(A) the fiduciary or other person acted reasonably and in 
good faith, or 
"(B) it is reasonable to expect that the fiduciary or other 
person will not be able to restore all losses to the plan without 
severe financial hardship unless such waiver or reduction is 
granted. 
"(4) The penalty imposed on a 
fiduciary 
or other person imder this 
subsection with respect to any transaction shall be reduced by the 
amount of any penalty or tax imposed on such fiduciary or other 
person with respect to such transaction under subsection (i) of this 
section and section 4975 of the Internal Revenue Code of 1986.". 
(b) CONFORMING AMENDMENT.—Section 502(aX6) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1132(aX6)) is 
amended by inserting "or G)" after "subsection (i)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
29 use 1132 
apply to any breach of fiduciary responsibility or other violation °°**-
occurring on or after the date of the enactment of this Act. 
103 STAT. 2124 
PUBLIC LAW 101-239—DEC. 19,1989 
TITLE III—REGULATORY AGENCY FEES 
Subtitle A—Federal Communications 
Commission Fees and Penalties 
SEC 3001. FEDERAL COMMUNICATIONS COMMISSION FEES. 
(a) UPDATB OF FEE SCHEDULE.—Section 8 of the Communications 
Act of 1934 (47 U.S.C. 158) is amended by adding at the end thereof 
the following: 
"(g) Until modified pursuant to subsection (b) of this section, the 
Schedule of Charges which the Federal Communications Commis-
sion shall prescribe pursuant to subsection (a) of this section ^all be 
as foUows: 
. - 
V 
, 
"SCHEDULE OF CHARGES 
Service 
Fee amount 
PRIVATE RADIO SKHVICBS 
1. Marine Coast Stations 
a. New License (per station) 
$70.00 
b. Modification of License (per station) 
. 
70.00 
c Renewal of License (per station) 
70.00 
d. Special Temporary Authority (Initial, Modifications, Extensions)— 
100.00 
e. Assignments (per station) 
70.00 
f. Transfers of Control (per station) 
... 
35.00 
g. Request for Waiver 
(i) Routine (per request) 
.. 
105.00 
(ii) Non-Routine (per rule section/per station) 
105.00 
2. Ship Stations 
a. New License (per application) 
. 
35.00 
b. Modification of license (per application) 
35.00 
c Renewal of License (per application) 
35.00 
d. Request for Waiver 
(i) Routine (per request) 
. 
. 
105.00 
(ii) Non-Routine (per rule section/per station) 
. 
105.00 
3. Operational Fixed Microwave Stations 
a. New License (per station) 
.-. 
. 
155.00 
b. Modification of License (per station) 
.... 
155.00 
c. Renewal of License (per station) 
155.00 
d. Special Temporary Authority (Initial, Modifications, fbctensions).... 
35.00 
e. Assignments (per station) 
155.00 
f. Transfers of Control (per station) 
. 
35.00 
g. Request for Waiver 
(i) Routine (per request) 
. 
...........— 
105.00 
(ii) Non-Routine (per rule section/per station) 
105.00 
4. Aviation (Ground Stations) 
a. New License (per station) 
. 
70.00 
b. Modification of License (per station) 
. 
70.00 
c. Renewal of License (per station) 
70.00 
d. Special Temporary Authority (Initial, Modifications, Extensions)— 
100.00 
e. Assignments (per station) 
70.00 
f. Transfers of Control (per station) 
. 
35.00 
. . .t,. 
g. Request for Wsdver 
(i) Routine (per request) 
. 
.. 
.... .. 
105.00 
(iO Non-Routine (per rule section/per station) 
105.00 
5. Aircraft Stations 
a. New License (per application) 
. 
....... 
..... 
...... ... 
35.00 
b. Modification of License (per application) 
. 
. 
35.00 
c. Renewal of License (per application) 
... 
. 
35.00 
d. Request for Waiver 
(i) Routine (per request) 
, 
. 
105.00 
(ii) Non-Routine (per rule section/per station) 
105.00 
6. Land Mobile Radio Stations (including Special Emergency and Public 
Safety Stations) 
a. New License (per call sign) 
35.00 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2125 
b. Modification of License (per call sign) 
35.00 
c. Renewal of License (per call sign) 
35.00 
d. Special Temporary Authority (Initial, Modifications, Extensions).... 
35.00 
e. Assignments (per station) 
35.00 
f. Transfers of Control (per call sign) 
35.00 
g. Request for Waiver 
(i) Routine (per request) 
105.00 
(ii) Non-Routine (per rule section/per station) 
105.00 
h. Reinstatement (per call ngn) 
35.00 
i. Specialized Mobile Radio ^rstems-Base Stations 
(i) New License (per call sign) 
35.00 
(ii) Modification of License (per call sign) 
35.00 
(iii) Renewal of License (per call sign) 
35.00 
(iv) Waiting List (annual charge per application).. 
35.00 
(v) Special Temporary Authority (Imtial, Modifications, Exten-
sions) 
> 
35.00 
, 
(vi) Assignments (per call sign) 
„ 
35.00 
(vii)Transfersof Control (per call sign) 
35.00 
(viii) Request for Waiver 
(1) Routine (per request) 
105.00 
(2) Non-Routine (per rule section/per station) 
105.00 
(ix) Reinstatements (per call sign) 
35.00 
j. Private Carrier Licenses 
(i) New License (per call sign) 
„.. 
35.00 
(ii) Modification of License (per call sign) 
35.00 
(iii) Renewal of License (per call sign) 
35.00 
(iv) Special Temporary Authority (Initial, Modifications, Exten-
sions) 
35.00 
(v) Assignments (per call sign)..... 
35.00 
(vi) Transfers of Control (per call sign) 
35.00 
(vii) Request for Waiver 
(1) Routine (per request) 
105.00 
(2) Non-Routine (per rule section/per station) 
105.00 
(viii) Reinstatements (per call sign) 
35.00 
7. General Mobile Radio Service 
a. New License (per call sign) 
35.00 
b. Modifications of License (per call sign) 
35.00 
c. Renewal of License (per call sign) 
35.00 
d. Request for Waiver 
(i) Routine (per request) 
105.00 
(ii) Non-Routine (per rule section/per station) 
.. .. 
105.00 
e. Special Temporary Authority (Initial, Modifications, Extensions).... 
35.00 
f. Transfer of control (per call sign) 
35.00 
8. Restricted Radiotelephone Operator Permit 
. 
..... 
35.00 
9. Request for Duplicate Station License (all services) 
... 
35.00 
10. Hearing (Comparative, New, and Modifications) 
.. 
6,760.00 
EQUIPMENT APPROVAL S E K V I C E S / E X P E R I M E N T A L K A O I O 
1. Certification 
a. Receivers (except TV and FM receivers) 
285.00 
b. All Other Devices 
735.00 
c. Modifications and Class n Permissive Changes 
. 
............. 
35.00 
d. Request for Confidentiality 
105.00 
2. Type Acceptance 
a. All Devices 
870.00 
b. Modifications and Class n Permissive Changes 
35.00 
c. Request for Confidentialily 
105.00 
3. Type Approval (all devices) 
a. With Testing (including Mtgor Modifications) 
1,465.00 
b. Without Testing (including Minor Modifications) 
170.00 
c. Request for Confidentiality 
105.00 
4. Notifications 
115.00 
5. Advance Approval for Subscription TV System 
2,255.00 
a. Request for Confidentiality 
. 
. 
105.00 
6. Assignment of Grantee Code for Equipment Identification 
.... 
35.00 
7. Experimental Radio Service 
a. New Construction Permit and Station Authorization (per applica-
tion) 
35.00 
b. Modification to Existing Construction Permit and Station Authori-
zation (per application) 
35.00 
c. Renewal of Station Authorization (per application) 
36.00 
103 STAT. 2126 
PUBLIC LAW 101-239—DEC. 19, 1989 
d. Assignment or Transfer of Control (per application) 
35.00 
e. Special Temporary Authority (per application) 
35.00 
f. Additional Charge for Applications Containing Requests to With-
hold Information From Public Inspection (per application) 
35.00 
BIASS MEDIA SERVICES 
1. Commercial TV Stations 
a. New or Mcgor Change Construction Permits 
2,535.00 
b. Minor Change 
565.00 
c. Hearing (Migor/Minor Change, Comparative New, or Comparative 
Renewal) 
6,760.00 
d. License 
170.00 
e. Assignment or Transfer 
(i) Long Form (Forms 314/315) 
565.00 
(ii) Short Form (Form 316) 
80.00 
f. Renewal 
100.00 
g. Call Sign (New or Modification) 
55.00 
. Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
L Extension of Time to Construct or Replacement of CP 
200.00 
i
Permit to Deliver Programs to Foreign Broadcast Stations 
55.00 
. Petition for Rulemakmg for New Community of License 
1,565.00 
1. Ownership Report (per report) 
35,00 
2. Commercial Radio Stations 
a. New and Mcg'or Change Construction Permit 
(i) AM Station 
2,255.00 
(ii) FM Station 
2,030.00 
b. Minor Change 
(i) AM Station 
565.00 
(ii) FM Station 
565.00 
c. Hearing (Mtgor/Minor Change, Comparative New, or Comparative 
Renewal) 
6,760.00 
d. License 
(i) AM 
370.00 
(ii) FM 
115.00 
(iii) AM Directional Antenna 
425.00 
(iv) FM Directional Antenna 
355.00 
(v) AM Remote Control 
35.00 
e. Assignment or Transfer 
(i) Long Form (Forms 314/315) 
565.00 
(ii) Short Form (Form 316) 
80.00 
f. Renewal 
100.00 
ECall Sign (New or Modification) 
55.00 
Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
i E!xtension of Time to Construct or Replacement of CP 
200.00 
t
Permit to Deliver Pro^^rams to Foreign Broadcast Stations 
55.00 
Petition for Rulemaking for New Community of License or Higher 
Class Channel 
1,565.00 
1. Ownership Report (per report) 
35.00 
3. FM Translators 
a. New or Mtgor Change Construction Permit 
425.00 
b. License 
85.00 
c. Assignment or Transfer 
80.00 
d. Renewal 
35.00 
e. Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
4. TV Translators and LPTV Stations 
a. New or M^or CSiange Construction Permit 
425.00 
b. License 
85.00 
.0. Assignment or Transfer 
80.00 
d. Renewal 
35.00 
e. Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
5. Auxiliary Services (Includes Remote Pickup stations, TV Auxiliary 
Broadcast stations. Aural Broadcast STL and Intercity Relay stations, 
and Low Power Auxiliary stations) 
a. M^jor Actions 
85.00 
b. Renewals 
35.00 
c. Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2127 
6. FM/TV Boosters 
a. New and Major Change Construction Permits 
425.00 
b. License 
85.00 
c. Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
7. International Broadcast Station 
a. New Construction Permit and Facilities Change CP 
1,705.00 
b. License 
385.00 
c. Assignment or Transfer (per station) 
60.00 
d. Renewal 
95.00 
e. Frequency Assignment and Coordination (per frequency hour) 
35.00 
f.' Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
8. Cable Television Service 
a. Cable Television Relay Service 
(i) Construction Permit 
155.00 
(ii) Assignment or Transfer 
155.00 
(iii) Renewal 
155.00 
(iv) Modification 
155.00 
(v) Special Temporary Authority (other than to remain silent or 
extend an existing STA to remain silent) 
100.00 
b. Cable Special Relief Petition 
790.00 
c. 76.12 Registration Statement (per statement) 
35.00 
d. Aeronautical Frequency Usage Notifications (per notice) 
35.00 
e. Aeronautical Frequency Usage Waivers (per waiver) 
35.00 
9. Direct Broadcast Satellite 
a. New or Mtgor Change Construction Permit 
(i) Application for Authorization to Construct a Direct Broadcast 
Satellite 
2,030.00 
(ii) Issuance of Construction Permit & Launch Authority 
19,710.00 
^ 
(iii) License to Operate Satellite 
565.00 
b. Hearing (Comparative New, Mfgor/Minor ModiHcations, or Com-
parative Renewal) 
6,760.00 
c. Special Temporary Authority (bther than to remain silent or 
extend an existing STA to remain silent) 
100.00 
COMMON CARRIER SERVICES 
I 
1. All Common (Darrier Services 
a. Hearing (Comparative New or M^or/Minor Modifications) 
6,760.00 
b. Development Authority . . . Same charge as regular authority in 
service unless otherwise indicated 
c. Formal Complaints and Pole Attachment Complaints Filing Fee 
120.00 
2. Domestic Public Land Mobile Stations (includes Base, Dispatch, Con-
trol & Repeater Stations) 
a. New or Additional Facility (per transmitter) 
230.00 
b. Major Modifications (per transmitter) 
; 
230.00 
c. Fill In Transmitters (per transmitter) 
230.00 
d. Major Amendment to a Pending Application (per transmitter) 
230.00 
e. Assignment or Transfer 
(i) First Call Sign on Application 
230.00 
(ii) Each Additional Call S i ^ 
35.00 
f. Partial Assignment (per call sign) 
230.00 
g. Renewal (per call sign) 
35.00 
h. Minor Modification (per transmitter) 
35.00 
i. Special Temporary Authority (per frequency/per location) 
200.00 
t
Extension of Time to Ck)nstruct (per application) 
35.00 
. Notice of Completion of Construction (per application) 
35.00 
1. Auxiliary Test Station (per transmitter) 
200.00 
m. Subsidiary Communications Service (per request) 
100.00 
n. Reinstatement (per application) 
35.00 
o. Combining Call Signs (per call sign) 
200.00 
p. Standby Transmitter (per transmitter/per location) 
200.00 
—-
q. 900 MHz Nationwide Paging 
(i) Renewal 
(1) Network Organizer 
35.00 
(2) Network Operator (per operator/per city) 
35.00 
r. Air-Ground Individual License (per station) 
(i) Initial License 
35.00 
(ii) Renewal of License 
35.00 
(iii) Modiflcation of License 
35.00 
103 STAT. 2128 
PUBLIC LAW 101-239—DEC. 19,1989 
3. Cellular Systems (per system) 
a. New or Additional Facilities 
230.00 
b. Major Modification 
230.00 
c. Minor Modification 
60.00 
d. Assignment or Transfer (including partial) 
230.00 
e. License to Cover Construction 
(i) Initial License for Wireline Carrier 
595.00 
(ii) Subsequent License for Wireline Carrier 
60.00 
(iii) License for Nonwireline Carrier 
60.00 
(iv) Fill In License (all carriers) 
60.00 
f Renewal 
35.00 
g. Extension of Time to Complete Construction 
35.00 
h. Special Temporary Authority (per system) 
200.00 
i. Combining Cellular Geographic Service Areas (per system) 
50.00 
4. Rural Radio (includes Central Office, Interoffice, or Relay Facilities) 
a. New or Additional Facility (per transmitter) 
105.00 
b. Major Modification (per transmitter) 
105.00 
c. Major Amendment to Pending Application (per transmitter) 
105.00 
d. Minor Modification (per transmitter) 
35.00 
e. Assignments or Transfers 
(i) First Call Sign on Application 
105.00 
(ii) Each Additional Call Sign 
35.00 
(iii) Partial Assignment (per call sign) 
105.00 
f. Renewal (per call sign) 
35.00 
g. Extension of Time to Complete Construction (per application) 
35.00 
h. Notice of CJompletion of Construction (per application) 
35.00 
i. Special Temporary Authority (per frequency/per location) 
200.00 
t
Reinstatement (per application) 
35.00 
. Combining Call Signs (per call sign) 
200.00 
1. Auxiliary Test Station (per transmitter) 
200.00 
m. Standby Transmitter (per transmitter/per location) 
200.00 
/ 
5. Offshore Radio Service (Mobile, Subscriber, and Central Stations; fees 
would also apply to any expansion of this service into coastal waters 
other than the Gulf of Mexico) 
a. New or Additional Facility (per transmitter) 
105.00 
b. Major Modifications (per transmitter) 
105.00 
c. Fill In Transmitters (per transmitter) 
105.00 
d. Major Amendment to Pending Application (per transmitter) 
105.00 
e. Minor Modification (per transmitter) 
35.00 
f. Assignment or Transfer 
(i) Each Additional Call Sign 
35.00 
(ii) Partial Assignment (per call sign) 
105.00 
Renewal (per call sign) 
35.00 
1. Extension of Time to Complete Construction (per application) 
35.00 
i. Reinstatement (per application) 
35.00 
t Notice of Completion of Ck>nstruction (per application) 
35.00 
. Special Temporary Authority (per frequency/per location) 
200.00 
1. Combining Call Signs (per call sign) 
200.00 
m. Auxiliary Test Station (per transmitter) 
200.00 
n. Standby Transmitter (per transmitter/ per location) 
200.00 
6. Point-to-Point Microwave and Local Television Radio Service 
a. Conditional License (per station) 
155.00 
b. Major Modification of Conditional License or License Authoriza-
tion (per station) 
155.00 
: c. Certification of C!ompletion of Construction (per station) 
155.00 
d. Renewal (per licensed station) 
155.00 
e. Assignment or Transfer 
(i) First Station on Application 
55.00 
(ii) Each Additional Station 
35.00 
f. Extension of Construction Authorization (per station) 
55.00 
g. Special Temporary Authority or Request for Waiver of Prior Con-
struction Authorization (per request) 
70.00 
7. Multipoint Distribution Service (including multichannel MDS) 
a. Conditional License (per station) 
155.00 
b. Major Modification of Conditional License or License Authoriza-
tion (per station) 
155.00 
c. Certification of Completion of Construction (per channel) 
455.00 
d. Renewal (per licensed station) 
155.00 
e. Assignment or Transfer 
(i) First Station on Application 
55.00 
(ii) Each Additional Station 
35.00 
I 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2129 
f. Ebctension of Construction Authorization (per station) 
110.00 
g. Special Temporary Authority or Request for Waiver of Prior Con-
struction Authorization (per request) 
70.(K) 
8. Digital Electronic Message Service 
a. Conditional License (per nodal station) 
155.00 
b. Modification of Conditional license or License Authorization (per 
nodal station) 
155.00 
c. Certification of Completion of Construction (per nodal station) 
155.00 
d. Renewal (per licensed nodal station) 
155.00 
e. Assi^mient or Transfer 
(i) First Station on Application 
55.00 
(ii) Each Additional Station 
35.00 
f. Extension of Construction Authorization (per station) 
55.00 
g. Special Temporary Authority or Request for Waiver of Prior Con-
struction Authorization (per request) 
70.00 
9. International Fixed Public Radio (Public and Control Stations) 
a. Initial Construction Permit (per station) 
510.00 
b. Assignment or Transfer (per application) 
510.00 
c. Renewal (per license) 
370.00 
d. Modification (per station). 
370.00 
e. Extension of Construction Authorization (per station) 
185.00 
f. Special Temporary Authority or Request for Waiver (per request)... 
185.00 
10. Fixed Satellite Transmit/Receive Earth Stations 
a. Initial Ai]^lication (per station) 
1,525.00 
b. Modification of Lic^ise (per station) 
105.00 
c. Assignment or Transfer 
(i) First Station on Application 
300.00 
(ii) Each Additional Station 
100.00 
d. Developmental Station (per station) 
1,000.00 
e. Roiewal of lAceaase (per station) 
105.00 
f. Special Temporary Authority or Waivers of Prior Construction Au-
thorization (per request) 
105.00 
g. Amendment of Application (per station) 
105.00 
n. Extension of Construction Permit (per station) 
105.00 
11. Small Transmit/Receive Earth Stations (2 meters or less and operat-
ing in the 4/6 GHz frequency band) 
a. Lead Application 
3,380.00 
b. Routine Application (per station) 
35.00 
c. Modification of License (per station) 
105.00 
d. Anwignment or Transfer 
(D First Station on Application 
300.00 
(ii) Each Additional Station 
35.00 
e. Developmental Station (per station) 
1,000.00 
f. Renewal of license (per station) 
105.00 
g. Special Temporary Aut^rity or Waivers of Prior Construction 
Authorization (per request) 
105.00 
h. Amendment of Application (per station) 
105.00 
L Extension of Construction Permit (per station) 
105.00 
12. Receive Only Earth Stations 
a. Initial Application for Registration 
*. 
230.00 
b. Modification of license or R^istration (per station) 
105.00 
c. Assignment or Transfer 
(i) first Station on Application 
300.00 
(ii) Each Additional Station 
100.00 
d. Renewal of license (per station) 
105.00 
e. Amendment of Application (per station) 
105.00 
f. Extension of Construction Permit (per station) 
105.00 
g. Waivers (per request) 
105.00 
13. Venr Small Aperture Terminal (VSAT) Systems 
a. uiitial Application (per system) 
5,630.00 
b. Modification of license (per system) 
105.(W 
c. Assignment or Transfer of S^tem 
1,505.00 
d. Developmental Station 
1,000.00 
e. Renewal of license (per system) 
105.00 
f. Special Temporary Authority or Waivers of Prior Construction Au-
thorization (per request) 
105.00 
g. Amendment of Application (per system) 
105.00 
h. Extension of Construction Permit (per system) 
105.00 
14. Mobile Satellite Earth Stations 
a. Initial Application of Blanket Authorization 
5,630.00 
b. Initial Application for Individual Earth Station 
1,350.00 
103 STAT. 2130 
PUBLIC LAW 101-239—DEC. 19, 1989 
c. Modification of License (per system) 
105.00 
d. Assignment or Transfer (per system) 
1,505.00 
e. Developmental Station 
1,000.00 
f. Renewal of License (per c^stem) 
105.00 
g. Special Temporary Authority or Waivers of Prior Construction 
Authorization (per request) 
105.00 
h. Amendment of Application (per system) 
105.00 
i. Extension of Ck>nstruction Permit (per system) 
105.00 
15. Radio determination Satellite Earth Stations 
a. Initial Application of Blanket Authorization 
5,630.00 
b. Initial Application for Individual Earth Station 
1,350.00 
c. Modification of License (per system) 
105.00 
d. Assignment or Transfer (per system) 
1,505.00 
e. Developmental Station 
1,000.00 
• f. Renewal of License (per system) 
105.00 
g. Special Temporary Authority or Waivers of Prior Construction 
Authorization (per request) 
105.00 
h. Amendment of Application (per sjrstem) 
105.00 
i. Extension of Construction Permit (per system) 
105.00 
16. Space Stations 
a. Application for Authority to Construct 
2,030.00 
b. Application for Authority to Laimch & Operate 
(i) Initial Application 
70,000.00 
(ii) Replacement Satellite 
70,000.00 
c. Assignment or Transfer (per satellite) 
5,000.00 
d. Modification 
5,000.00 
e. Special Temporary Authority or Waiver of Prior Construction Au-
thorization (per request) 
500.00 
f. Amendment of Application 
1,000.00 
g. Extension of Construction Permit/Laimch Authorization (per re-
quest) 
500.00 
17. Section 214 Applications 
a. Overseas (jable C>>nstruction 
9,125.00 
b. Cable Landing License 
(i) <:k)mmon Carrier 
1,025.00 
(ii) Non-Common Carrier 
10,150.00 
c. Domestic Cable (Construction 
610.00 
> d. All Other 214 Applications 
610.00 
e. Special Temporary Authority (all services) 
610.00 
f. Assignments or Transfers (all services) 
610.00 
' y 
' 
18. Recognized Private Operating Status (per application) 
610.00 
19. Telephone Equipment Registration 
155.00 
20. Tariff Filings 
a. Filing Fee 
490.00 
b. Special Permission Filing (per filing) 
490.00 
21. Accounting and Audits 
a. Field Audit 
62,290.00 
b. Review of Attest Audit 
34,000.00 
c. Review of Depreciation Update Study (Single State) 
20,685.00 
, 
f 
(i) EacTi Additional State 
680.00 
''' 
d. Interpretation of Accounting Rules (per request) 
2,885.00 
e. Petition for Waiver (per petition) 
4,660.00 
MISCELLANEOUS CHARGES 
1. International Telecommunications Settlements Administrative Fee for 
(Collections (per line item) 
2.00 
2. Radio Operator Examinations 
a. Commercial Radio Operator Examination 
35.00 
b. Renewal of Commercial Radio Operator License, Permit, or (Certif-
icate 
35.00 
c. Duplicate or Replacement (Commercial Radio Operator License, 
Permit, or Certificate 
35.00 
3. Ship Inspections 
a. Inspection of Oceangoing Vessels Under Title III, Part II of the 
Communications Act (per inspection) 
620.00 
^ 
b. Inspection of Passenger Vessels Under Title HI, Part III of the 
Communications Act (per inspection) 
320.00 
~ 
c. Inspection of Vessels Under the Great Lakes Agreement (per in-
spection) 
360.00 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2131 
d. Inspection of Foreign Vessels Under the Safety of Life at Sea 
(SOLAS) Convention (per inspection) 
540.00 
e. Temporary Waiver for Compulsorily Equipped Vessel 
60.00". 
(b) CONFORMING AMENDMENTS.—Section 8 of the Communications 
Act of 1934 is further amended— 
47 use 158. 
(1) by striking the last sentence of subsection (a); 
(2) in subsection (bXD, by striking "April 1, 1987" and insert-
ing "October 1,1991"; and 
(3) in subsection (dXl)— 
(A) by striking out "to the following radio services:" and 
inserting "(A) to governmental entities and nonprofit enti-
ties licensed in the following radio services:"; and 
(B) by inserting "(B)" after "Emergency Radio, or". 
(c) EFFECTIVE DATE; IMPLEMENTATION.—The amendments made by 
47 USC158 note, 
this section shall take effect on the date of enactment of this Act, 
and the Schedule of Charges required by the amendment made by 
subsection (a) of this section shall be implemented not later than 150 
days after the date of enactment of this Act. 
SEC. 3002. FINES AND PENALTIES UNDER THE COMMUNICATIONS ACT OF 
1934. 
(a) DISCRIMINATION AND PREFERENCE BY COMMON CARRIER.—Sec-
tion 202(c) of the Communications Act of 1934 (47 TJ.S.C. 202(c)) is 
amended— 
' 
(1) by striking "$500" and inserting "$6,000"; and 
(2) by striking "$25" and inserting "$300". 
OJ) FAILURE IN FIUNG OF SCHEDULE OF CHARGES.—Section 203(e) of 
such Act (47 U.S.C. 203(e)) is amended— 
(1) by striking "$500" and inserting "$6,000"; and 
(2) by striking "$25" and inserting "$300". 
(c) NONCOMPLIANCE WITH RATE ORDERS.—Section 205(b) of such 
Act (47 U.S.C. 205(b)) is amended by striking "$1,000" and inserting 
"$12,000". 
(d) NONCOMPUANCE WiTH LiNE EXTENSION ORDERS.—Section 
214(d) of the Act (47 U.S.C. 214(d)) is amended by Striking "$100" and 
inserting "$1,200". 
(e) FAILURE TO FILE REPORTS OR INFORMATION.—Section 219(b) of 
the Act (47 U.S.C. 219(b)) is amended by striking "$100" and insert-
ing "$1,200". 
(f) RECORDKEEPING FAILURES.—Section 220(d) of the Act (47 U.S.C. 
220(d)) is amended by striking "$500" and inserting "$6,000". 
(g) NoNCOMPUANCE WiTH SHIPBOARD RADIO REQUIREMENTS.—Sec-
tion 364 of such Act (47 U.S.C. 362) is amended— 
(1) by striking "$500" in subsection (a) and inserting "$5,000"; 
and 
(2) by striking "$100" in subsection (b) and mserting "$1,000". 
(h) NONCOMPLIANCE WITH PASSENGER VESSEL RADIO REQUIRE-
MENTS.—Section 386 of such Act (47 U.S.C. 386) is amended— 
(1) by striking "$500" in subsection (a) and inserting "$5,000"; 
and 
(2) by striking "$100" in subsection (b) and inserting "$1,000". 
(i) GENERAL FORFEITURES.—Subsection (b) of section 503 of the 
Communications Act of 1934 (47 U.S.C. 503(b)) is amended— 
(1) by inserting "(1)" after "(b)" at the beginning of such 
subsection; and 
(2) by striking paragraph (2) and inserting the following: 
103 STAT. 2132 
PUBLIC LAW 101-239—DEC. 19,1989 
"(2XA) If the violator is (i) a broadcast station licensee or permit-
tee, (ii) a cable television operator, or (iii) an applicant for any 
broadcast or cable television operator license, permit, certificate, or 
other instrument or authorization issued by the Commission, the 
- amount of any forfeiture penalty determined under this section 
shall not exceed $25,000 for each violation or each day of a continu-
ing violation, except that the amount assessed for any continuing 
violation shall not exceed a total of $250,000 for any single act or 
failure to act described in par£igraph (1) of this subsection. 
^ 
"(B) If the violator is a common carrier subject to the provisions of 
this Act or an applicant for any common carrier license, permit, 
certificate, or other instrument of authorization issued by the 
Commission, the amount of any forfeiture penalty determined under 
?' 
^ t 
this subsection shall not exceed $100,000 for each violation or each 
day of a continuing violation, except that the amount assessed for 
any continuing violation shall not exceed a total of $1,000,000 for 
any single act or failure to act described in paragraph (1) of this 
subsection. 
"(C) In any case not covered in subparagraph (A) or (B), the 
amount of any forfeiture penalty determined under this subsection 
shall not exceed $10,000 for each violation or each day of a continu-
ing violation, except that the amount assessed for any continuing 
violation shail not exceed a total of $75,000 for any single act or 
failure to act described in paragraph (1) of this subsection. 
"(D) The amount of such forfeiture penalty shall be assessed by 
the Commission, or its designee, by written notice. In determining 
the amount of such a forfeiture penalty, the Commission or ite 
designee shall take into account the nature, circumstances, extent, 
and gravity of the violation and, with respect to the violator, the 
degree of culpability, any history of prior offenses, ability to pay, 
and such other matters as justice may require.". 
Subtitle B—NRC User Fees 
SEC. 3201. NRC USER FEES. 
Section 7601 of the Consolidated Omnibus Budget Reconciliation 
42 use 2213. 
Act of 1985 (COBRA) (Public Law 99-272) is amended to read as 
follows: 
"(1) IN GENERAL.—The Nuclear Regulatory Commission shall 
assess and collect annual charges from its licensees on a fiscal 
V year basis, except that— 
"(A) the maximum amount of the aggregate charges 
. v|| 
assessed pursucint to this paragraph in any fiscal year may 
not exceed an amount that, when added to other amounts 
'^ 
collected by the Commission for such fiscal year under 
,. 
other provisions of law, is estimated to be equal to 33 
percent of the costs incurred by the Commission with re-
spect to such fiscal year, except that for fiscal year 1990 
such maximum amount shall be estimated to be equal to 45 
percent of the costs incurred by the Commission for fiscal 
year 1990; and 
"(B) any such charge assessed pursuant to this paragraph 
shall be reasonably related to the regulatory service pro-
vided by the Commission and shall fairly reflect the cost to 
the Commission of providing such service. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2133 
"(2) ESTABLISHMENT OF AMOUNT BY RULE.—The amount of the 
charges assessed pursuant to this p£u-agraph shall be estab-
lished by rule.". 
TITLE IV—CIVIL SERVICE AND POSTAL 
SERVICE PROGRAMS 
SEC 4001. BUDGETARY TREATMENT OF THE POSTAL SERVICE FUND. 
(a) TREATMENT OF THE POSTAL SERVICE FUND.— 
(1) IN GENERAL.—Chapter 20 of title 39, United States Code, is 
amended by inserting after section 2009 the following: 
"§ 2009a. Budgetary treatment of the Postal Service Fund 
"Notwithstanding any other provision of law, the receipts and 
disbursements of the Postal Service Fund, including disbursements 
for administrative expenses incurred in connection with the Fund— 
"(1) shall not be included in the totals of— 
"(A) the budget of the United States Government as 
submitted by the President, or 
"(B) the congressional budget (including allocations of 
budget authority and outlays provided therein); 
"(2) shall be exempt from any general budget limitation 
imposed by statute on expenditures and net lending (budget 
outlays) of the United Stat^ Government; and 
"(3) i^iall be exempt from any order issued under part C of the 
Balanced Budget and Emergency Deficit Control Act of 1985, 
and shall not be counted for purposes of calculating the deficit 
under section 3(6) of the Congressional Budget and Impound-
ment Control Act of 1974 for purposes of comparison with the 
maximum deficit amount under the Balanced Budget and 
Emergency Deficit Control Act of 1985 nor counted in calculat-
ing the excess deficit for purposes of sections 251 and 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985, for 
any fiscal year.". 
(2) CHAPTER ANALYSIS.—The analysis for chapter 20 of title 39, 
United States Code, is amended by inserting after the item 
relatii^ to section 2(K)9 the following: 
"2009a. Budgetary treatment of the Postal Service Fund." 
(b) CONSTRUCTION.—Nothing in any amendment made by subsec-
tion (a) shall be considered to diminish the oversight responsibilities 
or authority of. the Congress under law, rule, or regulation with 
respect to the budget and operations of the United States Postal 
Service. 
(c) APPUCABIUTY.—^The amendments made by this section shall 
apply with respect to budgets for fiscal years beginning after 
September 30,1989. 
SEC 4002. FUNDING OF COST-OF-LIVING ADJUSTMENTS FOR CERTAIN 
POSTAL SERVICE ANNUITANTS AND SURVIVOR ANNUITANTS. 
(a) IN GENERAL.—Section 8348 of title 5, United States Code, is 
amended by adding at the end the following: 
"(mXD Notwithstanding any other provision of law, the United 
Stat^ Postal Service shall be liable for that portion of any esti-
mated increase in the unfunded liability of the Fund which is 
39 use 2009a 
note. 
39 use 2009a 
note. 
103 STAT. 2134 
PUBLIC LAW 101-239—DEC. 19, 1989 
attributable to any benefits payable from the Fund to former 
employees of the Postal Service who first become annuitants by 
reason of separation from the Postal Service on or after October 1, 
1986, or to their survivors, or to the survivors of individuals who die 
on or after October 1, 1986, while employed by the Postal Service, 
when the increase results from a cost-of-living adjustment under 
section 8340 of this title. 
"(2) The estimated increase in the unfunded liability referred to in 
paragraph (1) of this subsection shall be determined by the Office 
after consultation with the Postal Service. The Postal Service shall 
pay the amount so determined to the Office in 15 equal annual 
installments with interest computed at the rate used in the most 
recent valuation of the Civil Service Retirement System, and with 
the first payment thereof due at the end of the fiscal year in which 
the cost-of-living adjustment with respect to which the pasnnent 
relates becomes effective. 
"(3) In determining any amount for which the Postal Service is 
liable under this subsection, the amount of the liability shall be 
prorated to reflect only that portion of total service (used in comput-
ing the benefits involved) which is attributable to civilian service 
performed after June 30,1971, as estimated by the Office.". 
5 use 8348 note. 
(b) EFFECTIVE DATE; SIZE OF ANNUAL iNSTALLlifENTS TO FUND 
EARUER COLAS; AnDrnoNAL AMOUNT INITIALLY PAYABLE.— 
(1) EFFECTIVE DATE.—This section and the amendment made 
by this section shall be effective as of October 1,1986. 
(2) SIZE OF ANNUAL INSTALLMENTS TO FUND PREVIOUS YEARS' 
COLAs.—Notwithstanding any provision of section 8348(m) of 
title 5, United States Code (as added by subsection (a)), the 
estimated increase in the unfunded liability referred to in 
paragraph (1) of such section 8348(m) shall be payable based on 
V annual installments equal to— 
(A) $100,000 each, with respect to the cost-of-living adjust-
ment which took effect in fiscal year 1987; 
< 
(B) $6,000,000 each, with respect to the costK)f-living 
adjustment which took effect in fiscal year 1988; and 
(C) $15,000,000 each, with respect to the cost-of-living 
adjustment which took effect in fiscal year 1989. 
\ 
(3) ^DITIONAL AMOUNT PAYABLE.— 
(A) GENERALLY.—The first pasrment made under the 
provisions of section 8348(m) of title 5, United States Code 
(as added by subsection (a)) shall include, in addition to the 
amount which would otherwise be payable at that time, an 
, amount equal to the sum of any amounts which would have 
been due under those provisions in any prior year if this 
. section had been enacted before October 1,1986. 
(B) COMPUTATION METHOD.—Subject to paragraph (2), the 
additional amount payable under this paragraph shall be 
computed in accord£ince with section 8348(m) of title 5, 
United States Code (as added by subsection (a)), and shall 
^ include interest. Interest on an amount— 
(i) shall be computed at the rate used in the most 
recent valuation of the Civil Service Retirement 
System; 
.^ 
(ii) shall accrue, and be compounded, annually; and 
(iii) shall be computed for the period beginning on 
the date by which such amount should have been paid 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2135 
(if this section had been enacted before October 1,1986) 
and ending on the date on which pa3mient is made. 
SEC. 4003. FUNDING OF HEALTH BENEFIT PREMIUMS FOR SURVIVORS OF 
^ 
EMPLOYEES AND FORMER EMPLOYEES OF THE POSTAL 
SERVICE. 
(a) GENERALLY.—Section 8906(gX2) of title 5, United States Code, is 
amended by inserting "or for a survivor of such an individual or of 
an individual who died on or after October 1, 1986, while employed 
by the United States Postal Service," after "1986,". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 5 use 8906 note. 
shall take effect on October 1, 1989, and shall apply with respect to 
amounts payable for periods beginning on or after that date. 
SEC. 4004. POSTAL SERVICE PAYMENTS TO THE EMPLOYEES'COMPENSA-
TION FUND. 
(a) AMENDMENT.—Section 2003 of title 39, United States Code, is 
amended by adding at the end the following: 
"(g) Notwithstanding any provision of section 8147 of title 5, 
, 
whenever the Secretary of Labor furnishes a statement to the Postal 
Service indicating an amount due from the Postal Service under 
subsection (b) of that section, the Postal Service shall make the 
deposit required pursuant to that statement (and any additional 
pajonent under subsection (c) of that section, to the extent that it 
relates to the period covered by such statement) not later than 30 
days after the date on which such statement is so furnished. Any 
deposit (and any additional payment) which is subject to the preced-
ing sentence shall, once made, remain available without fiscal year 
limitation.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
39 use 2003 
shall take effect on October 1,1989. 
note. 
SEC. 4005. PARTIAL DEFERRED PAYMENT OF LUMP-SUM CREDIT FOR 
5 USC 8343a 
CERTAIN INDIVIDUALS ELECTING ALTERNATIVE FORMS OF 
note. 
ANNUITIES. 
(a) IN GENERAL.—Notwithstanding any other provision of law, and 
except as provided in subsection (c), any lump-sum credit payable to 
an employee or Member pursuant to the election of an alternative 
form of annuity by such employee or Member under section 8343a or 
section 8420a of title 5, United States Code, shall be paid in accord-
£ince with the schedule, under subsection (b) (instead of the schedule 
which would otherwise apply), if the commencement date of the 
annuity payable to such employee or Member occurs after December 
2,1989, and before October 1,1990. 
(b) SCHEDULE OF PAYMENTS.—The schedule of pa3rment of any 
lump-sum credit subject to this section is as follows: 
(1) 50 percent of the lump-sum credit shall be payable on the 
date on which, but for the enactment of this section, the full 
amount of the lump-sum credit would otherwise be payable. 
(2) The remainder of the lump-sum credit shall be payable on 
the date which occurs 12 months after the date described in 
paragraph (1). 
An amount payable in accordance with paragraph (2) shall be 
payable with interest, computed using the rate under section 
8334(eX3) of title 5, United States Code. 
(c) EXCEPTIONS.—The Office of Personnel Management shall pre- Regulations, 
scribe regulations to provide that, unless the individual involved 
103 STAT. 2136 
PUBLIC LAW 101-239—DEC. 19, 1989 
indicates otherwise by written notice to the Office (submitted at 
such time and in such manner as the r^ulations may require), this 
section shall not apply— 
(1) in the case of any individual who is separated from 
Government service involuntarily, other than for cause on 
chaii^es of misconduct or delinquency; and 
(2) in the case of any individual as to whom the application of 
this section would be against equity and good conscience, due to 
a life-threatening affliction or other critical medical condition 
afTecting such individual. 
(d) ANNUITY BENEFITS NOT AFFECTED.—Nothing in this section 
shall affect the commencement date, the amount, or any other 
a^»ect of any annuity benefits payable under section 8343a or 
section 8420a of title 5, United States Code. 
(e) DEFINITIONS.—For purposes of this section, the terms "lump-
sum credit", "employee , and "Member" each has the meaning 
given such term by section 8331 or section 8401 of title 5, United 
States Code, as appropriate. 
SEC 4006. COORDINATION. 
For purposes of section 202 of the Balanced Budget and Emer-
gency Deficit ReafBrmation Act of 1987 (2 U.S.C. 909), any transfer 
resulting from any provision of this title or any of the amendments 
made by this title is a necessary G
>
u
t secondary) result of a signifi-
cant policy change (within the meaning of section 202(b) of such 
Act). 
TITLE V—VETERANS PROGRAMS 
SEC 5001. EXTENSION OF LOAN FEE. 
Section 1829(c) of title 38, United States Code, is amended by 
striking out "September 30, 1989" and inserting in lieu thereof 
"September 30,1990". 
SEC 5002. POSTPONEMENT OF RESTRICTIONS ON WITHOUT-RECOURSE 
VENDEE LOAN SALES. 
Section 1833(aX3) of title 38, United States Code, is amended by 
striking out "October 1,1989" each place it appears and inserting in 
lieu thereof "October 1,1990". 
SEC 5003. PROCEEDS OF VENDEE LOAN SALES. 
(a) IN GENERAL.~Section 1833 of title 38, United States Code, is 
amended by adding at the end the following new subsection: 
"(e) Notwithstanding any other provision of law, the amount 
received 
firom 
the sale of any note evidencing a loan secured by real 
property described in subsection (aXD of this section shall be cred-
ited, without any reduction and for the fiscal year in which the 
amount is received, as ofTsetting collections of— 
"(1) the revolving fund ror which a fee under section 1829 of 
this title was collected (or was exempted from being collected) at 
the time of the original guaranty of the loan that was secured 
by the same propei^ or 
"(2) in any case m which there was no requirement of (or 
exemption from) a fee at the time of the original guaranty of the 
V loan that was secured by the same property, the Loan Guaranty 
Revolving Fund; and 
note. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2137 
the total so credited to any revolving fund for a fiscal year shall 
offset outlays attributed to such revolving fund during such fiscal 
year.". 
(b) EFFECTIVE DATE.—Subsection (e) of section 1833 of title 38, 38 use 1833 
United States Code, as added by subsection (a), shall apply with 
respect to amounts referred to in such subsection (e) received on or 
after October 1,1989. 
TITLE VI—MEDICARE, MEDICAID, MATER-
NAL AND CHILD HEALTH, AND OTHER 
HEALTH PROVISIONS 
TABLE OF CONTENTS OF TITLE 
Subtitle A—Medicare 
•' 
Part 1—^Provisions Relating to Part A 
Subpart A—General Provisions 
Sec. 6001. Extension of reductions under original sequester order and applicability 
of new sequester order. 
Sec. 6002. Reduction in payments for capital-related costs of inpatient hospital serv-
ices for fiscal year 1990. 
Sec. 6003. Prospective payment hospitals. 
Sec. 6004. PP&exempt hospitals. 
Sec. 6005. Payments for hospice care. 
Subpart B—Technical and Miscellaneous Provisions 
Sec. 6011. Pass through payment for hemophilia inpatients. 
Sec. 6012. Medicare buy-in for continued benefits for disabled individuals. 
Sec. 6013. Buy-in under part A for qualified medicare beneficiaries. 
Sec. 6014. PROPAC study on medicare dependent hospitals. 
Sec. 6015. Provisions relating to taiget amount adjustments. 
Sec. 6016. Study of methods to compensate hospices for high-cost care. 
Sec. 6017. Prohibition on nursing home balance billing. 
Sec. 6018. Hospital anti-dumping provisions. 
Sec. 6019. Release and use of hospital accreditation surveys. 
Sec. 6020. Intermediate sanctions for psychiatric hospitals. 
Sec. 6021. Eligibility of meiged or consolidated hospitals for periodic interim 
payments. 
Sec. 6022. Extension of waiver for Finger Lakes Area Hospital Corporation. 
Sec. 6023. Clarification of continuation of August 1987 hospital bad debt recognition 
policy. 
Sec. 6024. Use of more recent data regarding routine service costs of skilled nursing 
facilities. 
Sec. 6025. Permitting dentist to serve as hospital medical director. 
Sec. 6026. GAO study of hospital-based and freestanding skilled nursing facilities. 
Sec. 6027. Ma^achusetts medicare repayment. 
Sec. 6028. Allowing certifications and recertifications by nurse practitioners and 
clinical nurse specialists for certain services. 
Part 2—Provisions Relating to Part B 
Subpart A—General Provisions 
Sec. 6101. Extension of reductions under sequester order. 
Sec. 6102. Physician payment reform. 
Sec. 6103. Establishment of Agency for Health Care Policy and Research. 
Sec. 6104. Reduction in payments for certain procedures. 
Sec. 6105. Reduction in payments for radiology services. 
Sec. 6106. Anesthesia services. 
Sec. 6107. Delay in update and reduction in percentage increase in the medicare 
economic index. 
Sec. 6108. Miscellaneous provisions relating to payment for physicians' services. 
Sec. 6109. Waiver of liability limiting recoupment in certain cases. 
Sec. 6110. Reduction in capital payments for outpatient hospital services. 
103 STAT. 2138 
PUBLIC LAW 101-239—DEC. 19, 1989 
Sec. 6111. Clinical diagnostic laboratory tests. 
Sec. 6112. Durable medical equipment. 
'•• .. 
V ; 
Sec. 6113. Mental health services. 
Sec. 6114. Coverage of nurse practitioner services in nursing facilities. 
Sec. 6115. Coverage of screemng pap smears. 
Sec 6116. Coverage under, and payment for, outpatient rural primary care hospital 
services under part B. 
Subpart B—^Technical and Miscellaneous Provisions 
Sec. 6131. Modification of payment for therapeutic shoes for individuals with severe 
diabetic foot dis^ise. 
Sec. 6132. Payments to certified registered nurse anesthetists. 
Sea 6133. Increase in payment limit for physical and occupational therapy services. 
Sec 6134. Study of payment for portable x-ray services. 
Sec 6135. Extension (rf'municipcu health service demonstration projects. 
Sec 6136. Study of reimbursement for ambulance services. 
Sec 6137. PROPAC study of payments for services in hospital outpatient 
departments. 
Sec 6138. PhysPRC study of payments for assistants at surgery. 
Sec 6139. GAO study of standards for use of and payment for items of durable 
medical equipment. 
Sec 6140. Narrowing <
r
f
' range of amounts recognized for items of durable medical 
equipment. 
Sec 6141. niysician cffice labs. 
Sec 6142. Study of reimbursement for blood clotting factor for hemophilia patients. 
Part 3—^Provisions Relating to Parts A and B 
Subpart A—General Provisions 
Sec 6201. Reductions under original sequester order and applicability of new se-
quester order for health maintenance organizations. 
Sec 6202. Medicare as secondary payer. 
Sec 6203. Payinent for end stage renal disease services. 
Sec 6204. Physician ownership of, and referral to, health care entities. 
Sec 6205. Costs of nursing and allied health education. 
Sec 6206. Disclosure of assumptions in establishing AAPCC; elimination of coordi-
nated open enrollment requirement. 
Sec 6207. Extension of expiring authorities. 
Subpart B—Technical and Miscellaneous Provisions 
Sec 6211. Medicare hospital patient protection amendments. 
Sec 6212. Health maintenance organizations and competitive medical plans. 
Sec 6213. Rural health clinic services. 
Sec 6214. Determining eligibility of home health agencies for waiver of liability for 
denied claims. 
Sec 6215. Extension of authority to contract with fiscal intermediaries and carriers 
on other than a cost basis. 
Sec 6216. Expansion of rural health medical education demonstration project 
Sec 6217. Irmer<aty hospital triage demonstration project 
Sec 6218. GAO study of administrative costs of medicare pn^ram. 
Sec 6219. Provisions relating to end stage renal disease services. 
Sec 6220. Amendments delating to the United States Bipartisan Coirmussion on 
Comprehensive Health Care. 
Sec 6221. National Commission on Children. 
Sec 6222. Continued use of home health wage index in effect prior to July 1,1989, 
until after July 1,1990. 
Sec 6223. HCFA persormel study. 
Sec. 6224. Peer review organizations. 
Part 4—Part B Premium 
Sec. 6301. Part B premium. 
Subtitle B—Medicaid 
^ 
Parti—General Provisions 
Sec. 6401. Mandatory coverage of certain low-income pregnant women and 
children. 
Sec. 6402. Payment for obstetrical and petUatric services. 
Sec. 6403. Early and periodic screening, diagnostic, and treatment services defined. 
Sec. 6404. Payment for federally qualified health center services. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2139 
Sec. 640S. Required coverage of nmse practitioner services. 
Sec. 6406. Required medicaid notioe and coordination with special supplemental 
food program Cor women, infants, and children (WIC9. 
Sec. 6407. Danonstratifm prcgects to study the effect of allowing States to extend 
medicaid to pregnant wnnen and children not otherwise qualified to re-
ceive medicaid benefits. 
Sec. 6408. Other medicaid int>visi<ms. 
Part 2—Technical and A£scellaneous Provisions 
Sec. 6411. Ifiscellaneous medicaid technical amendments. 
Subtitle C—^Maternal and CSuld Health Block Grant Prc^^ram 
Sec. 6501. Increase in authorization of appropriations. 
Sec 6502. AUotmoits to State and Federal set^sides. 
Sec. 6503. Use of allotment funds and application for block grant fimds. 
Sea 6504. Reports. 
Sec. 6505. Federal administration and assistance. 
~
^ 
'•'" _ 
Sec 6506. Devel<qHnent<^ model aiqilications. 
Sec 6507. Researdi on infimt mortidity and medicaid services. 
Sec 6508. Demonstration imgect on health insurance for medically uninsurable 
children. 
Sec 6509. Maternal and child health handbook. 
Sec 6510. Effective dates. 
Subtitle D—Vaccine Compensation Technicals 
Sec 6601. Vaccine injury compensation technicals. 
Sec 6602. Serorability. 
. 
V 
Subtitle E—Proviaons With Respect to COBRA Continuation Coverage 
Part 1—Extension <^ Coverage for Disabled Employees 
Sec 6701. Eztenraon, under Internal Revenue Code, of coverage from 18 to 
29 months for those with a disability at time of termination <^ 
*' 
onploymeni. 
Sec 6702. Extension, under Public Healtii Service Act, of coverage from 18 to 
29 montiis for those with a disability at time of termination of 
employment. 
Sec 6703. Extension, under ERISA, (^coverage from 18 to 29 months for those with 
a disability at time ci employment. 
Part 2—^Miscdlaneous Amendments 
Sec 6801. Public Health Service Act 
Subtitle F—Technical and Miscellaneous Provisions Relating to Nursing Home 
Reform 
Sec 6901. Medicare and medicaid technical corrections relating to nursing home 
.^ 
reform. 
Subtitle G—Public Health Service Act 
Sec 6911. Establishment (rf Agency for Health Care Poli<7 and Research. 
Subtitle A—Medicare 
PART 1—PROVISIONS RELATING TO PART A 
Subpart A—General Provisions 
SEC 6001. EXTENSION OF REDUCTIONS UNDER ORIGINAL SEQUESTER 
2 USC 902 note. 
ORDER AND APPLICABILITY OF NEW SEQUESTER ORDER. 
Notwithstanding any other provision of law (including section 
11002 or any other provision of this Act, other than section 6201), 
103 STAT. 2140 
PUBLIC LAW 101-239—DEC. 19, 1989 
Rural Eireas. 
Urban areas. 
42 u s e 1395ww 
note. 
42 u s e 1395WW 
note. 
the reductions in the amount of payments required under title 
XVIII of the Social Security Act made by the final sequester order 
issued by the President on October 16, 1989, pursuant to section 
252(b) of the Balanced Budget and Emergency Eteficit Control Act of 
1985 shall continue to be effective (as provided by sections 
252(aX4XB) and 256(dX2) of such Act) through December 31, 1989, 
with respect to payments for items and services under part A of 
such title (including payments under section 1886 of such title 
attributable or allocated to such part). Each such payment made for 
items and services provided during fiscal year 1990 after such date 
shall be incresised by 1.42 percent above what it would otherwise be 
under this Act. 
SEC. 6002. REDUCTION IN PAYMENTS FOR CAPITAL-RELATED COSTS OF 
INPATIENT HOSPITAL SERVICES FOR FISCAL YEAR 1990. 
Section 1886(gX3XA) of the Social Security Act (42 U.S.C. 
1395ww(gX3XA)) is amended— 
(1) in clause (iii), by striking "and"; 
(2) in clause (iv), by striking the period at the end and 
inserting ", and"; and 
(3) by adding at the end the following new clause: 
"(v) 15 percent for payments attributable to portions of cost 
reporting periods or discharges (as the case may be) occurring 
during the period beginning January 1, 1990, and ending 
September 30,1990.". 
SEC. 6003. PROSPECTIVE PAYMENT HOSPITALS. 
(a) CHANGES IN HOSPITAL UPDATE FACTORS.— 
(1) IN GENERAL.—Section 1886(bX3XBXi) of the Social Security 
Act (42 U.S.C. 1395ww(bX3XBXi)) is amended— 
(A) by striking "and" at the end of subclause (IV), 
(B) in subclause (V), by striking "1990" and inserting 
"1991" and redesignating such subclause as subclause (VI), 
and 
(C) by inserting after subclause (IV) the following new 
subclause: 
"(V) for fiscal year 1990, the market basket percentage in-
crease plus 4.22 percentage points for hospitals located in a 
rural area, the market basket percentage increase plus 0.12 
percentage points for hospitals located in a large urban area, 
and the market basket percentage increase minus 0.53 percent-
age points for hospitals located in other urban areas, and". 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall apply to payments for discharges occurring on or after 
January 1,1990. 
(3) INDEXING OF FUTURE APPUCABLE PERCENTAGE INCREASES.— 
For discharges occurring on or after October 1, 1990, the ap-
plicable percentage increase (described in section 1886(bX3XB) of 
the Social Security Act) for discharges occurring during fiscal 
year 1990 is deemed to have been such percentage increase as 
amended by paragraph (1). 
(b) REDUCTION IN D R G WEIGHTING FACTORS FOR FISCAL YEAR 1990; 
FUTURE ANNUAL RECALIBRATION OF DRG 
WEIGHTS ON BUDGET-
NEUTRAL BASIS.—Section 1886(dX4XC) of such Act (42 U.S.C. 
1395ww(dX4XC)) is amended— 
(1) by striking "(C)" and inserting "(CXi)"; and 
(2) by adding at the end the following new clauses: 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2141 
"(ii) For discharges in Hscal year 1990, the Secretary shall reduce 
the weighting factor for each diagnosis-related group by 1.22 
percent. 
"(iii) Any such adjustment under clause (i) for discharges in a 
fiscal year Gieginning with fiscal year 1991) shall be made in a 
manner that assures that the aggregate pa3rments under this subsec-
tion for discharges in the fiscal year are not greater or less than 
those that would have been made for discharges in the year without 
such adjustment. 
"(iv) The Secretary shall include recommendations with respect to Reports, 
adjustments to weighting factors under clause (i) in the annual 
report to Congress required under subsection (eX3XB).". 
(c) INCREASE IN DISPROPORTIONATE SHARE ADJUSTMENT.— 
(1) CHANGE IN FORMULA.—Section 1886(dX5XF) of such Act (42 
U.S.C. 1395ww(dX5XF)) is amended— 
(A) in clause (ivXD, by striking "the following formula" 
and all that follows through "(as defined in clause (vi));" 
and inserting "the applicable formula described in clause 
(vii);", and 
(B) by adding at the end the following new clause: 
"(vii) The formula used to determine the disproportionate share 
adjustment percentage for a cost reporting period for a hospital 
described in clause (iv)(I) is— 
"(I) in the case of such a hospital with a disproportionate 
patient percentage (as defined in clause (vi)) greater than 20.2, 
(P-20.2X.65)+5.62,or 
"(II) in the case of any other such hospital, (P-15X.6)+2.5, 
where *P' is the hospital's disproportionate patient i)ercentage (as 
defined in clause (vi)).". 
(2) TREATMENT OP RURAL HOSPITALS FOR DISPROPORTIONATE 
S
H
A
R
E CALCULATION.—Section 1886(dX5XF) of such Act (42 U.S.C. 
1395ww(dX5XF)), as amended by paragraph (1), is amended— 
(A) in clause (iv)— 
(i) in subclause (II), by striking "or", 
(ii) in subclause (III), by inserting "in subclause (TV) 
or (V) or" after "described", 
(iii) by striking the period at the end of subclause (III) 
and inserting a semicolon, and 
(iv) by adding at the end the following new 
subclauses: 
"(IV) is located in a rural area, is classified as a rural referral 
center under subparagraph (C), and is classified as a sole 
community hospital under subparagraph (D), is equal to 10 
percent or, if greater, the percent determined in accordance 
with the applicable formula described in clause (viii); 
"(V) is located in a rural area, is classified as a rural referral 
center under subparagraph (C), and is not classified as a sole 
community hospital under subparagraph (D), is equal to the 
percent determined in accordance with the applicable formula 
described in clause (viii); or 
"(VI) is located in a rural area, is classified as a sole commu-
nity hospital under subparagraph (D), and is not classified as a 
^ 
rural referral center under subparagraph (C), is 10 percent.", 
(B) in clause (v)— 
(i) in subclause (III), by striking "area" and inserting 
"area and is not described in subclause (II)", 
103 STAT. 2142 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 u s e 1395WW 
note. 
42 u s e 1395WW 
note. 
(ii) by redesignating subclauses (II) and (III) as 
, . : ^ 
subclauses (III) and (IV), and 
(iii) by inserting after subclause (I) the following new 
subclause: 
"(II) 30 percent, if the hospital is located in a rural area and 
has more than 100 beds, or is located in a rural area and is 
classified as a sole community hospital under subparagraph 
(D),", and 
(C) by adding at the end the following new clause: 
"(viii) The formula used to determine the disproportionate share 
adjustment percentage for a cost reporting period for a hospital 
described in clause (ivXIV) or (ivXV) is the percentage determined in 
accordance with the following formula: (P-30X.6)+4,0, where 'P' is 
the hospital's disproportionate patient percentage (as defined in 
clause (vi)).". 
(3) INCREASE FOR HOSPITALS WITH DISPROPORTIONATE INDIGENT 
CARE REVENUES.—Section 1886(dX5XFXiii) of such Act (42 U.S.C. 
1395ww(dX5XFXiii)) is amended by striking "25 percent" and 
inserting "30 percent". 
(4) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply with respect to discharges occurring on or after 
April 1,1990. 
(d) EXTENSION OF REGIONAL REFERRAL CENTER CLASSIFICATION.— 
Any hospital that is classified as a regional referral center under 
section 1886(dX5)(C) of the Social Security Act as of September 30, 
1989, including a hospital so classified as a result of section 
9302(dX2) of the Omnibus Budget Reconciliation Act of 1986, shall 
continue to be classified as a regional referral center for cost 
reporting periods beginning on or after October 1, 1989, and before 
October 1,1992. 
(e) CRITERIA AND PAYMENT FOR SOLE (DOMMUNITY HOSPITALS.— 
(1) IN GENERAL.—(A) Section 1886(dX5) of the Social Security 
Act (42 U.S.C. 1395ww(dX5)) is amended— 
(i) by transferring clause (iv) of subparagraph (C) to the 
end and by redesignating it as subparagraph (H), 
(ii) by transferring clause (iii) of subparagraph (C) to the 
end and by redesignating it as subparagraph (I), 
(iii) in subparagraph (D), by striking "(DXi)" and inserting 
"(EXi)",and 
(iv) by amending clause (ii) of subparagraph (C) to read as 
follows: 
"(DXi) For any cost reporting period beginning on or after April 1, 
1990, with respect to a subsection (d) hospital which is a sole 
community hospital, payment under paragraph (IXA) shall be— 
"(I) an amount based on 100 percent of the hospital's target 
amount for the cost reporting period, as defined in subsection 
^t" 
a)X3XC),or 
"(II) the amount determined under paragraph (IXAXiii), 
whichever results in greater payment to the hospital. 
"(ii) In the case of a sole community hospital that experiences, in a 
cost reporting period compared to the previous cost reporting period, 
a decrease of more than 5 percent in its total number of inpatient 
cases due to circumstances beyond its control, the Secretary shall 
provide for such adjustment to the pajonent amounts under this 
subsection (other than under paragraph (9)) as may be necessary to 
fully compensate the hospital for the fixed costs it incurs in the 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2143 
period in providing inpatient hospital services, including the reason-
able cost of maintaining necessary core staff and services, 
"(iii) The term 'sole community hospital' means any hospital— 
"(I) that the Secretary determines is located more than 35 
road miles from another hospital, or 
"(11) that, by reason of factors such as the time required for an 
individual to travel to the nearest alternative source of appro-
priate inpatient care (in accordance with standards promul-
gated by the Secretary), location, weather conditions, travel 
conditions, or absence of other like hospitals (as determined by 
the Secretary), is the sole source of inpatient hospital services 
reasonably available to individuals in a geographic area who 
are entitled to benefits under part A. 
"(iv) The Secretary shall promulgate a standard for determining 
whether a hospital meets the criteria for classification as a sole 
community hospital under clause (iii)(II) because of the time re-
quired for an individual to travel to the nearest alternative source of 
appropriate inpatient care.". 
' 
(B) Section 1886(bX3) of such Act (42 U.S.C. 1395ww(bX3)) is 
amended— 
(i) in subparagraph (A), by striking "(A) For purposes of 
this subsection" and inserting "(A) Except as provided in 
subparagraph (C), for purposes of this subsection", and 
(ii) by adding at the end the following new subparagraph: 
"(C) In the case of a hospital that is a sole community hospital (as 
defined in subsection (dX5XDXiii)), the term 'target amount' means— 
"(i) with respect to the first 12-month cost reporting period in 
which this subparagraph is applied to the hospital— 
"(I) the allowable operating costs of inpatient hospital 
services (as defined in subsection (aX4)) recognized under 
this title for the hospital for the 12-month cost reporting 
period (in this subparagraph referred to as the 'base cost 
reporting period') preceding the first cost reporting period 
for which this subsection was in effect with respect to such 
hospital, increased (in a compounded manner) by— 
"(II) the applicable percentage increases applied to such 
hospital under this paragraph for cost reporting periods 
after the base cost reporting period and up to and including 
such first 12-month cost reporting period, or 
"(ii) with respect to a later cost reporting period, the target 
amount for the preceding 12-month cost reporting period, in-
creased by the applicable percentage increase under subpara-
graph (BXi) for discharges occurrii^ in the fiscal year in which 
that later cost reporting period begins. 
There shall be substituted for the base cost reporting period de-
scribed in clause (i) a hospital's cost reporting period (if any) begin-
ning during fiscal year 1987 if such substitution results in an 
increase in the tai^et amount for the hospital.". 
(2) 
CONFORMING 
AMENDMENTS.—Such Act 
is 
further 
amended— 
(A) in section 1833(hXlXD), by striking "the last sentence 42 use 1395/. 
of 
section 
1886(dX5XCXii)" and 
inserting 
"section 
1886(dX5XDXiii)"; 
-3. 
(B) in section 1886(dX5XCXi)— 
42usci395ww. 
(i) by striking "(CXiXI)" and inserting "(CXi)", and 
103 STAT. 2144 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 u s e 1395WW. 
42 u s e 1395WW 
note. 
f . 
(ii) by redesignating subclause (II) as clause (ii) and 
by striking "subclause (I)" each place it appears in such 
Clause and inserting "clause (i)"; 
(C) in section 1886(dX9XBXiiXIV), by striking "(DXv)" and 
inserting "(DXiii)"; 
(D) in section 1886(dX9XD)— 
zrC 
(i) by striking clause (iv), 
(ii) by transferring clause (iii) to the end and re-
designating it as clause (iv), and by striking "(CXiii)" 
and inserting "(H)", and 
(iii) by redesignating clause (v) as clause (iii); and 
(E) in section 1886(gX3XB), by striking "(dX5XCXii)" and 
inserting "(dXSXDXiii) . 
(3) CONTINUATION OF SOLE COMMUNITY HOSPITAL DESIGNATION 
FOR CURRENT SOLE COMMUNITY HOSPITALS.—Any hospital classi-
fied as a sole community hospital under section 1886(dX5XC)(ii) 
of the Social Security Act on the date of the enactment of this 
Act that will no longer be classified as a sole community 
hospital after such date as a result of the amendments made by 
paragraph (1) shall continue to be classified as a sole community 
hospital for purposes of section 1886(dX5XD) of such Act. 
(f) 
CRITERIA AND PAYMENT FOR MEDICARE-DEPENDENT, SMALL 
RURAL HOSPITALS.— 
(1) CRITERIA.—Section 1886(dX5) of the Social Security Act (42 
U.S.C. 1395ww(dX5)), as amended by subsection (eXlXA), is fur-
ther amended by inserting after subparagraph (F) the following 
new subparagraph: 
"(GXi) For any cost reporting period beginning on or after April 1, 
1990, and ending on or before March 31, 1993, with respect to a 
subsection (d) hospital which is a medicare-dependent, small rural 
hospital, payment under paragraph (IXA) shall be— 
"(I) an amount based on 100 percent of the hospital's target 
amount for the cost reporting period, as defined in subsection 
(bX3XD), or 
"(II) the amount determined under paragraph (IXAXiii), 
whichever results in the greater payment to the hospital. 
"(ii) In the case of a m^icare dependent, small rural hospital that 
experiences, in a cost reporting period compared to the previous cost 
reporting period, a decrease of more than 5 percent in its total 
number of inpatient cases due to circumstances beyond its control, 
the Secretary shall provide for such adjustment to the pa3nnent 
amounts under this subsection (other than under paragraph (9)) as 
may be necessary to fully compensate the hospital for the fixed costs 
it incurs in the period in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core staff 
and services. 
"(iii) The term 'medicare-dependent, small rursd hospital' means, 
with respect to any cost reporting period to which clause (i) applies, 
any hospital— 
"(I) located in a rural area, 
' 
"(II) that has not more than 100 beds, 
"(III) that is not classified as a sole community hospital under 
subparagraph (D), and 
"(IV) for which not less than 60 percent of its inpatient days 
or discharges during the cost reporting period beginning in 
fiscal year 1987 were attributable to inpatients entitled to bene-
fits under part A.". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2145 
(2) PAYMENT.—Section 1886(bX3) of such Act (42 U.S.C. 
j 
1395ww(bX3)), as amended by subsection (eXlXB), is further 
amended— 
(i) in subparagraph (A), by striking "subparagraph (C)" 
and inserting "subparagraphs (C) and (D)", and 
(ii) by adding at the end the following new subparagraph: 
"(D) For cost reporting periods ending on or before March 31, 
1993, in the case of a hospital that is a medicare-dependent, small 
rural hospital (as defined in subsection (dX5XG)), the term 'target 
amount' means— 
"(i) with respect to the first 12-month cost reporting period in 
which this subparagraph is applied to the hospital— 
"(I) the allowable operating costs of inpatient hospital 
services (as defined in subsection (aX4)) recognized under 
this title for the hospital for the 12-month cost reporting 
period (in this subparagraph referred to as the 'base cost 
reporting period') preceding the first cost reporting period 
for which this subsection was in effect with respect to such 
hospital, increased (in a compounded manner) by— 
"(II) the applicable percentage increases applied to such 
hospital under this paragraph for cost reporting periods 
after the base cost reporting period and up to and including 
such first 12-month cost reporting period, or 
"(ii) with respect to a later cost reporting period, the target 
amount for the preceding 12-month cost reporting period, in-
creased by the applicable percentage increase under subpara-
graph (BXi) for discharges occurring in the fiscal year in which 
that later cost reporting period begins. 
There shall be substituted for the base cost reporting period de-
scribed in clause (i) a hospital's cost reporting period (if any) begin-
ning during fiscal year 1987 if such substitution results in an 
increase in the target amount for the hospital.", 
(g) ESSENTIAL ACCESS COMMUNITY HOSPITAL PROGRAM.— 
(1) ESTABLISHMENT OF PROGRAM.— 
(A) IN GENERAL.—Part A of title XVIII of the Social 
Security Act (42 U.S.C. 1395c et seq.) is amended by adding 
at the end the following new section: 
"ESSENTIAL ACCESS COMMUNITY HOSPITAL PROGRAM 
42 use 1395i-4. 
"SEC. 1820. (a) IN GENERAL.—There is hereby established a pro- Grants. 
gram under which the Secretary— 
S*®*® ^ < * ^?^^ 
"(1) shall make grants to not more than 7 States to carry out 
^°\^^^^Si 
the activities described in subsection (dXD; 
"(2) shall make grants to eligible hospitals and facilities (or 
consortia of hospitals and facilities) to carry out the activities 
described in subsection (dX2); and 
"(3) shall designate (under subsection (i)) hospitals and facili-
ties located in States receiving grants under paragraph (1) as 
essential access community hospitals or rural primary care 
hospitals. 
"(b) ELIGIBILITY OP STATES FOR GRANTS.—A State is eligible to 
receive a grant under subsection (aXD only if the State submits to 
the Secretary, at such time and in such form as the Secretary may 
require, an application containing— 
"(1) assurances that the State— 
103 STAT. 2146 
PUBLIC LAW 101-239—DEC. 19, 1989 
Communications 
and 
telecommunications. 
Transportation. 
"(A) has developed, or is in the process of developing, a 
State rural hesdth care plan that— 
"(i) provides for the creation of one or more rural 
, 
health networks (as defined in subsection (g)) in the 
State, 
"(ii) promotes regionalization of rursl health services 
in the State, 
"(iii) improves access to hospital and other health 
services for rural residents of the State, and 
"(iv) enhances the provision of emergency and other 
transportation services related to health care; 
"(B) has developed the rural health care plan described in 
subparagraph (A) in consultation with the hospital associa-
tion of the State and rural hospitals located in the State (or, 
in the case of a State in the process of developing such plan, 
that assures the Secretary that it will consult with its State 
hospital association and rural hospitals located in the State 
in developing such plan); and 
"(C) has designated, or is in the process of designating, 
rural non-profit or public hospitals or facilities located in 
the State as essential access community hospitals or rural 
primary care hospitals within such networks; and 
"(2) such other information and assurances as the Secretary 
may require. 
*(C) EUGIBIUTY OF HOSPITALS AND Ck)NSORTIA FOR GRANTS.— 
"(1) IN GENERAL.—Except as provided in paragraph (3), a 
hospital or facility is eligible to receive a grant under subsection 
(aX2) only if the hospital or facility— 
"(A) is located in a State receiving a grant under subsec-
tion (aXD; 
"(B) is designated as an essential access community hos-
pital or a rural primary care hospital by the State in which 
it is located or is a member of a rural health network (as 
defined in subsection (g)); 
"(C) submits to the State in which it is located and to the 
Secretary, at such time and in such form as the Secretary 
may require, an application containing such information 
and assurances as the Secretary may require; and 
"(D) the State in which the hospital or facility is located 
certifies to the Secretary that— 
"(i) the receiving of such a grant by the hospital or 
facility is consistent with the State's rural health care 
plan (described in subsection (bXlXA)), and 
"(ii) the State has approved the application submit-
ted under subparagraph (C). 
"(2) TREATMENT OF CONSORTIA.—A consortium of hospitals or 
facilities each of which is part of the same rural health network 
is eligible to receive a grant under subsection (aX2) if each of its 
members would individually be eligible to receive such a grant. 
"(3) EUGIBIUTY OF RPC HOSPFFALS NOT LOCATED IN A STATE 
RECEIVING GRANT.—A facility designated as a rural primary 
care hospital by the Secretary under subsection (iX2XC) shall be 
eligible to receive a grant under subsection (aX2). 
'(d) ACTIVITIES FOR WHICH GRANTS MAY BE USED.— 
"(1) GRANTS TO STATES.—A State shall use a grant received 
under subsection (aXD to carry out the demonstration program 
established under this section in the State. Such grant may be 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2147 
used for engaging in activities relating to planning and im-
plementing a rural health care plan and rural health networks, 
designating hospitals or facilities in the State as essential access 
community hospitals or rural primary care hospitals, and devel-
oping and supporting communication and emergency transpor-
tation systems. 
"(2) GRANTS TO HOSPITALS, FACILITIES, AND CONSORTIA.—A hos- 
: 
^ 
pital or facility shall use a grant received under subsection (aX2) 
to finance the costs it incurs in converting itself to a rural 
primary care hospital or an essential access community hospital 
or in becoming part of a rural health network in the State in 
which it is located, including capital costs, costs incurred in the 
development of necessary communications systems, and costs 
incurred in the development of an emergency transportation 
system. A consortium shall use a grant received under subsec-
tion (aX2) to finance the costs it incurs in converting hospitals or 
facilities that are part of the consortium into rural primary care 
hospitals or in developing and implementing a rural health 
network consisting of its members in the State in which it is 
located, including capital costs, costs incurred in the develop-
ment of necessary communications systems, and costs incurred 
in the development of an emergency transportation system. 
"(e) DESIGNATION BY STATE OF ESSENTIAL ACCESS COMMUNITY HOS-
PITALS.—A State may designate a hospital as an essential access 
community hospital only if the hospital— 
"(1) is located in a rural area (as defined in section 
1886(dX2)(D)); 
"(2XA) is located more than 35 miles from any hospital that 
either (i) has been designated as an essential access community 
hospital, (ii) is classified by the Secretary as a rural referral 
center under section 1886(dX5XC), or (iii) is located in an urban 
area that meets the criteria for classification as a regional 
referral center under such section, or (B) meets such other 
criteria relating to geographic location as the State may impose 
with the approval of the Secretary; 
"(3) has at least 75 inpatient beds or is located more than 35 
miles from any other hospital; 
"(4) has in effect an agreement to provide emergency and Contracts, 
medical backup services to rural primary care hospitals partici-
pating in the rural health network of which it is a member and 
throughout its service area; 
"(5) has in effect an agreement, with each rural primary care 
hospital participating in the rural health network of which it is 
a member, to accept patients transferred from such primary 
care hospital, to receive data from and transmit data to such 
primary care hospital, and to provide staff privileges to physi-
cians providing care at such primary care hospital; and 
"(6) meets any other requirements imposed by the State with 
the approval of the Secretary. 
"(f) DESIGNATION BY STATE OF RURAL PRIMARY CARE HosprrAis.— 
"(1) CRITERIA FOR DESIGNATION.—A State may designate a 
facility as a rural primary care hospital only if the facility— 
"(A) is located in a rural area (as defined in section 
1886(dX2XD)); 
.4, 
"(B) at the time such facility applies to the State for 
« . . 
designation as a rural primary care hospital, is a hospital 
with a participation agreement in effect under section 
103 STAT. 2148 
PUBLIC LAW 101-239—DEC. 19,1989 
Contracts. 
Ck>miuunication8 
and 
telecommunications. 
1866(a) and had not been found, on the basis of a survey 
under section 1864, to be in violation of any requirement to 
participate as a hospital under this title; 
"(C) has ceased, or agrees (upon the approval of such 
application) to cease, providing inpatient care (except as 
required under subpar^aph (F)); 
(D) in the case of a facility that is a member of a rural 
health network, has in effect an agreement to participate 
with other hospitals and facilities in the communications 
svstem of such network, including the network's system for 
the electronic sharing of patient data, including telemetry 
and medical records, if the network has in operation such a 
sjrstem; 
"(E) makes available 24-hour emergency care; 
"(F) provides not more than 6 inpatient beds (meeting 
such conditions as the Secretaiy may establish) for provid-
ing inpatient care for a period not to exceed 72 hours 
(unless a longer period is required because transfer to a 
hospital is precluded because of inclement weather or other 
emergency conditions) to patients requiring stabilization 
before discharge or transfer to a hospital; 
"(G) meets such staffing requirements as would apply 
under section 1861(e) to a hospital located in a rural area, 
except that— 
"(i) the facility need not meet hospital standards 
relating to the number of hours during a day, or days 
during a week, in which the facility must be open, 
except insofar as the facility is required to provide 
emergency care on a 24-hour basis under subparagraph 
(E), 
"(ii) the facility may provide any services otherwise 
required to be provided by a full-time, on-site dietician, 
pharmacist, 
laboratory 
technician, 
medical 
tech-
nologist, and radiological technologist on a part-time, 
off-site basis, and 
"(iii) the inpatient care described in subparagraph (F) 
may be provided by a physician's assistant or nurse 
practitioner, subject to the oversight of a physician; and 
"(H) meets the requirements of subparagraphs (C) 
through (J) of paragraph (2) of section 1861(aa) and of 
clauses (ii) and (iv) of the second sentence of that 
paragraph. 
"(2) PREFERENCE GIVEN TO HOSPITALS OR FACIUTIES PARTICIPAT-
ING IN RURAL H
E
A
L
T
H NETWORK.—In designating facilities as 
rural primary care hospitals under paragraph (1), the State 
shall give preference to hospitals or facilities participating in a 
rural health network. 
"(3) PEaiMITTING R
U
R
A
L P
R
I
M
A
R
Y C
A
R
E H
O
S
P
F
F
A
L
S T
O MAINTAIN 
SWING BEDS.—Nothing in this subsection shall be construed to 
prohibit a State from designating a facility as a rural primary 
care hospital solely because the facility has entered into an 
agreement with the Secretary under section 1883 under which 
the facility's inpatient hospital facilities may be used for the 
furnishing of extended ccu*e services. 
"(g) RURAL HEALTH NETWORK DEFINED.—For purposes of this 
section, the term 'rural health network' means, with respect to a 
State, an organization— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2149 
"(1) consisting of— 
"(A) at least 1 hospital that— 
"(i) the State has designated or plans to designate as 
an essential access community hospital under subsec-
tion (bXlXC), 
"(ii) is classified by the Secretary as a rural referral 
center under section 1886(dX5XC), or 
"(iii) is located in an urban area and meets the 
criteria for classification as a regional referral center 
under such section, and 
"(B) at least 1 facility that the State has designated or 
plans to designate as a rurcd primary care hospital, and 
"(2) the members of which have entered into agreements 
regarding— 
"(A) patient referral and transfer, 
"(B) the development and use of communications systems, 
including (where feasible) telemetry systems and systems 
for electronic sharing of patient data, and 
"(C) the provision of emergency and non-emergency 
transportation among the members. 
"(h) LIMIT ON AMOUNT OF GRANT TO HOSPITAL OR FACILITY.—A 
grant made to a hospital or facility under subsection (aX2) may not 
exceed $200,000. 
"(i) EuGiBiuTY O
F HOSPITALS OR FACILITIES FOR DESIGNATION BY 
SECRETARY.— 
"(1) ESSENTIAL ACCESS COMMUNITY HOSPITAL.—(A) The Sec-
retary shall designate a hospital as an essential access commu-
nity hospital if the hospital— 
"(i) is located in a State receiving a grant under subsec-
tion (aXD; 
"(ii) is designated as an essential access community hos-
pital by the State in which it is located (except as provided 
in subparagraph (B)); and 
"(iii) meets such other criteria as the Secretary may 
require. 
"(B) In the case of a hospital that is not eligible for designa-
tion as an essential access community hospital under this para-
graph solely because it is not designated as an essential access 
community hospital by the State in which it is located, the 
Secretary may designate such hospital as an essential access 
community hospital under this paragraph if the hospital is not 
so designated by the State in which it is located solely because 
of its failure to meet the criteria described in paragraph (3) of 
subsection (e). 
"(2) RURAL PRIMARY CARE HOSPITAL.—(A) The Secretary shall 
designate a facility as a rural primary care hospital if the 
facility— 
"(i) is located in a State receiving a grant under subsec-
tion (aXD; 
"(ii) is designated as a rural primary care hospital by the 
State in which it is located (except as provided in subpara-
j- 
graph (B)); and 
"(iii) meets such other criteria as the Secretary may 
require. 
"(B) In the case of a facility that is not eligible for designation 
as a rural primary care hospital under this paragraph solely 
because it is not designated £
U
3 a rural primary care hospital by 
103 STAT. 2150 
PUBLIC LAW 101-239—DEC. 19, 1989 
the State in which it is located, the Secretary may designate 
such facility as a rural primary care hospital under this para-
graph if the facility is not so designated by the State in which it 
is located solely because of its failure to meet the criteria 
described in subparagraphs (C), (F), or (G) of subsection (fKD. 
"(C) The Secretary may designate not more than 15 facilities 
as rural primary care hospitals under this paragraph that do 
not meet the requirements of clauses (i) and (ii) of subparagraph 
(A) if such a facility meets the criteria described in subpara-
graphs (A), (B), and (E) of subsection (fKD, except that nothing in 
this subparagraph shall be construed to prohibit the Secretary 
from designating a facility £is a rural primary care hospital 
solely because the facility has entered into an agreement with 
the Secretary under section 1883 under which the facility's 
inpatient hospital facilities may be used for the furnishing of 
extended care services, 
"(j) WAIVER OP CONFLICTING PART A PROVISIONS.—The Secretary 
is authorized to waive such provisions of this part as are necessary 
to conduct the program established under this section. 
"(k) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 
be appropriated from the Federal Hospital Insurance Trust Fund for 
each of the fiscal years 1990,1991, and 1992— 
"(1) $10,000,000 for grants to States under subsection (aXD; 
and 
"(2) $15,000,000 for grants to hospitals, facilities, and consor-
tia under subsection (aX2).". 
(B) MODIFICATION OF RURAL HEALTH CARE TRANSITION 
GRANT PROGRAM.—(i) Section 4005(e) of the Omnibus Budget 
42 use 1
3
9
5
W
W 
Reconciliation Act of 1987 is amended— 
*^o*e. 
(I) in paragraph (1), by adding at the end the follow-
ing new sentence: "Grants under this paragraph may 
be used to provide instruction and consultation (and 
such other services as the Administrator determines 
appropriate) via telecommunications to physicians in 
such rural areas (within the meaning of section 
1886(dX2XD) of the Social Security Act) as are des-
ignated either class 1 or class 2 health manpower 
shortage areas under section 332(aXlXA) of the Public 
Health Service Act.", 
(II) in paragraph (3XA), by striking "an application to 
the Governor" and inserting "an application to the 
Administrator and a copy of such application to the 
Governor", 
(HI) in paragraph (3XB), by striking "any applica-
tion" and all that follows through "accompanied by" 
and inserting "to the Administrator, within a reason-
able time after receiving a copy of an application 
pursuant to subparagraph (A),", 
(TV) in paragraph (6), by striking "2 years" and 
inserting "3 years", 
(V) in paragraph (7XA), by striking "(D)" and insert-
ing "(B)", 
(VI) in paragraph (7XC), by striking the period at the 
end and inserting the following: ", except that this 
limitation shall not apply with respect to a grant used 
for the purposes described in subparagraph (D).", 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2151 
.
_
^ 
(VII) by adding at the end of paragraph (7) the foUow-
mg new subparagraph: 
"(D) A hospital may use a grant received under this subsec-
tion to develop a plan for converting itself to a rural primary 
care hospital (as described in section 1820 of the Social Security 
Act) or to develop a rural health network (as defined in section 
1820(g) of such Act) in the State in which it is located if the 
State is receiving a grant under section 1820(aXl).", and 
(Vin) in paragraph (9), by striking "each of the fiscal 
years 1989 and 1990" and inserting "fiscal year 1989 
and $25,000,000 for each of the fiscal years 1990, 1991, 
and 1992". 
(ii) The amendments made by clause (i) shall apply with Effective date, 
respect to applications for grants under the Rural Health 42 USC 1395ww 
Care Transition Grant Program described in section 4005(e) ^
*
*
*
®
-
of the Omnibus Budget Reconciliation Act of 1987 submit-
ted on or after October 1,1989, except that the amendments 
made by subclauses (V) and (VII) of such clause shall take 
effect on the date of the enactment of this Act. 
(2) TREATMENT OF ESSENTIAL ACCESS C!oMMUNiTY HOSPITALS AS 
SOLE COMMUNITY HOSPITALS.—Section 1886(dX5XD) of such Act 
(42 U.S.C. 1395ww(dX5XD)) (as redesignated and amended by 
subsection (eXlXA)) is further amended— 
(A) in clause (iii)— 
(i) in subclause (I), by striking "or", 
(ii) in subclause (II), by striking the period at the end 
and inserting ", or", and 
(iii) by adding at the end the following new subclause: 
"(III) that is designated by the Secretary as an essential 
access community hospital under section 1820(iXl).", and 
(B) by adding at the end the following new clause: 
"(v) If the Secretary determines that, in the case of a hospital 
designated by the Secretary as an essential access community hos-
pital under section 1820(iXl), the hospital has incurred increases in 
-
reasonable costs during a cost reporting period as a result of becom-
ing a member of a rural health network (as defined in section 
1820(g)) in the State in which it is located, and in incurring such 
increases, the hospital will increase its costs for subsequent cost 
reporting periods, the Secretary shall increase the hospital's target 
amount under subsection Ot)X3XC) to account for such incurred 
increases.". 
(3) COVERAGE OF, AND PAYMENT FOR, INPATIENT RURAL PRI-
MARY CARE HOSPITAL SERVICES.— 
(A) DEFINITIONS.—Section 1861 of such Act (42 U.S.C. 
1395x) is amended by adding at the end the following new 
subsection: 
"Rural Primary Care Hospital; Rural Primary Care Hospital 
Services 
"(mmXl) The term 'rural primary care hospital' means a facility 
designated by the Secretary as a rural primary care hospital under 
section 1820(iX2). 
"(2) The term 'inpatient rural primary care hospital services' 
means items and services, furnished to an inpatient of a rural 
primary care hospital by such a hospital, that would be inpatient 
103 STAT. 2152 
PUBLIC LAW 101-239—DEC. 19, 1989 
hospital services if furnished to an inpatient of a hospital by a 
hospital.". 
(B) COVERAGE AND PAYMENT.—(i) Section 1812(aXl) of 
such Act (42 U.S.C. 1395d(aXl)), as restored by the Medicare 
Catastrophic Coverage Repeal Act of 1989, is amended by 
inserting "and inpatient rural primary care hospital serv-
ices" before the semicolon. 
(ii) Section 1814(a) of such Act (42 U.S.C. 1395f(a)) is 
amended— 
(I) by striking "and" at the end of paragraph (6), 
(II) by striking the period at the end of paragraph (7) 
and inserting "; and", and 
' V 
(III) by inserting after paragraph (7) the following 
new paragraph: 
"(8) in the case of inpatient rural primary care hospital 
services, a physician certifies that such services were required 
to be immediately furnished on a temporary, inpatient basis.". 
- 
(iii) Section 1814 of such Act is further amended— 
(I) in subsection (b), by inserting ", other than a rural 
primary care hospital providing inpatient rural pri-
mary care hospital services," after "providing hospice 
^ 
care", and 
(II) by adding at the end the following new 
subsection: 
"Payment for Inpatient Rural Primary Care Hospital Services 
"(IXD The amount of payment under this part for inpatient rural 
primary care hospital services— 
"(A) in the case of the first 12-month cost reporting period for 
which the facility operates as such a hospital, is the reasonable 
costs of the facility in providing inpatient rural primary care 
hospital services during such period, as such costs are deter-
mined on a per diem basis, and 
"(B) in the case of a later reporting period, is the per diem 
pa3nnent amount established under this paragraph for the 
preceding 12-month cost reporting period, increased by the 
applicable percentage increase under section 1886(bX3XBXi) for 
that particular cost reporting period applicable to hospitals 
located in a rural area. 
The payment amounts otherwise determined under this paragraph 
shall be reduced, to the extent necessary, to avoid duplication of any 
payment made under section 1820(aX2) (or under section 4005(e) of 
the Omnibus Budget Reconciliation Act of 1987) to cover the provi-
sion of inpatient rural primary care hospital services. 
"(2) The Secretary shall develop a prospective pajmient system for 
determining pajnnent amounts for inpatient rural primary care 
hospital services under this part furnished on or after January 1, 
1993.". 
(C) TREATMENT OF RURAL PRIMARY CARE HOSPITALS AS 
^ ' , 
PROVIDERS OF SERViCES.^i) Section 1861(u) of such Act (42 
U.S.C. 1395x(u)) is amended by inserting "rural primary 
care hospital," after "hospital,". 
^ ^ 
(ii) Section 1863 of such Act (42 U.S.C. 1395z) is amended 
by striking "and (jjX3)" and inserting "(ijX3), and (mmXD". 
(iii) The first sentence of section 1864(a) of such Act (42 
U.S.C. 1395aa(a)) is amended by inserting ", a rural primary 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2153 
care hospital, as defined in section 1861(mmXl)," after 
"1861(aaX2)". 
N 
(iv) The third sentence of section 1865(a) of such Act (42 
U.S.C. 1395bb(a)) is amended by striking "or 1861(ddX2)" 
and inserting "1861(ddX2), or 1861(mmXl)". 
(D) CONFORMING AMENDMENTS,—<i) Section 1128A(bXl) of 
such Act (42 U.S.C. 1320a-7a(bXl)) is amended by striking 
"hospital" each place it appears and inserting "hospital or 
a rural primary care hospital". 
"
^ 
(ii) Section 1128B(c) of such Act (42 U.S.C. 1320a-7b(c)) is 
amended by inserting "rursd primary care hospital," after 
"hospital,". 
(iii) Section 1134 ofsuch Act (42 U.S.C.1320b-4) is amend- 
3 
ed by striking "hospitals" each place it appears and insert-
'•' 
ing "hospitals or rural primary care hospitals". 
(iv) Section 1138(aXl) of such Act (42 U.S.C. 1320b-8(aXl)) 
is amended by striking "hospital" each place it appears in 
the matter preceding clause (i) of subparagraph (A) and 
inserting "hospital or rural primary care hospital". 
(v) Section 1164(e) of such Act (42 U.S.C. 1320c-13(e)) is 
amended by inserting "rural primary care hospitals," after 
"hospitals,". 
(vi) Section 
1816(cX2XC) of such Act (42 U.S.C. 
1395h(cX2XC)) is amended by inserting "rural primary care 
hospital," after "hospital,". 
(vii) Section 1833 of such Act (42 U.S.C. 13951) is 
amended— 
(I) in subsection (hX5XAXiii), by striking "hospital," 
each place it appears and inserting "hospital or rural 
primary care hospital,"; 
(II) in subsection (iXlXA), by inserting ", rural pri-
mary care hospital," after "1832(aX2XFXi))"; 
Gil) in subjection (iX3XA), by inserting "or rural 
primary 
care 
hospital 
services" 
after 
"facility 
services"; 
(IV) in subsection (1X5XA), by inserting "rural pri-
mary care hospital," after "hospital," each place it 
appears; and 
(V) in subsection (1X5XC), by striking "hospital" each 
place it appears and inserting "hospital or rural pri-
/ mary care hospital". 
(viii) Section 1835(c) of such Act (42 U.S.C. 1395n(c)) is 
amended by adding at the end the following: "A rural 
primary c£ire hospital shall be considered a hospital for 
purposes of this subsection.". 
(ix) Section 1842(bX6XAXii) of such Act (42 U.S.C. 
1395u(bX6XAXii)) is amended by inserting "rural primary 
care hospital," after "hospital,". 
(x) Section 1861 of such Act (42 U.S.C. 1395x) is 
amended— 
(I) in subsection (e), by adding at the end the 
following: 
"The term 'hospital' does not include, unless the context otherwise 
requires, a rural primary care hospital (as defined in section 
1861(mmXl)).". 
(II) in subsection (wXD, by inserting "rural primary 
care hospital," after "hospital,", and 
103 STAT. 2154 
PUBLIC LAW 101-239—DEC. 19, 1989 
(III) in subsection (wX2), by striking "hospital" each 
place it appears and inserting "hospital or rural pri-
mary care hospital", 
(xi) Section 1862(aX14) of such Act (42 U.S.C. 1395y(aX14)) 
is amended by striking "hospital" each place it appears and 
inserting "hospital or rural primary care hospital . 
(xii) Section 1866(a)(1) of such Act (42 U.S.C. 1395cc(aXl)) 
is amended— 
(I) in subparagraph (FXii), by inserting "rural pri-
'• • 
mary care hospitals, after "hospitals,"; 
' 
(II) in subparagraph (H), by inserting after "this 
title" the first place it appears the following: "and in 
the case of rural primary care hospitals which provide 
rural primary care hospital services"; 
(III) in subparagraph (I), by inserting "and in the case 
of a rural primary care hospital" after "hospitgd"; and 
(IV) in subparagraph (N), by striking "hospitals" and 
"hospital," and inserting "hospitals and rural primary 
care hospitals" and "hospital or rural primary care 
hospital, , respectively. 
(xiii) Section 1866(aX3) of such Act (42 U.S.C. 1395cc(aX3)) 
is amended— 
(I) by striking "hospital," each place it appears in 
,, 
subparagraphs (A) and (B) and inserting 
hospital, 
rured primary care hospital,", and 
(II) in subparagraph (CXii)(II), by striking "facilities" 
each place it appears and inserting "facilities, rural 
primary care hospitals,". 
(xiv) Section 1867(e) of such Act (42 U.S.C. 1395dd(e)) is 
amended by adding at the end the following 
new 
paragraph: 
"(6) The term 'hospital' includes a rural primary care hospital 
(as defined in section 1861(mmXl)).". 
(4) AVOIDING DUPUCATIVE PAYMENTS TO HOSPITALS PARTICIPAT-
ING IN RURAL HEALTH CARE TRANSITION GRANTS.—Section 1886 of 
the Social Security Act (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection: 
"(i) AVOIDING DUPUCATIVE PAYMENTS TO HOSPITALS PARTICIPATING 
IN RURAL DEMONSTRATION PROGRAMS.—The Secretary shall reduce 
any pa3mient amounts otherwise determined under this section to 
the extent necessary to avoid duplication of any pa5mient made 
under section 4005(e) of the Omnibus Budget Reconciliation Act of 
1987.". 
(h) GEOGRAPHIC CLASSIFICATION OF HOSPITALS.— 
(1) ESTABUSHMENT OF MEDICARE GEOGRAPHICAL CLASSIFICATION 
BOARD.—Section 1886(d) of the Social Security Act (42 U.S.C. 
1395ww(d)) is amended by adding at the end the following new 
paragraph: 
"(lOXA) There is hereby established the Medicare Geographical 
Classification Review Board (hereinafter in this paragraph referred 
to as the 'Board'). 
"(BXi) The Board shall be composed of 5 members appointed by 
the Secretary without regard to the provisions of title 5, United 
States Code, governing appointments in the competitive service. 
Two of such members shall be representatives of subsection (d) 
hospitals located in a rural area under paragraph (2)(D). At least 1 
member shall be a member of the Prospective Payment Assessment 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2155 
Commission, and at least 1 member shall be knowledgeable in the 
field of analyzing costs with respect to the provision of inpatient 
hospital services. 
"(ii) The Secretary shall make all appointments to the Board as 
provided in this paragraph within 180 days after the date of the 
enactment of this paragraph. 
"(CXi) The Board shall consider the application of any subsection 
(d) hospital requesting that the Secretary change the hot^ital's 
geographic classification for purposes of determining for a fiscal 
year— 
"(I) the hospital's average standardized amount under para-
graph (2)(D), or 
"(11) the area wage index applicable to such hospital under 
paragraph (3XE). 
"(ii) A hospital requesting a change in geographic classification 
under clause (i) for a fiscal year shall submit its application to the 
Board not later than the first day of the preceding fiscal year. 
"(iiiXD The Board shall render a decision on an application 
submitted under clause (i) not later than 180 days after the deadline 
referred to in clause (ii). 
"(ID A decision of the Board shall be final unless the unsuccessful 
applicant appeals such decision to the Secretaiy by not later than 15 
days after the Board renders its decision. The Secretary in consider- 
. 
ing the appeal of an applicant shall receive no new evidence but 
shall consider the record as a whole as such record appeared before 
the Board. The Secretary shall issue a decision on such an appeal 
not later than 90 days after the appeal is filed. The decision of the 
Secretary shall be final and shall not be subject to judicial review. 
"(DXi) The Secretary shall publish guidelines to be utilized by the 
Board in rendering decisions on applications submitted under this 
paragraph, and shall include in such guidelines the following: 
"
C
D Guidelines for comparing wages, taking into account 
occupational mix, in the area in which the hospital is classified 
and the area in which the hospital is applying to be classified. 
"(ID Guidelines for determining whether the coimty in which 
the hospital is located should be treated as being a part of a 
particular Metropolitan Statistical Area. 
"(in) Guidelines for considering information provided by an 
applicant with respect to the effects of the hospital's geographic 
classification on access to inpatient hospital services by medi-
care beneficiaries. 
"(IV) Guidelines for considering the appropriateness of the 
criteria used to define New England (Jounty Metropolitan 
Areas, 
"(ii) The Secretary shall publish the guidelines described in clause 
(i) by July 1,1990. 
"^Xi) The Board shall have full power and authority to make 
rules and establish procedures, not inconsistent with the provisions 
of this title or r^ulations of the Secretary, which are necessary or 
appropriate to cany out the provisions of this paragraph. In the 
course of any hearing the Boand may administer oaths and affirma- 
^ 
tions. The provisions of subsections (d) and (e) of section 205 with 
respect to subpenas shall apply to the Board to the same extent as 
such provisions apply to the Secretary with respect to title II. 
"(ii) The Board is authorized to engage such technical assistance 
and to receive such information as may be required to cany out its 
functions, and the Secretary shall, in addition, make available to the 
103 STAT. 2156 
PUBLIC LAW 101-239—DEC. 19, 1989 
Board such secretarial, clerical, and other assistance as the Board 
may require to carry out its functions. 
"(FXi) Each member of the Board who is not an officer or em-
ployee of the Federal Government shall be compensated at a rate 
equal to the daily equivalent of the annual rate of basic pay pre-
scribed for grade GS-18 of the General Schedule under section 5332 
of title 5, United States Code, for each day (including travel time) 
during which such member is engaged in the performance of the 
duties of the Board. Each member of the Board who is an officer or 
employee of the United States shall serve without compensation in 
addition to that received for service as an officer or employee of the 
United States. 
"(ii) Members of the Board shall be allowed travel expenses, 
including per diem in lieu of subsistence, at rates authorized for 
employees of agencies under subchapter I of chapter 57 of title 5, 
United States Code, while away from their homes or regular places 
of business in the performance of services for the Board.". 
(2) EFFECT OF DECISIONS OF BOARD ON PAYMENTS TO HOS-
PITALS.—Section 1886(dX8) of such Act (42 U.S.C. 1395ww(dX8)) is 
amended— 
(A) in subparagraph (CXi), by striking "subparagraph (B)" 
each place it appears and inserting "subparagraph (B) or a 
decision of the Medicare Geographic Classification Review 
Board or the Secretary under paragraph (10),", and 
(B) in subparagraph (D), by striking "(B) and (C)" each 
place it^ppears and inserting "(B) and (C) or a decision of 
the Medicare Geographic Classification Review Board or 
the Secretary under paragraph (10)". 
Urban areas. 
(3) REVISION OF RULES FOR TREATMENT OF RECLASSIFIED HOS-
42 use 1
3
9
5
W
W
. 
PiTALS.—Section 1886(dX8)(C) of such Act is amended to read as 
follows: 
"(CXi) If the application of subparagraph (B) or a decision of the 
Medicare Geographic Classification Review Board or the Secretary 
under paragraph (10), by treating hospitals located in a rural county 
or counties as being located in an urban area— 
"(I) reduces the wage index for that urban area (as applied 
under this subsection) by 1 percentage point or less, the Sec-
retary, in calculating such wage index under this subsection, 
shall exclude those hospitals so treated, or 
"(II) reduces the wage index for that urban area by more than 
1 percent£ige point (as applied under this subsection), the Sec-
retary shall calculate and apply such wage index under this 
subsection separately to hospitals located in such urban area 
(excluding all the hospitals so treated) and to the hospitals so 
treated (as if each affected rural county were a separate urban 
area), 
"(ii) If the application of subpareigraph (B) or a decision of the 
Medicare Geographic Classification Review Board or the Secretary 
under paragraph (10), by reclassif3dng a county from a rural to an 
urban area or by reclsissifying an urban county from one urban area 
to another urban area— 
"(I) reduces the wage index for the urban area within which 
the county or counties is reclassified by 1 percentage point or 
less (as applied under this subsection), the Secretary, in cal-
culating such wage index under this subsection, shall exclude 
those counties so reclassified, or 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2157 
"(ID reduces the wage index for the urban area within which 
the county or counties is reclassified by more than 1 percentage 
point (as applied under this subsection), the Secretary shall 
calculate and apply such wage index under this sul^ection 
separately to hospitals located in such urban area (excluding all 
the hospitals so reclassified) and to hospitals located in the 
counties so reclassified (as if each affected county were a sepa-
rate area), 
"(iii) If the application of subparagraph (B) or a decision of the 
Medicare Geographic Classification Review Board or the Secretary 
under paragraph (10), by treating hospitals located in a rural county 
or counties as not being located in the rural area in a State, reduces 
the wage index for that rural area (as applied under this subsection), 
the Seoretary shall calculate and apply such wage index under this 
subsection as if the hospitals so treated had not been excluded from 
calculation of the wage index for that rural area.". 
(4) FLOOR FOR AREA WAGE INDICES.—Section 1886(dX8XC) of 
such Act (as amended by paragraph (3)) is further amended by 
adding at the end the following new clause: 
"(iv) The application of subparagraph (B) or a decision of the 
Medicare Ge(^aphic Classification Review Board or the Secretary 
under paragraph (10) may not result in the reduction of any county s 
wage index to a level below the wage index for rural areas in the 
State in which the county is located. . 
(5) ADDITIONAL PAYMENT RESULTING FROM CORRECTIONS OP 42 use I395ww 
ERRONEOUSLY DETERMINED WAGE INDEX.— 
note. 
(A) IN GENERAL.—If the Secretary of Health and Human 
Services (hereinafter referred to as the "Secretary") discov-
ers an error with respect to the determination, adjustment, 
or computation of the area wage index described in section 
1886(dX3XE) of the Social Security Act and subsequently 
corrects such error, the Secretary shall make an ad(htional 
payment under title XVm of such Act to a hospital affected 
by such error for inpatient hospital discharges occurring 
during the period when the erroneously determined, ad-
justed, or computed wage index was in effect. 
CB) CONDITIONS FOR ADDITIONAL PAYMENT.—A hospital is 
eligible for an additional payment under subparagraph (A) 
only if— 
(i) the error resulted from the submission of erro-
neous data, except that a hospital is not eligible for 
such additional payment if it submitted such erroneous 
data; 
/ 
(ii) the error was made with respect to the survey of 
the 1984 wages and wage-related costs of hospitals in 
the United States conducted under section 1886(dX3XE) 
of the Social Security Act; and 
(iii) the correction of the error resulted in an adjust-
ment to the area wage index of not less than 3 percent-
age points. 
(
C
O PERIOD OF APPLICABILITY.—^A hospital may not receive 
an additional payment under subparagraph (A) for dis-
4 
charges occurring after October 1,1990. 
(6) UPDATES TO WAGE INDEX SURVEY.—Section 1886(dX3)(E) of 
the Social Security Act (42 US.C. 1395ww(dX3XE)) is amended— 
^j 
(A) by striking "October 1, 1990 (and at least every 36 
months thereafter)" and inserting "October 1, 1990, and 
103 STAT. 2158 
PUBLIC LAW 101-239—DEC. 19,1989 
October 1, 1993 (and at least every 12 months thereafter)", 
and 
(B) by adding at the end the following new sentence: 
"Any adjustments or updates made under this subpara-
graph for a fiscal year (beginning with fiscal year 1991) 
shall be made in a manner that assures that the aggregate 
payments under this subsection in the fiscal year are not 
greater or less than those that would have been made in the 
year without such adjustment.". 
42 use I395ww 
(7) EFFECTIVE DATE.—The amendments made by paragraphs 
°°*®- 
(3) and (4) shall apply to discharges occurring on or after April 
1,1990. 
Urbmi areas. 
(j) 
LEGISLATIVE PROPOSAL 
EUMINATING 
SEPARATE AVERAGE 
42USC1395W 
STANDARDIZED A M O U N T S . -
(1) IN GENERAL.—The Secretary of Health and Human Serv-
ices (hereinafter referred to as the "Secretary") shall design a 
legislative proposal eliminating the system of determining sepa-
rate average standardized amounts for subsection (d) hospitals 
(as defined in section 1886(dXlXB) of the Social Security Act) 
classified as being located in large urban, other urban, or rural 
areas under section 1886(dX2XD) of such Act, and shall include 
in such proposal the following: 
(A) A transition period beginning in fiscal year 1992 
during which a single rate for determining pajrment to 
hospitals in all areas shall be phased in with such single 
rate to be completely in effect by fiscal year 1995. 
(B) Recommendations, where appropriate, for modifying 
or maintaining additional payments or adjustments made 
under title XVIII of the Social Security Act for teaching 
hospitals, rural referral centers, sole community hospitals, 
disproportionate share hospitals, and outlier cases, and for 
creating additional payments or adjustments where deemed 
appropriate by the Secretary. 
(C) Recommendations with respect to recalculating 
standardized amounts to reflect information from more 
recent cost reporting periods. 
(D) Recommendations, where appropriate, for modifjdng 
reimbursement for hospitals that are not subsection (d) 
hospitals under title XVIII of such Act. 
(E) A recommendation for a methodology to reflect the 
severity of illness of different patients within the same 
diagnosis-related 
group 
(as 
determined 
in 
section 
1886(dX4XB) of such Act). 
(2) REPORT TO CONGRESS AND PROPAC.—(A) Not later than 
October 1, 1990, the Secretary shall submit the proposal de-
scribed in par£igraph (1) and an accompanying analysis of the 
impact of the proposed elimination of separate average 
standardized amounts on various categories of hospitals to Con-
gress and the Prospective Payment Assessment Commission. 
(B) Not later than February 1,1991, the Prospective Payment 
^ Assessment Commission and the Director of the Congressional 
Budget Office shall each prepare and submit to Congress a 
report analyzing the legislative proposal submitted under 
subparagraph (A), and shall include in such report an analysis 
of the probable impact of such legislation on hospitals partici-
pating in the medicare program. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2159 
0
*
) PROPAC STUDY OF PAYMENTS TO RURAL SOLE COMMUNITY 
HOSPITALS AND SMALL RURAL HOSPITALS.— 
(1) STUDY.—The Prospective Payment Assessment Commis-
sion (hereinafter referred to as the "Commission") shall conduct 
a study of the feasibility and desirability of— 
(A) using a cost-based reimbursement system to deter-
mine the amount of payments to be made under the medi-
care program to small rural hosi)itals and rural sole 
community hospitals for the operating costs of inpatient 
hospital services; 
(B) developing and appljdng alternative definitions of 
market share for use in determining the eligibility of hos-
pitals for classification as sole community hospitals under 
section 1886(dX5) of the Social Security Act; and 
(C) developing and applying a method for accounting for 
decreases in the number of inpatients served in determin-
ing pajmient to small rural hospitals under section 1886(d) 
of the Social Security Act for the operating costs of in-
patient hospital services. 
(2) REPORT.—By not later than May 1, 1990, the Commission 
shall submit a report to (Congress on the study conducted under 
paragraph (1). 
SEC. 6004. PPS-EXEMPT HOSPITALS. 
(a) EXEMPTION OF CANCER HOSPITALS FROM PROSPECTIVE PAYMENT 
CyQmyfcJT ^^m, 
(i) IN GENERAL.—Section 1886(dXlXB) of the Social Security 
Act (42 U.S.C. 1395ww(d)(l)(B)) is amended— 
(A) in clause (iii), by striking "or"; 
, 
(B) in clause (iv), by striking the semicolon at the end and 
inserting ", or"; and 
(C) by inserting after clause (iv) the following new clause: 
"(v) a hospital that the Secretary has classified, at any time 
on or before December 31, 1990, (or, in the case of a hospital 
that, as of the date of the enactment of this clause, is located in 
a State operating a demonstration project under section 1814(b), 
on or before December 31, 1991) for purposes of appl3dng excep-
tions and adjustments to payment amounts under this subsec-
tion, as a hospital involved extensively in treatment for or 
research on cancer;". 
(2) CONFORMING AMENDMENT.—Section 1886(dX5XI) of such 
-
Act (as redesignated by section 6003(eXlXA)) is amended by 
striking "(including" and all that follows through "cancer)'. 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 42 use I395ww 
tion shall apply with respect to cost reporting periods beginning ^°^-
on or after October 1,1989, except that— 
(A) in the case of a hospital classified by the Secretary of 
Health and Human Services as a hospital involved exten-
->•- 
sively in treatment for or research on cancer under section 
1886(dX5XI) of the Social Security Act (as redesignated by 
section 6003(eXlXA)) after the date of the enactment of this 
Act, such amendments shall apply with respect to cost 
reporting periods beginning on or after the date of such 
classification, 
(B) in the case of a hospital that is not described in 
subparagraph (A), such amendments shall apply with re-
spect to portions of cost reporting periods or discharges 
103 STAT. 2160 
PUBLIC LAW 101-239—DEC. 19, 1989 
' 
occurring during and after fiscal year 1987 for purposes of 
section 1886(g) of the Social Security Act, and 
(C) such amendments shall take effect 30 days after the 
date of the enactment of this Act for purposes of determin-
^ ^ 
ing the eligibility of a hospital to receive periodic interim 
payments under section 1815(eX2) of the Social Security 
Act. 
0
1
>
) REBASING FOR CANCER HOSPITALS.— 
(1) IN GENERAL.—Section 1886fl[>X3) of such Act (42 U.S.C. 
1395ww(bX3)), as amended by subsections (eXlXB) and (fK2) of 
section 6()03, is further amended— 
(A) in subparagraph (A), by striking "(C) and (D)" and 
insertmg "(O, (D), and (E)", 
(B) in subparagraph (BXii), by striking "For purposes of 
subparagraph (A)" and inserting "For purposes of subpara-
j 
graphs (A) and (E)", and 
(C) by adding at ihe end the following new subparagraph: 
"(E) In the case of a hospital described in clause (v) of subsection 
(dXl)(B), the term 'target amount' means— 
"(i) with respect to the first 12-mQnth cost reporting period in 
which this subparagraph is applied to the hospital— 
"
O
D the allowable operating costs of inpatient hospital 
services (as defined in subsection (aX4)) recognized under 
ic: this title for the hospital for the 12-month cost reporting 
period (in this subparagraph referred to as the 'base cost 
reporting period') preceding the first cost reporting period 
for which this subsection was in effect with respect to such 
hospital, increased (in a compounded manner) by— 
' 
"(ID the sum of the applicable percentage increases ap-
plied to such hospital under this paragraph for cost report-
ing periods after the base cost reporting period and up to 
- 
and including such first 12-month cost reporting period, or 
"(ii) with respect to a later cost reporting period, the target 
amount for the preceding 12-month cost reporting period, in-
creased by the applicable percentage increase under subpara-
graph (BXii) for that later cost reporting period. 
There shall be substituted for the base cost reporting period de-
~ 
scribed in clause (i) a hospital's cost reporting period (if any) b^in-
ning during fiscal year 1987 if such substitution results in an 
increase in the target amount for the hospital.". 
42 use I395ww 
(2) EFFECTIVE D
A
T
E
.
—
^
T
T
i
o amendments made by paragraph (1) 
"°*®- 
shall apply with respect to cast reporting periods beginning on 
or after April 1,1989. 
SEC 6005. PAYBIENTS FOR HOSPICE CARE. 
(a) INCREASE IN CURRENT RATES.—Section 1814(iXl) of the Socisd 
Security Act (42 U.S.C. 1395f(iXl)) is amended— 
(1) in subpargigraph (A), by inserting "and except as otherwise 
provided in this paragraph" after "1813(aX4)", and 
(2) by strikii^ subparagraph (C) and inserting the following: 
"(CXi) With respect to routine home care and other services 
included in hospice care furnished diu-ing fiscal year 1990, the 
payment rates for such care and services shall be 120 percent of 
such rates in effect as of September 30,1989. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2161 
42 u s e 1395f 
note. 
"(ii) With respect to routine home care and other services included 
in hospice care furnished during a subsequent fiscal year, the 
payment rates for such care and services shall be the payment rates 
in effect under this subparagraph during the previous fiscal year 
increased by the market basket percentage increase (as defined in 
section 1886(bX3XBXiii)) otherwise applicable to discharges occurring 
in the fiscal year.". 
(b) REQUIREMENT OF CERTIFICATION OF TERMINAL ILLNESS FOR HOS-
PICE CARE MODIFIED.—Section 1814(aX7XAXi) of the Social Security 
Act (42 U.S.C. 1395f[aX7XAXi)) is amended by striking "certify," and 
all that follows through "initiated," and inserting the following: 
"certify in writing, not later than 2 days after hospice care is 
iriitiated (or, if each certify verbally not later than 2 days after 
hospice care is initiated, not later than 8 days after such care is 
initiated),". 
(c) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective with respect to care and services furnished on 
or after January 1,1990. 
Subpart B—Technical and Miscellaneous Provisions 
SEC. 6011. PASS THROUGH PAYMENT FOR HEMOPHILIA INPATIENTS. 
(a) PASS THROUGH PAYMENT FOR HEMOPHIUA INPATIENTS.—The 
second sentence of section 1886(aX4) of the Social Security Act (42 
U.S.C. 1395ww(dX4)) is amended— 
(1) by striking "or,"; and 
(2) by striking "October 1, 1987)" and inserting "October 1, 
1987), or costs with respect to administering blood clotting 
factors to individuals with hemophilia". 
(b) DETERMINING PAYMENT AMOUNT.—The Secretary of Health 
and Human Services shall determine the amount of payment made 
to hospitals under part A of title XVIII of the Social Security Act for 
the costs of administering blood clotting factors to individuals with 
hemophilia by multiplying a predetermined price per unit of blood 
clotting factor (determined in consultation with the Prospective 
Payment Assessment Commission) by the number of units provided 
to the individual. 
(c) RECOMMENDATIONS ON PAYMENTS.—The Prospective Payment 
Assessment Commission and the Health Care Financing Adminis-
tration shall develop recommendations with respect to payments to 
hospitals under part A of title XVIII of the Social Security Act for 
the costs of administering blood clotting factors to individuals with 
hemophilia, and shall submit such recommendations to Congress 
not later than 18 months after the date of enactment of this Act. 
(d) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to items furnished 6 months after the date 
of enactment of this Act and shall expire 2 years after the date of 
enactment of this Act. 
SEC. 6012. MEDICARE BUY-IN FOR CONTINUED BENEFITS FOR DISABLED 
INDIVIDUALS. 
(a) IN GENERAL.—Title XVIII of the Social Security Act is 
amended— 
(1) in the heading of section 1818, by inserting "ELDERLY" after ^2 USC 1395i-2. 
"UNINSURED"; and 
(2) by inserting after section 1818 the following new section: 
42 USC 1395WW 
note. 
42 USC 1395WW 
note. 
42 USC 1395WW 
note. 
103 STAT. 2162 
PUBLIC LAW 101-239—DEC. 19, 1989 
HOSPITAL INSUBANCE BENEFITS FOB DISABLED INDIVIDUAI5 WHO 
HAVE EXHAUSTED OTHEB ENTITLEMENT 
42 use 
"SEa 1818A. (a) Eveiy individual who— 
^^^^'-^- 
"(1) has not attained the age of 65; 
"(2XA) has been entitled to benefits under this part under 
section 226(bX and 
"(BXi) continues to have the disabling physical or mental 
impairment on the basis of which the individual was found to be 
under a disability or to be a disabled qualified railroad retire-
ment beneficiary, or (ii) is blind (within the meaning of section 
216(iXl)),but 
"(C) whose entitlement under section 226(b) ends due solely to 
the individual having earnings that exceed the substantial gain-
ful activity amount (as defin^ in section 223(dX4)); and 
"(3) is not otherwise entitled to benefits under this part, 
shall be eligible to enroll in the insurance program established by 
this part 
"(bXD An individual may enroll under this section only in such 
manner and form as may be prescribed in r^ulations, and only 
during an enrollment period prescribed in or under this section. 
'X2) The individual's initial enrollment period shall b^gin with the 
month in which the individual receives notice that the individual's 
entitlement to benefits under section 226(b) will end due solely to 
the individual having earnings that exceed the substantial gainfiil 
activity amount (as defined in section 223(dX4)) and shall end 7 
months later. 
''(3) There shall be a general enrollment period during the period 
b^finning on January 1 and ending on March 31 of each year 
(beginning vidth 1990). 
"(PKX) The period (in this subsection referred to as a 'coverage 
period') during which an individual is entitled to benefits under the 
insurance program under this part shall begin on whichever of the 
following is the latest: 
"(A) In the case of an individual who enrolls under subsection 
(bX2) before the month in which the individual first satisfies 
subsection (a), the first day of such month. 
"(B) In the case of an individual who enrolls under subsection 
(bX2) in the month in which the individual first satisfies subsec-
tion (a), the first day of the month following the month in which 
the individual so enrolls. 
*\0 In the case of an individual who enrolls under subsection 
(bX2) in the month following the month in which the individual 
first satisfies subsection (a), the first day of the second month 
' 
following the month in which the individual so enrolls. 
"(D) In the case of an individual who enrolls under subsection 
(bX2) more than one month following the month in which the 
individual first satisfies subsection (a), the first day of the third 
month following the month in which the individual so enrolls. 
"(E) In the case of an individual who enrolls under subsection 
(bX3), the July 1 following the month in which the individual so 
enrolls. 
"(2) An individual's coverage period under this section shall con-
tinue until the individual's enrollment is terminated as follows: 
"(A) As of the month following the month in which the 
Secretary provides notice to the individual that the individual 
no longer meets the condition described in subsection (aX2)(B). 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2163 
"(B) As of the month foUowmg the month in which the 
individual files notice that the individual no longer wishes to 
participate in the insurance program established by this part. 
"(C) As of the month before the first month in which the 
individual becomes eligible for hospital insurance benefits 
under section 226(a) or 226A. 
"(D) As of a date, determined under regulations of the Sec-
retary, for nonpayment of premiums. 
The regulations under subparagraph (D) may provide a grace period 
of not longer than 90 days, which may be extended to not to exceed 
180 days in any case where the Secretary determines that there was 
good cause for failure to pay the overdue premiums within such 90-
day period. Termination of coverage under this section shall result 
in simultaneous termination of any coverage affected under any 
other part of this title. 
"(3) The provisions of subsections (h) and (i) of section 1837 apply 
to enrollment and nonenroUment under this section in the same 
manner as they apply to enrollment and nonenroUment and special 
enrollment periods under section 1818. 
"(dXlXA) Premiums shall be paid to the Secretary at such times, 
and in such manner, as the Secretary shall by regulations prescribe, 
and shall be deposited in the Treasury to the credit of the Federal 
Hospital Insurance Trust Fund. 
"(BXi) Subject to clause (ii), such premiums shall be payable for 
the period commencing with the first month of an individual's 
coverage period and ending with the month in which the individual 
dies or, if earlier, in which the individusd's coverage period termi-
nates. 
"(ii) Such premiums shall not be payable for any month in which 
the individual is eligible for benefits under this part pursuant to 
section 226(b). 
"(C) For purposes of appl3dng section 1839(g) of this title and 
section 59B(0(lXBXi) of the Internal Revenue Code of 1986, any 
, 
reference to section 1818 shall be deemed to include a reference to 
this section. 
' 
"(2) The provisions of subsections (d) through (f) of section 1818 
(relating to premiums) shall apply to individuals enrolled under this 
section in the same manner as they apply to individuals enrolled 
under that section.". 
(b) EFFECTIVE DATE.—The amendments made by this section shall 42 use I395i-2a 
take effect on the date of the enactment of this Act, but shall not 
^°^-
apply so as to provide for coverage under part A of title XVIII of the 
Social Security Act for any month before July 1990. 
• ' 
SEC. 6013. BUY-IN UNDER PART A FOR QUALIFIED MEDICARE BENE-
FICIARIES. 
(a) IN GENERAL.—Section 1818 of the Social Security Act (42 U.S.C. 
1395i-2) is amended by adding at the end the following: 
"(gXD The Secretary shall, at the request of a State made after 
Contracts. 
1989, enter into a modification of an agreement entered into with 
the State pursuant to section 1843(a) under which the agreement 
provides for enrollment in the program established by this part of 
qualified medicare beneficiaries (as defined in section 1905(pXl)). 
"(2XA) Except as provided in subparagraph (B), the provisions of 
subsections (c), (d), (e), and (f) of section 1843 shall apply to qualified 
medicare beneficiaries enrolled, pursuant to such agreement, in the 
program established by this part in the same manner and to the 
103 STAT. 2164 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395i-2 
note. 
42 use 1
3
9
5
W
W 
note. 
42 use 1
3
9
5
W
W 
note. 
42 use 1395f 
note. 
same extent as they apply to qualified medicare beneficiaries en-
rolled, pursuant to such agreement, in part B. 
"(B) For purposes of this subsection, section 1843(dXl) shall be 
applied by substituting 'section 1818' for 'section 1839' and 'subsec-
tion (c) (with reference to subsection (b) of section 1839/ for 'subsec-
tion (b).'.". 
(b) CONFORMING AMENDMENT.—Section 1843 of such Act (42 U.S.C. 
1395v) is amended by adding at the end the following: 
"(i) For provisions relating to enrollment of qualified medicare 
beneficiaries under part A, see section lSlS(g)". 
(c) E^FFEcnvB DATE.—^The amendments made by this section shall 
become effective January 1,1990. 
SEC 6014. PBOPAC STUDY ON MEDICARE-DEPENDENT HOSPITALS. 
(a) STUDY.—^The Prospective Payment Assessment Commission 
shall conduct a study of the appropriateness of making an adjust-
ment to the methodology for determining the amount of payment to 
hospitals for which individuals entitled to benefits under part A of 
title XVm of the Social Security Act represent a high proportion of 
discharges. 
(b) Rra>ORT.—^Not later than June 1, 1990, the Commission shall 
include a report on the study conducted under subsection (a) in its 
annual report submitted to Congress. 
SEC 6015. PROVISIONS RELATING TO TARGET AMOUNT ADJUSTMENTS, 
(a) INCLUDING NEW BASE PERIOD IN TARGET ADJUSTMENTS.—Sec-
tion 
1886(bX4XA) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395ww(bX4XA)) is amended by striking "deems appropriate," and 
inserting "deems appropriate, including the assignment of a new 
base period which is more representative, as determined by the 
Secretary, of the reasonable and necessary cost of inpatient services 
and". 
(b) PUBLICATION OF INSTRUCTIONS RELATING TO EXCEPTIONS AND 
ADJUSTMENTS IN TARGET AMOUNTS.—By not later than 180 days 
after the date of enactment of this Act, the Secretaiy of Health and 
Human Services shall publish instructions specifying the applica-
tion process to be used in providing exceptions and adjustments 
under section 18860bX4XA) of the Social Security Act. 
(c) ElFFEcnvE DATE.—The amendment made by subsection (a) shall 
become effective with respect to cost reporting periods beginning on 
or after April 1,1990. 
SEC 6016. STUDY OF METHODS TO COMPENSATE HOSPICES FOR HIGH-
COST CARE. 
(a) STUDY.—^The Secretary of Health and Human Services shall— 
(1) conduct a study of high-cost hospice care provided to 
medicare beneficiaries under the medicare program, and evalu-
ate the ability of hospice programs participating in the medi-
care program to provide such high-cost care to such patients; 
and 
(2) based on such study, develop methods to compensate such 
programs for providing such high-cost care. 
(b) RQ>ORT T
O CONGRESS.—Not later than April 1, 1991, the Sec-
retary shall submit a report to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of 
the Senate on the study conducted under subsection (a) and shall 
include in the report any recommendations developed by the Sec-
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2165 
retary to compensate hospice programs for providing high-cost hos-
pice care to medicare beneficiaries. 
SEC. 6017. PROHIBITION ON NURSING HOME BALANCE BILLING. 
^^ 
Section 1866(a)(2XB) of the Social Security Act (42 U.S.C. 
1395cc(a)(2)(B)) is amended— 
(1) in clause (i), by striking "(i)"; and 
(2) by striking clause (ii). 
SEC. 6018. HOSPITAL ANTI-DUMPING PROVISIONS. 
(a) HOSPITAL OBLIGATIONS WITH RESPECT TO TREATMENT OF EMER-
GENCY MEDICAL CONDITIONS AND INDIGENT CARE.—Section 1866(a)(1) 
of the Social Security Act (42 U.S.C. 1395cc(aXl)) is amended— 
. . 
(1) by amending subparagraph (I) to read as follows: 
"(I) in the case of a hospital or rural primary care hospital— 
"(i) to adopt and enforce a policy to ensure compliance 
with the requirements of section 1867, 
"(ii) to maintain medical and other records related to 
individuals transferred to or from the hospital for a period 
of five years from the date of the transfer, and 
"(iii) to maintain a list of physicians who are on call for 
duty after the initial examination to provide treatment 
necessary to stabilize an individual with an emergency 
medical condition;"; and 
/• (2) in subparagraph (N)— 
(A) by striking "and" at the end of clause (i), 
(B) by striking "and" at the end of clause (ii), and 
(C) by adding at the end the following new clauses: 
"(iii) to post conspicuously in any emergency department 
a sign (in a form specified by the Secretary) specifying 
rights of individuals under section 1867 with respect to 
examination and treatment for emergency medical condi-
tions and women in labor, and 
"(iv) to post conspicuously (in a form specified by the 
Secretary) information indicating whether or not the hos-
pital participates in the medicaid program under a State 
plan approved under title XIX, and'. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) ^2 use I395cc 
shall take effect on the first day of the first month that begins more 
than 180 days after the date of the enactment of this Act, without 
regard to whether regulations to carry out such amendments have 
been promulgated by such date. 
SEC. 6019. RELEASE AND USE OF HOSPITAL ACCREDITATION SURVEYS. 
(a) REQUIRING ALL INSTFTUTIONS AND J C A H O TO RELEASE SURVEYS 
TO SECRETARY.—Section 1865(aX2) of the Social Security Act (42 
U.S.C. 1395bb(aX2)) is amended— 
(1) by striking "(2) such institution" and inserting "(2XA) such 
institution"; 
(2) by striking "(if it is included within a survey described in 
section 1864(c))'^ 
(3) by striking the comma at the end and inserting the 
following: ", together with any other information directly re-
lated to the survey as the Secretary may require (including 
corrective action plans),"; and 
(4) by adding at the end the following new subparagraph: 
note. 
103 STAT. 2166 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395bb. 
42 use 1395bb 
note. 
eontracts. 
"(B) such Commission releases such a copy and any such 
information to the Secretary,". 
(b) AUTHORIZING SECRETARY TO RELEASE CERTAIN INFORMATION.— 
Section 1865(a) of such Act is further amended by striking the period 
at the end of the last sentence and inserting the following: ", except 
that the Secretary may disclose such a survey and information 
related to such a survey to the extent such survey and information 
relate to an enforcement action taken by the Secretary.". 
(c) PERMITTING SECRETARY TO WITHDRAW HOSPITAL'S STATUS BASED 
UPON INFORMATION OTHER THAN SURVEYS.—Section 1865(b) of such 
Act is amended by striking "following a survey made pursuant to 
section 1864(c)". 
(d) EFFECTIVE DATE.—(1) Except as provided in paragraph (2), the 
amendments made by this section shall take efTect on the date of the 
enactment of this Act. 
(2) The £unendments made by subsection (a) shall take effect 6 
months after the date of the enactment of this Act. 
SEC. 6020. INTERMEDIATE SANCTIONS FOR PSYCHIATRIC HOSPITALS. 
Section 1866 of the Social Security Act (42 U.S.C. 1395cc) is 
amended by adding at the end the following new subsection: 
"(iXD If the Secretary determines that a psychiatric hospital 
which has an agreement in effect under this section no longer meets 
the requirements for a psychiatric hospital under this title and 
further finds that the hospital's deficiencies— 
"(A) immediately jeopardize the health and safety of its pa-
tients, the Secretary shall terminate such agreement; or 
"(B) do not immediately jeopardize the health and safety of its 
patients, the Secretary may terminate such agreement, or pro-
i vide that no payment will be made under this title with respect 
to any individual admitted to such hospital after the effective 
date of the finding, or both. 
"(2) If a psychiatric hospital, found to have deficiencies described 
in paragraph (IXB), has not complied with the requirements of this 
title— 
"(A) within 3 months after the date the hospital is found to be 
out of compliance with such requirements, the Secretary shall 
provide that no payment will be made under this title with 
V respect to any individual admitted to such hospital after the end 
of such 3-month period, or 
"(B) within 6 months after the date the hospital is found to be 
out of compliance with such requirements, no payment may be 
made under this title with respect to any individual in the 
' hospital until the Secretary finds that the hospital is in compli-
ance with the requirements of this title.". 
SEC. 602L ELIGIBILITY OF MERGED OR CONSOLIDATED HOSPITALS FOR 
PERIODIC INTERIM PAYMENTS. 
(a) IN GENERAL.—Section 1815(e) of the Social Security Act (42 
U.S.C. 1395g(e)) is amended by adding at the end the following new 
paragraph: 
"(4) A hospital created by the merger or consolidation of 2 or more 
hospitals or hospital campuses shall be eligible to receive periodic 
interim payment on the basis described in paragraph (IXB) if-^ 
"(A) at least one of the hospitals or campuses received peri-
odic interim pa3mient on such basis prior to the merger or 
consolidation; and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2167 
"(B) the merging or consolidating hospitals or campuses 
would each meet the requirement of paragraph (IXBXi) if such 
hospitals or campuses were treated as independent hospitals for 
purposes of this title.". 
(Jb) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to payments made for discharges occurring on or after 
the expiration of the 30-day period that begins on the date of the 
enactment of this Act, regardless of the date of the merger or 
consolidation involved. 
SEC. 6022. EXTENSION OF WAIVER FOR FINGER LAKES AREA HOSPITAL 
CORPORATION. 
Section 
1886(cX4) of the 
Social 
Security 
Act 
(42 U.S.C. 
1395ww(cX4)) is amended in the second sentence by striking "the 
aggregate payment or payments" and all that follows and inserting 
"the Eiggregate rate of increase from October 1, 1984, to the most 
recent date for which annual data are available.". 
SEC. 6023. CLARIFICATION OP CONTINUATION OF AUGUST 1987 HOSPITAL 
BAD DEBT RECOGNITION POLICY. 
(a) IN GENERAL.—Section 4008(c) of the Omnibus Budget Reconcili-
ation Act of 1987 is amended by adding at the end the following: 
"The Secretary may not require a hospital to change its bad debt 
collection policy if a fiscal intermediary, in accordance with the 
rules in effect as of August 1, 1987, with respect to criteria for 
indigency determination procedures, record keeping, and determin-
ing whether to refer a claim to an external collection agency, has 
accepted such policy before that date, and the Secretary may not 
collect from the hospital on the basis of an expectation of a change 
in the hospital's collection policy.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall take effect as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1987. 
SEC. 6024. USE OF MORE RECENT DATA REGARDING ROUTINE SERVICE 
COSTS OF SKILLED NURSING FACILITIES. 
The Secretary of Health and Human Services shall determine 
mean per diem routine service costs for freestanding and hospital 
based skilled nursing facilities under section 1888(a) of the Social 
Security Act for cost reporting periods beginning on or after October 
1, 1989, in accordance with regulations published by the Secretary 
that require the use of cost reports submitted by skilled nursing 
facilities for cost reporting perioids beginning not earlier than Octo-
ber 1,1985. 
SEC. 6025. PERMITTING DENTIST TO SERVE AS HOSPITAL MEDICAL 
DIRECTOR 
Notwithstanding the requirement that the responsibility for 
organization and conduct of the medical staff of an institution be 
assigned only to a doctor of medicine or osteopathy in order for the 
institution to participate as a hospital under the medicare program, 
an institution that has a doctor of dental surgery or of dental 
medicine serving as its medical director shall be considered to meet 
such requirement if the laws of the State in which the institution is 
located permit a doctor of dental surgery or of dental medicine to 
serve as the medical staff director of a hospital. 
42 use 1395g 
note. 
42 use 1395f 
note. 
42 use 1395f 
note. 
42 use 1395yy 
note. 
42 use 1395x 
note. 
103 STAT. 2168 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 6026. GAO STUDY OF HOSPITAL-BASED AND FREESTANDING SKILLED 
NURSING FACILITIES. 
(a) STUDY.—The Comptroller General shall conduct a study to 
assess the differences in costs and case-mix between hospital-based 
and freestanding skilled nursing facilities participating in the medi-
care program. 
(b) REPORT.—By not later than June 1, 1990, the Comptroller 
General shall submit a report to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of 
the Senate on the study conducted under paragraph (1) and shall 
include in the report any recommendations, including recommenda-
tions regarding the pa)anent differential between hospital-based and 
freestanding skilled nursing facilities, the Comptroller General 
considers appropriate. 
SEC. 6027. MASSACHUSETTS MEDICARE REPAYMENT. 
The Secretary of Health and Human Services may not, on or after 
the date of the enactment of this Act and before May 1, 1990, recoup 
from, or otherwise reduce pa)mtients to, hospitals in the State of 
Massachusetts because of alleged overpa)nnents to such hospitals 
under part A of title XVIII of the Social Security Act which occurred 
during the period of the statewide hospital reimbursement dem-
onstration project conducted in that State between October 1, 1982, 
and June 30, 1986, under section 402 of the Social Security Amend-
ments of 1967 and section 222 of the Social Security Amendments of 
1972. Interest shall not accrue on any such alleged overpayments 
during the period beginning on the date of the enactment of this Act 
and ending on May 1,1990. 
SEC. 6028. ALLOWING CERTIFICATIONS AND RECERTIFICATIONS BY 
NURSE PRACTITIONERS AND CLINICAL NURSE SPECIALISTS 
* 
FOR CERTAIN SERVICES. 
Section 1814(a) of the Social Security Act (42 U.S.C. 1395f(a)) is 
amended— 
(1) in paragraph (2) by striking "(2) a physician" and inserting 
"(2) a physician, or, in the case of services described in subpara-
graph (B), a physician, or a nurse practitioner or clinical nurse 
specialist who does not have a direct or indirect employment 
relationship with the facility but is working in collaboration 
with a physician,"; and 
(2) in the matter following the final paragraph by striking "a 
physician makes" and inserting "a physician, nurse practi-
tioner, or clinical nurse specialist (as the case may be) makes". 
PART 2—PROVISIONS RELATING TO PART B 
Subpart A—General Provisions 
2 u s e 902 note. 
SEC. 6101. EXTENSION OF REDUCTIONS UNDER SEQUESTER ORDER. 
Notwithstanding any other provision of law (including any other 
provision of this Act, other than section 6201), the reductions in the 
amount of payments required under title XVIII of the Social Secu-
rity Act made by the final sequester order issued by the President 
on October 16, 1989, pursuant to section 252(b) of the Balanced 
Budget and Emergency Deficit Control Act of 1985 shall continue to 
be effective (as provided by sections 252(aX4XB) and 256(dX2) of such 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2169 
Act) through March 31,1990, with respect to payments for items and 
services under part B of such title. 
SEC. 6102. PHYSICIAN PAYMENT REFORM. 
(a) IN GENERAL.—Part B of title XVIII of the Social Security Act is 
amended by adding at the end the following new section: 
"PAYMENT FOR PHYSICIANS' SERVICES » 
"SEC. 1848. (a) PAYMENT BASED ON FEE SCHEDULE.— 
42 use i395w-4. 
"(1) IN GENERAL.—Effective for all physicians' services (as 
defined in subsection (jX^)) furnished under this part during a 
year (beginning with 1992) for which pajnnent is otherwise 
made on the basis of a reasonable charge or on the basis of a fee 
schedule under section 1834(b) or 1834(f), payment under this 
part shall instead be based on the lesser of— 
"(A) the actual charge for the service, or 
"(B) subject to the succeeding provisions of this subsec-
tion, the amount determined under the fee schedule estab-
lished under subsection (b) for services furnished during 
that year (in this subsection referred to as the 'fee schedule 
amount'). 
"(2) TRANSITION TO FULL FEE SCHEDULE.— 
"(A) LIMITING REDUCTIONS AND INCREASES TO 15 PERCENT 
IN 1992.— 
"(i) LIMIT ON INCREASE.—In the case of a service in a 
fee schedule area (as defined in subsection (jX2)) for 
which the adjusted historical payment basis (as defined 
o 
in subparagraph (D)) is less than 85 percent of the fee 
schedule amount for services furnished in 1992, there 
shall be substituted for the fee schedule amount an 
amount equal to the adjusted historical pajrment basis 
plus 15 percent of the fee schedule amount otherwise 
established (without regard to this paragraph). 
"(ii) LIMIT IN REDUCTION.—In the case of a service in 
a fee schedule area for which the adjusted historical 
payment basis exceeds 115 percent of the fee schedule 
amount for services furnished in 1992, there shall be 
substituted for the fee schedule amount an amount 
_ 
equ£il to the adjusted historical pajnnent bsisis minus 15 
C. 
percent of the fee schedule amount otherwise estab-
lished (without regard to this paragraph). 
"(B) SPECIAL RULE FOR 1993, 1994, AND 1995.—If a physi-
cians' service in a fee schedule area is subject to the provi-
sions of subparagraph (A) in 1992, for physicians' services 
furnished in the area— 
"(i) during 1993, there shall be substituted for the fee 
schedule amount an amount equal to the sum of— 
"(I) 75 percent of the fee schedule amount deter-
mined under subparagraph (A), adjusted by the 
update established under subsection (dX3) for 1993, 
and 
"(II) 25 percent of the fee schedule amount deter-
mined under paragraph (1) for 1993 without regard 
to this paragraph; 
"(ii) during 1994, there shall be substituted for the 
fee schedule amount an amount equal to the sum of— 
103 STAT. 2170 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(I) 67 percent of the fee schedule amount deter-
mined under clause (i), adjusted by the update 
established under subsection (dX3) for 1994, and 
"(11) 33 percent of the fee schedule amount deter-
mined under paragraph (1) for 1994 without regard 
to this paragraph; and 
"(iii) during 1995, there shall be substituted for the 
fee schedule amount an amount equal to the sum of— 
"(I) 50 percent of the fee schedule amount deter-
mined under clause (ii) adjusted by the update 
established under subsection (dX3) for 1995, and 
"(II) 50 percent of the fee schedule amount deter-
mined under paragraph (1) for 1995 without regard 
to this paragraph. 
"(C) 
SPECIAL RULE 
FOR ANESTHESIA SERVICES.—With 
respect to physicians' services which are anesthesia serv-
ices, the Secretary shall provide for a transition in the same 
manner as a transition is provided for other services under 
subparagraph (B). 
"(D) ADJUSTED HISTORICAL PAYMENT BASIS DEFINED.— 
"(i) IN GENERAL.—In this paragraph, the term 'ad-
justed historical payment basis' means, with respect to 
a physicians' service furnished in a fee schedule area, 
the weighted average prevailing charge applied in the 
area for the service in 1991 (as determined by the 
Secretary without regard to physician specialty and as 
adjusted to reflect pa3mients for services with cus-
tomary charges below the prevailing charge or other 
payment limitations imposed by law or regulation) ad-
justed by the update established under subsection (dX3) 
for 1992. 
"(ii) APPUCATION TO RADIOLOGY SERVICES.—In apply-
ing clause (i) in the case of phjrsicians' services which 
are radiology services (including radiologist services, as 
defined in section 1834(bX6)), there shall be substituted 
for the weighted average prevailing charge the amount 
provided under the fee schedule established for the 
service for the fee schedule area under section 1834(b). 
"(3) INCENTIVES FOR PARTICIPATING PHYSICIANS.—In applying 
paragraph (IXB) in the case of a nonparticipating physician, the 
fee schedule amount shall be 95 percent of such amount other-
wise applied under this subsection (without regard to this para-
graph). 
Regulations. 
"(b) ESTABUSHMENT OF F E E SCHEDULES.— 
"(1) IN GENERAL.—Before Jtinuary 1 of each year beginning 
with 1992, the Secretary shall establish, by regulation, fee 
schedules that establish pa3rment amounts for all physicians' 
services furnished in all fee schedule areas (as defined in subsec-
tion (jX2)) for the year. Except as provided in paragraph (2), each 
such pajnnent amount for a service shall be equal to the product 
of— 
"(A) the relative value for the service (as determined in 
subsection (cX2)), 
"(B) the conversion factor (established under subsection 
(d)) for the year, and 
"(C) the geographic adjustment factor (established under 
subsection (eX2)) for the service for the fee schedule area. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2171 
"(2) TREATMENT OF RADIOLOGY SERVICES AND ANESTHESIA SERV-
ICES.— 
"(A) RADIOLOGY SERVICES.—^With respect to radiology 
services (including radiologist services, as defined in section 
1834(bX6)), the Secretary shall base the relative values on 
the 
relative 
value 
scale 
developed 
under 
section 
18340i)XlXA), with appropriate modifications of the relative 
values to assure that the relative values established for 
radiology services which are similar or related to other 
physicians' services are consistent with the relative values 
established for those similar or related services. 
"(B) ANESTHESIA SERVICES.—In establishing the fee sched-
ule for anesthesia services for which a relative value guide 
has been established under section 4048(b) of the Omnibus 
Budget Reconciliation Act of 1987, the Secretary shall use, 
to the extent practicable, such relative value guide, with 
appropriate adjustment of the conversion factor, in a 
manner to assure that the fee schedule amoimts for 
anesthesia services are consistent with the fee schedule 
amounts for other services determined by the Secretary to 
be of comparable value. In applying the previous sentence, 
the Secretary shall adjust the conversion factor by geo-
graphic adjustment factors in the same manner as such 
adjustment is made under paragraph (IXC). 
(C) CONSULTATION.—The Secretary shall consult with 
the Physician Payment Review Commission and organiza-
tions representing physicians or suppliers who furnish radi-
ology services and anesthesia services in applying subpara-
graphs (A) and (B). 
"(c) DETERMINATION OF RELATIVE VALUES FOR PHYSICIANS* SERV-
ICES.— 
"(1) DIVISION OF PHYSICIANS' SERVICES INTO COMPONENTS.—In 
this section, with respect to a physicians' service: 
"(A) WORK COMPONENT DEFINED.—^The term 'work compo-
nent' means the portion of the resources used in fumishmg 
the service that reflects ph3rsician time and intensity in 
furnishing the service. Such portion shall— 
"(i) include activities before and after direct patient 
contact, and 
"(ii) be defined, with respect to surgical procedures, 
to reflect a global definition including pre-operative 
and postoperative physicians' services. 
"(B) I r e n e s EXPENSE COMPONENT DEFINED.—^The term 
'practice expense component' means the portion of the 
resources used in furnishing the service that reflects the 
general cat^ories of expenses (such as office rent and 
wages of personnel, but excluding malpractice expenses) 
comprising practice expenses. In this subparagraph, the 
term 'practice expenses includes all expenses for furnish-
ing physicians' services, excluding malpractice expenses, 
physician compensation, and other physician fringe bene-
fits. 
"(C) MALPRACTICE COMPONENT DEFINED.—The term 'mal-
practice component' means the portion of the resources 
used in furnishing the service that reflects malpractice 
expenses in furnishing the service. 
"(2) DETERMINATION OF RELATIVE VALUES.— 
103 STAT. 2172 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) IN GENERAL.— 
"(i) COMBINATION OF UNITS FOR COMPONENTS.—The 
Secretary shall develop a methodology for combining 
the work, practice expense, and malpractice relative 
value units, determined under subparagraph (C), for 
each service in a manner to produce a single relative 
value for that service. 
"(ii) 
EXTRAPOLATION.—The 
Secretary 
may 
use 
extrapolation and other techniques to determine the 
number of relative value units for physicians' services 
for which specific data are not available and shall take 
into account recommendations of the Physician Pay-
ment Review Commission and the results of consulta-
tions with organizations representing physicians who 
provide such services. 
"(B) 
PERIODIC REVIEW AND ADJUSTMENTS IN RELATIVE 
VALUES.— 
"(i) PERIODIC REVIEW.—The Secretary, not less often 
than every 5 years, shall review the relative values 
established under this paragraph for all physicians' 
services, 
"(ii) ADJUSTMENTS.— 
"(I) IN GENERAL.—The Secretary shall, to the 
extent the Secretary determines to be necessary 
and subject to subclause (II), adjust the number of 
such units to take into account changes in medical 
practice, coding changes, new data on relative 
value components, or the addition of new proce-
dures. The Secretary shall publish an explanation 
of the basis for such adjustments. 
"(II) LIMITATION ON ANNUAL ADJUSTMENTS.—The 
adjustments under subclause (I) for a year may not 
cause the amount of expenditures under this part 
for the year to differ by more than $20,000,000 
from the amount of expenditures under this part 
that would have been made if such adjustments 
had not been made, 
"(iii) CONSULTATION.—The Secretary, in 
making 
a4justments under clause (ii), shall consult with the 
Physician Payment Review Commission and organiza-
tions representing physicians. 
"(C) COMPUTATION OF RELATIVE VALUE UNITS FOR COMPO-
NENTS.—For purposes of this section for each physicians' 
service— 
"(i) WORK RELATIVE VALUE UNITS.—The Secretary 
shall determine a number of work relative value units 
for the service based on the relative resources incor-
porating physician time and intensity required in fur-
nishing the service. 
"(ii) PRACTICE EXPENSE RELATIVE VALUE UNITS.—The 
Secretary shall determine a number of practice ex-
pense relative value units equal to the product of— 
"(I) the base allowed charges (as defined in 
subparagraph (D)) for the service, and 
"(II) the practice expense percentage for the 
service (as determined under paragraph (3XCXii)). 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2173 
"(iii) MALPRACTICE RELATIVE VALUE UNITS.—The Sec-
retary shall determme a number of malpractice rel-
ative value units equal to the product of— 
"(I) the base allowed charges (as defined in 
subparagraph (D)) for the service, and 
"(11) the malpractice percentage for the service 
(as determined under paragraph (SXCXiii))-
"(D) BASE ALLOWED CHARGES DEFINED.—In this paragraph, 
the term 'base allowed charges' means, with respect to a 
physician's service, the national avergige cdlowed charges 
for the service under this part for services furnished during 
1991, as estimated by the Secretary using the most recent 
data available. 
"(3) COMPONENT PERCENTAGES.—For purposes of paragraph 
(2), the Secretary shall determine a work percentage, a practice 
expense percentage, and a malpractice percentage for each 
physician s service as follows: 
"(A) DIVISION OF SERVICES BY SPECIALTY.—For each physi-
cian's service or class of physicians' services, the Secretary 
shall determine the average percentage of each such service 
or class of services that is performed, nationwide, under 
this part by physicians in each of the different physician 
specialties (as identified by the Secretary). 
"(B) DIVISION OF SPECIALTY BY COMPONENT.—The Sec-
retary shall determine the average percentage division of 
resources, among the work component, the practice expense 
component, and the malpractice component, used by physi-
cians in each of such specialties in furnishing physicians' 
services. Such percentages shall be based on national data 
that describe the elements of physician practice costs and 
revenues, by physician specialty. The Secretary may use 
extrapolation and other techniques to determine practice 
costs and revenues for specialties for which adequate data 
are not available. 
"(C) DETERMINATION OF COMPONENT PERCENTAGES.— 
"(i) WORK PERCENTAGE.—The work percentage for a 
service (or class of services) is equ£il to the sum (for all 
physician specialties) of— 
"(I) the average percentage division for the work 
component for each physician specialty (deter-
mined under subparagraph (B)), multiplied by 
"(II) the proportion (determined under subpara-
graph (A)) of such service (or services) performed 
by physicians in that specialty, 
"(ii) PRACTICE EXPENSE PERCENTAGE.—The practice 
i 
; 
expense percentage for a service (or class of services) is 
equal to the sum (for all physician specialties) of— 
"(I) the average percentage division for the prac-
tice expense component for each physician spe-
cialty (determined under subparagraph (B)), multi-
plied by 
"(II) by the proportion (determined 
under 
subparagraph (A)) of such service (or services) per-
formed by phjrsicians in that specialty, 
"(iii) MALPRACTICE PERCENTAGE.—The malpractice 
percentage for a service (or class of services) is equal to 
the sum (for all physician specialties) of— 
103 STAT. 2174 
PUBLIC LAW 101-239—DEC. 19, 1989 
Federal 
Register, 
publication. 
Reports. 
"(D the average percentage division for the mal-
practice component for each phjrsician specialty 
(determined under subparagraph (B)), multiplied 
by 
"(11) by the proportion 
(determined 
under 
subparagraph (A)) of such service (or services) per-
formed by physicians in that specialty. 
"(D) PERIODIC RECOMPUTATION.—The Secretary may, from 
time to time, provide for the recomputation of work 
percentages, practice expense percentages, and malpractice 
percentages determined under this paragraph. 
"(3) ANCILLARY POUCIES.—The Secretary may establish an-
cillary policies (with respect to the use of modifiers, local codes, 
and other matters) as may be necessary to implement this 
subsection. 
"(4) CODING.—The Secretary shall establish a uniform proce-
dure coding system for the coding of all physicians' services. The 
Secretary shall provide for an appropriate coding structure for 
visits and consultations. The Secretary may incorporate the use 
of time in the coding for visits and consultations only for 
services furnished on or after January 1,1993. The Secretary, in 
establishing such coding system, shall consult with the Physi-
cian Pa)mient Review (Commission and other organizations rep-
resenting physicians. 
"(5) No VARIATION FOR SPECIALISTS.—The Secretary may not 
vary the conversion factor or the number of relative value units 
for a physicians' service based on whether the physician fur-
nishing the service is a specialist or based on the type of 
specialty of the physician. 
'(d) CONVERSION FACTORS.— 
r 
"(1) HlSTABUSHMENT.— 
"(A) IN GENERAL.—The conversion factor for each year 
shall be the conversion factor established under this subsec-
tion for the previous year (or, in the case of 1992, specified 
in subparagraph (B)) adjusted by the update (established 
under subparagraph (O) for the year involved. 
"(B) SPECIAL PROVISION FOR I992,—For purposes of 
subparagraph (A), the conversion factor specified in this 
subparagraph is a conversion factor (determined by the 
Secretary) which, if this section were to apply during 1991 
using such conversion factor, would result in the same 
aggregate amount of payments under this part for physi-
cians' services as the estimated aggregate amount of the 
pavments under this part for such services in 1991. 
(C) PUBLICATION.—The Secretary shall cause to have 
published in the Federal Register, during the last 15 days of 
October of— 
"(i) 1991, the conversion factor (or factors) which will 
apply to phjrsicians' services for 1992, and the update 
(or updates) determined under parsigraph (3) for 1992; 
and 
"(ii) each succeeding year, the update (or updates) 
determined under paragraph (3) for the following year. 
"(2) RECOMMENDATION OF UPDATE,— 
"(A) IN GENERAL.—Not later than April 15 of each year 
(beginning with 1991), the Secretary shall transmit to the 
Congress a report that includes a recommendation on the 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2175 
appropriate update (or updates) in the conversion factor (or 
factors) for all phjrsicians' services in the following year. 
The Secretary may recommend a uniform update or dif-
ferent updates for different categories or groups of services. 
In making the recommendation, the Secretary shall con-
sider— 
"(i) the percentage change in the medicare economic 
index (described in the fourth sentence of section 
1842(bX3)) for that year; 
"(ii) the percentage by which actual expenditures for 
all physicians' services (as defined in subsection 
(fX5XA)) under this part for the fiscal year ending in 
the year preceding the year in which such rec-
ommendation is made were greater or less than actual 
, 
expenditures for all such physicians' services in the 
fiscal year ending in the second preceding year; 
"(iii) the relationship between the percentage deter-
mined under clause (ii) for a fiscal year emd the 
performance standard rate of increase (established 
under subsection (fK2)) for that fiscal year; 
"(iv) changes in volume or intensity of services; 
"(v) access to services; and 
"(vi) other factors that may contribute to changes in 
volume or intensity of services or access to services. 
For purposes of making the comparison under clause (iii), 
the Secretary shall adjust the performance standard rate of 
increase for a fiscal year to refiect changes in the actual 
proportion of HMO enroUees (as defined in subsection 
(fX5XB)) in that fiscal year compared with such proportion 
for the previous fiscal year. 
"(B) 
ADDITIONAL 
CONSIDERATIONS.—In 
making 
rec-
ommendations under subparagraph (A), the Secretary may 
also consider— 
"(i) unexpected changes by physicians in response to 
the implementation of the fee schedule; 
"(ii) unexpected changes in outlay projections; 
"(iii) changes in the quality or appropriateness of 
care; and 
"(iv) any other relevant factors not measured in the 
resource-based payment methodology. 
"(C) SPECIAL RULE FOR 1992 UPDATE.—In considering the 
update for 1992, the Secretary shall make a separate deter-
mination of the percentage and relationship described in 
clauses (ii) and (iii) of subparagraph (A) with respect to the 
category of surgical services (as defined by the Secretary 
pursuant to subsection (jXD). 
"(D) EXPLANATION OP UPDATE.—The Secretary shall in-
clude in each report under subparagraph (A)^ 
"(i) the update recommended for each category of 
physicians' services (established by the Secretary under 
subsection (jXD) and for each of the following groups of 
physicians' services: nonsurgical services, visits, con-
sultations, and emergency room services; 
"(ii) the rationale for the recommended update (or 
updates) for each category and group of services de-
scribed in clause (i); and 
103 STAT. 2176 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(iii) the data and analyses underl3dng the update (or 
updates) recommended. 
"(E) COMPUTATION OF BUDGET-NEUTRAL ADJUSTMENT.— 
"(i) IN GENERAL.—The Secretary shall include in the 
report made under subparagraph (A) in a year a state-
ment of the percentage by which (I) the actual expendi-
tures for physicians' services under this part (during 
the fiscal year ending in the preceding year, as set 
forth in most recent annual report made pursuant to 
v;] : 
section 1841(bX2)), exceeded, or was less than (II) the 
expenditures projected for the fiscal year under clause 
(ii). 
"(ii) PROJECTED EXPENDITURES.—For purposes of 
clause (i), the expenditures projected under this clause 
for a fiscal year is the actual expenditures for physi-
s 
cians' services made under this part in the second 
preceding fiscal year— 
"(I) increased by the weighted average percent-
age increase permitted under this part for physi-
cians'services in the preceding fiscal year; 
"(II) adjusted to reflect the percentage change in 
the average number of individuals enrolled under 
this p£U^ (who are not enrolled with a risk-sharing 
contract under section 1876) for the preceding 
fiscal year compared with the second preceding 
fiscal year; 
"(III) adjusted to reflect the average annual 
percentage growth in the volume and intensity of 
physicians' services under this part for the five-
fiscal-year period ending with the second preceding 
fiscal year; and 
"(IV) adjusted to reflect the percentage change 
in expenditures for physicians' services under this 
i-. part in the preceding fiscal year (compared with 
the second preceding fiscal year) which result from 
changes in law or regulations. 
Reports. 
"(F) 
COMMISSION 
REVIEW.—The Physician 
Payment 
Review Commission shall review the report submitted 
under subparagraph (A) in a year and shall submit to the 
Congress, by not later than May 15 of the year, a report 
including ite recommendations respecting the update (or 
updates) in the conversion factor (or factors) for the follow-
ing year. 
"(3) UPDATE.— 
"(A) BASED O
N INDEX.— 
"(i) IN GENERAL.—Unless (Dongress otherwise pro-
vides, subject to subparagraph (B), for purposes of this 
section the update for a year is equal to the Secretary's 
estimate of the percents^e increase in the appropriate 
update index (as defined in clause (ii)) for the year, 
"(ii) APPROPRIATE UPDATE INDEX DEFINED.—In clause 
(i), the term 'appropriate update index' means— 
"(I) for services for which prevailing charges in 
1989 were subject to a limit under the fourth sen-
tence of section 1842(bX3), the medicare economic 
index (referred to in that sentence), and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2177 
"(ID for other services, such index (such as the 
consumer price index) that was applicable under 
this part in 1989 to increases in the payment 
]^ 
amounts recognized under this part with respect to 
such services. 
"(B) ADJUSTMENT IN UPDATE.— 
"(i) IN GENERAL.—The update for a year provided 
under subparagraph (A) shall, subject to clause (ii), be 
increased or decreased by the same percentage by 
which (I) the percentage increase in the actual expendi-
tures for physicians' services (as defined in section 
(f)(5XA)) in the second previous fiscal year over the 
third previous fiscal year, was less or greater, respec-
tively, than (II) the performance standard rate of in-
crease (established under subsection (f)) for such cat-
egory of services for the second previous fiscal year. 
"(ii) RESTRICTIONS ON ADJUSTMENT.—The adjustment 
\ 
made under clause (i) for a year may not result in a 
decrease of— 
"(I) more than 2 percentage points for the update 
for 1992 or 1993, 
"(II) 2y2 percentage points for the update for 
1994 or 1995, and 
"(III) 3 percentage points for the update for any 
succeeding year, 
"(e) GEOGRAPHIC ADJUSTMENT FACTORS.— 
"(1) ESTABUSHMENT OF GEOGRAPHIC INDICES.— 
"(A) IN GENERAL.—Subject to subparagraph (B), the Sec-
retary shall establish— 
"(i) an index which reflects the relative costs of the 
mix of goods and services comprising practice expenses 
-1 
(other than malpractice expenses) in the different fee 
schedule areas compared to the national average of 
such costs, 
"(ii) an index which reflects the relative costs of 
malpractice expenses in the different fee schedule 
areas compared to the national average of such costs, 
and 
"(iii) an index which reflects V
4 of the difference 
between the relative value of physicians' work effort in 
each of the different fee schedule areas and the na-
tioned average of such work effort. 
"(B) 
(JLASS-SPECIFIC 
GEOGRAPHIC COST-OF-PRACTICE 
IN-
DICES.—The Secretary may establish more than one index 
under subparagraph (AXi) in the case of classes of physi-
cians' services, if, because of differences in the mix of goods 
and services comprising practice expenses for the different 
classes of services, the application of a single index under 
such clause to different classes of such services would be 
substantially inequitable. 
"(2) CJOMPUTATION OF GEOGRAPHIC ADJUSTMENT FACTOR.—For 
purposes of subsection (bXlXC), for all physicians' services for 
each fee schedule area the Secretary shall establish a geo-
graphic adjustment factor equal to the sum of the geographic 
cost-of-practice adjustment factor (specified in paragraph (3)), 
the geographic malpractice adjustment factor (specified in para-
103 STAT. 2178 
PUBLIC LAW 101-239—DEC. 19, 1989 
graph (4)), and the gec^aphic physician work acb'ustment factor 
(specified in paragraph (5)) for the service and the area. 
"(3) GEOGRAPHIC CO6T-OP-PRACTICE ADJUSTMENT FACJTOR.—For 
purposes of paragraph (2), the 'geographic cost-of-practice 
adjustment factor', for a service for a fee schedule area, is the 
product of— 
"(A) the proportion of the total relative value for the 
service that reflects the relative value units for the practice 
expense component, and 
'(B) the gec^aphic cost-of-practice index value for the 
area for the service, based on the index established under 
paragraph dXAXi) or (IXB) (as the case may be). 
"(4) GEOGRAPHIC BSALPRACTICE ADJUSTMENT FACTOR.—For pur-
poses of paragraph (2), the 'geographic malpractice a4justment 
factor', for a service for a fee schedule area, is the product of— 
"(A) the proportion of the total relative value for the 
service that reflects the relative value units for the mal-
practice component, and 
"(B) the geographic malpractice index value for the area, 
based on the index established under paragraph (IXAXii). 
"(5) GEOGRAPHIC PHYSICIAN WORK ADJUSTMENT FACTOR.—For 
purposes of paragraph (2), the 'geographic physician work 
adjustment factor', for a service for a fee schedule area, is the 
product of— 
"(A) the proportion of the total relative value for the 
service that reflects the relative value units for the work 
component, and 
"(B) the geographic physician work index value for the 
area, based on the index established under paragraph 
(IXAXiii). 
"(f) MEDICARE VOLUME PERFORMANCE STANDARD RATES OF IN-
CREASE.-
"(1) PROCESS FOR ESTABLISHING MEDICARE VOLUME PERFORM-
ANCE STANDARD RATES OF INCREASE.— 
"(A) SECRETARY'S RECOMMENDATION.—By not later than 
April 15 of each year (beanning with 1990), the Secretary 
^ 
shall transmit to the Congress a recommendation on 
performance standard rates of increase for all physicians' 
services and for each category of such services for the fiscal 
year banning in such year. In making the recommenda-
tion, t^e Secretary shall confer with oi^anizations rep-
resenting physicians and shall consider— 
"(Dmflation, 
"(ii) changes in numbers of enrollees (otiier than 
. HMO enrollees) under this part, 
"(iii) changes in the age composition of enrollees 
(other than IDIO enrollees) under this part, 
"(iv) changes in technology, 
"(v) evidence of inappropriate utilization of services, 
"(vi) evidence of lack of access to necessary physi-
cians' services, and 
"(vii) such other factors as the Secretary considers 
appropriate. 
"(B) 
(COMMISSION 
REVIEW.—The Phjrsician Payment 
Review Commission shall review the recommendation 
transmitted during a year under subpars^aph (A) and 
shall make its recommendation to Congress, by not later 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2179 
h" 
than May 15 of the year, respecting the performance stand-
ard rates of increase for the fiscal year beginning in that 
year. 
"(C) PUBUCATION OP PERFORMANCE STANDARD RATES OF 
INCREASE.—The Secretary shall cause to have published in 
the Federal Register, in the last 15 days of October of each 
year (beginning with 1990), the performance standard rates 
of increase for all physicians' services and for each category 
of physicians' services for the fiscal year beginning in that 
year. The Secretary shall cause to have published in the 
Federal Register, by not later than January 1, 1990, the 
performance standard rate of increase under subparagraph 
(D) for fiscal year 1990. 
"(D) 
PERFORMANCE STANDARD RATE OP INCREASE FOR 
FISCAL YEAR 1990.—The performance standard rate of in-
crease for fiscal year 1990 is equal to the sum of— 
"(i) the Secretary's estimate of the weighted average 
percentage increase in the reasonable charges for 
physicians' services (as defined in subsection (fK5XA)) 
under this part for calendar years included in fiscal 
year 1990, 
"(ii) the Secretary's estimate of the percentage in-
crease or decrease in the average number of individuals 
enrolled under this part (other than HMO enroUees) 
from fiscal year 1989 to fiscal year 1990, 
"(iii) the Secretary's estimate of the average annual 
percentage growth in volume and intensity of physi-
cians' services under this part for the 5-fiscal-year 
period ending with fiscal year 1989 (based upon 
information contained in the most recent annual report 
made pursuant to section 18410>X2)), and 
"(iv) the Secretary's estimate of the percentage in-
crease or decrease in expenditures for physicians serv-
ices (as defined in subsection (fX5XA)) m fiscal year 
1990 (compared with fiscal year 1989) which will result 
from changes in law or regulations and which is not 
taken into account in the percentage increase described 
in clause (i), 
reduced by Vz percent. 
"(2) SPECIFICATION OF PERFORMANCE STANDARD RATES OF IN-
CREASE FOR SUBSEQUENT FISCAL YEARS.— 
"(A) IN GENERAL.—Unless Congress otherwise provides, 
subject to paragraph (4), each performance standard rate of 
increase for a fiscal year Ol)eginning with fiscal year 1991) 
shall be equal to the sum of— 
"(i) the Secretary's estimate of the weighted average 
percentage increase in the fees for physicians' services 
(as defined in subsection (fX5XA)) under this part for 
', 
calendar years included in the fiscal year involved, 
"(ii) the Secretary's estimate of the percentage in-
crease or decrease in the average number of individuals 
enrolled under this part (other than HMO enroUees) 
from the previous fiscal year to the fiscal year involved, 
V. 
"(iii) the Secretary's estimate of the average annual 
percentage growth in volume and intensity of physi-
cians' services under this part for the 5-fiscal-year 
Federal 
Register, 
publication. 
103 STAT. 2180 
PUBLIC LAW 101-239—DEC. 19, 1989 
period ending with the preceding fiscal year (based 
upon information contained in the most recent annual 
report made pursuant to section 1841(bX2)), and 
*(iv) the Secretary's estimate of the percent^^e in-
crease or decrease in expenditures for physicians serv-
ices (as defined in subsection (fKSXA)) in the fiscal year 
(compared with the preceding fiscal year) which will 
result from chemges in law or regulations and which is 
not taken into account in the percentage increase de-
scribed in clause (i), 
reduced by the performance standard factor (specified in 
subparagraph (B)). In clause (i), the term 'fees' means, with 
respect to 1991, reasonable charges and, with respect to any 
succeeding year, fee schedule smiounts. 
"(B) PERFORMANCE STANDARD FACTOR.—For purposes of 
subparagraph (A), the performance standard factor— 
"(i) for 1991 is 1 percentage point, 
"(ii) for 1992 is 1 ¥2 percentage points, and 
"(iii) for each succeeding year is 2 percentage points. 
"(3) QUARTERLY REPORTING.—The Secretary shall establish 
procedures for providing, on a quarterly basis to the Physician 
Pajmient Review Commission, the Congressional Budget Office, 
the Congressional Research Service, the Committees on Ways 
and Means and Energy and Commerce of the House of Rep-
resentatives, and the Committee on Finance of the Senate, 
information on compliance with performance standard rates of 
increase established under this subsection. 
"(4) SEPARATE GROUP-SPECIFIC PERFORMANCE STANDARD RATES 
OF INCREASE.— 
"(A) IMPLEMENTATION OF PLAN.—Subject to paragraph 
(B), the Secretary shall, after completion of the study re-
quired under section 6102(eX3) of the Omnibus Budget Rec-
onciliation Act of 1989, but not before October 1, 1991, 
implement a plan under which qualified physician groups 
could elect annually separate performance standard rates 
of increase other than the performance standard rate of 
increase established for the year under paragraph (2) for 
such physicians. The Secretary shall develop criteria to 
determine which physician groups are eligible to elect to 
have applied to such groups separate performance standard 
rates of increase and the methods by which such group-
specific performance standard rates of increase would be 
Reports. 
accomplished. The Secretary shall report to the Congress on 
the criteria and methods by April 15, 1991. The Physician 
Payment Review Commission shall review and comment on 
Federal 
such recommendations by May 15, 1991. Before implement-
^^^*®p 
ing group-specific performance standard rates of incresuse, 
publication. 
^j^^ Secretary shall provide for notice and comment in the 
Federsd Register and consult with organizations represent-
ing physicians. 
"(B) APPROVAL.—The Secretary may not implement the 
plan described in subparagraph (A), unless Congress specifi-
cally approves the plan. 
"(5) DEFINITIONS.—In this subsection: 
"(A) SERVICES INCLUDED IN PHYSICIANS' SERVICES.—The 
) 
term 'physicians' services' includes other items and services 
(such as clinical diagnostic laboratory tests and radiology 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2181 
services), specified by the Secretary, that are commonly 
performed or furnished by a physician or in a physician's 
office, but does not include services furnished to an HMO 
enrollee under a risk-sharing contract under section 1876. 
"(B) HMO ENROLLEE.—^The term 'HMO enrollee' means, 
with respect to a fiscal year, an individual enrolled under 
this part who is enrolled with an entity under a risk-
sharing contract under section 1876 in the fiscal year. 
'(g) LDOTATION ON BENEFICIABT LIABILITY.— 
"(1) 
LIMITATION 
ON ACTUAL 
CHARGES 
FOR UNASSIGNED 
CLAIMS.—^If a nonparticipating physician knowingly and will-
fully bills on a repeated basis for physicians' services (furnished 
with respect to an individual enrolled under this part on or 
after January 1,1991) an actual charge in excess of the limiting 
charge descx^i>ed in paragraph (2) and for which payment is not 
made on an assignment-related basis under this part, the Sec-
retary may apply sanctions against such physician in accord-
ance with section 1842(jX2). 
"(2) LIMITING CHARGE DEFINED.— 
"(A) FOR 1991.—^For physicians' services of a physician 
furnished during 1991, the 'limiting charge' shsdl be the 
same percentage (or, if less, 25 percent) above the recog-
nized payment amount under this part with respect to the 
physician (as a nonparticipating physician) as the percent-
age by which— 
"(i) the maximum allowable actual charge (as deter-
mined under section 1842(jXlXC) as of December 31, 
1990, or, if less, the maximum actual charge otherwise 
permitted for the service under this part as of such 
date) for the service of the physician, exceeds 
"(ii) the recognized payment amount for the service 
of the physician (as a nonparticipating physician) as of 
such date. 
"(B) FOR 1992.—^For physicians' services furnished during 
1992, the 'limiting charge' shall be the same percentage (or, 
if less, 20 percent) above the recognized payment amount 
under this part for nonparticipating physicians as the 
percentage by which— 
"(i) the limiting chaise (as determined under 
subparagraph (A) as of Ik^^mber 31, 1991) for the 
service, exceeds 
"(ii) the reo^nized payment amount for the service 
for nonparticipating physicians as of such date. 
"(CD AFTER 1992.—For physicians' services furnished in a 
year after 1992, the 'limiting charge' shall be 115 percent of 
the recognized payment amoimt under this part for 
nonparticipating physicians. 
"G)) RECOGNIZED PAYMENT AMOUNT.—^In this section, the 
term 'recognized payment amount' means, for services fur-
nished on or after January 1,1992, the fee schedule amoimt 
determined under subsection (a), and, for services furnished 
during 1991, the applicable percentage (as defined in sec-
tion 18420)X4XAXiv)) of the prevailing chaise (or fee sched-
ule amount) for nonparticipating physicians for that year. 
"(3) LDJOTATION ON CHARGES FOR MEDICARE BENEFICIARIES E U -
GIBLB FOR MEDICAm BENEFITS.— 
103 STAT. 2182 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) IN GENERAL.—Pajrment for physicians' services fur-
nished on or after April 1, 1990, to an individual who is 
enrolled under this part and eligible for any medical assist-
ance (including as a qualified medicare benei^ciary, as de-
fined in section 1905(pXl)) with respect to such services 
under a State plan approved under title XIX may only be 
made on an assignment-related basis. 
"(B) PENALTY.—A person may not bill for physicians* 
services subject to subparagraph (A) other than on an 
assignment-related basis. If a person knowingly and will-
fully bills for physicians' services in violation of the pre-
vious sentence, the Secretary may apply sanctions against 
the person in accordance with section 1842(jX2). 
"(4) PHYSICIAN SUBMISSION OF CLAIMS.— 
"(A) IN GENERAL.—For services furnished on or after 
September 1,1990, within 1 year after the date of providing 
^ 
a service for which payment is made under this part on a 
reasonable charge or fee schedule basis, a physician, sup-
plier, or other person (or an employer or facility in the 
cases described in section 1842(bX6XA))— 
Claims. 
"(i) shall complete and submit a claim for such serv-
ice on a standard claim form specified by the Secretary 
to the carrier on behalf of a beneficiary, and 
"(ii) may not impose any charge relating to complet-
ing and submitting such a form. 
"(B) PENALTY.—(i) With respect to an assigned claim 
wherever a physician, provider, supplier or other person (or 
an employer or facility in the cases described in section 
1842(bX6XA)) fails to submit such a claim as required in 
subparagraph (A), the Secretary shall reduce by 10 percent 
the amount that would otherwise be paid for such claim 
under this part, 
"(ii) If a physician, supplier, or other person (or an em-
li 
ployer or facility in the cases described in section 
1842(bX6XA)) fails to submit a claim required to be submit-
ted under subparagraph (A) or imposes a charge in viola-
tion of such subparagraph, the Secretary shall apply the 
sanction with respect to such a violation in the same 
manner as a sanction may be imposed under section 
1842(pX3) for a violation of section 1842(pXl). 
"(5) ELECTRONIC BILUNG; DIRECT DEPOSIT.—The Secretary shall 
encourage and develop a system providing for expedited pay-
ment for claims submitted electronically. The Secretary shall 
also encourage and provide incentives allowing for direct de-
posit as payments for services furnished by participating physi-
cians. The Secretary shall provide physicians with such tech-
nical information as necessary to enable such physicians to 
submit claims electronically. The Secretary shall submit a plan 
to Congress on this paragraph by May 1,1990. 
"(6) MONITORING OF CHARGES.— 
"(A) IN GENERAL.—The Secretary shall monitor— 
"(i) the actual charges of nonparticipating physicians 
for physicians' services furnished on or after January 1, 
1991, to individuals enrolled under this part, and 
"(ii) changes 0)y specialty, type of service, and geo-
graphic area) in (I) the proportion of expenditures for 
physicians' services provided under this part by partici-
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2183 
pating physicians, (ID the proportion of expenditures 
for such services for which pajrment is made under this 
part on an assignment-related basis, and (III) the 
amounts charged above the recognized payment 
amounts under this part. 
"(B) REPORT.—The Secretary shall, by not later than 
April 15 of each year (beginning in 1992), report to the 
Congress regarding the changes described in subparagraph 
(AXii). 
"(C) PLAN.—If the Secretary finds that there has been a 
significant decrease in the proportions described in 
subclauses (I) and (II) of subparagraph (AXii) or an increase 
in the amounts described in subclause (III) of that subpara-
graph, the Secretary shall develop a plan to address such a 
problem and transmit to (Dongress recommendations 
regarding the plan. The Physician Payment Review 
Commission shall review the Secretary's plan and rec-
ommendations and transmit to Congress its comments 
regarding such plan and recommendations. 
^ 
"(7) MONITORING O
P unuzATiON AND ACCESS.— 
"(A) IN GENERAL.—The Secretary shall monitor— 
"(i) changes in the utilization of and access to serv-
ices furnished under this part within geographic, popu-
lation, and service related categories, 
"(ii) possible sources of inappropriate utilization of 
services furnished under this part which contribute to 
the overall level of expenditures under this part, and 
"(iii) factors underlying these changes and their 
interrelationships. 
"(B) REPORT.—The Secretary shall by not later than April 
15, of each year (beginning with 1991) report to the Con-
gress on the changes described in subparagraph (AXi) and 
shall include in the report an examination of the factors 
(including factors relating to different services and specific 
categories and groups of services and geographic and demo-
graphic variations in utilization) which may contribute to 
such changes. 
"(C) RECOMMENDATIONS.—The Secretary shall include in 
each annual report under subparagraph (B) recommenda-
tions— 
"(i) addressing any identified patterns of inappropri-
ate utilization, 
"(ii) on utilization review, 
"(iii) on ph3^ician education or patient education, 
"(iv) addressing any problems of beneficiary access to 
care made evident by the monitoring process, and 
"(v) on such other matters as the Secretary deems 
appropriate. 
The Phjrsician Payment Review Commission shall comment 
on the Secretary's recommendations and in developing its 
comments, the Commission shall convene and consult a 
panel of phjrsician experts to evaluate the implications of 
medical utilization patterns for the quality of and access to 
patient care. 
"(h) SENDING INFORMATION TO PHYSICIANS.—Before the beginning 
of each year (beginning with 1992), the Secretary shall send to each 
physician furnishing physicians' services under this part, for serv-
103 STAT. 2184 
PUBLIC LAW 101-239—DEC. 19, 1989 
Federal 
Register, 
publication. 
ices commonly performed by the physician, information on fee 
schedule amounte that apply for the year in the fee schedule area 
for participating and non-participating physicians, and the maxi-
mum amount that may be charged consistent with subsection (gK2). 
Such information shall be transmitted in conjunction with notices to 
physicians under section 1842(h) (relating to the participating physi-
cian program) for a year. 
"(i) MISCELLANEOUS PROVISIONS.— 
"(1) RESTRICTION ON ADMINISTRATIVE AND JUDICIAL REVIEW.— 
There shall be no administrative or judicial review under sec-
tion 1869 or otherwise of— 
"(A) the determination of the historical payment basis (as 
defined in subsection (aX2XCXi)), 
"(B) the determination of relative values and relative 
value units under subsection (c), 
"(C) the determination of conversion factors under 
subsection (d), 
"(D) the establishment of geographic adjustment factors 
under subsection (e), and 
"(E) the establishment of the system for the coding of 
physicians' services under this section. 
"
0
"
) DEFINITIONS.—In this section: 
"(1) CATEGORY.—^The term 'category* means, with respect to 
physicians' services, surgical services, and all physicians' serv-
ices other than surgical services, and such other category or 
cct^ories of physicians' services as the Secretary, from time to 
time, defines in regulation. The Secretary shall define surgical 
services and publish such definition in the Federal Register no 
later than May 1, 1990, after consultation with organizations 
representing physicians. 
(2) FEE SCHEDULE AREA.—The term 'fee schedule area' means 
a locality used under section 1842(b) for purposes of computing 
pavment amoimts for physicians' services. 
(3) PHYSICIANS' SERVICES.—The term 'physicians' services' 
includes items and services described in paragraphs (1), (2XA), 
(2XD), (3), and (4) of section 1861(s) (other than clinical diag-
nostic laboratory tests and such other items and services as the 
Secretary may specify). 
"(4) PRACTICE EXPENSES.—The term 'practice expenses' in-
cludes all expenses for furnishing ph3rsicians' services, exclud-
ing malpractice expenses, physician compensation, and other 
physician fringe benefits.". 
(b) REQUIREMENTS FOR CARRIERS TO PROFILE PHYSICIANS.—Section 
1842(bX3) of such Act (42 U.S.C. 1395u(bX3)) is amended— 
(1) by striking "and" at the end of subparagraph (J), 
(2) by inserting "and" at the end of subparagraph (K), and 
(3) by inserting after subparagraph (K) the following new 
subparagraph: 
"(L) will monitor and profile physicians' billing patterns 
within each area or locality and provide comparative data to 
physicians whose utilization patterns vary significantly from 
other physicians in the same payment area or locality;". 
(c) RURAL AND INNER-CITY ACCESS ADJUSTMENTS.— 
(1) ADJUSTMENTS.—Section 1833(m) of such Act (42 U.S.C. 
13951(m)) is amended— 
(A) by striking "class 1 or class 2", and 
(B) by striking "5 percent" and inserting "10 percent". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2185 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall apply to services furnished on or after January 1, 1991. 
(d) STUDIES.— 
(1) GAO S
T
U
D
Y OF ALTERNATIVE PAYMENT M
E
T
H
O
D
O
L
O
G
Y FOR 
MALPRACTICE COMPONENT.—The Comptroller General shall pro-
vide for— 
(A) a study of alternative ways of paying, under section 
1848 of the Social Security Act, for the malpractice compo-
nent for physicieuis' services, in a manner that would 
assure, to the extent practicable, payment for medicare's 
share of malpractice insurance premiums, and 
(B) a study to examine alternative resolution procedures 
for malpractice claims respecting professional services fur-
nished under the medicare program. 
The examination under subparagraph (B) shall include review 
of the feasibility of establishing procedures that involve no-fault 
pa)anent or that involve mandatory arbitration. By not later 
than April 1, 1991, the Comptroller General shall submit a 
report to Congress on the results of the studies. 
(2) STUDY OF PAYMENTS TO RISK-CONTRACTING PLANS.—The 
Secretary of Health £ind Human Services (in this subsection 
referred to as the "Secretary") shall conduct a study of how 
pa3mients under section 1848 of the Social Security Act may 
affect pa5rments to eligible organizations with risk-sharing con-
tracts under section 1876 of such Act. By not later than April 1, 
1990, the Secretary shall submit a report to Congress on such 
study and shall include in the report such recommendations for 
such changes in the methodology for payment under such risk-
sharing contracts as the Secretary deems appropriate. 
(3) STUDY OF VOLUME PERFORMANCE STANDARD RATES OF IN-
CREASE BY GEOGRAPHY, SPECIALTY, AND TYPE OF SERVICE.—The 
Secretary shall conduct a study of the feasibility of establishing, 
under section 1848(f) of the Social Security Act, separate 
performance standard rates of increase for services furnished by 
or within each of the following (including combinations of the 
following): 
(A) Geographic area (such as a region. State, or other 
area). 
(B) Specialty or group of specialties of physicisins. 
(C) T^ype of services (such as primary care, services of 
hospital-based physicians, and other inpatient services). 
Such study shall also include the scope of services included 
within, or excluded from, the rate of increase in expenditure 
system. By not later than July 1, 1990, the Secretary shall 
submit a report to Congress on such study and shall include in 
the report such recommendations respecting the feasibility of 
establishing separate performance standard rates of increase in 
expenditures as the Secretary deems appropriate. 
(4) HHS VISIT C
O
D
E MODIFICATION STUDY.—The Secretary shall 
conduct a study of the desirability of including time as a factor 
in establishing visit codes. By not later than July 1, 1991, the 
Secretary shall consult with the Physician Payment Review 
Commission, and submit a report to Congress on such study and 
shall include in the report recommendations respecting the 
desirability of modifying the number of visit codes, whether 
greater coding uniformity would result from including time in 
visit codes when compared with clarifying the clinical descrip-
42 use 1395i 
note. 
42 use 1395W-4 
note. 
Reports. 
Reports. 
Reports. 
Reports. 
103 STAT. 2186 
PUBLIC LAW 101-239—DEC. 19, 1989 
Reports. 
Reports. 
Reports. 
tions of existing codes, and the ability to audit ph3rsician time 
accurately. 
(5) COMMISSION STUDY OF PAYMENT FOR PRACTICE EXPENSES.— 
The Physician Payment Review Commission shall conduct a 
study of— 
(A) the extent to which practice costs and malpractice 
costs vary by geographic locality (including region, State, 
Metropolitan Statistical Areas, or other areas and by spe-
cialty), 
(B) the extent to which available geographic practice-cost 
indices accurately reflect practice costs and malpractice 
costs in rural aresis, 
(C) which geographic units would be most appropriate to 
use in measuring and adjusting practice costs and mal-
practice costs, 
(D) appropriate methods for allocating malpractice ex-
penses to particular procedures which could be incor-
porated into the determination of relative values for 
particular procedures using a consensus panel and other 
appropriate methodologies, 
(E) the effect of alternative methods of allocating mal-
practice expenses on medicare expenditures by specialty, 
t3rpe of service, and by geographic area, and 
(F) the special circumstances of rural independent labora-
tories in determining the geographic cost-of-practice index. 
By not later than July 1, 1991, the Commission shall submit a 
report to the Committees on Ways and Means and Energy and 
Commerce of the House of Representatives and the Committee 
on Finance of the Senate on the study and shall include in the 
report such recommendations as it deems appropriate. 
(6) COMMISSION STUDY OF GEOGRAPHIC PAYMENT AREAS.—The 
Physician Payment Review Commission shall conduct a study of 
the feasibility and desirability of using Metropolitan Statistical 
Areas or other pa3rment areas for purposes of pajrment for 
physicians' services under part B of title XVIII of the Social 
Security Act. By not later than July 1, 1991, the Commission 
shall submit a report to Congress on such study and shall 
include in the report recommendations on the desirability of 
retaining current carrier-wide localities, changing to a system 
of statewide localities, or adopting Metropolitan Statistical 
Areas or other payment areas for purposes of payment under 
such part B. 
(7) COMMISSION STUDY OF PAYMENT FOR NON-PHYSICIAN PROVID-
ERS OF MEDICARE SERVICES.—The Physician Pa3mient Review 
Commission shall conduct a study of the implications of a 
resource-based fee schedule for physicians' services for non-
physician practitioners, such as physician assistants, clinical 
psychologists, nurse midwives, and other health practitioners 
whose services can be billed under the medicare program on a 
fee-for-service basis. The study shall address (A) what the proper 
level of pajrment should be for these practitioners, (B) whether 
or not adjustments to their payments should be subject to the 
medicare volume performance standard process, and (C) what 
update to use for services outside the medicare volume perform-
ance standard process. The Commission shall submit a report to 
Congress on such study by not later than July 1,1991. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2187 
(8) COMMISSION STUDY OP PHYSICIAN FEES UNDER MEDICAID.— 
The Ph3rsician Payment Review Commission shall conduct a 
study on physician fees under State medicaid programs estab-
lished under title XIX of the Social Security Act. The Commis-
sion shall specifically examine in such study the adequacy of 
A 
physician reimbursement under such programs, physician 
participation in such programs, and access to care by medicaid 
beneficiaries. By no later than July 1, 1991, the Commission 
Reports, 
shall submit a report to Congress on such study and shall 
include such recommendations as the Commission deems appro-
priate. 
(9) GAO S
T
U
D
Y ON PHYSICIAN 
ANTI-TRUST ISSUES.—The 
Comptroller General shall conduct a study of the effect of anti-
trust laws on the ability of physicians to act in groups to 
educate and discipline peers of such physicians in order to 
reduce and eliminate ineffective practice patterns and inappro-
priate utilization. The study shall further address anti-trust 
issues as they relate to the adoption of practice guidelines by 
third-party payers and the role that practice guidelines might 
play as a defense in malpractice cases. By no later than July 1, 
Reports. 
1991, the Comptroller General shall submit a report to Congress 
on such study and shall make such recommendations as the 
Comptroller General deems appropriate, 
(e) MISCELLANEOUS CONFORMING AMENDMENTS.— 
(1) REFERENCE TO NEW PAYMENT RULES.—Section 1833(aXl) of 
the Social Security Act (42 U.S.C. 13951(aXl)) is amended— 
(A) by striking "and" before clause (M), and 
(B) by inserting before the semicolon the following new 
clause: "and (N) with respect to expenses incurred for 
physicians' services (as defined in section 1848(jX3)), the 
amounts paid shall be 80 percent of the payment basis 
determined under section 1848(aXl)". 
(2) CHANGING REFERENCE TO MAXIMUM ALLOWABLE ACTUAL 
CHARGES.—Section 
1842(bX3XG) of 
such 
Act 
(42 U.S.C. 
1395u(bX3XG)) is amended by striking "maximum allowable 
actusd charges (established under subsection (jXlXC))" and 
inserting 
"limiting charges established 
under 
subsection 
(jXlXC)". 
(3) DIFFERENTIAL FOR PARTICIPATING PHYSICIANS.—Effective 
Effective date. 
for physicians' services furnished on or after January 1, 1992, 
the first sentence of section 1842(bX4XAXiv) of such Act (42 
U.S.C. 1395u(bX4XAXiv)) is amended by inserting "and before 
January 1,1992," after "January 1,1987,". 
(4) 
PAYMENT 
FOR 
PHYSICIAN 
ASSISTANTS.—Section 
1842(bX12XAXiiXII) of such Act (42 U.S.C. 1395u(bX12XAXiiXII)) 
is amended by inserting "(or, for services furnished on or after 
January 1, 1992, the fee schedule amount specified in section 
1848, as the case may be)" after "prevailing charge rate for such 
services". 
(5) PAYMENT FOR CERTIFIED REGISTERED NURSE ANESTHETISTS.— 
Section 1833(aXlXH) of such Act (42 U.S.C. 13951(aXlXH)) is 
amended by inserting "(or, for services furnished on or after 
January 1, 1992, the fee schedule amount provided under sec-
tion 1848, as the case may be)" after "prevailing charge that 
would be recognized". 
103 STAT. 2188 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 u s e 1395m 
note. 
42 use 1395U 
note. 
42 use 1395W-4 
note. 
Public 
information. 
(6) 
PAYMENT 
FOR RADIOLOGIST 
SERVICES.—(A) 
Section 
1833(aXlXJ) of such Act (42 U.S.C. 13951(aXlXJ)) is amended by 
inserting "subject to section 1848," before "the amounts". 
(B) S^tion 4049(bX2) of the Omnibus Budget Reconciliation 
Act of 1987 is amended by striking ", and until" and all that 
follows through "Social Security Act". 
(7) PAYMENT FOR NURSE MIDWIVES.—Section 1833(aXlXK) of 
the Social Security Act (42 U.S.C. 13951(aXlXK)) is amended by 
inserting ", or, for services furnished on or after January 1, 
1992, 65 percent of the fee schedule amount provided under 
section 1848 for the same service performed by a physician" 
after "for the same service performed by a physician". 
(8) PHYSICIANS' SERVICES FOR INDIVIDUALS WITH END STAGE 
RENAL DISEASE.—Section 1881(bX3XA) of such Act (42 U.S.C. 
1395rr(bX3XA)) is amended by inserting "or, for services fur-
nished on or after January 1, 1992, on the basis described in 
section 1848" after "comparable services". 
(9) EXTENSION OF MAXIMUM ALLOWABLE ACTUAL CHARGE 
UMiTS.—Subparagraphs (BXii) and (DXv) of section 1842(jXl) of 
such Act (42 U.S.C. 1395u(jXl)) are each amended by striking all 
that follows "after" the first place it appears and inserting 
"December 31,1990.". 
(10) TREATMENT OF CERTAIN EYE EXAMINATION VISITS AS PRI-
MARY CARE SERVICES.—In applying section 1842(iX4) of the Social 
Security Act for services furnished on or eifter January 1, 1990, 
intermediate and comprehensive office visits for eye examina-
tions and treatments (codes 92002 and 92004) shall bie considered 
to be primary care services. 
(11) DISTRIBUTION OF MODEL FEE SCHEDULE.—By September 1, 
1990, the Secretary shall develop a Model Fee Schedule, using 
the methodology set forth in section 1848 of the Social Security 
Act. The Model Fee Schedule shall include as many services as 
the Secretary concludes can be assigned valid relative values. 
The Secretary shall submit the Model Fee Schedule to the 
appropriate committees of Congress and make it generally 
available to the public. 
(f) PAYMENT FOR PATHOLOGY SERVICES.— 
(1) FEE SCHEDULE.—Section 1834 of the Socisd Security Act (42 
U.S.C. 1395m) is amended by adding at the end the following 
new subsection: 
"(f) FEE SCHEDULE FOR PHYSICIAN PATHOLOGY SERVICES.— 
"(1) APPUCATION.—Subject to section 1848, the Secretary shall 
provide for application of a fee schedule with respect to physi-
cian pathology services. Subject to paragraph (2), such fee sched-
ule shall be based on relative values developed by the Secretary, 
in consultation with organizations representing physicians 
performing such services. Such fee schedule shall be designed so 
as to result in expenditures under this part for services covered 
under the schedule in an amount that would not exceed the 
amount of such expenditures which would otherwise occur. In 
developing such fee schedule the Secretary shall take into 
account the special circumstances of rural independent labora-
tories. 
"(2) GEOGRAPHIC AREA ADJUSTMENT.—The Secretary shall pro-
vide for a geographic area adjustment of the conversion factors 
in a manner comparable to the geographic area adjustment 
applied to physicians' services under section 1848 during the 
year in which the services are furnished.". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2189 
(2) PAYMENT ON BASIS OP FEE SCHEDULE.—Section 1833(aXlXJ) 
of such Act (42 U.S.C. 13951(aXlXJ)) is amended— 
(A) by inserting "or physician pathology services" after 
"1834(bX6))", and 
(B) by inserting "or section 1834(f), respectively" after 
"1834(b)". 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
42 use 1395/ 
tion shall apply to services furnished on or after January 1, ^°^-
1991. 
(g) EFFECTIVE DATE.—Except as otherwise provided in this section, 
42 use 1395/ 
this section, and the amendments made by this section, shall take ^°^-
effect on the date of the enactment of this Act. 
SEC 6103. ESTABLISHMENT OF AGENCY FOR HEALTH CARE POLICY AND 
RESEARCH. 
(a) IN GENERAL.—The Public Health Service Act (42 U.S.C. 201 et 
seq.) is amended by inserting after title VIII the following new title: 
"TITLE IX—AGENCY FOR HEALTH CARE POLICY AND 
RESEARCH 
"PART A—ESTABLISHMENT AND GENERAL DUTIES 
"SEC. 901. ESTABLISHMENT. 
42 USC 299. 
"(a) IN GENERAL.—There is established within the Service an 
agency to be known as the Agency for Health Care Policy and 
Research. 
"(b) PURPOSE.—^The purpose of the Agency is to enhance the 
quality, appropriateness, and effectiveness of health care services, 
and access to such services, through the establishment of a broad 
base of scientific research and through the promotion of improve-
ments in clinical practice and in the organization, financing, and 
delivery of health care services. 
"(c) APPOINTMENT OF ADMINISTRATOR.—There shall be at the head 
of the Agency an official to be known as the Administrator for 
Health Care Policy and Research. The Administrator shsdl be ap-
pointed by the Secretary. The Secretary, acting through the 
Administrator, shadl carry out the authorities and duties established 
in this title. 
"SEC. 902. GENERAL AUTHORITIES AND DUTIES. 
42 USC 299a. 
"(a) IN GENERAL.—In carrying out section 901(b), the Adminis-
tratx)r shall conduct and support research, demonstration projects, 
evaluations, training, guideline development, and the dissemination 
of information, on health care services and on systems for the 
delivery of such services, including activities with respect to— 
"(1) the effectiveness, efficiency, and quality of health care 
services; 
"(2) subject to subsection (d), the outcomes of health care 
services and procedures; 
"(3) clinical practice, including primary care and practice-
oriented research; 
"(4) health care technologies, facilities, and equipment; 
"(5) health care costs, productivity, and market forces; 
"(6) health promotion and disease prevention; 
"(7) health statistics and epidemiology; and 
"(8) medical liability. 
103 STAT. 2190 
PUBLIC LAW 101-239—DEC. 19, 1989 
"Ot)) REQUIREMENTS WITH RESPECT TO RURAL AREAS AND UNDER-
SERVED POPULATIONS.—In carrying out subsection (a), the Adminis-
trator shall undertake and support research, 
demonstration 
projects, and evaluations with respect t o ^ 
"(1) the delivery of health care services in rural areas (includ-
ing frontier areas); and 
(2) the health of low-income groups, minority groups, and the 
elderly. 
"(c) MULTIDISCIPUNARY CENTERS.—The Administrator may pro-
vide financial assistance to public or nonprofit private entities for 
meeting the costs of planning and establishing new centers, and 
operating existing and new centers, for multidisciplinary health 
services research, demonstration projects, evaluations, training, 
policy analysis, and demonstrations respecting the matters referred 
to in subsection (b). 
"(d) RELATION TO CERTAIN AUTHORITIES REGARDING SOCIAL SECU-
RITY.—Activities authorized in this section may include, and shall be 
appropriately 
coordinated 
with, 
experiments, 
demonstration 
projects, and other related activities authorized by the Social Secu-
rity Act and the Social Security Amendments of 1967. Activities 
under subsection (aX2) of this section that affect the programs under 
titles XVIII and XIX of the Social Security Act shall be carried out 
consistent with section 1142 of such Act. 
42USC299a-l. 
"SEC. 903. DISSEMINATION. 
"(a) IN GENERAL.—The Administrator shall— 
"(1) promptly publish, make available, and otherwise dissemi-
nate, in a form understandable and on as broad a basis as 
practicable so as to maximize its use, the results of research, 
demonstration projects, and evaluations conducted or supported 
under this title and the guidelines, standards, and review cri-
teria developed under this title; 
"(2) promptly make available to the public data developed in 
such research, demonstration projects, and evaluations; 
"(3) provide indexing, abstracting, translating, publishing, 
and other services leading to a more effective and timely 
dissemination of information on research, 
demonstration 
projects, and evaluations with respect to health care to public 
and private entities and individuals engaged in the improve-
ment of health care delivery and the general public, and under-
take programs to develop new or improved methods for making 
such information available; and 
State and local 
"(4) as appropriate, provide technical assistance to State and 
governments. 
local government and health agencies and conduct liaison 
activities to such agencies to foster dissemination. 
"(b) PROHIBITION AGAINST RESTRICTIONS.—Except as provided in 
subsection (c), the Administrator may not restrict the publication or 
dissemination of data from, or the results of, projects conducted or 
supported under this title. 
(c) LIMITATION ON USE OP CERTAIN INFORMATION.—No informa-
tion, if an establishment or person supplying the information or 
described in it is identifiable, obtained in the course of activities 
undertaken or supported under this title may be used for any 
purpose other than the purpose for which it was supplied unless 
such establishment or person has consented (as determined under 
regulations of the Secretary) to its use for such other purpose. Such 
information may not be published or released in other form if the 
Public 
information. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2191 
person who supplied the mformation or who is described in it is 
identifiable unless such person has consented (as determined under 
regulations of the Secretary) to its publication or release in other 
form. 
"(d) CERTAIN INTERAGENCY AGREEMENT.—The Administrator and Ck)ntracts. 
the £>irector of the National Library of Medicine shall enter into an 
agreement provichng for the implementation of subsection (aX3). 
-SEC. 904. HEALTH CARE TECHNOLOGY AND TECHNOLOGY ASSESSMENT. 
42 USC 299a-2. 
"(a) IN GENERAL.—In carrying out section 901(b), the Adminis-
trator shall promote the development and application of appropriate 
health care technolc^ assessments— 
"(1) by identif^ng needs in, and establishing priorities for, the 
assessment of specific health care technologies; 
, "(2) by developing and evaluating criteria and methodologies 
for health care technology assessment; 
"(3) by conducting and supporting research on the develop-
ment and diffusion of health care technology; 
"(4) by conducting and supporting research on assessment 
methodologies; and 
"(5) by promoting education, training, and technical assist-
ance in the use of health care technology assessment methodolo-
gies and results. 
"(b) SPECIFIC ASSESSMENTS.— 
"(1) IN GENERAL.—In carrying out section 901(b), the Adminis-
trator shall conduct and support specific assessments of health 
care technologies. 
"(2) CONSIDERATION OP CERTAIN FACTORS.—In carrying out 
paragraph (1), the Administrator shall consider the safety, effi-
cacy, and effectiveness, and, as appropriate, the cost-effective-
ness, legal, social, and ethical implications, and appropriate 
uses of such technologies, including consideration of geographic 
factors. 
"(c) INFORMATION CENTER.— 
"(1) IN GENERAL.—There shall be established at the National 
Establishment. 
Library of Medicine an information center on health care tech-
nologies and health care technology assessment. 
"(2) INTERAGENCY AGREEMENT.—The Administrator and the 
Contracts. 
Director of the National Library of Medicine shall enter into an 
agreement providing for the implementation of paragraph (1). 
"(d) RECOMMENDATIONS WITH RESPECT TO HEALTH CARE TECH-
NOLOGY.— 
"(1) IN GENERAL.—The Administrator shall make rec-
ommendations to the Secretary with respect to whether specific 
health care technologies should be reimbursable under federally 
financed health programs, including recommendations with re-
spect to cuiy conditions and requirements under which any such 
reimbursements should be made. 
"(2) CONSIDERATION OF CERTAIN FACTORS.—In making rec-
ommendations 
respecting 
health 
care 
technologies, 
the 
Administrator shall consider tiie safety, efficacy, and effective-
I 
ness, and, as appropriate, the cost-effectiveness and appropriate 
;, 
uses of such technologies. 
"(3) CONSULTATIONS.—In carrying out this subsection, the 
I 
Administrator shall cooperate and consult with the Director of 
the National Institutes of Health, the Commissioner of Food 
103 STAT. 2192 
PUBLIC LAW 101-239—DEC. 19,1989 
and Drugs, and the heads of any other interested Federal 
department or agency. 
"PART B—FORUM FOR QUALITY AND EFFECTIVENESS IN HEALTH CARE 
42 use 299b. 
"SEC. 911. ESTABLISHMENT OF OFFICE. 
"There is established within the Agency an office to be known as 
the Office of the Forum for Quality and Effectiveness in Health 
Care. The office shall be headed by a director, who shall be ap-
pointed by the Administrator. 
42 use 299b-l. 
"SEC. 912. DUTIES. 
"(a) EsTABUSHMENT O
F FoRUM PROGRAM.—The Administrator, 
acting through the Director, shall establish a program to be known 
as the Forum for Quality and Effectiveness in Health Care. For the 
purpose of promoting the quality, appropriateness, and effectiveness 
of health care, the Director, using the process set forth in section 
913, shall arrange for the development and periodic review and 
updating of— 
"(1) clinically relevant guidelines that may be used by physi-
cians, educators, and health care practitioners to assist in deter-
'
^
*
' mining how diseases, disorders, and other health conditions can 
most effectively and appropriately be prevented, diagnosed, 
treated, and managed clinically; and 
"(2) standards of quality, performance measures, and medical 
review criteria through which health care providers and other 
appropriate entities may assess or review the provision of 
health care and assure the quality of such care. 
"(b) CERTAIN REQUIREMENTS.—Guidelines, standards, performance 
measures, and review criteria under subsection (a) shall— 
"(1) be based on the best available research and professional 
judgment regarding the effectiveness and appropriateness of 
health care services and procedures; 
"(2) be presented in formats appropriate for use by physicians, 
health care practitioners, providers, medical educators, and 
medical review organizations and in formats appropriate for use 
by consumers of health care; and 
"(3) include treatment-specific or condition-specific practice 
guidelines for clinical treatments and conditions in forms appro-
priate for use in clinical practice, for use in educational pro-
grams, and for use in reviewing quality and appropriateness of 
medical care. 
"(c) AUTHORITY FOR CONTRACTS.—In canning out this part, the 
Director may enter into contracts with public or nonprofit private 
entities. 
"(d) DATE CERTAIN FOR INITIAL GUIDELINES AND STANDARDS.—The 
Administrator, by not later than January 1, 1991, shall assure the 
development of an initial set of guidelines, standards, performance 
measures, and review criteria under subsection (a) that includes not 
less than 3 clinical treatments or conditions described in section 
1142(aX3) of the Social Security Act. 
"(e) 
RELATIONSHIP WITH MEDICARE PROGRAM.—To assure £in 
appropriate reflection of the needs and priorities of the program 
under title XVIII of the Social Security Act, activities under this 
part that affect such program shall be conducted consistent with 
section 1142 of such Act. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2193 
'*SEC. 913. PROCESS FOR DEVELOPMENT OF GUIDELINES AND STAND- 
42 USC 299b-2. 
ARDS. 
"(a) DEVEix)PMENT THROUGH C
O
N
T
R
A
C
T
S AND PANELS.—The Direc-
tor shall— 
"(1) enter into contracts with public and nonprofit private 
entities for the purpose of developing and periodically reviewing 
and updating the guidelines, standards, performance measures, 
and review criteria described in section 912(a); and 
"(2) convene panels of appropriately qualified experts (includ-
ing practicing physicians with appropriate expertise) and health 
care consumers for the put^pose of— 
"(A) developing and periodically reviewing and updating 
the guidelines, standards, performance measures, and 
review criteria described in section 912(a); and 
"(B) reviewing the guidelines, standards, performance 
measures, and review criteria developed imder contracts 
under paragraph (1). 
"(b) AUTHORITY FOR AoomoNAL PANELS.—The Director may con-
vene panels of appropriately qualified experts (including practicing 
physicians with appropriate expertise) and health care consumers 
for the purpose of— 
(1) developing the standards and criteria described in section 
914(b); and 
"(2) providing advice to the Administrator and the Director 
with respect to any other activities carried out imder this part 
or under section 902(aX2). 
"(c) SELECTION OP PANEL MEMBERS.—In selecting individuals to 
serve on panels convened under this section, the Director shall 
consult with a broad range of interested individuals and organiza-
tions, including oi^anizations representing^ ^lysicians in the general 
practice of medicine and organizations representing phyincians in 
specialties and subspecialties pertinent to the purposes d the panel 
involved. The Director shall seek to appoint physicians reflecting a 
variety of practice settings. 
"SEC. 914. ADDITIONAL REQUIREMENTS. 
42 USC 299b-3. 
"(a) PROGRAM AGENDA.— 
"(1) IN GENERAL.—The Administrator shall provide for an 
agenda for the development of the guidelines, standards, 
performance measures, and review criteria described in section 
912(a), including— 
"(A) with respect to the guidelines, identifying specific 
diseases, disorders, and other health conditions for which 
the guidelines are to be developed and those that are to be 
given priority in the development of the guidelines; and 
"(B) with respect to the standards, performance meas-
ures, and review criteria, identifying specific aspects of 
health care for which the standards, performance meas-
ures, and review criteria are to be developed and those that 
are to be given priority in the development of the stand-
ards, performance measures, and review criteria. 
"(2) 
CONSIDERATION OF CERTAIN FACTORS IN ESTABLISHING 
PRIORITIES.— 
"(A) Factors considered by the Administrator 
in 
j 
establishing priorities for purposes of paragraph (1) shall 
include consideration of the extent to which the guidelines. 
103 STAT. 2194 
PUBLIC LAW 101-239—DEC. 19, 1989 
standards, performance measures, and review criteria in-
volved can be expected— 
"(i) to improve methods of prevention, diagnosis, 
treatment, and clinical management for the benefit of 
a significant number of individuals; 
"(ii) to reduce clinically significant variations among 
physicians in the particular services and procedures 
- 
utilized in making diagnoses and providing treatments; 
and 
"(iii) to reduce clinically significant variations in the 
outcomes of health care services and procedures. 
"(B) In providing for the agenda required in paragraph 
(1), including the priorities, the Administrator shall consult 
with the Administrator of the Health Care Financing 
Administration and otherwise act consistent with section 
1142(bX3) of the Social Security Act. 
"(b) STANDARDS AND CRITERIA.— 
"(1) PROCESS FOR DEVELOPMENT, REVIEW, AND UPDATING.—The 
Director shall establish standards and criteria to be utilized by 
the recipients of contracts under section 913, and by the expert 
panels convened under such section, with respect to the develop-
ment and periodic review and updating of the guidelines, stand-
ards, performance measures, and review criteria described in 
section 912(a). 
"(2) AWARD OF CONTRACTS.—The Director shall establish 
standards and criteria to be utilized for the purpose of ensuring 
that contracts entered into for the development or periodic 
review or updating of the guidelines, standards, performance 
measures, and review criteria described in section 912(a) will be 
entered into only with appropriately qualified entities. 
"(3) CERTAIN REQUIREMENTS FOR STANDARDS AND CRITERIA.— 
The Director shall ensure that the standards and criteria estab-
lished under pareigraphs (1) and (2) specify that— 
"(A) appropriate consultations with interested individ-
uals and organizations are to be conducted in the develop-
ment of the guidelines, standards, performance measures, 
and review criteria described in section 912(a); and 
"(B) such development may be accomplished through the 
adoption, with or without modification, of guidelines, stand-
ards, performance measures, and review criteria t h a t ^ 
"(i) meet the requirements of this part; and 
"(ii) are developed by entities independently of the 
program established in this part. 
"(4) IMPROVEMENTS OF STANDARDS AND CRITERIA.—The Direc-
tor shall conduct and support research with respect to improv-
ing the standards and criteria developed under this subsection. 
"(c) DISSEMINATION.—The Director shall promote and support the 
dissemination of the guidelines, standards, performance measures, 
and review criteria described in section 912(a). Such dissemination 
shall be C£u-ried out through organizations representing health care 
providers, organizations representing health care consumers, peer 
review organizations, accrediting bodies, and other appropriate enti-
ties. 
"(d) PILOT TESTING.—The Director may conduct or support pilot 
testing of the guidelines, standards, performance measures, and 
review criteria developed under section 912(a). Any such pilot test-
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2195 
ing may be conducted prior to, or concurrently with, their dissemi-
nation under subsection (c). 
"(e) EVALUATIONS.—The Director shall conduct and support 
evaluations of the extent to which the guidelines, standards, 
performance standards, and review criteria developed under section 
912 have had an effect on the clinical practice of medicine. 
"(f) RECOMMENDATIONS TO ADMINISTRATOR.—The Director shall 
make recommendations to the Administrator on activities that 
should be carried out under section 902(aX2) and under section 1142 
of the Social Security Act, including recommendations of particular 
research projects that should be carried out with respect to— 
"(1) evaluating the outcomes of health care services and 
procedures; 
"(2) developing the standards and criteria required in subsec-
tion (b); and 
"(3) promoting the utilization of the guidelines, standards, 
performance standards, and review criteria developed under 
section 912(a).". 
(b) OUTCOMES OP HEALTH CARE SERVICES AND PROCEDURES.— 
(1) E^ABUSHMENT OP PROGRAM OF RESEARCH.—Part A of title 
XI of the Social Security Act (42 U.S.C. 1301 et seq.) is cunended 
by adding at the end the following new section: 
"RESEARCH ON OUTCOMES OP HEALTH CARE SERVICES AND PROCEDURES 
s "SEC. 1142. (a) ESTABLISHMENT OF PROGRAM.— 
42 use 
"(1) IN GENERAL.—The Secretary, acting through the Adminis- I320b-12. 
trator for Health Care Policy and Research, shall— 
"(A) conduct and support research with respect to the 
outcomes, effectiveness, and appropriateness of health care 
? 
services and procedures in order to identify the manner in 
which diseases, disorders, and other health conditions can 
most effectively and appropriately be prevented, diagnosed, 
treated, and managed clinically; and 
"(B) assure that the needs and priorities of the program 
under title XVIII are appropriately reflected in the develop-
ment and periodic review and updating (through the proc- 
^ 
ess set forth in section 913 of the Public Health Service Act) 
of treatment-specific or condition-specific practice guide-
lines for clinical treatments and conditions in forms appro-
priate for use in clinical practice, for use in educational 
programs, and for use in reviewing quality and appropriate-
ness of medical care. 
"(2) 
EVALUATIONS OF ALTERNATIVE SERVICES AND PROCE-
DURES.—In carrying out paragraph (1), the Secretary shall con-
duct or support evaluations of the comparative effects, on 
health and functional capacity, of alternative services and 
procedures utilized in preventing, diagnosing, treating, and 
clinically managing diseases, disorders, and other health condi-
tions. 
"(3) INITIAL GUIDEUNES,— 
"(A) In carrying out paragraph (IXB) of this subsection, 
and section 912(d) of the Public Health Service Act, the 
Secretary shall, by not later than January 1, 1991, assure 
^ 
i 
the development of an initial set of the guidelines specified 
in paragraph (1)(B) that shall include not less than 3 clini-
cal treatments or conditions that— 
103 STAT. 2196 
PUBLIC LAW 101-239—DEC. 19, 1989 
Reports. 
"(iXD account for a significant portion of expendi-
tures under title XVIII; and 
"(II) have a significant variation in the fi-equency or 
the type of treatment provided; or 
.K.< •• 
"(ii) otherwise meet the needs and priorities of the 
program under title XVIII, as set forth under subsec-
tion (bX3). 
"(BXi) The Secretary shall provide for the use of guide-
lines developed under subparagrah (A) to improve the qual-
ity, effectiveness, and appropriateness of care provided 
under title XVIII. The Secretary shall determine the 
impact of such use on the quality, appropriateness, 
effectiveness, and cost of medical care provided under such 
title and shall report to the Congress on such determination 
by not later than January 1,1993. 
"(ii) For the purpose of carrying out clause (i), the Sec-
retary shall expend, from the amounts specified in clause 
(iii), $1,000,000 for fiscal year 1990 and $1,500,000 for each 
of the fiscal years 1991 and 1992. 
"(iii) For each fiscal year, for purposes of expenditures 
required in clause (ii)— 
"(I) 60 percent of an amount equal to the expenditure 
involved is appropriated from the Federal Hospital 
: :r 
Insurance Trust Fund (established under section 1817); 
and 
"(II) 40 percent of an amount equal to the expendi-
- ture involved is appropriated from the Federal Supple-
mentary Medical Insurance Trust Fund (established 
under section 1841). 
"Ot)) PRIORITIES.— 
"(1) IN GENERAL.—The Secretary shall establish priorities 
with respect to the diseases, disorders, and other health condi-
tions for which research and evaluations are to be conducted or 
supported under subsection (a). In establishing such priorities, 
the Secretary shall, with respect to a disease, disorder, or other 
health condition, consider the extent to which— 
"(A) improved methods of prevention, diagnosis, treat-
ment, and clinical management can benefit a significant 
number of individuals; 
"(B) there is significant variation among physicians in 
the particular services and procedures utilized in making 
diagnoses and providing treatments or there is significant 
variation in the outcomes of health care services or proce-
dures due to different patterns of diagnosis or treatment; 
^ 
"(C) the services and procedures utilized for diagnosis and 
treatment result in relatively substantial expenditures; and 
"(D) the data necessary for such evaluations are readily 
available or can readily be developed. 
"(2) PREUMINARY ASSESSMENTS.—For the purpose of establish-
ing priorities under paragraph (1), the Secretary may, with 
respect to services and procedures utilized in preventing, di-
agnosing, treating, and clinically managing diseases, disorders, 
and other health conditions, conduct or support assessments of 
the extent to which— 
"(A) rates of utilization vary among similar populations 
for particular diseases, disorders, and other health condi-
tions; 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2197 
"(B) uncertainties exist on the effect of utilizing a particu-
lar service or procedure; or 
"(C) inappropriate services and procedures are provided. 
"(3) RELATIONSHIP WITH MEDICARE PROGRAM.—In establishing 
priorities under paragraph (1) for research and evaluation, and 
under section 914(a) of the Public Health Service Act for the 
agenda under such section, the Secretary shall assure that such 
priorities appropriately reflect the needs and priorities of the 
program under title XvIII, as set forth by the Administrator of 
the Health Care Financing Administration. 
"(c) METHODOLOGIES AND OUTERIA FOR EVALUATIONS.—For the 
purpose of facilitating research under subsection (a), the Secretary 
shall— 
"(1) conduct and support research with respect to the 
improvement of methodologies and criteria utilized in conduct-
ing research with respect to outcomes of health care services 
and procedures; 
"(2) conduct and support reviews and evaluations of existing 
research findings with respect to such treatment or conditions; 
"(3) conduct and support reviews and evaluations of the exist-
ing methodologies that use large data bases in conducting such 
research and shall develop new research methodologies, includ-
ing data-based methods of advancing knowledge and methodolo-
gies that measure clinical and functional status of patients, 
with respect to such research; 
"(4) provide grants and contracts to research centers, and 
contracts to other entities, to conduct such research on such 
treatment or conditions, including research on the appropriate 
use of prescription drugs; 
"(5) conduct and support research and demonstrations on the 
use of claims data and data on clinical and functional status of 
patients in determining the outcomes, effectiveness, and appro-
priateness of such treatment; and 
"(6) conduct and support supplementation of existing data 
bases, including the collection of new information, to enhance 
data bsises for research purposes, and the design and develop-
ment of new data bases that would be used in outcomes and 
effectiveness research. 
"(d) STANDARDS FOR DATA BASES.—In carrying out this section, the 
Secretary shall develop— 
"(1) uniform definitions of data to be collected and used in 
describing a patient's cliniced and functional status; 
"(2) common reporting formats and linkages for such data; 
and 
"(3) standards to assure the security, confidentiality, ac-
curacy, and appropriate maintenance of such data. 
"(e) DISSEMINATION OF RESEARCH FINDINGS AND GUIDELINES.— 
"(1) IN GENERAL.—The Secretary shall provide for the dissemi-
nation of the findings of research and the guidelines described 
in subsection (a), and for the education of providers and others 
in the application of such research findings and guidelines. 
"(2) COOPERATIVE EDUCATIONAL ACTIVITIES.—In disseminating 
findings and guidelines under paragraph (1), and in providing 
for education under such paragraph, the Secretary shall work 
with professioncd associations, medical specialty and sub-
specialty organizations, and other relevant groups to identify 
and implement effective means to educate physicians, other 
Grants. 
Contracts. 
Education. 
103 STAT. 2198 
PUBLIC LAW 101-239—DEC. 19, 1989 
providers, consumers, and others in using such findings and 
guidelines, including training for ph3rsician managers within 
provider organizations, 
"w EVALUATIONS.—The Secretary shall conduct and support 
evaluations of the activities carried out under this section to deter-
mine the extent to which such activities have had an effect on the 
practices of physicians in providing medical treatment, the delivery 
of health care, and the outcomes of health care services and proce-
dures. 
"(g) RESEARCH WITH RESPECT TO DISSEMINATION.—The Secretary 
may conduct or support research with respect to improving metho(u 
of disseminating information on the efTectiveness and appropriate-
ness of health care services and procedures. 
"(h) REPORT TO CONGRESS.—Not later than February 1 of each of 
the years 1991 and 1992, and of each second year thereafter, the 
Secretary shall report to the Congress on the progress of the activi-
ties under this section during the preceding fiscal year (or preceding 
2 fiscal ^ears, as appropriate), including the impact of such activities 
on medical care (particularly medical care for individuals receiving 
benefits under title XVUI). 
"(i) AUTHORIZATION OP APPROPRIATIONS.— 
"(1) IN GENERAL.—There are authorized to be appropriated to 
carry out this section— 
"(A) $50,000,000 for fiscal year 1990; 
"(B) $75,000,000 for fiscal year 1991; 
"(C) $110,000,000 for fiscal year 1992; 
"(D) $148,000,000 for fiscal year 1993; and 
"(E) $185,000,000 for fiscal year 1994. 
"(2) SPECIFICATIONS.—For the purpose of carrying out this 
section, for each of the fiscal years 1990 through 1992 an 
amount equal to two-thirds of the amoimts authorized to be 
appropriated under paragraph (1), and for each of the fiscal 
years 1993 and 1994 an amount equal to 70 percent of such 
amounts, are to be appropriated in the following proportions 
from the following trust funds: 
"(A) 60 percent from the Federal Hospital Insurance 
Trust Fund (established under section 1817). 
"(B) 40 percent from the Federal Supplementary Medical 
Insurance Trust Fund (established under section 1841). 
"(3) ALLOCATIONS.—• 
"(A) For each fiscal year, of the amounts transferred or 
otherwise appropriated to carry out this section, the Sec-
retary shall reserve appropriate amounts for each of the 
purposes specified in clauses (i) through (iv) of subpara-
graph (B). 
"(B) The purposes referred to in subparagraph (A) are— 
"(i) the development 
of guidelines, standards, 
performance measures, and review criteria; 
"(ii) research and evaluation; 
"(iii) data-base standards and development; £md 
"(iv) education and information dissemination.". 
42 use 1320b-12 
(2) R
E
P
O
R
T O
N UNKAGE O
F PUBUC AND PRIVATE R
E
S
E
A
R
C
H 
"<**®- 
R
E
L
A
T
E
D DATA.—Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services shall report to the Congress on the feasibility of linking 
research-related data described in section 1142(d) of the SocicJ 
Security Act (as added by paragraph (1) of this subsection) with 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2199 
similar data collected or maintained by non-Federal entities and 
by Federal agencies other than the Department of Health and 
Human Services (including the Departments of Defense and 
Veterans Affairs and the Office of Personnel Management). 
(3) TECHNICAL AND CONFORMING PROVISIONS.— 
(A) Effective for fiscal years beginning after fiscal year 
1990, subsection (c) of section 1875 of the Social Security Act 
(42 U.S.C. 139511) is repealed. 
(B) Section 1862(aXlXE) of the Social Security Act (42 
U.S.C. 1395y(aXlXE)) is amended by striking "section 
1875(c)" and inserting "section 1142". 
(c) ADDITIONAL AUTHORITIES AND DUTIES WITH RESPECT T
O AGENCY 
F
O
R HEALTH CARE POUCY AND RESEARCH.—Title IX of the Public 
Health Service Act, as added by subsection (a) of this section, is 
amended by adding at the end the following new part: 
"PART C—GENERAL PROVISIONS 
"SEC. 921. ADVISORY COUNCIL FOR HEALTH CARE POLICY, RESEARCH, 
42 USC 299c. 
AND EVALUATION. 
"(a) ESTABUSHMENT.—There is established an advisory council to 
be known as the National Advisory Council for Health Care Policy, 
Research, and Evaluation. 
"(b) DUTIES.— 
"(1) IN GENERAL.—The Council shall advise the Secretary and 
the Administrator with respect to activities to carry out the 
purpose of the Agency under section 901(b). 
"(2) CERTAIN RECOMMENDATIONS.—Activities of the Council 
under paragraph (1) shall include making recommendations to 
the Administrator regarding priorities for a national agenda 
and strategy for— 
"(A) the conduct of research, demonstration projects, and 
evaluations with respect to health care, including clinical 
practice and primary care; 
"(B) the development and application of appropriate 
health care technology assessments; 
"(C) the development and periodic review and updating of 
guidelines for clinical practice, standards of quality, 
performance mesisures, and medical review criteria with 
respect to health care; and 
"(D) the conduct of research on outcomes of health care 
services £ind procedures. 
"(c) MEMBERSHIP.— 
"(1) IN GENERAL.—The Council shall, in accordance with this 
subsection, be composed of appointed members and ex ofRcio 
members. All members of the Council shall be voting members, 
other than officials designated under paragraph (3XB) as ex 
officio members of the Council. 
"(2) APPOINTED MEMBERS.—The Secretary shall appoint to the 
Council 17 appropriately qualified representatives of the public 
who are not officers or employees of the United States. The 
, 
Secretary shall ensure that the appointed members of the Coun-
cil, as a group, are representative of professions and entities 
concerned with, or affected by, activities under this title and 
103 STAT. 2200 
PUBLIC LAW 101-239—DEC. 19, 1989 
under section 1142 of the Social Security Act. Of such mem-
bers— 
"(A) 8 shall be individuals distinguished in the conduct of 
research, demonstration projects, and evaluations with re-
spect to health care; 
"(B) 3 shall be individuals distinguished in the practice of 
• 
medicine; 
"(C) 2 shall be individuals distinguished in the health 
professions; 
' 
"(D) 2 shall be individuals distinguished in the fields of 
business, law, ethics, economics, and public policy; and 
"(E) 2 shall be individuals representing the interests of 
consumers of hecdth care. 
"(3) Ex O
F
F
I
C
I
O MEMBERS.—The Secretary shall designate as 
ex officio members of the Council— 
"(A) the Director of the National Institutes of Health, the 
Director of the Centers for Disease Control, the Adminis-
trator of the Health Care Financing Administration, the 
«' ' 
Assistant Secretary of Defense (Health Affairs), the Chief 
> 
Medical Officer of the Department of Veterans Affairs; and 
"(B) such other Federal officials as the Secretary may 
consider appropriate. 
, 
.
= 
"(d) SUBCOUNCIL O
N O
U
T
C
O
M
E
S AND GuiDEUNES.— 
"(1) E^ABUSHMENT.—For the purpose of carrjring out the 
duties specified in subparagraphs (C) and (D) of sul^ection (bX2), 
the Secretary shall establish a subcouncil of the Coimcil and 
shall designate the membership of the subcouncil in accordance 
with paragraph (2). 
"(2) MEMBERSHIP.—The subcouncil established pursuant to 
paragraph (1) shsdl consist of^ 
"(A) 6 individuals from among the individuals appointed 
to the Council under subparagraphs (A) through (C) of 
subsection (cX2); 
"(B) 2 individuals from among the individuals appointed 
to the Council under subparagraphs (D) and (E) of such 
subsection; and 
"(C) each of the ofQcials designated as ex officio members 
of the Council under subsection (cX3XA). 
"(e) TERMS.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), mem-
bers of the Council appointed under subsection (cX2) shall serve 
for a term of 3 years. 
"(2) STAGGERED ROTATION.—Of the members first appointed to 
the Council under subsection (cX2), the Secretary shall appoint 6 
members to serve for a term of 3 years, 6 members to serve for a 
term of 2 years, and 5 members to serve for a term of 1 year. 
"(3) SERVICE BEYOND TERM.—A member of the Council ap-
pointed under subsection (cX2) may continue to serve after the 
expiration of the term of the member until a successor is 
appointed. 
"(f) VACANCIES.—If a member of the Council appointed under 
subsection (cX2) does not serve the full term applicable under subsec-
tion (e), the. individual appointed to fill the resulting vacancy shall 
be appointed for the remainder of the term of the predecessor of the 
individual. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2201 
"(g) CHAIR.—The Administrator shall, from among the members 
of the Council appointed under subsection (cX2), designate an 
individual to serve as the chair of the Council. 
"(h) MEETINGS.—The Council shall meet not less than once during 
each discrete 4-month period and shall otherwise meet at the call of 
the Administrator or the chair, 
"(i) COMPENSATION AND REIMBURSEMENT OF EXPENSES.— 
"(1) APPOINTED MEMBERS.—Members of the Council appointed 
under subsection (cX2) shall receive compensation for each day 
(including traveltime) engaged in canying out the duties of the 
Council. Such compensation may not be in an amount in excess 
of the maximum rate of basic pay payable for GS-18 of the 
Greneral Schedule. 
"(2) Ex OFFICIO MEMBERS.—Officials designated under subsec-
tion (cX3) as ex officio members of the Council may not receive 
compensation for service on the Council in addition to the 
compensation otherwise received for duties carried out as offi-
cers of the United States, 
"(j) STAFF.—The Administrator shall provide to the Council such 
staff, information, and other assistance as may be necessary to carry 
out the duties of the Council. 
"(is.) DURATION.—Notwithstanding section 14(a) of the Federal 
Advisory Committee Act, the Council shall continue in existence 
until otherwise provided by law. 
"SEC. 922. PEER REVIEW WITH RESPECT TO GRANTS AND CONTRACTS. 
42 USC 299c-l. 
"(a) REQUIREMENT OF REVIEW.— 
"(1) IN GENERAL.—Appropriate technical and scientific peer 
review shall be conducted with respect to each application for a 
grant, cooperative agreement, or contract under this title. 
"(2) REPORTS TO ADMINISTRATOR.—Each peer review group to 
which an application is submitted pursuant to paragraph (1) 
shall report its finding and recommendations respecting the 
application to the Administrator in such form and in such 
manner as the Administrator shall require. 
"(b) APPROVAL AS PRECONDITION OF AWARDS.—The Administrator 
may not approve an application described in subsection (aXD unless 
the application is recommended for approval by a peer review group 
established under subsection (c). 
"(c) EsTABusHMENT O
F PEER REVIEW GROUPS.— 
"(1) IN GENERAL.—The Administrator shall establish such 
technical £md scientific peer review groups as may be necessary 
to carry out this section. Such groups shall be established 
without regard to the provisions of title 5, United States Code, 
that govern appointments in the competitive service, and with-
out regard to the provisions of chapter 51, and subchapter III of 
chapter 53, of such title that relate to classification and pay 
rates under the General Schedule. 
"(2) MEMBERSHIP.—The members of any peer review group 
established under this section shall be appointed from among 
individuals who are not officers or employees of the United 
Stetes and who by virtue of their training or experience are 
eminently qualified to carry out the duties of such peer review 
group. 
"(3) DURATION.—Notwithstanding section 14(a) of the Federal 
Advisory Committee Act, peer review groups esteblished under 
103 STAT. 2202 
PUBLIC LAW 101-239—DEC. 19, 1989 
this section shall continue in existence until otherwise provided 
by law. 
"(d) CATEGORIES OP REVIEW.— 
"(1) IN GENERAL.—With respect to technical and scientific 
peer review under this section, such review of applications with 
respect to research, demonstration projects, or evaluations shall 
be conducted by different peer review groups than the peer 
review groups that conduct such review of applications with 
respect to dissemination activities or the development of re-
search agendas (including conferences, workshops, and meet-
ings). 
(2) AUTHORITY FOR PROCEDURAL ADJUSTMENTS IN CERTAIN 
CASES.—In the case of applications described in subsection (aXD 
for financial assistance whose direct costs will not exceed 
$50,000, the Administrator may make appropriate adjustments 
in the procedures otherwise established by the Administrator 
for the conduct of peer review under this section. Such adjust-
ments may be made for the purpose of encouraging the entry of 
individual into the field of research, for the purpose of 
encouraging clinical practice-oriented research, and for such 
other purposes as the Administrator may determine to be 
appropriate. 
"(e) REGULATIONS.—The Secretary shall issue r^ulations for the 
conduct of peer review under this section. 
42 use 299C-2. 
"SEC. 923. CERTAIN PROVISIONS WITH RESPECT TO DEVELOPMENT, 
COIXECTION, AND DISSEMINATION OF DATA. 
"(a) STANDARDS WITH RESPECT TO UTILITY OF DATA.— 
"(1) IN GENERAL.—With respect to data developed or collected 
by any entity for the purpose described in section 901(b), the 
Administrator shall, in order to assure the utility, accuracy, and 
sufficiency of such data for all interested entities, establish 
guidelines for uniform methods of developing and collecting 
such data. Such guidelines shall include specSications for the 
development and collection of data on the outcomes of health 
care services and procedures. 
"(2) RELATIONSHIP WITH MEDICARE PROGRAM.—In any case 
where guidelines under paragraph (1) may affect the aominis-
tration of the program under title XVIII of the Social Security 
Act, the guidelines shall be in the form of recommendations to 
the Secretary for such program. 
"(b) STATISTICS.—The Administrator shall— 
"(1) take such action as may be necessaiy to assure that 
statistics developed under this title are of high quality, timely, 
and comprehensive, as well as specific, standardized, and ade-
quately analyzed and indexed; and 
"(2) publish, make available, and disseminate such statistics 
on as wide a basis as is practicable. 
42 use 299C-3. 
"^EC. 924. ADDITIONAL PROVISIONS WITH RESPECT TO GRANTS AND 
CONTRACTS. 
"(a) REQUIREMENT OF APPUCATION.—The Administrator may not, 
with respect to any pn^am under this title authorizing the provi-
sion of grants, cooperative agreements, or contracts, provide any 
such financial assistance unless an application for the assistance is 
submitted to the Secretary and the application is in such form, is 
made in such manner, and contains such agreements, assurances. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2203 
and information as the Administrator determines to be necessary to 
carry out the program involved. 
"(b) PROVISION OF SUPPUES AND SERVICES IN LIEU OF FUNDS.— 
"(1) IN GENERAL.—Upon the request of an entity receiving a 
grant, cooperative agreement, or contract under this title, the 
Secretary may, subject to paragraph (2), provide supplies, equip-
ment, and services for the purpose of aiding the entity in 
carrying out the project involved and, for such purpose, may 
detail to the entity any officer or employee of the Department of 
Health and Human Services. 
"(2) CORRESPONDING REDUCTION IN FUNDS.—With respect to a 
request described in paragraph (1), the Secretary shall reduce 
the amount of the financial assistance involved by £ui amount 
equal to the costs of detailing personnel and the fair market 
value of any supplies, equipment, or services provided by the 
Administrator. The Secretary shall, for the payment of ex-
penses incurred in complying with such request, expend the 
amounts withheld. 
"(c) APPLICABILITY OF CERTAIN PROVISIONS WITH RESPECT TO CON-
TRACTS.—Contracts may be entered into under this part without 
regard to sections 3648 and 3709 of the Revised Statutes (31 U.S.C. 
529; 41 U.S.C. 5). 
"SEC. 925. CERTAIN ADMINISTRATIVE AUTHORITIES. 
"(a) DEPUTY ADMINISTRATOR AND OTHER OFFICERS AND EMPLOY-
EES.— 
"(1) DEPUTY ADMINISTRATOR.—The Administrator may ap-
point a deputy administrator for the Agency. 
"(2) OTHER OFFICERS AND EMPLOYEES.—The Administrator 
may appoint and fix the compensation of such officers and 
employees as may be necessary to carry out this title. Except as 
otherwise provided by law, such officers and employees sh^l be 
appointed in accordance with the civil service laws and their 
compensation fixed in accordance with title 5, United States 
Code. 
"(b) FACILITIES.—The Secretary, in carrying out this title— 
"(1) may acquire, without regard to the Act of March 3, 1877 
(40 U.S.C. 34), by lease or otherwise through the Administrator 
of General Services, buildings or portions of buildings in the 
District of dlolumbia or communities located adjacent to the 
District of Columbia for use for a period not to exceed 10 years; 
and 
"(2) may acquire, construct, improve, repair, operate, and 
maintain laboratory, research, and other necessarv facilities 
and equipment, and such other real or personal property 
(including patents) as the Secretary deems necessary. 
"(c) PROVISION OF FINANCIAL ASSISTANCE.—The Administrator, in 
canying out this title, may make grants to, and enter into coopera-
tive agreements with, public and nonprofit private entities and 
individuals, and when appropriate, may enter into contracts with 
public and private entities and individuals. 
"(d) UTIUZATION O
F CJERTAIN PERSONNEL AND RESOURCES.— 
"(1) DEPARTMENT OF HEALTH AND HUMAN SERVICES.—The 
Administrator, in carrying out this title, may utilize personnel 
and equipment, facilities, and other physical resources of the 
Department of Health and Human Services, permit appropriate 
(as determined by the Secretary) entities and individuals to 
42 use 299C-4. 
District of 
Columbia. 
Grants. 
Contracts. 
103 STAT. 2204 
PUBLIC LAW 101-239—DEC. 19, 1989 
utilize the physical resources of such Department, and provide 
technical assistance and advice. 
"(2) OTHER AGENCIES.—The Administrator, in carrying out 
this title, may use, with their consent, the services, equipment, 
personnel, information, and facilities of other Federal, State, or 
local public agencies, or of any foreign government, with or 
without reimbursement of such agencies. 
"(e) CONSULTANTS.—The Secretary, in canying out this title, may 
secure, from time to time and for such periods as the Administrator 
deems advisable but in accordance with section 3109 of title 5, 
United States Code, the assistance and advice of consultants from 
the United States or abroad. 
"(f) EXPERTS.— 
"(1) IN GENERAL.—The Secretary may, in carrying out this 
^ 
title, obtain the services of not more than 50 experts or consult-
ants who have appropriate scientific or professional qualifica-
tions. Such experts or consultants shall be obtained in accord-
ance with section 3109 of title 5, United States Code, except that 
the limitation in such section on the duration of service shall 
not apply. 
"(2) TRAVEL EXPENSES.— 
"(A) Experts and consultants whose services are obtained 
under paragraph (1) shall be paid or reimbursed for their 
expenses associated with traveling to and from their assign-
ment location in accordance with sections 5724, 5724a(aXl), 
5724a(aX3), and 5726(c) of title 5, United States Code. 
"(B) Expenses specified in subparagraph (A) may not be 
allowed in connection with the assignment of an expert or 
consultant whose services are obtained under paragraph (1) 
unless and until the expert agrees in writing to complete 
the entire period of assignment, or one year, whichever is 
shorter, unless separated or reassigned for reasons that are 
beyond the control of the expert or consultant and that are 
acceptable to the Secretary. If the expert or consultant 
violates the agreement, the money spent by the United 
States for the expenses specified in subparagraph (A) is 
recoverable from the expert or consultant as a debt of the 
United States. The Secretary may waive in whole or in part 
a right of recovery under this subparagraph. 
"(g) VOLUNTARY AND UNCOMPENSATED SERVICES.—The Adminis-
trator, in carrying out this title, may accept voluntary and un-
compensated services. 
42 u s e 299C-5. 
"SEC. 926. FUNDING. 
"(a) AUTHORIZATION OF APPROPRIATIONS.—For the purpose of 
canying out this title, there are authorized to be appropriated 
$35,000,000 for fiscal year 1990, $50,000,000 for fiscal year 1991, and 
$70,000,000 for fiscal year 1992. 
"(b) EVALUATIONS.—In addition to amounts available pursuant to 
subsection (a) for carrying out this title, there shall be made avail-
able for such purpose, from the amounts made available pursuant to 
section 2611 of this Act (relating to evaluations), an amount equal to 
40 percent of the maximum amount authorized in such section 2611 
to be made available. 
42USC299C-6. 
"SEC. 927. DEFINITIONS. 
"For purposes of this title: 
> 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2205 
"(1) The term 'Administrator' means the Administrator for 
Health Care PoU(^ and Research. 
"(2) The term Agency* means the Agency for Health Care 
Policy and Research. 
"(3) The term 'Council* means the National Advisory Council 
on Health Care Policy, Research, and Evaluation. 
"(4) The term 'Director' means the Director of the Office of 
the Forum for Quality and Effectiveness in Health Care.". 
(d) GENERAL PROVISIONS.— 
f 
1) TERMINATIONS ~
*
*
* 
(A) The National Center for Health Services Research 42 use 242c 
and Health Care Technology Assessment is terminated, and ^°**-
part A of title HI of the Public Health Service Act (42 U.S.C. 
241 et seq.) is amended by striking section 305. 
42 use 242c. 
(B) The council on health care technology established 42USe242n 
under section 309 of the Public Health Service Act is termi- " 
nated, and part A of title III of such Act is amended by 
striking section 309. 
42 use 242n. 
(2) CONTRACT FOR TEMPORARY ASSISTANCE TO SECRETARY WITH 42 use 299a-2 
RESPECT TO HEALTH CARE TECHNOLOGY ASSESSMENT.— 
^ ° ^ 
(A) The Secretary of Health and Human Services shall 
request the Institute of Medicine of the National Academy 
of Sciences to enter into a contract— 
(i) to develop and recommend to the Secretary prior-
ities for the assessment of specific health care tech-
nologies under section 904 of the Public Health Service 
Act (as added by subsection (a) of this section); and 
(ii) to assist the Administrator for Health Care Policy 
and Research, and the Director of the National Library 
of Medicine, in establishing the information center 
required under subsection (cXD of such section 904. 
(B) In carrying out section 904(c)(1) of the Public Health 
Service Act (as added by subsection (a) of this section), the 
Secretary of Health and Human Services shall, as appro-
priate, provide for the transfer to the Secretary of any 
information and materials developed by the council on 
health care technology under section 309(cXlXA) of the 
Public Health Service Act (as such section was in effect on 
the day before the effective date of this section). 
(C) The Secretary of Health and Human Services shall 
ensure that the contract under subparagraph (A) specifies 
that the activities described in clauses (i) and (ii) of such 
subparagraph shall be completed not later than 1 year after 
the date on which the Secretary enters into the contract. 
(D) For the purpose of carrying out the contract under Appropriation 
subparagraph (A), there is authorized to be appropriated authorization. 
$300,000 for fiscal year 1990. 
(e) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) SECTION 304.—Section 304 of the Public Health Service Act 
(42 U.S.C. 242b) is amended— 
(A) in subsection (a)— 
(i) bv striking paragraphs (1) and (2); and 
(ii) by striking the paragraph designation in para-
graph (3); 
(B) in subsection (a) (as amended by subparagraph (A) of 
this paragraph)— 
103 STAT. 2206 
PUBLIC LAW 101-239—DEC. 19,1989 
,* 
(i) by striking "the National Center for Health Serv-
ices Research and Health Care Technology Assess-
ment" and inserting "the Agency for Health Care 
Policy and Research'; and 
(ii) by striking "m sections 305, 306, and 309" and 
inserting "in section 306 and in title IX"; 
(C) in subsection (b), in the matter preceding paragraph 
(1), by striking "subsection (a)," and inserting "subsection 
(a) and section 306,"; and 
(D) in subsection (c)— 
(i) in paragraph (1), in the second sentence, by strik-
ing "the National Center for Health Services Research 
and Health Care Technology Assessment" and insert-
ing "the Agency for Health Care Policy and Research"; 
and 
(ii) in paragraph (2), by striking "the Nationsd Center 
for Health Services R^arch and Health Care Tech-
nol(^y Assessment" and inserting "the Agency for 
Health Care Policy and Research". 
(2) SECTION 306.—Section 306 of the Public Health Service Act 
(42 U.S.C. 242k) is amended— 
(A) in subsection (a), by adding at the end the following 
new sentence: "The Secretary, acting through the Center, 
shall conduct and support statistical and epidemiological 
activities for the purpose of improving the effectiveness, 
^ 
efGciency, and quality of health services in the United 
, 
States."; 
(B) in subsection (b), in the matter preceding paragraph 
(1), by striking "section 304(a)," and inserting "subsection 
(a),"; and 
(C) by adding at the end the following new subsection: 
Appropriation 
"(m) For health statistical and epidemiological activities under-
auttiorization. 
taken or supported under this section, there are authorized to be 
appropriated $55,000,000 for fiscal year 1988 and such sums as may 
be necessary for each of the fiscal years 1989 and 1990.". 
(3) SECTION 307.—Section 307(a) of the Public Health Service 
Act (42 U.S.C. 2421(a)) is amended by strikmg "sections 304, 305, 
306, and 309" and inserting "section 306 and by title IX". 
(4) SECTION 308.—Section 308 of the Public Health Service Act 
(42 U.S.C. 242m) is amended— 
(A) in the section heading, by striking "SECTIONS" and all 
that follows and inserting the following: "EFFBCTTVENESS, 
EFFICIENCY, AND QUALITY OF HEALTH SERVICES"; 
(B) in subsection (a)— 
,t 
(i) in paragraph (IXAXi), by striking "secticms 304 
through 307 and section 309" and inserting "sections 
304, 306, and 307 and title DC"; and 
(ii) in par^raph (2), by striking "the National Center 
for Health l^rvices Research and Health Care Tech-
nology Assessment" and inserting "the Agency for 
Health Care Policy and Research"; 
(C) in subsection (b>— 
(i) in paragraph (1), by striking "sections 304, 305, 
306, 307, and 309" and mserting "section 304, 306, or 
307"; 
(ii) in subparagraph (A) of paragraph (2)— 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2207 
(D in the first sentence, by striking "under sec-
tion 304 or 305," and inserting "under section 306"; 
(II) by striking the second sentence; and 
(in) by amending the last sentence to read as 
follows: "The Director of the National Center for 
Health Statistics shall establish such peer review 
groups as may be necessary to provide for such an 
evaluation of each such application."; 
(iii) in subparagraph (B) of paragraph (2), by striking 
"the Director involved," and mserting "the Director <^ 
the National Center for Health Statistics,"; 
(iv) in subparagraph (C) of paragraph (2), by striking 
"the Directors," and inserting "the Director of the 
National Center for Health Statistics,"; and 
(v) in paragraph (3), in the first sentence— 
(I) by striking "section 304, 305, or 306" the first 
place such term appears and inserting "section 
306"; and 
(II) by striking "section 304, 305, or 306" the 
,.• 
second place such term appears and inserting "any 
of such sections"; 
(D) in subsection (d)— 
(i) in the matter preceding paragraph (1), by striking 
"section 304, 305, 306, 307, or 309^^ and inserting "sec-
tion 304, 306, or 307"; 
(ii) in paragraph (1), l^ striking "in other form, and" 
and inserting in other form." and by striking the 
paragraph designation; and 
(iii) by striking paragraph (2>, 
(E) in subsection {eh-
(i) in paragraph (1), by striking "section 304, 305, 306, 
307, or 309'^ and inserting "section 304, 306, or 307"; 
and 
(ii) in paragraph (2), in the matter preceding subpara-
graph (A), by striking "section 304, 305, 306, 307, or 
309^' and inserting "section 304,306, or 307"; 
(F) in subsection (f), by striking "section 304, 305, 306, or 
309" and inserting "section 304 or 306"; 
(G) in subsection (g>— 
(i) in paragraph (1), by striking the matter after and 
below subparagraph (Q; and 
(ii) in paragraph (2), by striking "sections 304, 305, 
306, and 309" and inserting "sections 304 and 306"; 
(H) in subsection (hXl)— 
(i) by striking "section 304, 305, 306, or 309" the first 
place such term appears and inserting "section 306"; 
and 
(ii) by striking "section 304, 305, 306, or 309" the 
second place such term appears and inserting "any of 
such sections"; and 
(I) by striking subsection (i). 
(5) SECTION 330.—Section 330(eX3XGXi) of the Public Health Indians. 
Service Act (42 U.S.C. 254c(eX3XGXi)) is amended by insertmg 
after "(i)" the following: "except in the case of an entity oper-
ated by an Indian tribe or tribal or Indian organization under 
the Indian Self-Determination Act,". 
103 STAT. 2208 
PUBLIC LAW 101-239~DEC. 19,1989 
42 use 11137 
note. 
State and local 
governments. 
42 use 11111. 
42 use 11115. 
42 use 11137 
note. 
42 u s e 299 note. 
(6) SECTION 402.—Section 402 of the Public Health Service 
Amendments of 1987 is amended— 
(A) by redesignating subsection (c) as subsection (d) and 
, . 
by inserting after subsection (b) the following new subsec-
tion: 
"(c) Such Act is amended in section 411(cX2) by striking subpara-
graph (B), by striking 'subparagraphs (A) and (B)' in subparagraph 
(C), and by redesignating subparagraph (C) as subparagraph (B). 
Such Act is amended in section 415(a) by inserting before the period 
at the end the following: 'or as preempting or overriding any State 
law which provides incentives, mimunities, or protection for those 
engaged in a professional review action that is in addition to or 
greater than that provided by this part'"; and 
(B) in subsection (dXD (as so redesignated), by striking 
"subsection (a)" and inserting "subsections (a) and (c) . 
(7) SECTION 487.—Section 487(dX3XB) of the Public Health 
Service Act (42 U.S.C. 288(dX3XB)) is amended by striking "Na-
tional Center" and all that follows through "Assessment" and 
inserting "Agency for Health Care Policy and Research". 
(f) TRANSITIONAL AND SAVINGS PROVISIONS.— 
(1) TRANSFER OF PERSONNEL, ASSETS, AND LIABILITIES.—Person-
nel of the Department of Health and Human Services employed 
on the date of the enactment of this Act in connection with the 
functions vested in the Administrator for Health Care Policy 
and Research pursuant to the amendments made by this sec-
tion, and assetis, property, contracts, liabilities, records, unex-
pended balances of appropriations, authorizations, cdlocations, 
and other funds, of such Department arising from or employed, 
held, used, or available on such date, or to be made available 
after such date, in connection with such functions shall be 
transferred to the Administrator for appropriate allodation. 
Unexpended funds transferred under this paragraph shall be 
used only for the purposes for which the funds were originally 
authorized and appropriated. 
(2) SAVINGS PROVISIONS.—With respect to functions vested in 
the Administrator for Health Care Policy and Research pursu-
ant to the amendments made by this section, all orders, rules, 
regulations, grants, contracts, certificates, licenses, privileges, 
and other determinations, actions, or official documents, of the 
Department of Health and Human Services that have been 
issued, made, granted, or allowed to become effective in the 
performance of such functions, and that are effective on the 
date of the enactment of this Act, shall continue in effect 
according to their terms unless changed pursuant to law. 
SEC. 6104. REDUCTION IN PAYMENTS FOR CERTAIN PROCEDURES. 
(a) IN GENERAL.—Section 1842(b) of the Social Security Act (42 
U.S.C. 1395u(b)) is amended by adding at the end the following new 
paragraph: 
"(14XA) In determining the reasonable chaige for a physicians' 
service specified in subparagraph (CXi) and furnished during the 9-
month period beginning on April 1, 1990, the prevailing charge for 
such service shall be the prevailing charge otherwise recognized for 
such service for 1989 reduced by 15 percent or, if less, V
s of the 
percent (if any) by which the prevailing charge otherwise applied in 
the locality in 1989 exceeds the locally-adjusted reduced prevailing 
amount (as determined under subparagraph (BXi)) for the service. 
-*. * 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2209 
"(B) For purposes of this paragraph: 
"(i) The 'locally-adjusted reduced prevailing amount' for a 
locality for a physicians' service is equal to the product of— 
"(I) the reduced national weighted average prevailing 
- 
charge for the service (specified under clause (ii)), and 
"(11) the adjustment factor (specified under clause (iii)) for 
the locality, 
"(ii) The 'reduced national weighted average prevailing 
charge' for a physicians' service is equal to the national 
weighted average prevailing charge for the service (specified in 
subparagraph (CXii)) reduced by the percentage change (speci-
fied in subparagraph (CXiii)) for the service. 
"(iii) The 'adjustment factor', for a physicians' service for a 
locality, is the sum of— 
"(I) the practice expense ratio for the service (specified in 
Table # 1 in the J^iint Explanatory Statement referred to in 
subparagraph (CXi)), multiplied by the geographic practice 
cost index value (specified in subparagraph ((5Xiv)) for the 
locality, and 
"(II) 1 minus the practice expense ratio. 
' ' -
"(C) For purposes of this paragraph: 
"(i) The physicians' services specified in this clause are the 
physicians' services specified in Table # 2 in the Joint Explana-
tory Statement of the (Dommittee of Conference submitted with 
the Ck)nference Report to accompany H.R. 3299 (the 'Omnibus 
Budget Reconciliation Act of 1989'), 101st (Dongress, which speci-
fication is of physicians' services that have been identified as 
overvalued by at least 10 percent based on a comparison of 
payments for such services under a resource-based relative 
value scale and of the national aversige prevailing charges 
under this part. 
"(ii) The 'national weighted average prevailing charge' speci-
fied in this clause, for a physicians' service specified in clause (i), 
is the national weighted average prevailing charge for the 
service in 1989 as determined by the Secretary using the best 
data available. 
"(iii) The 'percent change' specified in this clause, for a 
physicians' service specified in clause (i), is the percent change 
specified for the service in Table # 2 in the Joint Explanatory 
Statement referred to in clause (i). 
"(iv) The geographic practice cost index value specified in this 
clause for a locality is such value specified for the locality in 
Table # 3 in the Joint Explanatory Statement referred to in 
clause (i). 
"(D) In the case of a reduction in the prevailing charge for a 
physicians' service under subparagraph (A), if a nonparticipating 
physician furnishes the service to an individual entitled to benefits 
under this part, after the effective date of such reduction, the 
physician's actual charge is subject to a limit under subsection 
O'XIXD).". 
(b) SPECIAL LIMITS ON ACTUAL CHARGES.—Section 18420'XIXD) of 
such Act is amended— 
42 USC 1395u. 
(1) in clause (iiXII), by inserting "or (bX14XA)" after 
"(bXlOXA)", and 
(2) in clause (iiiXII), by striking "or (bXUXCXi)" and inserting 
"(bXllXCXi), or (bX14XA)". 
103 STAT. 2210 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395m 
note. 
42 use 1395m 
note. 
Regulations. 
42 use 1395u 
note. 
SEC. 6105. REDUCTION IN PAYMENTS FOR RADIOLOGY SERVICES. 
(a) FEE SCHEDULES FOR RADIOLOGIST SERVICES REDUCED.—Section 
1834(bX4) of the Social Security Act (42 U.S.C. 1395m(bX4)) is amend-
ed— 
(1) by redesignating subparagraphs (C) and (D) as subpara-
graphs (D) and (E), and 
(2) by inserting after subparagraph (B) the following new 
subparagraph: 
"(C) 1990 FEE SCHEDULES.—For radiologist services (other 
than portable X-ray services) furnished under this part 
during 1990, after March 31 of such year, the conversion 
' 
factors used under this subsection shall be 96 percent of the 
conversion factors that applied under this subsection as of 
December 31,1989.". 
O
t
>
) SPECIAL RULE FOR NUCLEAR MEDICINE PHYSICIANS.—In apply-
ing section 1834(b) of the Social Security "Act with respect to nuclear 
medicine services furnished by a physician for whom nuclear medi-
cine services account for at least 80 percent of the total amount of 
charges made under part B of title XVIII of the Social Security 
Act— 
(1) during 1990, after April 1,1990, there shall be substituted 
for the fee schedule otherwise applicable a fee schedule based Vs 
on the fee schedule computed under such section (without 
regard to this subsection) and % on 101 percent of the 1988 
prevailing charge for such services; and 
(2) during 1991, there shall be substituted for the fee schedule 
otherwise applicable a fee schedule based % on the fee schedule 
computed under such section (without regard to this subsection) 
and Vs on 101 percent of the 1988 prevailing charge for such 
services. 
(c) INTERVENTIONAL RADIOLOGISTS.—In applying section 1834(b) of 
the Social Security Act to radiologist services furnished in 1990, the 
exception for "spUt billing" set forth at section 5262J of the Medi-
care Carriers Manual shall apply to services furnished in 1990 in the 
same manner and to the same extent as the exception applied to 
services furnished in 1989. 
SEC. 6106. ANESTHESIA SERVICES. 
(a) COUNTING ACTUAL TIME UNITS FOR ANESTHESIA SERVICES AND 
CODIFICATION OF PREVIOUS AUTHORITY.—Section 1842 of the Social 
Security Act (42 U.S.C. 1395u) is amended by adding at the end the 
following new subsection: 
"(qXD The Secretary, in consultation with groups representing 
{>hysicians who furnish anesthesia services, shall establish by regu-
ation a relative value guide for use in all carrier localities in 
making payment for physician anesthesia services furnished under 
this part. Such guide shall be designed so as to result in expendi-
tures under this title for such services in an amount that would not 
exceed the amount of such expenditures which would otherwise 
occur. 
"(2) For purposes of payment for anesthesia services (whether 
furnished by physicians or by certified roistered nurse anesthetists) 
under this part, the time units shall be counted based on actual time 
rather than rounded to full time units.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to services furnished on or after April 1,1990. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2211 
SEC. 6107. DELAY IN UPDATE AND REDUCTION IN PERCENTAGE IN-
CREASE IN THE MEDICARE ECONOMIC INDEX. 
(a) DELAYING UPDATES UNTIL APRIL 1.— 
42 USC I395u 
(1) IN GENERAL.—Subject to the amendments made by this ^°*®-
section, any increase or adjustment in customary, prevailing, or 
reeisonable charges, fee schedule amounts, maximum allowable 
actual charges, and other limits on actual charges with respect 
to physicians' services and other items and services described in 
paragraph (2) under part B of title XVIII of the Social Security 
Act which would otherwise occur as of January 1, 1990, shall be 
delayed so as to occur as of April 1, 1990, and, notwithstanding 
any other provision of law, the amount of payment under such 
part for such items and services which are .furnished during the 
period beginning on January 1, 1990, and ending on March 31, 
1990, shall be determined on the same basis as the amount of 
payment for such services furnished on December 31, 1989. 
(2) ITEMS AND SERVICES COVERED.—The items and services 
described in this paragraph are items and services (other than 
ambulance services and clinical diagnostic laboratory services) 
for which payment is made under part B of title XVIII of the 
Social Security Act on the basis of a reasonable charge or a fee 
schedule. 
(3) EXTENSION OF PARTICIPATION AGREEMENTS AND RELATED 
PROVISIONS.—Notwithstanding any other provision of law— 
(A) subject to the last sentence of this paragraph, each 
participation agreement in effect on December 31, 1989, 
under section 1842(hXl) of the Social Security Act shall 
remain in effect for the 3-month period beginning on Janu-
ary 1,1990; 
(B) the effective period for such agreements under such 
section entered into for 1990 shall be the 9-month period 
beginning on April 1,1990, and the Secretary of Health and 
':;.. 
Human Services shall provide an opportunity for physi-
cians and suppliers to enroll as participating physicians 
•A 
and suppliers l>efore April 1,1990; 
(C) instead of publishing, under section 1842(hX4) of the 
Social Security Act, at the beginning of 1990, directories of 
participating physicians and suppliers for 1990, the Sec-
retary shall provide for such publication, at the beginning 
1 * 
of the 9-month period beginning on April 1, 1990, of such 
directories of participating physicians £md suppliers for 
such period; and 
(D) instead of providing to nonparticipating physicians 
under section 1842(b)(3)(G) of the Social Security Act at the 
beginning of 1990, a list of maximum allowable actual 
charges for 1990, the Secretary shall provide, at the begin-
ning of the 9-month period beginning on April 1, 1990, such 
physicians such a list for such 9-month period. 
An agreement with a participating physician or supplier de-
scribed in subparagraph (A) in effect on December 31, 1989, 
under section 1842(hXl) of the Social Security Act shall not 
remain in effect for the period described in subparagraph (A) if 
the participating physician or supplier requests on or before 
December 31,1989, that the agreement be terminated. 
103 STAT. 2212 
PUBLIC LAW 101-239—DEC. 19, 1989 
(b) PERCENTAGE INCREASE IN M E I FOR 1990.—Section 18420aX4XE) 
of the Social Security Act (42 U.S.C. 1395u03X4XE)) is amended by 
adding at the end the following new clause: 
"(iv) For purposes of this part for items and services furnished in 
1990, after March 31, 1990, the percentage increase in the MEI is— 
"(I) 0 percent for radiology services, for anesthesia services, 
and for other services specified in Table # 2 in the Joint 
Explanatory Statement of the Committee of Conference submit-
ted with the Conference Report to accompany H.R. 3299 (the 
'Omnibus Budget Reconciliation Act of 1989'), 101st Congress, 
"(II) 2 percent for other services (other than primary care 
services), and 
"(III) such percentage increase in the MEI (as defined in 
subsection (iX3)) £is would be otherwise determined for primary 
care services (as defined in subsection (iX4)).". 
SEC. 6108. MISCELLANEOUS PROVISIONS RELATING TO PAYMENT FOR 
PHYSICIANS' SERVICES. 
(a) CUSTOMARY CHARGE FOR NEW PHYSICTANS.— 
(1) 
PHASE-IN 
TO 
PREVAIUNG 
CHARGE 
LEVEL.—Section 
1842(bX4XF) of the Social Security Act (42 U.S.C. 1395u(bX4XF)) 
is amended— 
(A) by inserting "furnished during a calendar year" after 
"phjrsicians' services", and 
(B) by adding at the end the following: "For the first 
calendar year during which the preceding sentence no 
longer applies, the Secretary shall set the customary charge 
at a level no higher than 85 percent of the prevailing 
charge for the service.". 
42USC1395U 
(2) EFFECTIVE DATE.—(A) Subject to Subparagraph (B), the 
'^°**- 
amendments made by paragraph (1) apply to services furnished 
in 1990 which were subject to the Hrst sentence of section 
18420bX4XF) of the Social Security Act in 1989. 
(B) The amendments made by paragraph (1) shall not apply to 
services furnished in 1990 before April 1, 1990. With respect to 
physicians' services furnished during 1990 on and after April 1, 
such amendments shall be applied as though any reference, in 
the matter inserted by such amendments, to the "first calendar 
year during which the preceding sentence no longer applies" 
were deemed a reference to the remainder of 1990. 
O
t
)
) LIMITATION ON AMOUNTS FOR CERTAIN SERVICES FURNISHED BY 
MORE THAN ONE SPECIALTY.— 
(1) IN GENERAL.—Section 1842(b) of such Act (42 U.S.C. 
1395u(b)), aa amended by section 6104(a) of this subtitle, is 
amended by adding at the end the following: 
"(15XA) In determining the reasonable charge for surgery, radiol-
ogy, and diagnostic physicians' services which the Secretary shall 
designate (based on their high volume of expenditures under this 
part) and for which the prevailing charge (but for this paragraph) 
-y 
differs by phjrsician specialty, the prevailing charge for such a 
service may not exceed the prevailing charge or fee schedule 
amount for that specialty of physicians that furnish the service most 
frequently nationally. 
"(B) In the case of a reduction in the prevailing chaise for a 
physician's service under subparagraph (A), if a nonparticipating 
physician furnishes the sei'vice to an individual entitled to benefits 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2213 
under this part, after the effective date of the reduction, the physi-
cian's actual charge is subject to a limit under subsection (jXlXD).". 
(2) SPECIAL UMITS ON ACTUAL CHARGES.—Section 1842(jXlXD) 
of such Act (42 U.S.C. 1895u(jXlXD)) is amended— 
(A) in clause (iiXrV), by inserting "or (bX15XA)" before the 
comma at the end, and 
(B) in clause (iiiXII), by striking "or (bX14XA)" and insert-
ing "(bXHXA), or (bX15XA)". 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 42 USC I395u 
tion apply to procedures performed after March 31,1990. 
^°^-
SEC. 6109. WAIVER OF LIABILITY LIMITING RECOUPMENT IN CERTAIN 42 USC 1395gg 
CASES. 
^°^-
In the case where more than the correct amount may have been 
paid to a physician or individual under part B of title XVIII of the 
Social Security Act with respect to services furnished during the 
period beginning on July 1,1985, and ending on March 31,1986, as a 
result of a carrier's establishing statewide fees for certain procedure 
• ^y 
codes while the carrier was in the process of implementing the 
national common procedure coding system of the Health Care 
Financing Administration, the provisions of section 1870(c) of the 
Social Security Act shall apply, without the need for affirmative 
action by such a physician or individual, so as to prevent any 
recoupment, or other decrease in subsequent payments, to the physi-
cian or individual. The previous sentence shall apply to claims for 
items and services which were reopened by carriers on or after 
July 31, 1987. 
SEC. 6110. REDUCTION IN CAPITAL PAYMENTS FOR OUTPATIENT HOS-
PITAL SERVICES. 
Section 1861(vXlXS) of the Social Security Act (42 U.S.C. 
1395x(vXlXS)) is amended— 
(1) by inserting "(i)" after "(S)", and 
(2) by adding at the end the following new clause: 
"(iiXI) Such regulations shall provide that, in determining the 
amount of the pa3nnents that may be made under this title with 
respect to all the capital-related costs of outpatient hospital services, 
the Secretary shall reduce the amounts of such payments otherwise 
established under this title by 15 percent for payments attributable 
to portions of cost reporting periods occurring during fiscal year 
1990. 
"(II) Subclause (I) shall not apply to payments with respect to the 
capital-related costs of any hospital that is a sole community hos-
pital (as defined in section 1886(dX5XDXiii)). 
"(Ill) In applying subclause (I) to services for which pa3mient is 
made on the basis of a blend amount under section 1833(iX3)(AXii) or 
1833(n)(lXAXii), capital-related costs reflected in the amounts de-
scribed in sections 1833(iX3)(BXiXI) and 1833(nXlXBXi)(I), respec-
tively, shall be reduced in accordance with such subclause.". 
SEC. 6111. CLINICAL DIAGNOSTIC LABORATORY TESTS. 
(a) REDUCTION OF LIMITATION AMOUNT ON PAYMENT AMOUNT.— 
Section 1833(h) of the Social Security Act (42 U.S.C. 13951(h)) is 
amended— 
(1) in subparagraphs (B) and (C) of paragraph (1), by striking 
"during the period" and all that follows through "established on 
a nationwide basis" and inserting "on or after July 1, 1984"; 
103 STAT. 2214 
PUBLIC LAW 101-239—DEC. 19, 1989 
(2) in paragraph (4)(BXi), by striking "or" at the end; 
(3) in paragraph (4XBXii)— 
(A) by striking "and so long as a fee schedule for the test 
has not been established on a nationwide basis,", 
(B) by inserting "and before January 1, 1990," after 
"March 31,1988,", and 
(C) by striking the period at the end and inserting ", 
and"; and 
(4) by adding at the end of paragraph (4XB) the following new 
clause: 
^ 
"(iii) after December 31, 1989, is equal to 93 percent of the 
^ 
median of £dl the fee schedules established for that test for that 
laboratory setting under paragraph (1).". 
(b) RESTRICTION O
N PAYMENT T
O REFERRING LABORATORY.— 
(1) IN GENERAL.—Section 1833(hX5XAXii) of such Act (42 
U.S.C. 13951(hX5XAXii)) is amended by striking "referring lab-
oratory, and" and inserting "referring laboratory but only if— 
Rural areas. 
"(I) the referring laboratory is located in, or is part of, a 
rural hospital, 
"(II) the referring laboratory is a wholly-owned subsidi-
ary of the entity performing such test, the referring labora-
tory wholly owns the entity performing such test, or both 
the referring laboratory and the entity performing such 
test are wholly-owned by a third entity, or 
"(III) not more than 30 percent of the clinical diagnostic 
laboratory tests for which such referring laboratory sub-
mits bills or requests for pa3rment in any year are per-
formed by another laboratory, and". 
42 use 1395/ 
(2) EFFECTIVE DATE.—The amendment made by paragfraph (1) 
note. 
shall apply with respect to clinical diagnostic laboratory tests 
performed on or after January 1,1990. 
SEC. 6112. DURABLE MEDICAL EQUIPMENT. 
(a) DELAY IN AND REDUCTION OF UPDATE FOR 1990.— 
(1) INEXPENSIVE AND ROUTINELY PURCHASED DURABLE MEDICAL 
EQUIPMENT AND ITEMS REQUIRING FREQUENT AND SUBSTANTIAL 
SERVICING.—Paragraphs (2XBXi) and (3XBXi) of section 1834(a) of 
the Social Security Act (42 U.S.C. 1395m(a)) are each amended 
by striking "in 1989" and inserting "in 1989 and in 1990". 
(2) MISCELLANEOUS DEVICES AND ITEMS AND OTHER COVERED 
ITEMS.—Paragraph (8XAXii) of such section is amended— 
(A) in subclause (I), by striking "1989" and inserting 
"1989 and 1990", and 
(B) in subclause (II), by striking "1990, 1991," and insert-
ing "1991". 
(3) OXYGEN AND O
X
Y
G
E
N EQUIPMENT.—Paragraph (9XAXii) of 
such section is amended— 
(A) in subclause (I), by striking "1989" and inserting 
"1989 and 1990", and 
(B) in subclause 01), by striking "1990, 1991," and insert-
ing "1991". 
(4) CONFORMING AMENDMENTS.—Such section is 
further 
amended— 
(A) in paragraph (7XAXi), by striking "this subparagraph" 
and inserting "this clause"; 
(B) in paragraph (7XBXi), by inserting "in" after "rental 
of the item"; and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2215 
42 u s e 1395m 
note. 
(C) in paragraph (TXBXii), by striking "the payment 
amount" and all that follows and inserting "clause (i) shall 
apply in the same manner as it applies to items furnished 
during 1989.". 
(b) RENTAL PAYMENTS FOR ENTERAL AND PARENTERAL PUMPS.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amount of any monthly rental payment under part B of title 
XVni of the Social Security Act for an enteral or parenteral 
pump furnished on or after April 1,1990, shall be determined in 
accordance with the methodology under which monthly rental 
pajrments for such pumps were determined during 1989. 
(2) CAP ON RENTAL PAYMENTS, SERVICING, AND REPAIRS.—In 
the case of an enteral or parenteral pump described in para-
graph (1) that is furnished on a rental basis during a period of 
medical need— 
(A) monthly rental pajnnents shall not be made under 
part B of title XVIII pf the Social Security Act for more 
than 15 months during such period, and 
(B) after monthly rental pasonents have been made for 15 
months during such period, payment under such part shall 
be made for maintenance and servicing of the pump in such 
amounts £is the Secretary of Health and Human Services 
determines to be reasonable and necessary to ensure the 
proper operation of the pump. 
(c) REDUCTION IN FEE SCHEDULES FOR SEAT-LIFT CHAIRS AND 
TRANSCUTANEOUS ELECTRICAL NERVE STIMULATORS.—Paragraph (1) 
of such section 1834(a) is amended by adding at the end the following 42 USC 1395m, 
new subparagraph: 
"(D) REDUCTION IN FEE SCHEDULES FOR CERTAIN ITEMS.— 
With respect to a seat-lift chair or transcutaneous electrical 
nerve stimulator furnished on or after April 1, 1990, the 
Secretary shall reduce the payment amount applied under 
subparagraph (BXii) for such an item by 15 percent.". 
(d) TREATMENT OF POWER DRIVEN WHEELCHAIRS.— 
(1) As R
O
U
T
I
N
E
L
Y PURCHASED.—Section 1834(aX2XA) of the 
Social Security Act (42 U.S.C. 1395m(aX2XA)) is amended— 
(A) by striking "or" at the end of clause (i), 
(B) by adding "or" at the end of clause (ii), and 
^ 
(C) by inserting after clause (ii) the following new clause: 
(iii) which is a power-driven wheelchair (other than 
a customized wheelchair that is classified as a cus-
tomized item under paragraph (4) pursuant to criteria 
specified by the Secretary),". 
(2) As C
U
S
T
O
M
I
Z
E
D ITEM.—The Secretary of Health and 
Human Services shall by regulation specify criteria to be used 
by carriers in making determinations on a case-by-case basis as 
whether to classify power-driven wheelchairs as a customized 
item (as described in section 1834(aX4) of the Social Security 
Act) for purposes of reimbursement under title XVIII of such 
Act. 
(e) OSTOMY SUPPLIES AS PART OF HOME HEALTH SERVICES.— 
(1) SPECIFIC INCLUSION IN HOME HEALTH SERVICES.—Section 
1861(mX5) of the Social Security Act (42 U.S.C. 1395x(mX5)) is 
amended to read as follows: 
"(5) medical supplies (including catheters, catheter supplies, 
ostomy bags, and supplies related to ostomy care, but excluding 
Regulations. 
42 USC 1395m 
note. 
103 STAT. 2216 
PUBLIC LAW 101-239—DEC. 19, 1989 
drugs and biologicals) and durable medical equipment while 
under such a plan;". 
(2) EXCLUSION FROM COVERED ITEMS.—Section 1834(aX13) of 
such Act (42 U.S.C. 1395m(aX13)) is amended by inserting after 
"intraocular lenses" the following: "or medical supplies (includ-
ing catheters, catheter supplies, ostomy bags, and supplies re-
lated to ostomy care) furnished by a home health agency under 
section 1861(mX5)". 
(3) REQUIRING PROVISION AS PART or HOME HEALTH SERVICES.— 
Section 1866(aXl) of such Act (42 U.S.C. 1395cc(aXl)) is amend-
ed— 
(A) by striking "and" at the end of subparagraph (N), 
(B) by striking the period at the end of subparagraph (O) 
and inserting "; and", 
(C) and by inserting after subparagraph (O) the following 
new subparagraph: 
"(P) in the case of home health agencies which provide home 
health services to individuals entitled to benefits under this title 
who require ostomy supplies (described in section 1861(mX5)), to 
offer to furnish such supplies to such an individual as part of 
their furnishing of home health services.". 
42 use 1395m 
(4) EFFECTTVE DATE.—The amendments made by this subsec-
^°^- 
tion shall apply with respect to items furnished on or after 
January 1,1990. 
SEC. 6113. MENTAL HEALTH SERVICES. 
(a) EUMINATING RESTRICTION ON PSYCHOLOGISTS' SERVICES TO 
SERVICES FURNISHED AT COMMUNITY MENTAL HEALTH CENTERS.— 
Section 1861(ii) of the Social Security Act (42 U.S.C. 1395x(ii)) is 
amended by striking "on-site at a community mental health center" 
and all that follows through "because of similar circtmistances of 
the individual,". 
(b) CuNicAL SOCIAL WORKERS.— 
(1) (AVERAGE OF SERVICES.—Section 1861(sX2) of the Social 
Security Act (42 U.S.C. 1395x(sX2)) is amended— 
(A) by striking "and" at the end of subparagraph (L); 
(B) by adding "and" at the end of subparagraph (M); and 
(C) by adding at the end the following new subparagraph: 
"(N) clinical social worker services (as defined in subsecticm 
(hhX2));". 
(2) DEFiNmoNS.—Section 1861 of such Act (42 U.S.C. 1395x) is 
amended— 
^ 
(A) in subsection (sX2XHXii), by striking "(hh)" Mid insert-
, 
ing"(hhX2)",and 
(B) in subsection (hh)— 
(i) by amending the heading to read as follows: 
"Clinical Social Worker; Clinical Social Worker Services", 
(ii) by redesignating clauses (i) and (ii) of paragraph 
(3XB) as subclauses (I) £md (II), respectively, 
(iii) by redesignating subparagraphs (A) and (B) of 
paragraph (3) as clauses (i) and (ii), respectively, 
(iv) by redesignating paragraphs (1), (2), and C
3
) as 
subparagraphs (A), (B), and (C), respectively, 
(v) by striking "(hh)" and inserting "(hhXD", and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2217 
(vi) by adding at the end the following new para-
graph: 
"(2) The term 'clinical social worker services' means services 
performed by a clinical social worker (as defined in paragraph (1)) 
for the diagnosis and treatment of mental illnesses (other than 
services furnished to an inpatient of a hospital and other than 
services furnished to an inpatient of a skilled nursing facility which 
the facility is required to provide as a requirement for participation) 
which the clinical social worker is legally authorized to perform 
under State law (or the State r^ulatory mechanism provided by 
State law) of the State in which such services are performed as 
would otherwise be covered if furnished by a physician or as an 
incident to a physician's professional service.". 
(3) PAYMENT BASIS.—Section 1833 of such Act (42 U.S.C. 13951) 
is amended— 
(A) by inserting after clause (E) of subsection (aXD the 
following new clause: "(F) with respect to clinical social 
worker services under section 1861(sX2)(N), the amounts 
paid shall be 80 percent of the lesser of (i) the actual charge 
for the services or (ii) 75 percent of the amount determined 
for payment of a psychologist imder clause (L),"; and 
(B) in subsection (p)— 
(i) by striking "1861(sX2XL) and" and by inserting 
"1861(sX2XL),", and 
(ii) by inserting "and in the case of clinical social 
worker services for which payment may be made under 
this part only pursuant to section 1861(sX2XN)/' after 
"1861(8X2XM),". 
(c) DEVELOPMENT OP CRITERIA REGARDING CONSULTATION WITH A 
42 use 1395/ 
PHYSICIAN.—The Secretary of Health and Human Services shall, 
"
°
*
®
-
taking into consideration concerns for patient confidentiality, de-
velop criteria with respect to pajrment for qualified psychologist 
services for which payment may be made directly to the psychologist 
under part B of title XVIII of the Social Security Act under which 
such a psychologist must agree to consult with a patient's attending 
physician in accordance with such criteria. 
(d) ELIMINATING DOLLAR LIMITATION ON MENTAL HEALTH SERV-
ICES.—Section 1833(dXl) of the Social Security Act (42 U.S.C. 
13951(dXl)) is amended by striking "whichever" and all that follows 
in the first sentence and inserting "62V& percent of such expenses.". 
(e) EFFECTIVE DATE.—The amendments made by this section, and 
42 use 1395/ 
the provisions of subsection (c), shall apply to services furnished on 
°°^' 
or after July 1, 1990, and the amendments made by subsection (d) 
shall apply to expenses incurred in a year beginning with 1990. 
SEC C114. COVERAGE OF NURSE PRACTITIONER SERVICES IN NURSING 
FACILITIES. 
(a) SERVICES COVERED.—Section 1861(sX2) of the Social Security 
Act (42 U.S.C. 1395x(sX2)) is amended— 
(1) by striking "and" at the end of subparagraph (J), and 
(2) in subparagraph (K)— 
(A) in clause (i), by striking "and" at the end, 
(B) in clause (ii), by striking "to such services" luid insert-
ing "to services described in clause (i) or (ii)", 
(C) by redesignating clause (ii) as clause (iii), and 
(D) by inserting after clause (i) the following new clause: 
103 STAT. 2218 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395u 
note. 
42 use 1395u 
note. 
"(ii) services which would be physicians' services if furnished 
by a phjrsician (as defined in subsection (rXD) and which are 
performed by a nurse practitioner (as defined in subjection 
(aaX3)) working in collaboration (as defined in subsection (aaX4)) 
with a physician (as defined in subsection (rXD) in a skilled 
nursing facility or nursing facility (as defined in section 1919(a)) 
which the nurse practitioner is legally authorized to perform by 
the State in which the services are performed, and". 
(b) DETERMINATION OF PAYMENT AMOUNT.—Section 1842(bX12XA) 
of such Act (42 U.S.C. 1395u(bX12XA)) is amended by striking "physi-
cian assistant acting under the supervision of a physician 
and 
inserting "physician assistants and nurse practitioners . 
(c) PAYMENT TO EMPLOYER; PAYMENT FOR ROUTINE VISITS BY MEM-
BERS O
F A TEAM.—Section 1842(b) of such Act (42 U.S.C. 1395u(b)) is 
amended— 
(1) in clause (C) of the first sentence of paragraph (6), bv 
inserting "or nurse practitioner" after "physician assistant , 
and 
(2) by adding at the end of paragraph (2), the following new 
subparagraph: 
"(C) In the case of residents of nursing facilities who receive 
services described in clause (i) or (ii) of section 1861(sX2XK) per-
formed by a member of a team, the Secretary shall instruct carriers 
to develop mechanisms which permit routine pa3nnent under this 
part for up to 1.5 visits per month per resident. In the previous 
sentence, the term 'team' refers to a physician and includes a 
physician assistant acting under the supervision of the physician or 
a nurse practitioner wor^ng in collaboration with that physician, or 
both.". 
(d) DEFINITION OF COLLABORATION.—Section 1861(aa) of such Act 
(42 U.S.C. 1395x(aa)) is amended by adding at the end the following 
new paragraph: 
"(4) The term 'collaboration' means a process in which a nurse 
practitioner works with a physician to deliver health care services 
within the scope of the practitioner's professional expertise, with 
medical direction and appropriate supervision as provided for in 
jointly developed guidelines or other mechanisms as defined by the 
law of the State in which the services are performed.". 
(e) STATE DEMONSTRATION PROJECTS ON APPUCATION OF LIMITA-
TION O
N VISITS PER MONTH PER RESIDENT ON AGGREGATE BASIS FOR 
A TEAM.—The Secretary of Health and Human Services shall pro-
vide for at least 1 demonstration project under which, in the app.Uca-
tion of section 1842(bX2XC) of the l^ial Security Act (as added by 
subsection (cX2) of this section) in one or more States, the limitation 
on the number of visits per month per resident would be applied on 
an average basis over the aggregate total of residents receiving 
services from members of the team. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
apply to services furnished on or after April 1,1990. 
SEC. 6115. COVERAGE OF SCREENING PAP SMEARS. 
(a) IN GENERAL.—Section 1861 of the Social Security Act (42 U.S.C. 
1395x), as amended by section 6003CgX3XA) of this subtitle, is 
amended— 
(1) in subsection (s)— 
(A) by striking "and" at the end of paragraph (12), 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2219 
(B) by striking the period at the end of paragraph (13) and 
inserting "; and', 
(C) by redesignating paragraphs (14) and (15) as para-
graphs (15) and (16), respectively, and 
(D) by inserting after paragraph (13) the following new 
paragraph; 
"(14) screening pap smear."; £uid 
(2) by adding at the end the following new subsection: 
"Screening Pap Smear 
"(nn) The term 'screening pap smear' means a diagnostic labora-
tory test consisting of a routine exfoliative cytology test (Papani-
colaou test) provided to a womcui for the purpose of early detection 
of cervicsil cancer and includes a physician's interpretation of the 
results of the test, if the individual involved has not had such a test 
during the preceding 3 years (or such shorter period as the Secretary 
may specify in the case of a woman who is at high risk of developing 
cervical cancer (as determined pursuant to factors identified by the 
Secretary)).". 
(b) REVISION OP EXCLUSION GROUNDS.—Section 1862(aXl)(F) of 
such Act (42 U.S.C. 1395y(aXlXF)) is amended by inserting before the 
semicolon at the end the following: ", and, in the case of screening 
pap smear, which is performed more frequently than is provided 
under 1861(nn)". 
(c) 
CONFORMING 
AMENDMENTS.—Sections 
1864(a), 
1865(a), 
1902(aX9XC), and 1915(aXlXBXuXI) of such Act (42 U.S.C. 1395aa(a), 
1395bb(a), 1396(aX9XC), 1396n(aXlXBXiiXD) are each amended by 
striking "paragraphs (14) and (15)" and inserting "paragraphs (15) 
and (16)". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to screening pap smears performed on or after July 1, 1990. 
SEC. 6116. COVERAGE UNDER, AND PAYMENT FOR, OUTPATIENT RURAL 
PRIMARY CARE HOSPITAL SERVICES UNDER PART B. 
(a) COVBSIAGE.^— 
(1) Section 1861(mm) of the Social Security Act (42 U.S.C. 
1395x(mm)), as added bv section 6003(gX3XA) of this subtitle, is 
amended by adding at tne end the following: 
"(3) The term 'outpatient rural primary care hospital services' 
means medical and other health services furnished by a rural 
primary care hospital.". 
(2) Section 1832(aX2) of such Act (42 U.S.C. 1395k(aX2)) is 
amended— 
(A) in subparsigraph (F), by striking "and" at the end, 
(B) in subpare^aph (G) by striking the period at the end and 
inserting "; and', and 
(C) by inserting after subparagraph (G) the following new 
subparagraph: 
"(H) outpatient rural primary care hospital services (as 
defined in section 1861(mmX3)).'\ 
(b) PAYMENT.— 
(1) Section 1833(a) of such Act (42 U.S.C. 13951(a)) is 
amended— 
(A) in paragraph (2). in the matter before subparagraph 
(A), by striking "and (G)" and insertmg "(G), and (H)", 
(B) in paragraph (4), by striking "and" at the end, 
42 use 1396a. 
42 use 1395x 
note. 
103 STAT. 2220 
PUBLIC LAW 101-239—DEC. 19, 1989 
(C) in paragraph (5), by striking the period at the end an'd 
.,,, 
inserting "; and", and 
* 
(D) by inserting after paragraph (5) the following new 
paragraph: 
"(6) in the case of outpatient rural primary care hospital 
services, the amounts described in section 1834(g).". 
(2) Section 1834 of such Act (42 U.S.C. 1395m) is amended by 
adding at the end the following new subsection: 
"(g) PAYMENT FOR OUTPATIENT RURAL PRIMARY CARE HOSPITAL 
SERVICES.— 
"(1) IN GENERAL.—The amount of payment for outpatient 
rural primary care hospital services provided during a year 
before 1993 in a rural primary care hospital under this part 
shall be determined by one of the 2 following methods, as 
elected by the rural primary care hospital: 
"(A) 
COST-BASED 
FACILITY 
FEE 
PLUS 
PROFESSIONAL 
CHARGES.— 
"(i) FACILITY FEE.—With respect to facility services, 
not including any services for which pajrment may be 
made under clause (ii), there shall be paid amounts 
equal to the amounts described in section 1833(aX2)(B) 
(describing amounts paid for hospital outpatient serv-
ices). 
"(ii) REASONABLE CHARGES FOR PROFESSIONAL SERV-
ICES.—In electing treatment under this subparagraph, 
pajmaent for professional medical services otherwise 
_ 
included within outpatient rural primary care hospital 
services shall be made under such other provisions of 
this part as would apply to pajmient for such services if 
they were not included in outpatient rural primary 
care hospital services. 
"(B) ALL-INCLUSIVE RATE.—With respect to both facility 
services and professional medical services, there shall be 
paid amounts equal to the costs which are reasonable and 
J 
related to the cost of furnishing such services or which are 
based on such other tests of reasonableness as the Secretary 
may prescribe in regulations, less the amount the hospital 
may charge as described in clause (i) of section 1866(aX2XA), 
but in no case may the pa3rment for such services (other 
than 
for items and services 
described 
in 
section 
1861(sX10XA) and for items and services furnished in 
connection with obtaining a second opinion required under 
section 1164(cX2), or a third opinion, if the second opinion 
was in disagreement with the first opinion) exceed 80 per-
cent of such costs. 
"(2) DEVELOPMENT AND IMPLEMENTATION OF ALL INCLUSIVE, 
PROSPECTIVE PAYMENT SYSTEM.— Not later than January 1,1993, 
the Secretary shall develop and implement a prospective pay-
ment system for determining pa3mients under this part for 
outpatient rural primary care hospital services using a meth-
odology that includes all costs in providing all such services 
(including related professional medical services) and that deter-
mines the pa3mient amount for such services on a prospective 
basis.". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2221 
Subpart B—Technical and Miscellaneous Provisions 
SEC. 6131. MODIFICATION OF PAYMENT FOR THERAPEUTIC SHOES FOR 
INDIVIDUALS WITH SEVERE DIABETIC FOOT DISEASE. 
(a) PERMITTING ADDITIONAL INSERTS.— 
(1) IN GENERAL.—Section 1833(o) of the Social Security Act (42 
U.S.C. 13951(o)) is amended— 
(A) by amending subparagraph (A) of paragraph (1) to 
read as follows: 
"(A) no payment may be made under this part, with respect to 
any individual for any year, for the furnishing of— 
"(i) more than one pair of custom molded shoes (including 
inserts provided with such shoes) and 2 additional pairs of 
inserts for such shoes, or 
"(ii) more than one pair of extra-depth shoes (not includ-
ing inserts provided with such shoes) and 3 pairs of inserts 
^ 
for such shoes, and"; 
(B) in paragraphs (1)(B) and (2XA), by striking "limit" and 
inserting "limits"; 
(C) in the second sentence of paragraph (1), by inserting 
"(or inserts)" after "shoes" each place it appears; 
(D) by amending clause (i) of paragraph (2XA) to read as 
follows: 
"(i) for the furnishing of— 
"(I) one pair of custom molded shoes (including any in-
serts that are provided initially with the shoes) is $300, and 
"(II) any additional pair of inserts with respect to such 
shoes is $50; and"; and 
(E) in paragraph (2XAXiiXII), by inserting "any pairs of* 
after "$50 for^'. 
(2) CONFORMING AMENDMENT.—Section 1861(sX12) of such Act 
(42 U.S.C. 1395x(sX12)) is amended by inserting "with inserts" 
after "custom molded shoes". 
(b) PERMITTING SUBSTITUTION OP SHOE MODIFICATIONS FOR IN-
SERTS.—Section 1833(oX2) of such Act is amended by adding at the 
end the following new subparagraph: 
"(D) In accordance with procedures established by the Secretary, 
an individual entitled to benefits with respect to shoes described in 
section 1861(sX12) may substitute modification of such shoes instead 
of obtaining one (or more, as specified by the Secretary) pairs of 
inserts (other than the original pair of inserts with respect to such 
shoes). In such case, the Secretary shall substitute, for the limits 
established under subparagraph (A), such limits as the Secretary 
estimates will assure that there is no net increase in expenditures 
K 
under this subsection as a result of this subparagraph.". 
(c) EFFECTIVE DATE.— 
42USC1395/ 
(1) The amendments made by this section shall apply with ^°^-
respect to therapeutic shoes and inserts furnished on or after 
July 1,1989. 
(2) In applying the amendments made by this section, the 
increase under subparagraph (C) of section 1833(oX2) of the 
Social Security Act shall apply to the dollar amounts specified 
under subparagraph (A) of such section (as amended by this 
section) in the same manner as the increase would have applied 
to the dollar amounts specified under subparagraph (A) of such 
section (as in effect before the date of the enactment of this Act). 
103 STAT. 2222 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395k 
note. 
42 use 1395k 
note. 
42 use 1395/ 
note. 
42 use 1395m 
note. 
Reports. 
42 use 1395b-l 
note. 
Reports. 
42 use 1395/ 
note. 
SEC. 6132. PAYMENTS TO CERTIFIED REGISTERED ANESTHETISTS. 
(a) EXTENSION AND EXPANSION OF CRNA PASS-THROUGH.—Section 
9320(k) of the Omnibus Budget Reconciliation Act of 1986, as added 
by section 608(cX2) of the Family Support Act of 1988, is amended— 
(1) by striking "250" each place it appears and inserting 
"500"; 
(2) in paragraph (1)— 
(A) by striking "1989, 1990, and 1991" and inserting "a 
year Obeginning with 1989)", and 
(B) by striking "before April 1, 1989," and inserting "at 
any time before the year"; 
(3) in paragraph (2)— 
(A) by striking "1990 or 1991" and inserting "in a year 
(after 1989)", and 
(B) by striking "each respective year" and inserting "the 
year"; and 
(4) by striking paragraph (3). 
(b) EFFECTIVE DATE.—"Die amendments made by this section shall 
apply to services furnished on or after January 1,1990. 
SEC. 6133. INCREASE IN PAYMENT LIMIT FOR PHYSICAL AND OCCUPA-
TIONAL THERAPY SERVICES. 
(a) IN GENERAL.—Section 1833(g) of the Social Security Act (42 
U.S.C. 13951(g)) is amended by striking "$500" each place it appears 
and inserting "$750". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to services furnished on or £ifter January 1, 1990. 
SEC. 6134. STUDY OF PAYMENT FOR PORTABLE X-RAY SERVICES. 
The Secretary of Health and Human Services shall conduct a 
studjr of the costs of furnishing, and payments for, portable x-ray 
services under part B of title XVIII of the Social Security Act. Not 
later than 1 year after the date of the enactment of this Act, the 
Secretary shall report to Congress on the results of such study and 
shall include a recommendation respecting whether pajrment for 
such services should be made in the same manner as for radiologists' 
services or on the basis of a separate fee schedule. 
SEC. 6135. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRA-
TION PROJECTS. 
Section 9215 of the Consolidated Omnibus Budget Reconciliation 
Act of 1985 is amended— 
(1) by striking ", for a period of three additional years," and 
inserting "through December 31,1993,"; and 
(2) by adding at the end the following: "The Secretary shall 
submit a report to Congress on the waiver program with respect 
to the quality of health care, beneficiary costs, and such other 
factors as may be appropriate.". 
SEC. 6136. STUDY OF REIMBURSEMENT FOR AMBULANCE SERVICES. 
(a) IN GENERAL.—The Secretary of Health and Human Services 
shall conduct a study to determine the adequacy and appropriate-
ness of pa3anent amounts under title XVIII of the Social Security 
Act for ambulance services. Such study shall examine at least the 
following: 
(1) The effect of payment amounts on the provision of ambu-
lance services in rural areas. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2223 
(2) The relationship of such payment amounts to the direct 
and indirect costs of providing ambulance services. Such rela-
tionship shall be examined separately— 
(AXi) for tax-subsidized, municipally-owned and operated 
services, (ii) for volunteer services, (iii) for private, for-profit 
services, and (iv) for hospital-owned services, and 
(B) for different levels (such as basic life support and 
advanced life support) of such services. 
(3) How such payment amounts compare to the payment 
amounts made for ambulance services under medicaid plans 
under title XDC of such Act. 
(b) REPORT.—^By not later than one year after the date of the 
enactment of this Act, the Secretary shall submit a report to 
Congress on the results of the study conducted under subsection (a) 
and shall include in the report such recommendations for changes in 
medicare payment policy with respect to ambulance services as may 
be needed to ensure access by medicare beneficiaries to quality 
ambulance services in metropolitan and rural areas. 
SEC 6137. PROPAC S'iTJDY OF PAYMENTS FOR SERVICES IN HOSPITAL 
42 USC 1395Z 
OUTPATIENT DEPARTMENTS. 
"°^ 
(a) IN GENERAL.—^The Prospective Payment Assessment Commis-
sion shall conduct a study on payment under title XVm of the 
Social Security Act for hospital outpatient services. Such study shall 
include an examination of— 
(1) the sources of growth in spending for hospital outpatient 
services; 
(2) the differences between the costs of delivering services in a 
hospital outpatient department as opposed to providing similar 
services in other appropriate settings (including ambulatory 
surgery centers and physician offices); 
(3) the effects on outpatient hospital costs of the step-down 
method used to allocate hospital capital between inpatient and 
outpatient departments and the extent to which hospital out-
patient costs were affected by the implementation of the 
prospective payment system of payment for inpatient hospital 
services and by increased review of such services by peer review 
organizations; and 
(4) alternative methods for reimbursing hospitals for services 
in outpatient departments under the medicare pix^am, includ-
ing prospective payment methods, fee schedules, and such other 
meljiods as the (Commission may consider appropriate. 
(b) REPORTS.—(1) By not later than July 1, 1990, the Commission 
shall submit a report to Congress on the study conducted under 
subsection (a) with respect to the portions of the study described in 
paragraphs (1), (2), and (3) of such subsection, and shall include in 
the report such recommendations as the Commission deems appro-
priate. 
(2) By not later than March 1,1991, the Commission shall submit 
a report to Congress on the study conducted under subsection (a) 
with respect to the portion of the study described in paragraph (4) of 
such subsection, and shall include in the report such recommenda-
tions as the Commission deems appropriate. 
103 STAT. 2224 
PUBLIC LAW 101-239—DEC. 19,1989 
42 u s e 1395W-1 
note. 
42 u s e 1395m 
note. 
SEC 6138. PHTSPRC STUDY OF PAYMENTS FOR ASSISTANTS AT SURGERY. 
(a) STUDIO CJONTENTS.—^The Physician Pajonent Review Comi&ifh 
sion shall conduct a study of the payments made under title X 
VDI of 
the Social Security Act for assistants at sui^ery. Such study shall 
examine— 
(1) the necessity and appropriateness of using an assistant at 
suigeipr; 
(2) the use of physician and non-physician assistants at sur-
(3) the appropriateness of providing for payments, and the 
appropriate level of payment, under title X \ ^ of the Social 
Security Act for assistants at surgeiy; and 
(4) the effect of the amendments made l^ section 9338 of the 
Omnibus Budget Reconciliation Act of 1986 on the employment 
of roistered nurses as assistants at sundry, and whether or not 
the reductions described in subsection (d) of such section have 
been implemented. 
(b) REPOBT.—^By not later than April 1,1991, the Commission shall 
submit a report to Congress on the study conducted under subsec-
tion (a), and shall include in the report such recommendations as it 
deems appropriate. 
SECL 6139. GAO STUDY OF STANDARDS FOR USE OF AND PAYMENT FOR 
ITEMS OF DURABLE MEDICAL EQUIPMENT. 
(a) STUDY.—^The Comptroller General shall conduct a study of the 
appropriate uses of items of durable medical equipment and of the 
appropriate criteria for making determinations of medical necessity 
under title XVIII of the Social Security Act for such items, with 
particular emphasis on items (includii^ seat-lift chairs) that may be 
subject to abusive billing practices. Such study shall include an 
analysis of— 
(1) the appropriate use of forms in making medical necessity 
determinations for items of durable medic^ equipment under 
such title; and 
(2) procedures for identifying items of durable medical equip-
ment that should no longer be covered under such title. 
(b) UsB O
F PANEL IN CONDUCTING STUDY.—^The Comptroller Cren-
eral shall conduct such study with a panel convened by the 
Comptroller General consisting of— 
(1) sp«nalists in the disciplines of orthopedic medicine, re-
habilitation, arthritis, and geriatric medicine; 
(2) representatives of consumer organizations; and 
(3) representative of carriers under the medicare program. 
(c) REPOBT.—^Not later than April 1,1991, the Comptroller General 
shaU submit a report to the Committees on Ways and Means and 
Eneigy and Commerce of the House of Representatives and the 
Committee on Finance of the Senate on the study conducted under 
subsection (a), and shall include in such report such recommenda-
tions as the Comptroller General deems appropriate. 
SEC 6140. NARROWING OF RANGE OF AMOUNTS RECOGNIZED FOR ITEMS 
OF DURABLE MEDICAL EQUIPMENT. 
Paragraphs (8) and (9) of section 1834(a) of the Social Security Act 
(42 U.S.C. 1395m(a)) are each amended in subparagraph (D)— 
(1) in clause (i), by striking "1991" and all that follows 
through "80 percent" and inserting "1991, mav not exceed 125 
percent, and may not be lower than 85 percent'; and 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2225 
(2) in clause (ii), by striking "125 percent" and all that follows 
through "85 percent" and inserting "120 percent, and may not 
be lower than 90 percent". 
SEC. 6141. PHYSICIAN OFFICE LABS. 
(a) IN GENERAL.—Section 1861(s) of the Social Security Act (42 
U.S.C. 1395x(s)) is amended— 
(1) in the matter following paragraph (14), by striking "which 
is independent" and all that follows through "per year," and 
inserting the following: ", including a laboratory that is part 
of; 
(2) by redesignating paragraph (16) as subparagraph (B); and 
(3) by inserting immediately after paragraph (15) the follow-
ing: 
"(16XA) meets the certification requirements under section 
353 of the Public Health Service Act; and". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 USC I395x 
shall take effect on the date of the enactment of this Act. 
°
°
*
®
-
SEC. 6142. STUDY OF REIMBURSEMENT FOR BLOOD CLOTTING FACTOR 
FOR HEMOPHILIA PATIENTS. 
The Secretary of Health and Human Services shall review the 
current methodology for reimbursing for blood clotting factor for 
hemophilia patients under part B of title XVIII of the Social Secu-
rity Act and shall evaluate the effect of such methodology on the 
accessibility and affordability of such factor to medicare bene-
ficiaries. By not later than 6 months after the date of the enactment Reports, 
of this Act, the Secretary shall report to the (Dommittees on Energy 
and Commerce and Ways and Means of the House of Representa-
tives and the Committee on Finance of the Senate on such review 
and shall include in such report such recommendations as the 
Secretary deems appropriate. 
PART 3—PROVISIONS RELATING TO PARTS A 
ANDB 
Subpart A—General Provisions 
SEC. 6201. REDUCTIONS UNDER ORIGINAL SEQUESTER ORDER AND AP- 
2 USC 902 note. 
PLICABILITY OF NEW SEQUESTER ORDER FOR HEALTH 
MAINTENANCE ORGANIZATIONS. 
Notwithstanding any other provision of law (including section 
11002 or any other provision of this Act), the reductions in the 
amount of payments required under title XVIII of the Social Secu-
rity Act made by the final sequester order issued by the President 
on October 16, 1989, pursuant to section 252(b) of the Balanced 
Budget and Emergency Deficit Control Act of 1985 shall continue to 
be effective (as provided by sections 252(aX4XB) and 256(dX2) of such 
Act) through December 31, 1989, with respect to payments under 
section 1833(aXlXA) or 1876 of the Social Security Act, section 402 of 
the Social Security Amendments of 1967, or section 222 of the Social 
Security Amendments of 1972. E}ach such pajrment made during 
fiscal year 1990 after such date shall be increased by 1.42 percent 
above what it would otherwise be under this Act. 
SEC. 6202. MEDICARE AS SECONDARY PAYER 
(a) IDENTIFICATION OP MEDICARE SECONDARY PAYER SFFUATIONS.— 
103 STAT. 2226 
PUBLIC LAW 101-239—DEC. 19, 1989 
(1) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION 
FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE BENE-
FICIARY AND SPOUSE OF MEDICARE BENEFICIARY.— 
(A) IN GENERAL.—Subsection (1) of section 6103 of the 
26 use 6103. 
Internal Revenue Code of 1986 (relating to disclosure of 
returns and return information for purposes other than tax 
administration) is amended by adding at the end thereof 
the following new paragraph: 
"(12) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION 
F
O
R VERIFICATION O
F E
M
P
L
O
Y
M
E
N
T STATUS O
F M
E
D
I
C
A
R
E BENE-
F
I
C
I
A
R
Y AND SPOUSE O
F M
E
D
I
C
A
R
E BENEFICIARY.— 
"(A) RETURN I
N
F
O
R
M
A
T
I
O
N F
R
O
M INTERNAL REVENUE SERV-
ICE.—The Secretary shall, upon written request from the 
Commissioner of Social Security, disclose to the (Dommis-
sioner available filing status and taxpayer identity informa-
tion from the individual master files of the Internal 
Revenue Service relating to whether any medicare bene-
ficiary identified by the Commissioner was a married 
individual (as defined in section 7703) for any specified year 
after 1986, and, if so, the name of the spouse of such 
individual and such spouse's TIN. 
"(B) RETURN INFORMATION F
R
O
M S
O
C
I
A
L S
E
C
U
R
I
T
Y ADMINIS-
TRATION.—The Ck)mmissioner of Socied Security shsdl, upon 
written request from the Administrator of the Health Care 
Financing Administration, disclose to the Administrator 
the following information: 
"(i) The name and TIN of each medicare beneficiary 
who is identified as having received wages (as defined 
in section 3401(a)) from a qualified employer in a pre-
vious year. 
"(ii) For each medicare beneficiary who was identi-
fied as married under subparagraph (A) and whose 
spouse is identified as having received wages from a 
qualified employer in a previous year— 
"(I) the name and TIN of the medicare bene-
ficiary, and 
"(II) the name and TIN of the spouse, 
"(iii) With respect to each such qualified employer, 
the name, address, and TIN of the employer and the 
number of individuals with respect to whom written 
statements were furnished under section 6051 by the 
employer with respect to such previous year. 
"(C) DISCLOSURE BY HEALTH CARE FINANCING ADMINISTRA-
TION.—With respect to the information disclosed under 
subparagraph (B), the Administrator of the Health Care 
Financing Administration may disclose— 
"(i) to the qualified employer referred to in such 
subparagraph the name and TIN of each individual 
identifi^ under such subparagraph as having received 
wages from the employer (hereinafter in this subpara-
graph referred to as the 'employee') for purposes of 
,- 
determining during what period such employee or the 
employee's spouse may be (or have been) covered under 
a group health plan of the employer and what benefits 
are or were covered under the plan (including the 
name, address, and identifying number of the plan), 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2227 
"(ii) to any group health plan which provides or 
provided coverage to such an employee or spouse, the 
' 
name of such employee and the employee's spouse (if 
the spouse is a medicare beneficiary) and the name and 
address of the employer, and, for the purpose of 
presenting a claim to the plan— 
"(I) the TIN of such employee if benefits were 
paid under title XVIII of the Social Security Act 
with respect to the employee during a period in 
which the plan was a primary plan (as defined in 
section 1862(bX2XA) of the Social Security Act), and 
"(II) the TIN of such spouse if benefits were paid 
under such title with respect to the spouse during 
such period, and 
"(iii) to any agent of such Administrator the informa-
tion referred to in subparagraph (B) for purposes of 
canying out clauses (i) and (ii) on behalf of such 
Administrator. 
"(D) SPECIAL RULES.— 
"(i) RESTRICTIONS ON DISCLOSURE.—Information 
may 
be disclosed under this parsigraph only for purposes of, 
and to the extent necessary in, determining the extent 
to which any medicare beneficiary is covered under any 
group health plan. 
"(ii) TIMELY RESPONSE TO REQUESTS.—Any request 
made under subparagraph (A) or (B) shall be complied 
with as soon as possible but in no event later than 120 
days after the date the request was made. 
"(E) DEFINITIONS.—For purposes of this paragraph— 
"(i) MEDICARE BENEFICIARY.—The term 'medicare 
beneficiary' means an individued entitled to benefits 
under part A, or enrolled under part B, of title XVIII of 
the Social Security Act, but does not include such an 
individual enrolled in part A under section 1818. 
"(ii) GROUP HEALTH PLAN.—The term 'group health 
plan' means— 
"(I) any group health plan (as defined in section 
5000(bXl)), and 
"(II) any large group health plan (as defined in 
section 5000(bX2)). 
"(iii) QuAUFiED EMPLOYER.—The term 'qualified em-
ployer' means, for a calendar year, an employer which 
has furnished written statements under section 6051 
with respect to at least 20 individuals for wages paid in 
the year. 
"(F) TERMINATION.—Subparagraphs (A) and (B) shall not 
apply to— 
"(i) any request made after September 30, 1991, and 
"(ii) any request made before such date for informa-
tion relating to— 
"(I) 1990 or thereafter in the case of subpara-
graph (A), or 
"(II) 1991 or thereafter in the case of subpara-
graph (B)." 
(B) SAFEGUARDS.— 
(i) Paragraph (3) of section 6103(a) of such Code is 26 USC 6103. 
amended by inserting "(1X12)," after "(eXlXDXiii),". 
note. 
103 STAT. 2228 
PUBLIC LAW 101-239—DEC. 19,1989 
(ii) Subparagraph (A) of section 6103(pX3) of such 
26 use 6103. 
Code is amended by striking "or (11)" and inserting 
• 
"(11), or (12)". 
(iii) Paragraph (4) of section 6103(p) of such Code is 
amended in the material preceding subparagraph (A) 
by striking "or (9) shall" and inserting "(9), or (12) 
shall". 
(iv) Clause (ii) of section 6103(pX4XF) of such Code is 
amended by striking "or (11)" and inserting "(11), or 
(12)". 
(v) The next to the Isist sentence of paragraph (4) of 
section 6103(p) of such C!ode is amended by inserting 
"or which receives any information under subsection 
(1X12XB) and which discloses any such information to 
any agent" before ", this paragraph". 
(C) PENALTY.—Paragraph (2) of section 7213(a) of such 
Code is amended by striking "or (10)" and inserting "(10), or 
(12)". 
26^80 6103 
(D) EFFECTIVE DATE.—The amendments made by this 
paragraph shall take effect on the date of the enactment of 
this Act. 
(2) RESPONSIBIUTIES OF HCFA.— 
(A) IN GENERAL.—Section 1862(b) of the Social Security 
Act (42 U.S.C. 1395y(b)), as amended by subsection (bXD of 
this section, is amended by inserting after paragraph (4) the 
following new paragraph: 
"(5) IDENTIFICATION OF SECONDARY PAYER SITUATIONS.— 
"(A) REQUESTING MATCHING INFORMATION.— 
"(i) (COMMISSIONER OF SOCIAL SECURITY.—The Commis-
sioner of Social Security shall, not less often than 
annually, transmit to the Secretary of the Treasury a 
list of the names and TINs of medicare beneficiaries (as 
defined in section 6103(1X12) of the Internal Revenue 
(Dode of 1986) and request that the Secretary disclose to 
the 
(Dommissioner the information 
described in 
subparagraph (A) of such section. 
"(ii) ADMINISTRATOR.—The Administrator 
of the 
Health Care Financing Administration shall request, 
not less often than annually, the (Dommissioner of the 
Social Security Administration to disclose to the 
Administrator the information described in subpara-
graph (B) of section 6103(1X12) of the Internal Revenue 
Code of 1986. 
"(B) DISCLOSURE TO FISCAL INTERMEDIARIES AND CAR-
RIERS.—In addition to any other information provided 
under this title to fiscal intermediaries and carriers, the 
Administrator shall disclose to such intermediaries and 
carriers (or to such a single intermediary or carrier as the 
Secretary may designate) the information received under 
subparagraph (A) for the purposes of carrying out this 
subsection. 
"(C) CONTACTING EMPLOYERS.— 
"(i) IN GENERAL.—With respect to each individual (in 
this subparagraph referred to as an 'employee') who 
was furnished a written statement under section 6051 
of the Internal Revenue C!k)de of 1986 by a qualified 
employer (as defined in section 6103(lX12XDXiii) of such 
note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2229 
Code), as disclosed under subparagraph (B), the appro-
priate fiscal intermediary or carrier shall contact the 
employer in order to determine during what period the 
employee or employee's spouse may be (or have been) 
covered under a group health plan of the employer and 
the nature of the coverage that is or was provided 
under the plan (including the name, address, and 
identifying number of the plan). 
"(ii) EMPLOYER RESPONSE.—Within 30 days of the date 
of receipt of the inquiry, the employer shall notify the 
intermediary or carrier making the inquiry as to the 
determinations described in clause (i). An employer 
(other than a Federal or other governmental entity) 
who willfully or repeatedly fails to provide timely and 
accurate notice in accordance with the previous sen-
tence shall be subject to a civil money penalty of not to 
exceed $1,000 for each individual witn respect to which 
such an inquiry is made. The provisions of section 
1128A (other than subsections (a) and (b)) shall apply to 
> 
a civil money penalty under the previous sentence in 
the same manner as such provisions apply to a penalty 
or proceeding under section 1128A(a). 
(iii) SUNSET ON REQUIREMENT.—Clause (ii) shall not 
apply to inquiries made after September 30, 1991.". 
(B) DEADUNE FOR FIRST REQUEST.—The Commissioner of 
42 USC I395y 
Social Security shall first— 
(i) transmit to the Secretary of the Treasury informa-
tion under paragraph (5XA)(i) of section 1862(b) of the 
Social Security Act (as inserted by subparagraph (A)), 
and 
(ii) request from the Secretary disclosure of informa-
' ' 
tion described in section 6013(1X12XA) of the Internal 
Revenue Code of 1986, 
by not later than 14 days after the date of the enactment of 
this Act. 
(b) UNIFORM ENFORCEMENT AND COORDINATION OF BENEFITS.— 
(1) IN GENERAL.—Section 1862 of the Social Security Act (42 
U.S.C. 1395y) is amended— 
(A) in the heading, by adding at the end the following: 
"AND MEDICARE AS SECONDARY PAYER"; and 
(B) by amending subsection (b) to read as follows: 
"(b) MEDICARE AS SECONDARY PAYER.— 
"(1) REQUIREMENTS OF GROUP HEALTH PLANS.— 
"(A) WORKING AGED UNDER GROUP HEALTH PLANS.— 
"(i) IN GENERAL.—A group health plan— 
"(I) may not take into account, for any item or 
service furnished to an individual 65 years of age 
or older at the time the individual is covered under 
the plan by reason of the current employment of 
the individual (or the individual's spouse), that the 
individual is entitled to benefits under this title 
under section 226(a), and 
"(II) shall provide that any employee age 65 or 
older, and any employee's spouse age 65 or older, 
shall be entitled to the same benefits under the 
plan under the same conditions as any employee, 
and the spouse of such employee, under age 65. 
103 STAT. 2230 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(ii) EXCLUSION OF GROUP HEALTH PLAN OF A 
SMALL EMPLOYER.—Clause (i) shall not apply to a 
group health plan unless the plan is sponsored by 
or contributed to by an employer that has 20 or 
more employees for each working day in each of 20 
or more calendar weeks in the current calendar 
year or the preceding calendar year. 
"(iii) EXCEPTION FOR SMALL EMPLOYERS IN MULTI-
EMPLOYER O
R MULTIPLE EMPLOYER GROUP HEALTH 
PLANS.—Clause (i) also shall not apply with respect 
to individuals enrolled in a multiemployer or mul-
tiple employer group health plan if the coverage of 
the individuals under the plan is by virtue of 
emplo3ntnent with an employer that does not have 
20 or more employees for each working day in each 
of 20 or more calendar weeks in the current cal-
endar year or the preceding calendar year; except 
that the exception provided in this clause shall 
only apply if the plan elects treatment under this 
clause. 
"(iv) EXCEPTION FOR INDIVIDUALS WITH END STAGE 
RENAL DISEASE.—Clause (i) shall not apply to an 
item or service furnished in a month to an individ-
u£il if for the month the individual is, or would 
upon application be, entitled to benefits under sec-
tion 226A. 
"(v) GROUP HEALTH PLAN DEFINED.—In this 
subparagraph, and subparagraph (C), the term 
'group health plan' has the meaning given such 
term in section 50000t>Xl) of the Internal Revenue 
Code of 1986. 
"(B) 
DISABLED ACTIVE INDIVIDUALS IN 
LARGE GROUP 
HEALTH PLANS.— 
"(i) IN GENERAL.—^A large group health plan (as de-
fined in clause (ivXID) may not take into account that 
an active individual (as defined in clause (ivXD) is 
entitled to benefits under this title under section 226(b). 
"(ii) 
EXCEPTION FOR INDIVIDUALS WITH END STAGE 
RENAL DISEASE.—Clause (i) shall not apply to an item or 
service furnished in a month to an individual if for the 
month the individual is, or would upon application be, 
entitled to benefits under section 226A. 
"(iii) SuNSET.^Dlause (i) shall only apply to items 
and services furnished on or after January 1, 1987, and 
before January 1,1992. 
"(iv) DEFINITIONS.—In this subparagraph: 
"(I) 
ACTIVE 
INDIVIDUAL.—The 
term 
'active 
individual' means an employee (as may be defined 
in 
regulations), 
the 
employer, 
self-employed 
individual (such as the employer), an individual 
associated with the employer in a business rela-
tionship, or a member of the family of any of such 
persons. 
"(II) LARGE GROUP HEALTH PLAN.—The 
term 
'large group health plan' h£is the meaning given 
such term in section 5000(bX2) of the Internal 
Revenue Code of 1986. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2231 
"(C) INDIVIDUAI^ WITH END STAGE RENAL DISEASE.—A 
group health plan (as defined in subparagraph (AXv))— 
"(i) may not take into account that an individual is 
entitled to benefits under this title solelv bv reason of 
section 226A during the 12-month period which begins 
with the earlier of— 
"(I) the month in which a regular course of renal 
dialvBis is initiated, or 
"(U) in the case of an individual who receives a 
kidney transplant, the first month in which he 
would be eligible for benefits imder part A (if he 
had filed an application for such benefits) under 
the provisions of section 226A(bXl)(B); and 
"(ii) may not differentiate in the benefits it provides 
between individuals having end stage renal disease and 
other individuals covered by such plan on the basis of 
the existence of end stage renal disease, the need for 
rencd dialysis, or in anv other manner; 
except that clause (ii) shall not prohibit a plan from taking 
into account that an individual is entitled to benefits under 
this title solely by reason of section 226A after the end of 
the 12-month period described in clause (i). 
"(2) MEDICARE SECONDARY PAYER.— 
"(A) IN GENERAL.—Payment under this title may not be 
made, except as provided in subparagraph (B), with respect 
to any item or service to the extent thiat— 
"(i) payment has been made, or can reasonably be 
expected to be made, with respect to the item or service 
as required under paragraph (1), or 
"(ii) payment has been made or can reasonably be 
expected to be made promptly (as determined in accord-
ance with regulations) under a workmen's compensa-
tion law or plan of the United Stetes or a Stete or under 
an automobile or liabilitv insurance policy or plan 
(including a self-insured plan) or under no fault insur-
ance. 
In this subsection, the term 'primazy plan' means a group 
health plan or large group health plan, to the extent that 
clause (i) applies, and a workmen s compensation law or 
plan, an automobile or liability insurance policy or plan 
(including a self-insured plan) or no fault insurance, to the 
extent that clause (ii) applies. 
"(B) CONDITIONAL PAYMENT.— 
"(i) PRIMARY PLANS.—Any payment under this title 
with respect to any item or service to which subpara-
graph (A) applies shall be conditioned on reimburse-
ment to the appropriate Trust Fund esteblished bv this 
title when notice or other information is received that 
payment for such item or service has been or could be 
made under such subparagraph. 
"(ii) ACTION BY UNITED STATES.—In order to recover 
payment under this title for such an item or service, 
the United Stetes may bring an action against an;y 
entity which is required or responsible under this 
subsection to pay with respect to such item or service 
(or any portion thereof) imder a primary plan (and 
may, in accordance with paragraph (3XA) collect double 
103 STAT. 2232 
PUBLIC LAW 101-239—DEC. 19, 1989 
damages against that entity), or against any other 
* 
entity (including any physician or provider) that has 
received pa)rment from that entity with respect to the 
item or service, and may join or intervene in any action 
• i 
related to the events that gave rise to the need for the 
item or service. 
"(iii) SUBROGATION RIGHTS.—The United States shall 
be subrogated (to the extent of payment made under 
this title for such an item or service) to any right under 
this subsection of an individual or any other entity to 
payment with respect to such item or service under a 
primary plan. 
"(iv) WAIVER OF RIGHTS.—The Secretary may waive 
' 
•' 
(in whole or in part) the provisions of this subpara-
graph in the case of an individual claim if the 
Secretary determines that the waiver is in the best 
interests of the program established under this title. 
"(3) ENFORCEMENT.— 
"(A) PRIVATE CAUSE OF ACTION.—There is established a 
private cause of action for damages (which shall be in an 
amount double the amount otherwise provided) in the case 
of a primary plan which fails to provide for primary pay-
ment (or appropriate reimbursement) in accordance with 
such paragraphs (1) and (2XA). 
"(B) REFERENCE TO EXCISE TAX WITH RESPECT TO NON-
,| 
CONFORMING G
R
O
U
P H
E
A
L
T
H PLANS.—For provision imposing 
^ , 
an excise tax with respect to nonconforming group health 
plans, see section 5000 of the Internal Revenue Code of 
1986. 
"(4) COORDINATION OF BENEFITS.—Where payment for an item 
or service by a primary plan is less than the amount of the 
charge for such item or service and is not pajrment in full, 
pajonent may be made under this title (without regard to 
deductibles and coinsurance under this title) for the remainder 
of such charge, but— 
"(A) payment under this title may not exceed an amount 
which would be payable under this title for such item or 
service if paragraph (2XA) did not apply; and 
"(B) pajnnent under this title, when combined with the 
amount payable under the primary plan, may not exceed— 
"(i) in the case of an item or service pa3rment for 
which is determined under this title on the basis of 
reasonable cost (or other cost-related basis) or under 
section 1886, the amount which would be payable 
under this title on such basis, and 
"(ii) in the case of an item or service for which 
payment is authorized under this title on another 
IA] 
basis— 
"(I) the amount which would be payable under 
the primary plan (without regard to deductibles 
and coinsurance under such plan), or 
"(II) the reasonable charge or other amount 
which would be payable under this title (without 
regard to deductibles and coinsurance under this 
i " 
title), 
whichever is greater.". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2233 
'^ 
(2) ENFORCEMENT THROUGH EXCISE TAX.—Section 5000 of the 
Internal Revenue Code of 1986 is amended— 
26 USC 5000. 
(A) by striking "LARGE" in the heading; 
(B) in subsection (a), by striking "large" each place it 
? appears; and 
(C) by amending subsections O
t
>
) and (c) to read as follows: 
"(b) GROUP HEALTH PLAN AND LARGE GROUP HEALTH PLAN.—For 
purposes of this section— 
"(1) GROUP HEALTH PLAN.—The term 'group health plan' 
means any plan of, or contributed to by, an employer (including 
a self-insured plan) to provide health care (directly or otherwise) 
to the employer's employees, former employees, or the families 
of such employees or former employees. 
"(2) LARGE GROUP HEALTH PLAN.—The term 'large group 
health plan' means a plan of, or contributed to by, an employer 
or employee organization (including a self-insured plan) to pro-
vide health care (directly or otherwise) to the employees, former 
employees, the employer, others associated or formerly associ-
ated with the employer in a business relationship, or their 
families, that covers employees of at legist one employer that 
normally employed at least 100 employees on a typical business 
day during the previous calendar year. 
"(c) NONCONFORMING GROUP HEALTH PLAN.—For purposes of this 
section, the term 'nonconforming group health plan means a group 
health plan or large group health plan that at any time during a 
calendar year does not comply with the requirements of subpara-
graphs (A) and (C) or subparagraph (B), respectively, of section 
1862(bXl) of the Social Security Act.'\ 
(3) REPEAL OF CERTAIN ALTERNATIVE ENFORCEMENT PROVI-
SIONS.— 
(A) DENIAL OF DEDUCTION FOR GROUP HEALTH PLANS.— 
Subsection (i) of section 162 of such Code (relating to group 
health plans) is repealed. 
(B) CONFORMING AMENDMENT.—Section 4980B(gX2) of 
such Code is amended by striking "162(i)" and inserting 
"5000(bXl)". 
(C) AGE DISCRIMINATION IN EMPLOYMENT ACT.—The Age 
Discrimination in Emplo)rment Act of 1967 is amended— 
(i) by striking subsection (g) of section 4, and 
29 USC 623. 
(ii) in section 12(a), by striking "(except the provi- 
29 USC 631. 
sions of section 4(g))". 
(4) CLERICAL AND CONFORMING AMENDMENTS.— 
(A) Chapter 47 of the Internal Revenue Code of 1986 is 
amended— 
(i) in the heading, by striking "LARGE", and 
,, 
(ii) in the table of sections, by striking "large". 
(B) The item in the table of chapters of subtitle D of such 
Code relating to chapter 47 is amended by striking "large". 
(C) Sections 1837(i) and 1839(b) of the &)cial Security Act 
(42 U.S.C. 1395p(i), 1395r(b)) are each amended by striking 
"1862(bX3XAXiv)" and "1862(bX4XB)" each place each 
appears 
and 
inserting 
"1862(bXlXAXv)" 
and 
"1862(bXlXBXiv)", respectively. 
(5) EFFECTIVE DATE.—The amendments made by this subsec- 42 USC 162 note, 
tion shall apply to items and services furnished after the date of 
the enactment of this Act. 
(c) SPECIAL ENROLLMENT PERIOD FOR DISABLED EMPLOYEES.— 
103 STAT. 2234 
PUBLIC LAW 101-239—DEC. 19,1989 
(1) IN GENERAL.—Section 1837(i) of the Social Security Act (42 
U.S.C. 1395p(i)) is amended— 
(A) in paragraph (1)— 
(i) by strilang subparagraph (A), 
(ii) by redesignating subparagraphs (B) and (O as 
subparagraphs (A) and (B), respectively, and 
'
" 
(iii) in the second sentence, by inserting "not de-
scribed in the previous sentence" after "In the case of 
,^ 
an individual"; and 
^ 
(B) in paragraph (2)— 
^ 
' 
(i) in subparagraph (BXi), by striking "(IXB)" and 
inserting "(IXAr, 
(ii) by striking subparagraph (A), 
(iii) Dy redesignating subparagraphs (B) through (D) 
as subparagraphs (A) through (C), respectively, and 
(iv) in the second sentence, by inserting "not de-
" 
^ 
scribed in the previous sentence" after "In the case of 
an individual". 
(2) CONFORMING AMENDMENT.—^The second sentence of section 
1839(b) of such Act (42 U.S.C. 1395r(b)) is amended by striking 
"during which the individual has attained the age of 65 and'. 
42 use I395p 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
^°^- 
tion shall apply to enrollments occurring after, and premiums 
for months siter, the second calendar quarter beginning after 
the date of the enactment of this Act. 
(d) No 
MATCHING BASED ON PRIVATE ACTIVITIES REQUIRED IN 
FISCAL INTERMEDIARY AGREEMENTS AND CARRIER CONTRACTS.— 
(1) FISCAL INTERMEDIARY AGREEMENTS.—Section 1816(cXl) of 
the Social Security Act (42 U.S.C. 1395h(cXl)) is amended by 
adding at the end the following: "The Secretary may not re-
quire, as a condition of entering into or renewing an agreement 
under this section or under section 1871, that a fiscal 
intermediary match data obtained other than in its activities 
under this part with data used in the administration of this part 
for purposes of identifying situations in which the provisions of 
section 1862(b) may apply.". 
(2) CARRIER CONTRACTS.—Section 1842(bX2XA) of such Act (42 
U.S.C. 1395u(bX2XA)) is amended by adding at the end the 
following: "The Secretary may not require, as a condition of 
entering into or renewing a contract imder this section or under 
section 1871, that a carrier match data obtained other than in 
its activities under this part with data used in the administra-
tion of this part for purposes of identifying situations in which 
section 1862(b) may apply.". 
42 use I395h 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
^ote. 
tion shjdl apply to agreements and contracts entered into or 
renewed on or after the date of the enactment of this Act. 
(e) TREATMENT OF EMPLOYMENT AS A MEMBER OF A RELIGIOUS 
ORDER.— 
(1) IN GENERAL.—Section 1862(bXl) of the Social Security Act 
(42 U.S.C. 1395y(bXl)), as amended by subsection (bXD of this 
section, is amended by adding at the end the following new 
subparagraph: 
"(D) 
TREATMENT OF CERTAIN MEMBERS OF RELIGIOUS 
ORDERS.—In this subsection, an individual shall not be 
considered to be employed, or an employee, with respect to 
the performance of services as a member of a religious 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2235 
note. 
42 use 1395rr 
note. 
42 u s e 1395rr 
note. 
-; 
order which are considered employment only by virtue of 
an election made by the religious order under section 
3121(r) of the Internal Revenue Code of 1986.". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 42 use I395y 
shall apply to items and services furnished on or after Octo-
ber 1, 1989. 
SEC. 6203. PAYMENT FOR END STAGE RENAL DISEASE SERVICES. 
(a) MAINTENANCE OF CURRENT COMPOSITE RATE.— 
(1) IN GENERAL.—Section 9335(aXl) of the Omnibus Budget 
Reconciliation Act of 1986 is amended— 
(A) by striking "and before October 1,1988" and inserting 
"and before October 1,1990", and 
(B) by adding at the end the following: "No change may 
r 
be made in the base rate in effect as of September 30, 1990, 
unless the Secretary makes such change in accordance with 
notice and comment requirements set forth in section 
1871(bXl)ofsuchAct.". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall take effect as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1986. 
(b) REQUIREMENTS FOR PATIENTS DEAUNG DIRECTLY WITH MEDI-
CARE.— 
(1) LIMITATION ON AMOUNT OF PAYMENT GENERALLY.—Section 
188ia>)(7) of the Social Security Act (42 U.S.C. 1395rr(b)(7)) is 
amended by inserting after the second sentence the following 
new sentence: "The amount of a payment made under any 
method other than a method based on a single composite 
weighted formula may not exceed the amount (or, in the case of 
continuous cycling peritoneal dialysis, 130 percent of the 
amount) of the median payment that would have been made 
under the formula for hospital-based facilities.". 
(2) 
AGREEMENTS 
WITH 
PROVIDERS 
OF SERVICES.—Section 
1881(bX4) of such Act (42 U.S.C. 1395rrOt)X4)) is amended— 
(A) by striking "(4)" and inserting "(4XA)", and 
(B) by adding at the end the following new subparagraph: 
"(B) The Secretary shall make payments to a supplier of home 
dialysis supplies and equipment furnished to a patient whose self-
care home dialysis is not under the direct supervision of an ap-
proved provider of services or renal dialysis facility only in 
accordance with a written agreement under which— 
"(i) the patient certifies that the supplier is the sole provider 
of such supplies and equipment to the patient, 
"(ii) the supplier agrees to receive pajnnent for the cost of 
such supplies and equipment only on an assignment-related 
basis, and 
"(iii) the supplier certifies that it has entered into a written 
agreement with an approved provider of services or renal dialy-
sis facility under which such provider or facility agrees to 
furnish to such patient £dl self-care home dialysis support serv-
ices and all other necessary dialysis services and supplies, 
including institutional dialysis services and supplies £ind emer-
gency services.". 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply with respect to dialysis services, supplies, and 
equipment furnished on or after February 1,1990. 
42 u s e 1395rr 
note. 
103 STAT. 2236 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 6204. PHYSICIAN OWNERSHIP OF, AND REFERRAL TO, HEALTH CARE 
ENTITIES. 
(a) PROHIBITION OF CERTAIN FINANCIAL ARRANGEMENTS BETWEEN 
REFERRING PHYSICIANS AND CUNICAL LABORATORIES.—Title XVIII of 
the Social Security Act is amended by inserting after section 1876 
the following new section: 
"UMITATION ON CERTAIN PHYSICIAN REFERRALS 
42 u s e 1395nn. 
" S E C . 1877. (a) PROHIBITION OF CERTAIN REFERRALS.— 
"(1) IN GENERAL.—Except as provided in subsection (b), if a 
physician (or immediate family member of such physician) has a 
financial relationship with an entity specified in paragraph (2), 
then— 
"(A) the physician may not make a referral to the entity 
for the furnishing of clinical laboratory services for which 
" 
payment otherwise may be made under this title, and 
(B) the entity may not present or cause to be presented a 
claim under this title or bill to any individual, third party 
payor, or other entity for clinical laboratory services fur-
nished pursuant to a referral prohibited under subpara-
graph (A). 
"(2) FINANCIAL RELATIONSHIP SPECIFIED.—For purposes of this 
section, a financied relationship of a physician (or immediate 
family member) with an entity specified in this paragraph is— 
"(A) except as provided in subsections (c) and (d), an 
ownership or investment interest in the entity; or 
"(B) except as provided in subsection (e), a compensation 
arrangement (as defined in subsection (hXlXA)) between the 
physician (or immediate family member) and the entity. 
An ownership or investment interest described in subparagraph 
(A) may be through equity, debt, or other means. 
"(b) GENERAL EXCEPTIONS TO BOTH OWNERSHIP AND COMPENSATION 
ARRANGEMENT PROHIBITIONS.—Subsection (aXD shall not apply in 
the following cases: 
"(1) PHYSICIANS' SERVICES.—In the case of physicians' services 
(as defined in section 1861(q)) provided personally by (or under 
the personal supervision of) another physician in the same 
group practice (as defined in subsection (hX4)) as the referring 
physician. 
(2) IN-OFFICE ANCILLARY SERVICES.—In the case of services— 
"(A) that are furnished— 
"(i) personally by the referring physician, personally 
by a physician who is a member of the same group 
practice as the referring physician, or personally by 
individuals who are employed by such physician or 
group practice and who are personally supervised by 
the physician or by another physician in the group 
practice, and 
"(iiXD in a building in which the referring physician 
(or another physician who is a member of the same 
group practice) furnishes physicians' services unrelated 
to the furnishing of clinical laboratory services, or 
"(II) in the case of a referring physician wha is a 
member of a group practice, in another building which 
is used by the group practice for the centralized provi-
sion of the group's clinical laboratory services, and 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2237 
"(B) that are billed by the physician performing or super-
vising the services, by a group practice of iK^ch such 
physician is a member, or by an entit^^ that is wholly owned 
by such ph^cian or such group practice, 
if the ownership or investment interest in such services meets 
such other requirements as the Secretary may impose by regu-
lation as needed to protect against program or patient abuse. 
"(3) PREPAID PLANS.—In the case of services furnished— 
"(A) by an organization with a contract.under section 
1876 to an individual enrolled with the organization, 
"(B) by an organization described in section 1833(aXlXA) 
to an individual enrolled with the organization, or 
"(Q by an organization receiving payments on a prepaid 
basis, under a demonstration project under section 402(a) of 
the Social Security Amendments of 1967 or under section 
222(a) of the Social Security Amendments of 1972, to an 
individual enrolled with the organization. 
"(4) OTHER PERMISSIBLE EXCEPTIONS.—^In the case of any other 
financial relationship which the Secretary determines, and 
specifies in regulations, does not pose a risk of program or 
patient abuse. 
"(c) GENERAL EXCEPTION RELATED ONLY TO OWNERSHIP OR INVEST-
MENT PROHIBITION FOR OWNERSHIP IN PUBUCLY-TRADED SECURI-
TIES.—Ownership of investment securities (including shares or 
bonds, debentures, notes, or other'debt instruments) which were 
purchased on terms generally available to the public and which are 
in a corporation that— 
"(1) is listed for trading on the New York Stock Exchange or 
on the American Stock Exchange, or is a national market 
s^nstem security traded under an automated interdealer quota-
tion system operated by the National Association of Securities 
Dealers, and 
"(2) had, at the end of the corporation's most recent fiscal 
year, total assets exceeding $100,0()0,000, 
shall not be considered to be an ownership or investment interest 
described in subsection (aX2XA). 
"(d) ADDmoNAL EXCEPTIONS RELATED ONLY TO OWNERSHIP OR 
INVESTMENT PROHIBITION.—The following, if not otherwise excepted 
under subsection (b), shall not be considered to be an ownership or 
investment interest described in subsection (aX2XA): 
"(1) HOSPITALS IN PUERTO RICO.—^In the case of clinical labora-
tory services provided by a hospital located in Puerto Rico. 
(2) RURAL PROVIDER.—In the case of clinical laboratory serv-
ices if the laboratory furnishing the services is in a rural area 
(as defined in section 1886(dX2XD)). 
"(3) HOSPITAL OWNERSHIP.—In the case of clinical laboratory 
services provided by a hospital (other than a hospital described 
in paragraph (D) if— 
'(A) the referring physician is authorized to perform 
services at the ho^ital, and 
"(B) the ownership or investment interest is in the hos-
pital itself (and not merely in a subdivision thereof). 
"(e) EXCEPTIONS RELATING TO OTHER COMPENSATION ARRANGE-
MENTS.—^The following shall not be considered to be a compensation 
arrangement described in subsection (aX2)(B): 
"(1) RENTAL OF OFFICE SPACE.—Payments made for the rental 
or lease of office space if— 
103 STAT. 2238 
PUBLIC LAW 101-239~DEC. 19, 1989 
"(A) there is a written agreement, signed by the parties, 
for the rental or lease of the space, which agreement— 
"(i) specifies the space covered by the agreement and 
dedicated for the use of the lessee, 
"(ii) provides for a term of rental or lease of at least 
one year; 
"(iii) provides for pa3rment on a periodic basis of an 
amount that is consistent with fair market value; 
"(iv) provides for an amount of aggregate pajrments 
that does not vary (directly or indirectly) based on the 
volume or value of any referrals of business between 
the parties; and 
"(v) would be considered to be commercially reason-
able even if no referrals were made between the par-
ties; 
"(B) in the case of rental or lease of office space in which 
a physici£ui who is an interested investor (or an interested 
investor who is an immediate family member of the physi-
cian) has an ownership or investment interest, the office 
space is in the same building as the building in which the 
physician (or group practice of which the physician is a 
member) has a practice; and 
"(C) the arr£mgement meets such other requirements as 
the Secretary may impose by regulation as needed to pro-
tect against progrcun or patient abuse. 
"(2) 
EMPLOYMENT AND SERVICE ARRANGEMENTS WITH HOS-
PITALS.—An arrangement between a hospital and a physician 
(or immediate family member) for the employment of the physi-
cian (or family member) or for the provision of administrative 
services, if^ 
"(A) the arrangement is for identifiable services; 
"(B) the amount of the remuneration under the arrange-
ment— 
"(i) is consistent with the fair market value of the 
services, and 
"(ii) is not determined in a manner that takes into 
account (directly or indirectly) the volume or value of 
any referrals by the referring physician; 
"(C) the remuneration is provided pursuant to an agree-
ment which would be commercially reasonable even if no 
referrals were made to the hospital; and 
"(D) the arrangement meets such other requirements as 
the Secretary may impose by regulation as needed to pro-
tect against program or patient abuse. 
"(3) OTHER SERVICE ARRANGEMENTS.—Remuneration from an 
entity (other than a hospital) under an arrangement if— 
"(A) the arrangement is— 
"(i) for specific identifiable services as the medical 
director or as a member of a medical advisory board at 
the entity pursuant to a requirement of this title, 
"(ii) for specific identifiable physicians' services to be 
furnished to an individual receiving hospice care if 
payment for such services may only be made under this 
title as hospice care, 
"(iii) for specific physicians' services furnished to a 
nonprofit blood center, or 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2239 
"(iv) for specific identifiable administrative services 
(other than direct patient care services), but only under 
exceptional circumstances specified by the Secretary in 
regulations; 
"(B) the requirements described in subparagraphs (B) and 
(C) of par£igraph (2) are met with respect to the entity in the 
• same manner as they apply to a hospital; and 
"(C) the arrangement meets such other requirements as 
the Secretary may impose by regulation as needed to pro-
tect against program or patient abuse. 
"(4) PHYSICIAN RECRUITMENT.—In the case of remuneration 
which is provided by a hospital to a physician to induce the 
physician to relocate to the geographic area served by the 
hospital in order to be a member of the medical staff of the 
hospital, if— 
"(A) the physician is not required to refer patients to the 
hospital, 
"(B) the amount of the remuneration under the arrange-
ment is not determined in a manner that takes into account 
(directly or indirectly) the volume or value of any referrals 
by the referring physician, and 
"(C) the arrangement meets such other requirements as 
the Secretary may impose by regulation as needed to pro-
tect against program or patient abuse. 
"(5) ISOLATED TRANSACTIONS.—In the case of £ui isolated finan-
cial transaction, such as a one-time sale of property, if^ 
"(A) the requirements described in subparagraphs (B) and 
(C) of paragraph (2) are met with respect to the entity in the 
same manner as they apply to a hospital, and 
"(B) the transaction meets such other requirements as 
the Secretary may impose by regulation as needed to pro-
tect against program or patient abuse. 
"(6) SALARIED PHYSICIANS IN A GROUP PRACTICE.—A compensa-
tion arrangement involving pa5mient by a group practice of the 
salary of a physician member of the group practice. 
"(f) REPORTING REQUIREMENTS.—Each entity providing covered 
items or services for which payment may be made under this title 
shall provide the Secretary with the information concerning the 
entity s ownership arrangements, including— 
"(1) the covered items and services provided by the entity, and 
"(2) the names and all of the medicare provider numbers of 
the physicians who are interested investors or who are imme-
diate relatives of interested investors. 
Such information shall be provided in such form, manner, and at 
such times as the Secretary shall specify. Such information shall 
first be provided not later than 1 year after the date of the enact-
ment of this section. 
"(g) SANCTIONS.— 
"(1) DENIAL OF PAYMENT.—No pa3rment may be made under 
this title for a clinical laboratory service which is provided in 
violation of subsection (aXl). 
"(2) REQUIRING REFUNDS FOR CERTAIN CLAIMS.—If a person 
collects any amounts that were billed in violation of subsection 
(aXD, the person shall be liable to the individual for, and shall 
refund on a timely basis to the individual, any amounts so 
collected. 
103 STAT. 2240 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(3) 
CIVIL MONEY PENALTY AND EXCLUSION FOR IMPROPER 
CLAIMS.—Any person that presents or causes to be presented a 
bill or a claim for a service that such person knows or should 
know is for a service for which payment may not be made under 
paragraph (1) or for which a refund has not been made under 
paragraph (2) shall be subject to a civil money penalty of not 
more than $15,000 for each such service. The provisions of 
section 1128A (other than the first sentence of subsection (a) and 
other than subsection (b)) shall apply to a civil money penalty 
under the previous sentence in the same manner as such provi-
sions apply to a penalty or proceeding under section 1128A(a). 
"(4) CIVIL MONEY PENALTY AND EXCLUSION FOR CIRCUMVENTION 
SCHEMES.—Any physician or other entity that enters into an 
arrangement or scheme (such as a cross-referral arrangement) 
which the physician or entity knows or should know has a 
principal purpose of assuring referrals by the physician to a 
particular entity which, if the physician directly made referrals 
to such entity, would be in violation of this section, shall be 
subject to a civil money penalty of not more than $100,000 for 
each such arrangement or scheme. The provisions of section 
1128A (other than the first sentence of subsection (a) and other 
than subsection (b)) shall apply to a civil money penalty under 
the previous sentence in the same manner as such provisions 
apply to a penalty or proceeding under section 1128A(a). 
(5) FAILURE TO REPORT INFORMATION.—Any person who is 
required, but fails, to meet a reporting requirement of subsec-
tion (f) is subject to a civil money penalty of not more than 
$10,000 for each day for which reporting is required to have 
been made. 
"(h) DEFINITIONS.—For purposes of this section: 
"(1) COMPENSATION ARRANGEMENT; REMUNERATION.—(A) 
The 
term 'compensation arrangement' means any arrangement 
involving any remuneration between a physician (or immediate 
family member) and an entity. 
"(B) The term 'remuneration' includes any remuneration, 
directly or indirectly, overtly or covertly, in cash or in kind. 
"(2) EMPLOYEE.—An individual is considered to be 'employed 
by' or an 'employee' of an entity if the individual would be 
considered to be an employee of the entity under the usual 
common law rules applicable in determining the employer-
employee relationship (as applied for purposes of section 
3121(dX2) of the Internal Revenue Code of 1986). 
"(3) FAIR MARKET VALUE.—The term 'fair market value' 
means the value in arms length trsuisactions, consistent with 
the general market value, and, with respect to rentals or leases, 
the value of rental property for general commercial purposes 
(not taking into account its intended use) and, in the case of a 
lease of space, not adjusted to reflect the additional value the 
prospective lessee or lessor would attribute to the proximity or 
convenience to the lessor where the lessor is a potential source 
of patient referrsds to the lessee. 
(4) GROUP PRACTICE.—The term 'group practice' means a 
group of two or more physicians legally orgsuiized as a partner-
ship, professional corporation, foundation, not-for-profit cor-
poration, faculty practice plan, or similar association— 
"(A) in which each physician who is a member of the 
group provides substantially the full range of services 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2241 
which the physician routinely provides (including medical 
care, consultation, diagnosis, or treatment) through the 
joint use of shared office space, facilities, equipment, and 
personnel; 
'' 
"(B) for which substantially all of the services of the 
physicians who are member? of the group are provided 
through the group and are billed in the name of the group 
and amounts so received are treated as receipts of the 
group; 
"(C) in which the overhead expenses of and the income 
from the practice are distributed in accordance with meth-
ods previously determined by members of the group; and 
"(D) which meets such other standards as the Secretary 
may impose by regulation. 
In the case of a faculty practice plan associated with a hospital, 
with an approved medical residency training program in which 
physician members may provide a variety of different specialty 
services and provide professional services both within and out-
side the group (as well as perform other tasks such as research), 
the previous sentence shall be applied only with respect to the 
services provided within the faculty practice plan. 
"(5) INTERESTED INVESTOR; DISINTERESTED INVESTOR.—The term 
'interested investor' means, with respect to an entity, an inves-
tor who is a physician in a position to make or to influence 
referrals or business to the entity (or who is an immediate 
family member of such an investor), and the term 'disinterested 
investor' means an investor other than an interested investor. 
"(6) REFERRAL; REFERRING PHYSICIAN.— 
"(A) 
PHYSICIANS' 
SERVICES.—Except 
as 
provided 
in 
subparagraph (C), in the case of a clinical laboratory service 
which under law is required to be provided by (or under the 
supervision of) a physicigm, the request by a physician for 
the service, including the request by a physician for a 
consultetion with another physician (and any test or proce-
dure ordered by, or to be performed by (or under the 
^* 
'" 
" 
supervision of) that other physician), constitutes a'referral' 
by a 'referring physician'. 
"(B) OTHER ITEMS.—Except as provided in subparagraph 
(C), in the case of another clinical laboratory service, the 
request or establishment of a plan of care by a physician 
which includes the provision of the clinical laboratory serv-
ice constitutes a 'referral' by a 'referring physician'. 
"(C) 
CLARIFICATION 
RESPECTING 
CERTAIN 
SERVICES 
INTEGRAL TO A CONSULTATION BY CERTAIN SPECIAUSTS.—A 
request by a pathologist for clinical diagnostic laboratory 
tests and pathological examination services, if such services 
are furnished by (or under the supervision of) such patholo-
gist pursuant to a consultetion requested by another 
physician does not constitute a 'referral' by a 'referring 
physician'.", 
(b) REQUIRING REQUESTS FOR PAYMENT TO INCLUDE INFORMATION 
ON REFERRING PHYSICIAN.—Section 1833 of such Act (42 U.S.C. 
13951) is amended by adding at the end the following new subsection: 
"(qXD Each request for payment, or bill submitted, for an item or 
service furnished by an entity for which payment may be made 
under this part and for which the entity knows or has reason to 
believe there has been a referral by a referring physician (within the 
103 STAT. 2242 
PUBLIC LAW 101-239—DEC. 19,1989 
42 u s e 1395nn 
note. 
42 u s e 1395nn 
note. 
42 u s e 1395nn 
note. 
Reports. 
meaning of section 1877) shall include the name and provider 
number for the referring physician and indicate whether or not the 
referring physician is an interested investor (within the meaning of 
section 1877(hX5)). 
"(2XA) In the case of a request for pa3mient for an item or service 
furnished by an entity under this part on an assignment-related 
basis and for which information is required to be provided under 
paragraph (1) but not included, payment may be denied under this 
part, 
"(B) In the case of a request for payment for an item or service 
furnished by an entity under this part not submitted on an assign-
ment-related basis and for which information is required to be 
provided under paragraph (1) but not included— 
"(i) if the entity knowingly and willfully fails to provide such 
information promptly upon request of the Secretary or a car-
rier, the entity may be subject to a civil money penalty in an 
amount not to exceed $2,000, and 
"(ii) if the entity knowingly, willfully, and in repeated cases 
fails, after being notified by the Secretary of the obligations and 
requirements of this subsection to provide the information re-
quired under paragraph (1), the entity may be subject to exclu-
sion from participation in the programs under this Act for a 
period not to exceed 5 years, in accordance with the procedures 
of subsections (c), (f), and (g) of section 1128. 
The provisions of section 1128A (other than subsections (a) and (b)) 
shall apply to civil money penalties under clause (i) in the same 
manner as they apply to a penalty or proceeding under section 
1128A(a).". 
(c) EFFECTIVE DATES.— 
(1) Except as provided in paragraph (2), the amendments 
made by this section shall become effective with respect to 
referrals made on or after January 1,1992. 
(2) The reporting requirement of section 1877(f) of the Social 
Security Act shall take effect on October 1,1990. 
(d) 
DEADUNE FOR CERTAIN REGULATIONS.—The Secretary 
of 
Health and Human Services shall publish final regulations to carry 
out section 1877 of the Social Security Act by not later than October 
1,1990. 
(e) GAO STUDY OF OWNERSHIP BY REFERRING PHYSICIANS.—The 
Comptroller General shall conduct a study of the ownership of 
hospitals and other providers of medicare services by referring 
physicians. Such study shall investigate— 
(1) the types of such ownership arrangements and tjrpes of 
services offered under such arrangements, 
(2) the returns generally earned by physician investors in 
such arrangements, 
(3) the effect of such arrangements on (A) the utilization of 
items and services by medicare beneficiaries, (B) medicare 
expenditures, and (C) other entities providing items and services 
in the communities served, 
(4) the effect of such arrangements on independent providers 
of similar services, and 
(5) the effect on the provision of in-office clinical laboratory 
services of the limitation on payment for certain referrals 
contained in section 1877 of the Social Security Act. 
By not later than February 1, 1991, the Comptroller General shall 
report to Congress on the results of such study. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2243 
42 use 1395x 
note. 
(f) QUARTERLY REPORTS TO CONGRESS ON COMPARATIVE UTIUZA- 42 use I395nn 
TiON.—The Secretary of Health and Human Services shall submit to '
^
o
*
®
-
the Congress and the Comptroller General, not later than 90 days 
after the end of each calendar quarter, a report which provides a 
statistical profile (by State and type of item or service) comparing 
utilization of items and services by medicare beneficiaries served by 
entities in which the referring physician has a direct or indirect 
financial interest and by medicare beneficiaries served by other 
entities. 
SEC. 6205. COSTS OF NURSING AND ALLIED HEALTH EDUCATION. 
(a) RECOGNITION OF COSTS OP CERTAIN HOSPITAL-BASED NURSING 
SCHOOLS.— 
(1) IN GENERAL.—(A) The reasonable costs incurred by a hos-
pital in training students of a hospital-based nursing school 
,- shall be allowable as reasonable costs under title XVIII of the 
Social Security Act and reimbursed under such title on the 
same basis as if they were allowable direct costs of a hospital-
operated educational program (other than an approved grad-
uate medical education program) if, before June 15, 1989, and 
: 
thereafter, the hospital demonstrates that for each year, it 
incurs at least 50 percent of the costs of training nursing 
students at such school, the nursing school and the hospital 
share some common board members, and all instruction is 
provided at the hospital or, if in another building, a building on 
the immediate grounds of the hospital. 
(B) Section 8411(b) of the Technical and Miscellaneous Reve-
nue Act of 1988 is amended by striking "1989, 1990, and" and 
inserting "1986 through". 
(2) EFFECTIVE DATE.—Paragraph (IXA) shall apply with re-
spect to cost reporting periods beginning on or after the date of 
the enactment of this Act and on or before the date on which 
the Secretary 
issues regulations pursuant 
to subsection 
(bX2XA). 
(b) DELAY IN RECOUPMENT OF CERTAIN NURSING AND ALUED EDU-
CATION COSTS.— 
(1) The Secretary of Health and Human Services (in this 
subsection referred to as the "Secretary") shall not, before 
October 1, 1990, recoup from, or otherwise reduce or adjust 
payments under title XVIII of the Social Security Act to, hos-
pitals because of alleged overpajrments to such hospitals under 
such title due to a determination that costs which were reported 
by a hospital on its medicare cost reports relating to approved 
nursing and allied health education programs were allowable 
costs and are included in the definition of "operating costs of 
inpatient hospital services" pursuant to section 1886(aX4) of 
such Act, so that no pass-through of such costs was permitted 
under that section. 
(2XA) Before July 1, 1990, the Secretary shall issue regula- Regulations. 
tions respecting payment of costs described in paragraph (1). 
(B) In issuing such regulations— 
(i) the Secretary shall allow a comment period of not less 
than 60 days, 
(ii) the Secretary shall consult with the Prospective Pay-
'-" 
ment Assessment Commission, and 
42 use 1395b-l 
note. 
42 use 1395x 
note. 
42 use 1
3
9
5
W
W 
note. 
103 STAT. 2244 
PUBLIC LAW 101-239—DEC. 19, 1989 
Federal 
Register, 
publication. 
42 use 1395mm 
note. 
Contracts. 
(iii) any final rule shall not be effective prior to October 1, 
1990, or 30 days after publication of the final rule in the 
Federal Register, whichever is later. 
(C) Such regulations shall specify— 
^j^ 
(i) the relationship required between an approved nursing 
( ^ 
or allied health education program and a hospital for the 
program's costs to be attributed to the hospital; 
(ii) the types of costs related to nursing or allied health 
education programs that are allowable by medicare; 
(iii) the distinction between costs of approved educational 
activities as recognized under section 1886(aX3) of the Social 
., 
Security Act and educational costs treated as operating 
costs of inpatient hospital services; and 
(iv) the treatment of other funding sources for the pro-
gram. 
SEC. 6206. DISCLOSURE OF ASSUMPTIONS IN ESTABLISHING AAPCC; 
ELIMINATION 
OP 
COORDINATED 
OPEN 
ENROLLMENT 
REQUIREMENT. 
(a) DISCLOSURE OF ASSUMPTIONS IN ESTABUSHING AAPCC.— 
(1) IN GENERAL.—Section 1876(aXl) of the Social Security Act 
'' 
(42 U.S.C. 1395mm(aXl)) is amended by adding at the end the 
following new subparagraph: 
"(FXi) At least 45 days before making the announcement under 
subparagraph (A) for a year (beginning with the announcement for 
1991), the Secretary shall provide for notice to eligible organizations 
of proposed changes to be made in the methodology or benefit 
coverage assumptions from the methodology and assumptions used 
in the previous announcement and shall provide such organizations 
an opportunity to comment on such proposed changes. 
"(ii) In each announcement made under subparagraph (A) for a 
year (beginning with the announcement for 1991), the Secretary 
shall include an explanation of the assumptions (including any 
benefit coverage assumptions) and changes in methodology used in 
the announcement in sufficient detail so that eligible organizations 
can compute per capita rates of pajnnent for classes of individuals 
located in eacn county (or equivsJent area) which is in whole or in 
part within the service area of such an organization.". 
(2) NOTICE.—Before July 1, 1990, the Secretary of Health and 
Human Services shall provide for notice to eligible organiza-
tions of the methodology used in making the announcement 
under section 1876(aXlXA) of the Social Security Act for 1990. 
(b) EUMINATION OF COORDINATED OPEN ENROLLMENT REQUIRE-
MENT.— 
(1) IN GENERAL.—Section 1876(cX3XA) of such Act (42 U.S.C. 
1395mm(cX3XA)) is amended— 
(A) in clause (i), by striking "30-day period" and inserting 
"period or periods", and 
(B) by striking clause (ii) and inserting the following: 
"(iiXD If a risk-sharing contract under this section is not renewed 
or is otherwise terminated, eligible organizations with risk-sharing 
contracts under this section and serving a part of the same service 
area as under the terminated contract are required to have an open 
enrollment period for individuals who were enrolled under the 
terminated contract as of the date of notice of such termination. If a 
risk-sharing contract under this section is renewed in a manner that 
discontinues coverage for individuals residing in part of the service 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2245 
area, eligible organizations with risk-sharing contracts under this 
section and enrolling individuals residing in that part of the service 
area are required to have an open enrollment period for individuals 
residing in the part of the service area who were enrolled under the 
contract as of the date of notice of such discontinued coverage. 
"(II) The open enrollment periods required under subclause (I) 
shall be for 30 days and shall begin 30 days sifter the date that the 
Secretary provides notice of such requirement. 
"(Ill) Enrollment under this clause shall be effective 30 days after 
the end of the open enrollment period, or, if the Secretary deter-
mines that such date is not feasible, such other date as the Secretary 
specifies.". 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall take effect 60 days after the date of the enactment of this 
Act. 
SEC. 6207. EXTENSION OF EXPIRING AUTHORITIES. 
(a) DELAY IN EFFECTIVE DATE IN PHYSICIAN INCENTIVE RULES.— 
Section 9313(cX2XB) of the Omnibus Budget Reconciliation Act of 
1986, as amended by section 4016 of the Omnibus Budget Reconcili-
ation Act of 1987, is amended by striking "April 1, 1990" and 
inserting "April 1,1991". 
(b) EXTENSION OF PROHIBITION ON COST SAVINGS POLICIES. BEFORE 
BEGINNING OF FISCAL YEAR.—Section 4039(d) of the Omnibus Budget 
Reconciliation Act of 1987, as amended by section 426(e) of the 
Medicare Catastrophic Coverage Act of 1988, is amended— 
(1) by striking "October 15, 1989" and inserting "October 15, 
1990", and 
(2) by inserting "or in fiscal year 1991" after "fiscal year 
1990". 
Subpart B—Technical and Miscellaneous Provisions 
SEC. 6211. MEDICARE HOSPITAL PATIENT PROTECTION AMENDMENTS. 
(a) SCOPE OF HOSPITAL RESPONSIBILITY FOR SCREENING.—Subsec-
tion (a) of section 1867 of the Social Security Act (42 U.S.C. 1395dd) 
is amended by striking "department" the third place it appears and 
inserting the following: "department, including ancillary services 
routinely available to the emergency department,". 
(b) INFORMED REFUSALS OF TREATMENT OR TRANSFERS.—Subsection 
(b) of such section is amended— 
(1) in paragraph (2)— 
(A) by inserting "and informs the individual (or a person 
acting on the individual's behalf) of the risks and benefits to 
the individual of such examination and treatment," after 
"in that paragraph", 
(B) by striking "or treatment" and inserting "and treat-
ment", and 
(C) by adding at the end the following new sentence: "The 
hospital shall take all reasonable steps to secure the 
individual's (or person's) written informed consent to refuse 
such examination and treatment."; and 
(2) in paragraph (3)— 
(A) by inserting "and informs the individual (or a person 
acting on the individual's behalf) of the risks and benefits to 
the individual of such transfer," after "with subsection (c)", 
and 
42 use 1395mm 
note. 
42 use 1320a-7a 
note. 
42 use 1
3
9
5
W
W 
note. 
103 STAT. 2246 
PUBLIC LAW 101-239—DEC. 19, 1989 
(B) by adding at the end the following new sentence: "The 
>
. 
hospital shall take all reasonable steps to secure the 
individual's (or person's) written informed consent to refuse 
such transfer.". 
(c) AUTHORIZATION FOR TRANSFERS.— 
(1) INFORMED CK>NSENT FOR TRANSFERS AT INDIVIDUAL RE-
QUEST.—Subsection (cXlXAXi) of such section is amended by 
striking "requests that the transfer be effected" and inserting 
"after being informed of the hospital's obligations under this 
section and of the risk of transfer, in writing requests transfer 
to another medical facility". 
(2) CLARIFYING PHYSICIAN AUTHORIZATION FOR TRANSFERS.— 
Subsection (cXlXA) of such section is amended— 
^ 
(A)by striking "or" at the end of claused); 
(B) in clause (ii)— 
(i) by striking ", or other qualified medical personnel 
when a physician is not readily available in the emer-
gency department,", and 
(ii) by inserting "of transfer" after "information 
available at the time"; 
(C) by striking "; and" at the end of clause (ii) and 
inserting ", or", and 
(D) by adding at the end the following new clause: 
"(iii) if a physician is not physically present in the emer-
gency department at the time an individual is transferred, 
a qusdified medical person (as defined by the Secretary in 
r^ulations) has signed a certification described in clause 
(ii) after a physician (as defined in section 1861(rXl)), in 
consultation with the person, has made the determination 
described in such clause, and subsequently countersigns the 
certification; and". 
(3) 
STANDARD 
FOR 
AUTHORIZING 
TRANSFER.—Subsection 
(cXlXAXii)ofsuch section is amended— 
(A) by striking ", based upon the reasonable risks and 
benefits to the patient, and", and 
(B) by striking "individual's medical condition" and 
inserting "individual and, in the case of labor, to the 
unborn child". 
(4) INCLUSION OF SUMMARY OF RISKS AND BENEFITS IN CERTIFI-
CATE OF TRANSFER.—SubsectioD (cXD of such section is amended 
by adding at the end the following: 
"A certification described in clause (ii) or (iii) of subparagraph 
(A) shall include a summary of the risks and benefits upon 
which the certification is based.". 
(5) PROVISION OF SERVICES PENDING TRANSFER.—Subsection 
(cX2) of such section is amended— 
\ 
(A) by redesignating subparagraphs (A) through (D) as 
subparagraphs (B) through (E), respectively, and 
(B) by inserting before subparagraph (B), as so redesig-
, ' nated, the following new subparagraph: 
"(A) in which the transferring hospital provides the medi-
cal treatment within its capacity which minimizes the risks 
to the individual's health and, in the case of a woman in 
"^ 
labor, the health of the unborn child;". 
(d) REQUIRING MAINTENANCE OF RECORDS OF TRANSFERS.—Subsec-
tion (cX2XC) of such section, as redesignated by subsection (cX5XA) of 
this section, is amended— 
(1) by striking "provides" and inserting "sends to", and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2247 
* 
(2) by striking "with appropriate medical records" and all 
that follows through "transferring hospital" and inserting "all 
medical records (or copies thereof), related to the emergency 
condition for which the individual has presented, available at 
the time of the transfer, including records related to the individ-
ual's emergency medical condition, observations of signs or 
• 
symptoms, preliminary diagnosis, treatment provided, results of 
any tests and the informed written consent or certification (or 
copy thereof) provided under pars^aph (IXA), and the name 
and address of any on-call physician (described in subsection 
(dX2XC)) who has refused or failed to appear within a reasonable 
time to provide necessary stabilizing treatment". 
(e) PHYSICIAN LIABILITY.—Subsection (dX2) of such subsection is 
amended— 
(1) by amending subparagraph (B) to read as follows: 
"(B) Subject to subparagraph (C), any physician who is respon-
sible for the examination, treatment, or transfer of £in individ-
ual in a participating hospital, including a physician on-call for 
the care of such an individual, and who knowingly violates a 
requirement of this section, including a physiciein who— 
"(i) signs a certification under subsection (cXlXA) that the 
, 
medical benefits reasonably to be expected from a transfer 
to another facility outweigh the risks associated with the 
transfer, if the physician knew or should have known that 
the benefits did not outweigh the risks, or 
"(ii) misrepresents an individual's condition or other 
information, including a hospital's obligations under this 
section, 
is subject to a civil money penalty of not more than $50,000 for 
each such violation and, if the violation is knowing and willful 
or negligent, to exclusion from participation in this title and 
State health care programs. The provisions of section 1128A 
(other than the first and second sentences of subsection (a) and 
subsection (b)) shall apply to a civil money penalty and exclu-
sion under this subparagraph in the same manner as such 
provisions apply with respect to a penalty, exclusion, or proceed-
ing under section 1128A(a)."; and 
(2) by striking subparagraph (C) and inserting the following: 
"(C) If, after an initial examination, a physician determines 
that the individual requires the services of a physician listed by 
the hospital on its list of on-call physicians (required to be 
maintained under section 1866(aXlXI)) and notifies the on-call 
physician and the on-call physician fails or refuses to appear 
within a reasonable period of time, and the physician orders the 
transfer of the individual because the physician determines that 
without the services of the on-call physician the benefits of 
transfer outweigh the risks of transfer, the physician authoriz-
ing the transfer shall not be subject to a penalty under subpara-
graph (B). However, the previous sentence shall not apply to the 
hospital or to the on-call physician who failed or refused to 
appear.". 
(f) ADDITIONAL OBLIGATIONS.—Such section is amended by adding 
at the end the following new subsections: 
"(g) NONDISCRIMINATION.—A participating hospital that has 
specialized capabilities or facilities (such as burn units, shock-
103 STAT. 2248 
PUBLIC LAW 101-239—DEC. 19, 1989 
trauma units, neonatal intensive care units, or (with respect to rural 
areas) regional referral centers as identified by the Secretary in 
regulation) shall not refuse to accept an appropriate transfer of an 
individual who requires such specialized capabilities or facilities if 
the hospital heis the capacity to treat the individual. 
"(h) No DELAY IN EXAMINATION OR TREATMENT.—A participating 
hospital may not delay provision of an appropriate medical screen-
ing examination required under subsection (a) or further medical 
examination and treatment required under subsection (b) in order to 
inquire about the individual's method of payment or insurance 
status. 
"(i) WHISTLEBLOWER PROTECTIONS.—A participating hospital may 
not penalize or take adverse action against a physician because the 
physician refuses to authorize the transfer of an individual with an 
emergency medical condition that has not been stabilized.". 
(g) CHANGE IN "PATIENT" TERMINOLOGY.— 
(1) Subsection (c) of such section is amended— 
(A) by striking "PATIENT" and inserting "INDIVIDUAL", 
and 
(B) by striking "a patient" "the patient", "patient's", and 
^ ,,, [ "patients" each place each appears and inserting "an 
individual", "the individual", "individual's", and "individ-
uals", respectively. 
(2) Subsection (eX5) of such section is amended by striking "a 
patient" each place it appears and inserting "an individual". 
(h) CLARIFICATION OF "EMERGENCY MEDICAL CONDITION" DEFINI-
TION.— 
(1) IN GENERAL.—Subsection (e) of such section (as amended by 
section 6003(gX3XD)(xiv)) is amended— 
(A) in paragraph (1), by striking "means" and all that 
follows and inserting the following: 
' 
"means— 
"(A) a medical condition manifesting itself by acute symp-
• ^ 
toms of sufficient severity (including severe pain) such that 
^ the absence of immediate medical attention could reason-
• ably be expected to result in— 
"(i) placing the health of the individual (or, with 
respect to a pregnant woman, the health of the woman 
or her unborn child) in serious jeopardy, 
"(ii) serious impairment to bodily functions, or 
"(iii) serious dysfunction of any bodily organ or part; 
1 
or 
"(B) with respect to a pregnant women who is having 
contractions— 
"(i) that there is inadequate time to effect a safe 
transfer to another hospital before delivery, or 
"
^
^ -
^
^ 
"(ii) that transfer may pose a threat to the health or 
• 
safety of the woman or the unborn child."; 
(B) by striking paragraph (2); 
^. 
- 
(C) in paragraph (4XA)— 
(i) by inserting "described in paragraph (IXA)" after 
"emergency medical condition", 
(ii) by inserting "or occur during" after "likely to 
result from", 
(iii) by inserting before the period at the end the 
following: ", or, with respect to an emergency medical 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2249 
, ;. 
condition described in paragraph (IXB), to deliver 
(including the placenta)"; 
(D) in parc^aph (4XB)— 
,; 
(i) by inserting "described in paragraph (IXA)" after 
"emergency medical condition", 
(ii) by inserting "or occur during" after "to result 
r 
from", and 
(iii) by inserting before the period at the end the 
following: ", or, with respect to an emergency medical 
condition described in paragraph (IXB), that the 
^ 
woman has delivered (including the placenta)"; and 
(E) by redesignating paragraphs (3) through (6) as para-
graphs (2) through (5), respectively. 
(2) CONFORMING 
AMENDMENTS.—Such section is 
further 
amended— 
(A) in the heading, by striking "ACTIVE"; 
(B) in subsection (a), by striking "or to determine if the 
individual is in active labor (within the meaning of section 
(eX2))"; 
(C) in the heading of subsection (b), by striking "ACTIVE"; 
(D) in subsection (bXD— 
(i) by striking "or is in active labor", and 
(ii) in subparagraph (A), by striking "or to provide for 
treatment of the labor"; and 
(E) in subsection (cXD, by striking "(eX4XB)) or is in active 
labor" and inserting "(eX3XB))". 
(i) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on the first day of the first month that begins more than 
180 days after the date of the enactment of this Act, without regard 
to whether regulations to carry out such amendments have been 
promulgated by such date. 
SEC. 6212. HEALTH MAINTENANCE ORGANIZATIONS AND COMPETITIVE 
MEDICAL PLANS. 
(a) TEMPORARY WAIVER FOR WATTS HEALTH FOUNDATION.—Section 
9312(cX3XD) of the Omnibus Budget Reconciliation Act of 1986, as 
added by section 4018(d) of the Omnibus Budget Reconciliation Act 
of 1987, is amended— 
(1) in clause (i), by striking "January 1, 1990" and inserting 
, "January 1,1994"; and 
(2) by amending clauses (ii) and (iii) to read as follows: 
"(ii) beginning on January 1. 1990, the Secretary of 
Health and Human Services snail conduct an annual 
review of the organization to determine the organiza-
tion's compliance with the quality assurance require-
ments of section 1876(cX6) of such Act; and 
"(iii) after January 1, 1990, if the organization re-
ceives an unfavorable review under clause (ii), the 
Secretary, after notice to the organization of the un-
^, 
favorable review and an opportunity to correct any 
deficiencies identified during the review, may provide 
for the sanction described in section 1876(fXo) of such 
Act effective with respect to individuals enrolling with 
the organization after the date the Secretary notices 
the organization that the organization is not in compli-
, ance with the requirements of section 1876(cX6) of such 
Act.". 
42 use 1395dd 
note. 
42 use 1395mm 
note. 
42 use 1320a-7a 
note. 
103 STAT. 2250 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395mm 
note. 
42 use 1395mm 
note. 
42 use 1395mm 
note. 
(b) LIMIT ON CHARGES POR EMERGENCY SERVICES AND OUT-OF-AREA 
COVERAGE.— 
(1) IN GENERAL.—Section 1876 of the Social Security Act (42 
•
* U.S.C. 1395mm) is emiended by adding at the end the following 
new subsection: 
"(JXIXA) In the case of physicians' services described in paragraph 
(2) which are furnished by a participating physician to an individual 
enrolled with an eligible organization under this section and en-
rolled under part B, the participation agreement under section 
1842(hXl) is deemed to provide that the physician will accept as 
pa}mient in full from the eligible organization the amount that 
would be payable to the physician under part B and from the 
individual under such part, if the individual were not enrolled with 
an eligible organization under this section. 
"(B) In the case of physicians' services described in paragraph (2) 
which are furnished by a nonparticipating physician, the limitations 
on actual charges for such services otherwise applicable under part 
B (to services furnished by individuals not enrolled with an eligible 
organization under this section) shall apply in the same manner as 
such limitations apply to services furnished to individuals not en-
rolled with such an organization. 
"(2) The physicians' services described in this paragraph are 
physicians' services which— 
"(A) are emergency services or out-of-area coverage (described 
in clauses (iii) and (iv) of subsection (bX2XA)), and 
"(B) are furnished to an enroUee of an eligible organization 
under this section by a person who is not under a contract with 
the organization.". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to services furnished on or after April 1, 1990. 
(c) MAKING AUTHORITY FOR BENEFIT STABILIZATION FUND PERMA-
NENT.— 
(1) REPEAL ON UMITATION ON ESTABUSHMENT OF A FUND.— 
Section 2350(b) of the Deficit Reduction Act of 1984 (Public Law 
98-369) is amended by striking paragraphs (3) and (4). 
(2) REPEAL ON UMITING PERIOD OF USE.—Section 1876(gX5) of 
the Social Security Act (42 U.S.C. 1395mm(gX5)) is amended bv 
striking "and during a period of not longer than four years'. 
(3) EFFECTIVE DATE.—"The amendments made by this subsec-
tion shall take effect on the date of the enactment of this Act. 
SEC. 6213. RURAL HEALTH CLINIC SERVICES. 
(a) STAFFING REQUIREMENTS; INCLUSION OF NURSE-MIDWIFE SERV-
ICES.—Section 1861(aaX2) of the Social Security Act (42 U.S.C. 
1395x(aaX2)) is amended— 
(1) by striking "; and" at the end of subparagraph (I) and 
inserting a semicolon; 
(2) by redesignating subparagraph (J) as subparagraph (K); 
and 
(3) by inserting after subparagraph (I) the following new 
; subparagraph: 
"(J) has a nurse practitioner, a physician assistant, or a 
certified nurse-midwife (as defined in subsection (gg)) available 
to furnish patient care services not less than 50 percent of the 
time the clinic operates; and". 
(b) COVERAGE OF SOCIAL WORKER SERVICES.—Section 1861(aaXl)(B) 
of such Act (42 U.S.C. 1395x(aaXlXB)) is amended— 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2251 
(1) by striking "or" before "b/'; and 
(2) by inserting "or by a clinical social worker (as defined in 
subsection (hhXD)," after "Secretary)". 
(c) EbcPANSiON OF EuGiBLE AREAS.—^The second sentence of section 
1861(aaX2) of such Act is amended— 
(1) by striking "designated by the Secretary" and inserting 
"designated by the chief executive officer of the State and 
certified by the Secretary as an area with a shortage of personal 
health services, or that is designated by the Secretary"; 
(2) by striking "section 1302(7) of the Public Health Service 
Act or" and inserting "section 330(bX3) or 1302(7) of the Public 
Health Service Act,"; and 
(3) by striking "medical care manpower," and inserting the 
following: "medical care manpower, (m) as a high impact area 
described in section 329(aX5) of that Act, or (IV) as an area 
which includes a population group which the Secretary deter-
mines has a health manpower shortage under section 
332(aXlXB) of that Act,". 
(d) EFFECTIVE DATE.—^The amendments made by subsections (a) 
through (c) of this section shall take effect October 1,1989. 
(e) DISSEMINATION OF RURAL HEALTH CUNIC INFORMATION.— 
(1) IN GENERAL.—Not later than 60 days after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services, in consultation with the Director of the Office of Rural 
Health Policy, shall disseminate to health care facilities and to 
the chief executive officer, chief health officer, and chief human 
services officer of each State, applications and other necessary 
information to enable such a facility to apply for designation as 
a rural health clinic for the purposes of titles XVIII and XIX of 
the Social Security Act. 
(2) DEFINITIONS.—For purposes of this subsection: 
(A) The term "health care facility" means a community 
health center or a migrant health center, or a hospital, 
home health agency, or skilled nursing facility participat-
ing in a program established under title XVIII or title XIX 
of the Social Security Act. 
(B) The term "State" includes the District of Columbia, 
the Commonwealth of Puerto Rico, the Virgin Islands, 
Guam, and American Samoa. 
(f) TREATMENT OF CERTAIN FACILITIES AS RURAL HEALTH (DLINICS.— 
The Secretary of Health and Human Services shall not deny certifi-
cation of a facility as a rural health clinic under section 1861(aaX2) 
of the Social Security Act if the facility is located on an island and 
would otherwise be qualified to be certified as such a facility but for 
the requirement that the services of a physician assistant or nurse 
practitioner be provided in the facility. 
(g) EbcPANSiON OF FUNCTIONS OF OFFICE OF RURAL 
HEALTH 
PoucY.—Section 711(b) of the Social Security Act (42 U.S.C. 912(b)) 
is amended— 
(1) in paragraph (2XA), by striking "health care issues" and 
inserting "heiedth care issues, including rural mental health, 
rural infant mortality prevention, and rural occupational safety 
and preventive health promotion"; 
(2) in paragraph (2XC), by striking "rural areas" and inserting 
"rural areas, including programs providing community-based 
mental health services, pre-natal and infant care services, and 
42 use 1395x. 
42 use 1395x 
note. 
State and local 
governments. 
42 use 1395x 
note. 
42 use 1395x 
note. 
103 STAT. 2252 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395pp 
note. 
42 use 1395h 
note. 
42 use 1395h 
note. 
rural occupational safety and preventive health education and 
promotion"; and 
(3) in paragraph (4), by striking "rural health care" and 
inserting "rural health care, including activities relating to 
rural mental health, rural infant mortality, and rural occupa-
tional safety and preventive health promotion". 
SEC. 6214. DETERMINING ELIGIBILITY OF HOME HEALTH AGENCIES FOR 
WAIVER OF LIABILITY FOR DENIED CLAIMS. 
(a) SCOPE OF WAIVER AND DETERMINATION OF DENIED CLAIM.— 
Section 1879(f) of the Social Security Act (42 U.S.C. 1395pp(f)) is 
amended— 
(1) in paragraph (1), by striking "with respect to" and all that 
follows and inserting a period; and 
(2) in paragraph (4), by striking "(4) The requirement" and 
inserting "(4XA) The requirement", and by adding at the end 
the following new subparagraph: 
"(B) For purposes of determining the rate of denial of bills for a 
home health agency under subparagraph (A), a bill shall not be 
considered to be denied until the expiration of the 60-day period that 
begins on the date such bill is denied by the fiscal intermediary, or, 
with respect to such a denial for which the agency requests re-
consideration, until the fiscal intermediary issues a decision denying 
payment for such bill.". 
(b) MONITORING OF DENIED CLAIMS.—Section 1879(f) of such Act 
(42 U.S.C. 1395pp(f)) is amended by adding at the end the following 
new paragraph: 
"(6) The Secretary shall monitor the proportion of denied bills 
submitted by home health agencies for which reconsideration is 
requested, and shall notify Congress if the proportion of denials 
reversed upon reconsideration increases significantly.". 
(c) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to determinations for quarters beginning on or after the 
date of the enactment of this Act. 
SEC. 6215. EXTENSION OF AUTHORITY TO CONTRACT WITH FISCAL 
INTERMEDIARIES AND CARRIERS ON OTHER THAN A COST 
BASIS. 
(a) IN GENERAL.—Section 2326(a) of the Deficit Reduction Act of 
1984 is amended— 
(1) in the first sentence, by striking "fiscal year 1989" and 
inserting "fiscal year 1993", 
(2) in the second sentence, by striking "over a period of time" 
and inserting "over a 2-year period of time", and 
(3) by inserting £ifter the second sentence the following: "In 
addition, during such period the Secretary may enter into such 
additional agreements and contracts without regard to such cost 
reimbursement provisions if the fiscal intermediary or carrier 
involved and the Secretary agree to waive such provisions, but 
the Secretary may not take any action that has the effect of 
requiring that the intermediary or carrier agree to waive such 
provisions, including requiring such a waiver as a condition for 
entering into or renewing such an agreement or contract.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply beginning vrith fiscal year 1990. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2253 
SEC 6216. EXPANSION OF RURAL HEALTH MEDICAL EDUCATION DEM-
ONSTRATION PROJECT. 
(a) NUMBER OF PROJECTS.—Section 4038(a) of the Omnibus Budget 
Reconciliation Act of 1987 is amended by striking "four sponsoring 
hospitals" and inserting "10 sponsoring hospitals". 
(b) SELECTION OP NEW PROJECTS.—Section 4038(c) of such Act is 
amended— 
(1) by striking "In selecting" and inserting "(1) In selecting"; 
(2) by redesignating paragraphs (1) and (2) as subparagraphs 
(A) and (B); and 
(3) by adding at the end the following new paragraph: 
"(2) The provisions of paragraph (1) shall not apply with respect to 
applications submitted as a result of amendments made by section 
6216 of the Omnibus Budget Reconciliation Act of 1989.". 
(c) COMMENCEMENT OF NEW PROJECTS.—Section 4038(e) of such 
Act is amended by inserting "(or the date of the enactment of the 
Omnibus Budget Reconciliation Act of 1989, in the case of a project 
conducted as a result of the amendments made by section 6216 of 
such Act)" after "this Act". 
SEC. 6217. INNER-CITY HOSPITAL TRUGE DEMONSTRATION PROJECT. 
(a) EsTABUSHMENT.—The Secretary of Health and Human Serv-
ices shall establish a demonstration project in a public hospital that 
is located in a large urban area and that has established a triage 
system, under which the Secretary shall make payments for 3 years 
to reimburse the hospital for the reasonable costs of operating the 
system, including costs— 
(1) to train hospital personnel to operate and participate in 
, 
the system; and 
(2) to provide services to patients who might otherwise be 
denied appropriate and prompt care. 
(b) LIMITATIONS ON PAYMENT.--(1) The Secretary may not make 
payment under the demonstration project established under subsec-
tion (a) for costs that the Secretary determines are not reasonable. 
(2) The amount of pajonent made under the demonstration project 
during a single year may not exceed $500,000. 
SEC. 6218. G
A
O STUDY OF ADMINISTRATIVE COSTS OF MEDICARE PRO-
GRAM. 
(a) STUDY.—The Comptroller Greneral shall conduct a study of the 
administrative burden of medicare regulations and program 
requirements on providers of services, fiscal intermediaries, and 
carriers, and shall include in such study— 
(1) an assessment of current administrative costs to such 
entities and of trends in such administrative costs since 1982; 
and 
(2) a comparison of the administrative burden to such entities 
in providing services to individuals who are not medicare bene-
ficiaries. 
For purposes of such assessment, administrative costs shall include 
personnel costs, training costs, the costs of data and communications 
systems as affected by changes in requirements of the medicare 
program, and costs to such entities of non-compliance with such 
requirements resulting from the failure of the Secretary of Health 
and Human Services to provide entities with adequate notice of 
changes in program requirements. 
42 u s e 1395WW 
note. 
42 u s e 1
3
9
5
W
W 
note. 
103 STAT. 2254 
PUBLIC LAW 101-239—DEC. 19, 1989 
(b) REPORT.—Not later than March 31, 1990, the Comptroller 
General shall submit a report to the Committees on Ways and 
Means and Energy and Commerce of the House of Representatives 
«£ . 
., 
and the Committee on Finance of the Senate on the study conducted 
under subsection (a). 
SEC. 6219. PROVISIONS RELATING TO END STAGE RENAL DISEASE SERV-
ICES. 
(a) FLEXIBILITY IN FUNDING E S R D NETWORK ORGANIZATIONS.— 
The last sentence of section 1881(b)(7) of the Social Security Act (42 
U.S.C. 1395rr(bX7)) is amended by striking "network administra-
tive" and all that follows and inserting the following: "organizations 
(designated under subsection (cXlXA)) for such organizations' nec-
essary and proper administrative costs incurred in carrying out the 
responsibilities described in subsection (c)(2). The Secretary shall 
provide that amounts paid under the previous sentence shall be 
distributed to the organizations described in subsection (c)(1)(A) to 
ensure equitable treatment of all such network organizations. The 
. 
Secretary in distributing any such payments to network organiza-
,,. 
tions shall take into account— 
"(A) the geographic size of the network area; 
' 
' 
-
"(B) the number of providers of end stage renal disease 
services in the network area; 
"(C) the number of individuals who are entitled to end stage 
w; renal disease services in the network area; and 
"(D) the proportion of the aggregate administrative funds 
collected in the network area.". 
(b) LIABILITY PROTECTION FOR ESRD NETWORK ORGANIZATIONS 
AND PROHIBITION AGAINST DISCLOSURE OF INFORMATION.—Section 
1881(c) of such Act (42 U.S.C. 1395rr(c)) is amended by adding at the 
end the following new paragraph: 
"(8) The provisions of sections 1157 and 1160 shall apply with 
respect to network administrative organizations (including such 
organizations as medical review boards) with which the Secretary 
h£is entered into agreements under this subsection.". 
(c) REPORT ON PAYMENT FOR ERYTHROPOIETIN (EPO).—Not later 
than April 1, 1990, the Secretary of Health and Human Services 
shall submit a report to the Committees on Ways and Means and 
Energy and Commerce of the House of Representatives and the 
Committee on Finance of the Senate and to the Comptroller General 
on the methodology and rationale used to establish a payment rate 
for the drug erythropoietin (EPO) under title XVIII of the Social 
Security Act and shall include in the report (1) a summary of 
information provided to the Secretary by the manufacturer of EPO 
and used by the Secretary to establish such rate and (2) a plan for 
ensuring the appropriateness of such rate in the future. 
SEC. 6220. AMENDMENTS RELATING TO THE UNITED STATES BIPARTISAN 
COMMISSION ON COMPREHENSIVE HEALTH CARE. 
(a) COMMISSION NAME.—Section 401 of the Medicare Catastrophic 
42 use 1395b 
Coverage Act of 1988 is amended by inserting before the period at 
note. 
the end the following: "and also to be known as the 'Claude Pepper 
Commission' or the 'Pepper Commission' ". 
42 use 1395b 
(b) 4 ViCE CHAIRMEN.—Section 4030t)) of such Act is amended— 
note. 
(1) by striking "VICE CHAIRMAN" and inserting "VICE CHAIR-
MEN"; and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2255 
(2) by striking "vice chairman" and inserting "4 vice chair-
men". 
(c) ADDITIONAL MAIUNG PRiviLEGE.--Section 405(f) of such Act is 
amended by inserting before the period at the end the following: ", 
and shall, for purposes of the frank, be considered a commission of 
Congress as described in section 3215 of title 39, United States 
Code". 
(d) PRINTING OF REPORTS.—Section 405 of such Act is further 
amended by adding at the end the following new subsection: 
"(j) PRINTING.—For purposes of costs relating to printing and 
binding, including the costs of personnel detailed from the Govern-
ment Printing Office, the Commission shall be deemed to be a 
committee of the Congress.". 
(e) REPORT DEADUNES.—Section 406 of such Act is amended— 
(1) in each of subsections (a) and 01)), by striking ", not later 
than" and all that follows through "for the Commission,"; and 
(2) by adding at the end the following new subsection: 
"(c) DEADUNES.—The two reports required under this section shall 
be submitted concurrently by not later than November 9, 1989.". 
SEC. 6221. NATIONAL COMMISSION ON CHILDREN. 
Section 1139 of the Social Security Act (42 U.S.C. 1320b-9) is 
amended— 
(1) in subsection (d)— 
(A) by striking "September 30, 1988" and inserting 
"March 31,1990"; and 
(B) by striking "March 31, 1990" and inserting "March 
31,1991"; 
(2) in subsection (e), by striking "September 30, 1990" and 
inserting "March 31,1991"; 
(3) in subsection (j), by striking "such sums" and inserting 
"through fiscal year 1991, such sums"; and 
(4) by adding at the end thereof the following new subsections: 
"(kXl) The (Dommission is authorized to' accept donations of 
money, property, or personal services. Funds received from dona-
tions shall be deposited in the Treasury in a separate fund created 
for this purpose. Funds appropriated for the Commission and do-
nated funds may be expended for such purposes as official reception 
and representation 
expenses, public surveys, public service 
announcements, preparation of special papers, analyses, and docu-
mentaries, and for such other purposes as determined by the 
(Commission to be in furtherance of its mission to review national 
issues affecting children. 
"(2) For purposes of Federal income, estate, and gift taxation, 
money and other property accepted under paragraph (1) of this 
subsection shall be considered as a gift or bequest to or for the use of 
the United States. 
"(3) Expenditure of appropriated and donated funds shall be 
subject to such rules and regulations as may be adopted by the 
(Commission and shall not be subject to Federal procurement 
requirements. 
"(1) The Commission is authorized to conduct such public surveys 
as it deems necessaiy in support of its review of nationed issues 
affecting children and, in conducting such surve3rs, the Commission 
shall not be deemed to be an 'agency^ for the purpose of section 3502 
of title 44, United States Ckxle.". 
42 use 1395b 
note. 
42 use 1395b 
note. 
Gifts and 
property. 
103 STAT. 2256 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395x 
SEC. 6222. CONTINUED USE OF HOME HEALTH WAGE INDEX IN EFFECT 
note. 
PRIOR TO JULY 1,1989, UNTIL AFTER JULY 1,1991. 
Notwithstanding the requirement of section 1861(vXlXLXiii) of the 
Social Security Act, the Secretary of Health and Human Services 
shall, in determining the limits of reasonable costs under title XVIII 
of the Social Security Act with respect to services furnished by home 
health agencies, continue to utilize the wage index that was in effect 
for cost reporting periods beginning before July 1, 1989, until cost 
reporting periods beginning on or after July 1,1991. 
SEC. 6223. HCFA PERSONNEL STUDY. 
(a) IN GENERAL.—The Secretary of Health and Human Services 
shall (subject to subsection (c)) enter into an agreement with the 
National Academy of Public Administration (hereafter in this sec-
tion referred to as the "Academy") to— 
(1) study personnel administration at the Health Care Financ-
ing Administration (hereafter in this section referred to as 
"HCFA"); 
(2) assess the adequacy of HCFA staffing; and 
(3) recommend any needed changes with respect to HCFA 
staffing to the Secretary of Health and Human Services and the 
(Dongress. 
(b) REQUIREMENTS OF STUDY.—In conducting the study, the Acad-
emy shail interview management officials at HCFA and other 
appropriate agencies. The study shall include consideration of— 
(1) the average years in service, years to retirement and 
average age of various categories of HC^FA personnel; 
(2) the adequacy of HCFA practices to recruit personnel to 
replace persons who retire or resign and train new employees in 
the intricacies of HCFA programs; 
(3) the grade structure of various categories of HCFA person-
nel, and the need for additional nonsupervisoir positions at the 
GS-13, GS-14, and GS-15 levels for particularly skilled and 
expert personnel needed for HCFA to carry out its missions; 
(4) the grade structure at HCFA with Federal agencies of 
,; similar size and responsibilities; 
(5) whether bonus payments or other incentives are needed 
for HCFA to recruit and retain specialized personnel; 
« 
(6) particular problems in hiring personnel that may prevent 
/ recruitment and retention of qualified staff; 
(7) Office of Personnel Management rules that may be 
^ 
burdensome to the hiring process; and 
(8) how HCFA can more appropriately address the priorities 
of both Congress and the executive branch of Government. 
(c) ARRANGEMENTS FOR STUDY,—The Secretary shall request the 
Academy, acting through appropriate units, to submit an applica-
tion to conduct the study described in this section. If the Academy 
submits an acceptable application, the Secretary shall enter into an 
appropriate arrangement with the Academy for the conduct of the 
study. If the Academy does not submit an acceptable application to 
conduct the study, the Secretary may request one or more appro-
priate nonprofit private entities to submit an application to conduct 
the study and may enter into an appropriate arrangement for the 
conduct of the study by the entity which submits the best acceptable 
application. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2257 
42 u s e 1320C-3 
note. 
(d) DATE OF REPORT.—The results of the study shall be reported to 
Congress and the Secretary of Health and Human Services no later 
than December 31,1990. 
SEC. 6224. PEER REVIEW ORGANIZATIONS. 
(a) PEER REVIEW OF NON-PHYSICIAN SERVICES.— 
(1) IN GENERAL.—Section 1154(aXl) of the Social Security Act 
(42 U.S.C. 1320c-3(aXl)) is amended by adding at the end the 
following: 
"If the organization performs such reviews with respect to a 
type of health care practitioner other than medical doctors, the 
organization shall establish procedures for the involvement of 
health care practitioners of that type in such reviews.". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shaU apply to contracts entered into after the date of the 
enactment of this Act. 
(b) PROVIDER AND PRACTITIONER RIGHT TO RECONSIDERATION OF 
PRO DETERMINATION BEFORE NOTICE TO BENEFICIARY.— 
(1) IN GENERAL.—Section 1154(aX3) of the Social Security Act 
(42 U.S.C. 1320c-3(aX3)) is amended— 
(A) in subparagraph (A), by striking "subparagraph (B)" 
and inserting "subparagraphs (B) and (D)", 
(B) in subparagraph (B), by inserting "with respect to 
services or items disapproved by reason of subparagraph (A) 
or (
C
J
) of paragraph (1)" after "under subparagraph (A)", 
and 
(
C
D
) by adding at the end the following new subpara-
graphs: 
"CD) The notification under subparagraph (A) with respect to 
services or items disapproved by reason of paragraph (IXB) shall 
not occur until after— 
"(i) the organization has notified the practitioner or pro-
vider involved of the determination and of the practition-
er's or provider's right to a formal reconsideration of the 
determination under section 1155, and 
"(ii) if the provider or practitioner requests such a re-
consideration, the organization has made such a reconsider-
ation. 
If a provider or practitioner is provided a reconsideration, such 
reconsideration shall be in lieu of any subsequent reconsider-
ation to which the provider or practitioner may be otherwise 
entitled under section 1155, but shall not afTect the right of a 
beneficiary from seeking reconsideration under such section of 
the organization's determination (after any reconsideration re-
quested by the provider or physician imder clause (ii)). 
"(E) In the case of services and items disapproved by reason of 
paragraph (1)(B), the notice to the patient shall state the follow-
ing: 'In the judgment of the peer review organization, the 
medical care received was not acceptable under the medicare 
program. The reasons for the denial have been discussed with 
your physician and hospital.*.". 
" 
(2) CONFORMING AMENDMENT.—Section 1155 of such Act (42 
U.S.C. 1320C-5) is amended by inserting ", subject to section 42 USC 1320c-4 
1154(aX3)(D)," before "any practitioner or provider". 
«
> 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
s.- tion shall apply to determinations by utilization and quality 
control peer review organizations with respect to which prelimi-
42 USC 1320C-3 
note. 
103 STAT. 2258 
PUBLIC LAW 101-239—DEC. 19,1989 
nary notifications were made under section 1154(aX3XB) of the 
Social Security Act more than 30 days after the date of the 
enactment of this Act. 
PART 4—PART B PREMIUM 
SEC. 6301. PART B PREMIUM. 
Section 1839(e) of the Social Security Act (42 U.S.C. 1395r(e)) is 
amended by striking "1990" each place it appears and inserting 
"1991". 
Subtitle B—Medicaid 
PART 1—GENERAL PROVISIONS 
SEC. 6401. MANDATORY COVERAGE OF CERTAIN LOW-INCOME PREGNANT 
WOMEN AND CHILDREN. 
(a) IN GENERAL.—Section 1902 of the Social Security Act (42 U.S.C. 
1396a) is amended— 
(1) in subsection (aXlOXAXi)— 
(A) by striking "or" at the end of subclause (IV), 
A ; 
(B) by striking the semicolon at the end of subclause (V) 
and inserting ", or", and 
(C) by adding at the end the following new subclause: 
"(VI) who are described in subparagraph (C) of 
subsection (1X1) and whose family income does not 
exceed the income level the State is required to 
establish under subsection (1X2XB) for such a 
family;"; 
(2) in subsection (aXlOXAXiiXIX), by inserting "or clause 
(iXVI)" after "clause (iXIV)"; 
(3) in subsection (IXD— 
(A) by striking "and" at the end of subparagraph (B), and 
(B) by striking subparagraph (C) and inserting the follow-
ing: 
"(C) children who have attained one year of age but have not 
attained 6 years of age, and 
"(D) at the option of the State, children born 
after 
September 30, 1983, who have attained 6 years of age but have 
not attained 7 or 8 years of age (as selected by the State),"; 
(4) in subsection (1X2XA)— 
(A) in clause (ii), by amending subclause (II) to read as 
follows: 
"(II) April 1, 1990, 133 percent, or, if greater, the percentage 
provided under clause (iv)."; and 
(B) by adding at the end the following new clause: 
"(iv) In the case of a State which, as of the date of the enactment 
of this clause, has established under clause (i), or has enacted 
legislation authorizing, or appropriating funds, to provide for, a 
percentage (of the income official poverty line) that is greater than 
; 133 percent, the percentage provided under clause (ii) for medical 
assistance on or after April 1,1990, shall not be less than— 
"(I) the percentage specified by the State in an amendment to 
its State plan (whether approved or not) as of the date of the 
enactment of this clause, or 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2259 
"(11) if no such percentage is specified as of the date of the 
enactment of this clause, the percentage established under the 
State's authorizing legislation or provided for under the State's 
appropriations."; 
(5) in subparagraph (B) of subsection GX2)— 
(A) by striUng ", or , if less, the percentage established 
under subparc^aph (A)", and 
(B) by redesignating such subparagraph as subparagraph 
(C); 
(6) in subsection (1X2), by inserting after subparagraph (A) the 
following new subparagraph: 
"(B) For purposes of paragraph (1) with respect to individuals 
described in subparagraph (C) of such paragraph, the State shall 
establish an income level which is equal to 133 percent of the income 
official poverty line described in subparagraph (A) applicable to a 
family of the size involved,"; 
(6) in subsection (1X3)— 
(A)byinserting",(aX10XAXiXVI),"after"(aX10XAXiXIV)", 
and 
(B) in subparagraph (C), by striking "or (C)" and inserting 
"ACXoriDt; 
(7) in subsection (1X4)— 
• 
(A) in subparagraph (A), by inserting "and for children 
described 
in 
subsection 
(aX10XAXi)(VI)" 
after 
"(aXlOXAXiXIV)", and 
(B) in subparagraph (B), by insertmg "or (aXlOXAXiXVI)" 
after "(aXlOXAXiXIV)"; 
(8) in subsection (eX7), by striking "or (€)" and inserting ", (C), 
^ 
or (D)"; and 
(9) in subsection (rX2XA), by mserting "(aXlOXAXiXVI)," after 
"(aXlOXAXiXIV),". 
(b) CONFORMING AMENDMENT.—Section 1903(fX4) of such Act (42 
U.S.C. 1396b(fX4)) is amended by inserting "1902(aX10XAXiXVI)," 
after "1902(aX10XAXiXIV),". 
(c) EFFECTTIVE DATE.— 
42 use 1396a 
(1) Except as provided in paragraph (2), the amendments »
<
>
<
»
. 
made by this section shall applv to payments under title XIX of 
the Social Security Act for calendar quarters beginning on or 
after April 1, 1990, with respect to eligibilitv for medical assist-
ance on or after such date, without regard to whether or not 
final regulations to carry out such amendments have been 
promulgated by such date. 
(2) In the case of a State plan for medical assistance under 
title XIX of the Social Security Act which the Secretary of 
Health and Human Services determines requires State legisla-
tion (other than legislation appropriating funds) in order for the 
plan to meet the additional requirements imposed by the 
amendments made by this section, the State plan shall not be 
regarded as failing to comply with the requirements of such 
title solely on the basis of its failure to meet these additional 
requirements before the first day of the first calendar quarter 
beginning after the close of the first regular session of the State 
legislature that begins after the date of the enactment of this 
Act. For purposes of the previous sentence, in the case of a State 
that has a 2-year legislative session, each year of such session 
shall be deemed to be a separate regular session of the State 
legislature. 
103 STAT. 2260 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. €402. PAYMENT FOR OBSTETRICAL AND PEDIATRIC SERVICES. 
(a) CODIFICATION OP ADEQUATE PAYMENT LEVEL PROVISIONS.—Sec-
tion 
1902(aX30XA) of 
the 
Social 
Security 
Act 
(42 U.S.C. 
1396a(aX30XA)) is amended by inserting before the semicolon at the 
end the following: "and are sufficient to enlist enough providers so 
that care and services are available under the plan at least to the 
extent that such care and services are available to the general 
population in the geographic area". 
(b) ASSURING ADEQUATE PAYMENT LEVELS FOR OBSTETRICAL AND 
PEDIATRIC SERVICES.—Title XIX of such Act, as amended by section 
303 of the Family Support Act of 1988, is amended by redesignating 
42 use 13968. 
section 1926 as section 1927 and by inserting after section 1925 the 
following new section: 
"ASSURING ADEQUATE PAYMENT LEVELS FOR OBSTETRICAL AND 
PEDIATRIC SERVICES 
42USCl396r-7. 
"SEC. 1926. (aXD A State plan under this title shall not be 
considered to meet the requirement of section 1902(aX30XA) with 
respect to obstetrical services (as defined in paragraph (4XA)), as of 
July 1 of each year (beginning with 1990), unless, by not later than 
April 1 of such year, the State submits to the Secretary an amend-
ment to the plan that specifies the payment rates to be used for such 
services under the plan in the succeeding period and includes in 
such submission such additional data as wUl assist the Secretary in 
evaluating the State's compliance with such requirement, including 
data relating to how rates established for payments to health 
maintenance organizations under section 1903(m) take into account 
such payment rates. 
"(2) A State plan under this title shall not be considered to meet 
the requirement of section 1902(aX30XA) with respect to pediatric 
services (as defined in paragraph (4XB)), as of July 1 of each year 
(beginning with 1990), unless, by not later than Apnl 1 of such year, 
the State submits to the Secretary an amendment to the plan that 
specifies, by pediatric procedure, the payment rates to be used for 
such services under the plan in the succeeding period and includes 
in such submission such additional data as will assist the Secretary 
in evaluating the State's compliance with such requirement, includ-
ing data relating to how rates established for payments to health 
maintenance organizations under section 1903(m) take into account 
such payment rates. 
"(3) The Secretary, by not later than 90 days after the date of 
submission of a plan amendment under paragraph (1) or (2), shall— 
"(A) review each such amendment for compliance with the 
requirement of section 1902(aX30XA), and 
(B) approve or disapprove each such amendment. 
If the Secretary disapproves such an amendment, the State shall 
immediately submit a revised amendment which meets such 
requirement. 
(4) In this section: 
"(A) The term 'obstetrical services' means services relating to 
pregnancy covered under the State plan provided by an obstetri-
cian, olx3tetrician-g3mecologist, family practitioner, certified 
nurse midwife, or certified family nurse practitioner and does 
not include inpatient or outpatient hospital services or other 
institutional services. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2261 
"(B) The term 'pediatric services' means services covered 
under the State plan provided by a pediatrician, family practi- 
v 
tioner, or certified pediatric nurse practitioner to children 
under 18 years of age and does not include inpatient or out-
patient hospital services or other institutional services. 
"(b) For amendments submitted under subsection (aXl) in 1992 
and thereafter, the data submitted under such subsection must 
include, for the second previous year, at least the statewide average 
payment rates under the State plan for obstetrical services 
furnished 
by 
obstetricians, 
obstetrician-gynecologists, 
family 
practitioners, certified family nurse practitioners, and certified 
nurse midwives, by procedure. Such information shall be provided 
separately for providers located in each metropolitan statistical area 
(or similar area) in the State and in the remainder of the State. 
"(c) For amendments submitted under subsection (aX2) in 1992 
and thereafter, the data submitted under such subsection must 
include, for the second previous year, at least the statewide average 
payment rates under the State plan for pediatric services furnished 
^-
by pediatricians, family practitioners, and certified pediatric nurse 
practitioners by procedure. Such information shall be provided sepa-
rately for providers located in each metropolitan statistical area (or 
similar area) in the State and in the remainder of the State. 
"(d) Nothing in this title (including section 1902(aX30XA)) shall be 
construed as preventing a State from establishing payment levels 
for obstetrical or pediatric services that are higher for those services 
furnished in rural areas than those furnished in metropolitan statis-
tical areas.". 
(c) PAYMENT FOR CERTAIN SERVICES IN CERTAIN FEDERALLY 
-^ 
FUNDED HEALTH CENTERS.— 
(1) COVERAGE.—Section 1905(aX2) of the Social Security Act 
(42 U.S.C. 1396d(aX2)) is amended by striking "and" before "(B)" 
and by inserting before the semicolon at the end the following: 
, 
", and (C) ambulatory services offered by a health center receiv-
ing funds under section 329, 330, or 340 of the Public Health 
Service Act to a pregnant woman or individual under 18 years 
of age". 
(2) PAYMENT AMOUNTS.—Section 1902(aX13XE) of such Act (42 
U.S.C. 1396a(aX13XE)) is amended by inserting ", and for pay-
ment for services described in section 1905(aX2)(C) under the 
plan," after "provided by a rural health clinic under the plan". 
(d) EFFECTIVE DATE.—(1) The amendments made by subsections (a) 42 use I396a 
and (b) (except £is otherwise provided in such amendments) shall ^°^-
take effect on the date of the enactment of this Act. 
(2XA) The amendments made by subsection (c) apply (except as 
provided under subparagraph (B)) to payments under title XIX of 
the Social Security Act for calendar quarters beginning on or after 
July 1, 1990, without regard to whether or not final regulations to 
carry out such amendments have been promulgated by such date. 
(B) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 
Human Services determines requires State legislation (other than 
legislation appropriating funds) in order for the plan to meet the 
additional requirements imposed by the amendments made by 
subsection (c), the State plan shall not be regarded as failing to 
comply with the requirements of such title solely on the basis of its 
failure to meet these additional requirements before the first day of 
the first calendar quarter beginning after the close of the first 
103 STAT. 2262 
PUBLIC LAW 101-239—DEC. 19, 1989 
regular session of the State legislature that begins after the date of 
the enactment of this Act. For purposes of the previous sentence, in 
the case of a State that has a 2-year legislative session, each year of 
such session shall be deemed to be a separate regular session of the 
State legislature. 
SEC. 6403. EARLY AND PERIODIC SCREENING. DIAGNOSTIC, AND TREAT-
MENT SERVICES DEFINED. 
(a) IN GENERAL.—Section 1905 of the Social Security Act (42 U.S.C. 
1396d) is amended by adding at the end the following new subsec-
tion: 
"(r) The term 'early and periodic screening, diagnostic, and treat-
ment services' means the following items and services: 
"(1) Screening services— 
"(A) which are provided— 
"(i) at intervals which meet reasonable standards of 
medical and dental practice, as determined by the State 
after consultation with recognized medical £ind dental 
organizations involved in child health care, and 
'(ii) at such other intervals, indicated as medically 
necessary, to determine the existence of certain phys-
ical or mental illnesses or conditions; and 
"(B) which shall at a minimum include— 
"(i) a comprehensive health and developmental his-
tory (including assessment of both physical and mental 
health development), 
"(ii) a comprehensive unclothed physical exam, 
"(iii) appropriate immunizations according to age and 
health history, 
N 
"(iv) laboratory tests (including lead blood level 
assessment appropriate for age and risk factors), and 
"(v) health education (including anticipatory guid-
ance). 
"(2) Vision services— 
"(A) which are provided— 
"(i) at intervals which meet reasonable standards of 
medical practice, as determined by the State after con-
sultation with recognized medical organizations in-
volved in child health care, and 
"(ii) at such other intervals, indicated as medically 
tf* 
necessary, to determine the existence of a suspected 
illness or condition; and 
"(B) which shall at a minimum include diagnosis and 
treatment for defects in vision, including eyeglasses. 
"(3) Dental services— 
"(A) which are provided— 
"(i) at intervals which meet reasonable standards of 
dental practice, as determined by the State after con-
sultation with recognized dental organizations involved 
in child health care, and 
"(ii) at such other intervals, indicated as medically 
necessary, to determine the existence of a suspected 
illness or condition; and 
"(B) which shall at a minimum include relief of pain and 
infections, restoration of teeth, and maintenance of dental 
health. 
"(4) Hearing services— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2263 
"(A) which are provided— 
"(i) at intervals which meet reasonable standards of 
medical practice, as determined by the State after con-
' 
sultation with recognized medical organizations in-
volved in child health care, and 
"(ii) at such other intervals, indicated as medically 
necessary, to determine the existence of a suspected 
illness or condition; and 
"(B) which shsdl at a minimum include diagnosis and 
treatment for defects in hearing, including hearing aids. 
"(5) Such other necessary health care, diagnostic services, 
treatment, and other measures described in section 1905(a) to 
' 
i 
correct or ameliorate defects and physical and mental illnesses 
and conditions discovered by the screening services, whether or 
not such services are covered under the State plan. 
Nothing in this title shall be construed as limiting providers of early 
and periodic screening, diagnostic, and treatment services to provid-
ers who are qualified to provide all of the items and services 
described in the previous sentence or as preventing a provider that 
is qualified under the plan to furnish one or more (but not all) of 
such items or services from being qualified to provide such items 
and services as part of early and periodic screening, diagnostic, and 
treatment services.". 
(b) REPORT ON PROVISION OF EPSDT.—Section 1902(aX43) of such 
Act (42 U.S.C. 1396a(aX43)) is amended— 
(1) by striking "and" at the end of subparagraph (B), 
(2) by striking the semicolon at the end of subparagraph (CJ) 
and inserting ", and", and 
(3) by adding at the end the following new subparagraph: 
"(D) reporting to the Secretary (in a uniform form and 
manner established by the Secretary, by age group and by 
basis of eligibility for medical assistance, and by not later 
than April 1 after the end of each fiscal year, beginning 
with fiscal year 1990) the following information relating to 
early and periodic screening, diagnostic, and treatment 
services provided under the plan during each fiscal year: 
"(i) the number of children provided child health 
screening services, 
"(ii) the number of children referred for corrective 
treatment (the need for which is disclosed by such child 
^ 
health screening services), 
"(iii) the number of children receiving dental serv-
ices, and 
"(iv) the State's results in attaining the participation 
goals set for the State under section 1905(r);". 
(c) ANNUAL PARTICIPATION GOALS.—Section 1905(r) of such Act, as 
added by subsection (a), is amended by adding at the end the 
* *
^ 
following: "The Secretary shall, not later than July 1, 1990, and 
every 12 months thereafter, develop and set annual participation 
goals for each State for participation of individuals who are covered 
under the State plan under this title in early and periodic screening, 
diagnostic, and treatment services.". 
(d) CONFORMING AMENDMENTS.—(1) Section 1902(aX43XA) of such 
Act (42 U.S.C. 1396a(aX43XA)) is amended by striking "and treat-
ment services as described in section 1905(aX4)(B)" and inserting 
"and treatment services as described in section 19()5(r)". 
103 STAT. 2264 
PUBLIC LAW 101-239—DEC. 19, 1989 
(2) Section 1905(aX4) of such Act (42 U.S.C. 1396d(aX4)) is amended 
by amending clause (B) to read as follows: "(B) early and periodic 
screening, diagnostic, and treatment services (as defined in subsec-
tion (r)) for individuals who are eligible under the plan and are 
under the age of 21; and". 
42 use 1396a 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on April 1, 1990, without regard to whether or not final 
regulations to carry out such amendments have been promulgated 
by such date. 
SEC. 6404. PAYMENT FOR FEDERALLY-QUALIFIED 
HEALTH 
CENTER 
SERVICES. 
(a) COVERAGE.—Section 1905(aX2) of the Social Security Act (42 
U.S.C. 1396d(aX2)) is amended— 
(1) by striking "and" before "(B)", 
(2) by striking "subsection (1)" and inserting "subsection 
dXD", and 
(3) by inserting before the semicolon at the end the following: 
", and (C) Federally-qualified health center services (as defined 
in subsection (1X2)) and any other ambulatory services offered 
by a Federally-qualified health center and which are otherwise 
included in the plan". 
(b) TERMS DEFINED.—Section 1905(1) of such Act is amended— 
(1) by redesignating clauses (1) and (2) as clauses (A) and (B), 
(2) by inserting "(1)^'after "(1)", and 
(3) by adding at the end the following new paragraph: 
"(2XA) The term 'Federally-qualified healtJi center services' 
means services of the type described in subparagraphs (A) through 
(C) of section 1861(aaXl) when furnished to an individual £is an 
outpatient of a Federally-qualified health center and, for this pur-
pose, any reference to a rural health clinic or a physician described 
in section 1861(aaX2XB) is deemed a reference to a Federally-quali-
fied health center or a physician at the center, respectively. 
"(B) The term 'Federally-qualified health center' means a facility 
which— 
^ 
"(i) is receiving a grant under section 329, 330, or 340 of the 
Public Health Service Act, or 
"(ii) based on the recommendation of the Health Resources 
and Services Administration within the Public Health Service, 
is determined by the Secretary to meet the requirements for 
receiving such a grant. 
/ 
In applying clause (ii), the Secretary may waive any requirement 
referred to in such clause for up to 2 years for good cause shown.". 
(c) PAYMENT AMOUNTS.—Section 1902(aX13XE) of such Act (42 
U.S.C. 1396a(aX13XE)) is amended by striking "section 1905(aX2XB) 
provided by a rural health clinic" and inserting "clause (B) or (C) of 
section 1905(aX2)". 
42 use 1396a 
(d) EFFECTIVE DATE.—(1) The amendments made by this section 
note. 
apply (except as provided under paragraph (2)) to payments under 
title XIX of the Social Security Act for calendar quarters beginning 
on or after April 1, 1990, without regard to whether or not final 
regulations to carry out such amendments have been promulgated 
by such date. 
(2) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 
Human Services determines requires State legislation (other than 
legislation appropriating funds) in order for the plan to meet the 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2265 
additional requirements imposed by the amendments made by this 
section, the State plan shall not be regarded as failing to comply 
with the requirements of such title solely on the basis of its failure 
to meet these additional requirements before the first day of the 
first calendar quarter b^inning after the close of the first regular 
session of the State legislature that b^ins after the date of the 
enactment of this Act. For purposes of the previous sentence, in the 
case of a State that has a 2-year legislative session, each year of such 
.M 
session shall be deemed to be a separate regular session of the State 
legislature. 
SEC 6405. REQUIRED COVERAGE OF NURSE PRACTITIONER SERVICES. 
(a) IN GENERAL.—Section 1905(a) of the Social Security Act (42 
U.S.C. 1396d(a)) is amended— 
(1) in paragraph (20), by striking "and"; 
(2) by redesignating paragraph (21) as paragraph (22); and 
(3) by inserting after paragraph (20) the following new para-
graph: 
"(21) services fiimished by a certified pediatric nurse practi-
tioner or certified family nurse practitioner (as defined by the 
Secretary) which the certified pediatric nurse practitioner or 
certified family nurse practitioner is legally authorized to per-
form under State law (or the State regulatory mechanism pro-
vided by State law), whether or not the certified pediatric nurse 
practitioner or certified family nurse practitioner is under the 
supervision of, or associated with, a ph3rsician or other health 
care provider; and". 
(b) CJoNPORMiNG AMENDMENT.—Section 1902(aX10XA) of such Act 
(42 U.S.C. 1396a(aX10XA)) is amended by striking "(1) through (5) 
and (17)" and by inserting "(1) through (5), (17) and (21)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
42 USC 1396a 
become effective with respect to services furnished by a certified ^°*^-
pediatric nurse practitioner or certified family nurse practitioner on 
or after July 1,1990. 
SEC 6406. REQUIRED MEDICAID NOTICE AND COORDINATION WITH SPE-
CIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, IN-
0 
FANTS. AND CHILDREN (WIC). 
(a) STATE PLAN REQUIREMENTS OF NOTICE AND (COORDINATION.— 
Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)) is 
amended— 
(1) in paragraph (11), by striking "and" before "(B)" and by 
inserting before the semicolon at the end the following: ", and 
(Q provide for coordination of the operations imder this title 
with the State's operations under tlie special supplemental food 
program for women, infants, and children imder section 17 of 
the Child Nutrition Act of 1966"; 
(2) by striking "and" at the end of paragraph (51); 
(3) by striking the period at the end of paragraph (52) and 
inserting "; and ; and 
(4) by inserting after paragraph (52) the following new para-
graph: 
"(53)jprovide— 
(A) for notifying in a timely manner all individuals in 
the State who are determinea to be eligible for medical 
assistance and who are pregnant women, breastfeeding or 
103 STAT. 2266 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 u s e 1396a 
note. 
Disadvantaged 
persons. 
42 u s e 1396r-7 
note. 
eontracts. 
postpartum women (as defined in section 17 of the Child 
Nutrition Act of 1966), or children below the age of 5, of the 
availability of benefits furnished by the special supple-
mental food program under such section, and 
' 
"(B) for referring any such individual to the State agency 
responsible for administering such prc^am.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall take effect on July 1, 1990, without regard to whether regula-
tions to carry out such amendments have been promulgated by such 
date. 
SEC. 6407. DEMONSTRATION 
PROJECTS TO STUDY THE EFFECT OF 
ALLOWING STATES TO EXTEND MEDICAID TO PREGNANT 
WOMEN AND CHILDREN NOT OTHERWISE QUALIFIED TO RE-
CEIVE MEDICAID BENEFITS. 
(a) IN GENERAL.—In order to allow States to develop and carry out 
innovative programs to extend health insurance coverage to preg-
nant women and children under age 20 who lack insurance and to 
encourage workers to obtain health insurance for themselves and 
their children, the Secretary of Health and Human Services (in this 
section referred to as the "Secretary") shall enter into agreements 
with several States submitting applications in accordance with 
subsection (b) for the purpose of conducting demonstration projects 
to study the effect on access to health care, private insurance 
coverage, and costs of health care when such States are allowed to 
extend benefits under title XIX of the Social Security Act, either 
directly, in the same manner, or otherwise as alternative assistance 
authorized in section 1925(bX4)(D) of such Act, to pregnant women 
and children under 20 years of age who are not otherwise qualified 
to receive benefits under such section. 
(b) PROJECT REQUIREMENTS.—(1) Each State applying to partici-
pate in the demonstration project under subsection (a) shall assure 
the Secretary that eligibility shall be limited to pregnant women 
and children who have not attained 20 years of age who are in 
families with income below 185 percent of the income official pov-
erty line (referred to in subsection (cXD). 
(2) The Secretary shall further provide in conducting demonstra-
tion projects under this section that, if one or more of such dem-
onstration projects utilizes employer coverage as allowed under 
section 1925(bX4)CD) of the Social Security Act, such project shall 
require an employer contribution. 
(c) PREMIUMS.—In the case of pregnant women and children eli-
gible to participate in such demonstration projects whose family 
income level is— 
(1) below 100 percent of the income official poverty line (as 
defined by the Office of Management and Budget, and revised 
annually in accordance with section 673(2) of the Omnibus 
rf^. Budget Reconciliation Act of 1981) applicable to a family of the 
size involved, there shall be no premium charged; and 
> 
(2) between 100 and 185 percent of such income official pov-
erty line, there shall be a premium equal to— 
(A) an amount based on a sliding scale relating to income, 
.t...,,.? 
o r 
(B) 3 percent of the family's average gross monthly earn-
ings, 
whichever is less. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2267 
(d) DURATION.—Each demonstration project under this section 
shall be conducted for a period not to exceed 3 years. 
> 
(e) WAIVER.—The Secretary where he deems appropriate may 
waive the statewideness requirement described in section 1902(aXl) 
of the Social Security Act. 
(f) LIMIT ON ExPENorruRES.—^The Secretary in conducting the 
demonstration projects described in this section shall limit the 
amount of the Federal share of benefits paid and expenses incurred 
under title XDC of the Social Security Act to $10,000,000 in each of 
fiscal years 1990,1991, and 1992. 
(g) EVALUATION AND REPORT.—(1) For each demonstration project 
conducted under this section, the Secretary shall assure that an 
evaluation is conducted on the effect of the project with respect to— 
(A) access to health care; 
(B) private health care insurance coverage; 
(C) costs with respect to health care; and 
(D) developing feasible premium and cost-sharing policies. 
(2) The Secretary shall submit to Congress an interim report 
containing a summary of the evaluations conducted under para-
graph (1) not later than January 1, 1992, and a final report contain-
ing such summary together with such further recommendations as 
the Secretary may determine appropriate not later than January 1, 
1994. 
SEC 6408. OTHER MEDICAID PROVISIONS. 
(a) INSTITUTIONS FOR MENTAL DISEASES.— 
(1) STUDY.—The Secretary of Health and Human Services 
shall conduct a study of— 
(A) the implementation, under current provisions, regula-
tions, guidelines, and regulatoiy practices under title XIX 
of the Social Security Act, of the exclusion of coverage of 
services to certain individuals residing in institutions for 
mental diseases, and 
(B) the costs and benefits of providing services under title 
XIX of the Social Security Act in public subacute psy-
. 
chiatric facilities which provide services to psychiatric pa-
tients who would otherwise require acute hospitalization. 
(2) REPORT.—By not later than October 1, 1990, the Secretary 
shall submit a report to Congress on the study and shall include 
in the report recommendations respecting— 
(A) modifications in such provisions, regulations, guide-
lines, and practices, if any, that may be appropriate to 
accommodate changes that may have occurred since 1972 in 
the delivery of psychiatric and other mental health services 
on an inpatient basis to such individuals, and 
a- 
(B) the continued coverage of services provided in 
subacute psychiatric facilities under title XIX of the Social 
Security Act. 
(3) MORATORIUM ON TREATMENT OP CERTAIN FACIUTIES.—Any Michigan. 
determination by the Secretary that Kent Community Hospital 
Complex in Michigan or Saginaw Community Hospital in Michi-
gan is an institution for mental diseases, for purposes of title 
XIX of the Social Security Act shall not take effect until 180 
days after the date the Congress receives the report required 
under paragraph (2). 
(b) EXTENSION OF TEXAS PERSONAL CARE SERVICES WAIVER.—Sec-
tion 9523(a) of the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended by section 4115(d) of the Omnibus Budget 
103 STAT. 2268 
PUBLIC LAW 101-239—DEC. 19, 1989 
Reconciliation Act of 1987 (added by section 411(kX9XC) of the 
102 Stat. 768. 
Medicare Catastrophic Coverage Act of 1988), is amended by striking 
"January 1,1990" and inserting "July 1,1990". 
(c) HOSPICE PAYMENT FOR ROOM AND BOARD.— 
(1) I N GENERAL.—Section 1902(aX13XD) of the Social Security 
Act (42 U.S.C. 1396a(aX13XD)) is amended— 
(A) by striking "in the same amounts, and using the same 
methodolc^y, as used" and inserting "in amounts no lower 
than the amounts, using the same methodology, used", and 
(B) by striking "a separate rate may be paid for" and 
inserting "in the case of', and 
(d!) by striking "to take into account the room and board 
furnished by such facility" and inserting "there shall be 
paid an adcUtional amount, to take into account the room 
and board furnished by the facility, equal to at least 95 
percent of the rate that would have been psdd by the State 
under the plan for facility services in that facility for that 
individual'. 
42 use 1396a 
(2) EpFECTTVE DATE.—The amendments made by paragraph (1) 
"°*®- 
shall apply to services furnished on or after April 1, 1990, 
without r^ard to whether or not final regulations have been 
promulgated by such date to implement such amendments. 
(d) MEDICARE BUY-IN FOR PREMIUMS OF (CERTAIN WORKING DIS-
ABLED.— 
(1) I N GENERAL.—Section 1902(aX10XE) of the Social Security 
Act (42 U.S.C. 1396a(aX10XE)) is amended— 
(A) by insertmg "(i)" after "(E)", 
(B) by striking the semicolon at the end and inserting ", 
and", and 
(Q by adding at the end the following new clause: 
"(ii) for making medical assistance available for payment 
of medicare cost-sharing described in section 1905(pX3XAXi) 
for qualified disabled and working individuals described in 
section 1905(s)"". 
(2) ELIGIBILITY.—Section 1905 of such Act (42 U.S.C. 1396d), as 
amended by section 6403(a) of this subtitle, is amended by 
adding at the end the following new subsection: 
"(s) The term 'qualified disabled and working individual' means 
an individual— 
"(1) who is entitled to enroll for hospital insurance benefits 
under part A of title XVIII under section 1818A (as added by 
6012 of the Omnibus Budget Reconciliation Act of 1989); 
"(2) whose income (as determined under section 1612 for 
purposes of the supplemental security income program) does not 
exceed 200 percent of the ofQcial poverty line (as defined by the 
Office of Management and Budget and revised annually in 
accordance with section 673(2) of the Omnibus Budget Reconcili-
ation Act of 1981) applicable to a family of the size involved; 
"(3) whose resources (as determined under section 1613 for 
purposes of the supplemental security income program) do not 
exceed twice the maximum amount of resources that an individ-
ual or a couple (in the case of an individual with a spouse) may 
have and obtain benefits for supplemental security income 
benefits under title XVI; and 
"(4) who is not otherwise eligible for medical assistance under 
this title.". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2269 
(3) PREMIUM PAYMENTS REQUIRED FOR CERTAIN INDIVIDUALS.— 
Section 1916 of such Act (42 U.S.C. 1396o) is amended— 
(A) in subsection (a), by striking "(E)" and inserting 
"(EXi)", 
(B) by redesignating subsections (d) and (e) as subsections 
(e) and (f), respectively, and 
(C) by inserting after subsection (c) the following new 
subsection: 
v 
"(d) With respect to a qualified disabled and working individual 
described in section 1905(s) whose income (as determined under 
paragraph (3) of that section) exceeds 150 percent of the official 
poverty line referred to in that paragraph, the State plan of a State 
may provide for the charging of a premium (expressed as a percent-
age of the medicare cost-sharing described in section 1905(pX3XAXi) 
provided with respect to the individual) according to a sliding scale 
under which such percentage increases from 0 percent to 100 per-
cent, in reasonable increments (as determined by the Secretary), as 
the individual's income increases from 150 percent of such poverty 
line to 200 percent of such poverty line.". 
(4) (CONFORMING AMENDMENTS.— 
v 
(A) Section 1905(pX3) of such Act (42 U.S.C. 1396d(pX3)) is 
amended— 
(i) by amending subparagraph (A) to read as follows: 
"(AXi) premiums under section 1818, and 
"(ii) premiums under section 1839,", and 
(ii) in subparagraph (A) as so amended, by striking 
"section 1818" and inserting "section 1818 or 1818A". 
(. 
(B) Section 1905(pXlXA) of such Act is amended by insert-
ing ", but not including an individual entitled to such 
benefits only pursuant to an enrollment under section 
1818A" after "1818". 
(C) Section 1902(f) of such Act (42 U.S.C. 1396a(f)) is 
amended by inserting ", except with respect to qualified 
disabled and working individuals (described in section 
1905(s))," after "1619(bX3)". 
(5) EFFECTIVE DATE.— 
^^ ^ ^ I396a 
(A) The amendments made by this subsection apply 
"° ' 
(except as provided under subparagraph (B)) to pajrmente 
under title XIX of the Social Security Act for calendar 
quarters beginning on or after July 1, 1990, without regard 
to whether or not final regulations to carry out such 
amendments have been promulgated by such date. 
(B) In the case of a State plan for medical assistance 
under title XIX of the Social Security Act which the Sec-
retary of Health and Human Services determines requires 
State legislation (other than legislation 
appropriating 
funds) in order for the plan to meet the additional require-
ments imposed by the amendments made by this subsec-
tion, the State plan shall not be regarded as failing to 
comply with the requirements of such title solely on the 
basis of its failure to meet these additioned requirements 
before the first dav of the first calendar quarter beginning 
after the close of the first regular session of the State 
legislature that begins after the date of the enactment of 
this Act. For purposes of the previous sentence, in the case 
; • 
103 STAT. 2270 
PUBLIC LAW 101-239--DEC. 19, 1989 
of a State that has a 2-year legislative session, each year of 
such session shall be deemed to be a separate regular 
session of the State legislature. 
PART 2—TECHNICAL AND MISCELLANEOUS 
PROVISIONS 
42 u s e 1396a 
note. 
102 Stat. 3804. 
Missouri. 
Disadvantaged 
persons. 
42 u s e 1396n 
note. 
42 u s e 1320a-7. 
SEC. 6411. MISCELLANEOUS MEDICAID TECHNICAL AMENDMENTS. 
(a) 
TECHNICAL 
CORRECTION 
TO MEDICARE 
BUY-IN 
FOR THE 
ELDERLY.— 
(1) CLARIFICATION WITH RESPECT TO "SECTION 209 (B) " STATES.— 
The first sentence of section 1902(f) of the Social Security Act 
(42 U.S.C. 1396a(f)) is amended by inserting "and except with 
respect to qualified medicare beneficiaries, qualified severely 
impaired individuals, and individuals described in subsection 
(mXD" before ", no State". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply as if it had been included in the enactment of the 
Medicare Catastrophic Coverage Act of 1988. 
(b) EXTENSION OF DELAY IN ISSUANCE OF CERTAIN FINAL REGULA-
TIONS.—Section 8431 of the Technical and Miscellaneous Revenue 
Act of 1988 is amended by striking "May 1, 1989" and inserting 
"December 31,1990". 
(c) DISPROPORTIONATE SHARE HOSPITALS.— 
(1) SPECIAL RULE FOR NEW JERSEY UNCOMPENSATED CARE TRUST 
FUND.—Section 1923(eXl) of the Social Security Act (42 U.S.C. 
1396r-4(eXl)) is amended— 
(A) by inserting "(AXi)" after "without regard to the 
requirement of subsection (a) if, and 
(B) by striking "and i f and inserting "or (ii) the plan as 
of January 1,1987, provided for pa3rment adjustments based 
on a statewide pooling arrangement involving all acute care 
hospitals and the arrangement provides for reimbursement 
of the total amount of uncompensated care provided by 
each participating hospital, and (B)". 
(2) CONFORMING AMENDMENT.—Section 1915(bX4) of such Act 
(42 U.S.C. 1396n(bX4)) is amended by inserting "shall be consist-
ent with the requirements of section 1923 and" after "which 
standards". 
(3) TRANSITION RULE.—The State of Missouri shall be treated 
as having met the requirement of section 1902(aX13XA) of the 
Social Security Act (insofar as it requires payments to hospitals 
to take into account the situation of hospitals that serve a 
disproportionate number of low-income patients with special 
needs) for the period beginning with July 1, 1988, and ending 
with (and including) June 30, 1990, if the total amount of such 
payments for such period is not less than the total of such 
payments otherwise required by law for such period. 
(4) EFFECTIVE DATE.—The amendment made by paragraph (2) 
shall be effective as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1987. 
(d) FRAUD AND ABUSE TECHNICAL AMENDMENTS.— 
(1) TREATMENT OF LOSS OF RIGHT TO RENEW UCENSE.—Section 
1128(bX4XA) of the Social Security Act (42 U.S.C. 1396a-
7(bX4XA)) is amended by inserting "or the right to apply for or 
renew such a license" after "lost such a license". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2271 
(2) CLARIFICATION WITH RESPECT TO EMERGENCY TREATMENT.— 
Sections 1862(eXl) and 1903(iX2) of such Act (42 U.S.C. 
1395y(eXl), 1396b(iX2)) are each amended by inserting ", not 
including items or services furnished in an emergency room of a 
hospital' after "emergency item or service". 
(3) CLARIFICATION OF EXCLUSION WITH RESPECT TO EMPLOYMENT 
BY 
HEALTH 
MAINTENANCE 
ORGANIZATIONS.—(A) 
Scction 
1876(iX6XA) 
of the Social 
Security 
Act (42 U.S.C. 
1395mm(iX6XA)) is amended— 
(i) by striking "or" at the end of clause (v), 
(ii) by adding "or" at the end of clause (vi), and 
(iii) by inserting after clause (vi) the following new clause: 
"(vii) in the case of a risk-sharing contract, emplo3rs or con-
tracts with any individual or entity that is excluded from 
participation under this title under section 1128 or 1128A for 
the provision of health care, utilization review, medical social 
work, or administrative services or employs or contracts with 
any entity for the provision (directly or indirectly) through such 
an excluded individual or entity of such services;'. 
(B) Section 1902(pX2) of such Act (42 U.S.C. 1396a(pX2)) is 
amended— 
v 
(i) by striking "or" at the end of subparagraph (A), 
(ii) by striking the period at the end of subparagraph (B) 
and inserting ", or", and 
(iii) by adding at the end the following new subparagraph: 
"(O employs or contracts with any individual or entity that is 
excluded from participation under this title under section 1128 
or 1128A for the provision of health care, utilization review, 
medical social work, or administrative services or employs or 
contracts with any entity for the provision (directly or in-
directly) through such an excluded individual or entity of such 
services.". 
(4) EFFECTIVE DATES.—^The amendments made by paragraphs 
(1) and (2) shall take efTect on the date of the enactment of this 
Act. 
(B) The amendments made by paragraph (3) shall apply to 
employment and contracts as of 90 days after the date of the 
enactment of this Act. 
(e) SPOUSAL IMPOVERISHMENT.— 
(1) EQUAL TREATMENT OF TRANSFERS BY COMMUNITY SPOUSE 
BEFORE INSTITUTIONALIZATION.—Section 1917(c) of the Social 
Security Act (42 U.S.C. 1396p(c)) is amended— 
(A) in paragraph (1), by inserting "or whose spouse," after 
"an institutionalized individual (as defined in paragraph 
(3)) who,", and 
(B) in paragraph (2XB)— 
(i) by amending clause (i) to read as follows: "(i) to or 
from (or to another for the sole benefit of) the individ-
ual's spouse, or", and 
(ii) by striking ", or (iii)" and all that follows through 
"fair market vsdue". 
(2) CJLARIFYING APPLICATION TO "SECTION 209(B)" STATES.— 
Section 1902(f) of such Act (42 U.S.C. 1396a(f)) is amended by 
inserting "and section 1924" after "1619(bX3)". 
(3) CLARIFICATION OF APPLICATION OF INCOME RULES TO 
REDETERMINATIONS.—Subsections (bX2) and (dXD of section 1924 
42 u s e 1320a-7 
note. 
42 u s e 1395mm 
note. 
103 STAT. 2272 
PUBLIC LAW 101-239—DEC. 19, 1989 
of such Act (42 U.S.C. 1396r-5) are amended by inserting "or 
redetermined" after "determined". 
42 u s e 1396a 
(4) EFFECTIVE DATES.— 
"°**- 
; 
(A) SPOUSAL TRANSFERS.—^The amendments made by para-
graph (1) shall apply to transfers occurring after the date of 
the enactment of tlus Act. 
(B) OTHER AMENDMENTS.—Elxcept as provided in subpara-
graph (A), the amendments made by this subsection shall 
apply as if included in the enactment of section 303 of the 
Medicare Catastrophic Coverage Act of 1988. 
(f) EXTENSION OF WAIVER FOR HEALTH INSURING ORGANIZATION.— 
' 
The Secretary of Health and Human Services shall continue to 
waive, through June 30, 1992, the application of section 
1903(mX2XAXii) of the Social Security Act to the Tennessee Primary 
Care Network, Inc., under the same terms and conditions as applied 
to such waiver as of July 1,1989. 
42 u s e 1396b 
(g) DAY HABIIITATION AND RELATED SERVICES.— 
^°^' 
(1) PROHIBITION OF DISALLOWANCE PENDING ISSUANCE OF REGU-
LATIONS.—Except as specifically permitted under paragraph (3), 
the Secretary of Health and Human Services may not— 
(A) withhold, suspend, disallow, or deny Federal financial 
psuiidpation under section 1903(a) of the Social Security 
Act for day habilitation and related services under para-
graph (9) or (13) of section 1905(a) of such Act on behalf of 
persons with mental retardation or with related conditions 
pursuant to a provision of its State plan as approved on or 
before June 30,1989, or 
(B) withdraw Federal approval of any such State plan 
provision. 
(2) REQUiREBfENTS F
O
R REGULATION.—A final regulation de-
scribed in this paragraph is a r^^ation, promulgated after a 
notice of proposed rule-making and a period of at least 60 days 
for public comment, that— 
(A) specifies the types of day habilitation and related 
services that a State may cover under paragraph (9) or (13) 
of section 1905(a) of the Social Security Act on behalf of 
{ 
persons with mental retardation or with related conditions, 
^ 
and 
(B) any requirements respecting such coverage. 
(3) PROSPECTIVE APPUCATION OF REGULATION.—If the 
Sec-
^ retaxy promulgates a final r^ulation described in paragraph (2) 
' 
and the Secretary determines that a State plan under title XIX 
of the Social Security Act does not comply with such regulation, 
1 the Secretary shall notify the State of the determination and its 
-^u- basis, and such determination shall not apply to day habili-
tation and related services furnished before uie first day of the 
first calendar quarter beginning after the date of the notice to 
the State, 
(h) MORATORIUM ON ISSUANCE OF FINAL REGULATION ON MEDI-
CALLY NEEDY INCOME LEVELS FOR CESTAIN 1-MEMBER FAMIUES.— 
The Secretary of Health and Human Services may not issue in final 
form, before December 31, 1990, any r^^ation implementing the 
' proposed r^ulation published on September 26, 1989 (54 Federal 
Raster 39421) insofar as such regulation changes the method for 
establishing the medically needy income level for single individuals 
in any State (including the proposed change to section 435.1007(aXl) 
oftitle42, Code of Federal R^ulations). 
, 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2273 
(i) 
TECHNICAL COBRECTIONS CONCERNING TRANSITIONAL COV-
ERAGE.— 
(1) CLARIFICATION OF TERMINATION WHEN NO CHILD IN HOUSE-
HOLD.—Subsections (aXBXA) and (bXSXAXi) of section 1925 of the 
Social Security Act (42 U.S.C. 1396r-6) are each amended bv 
striking "who is" and inserting ", whether or not the child is'. 
(2) E^FFHCTIVE DATE FOR TERMINATION OF CURRENT 9-MONTH 
EXTENSION.—Section 303(fX2XA) of the Family Support Act of 
1988 is amended by inserting before the period at the end the 42 USC 602 note. 
following: *\ but such amendment shall not apply with respect 
to families that cease to be eligible for aid under part A of title 
IV of the Social Security Act before such date". 
(3) CORRECTION OF REFERENCES.—Subsections (aXSXO and 
(bX3XCXi) of section 1925 of the Social Security Act (42 U.S.C. 
1396r-6) are each amended by striking "or (v) of section 1905(a)" 
and inserting "of section 1905(a) or clause (i)(IV), (i)(VD, or 
(iiXIX) of section 1902(aX10XA)". 
(4) EFFECTIVE DATE.—^The amendments made by this subsec- 
42 USC l396r-6 
tion shall be effective as if included in the enactment of the 
°°*®-
Family Support Act of 1988. 
(j) MiNi^soTA PREPAID MEDICAID DEMONSTRATION PROJECT EXTEN-
SION.—Section 507 of the Family Support Act of 1988 is amended by 
102 Stat. 2407. 
strikmg "1990" and inserting "1991'" 
Subtitle C—Maternal and Child Health Block 
Grant Program 
SEC 6501. INCREASE m AUTHORIZATION OF APPROPRIATIONS. 
(a) IN GENERAL.—Section 501 of the Social Security Act (42 U.S.C. 
701) is amended— 
(1) by amending subsection (a) to read as follows: 
"(a) To improve the health of all mothers and children consistent 
with the applicable health status goals and national health objec-
tives established by the Secretary under the Public Health Service 
Act for the year 2000, there are authorized to be appropriated 
-
$686,000,000 for fiscal year 1990 and each fiscal year thereafter— 
"(1) for the purpose of enabling each State— 
"(A) to provide and to assure mothers and children (in 
particular those with low income or with limited availabil-
ity of health services) access to quality maternal and child 
health services; 
"(B) to reduce infant mortality and the incidence of 
preventable diseases and handicapping conditions among 
children, to reduce the need for inpatient and long-term 
care services, to increase the number of children (especially 
preschool children) appropriately immunized against dis-
ease and the number of low income children receiving 
health assessments and follow-up diagnostic and treatment 
services, and otherwise to promote the health of mothers 
and 
infants 
by 
providing 
prenatal, 
delivery, 
and 
postpartum care for low income, at-risk pregnant women, 
and to promote the health of children by providing preven-
tive and primary care services for low income children; 
"(C) to provide rehabilitation services for blind and dis-
abled individuals under the age of 16 receiving benefits 
103 STAT. 2274 
PUBLIC LAW 101-239—DEC. 19, 1989 
under title XVI, to the extent medical assistance for such 
services is not provided under title XDC; and 
"(D) to provide and to promote family-centered, commu-
nity-base(C coordinated care (including care coordination 
services, as defined in subsection (bX3)) for children with 
special health care needs and to facilitate the development 
of community-based systems of services for such children 
and their families; 
' ^ 
' 
"(2) for the purpose of enabling the Secretary (through grants, 
contracts, or otherwise) to provide for special projects of re-
gional and national significance, research, and training with 
respect to maternal and child health and children with special 
health care needs (including early intervention training and 
services development), for genetic disease testing, counseling, 
and information development and dissemination programs, for 
grants (including funding for comprehensive hemophilia diag-
nostic treatment centers) relating to hemophilia without r^ard 
to age, and for the screening of newborns for sickle cell anemia, 
and otiier genetic disorders and follow-up services; and 
"(3) subject to section 502(b) for the purpose of enabling the 
Secretary (through grants, contracts, or otherwise) to provide 
for developing and expanding the following— 
"(A) maternal and infant health home visiting programs 
in which case management services as defined in subpara-
^ 
graphs (A) and (B) of subsection (bX4), health education 
services, and related social support services are provided in 
the home to pr^nant women or families with an infant up 
to the age one by an appropriate health professional or by a 
qualified nonprofessional acting under tiie supervision of a 
health care professional, 
"(B) projects designed to increase the participation of 
obstetricians and pediatricians under the program under 
this title and under state plans approved under title XIX, 
"(O int^rated maternal and cMd health service deliv-
ery systems (of the type described in section 1136 and using, 
once developed, the model application form developed 
under section 6506(a) of the Omnibus Budget Reconciliation 
Act of 1989), 
"(D) maternal and child health centers which (i) provide 
prenatal, delivery, and postpartum care for pregnant 
women and preventive and primary care services for in-
fants up to age one, and (ii) operate under the direction of a 
not-for-profit hospital, 
"(E) maternal and child health projects to serve rural 
populations, and 
"(F) outpatient and community based services programs 
(including day care services) for children with special 
health care needs whose medical services are provided 
primarily through inpatient institutional care.", and 
(2) by adding at the end of subsection (b) the following new 
paragraphs: 
"(3) Tiie term 'care coordination services* means services to 
promote the effective and efficient organization and utilization 
of resources to assure access to necessary comprehensive 
services for children with special health care needs and their 
families. 
"(4) The term'case management services'means— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2275 
"(A) with respect to pregnant women, services to assure 
access to quality prenatal, delivery, and postpartum care; 
and 
"(B) with respect to infants up to age one, services to 
assure access to quality preventive and primary care serv-
ices.", 
(b) CONFORMING AMENDMENT.—Section 505(2)(CXii) of such Act (42 
^ 
U.S.C. 705(2)(CXii)) is amended by striking "paragraphs (1) through 
(3) of section 501(a)" and inserting "subparagraphs (A) through (D) of 
section 501(aXl)". 
SEC. 6502. ALLOTMENTS TO STATE AND FEDERAL SET-ASIDES. 
(a) IN GENERAL.—Section 502 of the Social Security Act (42 U.S.C. 
702) is amended— 
(1) by amending the first sentence of paragraph (1) of subsec-
tion (a) to read as follows: "Of the amounts appropriated under 
section 501(a) for a fiscal year that are not in excess of 
$600,000,000, the Secretary shall retain an amount equal to 15 
percent for the purpose of canying out activities described in 
section 501(aX2)."; 
(2) in subsection (aX3), by inserting "or subsection (b)" after 
"this subsection"; 
(3) by striking subsection (c), by redesignating subsection (b) 
as subsection (c), and by inserting after subsection (a) the follow-
ing new subsection: 
"(bXlXA) Of the amounts appropriated under section 501(a) for a 
fiscal year in excess of $600,000,000 the Secretary shall retain an 
amount equal to 12% percent thereof for the projects described in 
subparagraphs (A) through (F) of section 501(aX3). 
"(B) Any amount appropriated under section 501(a) for a fiscal 
year in excess of $600,000,000 that remains after the Secretary has 
retained the applicable amount (if any) under subparagraph (A) 
shall be retained by the Secretary in accordance with subsection (a) 
and allocated to the States in accordance with subsection (c). 
"(2XA) Of the amounts retained for the purpose of canying out 
activities described in section 501(aX3XA), (B), (C), (D) and (E), the 
Secretary shall provide preference to qualified applicants which 
demonstrate that the activities to be carried out with such amounts 
shall be in areas with a high infant mortality rate (relative to the 
-
average infant mortality rate in the United States or in the State in 
which the area is located). 
"(B) In carrying out activities described in section 501(aX3XD), the 
Secretary shall not provide for developing or expanding a maternal 
and child health center unless the Secretary has received satisfac-
tory assurances that there will be applied, towards the costs of such 
development or expansion, non-Federal funds in an amount at least 
equal to the amount of funds provided under this title toward such 
development or expansion."; and 
(4) in subsection (c), as redesignated by paragraph (2)— 
(A) 
by 
striking 
"$478,000,000" 
and 
inserting 
"$600,000,000", and 
(B) by amending paragraph (2) to read as follows: 
"(2) Each such State shall be allotted for each fiscal year an 
amount equal to the sum of— 
"(A) the amount of the allotment to the State under this 
subsection in fiscal year 1983, and 
103 STAT. 2276 
PUBLIC LAW 101-239—DEC. 19, 1989 
' 
' 
"(B) the State's proportion (determined under paragraph 
(IXBXii)) of the amount by which the allotment available 
under this subsection for all the States for that fiscal year 
exceeds the amount that was available under this subsec-
tion for allotment for all the States for fiscEil year 1983.". 
(b) CONFORMING AMENDMENTS.—Sections 503(a) and 508(b) of such 
Act (42 U.S.C. 703(a), 708(b)) are amended by striking "502(b)" each 
place it appears and inserting "502(c)". 
SEC. 6503. USE OF ALLOTMENT FUNDS AND APPLICATION FOR BLOCK 
GRANT FUNDS. 
(a) EXPANDING USE OF FUNDS AND LIMITATION ON USE OF FUNDS 
FOR ADMINISTRATIVE COSTS.—Section 504 of the Social Security Act 
(42 U.S.C. 704) is amended— 
(1) in subsection (a), by inserting "and including payment of 
salaries and other related expenses of National Health Service 
Corps personnel" after "education, and evaluation", and 
(2) by adding at the end the following new subsection: 
, 
"(d) Of the amounts paid to a State under section 503 from an 
allotment for a fiscal year under section 502(c), not more than 10 
percent may be used for administering the funds paid under such 
section.". 
(b) APPUCATION.—Section 505 of such Act <42 U.S.C. 705) is 
amended— 
(1) by amending the heading to read as follows: 
"APPUCATION FOR BLOCK GRANT FUNDS"; 
(2) by inserting "(a)" after "SEC. 505."; 
(3) in the matter before paragraph (1), by inserting "an ap-
plication (in a standardized form specified by the Secretary) 
that" after "must prepare and transmit to the Secretary'; 
(4) by striking paragraph (1) and redesignating paragraph (2) 
as paragraph (5) and by inserting before paragraph (5), as 
redesignated, the following new paragraphs: 
"(1) contains a statewide needs assessment (to be conducted 
every 5 years) that shall identify (consistent with the health 
status goals and national health objectives referred to in section 
501(a)) the need for— 
"(A) preventive and primary care services for pregnant 
women, mothers, and infants up to age one; 
"(B) preventive and primary care services for children; 
and 
"(C) services for children with special health care needs 
(as specified in section 501(aXlXD)); 
"(2) includes for each fiscal year— 
"(A) a plan for meeting the needs identified by the state-
wide needs assessment under paragraph (1); and 
"(B) a description of how the funds allotted to the State 
under section 502(c) will be used for the provision and 
coordination of services to carry out such plan that shall 
include— 
"(i) subject to paragraph (3), a statement of the goals 
and objectives consistent with the health status goals , 
and national health objectives referred to in section 
' 
-" 
501(a) for meeting the needs specified in the State plan 
described in subparagraph (A); 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2277 
"(ii) an identification of the areas and localities in 
the State in which services are to be provided and 
coordinated; 
"(iii) an identification of the types of services to be 
provided and the categories or characteristics of 
individuals to be served; and 
"(iv) information the State will collect in order to 
prepare reports required under section 506(a); 
"(3) except as provided under subsection (b), provides that the 
State will use— 
"(A) at least 30 percent of such payment amounts for 
preventive and primary care services for children, and 
"(B) at least 30 percent of such pajmient amounts for 
services for children with special health care needs (as 
specified in section 501(aXl)(D)); 
"(4) provides that a State receiving funds for maternal and 
child health services under this title shall maintain the level of 
funds being provided solely by such State for maternal and child 
health programs at a level at least equal to the level that such 
State provided for such programs in fiscal year 1989; and"; and 
(5) in paragraph (5), as redesignated by paragraph (4) of this 
subsection— 
(A) Iw striking "a statement of assurances that represents 
to the Secretary" and inserting "provides"; 
(B) in subparagraph (A), by striking "will provide" and 
inserting "will establish"; 
(C) by amending subparagraph (CXi) to read as follows: 
(i) special consideration (where appropriate) for the 
continuation of the funding of special projects in the 
State previously funded under this title (as in effect 
before August 31,1981), and"; 
(D) in subparagraph (D), by striking "and" at the end; 
(E) by redesignating subparagraph (E) as subparagraph 
(F) and by inserting after subparagraph (D) the following 
new subparagraph: 
"(E) the State agency (or agencies) administering the 
State's program under this title will provide for a toll-free 
telephone number (and other appropriate methods) for the 
use of parents to access information about health care 
providers and practitioners who provide health care serv-
ices under this title and title XIX and about other relevEuit 
health and health-related providers and practitioners; 
and"; and 
(F) in subparagraph (F) (as redesignated by subparagraph 
(E))-
(i) by striking "participate" before clause (i), 
(ii) in clause (i), by striking "diagnosis" and inserting 
"diagnostic", 
(iii) in clause (i), by striking "title XIX" and inserting 
"section 1905(a)(4)(B) (including the establishment of 
periodicity and content standards for early and periodic 
screening, diagnostic, and treatment services)", 
(iv) by inserting "participate" after "(i)", after "(ii)", 
and after "(iii)", 
(v) by striking "and" at the end of clause (ii), 
(vi) by striking the period at the end of clause (iii) and 
inserting ", and , and 
103 STAT. 2278 
PUBLIC LAW 101-239—DEC. 19,1989 
' ' (vii) by inserting after clause (iii) the following new 
clause: 
"(iv) provide, directly and through their providers 
and institutional contractors, for services to identify 
pregnant women and infants who are eligible for medi-
cal assistance under subparagraph (A) or (B) of section 
1902(1X1) and, once identified, to assist them in apply-
ing for such assistance."; 
(6) by striking the last 2 sentences and inserting the following: 
Public 
"The application shall be developed by, or in consultation with, the 
information. 
State maternal and child health agency and shall be made public 
within the State in such manner as to facilitate comment from any 
person (including any Federal or other public agency) during its 
development and after its transmittal."; and 
(7) by adding at the end the following new subsection: 
"(b) The Secretary may waive the requirement under subsection 
(aX3) that a State's application for a fiscal year provide for the use of 
funds for specific activities if for that fiscal year— 
"(1) the Secretary determines— 
^
^ y, 
"(A) on the basis of information provided in the State's 
most recent annual report submitted under section 
506(aXl), that the State has demonstrated an extraordinary 
unmet need for one of the activities described in subsection 
(aX3),and 
"(B) that the granting of the waiver is justified and will 
assist in carrying out the purposes of this title; and 
"(2) the State provides assurances to the Secretary that the 
State will provide for the use of some amounts paid to it under 
'^ 
section 503 for the activities described in subparagraphs (A) and 
(B) of subsection (aX3) and specifies the percentages to be sub-
stituted in each of such subparagraphs.", 
(c) CONFORMING AMENDMENTS.—(1) Section 502(c) of such Act (42 
U.S.C. 702(c)), as redesignated by section 6502(aX3) of this subtitle, is 
amended by striking "a description of intended activities and state-
ment of assurances' and inserting "an application". 
(2) Section 504(a) of such Act (42 U.S.C. 704(a)) is amended by 
striking "its description of intended expenditures and statement of 
assurances" and insert "its application". 
(3) Section 506(aXlXC) of such Act (42 U.S.C. 706(aXlXC)) is 
amended by striking "description and statement" and inserting 
"application". 
(4) Sections 502(b), 502(dXl), 503(c), 504(a), 506(aXlXC), and 509(aX6) 
of such Act (42 U.S.C. 702(b), 702(dXl), 703(c), 704(a), 706(aXlXC), 
709(aX6)) are each amended by striking "505" each place it appears 
and inserting "505(a)". 
SEC 6504. REPORTS. 
(a) STATE REPORTS.—Subsection (a) of section 506 of the Social 
Security Act (42 U.S.C. 706) is amended— 
, . (1) in paragraph (1>— 
(A) by inserting after the first sentence the following: 
"Each such report shall be prepared by, or in consultation 
with, the State maternal and child health agency.", 
(B) by striking "be in such form and contain such 
? r
^ 
information" and inserting "be in such standardized form 
and contain such information (including information de-
scribed in paragraph (2))", and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2279 
(C) by striking "and of the progress made toward achiev-
ing the purposes of this title, and (C)" and inserting ", (C) to 
describe the extent to which the State has met the goals 
and objectives it set forth under section 505(aX2XBXi) and 
the national health objectives referred to in section 501(a), 
and(D)"; 
(2) by redesignating paragraph (2) as paragraph (3); and 
(3) by inserting after paragraph (1) the following new para-
graph: 
"(2) Each annual report under paragraph (1) shall include the 
following information: 
"(AXi) The number of individuals served by the State under 
this title (by class of individuals). 
"(ii) The proportion of each class of such individuals which 
has health coverage. 
"(iii) The types (as defined by the Secretary) of services pro-
vided under this title to individuals within each such class, 
"(iv) The amounts spent under this title on each type of 
services, by class of individuals served. 
"(B) Information on the status of maternal and child health in 
the State, including— 
"(i) information (by county and by racial and ethnic 
group) on— 
"(I) the rate of infant mortality, and 
"(ID the rate of low-birth-weight births; 
"(ii) information (on a State-wide basis) on— 
"(I) the rate of maternal mortality, 
"(II) the rate of neonatal death, 
"(QD the rate of perinatal death, 
"(TV) the number of children with chronic illness and 
the type of illness, 
"(V) the proportion of infants bom with fetal alcohol 
syndrome, 
"(VI) the proportion of infants bom with drug 
dependency, 
(Vn) the proportion of women who deliver who do 
not receive prenatal care during the first trimester of 
pregnancy, and 
"(VIII) the proportion of children, who at their 
second birthday, have been vaccinated against each of 
measles, mumps, rubella, polio, diphtheria, tetanus, 
pertussis, Hib meningitis, and hepatitis B; and 
"(iii) information on such other indicators of maternal, 
infant, and child health care status as the Secretary may 
specify. 
"(C) Information (by racial and ethnic group) on— 
"(i) the number of deliveries in the State in the year, and 
"(ii) the number of such deliveries to pregnant women 
who were provided prenatal, delivery, or postpartum care 
under this title or were entitled to benefits with respect to 
/ 
such deliveries under the State plan under title XIX in the 
year. 
"(D) Information (by racial and ethnic group) on— 
"(i) the number of infants under one year of age who were 
in the State in the year, and 
"(ii) the number of such infants who were provided serv-
ices under this title or were entitled to benefits under the 
State plan under title XIX at any time during the year. 
103 STAT. 2280 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(E) Information on the number of— 
"(i) obstetricians, 
"(ii) family practitioners, 
^ t - 
"(iii) certified family nurse practitioners, 
"(iv) certified nurse midwives, 
"(v) pediatricians, and 
"(vi) certified pediatric nurse practitioners, 
who were licensed in the State in the year. 
For purposes of subparagraph (A), each of the following shall be 
considered to be a separate class of individuals: pregnant women, 
infants up to age one, children with special health care needs, other 
children under age 22, and other individuals.". 
(b) SECRETARIAL REPORT.—Paragraph (3) of subsection (a) of such 
section, as redesignated by subsection (aX2) of this section, is amend-
ed to read as follows: 
"(3) The Secretary shall annually transmit to the Committee on 
Energy and Commerce of the House of Representatives and the 
Committee on Finance of the Senate a report that includes— 
"(A) a description of each project receiving funding under 
paragraph (2) or (3) of section 502(a), including the amount of 
Federal funds provided, the number of individuals served or 
trained, as appropriate, under the project, and a summary of 
any formal evaluation conducted with respect to the project; 
"(B) a summary of the information described in paragraph 
(2XA) reported by States; 
"(C) based on information described in paragraph (2XB) sup-
plieid by the States under paragraph (1), a compilation of the 
following mesisures of maternal and child health in the United 
States and in each State: 
"(i) Information on— 
"(I) the rate of infant mortality, and 
"(II) the rate of low-birth-weight births. 
Information under this clause shall also be compiled by 
racial and ethnic group, 
"(ii) Information on— 
"(I) the rate of maternal mortality, 
"(II) the rate of neonatal death, 
"(III) the rate of perinatal death, 
"(IV) the proportion of infants bom with fetal alcohol 
S3mdrome, 
"(V) the proportion of infants born with drug depend-
ency, 
"(VI) the proportion of women who deliver who do 
not receive prenatal care during the first trimester of 
pregnancy, and 
"(VII) the proportion of children, who at their second 
.
» 
birthday, have been vaccinated against each of measles, 
/
-
< • 
mumps, rubella, polio, diphtheria, tetanus, pertussis, 
Hib meningitis, and hepatitis B. 
"(iii) Information on such other indicators of maternal, 
infant, and child health care status as the Secretary has 
specified under paragraph (2XBXiii)-
"(iv) Information (by racial and ethnic group) on— 
"(I) the number of deliveries in the State in the year, 
and 
V ; 
"(II) the number of such deliveries to pregnant 
i 
-, women who were provided prenatal, delivery, or 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2281 
postpartum care under this title or were entitled to 
benefits with respect to such deliveries under the State 
plan under title XIX in the year; 
"(D) based on information described in subparagraphs (C), (D), 
and (E) of paragraph (2) supplied by the States under paragraph 
(1), a compilation of the following information in the United 
States and in each State: 
"(i) Information on— 
"(I) the number of deliveries in the year, and 
"(II) the number of such deliveries to pregnant 
• 
' women who were provided prenatal, delivery, or 
postpartum care under this title or were entitled to 
benefits with respect to such deliveries under a State 
plan under title XIX in the year. 
Information under this clause shall also be compiled by 
-
racial and ethnic group, 
"(ii) Information on— 
"(I) the number of infants under one year of age in 
^ 
the year, and 
"(II) the number of such infants who were provided 
,. 
services under this title or were entitled to benefits 
under a State plan under title XIX at any time during 
the year. 
Information under this clause shall also be compiled by 
racial and ethnic group, 
"(iii) Information on the number of— 
"(I) obstetricians, 
"(II) family practitioners, 
"(III) certified family nurse practitioners, 
. 
, 
"(IV) certified nurse midwives, 
"(V) pediatricians, and 
c
= 
"(VI) certified pediatric nurse practitioners, 
"
^ 
who were licensed in a State in the year; and 
"(E) an assessment of the progress being made to meet the 
health status goals and national health objectives referred to in 
section 501(a).^. 
SEC. 6505. FEDERAL ADMINISTRATION AND ASSISTANCE. 
Section 509(a) of the Social Security Act (42 U.S.C. 709(a)) is 
amended— 
(1) in paragraph (4) by inserting before the semicolon at the 
end the following: "and in developing consistent and accurate 
data collection mechanisms in order to report the information 
required under section 506(aX2)"; 
(2) in paragraph (5) by striking "and" at the end thereof; 
(3) in paragraph (6) by striking the period and inserting "; 
and"; and 
(4) by adding at the end thereof the following new paragraphs: 
"(7) assisting States in the development of care coordination 
services (as defined in section 501(bX3)); and 
"(8) developing and making available to the State agency (or 
agencies) administering the State's program under this title a 
national directory listing by State the toll-free numbers de-
scribed in section 505(aX5XE).". 
SEC. 6506. DEVELOPMENT OF MODEL APPLICATIONS. 
(a) FOR MATERNAL AND CHILD ASSISTANCE PROGRAMS.— 
42 use 70i note. 
103 STAT. 2282 
PUBLIC LAW 101-239—DEC. 19, 1989 
Federal 
Register, 
publication. 
(1) IN GENERAL.—The Secretary of Health and Human Serv-
ices shall develop, by not later than one year after the date of 
the enactment of this Act and in consultation with the Sec-
retary of Agriculture, a model application form for use in 
applying, simultaneously, for assistance for a pregnant woman 
^ 
or a child less than 6 years of age under maternal and child 
assistance programs (as defined in paragraph (3)). In developing 
such form, the Secretary is not authorized to change any 
requirement with respect to eligibility under any maternal and 
child assistance program. 
(2) DISSEMINATION OF MODEL FORM.—The Secretary shall pro-
vide for publication in the Federal Register of the model ap-
plication form developed under paragraph (1) and shall send a 
copy of such form to each State agency responsible for admin-
istering a maternal and child assistance program. 
(3) MATERNAL AND CHILD ASSISTANCE PROGRAM DEFINED.—In 
this subsection, the term "maternal and child assistance pro-
gram" means any of the following programs: 
(A) The maternal and child health services block grant 
program under title V of the Social Security Act. 
(B) The medicaid program under title XIX of the Social 
Security Act. 
(C) The migrant and community health centers programs 
under sections 329 and 330 of the Public Health Service 
Act. 
(D) The grant program for the homeless under section 340 
of the Public Health Service Act. 
(E) The "WIG" program under section 17 of the Child 
Nutrition Act of 1966. 
(F) The head start program under the Head Start Act. 
(b) FOR MEDICAID PROGRAM.— 
(1) IN GENERAL.—The Secretary of Health and Human Serv-
ices shall, by not later than 1 year after the date of the 
enactment of this Act, develop a model application form for use 
in appl3dng for benefits under title XIX of the Social Security 
Act for individuals who are not receiving cash assistance under 
part A of title IV of the Social Security Act, and who are not 
institutionalized. In developing such model application form, 
the Secretary is not authorized to require that such form be 
adopted by States as part of their State medicaid plan. 
(2) DISSEMINATION OF MODEL FORM.—The Secretary shall pro-
vide for publication in the Federal Register of the model ap-
plication form developed under paragraph (1), and shall send a 
copy of such form to each State agency responsible for admin-
istering a State medicaid plan. 
42 u s e 701 note. 
SEC. 6507. RESEARCH ON INFANT MORTALITY AND MEDICAID SERVICES. 
The Secretary of Health and Human Services shall develop a 
national data system for linking, for any infant up to age one— 
(1) the infant's birth record, 
(2) any death record for the infant, and 
(3) information on any claims submitted under title XIX of 
the Social Security Act for health care furnished to the infant 
or with respect to the birth of the infant. 
42 u s e 1396a 
note. 
Federal 
Register, 
publication. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2283 
SEC. 6508. DEMONSTRATION PROJECT ON HEALTH INSURANCE FOR MEDL 42 USC 701 note. 
CALLY UNINSURABLE CHILDREN. 
(a) IN GENERAL.—^The Secretanr of Health and Human Services (in 
this section referred to as the '^Secretarjr") may conduct not more 
than 4 demonstration projects to provide health insurance coverage 
(as defined by the Secretary) through an eligible plan (as defined in 
subsection (b)) to medically uninsurable children (as defined by the 
Secretary) imder 19 years of age. 
(b) ELIGIBILITY.—In this section, the term "eligible plan" means— 
(1) a school-based plan; 
(2) a plan operated under the direction of a not-for-profit 
entity offering health insurance; and 
(3) a plan operated by a not-for-profit hospital. 
(c) REQUIREMENTS,—A demonstration project conducted under 
subsection (a) may only be conducted under an agreement between 
the Secretary and an eligible plan which provides that— 
(1) health insurance coverage will be made available imder 
the project for at least 2 years, and, if the eligible plan fails to 
provide such coverage during such period, the Secretary will 
guarantee the provision of such coverage; 
(2) non-Federal funds will be made available to fund the 
project at a level not less than— 
(A) 50 percent in the first year of such agreement, 
(B) 65 percent in the second year of such agreement, and 
(C) 80 percent in the third or subsequent year of such 
agreement; 
(3) the plan may not— 
(A) restrict health insurance coverage on the basis of a 
child's medical condition, or 
(B) impose waiting periods or exclusions for preexisting 
conditions; 
(4) any premium imposed under the project shall be disclosed 
in advance of enrollment and shall be varied by the income of 
individuals; and 
(5) with respect to a plan which at the time of entering into 
such agreement is conducting a project similar to the one 
described in this subsection such plan must maintain its current 
level of non-Federal funding at its current level unless such 
level is less than the applicable level described in paragraph (2). 
(d) APPUCATION.—No funds may be made available by the Sec-
retary under this section unless an application therefor has been 
submitted to, and approved by, the Secretary. Such application shall 
be in such form, be submitted in such manner, and contain and be 
accompanied by such information, as the Secretary may specify. No 
such application may be approved unless it contains assurances that 
the applicant will use the funds provided only for the purposes 
speciHed in the approved application and will establish such fiscal 
control and fund accounting procedures as may be necessary to 
assure proper disbursement and accounting of Federal funds paid to 
^ 
the applicant under this section. 
(e) EVALUATION AND REPORT.— 
(1) EVALUATION.—The Secretary shall provide for an evalua-
tion of the effects of the demonstration projects conducted 
under subsection (a) on— 
103 STAT. 2284 
PUBLIC LAW 101-239—DEC. 19, 1989 
(A) access to health services by previously medically un-
insurable children, 
(B) the availability of insurance coverage to psirticipating 
medically uninsurable children, 
(C) the demographic characteristics and health status of 
^^ 
participating medically uninsurable children and their 
*' 
families, and 
(D) out-of-pocket health care costs for such families. 
(2) REPORT.—^The Secretary shall submit a report on the 
4 
demonstration projects conducted under subsection (a) to the 
Committee on Energy and Commerce of the House of Represent-
atives and the Committee on Finance of the Senate, and shall 
include in such report a summary of the evaluation described in 
paragraph (1). 
(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 
be appropriated to carry out this section $5,000,000, for each of fiscal 
years 1991,1992, and 1993. 
42 u s e 701 note. 
SEC. 6509. MATERNAL AND CHILD HEALTH HANDBOOK. 
(a) IN GENERAL.— 
(1) DEVELOPMENT.—^The Secretary of Health and Human Serv-
ices shall develop a maternal and child health handbook in 
consultation with the National Commission to Prevent Infant 
1 
Mortality and public and private organizations interested in the 
health and welfare of mothers and children. 
(2) FIELD TESTING AND EVALUATION.—The Secretary shall com-
g 
plete publication of the handbook for field testing by July 1, 
1990, and shall complete field testing and evaluation by June 1, 
1991. 
(3) AVAILABILITY AND DISTRIBUTION.—The Secretary shall 
make the handbook available to pregnant women and families 
/ , 
with young children, and shall provide copies of the handbook 
to maternal and child health programs (including maternal and 
child health clinics supported through either title V or title XIX 
of the Social Security Act, community and migrant health 
centers under sections 329 and 330 of the Public Health Service 
Act, the grant program for the homeless under section 340 of 
the Public Health Service Act, the "WIC" program under sec-
tion 17 of the Child Nutrition Act of 1966, and the head start 
pn^ram under the Head Start Act) that serve high-risk women. 
The Secretary shall coordinate the distribution of the handbook 
with State maternal and child health departments. State and 
local pubUc health clinics, private providers of obstetric and 
pediatric care, and community groups where appUcable. The 
Secretary shall make efforts to involve private entities in the 
distribution of the handbook under this paragraph. 
(b) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 
be appropriated $1,000,000 for each of fiscal years 1991, 1992, and 
1993, for carrying out the purposes of this section. 
42 u s e 701 note. 
SEC. 6510. EFFECTIVE DATES. 
(a) IN GENERAL.—Elxcept as provided in subsection O
t
>
)
, the amend-
ments made by this subtitle shall apply to appropriations for fiscal 
years b^inning with fiscal year 1990. 
fl>) APPLICATION AND REPORT.—The amendments made— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2285 
(1) by subsections (b) and (c) of section 6503 shall apply to 
pajrments for allotments for fiscal years beginning with fiscal 
year 1991, and 
(2) by section 6504 shall apply to annual reports for fiscal 
years beginning with fiscal year 1991. 
Subtitle D—Vaccine Compensation Technicals 
SEC. 6601. VACCINE INJURY COMPENSATION TECHNICALS. 
(a) REFERENCE.—Whenever in this section an amendment or 
repeal is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be considered to be 
made to a section or other provision of the Public Health Service 
Act. 
(b) PuBUCATiON OP PROGRAM.—Section 2110 (42 U.S.C. 300aa-10) 
is amended by adding at the end thereof the following: 
"(c) PuBLicrry,—The Secretary shall undertake reasonable efforts 
to inform the public of the availability of the Program.". 
(c) PETITIONS.— 
(1) Section 2111(aXl) (42 U.S.C. 300aa-ll(aXl)) is amended— 
(A) by striking out "filing of a petition" and inserting in 
^ 
- 
lieu thereof "filing of a petition containing the matter 
prescribed by subsection (c)", and 
(B) by inserting at the end of paragraph (1) "The clerk of 
the United States Claims Court shall immediately forward 
the filed petition to the chief special master for assignment 
to a special master under section 2112(dXl).". 
(2) Section 2111(aX2XAXi) (42 U.S.C. 300aa-ll(aX2XAXi)) is 
amended by striking out "under subsection (b)". 
(3) Section 2111(aX5) (42 U.S.C. 300aa-ll(aX5)) is amended— 
(A) in subparagraph (A), by striking out "elect to with-
draw such action" and inserting in lieu thereof "petition to 
have such action dismissed without prejudice or costs", and 
(B) in subparagraph (B), by striking out "on the effective 
date of this part had pending" and inserting in lieu thereof 
"has pending" and by striking out "does not withdraw the 
action under subparagraph (A)". 
. 
(4) Section 2111(aX6) (42 U.S.C. 300aa-ll(aX6)) is amended by 
striking out "the effective date of this part" each place it occurs 
and inserting in lieu thereof "November 15,1988". 
(5) Section 2111(a) (42 U.S.C. 300aa-ll(a)) is amended by 
redesignating paragraph (8) as paragraph (9) and by inserting 
after paragraph (7) the following: 
"(8) If on the effective date of this part there was pending an 
appeal or rehearing with respect to a civil action brought 
against a vaccine administrator or manufacturer and if the 
outcome of the last appellate review of such action or the last 
rehearing of such action is the denial of dsimages for a vaccine-
related injury or death, the person who brought such action 
may file a petition under subsection (b) for such injury or 
death.". 
(6) Section 2111(c) (42 U.S.C. 300aa-ll(c)) is amended— 
(A) in paragraph (1), by inserting "except as provided in 
paragraph (3)," after "(1)" and in paragraph (2), bv insert-
ing "except as provided in paragraph (3)," after "(2) , 
103 STAT. 2286 
PUBLIC LAW 101-239—DEC. 19, 1989 
Records. 
42 use 
300aa-ll. 
Establishment. 
(B) by redesignating paragraph (2) as subsection (d), by 
r
^ 
expanding the margin of the paragraph to full measure, 
and by striking out "all available and inserting in lieu 
thereof "(d) AoornoNAL INFORMATION.—A petition may also 
include other available", by striking out "(including au-
topsy reports, if any)", and by striking out "and an identi-
fication and all that follows and inserting in lieu thereof a 
period, 
(C) by adding after paragraph (1) the following new para-
graphs: 
"(2) except as provided in paragraph (3), maternal prenatal 
and delivery records, newborn hospital records (including all 
physicians' and nurses' notes and test results), vaccination 
records associated with the vaccine allegedly causing the injury, 
pre- and post-injuiy physician or clinic records (including sdl 
relevant growth charts and test results), all post-injuiy in-
patient and outpatient records (including all provider notes, test 
results, and medication records), if applicable, a death certifi-
cate, and if applicable, autopsy results, and 
"(3) an identification of any records of the type described in 
paragraph (1) or (2) which are unavailable to the petitioner and 
the reasons for their unavailability.", and 
(D) by redesignating paragraph (3), as in effect on the date of 
the enactment, as sul^ection (e), by expanding the margin of the 
paragraph to full measure, and by striking out "appropriate" 
and inserting in lieu thereof "(e) SCHEDULE.—The petitioner 
shall submit in accordance with a schedule set by the special 
master assigned to the petition". 
(7) The margin on paragraph (9) of section 2111(a) (as so 
redesignated) is indented two ems. 
(8) Section 2115(eX2) (42 U.S.C. 300aa-15(eX2)) is amended— 
(A) by striking out "and elected under section 2111(aX4) 
to withdraw such action" and inserting in lieu thereof "and 
petitioned under section 2111(aX5) to have such action dis-
missed", and 
(B) by striking out "the judgment of the court on such 
petition may include" and inserting in lieu thereof "in 
awarding compensation on such petition the special master 
or court may include". 
(d) JURISDICTION.—Section 2112(a) (42 U.S.C. 300aa-12(a)) is 
amended— 
(1) by striking out "shall have jurisdiction (1)" and inserting 
in lieu thereof "and the United States Claims Court special 
masters shall, in accordance with this section, have jurisdic-
tion", 
(2) by striking out ", and (2) to issue" and inserting in lieu 
thereoi a period and the following: "The United States Claims 
Court may issue", and 
(3) by striking out "deem" and inserting in lieu thereof 
"deems". 
(e) SPECIAL MASTERS ESTABUSHED.—Section 2112 (42 U.S.C. SOOaa-
12) is amended— 
(1) by redesignating subsections (c), (d), and (e) as subsections 
(d), (e), and (f), respectively, and 
(2) by inserting after subsection (b) the following new subsec-
tion: 
"(c) UNITED STATES CLAIMS COURT SPECIAL MASTERS.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2287 
^'(1) There is established within the United States Claims 
Court an office of special masters which shall consist of not 
more than 8 special masters. The judges of the United States 
Claims Court shall appoint the special meisters, 1 of whom, by 
designation of the judges of the United States Claims Court, 
shall serve as chief special master. The appointment and re-
appointment of the special masters shall be by the concurrence 
of a majority of the judges of the court. 
"(2) The chief special master and other special masters shall 
be subject to removal by the judges of the United States Claims 
Court for incompetency, misconduct, or neglect of duty or for 
physical or mental disability or for other good cause shown. 
"(3) A special master's office shall be terminated if the judges 
of the United States Claims Court determine, upon advice of the 
chief special master, that the services performed by that office 
are no longer needed. 
"(4) The appointment of any individual as a special master 
shall be for a term of 4 years, subject to termination under 
par£igraphs (2) and (3). Individuals serving as special masters 
upon the date of the enactment of this subsection shall serve for 
4 years from the date of their original appointment, subject to 
termination under paragraphs (2) and (3). The chief special 
master in office on the date of the enactment of this subsection 
shall continue to serve as chief special master for the balance of 
the master's term, subject to termination under paragraphs (2) 
and (3). 
"(5) The compensation of the special masters shall be deter-
mined by the judges of the United States Claims Court, upon 
advice of the chief special master. The salary of the chief special 
master shall be the annual rate of basic pay for level IV of the 
Executive Schedule, as prescribed by section 5315, title 5, 
United States Code. The salaries of the other special masters 
shall not exceed the annual rate of basic pay of level V of the 
Executive Schedule, as prescribed by section 5316, title 5, 
United States Code. 
"(6) The chief special master shall be responsible for the 
following: 
"(A) Administering the office of special masters and their 
staff, providing for the efficient, expeditious, and effective 
handling of petitions, and performing such other duties 
related to the Program as may be assigned to the chief 
special master by a concurrence of a majority of the United 
States Claims Courts judges. 
"(B) Appointing and fixing the salary and duties of such 
administrative staff as are necessary. Such staff shall be 
subject to removal for good cause by the chief special 
master. 
"(C) Managing and executing all aspects of budgetary and 
administrative affairs affecting the special masters and 
their staff, subject to the rules and regulations of the 
Judicial Conference of the United States. The Conference 
rules and regulations pertaining to United States msig-
istrates shall be applied to the special masters. 
"(D) Coordinating with the United States Claims Court 
the use of services, equipment, personnel, information, and 
facilities of the United States Claims Court without re-
imbursement. 
103 STAT. 2288 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(E) Reporting annually to the Congress and the judges of 
the United States Claims Court on the number of petitions 
filed under section 2111 and their disposition, the dates on 
t- 
which the vaccine-related injuries and deaths for which the 
• 
petitions were filed occurred, the types and amounts of 
-^ 
awards, the length of time for the disposition of petitions, 
^ 
the cost of administering the Program, and recommenda-
tions for changes in the Program.". 
(f) PARTIES.—Section 2112(b) (42 U.S.C. 300aa-12(b)) is amended— 
(1) by amending the first sentence to read as follows: "In all 
proceedings brought by the filing of a petition under section 
2111(b), the Secretary shall be named as the respondent, shall 
participate, and shall be represented in accordance with section 
518(a) of title 28, United States Code.", and 
(2) by striking out the second sentence. 
(g) SPECIAL MASTER FUNCTIONS.—Section 2112(d) (42 U.S.C. 300aa-
12(d)) (as so redesignated by subsection (e)) is amended— 
(1) by amending paragraph (1) to read as follows: 
"(1) Following the receipt and filing of a petition under 
section 2111, the clerk of the United States Claims Court shall 
forward the petition to the chief special master who shall 
designate a special master to carry out the functions authorized 
by paragraph (3).", and 
(2) by stnking out paragraph (2) and inserting in lieu thereof 
the following: 
"(2) The special masters shall recommend rules to the Claims 
Court and, taking into account such recommended rules, the 
Claims Court shall promulgate rules pursuant to section 2071 of 
title 28, United States Code. Such rules shall— 
"(A) provide for a less-adversarial, expeditious, and infor-
mal proceeding for the resolution of petitions, 
. - 
"(B) include flexible and informal standards of admissibil-
ity of evidence, 
"(C) include the opportunity for summary judgment, 
"(D) include the opportunity for parties to submit argu-
ments and evidence on the record without requiring routine 
use of oral presentations, cross examinations, or hearings, 
and 
"(E) provide for limitations on discovery and allow the 
special masters to replace the usual rules of discovery in 
yj; 
civil actions in the United States Claims Court. 
"(3XA) A special master to whom a petition has been assigned 
. 
. shall issue a decision on such petition with respect to whether 
compensation is to be provided under the Program and the 
amount of such compensation. The decision of the special 
master shall— 
"(i) include findings of fact and conclusions of law, and 
. ., 
"(ii) be issued as expeditiously as practicable but not later 
., 
than 240 days, exclusive of suspended time under subpara-
graph (C), after the date the petition was filed. 
The decision of the special master may be reviewed by the 
United States Claims Court in accordance with subsection (e). 
"(B) In conducting a proceeding on a petition a special 
'• •> master— 
"(i) may require such evidence as may be reasonable and 
necessary. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2289 
"(ii) may require the submission of such information as 
^ 
may be reasonable and necessary, 
"(iii) may require the testimony of any person and the 
production of any documents as may be reasonable and 
necessary, 
"(iv) shall afford all interested persons an opportunity to 
submit relevant written information— 
"(I) relating to the existence of the evidence de-
scribed in section 2113(aXlXB), or 
"(II) relating to any allegation in a petition with 
respect 
to 
the 
matters 
described 
in 
section 
2111(cXlXCXii), and 
"(v) may conduct such hearings as may be reasonable and 
necessary. 
There may be no discovery in a proceeding on a petition other 
than the discovery required by the special master. 
"(C) In conducting a proceeding on a petition a special master 
shall suspend the proceedings one time for 30 days on the 
motion of either party. After a motion for suspension is granted, 
further motions for suspension by either party may be granted 
by the special master, if the special master determines the 
suspension is reasonable and necessary, for an aggregate period 
not to exceed 150 days. 
"(4XA) Except as provided in subparagraph (B), information 
submitted to a special master or the court in a proceeding on a 
petition may not be disclosed to a person who is not a party to 
the proceeding without the express written consent of the 
person who submitted the information. 
"(B) A decision of a special master or the court in a proceed- 
Classified 
ing shall be disclosed, except that if the decision is to include 
information, 
information— 
"(i) which is trade secret or commercial or financial 
^ 
information which is privileged and confidential, or 
"(ii) which are medical files and similar files the disclo-
sure of which would constitute a clearly unwarranted inva-
sion of privacy, 
and if the person who submitted such information objects to the 
^ 
inclusion of such information in the decision, the decision shall 
be disclosed without such information.", 
(h) ACTION BY THE UNITED STATES CLAIMS COURT.—Section 2112(e) 
(42 U.S.C. 300£ia-12(e)) (as so redesignated by subsection (e)) is 
amended to read as follows: 
"(e) ACTION BY THE UNITED STATES CLAIMS COURT.— 
"(1) Upon issuance of the special master's decision, the parties 
shall have 30 dajrs to file with the clerk of the United States 
Claims Court a motion to have the court review the decision. If 
such a motion is filed, the other party shall file a response with 
the clerk of the United States Claims dburt no later than 30 
days after the filing of such motion. 
'(2) Upon the filing of a motion under paragraph (1) with 
respect to a petition, the United States Claims Court shall have 
jurisdiction to undertake a review of the record of the proceed-
ings and may thereafter— 
"(A) uphold the findings of fact and conclusions of law of 
the special master and sustain the special master's decision, 
"(B) set aside any findings of fact or conclusion of law of 
the special master found to be arbitrary, capricious, an 
103 STAT. 2290 
PUBLIC LAW 101-239—DEC. 19, 1989 
abuse of discretion, or otherwise not in accordance with law 
and issue its own findings of fact and conclusions of law, or 
"(C) remand the petition to the special master for further 
action in accordance with the court s direction. 
The court shall complete its action on a petition within 120 days 
of the filing of a response under paragraph (1) excluding any 
days the petition is oefore a special master as a result of a 
remand under subparagraph (C). The court may allow not more 
than 90 days for remands under subparagraph (C). 
"(3) In the absence of a motion under paragraph (1) respecting 
the special master's decision or if the United States Claims 
Court takes the action described in paragraph (2XA) with re-
spect to the special master's decision, the clerk of the United 
States Claims Court shall immediately enter judgment in 
accordance with the special master's decision.", 
(i) APPEALS.—Section 2112(f) (42 U.S.C. 300aa-12(f)) (as so redesig-
nated by subsection (e)) is amended by inserting before the period 
the following: "within 60 days of the date of entry of the United 
States Claims Court's judgment with such court of appeals". 
(j) DETERMINATION OF EUGIBILITY AND COMPENSATION,—Section 
2113 (42 U.S.C. 300aa-13) is amended— 
(1) by striking "court" each place it appears and inserting in 
lieu thereof "special master or court", and 
(2) by inserting before "United States Claims Court" in 
subsection (c) "special masters of. 
(k) TABLE. 
(1) The table contained in section 2114(a) (42 U.S.C. 300aa-
14(a)) is amended by striking out "(cX2)" each place it appears 
and inserting in lieu thereof (bX2)". 
(2) Section 2114(bX3XB) (42 U.S.C. 300aa-14(bX3XB)) is 
amended by striking out "2111(b)" and inserting in lieu thereof 
"2111". 
(1) COMPENSATION.— 
(1) Section 2115(b) (42 U.S.C. 300aa-15(b)) is amended by 
striking out "may not include" and all that follows and insert-
ing in lieu thereof "may include the compensation described in 
paragraphs (IXA) and (2) of subsection (a) and may also include 
an amount, not to exceed a combined total of $30,000, for— 
"(1) lost earnings (as provided in paragraph (3) of subsec-
tion (a)), 
"(2) pain and suffering (as provided in paragraph (4) of 
subsection (a)), and 
"(3) reasonable attorneys' fees and costs (as provided in 
• 
(2) Section 2115(e) (42 US.C. 300aa-15(b)) is amended— 
(A) in the first sentence of paragraph (1), by striking out 
"The judgment of the United States Claims Court on a 
petition filed under section 2111 awarding compensation 
shall include an amount to cover" and inserting in lieu 
li 
thereof "In awarding compensation on a petition filed 
~ 
under section 2111 the special master or court shall also 
award as part of such compensation an amount to cover", 
(B) in the second sentence of paragraph (1), by striking 
out "civil action" each place it appears and insertmg in lieu 
thereof "petition", 
(C) in the second sentence of paragraph (1), by striking 
out "may include in the judgment an amount to cover" and 
inserting in lieu thereof "may award an amount of com-
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2291 
pensation to cover" and by striking out "court" each place 
it appears and inserting in lieu thereof "special master or 
^ 
court", 
(D) in paragraph (2), by striking out "the judgment of the 
court on such petition may include an amount' and insert-
ing in lieu thereof "the special master or court may also 
award an amount of compensation", and 
(E) in paragraph (3), by striking out "included under 
paragraph (1) in a judgment on such petition" and inserting 
in lieu thereof "awarded as compensation by the special 
master or court under paragraph (1)". 
(3) Section 2115(f) (42 U.S.C. 300aa-15(f)) is amended— 
(A) in paragraph (3), by inserting after "Pa3mients of 
compensation' the following: "under the Program and the 
costs of carrying out the Program", 
(B) in paragraph (4XA), bv striking out "made in a lump 
sum" and by adding aifter compensation" the second time 
it appears the following: "and shall be paid from the trust 
fund in a lump sum of which all or a portion of the proceeds 
may be used as ordered by the special master to purchase 
^ 
an annuity or otherwise be used, with the consent of the 
petitioner, in a manner determined by the special master to 
be in the best interests of the petitioner", and 
(C) in paragraph (4XB), by striking out "paid in 4 equal 
annual installments." and inserting in lieu thereof "deter-
mined on the basis of the net present value of the elements 
of compensation and paid in 4 equal annual installments of 
which all or a portion of the proceeds may be used £is 
ordered by the special master to purchase an annuity or 
_^ 
otherwise be used, with the consent of the petitioner, in a 
manner determined by the special master to be in the best 
interests of the petitioner. Any reasonable attorneys' fees 
and costs shall be paid in a lump sum.". 
(4) Section 2115 (42 U.S.C. 300aa-15) is amended— 
(A) in subsection (g), by inserting "(other than under title 
XIX of the Social Security Act)" after "State health benefits 
program", and 
(B) in subsection (h), by inserting before the period at the 
end the following: ", except that this subsection shall not 
apply to the provision of services or benefits under title XIX 
of t/lifi Soci3.1 Sccuritv Act'' 
(5) Section 2115(iXl) (42 U.S.C. 300aa-15(iXl)) is amended by 
striking out "(i)" and inserting in lieu thereof "(j)". 
(6) The first sentence of section 2115(j) (42 U.S.C. 300aa-15(j)) 
is amended by striking out "and" after 
1991," and by inserting 
before the period a comma and "$80,000,000 for fiscal year 
1993". 
(m) TECHNICALS.— 
(1) Section 2116(c) (42 U.S.C. 300aa-16(c)) is amended by strik-
ing out "2111(b)" and inserting in lieu thereof "2111". 
(2) Section 21170)) (42 U.S.C. 300aa-17(b)) is amended by 
striking out "the trust fund which has been established to 
provide compensation under the Program" and inserting in lieu 
thereof "the Vaccine Injury Compensation Trust Fund estab-
lished under section 9510 of the Internal Revenue Code of 1986". 
(n) ELECTION.— 
(1) Section 2121(a) (42 U.S.C. 300aa-21(a)) is amended— 
) 
103 STAT. 2292 
PUBLIC LAW 101-239—DEC. 19, 1989 
' 
(A) in the first sentence, by striking out "After the judg-
ment of the United States Claims Court under section 2111 
on a petition filed for compensation under the Program for 
a vaccine-related injury or death has become final, the 
person who filed the petition shall file with the court" and 
inserting in lieu thereof: "After judgment has been entered 
by the United States Claims Court or, if an appeal is taken 
• under section 2112(f), after the appellate court's mandate is 
issued, the petitioner who filed the petition under section 
2111 shall file with the clerk of the United States Claims 
Court", and 
(B) by amending the last sentence to read as follows: "For 
limitations on the bringing of civil actions, see section 
2111(aX2).". 
(2) Section 2121(b) (42 U.S.C. 300aa-21(b)) is amended— 
(A) in the first sentence, by striking out "within 365 
days" and inserting in lieu thereof "within 420 days 
(excluding any period of suspension under section 2112(d) 
and excluding any days the petition is before a special 
master as a result of a remand under section 2112(eX2XC))", 
/ 
and 
(B) by amending the second sentence to read as follows: 
"An election shall be filed under this subsection not later 
than 90 days after the date of the entry of the Claims 
Court's judgment or the appellate court's mandate with 
respect to which the election is to be made.". 
(o) TRIAL.—Section 2123(e) (42 U.S.C. 300aa-23(e)) is amended— 
(1) by striking out "finding" and inserting in lieu thereof 
"finding of fact or conclusion of law", 
(2) by striking out "master appointed by such court" and 
,,,,w> inserting in lieu thereof "special master", and 
(3) by striking out "a district court of the United States" and 
inserting in lieu thereof "the United States Claims Court and 
subsequent appellate review". 
(p) VACCINE INFORMATION.—Section 2126(cX9) (42 U.S.C. 300aa-
26(cX9)) is amended to read as follows: 
"(9) a summary of— 
"(A) relevant Federal recommendations concerning a 
; 
^ complete schedule of childhood immunizations, and 
"(B) the availability of the Program, and", 
(q) SAFER VACCINES.—Section 2127 (42 U.S.C. 300aa-27) is 
amended by redesignating subsection (b) as subsection (c) and by 
adding after subsection (a) the following: 
Establishment. 
"(b) TASK FORCE.— 
"(1) The Secretary shall establish a task force on safer child-
hood vaccines which shall consist of the Director of the National 
Institutes of Health, the Commissioner of the Food and Drug 
iS^f Administration, and the Director of the Centers for Disease 
Control. 
"(2) The Director of the National Institutes of Health shall 
serve as chairman of the task force. 
"(3) In consultation with the Advisory Commission on Child-
hood Vaccines, the task force shall prepare recommendations to 
the Secretary concerning implementation of the requirements 
of subsection (a).", 
(r) AUTHORIZATIONS.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2293 
(1) For administering part A of subtitle 2 of title XXI of the 
Public Health Service Act there is authorized to be appro-
priated from the Vaccine Injury Compensation Trust Fund 
established under section 951(Kc) of the InternEd Revenue Code 
of 1986 to the Secretary of Health and Human Services 
$1,500,000 for each of the fiscal years 1990 and 1991. 
(2) For administering part A of subtitle 2 of title XXI of the 
Public Health Service Act there is authorized to be appro-
priated from the Vaccine Injury Compensation Trust Fund to 
the Attorney Genersd $1,500,000 for each of the fiscal years 1990 
and 1991. 
(3) For administering part A of subtitle 2 of title XXI of the 
Public Health Service Act there is authorized to be appro-
priated from the Vaccine Injury Compensation Trust Fund to 
the United States Claims Court $1,500,000 for each of the fiscal 
. years 1990 and 1991. 
(s) APPLICABILITY AND EFFECTIVE DATE.— 
42 USC 300aa-l0 
(1) Except as provided in paragraph (2), the amendments note, 
made by this section shall apply as follows: 
(A) Petitions filed after the date of enactment of this 
section shall proceed under the National Vaccine Injury 
Compensation Program under title XXI of the Public 
Health Service Act as amended by this section. 
(B) Petitions currently pending in which the evidentiary 
record is closed shall continue to proceed under the Pro-
gram in accordance with the law in effect before the date of 
the enactment of this section, except that if the United 
States Claims Court is to review the findings of fact and 
conclusions of law of a special master on such a petition, 
the court may receive further evidence in conducting such 
review. 
(C) Petitions currently pending in which the evidentiary 
record is not closed shall proceed under the Program in 
accordance with the law as amended by this section. 
All pending cases which will proceed under the Program as 
amended by this section shall be immediately suspended for 30 
days to enable the special masters and parties to prepare for 
'proceeding under the Program as amended by this section. In 
determining the 240-day period prescribed by section 2112(d) of 
the Public Health Service Act, as amended by this section, or 
the 420-day period prescribed by section 2121(b) of such Act, as 
so amended, any period of suspension under the preceding 
sentence shall be excluded. 
(2) The amendments to section 2115 of the Public Health 
Service Act shall apply to all pending and subsequently filed 
petitions. 
(t) STUDY.—The Secretary of Health and Human Services shall Reports. 
evaluate the National Vaccine Injury Compensation Program under 
42 use 3oaaa-^ 
title XXI of the Public Health Service Act and shall report the ^°*«-
results of such study to the Committee on Energy and Commerce of 
the House of Representatives and the Committee on Labor and 
Human Resources of the Senate not later than January 1, 1992. 
SEC. 6602. SEVERABILITY. 
Section 322 of the National Childhood Vaccine Injury Act of 1986 
(42 U.S.C, 300aa-l note) is amended to read as follows: 
103 STAT. 2294 
PUBLIC LAW 101-239—DEC. 19, 1989 
"SEC. 322. SEVERABILITY. 
"(a) IN GENERAL.—Except as provided in subsection (b), if any 
provision of title XXI of the Public Health Service Act, as added by 
section 311(a), or the application of such a provision to any person or 
circumstance is held invalid by reason of a violation of the Constitu-
tion, such title XXI shall be considered invalid. 
"(b) SPECIAL RULE.—If any amendment made by section 6601 of 
the Omnibus Budget Reconciliation Act of 1989 to title XXI of the 
Public Health Service Act or the application of such a provision to 
any person or circumstance is held invalid by reason of the Constitu-
tion, subsection (a) shall not apply and such title XXI of the Public 
Health Service Act without such amendment shall continue in 
effect.". 
Subtitle E—Provisions With Respect to 
COBRA Continuation Coverage 
PART 1—EXTENSION OF COVERAGE FOR 
DISABLED EMPLOYEES 
SEC. 6701. EXTENSION, UNDER INTERNAL REVENUE CODE, OF COVERAGE 
FROM 18 TO 29 MONTHS FOR THOSE WITH A DISABILITY AT 
TIME OF TERMINATION OF EMPLOYMENT. 
(a) IN GENERAL.—Paragraph (2XB) of section 4980B(f) of the In-
ternal Revenue Code of 1986, as added by section 3011(a) of the 
Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-
647), (relating to maximum required period of continuation cov-
erage), is amended— 
(1) in clause (i) by adding after and below subclause (IV) the 
following new sentence: 
"In the case of a qualified beneficiary who is deter-
mined, under title II or XVI of the Social Security Act, 
to have been disabled at the time of a qualifjdng event 
described in paragraph 
(3XB), any reference 
in 
subclause (I) or (II) to 18 months with respect to such 
event is deemed a reference to 29 months, but only if 
the qualified beneficiary has provided notice of such 
determination under paragraph (6XC) before the end of 
such 18 months."; and 
^ 
(2) by adding at the end the following new clause: 
"(v) 
TERMINATION 
OF 
EXTENDED 
COVERAGE FOR 
DISABILITY.—In the case of a qualified beneficiary who 
is disabled at the time of a qualifying event described 
in paragraph (3XB), the month that begins more than 
30 days after the date of the final determination under 
• 
title II or XVI of the Social Security Act that the 
qualified beneficiary is no longer disabled.". 
(b) INCREASED PREMIUM PERMITTED.—Paragraph (2XC) of such 
section (relating to premium requirements) is eimended by adding at 
the end the following new sentence: "In the case of an individusd 
described in the last sentence of subparagraph (BXi), any reference 
in clause (i) of this subparagraph to '102 percent' is deemed a 
reference to '150 percent for any month after the 18th month of 
continuation coverage described in subclause (I) or (II) of subpara-
graph (BXi).". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2295 
(c) NOTICES REQUIRED.—Paragraph (6XC) of such section (relatmg 
to certain notices to plan administrator) is amended by inserting 
before the period at the end the following: "and each qualified 
beneficiary who is determined, under title II or XVI of the Social 
Security Act, to have been disabled at the time of a qualifying event 
described in paragraph (3XB) is responsible for notifying the plan 
administrator of such determination within 60 days after the date of 
the determination and for notif3dng the plan administrator within 
30 days of the date of any final determination under such title or 
titles that the qualified beneficiary is no longer disabled". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
42 use 4980B 
apply to plan years beginning on or after the date of the enactment 
note. 
of this Act, regardless of whether the qualifying event occurred 
before, on, or after such date. 
SEC. 6702. EXTENSION, UNDER PUBLIC HEALTH SERVICE ACT, OF COV-
ERAGE FROM 18 TO 29 MONTHS FOR THOSE WITH A DISABIL-
ITY AT TIME OF TERMINATION OF EMPLOYMENT. 
(a) IN GENERAL.—Section 2202(2) of the Public Health Service Act 
(42 U.S.C. 300bb-2) is amended— 
(1) in subparagraph (A), by adding after and below clause (iii) 
the following new sentence: 
"In the case of an individual who is determined, under title 
II or XVI of the Social Security Act, to have been disabled 
at the time of a qualif)ring event described in section 
2203(2), any reference in clause (i) or (ii) to 18 months with 
respect to such event is deemed a reference to 29 months, 
but only if the qualified beneficiary has provided notice of 
such determination under section 2206(3) before the end of 
such 18 months."; and 
(2) by adding at the end the following new subparagraph: 
"(E) TERMINATION OF EXTENDED COVERAGE FOR DISABIL-
ITY.—In the case of a qualified beneficiary who is disabled 
at the time of a qualif}dng event described in section 
2203(2), the month that begins more than 30 days after the 
date of the final determination under title II or XVI of the 
Social Security Act that the qualified beneficiary is no 
longer disabled.". 
(b) INCREASED PREMIUM PERMITTED.—Section 2202(3) of the Public 
Health Service Act (42 U.S.C. 300bb-3) is amended in the matter 
42 USC 300bb-2. 
after and below subparagraph (B) by adding at the end the following 
new sentence: "In the case of an individual described in the last 
sentence of paragraph (2XA), any reference in subparagraph (A) of 
this paragraph to '102 percent' is deemed a reference to '150 per-
cent' for any month after the 18th month of continuation coverage 
described in clause (i) or (ii) of paragraph (2XA).". 
(c) NOTICES REQUIRED.—Section 2206(3) of such Act (42 U.S.C. 
300bb-6(3)) (relating to certain notices to plan administrator) is 
amended by inserting before the comma the following: "and each 
qualified beneficiary who is determined, under title II or XVI of the 
Socied Security Act, to have been disabled at the time of a qualifjdng 
event described in section 2203(2) is responsible for notifying the 
plan administrator of such determination within 60 days after the 
date of the determination and for notifying the plan administrator 
' 
within 30 days after the date of any final determination under such 
title or titles that the qualified beneficiary is no longer disabled". 
103 STAT. 2296 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 300bb-2 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
^ote. 
apply to plan years b^inning on or after the date of the enactment 
of this Act, r^ardless of whether the qualifying event occurred 
before, on, or after such date. 
SEC. 6703. EXTENSION, UNDER ERISA, OF COVERAGE FROM 18 TO 29 
MONTHS FOR THOSE WITH A DISABILITY AT TIME OF TERMI-
,.j,; 
NATION OF EMPLOYMENT. 
(a) IN GENERAL.—Section 602(2) of the Employee Retirement 
29 use 1162. 
Income Security Act of 1974 (42 U.S.C. 1162(2)) is amended— 
>
=
; 
(1) in subparagraph (A), by adding after and below clause (iv) 
-
_ the following new sentence: 
^ ^ 
"In the case of an individual who is determined, under title 
n or XVI of the Social Security Act, to have been disabled 
at the time of a qualifying event described in section 603(2), 
'^^ 
any reference in clause (i) or (ii) to 18 months with respect 
to such event is deemed a reference to 29 months, but only 
if the qualified beneficiary has provided notice of such 
determination under section 606(3) before the end of such 
18 months."; and 
(2) by adding at the end the following new subparagraph: 
"(E) TERMINATION OF EXTENDED COVERAGE FOR DISABIL-
' ' 
ITY.—In the case of a qualified beneficiary who is disabled 
' 
at the time of a qualifying event described in section 603(2), 
the month that begins more than 30 days after the date of 
. 
the final determination under title II or XVI of the Social 
Security Act that the qualified beneficiary is no longer 
disabled.". 
(b) INCREASED PREMIUM PERMITTED.—Section 602(3) of such Act (42 
29 use 1162. 
U.S.C. 1162(3)) is amended in the matter after and below subpara-
graph (B) by adding at the end the following new sentence: "In the 
case of an individual described in the last sentence of paragraph 
(2XA), any reference in subparagraph (A) of this paragraph to '102 
percent' is deemed a reference to '150 percent' for any month after 
the 18th month of continuation coverage described in clause (i) or (ii) 
of paragraph (2XA).". 
(c) NOTICES REQUIRED.—Section 606(3) of such Act (42 U.S.C. 
29 use 1166. 
1166(3)) (relating to certain notices to plan administrator) is amend-
, 
ed by inserting before the comma the following: "and each qualified 
beneficiary who is determined, under title II or XVI of the Social 
Security Act, to have been disabled at the time of a qualifying event 
described in section 603(2) is responsible for notifying the plan 
administrator of such determination within 60 days after the date of 
the determination and for notifying the plan administrator within 
30 days after the date of any final determination under such title or 
titles that the qualified beneficiary is no longer disabled". 
29 use 1162 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to plan years beginning on or after the date of the enactment 
of this Act, regardless of whether the qualifying event occurred 
before, on, or after such date. 
?, 
r 
. 
PART 2—MISCELLANEOUS AMENDMENTS 
SEa 6801. PUBLIC HEALTH SERVICE ACT. 
(a) SECTION 2201.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2297 
(1) SUBSECTION (B).—Section 2201(b) of the Public Health 
Service Act (42 U.S.C. 300bb-l(b)) is amended by striking the 
matter after and below paragraph (2). 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to years beginning after December 31,1986. 
(b) SECTION 2202.— 
(1) PARAGRAPH (2XA).— 
(A) IN GENERAL.—Section 2202(2XA) of the Public Health 
Service Act (42 U.S.C. 300bb-2(2XA)) is amended by adding 
at the end the following new clause: 
"(iv) 
QUALIFYING 
EVENT 
INVOLVING 
MEDICARE 
^^ 
ENTTTLEMENT.—In the C£ise of an event described in 
section 2203(4) (without regard to whether such event is 
a qualifying event), the period of coverage for qualified 
beneficiaries other than the covered employee for such 
event or any subsequent qualifying event shall not 
terminate before the close of the 36-month period 
beginning on the date the covered employee becomes 
entitled to benefits under title XVIII of the Social 
Security Act." 
(B) EFFECTIVE DATE.—The amendments made 1^ this 
paragraph shall apply to plan years beginning after Decem-
ber 31,1989. 
(2) PARAGRAPH (2XD).— 
(A) IN GENERAL.—Section 2202(2XD) of the Public Health 
Service Act (42 U.S.C. 300bb-2(2XD)) is amended— 
(i) in the heading for such paragraph, by striking 
"EUGIBIIJTY" and inserting "ENTITLEMENT"; and 
(ii) in clause (i), by inserting before the comma the 
following: "which does not contain any exclusion or 
limitation with respect to any preexisting condition of 
such beneficiary". 
(B) EFFECTIVE DATE.—The amendments made by subpara-
graph (A) shall apply t o ^ 
(i) qualifying events occurring after December 31, 
1989, and 
(ii) in the case of qualified beneficiaries who elected 
continuation coverage after December 31, 1988, the 
period for which the required premium was paid (or 
was attempted to be paid but was rejected as such). 
(3) PARAGRAPH (3).— 
(A) IN GENERAL.—Section 2202(3) of the Public Health 
Service Act (42 U.S.C. 300bb-2(3)) is amended by amending 
the matter after and below subparagraph (B) to read as 
follows: 
"In no event may the plan require the payment of any premium 
before the day which is 45 days after the day on which the 
qualified beneficiary made the initial election for continuation 
coverage.". 
(B) EFFECTIVE DATE.—^The amendment made by subpara-
raph (A) shall apply to plan years beginning after Decem-
ir 31,1989. 
(c) SECTION 2208.— 
(1) PARAGRAPH (2).—Section 2208(2) of the Public Health Serv-
ice Act (42 U.S.C. 300bb-8(2)) is amended by striking "the 
individual's employment or previous employment with an em-
ployer" and inserting "tJie performance of services by the 
grs 
bei 
42 u s e 300bb-l 
note. 
42 u s e 300bb-2 
note. 
42 use 300bb-2 
note. 
42 u s e 300bb-2 
note. 
103 STAT. 2298 
PUBLIC LAW 101-239—DEC. 19, 1989 
individual for 1 or more persons maintaining the plan (includ-
ing as an employee defined in section 401(cXl) of the Internal 
Revenue Code of 1986)". 
42 use 300bb-8 
(2) EFFECTIVS DATE.—The amendment made by paragraph (1) 
note. 
shall apply to plan years b^^inning after December 31, 1989. 
Subtitle F—Technical and Miscellaneous 
Provisions Relating to Nursing Home Reform 
SEC. 6901. MEDICARE AND MEDICAID TECHNICAL CORRECTIONS RELAT-
ING TO NURSING HOME REFORM. 
(a) MORATORIUM ON IMPLEMENTATION OF FEBRUARY 2,1989 REGU-
LATION.—^The regulations promulgated by the Secretary of Health 
and Human Services on February 2,1989 (54 Federal Register 5315 
et seq., relating to requirements for long-term care facilities) shall 
not be effective before October 1, 1990, insofar as such regulations 
apply to skilled nursing facilities and intermediate care facilities 
,;. 
under title XVm or XIX of the Social Security Act. 
G)) NURSE AIDE TRAINING.— 
(1) DELAY IN REQUIREBIENT.—Sections 1819(bX5) and 1919(bX5) 
of the Social Security Act (42 U.S.C. 1395i-3(bX5), 1396r(bX5)) 
are each amended— 
(A) in subparagraph (A), by striking "January 1, 1990" 
and inserting "October 1,1990", and 
(B) in subparagraph (B), by striking "July 1, 1989" and 
"January 1, 1990" and mserting "January 1, 1990" and 
"October 1,1990". respectively. 
42 use i395i-3 
(2) PuBUCATioN O
P P
R
O
P
O
S
E
D REGULATIONS.—The Secretary of 
note. 
Health and Human Services shall issue proposed regulations to 
i,^ 
establish the requirements described in sections 1819(fX2) and 
' 
1919(fX2) of the Social Security Act by not later than 90 days 
after the date of the enactment of this Act. 
(3) 
REQUIREMENTS FOR TRAINING AND EVALUATION PRO-
GRAMS.—Sections 1819(fX2XA) and 1919(fX2XA) of the Social 
Security Act (42 U.S.C. 1395i-3(fX2XA), 1396r(fX2XA)) are each 
amended— 
(A) in clause (iXD, by inserting "care of cognitively im-
paired residents," after "social service needs."; 
(6) in clause (ii), by striking "cognitive, behavioral and 
social care" and inserting "recognition of mental health 
and social service needs, care of C(^nitively impaired resi-
dents"; 
(Q by striking the period at the end of clause (iii) and 
inserting "; and ; and 
(D) by adding at the end the following new clause: 
(iv) requirements, under both such programs, that— 
* 
"(I) provide procedures for determining com-
petency that permit a nurse aide, at the nurse 
aide's option, to establish competency through 
procedures or methods other than the passing of a 
written examination and to have the competency 
evaluation conducted at the nursing facility at 
which the aide is (or will be) employed (imless the 
facility is described in subparagraph (BXiiiXD), and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2299 
"(Q) prohibit the imposition on a niirse aide of 
any chaises (including any charges for textbooks 
and other required course materials and any 
changes for the competency evaluation) for either 
such program.'\ 
(4) DELAY AND TRANSITION IN 75-HOUB TRAINING PROGRAM 
R E Q U I R E M E N T . — 
•'-' '""•''> 
(A) Section 1919(fX2)(BXii) of such Act (42 U.S.C. 
1396r(fX2XBXii)) is amended by striking "January 1, 1989" 
and inserting "July 1,1989". 
(B) A nurse aide shall be considered to satisfy the require- 42 U
S
C i395i-3 
ment of sections 1819(bX5XA) and 1919(bX5XA) of the Social note. 
Security Act (of having completed a training and com-
petency evaluation program approved by a State under 
section 1819(eXlXA) or 1919(eXlXA) of such Act), if such aide 
would have satisfied such requirement as of July 1,1989, if 
a number of hours (not less than 60 hours) were substituted 
for "75 hours" in sections 1819(fX2) and 1919(fX2) of such 
Act, respectively, and if such aide had received, before 
July 1, 1989, at least the difference in the number of such 
" 
hours in supervised practical nurse £dde training or in 
r^ular in-service nurse aide education. 
(
C
O A nurse aide shall be considered to satisfy the require-
ment of sections 1819a>X5XA) and 1919(bX5XA) of the Social 
Security Act (of having completed a training and com-
petency evaluation pn^ram approved by a State under 
section 1819(eXlXA) or 1919(eXlXA) of such Act), if such aide 
was found competent (whether or not by the State), before 
July 1,1989, after the completion of a course of nurse aide 
training of at least 100 hours duration. 
(D) With respect to the nurse aide competency evsQuation 
requirements described in sections 1819(bX5XA) and 
19190W(5)(A) of the Social Security Act, a State may waive 
;3| , 
such requirements with respect to an individual who can 
^ 
demonstrate to the satisfaction of the State that such 
individual has served as a nurse aide at one or more 
facilities of the same employer in the State for at least 24 
consecutive months before the date of the enactment of this 
Act. 
(5) CLARIFICATION OF TEMPORARY ENHANCED FEDERAL FINAN-
CIAL PARTICIPATION FOR NURSE AIDE TRAINING BY NURSING FACILI-
TIES.— 
I 
(A) IN GENERAL.—Section 1903(aX2)(B) of such Act (42 
U.S.C 1396b(aX2XB)) is amended— 
(D by inserting "(including the costs for nurse aides to 
complete such competency evaluation programs)" after 
"1919(eXl)",and 
(ii) by inserting "(or, for calendar quarters b^inning 
on or after July 1, 1988, and before July 1, 1990, the 
lesser of 90 percent or ihe Federal medical assistance 
percentage plus 25 percentage points)" after "50 per-
cent". 
(B) 
N o ALLOCATION OF 
COSTS 
BEFORE 
OCTOBER 1, 1990.—^In 42 
USC 
1
3
9
6
b 
making payments under section 1903(aX2)(B) of the Social note. 
Securi^ Act for amounts expended for nurse aide training 
and competency evaluation programs, and competency 
103 STAT. 2300 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 1395i-3 
note. 
42 use 1396r 
note. 
42 use 1396b 
note. 
New York. 
Wisconsin. 
> 
evaluation programs, described in section 1919(eXl) of such 
Act, in the case of activities conducted before October 1, 
1990, the Secretary of Health and Human Services shall not 
^ 
take into accoimt, or allocate amounts on the basis of, the 
proportion of residents of nursing facilities that is entitled 
f
* •' 
tobenefitsundertitleXVniorXIXof such Act. 
(6) EFFKCTIVE DATES.— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendments made by this subsection shall take effect 
as if they were included in the enactment of the Omnibus 
Budget Reconciliation Act of 1987. 
(B) EXCEPTION.—The amendments made by paragraph (3) 
shall apply to nurse aide training and competency evalua-
tion prc^ams, and nurse aide competency evaluation pro-
grams, offered on or after the end of the 90-day period 
beginning on the date of the enactment of this Act, but 
shall not affect competency evaluations conducted imder 
programs offered before the end of such period. 
(c) 
PUBUCATION 
OF 
PROPOSED 
REGULATIONS 
RESPECTING 
PREADMISSION SCREENING AND ANNUAL RESIDENT REVIEW.—The 
Secretary of Health and Himian Services shall issue proposed regu-
lations to establish the criteria described in section 1919(fX8XA) of 
the Social Security Act by not later than 90 days after the date of 
the enactment of this Act. 
(d) OTHER AMENDMENTS.— 
(1) CLARIFICATION OF APPUCABILTTY OF ENFORCEMENT RULES TO 
DUALLY-CERTIFIED FACILITIES.—Section 19190iX8) of the Social 
Security Act (42 U.S.C. 1396r(hX8)) is amended by adding at the 
end the following: "The provisions of this subsection shall apply 
to a nursing facility (or portion thereof) notwithstanding that 
the facility (or portion thereof) also is a skilled nursing facility 
for purposes of title XVIII.". 
(2) CLARIFICATION OF FEDERAL MATCHING RATE FOR SURVEY AND 
CERTIFICATION ACTIVITIES.—During the period before October 1, 
1990, the Federal percents^ matehing pajrment rate under 
section 1903(a) of the Social Security Act for so much of the 
sums expended under a State plan imder title XIX of such Act 
as are attributeble to compensation or training of personnel 
responsible for inspecting public or private skilled nursing or 
intermediate care facilities to individuals receiving medical 
assistance to determine compliance with health or saiety stand-
ards shall be 75 percent. 
(3) MEDICARE WAIVER AUTHORITY FOR CERTAIN DEMONSTRATION 
PROJECTS.—(A) The Secretary of Health and Human Services 
may waive the survey and certification requirements of sections 
1819(g) and 1864(a) of the Social Security Act to the extent the 
Secretary determines is required to carry out a demonstration 
project in New York (relating to testing an approved alternative 
survey and certification process), which has been approved as of 
the date of the enactment of this Act. Such waiver shall apply 
only during the period beginning on November 1, 1988, and 
enmngon October 31,1991. 
(B) The Secretary also may waive the survey and certification 
requirements described in subparagraph (A) to the extent the 
Secretaiy determines is required to carry out a pilot demonstra-
tion project in Wisconsin (relating to testing an approved alter-
native survey and certification process). Such waiver shall apply 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2301 
only during the one-year period beginning on the date of im-
plementation of the project. 
(4) MISCELLANEOUS TECHNICAL coRREcnoNS.'-Sections 1819 
and 1919 of the Social Security Act are each further amended— 
(A) in subsection (cXlXAXii)^, by striking the closing 
parenthesis after "Secretary" and inserting a closing paren-
thesis after "obtained", 
(B) in subsection (cXlXAXvXD, by striking "accommoda-
tions" and inserting "accommodation", 
(C) in subsection (fX2XAXi)* by striking ", content of the 
curriculum" €md inserting "and content of the curriculum", 
and 
(D) in subsection (hX2XC) (of section 1819) and in subsec-
tion (hX3XD) (of section 1919), by insertiiu; "after the effec-
tive date of the findings" after "6 months . 
(5) ADDITIONAL MISCELLANEOUS TECHNICAL CORRECTIONS.—Sec-
tion 1910 of such Act (42 U.S.C. 13961) is amended— 
(A) by inserting "AND INTERII03)IATE CARE FACILITIES FOR 
THE MENTALLY RETARDED" after "RURAL HEALTH CUNICS", 
(B) in subsection (b)(1), by striking "skilled nursing or 
intermediate care facility" and inserting "intermediate 
care facility for the mentally retarded", 
iQ in subsection (bXl)> as amended by section 411GX6)(F) 
of the Medicare Catastrophic Coverage Act of 1988, by 
striking "1902(aX28) or section 1919 or section 1905(c)" and 
insertmg "1902(aX31) or section 1905(d)", and 
/ 
(D) in subsections O
b
X
D and a>X2), by striking "skilled 
nursing facili^ or intermediate care facility" each place it 
appears and inserting "intermediate care facility for the 
mentally retarded". 
(6) EFFECTIVE DATE.— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendments made b^ this subsection shall take effect 
as if t h ^ were included in the enactment of the Omnibus 
Budget reconciliation Act of 1987. 
(B) EXCEPTION.—^The amendment made by paragraph (1) 
shall take effect on the date of the enactment of this Act. 
42 u s e 1395i-3, 
1396r. 
42 u s e 1395i-3. 
Subtitle G—Public Health Service Act 
SEC 6911. ESTABUSHMENT OF AGENCY FOR HEALTH CARE POUCY AND 
RESEARCH. 
For amendments establishing the Agen^ for Health Care Policy 
and Research and creating a new tiue & in the Public Health 
Service Act, see section 6103 of this Act. 
TITLE VII—REVENUE MEASURES 
SEC. 7001. SHORT TITLE; ETC. 
(a) SHORT TiTLE.~This title may be cited as the "Revenue Rec-
onciliation Act of 1989". 
0>) AMENDMENT OF 1986 CODE.—Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section or 
Revenue 
Reconciliation 
Act of 1989. 
26 u s e 1 note. 
103 STAT. 2302 
PUBLIC LAW 101-239—DEC. 19, 1989 
other provision, the reference shall be considered to be made to a 
section or other provision of the Internal Revenue Code of 1986. 
(c) TABLE OP CONTENTS.— 
TITLE Vn—REVENUE MEASURES 
Sec. 7001. Short title; etc. 
Subtitle A—Extension of Expiring Tax Provisions 
Sec. 7101. Employer-provided educational assistance. 
Sec. 7102. Employer-provided group l^al services. 
Sec. 7103. Extension and modification of targeted jobs credit. 
Sec. 7104. Extension of qualified mortmge bonds. 
Sec. 7105. Extension of qualified small issue bonds. 
Sec. 7106. Extension of energy investment credit for solar, geothermal, and ocean 
thermal property. 
Sec. 7107. Ebctension of special rules for health insurance costs of self-employed 
individuals. 
Sec. 7108. Extension and modification of low-income housing credit. 
Sec. 7109. Low-income housing credit exempt from income phaseout of $25,000 
exemption from passive loss rules. 
Sec. 7110. Extension and modification of research credit. 
Sec. 7111. Allocation of research and experimental expenditures. 
Subtitle B—Corporate Provisions 
Sec. 7201. Limitation on use of group losses to offset income of subsidiary paying 
preferred dividends. 
Sec. 7202. Ireatment of certain high yield original issue discount obligations. 
Sec. 7203. Securities treated as boot under section 351. 
Sec. 7204. Provisions related to r^^ulated investment companies. 
Sec. 7205. Limitation on threshold requirement under section 382 built-in gain and 
loss provisions. 
Sec. 7206. Distnoutions on certain preferred stock treated as extraordinary divi-
dends. 
Sec. 7207. Repeal of election to reduce excess loss account recapture by reducing 
basis of indebtedness. 
Sec. 7208. Other provisions relating to treatment of stock and debt; etc. 
Sec. 7209. Estimated tax payments required for S corporations. 
Sec. 7210. Limitation on deduction for certain interest paid to related person. 
Sec. 7211. Limitations on refimds due to net operating loss carrybacks or excess 
interest allocable to corporate equity reduction transactions. 
Subtitle C—Employee Benefit Provisions 
PART I—EMPLOYKE STOCK OWNBRSHIP PLAN PROVISION8 
Sec. 7301. Limitations on partial exclusion of interest on loans used to acquire 
emplojrer securities. 
Sec. 7302. Limitations on deductions for dividends paid on employer securities. 
Sec. 7303. 3-year holding period required before section 1042 sale. 
Sec. 7304. Repeal of certain provisions relating to employee stock ownership plans. 
PART II—SscrnoN 401(h) ACC»UNT8 
Sec. 7311. Limitation on contributions to section 401(h) accounts. 
Subtitle D—Foreign Provisions 
Sec. 7401. Taxable year of certain foreign colorations. 
Sec. 7402. Limitation on use of deconsolidation to avoid foreign tax credit limita-
tions. 
Sec. 7403. Information with respect to certain foreign-owned corporations. 
Sec. 7404. Repeal of special treatment of interest on certain foreign loans. 
Subtitle E—Excise Tax Provisions 
Sec. 7501. 1-year suspension of automatic reduction in aviation-related taxes. 
Sec. 7502. Acceleration of deposit requirements for airline ticket tax. 
Sec. 7503. Increase in international air pissenger departure tax. 
Sec. 7504. Ship passengers international departure tax. 
Sec. 7505. Oil Spill LiiUbility Trust Fund tax to take effect on January 1,1990. 
Sec. 7506. Excise tax on sale of chemicals which deplete the ozone layer and of 
products contakiing such chemicals. 
Sec. 7507. Acceleration of deposit requirements for gasoline excise tax. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2303 
Sec. 7508. Taxation of bulk cigar imports. 
Subtitle F—Miscellaneous Provisions 
I 
PART I—LIMITATION O
N NoNRECOGNrnoN F
O
R CsaiTAiN EXCHANGES 
Sec. 7601. Like kind exchanges between related persons. 
PART II—MINIMUM TAX PROVISIONS 
Sec. 7611. Simplification of adjusted current earnings preference. 
Sec. 7612. Other modifications to minimum tax. 
PART III—ACCOUNTING PROVISIONS 
Sec. 7621. Repeid of completed contract method of accounting for long-term con-
tracts. 
Sec. 7622. Changes in treatment of transfers of franchises, trademarks, and trade 
names. 
PART IV—EMPLOYMENT TAX PROVISIONS 
Sec. 7631. Treatment of agricultural workers under wEige withholding. 
Sec. 7632. Acceleration of deposit requirements. 
•J 
/ > > 
5-,< 
PART V—OTHER PROVISIONS 
Sec. 7641. Limitation on section 104 exclusion. 
Sec. 7642. Treatment of distributions by partnerships of contributed property. 
Sec. 7643. Depreciation treatment of cellular telephones. 
Sec. 7644. Elimination of retroactive certification of employees for work incentive 
jobs credit. 
Sec. 7645. Disallowance of depreciation for certain term interests. 
Sec. 7646. Reporting of points on mortgage loans. 
Sec. 7647. Treatment of certain investment-oriented life insurance contracts. 
PART VI—TAX-EXEMPT BOND I*ROVISIONS 
Sec. 7651. Treatment of hedge bonds. 
Sec. 7652. Exceptions from arbitrage rebate requirement. 
Subtitle G—Revision of Civil Penalties 
Sec. 7701. Short title. 
PART I—DOCUMENT AND INFORMATION RETURN PENALTIES 
Sec. 7711. Uniform penalties for failures to comply with certain information report-
ing requirements. 
Sec. 7712. Information required with respect to certain foreign corporations. 
Sec. 7713. Uniform requirements for returns on magnetic media. 
Sec. 7714. Study of procedures to prevent mismatching. 
Sec. 7715. Study of service bureaus. 
PART II—REVISION OF ACCURACY-RELATED PENALTIES 
Sec. 7721. Revision of accuracy-related penalties. 
PART III—PREPARER, PROMOTER, AND PROTESTER PENALTIES 
Sec. 7731. Penalty for instituting proceedings before tax court primarily for delay, 
etc. 
Sec. 7732. Modifications to penalties on return preparers for certain understate-
ments. 
Sec. 7733. Modifications to other assessable penalties with respect to return prepar-
ers. 
Sec. 7734. Modifications to penalty for promoting abusive tax shelters, etc. 
Sec. 7735. Modifications to penalties for aiding and abetting understatement of tax 
liability. 
Sec. 7736. Modification to penalty for frivolous income tax return. 
'' • 
Sec. 7737. Authority to counterclaim for balance of penalty in partial refund suits. 
Sec. 7738. Repeal of bonding requirement under section 7407. 
Sec. 7739. Certain disclosures of information by preparers permitted. 
PART IV—FAILURES TO FILE OR PAY 
Sec. 7741. Increase in penalty for fraudulent failure to file. 
Sec. 7742. Failure to make deposit of taxes. 
Sec. 7743. Effect of payment of tax by recipient on certain penalties. 
103 STAT. 2304 
PUBLIC LAW 101-239—DEC. 19,1989 
Sobtitle H—Technical Corrections 
Sec 7801. Definition^ coordination with oilier subtitles. 
PAST I—AXIENIXIIENIS RELATED TO TBCHNICAI. AND MISCELLANEOUS KEVENUE ACT OF 
1988 
Sec. 7811. Amendments related to title I of the 1988 Act 
Sec. 7812. Amfaidments related to titie n of the 1988 Act 
Sec 7813. Amendments related to title m of the 1988 Act 
Sec 7814. Amondments related to title IV of the 1988 Act 
k i r
< 
Sec 7815. Amendmmts related to titie V <tf the 1988 Act 
Sec 7816. Amendmoits rdated to titie VI rfthe 1988 Act 
Sec 7817. infective date. 
^ 
. 
PAST II—AMENDMENTS RELATED TO REVEmnc ACT OF 1987 
Sec 7^1. Amraodments related to subtitle B. 
Sec 7822. Amendmraits related to subtitle C and following siibtities. 
Sec 7823. Efifective date. 
PABT m—AMENDMENTS RELATED TO TAX REFOBM ACT OF 1986 
Sec 7831. Amendments related to Tax Reform Act of 1986. 
PAST IV—MISCELLANEOUS CHANGES 
Sec 7841. Miscellaneous changes. 
PABT V—AMENDMENTS RELATED TO PENSION PROVISIONS 
Sec 7851. Definiticnis. 
SUBPAST A—AMENDMENTS BELATED TO TAX BEFOBM ACT OF 1986 
Sec 7861. Amendments related to titie XI of the Reform Act 
Sec 7862. Amratdmraits related to titie X 
V m of the Reform Act. 
Sec 7863. ESiective date. 
SUBPABT B—^AMENDMENTS BELATED TO OMNIBUS BUDGET BBOONCILIATION ACT OF 1986 
Sec 7871. Amendmfflits related to Omnibus Budget Reconciliation Act of 1986. 
SUBPABT C—AMENDMENTS BELATED TO PENSION PBOTECTTON ACT 
Sec 7881. Amendments related to Pension Protection Act 
Sec 7882. Effective dale. 
* " 
SUBPABT D—ADDITIONAL PENSION PROVISIONS 
Sec. 7891. Amendments relating to the Tax Reform Act of 1986. 
Sec 7892. Am^idments relating to the Pension Protection Act 
Sec 7893. Amendmmts relating to the Single-Emplover Pension Plan Amendments 
Act of 1986. 
,^. 
, . 
Sec 7894. Other amendments to ERISA. 
Subtitle A—^Extension of Expiring Tax 
Provisions 
SEC 7101. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE. 
(a) EXTENSION.— 
(1) IN GENERAL.—^Subsection (d) of section 127 (relating to 
educational 
assistance 
programs) is amended by 
striking 
"December 31,1988" and inserting "September 30,1990". 
26 use 127 note. 
(2) SPECIAL RULE.—^In the case of any taxable year beginning 
in 1990, only amounts paid before October 1, 1990, by the 
employer for educational assistance for the employee shall be 
taken into account in determining the amount excluded under 
section 127 of the Internal Revenue Code of 1986 with respect to 
such employee for such taxable year. 
(b) 
CERTAIN 
OTHERWISE 
TAXABLE 
EMPLOYER-PROVIDED 
EDU-
CATIONAL ASSISTANCE MAY BE EXCLUDIBLE AS WORKING CONDITION 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2305 
FRINGE.—Subsection (h) of section 132 is amended by adding at the 
26 USC 132. 
end thereof the following new paragraph: 
"(9) 
APPUCATION OF SECTION TO OTHERWISE TAXABLE EM-
PLOYER-PROVIDED EDUCATIONAL ASSISTANCE.—Amounts which 
would be excludible from gross income under section 127 but for 
subsection (aX2) thereof or the last sentence of subsection (cXD 
thereof shall be excluded from gross income under this section if 
(and only if) such amounts are a working condition fringe." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 127 note. 
apply to taxable years beginning £ifter December 31,1988. 
SEC. 7102. EMPLOYER-PROVIDED GROUP LEGAL SERVICES. 
(a) EXTENSION.— 
(1) IN GENERAL.—Subsection (e) of section 120 (relating to 
group legal services plans) is amended by striking "ending after 
December 31, 1988" and inserting "beginning after September 
30,1990". 
(2) SPECIAL RULE.—In the case of any taxable year beginning 26 USC 120 note, 
in 1990, only amounts paid before October 1, 1990, by the 
employer for coverage for the employee, his spouse, or his 
dependents under a qualified group legal services plan for 
periods before October 1, 1990, shall be taken into account in 
determining the amount excluded under section 120 of the 
Internal Revenue Code of 1986 with respect to such employee 
for such taxable year. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 120 note, 
shall apply to taxable years ending after December 31,1988. 
SEC. 7103. EXTENSION AND MODIFICATION OF TARGETED JOBS CREDIT. 
(a) EXTENSION.—Paragraph (4) of section 51(c) (relating to termi-
nation) is amended by striking "December 31, 1989" and inserting 
"September 30,1990". 
(b) EXTENSION OF AUTHORIZATION.—Paragraph (2) of section 261(f) 
of the Economic Recovery Tax Act of 1981 is amended by striking 26 USC 51 note, 
"and 1989" and inserting "1989, and 1990". 
(c) MODIFICATION OF REQUEST FOR CERTIFICATION.— 
(1) IN GENERAL.—Paragraph (16) of section 51(d) is amended 
by adding at the end thereof the following new subparagraph: 
"(C) EMPLOYER REQUEST MUST SPECIFY POTENTIAL BASIS FOR 
EUGiBiLiTY.—In any request for a certification of an individ-
ual as a member of a targeted group, the employer shall— 
'* 
"(i) specify each subparagraph (but not more than 2) 
of paragraph (1) by reason of which the employer be-
lieves that such individual is such a member, and 
"(ii) certify that a good faith effort was made to 
determine that such individual is such a member." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 51 note, 
shall apply to individuals who begin work for the employer after 
December 31,1989. 
SEC. 7104. EXTENSION OF QUALIFIED MORTGAGE BONDS. 
(a) IN GENERAL.—Subparagraph (B) of section 143(aXl) (defining 
qualified mortgage bond) is amended by striking "December 31, 
1989" each place it appears and inserting "September 30, 1990". 
(h) MORTGAGE CREDIT CERTIFICATES.—Subsection (h) of section 25 
is amended by striking "for any calendar year after 1989" and 
inserting "for any period after September 30,1990". 
103 STAT. 2306 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC 7105. EXTENSION OF QUALIFIED SMALL ISSUE BONDS. 
Subparagraph (B) of section 144(aX12) is amended by striking 
"substituting '1989' for '1986'" and inserting "substituting 'Septem-
ber 30,1990' for 'December 31,1986'". 
SEC 7106. EXTENSION OF ENERGY INVESTMENT CREDIT FOR SOLAR, 
GEOTHERBIAL, AND OCEAN THERMAL PROPERTY. 
The table contained in section 460>X2XA) (relating to energy 
percentage) is amended by striking "Dec. 31, 1989" in clauses (viii), 
(ix), and (x) and inserting '^Sept. 30,1990". 
SEC 7107. EXTENSION OF SPECIAL RULES FOR HEALTH INSURANCE 
COSTS OF SELF-EMPLOYED INDIVIDUALS. 
(a) EXTENSION.— 
(1) GENERAL RULE.—^Paragraph (5) of section 162(1) (relating to 
special rules for health insurance costs of self-employed individ-
imls) is amended by striking "December 31,1989" and inserting 
"September 30,1990". 
26 use 162 note. 
(2) SPECIAL RULE.—In the case of any taxable year b^inning 
in 1990— 
(A) only amounts paid before October 1, 1990, by the 
individual for insurance coverage for periods before October 
1, 1990, shall be taken into account in determining the 
amount deductible under section 162G) of the Internal Reve-
nue Code of 1986 with respect to such individual for such 
taxable year, and 
(B) for purposes of section 162(1X2XA) of such Code, the 
amount of the earned income described in such paragraph 
taken into account for such taxable year shall be the 
amount which bears the same ratio to tiie total amount of 
such earned income as the number of months in such 
taxable year ending before October 1, 1990, bears to the 
number of months in such taxable year. 
(b) SPECIAL RULE FOR C^TAIN S CORPORATION SHAREHOLDERS.— 
Subsection (1) of section 162 (as amended by subsection (a)) is 
amended by redesignating paragraph (5) as paragraph (6) and by 
inserting after paragraph (4) the following new paragraph: 
"(5) TREATMENT OF CERTAIN S CORPORATION SHAREHOLDERS.— 
This subsection shall apply in the case of any individual treated 
as a partner under section 1372(a), except that— 
"(A) for purposes of this subsection, such individual's 
wages (as defined in section 3121) from the S corporation 
s h ^ be treated as such individual's earned income (within 
the meaning of section 401(cXl)), and 
"(B) there shall be such adjustments in the application of 
this subsection as the Secretary may by regulations pre-
scribe." 
26 use 162 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1989. 
SEC. 7108. EXTENSION AND MODIFICATION OF LOW-INCOME HOUSING 
CREDIT. 
(a) EXTENSION.— 
(1) IN GENERAL.—Subsection (n) of section 42 (relating to low-
income housing credit) is amended to read as follows— 
"(n) TERMINATION.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2307 
"(1) IN GENERAL.—Except as provided in paragraph (2), for 
any calendar year after 1990— 
"(A) clause (i) of subsection (hX3XC) shall not apply, and 
"(B) subsection (hX4) shall not apply to any building 
placed in service after 1990. 
"(2) EXCEPTION FOR BOND-FINANCED BUILDINGS IN PROGRESS.— 
For purposes of paragraph (IXB), a building shall be treated as 
placed in service before 1990 if— 
"(A) the bonds with respect to such building are issued 
before 1990, 
"(B) such building is constructed, reconstructed, or re-
habilitated by the taxpayer, 
"(C) more than 10 percent of the reasonably anticipated 
cost of such construction, reconstruction, or rehabilitation 
has been incurred as of January 1, 1990, and some of such 
cost is incurred on or after such date, and 
"(D) such building is placed in service before January 1, 
1992." 
(2) SPECIAL RULE.—In the CEise of calendar year 1990, section 
26 use 42 note. 
42(hX3)(CXi) of the Internal Revenue Code of 1986 (as amended 
by subsection (bXD) shall be applied by substituting "$.9375" for 
"$1.25". 
(b) 1-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.— 
(1) IN GENERAL.—Section 42(hX3) (relating to housing credit 
dollar amount for agencies) is amended by redesignating sub-
paragraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), 
respectively, and by striking subparagraph (C) and inserting the 
following new subparagraphs: 
c 
"(C) STATE HOUSING CREDIT CEIUNG.—The State housing 
credit ceiling applicable to £iny State for any calendar year 
shall be an amount equal to the sum of— 
"(i) $1.25 multiplied by the State population, 
"(ii) the unused State housing credit ceiling (if any) of 
such State for the preceding calendar year, 
"(iii) the amount of State housing credit ceiling 
returned in the calendar year, plus 
"(iv) the amount (if any) allocated under subpara-
graph (D) to such State by the Secretary. 
For purposes of clause (ii), the unused State housing credit 
ceiling for any calendar year is the excess (if any) of the 
amount described in clause (i) over the aggregate housing 
credit dollar amount allocated for such year. For purposes 
of clause (iii), the amount of State housing credit ceiling 
returned in the calendar year equals the housing credit 
dollar amount previously allocated within the State to any 
project which does not become a qualiHed low-income hous-
ing project within the period required by this section or the 
terms of the allocation or to any project with respect to 
which an allocation is cancelled by mutual consent of the 
housing credit agency and the allocation recipient. 
"(D) 
UNUSED HOUSING CREDIT CARRYOVERS ALLOCATED 
AMONG CERTAIN STATES.— 
"(i) IN GENERAL.—The unused housing credit carry-
over of a State for any calendar year shall be assigned 
to the Secretary for allocation among qualified States 
for the succeeding calendar year. 
103 STAT. 2308 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(ii) UNUSED HOUSING CREDIT CARRYOVER.—For pur-
poses of this subparagraph, the unused housing credit 
carryover of a State for any ctdendar year is the excess 
(if any) of the unused State housing credit ceiHng for 
such year (as defined in subparagraph (CXii)) over the 
excess (if any) of— 
"(I) the aggregate housing credit dollar amount 
allocated for such year, over 
"(II) the amount described in clause (i) of 
subparEigraph (C). 
"(iii) FORMULA FOR ALLOCATION OF UNUSED HOUSING 
CREDIT CARRYOVERS AMONG QUALIFIED STATES.—The 
amount allocated under this subparagraph to a quali-
fied State for any calendar year shall be the amount 
determined by the Secretary to bear the same ratio to 
the aggregate unused housing credit carryovers of all 
States for the preceding calendar year sis such State's 
population for the calendar year bears to the popu-
lation of all qualified States for the calendar year. For 
purposes of the preceding sentence, population shall be 
determined in accordance with section 146(j). 
"(iv) QuAUFiED STATE.—For purposes of this subpara-
graph, the term 'qualified Static' means, with respect to 
a calendar year, any State— 
"(I) which allocated its entire State housing 
credit ceiling for the preceding calendar year, and 
"(II) for which a request is made (not later than 
May 1 of the calendar year) to receive an allocation 
under clause (iii)." 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraph (E) of section 42(hX5) is amended by 
striking "subparagraph (E)" and inserting "subparagraph 
' - 
(F)". 
(B) Paragraph (6) of section 42(h) is amended by striking 
subparagraph (B) and by redesignating subparagraphs (C), 
(D), and (E) as subparsigraphs (B), (C), and (D), respectively. 
(c) BUILDINGS EUGIBLE FOR CREDIT ONLY IF MINIMUM LONG-TERM 
COMMITMENT TO LOW-INCOME HOUSING.— 
(1) IN GENERAL.—Section 42(h) (relating to limitation on 
aggregate credit allowable with respect to projects located in a 
State) is amended by redesignating paragraphs (6) and (7) as 
paragraphs (7) and (8), respectively, and by inserting after 
paragraph (5) the following new paragraph: 
"(6) BUILDINGS EUGIBLE FOR CREDIT ONLY IF MINIMUM LONG-
TERM COMMITMENT TO LOW-INCOME HOUSING.— 
"(A) IN GENERAL.—No credit shall be allowed by reason of 
this section with respect to any building for the taxable 
year unless an extended low-income housing commitment is 
in effect as of the end of such taxable year. 
"(B) EXTENDED LOW-INCOME HOUSING COMMITMENT.—For 
purposes of this paragraph, the term 'extended low-income 
housing commitment means any agreement between the 
taxpayer and the housing credit agency— 
"(i) which requires that the applicable fraction (as 
defined in subsection (cXD) for the building for each 
taxable year in the extended use period will not be less 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2309 
than the applicable fraction specified in such agree-
ment, 
"(ii) which allows individuals who meet the income 
limitation applicable to the building under subsection 
(g) (whether prospective, present, or former occupants 
of the building) the right to enforce in any State court 
the requirement of clause (i), 
"(iii) which is binding on all successors of the tax-
paver, and 
'(iv) which, with respect to the property, is recorded 
pursuant to State law as a restrictive covenant. 
"(C) ALLOCATION OF CREDIT BIAY NOT EXCEED AMOUNT 
NECESSARY TO SUPPORT COMMITMENT.— 
"(i) IN GENERAL.—The housing credit dollar amount 
allocated to any building may not exceed the amount 
necessary to support the applicable fraction specified in 
the extended low-income housing commitment for such 
building, including any increase in such fraction pursu-
ant to the application of subsection (fX3) if such in-
crease is reflected in an amended low-income housing 
commitment. 
"(ii) BUILDINGS FINANCED BY TAX-EXEMPT BONDS.—-If 
paragraph (4) applies to any building the amount of 
credit allowed in any taxable year may not exceed the 
amount necessary to support the applicable fraction 
specified in the extended low-income housing commit-
ment for such building. Such commitment may be 
amended 
to 
increase such fraction. 
"(D) EXTENDED USE PERIOD.—For purposes of this para-
graph, the term 'extended use period' means the period— 
"(i) beginning on the 1st day in the compliance period 
on which such building is part of a qualified low-income 
housing project, and 
"(ii) ending on the later of— 
"(D the date specified by such agency in such 
agreement, or 
"(II) the date which is 15 years after the close of 
the compliance period. 
"(E) EXCEPTIONS IF FORECLOSURE OR IF NO BUYER WILLING 
TO MAINTAIN LOW-INCOME STATUS.— 
"(i) IN GENERAL.—The extended use period for any 
building shall terminate— 
([) on the date the building is acquired by fore-
closure (or instrument in lieu of foreclosure), or 
"(n) on the last day of the period specified in 
subparagraph (I) if the housing credit agencpr is 
unable to present during such period a qualuied 
contract for the acquisition of the low-income por-
tion of the building by any person who will con-
tinue to operate such portion as a qualified low-
income building. 
Subclause (II) shall not apply to the extent more strin-
gent requirements are provided in the agreement or in 
Stetelaw. 
"(ii) EVICTION, ETC. OF EXISTING LOW-INCOME TENANTS 
N
O
T P
E
R
M
I
T
T
E
D
.
—
T
h
e termination of an extended use 
period under clause (i) shall not be construed to permit 
103 STAT. 2310 
PUBLIC LAW 101-239—DEC. 19, 1989 
Regulations. 
'' -'''k-
before the close of the 3-year period following such 
termination— 
"(I) the eviction or the termination of tenancy 
(other than for good cause) of an existing tenant of 
anv low-income unit, or 
(ID any increase in the gross rent with respect 
to such unit. 
"(F) QUALIFIED CONTRACT.—For purposes of subparagraph 
(E), the term 'qualified contract' means a bona fide contract 
to acquire (within a reasonable period after the contract is 
entered into) the low-income portion of the building for an 
amount not less than the applicable fraction (specified in 
the extended low-income housmg commitment) of— 
"(i) the sum of— 
"(I) the outstanding indebtedness secured by, or 
with respect to, the building, 
"(11) the adjusted investor equity in the building, 
plus 
"(m) other capital contributions not reflected in 
the amoimts described in subclause (I) or (U), re-
duced by 
"(ii) cash distributions from (or available for distribu-
tion from) the project. 
The Secretary shall prescribe such regulations as may be 
necessary or appropriate to cany out this paragraph, 
including regulations to prevent the manipulation of the 
amount determined under the preceding sentence. 
"(G) ADJUSTED INVESTOR EQUITY.— 
"(i) IN GENERAL.—For purposes of subparagraph (E), 
the term 'adjusted investor equity* means, with respect 
to any calendar year, the aggregate amount of cash 
taxpayers invested with respect to the project increased 
by the amount equal to— 
"(I) such amount, multiplied by 
"(II) the cost-of-living adjustment for such cal-
endar year, determined under section l(fX3) by 
substituting the base calendar year for 'calendar 
year 1987'. 
An amount shall be taken into accoimt as an invest-
ment in the project only to the extent there was an 
obligation to invest such amount as of the beginning of 
the credit period and to the extent such amount is 
reflected in the adjusted basis of the project. 
"(ii) Ck>siH>F-LiviNG INCREASES IN EXCESS OF 5 PERCENT 
N
O
T T
A
K
E
N I
N
T
O ACCOUNT.—Under regulations pre-
scribed by the Secretary, if the CPI for any calendar 
year (as defined in section l(fX4)) exceeds the CPI for 
the preceding calendar year by more than 5 percent, 
the CPI for the base calendar year shall be increased 
such that such excess shall never be taken into accoimt 
under clause (i). 
"(iii) BASE CALENDAR YEAR.—For purposes of this 
subparagraph, the term 'base calendar year' means the 
calendar year with or within which the 1st taxable year 
of the creoit period ends. 
"(H) LOW-INCOME PORTION.—^For purposes of this para-
graph, the low-income portion of a buildmg is the portion of 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2311 
such building equal to the applicable fraction specified in 
the extended low-income housing commitment for the 
building. 
"(I) I^JiiOD FOR FINDING BUYER.—The period referred to in 
this subparsigraph is the 1-year period beginning on the 
date (after the 14th year of the compliance period) the 
taxpayer submits a written request to the housing credit 
agency to find a person to acquire the taxpayer's interest in 
the low-income portion of the building. 
"(J) SALES OF LESS THAN LOW-INCOME PORTION OF BUILD-
ING.—In the case of a sale or exchange of only a portion of 
the low-income portion of the building, only the same por-
tion (as the portion sold or exchanged) of the amount 
determined under subparagraph (F) shall be taken into 
account thereunder. 
"(K) EFFECT OF NONCOMPLIANCE.—If, during a taxable 
year, there is a determination that an extended low-income 
housing agreement was not in effect as of the beginning of 
such year, such determination shall not apply to any period 
before such year and subparagraph (A) shall be applied 
without regard to such determination if the failure is cor-
rected within 1 year from the date of the determination. 
"(L) PROJECTS WHICH CONSIST OF MORE THAN i BUILDING,— 
The application of this paragraph to projects which consist 
of more than 1 building shall be made under regulations 
prescribed by the Secretary." 
(2) (CONFORMING AMENDMENT.—Subparagraph (C) of section 
42(bX3) is amended by striking "subsection (hX6))" and inserting 
"subsection (hX7)". 
(d) CREDIT FOR ACQUISITION OF EXISTING BUILDING TO APPLY ONLY 
IF BUILDING TO BE REHABILITATED; INCREASE IN REQUIRED RE-
HABILITATION EXPENDITURES.— 
(1) IN GENERAL.—Subparagraph (B) of section 42(dX2) is 
amended by striking "and" at the end of clause (ii), by striking 
the period at the end of clause (iii) and inserting ", and", and by 
adding at the end thereof the following new clause: 
"(iv) except as provided in subsection (fX5), a credit is 
allowable under subsection (a) by reason of subsection 
(e) with respect to the building." 
(2) CJREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN 
BEFORE REHABILITATION CREDIT ALLOWED.—Subsection (f) of sec-
tion 42 (relating to definition and special rules relating to credit 
period), as amended b^ subtitle H, is amended by adding at the 
end thereof the foUowmg new paragraph: 
"(5) CREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN 
BEFORE REHABILITATION CREDIT ALLOWED.— 
"(A) IN GENERAL.—The credit period for an existing build-
ing shall not begin before the 1st taxable year of the credit 
period for rehabilitation expenditures with respect to the 
building. 
"(B) ACQUISITION CREDIT ALLOWED FOR CERTAIN BUILDINGS 
NOT ALLOWED A REHABILITATION CREDIT.— 
"(i) IN GENERAL.—In the case of a building described 
in clause (ii)— 
"(I) subsection (dX2)(BXiv) shall not apply, and 
"(II) the credit period for such building shall not 
^ 
begin before the taxable year which would be the 
"" 
103 STAT. 2312 
PUBLIC LAW 101-239—DEC. 19, 1989 
1st taxable year of the credit period for rehabilita-
tion expenditures with respect to the building 
under the modifications described in clause (iiXH). 
"(ii) BUILDING DESCRIBED.—A building is described in 
this clause if— 
"(I) a waiver is granted under subsection (d)(6XC) 
' ' 
with respect to the acquisition of the building, and 
"(II) a credit would be allowed for rehabilitation 
expenditures with respect to such building if 
* 
- * ' - 
subsection (eX3XAXiiXI) did not apply and if subsec-
tion (eX3XAXiiXII) were applied by substituting 
'$2,000'for'$3,000'." 
^ 
(3) INCREASE IN REQUIRED REHABIUTATION EXPENDITURES.— 
Paragraph (3) of section 42(e) is amended by redesignating 
subparagraph (B) as subparagraph (C) and by striking so much 
of such paragraph as precedes such subparagraph and inserting 
the following: 
"(3) MINIMUM EXPENDITURES TO QUALIFY.— 
"(A) IN GENERAL.—Paragraph (1) shall apply to re-
habilitation expenditures with respect to any building only 
if— 
"(i) the expenditures are allocable to 1 or more low-
income units or substantially benefit such units, and 
"(ii) the amount of such expenditures during any 24-
month period meets the requirements of whichever of 
the following subclauses requires the greater amount of 
such expenditures: 
"(I) The requirement of this subclause is met if 
. 
such amount is not less than 10 percent of the 
adjusted basis of the building (determined as of the 
' 
1st day of such period and without regard to para-
,, 
.. 
N
, , 
graphs (2) and (3) of section 1016(a)). 
, ^,, •., j^ -
^ V 
"(II) The requirement of this subclause is met if 
. 
*' : \ 
the qualified basis attributable to such amount, 
when divided by the number of low-income units in 
^ _»; 
the building, is $3,000 or more. 
v;., 
"(B) EXCEPTION FROM lO PERCENT REHABILITATION.—In the 
case of a building acquired by the taxpayer from a govern-
mental unit, at the election of the taxpayer, subparagraph 
(AXiiXD shall not apply and the credit under this section for 
such rehabilitation expenditures shall be determined using 
the percentage applicable under subsection (bX2XBXii)-" 
(e) CHANGES IN RULES RELATING TO RENT RESTRICTIONS.— 
(1) RENT RESTRICTION DETERMINED ON BASIS OF NUMBER OF 
BEDROOMS.— 
(A) Section 42(gX2) is amended by redesignating subpara-
graph (C) as subparagraph (E) and by inserting after 
-,. : 
subparagraph (B) the following new subparagraphs: 
"(C) IMPUTED INCOME UMITATION APPUCABLE TO UNIT.— 
For purposes of this paragraph, the imputed income limita-
tion applicable to a unit is the income limitation which 
; 1, 
would apply under paragraph (1) to individuals occupying 
the unit if the number of individuals occup3ring the unit 
were as follows: 
"(i) In the case of a unit which does not have a 
separate bedroom, 1 individual. , 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2313 
' ^ 
"(ii) In the case of a unit which has 1 or more 
separate bedrooms, 1.5 individuals for each separate 
bedroom. 
In the case of a project with respect to which a credit is 
1 
allowable by reason of this section and for which financing 
is provided by a bond described in section 142(aX7), the 
imputed income limitation shall apply in lieu of the other-
wise applicable income limitation for purposes of applying 
section 142(dX4XBXii). 
"(D) 
TREATMENT OF UNITS OCCUPIED BY INDIVIDUALS 
WHOSE INCOMES RISE ABOVE UMIT.— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
notwithstanding an increase in the income of the occu-
pants of a low-income unit above the income limitation 
applicable under paragraph (1), such unit shall con-
tinue to be treated as a low-income unit if the income of 
such occupants initially met such income limitation. 
1 > r, 
"(ii) NEXT AVAILABLE UNIT MUST BE RENTED TO LOW-
INCOME TENANT IF INCOME RISES ABOVE 140 PERCENT OF 
INCOME UMIT.—If the income of the occupants of the 
unit increases above 140 percent of the income limita-
tion applicable under paragraph (1), clause (i) shall 
cease to apply to such unit if any residential rental unit 
in the building (of a size comparable to, or smaller 
than, such unit) is occupied by a new resident whose 
income exceeds such income limitation." 
(B) Subparagraph (A) of section 42(gX2) is amended by 
striking ' the income limitation under paragraph (1) ap-
plicable to individuals occupying such unit" and inserting 
'the imputed income limitation applicable to such unit' 
(2) REDUCTION IN AREA MEDIAN GROSS INCOME NOT TO REQUIRE 
REDUCTION OF RENT.—Subparagraph (A) of section 42(gX2) (relat-
ing to rent-restricted units) is amended by adding at the end 
thereof the following new sentence: "For purposes of the preced-
ing sentence, the amount of the income limitation under para-
graph (1) applicable for any period shall not be less than such 
limitation applicable for the earliest period the building (which 
contains the unit) was included in the determination of whether 
the project is a qualified low-income housing project." 
(3) EXCLUSION WITH RESPECT TO CONTINUING CARE FACILITIES 
NOT TO APPLY IN DETERMINING INCOME.—Subparagraph (B) of 
section 142(dX2) is amended by adding at the end thereof the 
following: 
"Section 7872(g) shall not apply in determining the income of 
individuals under this subparagraph." 
(f) 
ADDITIONAL BUILDINGS EUGIBLE FOR WAIVER OF 10-YEAR 
PERIOD APPUCABLE TO ACQUISITIONS OF EXISTING BUILDINGS.—Para-
graph (6) of section 42(d) is amended by redesignating subparagraph 
(C) as subparagraph (E) and by inserting after subparagraph (B) the 
following new subparagraphs: 
"(C) 
LOW-INCOME BUILDINGS WHERE MORTGAGE MAY BE 
PREPAID.—A waiver may be granted under subparagraph 
(A) (without regard to any clause thereof) with respect to a 
federally-assisted building described in clause (ii) or (iii) of 
t
- 
subparagraph (B) if^ 
.• 
"(i) the mortgage on such building is eligible for 
? 
prepayment under subtitle B of the Emergency Low 
103 STAT. 2314 
PUBLIC LAW 101-239—DEC. 19, 1989 
Income Housing Preservation Act of 1987 or under 
section 502(c) of the Housing Act of 1949 at any time 
within 1 year after the date of the application for such 
•'> '' 
a waiver, 
"(ii) the appropriate Federal official certifies to the 
Secretary that it is resisonable to expect that, if the 
waiver is not granted, such building will cease comply-
ing with its low-income occupancy requirements, and 
(iii) the eligibility to prepay such mortgage without 
the approval of the appropriate Federal official is 
waived by all persons who are so eligible and such 
waiver is binding on all successors of such persons. 
"(D) 
BUILDINGS ACQUIRED FROM INSURED DEPOSITORY 
INSTITUTIONS IN DEFAULT.—A WEUver may be granted under 
subparagraph (A) (without regard to any clause thereof) 
with respect to any building acquired from an insured 
depository institution in default (as defined in section 3 of 
the Federal Deposit Insurance Act) or from a receiver or 
conservator of such an institution." 
(g) INCREASE IN CREDIT FOR BUILDINGS IN HIGH COST AREAS.— 
Paragraph (5) of section 42(d) (relating to eligible basis) is amended 
by adding at the end thereof the following new subparagraph: 
"(D) 
INCREASE IN CREDIT FOR BUILDINGS IN HIGH COST 
AREAS.— 
"(i) IN GENERAL.—In the CEise of any building located 
in a qualified census tract or difficult development area 
which is designated for purposes of this subpara-
graph— 
"(I) in the case of a new building, the eligible 
basis of such building shall be 130 percent of such 
*'-' 
basis determined without regard to this subpara-
graph, and 
' ^ 
"(II) in the case of an existing building, the 
rehabilitation expenditures taken into account 
-' ' 
under subsection (e) shall be 130 percent of such 
expenditures determined without regard to this 
' 
, 
subparagraph. 
"(ii) QUAUFIED CENSUS TRACT.— 
"(I) IN GENERAL.—The term 'qualified census 
tract' means any census tract in which 50 percent 
' 
' 
or more of the households have an income which is 
• 
" 
less than 60 percent of the area median gross 
income. 
' '^ 
' 
"(II) LIMIT ON MSA'S DESIGNATED.—The portion of 
a metropolitan statistical area which may be des-
* ' 
ignated for purposes of this subparagraph shall not 
exceed an area having 20 percent of the population 
of such metropolitan statistical area. 
"(Ill) DETERMINATION OF AREAS.—For purposes of 
this clause, each metropolitan statistical area shall 
be 
treated 
as 
a 
separate 
area 
and 
all 
nonmetropolitan areas in a State shall be treated 
as 1 area, 
"(iii) DIFFICULT DEVELOPMENT AREAS.— 
"(I) IN GENERAL.—The term 'difficult develop-
' 
' 
'•' 
• 
ment areas' means any area designated by the 
^ 
^:«t 
Secretary of Housing and Urban Development as 
PUBLIC LAW 101-239—DEC. 19, 1989 
_ 103 STAT. 2315 
an area which has high construction, land, and 
utility costs relative to area median gross income. 
"dD LIMIT ON AREAS DESIGNATED.—The portions 
of metropolitan statistical areas which may be des-
ignated for purposes of this subparagraph shall not 
exceed an aggr^ate area having 20 percent of the 
population of such metropolitan statistical areas. A 
comparable rule shall apply to nonmetropolitan 
areas, 
"(iv) SPECIAL RULES AND DEFINITIONS.—For purposes 
of this subparagraph— 
"(0 population shall be determined on the basis 
of the most recent decennial census for which data 
4
- 
are available, 
**0J) area median gross income shall be deter-
mined in accordance with subsection (gX4), 
"(HD the term 'metropolitan statistical area' has 
the same meaning as when used in section 
143(kX2)(B),and 
"(IV) the term 'nonmetropolitan area' means 
any county (or portion thereof) which is not within 
a metropolitan statistical area." 
(h) CHANGES IN RULES RELATING TO BUILDINGS FOR WHICH CREDIT 
MAY BE ALLOWED.— 
(1) SINGLE-ROOM OOCUPANCT UNITS RENTED ON A MONTHLY 
BASIS.—Subparagraph (B) of section 42(iX3) (relating to low 
income unit) is amended by adding at the end thereof the 
following new sentence: "For purposes of the preceding sen-
tence, a single-room occupancy unit shall not be treated as used 
on a transient basis merely because it is rented on a month-by-
month basis." 
(2) SPECIAL NEEDS HOUSING.—Subparagraph (B) of section 
42(^2) (relating to gross rent) is amended— 
(A) in clause (i), by striking "and" at the end, 
(B) in clause (ii), by striking the period at the end and 
inserting ", and", and 
(Q by adding at the end the following: 
"(iii) does not include any fee for a supportive service 
which is paid to the owner of the unit (on the basis of 
the low-income status of the tenant of the unit) by any 
governmental program of assistance (or by an oiganiza-
tion described in section 501(cX3) and exempt from tax 
under section 501(a)) if such program (or organization) 
provides assistance for rent and the amoimt of assist-
ance provided for rent is not separable from the 
amoimt of assistance provided for supportive services. 
For purposes of clause (iii), the term 'supportive service' 
means any service provided under a planned program of 
services designed to enable residents of a residentLed rental 
property to remcun independent and avoid placement in a 
hospital, nursing home, or intermediate care facility for the 
mentally or physically handicapped. In the case of a single-
room occupancy unit or a buildmg described in subsection 
(iX3)(BXiii), such term includes any service provided to 
assist tenants in locating and retaining permanent 
housing." 
103 STAT. 2316 
PUBLIC LAW 101-239—DEC. 19, 1989 
(3) SCATTERED SITE PROJECTTS.—Section 42(g) (relating to quali-
fied low-income housing project) is amended by addmg at the 
end thereof the following new paragraph: 
"(7) SCATTERED SITE PROJEcrrs.—Buildings which would (but for 
their lack of proximity) be treated as a project for purposes of 
this section sncdl be so treated if all of the dwelling units in 
each of the buildings are rent-restricted (within the meaning of 
paragraph (2)) residential rental units." 
(4) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER UNFFS 
EUGIBLE FOR CREDIT WHERE DEVELOPMENT PLAN.—SeCtion 42(iX3) 
(defining low-income unit), as amended by subtitle H, is 
amended by adding at the end thereof the following new 
subparagraph: 
"CE) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER 
UNTTS ELIGIBLE FOR CREDTT WHERE DEVELOPMENT PLAN.— 
"(i) I N GENERAL.—Subparagraph (C) shall not apply 
• "' •. 
to the acquisition or rehabilitation of a building pursu-
ant to a development plan of action sponsored by a 
State or local government or a qualified nonprofit 
organization (as defined in subsection (hX5XC)). 
(ii) LIMITATION ON CREDCT.—In the case of a building 
to which clause (i) applies, the applicable fraction shaU 
?-*•<, 
not exceed 80 percent of the unit fraction. 
"(iii) CERTAIN UNRENTED UNITS TREATED AS OWNER-
' 
-'- •- 
^ 
OCCUPIED.—In the case of a building to which clause (i) 
f 
applies, any unit which is not rented for 90 days or 
more shall be treated as occupied by the owner of the 
building as of the 1st day it is not rented." 
(5) BUILDINGS RECEIVING SECTION 8 MODERATE REHABIUTATION 
ASSISTANCE OR SIMILAR ASSISTANCE NOT ELIGIBLE FOR CREDIT.— 
Section 42(bXl) (relating to applicable percentage for buildings 
placed in service during 1987) is amended by adding at the end 
thereof the following new flush sentence: 
"A building shall not be treated as described in subparagraph 
i 
(B) if, at any time during the credit period, moderate rehabilita-
tion assistance is provided with respect to such building under 
section 8(eX2) of the United States Housing Act of 1937." 
(i) APPUCATION OF CREDIT TO TRANSIHONAL HOUSING FOR THE 
HOMELESS; DENIAL OF CREDIT FOR SUBSTANDARD HOUSING.— 
(1) IN GENERAL.—Subparagraph (B) of section 42(iX3) (defining 
low-income unit) is amended to read £is follows: 
"(B) EXCEPTIONS.— 
"(i) IN GENERAL.—A unit shall not be treated as a 
low-income unit unless the unit is suitable for occu-
pancy and used other than on a transient basis. 
"(u) SunABiLHY F
O
R OCCUPANCY.—For purposes of 
clause (i), the suitability of a unit for occupancv shall 
be determined under regulations prescribed by the Sec-
retary taking into account local health, ssdfety, and 
building codes. 
"(iii) TuANsmoNAL HOUSING FOR HOMELESS.—For 
purposes of clause (i), a unit shall be considered to be 
used other than on a transient basis if the unit contains 
sleeping accommodations and kitchen and bathroom 
faciuties and is located in a building— 
"(I) which is used exclusively to facilitate the 
transition of homeless individuals (within the 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2317 
meaniiig of section 103 of the Stewart B. McKinney 
Homeless Assistance Act (42 UJS.C. 11302), as in 
efiTect on the date of the enactment of this clause) 
to independent living within 24 months, and 
''dD in which a governmental entity or qualified 
nonprofit organization (as defined in subsection 
(hX5)) provides such individuals with temporary 
housing and supportive services designed to assist 
such individuals in locating and retaining perma-
nent housing. 
*'(iv) SiNGLB-HOOM O
C
C
U
P
A
N
C
Y UNITS.—For purposes 
of dause (i), a single-room occupancy unit shall not be 
treated as uised on a transient basis merely because it is 
rented on a month-by-month basis." 
(2) QUALIFIED BASIS TO INCLUDE POBTION OF BUILDING USED TO 
PBOViDE supFOBnvE SERVICES.—^Paragraph (1) of section 42(c) is 
amended by adding at the end thereof tiie following new 
subparagraph: 
''CB) QUALIFIED BASIS TO INCLUDE POBTION OF BUILDING 
USED TO PROVIDE SUPPORTIVE SERVICES FOR HOMELESS.—In 
the case of a qualified low-income buildii^ described in 
subsection (iX3)^Xiii)» the qualified basis of such building 
for any taxable year shall be increased by the lesser of— 
''(i) so much of the eligible basis of such building as is 
used throughout the year to provide supportive services 
designed to assist tenants in locating and retaining 
permanent housing, or 
"(ii) 20 percent of the qualified basis of such building 
(determined without r^iurd to this subparagraph)." 
(j) VOLUME CAP NOT TO APPLY WHERE 50 PERCENT OR MORE OF 
BUILDING Is FINANCED Wrni TAX-EXEMPT BONDS.—Subparagraph 
(B) of section 42(hX4) is amended by striking "70 percent" each place 
it appears and inserting "50 percent". 
(k) BUILDING NOT TUBATED AS FEDERALLY SUBSTOIZED BY REASON 
OF COMMUNITY DEVELOPMENT BLOCK GRANT.—Subparagraph (D) of 
section 42(iX2) (defining below market Federal loan) is amended by 
adding at the end thereof the following new sentence: "Such term 
shall not include any loan which would be a below market Federal 
loan solely by reason of assistance provided under section 106, 107, 
or 108 of the Housing and Conmiunity Development Act of 1974 (as 
in efiTect on the date of the enactment of this sentence)." 
(D ELIGIBLE BASIS FOR NEW BUILDINGS TO INCLUDE EXPENDITURES 
BEFORE C!LO6E OF 1ST YEAR OF CREDIT PERIOD.— 
(1) NEW BUILDINGS.—Paragraph (1) of section 42(d) (relating to 
eligible basis for new buildings) is amended by inserting berore 
the period "as of the close of the 1st taxable year of the credit 
period". 
(2) EXISTING BUILDINGS.—Subparagraph (A) of section 42(dX2) 
(relating to eligible basis for existing buildings) is amended by 
striking "subparagraph (B)" and all that follows through the 
end of clause (i) and inserting "subparagraph (B), its adjusted 
basis as of the close of the 1st taxable year of the credit period, 
and". 
(3) CONFORMING AMENDMENTS.— 
(A) Subparagraph (
C
D of section 42(dX2) is amended by 
striking "ACQUISITION COST" in the heading and inserting 
103 STAT. 2318 
PUBLIC LAW 101-239—DEC. 19, 1989 
, i- 
"ADJUSTED BASIS" and by striking "cost" in the text and 
^ 
inserting "adjusted basis . 
,-i , 
(B) Paragraph (5) of section 42(d), as amended by subsec-
tion (g), is further amended by striking subparagraph (A), 
by redesignating subparagraphs (B), (C), and (D) as subpara-
graphs (A), (B), and (C), respectively, and by striking the 
parsigraph heading and inserting the following: 
"(5) SPECIAL RULES FOR DETERMINING EUGIBLE BASIS.—". 
•m-T 
(C) Paragraph (5) of section 42(e) is amended by striking 
"subsection 
(dX2)(AXiXII)" 
and 
inserting 
"subsection 
(dX2XAXi)". 
(m) HOUSING CREDIT MAY BE ALLOCATED ON PROJECT BASIS.— 
(1) IN GENERAL.—Section 42(hXl) (relating to credit may not 
exceed credit amount allocated to building) is amended by 
adding at the end thereof the following new subparagraph: 
"(F) ALLOCATION OF CREDIT ON A PROJECT BASIS.— 
"(i) IN GENERAL.—In the case of a project which 
includes (or will include) more than 1 building, an 
, t 
allocation meets the requirements of this subparagraph 
, 
. 
"(I) the allocation is made to the project for a 
1
^ 
calendar year during the project period, 
. 
." 
.. 
"(II) the allocation only applies to buildings 
,.J5 ." 
placed in service during or after the calendar year 
* ^ , 
for which the allocation is made, and 
"(III) the portion of such allocation which is 
allocated to any building in such project is speci-
fied not later than the close of the calendar year in 
which the building is placed in service, 
"(ii) PROJECT PERIOD.—For purposes of clause (i), the 
term 'project period' means the period— 
"(I) beginning with the 1st calendar year for 
which an allocation may be made for the 1st build-
ing placed in service as part of such project, and 
"(II) ending with the calendar year the last 
... 
building is placed in service as part of such 
project.' 
(2) CONFORMING AMENDMENT.—Subparagraph (B) of section 
42(hXl) is amended by striking "or (E)" and inserting "(E), or 
(F)". 
(8) PROJECTS WITH MORE THAN i BUILDING MUST BE IDENTI-
FIED.—Section 42(gX3) (relating to date for meeting require-
ments) is amended by adding at the end thereof the following 
new subparagraph: 
"(D) RlOJECTS WITH MORE THAN 1 BUILDING MUST BE 
IDENTIFIED.—For purposes of this section, a project shall be 
treated as consisting of only 1 building unless, before the 
close of the 1st calendar year in the project period (as 
defined in subsection (hXlXFXii)), each building which is (or 
will be) part of such project is identified in such form and 
manner as the Secretary may provide." 
(n) CHANGES IN RULES RELATED TO DEEP RENT SKEWED PROJECTS.— 
(1) Clause (iii) of section 142(dX4XB) (relating to deep rent 
skewed project) is amended by striking "Vb" and inserting "V2". 
(2) Section 42(gX4) (relating to certain rules made applicable) 
is amended by striking "(other than section 142(dX4XBXiii))". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2319 
(o) INCREASED RESPONSIBILITIES FOR HOUSING CREDIT AGENCIES.— 
Section 42 is amended by redesignating subsections (m) and (n) as 
subsections (n) and (o), respectively, and by inserting after subsec-
tion (1) the following new subsection: 
"(m) RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.— 
"(1) PLANS FOR ALLOCATION OF CREDIT AMONG PROJECTS.— 
"(A) IN GENERAL.—Notwithstanding any other provision 
of this section, the housing credit dollar amount with re-
spect to any building shall be zero unless— 
"(i) such amount was allocated pursuant to a quali-
fied allocation plan of the housing credit agency which 
is approved by the governmental unit (in accordance 
with rules similar to the rules of section 147(fK2) (other 
than subparagraph (BXii) thereof)) of which such 
agency is a part, and 
"(ii) such agency notifies the chief executive officer 
(or the equivalent) of the local jurisdiction within 
which the building is located of such project and pro-
vides such individual a reasonable opportunity to com-
ment on the project. 
"(B) QUALIFIED ALLOCATION PLAN.—For purposes of this 
paragraph, the term 'qualified allocation plan' means any 
plan— 
"(i) which sets forth selection criteria to be used to 
determine housing priorities of the housing credit 
agency which are appropriate to local conditions, 
"(ii) which gives the highest priority to those projects 
as to which the highest percentage of the housing 
credit dollar amount is to be used for project costs other 
than the cost of intermediaries unless granting such 
priority would impede the development of projects in 
hard-to-develop areas, 
"(iii) which also gives preference in allocating hous-
ing credit dollar amounts among selected projects to— 
"(I) projects serving the lowest income tenants, 
and 
"(II) projects obligated to serve qualified tenants 
\.'. 
for the longest periods, and 
"(iv) which provides a procedure that the agency will 
follow in notifying the Internal Revenue Service of 
noncompliance with the provisions of this section 
which such agency becomes aware of. 
"(C) 
CERTAIN SELECTION CRITERIA MUST BE USED.—The 
selection criteria set forth in a qualified allocation plan 
must include— 
"(i) project location, 
"(ii) housing needs characteristics, 
"(iii) project characteristics, 
"(iv) sponsor characteristics, 
"(v) participation of loccJ tax-exempt organizations, 
"(vi) tenant populations with special housing needs, 
and 
"(vii) public housing waiting lists. 
"(D) APPUCATION TO BOND FINANCED PROJECTS.—Subsec-
tion (hX4) shall not apply to any project unless the project 
satisfies the requirements for allocation of a housing credit 
103 STAT. 2320 
PUBLIC LAW 101-239—DEC. 19, 1989 
dollar amount under the qualified allocation plan ap-
plicable to the area in which the project is located. 
"(2) CREDIT ALLOCATED TO BUILDING NOT TO EXCEED AMOUNT 
NECESSARY TO ASSURE PROJECT FEASIBILITY.— 
"(A) IN GENERAL.—The housing credit dollar amount allo-
cated to a project shall not exceed the amount the housing 
,, , 
credit sigency determines is necessary for the financial 
j' 
feasibility of the project £uid its viability as a qualified low-
income housing project throughout the credit period. 
"(B) AGENCY EVALUATION.—In making the determination 
1
- 
under subparagraph (A), the housing credit agency shall 
consider— 
"(i) the sources and uses of funds and the total 
financing planned for the project, and 
"(ii) any proceeds or receipts expected to be gen-
erated by reason of tax benefits. 
Such a determination shall not be construed to be a rep-
resentation or warranty as to the feasibility or viability of 
the project. 
"(C) DETERMINATION MADE WHEN CREDIT AMOUNT APPUED 
FOR AND WHEN BUILDING PLACED IN SERVICE.— 
"(i) IN GENERAL.—A determination under subpara-
graph (A) shall be made as of each of the following 
times: 
"(I) The application for the housing credit dollar 
4 
amount. 
"(II) The allocation of the housing credit dollar 
•^^ 
amount. 
* 
"(III) The date the building is placed in service, 
"(ii) CERTIFICATION AS TO AMOUNT OF OTHER SUB-
SIDIES.—Prior to each determination under clause (i), 
the taxpayer shall certify to the housing credit agency 
the full extent of all Federal, State, and local subsidies 
• 
" "
» 
which apply (or which the taxpayer expects to apply) 
with respect to the building. 
"(D) APPLICATION TO BOND FINANCED PROJECTS.—Subsec-
tion (hX4) shall not apply to any project unless the govern-
mental unit which issued the bonds (or on behalf of which 
the bonds were issued) makes a determination under rules 
similar to the rules of subparagraphs (A) and (B)." 
(o) APPUCATION OF AT-RISK RULES WITH RESPECT TO CERTAIN 
FINANCING PROVIDED BY QUAUFIED NONPROFIT ORGANIZATIONS.— 
Subparagraph (D) of section 42(kX2) (relating to application of at-
risk rules) is amended by adding at the end thereof the following 
new flush sentence: 
"In the case of a qualified nonprofit organization which is 
not described in section 46(cX8XDXivXII) with respect to a 
building, clause (ii) of this subparagraph shall be applied as 
if the date described therein were the 90th day after the 
earlier of the date the building ceases to be a qualified low-
income building or the date which is 15 years after the close 
of a compliance period with respect thereto." 
(p) TIME FOR (CERTIFICATION.—Section 42(1X1) (relating to certifi-
cation with respect to 1st year of credit period) is amended— 
(1) by striking "Not later than the 90th day following" and 
inserting "Following", and 
(2) by inserting at such time and" before "in such form". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2321 
(q) IBIPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE PROP-
EBTY.—Subsection (i) of section 42 is amended by adding at the end 
thereof the following new paragraph: 
"(8) IMPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE 
PROPERTY.— 
"(A) IN GENERAL.—No Federal income tax benefit shall 
i 
fail to be aUowable to the taxpayer with respect to any 
qualified low-income building merely by reason of a right of 
1st refusal held by the tenants of such building to purchase 
the property after the close of the compliance period for a 
price which is not less than the minimum purchase price 
determined under subparagraph (B). 
"(B) MINIMUM PURCHASE PRICE.—For purposes of subpara-
graph (A), the minimum purchase price under this subpara-
graph is an amount equal to the sum of— 
"(i) the principal amount of outstanding indebtedness 
secured by the building (other than indebtedness in-
curred within the 5-year period ending on the date of 
- 
/ 
the sale to the tenants), and 
"(ii) all Federal, State, and local taxes attributable to 
such sale. 
Except in the case of Federal income taxes, there shall not 
be taken into account under clause (ii) any additional tax 
attributable to the application of clause (ii). 
(r) EFFECTIVE DATES.— 
26 use 42 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
determinations under section 42 of the Internal Revenue (I!ode 
of 1986 with respect to housing credit dollar amoimts allocated 
from State housing credit ceilings for calendar years after 1989. 
(2) BUILDINGS NOT SUBJECT TO ALLOCATION UMITS.—Except as 
otherwise provided in this subsection, to the extent paragraph 
(1) of section 42(h) of such Code does not apply to any buBding 
by reason of paragraph (4) thereof, the amendments made by 
this section shall apply to buildings placed in service after 
December 31,1989. 
(3) ONE-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.— 
The amendments made by subsection (b) shall apply to calendar 
years after 1989, but clauses (ii), (iii), and (iv) of section 
42(hX3XC) of such Code (as added by this section) shall be 
applied without r^ard to allocations for 1989 or any preceding 
year. 
(4) ADDITIONAL BUILDINGS EUGIBLE FOR WAIVER OF IO-YEAR 
RULE.—^The amendments made by subsection (f) shall take effect 
on the date of the enactment of this Act. 
(5) CERTIFICATIONS WITH RESPECT TO IST YEAR OF CREDIT 
PERIOD.—The amendment made by sul^ection (p) shall apply to 
taxable years ending on or after December 31,1989. 
(6) CERTAIN RULES WHICH APPLY TO BONDS.—Paragraphs (1)(D) 
and (2)(D) of section 42(m) of such Code, as added by this section, 
shall apply to obligations issued December 31,1989. 
(7) CLARIFICATIONS.—^The amendments made by the following 
provisions of this section shall apply as if included in the 
amendments made by section 252 of the Tax Reform Act of 
1986: 
(A) Paragraph (1) of subsection (h) (relating to units 
rented on a monthly basis). 
103 STAT. 2322 
PUBLIC LAW 101-239—DEC. 19, 1989 
(B) Subsection (1) (relating to eligible basis for new build-
ings to include expenditures before close of 1st year of 
credit period). 
3 
(8) GUIDANCE ON DIFFICULT DEVELOPMENT AREAS AND POSTING 
O
F BOND TO AVOID RECAPTURE.—Not later than 180 days after the 
date of the enactment of this Act— 
(A) the Secretary of Housing and Urban Development 
i 
shall publish initirn guidance on the designation of d^cult 
development areas under section 42(dX5XC) of such Code, as 
added by this section, and 
* 
(B) the Secretary of the Treasury shall publish initial 
guidance under section 42(jX6) of such Code (relating to no 
''" 
recapture on disposition of building (or interest therein) 
where bond posted). 
SEC. 7109. LOW-INCOME HOUSING CREDIT EXEMPT FROM INCOME 
PHASE-OUT OF $25,000 EXEMPTION FROM PASSIVE LOSS 
RULES. 
(a) IN GENERAL.—Paragraph (3) of section 469(i) (relating to phase-
out of exemption) is amended by redesignating subparagraph (D) as 
subparagraph (E) and by striking subparagraphs (B) and (C) and 
inserting the following new subparagraphs: 
"(B) SPECIAL PHASE-OUT OF REHABILITATION CREDIT.—In 
the case of any portion of the passive activity credit for any 
taxable year which is attributable to the rehabilitation 
investment credit (within the meaning of section 48(o)), 
subparagraph (A) shall be applied by substituting '$200,000' 
for ^$100,000'. 
"(C) EXCEPTION FOR LOW-INCOME 
HOUSING 
CREDIT.— 
Subparagraph (A) sh^l not apply to any portion of the 
passive activity credit for any taxable year which is attrib-
utable to any credit determined under section 42. 
"(D) ORDERING RULES TO REFLECT EXCEPTION AND SEPA-
RATE PHASE-OUT.—If subparagraph (B) or (C) applies for any 
taxable year, par£igraph(l) shall be applied— 
"(i) first to the passive activity loss, 
"(ii) second to the portion of the passive activity 
credit to which subparagraph (B) or (C) does not apply, 
"(iii) third to the portion of such credit to which 
subparagraph (B) applies, and 
"(iv) then to the portion of such credit to which 
subparagraph (C) applies." 
26 use 469 note. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to property placed 
in service after December 31,1989, in taxable years endmg after 
such date. 
(2) SPECIAL RULE WHERE INTEREST HELD IN PASS-THRU ENTITY.— 
In the case of a taxpayer who holds an indirect interest in 
property described in paragraph (1), the amendments made by 
this section shall apply only if such interest is acquired after 
December 31,1989. 
SEC. 7110. EXTENSION AND MODIFICATION OF RESEARCH CREDIT. 
(a) EXTENSION.— 
(1) IN GENERAL.—Subsection (h) of section 41 (relating to 
termination), as redesignated by subtitle H, is amended— 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2323 
(A) by striking "December 31,1989" each place it appears 
and inserting "December 31,1990", and 
(B) by striking "January 1, 1990" each place it appears 
and inserting "January 1,1991". 
(2) SPECIAL RULES.— 
26 use 4i note. 
(A) In the case of any taxable year which b^ins before 
October 1, 1990, and ends after September 30, 1990, the 
amount treated as the qualified research expenses for such 
taxable year for purposes of section 41 of the Internal 
Revenue Code of 1986 shall be the amount which bears the 
same ratio to the amount which would have been deter-
mined for such taxable year without r^ard to this subpara-
graph as the number of days in such taxable year before 
October 1, 1990, bears to the total number of days in such 
taxable year before January 1,1991. 
(B) In the case of a taxable year described in subpara- 
^
^ 
graph (A), paragraph (2) of section 41(h) of such Code, as so 
redesignated, shall be applied by substituting "October 1, 
1990" for "January 1, 1991" each place it appears and by 
substituting "September 30,1990" for "December 31,1990'\ 
(3) CONFORMING AMENDMENT.—Subparagraph (D) of section 
28(bXl) is amended by striking "December 31,1989" and insert-
ing "December 31,1990". 
(b) CHANGES IN COMPUTATION OF INCREMENTAL CREDIT.— 
(1) IN GENERAL.—Subsection (c) of section 41 is amended to 
read as follows: 
"(c) BASE AMOUNT.— 
"(1) IN GENERAL.—The term 'base amount' means the product 
of— 
"(A) the fixed-base percentage, and 
"(B) the average annual gross receipts of the taxpayer for 
the 4 taxable years preceding the taxable year for which 
the credit is being determined (hereinafter in this subsec-
tion referred to as the 'credit year'). 
"(2) MINIMUM BASE AMOUNT.—^In no event shall the base 
amount be less than 50 percent of the qualified research ex-
penses for the credit year. 
"(3) FIXED-BASE PERCENTAGE.— 
"(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, the fixed-base percentage is the percentage 
which the aggregate qusdined research expenses of the 
taxpayer for taxable years beginning after December 31, 
1983, and before January 1, 1989, is of the aggregate gross 
receipts of the taxpayer 
for 
such taxable years. 
"(B) START-UP COMPANIES.— 
"(i) TAXPAYERS TO WHICH SUBPARAGRAPH APPLIES.— 
The fixed-base percentage shall be determined under 
this subparagraph if there are fewer than 3 taxable 
years beginning after December 31, 1983, and before 
January 1, 1989, in which the taxpayer had both gross 
receipts and qualified research escpenses. 
"(ii) FIXED-BASE PERCENTAGE.—In a case to which this 
subparagraph appUes, the fixed-base percentage is 3 
percent. 
"(iii) TREATMENT OF DE MiNnas AMOUNTS OF GROSS 
R
E
C
E
I
P
T
S AND QUALIFIED R
E
S
E
A
R
C
H EXPENSES.—The Sec-
retary may prescribe regulations providing that de 
103 STAT. 2324 
PUBLIC LAW 101-239—DEC. 19, 1989 
•J 
minimis amounts of gross receipts and qualified re-
search expenses shall be disregarded under clause (i). 
"(C) MAXIMUM FIXED-BASE PERCENTAGE.—In no event 
shall the fixed-base percentage exceed 16 percent. 
"(D) ROUNDING.—The percentages determined under 
subparagraph (A) shall be rounded to the nearest 1/100th of 
1 percent. 
"(4) CONSISTENT TREATMENT OF EXPENSES REQUIRED.— 
"(A) IN GENERAL.—Notwithstanding whether the period 
for filing a claim for credit or refund h£is expired for any 
taxable year taken into account in determining the fixed-
base percentage, the qualified research expenses taken into 
account in computing such percentage shall be determined 
on a bgisis consistent with the determination of qualified 
research expenses for the credit year. 
^ 
"(B) PREVENTION OF DISTORTIONS.—The Secretary may 
prescribe regulations to prevent distortions in calculating a 
taxpayer's qualified research expenses or gross receipts 
caused by a change in accounting methods used by such 
taxpayer between the current year and a year taken into 
account in computing such taxpayer's fixed-base percent-
age. 
"(5) GROSS RECEIPTS.—For purposes of this subsection, gross 
receipts for any taxable year shall be reduced by returns and 
allowances made during the taxable year. In the case of a 
foreign corporation, there shall be taken into account only gross 
receipts which are effectively connected with the conduct of a 
trade or business within the United States." 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraph (B) of section 41(aXl) is amended to 
read as follows: 
"(B) the base amount, and". 
(B) Clause (ii) of section 41(eX7XC) is amended by striking 
"base period research expenses" and inserting "base 
* 
amount . 
(C) Paragraph (1) of section 41(f) (relating to aggregation 
of expenditures) is amended by striking "proportionate 
share of the increase in qualified research expenses" each 
place it appears and inserting "proportionate shares of the 
' qualified research expenses and basic research payments". 
(D) Subparagraph (A) of section 41(fX3) is amended— 
(i) by striking "June 30,1980" and inserting "Decem-
ber 31,1983", and 
(ii) by inserting before the period ", and the gross 
receipts of the taxpayer for such periods shall be in-
creased by so much of the gross receipts of such prede-
cessor with respect to the acquired trade or business as 
is attributable to such portion". 
(E) Subparagraph (B) of section 41(fX3) is amended— 
(i) by striking "June 30, 1980" and inserting "Decem-
ber 31,1983", and 
(ii) by inserting before the period ", and the gross 
receipts of the taxpayer for such periods shall be de-
creased by so much of the gross receipts as is attrib-
utable to such portion". 
(FXi) Subparagraph (C) of section 41(fX3) is amended by 
striking "for the base period" and all that follows and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2325 
inserting "for the taxable years taken into account in 
computing the fixed-base percentage shall be increased by 
the lesser of— 
"(i) the amount of the decresise under subparagraph 
* * 
(B) which is allocable to taxable years so taken into 
account, or 
"(ii) the product of the number of taxable years so 
taken into account, multiplied by the amount of the 
reimbursement described in this subparagraph." 
(ii) The heading for such subparagraph (C) is amended to 
read as follows: 
"(C) CERTAIN REIMBURSEMENTS TAKEN INTO ACCOUNT IN 
DETERMINING FIXED-BASE PERCENTAGE.—". 
(G) Par£igraph (4) of section 41(f) is amended by inserting 
"and gross receipts" after "qualified research expenses'. 
(H) Paragraph (2) of section 41(h), as redesignated by 
subtitle H, is amended— 
(i) by striking "BASE PERIOD EXPENSES" in the heading 
and inserting "BASE AMOUNT", and 
(ii) by striking "any amount for any base period" and 
all that follows through "such base period" and insert-
ing "the base amount with respect to such taxable year 
shall be the amount which bears the same ratio to the 
base gunount for such year (determined without regard 
to this paragraph)". 
(b) TRADE OR BUSINESS REQUIREMENT DISREGARDED FOR IN-HOUSE 
RESEARCH EXPENSES OF CERTAIN STARTUP VENTURES.—Subsection (b) 
of section 41 (defining qualified research expenses) is amended by 
adding at the end thereof the following new paragraph: 
"(4) TRADE OR BUSINESS REQUIREMENT DISREGARDED FOR IN-
HOUSE RESEARCH EXPENSES OF CERTAIN STARTUP VENTURES.—In 
the case of in-house research expenses, a taxpayer shall be 
treated £is meeting the trade or business requirement of para-
graph (1) if, at the time such in-house research expenses are 
paid or incurred, the principal purpose of the taxpayer in 
making such expenditures is to use the results of the research 
in the active conduct of a future trade or business— 
"(A) of the taxpayer, or 
"(B) of 1 or more other persons who with the taxpayer are 
treated as a single taxpayer under subsection (fXD." 
(c) FULL DISALLOWANCE OF DEDUCTION FOR QUAUFIED RESEARCH 
EXPENSES.— 
(1) Subsection (c) of section 280C, as amended by subtitle H, is 
further amended by striking "50 percent o f each place it 
appears. 
(2) Paragraph (2) of section 196(d) is amended by inserting 
before the period "for a taxable year beginning before January 
1,1990". 
(d) ONLY REASONABLE RESEARCH EXPENDITURES EUGIBLE FOR SEC-
TION 174.—Section 174 is amended by redesignating subsection (e) as 
subsection (0 and by inserting after subsection (d) the following new 
subsection: 
"(e) ONLY REASONABLE RESEARCH EXPENDITURES EUGIBLE.—This 
section shall apply to a research or experimental expenditure only 
to the extent that the amount thereof is reasonable under the 
circumstances." 
103 STAT. 2326 
PUBLIC LAW 101-239—DEC. 19, 1989 -
26 use 41 note. 
(e) EFFECTIVE DATE.—^The amendments made by this section 
(other than subsection (a)) shall apply to taxable years beginning 
after December 31,1989. 
SEC. 7111. ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI-
TURES. 
Section 864 (relating to definitions and special rule) is amended by 
adding at the end thereof the following new subsection: 
"(f) 
ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI-
TURES.— 
"(1) IN GENERAL.—For purposes of sections 861(b), 862(b), and 
863(b), qualified research and experimental expenditures shall 
be allocated and apportioned as follows: 
"(A) Any qualified research and experimental expendi-
tures expended solely to meet legal requirements imposed 
^ 
by a political entity with respect to the improvement or 
marketing of specific products or processes for purposes not 
4 • 
reasonably expected to generate gross income (beyond de 
minimis amounts) outside the jurisdiction of the political 
entity shall be allocated only to gross income from sources 
within such jurisdiction. 
"(B) In the case of any qualified research and experi-
mental expenditures (not allocated under subparagraph (A)) 
to the extent— 
"(i) that such expenditures are attributable to activi-
ties conducted in the United States, 64 percent of such 
expenditures shall be allocated and apportioned to 
income from sources within the United States and 
deducted from such income in determining the amount 
of taxable income from sources within the United 
States, and 
"(ii) that such expenditures are attributable to activi-
ties conducted outside the United States, 64 percent of 
. , 
such expenditures shall be allocated and apportioned to 
income from sources outside the United States and 
deducted from such income in determining the amount 
of taxable income from sources outside the United 
States. 
"(C) The remaining portion of qualified research and 
experimental expenditures (not allocated under subpara-
graphs (A) and (B)) shall be apportioned, at the annual 
election of the taxpayer, on the oasis of gross sales or gross 
, income, except that, if the taxpayer elects to apportion on 
the basis of gross income, the amount apportioned to 
income from sources outside the United States shall at least 
be 30 percent of the amount which would be so apportioned 
on the basis of gross sales. 
"(2) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES.— 
For purposes of this section, the term 'qualified research and 
experimental expenditures' means amounts which are research 
and experimental expenditures within the meaning of section 
174. For purposes of this paragraph, rules similar to the rules of 
subsection (c) of section 174 shall apply. Any qualified research 
and experimental expenditures treated as deferred expenses 
under subsection (b) of section 174 shall be taken into account 
under this subsection for the taxable year for which such 
expenditures are allowed as a deduction under such subsection. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2327 
"(3) SPECIAL RULES FOR EXPENDITURES ATTRIBUTABLE TO ACTIVI-
TIES CONDUCTED IN SPACE, ETC.— 
"(A) IN GENERAL.—Any qualified research and experi-
mental expenditures described in subparagraph (B)— 
"(i) if incurred by a United States person, shall be 
allocated and apportioned under this section in the 
same manner as if they were attributable to activities 
conducted in the United States, and 
"(ii) if incurred by a person other than a United 
States person, shall be allocated and apportioned under 
this section in the same manner as if they were attrib-
utable to activities conducted outside the United 
States. 
"(B) 
DESCRIPTION OF EXPENDITURES.—For purposes of 
subparagraph (A), qualified research and experimental 
expenditures are described in this subparagraph if such 
expenditures are attributable to activities conducted— 
'(i) in space, 
"(ii) on or under water not within the jurisdiction (as 
recognized by the United States) of a foreign country, 
possession of the United States, or the United States, or 
"(iii) in Antarctica. 
"(4) AFFIUATED GROUP.— 
"(A) Except as provided in subparagraph (B), the alloca-
tion and apportionment required by paragraph (1) shall be 
determined as if all members of the affiliated group (as 
defined in subsection (eX5)) were a single corporation. 
"(B) For purposes of the allocation and apportionment 
required by paragraph (1)— 
"(i) sales and gross income from products produced in 
whole or in part in a possession by an electing corpora-
tion (within the meaning of section 936(hX5XE)), and 
"(ii) dividends from an electing corporation, 
1
^ 
shall not be taken into account, except that this subpara-
graph shall not apply to sales of (and gross income and 
dividends attributable to sales of) products with respect to 
which an election under section 936(hX5XF) is not in effect. 
"(C) The qualified research and experimental expendi-
tures taken into account for purposes of paragraph (1) shall 
be adjusted to reflect the amount of such expenditures 
included in computing the cost-sharing amount (determined 
under section 936(hX5XCXiXI)). 
"(D) The Secretary may prescribe such regulations as 
may be necessary to carry out the purposes of this para-
graph, including regulations providing for the source of 
gross income and the allocation and apportionment of 
deductions to take into account the adjustments required by 
subparagraph (C). 
"(E) Paragraph (6) of subsection (e) shall not apply to 
qualified research and experimental expenditures. 
"(5) YEAR TO WHICH RULE APPUES.— 
"(A) IN GENERAL.—Except as provided in this paragraph, 
this subsection shall apply to the taxpayer's first taxable 
year beginning after August 1, 1989, and before August 2, 
1990. 
"(B) REDUCTION.—Notwithstanding subparagraph 
(A) 
this subsection shall only apply to that portion of the 
\ 
103 STAT. 2328 
PUBLIC LAW 101-239—DEC. 19, 1989 
qualified research and experimental expenditures for the 
taxable year referred to in subparagraph (A) which bears 
the same ratio to the total amount of such expenditures 
as— 
"(i) the lesser of 9 months or the number of months 
in the taxable year, bears to 
"(ii) the number of months in the taxable year." 
Securities. 
Subtitle B—Corporate Provisions 
SEC. 7201. UMITATION ON USE OF GROUP LOSSES TO OFFSET INCOME OF 
SUBSIDIARY PAYING PREFERRED DIVIDENDS. 
(a) GENERAL RULE.—Section 1503 (relating to computation and 
payment of tax) is amended by adding at the end thereof the 
following new subsection: 
"(f) LnoTATiON O
N USE OF GROUP LOSSES TO OFFSET INCOME OF 
SuBsmiARY PAYING PREFERRED DIVIDENDS.— 
"(1) IN GENERAL.—In the case of any subsidiary distributing 
,,. during any taxable year dividends on any applicable preferred 
stock— 
"(A) no group loss item shall be allowed to reduce the 
^ disqualified separately computed income of such subsidiary 
for such taxable year, and 
"(B) no group credit item shall be allowed against the tax 
imposed by this chapter on such disqualified separately 
computed income. 
"(2) GROUP ITEMS.—For purposes of this subsection— 
"(A) GROUP LOSS ITEM.—TTie term 'group loss item' means 
any of the following items of any other member of the 
affiliated group which includes the subsidiary: 
"(i) Any net operating loss and any net operating loss 
carryover or carryback under section 172. 
"(li) Any loss from the sale or exchange of any capital 
asset and any capital loss carryover or carryback under 
section 1212. 
"(B) GROUP CREDIT ITEM.—The term jgroup credit item' 
means any credit allowable under part IV of subchapter A 
of chapter 1 (other than section 34) to any other member of 
the affiliated group which includes the subsidiary and any 
carryover or carryback of any such credit. 
, 
"(3) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) DISQUALIFIED SEPARATELY COMPUTED INCOME.—^The 
term 'disqualified separately computed income' means the 
portion of the separately computed taxable income of the 
subsidiary which does not exceed the dividends distributed 
by the subsidiary during the taxable year on applicable 
« preferred stock. 
"(B) SEPARATELY COMPUTED TAXABLE iNOOiifE.-The term 
'separately computed taxable income' means the separate 
taxable income of the subsidiary for the taxable year deter-
mined— 
"(i) by taking into account gains and losses from the 
sale or exchiuoge of a capital asset and section 1231 
gains and losses, 
"(ii) without r^ard to any net operating loss or 
capital loss carryover or carryback, and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2329 
- 
"(iii) with such adjustments as the Secretary may 
prescribe. 
"(C) SUBSIDIARY.—The term 'subsidiary* means any cor-
poration which is a member of an affiliated group filing a 
consolidated return other than the common parent. 
"(D) APPUCABLE PREFERRED STOCK.—^The term 'applicable 
preferred stock' means stock described in section 1504(aX4) 
in the subsidiary which is— 
"(i) issued after November 17,1989, and 
"(ii) held by a person other than a member of the 
same affiliated group as the subsidiary. 
"(4) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
provisions of this subsection, including regulations— 
"(A) to prevent the avoidance of this subsection through 
the transfer of built-in losses to the subsidiary, 
"(B) to provide rules for cases in which the subsidiary 
owns (directly or indirectly) stock in another member of the 
affiliated group, and 
"(C) to provide for the application of this subsection 
where dividends are not paid currently, where the redemp-
tion and liquidation righte of the applicable preferred stock 
exceed the issue price for such stocky or where the stock is 
otherwise structured to avoid the purposes of this subsec-
tion." 
(b) EFFECTIVE DATES.— 
26 use 1503 
(1) IN GENERAL.—The amendment made by this section shall 
note. 
apply to taxable years ending after November 17,1989. 
(2) BINDING CONTRACT EXCEPTION.—For purposes of section 
1503(fK3XD) of the Internal Revenue Code of 1986, stock issued 
after November 17,1989, pursuant to a written binding contract 
in effect on November 17, 1989, and at all times thereafter 
before such issuance, shall be treated as issued on November 17, 
1989. 
(3) SPECIAL RULE WHEN SUBSIDIARY LEAVES GROUP.—If, by 
reason of a transaction after November 17, 1989, a corporation 
ceases to be, or becomes, a member of an affiliated group, the 
stock of such corporation shall be treated, for purposes of 
section 1503(fX3XD) of such Code, as issued on the date of such 
cessation or commencement, unless such transaction is of a kind 
which would not result in the recognition of any deferred 
intercompany gain under the consolidated return regulations by 
reason of the acquisition of the entire group. 
(4) RETIRED STOCK.— 
(A) Except as provided in subparagraph (B), if stock 
issued before November 18,1989, (or described in paragraph 
(2)), is retired or acquired after November 17, 1989, by the 
corporation or another member of the same affiliated 
group, such stock shall be treated, for purposes of section 
1503(fX3XD) of such Code, as issued on the date of such 
retirement or acquisition. 
(B) Subparagraph (A) shall not apply to any retirement or 
acquisition pursuant to an obligation to reissue under a 
binding written contract in effect on November 17, 1989, . 
and at all times thereafter before such retirement or ac-
quisition. 
103 STAT. 2330 
PUBLIC LAW 101-239—DEC. 19, 1989 
(5) AUCTION 
RATE PREFERRED.—For purposes of section 
1503(fX3XD) of such Code, auction rate preferred stock shall be 
treated as issued when the contract requiring the auction 
became binding. 
(6) SPECIAL RULE FOR CERTAIN AUCTION RATE PREFERRED.—For 
{ ^ 
purposes of section 1503(fK3XD) of the Internal Revenue Code of 
1986, any auction rate preferred stock shall be treated as issued 
before November 18,1989, if— 
(A) a subsidiary was incorporated before July 10,1989 for 
the si>ecial purpose of issuing such stock, 
(B) a rating agency was retcdned before July 10,1989, £ind 
(C) such stock is issued before the date 30 days after the 
date of the enactment of this Act. 
SEC. 7202. TREATMENT OF CERTAIN HIGH YIELD ORIGINAL ISSUE DIS-
COUNT OBLIGATIONS. 
(a) GENERAL RULE.—Subsection (e) of section 163 (relating to 
interest deductions on original issue discount obligations) is 
amended by redesignating paragraph (5) as paragraph (6) and by 
inserting after paragraph (4) the following new paragraph: 
"(5) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT ON CERTAIN 
HIGH YIELD O B U G A T I O N S . — 
"(A) IN GENERAL.—In the case of an applicable high yield 
discount obligation issued by a corporation— 
"(i) no deduction shall be allowed under this chapter 
for the disqualified portion of the original issue dis-
count on such obligation, and 
"(ii) the remainder of such original issue discount 
shall not be allowable as a deduction until paid. 
For purposes of clause (ii), rules similar to the rules of 
subsection (iX3XB) shall apply in determining the time 
when the original issue discount is paid. 
"(B) DiSQUAUFIED PORTION TREATED AS STOCK DISTRIBU-
TION FOR PURPOSES OF DIVIDEND RECEIVED DEDUCTION.— 
"(i) IN GENERAL.—Solely for purposes of sections 243, 
' 
245, 246, and 246A, the dividend equivalent portion of 
^
^
* 
any amount includible in gross income of a corporation 
under section 1272(a) in respect of an applicable high 
yield discount obligation shsdl be treated as a dividend 
received by such corporation from the corporation issu-
ing such obligation. 
(ii) DIVIDEND EQUIVALENT PORTION.—For purposes of 
clause (i), the dividend equivalent portion of any 
amount includible in gross income under section 
1272(a) in respect of an applicable high yield discount 
obligation is the portion of the amount so includible— 
"(I) which is attributeble to the disqualified por-
^ 
tion of the original issue discount on such obliga-
'•''' 
tion, and 
"(II) which would have been treated as a divi-
dend if it had been a distribution made by the 
issuing corporation with respect to stock in such 
corporation. 
"(C) DISQUALIFIED PORTION.— 
"(i) IN GENERAL.—For purposes of this parc^aph, the 
disqualified portion of the original issue discount on 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2331 
any applicable high yield discount obligation is the 
lesser of— 
"(I) the amount of such original issue discount, 
or 
"(II) the portion of the total return on such 
obligation which bears the same ratio to such total 
^ 
return as the disqualified jdeld on such obligation 
bears to the jdeld to maturity on such obligation, 
"(ii) DEFINITIONS,—For purposes of clause (i), the 
term 'disqualified yield' means the excess of the yield 
to maturity on the obligation over the sum referred to 
subsection (iXlXB) plus 1 percentage point, and the 
term 'total return' is the amount which would have 
^ _ 
been the original issue discount on the obligation if 
interest described in the parenthetical in section 
1273(aX2) were included in the stated redemption price 
at maturity. 
"(D) EXCEPTION FOR S CORPORATIONS.—This paragraph 
shall not apply to any obligation issued by any corporation 
for any period for which such corporation is an S corpora-
tion. 
"(E) EFFECT ON EARNINGS AND PROFITS.—This paragraph 
shall not apply for purposes of determining earnings and 
^ 
profits; except that, for purposes of determining the divi-
dend equivalent portion of any amount includible in gross 
income under section 1272(a) in respect of an applicable 
high yield discount obligation, no reduction shall be made 
for any amount attributable to the disqualified portion of 
any original issue discount on such obligation. 
"(F) CROSS REFERENCE.— 
"For deflnition of applicable high yield discount obligation, see subsec-
tion (i)." 
(b) APPUCABLE HIGH YIELD DISCOUNT OBUGATION.—Section 163 is 
amended by redesignating subsection (i) as subsection 0') and by 
inserting after subsection (h) the following new subsection: 
"(i) APPUCABLE HIGH YIELD DISCOUNT OBUGATION.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'applicable high yield discount obligation' means any debt in-
strument if— 
"(A) the maturity date of such instrument is more than 5 
years from the date of issue, 
"(B) the )deld to maturity on such instrument equals or 
exceeds the sum of— 
"(i) the applicable Federal rate in effect under sec-
tion 1274(d) for the calendar month in which the obliga-
tion is issued, plus 
"(ii) 5 percentage points, and 
"(C) such instrument has significant original issue dis-
count. 
For purposes of subparagraph (BXi), the Secretary may by 
regulation permit a rate to be used with respect to any debt 
instrument which is higher than the applicable Federal rate if 
the taxpayer establishes to the satisfaction of the Secretary that 
such higher rate is based on the same principles as the ap-
plicable Federal rate and is appropriate for the term of the 
instrument. 
103 STAT. 2332 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(2) SIGNIFICANT ORIGINAL ISSUE DISCOUNT.—For purposes of 
paragraph (IXC), a debt instrument shall be treated as having 
signi]^cant original issue discount if— 
"(A) the aggregate amount which would be includible in 
gross income with respect to such instrument for periods 
before the close of any accrual period (as defined in section 
1272(aX5)) ending after the date 5 years after the date of 
issue, exceeds— 
"(B) the sum of— 
"(i) the aggregate amount of interest to be paid under 
the instrument before the close of such accrual period, 
and 
"(ii) the product of the issue price of such instrument 
(as defined in sections 1278(b) and 1274(a)) and its yield 
to maturity. 
"(3) SPECIAL RULES.—For purposes of determining whether a 
debt instrument is an applicable high jdeld discount obliga-
tion— 
"(A) any pajonent under the instrument shall be assumed 
to be made on the last day permitted under the instrument, 
and 
"(B) any payment to be made in the form of another 
obligation (or stock) of the issuer (or a related person within 
f 
the meaning of section 453(fKl)) shall be assumed to be 
e 
made when such obligation (or stock) is required to be paid 
in cash or in property other than such obligation (or stock). 
"(4) DEBT INSTRUMENT.—For purposes of this subsection, the 
term 'debt instrument' mesms any instrument which is a debt 
instrument as defined in section 1275(a). 
"(5) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be appropriate to carry out the purposes of this 
subsection and subsection (eX5), including— 
"(A) regulations providing for modifications to the provi-
sions of this subsection and subsection (eX5) in the case of 
varying rates of interest, put or call options, indefinite 
maturities, contingent payments, assumptions of debt in-
struments, conversion rights, or other circumstances where 
such modifications are appropriate to carry out the pur-
poses of this subsection and subsection (eX5), and 
"(B) regulations to prevent avoidance of the purposes of 
this subjection and subsection (eX5) through the use of 
issuers other than C corporations, agreements to borrow 
amounts due under the debt instrument, or other arrange-
ments." 
26 u s e 163 note. 
(c) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as provided in par£igraph (2), the 
amendments made by tlus section shall apply to instruments 
issued after July 10,1989. 
(2) EXCEPTIONS.— 
(A) The amendments made by this section shall not apply 
to any instrument if— 
(i) such instrument is issued in connection with an 
acquisition— 
(I) which is made on or before July 10, 1989, 
(H) for which there w£is a written binding con-
tract in effect on July 10, 1989, and at all times 
thereafter before such acquisition, or 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2333 
(m) for which a tender offer was filed with the 
Securities and Exchange Ck)mmission on or before 
July 10,1989, 
(ii) the term of such instrument is not greater than— 
(I) the term specified in the written documents 
described in clause (iii), or 
(II) if no term is determined under subclause (I), 
10 years, and 
(iii) the use of such instrument in connection with 
such acquisition (and the maximum amount of pro-
ceeds from such instrument) was determined on or 
before July 10, 1989, and such determination is evi-
denced by written documents— 
(I) which were transmitted on or before July 10, 
1989, between the issuer and any governmental 
regulatory bodies or prospective parties to the issu-
ance or acquisition, and 
(ID which are customarily used for the tjrpe of 
acquisition or financing involved. 
(B) The amendments made by this section shall not apply 
to any instrument issued pursuant to the terms of a debt 
-
instrument issued on or before July 10,1989, or described in 
sulK>aragraph (A) or (D). 
(C) The amendments made by this section shall not apply 
to any instrument issued to refinance an original issue 
discount debt instrument to which the amendments made 
by this section do not apply i
f
— 
(i) the maturity date of the refinancing instrument is 
, 
not later than the maturity date of the refincmced 
instrument, 
(ii) the issue price of the refinancing instrument does 
not exceed the adjusted issue price of the refinanced 
instrument, 
(iii) the stated redemption price at maturity of the 
refinancing instrument is not greater than the stated 
redemption price at maturity of the refinanced in-
strument, and 
(iv) the interest payments required under the re-
financing instrument before maturity are not less than 
t 
(and are paid not later than) the interest payments 
required under the refinanced instrument. 
' f 
(D) Tlie amendments made by this section shall not apply 
^ 
to instruments issued after July 10, 1989, pursuant to a 
reorganization plan in a title 11 or similar case (as defined 
in section 868(aX3) of the Internal Revenue Code of 1986) if 
the amount of proceeds of such instruments, and the matu-
rities of such instruments, do not exceed the amount or 
maturities specified in the last reorganization plan filed in 
such case on or before July 10,1989. 
SEC. 7203. SECURITIES TREATED AS BOOT UNDER SECTION 351. 
(a) GENERAL RULE.—Section 351(a) (relating to nonrecognition in 
cases of transfers to corporations controlled by transferor) is 
amended by striking "or securities". 
(b) CONFORMING AMENDMENTS.— 
(1) Subsections (b), (d), and (eX2) of section 351 are each 
amended by striking "or securities". 
103 STAT. 2334 
PUBLIC LAW 101-239—DEC. 19, 1989 
(2) Paragraph (2) of section 351(g) is amended by striking 
"stock, securities, or property" and inserting "stock or prop-
erty". 
26 use 351 note. 
(c) EPFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to transfers after 
October 2,1989, in taxable years ending after such date. 
(2) BINDING CONTRACT.—The amendments made by this sec-
4i 
tion shall not apply to any transfer pursuemt to a written 
. „ binding contract in effect on October 2, 1989, and at all times 
thereafter before such transfer. 
(8) CORPORATE TRANSFERS.—In the case of property trans-
ferred (directly or indirectly through a partnership or other-
wise) by a C corporation, paragraphs (1) and (2) shall be applied 
by substituting "July 11, 1989'^ for "October 2, 1989'. The 
preceding sentence shall not apply where the corporation meets 
the requirements of section 1504(aX2) of the Internal Revenue 
Code of 1986 with respect to the transferee corporation (and 
where the transfer is not part of a plan pursuant to which the 
transferor subsequently fails to meet such requirements). 
SEC. 7204. PROVISIONS RELATED TO REGULATED INVESTMENT COMPA-
NIES. 
(a) 
REQUIREMENT TO DISTRIBUTE 
98 
PERCENT 
OF ORDINARY 
INCOME.— 
(1) IN GENERAL.—Subparagraph (A) of section 4982(b)(1) (defin-
ing required distribution) is amended by striking "97 percent" 
and inserting "98 percent". 
26 use 4982 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
^o*®- 
shall apply to calendar years ending after July 10,1989. 
(b) TREATMENT OF CERTAIN MUTUAL FUND LOAD CHARGES.— 
(1) IN GENERAL.—Section 852 (relating to taxation of regulated 
investment companies and their shareholders) is amended by 
adding at the end thereof the following new subsection: 
"(f) TREATMENT OF CERTAIN LOAD CHARGES.— 
"(1) IN GENERAL.—If^ 
"(A) the taxpayer incurs a load charge in acquiring stock 
in a regulated investment company and, by reason of incur-
ring such charge or making such acquisition, the taxpayer 
acquires a reinvestment right, 
(B) such stock is disposed of before the 91st day after the 
date on which such stock was acquired, and 
"(C) the taxpayer subsequently acquires stock in such 
regulated investment company or in another regulated 
investment company and the otherwise applicable load 
charge is reduced by reason of the reinvestment right, 
the load charge referred to in subparagraph (A) (to the extent it 
does not exceed the reduction referred to in subparagraph (C)) 
shall not be taken into account for purposes of determining the 
amount of gain or loss on the disposition referred to in subpara-
graph (B). To the extent such charge is not taken into account in 
determining the amount of such gain or loss, such charge shall 
be treated as incurred in connection with the acquisition re-
ferred to in subparagraph (C) (including for purposes of 
reappljdng this paragraph). 
"(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2335 
"(A) LOAD CHARGE.—The term 'load charge' means any 
sales or similar charge incurred by a person in acquiring 
stock of a regulated investment company. Such term does 
not include any charge incurred by reason of the reinvest-
ment of a dividend. 
"(B) 
REINVESTMENT RIGHT.—The term 
'reinvestment 
right' means any right to acquire stock of 1 or more regu-
lated investment companies without the payment of a load 
charge or with the pajnnent of a reduced charge. 
"(C) NoNRECOGNiTiON TRANSACTIONS.—If the taxpayer ac-
quires stock in a regulated investment company from an-
other person in a transaction in which gain or loss is not 
recognized, the taxpayer shall succeed to the treatment of 
such other person under this subsection." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
26 USC 852 note, 
shall apply to charges incurred after October 3, 1989, in taxable 
years ending after such date. 
(c) REGULATED INVESTMENT COMPANIES REQUIRED TO ACCRUE DIVI-
DENDS O
N THE EX-DIVIDEND DATE.— 
(1) IN GENERAL.—Subsection (b) of section 852 (relating to 
treatment of companies and shareholders) is amended by adding 
at the end thereof the following new paragraph: 
"(9) DIVIDENDS TREATED AS RECEIVED BY COMPANY ON EX-DIVI-
DEND DATE.—For purposes of this title, if a regulated investment 
company is the holder of record of any share of stock on the 
record date for any dividend payable with respect to such stock, 
such dividend shall be included in gross income by such com-
pany as of the later of— 
"(A) the date such share became ex-dividend with respect 
to such dividend, or 
"(B) the date such company acquired such share," 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 852 note, 
shall apply to dividends in cases where the stock becomes ex-
dividend after the date of the enactment of this Act. 
SEC. 7205. LIMITATION ON THRESHOLD REQUIREMENT UNDER SECTION 
382 BUILT-IN GAIN AND LOSS PROVISIONS. 
(a) GENERAL RULE.—Clause (i) of section 382(hX3XB) (relating to 
threshold requirement) is amended to read as follows: 
"(i) IN GENERAL.—If the amount of the net unrealized 
built-in gain or net unrealized built-in loss (determined 
without regard to this subparagraph) of any old loss 
corporation is not greater than the lesser of— 
"(I) 15 percent of the amount determined for 
purposes of subparagraph (AXiXD, or 
"(II) $10,000,000, 
the net unrealized built-in gain or net unrealized built-in 
loss shall be zero." 
(b) C!ONFORMING AMENDMENT TO ADJUSTED CURRENT EARNINGS 
PREFERENCE.—Subparagraph (H) of section 56(gX4) (relating to treat-
ment of certain ownership changes) is amended by striking clause 
(ii) and all that follows and inserting the following: 
"(ii) there is a net unrealized built-in loss (within the 
meaning of section 382(h)) with respect to such corpora-
tion, 
then the adjusted basis of each asset of such corporation 
(immediately after the ownership change) shall be its 
103 STAT. 2336 
PUBLIC LAW 101-239—DEC. 19, 1989 
proportionate share (determined on the basis of respective 
fair market values) of the fair market value of the assets of 
such corporation (determined under section 382(h)) imme-
diately before the ownership change." 
26 use 56 note. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
ownership changes and acquisitions after October 2, 1989, in 
taxable years ending after such date. 
(2) BINDING CONTRACT.—The amendments made by this sec-
tion shall not apply to any ownership change or' acquisition 
' ^ pursuant to a written binding contract in effect on October 2, 
^ 
1989, and at all times thereafter before such change or acquisi-
tion. 
(3) BANKRUPTCY PROCEEDINGS.—In the case of a reorganization 
described in section 368(aXlXG) of the Internal Revenue Code of 
1986, or an exchange of debt for stock in a title 11 or similar 
case (as defined in section 368(aX3) of such Code), the amend-
ments made by this section shall not apply to any ownership 
a change resulting from such a reorganization or proceeding if a 
petition in such case W
E
U
S filed with the court before October 3, 
1989. 
(4) SUBSIDIARIES OF BANKRUPT PARENT.—The amendments 
made by this section shall not apply to £uiy built-in loss of a 
. corporation which is a member (on October 2, 1989) of an 
affiliated group the common parent of which (on such date) was 
subject to title 11 or similar case (as defined in section 368(aX3) 
of such Code). The preceding sentence shall apply only if the 
. ownership change or acquisition is pursuant to the plan ap-
proved in such proceeding and is before the date 2 years after 
the date on which the petition which commenced such proceed-
ing was filed. 
SEC. 7206. DISTRIBUTIONS O
N CERTAIN PREFERRED S
T
O
C
K TREATED AS 
EXTRAORDINARY DIVIDENDS. 
(a) GENERAL RULE.—Section 1059 (relating to corporate sharehold-
er's basis in stock reduced by nontaxed portion of extraordinary 
dividends) is amended by striking subsection (f) and inserting the 
following: 
"(f) TREATMENT OF DIVIDENDS ON CERTAIN PREFERRED STOCK.— 
"(1) IN GENERAL.—Any dividend with respect to dis(][ualified 
preferred stock shall be treated as an extraordinary dividend to 
which paragraphs (1) and (2) of subsection (a) apply without 
; regard to the period the taxpayer held the stock. 
(2) DiSQUAUFiED PREFERRED STOCK.—For purposes of this 
subsection, the term 'disqualified preferred stock' mecuis any 
stock which is preferred as to dividends if— 
"(A) when issued, such stock has a dividend rate which 
declines (or can reasonably be expected to decline) in the 
future, 
"(B) the issue price of such stock exceeds its liquidation 
rights or its stated redemption price, or 
"(C) such stock is otherwise structured— 
"(i) to avoid the other provisions of this section, and 
"(ii) to enable corporate shareholders to reduce tax 
through a combination of dividend received deductions 
and loss on the disposition of the stock. 
PUBLIC LAW 101-239—DEC. 19, 1989 
. 
103 STAT. 2337 
"(g) REGULATIONS.—The Secretary shall prescribe such r^ula-
tions as may be appropriate to carry out the purposes of this section, 
including regulations— 
"(1) providing for the application of this section in the case of 
stock dividends, stock splits, reorganizations, and other similar 
transactions and in the case of stock held by pass-thru entities, 
and 
"(2) providing that the rules of subsection (f) shall apply in the 
case of stock which is not preferred as to dividends in cases 
where stock is structured to avoid the purposes of this section." 
(b) EFFECTIVE DATE.— 
26 use 1059 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
^°^ 
amendment made by subsection (a) shall apply to stock issued 
after July 10, 1989, in taxable years ending after such date. 
(2) BINDING CONTRACT.—The amendment made by subsection 
(a) shsdl not apply to any stock issued pursuant to a written 
binding contract in effect on July 10, 1989, and at all times 
thereafter before the stock is issued. 
SEC. 7207. REPEAL OF ELECTION T
O REDUCE EXCESS LOSS A
C
C
O
U
N
T 
RECAPTURE BY REDUCING BASIS OF INDEBTEDNESS. 
(a) GENERAL RULE.—Subsection (e) of section 1503 (relating to 
special rule for determining adjustment to basis) is amended by 
adding at the end thereof the following new paragraph: 
"(4) ELIMINATION OF ELECTION TO REDUCE BASIS OF INDEBTED-
NESS.—Nothing in the regulations prescribed under section 1502 
shall permit any reduction in the amount otherwise included in 
gross income by reason of an excess loss account if such reduc-
tion is on account of a reduction in the basis of indebtedness." 
(b) EFFECTIVE DATE.— 
26 use 1503 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
"°^ 
amendment made by subsection (a) shall apply to dispositions 
after July 10, 1989, in taxable years ending after such date. 
(2) BINDING CONTRACT.—The amendment made by subsection 
(a) shall not apply to any disposition pursuant to a written 
binding contract in effect on July 10, 1989, and at all times 
thereafter before such disposition. 
SEC. 7208. O
T
H
E
R PROVISIONS RELATING T
O T
R
E
A
T
M
E
N
T OF S
T
O
C
K AND 
DEBT; ETC. 
(a) CLARIFICATION OF REGULATORY AUTHORITY UNDER SECTION 
385.— 
(1) IN GENERAL.—Subsection (a) of section 385 (relating to 
treatment of certain interests in corporations as stock or indebt-
edness) is amended by inserting "(or as in part stock and in part 
indebtedness)" before the period at the end thereof. 
(2) REGULATIONS NOT TO BE APPUED RETROACTFVELY.—Any 
26 use 385 note. 
regulations issued pursuant to the authority granted by the 
amendment made by paragraph (1) shall only apply with re-
spect to instruments issued after the date on which the Sec-
retary of the Treasury or his delegate provides public guidance 
as to the characterization of such instruments whether by 
regulation, ruling, or otherwise. 
(b) REPORTING OF CERTAIN AcQUisrnoNS OR RECAPFTALIZATIONS.— 
(1) IN GENERAL.—Section 6043 is amended by striking subsec-
tion (c) and inserting the following new subsections: 
"(c) CHANGES IN CONTROL AND RscAPrrAuzATiONS.—If— 
103 STAT. 2338 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(1) control (as defined in section 304(cXl)) of a corporation is 
acquired by any person (or group of persons) in a transaction (or 
series of related transactions), or 
"(2) there is a recapitalization of a corporation or other 
substantial change in the capital structure of a corporation, 
when required by the Secretary, such corporation shall make a 
return (at such time and in such manner as the Secretary may 
prescribe) setting forth the identity of the parties to the transaction, 
the fees involved, the changes in the capital structure involved, and 
such other information as the Secretary may require with respect to 
; !:- 
such transaction. 
"(d) CROSS REFERENCES.^ 
"For provisions relating to penalties for failure to file— 
.
^ 
"(1) a return under subsection (b), see section 6652(c), or 
"(2) a return under subsection (c), see section 6652(1)." 
(2) PENALTY.—Section 6652 is amended by redesignating 
subsection (L) as subsection (m) and by inserting after subsection 
(k) the following new subsection: 
"(1) FAILURE TO FILE RETURN WITH RESPECT TO CERTAIN COR-
PORATE TRANSACTIONS.—In the case of any failure to make a return 
required under section 6043(c) containing the information required 
by such section on the date prescribed therefor (determined with 
regard to any extension of time for filing), unless it is shown that 
such failure is due to reasonable cause, there shall be paid (on notice 
and demand by the Secretary and in the ssime manner as tax) by the 
person failing to file such return, an amount equal to $500 for each 
day during which such failure continues, but the total amount 
imposed under this subsection with respect to any return shall not 
exceed $100,000." 
(3) CONFORMING AMENDMENTS.— 
(A) The subsection heading for subsection (a) of section 
»• 
6043 is amended by striking 
CORPORATIONS" and inserting 
"CORPORATE LIQUIDATING, ETC., TRANSACTIONS". 
(B) The section heading for section 6043 is amended to 
read as follows: 
"SEC. 6043. LIQUIDATING; ETC., TRANSACTIONS." 
' 
(C) The table of sections for subpart B of part III of 
subchapter A of chapter 61 is amended by striking the item 
relating to section 6043 and inserting the following: 
-I* 
"Sec. 6043. Liquidating; etc., transactions." 
26 u s e 6043 
(4) EFFECTIVE DATE.—The a m e n d m e n t s m a d e by this subsec-
^°*®- 
tion shall £^ply to transactions after March 31,1990. 
SEC. 7209. ESTIMATED TAX PAYMENTS REQUIRED FOR S CORPORATIONS. 
. 
. : J: 
(a) IN GENERAL.—Subsection (g) of section 6655 (relating to failure 
by corporation to pay estimated income tax) is amended by adding 
at the end thereof the following new paragraph: 
"(4) APPUCATION OF SECTION TO CERTAIN TAXES IMPOSED ON S 
CORPORATIONS.—In the case of an S corporation, for purposes of 
this section— 
"(A) The following taxes shall be treated as imposed by 
section 11: 
"(i) The tax imposed by section 1374(a) (or the cor-
responding provisions of prior law). 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2339 
"(ii) The tax imposed by section 1375(a). 
"(iii) Any tax for which the S corporation is liable by 
reason of section 1371(dX2). 
"(B) Paragraph (2) of subsection (d) shall not apply. 
"(C) Clause (ii) of subsection (dXlXB) shall be applied as if 
it read as follows: 
"'(ii) the sum of— 
"'(I) the amount determined under clause (i) by 
only taking into account the taxes referred to in 
clauses (i) and (iii) of subsection (gX4XA), and 
"'(II) 100 percent of the tax imposed by section 
1375(a) which was shown on the return of the 
corporation for the preceding taxable year.' 
"(D) The requirement in the last sentence of subsection 
(dXlXB) that the return for the preceding taxable year show 
a liability for tax shall not apply. 
"(E) Any reference in subsection (e) to taxable income 
shall be treated as including a reference to the net recog-
nized built-in gain or the excess passive income (as the case 
may be)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6655 
shall apply to taxable years beginning after December 31, 1989. "°*®-
SEC. 7210. LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID TO 
RELATED PERSON. 
(a) GENERAL RULE.—Section 163 (as amended by section 7202) is 
amended by redesignating subsection (j) as subsection (k) and by 
inserting after subsection (i) the following new subsection: 
"(j) LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID BY 
CORPORATION TO RELATED PERSON.— 
"(1) LIMITATION.— 
"(A) IN GENERAL.—If this subsection applies to any cor-
poration for any taxable year, no deduction shall be allowed 
under this chapter for disqualified interest paid or accrued 
by such corporation during such taxable year. The amount 
disallowed under the preceding sentence shall not exceed 
the corporation's excess interest expense for the taxable 
year. 
"(B) DISALLOWED AMOUNT CARRIED TO SUCCEEDING TAX-
ABLE YEAR.—Any amount disallowed under subparagraph 
(A) for any taxable year shall be treated as disqualified 
interest paid or accrued in the succeeding taxable year. 
"(2) CORPORATIONS TO WHICH SUBSECTION APPUES.— 
"(A) IN GENERAL.—This subsection shall apply to any 
corporation for any taxable year if— 
"(i) such corporation has excess interest expense for 
such taxable year, and 
"(ii) the ratio of debt to equity of such corporation as 
of the close of such taxable year (and on such other 
days during the taxable year as the Secretary may by 
regulations prescribe) exceeds 1.5 to 1. 
"(B) EXCESS INTEREST EXPENSE.— 
"(i) IN GENERAL.—For purposes of this subsection, the 
term 'excess interest expense' means the excess (if any) 
of— 
"(I) the corporation's net interest expense, over 
103 STAT. 2340 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(II) the sum of 50 percent of the adjusted tax-
able income of the corporation plus any excess 
limitation carryforward under clause (ii). 
"(ii) EXCESS UMITATION CARRYFORWARD,—If a cor-
poration has £ui excess limitation for any taxable year, 
the amount of such excess limitation shall be an excess 
limitation canyforward to the 1st succeeding taxable 
year and to the 2nd and 3rd succeeding taxable years to 
the extent not previously taken into account under this 
clause. The amount of such a carryforward taken into 
account for any such succeeding taxable year shall not 
exceed the excess interest expense for such succeeding 
taxable year (determined without regard to the 
carryforward from the taxable year of such excess 
limitation). 
"(iii) EXCESS UMITATION.—For purposes of clause (i), 
the term 'excess limitation' means the excess (if any) 
of-
"(I) 50 percent of the adjusted taxable income of 
the corporation, over 
- 
_^. 
"(II) the corporation's net interest expense. 
"(C) RATIO OP DEBT TO EQUITY.—For purposes of this 
paragraph, the term 'ratio of debt to equity means the ratio 
which the total indebtedness of the corporation bears to the 
sum of its money and all other assets less such total indebt-
edness. For purposes of the preceding sentence— 
"(i) the cunount taken into account with respect to 
any asset shall be the adjusted basis thereof for pur-
poses of determining gain, 
"(ii) the amount ts^en into account with respect to 
any indebtedness with original issue discount shedl be 
^ 
its issue price plus the portion of the original issue 
discount previously accrued as determined under the 
rules of section 1272 (determined without regard to 
subsection (aX7) or (bX4) thereof), and 
"(iii) there shall be such other adjustments as the 
Secretary may by regulations prescribe. 
"(3) DiSQUAUFiED INTEREST.—For purposes of this subsec-
• 
tion— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'disqualified interest' means any interest paid 
or accrued by the taxpayer (directly or indirectly) to a 
related person if no tax is imposed by this subtitle with 
respect to such interest. 
'(B) 
EXCEPTION FOR CERTAIN EXISTING INDEBTEDNESS.— 
The term 'disqualified interest' does not include any in-
terest paid or accrued under indebtedness with a ^ e d 
term— 
"(i) which was issued on or before July 10, 1989, or 
"(ii) which was issued after such date pursuant to a 
written binding contract in effect on such date and all 
times thereafter before such indebtedness was issued. 
"(4) RELATED PERSON.—For purposes of this subsection— 
"(A) IN GENERAL.—Except as provided in subparagraph 
V 
(B), the term 'related person' means any person who is 
related (within the meaning of section 267(b) or 7070)X1)) to 
the taxpayer. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2341 
"(B) SPECIAL RULE FOR CERTAIN PARTNERSHIPS.— 
"(i) IN GENERAL.—Any interest paid or accrued to a 
partnership which (without regard to this subpara-
graph) is a related person shall not be treated as paid 
or accrued to a related person if less than 10 percent of 
the profits and capital interests in such partnership are 
held by persons with respect to whom no tax is imposed 
by this subtitle on such interest. The preceding sen-
tence shall not apply to any interest allocable to any 
partner in such partnership who is a related person to 
the taxpayer. 
"(ii) SPECIAL RULE WHERE TREATY REDUCTION.—If any 
treaty between the United States and any foreign coun-
try reduces the rate of tax imposed by this subtitle on a 
partner's share of any interest paid or accrued to a 
partnership, such partner's interests in such partner-
ship shall, for purposes of clause (i), be treated as held 
in part by a tax-exempt person and in part by a taxable 
person under rules similar to the rules of paragraph 
(5)(B). 
"(5) SPECIAL RULES FOR DETERMINING WHETHER INTEREST IS 
SUBJECT TO TAX.— 
"(A) TREATMENT OF PASS-THRU ENTITIES.—In the case of 
any interest paid or accrued to a partnership, the deter-
mination of whether any tax is imposed by this subtitle on 
such interest shall be made at the partner level. Rules 
similar to the rules of the preceding sentence shall apply in 
the case of any pass-thru entity other than a partnership 
and in the case of tiered partnerships and other entities. 
"(B) 
INTEREST TREATED AS TAX-EXEMPT TO EXTENT OF 
TREATY REDUCTION.—If any treaty between the United 
Stetes and any foreign country reduces the rate of tax 
imposed by this subtitle on any interest paid or accrued by 
the taxpayer to a related person, such interest shall be 
treated as interest on which no tax is imposed by this 
subtitle to the extent of the same proportion of such in-
terest as— 
"(i) the rate of tax imposed without regard to such 
treaty, reduced by the rate of tax imposed under the 
treaty, bears to 
"(ii) the rate of tax imposed without regard to the 
treaty. 
"(6) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 
this subsection— 
"(A) ADJUSTED TAXABLE INCOME.—The term 'adjusted tax-
able income' means the taxable income of the taxpayer— 
"(i) computed without regard to— 
"(I) any deduction allowable under this chapter 
for the net interest expense, 
"(II) the amount of any net operating loss deduc-
tion under section 172, eind 
"(III) any deduction allowable for depreciation, 
amortization, or depletion, and 
"(ii) computed with such other adjustments as the 
" 
Secretary may by regulations prescribe. 
"(B) NET INTEREST EXPENSE.—The term 'net interest 
expense'means the excess (if any) of— 
103 STAT. 2342 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(i) the interest pedd or accrued by the taxpayer 
during the taxable year, over 
"(ii) the amount of interest includible in the gross 
income of such taxpayer for such taxable year. 
The Secretary may by regulations provide for adjustments 
in determining the amount of net interest expense. 
"(C) TREATMENT OF AFFILIATED GROUP.—All members of 
the same affiliated group (within the meaning of section 
1504(a)) shall be treated as 1 taxpayer. 
"(7) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be appropriate to carry out the purposes of this 
subsection, including— 
"(A) such regulations as may be appropriate to prevent 
the avoidance of the purposes of this subsection, 
"(B) regulations providing such adjustments in the case of 
corporations which are members of an affiliated group as 
may be appropriate to carry out the purposes of this subsec-
tion, and 
"(C) regulations for the coordination of this subsection 
with section 884." ^
^ 
^ 
. 
26 use 163 note. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendment made by this section shall 
apply to interest paid or accrued in taxable years beginning 
after July 10,1989. 
(2) SPECIAL RULE FOR DEMAND LOANS, ETC.—In the case of any 
demand loan (or other loan without a fixed term) which was 
outstanding on July 10,1989, interest on such loan to the extent 
attributable to periods before September 1, 1989, shall not be 
treated as disqualified interest for purposes of section 163(j) of 
the Internal Revenue Code of 1986 (as added by subsection (a)). 
SEC. 7211. LIMITATIONS ON REFUNDS DUE TO NET OPERATING LOSS 
^ 
CARRYBACKS OR EXCESS INTEREST ALLOCABLE TO COR-
- 
PORATE EQUITY REDUCTION TRANSACTIONS. 
(a) IN GENERAL.—Paragraph (1) of section 172(b) (relating to years 
to which loss may be carried) is amended by adding at the end 
thereof the following new subparagraph; 
"(M) EXCESS INTEREST LOSS.— 
"(i) IN GENERAL.—If— 
"(I) there is a corporate equity reduction trans-
action, and 
"(II) an applicable corporation has a corporate 
equity reduction interest loss for any loss limita-
tion year ending after August 2,1989, 
then the corporate equity reduction interest loss shall 
be a net operating loss carryback and carryover to the 
taxable years described in subparagraphs (A) and (B), 
except that such loss shall not be carried back to a 
taxable year preceding the taxable year in which the 
corporate equity reduction transaction occurs. 
"(ii) Loss UMITATION YEAR.—For purposes of clause (i) 
»
« 
and subsection (m), the term 'loss limitation year' 
means, with respect to any corporate equity reduction 
transaction, the taxable year in which such transaction 
occurs and each of the 2 succeeding taxable years. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STATL2343 
"(iii) APPUCABLE 
CORPORATION.—For purposes of 
clause (i), the term 'applicable corporation means a C 
corporation— 
"(I) which acquires stock, or the stock of which is 
^ 
acquired, in a msgor stock acquisition, 
(ID a corporation making distributions with 
respect to, or redeeming, its stock in connection 
with an excess distribution, or 
"(ni) any successor corporation of a corporation 
described in subclause (I) or (II). 
"(iv) OTHER DEFINITIONS.— 
"For deHnitions of terms used in this subparasrapli, see subsection 
(m)." 
(b) CORPORATE EQUITY REDUCTION INTEREST LOANS AND (CORPORATE 
EQUITY REDUCTION TRANSACTION DEFINED.—Section 172 is amended 
by redesignating subsection (m) as subsection (n) and by inserting 
after subsection (1) the following new subsection: 
"(m) CORPORATE EQUITY REDUCTION INTEREST LOSSES.—For pur-
poses of this section— 
"(1) IN GENERAL.—The term 'corporate equity reduction in-
terest loss' means, with respect to any loss limitation year, the 
excess (if any) of— 
"(A) the net operating loss for such taxable year, over 
"(B) the net operating loss for such taxable year deter-
mined without regard to any allocable interest deductions 
otherwise taken into account in computing such loss. 
"(2) ALLOCABLE INTEREST DEDUCTIONS.— 
"(A) IN GENERAL.—The term 'allocable interest deduc-
tions' means deductions allowed under this chapter for 
interest on the portion of any indebtedness allocable to a 
'^ 
corporate equity reduction transaction. 
"(B) METHOD OF ALLOCATION.—Except as provided in regu-
lations and subparagraph (E), indebtedness shall be allo-
cated to a corporate equity reduction transaction in the 
manner prescribed under clause (ii) of section 263A(fK2XA) 
(without regard to clause (i) thereof). 
"(C) ALLOCABLE DEDUCTIONS NOT TO EXCEED INTEREST IN-
i:', ' 
CREASES.—Allocable interest deductions for any loss limita-
tion year shall not exceed the excess (if any) of— 
"(i) the amount allowable as a deduction for interest 
paid or accrued by the taxpayer during the loss limita-
tion year, over 
"(ii) the average of such amounts for the 3 taxable 
years preceding the taxable year in which the cor- ^ 
porate equity reduction transaction occurred. 
"(D) DE MINIMIS RULE.—A taxpayer shall be treated as 
having no allocable interest deductions for any taxable year 
if the amount of such deductions (without regard to this 
subparagraph) is less than $1,000,000. 
"(E) SPECIAL RULE FOR CERTAIN UNFORESEEABLE EVENTS.— 
If an unforeseeable extraordinary adverse event occurs 
during a loss limitation year but dfter the corporate equity 
/ 
reduction transaction— 
"(i) indebtedness shall be allocated in the manner 
described in subparagraph (B) to unreimbursed costs 
- 
paid or incurred in connection with such event before 
103 STAT. 2344 
PUBLIC LAW 101-239—DEC. 19, 1989 
being allocated to the corporate equity reduction trans-
:' 
' 
action, and 
"(ii) the amount determined under subparagraph 
" 
(CXi) shall be reduced by the amount of interest on 
indebtedness described in clause (i). 
t *' 
"(F) TRANSITION RULE.—If any of the 3 taxable years 
described in subparagraph (CXii) end on or before August 2, 
1989, the taxpayer may sul^titute for the amount deter-
mined under such subparagraph an amount equal to the 
interest paid or accrued (determined on an annualized 
basis) during the taxpayer's taxable year which includes 
August 3, 1989, on indebtedness of the taxpayer outstand-
ing on August 2,1989. 
"(3) CORPORATE EQUITY REDUCTION TRANSACTION.— 
"(A) IN GENERAL.—The term 'corporate equity reduction 
transaction'means— 
"(i) a major stock acquisition, or 
"(ii) £ui excess distribution. 
. 
"(B) M A J O R STOCK ACQUISITION.— 
"(i) IN GENERAL.—The term 'major stock acquisition' 
means the acquisition by a corporation pursuant to a 
plan of such corporation (or any group of persons acting 
in concert with such corporation) of stock in another 
corporation representing 50 percent or more (by vote or 
value) of the stock in such other corporation, 
"(ii) EXCEPTIONS.—The term 'major stock acquisition' 
shall not include— 
"(I) a qualified stock purchase (within the meaning 
of section 338) to which an election under section 
338 applies, or 
"(II) except as provided in regulations, an ac-
quisition in which a corporation acquires stock of 
another corporation which, immediately before the 
acquisition, was a member of an affiliated group 
(within the meaning of section 1504(a)) other than 
the common parent of such group. 
"(C) EXCESS DISTRIBUTION.—The term 'excess distribution' 
means the excess (if any) of— 
"(i) the aggregate distributions (including redemp-
•'•''' 
tions) made during a taxable year by a corporation with 
respect to its stock, over 
* " ' 
* * 
"(ii) the greater of— 
"(I) 150 percent of the average of such distribu-
tions during the 3 taxable years immediately 
preceding such taxable year, or 
"(II) 10 percent of the fair market value of the 
stock of such corporation as of the beginning of 
such taxable year. 
"(D) RULES FOR APPLYING SUBPARAGRAPH (B).—For 
pur-
'" 
. poses of subpar£igraph (B)— 
"(i) PLANS TO ACQUIRE STOCK.—All plans referred to 
, 
in subparagraph (B) by any corporation (or group of 
persons acting in concert with such corporation) with 
respect to another corporation shall be treated as 1 
plan. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2345 
"(ii) ACQUISITIONS DURING 24-MONTH PERIOD.—All ac-
* 
" 
quisitions during any 24-month period shall be treated 
as pursuant to 1 plan. 
"(E) RULES FOR APPLYING SUBPARAGRAPH (C).—For pur-
poses of subparagraph (C)— 
"(i) CERTAIN PREFERRED STOCK DISREGARDED.—Stock 
described in section 
1504(aX4), and distributions 
(including redemptions) with respect to such stock, 
shall be disregarded. 
"(ii) ISSUANCE OF STOCK.—The amounts determined 
under clauses (i) and (iiXD of subparagraph (C) shall be 
reduced by the aggregate amount of stock issued by the 
corporation during the applicable period in exchange 
for money or property other than stock in the corpora-
tion. 
"(4) OTHER RULES.— 
"(A) ORDERING RULE.—For purposes of paragraph (1), in 
determining the allocable interest deductions taken into 
account in computing the net operating loss for any taxable 
year, taxable income for such taxable year shall be treated 
as having been computed by taking allocable interest 
deductions into account after £dl other deductions. 
"(B) COORDINATION WITH SUBSECTION (BX2).—In applying 
parEigraph (2) of subsection (b), the corporate equity reduc-
tion interest loss shall be treated in a manner similar to the 
manner in which a foreign expropriation loss is treated. 
"(C) MEMBERS OF AFFILIATED GROUPS.—Except as provided 
by regulations, all members of an affiliated group filing a 
consolidated return under section 1501 shall be treated as 1 
taxpayer for purposes of this subsection and subsection 
(bXlXM). 
"(5) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of this 
subsection, including regulations— 
"(A) for appljdng this subsection to successor corporations 
and in cases where a taxpayer becomes, or ceases to be, a 
member of an affiliated group filing a consolidated return 
under section 1501, 
"(B) to prevent the avoidance of this subsection through 
related parties, pass-through entities, and intermediaries, 
and 
"(C) for applying this subsection where more than 1 
corporation is involved in a corporate equity reduction 
transaction, 
(c) EFFECTIVE DATE.— 
26 use 172 note. 
(1) IN GENERAL.—Except as.provided in this subsection, the 
amendments made by this section shall apply to corjporate 
equity reduction transactions occurring after August 2, 1989, in 
taxable years ending after August 2,1989. 
(2) EXCEPTIONS.—In determining whether a corporate equity 
reduction transaction has occurred sifter August 2, 1989, there 
shall not be taken into account— 
(A) acquisitions or redemptions of stock, or distributions 
with respect to stock, occurring on or before August 2,1989, 
(B) acquisitions or redemptions of stock eifter August 2, 
1989, pursuant to a binding written contract (or tender offer 
filed with the Securities and Exchange Commission) in 
103 STAT. 2346 
PUBLIC LAW 101-239—DEC. 19, 1989 
effect on August 2, 1989, and at all times thereafter before 
such acquisition or redemption, or 
„ 
(C) any distribution with respect to stock after August 2, 
1989, which w£is declared on or before August 2, 1989. 
Any distribution to which the preceding sentence applies shall 
be taken into account under section 172(m)(3XCXiiXI) of the 
; 
Internal Revenue Code of 1986 (relating to base period for 
distributions). 
Subtitle C—Employee Benetit Provisions 
PART I—EMPLOYEE STOCK OWNERSHIP PLANS 
SEC. 7301. LIMITATIONS ON PARTIAL EXCLUSION OF INTEREST ON LOANS 
USED TO ACQUIRE EMPLOYER SECURITIES. 
(a) EXCLUSION AVAILABLE ONLY WHERE 
EMPLOYEES 
RECEIVE 
SIGNIFICANT OWNERSHIP INTEREST.—Subsection 0)) of section 133 
(defining securities acquisition loans) is sunended by adding at the 
, 
end thereof the following new paragraph: 
"(6) PLAN MUST HOLD MORE THAN 50 PERCENT OF STOCK AFTER 
ACQUISITION O
R TRANSFER.— 
"(A) IN GENERAL.—A losm shall not be treated as a securi-
ties acquisition loan for purposes of this section unless, 
immediately after the acquisition or transfer referred to in 
subparagraph (A) or (B) of paragraph (1), respectively, the 
employee stock ownership plan owns more than 50 percent 
of— 
"(i) each class of outstanding stock of the corporation 
issuing the employer securities, or 
"(ii) the total value of all outstanding stock of the 
corporation. 
"(B) FAILURE TO RETAIN MINIMUM STOCK INTEREST.— 
"(i) IN GENERAL.—Subsection (a) shall not apply to 
any interest received with respect to a securities ac-
quisition loan which is allocable to any period during 
which the employee stock ownership plan does not own 
stock meeting the requirements of subparagraph (A), 
"(ii) EXCEPTION.—To the extent provided by the Sec-
retary, clause (i) shall not apply to any period if, within 
^ . 9 0 days of the first date on which the failure occurred 
(or such longer period not in excess of 180 days as the 
Secretary may prescribe), the plan acc[uires stock 
- 
which results in its meeting the requirements of 
subparagraph (A). 
"(C) STOCK.—For purposes of subparagraph (A)— 
"(i) IN GENERAL.—The term stock'means stock Other 
than stock described in section 1504(aX4). 
"(ii) TREATMENT OF CERTAIN RIGHTS.—The Secretary 
V 
may provide that warrants, options, contracts to ac-
quire stock, convertible debt interests and other similar 
«. 
interests be treated as stock for 1 or more purposes 
under subparagraph (A). 
"(D) AGGREGATION 
RULE.—For purposes of 
determining 
whether the requirements of subparagraph (A) are met, an 
employee stock ownership plan shall be treated as owning stock 
in the corporation issuing the employer securities which is held 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2347 
by any other employee stock ownership plan which is main-
tained by— 
"(i) the employer maintaining the plan, or 
"(ii) any member of a controlled group of corporations 
(within the meeining of section 409GX4)) of which the em-
ployer described in clause (i) is a member." 
(b) TERM OF LOAN MAY NOT EXCEED 15 YEARS.—Paragraph (1) of 
section 133(b) is amended by adding at the end thereof the following 
new sentence: "The term 'securities acquisition loan' shall not 
include a loan with a term greater than 15 years." 
(c) VOTING RIGHTS.—Subsection (b) of section 133, as smiended by 
subsection (a), is amended by adding at the end thereof the following 
new paragraph: 
^^ 
"(7) VOTING RIGHTS OF EMPLOYER SECURITIES.—A loan shall not 
^ 
be treated as a securities acquisition loan for purposes of this 
section unless— 
"(A) the employee stock ownership plan meets the 
requirements of section 409(eX2) with respect to all 
employer securities acquired by, or transferred to, the plan 
in connection with such loan (without regard to whether or 
not the employer has a registration-tjrpe class of securities), 
and 
"(B) no stock described in section 409GX3) is acquired by, 
or transferred to, the plan in connection with such loan 
unless— 
"(i) such stock has voting rights equivalent to the 
stock to which it may be converted, and 
"(ii) the requirements of subparagraph (A) are met 
with respect to such voting rights.". 
(d) TAX ON DISPOSITION OF SECURITIES BY EMPLOYEE STOCK OWNER 
SHIP PLANS.— 
(1) IN GENERAL.—Chapter 43 is amended by inserting after 
section 4978A the following new section: 
"SEC. 4978B. TAX ON DISPOSITION OF EMPLOYER SECURITIES TO WHICH 
SECTION 133 APPLIED. 
"(a) IMPOSITION OF TAX.—In the case of an employee stock owner-
ship plan which has acquired section 133 securities, there is hereby 
imposed a tax on each taxable event in an amount equal to the 
amount determined under subsection (b). 
"(b) AMOUNT OF TAX.— 
"(1) IN GENERAL.—The amount of the tax imposed by subsec-
tion (a) shall be equal to 10 percent of the amount realized on 
the disposition to the extent allocable to section 133 securities 
under section 4978(bX2). 
"(2) DISPOSITIONS OTHER THAN SALES OR EXCHANGES.—For pur-
poses of paragraph (1), in the case of a disposition of employer 
securities which is not a sale or exchange, the amount realized 
on such disposition shall be the fair market value of such 
securities at the time of disposition. 
"(c) TAXABLE EVENT.—For purposes of this section, the term 'tax-
able event' means any of the following dispositions: 
"(1) DISPOSITIONS WITHIN S YEARS.—Any disposition of any 
. 
employer securities by an employee stock ownership plan 
within 3 years after such plan acquired section 133 securities 
if— 
103 STAT. 2348 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) the total number of employer securities held by such 
plan after such disposition is less than the total number of 
employer securities held after such acquisition, or 
"(B) except to the extent provided in regulations, the 
' •"" 
value of employer securities held by such plan after the 
disposition is 50 percent or less of the total value of all 
employer securities as of the time of the disposition. 
For purposes of subparagraph (B), the aggregation rule of sec-
tion 133(bX6XD) shall apply. 
"(2) STOCK DISPOSED OP BEFORE ALLOCATION.—Any disposition 
of section 133 securities to which paragraph (1) does not apply 
if— 
"(A) such disposition occurs before such securities are 
' 
allocated to accounts of participants or their beneficiaries, 
and 
"(B) the proceeds from such disposition are not so allo-
cated. 
"(d) SECTION N O T TO APPLY TO CERTAIN DISPOSITIONS.— 
"(1) IN GENERAL.—This section shall not apply to any disposi-
tion described in paragraph (1), (3), or (4) of section 4978(d). 
"(2) CERTAIN REORGANIZATIONS.—For purposes of this section, 
any exchange of section 133 securities for employer securities of 
another corporation in any reorganization described in section 
368(a)(1) shall not be treated as a disposition, but the employer 
securities received shall be treated as section 133 securities and 
as having been held by the plan during the period the securities 
which were exchanged were held. 
"(3) FORCED DISPOSITION OCCURRING BY OPERATION OF STATE 
LAW.—Any forced disposition of section 133 securities by an 
employee stock ownership plan occurring by operation of a 
State law shall not be treated as a disposition. This paragraph 
shall only apply to securities which, at the time the securities 
were acquired by the plan, were regularly traded on an estab-
lished securities market. 
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this sec-
tion— 
"(1) LIABILITY FOR PAYMENT OF TAXES.—The teix imposed by 
this section shall be paid by the employer. 
"(2) SECTION 133 SECURITIES.—The term 'section 133 securities' 
means employer securities acquired by an employee stock 
ownership plan in a transaction to which section 133 applied, 
except that such term shall not include— 
"(A) qualified securities (as defined in section 4978(e)(2)), 
or 
"(B) qualified employer securities (as defined in section 
4978A(fX2), as in effect on the day before the date of the 
. ' 
enactment of this section). 
"(3) DISPOSITION.—The term 'disposition' includes any dis-
"
^ 
tribution. 
"(4) ORDERING RULES.—For ordering rules for dispositions of 
employer securities, see section 4978(bX2)." 
(2) CONFORMING AMENDMENT.^The table of sections for chap-
^ 
ter 43 is amended by inserting after the item relating to section 
4978A the following new item: 
^ 
"Sec. 4978B. Tax on disposition of employer securities to which section 133 
applied.". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2349 
(e) REPORTING REQUIREMENTS.—Section 6047 (relating to informa-
tion reports relating to certain trusts or annuity plans) is amended 
by redesignating subsection (e) as subsection (f) and by inserting 
^ter subsection (d) the following new subsection: 
"(e) EMPLOYEE STOCK OWNERSHIP PLANS.—The Secretary shall 
require— 
"(1) any employer maintaining, or the plan administrator 
(within the meaning of section 414(g)) of, an employee stock 
ownership plan— 
"(A) which acquired stock in a transaction to which 
section 133 applies, or 
"(B) which holds stock with respect to which section 
404(k) applies to dividends paid on such stock, 
"(2) any person making or holding a loan to which section 133 
applies, or 
"(3) both such employer or plan administrator and such 
person, 
to make returns and reports regarding such plan, transaction, or 
loan to the Secretary and to such other persons as the Secretary 
may prescribe. Such returns and reports shall be made in such form, 
shall be made at such time, and shall contain such information as 
the Secretary may prescribe." 
(f) EFFECTIVE DATES.— 
26 use 133 note. 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to loans made 
after July 10,1989. 
(2) BINDING COMMITMENT EXCEPTIONS.— 
(A) The amendments made by this section shall not apply 
to any loan— 
(i) which is made pursuant to a binding written 
commitment in effect on June 6, 1989, and at all times 
thereafter before such loan is made, or 
(ii) to the extent that the proceeds of such loan are 
used to acquire employer securities pursuant to a writ-
ten binding contract (or tender offer registered with the 
Securities and Exchange Commission) in effect on June 
6, 1989, and at all times thereafter before such securi-
ties are acquired. 
(B) The amendments made by this section shall not apply 
to any loan to which subparagraph (A) does not apply which 
is made pursuant to a binding written commitment in effect 
; 
on July 10, 1989, and at all times thereafter before such 
loan is made. The preceding sentence shall only apply to 
the extent that the proceeds of such loan are used to 
acquire employer securities pursuant to a written binding 
contract (or tender offer registered with the Securities and 
Exchange Commission) in effect on July 10, 1989, and at all 
times thereafter before such securities are acquired. 
(C) The amendments made by this section shall not apply 
to any loan made on or before July 10, 1992, pursuant to a 
written agreement entered into on or before July 10, 1989, 
if such agreement evidences the intent of the borrower on a 
periodic basis to enter into securities acquisition loans de-
scribed in section 133(bXlXB) of the Internal Revenue Code 
of 1986 (as in effect on the day before the date of the 
enactment of this Act). The preceding sentence shall apply 
103 STAT. 2350 
PUBLIC LAW 101-239—DEC. 19, 1989 
only if one or more securities acquisition loans were made 
to the borrower on or before July 10,1989. 
(3) REFINANCINGS.—The amendments made by this section 
shall not apply to loans made after July 10, 1989, to refinance 
securities acquisition loans (determined without regard to sec-
tion 1330)X2) of the Internal Revenue Code of 1986) made on or 
before such date or to refinance loans described in this para-
graph or paragraph (2), (4), or (5) if— 
(A) such refinancing loans meet the requirements of such 
section 133 of such Code (as in effect before such amend-
ments) applicable to such loans, 
(B) immediately after the refinancing the principal 
amount of the loan resulting from the refinancing does not 
exceed the principal amount of the refinanced loan (imme-
diately before the refinancing), and 
(C) the term of such refinancing loan does not extend 
beyond the later of— 
(i) the last day of the term of the original securities 
acquisition loan, or 
(ii) the last day of the 7-year period beginning on the 
date the original securities acquisition loan was made. 
For purposes of this paragraph, the term "securities acquisition 
.,-u 
loan' shall include a loan from a corporation to an employee 
stock ownership plan described in section 13303X3) of such Code. 
(4) CoLLEcnvB BARGAINING AGREEMENTS.—The amendments 
made by this section shall not apply to any loan to the extent 
such loan is used to acquire employer securities for an employee 
stock ownership plan pursuant to a collective bargaining agree-
ment which sets forth the material terms of such employee 
stock ownership plan and which was agreed to on or before 
June 6,1989, by one or more employers and employee represent-
atives (and ratified on or before such date or within a reason-
able period thereafter). 
(5) FiuNGS W
I
T
H U
N
F
T
E
D STATES.—The amendments made by 
this section shall not apply to any loan the aggregate princip^ 
amount of which was specified in a filing with an agency of the 
, United States on or before June 6,1989, if— 
(A) such filing specifies such loan is to be a securities 
acquisition loan for purposes of section 133 of the Internal 
Revenue Code of 1986 and such filing is for the r^istration 
required to permit the offering of such loan, or 
^ ) such fUing is for the approval required in order for the 
employee stock ownership plan to acquire more than a 
certain percentcige of the stock of the employer. 
(6) 30-PERCENT T
E
S
T SUBSTITUTED F
O
R 50-PERCENT T
E
S
T IN C
A
S
E 
O
P C
E
R
T
A
I
N LOANS.—In the case of a loan to which the amend-
ments made by this section apply— 
(A) which is made before November 18,1989, or 
(B) with respect to which such amendments would not 
* 
apply if paragraph (2XA) were applied by substituting 
"November 17, 1989" for "June 6, 1989" each place it 
appears, 
section 133a>X6XA) of the Internal Revenue Code of 1986 (as 
added by subsection (a)) shall be applied by substituting "at 
least 30 percent" for "more than 50 percent" and section 
4978B(cXlXB) of such Code (as added by subsection (d)) shall be 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2351 
applied by substituting "less than 30 percent" for "50 percent or 
less". The preceding sentence shall apply to any loan which is 
used to refinance a loan described in such sentence if the 
requirements of subparagraphs (A), (B), and (C) of paragraph (3) 
are met with respect to the refinancing loan. 
SEC. 7302. UMITATIONS ON DEDUCTIONS FOR DIVIDENDS PAID ON 
EMPLOYER SECURITIES. 
(a) IN GENERAL.—Subsection (k) of section 404 is amended to read 
as follows: 
"(k) DEDUCTION FOR DIVTOENDS PAID ON CERTAIN EMPLOYER SECU-
RITIES.— 
"(1) GENERAL RULE.—In the case of a corporation, there shall 
be allowed as a deduction for a taxable year the amount of any 
applicable dividend paid in cash by such corporation during the 
taxable year with respect to applicable employer securities. 
Such deduction shall be in addition to the deductions allowed 
under subsection (a). 
"(2) APPUCABLE DIVIDEND.—For purposes of this subsection— 
"(A) IN GENERAL.—The term 'applicable dividend' means 
any dividend which, in accordance with the plan provi-
sions— 
"(i) is paid in cash to the participants in the plan or 
their beneficiaries, 
"(ii) is paid to the plan and is distributed in cash to 
participants in the plan or their beneficiaries not later 
than 90 days after the close of the plan year in which 
paid, or 
"(ui) is used to make payments on a loan described in 
subsection (aX9) the proceeds of which were used to 
acquire the employer securities (whether or not allo-
cated to participants) with respect to which the divi-
dend is paid. 
"(B) LIMITATION ON CERTAIN DIVIDENDS.—A dividend 
described in subparagraph (AXiii) which is paid with respect 
to any employer security which is allocated to a p£u*ticipant 
shall not be treated £is an applicable dividend unless the 
plan provides that employer securities with a fair market 
value of not less than the £imount of such dividend are 
allocated to such participant for the year which (but for 
subparagraph (A)) such dividend would have been allocated 
to such participant. 
"(3) APPUCABLE EMPLOYER SECURITIES.—For purposes of this 
subsection, the term 'applicable employer securities' means, 
with respect to any dividend, employer securities which are held 
on the record date for such dividend by an employee stock 
ownership plan which is maintained by— 
"(A) the corporation pajdng such dividend, or 
"(B) any other corporation which is a member of a con-
trolled group of corporations (within the meaning of section 
409(1X4)) which includes such corporation. 
"(4) TIME F
O
R DEDUCTION.
— 
"(A) IN GENERAL.—The deduction under paragraph (1) 
shall be allowable in the taxable year of the corporation in 
which the dividend is paid or distributed to a participant or 
his beneficiary. 
103 STAT. 2352 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(B) REPAYMENT OF LOANS.—In the case of an applicable 
dividend described in clause (iii) of paragraph (2XA), the 
- 
deduction under paragraph (1) shall be allowable in the 
tEixable year of the corporation in which such dividend is 
used to repay the loan described in such clause. 
"(5) OTHER RULES.—For purposes of this subsection— 
"(A) DISALLOWANCE OF DEDUCTION.—The Secretary 
may 
disallow the deduction under paragraph (1) for any dividend 
5
. 
if the Secretary determines that such dividend constitutes, 
in substance, an evasion of taxation. 
"(B) PLAN QUAUFICATION.—A plan shall not be treated as 
violating the requirements of section 401, 409, or 4975(eX7), 
: or as engaging in a prohibited transaction for purposes of 
section 4975(dX3), merely by reason of any payment or 
distribution described in paragraph (2XA). 
"(6) DEFINITIONS.—For purposes of this subsection— 
"(A) EMPLOYER SECURITIES.—The term 'employer securi-
ties' has the meaning given such term by section 409(1). 
"(B) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'em-
ployee stock ownership plan' has the meaning given such 
term by section 4975(eX7). Such term includes a tax credit 
employee stock ownership plan (as defined in section 409)." 
26 u s e 404 note. 
(b) EFFECTIVE D A T E . — 
(1) IN GENERAL.—The amendment made by this section shall 
apply to employer securities acquired after August 4, 1989. 
(2) SECURITIES ACQUIRED WITH CERTAIN LOANS.—The amend-
ment made by this section shall not apply to employer securities 
acquired after August 4,1989, which are acquired— 
(A) with the proceeds of any loan which was made pursu-
ant to a binding written commitment in effect on August 4, 
1989, and at all times thereafter before such loan is made, 
and 
(B) pursuant to a written binding contract (or tender offer 
registered with the Securities and Exchange Commission) 
' 
in effect on August 4, 1989, and at all times thereafter 
before such securities are acquired. 
SEC. 7303. 3-YEAR HOLDING PERIOD REQUIRED BEFORE SECTION 1042 
SALE. 
(a) IN GENERAL.—Section 1042(b) (relating to requirements to 
qualify for nonrecognition) is amended by adding at the end thereof 
the following new paragraph: 
"(4) 3-YEAR HOLDING PERIOD.—The taxpayer's holding period 
with respect to the qualified securities is at least 3 years 
(determined as of the time of the sale)." 
26 use 1042 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
note. 
apply to sales after July 10,1989. 
SEC. 7304. REPEAL OF CERTAIN PROVISIONS RELATING TO EMPLOYEE 
STOCK OWNERSHIP PLANS. 
(a) ESTATE TAX DEDUCTION.— 
(1) IN GENERAL.—Section 2057 (relating to sales of employer 
securities to employee stock ownership plans or worker-owned 
corporations) is hereby repealed. 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (1) of section 409(n) is amended— 
(i) by striking "or section 2057" each place it appears. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2353 
(ii) by striking "or any decedent if the executor of the 
estate of such decedent makes a qualified sale to which 
section 2057 applies" in subparagraph (AXi) thereof, 
and 
(iii) by striking "or the decedent" in subparagraph 
(AXii) thereof. 
(B) Paragraphs (2XCXi) and (SXAXii) of section 409(n) are 
each amended by striking "or section 2057". 
(CXi) Section 4978A is hereby repealed, 
(ii) Section 4978(bX2) is amended by striking "(determined 
as if such securities were disposed of in the order described 
in section 4978A(e))." and inserting "determined as if such 
securities were disposed of— 
"(A) first, from section 133 securities (as defined in sec-
tion 4978B(eX2)) acquired during the 3-year period ending 
on the date of such disposition, beginning with the securi-
ties first so acquired. 
"(B) second, from section 133 securities (as so defined) 
acquired before such 3-year period unless such securities (or 
proceeds from the disposition) have been allocated to ac-
counts of participants or beneficiaries." 
"(C) third, from qualified securities to which section 1042 
applied acquired during the 3-year period ending on the 
date of the disposition, beginning with the securities first so 
acquired, and 
* (D) then from any other employer securities. 
If subsection (d) or section 4978B(d) applies to a disposition, the 
disposition shall be treated as made from employer securities in 
the opposite order of the preceding sentence.' 
(iii) The table of sections for chapter 43 is amended by 
striking the item relating to section 4978A. 
(D) Section 4979A is amended— 
(i) by striking "or section 2057" in subsection (bXD, 
and 
(ii) by striking "or section 2057(d)" in subsection 
(cX2). 
(E) The table of sections for part IV of subchapter A of 
chapter 11 is amended by striking the item relating to 
section 2057. 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
26 USC 409 note, 
tion shall apply to the estates of decedents dying after the date 
of the enactment of this Act. 
(b) LIABILITY FOR PAYMENT OF ESTATE TAX.— 
(1) IN GENERAL.—Section 2210 (relating to liability for pay-
ment in case of transfer of employer securities) is nereby re-
pealed. 
' 
(2) CONFORMING AMENDMENTS.— 
(A) Section 2002 is amended by striking "Except as pro-
vided in section 2210, the" and inserting "The". 
(B) Section 6018 is amended by striking subsection (c). 
(C) The table of sections for subchapter C of chapter 11 is 
amended by striking the item relating to section 2210. 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
26 USC 2002 
tion shall apply to estates of decedents dying after July 12,1989. °°*®-
(c) LIMITATIONS ON DEFINED CONTRIBUTION PLANS.— 
(1) IN GENERAL.—Paragraph (6) of section 415(c) is amended to 
read as follows: 
103 STAT. 2354 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(6) SPECIAL RULE FOR EMPLOYEE STOCK OWNERSHIP PLANS.—If 
no more than one-third of the employer contributions to an 
' employee stock ownership plan (as described in section 
4975(eX7)) for a year which are deductible under paragraph (9) 
of section 404(a) are allocated to highly compensated employees 
(within the meaning of section 414(q)), the limitations imposed 
by this section shall not apply to— 
"(A) forfeitures of employer securities (within the mean-
ing of section 409) under such an employee stock ownership 
.? plan if such securities were acquired with the proceeds of a 
loan (as described in section 404(aX9XA)), or 
"(B) employer contributions to such an employee stock 
ownership plan which are deductible under 
section 
404(aX9XB) and charged agEiinst the participant's account." 
26 use 415 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to years beginning after July 12,1989. 
(d) SPECIAL RULES RELATING TO NET OPERATING LOSSES.— 
(1) IN GENERAL.—Section 382(1X3) is amended by striking 
subparEigraph (C) and by redesignating subparagraph (D) as 
subparagraph (C). 
26 use 382 note. 
(2) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply to acquisitions of employer securities after July 
12, 1989, except that such amendments shall not apply to 
acquisitions after July 12, 1989, pursuant to a written binding 
contract in effect on July 12, 1989, and at all times thereafter 
before such acquisition. 
PART II—SECTION 401(H) ACCOUNTS 
SEC. 7311. LIMITATION ON CONTRIBUTIONS TO SECTION 401(h) ACCOUNTS. 
(a) IN GENERAL.—Section 401(h) is amended by adding at the end 
thereof the following new sentence: "In no event shall the require-
ments of paragraph (1) be treated as met if the aggregate actual 
contributions for medical benefits, when added to actual contribu-
tions for life insurance protection under the plan, exceed 25 percent 
of the total actued contributions to the plan (other than contribu-
tions to fund past service credits) after the date on which the 
account is established." 
26 use 401 note. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendment made by this section shall 
apply to contributions after October 3,1989. 
(2) TRANSITION.—The amendment made by this section shall 
not apply to contributions made before January 1, 1990, if— 
(A) the employer requested before October 3, 1989, a 
private letter ruling or determination letter with respect to 
the qualification of the plan maintaining the account under 
t 
section 401(h) of the Internal Revenue Code of 1986, 
(B) the request sets forth a method under which the 
amount of contributions to the account are to be deter-
mined on the basis of cost, 
(C) such method is permissible under section 401(h) of 
such Code under the provisions of General Counsel Memo-
randum 39785, and 
(D) the Internal Revenue Service issued before October 4, 
1989, a private letter ruling, determination letter, or other 
letter providing that the specific plan involved qualifies 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2355 
under section 401(a) of such Code when such method is 
used, that contributions to the account are deductible, or 
acknowledging that the account would not adversely affect 
the qualified status of the plan (contingent on all phases of 
the particular plan being approved). 
Subtitle D—Foreign Provisions 
SEC. 7401. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS. 
(a) GENERAL RULE.—Subpart D of part II of subchapter N of 
chapter 1 (relating to miscellaneous provisions) is amended by 
adding at the end thereof the following new section: 
"SEC. 898. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS. 
"(a) GENERAL RULE.—For purposes of this title, the tsucable year of 
any specified foreign corporation shall be the required year deter-
mined under subsection (c). 
"(b) SPECIFIED FOREIGN CORPORATION.—For purposes of this sec-
tion— 
"(1) IN GENERAL.—The term 'specified foreign corporation' 
means any foreign corporation— 
( 
"(A) which is— 
"(i) treated as a controlled foreign corporation for 
any purpose under subpart F of part III of this sub-
..? 
chapter, or 
"(ii) a foreign personal holding company (as defined 
in section 552), and 
"(B) with respect to which the ownership requirements of 
paragraph (2) are met. 
"(2) OWNERSHIP REQUIREMENTS.— 
' 
"(A) IN GENERAL.—The ownership requirements of this 
paragraph are met with respect to any foreign corporation 
if a United States shareholder owns, on each testing day, 
more than 50 percent of— 
"(i) the total voting power of all classes of stock of 
t. 
such corporation entitled to vote, or 
" 
"(ii) the total value of all classes of stock of such 
corporation. 
"(B) OWNERSHIP.—For purposes of subparagraph (A), the 
rules of subsections (a) and (b) of section 958 and sections 
551(f) and 554, whichever are applicable, shall apply in 
determining ownership. 
"(3) UNITED STATES SHAREHOLDER.— 
"(A) IN GENERAL.—The term 'United States shareholder' 
has the meaning given to such term by section 951(b), 
except that, in the case of a foreign corporation having 
related person insurance income (as defined in section 
953(cX2)), the Secretary may treat any person as a United 
States shareholder for purposes of this section if such 
person is treated as a United States shareholder under 
section 953(cXl). 
"(B) FOREIGN PERSONAL HOLDING COMPANIES.—In the case 
'^ 
of any foreign personal holding company (as defined in 
section 552) which is not a specified foreign corporation by 
reason of paragraph (IXAXi), the term 'United States share-
103 STAT. 2356 
PUBLIC LAW 101-239—DEC. 19, 1989 
holder' means any person who is treated as a United States 
shareholder under section 551. 
"(c) DETERMINATION O
F REQUIRED YEAR.— 
"(1) CONTROLLED FOREIGN CORPORATIONS.— 
"(A) IN GENERAL.—In the case of a specified foreign cor-
poration described in subsection (bXlXAXi), the required 
year is— 
"(i) the majority U.S. shareholder year, or 
"(ii) if there is no majority U.S. shareholder year, the 
taxable year prescribea under regulations. 
"(B) 1-MONTH D
E
F
E
R
R
A
L ALLOWED.—A Specified foreign 
i . corporation mav elect, in lieu of the taxable year under 
subparagraph (AXi), a taxable year beginning 1 month ear-
lier than the majority U.S. shareholder year. 
"(C) MAJORITY U.S. SHAREHOLDER YEAR.— 
"(i) IN GENERAL.—For purposes of this subsection, the 
term 'majority U.S. shareholder year' means the tax-
able year (if any) which, on each testing day, con-
stituted the taxable year of— 
"(I) each United States shareholder described in 
subsection (bX2XA), and 
*' 
"(II) each United States shareholder not de-
scribed in subclause (I) whose stock was treated as 
owned under subsection (bX2)(B) by any share-
holder described in such subclause, 
"(ii) TESTING DAY.—The testing days shall be— 
"(I) the first day of the corporation's taxable year 
(determined without regard to this section), or 
"(II) the days during such representative period 
as the Secret«ury may prescribe. 
"(2) FOREIGN PERSONAL HOLDING COMPANIES.—In the case of a 
foreign personal holding company described in subsection 
(bX3XB), the required year shall be determined under par£^aph 
-. (1), except that subparagraph (B) of paragraph (1) sh£ul not 
apply." 
(b) TREATMENT OF DIVIDENDS PAID AFTER CLOSE OF TAXABLE 
YEAR.— 
(1) IN GENERAL.—Section 563 is amended by redesignating 
subsection (c) as subsection (d) and by inserting after subsection 
(b) the following new subsection: 
"(c) FOREIGN PERSONAL HOLDING COMPANY TAX.— 
"(1) IN GENERAL.—In the determination of the dividends paid 
deduction for purposes of part III, a dividend paid after the close 
of any taxable year and on or before the 15th day of the 3rd 
month following the close of such taxable year shall, to the 
extent the company designates such dividend as being taken 
into account under this subsection, be considered as paid during 
such taxable year. The amount allowed as a deduction by reason 
of the application of this subsection with respect to any taxable 
year shall not exceed the undistributed foreign person^ holding 
company income of the corporation for the taxable year com-
puted without regard to this subsection. 
"(2) SPECIAL RULES.—In the case of any distribution referred 
to in paragraph (1)— 
"(A) paragraph (1) shall apply only if such distribution is 
to the person who was the shareholder of record (as of the 
last day of the taxable year of the foreign personal holding 
P U B U C LAW 101-239—DEC. 19, 1989 
103 STAT. 2357 
., 
company) with respect to the stock for which such distribu-
tion is made, 
"(B) the determination of the person required to include 
such distribution in gross income shall be made under the 
principles of section 551(f), £ind 
"(C) any person required to include such distribution in 
gross or distributable net income shall include such dis-
tribution in income for such person's taxable year in which 
the taxable year of the foreign personal holding company 
ends." 
(2) CONFORMING AMENDMENT.—Subsection (d) of section 563 
(as redesignated by paragraph (1)) is amended by striking 
"subsection (a) or (b)" and inserting "subsection (a), (b), or (c)'. 
(c) CLERICAL AMENDMENT.—The table of sections for subpart D of 
part II of subchapter N of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 898. Taxable year of certain foreign corporations." 
(d) EFFECTIVE DATE.— 
26 use 898 note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after 
July 10,1989. 
(2) SPECIAL RULES.—If any foreign corporation is required by 
the amendments made by this section to change its taxable year 
for its first taxable year beginning after July 10,1989— 
(A) such change shall be treated as initiated by the 
taxpayer, 
(B) such change shall be treated as having been made 
with the consent of the Secretary of the Treasury or his 
•I 
delegate, and 
(C) if, by reason of such change, any United States person 
is required to include in gross income for 1 taxable year 
amounts attributable to 2 taxable years of such foreign 
corporation, the amount which would otherwise be required 
to be included in gross income for such 1 taxable year by 
reason of the short taxable year of the foreign corporation 
resulting from such change shall be included in gross 
income ratably over the 4-taxable-year period beginning 
with such 1 taxable year. 
SEC. 7402. LIMITATION ON USE OF DECONSOLIDATION TO AVOID FOR-
EIGN TAX CREDIT LIMITATIONS. 
(a) GENERAL RULE.—Section 904 (relating to limitations on foreign 
tax credit) is amended by redesignating subsection (i) £is subsection 
(j) and by inserting after subsection (h) the following new subsection: 
"(i) LIMITATION ON USE OF DECONSOUDATION To AVOID FOREIGN 
TAX CREDIT LIMITATIONS.—If 2 or more domestic corporations would 
v 
be members of the same affiliated group if— 
^ 
"(1) section 1504(b) were applied without regard to the excep-
tions contained therein, and 
"(2) the constructive ownership rules of section 1563(e) ap-
plied for purposes of section 1504(a), 
the Secretary may by regulations provide for resourcing the income 
of any of such corporations or for modifications to the consolidated 
return regulations to the extent that such resourcing or modifica-
tions are necessary to prevent the avoidance of the provisions of this 
subpart." 
103 STAT. 2358 
PUBLIC LAW 101-239—DEC. 19,1989 
26 use 904 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after July 10, 1989. 
SEC. 7403. INFORMATION W
I
T
H RESPECT T
O CERTAIN FOREIGN-OWNED 
CORPORATIONS. 
(a) 
25-PERCENT FOREIGN-OWNED CORPORATIONS REQUIRED TO 
REPORT.— 
(1) Peu-agraph (2) of section 6038A(a) is amended to read as 
follows: 
"(2) is 25-percent foreign-owned,". 
(2) Subsection (c) of section 6038A is amended to read as 
follows: 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) 25-PERCENT FOREIGN-OWNED.—A Corporation is 25-percent 
foreign-owned if at least 25 percent of— 
"(A) the total voting power of all classes of stock of such 
corporation entitled to vote, or 
(B) the total value of all classes of stock of such corpora-
tion, 
is owned at any time during the taxable 3rear by 1 foreign 
person (hereinarter in this section referred to as a '25-percent 
foreign shareholder'). 
"(2) RELATED PARTY.—The term 'related party' means— 
"(A) any 25-percent foreign shareholder of the reporting 
corporation, 
'(B) any person who is related (within the meaning of 
section 267(b) or 707(bXl)) to the reporting corporation or to 
i i
" * a 25-percent foreign shareholder of the reporting corpora-
' ^ s 1 tion, and 
"(C) any other person who is related (within the meaning 
of section 482) to the reporting corporation. 
"(4) FOREIGN PERSON.—The term 'foreign person' means any 
person who is not a United States person. For purposes of the 
preceding sentence, the term 'United States person' has the 
meaning given to such term by section 7701(aX30), except that 
any individual who is a citizen of any possession of the United 
States (but not otherwise a citizen of the United States) and who 
' is not a resident of the United States shall not be treated £is a 
United States person. 
f
s 
"(5) RECORDS.—The term 'records' includes any books, papers, 
or other data. 
"(6) SECTION 318 T
O APPLY.—Section 318 shall apply for pur-
poses of paragraphs (1) and (2), except that— 
"(A) '10 percent' shall be substituted for '50 percent' in 
section 318(aX2XC), and 
"(B) subparagraphs (A), (B), and (C) of section 318(aX3) 
shall not be applied so as to consider a United States person 
as owning stock which is owned by a person who is not a 
United States person." 
Regulations. 
(b) U.S. R
E
C
O
R
D
K
E
E
P
I
N
G REQUIREMENTS.—Subsection (a) of section 
6038A is amended by inserting before the period at the end thereof 
the following: "and such corporation shall maintain (in the location, 
in the manner, and to the extent prescribed in regulations) such 
records as may be appropriate to determine the correct treatment of 
transactions with related parties as the Secretary shall by regula-
tions prescribe (or shall cause another person to so maintain such 
records)". 
. PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2359 
(c) INCREASE IN PENALTY.—Subsection (d) of section 6038A is 
amended to read as follows: 
"(d) PENALTY FOR FAILURE TO FURNISH INFORMATION OR MAINTAIN 
RECORDS.— 
"(1) IN GENERAL.—If a reporting corporation— 
"(A) fails to furnish (within the time prescribed by regula-
tions) any information described in subsection (b), or 
"(B) fails to maintain (or cause another to maintain) 
records as required by subsection (a), 
such corporation shall pay a penalty of $10,000 for each taxable 
year with respect to which such failure occurs. 
"(2) INCREASE IN PENALTY WHERE FAILURE CONTINUES AFTER 
NOTIFICATION.—If any failure described in paragraph (1) contin-
ues for more than 90 days after the day on which the Secretary 
mails notice of such failure to the reporting corporation, such 
corporation shedl pay a penalty (in addition to the amount 
required under paragraph (1)) of $10,000 for each 30-day period 
(or fraction thereof) during which such failure continues after 
the expiration of such 90-day period. 
"(3) REASONABLE CAUSE.—For purposes of this subsection, the 
time prescribed by regulations to furnish information or main-
tain records (and the beginning of the 90-day period after notice 
by the Secretary) shall be treated as not earlier than the last 
day on which (as shown to the satisfaction of the Secretary) 
reasonable cause existed for failure to furnish the information 
or maintain the records." 
(d) ENFORCEMENT OF INFORMATION REQUESTS.—Section 6038A is 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) ENFORCEMENT OF REQUESTS FOR CERTAIN RECORDS.— 
"(1) AGREEMENT TO TREAT CORPORATION AS AGENT.—The rules 
of paragraph (3) shall apply to any transaction between the 
reporting corporation and any related party who is a foreign 
person unless such related party agrees (in such manner and at 
such time £is the Secretary shall prescribe) to authorize the 
reporting corporation to act as such related party's limited 
agent solely for purposes of applying sections 7602, 7603, and 
7604 with respect to any request by the Secretary to examine 
records or produce testimony related to any such transaction or 
with respect to any summons by the Secretary for such records 
or testimony. The appearance of persons or production of 
• 
records by reason of the reporting corporation being such an 
£igent shall not subject such persons or records to legal process 
for any purpose other than determining the correct treatment 
under this title of any transaction between the reporting cor-
poration and such related party. 
"(2) RULES WHERE INFORMATION NOT FURNISHED.—If^ 
"(A) for purposes of determining the correct treatment 
under this title of any transaction between the reporting 
corporation and a related party who is a foreign person, the 
Secretary issues a summons to such corporation to produce 
(either directly or £is agent for such related party) any 
records or testimony, 
"(B) such summons is not quashed in a proceeding begun 
under paragraph (4) and is not determined to be invalid in a 
proceeding begun under section 7604(b) to enforce such 
summons, and 
103 STAT. 2360 
PUBLIC LAW 101-239—DEC. 19, 1989 
IfaiL 
Real property. 
"(C) the reporting corporation does not substantially 
comply in a timely manner with such summons and the 
Secretary has sent by certified or registered mail a notice to 
such reporting corporation that such reporting corporation 
has not so substantially complied, 
the Secretary may apply the rules of paragraph (3) with respect 
to such transaction (whether or not the Secretary begins a 
proceeding to enforce such summons). If the reporting corpora-
tion fails to maintain (or cause another to maintain) records as 
required by subsection (a), and by reason of that failure, the 
summons is quashed in a proceeding described in subparagraph 
(B) or the reporting corporation is not able to provide the 
records requested in the summons, the Secretary may apply the 
rules of paragraph (3) with respect to any transaction to which 
the records relate. 
"(3) APPUCABLE RULES IN CASES OF NONCOMPUANCE.—If the 
rules of this paragraph apply to any transaction— 
"(A) the amount of the deduction allowed under subtitle 
A for any amount paid or incurred by the reporting cor-
poration to the related party in connection with such trans-
action, and 
"(B) the cost to the reporting corporation of any property 
acquired in such transaction from the related party (or 
transferred by such corporation in such transaction to the 
related party), 
shall be the amount determined by the Secretary in the Sec-
retary's sole discretion from the Secretary's own knowledge or 
from such information as the Secretary may obtain through 
testimony or otherwise. 
"(4) JUDICIAL PROCEEDINGS.— 
"(A) PROCEEDINGS TO QUASH.—Notwithstanding any law 
or rule of law, any reporting corporation to which the 
Secretary issues a summons referred to in paragraph (2XA) 
shall have the right to begin a proceeding to quash such 
summons not later than the 90th day after such summons 
was issued. In any such proceeding, the Secretary may seek 
to compel compliance with such summons. 
"(B) REVIEW OF SECRETARIAL DETERMINATION OF NON-
COMPUANCE.—Notwithstanding any law or rule of law, any 
reporting corporation which has been notified by the Sec-
retary that the Secretary has determined that such cor-
poration has not substantially complied with a summons 
referred to in paragraph (2) shall have the right to begin a 
proceeding to review such determination not later than the 
90th day after the day on which the notice referred to in 
paragraph (2XC) was mailed. If such a proceeding is not 
begun on or before such 90th day, such determination by 
the Secretary shall be binding and shall not be reviewed by 
any court. 
(C) JURISDICTION.—The United States district court for 
the district in which the person (to whom the summons is 
issued) resides or is found shall have jurisdiction to hear 
any proceeding brought under subparagraph (A) or (B). Any 
order or other determination in such a proceeding shall be 
treated as a final order which may be appealed. 
"(D) SUSPENSION OF STATUTE OF UMITATIONS.—If 
the 
reporting corporation brings an action under subparagraph 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. ^361 
(A) or (B), the running of any period of limitations under 
section 6501 (relating to assessment and collection of tax) or 
under section 6531 (relating to criminal prosecutions) with 
respect to any transaction to which the summons relates 
sh£dl be suspended for the period during which such 
proceeding, 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 determination in such proceed-
mg. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 6038A 
apply to taxable years beginning after July 10,1989. 
^
*
*
*
*
-
SEC. 7404. REPEAL OF SPECIAL TREATMENT OF INTEREST ON CERTAIN 
FOREIGN LOANS. 
v 
(a) GENERAL RULE.—Paragraph (2) of section 1201(e) of the Tax 
Reform Act of 1986 is hereby repealed. 
26 USC 904 note. 
(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall 
26 USC 904 note, 
apply to taxable years beginning after December 31,1989. 
(c) EXCEPTION FOR CERTAIN TAXPAYERS WITH SUBSTANTIAL LOAN 
26 use 904 note. 
Loss RESERVES.— 
(1) IN GENERAL.—The repeal made by subsection (a) shall not 
apply to any taxpayer if, on any financial statement filed by 
^ 
such taxpayer for regulatory purposes with respect to any 
quarter ending during the period beginning on March 31, 1989, 
and ending on December 31, 1989, such taxpayer showed loss 
reserves against its qualified loans equal to at least 25 percent 
of the amount of such loans. 
(2) DEFINITIONS AND SPECIAL RUL^S.—For purposes of this 
subsection— 
(A) QUALIFIED LOAN.—The term "qualified loan" has the 
meaning given such term by section 1201(eX2)(H) of the Tax 
Reform Act of 1986 (as in effect before its repeal by subsec-
tion (a)). 
^ 
(B) PARENT-SUBSIDIARY CONTROLLED GROUPS.—In the case 
of any taxpayer which is a member of a parent-subsidiaiy 
ei;^. 
controlled group (as defined in section 585(cX5XA)), this 
subsection shall be applied by treating all members of such 
f 
group as 1 taxpayer. 
Subtitle E—Excise Tax Provisions 
SEC. 7501. 1-YEAR SUSPENSION OF AUTOMATIC REDUCTION IN AVIATION-
RELATED TAXES. 
(a) IN GENERAL.—Subsection (a) of section 4283 (relating to reduc-
tion in aviation-related taxes in certain cases) is amended by strik-
ing "1990" and inserting "1991". 
(b) CONFORMING AMENDMENTS.— 
(1) Clause (i) of section 4283(bXlXA) is amended by striking 
"1988 and 1989" and inserting "1989 and 1990". 
(2) Paragraph (3) of section 4283(b) is amended— 
(A) by striking "1990" and inserting "1991", and 
(B) by striking "1989" and inserting "1990". 
(3) Subsection (q) of section 6427 is amended by striking 
"1990" each place it appears and inserting "1991". 
103 STAT. 2362 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 7502. ACCELERATION OF DEPOSIT REQUIREMENTS FOR AIRLINE 
TICKET TAX. 
(a) IN GENERAL.—Section 6302 (relating to mode or time of collec-
tion) is amended by redesignating subsection (e) as subsection (f) and 
by inserting after subsection (d) the following new subsection: 
"(e) TIME FOR DEPOSIT OF TAXES ON AIRLINE TICKETS.—If, under 
regulations prescribed by the Secretary, a person is required to 
make deposits of any tax imposed by subsection (a) or (b) of section 
4261 with respect to amounts considered collected by such person 
-
* •-'"' ' 
during any semimonthly period, such deposit shall be made not later 
than the 3rd day (not mcluding Saturdajrs, Sundays, or legal holi-
days) after the close of the 1st week of the 2nd semimonthly period 
following the period to which such amounts relate." 
26 use 6302 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
"°*®- 
shall apply to payments of taxes considered collected for semi-
monthly periods beginning after June 30,1990. 
SEC. 7503. INCREASE IN INTERNATIONAL AIR PASSENGER DEPARTURE 
. j , ^ , . • : . • ^ . ; : : - , ' • . . 
T A X . 
(a) IN GENERAL.—Section 4261(c) (relating to tax on use of inter-
I 
national travel facilities) is amended by striking "$3" and inserting 
"$6". 
26 use 4261 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
*iote. 
shall apply with respect to transportation beginning after December 
31,1989, which weus not paid for before such date. 
SEC. 7504. SHIP PASSENGERS INTERNATIONAL DEPARTURE TAX. 
(a) IN GENERAL.—Chapter 36 (relating to certain other excise 
taxes) is amended by inserting after subchapter A the following new 
subchapter: 
"Subchapter B—Transportation by Water 
"Sec. 4471. Imposition of tax. 
"Sec. 4472. Definitions and special rules. 
"SEC. 4471. IMPOSITION OF TAX. 
"(a) IN GENERAL.—There is hereby imposed a tax of $3 per pas-
senger on a covered voyage. 
"(b) BY WHOM PAID.—The tax imposed by this section shall be 
paid by the person providing the covered voyage. 
"(c) TIME OF IMPOSITION.—The tax imposed by this section shall be 
imposed only once for each passenger on a covered voyage, either at 
the time of first embarkation or disembarkation in the United 
States. 
"SEC. 4472. DEFINITIONS. 
"For purposes of this subchapter— 
(X) COVERED VOYAGE.— 
"(A) IN GENERAL.—The term 'covered voyage* means a 
voyage of— 
"(i) a commercial passenger vessel which extends 
over 1 or more nights, or 
"(ii) a commercial vessel transporting passengers en-
gaged in gambling aboard the vessel beyond the terri-
torial waters of the United States, 
?
^
* 
during which passengers embark or disembark the vessel in 
the United States. Such term shall not include any voyage 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2363 
on any vessel owned or operated by the United States, a 
State, or any sigency or subdivision thereof. 
"(B) EXCEPTION FOR CERTAIN VOYAGES ON PASSENGER VES-
SELS.—The term 'covered voyage' shall not include a voyage 
of a passenger vessel of less than 12 hours between 2 ports 
in the United States. 
"(2) PASSENGER VESSEL.—The term 'passenger vessel' means 
any vessel having berth or stateroom accommodations for more 
than 16 passengers." 
(b) CLERICAL AMENDMENTS.—The table of subchapters for chapter 
36 is amended by inserting after the item relating to subchapter A 
the following new item: 
"SUBCHAPTER B. Transportation by water." 
(c) EFFECTIVE DATE.— 
26 USC 4471 
(1) IN GENERAL.—The amendments made by this section shall 
"°*®-
apply to voyages beginning after December 31,1989, which were 
not paid for before such date. 
(2) No DEPOSITS REQUIRED BEFORE APRIL 1,1990.—No deposit of 
any tax imposed by subchapter B of chapter 36 of the Internal 
Revenue Code of 1986, as added by this section, shall be required 
to be made before April 1,1990. 
SEC. 7505. OIL SPILL LIABILITY TRUST FUND TAX TO TAKE EFFECT ON 
JANUARY 1,1990. 
(a) TAX TO TAKE EFFECT ON JANUARY 1,1990.— 
(1) IN GENERAL.—Subsection (f) of section 4611 (relating to 
application of Oil Spill Liability Trust Fund financing rate) is 
amended to read as follows: 
"(f) APPUCATION OF OIL SPILL LIABILITY TRUST FUND FINANCING 
RATE.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the Oil 
Spill Liability Trust Fund financing rate under subsection (c) 
shall apply after December 31,1989, and before January 1,1995. 
"(2) 
N o TAX IF UNOBUGATED BALANCE IN FUND EXCEEDS 
$1,000,000,000.—The Oil Spill Liability Trust Fund 
financing 
rate shall not apply during any calendar quarter if the Sec-
retary estimates that as of the close of the preceding calendar 
quarter the unobligated balance in the Oil Spill Liability Trust 
Fund exceeds $1,000,000,000." 
Ot)) 5 CENT RATE OF TAX.—Subparagraph (B) of section 4611(cX2) is 
amended by striking "1.3 cents" and inserting "5 cents". 
(c) CREDIT AGAINST OIL SPILL TAX FOR EXCESS AMOUNTS IN THE 
TRANS-ALASKA PIPEUNE LIABILITY FUND.—Subsection (d) of section 
4612 is amended by adding at the end thereof the following new 
sentence: 
"The preceding sentence shall also apply to amounts paid by the 
taxpayer into the Trans-Alaska Pipeline Liability Fund to the 
extent of amounts transferred from such Fund into the Oil Spill 
Liability Trust Fund. Amounts may be trcmsferred from the Trans-
Alaska Pipeline Liability Fund into the Oil Spill Liability Trust 
Fund only to the extent the administrators of the Trans-Alaska 
Pipeline Liability Fund determine that such amounts are not 
needed to satisfy claims against such Fund." 
(d) OIL SPILL LIABIUTY TRUST FUND TO BE OPERATING FUND.— 
26 USC 4611 
(1) IN GENERAL.—For purposes of sections 8032(d) and 8033(c) "«*«• 
of the Omnibus Budget Reconciliation Act of 1986, the 
commencement date is January 1,1990. 
103 STAT. 2364 
PUBLIC LAW 101-239—DEC. 19, 1989 
(2) CONFORMING AMENDMENTS.— 
(A) Section 9509 (relating to Oil Spill Liability Trust 
Fund) is amended by adding at the end thereof the follow-
ing new subsection: 
"(f) REFERENCES TO Ck)MPREHENSiVE OIL POLLUTION LIABILITY AND 
COMPENSATION ACT.—For purposes of this section, references to the 
Comprehensive Oil Pollution Liability and Compensation Act shall 
be treated as references to any law enacted before December 31, 
1990, which is substantially identical to subtitle E of title VI, or 
subtitle D of title VIII, of H.R. 5300 of the 99th Congress as passed 
by the House of Representatives." 
(B) Paragraph (3) of section 9509(b) is amended by strik-
ing "(on the 1st day the Oil Spill Liability Trust Fund 
financing rate under section 4611(c) applies) and inserting 
"(on January 1,1990)". 
(C) Paragraph (1) of section 9509(c) is amended by striking 
the last sentence. 
Environmental 
SEC. 7506. EXCISE TAX ON SALE OF CHEMICALS WHICH DEPLETE THE 
protection. 
OZONE LAYER AND OF PRODUCTS CONTAINING SUCH CHEMI-
CALS. 
(a) IN GENERAL.—Chapter 38 (relating to environmental taxes) is 
amended by adding at the end thereof the following new subchapter: 
"Subchapter D—Ozone-Depleting Chemicals, Etc. 
"Sec. 4681. Imposition of tax. 
-
^ 
"Sec. 4682. Definitions and special rules. 
"SEC. 4681. IMPOSITION OF TAX. 
"(a) GENERAL RULE.—There is hereby imposed a tax on— 
"(1) any ozone-depleting chemical sold or used by the manu-
facturer, producer, or importer thereof, and 
Imports. 
"(2) any imported taxable product sold or used by the im-
porter thereof. 
"0)) AMOUNT O
F TAX.— 
"(1) OZONE-DEPLETING CHEMICALS.— 
-
^ 
"(A) IN GENERAL.—The amount of the tax imposed by 
subsection (a) on each pound of ozone-depleting chemical 
shall be an amount equal to— 
"(i) the base tax amount, multiplied by 
"(ii) the ozone-depletion factor for such chemical. 
"(B) BASE TAX AMOUNT FOR YEARS BEFORE 1995.—The base 
tax amount for purposes of subparagraph (A) with respect 
to any sale or use during a calendar year before 1995 is the 
amount determined under the following table for such cal-
endar year: 
„„ . 
. 
Base tax 
"Calendar year. 
amount 
1990 or 1991 
$1.37 
1992 
1.67 
1993 or 1994 
2.65. 
"(C) BASE TAX AMOUNT FOR YEARS AFTER 1994.—The base 
tax amount for purposes of subparagraph (A) with respect 
to any sale or use during a calendar year after 1994 shau be 
the base tax amount for 1994 increased by 45 cents for each 
year after 1994. 
"(z) IMPORTED TAXABLE PRODUCT.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2365 
"(A) IN GENERAL.—The amount of the tax imposed by 
subsection (a) on any imported taxable product shall be the 
amount of tax which would have been imposed by subsec-
tion (a) on the ozone-depleting chemicals used as materials 
in the manufacture or production of such product if such 
ozone-depleting chemicals had been sold in the United 
States on the date of the sale of such imported taxable 
product. 
"(B) CERTAIN RULES TO APPLY.—Rules similar to the rules 
of paragraphs (2) and (3) of section 4671(b) shall apply. 
"SEC. 4682. DEFINITIONS AND SPECIAL RULES. 
"(a) OZONE-DEPLETING CHEMICAL.—For purposes of this sub-
chapter— 
"(1) IN GENERAL.—The term 'ozone-depleting chemical' means 
\ 
any substance— 
"(A) which, at the time of the sale or use by the manufac-
turer, producer, or importer, is listed as an ozone-depleting 
chemical in the table contained in paragraph (2), and 
"(B) which is manufactured or produced in the United 
States or entered into the United States for consumption, 
use, or warehousing. 
"(2) OZONE-DEPLETING CHEMICALS.— 
"Common name: 
Chemical nomenclature: 
CFC-11 
trichlorofluoromethane 
CFC-12 
dichlorodifluoromethane 
CFC-113 
trichlorotrifluoroethane 
CFC-114 
l,2-dichloro-l,l,2,2-tetra-fluoroethane 
CFC-115 
chloropentafluoroethane 
^ 
Halon-1211 
bromochlorodifluoromethane 
Halon-1301 
bromotrifluoromethane 
Halon-2402 
dibromotetrafluoroethane. 
"(b) OZONE-DEPLETION FACTOR.—For purposes of this subchapter, 
the term 'ozone-depletion factor' means, with respect to an ozone-
depleting chemical, the factor £issigned to such chemical under the 
following table: 
, 
"Ozone-depleting chemical: 
Ozone-depletion factor. 
CFC-11 
1.0 
CFC-12 
1.0 
CFC-113 
0.8 
• 
CFC-114 
1.0 
CFC-115 
0.6 
Halon-1211 
3.0 
Halon-1301 
10.0 
Halon-2402 
6.0. 
"(c) IMPORTED TAXABLE PRODUCT.—For purposes of this sub-
chapter— 
"(1) IN GENERAL.—The term 'imported taxable product' means 
any product (other than an ozone-depleting chemical) entered 
into the United States for consumption, use, or warehousing if 
any ozone-depleting chemical was used as material in the manu-
facture or production of such product. 
"(2) DE MINIMIS EXCEPTION.—The term 'imported taxable 
product' shall not include any product specified in regulations 
prescribed by the Secretary as using a de minimis amount of 
ozone-depleting chemicals as materials in the manufacture or 
production thereof. The preceding sentence shall not apply to 
any product in which any ozone-depleting chemical is used for 
purposes of refrigeration or air conditioning, creating an aerosol 
or foam, or manufacturing electronic components. 
103 STAT. 2366 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(d) EXCEPTIONS.— 
"(1) RECYCUNG.—No tax shall be imposed by section 4681 on 
: 
any ozone-depleting chemical which is diverted or recovered in 
the United States as part of a recycling process (and not as part 
\ ' 
of the original manufacturing or production process). 
"(2) U S E IN FURTHER MANUFACTURE.— 
"(A) IN GENERAL.—No tax shall be imposed by section 
4681— 
"(i) on the use of any ozone-depleting chemical in the 
r r 
; manufacture or production of any other chemical if the 
ozone-depleting chemical is entirely consumed in such 
use, 
"(ii) on the sale by the manufacturer, producer, or 
importer of any ozone-depleting chemical— 
"(I) for a use by the purchaser which meets the 
requirements of clause (i), or 
"(11) for resale by the purchaser to a second 
purchaser for a use by the second purchaser which 
meets the requirements of clause (i). 
Clause (ii) shall apply only if the manufacturer, producer, 
r 
and importer, and the 1st and 2d purchasers (if any), meet 
such registration requirements as may be prescribed by the 
Secretary. 
"(B) CREDIT OR REFUND.—Under regulations prescribed by 
the Secretary, if— 
"(i) a tax under this subchapter was paid with respect 
to any ozone-depleting chemical, and 
"(ii) such chemical was used (and entirely consumed) 
by any person in the manufacture or production of any 
other chemical, 
then an amount equal to the tax so paid shall be allowed as 
^ 
a credit or refund (without interest) to such person in the 
same manner as if it were an overpayment of tax imposed 
by section 4681. 
"(3) EXPORTS.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), rules similar to the rules of section 4662(e) (other than 
section 4662(eX2XAXii)(II)) shall apply for purposes of this 
subchapter. 
"(B) LIMIT ON BENEFIT.— 
"(i) IN GENERAL.—The aggregate tax benefit allow-
able under subparagraph (A) with respect to ozone-
depleting chemicals manufactured or produced by any 
person during a calendar year shall not exceed the sum 
of— 
"(I) the amount equal to the 1986 export percent-
age of the aggregate tax imposed by this sub-
.' 
chapter with respect to ozone-depleting chemicals 
"
' 
manufactured or produced by such person during 
such calendar year (other than chemicals with re-
spect to which subclause (ID applies), and 
"(II) the aggregate tax imposed by this sub-
chapter with respect to any additional production 
allowance granted to such person with respect to 
ozone-depleting chemicals manufactured or pro-
duced by such person during such calendar year by 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2367 
the Environmental Protection Agency under 40 
CFR Part 82 (as in effect on September 14, 1989). 
"(ii) 1986 EXPORT PERCENTAGE.—A person's 1986 
export percentage is the percentage equal to the ozone-
depletion factor adjusted pounds of ozone-depleting 
chemicals manufactured or produced by such person 
during 1986 which were exported during 1986, divided 
by the ozone-depletion factor adjusted pounds of all 
**' 
ozone-depleting chemicals manufactured or produced 
by such person during 1986. The percentage deter- 
^ 
mined under the preceding sentence shall be based on 
data published by the Environmental 
Protection 
Agency. 
"(e) OTHER DEFINITIONS.—For purposes of this subchapter— 
"(1) IMPORTER.—The term 'importer' mesms the person enter-
ing the article for consumption, use, or warehousing. 
"(2) UNITED STATES.—The term 'United States' has the mean-
ing given such term by section 4612(aX4). 
"(f) SPECIAL RULES.— 
"(1) FRACTIONAL PARTS OP A POUND.—In the case of a fraction 
of a pound, the tax imposed by this subchapter shall be the 
same fraction of the amount of such tax imposed on a whole 
pound. 
"(2) DISPOSITION OF REVENUES FROM PUERTO RICO AND THE 
VIRGIN ISLANDS.—The provisions of subsections (aX3) and (bX3) 
of section 7652 shall not apply to any tax imposed by this 
subchapter. 
"(g) PHASE-IN OF TAX ON CERTAIN SUBSTANCES.— 
"(1) TREATMENT FOR 1990.— 
"(A) HALONS.—The term 'ozone-depleting chemical' shall 
not include halon-1211, halon-1301, or halon-2402 with re-
spect to any sale or use during 1990. 
"(B) CHEMICALS USED IN RIGID FOAM INSULATION.—No tax 
shall be imposed by section 4681— 
"(i) on the use during 1990 of any substance in the 
manufacture of rigid foam insulation, 
"(ii) on the sale during 1990 by the manufacturer, 
producer, or importer of any substance— 
J 
"(I) for use by the purchaser in the manufacture 
V 
' ' 
of rigid foam insulation, or 
"(II) for resale by the purchaser to a second 
purchaser for such use by the second purchaser, or 
"(iii) on the sale or use during 1990 by the importer 
of any rigid foam insulation. 
Clause (ii) shall apply only if the manufacturer, producer, and 
importer, and the 1st and 2d purchasers (if any) meet such 
registration requirements as may be prescribed by the Sec-
retary. 
"(2) TREATMENT FOR 199I, I992, AND I993.— 
"(A) HALONS.—The tax imposed by section 4681 during 
1991, 1992, or 1993 by reason of the treatment of halon-
1211, halon-1301, and halon-2402 as ozone-depleting chemi-
cals shall be the applicable percentage (determined under 
the following table) of the amount of such tax which would 
(but for this subparagraph) be imposed. 
103 STAT. 2368 
PUBLIC LAW 101-239—DEC. 19, 1989 
i-r 
, . ^ 
-
1 .'T . , ) . - . . 
The applicable percentage is: 
For 
For 
For 
' "In the case of: 
• 
. sales or 
sales or 
sales or 
use 
use 
use 
during 
during 
during 
' 
; 
1991 
1992 
1993 
* 
* • ' 
Halon-1211 
6.0 
5.0 
3.3 
Halon-1301 
1.8 
1.5 
1.0 
Halon-2402 
3.0 
2.5 
1.6. 
'^^- 
"(B) CHEMICALS USED IN RIGID FOAM INSULATION.—In the 
case of a sale or use during 1991,1992, or 1993 on which no 
tax would have been imposed by reason of paragraph (IXB) 
had such sale or use occurred during 1990, the tax imposed 
by section 4681 shall be the applicable percentage (deter-
mined in accordance with the following table) of the 
amount of such tax which would (but for this subparagraph) 
be imposed. 
"In the case of sales or 
use during: 
The applicable percentage is: 
^r 
1991 
18 
; 1992 
15 
1993 
10. 
"(3) OVERPAYMENTS WITH RESPECT TO CHEMICALS USED IN RIGID 
FOAM INSULATION.—If any substance on which tax was paid 
under this subchapter is used during 1990,1991,1992, or 1993 by 
any person in the manufacture of rigid foam insulation, credit 
or refund (without interest) shall be allowed to such person an 
amount equal to the excess of^ 
"(A) the tax paid under this subchapter on such sub-
stance, over 
"(B) the tax (if any) which would be imposed by section 
4681 if such substance were used for such use by the 
manufacturer, producer, or importer thereof on the date of 
its use by such person. 
"Amounts payable under the preceding sentence with respect to 
uses during the taxable year shall be treated as described in 
section 34(a) for such year unless claim therefor has been timely 
filed under this paragraph. 
"(h) IMPOSITION OF FLOOR STOCKS TAXES.— 
"(1) JANUARY i, 1990, TAX.^Dn any ozone-depleting chemical 
which on January 1, 1990, is held by any person (other than the 
manufacturer, producer, or importer thereof) for sale or for use 
in further manufacture, there is hereby imposed a floor stocks 
tax in an amount equal to the tax which would be imposed by 
section 4681 on such chemical if the sale of such chemical by the 
manufacturer, producer, or importer thereof had occurred 
during 1990. 
n 
"(2) OTHER TAX-INCREASE DATES.— 
"(A) IN GENERAL.—If, on any tax-increase date, any ozone-
depleting chemical is held by any person (other than the 
manufacturer, producer, or importer thereof) for sale or for 
use in further manufacture, there is hereby imposed a floor 
stocks tax. 
"(B) AMOUNT OF TAX.—The amount of the tax imposed by 
subparagraph (A) shall be the excess (if any) of— 
"(i) the tax which would be imposed under section 
4681 on such substance if the sale of such chemical by 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2369 
the manufacturer, producer, or importer thereof had 
occurred on the tax-increase date, over 
"(ii) the prior tax (if any) imposed by this subchapter 
on such substance. 
"(C) TAX-INCREASE DATE.—For purposes of this paragraph, 
the term 'tax-increase date* means January 1 of 1991,1992, 
1993, and 1994. 
"(3) DUE DATE.—The taxes imposed by this subsection on 
January 1 of any calendar year shall be paid on or before April 
1 of such year. 
"(4) APPUCATION OF OTHER LAWS.—All other provisions of law, 
including penalties, applicable with respect to the taxes im-
posed by section 4681 shall apply to the floor stocks taxes 
imposed by this subsection." 
(b) CLERICAL AMENDMENT.—The table of subchapters for chapter 
38 is amended by adding at the end thereof the following new item: 
"SUBCHAPTER D. Ozone-depleting chemicals, etc." 
(c) EFFECTIVE DATE.— 
26 use 4681 
(1) IN GENERAL.—The amendments made by this section shall 
"°^-
take effect on January 1,1990. 
(2) No DEPOSITS REQUIRED BEFORE APRIL 1,1990.—No deposit of 
any tax imposed by subchapter D of chapter 38 of the Internal 
Revenue Code of 1986, as added by this section, shall be required 
to be made before April 1,1990. 
(3) NOTIFICATION OF CHANGES IN INTERNATIONAL AGREE-
MENTS.—The Secretary of the Treasury or his delegate shall 
notify the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate of 
changes in the Montreal Protocol and of other intemationEil 
agreements to which the United States is a signatory relating to 
ozone-depleting chemicals. 
SEC. 7507. ACCELERATION OF DEPOSIT REQUIREMENTS FOR GASOLINE 
EXCISE TAX. 
(a) IN GENERAL.—Section 6302 (relating to mode or time of collec-
tion), as amended by section 7502, is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection: 
"(f) TIME FOR DEPOSIT OF TAXES ON GASOUNE.— 
"(1) GENERAL RULE.—Notwithstanding section 518 of the 
Highway Revenue Act of 1982, any person whose liability for 
tax under section 4081 is payable with respect to semimonthly 
periods shall, not later than September 27, make deposits of 
such tax for the period beginning on September 16 and ending 
on September 22. 
"(2) SPECIAL RULE WHERE DUE DATE FALLS ON SATURDAY, 
SUNDAY, O
R HOUDAY.—If, but for this paragraph, the due date 
District of 
under paragraph (1) would fall on a Saturday, Sunday, or Columbia, 
holiday in the District of Columbia, such due date shall be 
deemed to be the immediately preceding day which is not a 
^ 
Saturday, Sunday, or such a holiday." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6302 
shall apply to payments of taxes for tax periods beginning after 
note. 
December 31,1989. 
103 STAT. 2370 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 7508. TAXATION OF BULK CIGAR IMPORTS. 
(a) IN GENERAL.—Subsection (c) of section 5704 (relating to tobacco 
products and cigarette papers and tubes released in bond from 
customs custody) is amended by inserting "or to a manufacturer of 
tobacco products or cigarette papers and tubes if such articles are 
not put up in packages," after "export warehouse,". 
26 use 5704 
flj) 
EFFECTIVE DATE.—The amendment made by subsection (a) 
•lo**. 
shall apply to articles imported or brought into the United States 
after the date of the enactment of this Act. 
Subtitle F—Miscellaneous Provisions 
Real property 
PART I—LIMITATION ON NONRECOGNITION FOR 
CERTAIN EXCHANGES 
SEC. 7601. LIKE KIND EXCHANGES BETWEEN RELATED PERSONS. 
(a) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS, 
ETC.—Section 1031 (relating to exchange of property held for 
productive use or investment) is amended by adding at the end 
thereof the following new subsections: 
"(f) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS.— 
"(1) IN GENERAL.—If— 
"(A) a taxpayer exchanges property with a related 
person, 
"(B) there is nonrecognition of gain or loss to the tax-
payer under this section with respect to the exchange of 
such property (determined without regard to this subsec-
y 
- 
tion), and 
"(C) before the date 2 years after the date of the last 
transfer which was part of such exchange— 
"(i) the related person disposes of such property, or 
"(ii) the taxpayer disposes of the property received in 
the exchange from the related person which was of like 
kind to the property transferred by the taxpayer, 
there shall be no nonrecognition of gain or loss under this 
section to the taxpayer with respect to such exchange; except 
that any gain or loss recognized by the taxpayer by reason of 
this subsection shall be taken into account as of the date on 
which the disposition referred to in subparagraph (C) occurs. 
"(2) CERTAIN DISPOSITIONS NOT TAKEN INTO ACCOUNT.—For 
purposes of paragraph (IXC), there shall not be taken into 
account any disposition— 
"(A) after the earlier of the death of the taxpayer or the 
death of the related person, 
"(B) in a compulsory or involuntary conversion (within 
the meaning of section 1033) if the exchange occurred 
before the threat or imminence of such conversion, or 
,
^ 
"(C) with respect to which it is established to the satisfac-
tion of the Secretary that neither the exchange nor such 
disposition had as one of its principal purposes the avoid-
ance of Federal income tax. 
"(3) RELATED PERSON.—For purposes of this subsection, the 
term 'related person' means any person bearing a relationship 
to the taxpayer described in section 267(b). 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2371 
"(4) TREATMENT OF CERTAIN TRANSACTIONS.—This section shall 
not apply to any exchange which is part of a transaction (or 
series of transactions) structured to avoid the purposes of this 
subsection. 
"(g) SPECIAL RULE WHERE SUBSTANTIAL DIMINUTION OF RISK.— 
"(1) IN GENERAL.—If paragraph (2) applies to any property for 
any period, the running of the period set forth in subsection 
(fKlXC) with respect to such property shall be suspended during 
such period, 
"(2) PROPERTY TO WHICH SUBSECTION APPLIES.—This paragraph 
shall apply to any property for any period during which the 
holder's risk of loss with respect to the property is substantially 
diminished by— 
"(A) the holding of a put with respect to such property, 
"(B) the holding by another person of a right to acquire 
such property, or 
"(C) a short S£de or any other transaction. 
"(h) SPECIAL RULE FOR FOREIGN REAL PROPERTY.—For purposes of 
this section, real property located in the United States and real 
property located outside the United States are not property of a like 
kind." 
(b) EFFECTIVE DATE.— 
26 use 1031 
(1) IN GENERAL.—Except as provided in paragraph (2), the "°*®-
amendments made by this section shall apply to transfers after 
July 10,1989, in taxable years ending after such date. 
(2) BINDING CONTRACT.—The amendments made by this sec-
tion shall not apply to any transfer pursuant to a written 
binding contract in effect on July 10, 1989, and at all times 
thereafter before the transfer. 
PART II—MINIMUM TAX PROVISIONS 
SEC. 7611. SIMPLIFICATION OF ADJUSTED CURRENT EARNINGS PREF-
ERENCE. 
(a) EUMINATION OF BoOK LIMITATIONS APPUCABLE TO DEPRECIA-
TION.— 
(1) I N GENERAL.— 
(A) Clause (i) of section 56(gX4XA) (relating to deprecia-
tion) is amended to read as follows: 
"(i) PROPERTY PLACED IN SERVICE AFTER 1989.—The 
depreciation deduction with respect to any property 
placed in service in a taxable year beginning after 1989 
shall be determined under the alternative system of 
section 168(g)." 
(B) Subparagraph (A) of section 56(gX4) is amended by 
striking clauses (v) and (vi) and by redesignating clause (vii) 
as clause (v). 
(2) TECHNICAL AMENDMENT.—Clause (iii) of section 56(gX4XA) 
is amended by inserting "and which is placed in service in a 
taxable year beginning before 1990" after "thereof) applies". 
flb) TREATMENT OF CERTAIN EARNINGS AND PROFITS ADJUST-
MENTS.—Subparagraph (D) of section 56(gX4) is amended to read as 
follows: 
"(D) CERTAIN OTHER EARNpfGS AND PROFITS ADJUST-
MENTS.— 
103 STAT. 2372 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(i) INTANGIBLE DRILLING COSTS,—The adjustments 
provided in section 312(nX2XA) shall apply in the case 
of amounts paid or incurred in taxable years beginning 
after December 31,1989. 
"(ii) 
CERTAIN 
AMORTIZATION 
PROVISIONS 
NOT TO 
APPLY.—Sections 173 and 248 shall not apply to 
expenditures paid or incurred in taxable year begin-
ning after December 31,1989. 
"(iii) LIFO INVENTORY ADJUSTMENTS.—The adjust-
* 
ments provided in section 312(nX4) shall apply. 
"(iv) INSTALLMENT SALES.—In the case of any install-
'' 
' 
ment sale in a taxable year beginning after December 
31, 1989, adjusted current earnings shall be computed 
• 
as if the corporation did not use the installment 
method. The preceding sentence shall not apply to the 
applicable percentage (as determined under section 
453A) of the gain from any installment sale with re-
spect to which section 453A(aXl) applies." 
(c) EuMiNATiON OF BooK LIMITATION ON DEPLETION.—Subpara-
graph (G) of section 56(gX4) is amended to read as follows: 
"(G) DEPLETION.—The allowance for depletion with re-
spect to any property placed in service in a taxable year 
beginning after 1989 shall be cost depletion determined 
under section 611." 
(d) TREATMENT OF CERTAIN DIVIDENDS.—Clause (ii) of section 
56(gX4XC) is amended to read as follows: 
"(ii) SPECIAL RULE FOR CERTAIN DIVIDENDS.— 
"(I) IN GENERAL.—Clause (i) shall not apply to 
any deduction allowable under section 243 or 245 
for any dividend which is a 100-percent dividend or 
which is received from a 20-percent owned corpora-
tion (as defined in section 243(cX2)), but only to the 
extent such dividend is attributable to income of 
the pa3dng corporation which is subject to tax 
under this chapter (determined after the applica-
tion of sections 936 and 921). 
"(II) 100-PERCENT DIVIDEND.—For purposes of the 
subclause (I), the term '100 percent dividend' 
means any dividend if the percentage used for 
purposes of determining the amount allowable as a 
deduction under section 243 or 245 with respect to 
such dividend is 100 percent." 
(e) SPECIAL RULE FOR CERTAIN DIVIDENDS RECEIVED BY COOPERA-
TIVES.—Subparagraph (C) of section 56(g)(4) is amended by adding at 
the end thereof the following new clause: 
"(iv) SPECIAL RULE FOR CERTAIN DIVIDENDS RECEIVED 
B
Y CERTAIN COOPERATIVES.—In the case of a cooperative 
described in section 927(aX4), clause (i) shall not apply 
to any amount allowable as a deduction under section 
245(c)." 
(f) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Clause (i) of section 56(gX4XH) is amended by striking 
"after the date of the enactment of the Tax Reform Act of 1986 ' 
and inserting "in a taxable year beginning after 1989". 
(2) Clause (i) of section 56(gX4XB) is amended by adding at the 
end thereof the following new sentence: 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2373 
"The preceding sentence shall not apply in the case of 
any amount excluded from gross income under section 
108 (or the corresponding provisions of prior law)." 
(3) Clause (iii) of section 56(jgX4XB) is hereby repealed. 
(4) Paragraph (5) of section 56(g) is amended by striking 
subparagraphs (A) and (C) and by redesignating subparagraphs 
(B) and (D) £is subparagraphs (A) and (B), respectively. 
(5XA) Clause (ii) of section 312(nX2)(A) is amended by striking 
"in which the production from the well begins" and inserting 
"in which such amount was pedd or incurred'. 
(B) Paragraph (1) of section 59(e) is amended by inserting 
before the period at the end thereof: "(or, in the case of a 
qualified expenditure described in paragraph (2XC), over the 60-
month period beginning with the month in which such expendi-
ture was paid or incurred)". 
(6) Subsection (i) of section 59 is amended— 
(A) by striking "interest shall" and inserting "any 
amount shall", and 
(B) by striking "INTEREST" in the subsection heading and 
inserting "AMOUNTS". 
(g) EFFECTIVE DATES.— 
26 use 56 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
taxable years beginning after December 31,1989. 
(2) INTANGIBLE DRILLING COSTS.—The amendments made by 
subsection (fK5) shall apply to costs paid or incurred in taxable 
years beginning after December 31,1989. 
(3) REGULATIONS ON EARNINGS AND PROFITS RULES.—Not later 
than March 15, 1991, the Secretary of the Treasury or his 
^ 
delegate shall prescribe initial regulations providing guidance 
as to which items of income are included in adjusted current 
earnings under section 56(gX4XBXi) of the Internal Revenue 
Code of 1986 and which items of deduction £u*e disallowed under 
section 56(gX4XC) of s\ich Code. 
^ 
SEC. 7612. OTHER MODIFICATIONS TO MINIMUM TAX. 
(a) MODIFICATION TO CORPORATE MINIMUM TAX CREDIT.— 
(1) IN GENERAL.—Subparagraph (B) of section 53(dXl) (relating 
to credit not allowed for exclusion preferences) is amended by 
adding at the end thereof the following new clause: 
"(iv) CREDIT ALLOWABLE FOR EXCLUSION PREFERENCES 
OF CORPORATIONS.—In the case of a corporation— 
"(I) the preceding provisions of this subpara-
graph shall not apply, and 
"(II) the adjusted net minimum tax for any tax-
able year is the amount of the net minimum tax 
for such year increased by the amount of any 
credit not allowed under section 29 solely by reason 
of the application of section 29(bX5XB)." 
(2) CONFORMING AMENDMENT.—Clause (ii) of section 53(dXlXB) 
IS amended— 
(A) by striking "subsections (bXl) and (cX3)" and inserting 
"subsection (bXD", and 
(B) by striking the last sentence. 
(8) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 53 note, 
tion shall apply for purposes of determining the adjusted net 
103 STAT. 2374 
PUBLIC LAW 101-239—DEC. 19, 1989 
minimum tax for taxable years beginning after December 31, 
1989. 
(b) ADJUSTMENT FOR DISALLOWED PORTION OF ORPHAN DRUG 
CREDIT.— 
(1) IN GENERAL.—Clauses (iii) and (iv) of section 53(dXlXB) (as 
amended by subsection (a)) are each amended by inserting after 
"section 29(dX5XB)" the following: "or not allowed under section 
28 solely by reason of the application of section 28(dX2XB)". 
26 use 53 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply for purposes of determining the amount of the 
minimum tax credit for taxable years beginning after December 
31, 1989; except that, for such purposes, section 53(bXl) of the 
Internal Revenue Code of 1986 shall be applied as if such 
amendment had been in effect for all prior taxable years. 
(c) EXEMPTION FOR CERTAIN HOME CONSTRUCTION CONTRACTS.— 
(1) IN GENERAL.—Paragraph (3) of section 56(a) (relating to 
treatment of certain long-term contracts) is amended by strik-
ing "with respect to which the requirements of clauses (i) and 
(ii) of section 460(eXlXB) are met". 
26 use 56 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to contracts entered into in taxable years beginning 
after September 30,1990. 
(d) 
TREATMENT 
OF 
CERTAIN 
RESEARCH 
AND EXPERIMENTAL 
EXPENDITURES.— 
(1) IN GENERAL.—Paragraph (2) of section 56(b) (relating to 
circulation and research and experimental expenditures) is 
amended by adding at the end thereof the following new 
subparagraph: 
"(D) 
EXCEPTION FOR CERTAIN RESEARCH AND EXPERI-
MENTAL EXPENDITURES.—If the taxpayer materially partici-
pates (within the meaning of section 469(h)) in an activity, 
this paragraph shall not apply to any amount allowable as 
a deduction under section 174(a) for expenditures paid or 
incurred in connection with such activity." 
26 use 56 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to taxable years beginning after December 31, 1990. 
(e) 90-PERCENT LIMITATION ON FOREIGN TAX CREDIT NOT TO APPLY 
T
O CERTAIN CORPORATIONS.— 
(1) IN GENERAL.—Paragraph (2) of section 59(a) (relating to 
_ 
limitation of foreign taix credit to 90-percent of tax) is amended 
by adding at the end thereof the following new subparagraph: 
"(C) EXCEPTION.—Subparagraph (A) shall not apply to 
any domestic corporation if^ 
"(i) more than 50 percent of the stock of such domes-
tic corporation (by vote and value) is owned by United 
States persons who are not members of an affiliated 
group (as defined in section 1504 of such Code) which 
includes such corporation. 
International 
"(ii) all of the activities of such corporation are con-
agreements, 
ducted in 1 foreign country with which the United 
States has an income tax treaty in effect and such 
treaty provides for the exchange of information be-
tween such foreign country and the United States, 
"(iii) all of the current earnings and profits of such 
" 
corporation are distributed at least annually (other 
than current earnings and profits retained for normal 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2375 
maintenance or capital replacements or improvements 
of an existing business), and 
"(iv) all of such distributions by such corporation to 
United States persons are used by such persons in a 
trade or business conducted in the United States." 
(2) EFFECTIVE DATE.— 
26 use 59 note. 
(A) IN GENERAL.—The amendment made by paragraph (1) 
shall apply to taxable years beginning after March 31,1990. 
(B) SPECIAL RULE FOR YEAR WHICH INCLUDES MARCH 31, 
1990.—In the case of £Uiy taxable year (of a corporation 
described in subparagraph (C) of section 59(aX2) of the 
Internal Revenue Code of 1986 (as added by paragraph (1))) 
which begins after December 31, 1989, and includes March 
31,1990, the amount determined under clause (ii) of section 
59(aX2XA) of such dkxle shall be an amount which bears the 
same ratio to the amount which would have been deter-
mined under such clause without regard to this subpara-
graph as the number of dayB in such taxable year on or 
before March 31, 1990, bears to the total number of dajrs in 
such taxable year. 
(f) STUDY O
F DEPRECIATION TREATMENT OF CERTAIN VEHICLES.— 
(1) IN GENERAL.—The Secretary of the Treasury or his dele-
gate shall conduct a study on the proper class life for cars and 
light trucks. 
(2) REPORT.—Not later than the day 1 year after the date of 
the enactment of this Act, the Secretary shall submit a report to 
the Committee on Ways and Means of the House of Representa-
tives and the Committee on Finemce of the Senate on the report 
conducted under paragraph (1), together with such rec-
ommendations as he may deem advisable. 
PART III—ACCOUNTING PROVISIONS 
SEC. 7621. REPEAL OF COMPLETED CONTRACT METHOD OF ACCOUNTING 
FOR LONG-TERM CONTRACTS. 
(a) IN GENERAL.—Subsection (a) of section 460 (relating to special 
rules for long-term contracts) is amended to read as follows: 
"(a) REQUIREMENT THAT PERCENTAGE OF COMPLETION METHOD BE 
USED.—In the case of any long-term contract, the taxable income 
from such contract shall be determined under the percentage of 
completion method (as modified by subsection (b))." 
(b) 
ELECTION TO USE MODIFIED PERCENTAGE OF COMPLETION 
METHOD.—Subsection (b) of section 460 (as amended by subsection 
(cXD) is amended by adding at the end thereof the following new 
paragraph: 
"(5) ELECTION TO USE IO-PERCENT METHOD.— 
"(A) GENERAL RULE.—In the case of any long-term con-
tract with respect to which an election under this peu*a-
graph is in effect, the 10-percent method shall apply in 
determining the taxable income from such contract. 
"(B) 10-PERCENT METHOD.—For purposes of this para-
graph-
ed) IN GENERAL.—The 10-percent method is the 
percentage of completion method, modified so that any 
item which would otherwise be taken into account in 
computing taxable income with respect to a contract 
103 STAT. 2376 
PUBLIC LAW 101-239—DEC. 19, 1989 
for any taxable year before the 10-percent year is taken 
into account in tiie 10-percent year. 
"(ii) 1
0
-
p
E
B
C
E
N
T YEAR.—The term '10-percent year' 
means the 1st taxable year as of the close of which at 
least 10 percent of the estimated total contract costs 
have been incurred. 
*\Q ELBCTION.—An election under this paragraph shall 
apply to all long-term contracts of the taxpayer which are 
entered into during the taxable year in which the election 
is made or any subsequent taxable year. 
"(D) COORDINATION WITH OTHEB PROVISIONS.— 
"(i) SIMPLIFIED METHOD OF COST ALLOCATION.—This 
paragraph shall not apply to any taxpayer which uses a 
simplified procedure for allocation of costs under para-
graph (3XA). 
"(ii) LOOK-BACK METHOD.—The 10-percent method 
shall be taken into account for purposes of applying the 
look-back method of paragraph (2) to any taxpayer 
making an election under tlus paragraph." 
(C) CONFORMINO ABfENDMENTS.— 
(1) Subsection (b) of section 460 is amended by striking para-
graph (1) and by redesignating paragraphs (2) through (5) as 
paragraphs (1) through (4), respectively. 
(2) Paragraph (1) of section 4600biX as redesignated by para-
y- 
graph (1), is amended— 
(A) by striking "paragraph (4)" and inserting "paragraph 
(3)" and 
(B) by striking "paragraph (3)'* and inserting "para-
graph (2)". 
*^ 
para-
suDsec-
'Para^aphi 
(4) Subparagraph (A) of section 460(bX4), as redesignated by 
paragraph (1), is amended— 
(A) by striking "paragraph (3)" each place it appears and 
inserting "paragraph (2)", 
(B) by striking paragraph (3XB)" and inserting "para-
graph (2)(Br. and 
(C) by strUdng "paragraph (3XA)" and inserting "para-
graph (2XA)". 
(5) Paragraph (5) of section 460(e) is amended by striking so 
much of such paragraph as precedes subparagraph (A) and 
inserting the following: 
"(5) SPECIAL RULE FOR RESIDENTIAL CONSTRUCHON CONTRACTS 
WHICH ARE NOT HOME CONSTRUCTION CONTRACTS.—In the Case of 
any residential construction contract which is not a home 
construction contract, subsection (a) (as in effect on the day 
before the date of the enactment of the Revenue Reconciliation 
Act of 1989) shall apply except that such subsection shall be 
applied—". 
26 use 460 note. 
(d) EFFECTIVE DATB.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to contracts 
entered into on or after July 11,1989. 
(2) BINDING BIDS.—The amendments made by this section 
shall not apply to any contract resulting from the acceptance of 
a bid made oefore July 11, 1989. The preceding sentence shall 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2377 
apply only if the bid could not have been revoked or altered at 
any time on or after July 11,1989. 
(3) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.—The amend- 
\ _ 
ments made by this section shall not apply in the case of a 
qualified ship contract (as defined in section 10203(bX2XB) of the 
Revenue Act of 1987). 
SEC. 7622. CHANGES IN TREATMENT OF TRANSFERS OF FRANCHISES, 
TRADEMARKS, AND TRADE NAMES. 
(a) CONTINGENT PAYMENTS.—Paragraph (1) of section 1253(d) 
(relating to treatment of pajrments by transferee) is amended to read 
as follows: 
"(1) CONTINGENT SERIAL PAYMENTS.— 
"(A) IN GENERAL.—Any amount described in subpara-
graph (B) which is paid or incurred during the taxable year 
on account of a transfer, sale, or other disposition of a 
franchise, trademark, or trade name shall be allowed as a 
deduction under section 162(a) (relating to trade or business 
expenses). 
(B) 
AMOUNTS 
TO WHICH 
PARAGRAPH 
APPUES.—An 
amount is described in this subparagraph if it— 
"(i) is contingent on the productivity, use, or disposi-
tion of the franchise, trademark, or trade name, and 
"(ii) is paid as part of a series of payments— 
.,,,.. 
"(I) which are payable not less frequently than 
''' * 
annually throughout the entire term of the trans-
fer agreement, and 
"(II) which are substantisdly equal in amount (or 
payable under a fixed formula)." 
(b) $100,000 LIMITATION ON CERTAIN PAYMENTS.— 
(1) IN GENERAL.—Paragraph (2) of section 1253(d) is amended 
by adding at the end thereof the following new subparagraph: 
"(B) $100,000 LIMFTATION ON DEDUCTIBILITY OF PRINCIPAL 
SUM.—Subparagraph (A) shall not apply if the principal 
I"' 
sum referred to in such subparagraph exceeds $100,000. For 
purposes of the preceding sentence, all payments which are 
part of the same transaction (or a series of related trans-
actions) shall be taken into account as payments with 
respect to each such transaction," 
(2) CONFORMING 
AMENDMENTS.—Paragraph (2) of section 
1253(d) is amended— 
(A) by striking all that precedes " I f and inserting: 
"(2) CERTAIN PAYMENTS IN DISCHARGE OF PRINCIPAL SUMS.— 
"(A) IN GENERAL.—", and 
(B) by redesignating subparagraphs (A), (B), and (C) as 
clauses (i), (ii), and (iii), respectively, and by redesignating 
* 
clauses (i) and (ii) of subparagraph (B) as subclauses (I) and 
(II), respectively, 
(c) OTHER PAYMENTS, ETC.—Section 1253(d) is amended by adding 
at the end thereof the following new paragraphs: 
"(3) OTHER PAYMENTS,— 
"(A) IN GENERAL.—Any amount paid or incurred on ac-
count of a transfer, sale, or other disposition of a franchise, 
trademark, or trade name to which paragraph (1) or (2) does 
not apply shall be treated as an amount chargeable to 
capital account. 
"(B) ELECTION TO RECOVER AMOUNTS OVER 25 YEARS.— 
103 STAT. 2378 
PUBLIC LAW 101-239—DEC. 19, 1989 
''(i) IN GENERAL.—If the taxpayer elects the applica-
,^,, 
tion of this subparagraph, an amount chargeidble to 
capital account— 
"(D to which paragraph (1) would apply but for 
subparagraph (BXii) 
tiiereof, 
or 
"(ID to which paragraph (2) would apply but for 
subparagraph (B) thereof, 
shall be allowed as a deduction ratably over the 25-year 
period b^inning with the taxable year in which the 
transfer occurs. 
"(ii) CONSISTENT TREATMENT.—An election under 
clause (i) shall apply to all amounts which are part of 
' •
"
' 
the same transaction (or a series of related trans-
actions). 
"(4) RmrawAiiS, ETC.—For purposes of determining the term of 
a transfer agreement or any period of amortization under this 
subsection, there shall be taken into account all renewal options 
(and any other period for which the parties reasonably expect 
the agreement to be renewed). 
"(5) CERTAIN RULES MADE APPUCABLE.—Rules similar to the 
rules of section 168(i)(7) shall apply for purposes of this subsec-
tion.", 
(b) TECHNICAL AMENDMENTS.— 
(1) DEPRECIATION ALLOWABLE.—Subsection (r) of section 167 is 
hereby repealed. 
(2) DEDUCTION SUBJECT T
O RECAPTURE.— 
(A) Subparagraph (C) of section 1245(aX2) is amended by 
striking "or 193" and inserting "193, or 1253(d) (2) or (3)'\ 
(B) The material preceding subparagraph (A) of section 
1245(aX3) is amended by striking "section 185" and insert-
ing "section 185 or 1253(d) (2) or (3)". 
26 use 1
6
7 note. 
(c) E
F
F
E
C
T
I
V
E DATE.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to transfers after October 2,1989. 
y 
(2) BINDING CONTRACT.—The amendments made by this sec-
tion shall not apply to any transfer pursuant to a written 
binding contract in effect on October 2, 1989, and at all times 
thereafter before the transfer. 
PART IV—EMPLOYMENT TAX PROVISIONS 
SEC. 7631. TREATMENT OF AGRICULTURAL WORKERS UNDER WAGE 
WITHHOLDING. 
(a) IN GENERAL.—Paragraph (2) of section 3401(a) (defining wages) 
is amended to read as follows: 
"(2) for agricultural labor (as defined in section 3121(g)) unless 
the remuneration paid for such labor is wages (as defined in 
section 3121(a)); or". 
(b) CREW LEADER RULES To APPLY.—Section 3401 is amended by 
adding at the end thereof the following new subsection: 
"(h) CREW LEADER RULES To APPLY.—Rules similar to the rules of 
section 3121(o) shall apply for purposes of this chapter." 
26 use 3401 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to remuneration paid after December 31,1989. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2379 
SEC. 7632. ACCELERATION OF DEPOSIT REQUIREMENTS. 
(a) IN GENERAL.—Section 6302 (relating to mode or time for 
collection), as amended by this title, is amended by redesignating 
subsection (g) as subsection (h) and by inserting after subsection (f) 
the following new subsection: 
"(g) DEPOSITS OF SOCIAL SECURITY TAXES AND WITHHELD INCOME 
TAXES.— 
"(1) IN GENERAL.—If, under regulations prescribed by the 
Secretary, a person is required to make deposits of taxes im-
posed by chapters 21 and 24 on the basis of eighth-month 
periods, such person shall, for the years specified in paragraph 
(2), make deposits of such taxes on the applicable banking day 
after any day on which such person has $100,000 or more of 
such taxes for deposit. 
"(2) SPECIFIED YEARS.—For purposes of paragraph (1)— 
The applicable 
"In the case of: 
banking day is: 
1990 
1st 
1991 
2d 
1992 
8rd 
1993 
Ist 
1994 
„ 
Ist." 
0>) EFFECTIVE DATE.— 
26 use 6302 
(1) GENERAL RULE.—Except as provided in paragraph (2), note. 
. the amendment made by subsection (a) shall apply to 
amounts required to be deposited after July 31,1990. 
(2) RULE FOR 1995 AND THEREAFTER.—For calendar year R^uiations. 
• 
1995 and thereafter, the Secretary of the Treasury shall 
prescribe regulations with respect to the date on which 
deposits of such taxes shall be made in order to minimize 
the imevenness in the revenue effects of the amendment 
made by subsection (a). 
PART V—OTHER PROVISIONS 
SEC 7641. LIMITATION ON SECTION 104 EXCLUSION. 
^ 
(a) GENERAL RULE.—Section 104(a) (relating to compensation for 
injuries or sickness) is amended by adding at the end thereof the 
following new sentence: "Paragraph (2) shall not apply to any 
punitive damages in connection with a case not involving physicsd 
ii^jury or physical sickness." 
(b) EFFECTIVE DATE.— 
26 use 104 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply to amounts 
received after July 10, 1989, in taxable years encQng after such 
date. 
(2) EbccEPTioN.—The amendment made by subsection (a) shall 
not apply to any amount received— 
(A) under any written binding agreement, court decree, 
or mediation award in effect on (or issued on or before) July 
10,1989, or 
(B) pursuant to any suit Hied on or before July 10, 1989. 
SEC. 7642. TREATMENT OF DISTRIBUTIONS BY PARTNERSHIPS OF 
CONTRIBUTED PROPERTY. 
(a) GENERAL RULE.—Subsection (c) of section 704 (relating to 
contributed property) is amended to read as follows: 
103 STAT. 2380 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(c) CONTRIBUTED PROPERTY.— 
"(1) IN GENERAL.—Under regulations prescribed by the Sec-
'' 
retary— 
"(A) income, gain, loss, and deduction with respect to 
property contributed to the partnership by a partner shall 
' * ^
^ ' 
be shared among the partners so as to take account of the 
. ,, 
variation between the basis of the property to the partner-
ship and its fair market value at the time of contribution, 
and 
"(B) if any property so contributed is distributed by the 
partnership (other than to the contributing partner) within 
^ , 
5 years of being contributed— 
' '*^ 
"(i) the contributing partner shall be treated as rec-
ognizing gain or loss (as the case may be) from the sale 
, / 
of such property in an amount equal to the gain or loss 
' '* * 
which would have been allocated to such partner under 
subparagraph (A) by reason of the variation described 
in subparagraph (A) if the property had been sold at its 
fair market value at the time of the distribution, 
"(ii) the character of such gain or loss shall be deter-
mined by reference to the character of the gain or loss 
which would have resulted if such property had been 
* 
sold by the partnership to the distributee, and 
"(iii) appropriate adjustments shall be made to the 
adjusted basis of the contributing partner's interest in 
the partnership and to the adjusted basis of the prop-
erty distributed to reflect any geiin or loss recognized 
under this subparagraph. 
, 
"(2) SPECIAL RULE FOR DISTRIBUTIONS WHERE GAIN OR LOSS 
WOULD NOT BE RECOGNIZED OUTSIDE PARTNERSHIPS.—Under regu-
lations prescribed by the Secretary, if— 
"(A) property contributed by a partner (hereinafter re-
ferred to as the 'contributing partner') is distributed by the 
partnership to another partner, and 
"(B) other property of a like kind (within the meaning of 
section 1031) is distributed by the partnership to the 
contributing partner not later than the earlier of— 
"(i) the 180th day after the date of the distribution 
described in subparagraph (A), or 
"(ii) the due date (determined with regard to exten-
sions) for the contributing partner's return of the tax 
imposed by this chapter for the taxable year in which 
the distribution described in subparagraph (A) occurs, 
then to the extent of the value of the property described in 
subparagraph (B), paragraph (IXB) shall be applied as if the 
contributing partner had contributed to the partnership the 
property described in subparagraph (B). 
"(3) OTHER RULES.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of paragraph (1) shall apply to 
contributions by a partner (using the cash receipts and disburse-
ments method of accounting) of accounts payable and other 
accrued but unpaid items. Any reference in paragraph (1) or (2) 
to the contributing partner shall be treated as including a 
reference to any successor of such partner." 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2381 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 704 note. 
shall apply in the case of property contributed to the partnership 
after October 3, 1989, in taxable years ending after such date. 
SEC. 7643. DEPRECIATION TREATMENT OF CELLULAR TELEPHONES. 
(a) GENERAL RULE.—Subparagraph (A) of section 280F(dX4) (defin-
ing listed property) is amended by striking "and" at the end of 
clause (iv), by redesignating clause (v) as clause (vi), and by inserting 
after clause (iv) the following new clause: 
"(v) any cellular telephone (or other similar tele-
communications equipment), and". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC280F 
shall apply to property placed in service or leased in taxable years "°^-
beginning after December 31,1989. 
SEC. 7644. ELIMINATION OF RETROACTIVE CERTIFICATION OF EMPLOY-
EES FOR WORK INCENTIVE JOBS CREDIT. 
(a) IN GENERAL.—So much of subparagraph (A) of section 50B(hXl) 
of the Internal Revenue (Dode of 1954 (as in effect for taxable years 
beginning before January 1, 1982) as precedes clause (i) thereof is 
amended to read as follows: 
"(A) who has been certified (or for whom a written re-
quest for certification has been made) on or before the day 
the individual began work for the taxpayer by the Sec-
retary of Labor or by the appropriate agency of State or 
local government as—". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC50B 
shall apply for purposes of credits first claimed after March 11,1987. "o**-
SEC. 7645. DISALLOWANCE OF DEPRECIATION FOR CERTAIN TERM IN- 
Real property. 
TERESTS. 
(a) GENERAL RULE.—Section 167 (as amended by section 7622) is 
amended by inserting after subsection (q) the following new subsec-
tion: 
"(r) CERTAIN TERM INTERESTS NOT DEPRECIABLE.— 
"(1) IN GENERAL.—No depreciation deduction shall be allowed 
under this section (and no depreciation or amortization deduc-
tion shall be allowed under any other provision of this subtitle) 
to the taxpayer for any term interest in property for any period 
during which the remainder interest in such property is held 
(directly or indirectly) by a related person. 
"(2) COORDINATION WITH SECTION 273.—This subsection shall 
not apply to any term interest to which section 273 applies. 
"(3) BASIS ADJUSTMENTS.—If, but for this subsection, a depre-
ciation or amortization deduction would be allowable to the 
taxpayer with respect to any term interest in property— 
"(A) the tiucpayer's basis in such property shall be re-
duced by any depreciation or amortization deductions dis-
allowed under this subsection, and 
"(B) the basis of the remainder interest in such property 
shall be increased by the amount of such disallowed deduc-
tions (properly adjusted for any depreciation deductions 
allowable under subsection (h) to the taxpayer). 
"(4) SPECIAL RULES.— 
"(A) DENIAL OF INCREASE IN BASIS OF REMAINDERMAN.— 
No increase in the basis of the remainder interest shall be 
made under paragraph (3XB) for any disallowed deductions 
103 STAT. 2382 
PUBLIC LAW 101-239—DEC. 19, 1989 
attributable to periods during which the term interest was 
held— 
"(i) by an organization exempt from tax under this 
subtitle, or 
Aliens. 
"(ii) by a nonresident alien individual or foreign 
SidusS ^** 
corporation but only if income from the term interest is 
not effectively connected with the conduct of a trade or 
business in the United States. 
"(B) COORDINATION WITH SUBSECTION (h) .—If, but for this 
subsection, a depreciation or amortization deduction would 
be allowable to any person with respect to any term in-
terest in property, the principles of subsection (h) shall 
apply to such person with respect to such term interest. 
"(5) DEFINITIONS.—For purposes of this subsection— 
"(A) TERM INTEREST IN PROPERTY.—The term 'term in-
terest in property' has the meaning given such term by 
section 1001(eX2). 
"(B) RELATED PERSON.—The term 'related person' means 
any person bearing a relationship to the taxpayer described 
in subsection (b) or (e) of section 267. 
"(6) REGULATIONS.—liie Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of this 
subsection, including regulations preventing avoidance of this 
subsection through cross-ownership arrangements or other-
wise." 
26 use 167 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to interests created or acquired after July 27, 1989, in 
taxable years ending after such date. 
SEC. 7646. REPORTING OF POINTS ON M
O
R
T
G
A
G
E LOANS. 
(a) GENERAL RULE.—Paragraph (2) of section 6050H(b) (relating to 
form and manner of returns) is amended by striking "and" at the 
end of subparagraph (B), by redesignating subparagraph (C) as 
subparagraph (D) and bv inserting after subparagraph (B) the fol-
lowing new subparagraph: 
"(C) the amount of points on the mortgage received 
during the calendar year and whether such points were 
^ 
paid directly by the borrower, and". 
(b) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (B) of section 6050H(bXl) is amended by 
inserting "(other than points)" after "such interest". 
(2) Paragraph (2) of section 6050H(d) is amended— 
(A) by inserting "(other than points)" after "subsection 
(aX2)",and 
(B) by inserting before the period at the end thereof the 
following: "(and the information required under subsection 
0^X2X0)^^. 
26 use 6050H 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"o**- 
apply to returns and statements the due date for which (determined 
without regard to extensions) is after December 31,1991. 
SEC. 7647. T
R
E
A
T
M
E
N
T OF CERTAIN INVESTMENT-ORIENTED LIFE INSUR-
ANCE CONTRACTS. 
(a) GENERAL RULE.—Subsection (c) of section 7702A (relating to 
computational rules) is amended by adding at the end thereof the 
following new paragraph: 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2383 
"(6) TREATMENT OP CERTAIN CONTRACTS WITH MORE THAN ONE 
INSURED.—If— 
"(A) a contract provides a death benefit which is payable 
only upon the death of 1 insured following (or occurring 
simultaneously with) the death of another insured, and 
"(B) there is a reduction in such death benefit below the 
lowest level of such death benefit provided under the con-
tract during the 1st 7 contract years, 
this section shall be applied as if the contract had originally 
been issued at the reduced benefit level." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26USC7702A 
shall apply to contracts entered into on or after September 14,1989, note. 
PART VI—TAX-EXEMPT BOND PROVISIONS 
SEC. 7651. TREATMENT OF HEDGE BONDS. 
(a) IN GENERAL.—Section 149 (relating to bonds must be registered 
to be tax-exempt; other requirements) is amended by adding at the 
end thereof the following new subsection: 
"(g) TMIATMENT O
F HEDGE BONDS.— 
"(1) IN GENERAL.—Section 103(a) shall not apply to any hedge 
bond unless, with respect to the issue of which such bond is a 
part— 
"(A) the requirement of paragraph (2) is met, and 
"(B) the requirement of subsection (fX3) is met. 
"(2) REASONABLE EXPECTATIONS AS TO WHEN PROCEEDS WILL BE 
SPENT.—An issue meets the requirement of this paragraph if the 
issuer reasonably expects that— 
"(A) 10 percent of the spendable proceeds of the issue will 
be spent for the governmental purposes of the issue within 
the 1-year period beginning on the date the bonds are 
issued, 
"(B) 30 percent of the spendable proceeds of the issue will 
be spent for such purposes within the 2-year period begin-
ning on such date, 
"(C) 60 percent of the spendable proceeds of the issue will 
be spent for such purposes within the 3-year period begin-
ning on such date, and 
"(D) 85 percent of the spendable proceeds of the issue will 
be spent for such purposes within the 5-year period begin-
ning on such date. 
"(3) HEDGE BOND.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'hedge bond' means any bond issued as part of an 
'"* 
issue unless— 
"(i) the issuer reasonably expects that 85 percent of 
the spendable proceeds of the issue will be used to carry 
out the governmental purposes of the issue within the 
3-year period beginning on the date the bonds are 
issued, and 
' • 
"(ii) not more than 50 percent of the proceeds of the 
issue are invested in nonpurpose investments (as de-
fined in section 148(fX6XA)) having a substantially 
guaranteed 3deld for 4 years or more. 
"(B) EXCEPTION FOR INVESTMENT IN TAX-EXEMPT BONDS 
4 -• 
NOT SUBJECT TO MINIMUM TAX.— 
103 STAT. 2384 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(i) IN GENERAL.—Such term shall not mclude any 
bond issued as part of an issue 95 percent of the net 
proceeds of which are invested in bonds— 
"(I) the interest on which is not includible in 
gross income under section 103, and 
"(II) which are not specified private activity 
bonds (as defined in section 57(aX5XC)). 
"(ii) AMOUNTS IN BONA FIDE DEBT SERVICE FUND.— 
Amounts in a bona fide debt service fund shall be 
treated as invested in bonds described in clause (i). 
"(iii) INVESTMENT EARNINGS HELD PENDING REINVEST-
MENT.—Investment earnings held for not more than 30 
days pending reinvestment shall be treated as invested 
. 
in bonds described in clause (i). 
"(C) EXCEPTION FOR REFUNDING BONDS.— 
"(i) IN GENERAL.—A refunding bond shall be treated 
as meeting the requirements of this subsection only if 
the original bond met such requirements. 
"(ii) GENERAL RULE FOR REFUNDING OF PRE-EFFECTTVE 
D
A
T
E BONDS.—A refunding bond shall be treated as 
meeting the requirements of this subsection if— 
(I) this subsection does not apply to the original 
bond, 
"(II) the average maturity date of the issue of 
which the refunding bond is a part is not later than 
the average maturity date of the bonds to be re-
funded by such issue, and 
"(III) the amount of the refunding bond does not 
exceed the outstanding amount of the refunded 
bond, 
"(iii) REFUNDING OF PRE-EFFECTTVE DATE BONDS ENTI-
TLED T
O 5-YEAR TEMPORARY PERIOD.—A refunding bond 
shall be treated as meeting the requirements of this 
subsection if— 
"(I) this subsection does not apply to the original 
bond, 
"(II) the issuer reasonably expected that 85 per-
cent of the spendable proceeds of the issue of which 
the original bond is a part would be used to carry 
out the governmental purposes of the issue within 
the 5-year period beginning on the date the origi-
nal bonds were issued but did not reasonably 
expect that 85 percent of such proceeds would be so 
spent within the 3-year period beginning on such 
date, and 
"(III) at least 85 percent of the spendable pro-
ceeds of the original issue (and all other prior 
original issues issued to finance the governmental 
purposes of such issue) were spent before the date 
the refunding bonds are issued. 
"(4) SPECIAL RULES.—For purposes of this subsection— 
"(A) CONSTRUCTION PERIOD IN EXCESS OF 5 YEARS.—The 
Secretary may, at the request of any issuer, provide that 
the requirement of paragraph (2) shall be treated as met 
with respect to the portion of the spendable proceeds of an 
issue which is to be used for any construction project 
having a construction period in excess of 5 years if it is 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2385 
reasonably expected that such proceeds will be spent over a 
reasonable construction schedule specified in such request. 
"(B) RULES F
O
R DETERiifiNiNG E
X
P
E
C
T
A
T
I
O
N
S
.
—
^
T
h
e rules of 
subsection (fX2XB) shall apply. 
"(5) REGULATIONS.—The Secretary may prescribe regulations 
to prevent the avoidance of the rules of this subsection, includ-
ing through tiie aggr^ation of projects within a single issue." 
(b) EFFECTIVE DATE.— 
26 use 149 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendment made by subsection (a) shall apply to 
bonds issued after September 14,1989. 
(2) BONDS SOLD BEFORE SEPTEMBER IS, 1989.—The amendment 
made bv subsection (a) shall not apply to any bond sold before ^ 
September 15,1989, and issued before October 15,1989. 
(3) BONDS WITH RESPECT TO WHICH PRELIMINARY OFFERING 
M
A
T
E
R
I
A
L MAILED.—The amendment made by subsection (a) 
shall not apply to any issue issued after the date of the enact-
ment of this Act if the preliminary offering materials with 
respect to such issue were mailed (or otherwise delivered) to 
members of the underwriting syndicate before September 15, 
1989. 
(4) CERTAIN OTHER BONDS.—In the case of a bond issued before 
January 1,1991, with respect to which official action was taken 
(or a series of official actions were taken), or other comparable 
\ 
preliminary approval was given, before November lb, 1989, 
demonstrating an intent to issue such bonds in a maximum 
specified amount for such issue or with a maximum specified 
amount of net proceeds of such issue, the issuer may elect to 
apply section 149(g)(2) of the Internal Revenue Code of 1986 (as 
added bv this section) by substituting "15 percent" for "10 
percent in subparagraph (A) and "50 percent for "60 percent" 
m subparagraph (C). 
(5) BONDS ISSUED TO FINANCE SELF-INSURANCE FUNDS.—The 
amendment made by subsection (a) shall not apply to any bonds 
issued before July 1, 1990, to finance a self-insurance fund if 
official action was taken (or a series of official actions were 
taken), or other comparable preliminaiy approval was ^ven, 
before September 15, 1989, demonstrating an intent to issue 
'^ 
such bonds in a maximum specified amount for such issue or 
with a maximum specified amoimt of net proceeds of such issue. 
SEC 7652. EXCEPTIONS FROM ARBITRAGE REBATE REQUIREMENT. 
(a) IN GENERAL.—Clause (i) of section 148(fK4)(B) (relating to tem-
porary investments) is amended to read as follows: 
"(i) IN GENERAL.—An issue shall, for purposes of this 
subsection, be treated as meeting the requirements of J 
paragraph (2) if— 
"(I) the gross proceeds of such issue are expended 
for the governmental purposes for which the issue 
was issued no later than the day which is 6 months 
after the date of issuance of the issue, and 
"(ID the requirements of paragraph (2) are met 
after such 6 months with resp^ to earnings on 
amoimts in any reasonably required reserve or 
replacement fund. 
Gross proceeds which are held in a bona fide debt 
service fund or a reasonably required reserve or 
103 STAT. 2386 
PUBLIC LAW 101-239—DEC. 19,1989 
replacement fund shall not be considered gross pro-
ceeds for purposes of this subparagraph only, 
(b) CONSTRUCTION BONDS.—Subparagraph (B) of section 148(fK4) 
(relating to temporary investments) is £unended by adding at the end 
thereof the following new clause: 
"(iv) 
2-YEAR 
PERIOD FOR CERTAIN CONSTRUCTION 
BONDS.— 
"(I) IN GENERAL.—In the case of an issue de-
.'- t 
scribed in subclause (IV), clause (i) shall be applied 
by substituting '2 years' for '6 months' each place 
it appears. 
, 
* -^ 
"(II) PROCEEDS MUST BE SPENT WITHIN CERTAIN 
^\ \'^ , 
PERIODS.—Subclause (I) shall not apply to any issue 
if less than 10 percent of the net proceeds of the 
issue are spent for the governmental purposes of 
^ 
the issue within the 6-month period beginning on 
the date the bonds are issued, less than 45 percent 
of such proceeds are spent for such purposes within 
the 1-year period beginning on such date, less than 
75 percent of such proceeds are spent for such 
purposes within the 18-month period beginning on 
such date, or less than 100 percent of such proceeds 
are spent for such purposes within the 2-year 
period beginning on such date. For purposes of the 
preceding 
sentence, the term 
net proceeds' 
includes investment proceeds earned before the 
close of the period involved on the investment of 
the sale proceeds of the issue. 
"(Ill) EXCEPTION FOR REASONABLE RETAINAGE.— 
i 
> 
For purposes of subclause (II), 100 percent of the 
' . „• 
net proceeds of an issue shall be treated as spent 
for the governmental purposes of the issue within 
, .. 
the 2-year period beginning on the date the bonds 
are issued if such requirement is met within the 
^ 
3-year period beginning on such date and such 
requirement would have been met within such 2-
year period but for a reasonable retainage (not 
i- . ,. 
exceeding 5 percent of the net proceeds of the 
issue). 
- ' 
"(IV) ISSUES TO WHICH SUBCLAUSE (I) APPLIES.— 
An issue is described in this subclause if at least 75 
percent of the net proceeds of the issue are to be 
used for construction expenditures with respect to 
property which is owned by a governmental unit or 
,. 
-, 
a 501(cX3) organization. For purposes of the preced-
ing sentence, the term 'construction' includes 
reconstruction and rehabilitation, and section 
142(bXl) shall apply. An issue is not described in 
this subclause if any bond which is part of such 
issue is a bond other than a qualified 501(cX3) bond, 
a bond.which is not a private activity bond, or a 
private activity bond to finance property to be 
owned by a governmental unit or a 501(cX3) 
=
; 
organization. 
(V) 
ELECTION TO PAY PENALTY IN UEU OF 
J < 
REBATE.—In the case of an issue described in 
subclause (IV) which fails to meet the require-
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2387 
^ 
ments of subclause (II), if the issuer elected the 
application of this subclause, the requirements of 
paragraph (2) shall be treated as met if the issuer 
pays the penalty under paragraph (7) or pays a 
: 
• 
penalty with respect to the close of each 6 month 
period after the date the bonds are issued equal to 
IVz percent of the amount of the net proceeds of 
i 
M*iji 
the issue which, as of the close of such period, are 
not spent as required by subclause (II). The penalty , 
under this subclause shall cease to apply only after 
., ~ , 
the bonds (including any refunding bonds with 
^ 
respect thereto) are no longer outstanding. 
(VI) ELECTION TO REBATE ON EARNINGS ON RE-
SERVE.—If the issuer so elects, the term 'net pro-
ceeds' for purposes of subclause (II) shall not in-
clude earnings on any reasonably required reserve 
_
, 
or replacement fund and the requirements of para-
graph (2) shall apply to such earnings, 
"(VII) POOLED FINANCING BONDS.—At the elec-
tion of the issuer of an issue the proceeds of which 
are to be used to make or finance loans (other than 
nonpurpose investments) to 2 or more persons, the 
_ . 
periods described in clause (i) and this clause shall 
' ' ""' 
begin on the date the loan is made in the case of 
loans made within the 1-year period after the date 
the bonds were issued. In the case of loans made 
after such 1-year period, the periods described in 
clause (i) and this clause shall begin at the close of 
* 
such 1-year period. 
"(VIII) PORTIONS OF ISSUE MAY BE TREATED SEPA-
RATELY.—If only a portion of an issue is to be used 
for 
construction 
expenditures 
referred 
to in 
subclause (IV), such portion and the other portion 
of such issue may, at the election of the issuer, be 
treated as separate issues for purposes of this 
clause and clause (i). 
"(IX) ELECTIONS.—Any election under this clause 
shall be made on or before the date the bonds are 
issued; and, once made, shall be irrevocable." 
(c) POOLED FINANCING BONDS.—Subparagraph (A) of section 
148(cX2) is amended by redesignating subparagraph (D) as subpara-
graph (E) and by inserting after subparagraph (C) the following new 
. 
subparagraph: 
(D) BONDS USED TO PROVIDE CONSTRUCTION FINANCING.— 
^ 
In the case of an issue described in subparagraph (A) any 
portion of which is used to make or finance loans for 
construction expenditures (within the meaning of subsec-
tion (fK4XBXivXrV))-
"(i) rules 
similar to the rules of subsection 
(fX4XBXivXVIII) shall apply, and 
"(ii) subparagraph (A) shall be applied with respect to 
such portion by substituting '2 years' for '6 months'." 
(d) 
CONFORMING 
AMENDMENT.—Subclause 
(I) 
of 
section 
148(fX4XBXii) is amended by inserting "each place it appears" after 
"'6 months'". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC148 note, 
apply to bonds issued after the date of the enactment of this Act. 
103 STAT. 2388 
Improved 
Penalty 
Administration 
and Compliance 
Tax Act. 
26 use 1 note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
Subtitle G—Revision of Civil Penalties 
SEC. 7701. SHORT TITLE. 
This subtitle may be cited as the "Improved Penalty Administra-
tion and Compliance Tax Act". 
PART I—DOCUMENT AND INFORMATION RETURN 
PENALTIES 
SEC 7711. UNIFORM PENALTIES FOR FAILURES TO COMPLY WITH CER. 
TAIN INFORMATION REPORTING REQUIREMENTS. 
(a) GENERAL RULE.—^Part n of subchapter B of chapter 68 (relating 
to failure to file certain information returns or statements) is 
amended to read as follows: 
"PART II—FAILURE TO COMPLY WITH CERTAIN 
INFORMATION REPORTING REQUIREMENTS 
"Sec. 6721. Failure to file correct information returns. 
^ 
"Sec. 6722. Failure to furnish correct payee statements. 
"Sec. 6723. Failure to comply with other information reporting require-
ments. 
"Sec. 6724. Waiver; definitions and special rules. 
"SEC 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS. 
"(a) IMPOSITION OP PENALTY.— 
"(1) IN GENERAL.—In the case of a failure described in para-
graph (2) by any person with respect to an information return, 
such person shall pay a penalty of $50 for each return with 
respect to which such a failure occurs, but the total amount 
imposed on such person for all such failures during any cal-
endar year shall not exceed $250,000. 
"(2) FAILURES SUBJECT TO PENALTY.—For purposes of para-
graph (1), the failures described in this paragraph are— 
"(A) any failure to file an information return with the 
Secretary on or before the required filing date, and 
"(B) any failure to include all of the ii^ormation required 
to be shown on the return or the inclusion of incorrect 
information. 
"
O
t
)
) REDUCTION WHERE CORRECTION IN SPECIFIED PERIOD.— 
"(1) C
k
>
R
R
E
C
T
i
O
N W
T
F
H
i
N 30 DAYS.—If any failure described in 
subsection (aX2) is corrected on or before the day 30 days after 
the required 
filing 
date— 
(A) the penalty imposed by subsection (a) shall be $15 in 
lieu of $50, and 
"(B) the total amount imposed on the person for all such 
failures during any calendar year which are so corrected 
shall not exceed $75,000. 
"(2) FAILURES CORRECTED ON OR BEFORE AUGUST i.—If any 
failure described in subsection (aX2) is corrected after the 30tn 
day referred to in paragraph (1) but on or before August 1 of the 
calendcu* year in which the required filing date occurs— 
"(A) the penalty imposed by subsection (a) shall be $30 in 
lieu of $50, and 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2389 
"(B) the total amount imposed on the person for all such 
failures during the calendar year which are so corrected 
shall not exceed $150,000. 
"(c) EXCEPTION FOR DE MINIMIS FAILURES TO INCLUDE ALL RE-
QUIRED INFORMATION.— 
"(1) IN GENERAL.—If— 
"(A) an information return is filed with the Secretaiy, 
"(B) there is a failure described in subsection (aX2)(B) 
t 
(determined after the application of section 6724(a)) with 
respect to such return, and 
(C) such failure is corrected on or before August 1 of the 
calendar year in which the required filing date occurs, 
for purposes of this section, such return shall be treated as 
having been filed with all of the correct required information. 
"(2) LIMITATION.—The number of information returns to 
which paragraph (1) applies for any calendar year shall not 
exceed the greater of— 
"(A) 10, or 
"(B) one-half of 1 percent of the total number of informa-
tion returns required to be filed by the person during the 
calendar year. 
"(d) LOWER LIMITATIONS FOR PERSONS WITH GROSS RECEIPTS OF 
NOT MORE THAN $5,000,000.— 
"(1) IN GENERAL.—If any person meets the gross receipts test 
of paragraph (2) with respect to any calendar year, with respect 
to failures during such taxable year— 
"(A) subsection (aXD shall be applied by substituting 
'$100,000' for '$250,000', 
"(B) subsection (bXl)(B) shall be applied by substituting 
'$25,000'for'$75,000', and 
"(C) subsection (bX2XB) shall be applied by substituting 
'$50,000' for '$150,000'. 
"(2) GROSS RECEIPTS TEST.— 
"(A) IN GENERAL.—A person meets the gross receipts test 
of this paragraph for any calendar year if the average 
annusJ gross receipts of such person for the most recent 3 
taxable years ending before such calendar year do not 
exceed $5,000,000. 
"(B) CERTAIN RULES MADE APPUCABLE.—For purposes of 
subparagraph (A), the rules of paragraphs (2) and (3) of 
section 448(c) shall apply. 
"(e) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more 
failures described in subsection (aX2) are due to intentional dis-
regard of the filing requirement (or the correct information report-
ing requirement), then, with respect to each such failure— 
'(1) subsections (b), (c), and (d) shall not apply, 
"(2) the penalty imposed under subsection (a) shall be $100, or, 
if greater— 
"(A) in the case of a return other than a return required 
under section 6045(a), 6041A(b), 6050H, 6050J, 6050K, or 
6050L, 10 percent of the aggregate amount of the items 
required to be reported correctly, or 
(B) in the case of a return required to be filed by section 
6045(a), 6050K, or 6050L, 5 percent of the aggregate amount 
of the items required to be reported correctly, and 
"(3) in the case of any penalty determined under para-
graph (2)— 
103 STAT. 2390 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) the $250,000 limitation under subsection (a) shall not 
apply, and 
"(B) such penalty shall not be taken into account in 
appljdng such limitation (or any similar limitation under 
subsection (b)) to penalties not determined under para-
graph (2). 
"SEC. 6722. FAILURE TO FURNISH CORRECT PAYEE STATEMENTS. 
"(a) GENERAL RULE.—In the case of each failure described in 
subsection (b) by any person with respect to a payee statement, such 
person shall pay a penalty of $50 for each statement with respect to 
which such a failure occurs, but the total amount imposed on such 
person for all such failures during any calendar year shall not 
exceed $100,000. 
"(b) FAILURES SUBJECT TO PENALTY.—For purposes of subsection 
(a), the failures described in this subsection are— 
"(1) any failure to furnish a payee statement on or before the 
date prescribed therefor to the person to whom such statement 
is required to be furnished, and 
"(2) any failure to include all of the information required to 
be shown on a payee statement or the inclusion of incorrect 
information. 
"(c) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more 
failures to which subsection (a) applies are due to intentional dis-
regard of the requirement to furnish a payee statement (or the 
correct information reporting requirement), then, with respect to 
each failure— 
"(1) the penalty imposed under subsection (a) shsill be $100, or, 
if greater— 
"(A) in the case of a payee statement other than a 
statement required under section 6045(b), 6041A(e) (in re-
spect of a return required under section 6041A(b)), 6050H(d), 
6050J(e), 6050K(b), or 6050L(c), 10 percent of the aggregate 
amount of the items required to be reported correctly, or 
"(B) in the case of a payee statement required under 
section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggre-
gate amount of the items required to be reported correctly, 
and 
"(2) in the case of any penalty determined under paragraph 
(1)-
"(A) the $100,000 limitation under subsection (a) shall not 
apply, and 
"(B) such penalty shall not be taken into account in 
applying such limitation to penalties not determined under 
paragraph (1). 
"SEC. 6723. FAILURE TO COMPLY WITH OTHER INFORMATION REPORT-
ING REQUIREMENTS. 
"In the case of a failure by any person to comply with a specified 
information reporting requirement on or before the time prescribed 
therefor, such person shall pay a penalty of $50 for each such 
failure, but the total amount imposed on such person for all such 
failures during any calendar year shall not exceed $100,000. 
PUBUC LAW 101-239—DEC. 19,1989 
103 STAT. 2391 
•SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES. 
"(a) REASONABLE CAUSE WAIVER.—No penalty shall be imposed 
under this part with respect to any failure if it is shown that such 
failure is due to reasonable cause and not to willful neglect. 
"(b) PAYMENT OF PENALTY.—Any penalty imposed by this part 
shall be paid on notice and demand by the Secretary and in the 
same manner as tax. 
"(c) 
SPECIAL RULE FOR FAILURE TO MEET MAGNETIC 
MEDIA 
REQUIREMENTS,—No penalty shall be imposed under section 6721 
solely by reason of any failure to comply with the requirements of 
the regulations prescribed under section 6011(eX2), except to the 
extent that such a failure occurs with respect to more than 250 
information returns. 
V 
"(d) DEFINITIONS.—For purposes of this part— 
"(1) INFORMATION RETURN.—The term 'information return' 
means— 
"(A) any statement of the amount of payments to another 
, . 
person required by— 
"(i) section 6041(a) or (b) (relating to certain informa-
tion at source), 
"(ii) section 6042(aXl) (relating to payments of divi-
iij 
dends), 
"(iii) section 6044(aXl) (relating to payments of 
patronage dividends), 
• .^ 
"(iv) section 6049(a) (relating to payments of interest), 
"(v) section 6050A(a) (relating to reporting require-
ments of certain fishing boat operators), 
"(vi) section 6050N(a) (relating to payments of royal-
ties), or 
"(vii) section 6051(d) (relating to information returns 
with respect to income tax withheld), and 
- 
"(B) any return required by— 
"(i) section 6041A(a) or Ot)) (relating to returns of 
' 
direct sellers), 
"(ii) section 6045(a) or (d) (relating to returns of 
brokers), 
"(iii) section 6050H(a) (relating to mortgage interest 
received in trade or business from individuals), 
"(iv) section 60501(a) (relating to CEish received in 
trade or business), 
"(v) section 6050J(a) (relating to foreclosures and 
abandonments of security), 
"(vi) section 6050K(a) (relating to exchanges of cer-
tain partnership interests), 
"(vii) section 6050L(a) (relating to returns relating to 
certain dispositions of donated property), 
"(viii) section 6052(a) (relating to reporting payment 
of wages in the form of group-life insurance), 
"(ix) section 6053(cXl) (relating to reporting with re-
spect to certain tips), 
<t 
"(x) section 1060(b) (relating to reporting require-
ments of transferors and transferees in certain asset 
acquisitions), or 
"(xi) subparagraph (A) or (C) of subsection (cX4), or 
subsection (e), of section 4093 (relating to information 
103 StA^. 2392 
PUBLIC LAW 101-239—DEC. 19,1989 
reporting with respect to tax on diesel and aviation 
fuels). 
Such term also includes any form, statement, or schedule 
required to be filed with the Secretary with respect to any 
amount from which tax was required to be deducted and 
1
1 
withheld under chapter 3 (or from which tax would be 
required to be so deducted and withheld but for an exemp-
tion under this title or any treaty obligation of the United 
States). 
"(2) PAYEE STATEMENT.—The term 'payee statement* means 
any statement required to be furnished under— 
"(A) section 6031(b) or (c), 6034A, or 6037(b) (relatmg to 
statements furnished by certain pass-thru entities), 
"(B) section 6039(a) (relating to information required in 
connection with certain options), 
"(C) section 6041(d) (relating to information at source), 
"(D) section 6041A(e) (relating to returns regarding pay-
ments of remuneration for services and direct sales), 
"(E) section 6042(c) (relating to returns regarding pay-
ments of dividends and corporate earnings and profits), 
"(F) section 6044(e) (relating to returns regarding pay-
ments of patronage dividends), 
"(G) section 6045(b) or (d) (relating to returns of brokers), 
"(H) section 6049(c) (relating to returns regarding pay-
ments of interest), 
"(I) section 6050A(b) (relating to reporting requirements 
of certain fishing boat operators), 
"(J) section 6050H(d) relating to returns relating to mort-
gage interest received in trade or business from individ-
uals), 
"(K) section 60501(e) (relating to returns relating to cash 
received in trade or business), 
"(L) section 6050J(e) (relating to returns relating to fore-
closures and abandonments of security), 
"(M) section 6050K(b) (relating to returns relating to 
exchanges of certain partnership interests), 
"(N) section 6050L(c) (relating to returns relating to cer-
tain dispositions of donated property), 
"(O) section 6050N(b) (relating to returns regarding pay-
ments of royalties), 
"(P) section 6051 (relating to receipts for employees), 
"(^ section 6052(b) (relating to returns regarding pay-
ment of wages in the form of £n*pup-term life insurance), 
"(R) section 6053(b) or (c) (relating to reports of tips), or 
"(S) section 4093(cX4XB) (relating to certain purchasers of 
diesel and aviation fuels). 
Such term also includes any form, statement, or schedule re-
quired to be furnished to the recipient of any amount from 
which tax was required to be deducted and withheld under 
chapter 3 (or from which tax would be required to be so de-
ducted and withheld but for an exemption under this title or 
any treaty obligation of the United States). 
(3) SPECIFIED INFORMATION REPORTING REQUIREMENT.—The 
term 'specified information reporting requirement' means-
"(A) the notice required by section 6050K(cXl) (relating to 
requirement that transferor notify partnership of ex-
change). 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2393 
"(B) any requirement contained in the r^ulations pre-
scribed under section 6109 that a person— 
•*. 
"(i) include his TIN on any return, statement, or 
other document (other than an information return or 
pavee statement), 
(ii) furnish his TIN to another person, or 
"(iii) include on any return, statement, or other docu-
ment (other than an information return or payee state-
ment) made with respect to another person the TIN of 
such person, 
"(C) any requirement contained in the r^ulations pre-
. '' 
scrtt)ed under section 215 that a person— 
"(i) furnish his TIN to another person, or 
"(ii) include on his return the TIN of another person, 
and 
"(D) the requirement of section 6109(e) that a person 
include the TIN of any dependent on his return. 
"(4) REQUIRED nuNO DATE.—The term 'required filing date' 
means the date prescribed for filing an information return with 
the Secretary (determined with regard to any extension of time 
forming)." 
(b) TECHNICAL AMENDiifENTS.— 
(1) Sections 6017A, 6676, and 6687 are hereby repealed. 
(2) Subsection (b) of section 7205 is amended to read as follows: 
"
0
1
>
) BACKUP WrmHOLDmo ON INTEREST AND DIVIDENDS.—If any 
individual willfully makes a false certification under paragraph (1) 
or (2XC) of section 3406(d), tiien such individual shall, m adoition to 
any other penal^ provided by law, upon conviction thereof, be fined 
not more than $1,()00, or imprisoned not more than Ivear, or both." 
(3) The table of sections for subpart B of part II of subchapter 
A of chapter 61 is amended by striking the item relating to 
section 6017A 
(4) The table of sections for part I of subchapter B of chapter 
68 is amended by striking the items relating to sections 6676 
and 6687. 
(5) The table of parts for subchapter B of chapter 68 is 
amended by striking the item relating to part II ana inserting 
the following: 
'Tart n. Failure to comply with certain infonnation 
reporting 
requirements." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to returns and statements the due date for which (determined 
without regard to extensions) is after December 31,1989. 
SEC. 7712. INFORMATION REQUIRED WITH RESPECT TO CERTAIN FOR-
EIGN CORPORATIONS. 
(a) CLARIFICATION OF REPORTINO REQUIREMENTS UNDER SECTION 
6038.— 
(1) Subsection (a) of section 6038 (relating to information with 
respect to certain foreign corporations) is amended by adding at 
the end thereof the following new paragraph: 
"(4) INFORMATION REQUIRED FROM CERTAIN SHAREHOLDERS IN 
CERTAIN CASES.—If any foreign corporation is treated as a con-
trolled foreign corporation for any purpose under subpart F of 
part m of subchapter N of chapter 1, the Secretaiy may require 
any United States person treated as a United States share-
Fraud. 
Law 
enforcement 
and crime. 
26 u s e 6721 
note. 
103 STAT. 2394 
PUBLIC LAW 101-239—DEC. 19, 1989 
holder of such corporation for any purpose under subpart F to 
furnish the information required under paragraph (1)." 
(2) Paragraph (1) of section 6038(a) is amended by inserting 
before the period at the end of the second sentence the follow-
ing: "or which the Secretary determines to be appropriate to 
carry out the provisions of this title." 
26 use 6038 
(b) EFFECTIVB DATB.—The amendments made by subsection (a) 
°^^- 
shall apply to returns and statements the due date for which 
(determined without r^ard to extensions) is after December 31, 
1989. 
SEC. 7713. UNIFORM REQUIREMENTS FOR RETURNS ON MAGNETIC 
MEDIA. 
(a) GENERAL RULE.—Subsection (e) of section 6011 (relating to 
regulations requiring returns on magnetic tape, etc.) is amended to 
read as follows: 
"(e) REGULATIONS REQUHUNO RETURNS ON MAGNETIC MEDIA, 
ETC.— 
"(1) IN GENERAL.—^The Secretary shall prescribe r^ulations 
providing standards for determining which returns must be 
filed on magnetic media or in other machine-readable form. The 
Secretary may not require returns of any tax imposed by sub-
title A on individuals, estates, and trusts to be other than on 
paper forms supplied by the Secretary. 
(2) REQUIREMENTS OF REGULATIONS.—In prescribing regula-
tions under paragraph (1), the Secretary— 
"(A) shall not require any person to file returns on 
magnetic media unless such person is required to file at 
least 250 returns during the calendar year, and 
"(B) shall take into account (among otiier relevant fac-
tors) the ability of the taxpayer to comply at reasonable cost 
with the requirements of such r^ulations." 
26 use 6011 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
iiote- 
shall apply to returns the due date for which (determined without 
regard to extensions) is after December 31,1989. 
SEC. 7714. STUDY OF PROCEDURES TO PREVENT MISMATCHING. 
(a) GENERAL RULE.—The Comptroller General (in consultation 
with the Secretary of the Treasury or his delegate) shall conduct a 
study on procedures to resolve, with the least disclosure of return 
information possible, discrepancies between taxpayer-identity 
information shown on information returns and such information in 
the records of the Internal Revenue Service. 
(b) REPORT.—Not later than June 1,1990, the Comptroller General 
shall submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a 
report on the study conducted under subsection (a), together with 
such recommendations as he may deem advisable. 
SEC. 7715. STUDY OF SERVICE BUREAUS. 
(a) GENERAL RULE.—^The Comptroller General (in consultation 
with the Secretary of the Treasury or his delegate) shall conduct a 
study of whetiier persons engaged in the business of transmitting 
information returns or other documents to the Internal Revenue 
Service on behalf of other persons should be subject to r^istration 
or other r^ulation. 
^ 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2395 
(b) REPORT.—Not later than July 1,1990, the Comptroller General 
shall submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a 
report on the stud^ conducted under subsection (a), together with 
such recommendations as he may deem advisable. 
PART II—REVISION OF ACCURACY-RELATED 
PENALTIES 
SEC. 7721. REVISION OF ACCURACY-RELATED PENALTIES. 
(a) GENERAL RULE.—Subchapter A of chaj^ter 68 (relating to addi-
tions to the tax and additional amounts) is amended by striking 
section 6662 and inserting the following: 
"PART II—ACCURACY-RELATED AND FRAUD 
PENALTIES 
\ 
"Sec. 6662. Imposition of accuracy-related penalty. 
"Sec. 6663. Imposition of fraud penalty. 
"Sec. 6664. Definitions and special rules. 
"SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY. 
"(a) iMPOsmoN O
F PENALTY.—If this section applies to any portion 
of an underpayment of tax required to be shown on a return, there 
shall be added to the t^c an amount equal to 20 percent of the 
portion of the undeipayment to which this section applies. 
"(b) PORTION OP UNDERPAYMENT TO WHICH SECTION APPLIES.— 
This section shall apply to the portion of any underpayment which 
is attributable to 1 or more of the following: 
"(1) Negligence or disr^ard of rules or r^ulations. 
"(2) Any substantial understatement of income tax. 
"(3) Any substantial valuation overstatement under chap-
ter 1. 
"(4) Any substantial overstatement of pension liabilities. 
"(5) Any substantial estate or gift tax valuation understate-
ment. 
This section shall not apply to any portion of an underpa3anent on 
which a penalty is imposed under section 6663. 
"(c) NEGUGENCE.—For purposes of this section, the term 'n^-
ligence' includes any failure to make a reasonable attempt to 
comply with the provisions of this title, and tibe term 'disr^ard' 
includes any careless, reckless, or intentional disr^ard. 
"(d) SUBSTANTIAL UNDERSTATEMENT O
F INCOME TAX.— 
"(1) SUBSTANTIAL UNDERSTATEMENT.— 
"(A) IN GENERAL.—For purposes of this section, there is a 
substantial understetement of income tax for any taxable 
year if the amount of the tmderstotement for the taxable 
year exceeds the greater of— 
"(i) 10 percent of the tax required to be shown on the 
return for the taxable year, or 
"(ii) $5,000. 
"(B) SPECIAL RULE FOR CORPORATIONS.—^In the case of a 
corporation other than an S corporation or a personal 
holding company (as defined in section 542), paragraph (1) 
shaU be applied by substituting "$10,000'^ for^'$5,000". 
"(2) UNDERSTATEMENT.— 
103 STAT. 2396 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
term 'understatement' means the excess of— 
"(i) the amount of the tax required to be shown on 
the return for the taxable ye£u*, over 
"(ii) the amount of the tax imposed which is shown 
on the return, reduced by any rebate (within the mean-
mg of section 6211(bX2)). 
"(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OP 
T
A
X
P
A
Y
E
R O
R D
I
S
C
L
O
S
E
D ITEM.—The amount of the under-
statement under subparagraph (A) shall be reduced by that 
portion of the understatement which is attributable to— 
"(i) the tax treatment of any item by the taxpayer if 
'
I 
there is or was substantial authority for such treat-
ment, or 
"(ii) any item with respect to which the relevant facts 
' 
affecting the item's tax treatment are adequately dis-
closed in the return or in a statement attached to the 
return. 
"(C) SPECIAL RULES IN CASES INVOLVING TAX SHELTERS.— 
"(i) IN GENERAL.—In the case of any item attributable 
to a tax shelter— 
"(I) subparagraph (BXii) shall not apply, and 
"(II) subparagraph (B)(i) shall not apply unless 
(in addition to meeting the requirements of such 
subpareigraph) the taxpayer reasonably believed 
that the tax treatment of such item by the tax-
payer was more likely than not the proper treat-
ment, 
"(ii) TAX SHELTER.—For purposes of clause (i), the 
term 'tax shelter* means— 
"(I) a partnership or other entity, 
"(II) any investment plan or arrangement, or 
"(III) any other plan or arrangement, 
if the principal purpose of such partnership, entity, 
plan, or arrangement is the avoidance or evasion of 
Federal income tax. 
"(D) SECRETARIAL LIST.—The Secretary shall prescribe 
(and revise not less frequently than annually) a list of 
positions— 
"(i) for which the Secretary believes there is not 
substantial authority, and 
"(ii) which affect a significant number of tfocpayers. 
Federal 
Such list (and any revision thereof) shall be published in 
Register, 
the Federal Register. 
publication. 
«(g) 
SUBSTANTIAL VALUATION OVERSTATEMENT U N D E R 
CHAP-
TER 1.— 
"(1) IN GENERAL.—For purposes of this section, there is a 
substantial valuation overstatement under chapter 1 if the 
value of any property (or the adjusted basis of any property) 
claimed on any return of tax imposed by chapter 1 is 200 
percent or more of the amount determined to be the correct 
amount of such valuation or adjusted basis (as the case may be). 
"(2) LIMITATION.—No penalty shall be imposed by reason of 
subsection (bX3) unless the portion of the underpayment for the 
taxable year attributable to substantial valuation overstate-
ments under chapter 1 exceeds $5,000 ($10,000 in the case of a 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2397 
corporation other than an S corporation or a personal holding 
company (as defined in section 542)). 
"(f) SUBSTANTIAL OVERSTATEMENT OF PENSION LIABILITIES.— 
"(1) IN GENERAL.—For purposes of this section, there is a 
substantial overstatement of pension liabilities if the actuarial 
determination of the liabilities taken into account for purposes 
of computing the deduction under paragraph (1) or (2) of section 
404(a) is 200 percent or more of the amount determined to be 
the correct amount of such liabilities. 
"(2) LIMITATION.—No penalty shall be imposed by reason of 
subsection (bX4) unless the portion of the underpayment for the 
taxable year attributable to substantial overstatements of pen-
sion liabilities exceeds $1,000. 
"(g) SUBSTANTIAL ESTATE OR GIFT TAX VALUATION UNDERSTATE-
MENT.— 
"(1) IN GENERAL.—For purposes of this section, there is a 
substantial estate or gift tax valuation understatement if the 
value of any property claimed on any return of tax imposed by 
subtitle B is 50 percent or less of the amount determined to be 
the correct amount of such valuation. 
"(2) LIMITATION.—No penalty shall be imposed by reason of 
subsection (bX5) unless the portion of the underpayment attrib-
utable to substantial estate or gift tax valuation understate-
ments for the taxable period (or, in the case of the tax imposed 
by chapter 11, with respect to the estate of the decedent) 
exceeds $5,000. 
"(h) 
INCREASE 
IN 
PENALTY IN 
CASE 
OF GROSS VALUATION 
MISSTATEMENTS.— 
"(1) IN GENERAL.—To the extent that a portion of the 
underpayment to which this section applies is attributable to 
one or more gross venation misstatements, subsection (a) shall 
be applied with respect to such portion by substituting *40 
percent' for '20 percent'. 
"(2) GROSS VALUATION MISSTATEMENTS.—The term 'gross valu-
ation misstatements' means— 
"(A) any substantial valuation overstatement under chap-
ter 1 as determined under subsection (e) by substituting '400 
percent' for '200 percent*, 
"(B) any substantial overstatement of pension liabilities 
as determined under subsection (f) by substituting '400 
percent' for '200 percent', and 
"(C) any substantial estate or gift tax valuation under-
statement as determined under subsection (g) by substitut-
ing '25 percent' for '50 percent'. 
"SEC. 6663. IMPOSITION OF FRAUD PENALTY. 
"(a) IMPOSITION OF PENALTY.—If any part of any underpa3mient of 
tax required to be shown on a return is due to fraud, there shall be 
added to the tax an amount equal to 75 percent of the portion of the 
underpayment which is attributable to fraud. 
"(b) DETERMINATION OF PORTION ATTRIBUTABLE TO FRAUD.—If the 
Secretary establishes that any portion of an underpayment is attrib-
utable to fraud, the entire underpa3mient shall be treated as attrib-
utable to fraud, except with respect to any portion of the 
underpayment which the taxpayer establishes (by a preponderance 
of the evidence) is not attributable to fraud. 
103 STAT. 2398 
PUBLIC LAW 101-239—DEC. 19,1989 
"(c) SPECIAL RxnjE FOR JOINT RETURNS.—In the case of a joint 
return, this section shall not apply with respect to a spouse unless 
some part of the underpayment is due to the fraud of such spouse. 
'^EC 6664. DEFINITIONS AND SPECIAL RULES. 
"(a) UNDERPAYMENT.—For purposes of this part, the term 
'underpayment' means the amount by which any tax imposed by 
this tide exceeds the excess of— 
"(1) the sum of— 
"(A) the amount shown as the tax by the taxpayer on his 
return, plus 
"(B) amounts not so shown previously assessed (or col-
lected without assessment), over 
"(2) the amount of rebates made. 
For purposes of paragraph (2), the term 'rebate' means so much of 
an abatement, credit, refund, or other repayment, as was made on 
the ground that the tax imposed was less than the excess of the 
amount specified in paragraph (1) over the rebates previously made. 
"(b) PisALToa 
APPUCABLE ONLY WHERE RETURN FILED.—The 
penalties provided in this part shall apply only in cases where a 
return of tax is filed (other than a retiun prepared by the Secretary 
under the authority of section 6020(b)). 
"(c) REASONABLE CAUSE EXCEPTION.— 
"(1) IN GENERAL.—NO penalty shall be imposed under this 
part with respect to any portion of an underpavment if it is 
shown that there was a reasonable cause for sucn portion and 
that the taxpayer acted in good faith with respect to such 
portion. 
Gifts and 
"(2) SPECIAL RULE FOR CERTAIN VALUATION OVERSTATElifENTS.— 
property. 
JQ J^Q Q^g^ ^f g^y underpayment attributable to a substantial or 
gross valuation overstatement under chapter 1 with respect to 
charitable deduction property, paragraph (1) shall not apply 
unless— 
"(A) the claimed value of the property was based on a 
qualified appraisal made by a qualified appraiser, and 
"(B) in addition to obtaining such appraisal, the taxpayer 
made a good faith investigation of the value of the contrib* 
uted property. 
"(3) DEFDOTIONS.—For purposes of this subsection— 
"(A) CHARITABLE D
E
D
U
C
T
I
O
N PROPERTY.—The term'chari-
table deduction property* means any property contributed 
bv the taxpayer in a contribution for which a deduction was 
claimed under section 170. For purposes of paragraph (2), 
such term shall not include any securities for which (as of 
the date of the contribution) market quotations are readily 
available on an established securities market. 
"(B) QUALIFIED APPRAISER.—The term 'qualified ap-
praiser* means any appraiser meeting the requirements of 
the regulations prescribed under section 170(aXl). 
"(C) QUALIFIED APPRAISAL.—^The term 'qualified ap-
praisal' means any appraisal meeting the requirements of 
the r^ulations prescribed under section 170(aXl). 
*TART III—APPLICABLE RULES 
"Sec. 6665. Applicable rules. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2399 
"SEC. 6665. APPLICABLE RULES. 
"(a) ADDITIONS TREATED AS TAX.—Except as otherwise provided in 
this title— 
"(1) the additions to the tax, additional amounts, and pen-
alties provided by this chapter sh£dl be paid upon notice and 
demand and shall be assessed, collected, and paid in the same 
manner as taxes; and 
"(2) any reference in this title to 'tax* imposed by this title 
shall be deemed also to refer to the additions to the tax, 
additional amounts, and penalties provided by this chapter. 
"(b) PROCEDURE FOR ASSESSING CERTAIN ADDITIONS TO TAX.—For 
purposes of subchapter B of chapter 63 (relating to deficiency proce-
dures for income, estate, gift, and certain excise taxes), subsection (a) 
shall not apply to any addition to tax under section 6651, 6654, or 
6655; except that it shall apply— 
"(1) in the case of an addition described in section 6651, to 
that portion of such addition which is attributable to a defi-
ciency in tax described in section 6211; or 
"(2) to an addition described in section 6654 or 6655, if no 
return is filed for the taxable year." 
(b) REPEAL OF INCREASE IN INTEREST ON CERTAIN SUBSTANTIAL 
UNDERPAYMENTS.—Subsection (c) of section 6621 (relating to interest 
on substantial underpa3rments attributable to tax motivated trans-
actions) is hereby repealed. 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 6653 is amended to read as follows: 
"SEC. 6653. FAILURE TO PAY STAMP TAX. 
"Any person (as defined in section 6671(b)) who— 
"(1) willfully fails to pay any tax imposed by this title which is 
payable by stamp, coupons, tickets, books, or other devices or 
methods prescribed by this title or by regulations under the 
authority of this title, or 
"(2) willfully attempts in any manner to evade or defeat any 
such tax or the payment thereof, 
shall, in addition to other penalties provided by law, be liable for a 
penalty of 50 percent of the total amount of the underpajmient of 
the tax." 
(2) Sections 6659, 6659A, 6660, and 6661 are hereby repealed. 
(3) Subsection (b) of section 5684 is amended— 
(A) by striking "6662(a)" and inserting "6665(a)", and 
(B) by striking "6662" in the subsection heading and 
inserting "6665". 
(4) Subsection (a) of section 5761 is amended by striking "or 
6653" and inserting "or 6653 or part II of subchapter A of 
chapter 68". 
(5) Subsection (c) of section 5761 is amended— 
(A) by striking "6662(a)" and inserting "6665(a)", and 
(B) by striking "6662" in the subsection heading and 
inserting "6665". 
(6) Subparagraph (A) of section 6013(bX5) is amended— 
(A) by striking "section 6653" and inserting "part 11 of 
subchapter A of chapter 68", and 
(B) by striking "SECTION 6653" in the subparagraph 
heading and inserting "PART II OF SUBCHAPTER A OF 
CHAPTER 68". 
103 STAT. 2400 
PUBLIC LAW 101-239—DEC. 19, 1989 
(7) Subsection (d) of section 6222 is amended by striking 
"section 6653(a)" and inserting "part II of subchapter A of 
chapter 68". 
(8) Paragraph (2) of section 6601(e) is amended by striking 
"section 6651(aXl), 6653, 6659, 6660, or 6661" each place it 
appears and inserting "section 6651(aXl) or 6653 or under part 
II of subchapter A of chapter 68". 
(9) Subsection (a) of section 6672 is amended by striking 
"under section 6653" and inserting "under section 6653 or part 
II of subchapter A of chapter 68". 
(10) Subparagraph (C) of section 461(iX3) is amended by strik-
ing 
"section 
6662(bX2XCXii)" 
and 
inserting 
'^section 
6662(dX2XCXii)". 
(11) Clause (i) of section 1274(bX3)(B) is amended by striking 
"section 6661(bX2XCXii)" and insertmg "section 6662(dX2XCXii)'. 
(12) Subparagraph (B) of section 7519(fK4) is amended by 
striking "section 6653" and inserting "part II of subchapter A of 
chapter 68". 
(13) Subchapter A of chapter 68 is amended by inserting after 
the subchapter heading the following: 
J 
"Part I. General provisions. 
"Part n. Accuracy-related and fraud penalties. 
"Part ni. Applicable rules. 
"PART I—GENERAL PROVISIONS". 
(14) The table of sections for part I of subchapter A of chapter 
68 (as amended by paragraph (1)) is amended— 
(A) by stnkmg out the items relating to sections 6659, 
- 
6659A, 6660, and 6661, and 
(B) by striking the item relating to section 6653 and 
inserting: 
"Sec. 6653. Failure to pay stamp tax." 
26 use 461 note. 
(d) E
F
F
E
C
T
I
V
E DATE.—The amendments made by this section shall 
apply to returns the due date for which (determined without regard 
to extensions) is after December 31,1989. 
PART III—PREPARER, PROMOTER, AND 
PROTESTER PENALTIES 
SEC. 7731. PENALTY FOR INSTITUTING PROCEEDINGS BEFORE TAX 
COURT PRIMARILY FOR DELAY, ETC 
(a) GENERAL RULE.—Section 6673 (relating to damages assessable 
for instituting proceedings before the Tax Court primcuily for delay, 
etc.) is amended to read as follows: 
"SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS. 
"(a) TAX C!OURT PROCEEDINGS.— 
"(1) PROCEDURES INSTITUTED PRIMARILY FOR DELAY, ETC.— 
Whenever it appears to the Tax Court that— 
"(A) proceedings before it have been instituted or main-
tained bv the taxpayer primarily for delay, 
"(B) the taxpayer's position m such proceeding is frivo-
lous or groundless, or 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2401 
"(C) the taxpayer unreasonably failed to pursue available 
administrative remedies, 
the Tax Court, in its decision, may require the taxpayer to pay 
to the United States a penalty not in excess of $25,000. 
"(2) COUNSEL'S UABILTTY FOR EXCESSIVE COSTS.—Whenever it 
appears to the Tax Court that any attorney or other person 
admitted to practice before the Tax Court has multiplied the 
proceedings in any case unreasonably and vexatiously, the Tax 
Court may require— 
"(A) that such attorney or other person pay personally 
the excess costs, expenses, and attorneys* fees reasonably 
incurred because of such conduct, or 
"(B) if such attorney is appearing on behalf of the 
Commissioner of Internal Revenue, that the United States 
pay such excess costs, expenses, and attorneys' fees in the 
same manner as such an award by a district court. 
"(b) PROCEEDINGS IN OTHER COURTS.— 
"(1) CLAIMS UNDER SECTION 7433.—Whenever it appears to the 
court that the taxpayer's position in the proceedings before the 
court instituted or maintained by such taxpayer under section 
\ 
7433 is frivolous or groundless, the court may require the 
taxpayer to pay to the United States a penalty not in excess of 
$10,000. 
"(2) COLLECTION OF SANCTIONS AND COSTS.—In any civil 
proceeding before any court (other than the Tax Court) which is 
brought by or against the United States in connection with the 
determination, collection, or refund of any tax, interest, or 
penalty under this title, any monetary sanctions, penalties, or 
costs awarded by the court to the United States may be assessed 
by the Secretary and, upon notice and demand, may be collected 
in the same manner as a tax. 
"(3) SANCTIONS AND COSTS AWARDED BY A COURT OF APPEALS.— 
In connection with any appeal from a proceeding in the Tax 
Court or a civil proceeding described in paragraph (2), an order 
of a United States Court of Appeals or the Supreme Court 
awarding monetary sanctions, penalties or court costs to the 
United States may be registered in a district court upon filing a 
certified copy of such order and shall be enforceable as other 
district court judgments. Any such sanctions, penalties, or costs 
may be assessed by the Secretary and, upon notice and demand, 
may be collected in the same manner as a tax." 
(b) CLARIFICATION OF AUTHORITY TO IMPOSE PENALTIES BY APPEL-
LATE COURTS.—Paragraph (4) of section 7482(c) (relating to power to 
impose damages) is amended to read as follows: 
"(4) To IMPOSE PENALTIES.—The United States Court of Ap-
peals and the Supreme Court shall have the power to require 
the taxpayer to pay to the United States a penalty in any case 
where the decision of the Tax Court is affirmed and it appears 
that the appeal was instituted or maintained primarily for 
delay or that the taxpayer's position in the appeal is frivolous or 
groundless." 
(c) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating 
to section 6673 and inserting the following: 
"Sec. 6673. Sanctions and costs awarded by courts." 
103 STAT. 2402 
PUBLIC LAW 101-239—DEC. 19, 1989 
26 use 6673 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
*^°*®- 
apply to positions taken after December 31, 1989, in proceedings 
which are pending on, or commenced after such date. 
SEC. 7732. MODIFICATIONS TO PENALTIES ON RETURN PREPARERS FOR 
CERTAIN UNDERSTATEMENTS. 
(a) GENERAL RULE.—Subsections (a) and Qji) of section 6694 (relat-
ing to understatement of taxpayer's liability by income tax return 
preparer) are amended to read as follows: 
"(a) UNDERSTATEMENTS DUE TO UNREALISTIC POSITIONS.—If— 
"(1) any part of any understatement of liability with respect 
to any return or claim for refund is due to a position for which 
there was not a realistic possibility of being sustained on its 
merits, 
"(2) any person who is an income tax return preparer with 
respect to such return or claim knew (or reasonably should have 
known) of such position, and 
"(3) such position was not disclosed as provided in section 
6662(dX2XBXii) or was frivolous, 
such person shall pay a penalty of $250 with respect to such return 
or claim unless it is shown that there is reasonable cause for the 
understatement and such person acted in good faith. 
"(b) WILLFUL OR RECKLESS CONDUCT.—^If any part of any under-
statement of liability with respect to any return or claim for refund 
is due— 
"(1) to a willful attempt in any manner to understate the 
liability for tax by a person who is an income tax return 
preparer with respect to such return or claim, or 
"(2) to any reckless or intentional disregard of rules or regula-
tions by any such person, 
such person shall pay a penalty of $1,000 with respect to such return 
or claim. With respect to any return or claim, the amount of the 
penalty payable by any person by reason of this subsection shall be 
reduced by the amount of the penalty paid by such person by reason 
of subsection (a)." 
26 use 6694 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall apply with respect to documents prepared after December 31, 
1989. 
SEC. 7733. MODIFICATIONS TO OTHER ASSESSABLE PENALTIES WITH 
RESPECT TO RETURN PREPARERS. 
(a) FAILURE TO FURNISH COPY TO TAXPAYER.—Subsection (a) of 
section 6695 is amended— 
(1) by striking "$25" and inserting "$50", and 
(2) by adding at the end thereof the following new sentence: 
"The maximum penalty imposed under this subsection on any 
person with respect to documents filed during any calendar 
year shall not exceed $25,000." 
(b) FAILURE TO SIGN RETURN.—Subsection (b) of section 6695 is 
amended— 
(1) by striking "$25" and inserting "$50", and 
(2) by adding at the end thereof the following new sentence: 
"The maximum penalty imposed under this subsection on any 
person with respect to documents filed during any calendar 
year shall not exceed $25,000," 
(c) FAILURE TO FURNISH IDENTIFYING NUMBER.—Subsection (c) of 
section 6695 is amended— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2403 
(1) by striking "$25" and inserting "$50", and 
(2) by adding at the end thereof the following new sentence: 
"The maximum penalty imposed under this subsection on any 
person with respect to documents filed during any calendar: 
year shall not exceed $25,000." 
(d) FAILURE TO FILE C
o
R
R
E
c
r
r INFORMATION RETURNS.—Subsection 
(e) of section 6695 is Eunended to read as follows: 
"(e) FAILURE TO FILE CORRECT INFORMATION RETURNS.—Any 
person required to make a return under section 6060 who fails to 
comply with the requirements of such section shall pay a penalty of 
$50 for— 
"(1) each failure to file a return as required under such 
section, and 
"(2) each failure to set forth an item in the return as required 
under section, 
unless it is shown that such failure is due to reasonable cause and 
not due 
to 
willful neglect. The maximum penalty imposed under this 
subsection on any person with respect to any return period shall not 
exceed $25,000." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 6695 
apply to documents prepared after December 31,1989. 
"
°
*
®
-
SEC. 7734. MODIFICATIONS TO PENALTY FOR PROMOTING ABUSIVE TAX 
SHELTERS, ETC. 
(a) GENERAL RULE.—Subsection (a) of section 6700 is amended— 
(1) by inserting "(directly or indirectly)" after "participates" 
in paragraph (1)^), 
(2) bv inserting "or causes another person to make or furnish" 
after' makes or furnishes" in paragraph (2), and 
(3) by striking the matenal following paragraph (2) and 
inserting the following: 
"shall pay, with respect to each activity described in paragraph (1), a 
penalty equal to the $1,000 or, if the person establishes that it is 
lesser, 100 percent of the gross income derived (or 
to 
be derived) by 
such person from such activity. For purposes of the preceding 
sentence, activities described in paragraph (IXA) with respect to 
\ 
each entity or arrangement shall be treated as a separate activity 
and participation in each sale described in paragraph (1)(B) shall be 
so treated. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6700 
shall apply to activities after December 31,1989. 
''°^ 
SEC. 7735. MODIFICATIONS TO PENALTIES FOR AIDING AND ABETTING 
UNDERSTATEMENT OF TAX LIABILITY. 
(a) GENERAL RULE.—Subsection (a) of section 6701 (relating to 
penalties for aiding and abetting understetement of tax liability) is 
amended— 
(1) by striking "in connection with any matter arising under 
the internal revenue laws" in paragraph (1), 
(2) by striking "who knows in paragraph (2) and inserting 
"who knows (or has reason 
to 
believe)", and 
(3) by striking "will result" in paragraph (3) and inserting 
"would result". 
(b) COORDINATION WITH PENALTY UNDER SECTION 6700.— 
(1) IN GENERAL.—Subsection (f) of section 6701 is amended by 
adding at the end thereof the following new paragraph: 
103 STAT. 2404 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(3) COORDINATION WITH SECTION 6700.—No penalty shall be 
assessed under section 6700 on any person with respect to any 
document for which a penalty is assessed on such person under 
subsection (a)." 
(2) TECHNICAL AMENDMENT.—Paragraph (1) of section 6701(f) 
is amended by striking "paragraph (2) and inserting "para-
graphs (2) and (3)". 
26 use 6701 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on December 31,1989. 
SEC. 7736. MODIFICATION TO PENALTY FOR FRIVOLOUS INCOME TAX 
RETURN. 
(a) REQUIREMENT OF FULL PAYMENT OF PENALTY.—Subsection (c) of 
section 6703 is amended by striking "section 6700, 6701, or 6702" 
each place it appears and inserting "section 6700 or 6701". 
26 use 6703 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
"°*®- 
shall apply to returns filed after December 31,1989. 
SEC. 7737. AUTHORITY TO COUNTERCLAIM FOR BALANCE OF PENALTY IN 
PARTIAL REFUND SUITS. 
(a) GENERAL RULE.—Sections 6672(bXl), 6694(cXl), and 6703(cXl) 
are each amended by adding at the end thereof the following new 
sentence: "Nothing in this paragraph shall be construed to prohibit 
any counterclaim for the remainder of such penalty in a proceeding 
begun as provided in paragraph (2)." 
26 use 6672 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°*®- 
shall take effect on the date of the enactment of this Act. 
SEC. 7738. REPEAL OF BONDING REQUIREMENT UNDER SECTION 7407. 
(a) GENERAL RULE.—Subsection (c) of section 7407 (relating to 
bond to stay injunction) is hereby repealed. 
(b) CONFORMING AMENDMENT.—Subsection (a) of section 7407 is 
amended by striking "Except as provided in subsection (c), a civil" 
and inserting "A civil". 
26 use 7407 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°*®- 
apply to actions commenced after December 31,1989. 
SEC. 7739. CERTAIN DISCLOSURES OF INFORMATION BY PREPARERS PER-
MITTED. 
(a) GENERAL RULE.—Paragraph (3) of section 7216(b) (relating to 
exceptions) is amended by adding at the end thereof the following 
new sentence: "Such regulations shall permit (subject to such condi-
tions as such regulations shall provide) the disclosure or use of 
information for quality or peer reviews." 
26 use 7216 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
»ote. 
shall take effect on the date of the enactment of this Act. 
PART IV—FAILURES TO FILE OR PAY 
SEC. 7741. INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE. 
(a) GENERAL RULE.—Section 6651 (relating to failure to file tax 
return or pay tax) is amended by adding at the end thereof the 
following new subsection: 
"(f) INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE.—If 
any failure to file any return is fraudulent, paragraph (1) of subsec-
tion (a) shall be applied— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2405 
"(1) by substituting '15 percent' for *
5 percent' each place it 
appears, and 
"(2) by substituting '75 percent' for '25 percent'." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6651 
shall apply in the case of failures to file returns the due date for ^°^-
which (determined without regard to extensions) is after December 
31,1989. 
SEC. 7742. FAILURE TO MAKE DEPOSIT OF TAXES. 
(a) GENERAL RULE.—Section 6656 (relating to failure to make 
deposit of taxes or overstatement of deposits) is amended to read as 
follows: 
"SEC. 6656. FAILURE TO MAKE DEPOSIT OF TAXES. 
"(a) UNDERPAYMENT OF DEPOSITS.—In the case of any failure by 
any person to deposit (as required by this title or by regulations of 
the Secretary under this title) on the date prescribed therefor any 
amount of tax imposed by this title in such government depository 
as is authorized under section 6302(c) to receive such deposit, unless 
it is shown that such failure is due to reasonable cause and not due 
to willful neglect, there shall be imp<Med upon such person a penalty 
equal to the applicable percentage of the amount of the 
underpayment. 
"(b) DEFINITIONS.—For purposes of subsection (a)— 
"(1) APPUCABLE PERCENTAGE.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'applicable percentage' means— 
"(i) 2 percent if the failure is for not more than 5 
days, 
"(ii) 5 percent if the failure is for more than 5 days 
but not more than 15 days, and 
"(iii) 10 percent if the failure is for more than 15 
days. 
"(B) SPECIAL RULE.—In any case where the tax is not 
deposited on or before the earlier o
f
— 
"(i) the day 10 days after the date of the first delin-
quency notice to the taxpayer imder section 6303, or 
"(ii) the day on which notice and demand for imme-
diate payment is given under section 6861 or 6862 or the 
last sentence of section 6331(a), 
the applicable percentage shall be 15 percent. 
"(2) UNDERPAYMENT.—The term 'underpayment' means the 
excess of the amoimt of the tax required to be deposited over the 
amoimt, if any, thereof deposited on or before the date pre-
scribed therefor." 
(b) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter A of chapter 68 (as amended l^ title II) is amended by 
striking the item relating to section 6656 and inserting the 
following: 
"Sec. 6656. Failure to make deposit of taxes." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 6656 
apply to deposits required to be made after December 31, 1989. ^°^-
103 STAT. 2406 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 7743. EFFECT OF PAYMENT OF TAX BY RECIPIENT ON CERTAIN PEN-
ALTIES. 
(a) GENERAL RULE.—Section 1463 (relating to tax paid by recipient 
of income) is amended to read as follows: 
"SEC. 1463. TAX PAID BY RECIPIENT OF INCOME. 
"If-
"(1) any person, in violation of the provisions of this chapter, 
fails to deduct and withhold any tax under this chapter, and 
"(2) thereafter the tax against which such tax may be credited 
is paid, 
the tax so required to be deducted and withheld shall not be 
collected from such person; but this subsection shall in no case 
relieve such person from liability for interest or any penalties or 
additions to the tax otherwise applicable in respect of such failure to 
deduct and withhold." 
26 use 1463 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
'^ote. 
shall apply to failures after December 31,1989. 
Subtitle H—Technical Corrections 
SEC. 7801. DEFINITIONS; COORDINATION WITH OTHER SUBTITLES. 
(a) DEFiNmoNS.—For purposes of this subtitle— 
(1) 1988 ACT.—The term "1988 Act" means the Technical and 
Miscellaneous Revenue Act of 1988. 
(2) 1987 ACT.—The term "1987 Act" means the Revenue Act 
of 1987. 
26 use 1 note. 
(b) COORDINATION WiTH OTHER SUBTITLES.—For purposes of apply-
ing the amendments made by any subtitle of this title other than 
this subtitle, the provisions of this subtitle shall be treated as having 
been enacted immediately before the provisions of such other sub-
titles. 
PART I—AMENDMENTS RELATED TO TECHNICAL 
AND MISCELLANEOUS REVENUE ACT OF 1988 
SEC, 7811. AMENDMENTS RELATED TO TITLE I OF THE 1988 ACT. 
(a) AMENDMENTS RELATED TO SECTION 1002 OF THE 1988 ACT.— 
(1) The heading for subparagraph (C) of section 42(dX5) is 
amended by inserting "SECTION" before "167(k)". 
(2) Clause (ii) of section 42(hX5XD) is amended by striking 
"clause (ii)" and inserting "clause (i)". 
(b) AMENDMENTS RELATED TO SECTION 1003 OF THE 1988 ACT.— 
(1) Subparagraph (C) of section 643(aX6) is amended by strik-
ing "(i)" and by striking ", and (ii)" and all that follows and 
inserting a period. 
(2) Paragraph (6) of section 643(a) is amended by striking 
^ 
subparagraph (D). 
(c) AMENDMENTS RELATED TO SECTION 1006 OF THE 1988 ACT.— 
(1) Subparagraphs (C) and (D) of section 26(bX2) are amended 
to read as follows: 
"(C) subsection (mX5XB), (q), (t), or (v) of section 72 (relat-
ing to additional taxes on certain distributions). 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2407 
"(D) section 143(m) (relating to recapture of proration of 
Federal subsidy from use of mortgage bonds and mortgage 
credit certificates),". 
(2) Paragraph (2) of section 26(b) is amended by striking 
subparagraph (K) and all that follows and inserting the follow-
ing new subparagraphs: 
"(K) sections 871(a) and 881 (relating to certain income of 
nonresident aliens and foreign corporations), 
"(L) section 860E(e) (relating to taxes with respect to 
certain residual interests), and 
"(M) section 884 (relating to branch profits tax)." 
(3) Subparajgraph (B) of section 6724(dXl) is amended bv strik« 
ing clause (viii) and all that follows and inserting the following: 
"(viii) section 6052(a) (relating to reporting payment 
of wages in the form of group-term life insurance), 
"(ix) section 6053(cXl) (relating to reporting with re-
spect to certain tips), 
"(x) section 1060(b) (relating to reporting require-
ments of transferors and transferees in certain asset 
acquisitions), or 
(xi) subparagraph (A) or (C) of subsection (cX4), or 
subsection (e), of section 4093 (relating to information 
reporting with respect to tax on diesel and aviation 
fuel)." 
(4) Clause (i) of section 1374(dX2XA) is amended by striking 
"(except as provided in subsection (bX2))". 
(5XA) Paragraph (6) of section 382Qi) is amended— 
(i) by striking "during the recognition period" in subpara-
graph (B) andf inserting "during the recognition period 
(determined without regard to any cairyover), and 
(ii) by striking "treated as recognized built-in gains or 
losses under tms paragraph" in subparagraph (C) and 
inserting "which would be treated as recognized built-in 
gains or losses under this paragraph if such amounts were 
properly taken into account (or allowable as a deduction) 
durmg the recognition period". 
(B) Paragraph (5) of section 1374(d) is amended— 
(i) by striking "during the recognition period" in subpara-
graph (B) and inserting "during the rec(^ition period 
(determined without regard to any carryover) , and 
(ii) by striking "treated as recognized built-in gains or 
losses imder tms paragraph" in subparagraph (C) and 
inserting "which would be treated as recognized built-in 
gains or losses under this paragraph if such amounts were 
properly taken into account (or allowable as a deduction) 
during the recognition period". 
(6) Subparagraph (B) of section 13610i>X2) is amended to read 
as follows: 
"(B) a financial institution to which section 585 applies 
(or would apply but for subsection (c) thereof) or to which 
section 593 applies,". 
(7) Paragraph (2) of section 1366(f) is amended to read as 
follows: 
"(2) TREATMENT OF TAX IMPOSED ON BUILT-IN GAINS.—If any Corporations. 
tax is imposed under section 1374 for any taxable year on an S 
corporation, for purposes of subsection (a), the amount so im-
posed shall be treated as a loss sustained by the S corporation 
103 STAT. 2408 
PUBLIC LAW 101-239—DEC. 19, 1989 
Effective date. 
26 u s e 58 note. 
during such taxable year. The character of such loss shall be 
determined by allocating the loss proportionately among the 
recognized built-in gains giving rise to such tax." 
(8) Subparagraph (B) of section 1374(b)(3) is amended by 
Corporations. 
adding at the end the following new sentence: "A similar rule 
shall apply in the case of the minimum tax credit under section 
53 to the extent attributable to taxable years for which the 
corporation was a C corporation." 
(9) The last sentence of section 860G(aX3) is amended by 
striking "this subparagraph" and inserting "subparagraph (A) . 
(d) AMENDMENTS RELATED TO SECTION 1007 OF THE 1988 ACT.— 
* 
(IXA) Subsection (g) of section 59 is amended by striking "for 
any taxable year" and inserting "for the taxable year for which 
the item is taken into account or for any other taxable year". 
(B) The repeal of section 58(h) of the Internal Revenue Code of 
1954 by the Tax Reform Act of 1986 shall be effective only with 
respect to items of tax preference arising in taxable years 
beginning after December 31,1986. 
(2) Subclause (II) of section 53(dXlXBXi) is amended by insert-
ing before the period at the end the following: "and if section 
59(aX2) did not apply". 
(3) Paragraph (3) of section 56(b) is amended— 
(A) by inserting after the first sentence the following new 
sentence: "Section 422A(cX2) shall apply in any case where 
the disposition and the inclusion for purposes of this part 
are within the same taxable year and such section shall not 
apply in any other case.", and 
(B) by striking "the preceding sentence" and inserting 
"this paragraph'. 
(e) AMENDMENTS RELATED TO SECTION 1008 OF THE 1988 ACT.— 
(1) Paragraph (2) of section 460(a) is amended by inserting 
"(or, with respect to any amount properly taken into account 
after completion of the contract, when such amount is so prop-
erly taken into account)" after "any long-term contract". 
(2) Subparagraph (B) of section 46O0t)X2) is amended— 
(A) by striking "any amount received or accrued" and 
inserting "any amount properly taken into account", and 
(B) by striking "is so received or accrued" and inserting 
"is so properly taken into account". 
(3) Paragraph (3) of section 460(b) is amended— 
(A) by striking "any amount received or accrued" in the 
< 
second sentence and inserting "any amount properly taken 
into account", and 
(B) by striking "such amount was received or accrued" in 
the second sentence and inserting "such amount was prop-
erly taken into account". 
(4) Paragraph (2) of section 460(b) is amended by adding at the 
end the following new sentence: 
"In the case of any long-term contract with respect to which the 
percentage of completion method is used, except for purposes of 
applying the look-back method of paragraph (3), any income 
under the contract (to the extent not previously includible in 
gross income) shall be included in gross income for the taxable 
year following the taxable year in which the contract was 
completed." 
(5) Paragraph (2) of section 460(e) is amended by striking 
"and" at the end of subparagraph (A), by inserting "and" at the 
Contracts. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2409 
end of subparagraph (B), and by inserting after subparagraph 
(B) the following new subparagraph: 
"(C) any predecessor of the taxpayer or a person de-
scribed in subparagraph (A) or (B),". 
(6) Paragraph (2) of section 460(b) is amended by adding at the 
end the following new sentence: 
"For purposes of subtitle F (other than sections 6654 and 6655), Ck)ntracts. 
any interest required to be paid by the taxpayer under subpara-
graph (B) shall be treated as an increase in the tax imposed by 
this chapter for the taxable year in which the contract is 
completed (or, in the case of interest payable with respect to any 
amount properly taken into account after completion of the 
contract, for the taxable year in which the amount is so prop- 
'
<
^ 
erly taken into account)." 
(f) AMENDMENTS RELATED TO SECTION 1009 OF THE 1988 ACT.— 
(1) Subparagraph (A) of section 643(aX6) is amended by strik-
ing "section 265(1)" and inserting "section 265(aXl)". 
(2) Subparagraph (B) of section 10090i>X3) of the 1988 Act is 26 USC 265 note. 
amended by str^ing "section 265(bX3)(B)(iii)" and inserting 
"section 265a)X3XBXiXin)". 
(g) AMENDMENT RisLATED TO SECTION 1011 OF THE 1988 ACT.— 
(1) Subsection (a) of section 401 is amended by moving para-
graph (30) from the end and inserting it after psiragraph (29). 
(2) The last sentence of section 402(gX3) is amended by insert-
ing "involving a one-time irrevocable election" after "similar 
arrangement . 
(3) 'Die heading of sections 406(c) and 407(c) are each amended 
by striking "PURPOSES LIMFTATION" and inserting "PURPOSES OF 
LIMITATION". 
(4) Clause (iii) of section 457(dXlXA) is amended by striking 
the period at the end and inserting ", and". 
(5) Subclause (D of section 457(dX2)(BXi) is amended by adding 
"and" at the end. 
(h) AMENDMENTS RELATED TO SECTION 101 
IB OF THE 1988 ACT.— 
(1) Paragraph (5) of section 409G) is amended by striking "the 
last sentence and inserting "the second sentence . 
(2) Subsection (a) of section 129 is amended by striking the 
sentence following paragraph (2XC) and preceding subsection 
0)). 
(3) Paragraph (1) of section 1011B(j) of the 1988 Act is 
26 USC 401. 
amended 
by 
striking 
"401(aX28XB)" 
and 
msertmg 
"401(aX28XBXii)". 
(i) AMENDMENTS RELATED TO SECTION 1012 OF THE 1988 ACT.— 
(1) Subparagraph (H) of section 904(dXl) is amended by strik-
ing "qusdified interest and canying charges (as defined in 
section 245(c))" and inserting "interest or carrying charges (as 
defined in section 927(dXl)) derived from a transaction which 
results in foreign trade income (as defined in section 923(b))". 
(2) Sections 861(aX6), 862(aX6), 863(bX2), and 863(bX3) are each 
amended by striking "865(hXl)" and inserting "865(iXl)". 
(3) Subparagraph (A) of section 954(cX3) is amended— 
(A) by striking "is created" in clause (i) and inserting "is 
a corporation created", 
(B) by striking "from a related person" in clause (ii) and 
inserting "from a corporation wMch is a related person", 
and 
(C) by adding at the end the following: 
103 STAT. 2410 
PUBLIC LAW 101-239—DEC. 19, 1989 
Ck>rporation8. 
•< 
"To the extent provided in r^ulations, payments made by a 
partnership with 1 or more corporate partners shall be 
:^ 
treated as made by such corporate partners in proportion to 
their respective interests in the partnership." 
(4) Paragraph (5) of section 1297(b) is amended— 
(A) by inserting "STOCK" after "WHERE" in the paragraph 
heading, 
(B) by striking "any disposition o f in subparagraph 
(AXii) and inserting "any distribution o f , and 
(C) by striking 
treated as a disposition to" in subpara-
graph (A) and inserting "treated as a disposition by, or 
distribution to". 
26 use 884 note. 
(5) Subparagraph (B) of section 1012(qXl) of the 1988 Act is 
amended^^ 
(A) 
by 
striking 
"1021(eX2XC)" 
and 
inserting 
"1021(cX2XO", and 
(B) bv striking "823(bX4XC)" and inserting "832(bX4XO". 
^ 
*•: 
(6XA) Subparagraph (B) of section 1446(bX2) is amended by 
striking "section 11(b)" and inserting "section ll(bXl)". 
(B) Paragraph (2) of section 1446(d) is amended to read as 
follows: 
"(2) CREDIT TREATED AS DISTRIBUTED TO PARTNER.—Except as 
provided in regulations, a foreign partner's share of any 
withholding tax paid by the partnership imder this section shall 
be treated as distributed to such partner by such partnership on 
the earlier of— 
"(A) the day on which such tax was paid by the partner-
ship, or 
'(B) the last day of the partnership's taxable year for 
which such tax was paid." 
(C) Subsection (f) of section 1446 is amended to read as follows: 
"(f) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section, 
including— 
"(1) regulations providing for the application of this section in 
the case of publicly traded partnerships, and 
"(2) regulations providing— 
"(A) that, for purposes of section 6655, the withholding 
tax imposed under this section shall be treated as a tax 
:H < 
imposed by section 11 and any partnership required to pay 
such tax shall be treated as a corporation, and 
"(B) appropriate adjustments in appljdng section 6655 
with respect to such withholding tax." 
(7) Subsection (a) of section 988 is amended by inserting after 
the subsection heading the following: "Notwithstanding any 
other provision of this chapter—". 
(8XA) Subsection (b) of section 887 is amended by redesignat-
ing paragraph (3) as paragraph (4) and by inserting after para-
graph (2) the following new paragraph: 
"(3) EXCEPTION FOR CERTAIN INCOME TAXABLE IN POSSES-
SIONS.—The term 'United States source gross transportation 
income' does not include any income taxable in a possession of 
the United States under the provisions of this title as made 
applicable in such possession." 
(B) Paragraph (1) of section 887(b) is amended bv striking 
"paragraph (2) and inserting "paragraphs (2) and (3)'. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2411 
(Q Subsection (b) of section 872 is amended by adding at the 
end the following new paragraph: 
"(T) TREATMENT OP POSSESSIONS.—^To the extent provided in 
regulations, a possession of the United States shall be treated as 
a foreign country for purposes of this subsection." 
(D) Paragraph (4) of section 883(a) is amended by striking "(5) 
and (6)" and msertmg "(5), (6), and (7)". 
(9) Paragraph (4) of section 887(b) (as redesignated by para-
graph (8) is amended by striking "transportation income' the 
first two places it appears and inserting "United States source 
gross transportation income". 
(10) Subsection (a) of section 883 is amended by adding at the 
end the following new paragraph: 
"(5) SPECIAL RULE FOR COUNTRIES WHICH TAX ON RESIDENCE 
BASIS.—For purposes of this subsection, there shall not be taken 
into account any failure of a foreign country to grant an exemp-
tion to a corporation organized in the United States if such 
corporation is subject to tax by such foreign country on a 
residence basis pursuant to provisions of foreign law which 
meets such standards (if any) as the Secretary may prescribe." 
K 
(11) Paragraph (2) of section 4371 is amended by striking 
", unless the insurer is subject to tax under section 842(b)". 
(12) Subsection (g) of section 995 is amended by striking 
"section 511" and inserting "section 511 (or any other person 
otherwise subject to tax under section 511)". 
(13) Effective with respect to taxable years ending after the Effective date. 
date of the enactment of this Act (or, at the election of the 
taxpayer, beginning after December 31, 1986), subsection (e) of 
section 402 is amended by adding at the end the following new 
paragraph: 
"(7) COORDINATION WITH FOREIGN TAX CREDIT UMITATIONS.— 
Subsections (a), (b), and (c) of section 904 shall be applied 
separately with respect to any lump simi distribution on which 
tax is imposed imder paragraph (1), and the amoimt of such 
distribution shall be treated as the taxable income for purposes 
of such seoarate aoolication " 
^ 
(14) Paragraph (2XA) of section 10120) of the 1988 Act is 26 use 245. 
amended by striking "section 245" and inserting "section 
245(a)". 
(j) AMENDMENTS RELATED TO SECTION 1014 OF THE 1988 ACT.— 
(1) The subparagraph (Q of section l(iX3) added by section 
1014(eX7) of the 1988 Act is redesignated as subparagraph (D). 
(2) Paragraph (1) of section 2654(a) is amended by adding at 
the end the following new sentence: "The preceding shall be 
applied after any basis adjustment under section 1015 with 
respect to the transfer." 
(3) Subsection (g) of section 642 is amended bv inserting after 
the first sentence the following new sentence: Rules similar to 
the rules of the preceding sentence shall apply to amounts 
which may be taken into account under 2621(aX2) or 2622(b)." 
^ 
(4) Paragraphs (1) and (3) of section 2642(b) are each amended 
by striking "a timely filed gift tax return required by section 
6019" and inserting "a gift tax return filed on or before the date 
prescribed by section 6075(b)". 
(5) Paragraph (1) of section 6654G) is amended by striking 
"this subsection shall" and inserting "this section shall". 
103 STAT. 2412 
PUBLIC LAW 101-239—DEC. 19, 1989 
26 use 312. 
26 u s e 9509. 
(6) Clause (ii) of section 6654GX2XB) is amended by inserting 
before the period at the end the following: "(or, if no will is 
admitted to probate, which is the trust primarily responsible for 
paying debts, taxes, and expenses of administration) . 
(7) The heading for subparagraph (D) of section 59(jX2) is 
amended by striking "OTHERS" and inserting "OTHER". 
(k) AMENDMENTS RELATED TO SECTION 1015 OF THE 1988 ACT.— 
26 use 6213. 
(1) Paragraph (3) of section 1015(r) of the 1988 Act is amended 
by striking "section 6211" and inserting "section 6213". 
(2) The last sentence of section 6502(a) is amended by striking 
"enforceable" and inserting "unenforceable". 
fl) AMENDMENT RELATED TO SECTION 1016 OF THE 1988 ACT.—The 
subparagraph (E) of section 514(cX9) added by section 1016 of the 
1988 Act is redesignated as subparagraph (F). 
(m) AMENDMENTS RELATED TO SECTION 1018 OF THE 1988 ACT.— 
(1) The subsection (f) of section 2503 added by section 1018 of 
the 1988 Act is redesignated as subsection (g). 
(2) Paragraph (4) of section 1018(d) of the 1988 Act is amended 
by inserting the first place it appears" before "and inserting^'. 
(3) Paragraph (20) of section 1018(u) of the 1988 Act is 
amended by striking "section 9507(b)" and inserting "section 
9509(b)". 
(4) Subparagraph (B) of section 72(qX2) is amended by striking 
"subsection (sX6XB))" and inserting "subsection (sX6XB)))". 
(5) Paragraph (10) of section 414(p) is amended by inserting 
"section" before "403(b)". 
26 use 425. 
(6) Paragraph (2) of section 1018(1) of the 1988 Act is amended 
by striking "paragraph (2) and (3)" and inserting "paragraphs 
(2) and (3)'° 
(7) Subsections (aX6) and (bX3) of section 408 are each 
amended by striking "(without regard to subparagraph (CXii) 
thereof)". 
SEC. 7812. AMENDMENTS RELATED TO TITLE II OF THE 1988 ACT. 
(a) AMENDMENT RELATED TO SECTION 2001 
OF THE 1988 ACT.— 
Subparagraph (C) of section 2001(d)(7) of the 1988 Act is amended by 
striking "section 6427(gXl)" and inserting "section 6427(fKl)". 
(b) AMENDMENT RELATED TO SECTION 2002 OF THE 1988 ACT.— 
Subsection (d) of section 2002 of the 1988 Act is amended by striking 
"this section" and inserting "subsections (b) and (c)" and by insert-
ing before the period ", and the amendment made by subsection 
(aX2) shall take effect as if included in the amendment made by 
section 521(aX3) of the Superfund Revenue Act of 1986". 
(c) AMENDMENTS RELATED TO SECTION 2004 OF THE 1988 ACT.— 
(1) Paragraph (1) of section 384(e) is amended by striking 
"build-in gain and inserting "built-in gain". 
(2) Paragraph (3) of section 453A(b) is amended by striking 
"(5)." and insertmg "(5))." 
Effective date. 
(d) AMENDMENT RELATED TO SECTION 2005 OF THE 1988 ACT.— 
26 use 404 note. 
Section 2005(e) of the 1988 Act is amended by inserting before the 
period ", except that the amendment made by subsection (aXD shall 
take effect as if included in the amendment made by section 1131(c) 
of the Tax Reform Act of 1986". 
SEC. 7813. AMENDMENTS RELATED TO TITLE III OF THE 1988 ACT. 
(a) AMENDMENT RELATED TO SECTION 3001 
OF THE 1988 ACT.— 
Paragraph (2) of section 6724(d) is amended by redesignating 
subparagraph (U) as subparagraph (S), by striking "or" at the end of 
26 u s e 6427. 
Effective date. 
26 use 4042 
note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2413 
subparagraph (Q), and bv striking the period at the end of subpara-
graph (R) and inserting '\ or". 
(b) AMENDMENTS RELATED TO SECTION 3011 OF THE 1988 ACT.— 
Paragraphs (4) and (5) of section 3011(b) of the 1988 Act are each 26 use 414. 
amended— 
(1) by striking "lllB(a)" and inserting "1011B(ar, and 
(2) by striking "162(kX2)" and inserting "162(k)". 
SEC. 7814. AMENDMENTS RELATED TO TITLE IV OF THE 1988 ACT. 
(a) AMENDMENT RELATED TO SECTION 4001 OF THE 1988 ACT.— 
Subsection (c) of section 127 is amended by striking paragraph (8). 
(b) AMENDMENT RELATED TO SECTION 4002 OF THE 1
9
8
J
B ACT.— 
Subparagraph (A) of section 125(eX2) is amended by striking "includ-
able and inserting "includible". 
(c) AMENDMENTS RELATED TO SECTION 4005 OF THE 1988 ACT.— 
(1) Tlie paragraph (3) of section 6045(e) added by section 4005 
of the 1988 Act is redesignated as paragraph (4). 
(2) Qause (ii) of section 148(dX3XE) is amended by striking "a 
qualified mortgage bond or". 
(d) AMENDMENT RELATED TO SECTION 4006 OF THE 1988 ACT.— 
Section 4006 of the 1988 Act is amended— 
26 use 46. 
(1) by striking "December 31, 1988" and inserting "Dec. 31, 
1988", and 
(2) by striking "December 31, 1989" and inserting "Dec. 31, 
1989". 
(e) AMENDMENTS RELATED TO SECTION 4008 OF THE 1988 ACT.— 
(1) Subsection (d) of section 196 is amended by striking 
"substituting" and all that follows through "in the case o
f
— 
and inserting "substituting 'an amount equal to 50 percent of 
for 'an amount equal to* in the case of—". 
(2XA) Subsection (c) of section 280C is amended by redesignat-
ing paragraph (3) as paragraph (4) and by inserting after para-
graph (2) the following new paragraph: 
"(3) ELECTION OF REDUCED CREDir.— 
"(A) IN GENERAL.—In the case of any taxable year for 
which an election is made under this paragraph— 
"(i) paragraphs (1) and (2) shall not apply, and 
"(ii) the amount of the credit under section 41(a) shall 
be the amount determined imder subparagraph (B). 
"(B) AMOUNT OF REDUCED CREDIT.—The amount of credit 
determined under this subparagraph for any taxable year 
shall be the amount equal to the excess o
f
— 
"(i) the amount of credit determined under section 
41(a) without regard to this paragraph, over 
"(ii) the product of— 
"(I) 50 percent of the amount described in clause 
(i), and 
"(II) the maximum rate of tax under section 
ll(bXl). 
"(O ELECTION.—An election under this paragraph for any 
taxable year shall be made not later than the time for filing 
the return of tax for such year (including extensions), shall 
be made on such return, and shall be made in such manner 
as the Secretary may prescribe. Such an election, once 
made, shall be irrevocable." 
(B) In the case of a taxable year for which the last date for 
26 use 28oe 
making the election under section 280C(cX3) of the Internal note. 
103 STAT. 2414 
PUBLIC LAW 101-239—DEC. 19, 1989 
Revenue Code of 1986 (as added by subparagraph (A)) is on or 
before the date which is 75 days after the date of the enactment 
of this Act, such an election for such vear may be made— 
(i) at any time before the date which is 75 days after such 
date of enactment, and 
(ii) in such form and manner as the Secretary of the 
Treasury or his delegate may prescribe. 
(C) Section 41 is amended by striMng subsection (h) and by 
redesignating subsection (i) as subsection (h). 
(D) Paragraph (4) of section 196(c) is amended by inserting 
"(other than such credit determined under section 280C(cX3)) 
after "section 41(a)". 
(£) Subsection (n) of section 6501 is amended by striking ", 
41(h),". 
(f) AMENDMENT RELATED TO SECTION 4011 OF THE 1988 ACT.— 
Subsection (c) of section 67 is amended by striking paragraph (4). 
SEC. 7815. AMENDMENTS RELATED TO TITLE V OF THE 1988 ACT. 
(a) AMENDliflENTS RELATED TO SECTION 5012 OF THE 1988 ACT.— 
(1) Subparagraph (B) of section 7702A(cX3) is amended to read 
as follows: 
"(B) TREATMENT OF CERTAIN BENEFIT INCREASES.—For pur-
poses of subparagraph (A), the term 'material change in-
cludes any increase m the death benefit under the contract 
or any increase in, or addition of, a qualified additional 
benefit under the contract. Such term shall not include— 
"(i) any increase which is attributable to the pay-
ment of premiums necessary to fimd the lowest level of 
the death benefit and qualified additional benefits pay-
able in the 1st 7 contract years (determined after 
taking into account death benefit increases described in 
subparagraph (A) or (B) of section 7702(eX2)) or to 
crediting of interest or other earnings (including policy-
holder dividends) in respect of such premiums, and 
- 
"(ii) to the extent provided in regulations, any cost-of-
living increase based on an established broad-based 
index if such increase is funded ratably over the 
remaining period during which premiums are required 
to be paid under the contract." 
26 use 7702A 
(2) Paragraph (2) of section 5012(e) of the 1988 Act is amended 
note. 
by striking "continues to make level annual premium payments 
over the life of the contract" and inserting "makes at least 7 
level annual premium payments". 
(3) Subparagraph (A) of section 72(eXll) is amended by adding 
at the end the following new sentence: 
"The preceding sentence s h ^ not apply to any contract de-
scribed in paragraph (5)(D)." 
(4) Paragraph (4) of section 7702A(c) is amended— 
(A) by striking "UNDER $10,000" in the paragraph heading 
and inserting "OF $IO,OOO OR LESS", and 
(B) by striking "the same insurer" and inserting "the 
same policyholder". 
(5) Section 72(eXllXA) is amended by striking "12-month 
period" and inserting "calendar year". 
26USC1504 
Qy) AMENDMENT RELATED TO SECTION 5021 OF THE 1988 ACT.— 
note. 
Subsection (e) of section 5021 of the 1988 Act is amended by striking 
"no provision in any law (whether enacted before, on, or after the 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2415 
date of the enactment of this Act)" and inserting "no provision in 
any law enacted after the date of the enactment of this Act". 
(c) AMENDMENT RELATED TO SECTION 5032 OF THE 1988 ACT.—-
Subsection (b) of section 2101 is amended by adding at the end the 
following new sentence: 
"For purposes of the preceding sentence, there shall be appropriate 
adjustments in the application of section 2001(cX3) to reflect the 
difference between the amount of the credit provided under section 
2102(c) and the amount of the credit provided under section 2010." 
(d) AMENDMENTS RELATED TO SECTION 5033 OF THE 1988 ACT.— 
(IXA) Paragraph (2) of section 2523(i) is amended by striking 
"made by the donor to such spouse" and inserting "which are 
made by the donor to such spouse and with respect to which a 
deduction would be allowable under this section but for para-
graph (1)". 
(B) The amendment made by subparsigraph (A) shall apply 
with respect to gifts made after June 29,1989. 
(2) Subsection (a) of section 2523 is amended by striking "who 
is a citizen or resident". 
(3) Paragraph (3) of section 2106(a) is amended by striking 
"ALLOWED WHERE SPOUSE IS CITIZEN". 
(4XA) Subparagraph (B) of section 2056(dX2) is amended to 
read as follows: 
"(B) SPECIAL RULE.—If any property passes from the de-
cedent to the surviving spouse of the decedent, for purposes 
of subparagraph (A), such property shall be treated as 
passing to such spouse in a qualified domestic trust if— 
*(i) such property is transferred to such a trust before 
the date on which the return of the tax imposed by this 
chapter is made, or 
"(ii) such property is irrevocably assigned to such a 
trust under an irrevocable assignment made on or 
before such date which is enforceable under local law." 
(B) In the case of the estate of a decedent dying before the 
date of the enactment of this Act, the period during which the 
transfer (or irrevocable assignment) referred to in section 
2056(dX2XB) of the Internal Revenue Code of 1986 (as amended 
by subparagraph (A)) may be made shall not expire before the 
date 1 year after such date of enactment. 
(5) Subsection (d) of section 2056 is amended by adding at the 
end the following new paragraph: 
"(4) SPECIAL RULE WHERE RESIDENT SPOUSE BECOMES CITIZEN.— 
Paragraph (1) shall not apply if— 
"(A) the surviving spouse of the decedent becomes a 
citizen of the United States before the day on which the 
return of the tax imposed by this chapter is made, and 
"(B) such spouse was a resident of the United States at all 
times after the date of the death of the decedent and before 
becoming a citizen of the United States." 
(6) Paragraph (3) of section 2056(d) is amended— 
^ (A) by striking "section 2001" and inserting "this chap-
ter", and 
(B) by inserting before the period at the end the following: 
"and without regard to sul^ection (dX3) of such section'. 
(7XA) Subsection (a) of section 2056A is amended— 
(i) by amending paragraph (1) to read as follows: 
Gifts and 
property. 
26 u s e 2523 
note. 
Gifts and 
property. 
26 u s e 2056 
note. 
103 STAT. 2416 
PUBLIC LAW 101-239—DEC. 19, 1989 
Gifts and 
property. 
Gifts and 
property. 
"(1) the trust instrument requires that at least 1 trustee of the 
trust be an individual citizen of the United States or a domestic 
corporation and that no distribution from the trust may be 
made without the approval of such a trustee,", and 
(ii) by striking paragraph (2) and redesignating para-
graphs (3) and (4) as paragraphs (2) and (3), respectively. 
(B) Subsection (b) of section 2056A is amended by redesignat-
ing paragraphs (3) through (8) as paragraphs (4) through (9), 
respectively, and by inserting after paragraph (2) the following 
new paragraph: 
"(3) CERTAIN LIFETIME DISTRIBUTIONS EXEMPT FROM TAX.— 
"(A) INCOME DISTRIBUTIONS.—No tax shall be imposed by 
paragraph (IXA) on any distribution of income to the 
surviving spouse. 
"(B) HARDSHIP EXEMPTION.—NO tax shall be imposed by para-
graph (IXA) on any distribution to the surviving spouse on 
account of hardship." 
(C) Subparagraph (A) of section 2056A(bXl) is amended" by 
striking ' other than a distribution of income required under 
subsection (aX2)". 
(D) Paragraph (4) of section 2056A(b) (as redesignated by 
subparagraph (B)) is amended to read as follows: 
"(4) TAX WHERE TRUST CEASES TO QUALIFY.—If any qualified 
domestic trust ceases to meet the requirements of paragraphs 
(1) and (2) of subsection (a), the tax imposed by paragraph (1) 
shall apply as if the surviving spouse died on the date of such 
cessation. 
(8) Subsection (d) of section 2056 is amended by adding at the 
end the following new paragraph: 
"(4) REFORMATIONS PERMITTED.— 
"(A) IN GENERAL.—In the case of any property with re-
spect to which a deduction would be allowable under 
subsection (a) but for this subsection, the determination of 
whether a trust is a qualified domestic trust shall be 
made— 
"(i) as of the date on which the return of the tax 
imposed by this chapter is made, or 
'(ii) if a judicial proceeding is commenced on or 
before the due date (determin^ with regard to exten-
sions) for filing such return to change such trust into a 
trust which is a qualified domestic trust, as of the time 
when the changes pursuant to such proceeding are 
made. 
"(B) STATUTE OF LIMITATIONS.—If a judicial proceeding 
described in subparagraph (AXii) is commenced with respect 
to any trust, the period for assessing any deficiency of tax 
attributable to any failure of such trust to be a qualified 
domestic trust shall not expire before the date 1 year after 
the date on which the Secretary is notified that the trust 
has been changed pursuant to such judicial proceeding or 
that such proceeding has been terminated." 
(9) Subsection (b) of section 2056A is amended by adding at 
the end the following new paragraphs: 
"(10) CERTAIN BENEFITS ALLOWED.— 
"(A) IN GENERAL.—If any property remaining in the 
qualified domestic trust on the date of the death of the 
surviving spouse is includible in the gross estate of such 
PUBUC LAW 101-239—DEC. 19,1989 
103 STAT. 2417 
spouse for purposes of this chapter (or would be includible if 
such spouse were a citizen or resident of the United States), 
any benefit which is allowable (or would be allowable if 
such spouse were a citizen or resident of the United States) 
with respect to such property to the estate of such spouse 
under section 2032, 2032A, 2055, 2056, or 6166 shall be 
allowed for purposes of the tax imposed by paragraph (1)(B). 
"(B) SECTION SOS.—If the estate of the surviving spouse 
meets the requirements of section 303 with respect to any 
property described in subparagraph (A), for purposes of 
section 303, the tax imposed by paragraph (1)(B) with re-
spect to such property shall be treated as a Federal estate 
tax payable with respect to the estate of the surviving 
spouse. 
"(C) SECTION 6161(a) (2).—The provisions of section 
6161(aX2) shall apply with respect to the tax imposed by 
paragraph (1)(B), and the reference in such section to the 
executor shall be treated as a reference to the trustees of 
the trust. 
"(11) S
P
B
C
I
i
L
L R
U
L
E W
H
E
R
E D
I
S
T
R
I
B
U
T
I
O
N T
A
X PAm O
U
T O
F 
TRUST.—For purposes of this subsection, if any portion of the tax 
imposed by paragraph (IXA) with respect to any distribution is 
paid out of the trust, an amount equal to the portion so paid 
shall be treated as a distribution described in paragraph (IXA). 
"(12) SPECIAL RULE WHERE SPOUSE sECOiifES CITIZEN.—If the 
surviving spouse of the decedent becomes a citizen of the United 
Stotes and if— 
"(A) such spouse was a resident of the United Stotes at all 
times after the date of the death of the decedent and before 
such spouse becomes a citizen of the United Stotes, 
"(B) no tax was imposed by paragraph (IXA) with respect 
to any distribution before such spouse becomes such a 
citizen, or 
"(C) such spouse elects— 
"(i) to treat any distribution on which tax was im-
posed by paragraph (IXA) as a taxable gift made by 
such spouse for purposes of— 
"(D section 2001, and 
"(n) determining the amount of the tax imposed 
by section 2501 on actual taxable gifts made by 
such spouse during the year in which the spouse 
becomes a citizen or any subsequent year, and 
"(ii) to treat any reduction in the tax imposed by 
paragraph (IXA) by reason of the credit allowable 
under section 2010 with respect to the decedent as a 
credit allowable to such surviving spouse under section 
2505 for purposes of determining the amount of the 
credit allowable under section 2505 with respect to 
taxable gifts made by the surviving spouse during the 
year in which the spouse becomes a citizen or any 
subsequent year, 
paragraph (IXA) shall not apply to any distributions after 
such spouse becomes such a citizen (and paragraph (1)(B) 
shall not apply). 
"(13) COORDINATION WFTH SECTION 1015.—For purposes of sec- Gifts and 
tion 1015, any distribution on which tax is imposed by para- property. 
103 STAT. 2418 
PUBLIC LAW 101-239—DEC. 19, 1989 
Gifts and 
property. 
26 use 2056 
note. 
Gifts and 
property. 
graph dXA) shall be treated as a transfer by gift, and any tax 
paid under paragraph (IXA) shall be treatedf as a gift tax." 
(10) Paragraph (2) of section 2056A(c) is amended by striking 
"liie term' and inserting "Except as provided in r^^ations, 
the term". 
(11) Qause (ii) of section 2056A(bX2XB) is amended bv striking 
"as a credit or refund" and inserting "as a credit or renmd (with 
interest)". 
(12) Paragraph (2) of section 2056A(b) is amended by adding at 
the end the following new subparagraph: 
"(C) SPECIAL RULE WHERE DECEDENT HAS MORE THAN i 
Q
U
A
L
I
F
I
E
D DOMESTIC TRUST.—If there is more than 1 quali-
fied domestic trust with respect to any decedent, the 
amount of the tax imposed by paragraph (1) with respect to 
such trusts shall be determined by using the highest rate of 
tax in effect under section 2001 as of the date of the 
decedent's death (and the provisions of paragraph (3)(B) 
shall not apply) unless, pursuant to a designation made by 
the decedent's executor, there is 1 person— 
"(i) who is an individual citizen of the United States 
or a domestic corporation and is responsible for filing 
all returns of tax imposed under paragraph (1) with 
respect to such trusts and for paying all tax so imposed, 
and 
"(ii) who meets such requirements as the Secretary 
may by regulations prescribe." 
(13) Section 2056A is amended by adding at the end the 
following new subsection: 
"(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section, including regulations under wmch there may be 
treated as a qualified domestic trust any annuity or other payment 
which is includible in the decedent's gross estate and is by its terms 
payable for life or a term of years." 
(14) In the case of the estate of, or gift by, an individual who 
was not a citizen or resident of the United States but was a 
resident of a foreign country with which the United States has a 
tax treaty with respect to estate, inheritance, or gift taxes, the 
amendments made by section 5033 of the 1988 Act shall not 
apply to the extent such amendments would be inconsistent 
with the provisions of such treaty relating to estate, inherit-
ance, or gift tax marital deductions. In the case of the estate of 
an individual dying before the date 3 years after the date of the 
enactment of this Act, or a gift by an individual before the date 
3 years after the date of the enactment of this Act, the require-
ment of the preceding sentence that the individual not be a 
citizen or resident of the United States shall not apply. 
(15) Para^aph (5) of section 2056A(b) (as redesignated bv 
{>aragraph (7XB) of this subsection) is amended to read as fol-
ows: 
"(5) DUE DATE.— 
"(A) TAX ON DISTRIBUTIONS.—The estate tax imposed by 
paragraph (IXA) shall be due and payable on the 15th day 
of the 4th month following the calendar year in which the 
taxable event occurs; except that the estate tax imposed by 
paragraph (IXA) on distributions during the calendar year 
m which the surviving spouse dies shall be due and payable 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2419 
not later than the date on which the estate tax imposed by 
paragraph (IXB) is due and payable. 
"(B) TAX AT DEATH OP SPOUSE.—The estate tax imposed by 
paragraph (IXB) shall be due and payable on the date 9 
months after the date of such death. 
(16) For purposes of applying section 2040(a) of the Internal 
Gifts and 
Revenue Code of 1986 with respect to any joint interest to which g^T^^on^n 
section 2040(b) of such Code does not apply solely by reason of note 
section 2056(dXl)(B) of such Code, any consideration furnished 
before July 14, 1988, by the decedent for such interest to the 
extent treated as a gift to the spouse of the decedent for 
purposes of chapter 12 of such Ckxie shall be treated as consider-
' 
ation originally belonging to such spouse and never acquired by 
such spouse from the decedent. 
(e) AMENDMENTS RELATED TO SECTION 5041 OF THE 1988 ACT.— 
(1) Subparagraph (A) of section 460<eX6) is amended— 
(A) by striking "the building, construction, reconstruc-
tion, or rehabilitation o f and inserting "activities referred 
to in paragraph (4) with respect to", and 
(B) by striking clause (i) and inserting the following: 
(i) dwelling units (as defined in section 167(k)) con-
tained in buildings containing 4 or fewer dwelling units 
(as so defined), and". 
(2XA) Paragraph (4) of section 5041(b) of the 1988 Act is 26 USC 56. 
amended by inserting ", as amended by title I of this Act," after 
"1986 Code^'. 
(B) Paragraph (3) of section 56(a) is amended by striking "The 
preceding sentence shall not" and inserting "The first sentence 
of this paragraph shall not". 
(3) Subparagraph (C) of section 5041(eXl) of the 1988 Act is 26 USC 460 note. 
amended by striking "subsections (a), (b), and (c)" and inserting 
"subsections (a) and (b)". 
(4) Clause (i) of section 56(gX4)(D) is amended by adding "and" 
at the end of subclause (in) and by striking subclauses (IV) and 
(V) and inserting the following new subclause: 
'XIV) paragraphs (6), (7), and (8) shall not apply." 
(f) AMENDMENT RELATED TO SECTION 5053 OP THE 1988 ACT.— 
Subsection (d) of section 145 is amended by redesignating paragraph 
(3) as paragraph (4) and by inserting after paragraph (2) the follow-
ing new paragraph: 
"(3) CERTAIN PROPERTY TREATED AS NEW PROPERTY.—Solely for 
purposes of determining under paragraph (2XA) whether the Ist 
' 
' ' 
use of property is pursuant to tax-exempt financing— 
(A) IN GENERAL.—If— 
"(i) the 1st use of property is pursuant to taxable 
financing, 
"(ii) there was a reasonable expectation (at the time 
such taxable fuiancing was provided) that such financ-
ing would be replaced by tax-exempt financing, and 
(iii) the taxable financing is in fact so replaced 
within a reasonable period after the taxable financing 
was provided, 
then the 1st use of such property shall be treated as being 
pursuant to the tax-exempt flnemcing. 
, 
"(B) SPECIAL RULE WHERE NO OPERATING STATE OR LOCAL 
,'. 
PROGRAM FOR TAX-EXEMPT FINANCING.—If, at the time of the 
1st use of property, there was no operating State or local 
103 STAT. 2420 
PUBLIC LAW 101-239—DEC. 19, 1989 
program for tax-exempt financing of the property, the 1st 
use of the property shall be treated as pursuant to the 1st 
tax-exempt financing of the property. 
"(C) DEFINITIONS.—For purposes of this paragraph— 
"(i) TAX-EXEMPT FINANCING.—The term 'tax-exempt 
financing' means financing provided by tax-exempt 
bonds. 
"(ii) TAXABLE FINANCING.—The term'taxable financ-
ing' means financing which is not tax-exempt financ-
ing." 
(g) AMENDMENT RELATED TO SECTION 5076 OF THE 1988 ACT.— 
Paragraph (3) of section 453AG}) is amended to read as follows: 
"(3) EXCEPTION FOR PESSONAL USE AND FARM PROPERTY.—An 
installment obligation shall not be treated as described in para-
graph (1) if it arises from the disposition— 
"(A) by an individual of personal use property (within the 
meaning of section 1275(bX3)), or 
"(B) of any property used or produced in the trade or 
business of farming (within the meaning of section 2032A(e) 
(4) or (5))." 
(h) AMENDMENT RELATED TO SECTION 5077 OF THE 1988 ACT.— 
Clause (ii) of section 382(1X3XC) is amended by striking "for purposes 
of subclause (III)," and inserting "For purposes of subclause (III),". 
SEC. 7816. AMENDMENTS RELATED TO TITLE VI OF THE 1988 ACT. 
(a) AMENDMENT RELATED TO SECTION 6003 OF THE 1988 ACT.— 
Paragraph (2) of section 274(n) is amended— 
(1) by striking so much of such paragraph as follows subpara-
graph (D) and precedes subparagraph (F) and inserting the 
following: 
"(E) in the case of an employer who pays or reimburses 
moving expenses of an employee, such expenses are includ-
ible in the income of the employee under section 82, or", 
and 
(2) by adding at the end the following new sentence: "In the 
case of the employee, the exception of subparagraph (A) shall 
not apply to expenses described in subparagraph (E).' 
(b) AMENDMENT RELATED TO SECTION 6006 OF THE 1988 ACT.— 
Subparagraph (A) of section l(iX7) is amended bv inserting "(other 
than for purposes of this paragraph)" after 'shall be treated". 
(c) AMENDMENTS RELATED TO SECTION 6009 OF THE 1988 ACT.— 
26 use 219. 
(1) Paragraph (2) of section 6009(c) of the 1988 Act is amended 
by striking "Clause (i)" and inserting "Clause (ii)". 
(2) Paragraph (1) of section 135(d) is amended by striking 
"subsection (a) respect to" and inserting "subsection (a) with 
respect to". 
(d) AMENDMENTS RELATED TO SECTION 6026 OF THE 1988 ACT.— 
(1) Subparagraph (D) of section 263A(hX3) is amended to read 
as follows: 
"(D) T R E A T M E N T OF CERTAIN CORPORATIONS.— 
"(i) IN GENERAL.—If— 
"(I) substantially all of the stock of a corporation 
I 4 ,. 
is owned by a qualified employee-owner and mem-
bers of his family (as defined in section 267(cX4)), 
and 
"(II) the principal activity of such corporation is 
performance of personal services directly related to 
PUBUC LAW 101-239—DEC. 19,1989 
103 STAT. 2421 
the activities of the qualified employee-owner and 
such services are substantially performed by the 
qualified employee-owner, 
this subsection shall apply to any expense of such 
corporation which directly relates to the activities of 
sucn employee-owner in the same manner as if such 
expense were incurred by such employee-owner. 
'(ii) QuAUFiED EMPLOYEE-OWNER.—For purposes of 
,i 
this subparagraph, the term 'qualified employee-owner' 
means any individual who is an employee-owner of the 
corporation (as defined in section 269A(bX2)) and who is 
a writer, photographer, or artist." 
(2) Subparagraph (B) of section 6026(dX2) of the 1988 Act is 26 USC 263A 
amended by striking "the taxpayer made" and inserting "a note. 
taxpayer engaged in a farming business involving the produc-
tion of animals having a preproductive period of more than 2 
years made". 
(e) AMENDMENTS RELATED TO SECTION 6028 OF THE 1988 ACT.— 
(1) Paragraph (5) of section 168(b) is amended by striking 
"paragraph (2XB)" and inserting "paragraph (2XC)". 
(2) Paragraph (2) of section 168(c) is amended by striking 
"subsection (bX2XB)" and inserting "subsection (bX2XC)". 
(f) AMENDMENT RELATED TO SECTION 6029 OF THE 1988 ACT.—The 
subparagraph (D) of section 168(bX3) added by section 6029 of the 
1988 Act is redesignated as subparagraph (E). 
(g) AMENDMENT RELATED TO SECTION 6033 OF THE 1988 ACT.— 
Subsection flb) of section 6033 of the 1988 Act is amended by striking 26 USC 451 note, 
"paragraph (1)" and inserting "subsection (a)". 
(h) AMENDMENT RELATED TO SECTION 6054 OF THE 1988 ACT.— 
Paragraph (1) of section 6054(b) of the 1988 Act is amended bv 26 USC 415 note, 
striking "subsection apply" and inserting "section shall apply'. 
(i) AMENDMENT RELATED TO SECTION 6061 
OF THE 1988 
ACT.— 
Section 6061 of the 1988 Act is amended— 
26 USC 133 note. 
(1) by striking "section lllB(hX5XA)" and inserting "section 
1011B(hX5XA)", and 
(2) by striking "section lllB(h)" and inserting "section 
1011B(h)". 
(j) AMENDMENT RELATED TO SECTION 6064 OF THE 1988 ACT.— 
Paragraph (13) of section 457(e) is amended to read as follows: 
"(13) SPECIAL RULE FOR CHURCHES.—The term 'eligible em-
ployer' shall not include a church (as defined in section 
3121(wX3XA)) or qualified church-controlled organization (as de-
fined in section 3121(wX3XB))." 
(k) AMENDMENT RELATED TO SECTION 6067 OF THE 1988 ACT.— 
Subsection (c) of section 6067 of the 1988 Act is amended by striking 26 USC 414 note. 
"section 205(c)" and inserting "section 2005(c)". 
(1) AMENDMENT RELATED TO SECTION 6071 
OF THE 1988 
ACT.— 
Paragraph (2) of section 6071(b) of the 1988 Act is amended bv 26 USC 401. 
striking "electric plan" and inserting "electric cooperative plan'. 
(m) PROVISION RELATED TO SECTION 6076 OF THE 1988 ACT.—If, for 26 use 481 note. 
the 1st taxable year beginning on or after January 1, 1987, a 
qualified group self-insurers' fund changes its treatment of policy-
holder dividends to take into account such dividends no earlier than 
the date that the State regulatory authority determines the amount 
of the policyholder dividend that may be paid, then such change 
shall be treated as a change in a method of accounting and no 
adjustment under section 481(a) of the Internal Revenue Code of 
103 STAT. 2422 
PUBLIC LAW 101-239—DEC. 19, 1989 
1986 shall be made with respect to such change in method of 
accounting, 
(n) AMENDMENTS RELATED TO SECTION 6077 OF THE 1988 ACT.— 
(1) Paragraph (1) of section 847 is amended— 
(A) bv striking "separate estimated tax" and inserting 
"special estimated tax , and 
(B) by striking "after December 31, 1986" and inserting 
"in taxable years b^inning after December 31,1986". 
(2) The first sentence of section 847(2) is amended to read as 
follows: "The deduction under paragraph (1) shall be allowed 
only to the extent that such deduction would result in a tax 
benefit for the taxable year for which such deduction is allowed 
< . r 
or any carryback year and only to the extent that special 
' 
estimated tax payments are made in an amount equal to the tax 
benefit attributable to such deduction on or before the due date 
(determined without regard to extensions) for filing the return 
for the taxable year for which the deduction is allowed." 
(3) Paragraph (5) of section 847 is amended by adding at the 
end the following new sentence: 
"To the extent that any amount added to the special loss 
discount account is not subtracted from such account before the 
15th year after the year for which the amount was so added, 
such amount shall be subtracted from such account for such 
15th year and included in gross income for such 15th year." 
(4) Paragraph (9) of section 847 is amended by striking "and" 
at the end of subparagraph (A), by striking the period at the end 
of subparagraph (B) and inserting ", and", and by adding at the 
end the following new subparagraph: 
"(C) providing for the application of this section in cases 
where the deduction allowed under paragraph (1) for any 
taxable year is less than the excess referred to in paragraph 
(1) for such year." 
(5) Section 847 (as amended by paragraph (4)) is amended by 
redesignating paragraph (9) as paragraph (10) and by inserting 
after paragraph (8) the following new paragraph: 
"(9) EFFECT ON EARNINGS AND PROFITS.—In determining the 
earnings and profits— 
"(A) any special estimated tax payment made for any 
taxable year shall be treated as a pa3anent of income tax 
imposed by this title for such taxable year, and 
"(B) any deduction or inclusion under this section shall 
not be taken into account. 
Nothing in the preceding sentence shall be construed to affect the 
application of section 56(g) (relating to adjustments based on ad-
justed current earnings)." 
(6) Paragraph (8) of section 847 is amended by adding at the 
end the following new sentence: "The limitations on consolida-
tion contained in section 1503(c) shall not apply to the deduction 
allowed under paragraph (1)." 
(o) AMENDMENTS RELATED TO SECTION 6105 OF THE 1988 ACT.— 
(1) The subsection (c) of section 5276 added by section 6105 of 
the 1988 Act is amended— 
(A) by striking "(c) EXEMPTION" and inserting "(d) EXCEP-
TION", 
(B) by striking "section 527 
l(aX2)" in paragraph (1) and 
inserting "section 5271", and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2423 
(C) by striking "specially denatured distilled spirits" in 
paragraph (2) £ind inserting "distilled spirits free of tax". 
(2) Subsection (a) of section 5276 is amended by striking 
"Except as provided in subsection (c)," and inserting "Except as 
otherwise provided in this section,", 
(p) AMENDMENT RELATED TO SECTION 6185 OF THE 1988 ACT.— 
Paragraph (3) of section 953(d) is amended by striking "(as defined in 
section 1503(d))" and inserting "for purposes of section 1503(d) with-
out regard to paragraph (2XB) thereof. 
(q) AMENDMENT RELATED TO SECTION 6152 
OF THE 1988 
ACT.— 
Subparagraph (C) of section 2056(bX7) is amended by striking "an 
annuity and inserting "an annuity included in the gross estate of 
the decedent under section 2039". 
(r) AMENDMENT RELATED TO SECTION 6177 
OF THE 1988 
ACT.— 
Subclause (III) of section 148(fX4XBXiii) is amended by striking "such 
date of issuance, or the date" and inserting "such date of issuance or 
the date". 
(s) AMENDMENTS RELATED TO SECTION 6180 OF THE 1988 ACT.— 
(1) Paragraph (1) of section 142(i) is amended by inserting "IN 
GENERAL.—" after "(1)". 
(2) The paragraph (3) of section 146(g) added by section 6180 of 
the 1988 Act is redesignated as paragraph (4). 
(3) Paragraph (3) of section 147(c) is amended by inserting a 
comma after "mass commuting facility" each place it appears. 
(t) AMENDMENTS RELATED TO SECTION 6183 OF THE 1988 ACT.— 
Subclause (II) of section 148(fK4XCXii) is amended by striking "on 
behalf of' and inserting "to make loans to". 
(u) AMENDMENTS RELATED TO SECTION 6228 OF THE 1988 ACT.— 
(1) The section 7520 added by section 6228 of the 1988 Act is 
redesignated as section 7521. 
(2) The table of sections for chapter 77 is amended by striking 
the item added by section 6228 of the 1988 Act and inserting the 
following: 
"Sec. 7521. Procedures involving taxpayer interviews." 
(v) AMENDMENTS RELATED TO SECTION 6242 OF THE 1988 ACT.— 
(1) The section 6712 added by section 6242 of the 1988 Act is 
redesignated as section 6713. 
(2) The table of sections for part I of subchapter B of chapter 
68 is amended by striking the item added by section 6242 of the 
1988 Act and inserting the following: 
"Sec. 6713. Disclosure or use of information by preparers of returns." 
(w) AMENDMENT RELATED TO SECTION 6253 OF THE 1988 ACT.— 
Section 6253 of the 1988 Act is amended by inserting ", as amended 26 USC 168. 
by title I of this Act," after "1986 Code". 
SEC. 7817. EFFECTIVE DATE. 
26 USC 1 note. 
Except as otherwise provided in this part, any amendment made 
by this part shall take effect as if included in the provision of the 
1988 Act to which such amendment relates. 
PART 
II—AMENDMENTS 
RELATED 
TO 
REVENUE 
ACT 
OF 
1
9
8
7 
SEC. 7821. AMENDMENTS RELATED TO SUBTITLE B. 
(a) AMENDMENTS RELATED TO SECTION 10202 OF THE 1987 ACT.— 
103 STAT. 2424 
PUBLIC LAW 101-239—DEC. 19, 1989 
- ' 
(1) Subparagraph (B) of section 453A(bX2) is amended by 
striking "all obligations of the taxpayer described in paragraph 
(1)" and inserting "all such obligations held by the taxpayer". 
(2) Subparagraph (B) of section 453A(dX2) is amended by 
striking "before such secured indebtedness was incurred" and 
inserting "before the later of the times referred to in subpara-
graph (A) or (B) of paragraph (1)". 
(3) Subparagraph (B) of section 453A(dXl) is amended by 
inserting "the time" before the "the proceeds". 
(4XA) Paragraph (2) of section 26(b) (as amended by section 
11811) is amended by striking "and" at the end of subparagraph 
(L), by striking the period at the end of subparagraph (M) and 
inserting ", and", and by adding at the end the following new 
subparagraph: 
"(N) sections 453GX3) and 453A(c) (relating to interest on 
certain deferred tax liabilities)." 
(B) Subsection (c) of section 453A is amended by redesignating 
paragraph (5) as paragraph (6) and by inserting after paragraph 
(4) the following new paragraph: 
"(5) TREATMENT AS INTEREST.—Any amount payable under 
this subsection shall be taken into account in computing the 
amount of any deduction allowable to the taxpayer for interest 
paid or accrued during the taxable year." 
26 use 56 note. 
(5) In the case of taxable years beginning in 1987, the ref-
erence to section 453 contained in section 56(aX6) of the Internal 
Revenue Code of 1986 shall be treated as including a reference 
to section 453A. 
(b) AMENDMENTS RELATED TO SECTION 10206 OF THE 1987 ACT.— 
Effective with respect to taxable years beginning after 1988, the last 
sentence of section 7519(dX4) is amended— 
(1) by striking "for taxable years beginning after 1987,", 
(2) by striking "if more than 50 percent" and inserting 
"unless more than 50 percent", and 
(3) by striking "who would not have been entitled" and 
inserting "who would have been entitled". 
(c) AMENDMENT RELATED TO SECTION 10222 OF THE 1987 ACT.— 
Clause (ii) of section 1503(eX2XA) is amended by striking "another 
member" and inserting "another corporation which is or was a 
member". 
(d) AMENDMENTS RELATED TO SECTION 10242 OF THE 1987 ACT.— 
(1) The item relating to section 842 in the table of sections for 
part i n of subchapter L of chapter 1 is amended by striking 
n. 
, ^^. corporations" and inserting "companies". 
(2) The heading for paragraph (4) of section 842(c) is amended 
by striking "YEILDS" and inserting "YIELDS". 
SEC. 7822. AMENDMENTS RELATED TO SUBTITLE C AND FOLLOWING SUB-
TITLES. 
(a) AMENDMENT RELATED TO SECTION 10301 
OF THE 1987 ACT.— 
Paragraph (1) of section 6655(e) is amended by striking "section 
(dXl)" and inserting "subsection (dXD". 
(b) AMENDMENTS RELATED TO SECTION 10502 OF THE 1987 ACT.— 
(1) Paragraph (1) of section 6427(i) is amended by striking 
"subsection (a)" and all that follows through "by any person" 
and inserting "subsection (a), (b), (c), (d), (e), (g), (h), (1), or (q) by 
any person". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2425 
(2) Clause (i) of section 6427(iX2XA) is amended to read as 
follows: 
"(i) $1,000 or more is payable under subsections (a), 
(b), (d), (e), (g), (h), and (q), or". 
(3) Subparagraph (B) of section 6427(iX2) is amended to read as 
follows: 
"(B) SPECIAL RULE.—If the requirements of subparagraph 
(AXii) are met by any person for any quarter but the 
requirements of subparagraph (AXi) are not met by such 
person for such quarter, such person may file a claim under 
subparagraph (A) for such quarter only with respect to 
amounts referred to in subparagraph (AXii)." 
(4) The subsection of section 6427 relating to pajnnents for 
taxes imposed by section 4041(d) is redesignated as subsection 
(P)-
(5) Paragraph (3) of section 9502(b) is amended by striking 
", and" and inserting "; and". 
(6) Subparagraph (A) of section 9503(bX4) is amended by strik-
ing "sections 4041(d)" and inserting "section 4041(d)". 
(7) Subsections (bX3) and (cX2XA) of section 9508 are each 
amended by striking "Storage Trust Fund" and inserting "Stor-
age Tank Trust Fund". 
(c) AMENDMENT RELATED TO SECTION 10611 OP THE 1987 ACT.—The 
table of sections for part II of subchapter B of chapter 1 is amended 
by inserting "lUegsJ" before "Federal" in the item relating to 
section 90. 
(d) AMENDMENTS RELATED TO SECTION 10713 OF THE 1987 ACT.— 
(1) Subparagraph (G) of section 10713(bX2) of the 1987 Act is 26 use 7611. 
amended to read as follows: 
"(G) Paragraph (3) of section 761 l(i) is amended by strik-
ing all that follows 'income tax)' and inserting *, section 
6852 (relating to termination assessments in case of fla-
grant political expenditures of section 501(cX3) organiza-
tions), or section 6861 (relating to jeopardy assessments of 
income taxes, etc.),'." 
(2) Clause (iii) of section 10713(bX2XE) of the 1987 Act is 26USC6863. 
amended to read as follows: 
"(iii) by striking '6851(a) nor 6861(a)' in subsection 
(bX3XAXiii) and inserting '6851(a), 6852(a), nor 6861(a)'." 
SEC. 7823. EFFECTIVE DATE. 
26 USC 26 note. 
Except as otherwise provided in this part, any amendment made 
by this part shall take effect as if included in the provision of the 
1987 Act to which such amendment relates. 
PART III—AMENDMENTS RELATED TO TAX 
REFORM ACT OF 1986 
SEC. 7831. AMENDMENTS RELATED TO TAX REFORM ACT OF 1986. 
(a) AMENDMENT RELATED TO SECTION 101 OP THE 1986 
ACT.— 
Subparagraph (B) of section l(fK6) (relating to rounding of inflation 
adjustments for married individuals filing separately) is amended by 
striking "(other than with respect to section 63(cX4))" and inserting 
the following: "(other than with respect to subsection (cX4) of section 
63 (as it applies to subsections (cXSXA) and (f) of such section) and 
section 151(dX3))". 
103 STAT. 2426 
PUBLIC LAW 101-239—DEC. 19,1989 
(b) AMENDMENT RELATED TO SECTION 201 OF THE 1986 ACT.— 
Paragraph (5) of section 1250(b) is amended— 
(1) by striking "in the case of recovery property" in subpara-
graph (A) and inserting "in the case of property to which section 
168 applies", and 
(2) by striking "in the case of any property which is not 
recovery property" in subparagraph (B) and inserting "in the 
case any property to which section 168 does not apply". 
(c) AMENDMENTS RELATED TO SECTION 252 OP THE 1986 ACT.— 
Emulations. 
(1) Subparagraph (B) of section 42(iX3) (defining low-income 
unit) is amended by inserting "(as determined under regulations 
prescribed by the Secretary taking into account local health, 
safety, and building codes)" after "suitable for occupancy", 
(2) Paragraph (3) of section 42(i) is amended by adding at the 
end the following new subparagraph: 
"(D) STUDENTS IN GOVERNMENT-SUPPORTED JOB TRAINING 
PROGRAMS NOT TO DiSQUAUFY UNIT.—A Unit shall not fail to 
be treated as a low-income unit merely because it is occu-
pied by an individual who is enrolled in a job training 
,, 
program receiving assistance under the Job Training Part-
• 
nership Act or under other similar Federal, State, or local 
laws." 
(3) Subsection (i) of section 42 (relating to special rules) is 
amended by adding at the end the following new paragraph: 
"(6) APPUCATION TO ESTATES AND TRUSTS.—In the case of an 
estate or trust, the amount of the credit determined under 
subsection (a) and any increase in tax under subsection 0') shall 
be apportioned between the estate or trust and the beneficiaries 
on the basis of the income of the estate or trust allocable to 
each." 
(4) Subsection (f) of section 42 is amended by adding at the end 
the following new paragraph: 
"(4) DISPOSITIONS OF PROPERTY.—If a building (or an interest 
therein) is disposed of during any year for which credit is 
allowable under subsection (a), such credit shall be allocated 
between the parties on the basis of the number of days during 
such year the building (or interest) was held by each. In any 
such case, proper adjustments shall be made in the application 
of subsection (j)." 
(5) Subsection (m) of section 42 (relating to regulations) is 
amended by striking "and" at the end of paragraph (2), by 
striking the period at the end of paragraph (3) and inserting 
", and , and by adding at the end the following new paragraph: 
"(4) providing the opportunity for housing credit agencies to 
correct administrative errors and omissions with respect to 
allocations and record keeping within a reasonable period after 
their discovery, taking into account the availability of regula-
tions and other administrative guidance from the Secretary." 
(6) Subparagraph (A) of section 42(dX7) is amended by insert-
ing "(or interest therein)" after "a building described in 
subparagraph (B)". 
(d) AMENDMENTS RELATED TO SECTION 803 OF THE 1986 ACT.— 
(1) Subparagraph (A) of section 803(dX4) of the Tax Reform 
26 use 263A 
Act of 1986 is amended by striking so much of such subpara-
"
*
*
*
*
• 
graph as precedes clause (i) thereof and inserting the following: 
"(A) 
TRANSITION PROPERTY EXEMPTED FROM INTEREST 
CAPiTAUZATiON.—Section 263A of the Internal Revenue 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2427 
,;n 
Code of 1986 (as added by this section) and the amendment 
made by subsection (bXD shall not apply to interest costs 
which are allocable to any property— . 
(2) If any interest costs incurred after December 31, 1986, are 26 USC 263A 
attributable to costs incurred before January 1, 1987, the ^^*^-
amendments made by section 803 of the Tax Reform Act of 1986 
shall apply to such interest costs only to the extent such in-
terest costs are attributable to costs which were required to be 
capitalized under section 263 of the Internal Revenue Code of 
1954 and which would have been taken into account in appl3dng 
section 189 of the Internal Revenue Code of 1954 (as in effect 
before its repeal by section 803 of the Tax Reform Act of 1986) 
or, if applicable, section 266 of such Code. 
(e) 
APPUCATION 
OF 
FUTURE 
LEGISLATION TO 
TRANSITIONED 26 use I41 note. 
BONDS.—Section 1318 of the Tax Reform Act of 1986 is amended by 
adding at the end the following new paragraph: 
"(8) APPLICATION OF FUTURE LEGISLATION TO TRANSITIONED 
BONDS.—In the case of any bond to which the amendments made 
by section 1301 do not apply by reason of a provision of this Act, 
any amendment of the 1986 Code (and any other provision 
applicable to such Code) included in any law enacted after 
October 22, 1986, shall be treated as included in section 103 and 
section 103A (as appropriate) of the 1954 Code with respect to 
such bond unless— 
"(A) such law expressly provides that such amendment 
(or other provision) shall not apply to such bond, or 
"(B) such amendment (or other provision) applies to a 
provision of the 1986 Code— 
"(i) for which there is no corresponding provision in 
section 103 and section 103A (as appropriate) of the 
1954 Code, and 
"(ii) which is not otherwise treated as included in 
such sections 103 and 103A with respect to such bond." 
(f) AMENDMENT RELATED TO SECTION 1114 
OF THE 1986 
ACT,— 
Subparagraphs (A) and (B) of section 1114(bX9) of the Tax Reform 
Act of 1986 are each amended by striking "consist of supervising" 
26 USC 406,407. 
and inserting "consist in supervising". 
(g) EFFECTIVE DATE.—Any amendment made by this section shall 
26 use i note. 
take effect as if included in the provision of the Tax Reform Act of 
1986 to which such amendment relates. 
PART IV—MISCELLANEOUS CHANGES 
SEC. 7841. MISCELLANEOUS CHANGES. 
(a) AMENDMENT RELATED TO TRANSFERS INCIDENT TO DIVORCE OR 
SEPARATION.— 
(1) Paragraph (6) of section 408(d) is amended by striking "his 
former spouse under a divorce decree or under a written in-
strument incident to such divorce" and inserting "his spouse or 
former spouse under a divorce or separation instrument de-
scribed in subparagraph (A) of section 71(bX2)". 
(2) Subsection (p) of section 414 is amended by redesignating 
parsigraph (11) as paragraph (12) and by inserting after para-
graph (10) the following new paragraph: 
"(11) APPLICATION OF RULES TO GOVERNMENTAL AND CHURCH 
PLANS.—For purposes of this title, a distribution or payment 
103 STAT. 2428 
PUBLIC LAW 101-239—DEC. 19, 1989 
from a governmental plan (as defined in subsection (d)) or a 
church plan (as described in subsection (e)) shall be treated as 
made pursuant to a qualified domestic relations order if it is 
* 
made pursuant to a domestic relations order which meets the 
requirement of clause (i) of paragraph (IXA)." 
26 use 408 note. 
(3) The amendments made by this subsection shall apply to 
transfers after the date of the enactment of this Act in taxable 
years ending after such date. 
(b) AMENDMENT RELATED TO SINGLE-EMPLOYER PENSION PLAN 
AMENDMENTS ACT OF 1986.— 
(1) Section 404(gXl) is amended by inserting "4041(b)," before 
"4062". 
26 use 404 note. 
(2) The amendment made by paragraph (1) shall apply to 
pajntnents made after January 1, 1986, in taxable years ending 
after such date. 
(c) DEFINITION OF (DOMPENSATION.— 
(1) Paragraph (1) of section 219(f) (defining compensation) is 
amended by adding at the end thereof the following new sen-
tence: "For purposes of this paragraph, section 401(cX2) shall be 
applied as if the term trade or business for purposes of section 
1402 included service described in subsection (cX6). 
26 use 219 note. 
(2) The amendment made by paragraph (1) shall apply to 
contributions after the date of the enactment of this Act in 
taxable years ending after such date. 
(d) MISCELLANEOUS CLERICAL CIHANGES.— 
(1) Paragraph (1) of section 6103(d) is amended by striking 
"45,". 
(2) Section 6871 is amended by striking "44, or 45" each place 
it appears and inserting "or 44". 
(3) Paragraph (5) of section 691(c) is amended by striking 
"paragraph (IXD)" and inserting "paragraph (IXC)". 
(4) The table of chapters for subtitle D is amended by striking 
the comma in the item relating to chapter 42 and inserting a 
semicolon. 
4'' 
(5) Section 6652 is amended— 
(A) by redesignating the subsection relating to informa-
tion with respect to includible employee benefits as subsec-
tion (k), and 
(B) by redesignating the subsection relating to alcohol 
and tobacco taxes as subsection G)-
(6) Paragraph (2) of section 410(a) is amended by striking the 
comma before the period. 
(7) The heading of paragraph (1) of section 132(h) is amended 
by striking "OFFICERS, ETC.," and inserting 
"HIGHLY COM-
PENSATED EMPLOYEES". 
(8) Paragraph (1) of section 66(d) is amended by striking 
"section 911(b)" and inserting "section 911(dX2)". 
(9) Subsection (e) of section 861 is amended by striking "sec-
tion 826(a)" and inserting "section 862(a)". 
(10) Paragraph (27) of section 381(a) (relating to credit under 
section 53) is redesignated as paragraph (26). 
(11) Subclause (III) of section 382(lX3XBXi) is amended by 
striking "divorce," and inserting "divorce),". 
(12) The last sentence of section 6157(a) is amended by strik-
ing "subsections (c) and (d)" and inserting "subsection (c)". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2429 
(13) Clause (i) of section 42(dX6XA) is amended by striking 
"Farmers' Home Administration" and inserting "Farmers 
Home Administration". 
(14) Clause (ii) of section 42(dX7XA) is amended by striking 
"sebsection (a)" and inserting "subsection (a)". 
(15) Subparagraph (A) of section 42(eX2) is amended by strik-
ing "captial account" and inserting "capital account". 
(16) Paragraph (2) of section 844(a) is amended by striking "for 
the taxable year" and inserting "for a prior taxable year". 
(17) Subsection (c) of section 4221 is amended by striking "or 
4083". 
(18) Clause (i) of section 274(nX2)(F) is amended by inserting 
"any" before "Federal". 
(19) Subparagraph (B) of section 132(f)(2) is amended by strik-
ing "section 151(eX3)" and inserting "section 151(cX3)". 
(20) Sections 6420(eX2), 6421(gX2), and 6427(jX2) are each 
amended by striking "section 7602" and inserting "section 
7602(a)". 
(e) AMENDMENT RELATED TO TREATMENT OF TRANSACTIONS IN 
WHICH FEDERAL FINANCIAL ASSISTANCE PROVIDED.— 
(1) Section 597(bX2) is amended by striking "to reflect such 
treatment" and inserting "in connection with such assistance". 
(2) The amendment made by this subsection shall apply as if 26 USC 597 note, 
included in the amendments made by section 1401 of the Finan-
cial Institutions Reform, Recovery, and Enforcement Act of 
1989. 
(f) AMENDMENT RELATED TO ALCOHOL, TOBACCO, AND FIREARMS 
RETURNS.—Paragraph (6) of section 6091(b) is amended by inserting 
"section 4181 or'*^before "subtitle E". 
(g) AUTHORITY TO PAY ADMINISTRATIVE EXPENSES FROM VACCINE 
INJURY CJOMPENSATION TRUST FUND. 
(1) IN GENERAL.—Paragraph (1) of section 951(Kc) (relating to 
expenditures from Vaccine Injury CJompensation Trust Fund) is 
amended by inserting before the period at the end thereof the 
following: ", or for the pajmient of all expenses of administra-
tion 0)ut not in excess of $6,000,000 for any flscal year) incurred 
by the Federal Government in administering such subtitle". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 9510 
shall apply to fiscal years beginning after September 30, 1989. "°**-
PART V—AMENDMENTS RELATED TO PENSION 
PROVISIONS 
SEC. 7851. DEFINITIONS. 
For purposes of this part— 
(1) REFORM ACT,—Except where incompatible with the intent, 
the term "Reform Act" means the Tax Reform Act of 1986. 
(2) ERISA.—The term "ERISA" means the Employee Retire-
ment Income Security Act of 1974. 
Subpart A—Amendments Related To Tax Reform Act 
of 1986 
SEC. 7861. AMENDMENTS RELATED TO TITLE XI OF THE REFORM ACT. 
(a) AMENDMENTS RELATED TO SECTION 1113 OF THE REFORM ACT.— 
103 STAT. 2430 
PUBLIC LAW 101-239—DEC. 19,1989 
29 use 1053. 
(1) Section 203(aX2) of ERISA is amended— 
(A) by striking "following" the first place it appears, and 
(B) by striking "414(fXlXB)" in subparagraph (CXiiXI) and 
insertmg "3(37XAXii)". 
29 use 1052. 
(2) Section 1113(eX3) of the Reform Act is amended by striking 
"Section 202(BXi)" and mserting "Section 202(aXlXBXi)". 
26 use 411 note. 
(3) The second subsection (e) of section 1113 of the Reform Act 
is redesignated as subsection (f). 
(4) Section 1113(f) of the Reform Act, as redesignated by 
paragraph (3), is amended by adding at the end thereof the 
following new paragraph: 
"(4) REPEAL OP CLASS YEAR VESTING.—If a plan amendment 
repealing class year vesting is adopted after October 22, 1986, 
such amendment shall not apply to any employee for the 1st 
plan year to which the £imendments made by subsections (b) and 
(eX2) apply (and any subsequent plan year) if— 
"(A) such plan amendment would reduce the nonforfeit-
able right of such employee for such year, and 
"(B) such employee has at least 1 hour of service before 
the adoption of such plan cimendment and after the begin-
ning of such 1st plan year. 
. .,- 
This paragraph shall not apply to an employee who has 5 
consecutive 1-year breaks in service (as defined in section 
411(aX6XA) of the Internal Revenue Code of 1986) which include 
the 1st day of the 1st plan year to which the amendments made 
by subsection (b) and (eX2) apply. A plan shall not be treated as 
failing to meet the requirements of section 401(aX26) of such 
Code by reason of compljdng with the provisions of this para-
graph. 
26 use 411. 
(5XA) Section 411(aX3) is amended by adding at the end 
thereof the following new subparagraph: 
"(G) TREATMENT OF MATCHING CONTRIBUTIONS FORFEITED 
BY REASON OF EXCESS DEFERRAL OR CONTRIBUTION.—A 
matching contribution (within the meaning of section 
f: 
401(m)) shall not be treated as forfeitable merely because 
such contribution is forfeitable if the contribution to which 
the matching contribution relates is treated as an excess 
contribution under section 401(kX8)(B), an excess deferral 
under section 402(gX2XA), or an excess aggregate contribu-
tion under section 401(mX6)(B).". 
(B) Paragraph (3) of section 203(a) of ERISA is amended by 
adding at the end thereof the following new subparagraph: 
"(F) A matching contribution (within the meaning of section 
401(m) of the Internal Revenue Code of 1986) shall not be 
treated as forfeitable merely because such contribution is 
forfeitable if the contribution to which the matching contribu-
tion relates is treated as an excess contribution under section 
401(kX8)(B) of such (Dode, an excess deferral under section 
402(gX2XA) of such Code, or an excess aggregate contribution 
under section 401(mX6XB) of such Code.". 
(6XA) Section 41 l(aX4XA) is amended to read as follows: 
"(A) years of service before age 18,". 
(B) Subparagraph (A) of section 203(bXl) of ERISA is amended 
to read as follows: 
"(A) years of service before age 18,". ' •
• 
26 use 4980 
(b) AMENDMENT RELATED TO SECTION 1132 OF THE ACT.— 
note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2431 
(1) Notwithstanding any other provision of law, in the case of 
any qualified pension plan and welfare benefit plan described in 
paragraph (2), the assets of such pension plan in excess of its 
liabilities may be transferred to such welfare benefit plan upon 
the termination of such pension plan if such assets are to be 
used to provide retiree health benefits. 
(2) For purposes of paragraph (1), a qualified pension plan and 
welfare benefit plan are described in this paragraph if— 
(A) both such plans are jointly administered pursuant to 
a collective bargaining agreement between the employer 
maintaining such plans and one or more employee rep-
resentatives, 
(B) the welfare benefit plan provides retiree health bene-
fits, and 
(C) the qualified pension plan has assets in excess of 
liabilities (determined on a termination basis) and the wel-
fare benefit plan has assets which are less than the present 
value of the benefits to be provided under the plan (deter-
mined as of the time of termination of the pension plan). 
(3) For purposes of the Internal Revenue Code of 1986, any 
transfer of assets to which paragraph (1) applies shall be treated 
as a reversion of such assets to the employer maintaining the 
plan which is includible in the gross income of such employer 
and subject to the tax imposed by section 4980 of such Code. 
(c) AMENDMENTS RELATED TO SECTION 1140 OF THE REFORM ACT.— 
(1) Subsection (a) of section 1140 of the Reform Act is amended 26 use 40i note. 
by striking "or subtitle C" and inserting ", subtitle C, or title 
XVm of this Act". 
(2) Section 1140(c) of the Reform Act is amended by striking 
all after "the first plan year beginning" and inserting "after the 
later of— 
"(1) December 31,1988, or 
"(2) the earlier of— 
"(A) December 31,1990, or 
"(B) the date on which the last of such collective bargain-
ing agreements terminate (without regard to any extension 
after Februanr 28,1986)." 
(3) Section 114CKC) is amended by adding at the end thereof the 
following new fiush sentence: 
"For purposes of paragraph (IXB) and any other provision of this 
title, an agreement shall not be treated as terminated merely 
because the plan is amended pursuant to such agreement to meet 
the requirements of any amendment made by this title or title 
XVraofthisAct.". 
(d) AMENDMENTS RELATED TO SECTION 1145 OF THE REFORM ACT.— 
(1) Subsection (f) of section 303 of the Retirement Equity Act 
of 1984 is amended by striking "July 24, 1984" and Inserting 26 use looi 
"July 17,1984". 
"o^. 
(2) Paragraph (3) of section 205(b) of ERISA, as added by 
section 1145(b) of the Reform Act, is redesignated as para- 29 use 1055. 
graph (4). 
SEC 7862. AMENDMENTS RELATED TO TITLE XVIII OF THE REFORM ACT. 
(a) AMENDBIENT RELATED TO SECTION 1852 OF THE REFORM ACT.— 
Paragraph (1) of section 4402(h) of ERISA is amended by striking 29 use I46i. 
"January 12.1982" the second place it appears and inserting "Janu-
ary 16.1982'\ 
103 STAT. 2432 
PUBLIC LAW 101-239—DEC. 19, 1989 
29 u s e 1054. 
26 u s e 106. 
29 u s e 1161. 
26 u s e 106 note. 
29 u s e 1167. 
(b) AMENDMENT RELATED TO SECTION 1879 OP THE REFORM ACT.— 
29 use 1054 and 
(1) Subsection (u) of section 1879 of the Reform Act is amend-
note. 
e d _ 
(A) by striking "206(h)" each place it appears in para-
graphs (1) and (4XB) and inserting "204(h)", 
(B) by redesignating paragraph (4) as paragraph (5), and 
(C) by inserting after paragraph (3) the following: 
"(4) CORRECTION OP CROSS REPERENCE.—Section 4218(1XA) of 
the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1398(1XA)) is amended by striking 'section 4062(d)' and 
inserting 'section 4069(b)*." 
(2) So much of section 204(hX2) of ERISA as precedes subpara-
graph (A) thereof is amended by adjusting the left-hand 
margination thereof to full measure. 
(c) AMENDMENTS RELATED TO SECTION 1895 OP THE REPORM ACT.— 
dXA) Section 106(bX2) (relating to exception to certain plans) 
is amended by striking the last sentence thereof. 
(B) Section 601(b) of ERISA is amended by striking the last 
sentence thereof. 
(C) The amendments made by this paragraph shall apply to 
years beginning after December 31,1986. 
(2XA) Section 607(2) of ERISA is amended by striking "the 
individual's emplo3rment or previous employment with an em-
ployer" and inserting "the performance of services by the 
individual for 1 or more persons maintaining the plan (includ-
ing as an employee defined in section 401(cXl) of the Internal 
Revenue Code of 1986)". 
(B) Section 4980B(fK7), as added by the Technical and Mis-
cellaneous Revenue Act of 1988, is amended by striking "the 
individual's emplo3rment or previous employment with an em-
ployer" and inserting "the performance of services by the 
individual for 1 or more persons maintaining the plan (includ-
ing as an employee defined in section 401(cXl))". 
(C) The amendments made by this paragraph shall apply to 
plan years beginning after December 31,1989. 
(3XA) Clause (iv) of section 162(kX2XB) is amended— 
(i) by striking "ELIGIBIUTY" in the heading and inserting 
"ENTITLEMENT' , and 
(ii) by inserting "which does not contain any exclusion or 
limitation with respect to any preexisting condition of such 
beneficiary" after 'or otherwise)" in subclause (I). 
(B) Section 602(2XD) of ERISA is amended— 
(i) by striking "EUGIBILITY" in the heading and inserting 
"ENTITLEMENT' , and 
(ii) by inserting "which does not contain any exclusion or 
limitation with respect to any preexisting condition of such 
'
'
- 
^ 
beneficiary" after 'or otherwise)" in clause (i). 
(C) Clause (iv) of section 4980B(fX2XB), as added by the Tech-
nical and Miscellaneous Revenue Act of 1988, is amended— 
' 
• 
(i) by striking "EUGIBIUTY" in the heading and inserting 
"ENTirLEMENT', and 
(ii) by inserting "which does not contain any exclusion or 
limitation with respect to any preexisting condition of such 
beneficiary" after 'or otherwise)" in subclause (I). 
26 use 162 note. 
(D) The amendments made by this paragraph shall apply to— 
(i) qualifying events occurring after December 31, 1989, 
and 
26 use 4980B. 
26 use 4980B 
note. 
26 use 162. 
29 u s e 1162. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2433 
(ii) in the case of qualified beneficiaries who elected 
continuation coverage after December 31, 1988, the period 
for which the required premium was paid (or was at-
r 
tempted to be paid but was rejected as such). 
(4XA) The last sentence of section 602(3) of ERISA is amended 
to read as follows: 
"In no event may the plan require the payment of any premium 
before the day which is 45 days after the day on which the 
qualified beneficiary made the initial election for continuation 
coverage." 
(B) The last sentence of section 4980B(fK2XC) of the 1986 Code 
(as added by the Technical and Miscellaneous Revenue Act of 
1988) is amended to read as follows: 
"In no event may the plan require the payment of any premium 
before the day which is 45 days after the day on which the qualified 
beneficiary made the initial election for continuation coverage." 
(C) The amendments made by this paragraph shall apply to 
plan years beginning after December 31,1989. 
(5XA) Clause (i) of section 4980B(fK2XB) is amended by adding 
at the end thereof the following new subclause: 
"(V) QUAUFYING EVENT INVOLVING MEDICARE 
ENTITLEMENT.—In the case of an event described in 
paragraph (3XD) (without regard to whether such 
, 
event is a qualifying event), the period of coverage 
for qualified beneficiaries other than the covered 
employee for such event or any subsequent qualify-
ing event shall not terminate before the close of 
the 36-month period beginning on the date the 
covered employee becomes entitled to benefits 
I 
under title XVIII of the Social Security Act." 
(B) Section 602(2XA) of ERISA is amended by adding at the 
end thereof the following new clause: 
«« 
" ( v ) Q u A U F Y I N G EVENT INVOLVING MEDICARE ENTITLE-
MENT.—In the case of an event described in section 
603(4) (without regard to whether such event is a 
», 
qualifying event), the period of coverage for qualified 
beneficiaries other than the covered employee for such 
event or any subsequent qualifying event shall not 
terminate before the close of the 36-month period 
beginning on the date the covered employee becomes 
entitled to benefits under title XVIII of the Social 
Security Act." 
(C) The amendments made by this paragraph shall apply to 
plan years beginning after December 31,1989. 
(6XA) Section 3011(bX6) of the Technical and Miscellaneous 
Revenue Act of 1988 (Public Law 100-647) is repealed. 
(B) Subparagraph (A) shall be effective as if included in the 
enactment of section 3011(b) of the Technical and Miscellaneous 
Revenue Act of 1988. 
(d) AMENDMENTS RELATED TO SECTION 1898 OF THE REFORM ACT.— 
(IXA) Clause (ii) of section 417(aX3XB) (defining applicable 
period) is amended by striking subclause (V) and inserting at 
the end thereof the following new flush sentence: 
"In the case of a participant who separates from service 
before attaining age 35, the applicable period shall be a 
reasonable period after separation.". 
29 u s e 1162. 
26 use 4980B 
note. 
26 use 4980B 
note. 
29 u s e 1167. 
Effective date. 
29 u s e 1167 
note. 
26 u s e 417. 
103 STAT. 2434 
PUBLIC LAW 101-239—DEC. 19, 1989 
29 use 1055. 
(B) Clause (ii) of section 205(cX3XB) of ERISA is amended by 
striking subclause (V) and inserting at the end thereof the 
following new flush sentence: 
"In the case of a participant who separates from service before 
attaining age 35, the applicable period shall be a reasonable period 
after separation.". 
26 use 417 note. 
(2) Section 1898(bX8) of the Reform Act is amended by addmg 
at the end thereof the following new subparagraph: 
"(C) EFFECTIVE DATE.—The amendments made by this 
paragraph shall apply to distributions after the date of the 
enactment of this Act.". 
(3) Section 205(h) of ERISA is amended— 
(A) in paragraph (1), by striking "the term" and inserting 
"TTie term", and by striking "benefit," and inserting "bene-
fit."; and 
(B) in paragraph (3), by striking "the term" and inserting 
"The term". 
29 use 1053. 
(4) Subparagraph (B) of section 1898(dXl) of the Reform Act is 
amended by striking "Paragraph (1)" and inserting "Subsection 
(eXD". 
(5) Section 203(eXl) of ERISA (as amended by section 
29 use 1053. 
1898(dXl) of the Tax Reform Act of 1986) is further amended to 
read as follows: 
"(eXD If the present value of any nonforfeitable benefit with 
respect to a participant in a plan exceeds $3,500, the plan shall 
provide that such benefit may not be inmiediately distributed with-
out the consent of the participant.". 
(6) Subclause (IV) of section 205(cX3XBXii) of ERISA is amend-
ed by striking "401(aXll)" and inserting "205". 
29 use 1055. 
(7) Subparagraph (B) of section 1898(bX7) of the Reform Act is 
amended by striking "Subparagraph (C) of section 205(bXl)" and 
inserting "Qause (i) of section 205(bXlXC)". 
(8) Section 205(eX2) of ERISA is amended by striking "non-
t forfeitable accrued benefit" and inserting "nonforfeitable right 
(within the meaning of section 203)". 
(9XA) Subparagraph (B) of section 18980>X14) of the Reform 
Act is amended by inserting "(as amended by section 1145(b))" 
after "1974". 
(B) Paragraph (3) of section 2
O
5
0
i
>
) of ERISA (as added by 
section 18980>X14XB) of the Reform Act) is redesignated as 
paragraph (4). 
(10) Section 203(eXl) of ERISA is amended by striking "vested 
accrued benefit" and inserting "nonforfeitable benefit". 
26 use 106 note. 
SEC. 7863. EFFECTIVE DATE. 
Except as otherwise provided in this subpart, any amendment 
made by this subpart shall take efTect as if included in the provision 
of the Reform Act to which such amendment relates. 
Subpart B—Amendments Related to Omnibus Budget 
Reconciliation Act of 1986 
SEC. 7871. AMENDMENTS RELATED TO OMNIBUS BUDGET RECONCIU-
ATI0NACT0F1986. 
(a) AMENDMENTS RELATED TO SECTION 9202 OF THE ACT.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2485 
(1) Section 411(bX2) of the Internal Revenue Code of 1986 and 
section 204(bX2) of ERISA are each amended by striking 
subparagraph (B) and by redesignating subparagraphs (C) and 
(D) as subparagraphs (B) and (C), respectively. 
(2) Section 411(bX2XC), as redesignated by paragraph (1), is 
amended by striking "subparagraph" and inserting "para-
graph". 
(3) Section 204(bX2XC) of ERISA, as redesignated by para-
graph (1), is amended by striking "(C) and (D)" and inserting 
^'(B)and(C)". 
(4) The amendments made by this subsection shall take effect 
as if included in the amendments made by section 9202 of the 
Omnibus Budget Reconciliation Act of 1986. 
(b) AMENDMENTS RELATED TO SECTION 9203 OF THE ACT.— 
(1) Section 411(aX8XB) is amended to read as follows: 
"(B) the later of— 
"(i) the time a plan participant attains age 65, or 
*
*
•
* 
"(ii) the 5th anniversary of the time a plan partici-
pant commenced participation in the plan.' 
(2) Section 3(24XB) of ERISA is amended to read as follows: 
"(B) the later of— 
"(i) the time a plan participant attains age 65, or 
"(ii) the 5th anniversary of the time a plan participant 
commenced participation in the plan." 
(3) The amendments made by this subsection shall take effect 
as if included in the amendments made by section 9203 of the 
Omnibus Budget Reconciliation Act of 1986. 
(c) AMENDMENT RELATING TO SECTION 9501.—Section 602(2XAXiii) 
of ERISA is amended by hiserting "section" before "603(6)". 
Subpart C—Amendments Related to Pension 
Protection Act 
26 u s e 411; 29 
use 1054. 
Effective date. 
26 use 411 note. 
29 u s e 1002. 
Effective date. 
26 u s e 411 note. 
29 u s e 1162. 
SEC. 7881. AMENDMENTS RELATED TO PENSION PROTECTION ACT. 
(a) AMENDMENTS RELATED TO SECTION 9303.— 
(IXA) Subclause (II) of section 412(lX3XCXii) is amended by 
inserting "(but not below zero)" after "reducing". 
(B) Subclause QI) of section 302(dX3XCXii) of ERISA is 
amended by inserting "(but not below zero)" aifter "reducing". 
(2XA) Clause (i) of section 412(1X4XB) is amended by inserting 
"and the unamortized portion of the unfunded existing benefit 
increase liability" after "liability". 
(B) Clause (i) of section 302(dX4XB) of ERISA is amended by 
inserting "and the unamortized portion of the unfunded exist-
ing benefit increase liability" after "liability". 
(3XA) Section 412(1X5X0 is amended by striking "October 17, 
1987" and inserting "the first plan year beginning after Decem-
ber 31,1988". 
(B) Section 302(dX5XC) of ERISA is amended by striking 
"October 17, 1987" and inserting "the first plan year beginning 
after December 31,1988". 
(4XA) Section 412(1X7XD) is amended— 
(i) by striking "and" at the end of clause (iiiXD, by 
striking the period at the end of clause (iiiXII) and inserting 
", and , and by adding at the end of clause (iii) the following 
new subclause: 
26 use 412. 
29 u s e 1082. 
103 STAT. 2436 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(HI) has years of service greater than the mini-
mum years of service necessary for eligibility to 
'^ •". 
participate in the plan.", and 
(ii) bv adding at the end thereof the following new clause: 
^ 
(iv) ELECTION.—An employer may elect not to have 
this subparagraph apply. Such an election, once made, 
may be revoked only with the consent of the Sec-
retary.". 
29 use 1082. 
(B) Section 302(dX7XD) of ERISA is amended— 
(i) by striking "and" at the end of clause (iiiXD, by 
striking the period at the end of clause (iiiXH) and inserting 
", and , and by adding at the end of clause (iii) the following 
new subclause: 
"(III) has years of service greater than the mini-
mum years of service necessary for eligibility to 
participate in the plan.", and 
; 
(ii) bv adding at the end thereof the following new clause: 
, 
(iv) ELECTION.—An employer may elect not to have 
this subparagraph apply. Such an election, once made, 
may be revoked only with the consent of the Secretary 
of the Treasury.". 
26 use 412. 
(5XA) Section 412(1X8) is amended— 
(i) by striking "reduced by any credit balance in the 
funding standard account" in subparagraph (AXii), and 
(ii) by adding at the end thereof the following new 
subparagraph: 
"(E) DEDUCTION FOR CREDIT BALANCES.—For purposes of 
this subsection, the amount determined under subpara-
graph (AXii) shall be reduced by any credit balance in the 
funding standard account. The Secretary may provide for 
such reduction for purposes of any other provision which 
references this subsection.". 
(B) Section 302(dX8) of ERISA is amended— 
(i) by striking "reduced by any credit balance in the 
funding standard account" in subparagraph (AXii), and 
(ii) by adding at the end thereof the following new 
subparagraph: 
"(E) DEDUCTION FOR CREDIT BALANCES.—For purposes of 
this subsection, the emiount determined under subpara-
graph (AXii) shall be reduced by any credit balance in the 
funding standard account. The Secretary of the Treasury 
may provide for such reduction for purposes of any other 
provision which references this subsection.". 
(6XA) Section 412(cX9) is amended-
(i) by striking "3 vears" and inserting "year", and 
(ii) by striking 
3-yEAR" in the heading and inserting 
"ANNUAL". 
(B) Section 302(cX9) of ERISA is amended by striking "3 
years" and inserting "year". 
(7) Subclause (II) of section 9303(eX3)(CXii) of the Pension 
26 use 412 note. 
Protection Act is amended by inserting "(and any income alloca-
ble to such amount)" after "clause (i)". 
(b) AMENDMENTS RELATED TO SECTION 9304.— 
(IXA) Subparagraph (A) of section 412(cX10) is amended— 
(i) by inserting "defined benefit" before "plan other", and 
(ii) by striking "PLANS" in the heading and inserting 
"DEFINED BENEFIT PLANS". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2437 
(B) Subparagraph (A) of section 302(cX10) of ERISA is 29USC1082. 
amended by inserting "defined benefit" before "plan other". 
(2XA) Subparagraph (B) of section 412(cX10) is amended— 
26 USC 412. 
(i) by striking "multiemployer plan" and inserting "plan 
not described in subparagraph (A) , and 
(ii) by striking 
MULTIEMPLOYER" in the heading and 
inserting "OTHER". 
(B) Subparagraph (B) of section 302(cX10) of ERISA is 
amended by striking "multiemployer plan" and inserting "plan 
not described in subparagraph (A) . 
(8XA) Section 412(mXl) is amended by inserting "defined 
benefit" before "plan (other". 
(B) Section 302(eXl) of ERISA is amended by inserting "de-
fined benefit" before "plan (other". 
(4XA) Subparagraph (D) of section 412(mX4) is amended to 
read as follows: 
"(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT 
EVENT BENEFITS.—In the case of a plan to which subsection 
(1) applies for any calendar year and which has any un-
predictable contingent event benefit liabilities— 
"(i) LIABILITIES NOT TAKEN INTO ACCOUNT.—Such li-
abilities shall not be taken into account in computing 
the required annual payment under subparagraph (B). 
"(ii) 
INCREASE IN INSTALLMENTS.—Each 
required 
installment shall be increased by the greater of— 
"(I) the unfunded percentage of the amount of 
benefits described in subsection (lX5XA)(i) paid 
during the 3-month period preceding the month in 
which the due date for such installment occurs, or 
"(II) 25 percent of the amount determined under 
subsection (lX5XAXii) for the plan year. 
"(iii) 
UNFUNDED 
PERCENTAGE.—For 
purposes of 
clause (iiXD, the term 'unfunded percentage' means the 
percentage determined under subsection (lX5XAXiXI) 
for the plan year. 
"(iv) LIMITATION ON INCREASE.—In no event shall the 
increases under clause (ii) exceed the amount necessary 
to increase the funded current liability percentage 
(within the meaning of subsection (1X8XB)) for the plan 
year to 100 percent,'. 
(B) Subparagraph (D) of section 302(eX4) of ERISA is amended 
to read as follows: 
"(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT 
EVENT BENEFITS.—In the case of a plan to which subsection 
(d) applies for any calendar year and which has any un-
predictable contingent event benefit liabilities— 
"(i) LIABILITIES NOT TAKEN INTO ACCOUNT.—Such li-
abilities shall not be taken into account in computing 
the required annual payment under subparagraph (B). 
"(ii) 
INCREASE IN INSTALLMENTS.—Each 
required 
installment shall be increased by the greater of— 
"(I) the unfunded percentage of the amount of 
benefits described in subsection (dXSXAXi) paid 
auring the 3-month period preceding the month in 
which the due date for such installment occurs, or 
"(II) 25 percent of the amount determined under 
subsection (dX5XAXii) for the plan year. 
103 STAT. 2438 
PUBLIC LAW 101-239—DEC. 19, 1989 
' - - 
J,; -T 
"(iii) 
UNFUNDED 
PERCENTAGE.—For purposes of 
<^ • 
clause (iiXI), the term 'unfunded percentage' meanStK§ 
^' 
L'-'Z.' 
percentage determined under subsection (dXSXAXiXD 
'-^ 
for the plan year. 
"(iv) LIMITATION ON INCREASE.—In no event shall the 
increases under clause (ii) exceed the amount necessary 
_ ^ 
to increase the funded current liability percentage 
(within the meaning of subsection (dXSXB)) for the plan 
year to 100 percent.". 
29 use 1021. 
(5XA) Section lOl(dXl) of ERISA is amended by striking "an 
employer of a plan" and inserting "cm employer maintaining a 
plan". 
29 use 1132. 
(B) Section 502(c) of ERISA is amended by adding at the end 
thereof the following new paragraph: 
Employment 
"(3) Any employer maintaining a plan who fails to meet the notice 
^^^ 
requirement of section 101(d) with respect to any participant or 
unemp oymen . 
beneficiary may in the court's discretion be liable to such partici-
pant or beneficiary in the amount of up to $100 a day from the date 
of such failure, and the court may in its discretion order such other 
relief as it deems proper.". 
29 use 1021 
(C) Section 9304(d) of the Pension Protection Act is amended 
"°^- 
by striking "Section" and inserting "Effective with respect to 
plan years beginning after December 31,1987, section". 
26 use 412. 
(6XAXi) Subparagraph (B) of section 412(mXl) is amended to 
read as follows: 
"(B) the rate of interest used under the plan in determining 
costs (including adjustments under subsection (bX5XB)).". 
^ 
(ii) Clause (ii) of section 412(dXlXA) is amended by inserting 
^ 
"(including adjustments 
under subsection (bXSXB))" after 
"costs". 
29 use 1082. 
(BXi) Subparagraph (B) of section 302(eXl) of ERISA is 
amended to read as follows: 
* 
"(B) the rate of interest used under the plan in determin-
ing 
costs 
(including 
adjustments 
under 
subsection 
(bX5XB)).". 
29 use 1083. 
(ii) Section 303(aXlXB) of ERISA (as redesignated by subsec-
tion (eX2)) is amended by inserting "(including adjustments 
under section 302(bX5XB))" after "costs". 
(7) Section 303(a) of ERISA (as amended by section 
9306(cX2XA) of the Pension Protection Act) is amended— 
(A) by redesignating subparagraphs (A) and (B) as para-
graphs (1) and (2), respectively, and by adjusting the left-
hand margination thereof 4 ems to the left; 
(B) in paragraph (1) (as redesignated), by redesignating 
clauses (i) and (ii) as subparagraphs (A) and (B), respec-
tively; and 
(C) in paragraph (2) (as redesignated), by inserting "of 
such Code" after "section 6621(b)". 
(8) Subsection (f) of section 303 of ERISA (as so redesignated 
by section 9306(aX2) of the Pension Protection Act) is trans-
ferred to immediately after subsection (e) of such section. 
(c) AMENDMENTS RELATED TO SECTION 9306.— 
(1) The last sentence of section 412(fK4XA) is amended by 
striking "the benefit liabilities" and inserting "for benefit liabil-
ities". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2439 
(2) The last sentence of section 303(eXl) of ERISA is amended 29 USC1083. 
by striking "the benefit liabilities" and inserting "for benefit 
liabilities". 
(3) Section 9306(fK3) of the Pension Protection Act is amended 26 USC 412 note, 
to read as follows: 
"(3) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to waivers for plan years beginning after December 
31, 1987. For purposes of appljdng such amendments, the 
number of wtdvers which may be granted for plan years after 
December 31, 1987, shall be determined without regard to any 
waivers granted for plan years beginning before January 1, 
1988.". 
(d) AMENDMENTS RELATED TO SECTION 9307.— 
(IXA) Qause (iu) of section 412(bX5)(B) is amended by striking 26 USC 412. 
"for purposes of this section and for purposes of determining 
current liability,". 
(B) Clause (iii) of section 302(bX5XB) of ERISA is amended by 29 USC 1082. 
striking "for purposes of this section and for purposes of deter-
mining current liability,". 
(2XA) Section 302(bX5XB) of ERISA is amended by inserting 
the following matter after the heading and before clause (i): 
"For purposes of determining a plan's current liability and for 
purposes of determining a plans required contribution under 
section 302(d) for any plan year—". 
(B) Section 302(bX5) of ERISA is amended by striking the 
matter following the heading thereof and preceding subpara-
graph (A). 
(C) Subclause 0) of section 3020i)X5XBXii) of ERISA is amended 
by striking "average rate" and inserting "the weighted average 
of the rates" 
(3) Section 9307(f) of the Pension Protection Act is amended to 26 USC 404 note, 
read as follows: 
"(f) EFFECTIVE DATE.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to years begin-
ning after December 31,1987. 
"(2) 
AMORTIZATION 
OF 
GAINS 
AND 
LOSSES.—Sections 
412(bX2XBXiv) and 412(bX3XBXii) of the Internal Revenue Code 
of 1986 and sections 302a)X2XBXiv) and 302(bX3XBXii) of the 
Employee Retirement Income Security Act of 1974 (as amended 
by paragraphs (IXA) and (2XA) of subsection (a)) shall apply to 
gains and losses established in years beginning after December 
31, 1987. For purposes of the preceding sentence, any gain or 
loss determined by a valuation occurring as of January 1, 1988, 
shall be treated as established in years beginning before 1988, or 
at the election of the employer, shall be amortized in accordance 
with Internal Revenue Service Notice 89-52.". 
(4) Subparagraphs (A) and (B) of section 302(cX3) of ERISA are 
each amended by adjusting the left-hand margination thereof, 
and of each subdivision thereof, 2 ems to the left. 
(e) AMENDMENTS RELATED TO SECTION 9311.— 
(1) Section 9311(aX2) of the Pension Protection Act is amended 
29 USC 1344 
by striking "plan assets to the employer for purposes of section 
"°*®-
4044(dXlXC) of the Employee Retirement Income Security Act of 
1974" and inserting "residual plan assets upon termination". 
(2) Section 9311(d) of the Pension Protection Act is amended— 
29 USC 1344 
note. 
103 STAT. 2440 
PUBLIC LAW 101-239—DEC. 19, 1989 
(A) by striking "section 4041(cr and inserting "section 
4041" in paragraph (1), and 
(B) by adding at the end thereof the following new flush 
sentence: 
"Except as provided in subsection (aX2), the amendments made by 
subsection (a) shall, apply to any provision of the plan or plan 
amendment adopted an«r December 17,1987.". 
29 use 1344. 
(3) Section 9311(bX2) of the Pension Protection Act is amended 
by striking "subsection (cXD" and inserting "subsection (aXD". 
29 use 1
3
4
4 
(4) Section 9311(aX2) of the Pension Protection Act is 
"°*® 
amended— 
(A) by striking "1 year after the effective date of such 
amendments made by paragraph (1)" and inserting 
"December 17,1988"; and 
(B) by striking the last sentence. 
(f) AMENDMENTS RELATED TO SECTION 9312.— 
29 use 1322 
(1) Section 9312(bX3XBXi) of the Pension Protection Act is 
note. 
amended— 
(A) by striking "section 4022(cXl)" in subclause Q and 
inserting "section 4022(cX3)", and 
(B) by striking "subpars^raph (B) of section 4022(cXl)" 
and inserting "subparagraph (C) of section 4022(cX3)". 
29 use 1362. 
- 
(2) Section 4062(a) of ERKA is amended— 
(A) by inserting "and" at the end of paragraph (1); 
(B) by striking paragraph (2); 
(C) by redesignating paragraph (3) as paragraph (2); and 
(D) in paragraph (2) (as so redesignated), by striking 
"subsection (d) and inserting "subsection (c)". 
29 use 1364. 
(3XA) Section 4064(b) of ERISA is amended bv striking "and 
clauses (iXH) and (ii) of section 40620)X1XA)" and inserting "and 
section 4068(a)". 
29 use 1368. 
(B) Section 4068(a) of ERISA is amended by striking the last 
sentence 
29 use 1322. 
(4) Section 4022(cXl) of ERISA is amended by striking "(m the 
case of a deceased participant)". 
(5) Section 4022(cX3XBXii) of ERISA is amended by inserting 
", and during the 5-Federal fiscal year period ending with the 
fiscal year preceding the fiscal year in which occurs the date of 
the notice of intent to terminate with respect to the plan 
termination for which the recovery ratio is being determined" 
after "1987". 
(6) Section 9312(bX3XB) of the Pension Protection Act is 
amended by striking clause (ii). 
29 use 1341. 
(7) Section 4041(c) of ERISA is amended— 
(A) by striking "(or its designee imder section 4049(b))" in 
paragraph (2XAXiiiXn), 
(B) by striking "section 4049" in paragraph (2XAXiiiXn) 
and inserting "section 4022(c)", and 
(C) by striking the last sentence of paragraph (3XCXi). 
29 use 1370. 
(8) Section 4070(a) of ERISA is amended by striking "4049,". 
29 use 1301 
(9) Section 9312(dXl) of the Pension Protection Act is amended 
by striking "section 4041(c)" and inserting "section 4041". 
(lOXA) Section 4062(bX2XB) of ERISA is amended by striking 
"the liability imder paragraph (IXAXii)" and inserting "so much 
of the liability imder paragraph (1)(A) as exceeds 30 percent of 
the collective net worth of all persons described in subsection (a) 
(including interest)". 
note. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2441 
(B) Section 9312(bX2XBXii) of the Pension Protection Act is 29 use 1362. 
amended to read as follows: 
"(ii) Section 4062(d) of ERISA (as redesignated by 
parfigraph (IXB)) is amended by striking out paragraph 
(3).". 
(C) Section 4068 of ERISA is amended by adding at the end 
29 use 1368. 
the follo\nng new subsection: 
"(f) DEFINITIONS.—For purposes of this section— 
"(1) The collective net worth of persons subject to liability in 
connection with a plan termination shall be determined as 
-
provided in section 4062(dXl). 
"(2) The term 'pre-tax profits' has the meaning provided in 
section 4062(dX2).'\ 
(11) Section 4022(cXl) of ERISA is amended by striking "sec- 29 USC1322. 
tion 4044(a), to such participant" and inserting "section 4044(a). 
Such payment shall be made to such participant". 
(12) Subsection (a) of section 4068 of ERISA is amended— 
(A) by striking "to the extent such amount does not 
exceed 30 percent of the collective net worth of all persons 
described in section 4062(a)" the first place it appears; and 
(B) by striking "to the extent such amount does not Gifts and 
exceed 30 percent of the collective net worth of all persons property. _ 
described in section 4062(a)" the second place it appears and ^^^ property, 
all that follows and inserting the following: "in the amount 
of such liability (including interest) upon all property and 
rights to property, whether real or personal, belonging to 
such person, except that such lien may not be in an amount 
in excess of 30 percent of the collective net worth of all 
persons described in section 4062(a)". 
(13) The table of contents in section 1 of ERISA is amended by 
striking the item relating to section 4049, 
(g) AMENDMENTS RELATED TO SECTION 9313.— 
(1) Section 4041(dXl) of ERISA is amended by striking "suffi- 
29 use 1341. 
cient for benefit commitments" and inserting "sufficient for 
benefit liabilities". 
(2) Section 4041(cX2XB) of ERISA is amended by inserting 
"proposed" before "termination" in the parenthetical in the 
second sentence 
(3) Clause (ii) of section 4041(cX2XA) of ERISA is amended— 
(A) by inserting "unless the corporation determines the 
* ' 
• 
-
information is not necessary for purposes of paragraph 
(3XA) or section 4062," before "certification", 
(B) by inserting "and, if applicable, the proposed distribu-
tion date" after "termination date" in subclause (I), and 
(C) by striking "date" and inserting "dates" in subclauses 
(II) through (V). 
(4) Subparagraph (B) of section 4041(bX3) of ERISA is amend-
(5) Section 9313(bX3) of the Pension Protection Act is amended 
29 use 1341. 
by inserting "each place it appears" before the period. 
(6) Section 4041(bX2XA) of ERISA is amended by adjusting the 
left-hand margination of the last sentence two ems to the right. 
(7) The first subsection (b) of section 9314 of the Pension 
Protection Act is amended by striking "Section 4042" and 
29 use 1342. 
inserting "Section 4042(a)", and by striking "third sentence" 
and inserting "last sentence". 
103 STAT. 2442 
PUBLIC LAW 101-239—DEC. 19, 1989 
29 use 1371. 
(8) Section 9314(cXl) of the Pension Protection Act is amended 
by inserting "title IV of' after "Subtitle D of'. 
, 
(h) AMENDBIENT RELATED TO SECTION 9331.— 
29 use 1306. 
(1) Subparagraph (E) of section 4006(aX3) of ERISA is amend-
ed by adding at the end thereof the following new clause: 
"(v) No premium shall be determined imder this subparagraph for 
any plan year if, as of the close of the preceding plan year, contribu-
tions to the plan for the preceding plan year were not less than the 
full funding limitation for the preceding plan year under section 
412(cX7) of the Internal Revenue Code of 1986.". 
(2) aause (iii) of section 4006(cXlXA) of ERISA is amended by 
adjusting the left-hand margination thereof 2 ems to the left, 
(i) AMENDMENTS RELATED TO SECTION 9341.— 
26 use 401. 
(IXA) Section 401(aX29XCXiXn) is amended by inserting "and 
any other plan amendments adopted after December 22, 1987, 
and before such plan amendment after "amendment". 
29 use 1085b. 
(B) Section 307(cXlXB) of ERISA is amended by inserting "and 
any other plan amendments adopted after December 22, 1987, 
and before such plan amendment . 
(2) Section 307(d) of ERISA is amended by inserting "of the 
Treasury" after "Secretary". 
(3XA) Section 307 of ERISA is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection 
(d) the following new subsection: 
"(e) NOTICE.—A contributing sponsor which is required to provide 
security under subsection (a) shall notify the Pension Benefit Guar-
anty Corporation within 30 days after the amendment requiring 
such security takes effect. Such notice shall contain such informa-
tion as the Corporation may require.". 
29 use 1371. 
(B) Section 4071 of ERISA is amended— 
(i) by striking "or subtitle A, B, or C" and inserting ", 
subtitle A, B, or C, as section 302(fX4) or 307(e)", and 
(ii) by inserting "or such section" after "such subtitle". 
(4XA) Clause (i) of section 401(aX29XA) is amended by insert-
ing "to which the requirements of section 412 apply" after 
"multiemployer plan)". 
(B) Section 307(aXl) of ERISA is amended by mserting "to 
which the requirements of section 302 apply" after "multiem-
ployer plan)". 
26 use 401 note. 
(5) Section 9341(c) of the Pension Protection Act is amended 
by inserting "(without r^ard to any extension, amendment, or 
modification of such agreements on or after such date of enact-
ment)" after "ratified before the date of enactment", 
(j) AMENDMENTS RELATED T
O SECTION 9342.— 
29 use 1023. 
(1) Paragraph (11) of section 103(d) of ERISA is amended— 
(A) by striking "60 percent" and inserting "70 percent", 
and 
(B) by striking "such percentage" and inserting "the 
. , 
percentage which such value is of such liability.". 
29 use 1132. 
(2) Section 502(aX6) of ERISA is amended by striking "subsec-
tion (i)" and inserting "subsection (cX2) or (i)". 
(3) Section 502(cX2) of ERISA is amended— 
(A) by inserting "against any plan administrator" after 
«, , )
?
>
.
. ,•. 
"civil penalty", and 
(B) by striking "a plan administrator's" and inserting 
"such plan administrator's". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2443 
(4) Paragraph (2) of section 413 of ERISA is amended by 29 USC ills, 
striking the comma, 
(k; AMENDMENT RELATED TO SECTION 9343.—Section 403(c) of 
ERISA is amended by striking paragraph (3) and by redesignating 29 USC lios. 
paragraph (4) as paragraph (3). 
(X) AitraNDMENTS RELATED TO SECTION 9345.— 
(1) Section 407(dX3XC) of ERISA is amended by adjusting the 29 USC 1107. 
left-hand margination thereof 2 ems to the left. 
(2) Section 407(dX9) of ERISA is amended— 
(A) by striking "such arrangement" and inserting "such 
individual account plan"; and 
(B) by adjusting the left-hand mai^ination thereof 2 ems 
to the right. 
(3) Section 407(f) of ERISA is amended— 
(A) in paragraph (1), bv striking "this subsection" and 
inserting this paragraph ; and 
(B) by striking paragraph (3). 
(4) Section 407(f)(1) of ERISA is amended by inserting 
", immediately following the acquisition of such stock" after 
"if'. 
(5) Section 408(b) of ERISA is amended by adding at the end 29 USC 1108. 
the following new paragraph: 
"(12) The sale by a plan to a party in interest on or after Securities. 
December 18,1987, of any stock, if— 
"(A) the requirements of paragraphs (1) and (2) of subsec-
tion (e) are met with respect to such stock, 
"(B) on the later of the date on which the stock was 
acquired by the plan, or January 1, 1975, such stock con-
stituted a qualifying employer security (as defined in sec-
tion 407(dX5) as then in effect), and 
"(C) such stock does not constitute a qualifying employer 
securi^ (as defin^ in section 407(dX5) as in effect at the 
time 01 the sale).", 
(m) AMENDMENTS RELATED TO SECTION 9346.— 
dXA) Clause (iii) of section 411(cX2XC) is amended to read as 26 USC 411. 
follows: 
"(iii) interest on the sum of the amounts determined under 
clauses (i) and (ii) compounded annually— 
"(I) at the rate of 120 percent of the Federal mid-term 
rate (as in effect under section 1274 for the 1st month of a 
plan year) for the period beginning with the 1st plan year to 
^ 
5
: 
which subsection (aX2) applies (by reason of the applicable 
effective date) and ending with the date on which the 
^ 
determination is being mad^, and 
"(II) at the interest rate which would be used under the 
plan under section 417(eX3) (as of the determination date) 
for the period b^^ning with the determination date and 
ending on the date on which the employee attains normal 
retirement age.". 
(B) Subparagraph (B) of section 411(cX2) is amended to read as 
follows: 
"(B) DEFINED BENEFIT PLANS.—In the case of a defined 
benefit plan, the accrued benefit derived from contributions 
made by an employee as of any applicable date is the 
amount equal to the employee's accumulated contributions 
expressed as an eumusd benefit commencing at normal 
retirement age, using an interest rate which would be used 
103 STAT. 2444 
PUBLIC LAW 101-239—DEC. 19,1989 
under the plan under section 417(eX3) (as of the determina-
tion date).". 
26 use 411. 
(C) Section 411(cX2) is amended by striking subparagraph (E). 
(D) Section 411(aX7) is amended by adding at the end thereof 
the following new subparagraph: 
"(D) ACCRUED BENEFIT ATTRIBUTABLE TO EMPLOYEE CON-
TRIBUTIONS.—The accrued benefit of an employee shall not 
be less than the amount determined under subsection 
(cX2XB) with respect to the employee's accumulated con-
tributions.". 
29 use 1054. 
(2XA) Clause (ui) of section 204(cX2XC) of ERISA is amended to 
read as follows: 
"(iii) interest on the sum of the amounts determined 
under clauses (i) and (ii) compounded annually— 
"(I) at the rate of 120 percent of the Feideral mid-
term rate (as in effect under section 1274 of the 
Internal Revenue Code of 1986 for the 1st month of 
a plan year for the period beginning with the 1st 
plan year to which subsection (aX2) applies by 
reason of the applicable effective date) and ending 
with the date on which the determination is being 
made, and 
"(II) at the interest rate which would be used 
under the plan under section 205(gX3) (as of the 
determination date) for the period beginning with 
the determination date and ending on the date on 
which the employee attains normal retirement 
age.". 
(B) Subparagraph (B) of section 204(cX2) of ERISA is amended 
to read as follows: 
"(B) DEFINED BENEFTT PLANS.—In the case of a defined benefit 
plan, the accrued benefit derived from contributions made by an 
employee as of any applicable date is the amount equal to the 
employee's accumulated contributions expressed as an annual bene-
fit commencing at normal retirement age, using an interest rate 
which would be used under the plan under section 205(gX3) (as of the 
determination date).". 
(C) Section 204(cX2) of ERISA is amended by striking subpara-
graph (E). 
29 use 1002. 
(D) Paragraph (23) of section 3 of ERISA is amended by adding 
at the end thereof the following new flush sentence: 
"The accrued benefit of an employee shall not be less than the 
amount determined under section 204(cX2)(B) with respect to the 
employee's accumulated contribution.". 
29 use 1054 
(3)If— 
**°*®' 
(A) during the period beginning December 22, 1987, and 
ending June 21, 1988, a plan was amended to reflect the 
amendments made by section 9346 of the Pension Protec-
tion Act, and 
(B) such plan is amended to reflect the amendments made 
by this subsection, 
any plan amendment described in subparcigraph (B) shall not be 
treated as reducing accrued benefits for purposes of section 
411(dX6) of the Internal Revenue Code of 1986 or section 204(g) 
of ERISA. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2445 
SEC 7882. EFFECnVE DATE. 
26 USC 401 note. 
Except as otherwise provided in this subpart, any amendment 
made by this subpart shall take effect as if included in the provision 
of the Pension Protection Act to which such amendment relates. 
Subpart D—-Additional Pension Provisions 
SEC. 7891. AMENDMENTS RELATING TO THE TAX REFORM ACT OF 1986. 
(a) AMENDMENTS RELATED TO SECTION 2.— 
(1) Titles I, in, and IV of ERISA (other than sections 3(37)(E), 29 use looi 
301(aX7), and 308, the last sentence of section 408(d), and sec- ^
'
^
^
^ 
tions 414(c), 4001(aX3Xii)> and 4303) are each amended by strik-
ing "Internal Revenue Code of 1954" each place it appears and 
inserting "Internal Revenue Code of 1986". 
(2) The last sentence of section 408(d) of ERISA (as amended 29 use 1108. 
by section 7894(eX4XAXi)) is further amended— 
(A) by striking "section 408 of the Internal Revenue Code 
of 1954 and inserting "section 408 of the Internal Revenue 
Code of 1986"; and 
(B) by striking "section 408(c) of such Code" and inserting 
"section 408(c) of the Internal Revenue Code of 1986". 
(b) AMENDMENTS RELATED TO SECTION 1139.— 
(1) Paragraphs (2XA) and (2XB) of section 203(e) of ERISA are 29 use 1053. 
each amended by adjusting the margination thereof, and of each 
subdivision thereof, 2 ems to the left. 
(2) Subparagraph (B) of section 203(eX2) of ERISA is amended 
by striking "APPUCABLE INTEREST RATE.—". 
(3) Paragraph (3XA) of section 205(g) of ERISA is amended by 29 use 1055. 
adjusting the left-hand margination thereof, and of each sub-
division thereof, 2 ems to the left. 
(c) AMENDMENT RELATED TO SECTION 1145.—Paragraph (3) of sec-
tion 205(b) of ERISA (as added by section 1145(b) of the Reform Act) 
is amended by adijusting the left-hand margination thereof 2 ems to 
the left. 
(d) AMENDMENTS RELATED TO SECTION 1895.— 
(IXAXi) Section 606 of ERISA is amended— 
29 use 1166. 
(I) in paragraph (2), by inserting after "30 da3^" the 
following: "(or, in the case of a group health plan which is a 
multiemployer plan, such longer period of time as may be 
provided in the terms of the plan) ; and 
(ID in the firat sentence following paragraph (4), by 
inserting after "14 days" the following: "(or, in the case of a 
group health plan which is a multiemployer plan, such 
v 
longer period of time as may be provided in the terms of the 
plan)", 
(ii) Section 606 of ERISA is amended— 
(I) by inserting "(a) IN GENERAL.—" before "In accord-
ance"; 
(n) by striking "For purposes of paragraph (4)," and 
inserting the following: 
"(c) RULES RELATING TO NOTIFICATION OF QUALIFIED BENEFICIARIES 
B
Y PLAN ADMINISTRATOR.—For purposes of subsection (aX4),"; and 
(m) by inserting after subsection (aX4) (as so designated 
by the amendment made by subclause (I)) tlie following new 
subsection: 
103 STAT. 2446 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(b) ALTERNATIVE MEANS OF COMPLIANCE WITH RsQuntEiyiENT FOR 
NOTIFICATION OF MULTIEMPLOYER 
PLANS BY EMPLOYERS.—The 
requirements of subsection (aX2) shall be considered satisfied in the 
case of a multiemployer plan in connection with a qualifying event 
described in paragraph (2) of section 603 if the plan provides that the 
determination of the occurrence of such qualifying event will be 
made by the plan administrator.". 
(BXi) Section 4980B(fX6) of the 1986 Code (as added by 
the Technical and Miscellaneous Revenue Act of 1988) is 
^ ;
f 
amended— 
?
^ * « 
(D in subparagraph (B), by inserting after "30 days" the 
1
^ 
following: "(or, in the case of a group health plan wMch is a 
r^r, multiemployer plan, such longer period of time as may be 
provided in the terms of the plan) ; and 
(ID in the first sentence following subparagraph (D), by 
inserting after "14 days" the following: "(or, in the case of a 
group health plan which is a multiemployer plan, such 
longer period of time as may be provided in the terms of the 
plan)", 
(ii) Section 4980B(fX6) of the 1986 Code (as added by the 
Technical and Miscellaneous Revenue Act of 1988) is amended 
by inserting, after and below subparagraph (D), the following 
new flush sentence: 
"The requirements of subparagraph (B) shall be considered satisfied 
in the case of a multiemployer plan in connection with a qualifying 
event described in paragraph (3)(B) if the plan provides that the 
determination of the occurrence of such qualifying event will be 
made by the plan administrator.". 
26 use 4980B 
(Q The amendments made by this paragraph shall apply with 
"°*®- 
respect to plan years beginning on or after January 1, 1990. 
. 
(2XA) Section 4980B(f) of the 1986 Code (as added by the 
Technical and Miscellaneous Revenue Act of 1988) is amended 
by adding at the end the following new paragraph: 
"(8) OPTIONAL EXTENSION OF REQUIRED PERIODS.—A group 
health plan shall not be treated as failing to meet the require-
ments of this subsection solely because the plan provides both— 
"(A) that the period of extended coverage referred to in 
paragraph (2)(B) commences with the date of the loss of 
i 
coverage, and 
"(B) that the applicable notice period provided under 
paragraph (6)(B) commences with the date of the loss of 
coverage.". 
29 use 1167. 
(BXi) Section 607 of ERISA is amended— 
(D m the heading, by inserting "AND SPECIAL RULES" 
after "DEFINITIONS"; and 
(H) by adding at the end the following new paragraph: 
"(5) OPTIONAL EXTENSION OF REQUIRED PERIODS.—A group 
health plan shall not be treated as failing to meet the require-
ments of this part solely because the plan provides both— 
"(A) that the period of extended coverage referred to in 
section 602(2) commences with the date of the loss of cov-
erage, and 
"(B) that the applicable notice period provided under 
section 606(aX2) commences with tiie date of the loss of 
coverage.". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2447 
(ii) The item relating to section 607 in the table of contents in 
section 1 of ERISA is amended by inserting "and special rules" 
after "Definitions". 
(C) The amendments made by this paragraph shall apply with 26 use 4980B 
respect to plan years beginning on or after January 1, 1990. note. 
(e) AMENDMENTS RELATED TO SECTION 1898.—Section 205(h) of 
ERISA is amended— 
29 use 1055. 
(1) in paragraph (1), by striking "the term" and inserting 
"TTie term", and by striking "benefit," and inserting "benefit. ; 
and 
(2) in paragraph (3), by striking "the term" and inserting 
"The term". 
(f) EFFEXTTIVE DATE.—Except as otherwise provided in this section, 29 use 1002 
any amendment made by this section shall take effect as if included "ote. 
in the provision of the Reform Act to which such amendment 
relates. 
SEC 7892. AMENDMENTS RELATING TO THE PENSION PROTECTION ACT. 
(a) AMENDMENT RELATED TO SECHON 9203.—Section 202(aX2) of 
ERISA is amended by striking the comma. 
29 use 1052. 
(b) AMENDMENT RELATED TO SECTION 9301.—Paragraph (7) of sec-
tion 302(c) of ERISA is amended by adjusting the left-hand 29usei082. 
margination thereof, and of each subdivision thereof, 2 ems to the 
left. 
(c) EFFECTIVE DATE.—An^ amendment made by this section shall 29 use 1052 
take effect as if included m the provision of the Omnibus Budget note. 
Reconciliation Act of 1987 or Pension Protection Act to which such 
amendment relates. 
SEC 7893. AMENDMENTS RELATING TO THE SINGLE-EMPLOYER PENSION 
PLAN AMENDMENTS ACT OF 1986. 
(a) AMENDMENT RELATED TO SECTION 11004.—-Section 3(37)(B) of 
ERISA is amended by striking "section 4001(cXl)" and inserting 29 use 1002. 
"section 4001(bXl)". 
(b) AMENDMENT RELATED TO SECTION 11005.—Subparagraph (B) of 
section 4022A(fX2) of ERISA is amended by striking "the the enact- 29 use I322a. 
ment" and inserting "the enactment". 
(c) AMENDMENT RELATED TO SECTION 11008.—Subparagraph (B) of 
section 4041Q>X2) of ERISA is amended by adjusting the margination 29 use 1341. 
of the sentence following clause (ii)(V) 2 ems to the left. 
(d) AMENDMENTS RELATED TO SECTION 11009.— 
(1) Subparagraph (D) of section 4041(cX3) of ERISA is amended 
by adjusting the marE[ination thereof, and of each subdivision 
thereof, 2 ems to the right. 
(2) Subclause (J) of section 4041(cX3XDXii) of ERISA is amend-
ed by striking "of and inserting "under". 
(e) AMENDMENT RELATED TO SECTION 11010.—Section 4042(a) of 
ERISA is amended, in the matter following paragraph (4), by insert- 29 use 1342. 
ing a period after "terms of the plan". 
(f) AMENDMENT RELATED TO SECTION 11013.—Subparagraph (A) of 
section 4218(1) of ERISA is amended by striking 'Wtion 4062(d)" 29 use 1398. 
and inserting "section 40690))". 
(g) AMENDMENTS RELATED TO SECTION 11016.— 
(1) Section 4047 of ERISA is amended, in the first sentence, by 29 use 1347. 
striking "under this subtitle". 
(2) Section 4066 of ERISA is amended by inserting "any" 29 use 1366. 
before "contributing sponsor" the first place it appears. 
103 STAT. 2448 
PUBLIC LAW 101-239—DEC. 19, 1989 
29 use 1367. 
29 use 1002 
note. 
29 use 1002. 
Effective date. 
29 use 1002 
note. 
29 use 1002. 
Effective date. 
29 use 1002 
note. 
29 use 1021. 
29 use 1024. 
29 use 1025. 
29 use 1026. 
29 use 1028. 
29 use 1051. 
(3) Section 11016(aX6XAXii) of the Single-Employer Pension 
Plan Amendments Act of 1986 is amended to read as follows: 
"(ii) by striking 'employers' and inserting 'contribut-
,-p. ing sponsors and members of their controlled groups'; 
and". 
(h) EFFECTIVB DATE.—Any amendment made by this section shall 
take effect as if included in the provision of the Single-Employer 
Pension Plan Amendments Act of 1986 to which such amendment 
relates. 
SEC. 7894. OTHER AMENDMENTS TO ERISA. 
(a) AMENDMENTS RELATED TO SECTION 3.— 
(IXA) Section 3(33XDXiii) of ERISA is amended by inserting 
"of the Treasury" after "Secretary" each place it appears. 
(B) The amendments made by subparagraph (A) shall take 
effect as if included in section 407 of the Multiemployer Pension 
Plan Amendments Act of 1980. 
(2XA) Section 3(37XF) of ERISA (as added by section 136 of 
Public Law 100-202 (101 Stat. 1329-441)) is amended— 
(i) in clause (iXII), by striking "such Code" and inserting 
"the Internal Revenue Code of 1986"; 
(ii) in clause (ii)(I), by inserting "of such Code" after 
' 
"section 501(c)"; and 
(iii) in clause (ii)(II), by inserting "of such Code" after 
"section 170(bXlXAXii)". 
(B) The amendment made by this par^raph shall take effect 
as if included in section 136 of Public Law 100-202. 
(3) Section 3(39) of ERISA is amended by inserting a comma 
after "mean" and by inserting "the" before "calendar". 
(4) Section 3 of ERISA is amended by adding at the end the 
following new paragraph: 
"(41) SINGLE-EMPLOYER PLAN.—The term 'single-employer plan' 
means an employee benefit plan other than a multiemployer plan.". 
(b) AMENDMENTS RELATED TO PART 1 OP SUBTITLE B OF TniE I.— 
(1) The heading for part 1 of subtitle B of title I of ERISA is 
amended by striking "Part I" and inserting "Part 1". 
(2) Section 101(aX2) of ERISA is amended by striking "sec-
tion" and inserting "sections". 
(3) Section 104(aX5XB) of ERISA is amended by striking the 
period and inserting a comma. 
(4) Section 104G)X1) of ERISA is amended by striking the 
comma after "summary". 
(5) Section 105(b) of ERISA is amended by strikmg "12 
* month" £md inserting "12-month". 
(6) Section 106(b) of ERISA is amended by striking "section" 
and inserting "sections". 
(7) Section 108 of ERISA is amended by striking "act of 
omission" and inserting "act or omission". 
(c) AMENDMENTS RELATED TO PART 2 OF SUBTITLE B OP TITLE I.— 
dXA) Section 201 of ERISA is amended— 
(i) in paragraph (6), by striking "or" at the end; 
J
, 
(ii) in paragraph (7), by striking "plan." and inserting 
"plan; or ; and 
(iii) in paragraph (8), by striking "Any" and inserting 
"any". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2449 
(B) The amendments made by subparagraph (A) shall take 
effect as if included in section 411 of the Multiemployer Pension 
Plan Amendments Act of 1980. 
(2XA) Section 202(aXlXBXii) of ERISA is amended by striking^ 
"institution" and inserting "organization". 
(B) Section 202a>X2) of ERISA is amended by striking "the 
plsm" and inserting "a plan". 
(3) Section 203(aX3XDXv) of ERISA is amended by striking 
"nonforfeitably" and inserting "nonforfeitability". 
(4) Section 204(bXlXA) of ERISA is amended in the last sen-
tence by striking "suparagraph" and inserting "subparagraph". 
(5) Section 204(bXlXE) of ERISA is amended by strikmg 
"years" in the last sentence and inserting "year". 
(6) Section 204(d) of ERISA is amended, in the matter follow-
ing paragraph (2), so as to remove the indentation of the term 
"Paragraph the first place it appears. 
(7XA) Section 205(cX6) of ERISA is amended by striking "act" 
and inserting "Act". 
(B) The amendment made by subparagraph (A) shall take 
effect as if included in section 103 of the Retirement Equity Act 
of 1984 in reference to the new section 205(cX5) of ERISA as 
added by such section 3113. 
(8) Section 206(aXl) of ERISA is amended by inserting 
"occurs" after "(1)". 
(9XA) Section 206(dX3XD of ERISA is amended by striking 
"act" and inserting "Act". 
(B) The amendment made by subparagraph (A) shall take 
effect as if included in section 104 of the Retirement Equity Act 
of 1984. 
(10) Section 210(c) of ERISA is amended by striking "such 
code" and inserting "such Code". 
(IIXA) Section 201(6) of ERISA is amended by striking "sec-
tion 409 of such Code" and inserting "section 409 of the Internal 
Revenue Code of 1954 (as effective for obligations issued before 
January 1,1984)". 
(B) llie amendment made by subparagraph (A) shall take 
effect as if originally included in section 491(b) of Public Law 
98-369. 
(d) AMENDMENT RELATED TO PAST 3 OF SUBTITLE B OF TITLE I.— 
(IXA) Section 301(a) of ERISA is amended— 
(i) in paragraph (8), by striking "or" at the end; 
(ii) in paragraph (9), by striking "plan." and inserting 
"plan; or ; and 
(iii) in paragraph (10), by striking "Any" and inserting 
"any". 
(B) The amendments made by subparagraph (A) shall take 
effect as if included in section 411 of the Multiemployer Pension 
Plan Amendments Act of 1980. 
(2) Qause (iii) of section 302(bX3XB) of ERISA is amended by 
striking the period and inserting a comma. 
(3) Subparagraph (A) of section 304(bX2) of ERISA is amended 
by striking the period and inserting a comma. 
(4XA) Section 301(aX7) of ERISA is amended by striking "sec-
tion 409 of such Code" and inserting "section 409 of the Internal 
Revenue Code of 1954 (as effective for obligations issued before 
January 1,1984)". 
Effective date. 
29 u s e 1051 
note. 
29 u s e 1052. 
29 u s e 1053. 
29 u s e 1054. 
29 u s e 1055. 
Effective date. 
29 u s e 1055 
note. 
29 u s e 1056. 
Effective date. 
29 u s e 1056 
note. 
29 u s e 1060. 
29 u s e 1051. 
Effective date. 
29 u s e 1051 
note. 
29 u s e 1081. 
Effective date. 
29 u s e 1081 
note. 
29 u s e 1082. 
29 u s e 1084. 
103 STAT. 2450 
PUBLIC LAW 101-239—DEC. 19, 1989 
Effective date. 
29 use 1081 
note. 
29 u s e 1082. 
29 use 1103. 
Effective date. 
29 u s e 1103 
note. 
29 u s e 1107. 
29 u s e 1108. 
Effective date. 
29 u s e 1108 
note. 
29 u s e 1113. 
29 u s e 1114. 
29 use 1132. 
29 u s e 1144. 
(B) The amendment made by subparagraph (A) shall take 
effect as if originally included in section 491(b) of Public Law 
98-369 
(5) Paragraph (6) of section 302(c) of ERISA is amended by 
striking "subsection (g)" and inserting "section 305". 
(e) AMENDMENTS RSXATED TO PART 4 OF SUBTITLE B OF TITLE I.— 
(IXA) Subsection (c) of section 403 of ERISA is amended— 
(i) in paragraph (2XA), by striking "part iv" and inserting 
"title IV", and 
(ii) by inserting "if such contribution or payment is" after 
"(i)" and "(ii)", respectively. 
(B) The amendment made by subparagraph (A) shall take 
effect as if included in section 410 of the Multiemployer Pension 
Plan Amendments Act of 1980. 
(2) Section 407(dX6XA) of ERISA is amended— 
(A) by inserting "plan" sifter "money purchase"; and 
(B) by striking "employee securities" and inserting "em-
ployer securities". 
. 
(3) Paragraph (3) of section 403(b) of ERISA is amended— 
(A) by redesignating clauses (i) and (ii) as subparagraphs 
(A) and (B), respectively; 
(B) by strikmg ", to the extent" and all that follows 
through "applicable" in subparagraph (B) (as so redesig-
nated); and 
(C) by adding at the end, after and below subparagraph 
(B) (as redesignated), the following: 
"to the extent that such plan's assets are held in one or more 
custodial accounts which qualify under section 401(f) or 408(h) of 
such Code, whichever is applicable.". 
(4XA) Section 408(d) of ERISA is amended, in the last sen-
tence— 
(i) by striking "individual retirement account, individual 
retirement annuity, or an individual retirement bond (as 
defined in section 408 or 409 of the Internal Revenue Coide 
of 1954)" and inserting "individual retirement account or 
individual retirement annuity described in section 408 of 
the Internal Revenue Code of 1954 or a retirement bond 
described in section 409 of the Internal Revenue Code of 
1954 (as effective for obligations issued before January 1, 
1984)"; and 
(ii) by striking "section 408(c) of such code" and inserting 
"section 408(c) of such Code". 
(B) The amendments made b^ subparagraph (A) shall take 
effect as if originally included m section 491(b) of the Deficit 
Reduction Act of 1984. 
(5) Section 413 of ERISA is amended by striking "(a)". 
(6) Section 414(cX2) of ERISA is amended by striking "1954)" 
and inserting "1986", and by striking "prior law" and inserting 
"prior law)". 
(f) AMENDMENTS RELATED TO PART 5 OF SUBTTTLE B OF TITLE I.— 
(1) Section 502(bXl) of ERISA is amended by striking "respct" 
and inserting "respect". 
(2XA) Section 514(bX5XC) of ERISA (as amended by section 301 
of Public Law 97-473 (96 Stat. 2611)) is amended by striking 
"such parts" the second place it appears and inserting "such 
parts 1 and 4 and the preceding sections of this part". 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2451 
(B) The amendment made by this paragraph shedl take effect 
as if included in section 301 of Public Law 97-473. 
(3XA) Section 514(bX6XB) of ERISA (as amended by section 
302 of Public Law 97-473 (96 Stat. 2612)) is amended by striking 
"section 3(0" and inserting "section 3(1)". 
(B) The amendments made by this paragraph shall take efTect 
as if included in section 302 of Public Law 97-473. 
(g) AMENDMENTS TO TITLE IV.— 
(1) Section 4022(bX2) of ERISA is amended by striking "60 
month" and inserting "60-month". 
(2) Paragraph (1) of section 4044(a) of ERISA is amended by 
striking "accured" and inserting "accrued". 
(3XA) Section 4021(a) of ERISA is amended by striking "this 
section" and inserting "this title". 
(B) Section 4022(a) of ERISA is amended by striking "section 
4021" and inserting "this title". 
(CXi) Section 4022A(aXl) of ERISA is amended by striking 
"section 4021" and inserting "this title". 
(ii) The amendment made by clause (i) shall take effect as if 
originally included in section 102 of the Multiemployer Pension 
Plan Amendments Act of 1980. 
(4XA) Paragraph (2) of section 4068(c) of ERISA is amended by 
striking "section 3466 of the Revised Statutes (31 U.S.C. 191)^' 
and inserting "section 3713 of title 31 of the United States 
Code". 
(B) The amendment made by subparagraph (A) shall take 
effect as if originally included in section 3 of Public Law 97-258. 
(h) AMENDMENTS CLAHIFYING APPUCABIUTY OP ORIGINAL EFFEC-
TIVE DATE PROVISIONS.— 
(1) Section 111 of ERISA is amended by adding at the end the 
following new subsection: 
"(d) Subsections (b) and (c) shall not apply with respect to amend-
ments made to this part in provisions enacted after the date of the 
enactment of this Act.". 
(2) Section 211 of ERISA is amended by adding at the end the 
following new subsection: 
"(f) The preceding provisions of this section shall not apply with 
respect to amendments made to this part in provisions enacted after 
the date of the enactment of this Act. . 
(3) Section 308 of ERISA is amended by adding at the end the 
following new subsection: 
"(f) The preceding provisions of this section shcdl not apply with 
respect to amendments made to this part in provisions enacted after 
the date of the enactment of this Act. . 
(4) Section 414 of ERISA is amended by adding at the end the 
following new subsection: 
"(e) The preceding provisions of this section shall not apply with 
respect to amendments made to this part in provisions enacted after 
the date of the enactment of this Act. . 
(5XA) Section 4402 of ERISA is amended by adding at the end 
the following new subsection: 
"(i) The preceding provisions of this section shall not apply with 
respect to amendments made to this title in provisions enacted after 
the date of the enactment of the Tax Reform Act of 1986.". 
(B) The amendment made by subparagraph (A) shall take 
effect as if originally included in the Reform Act. 
Effective date. 
29 use 1144 
note. 
29 use 1144. 
Effective date. 
29 use 1144 
note. 
29 use 1322. 
29 use 1344. 
29 use 1321. 
29 use 1322a. 
Effective date. 
29 use 1322a 
note. 
29 use 1368. 
Effective date. 
29 use 1368 
note. 
29 use 1031. 
29 use 1061. 
29 use 1086. 
29 use 1114. 
29 use 1461. 
Effective date. 
29 use 1461 
note. 
103 STAT. 2452 
PUBLIC LAW 101-239—DEC. 19, 1989 
29 use 1002 
(i) EFPBCTIVB DATE.—Except as otherwise provided in this section, 
note. 
anv amendment made by tnis section shall take effect as if origi-
nally included in the provision of the Employee Retirement Income 
Security Act of 1974 to which such amendment relates. 
TITLE VIII—HUMAN RESOURCE AND 
INCOME SECURITY PROVISIONS 
SEC. 8000. TABLE OF CONTENTS; AMENDMENT OF SOCIAL SECURITY ACT. 
(a) TABLE OF CONTENTS.— 
%•' 
Sec. 8000. Table of contents; amendment of Social Security Act. 
Sec. 8001. Extension of authority to transfer foster care funds to child welfare serv-
ices. 
Sec. 8002. Extension of independent living initiatives pn^am. 
Sec. 8003. Permanent extension of medicaid eligibility extension due to collection of 
^ f
: 
child or spousal support 
Sec. 8004. New AFDC quality control system. 
Sec. 8005. Emergency assistance and AFDC special needs. 
Sec. 8006. Increase in reimbursement for foster and adoptive parent training. 
Sec. 8007. Case plans to include health and education records and to be reviewed 
and updated at the time of each placement 
Sec. 8008. E2stablishment and conduct of outreach program for children. 
Sec. 8009. Eligibility for benefits of children of Armed Forces personnel residing 
overseas. 
Sec. 8010. Rule for deeming to children the income and resources of their parents 
waived for certain disabled children. 
Sec. 8011. Exclusion from income of domestic commercial transportation tickets re-
ceived as gifts. 
Sec. 8012. Reduction in time during which income and resources of separated cou-
ples must be treated as jointly available. 
Sec. 8013. Exclusion of accrued income with respect to purchase of certain burial 
spaces. 
Sec. 8014. Exclusion 
frt>m 
resources of all income-producing property. 
Sec. 8015. Demonstration of effectiveness of Minnesota Family bivestment Plan. 
Sec. 8016. Increase in funding for title XX social services block grant. 
^ 
(b) AMENDMENT OP SOCIAL SECURITY ACT.—Except as otherwise 
expressly provided, whenever in this title an amendment or repeal 
is expressed in terms of an amendment to, or repeal of, a section or 
other provision, the reference shall be considered to be made to a 
section or other provision of the Social Security Act. 
SEC. 8001. EXTENSION OF AUTHORITY TO TRANSFER FOSTER CARE 
FUNDS TO CHILD WELFARE SERVICES. 
(a) 3-YEAR EXTENSION.—Subsections (bXD, (bX2XB), (bX4XB), 
(bX5XA), (bX5XAXii), (cXD, and (cX2) of section 474 (42 U.S.C. 674) are 
each amended by striking "1989" and inserting "1992". 
42 use 674 note. 
G
>
) E
F
F
E
C
T
I
V
E DATE.—The amendments made by subsection (a) 
shall take effect on October 1,1989. 
SEC. 8002. EXTENSION OF INDEPENDENT UVING INITIATIVES PROGRAM. 
(a) PROGRAM EXTENDED FOR 3 YEARS.—Section 477 (42 U.S.C. 677) 
is amended— 
(1) in each of subsections (aXD and (eXD, by striking ", 1988, 
and 1989" and inserting "through 1992"; and 
(2) in subsection (c), by striking "the fiscal year 1988 or 1989" 
and inserting "any of the fiscal years 1988 through 1992". 
(b) ENTITLEMENT INCREASED.—Section 477(eXl) (42 U.S.C. 677(eXl)) 
is amended— 
(1) by insertmg "(A)" after "(1)"; 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2453 
(2) by striking "The amount" and inserting "The basic 
amount"; 
(3) by striking "and 1989" and inserting "1989,1990,1991, and 
1992"; 
(4) by striking "$45,000,000" and inserting "the basic ceiling 
for such fiscal year"; and 
(5) by adding after and below such provision the following: 
"(B) The maximum additional amount to which a State shall be 
State and local 
entitled under section 474(aX4) for fiscal years 1991 and 1992 shall governments, 
be an amount which bears the same ratio to the additioned ceiling 
for such fiscal year as the basic amount of such State bears to 
$45,000,000."; and 
"(C) As used in this section: 
"(i) The term *basic ceiling* means— 
"(I) for fiscal year 1990, $50,000,000; and 
"(II) for each fiscal year other than fiscal year 1990, 
$45,000,000. 
"(ii) The term 'additional ceiling* means— 
"(X) for fiscal year 1991, $15,000,000; and 
"ai) for fiscal year 1992, $25,000,000.". 
(c) MATCHING PAYMENTS TO STATES.—Section 474(aX4) (42 U.S.C. 
674(aX4)) is amended to read as follows: 
"(4) an amount equal to the sum of— 
"(A) so much of the amounts expended by such State to 
carry out programs under section 477 as do not exceed the 
basic amount for such State determined under section 
477(eXl); and 
"(B) the lesser of— 
"(i) one-half of any additional amounts expended by 
such State for such programs; or 
"(ii) the maximum additional amount for such State 
under such section 477(eXl).". 
(d) STUDY BY THE SECRETARY OP H H S ; REPORT.— 
(1) STUDY.—The Secretary of Health and Human Services 
shall study the programs authorized under section 477 of the 
Social Security Act for the purposes of evaluating the effective-
ness of the programs. The study shall include a comparison of 
outcomes of ch^dren who participated in the programs and a 
comparable group of children who did not participate in the 
programs. 
(2) REPORT.—Upon completion of the study, the Secretary 
shall issue a report to the Committee on Finance of the Senate 
and the Committee on Ways and Means of the House of Rep-
resentatives. 
(e) EFFECTIVE DATE.—The amendments made by subsections (a), 
42 USC 674 note, 
(b) and (c) shall take effect October 1,1989. 
SEC. 8003. PERMANENT EXTENSION OF MEDICAID ELIGIBILITY EXTEN-
SION DUE TO COLLECTION OF CHILD OR SPOUSAL SUPPORT. 
(a) EUMINATION O
F SUNSET O
N APPUCABIUTY O
F MEDICAID EuGI-
BiLiTY EbcTENSiON.—Section 20(b) of the Child Support Enforcement 
Amendments of 1984 (Public Law 98-378) is amended by striking 
42 USC 606 note. 
"and before October 1,1989". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
42 USC 606 note, 
shall take effect on October 1,1989. 
42 USC 677 note. 
Children and 
youth. 
103 STAT. 2454 
PUBLIC LAW 101-239—DEC. 19, 1989 
State and local 
governments. 
42 use 608. 
R^ulations. 
SEC. 8004. NEW AFDC QUALITY CONTROL SYSTEM. 
" 
(a) IN GENERAL.—Part A of title IV (42 U.S.C. 601 et seq.) is 
amended by inserting after section 407 the following: 
"SEC. 408. AFDC QUALITY CONTROL SYSTEM. 
"(a) IN GENERAL.—In order to improve the accuracy of pajrments 
of aid to families with dependent children, the Secretary shall 
establish and operate a quality control system under which the 
Secretary shall determine, with respect to each State, the amount (if 
any) of the disallowance required to be repaid to the Secretary due 
to erroneous pajrments made by the State in canning out the State 
plan approved under this part. 
"(b) REVIEW OF CASES.— 
' 
, 
' ' 
"(1) STATE REVIEW.— 
^ ^ 
"(A) IN GENERAL.—Each State with a plan approved 
*W. 
under this part shall for each fiscal year, in accordance 
with the time schedule and methodology prescribed in regu-
lations issued under paragraphs (1) and (2) of subsection 
( h ) -
j . 
"(i) review a sample of cases in the State with respect 
' ' 
""'^ 
to which a pajonent has been made under such plan 
during the fiscal year; and 
"(ii) determine the level of erroneous pa3nnents for 
the State for the fiscal year. 
^ .., 
"(B) EFFECTS OF FAILURE TO COMPLETE REVIEW IN A TIMELY 
MANNER.— 
"(i) SECRETARY CONDUCTS REVIEW.—If a State fails to 
conduct and complete, on a timely basis, a review 
' '" ' " ' 
required by subparagraph (A), or otherwise fails to 
,^ 
„^ 
cooperate with the Secretary in implementing this 
H.fj.'^ .,; -i 
subsection, the Secretary, directly or through contrac-
tual or such other arrangements as the Secretary may 
^, p 
find 
appropriate, shall conduct the review and establish 
the error rate for the State for the fiscal year on the 
basis of the best data reasonably available to the Sec-
retary, in accordance with the statistical methods that 
would apply if the review were conducted by the State, 
"(ii) STATE INCURS COSTS OF REVIEW.—The amount 
that would otherwise be payable under this part to a 
State for which the Secretary conducts a review under 
• " 
clause (i) shall be reduced by the costs incurred by the 
Secretary in conducting the review. 
"(2) REVIEW BY THE SECRETARY,—The Secretary shall review a 
subsample of the cases reviewed by the State, or by the Sec-
' 
retary with respect to the State, under paragraph (1). 
"(3) NOTIFICATION OF DIFFERENCE CASES.—Upon completion of 
the review under paragraph (2), the Secretary shall notify the 
State of any case in the subsample which the Secretary finds 
involves erroneous pajrments, and which the State's review 
determined to be correct (in this section referred to as a 'dif-
ference case'). 
"(4) ESTABUSHMENT OF QUALFTY CONTROL REVIEW PANEL.—The 
Secretary shall by regulation establish a Quality Control 
Review Panel to review difference cases, 
"(5) RESOLUTION OF DIFFERENCE CASES,— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2455 
"(A) IN GENERAL.—The State may seek review by the 
Panel of any difference case, within the time period pre-
scribed in regulations issued under subsection (hX3). 
"(B) PROCEDURAL RULES.—The State and the Secretary 
may submit such documentation to the Panel as the State 
or the Secretary finds appropriate to substantiate its posi-
tion. The findings of the Panel sh£dl be made on the record, Records, 
within the time period prescribed in regulations issued 
under subsection (hX4). 
"(C) STATUS OP DECISIONS OP THE QUALITY CONTROL REVIEW 
PANEL.—The decisions of the Panel shall constitute the 
decisions of the Secretary for purposes of establishing the 
State's error rate for the fiscal year. 
"(D) APPEALABILITY OF DECISIONS OP THE QUAUTY CONTROL 
REVIEW PANEL.—The docisions of the Panel shall not be 
appealable, except as provided in subsection (k). 
'(c) IDENTIFICATION OP ERRONEOUS PAYMENTS.— 
"(1) APPLY PROVISIONS OP STATE PLAN.—Except as provided in 
paragraph (2), in determining whether a payment is an erro-
neous pa)rment, the State and the Secretary shall apply all 
relevant provisions of the State plan approved under this part. 
"(2) 
TREATMENT OP PROVISIONS OF STATE PLAN THAT ARE 
INCONSISTENT WITH FEDERAL LAW.— 
"(A) IN GENERAL.—If a provision of a State plan approved 
under this part is inconsistent with a provision of Federal 
law or regulations, and the Secretary has notified the State 
of the inconsistency, the provision of Federal law or regula-
tions shall control. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply with 
respect to a payment of the State if^ 
"(i) it is necessary for the State to enact a law in 
order to remove an inconsistency described in subpara-
graph (A), the Secretary has advised the State that the 
State will be allowed a reasonable period in which to 
J 
enact such a law, and the pa3rment was made during 
such period; or 
"(ii) the State agency made the pajrment in compli-
ance with a court order. 
"(3) 
CERTAIN PAYMENTS NOT CONSIDERED ERRONEOUS.—For 
purposes of this section, a payment by a State shall not be 
considered an erroneous payment if the payment is in error 
solely by reason of— 
"(A) the State's failure to implement properly changes in 
Federal statute within 6 months after the effective date of 
such changes or, if later, 6 months after the issuance of 
final regulations (including regulations in interim final 
form) if such regulations are reasonably necessary to con-
strue or apply the Federal statutory change; 
"(B) the State's reliance upon and correct use of erro-
neous information provided by the Secretary about matters 
of fact; 
"(C) the State's reliance upon and correct use of written 
statements of Federal policy provided to the State by the 
Secretary; 
"(D) the occurrence of an event in the State that— 
103 STAT. 2456 
PUBLIC LAW 101-239—DEC. 19, 1989 
f'i 
"(i) results in the declaration by the President or the 
•'^' 
Governor of the State of a state of emergency or major 
disaster; and 
"(ii) directly affects the State agency's ability to 
t^t 
make correct payments under the State plan approved 
under this part; or 
,-.. ,, 
"(E) the failure of a family to submit monthly reports to 
the State pursuant to section 402(aX14), if the failure did 
not affect the amount of the pajonent. 
"(4) CERTAIN PAYMENTS CONSIDERED ERRONEOUS.—Notwith-
standing any other provision of this section, a payment shall be 
considered an erroneous payment if the payment is made to a 
family— 
"(A) which has failed without good cause to assign sup-
port rights as required by section 402(aX26); or 
"(B) any member of which is a recipient of aid under a 
State plan approved under this part and does not have a 
social security account number (unless an application for a 
social security account number for the family member has 
been filed within 30 days after the date of application for 
such aid). 
"(d) DETERMINATION OF ERROR RATES.— 
"(1) IN GENERAL.—The Secretary shall, in accordance with 
this subsection, determine an error rate for each State for the 
fiscal year involved, based on the reviews under paragraphs (1) 
and (2) of subsection (b) and the decisions of the Quality Control 
Review Panel under subsection (bX5). 
"(2) ERROR RATE FORMULA.—Except as provided in paragraph 
(3), the State's error rate for a fiscal year is— 
"(A) the ratio of— 
"(i) the erroneous payments of the State for the fiscal 
year; to 
"(ii) the total pa5rments of aid under the State plan 
approved under this part for the fiscal year; reduced by 
"(B) the amount by which— 
' ' ' 
"(i) the national average underpayment rate for the 
fiscal year; exceeds 
* • ^* 
"(ii) the underpayment rate of the State for the fiscal 
year. 
"(3) A P P U C A T I O N OF REDUCTION TO SUBSEQUENT FISCAL Y E A R . — 
At the request of a State, the Secretary shall apply the reduc-
tion described in paragraph (2XB) in determining the State's 
error rate for either of the 2 following fiscal years instead of in 
determining the State's error rate for the fiscal year to which 
the reduction would otherwise apply. 
"(e) NOTIFICATION TO STATES OF ERROR RATES.—The Secretary 
shall notify each State of the error rate of the State determined 
under subsection (d), within the time period prescribed in regula-
tions issued under subsection (hX5). 
"(f) IMPOSITION OF DISALLOWANCES.—If a State's error rate for a 
fiscal year exceeds the national average error rate for the fiscal 
^ 
year, the Secretary shall impose a disallowance on the State for the 
fiscal year in an amount equal to— 
"(1) the product of— 
"(A) the State's total pajonents of aid to families with 
dependent children for the fiscal year; 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2457 
"(B) the Federal medical assistance percentage applicable 
to the State for purposes of section 1118; 
"(O the lesser of— 
"(i) the ratio of— 
"(I) the amount by which the State's error rate 
for the fiscal year exceeds the national average 
error rate for the fiscal year; to 
"(ID the national average error rate for the fiscal 
year; or 
"(ii)l;and 
''(D) tiie amount by which the State's error rate for the 
fiscal year exceeds the national average error rate for the 
fiscal year; 
reduced by 
' 
"(2) the product of— 
"(A) the ratio of— 
"(i) the amount by which the State's error rate for 
the fiscal year exceeds the national average error rate 
for the fiscal year; and 
"(ii) the State's error rate for the fiscal year; 
"(B) the overpayments recovered by the State in the fiscal 
year; and 
"(C) the Federal medical assistance percentage applicable 
to the State for purposes of section 1118; 
and further reduced by 
"(3) the product of— 
"(A) the calculation described in paragraphs (1) and (2); 
and 
"(B) the percentage by which— 
"(i) the State's rate of child support collections for 
the fiscal year; exceeds 
"(ii) the lesser of— 
"(I) the national average rate of child support 
collections for the fiscal year; or 
"(II) the average of the State's child support 
collection rates for each of the 3 fiscal years 
preceding the fiscal year. 
"(g) NOTIFICATION TO ^ATES OF AMOUNTS OF DISALLOWANCES.— 
The Secretary shall notify each State on which the Secretary im-
poses a disallowance the amount of the disallowance, within the 
time period prescribed in regulations issued under subsection (hX6). 
"(h) REGULATIONS.—The Secretary, after consultation with the 
chief executives of the States, shall by regulation prescribe— 
"(1) the periods within which— 
"(A) the reviews required by paragraphs (1) and (2) of 
subsection (b) are to b^in and be completed; and 
"(B) the results of the review required by subsection (bXD 
are to be reported to the Secretary; 
"(2) matters relating to the selection and size of the samples 
to be reviewed under paragraphs (1) and (2) of subsection (b), 
and the methodology for making statistically valid estimates of 
each State's error rate; 
"(3) the period within which a State may seek review by the 
Quality Control Review Panel of a difference case; 
"(4) the period within which a difference case appealed by a 
State is to be resolved by the Quality Control Review Panel; 
103 STAT. 2458 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(5) the period, after the completion of the reviews required 
by paragraphs (1) and (2) of subsection (b) and the resolution by 
the Quality Control Review Panel of any difference cases ap-
pealed by a State, within which the Secretary is to notify the 
State of the error rate of the State for the fiscal year involved; 
and 
"(6) the period within which the Secretary is to notify a State 
of any disallowance, 
"(i) PAYMENT OF DISALLOWANCES.— 
"(1) PAYMENT OPTIONS.—Within 45 days after the date a State 
is notified of a disallowance pursuant to subsection (g), the State 
shall, at the option of the State— 
"(A) pay the Secretary the amount of the disallowance; or 
Ck)ntracts. 
"(B) enter into an agreement with the Secretary under 
which the State will make quarterly pa3anents to the Sec-
retary over a period not to exceed 30 months beginning not 
later than the first quarter beginning after the date the 
State receives the notice, in amounts sufficient to repay the 
disallowance with interest by the end of such period. 
"(2) AUTHORITY TO ADJUST STATE MATCHING PAYMENTS.—If a 
State fails to pay the smiount of a disallowance imposed on the 
State, in the manner required by the applicable subparagraph 
of paragraph (1), the Secretary shall reduce the amount to be 
paid to the State under section 403(a) by amounts sufficient to 
recover the amount of the disallowance with interest. 
"(3) INTEREST ON UNPAID DISALLOWANCES.— 
« I 
"(A) RATE OF INTEREST.—Interest on the unpaid amount 
of a disallowance shall accrue at the overpayment rate 
established under section 6621(aXl) of the Internal Revenue 
Code of 1986. 
"(B) ACCRUAL OF INTEREST.— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
interest on the unpaid amount oi a State's disallowance 
' 
shall accrue beginning 45 days after the date the State 
receives notice of the disallowance. 
"(ii) EXCEPTION.—If the State appeals the imposition 
of a disallowance under this section to the Depart-
x^. 
mental Appeals Board and the Board does not decide 
* '
*
^ ' 
the appeal within 90 days after the date of the State's 
notice of appeal, interest shall not accrue on the unpaid 
amount of the disallowance during the period begin-
ning on such 90th day and ending on the date of the 
Board's final decision on the appeal, except to the 
extent that the Board finds that the State caused or 
requested the delay, 
"(j) ADMINISTRATIVE REVIEW OF DISALLOWANCES.— 
"(1) IN GENERAL.—Within 60 days after the date a State 
' receives notice of a disallowance imposed under this section, the 
State may appeed the imposition of the disallowance, in whole 
or in part, to the Departmental Appeals Board established in 
the Department of Health and Human Services, by filing an 
appeal with the Board. 
(2) PROCEDURAL RULES.—The Board shall consider a State's 
appeal on the basis of such documentation sis the State may 
submit and as the Board may require to support the final 
decision of the Board. In deciding whether to uphold a disallow-
ance or any portion thereof, the Board shall conduct a thorough 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2459 
review of the issues and take into account all relevant evidence. 
In rendering its final decision, the Board shall incorporate by 
reference any findings of the Quality Control Review Panel that 
were made in connection with the determination of the error 
rate and the amount of the disallowance, and such findings 
shall not be reviewable by the Board, 
"(k) JUDICIAL REVIEW OP DISALLOWANCES.— 
"(1) IN GENERAL.—Within 90 days after the date of a final 
decision by the Departmental Appeals Board with respect to the 
imposition of a disallowance on a State under this section, the 
State may obtain judicial review of the final decision (and the 
findings of the Quality Control Review Panel incorporated into 
the final decision) by filing an action in— 
"(A) the district court of the United States for the judicial 
district in which the principal or headquarters office of the 
- 
State agency is located; or 
"(B) the United States District Court for the District of 
Columbia. 
"(2) PROCEDURAL RULES.—The district court in which an 
action is filed shall review the final decision of the Board on the 
record established in the administrative proceeding, in accord-
ance with the standards of review prescribed by subparagraphs 
(A) through (E) of section 706(2) of title 5, United States Code. 
The review shall be on the basis of the documents and support-
ing data submitted to the Board (or to the Quality (Dontrol 
Review Panel, in the case of any finding by the Panel which is 
at issue in the appeal). 
"(1) REFUND OF DISALLOWANCES IMPOSED IN ERROR.—If the Sec-
retary, directly or indirectly, receives from a State part or all of the 
amount of a disallowance imposed on the State under this section, 
and part or all of the disallowance is finally determined to have 
been imposed in error, the Secretary shall refund to the State the 
amount received by reason of the error, with interest which shall 
accrue from the date of receipt at the rate described in subsection 
(iX3XA). 
"(m) DEFINITIONS.—As used in this section: 
"(1) NATIONAL AVERAGE ERROR RATE.—The term 'national 
average error rate' for a fiscal year means the greater of— 
"(A) the ratio of— 
"(i) the total amount of erroneous payments made by 
all States for the fiscal year; to 
"(ii) the total amount of aid paid by all the States for 
the fiscal year under plans approved under this part; or 
"(B) 4 percent. 
"(2) UNDERPAYMENT RATE.—The term 'underpajonent rate', 
with respect to a State for a fiscal year, means the ratio of— 
"(A) the total amounts of aid that should have been but 
were erroneously not paid for a fiscal year to recipients of 
. 
aid under the State plan approved under this part; to 
"(B) the total amount of aid paid under such plan for the 
fiscal year. 
"(3) NATIONAL AVERAGE UNDERPAYMENT RATE.—The term 'na-
tionsd average underpayment rate' for a fiscal year means the 
ratio of— 
"(A) the total amounts of aid that should have been but 
were erroneously not paid for a fiscal year to all recipients 
of aid under State plans approved under this part; to 
103 STAT. 2460 
PUBLIC LAW 101-239—DEC. 19, 1989 
Effective date. 
42 u s e 603. 
42 u s e 608 note. 
State and local 
governments. 
42 u s e 603 note. 
42 u s e 608 note. 
42 u s e 608 note. 
Reports. 
42 u s e 608 note. 
"(B) the total amount of aid paid for the fiscal year under 
all State plans approved under this part. 
"(4) CHILD SUPPORT COLLECTION RATE.—The term 'child sup-
port collection rate', with respect to a State for a fiscal year, 
means the ratio of— 
"(A) the sum of the number of cases reported by the 
agency administering the State plan approved under part D 
for each quarter in the fiscal year for which— 
"(i) an assignment was made under section 402(aX26); 
and 
"(ii) a collection was made under the State's plan 
approved under part D; to 
"(B) the sum of the number of cases reported by such 
agency for each quarter in the fiscal year under which an 
assignment was made under section 402(aX26). 
"(5) NATIONAL CHILD SUPPORT COLLECTION RATE.—The term 
'national child support collection rate' for a fiscsd year means 
the ratio of— 
"(A) the sum of the number of cases described in para-
graph (4XA) reported by all States for quarters in the fiscal 
year; to 
"(B) the sum of the number of cases described in para-
graph (4)(B) reported by all States for quarters in the fiscal 
year. 
"(6) ERRONEOUS PAYMENTS.—The term 'erroneous pajrments' 
means the sum of overpayments to eligible families and pay-
ments to ineligible families made in carrying out a plan ap-
proved under this part.". 
(b) CONFORMING REPEALS.—Effective October 1, 1990, subsections 
(i) and (j) of section 403 are hereby repealed. 
(c) APPUCABILTTY OF NEW QUALITY CONTROL SYSTEM.—The amend-
ment made by subsection (a) shall apply to erroneous pa3mients 
made in any fiscal year after fiscal year 1990. 
(d) No SANCTIONS WITH RESPECT TO DISALLOWANCES BEFORE FISCAL 
YEAR 1991.—No disallowance or other similar sanction shall be 
applied to a State for any fiscal year before fiscal year 1991 under 
section 403(i) of the Social Security Act or any predecessor statutory 
or regulatory provision relating to disallowances for erroneous pay-
ments made in carrying out a State plan approved under part A of 
title IV of such Act. 
(e) IMPLEMENTATION.—The Secretary of Health and Human Serv-
ices shall take all actions necessary to assure that adequate num-
bers of staff are available to perform the functions required by the 
amendments made by this section. 
(f) ANNUAL REPORTS.—The Secretary of Health and Human Serv-
ices shall annually submit to the Committee on Finance of the 
Senate, and to the Committee on Ways and Means of the House of 
Representatives a report on whether the time periods contained in 
the regulations prescribed pursuant to section 408 of the Social 
Security Act (as added by subsection (a)) have been or will be met. 
The first such report shall be submitted not later than January 1, 
1992. 
(g) STUDY OF NEGATIVE CASE ACTIONS.— 
(1) IN GENERAL.—Not later than October 1, 1992, the Sec-
retary of Health and Human Services shall report and make 
recommendations to the Congress on the results of a study of 
negative case actions under the program of aid to families with 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2461 
dependent children under State plans approved under part A of 
title IV of the Social Security Act. 
(2) NEGATIVE CASE ACTIONS DEFINED.—AS used in parc^aph 
(1), the term "negative case actions" means termination of 
assistance under part A of title IV of the Social Security Act, 
denial of an application for assistance under such part, or other 
action with respect to an application under such part without a 
determination of eligibility for assistance under such part. 
SEC. 8005. EMERGENCY ASSISTANCE AND AFDC SPECIAL NEEDS. 
42 USC 606 note. 
(a) IMPLEMENTATION OF PROPOSED REGULATIONS PROHIBITED.— 
Except as provided in subsection (b), the Secretary of Health and 
Himian Services (in this section referred to as the "Secretary") shall 
not— 
(1) implement in whole or in part the proposed regulation 
published in the Federal Register on December 14,1987, (52 F.R 
47420) with respect to emergency assistance and the need for 
and amount of assistance under the program of aid to families 
with dependent children; or 
(2) before October 1, 1990, change any policy in effect imme-
diately before the date of the enactment of this Act with respect 
to any of the matters addressed in the proposed regulation. 
0>) REVISED PROPOSED REGULATION.—Notwithstanding subsection 
(a), the Secretary may issue a revised proposed rc^^ation concern-
ing the use of emergency assistance under the prc^am of aid to 
families with dependent children under title IV of me Social Secu-
rity Act that incorporates the recommendations included in the 
report entitled "Use of the Emergency Assistance and AFDC Pro-
grams to Provide Shelter to Families" that the Secretary submitted 
to the Congress on July 3,1989. 
(c) ESTABLISHMENT OF EFFECTIVE DATES FOR PROPOSED RULES.— 
Any final r^ulation which would change any policy in effect imme-
diately before the date of the enactment of this Act with respect to 
the use of emergency assistance or special needs funds under the 
program of aid to families with dependent children under part A of 
title IV of the Social Security Act shall not take effect before 
October 1,1990. 
(d) REPORTING REQUIREMENTS.—^With respect to any calendar 
quarter beginning on or after January 1,1990, a financial report by 
a State submitted to the Secretiury to fulfill reporting reauirements 
under the pr(^am of aid to famihes with dependent children under 
part A of title IV of the Social Security Act shall identify any 
emergency assistance and special needs funds expended by the State 
under the program and used to pay for housing in hotels or similar 
temporary living arrangements (as defined by the Secretary) that 
house recipients of such aid. 
SEC 8006. INCREASE IN REIMBURSEMENT FOR FOSTER AND ADOPTIVE 
State and local 
PARENT TRAINING. 
governments. 
(a) IN GENERAL.—Section 474(aX3) (42 U.S.C. 674(aX3)) is amend-
ed— 
(1) by striking "and" at the end of subparagraph (A); 
(2) by redesignating subparagraph (B) as subparagraph (C); 
and 
(3) by inserting after subparagraph (A) the following: 
"(B) 75 percent of so much of such expenditures (includ-
ing travel and per diem expenses) as are for the short-term 
103 STAT. 2462 
PUBLIC LAW 101-239—DEC. 19, 1989 
training of current or prospective foster or adoptive parents 
and the members of the staff of State-licensed or State-
j^*' 
approved child care institutions providing care to foster and 
* 
adopted children receiving assistance under this part, in 
ways that increase the ability of such current or prospective 
parents, staff members, and institutions to provide support 
and assistance to foster and adopted children, whether 
incurred directly by the State or by contract, and". 
42 use 674 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to expenditures made on or after October 1, 1989, and 
before October 1,1992. 
SEC. 8007. CASE PLANS TO INCLUDE HEALTH AND EDUCATION RECORDS 
AND TO BE REVIEWED AND UPDATED AT THE TIME OF EACH 
PLACEMENT. 
(a) 
INCLUSION OF HEALTH AND EDUCATION RECORDS.—Section 
475(1) (42 U.S.C. 675(1)) is amended— 
(1) by inserting "(A)" before "A description"; 
.,, 
(2) by striking "472(aXl); and a" and inserting "472(aXl). (B) 
A"; 
(8) by indenting subparagraphs (A) and (B) (as so amended by 
paragraphs (1) and (2) of this subsection) 4 ems to the right of 
the left margin; 
(4) by inserting sifter and below subpareigraph (B) (as so 
amended and indented) the following: 
"(C) To the extent available and accessible, the health 
and education records of the child, including— 
" *^' 
"(i) the names and addresses of the child's health and 
educational providers; 
' 
"(ii) the child's grade level performance; 
"(iii) the child's school record; 
"(iv) assurances that the child's placement in foster 
care takes into account proximity to the school in 
which the child is enrolled at the time of placement; 
"(v) a record of the child's immunizations; 
"(vi) the child's known medical problems; 
"(vii) the child's medications; and 
"(viii) any other relevant health and education 
information concerning the child determined to be 
appropriate by the State agency."; and 
(5) by setting the last sentence flush with the left margin of 
the paragraph. 
(b) REVIEW AND UPDATE OF HEALTH AND EDUCATION RECORD AT 
TIME OF PLACEMENT.—Section 475(5) (42 U.S.C. 675(5)) is amended— 
(1) by striking "and" at the end of subparagraph (B); 
/ ' 
(2) by striking the period at the end of subparagraph (C) and 
inserting "; and"; and 
1 *
>
; (3) by adding at the end the following new subparagraph: 
"(D) a child's health and education record (as described in 
paragraph (IXA)) is reviewed and updated, and supplied to the 
foster parent or foster care provider with whom the child is 
placed, at the time of each placement of the child in foster 
care.". 
42 use 675 note. 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall take effect on April 1,1990. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2463 
SEC 8008. ESTABUSHMENT AND C
O
N
D
U
C
T OF O
U
T
R
E
A
C
H P
R
O
G
R
A
M FOR 
CHILDREN. 
(a) IN GENERAL.—Part B of title XVI (42 U.S.C. 1383 et seq.) is 
amended by adding at the end the following: 
"SEC 1635. O
U
T
R
E
A
C
H P
R
O
G
R
A
M FOR CHnJ)REN. 
"(a) ESTABLISHMENT.—The Secretary shall establish and conduct 
an ongoing program of outreach to children who are potentially 
eligible for benefits under this title by reason of disability or blind-
ness. 
"(b) REQxnREMENTS.—Under this program, the Secretary shall— 
"(1) aim outreach efforts at populations for whom such efforts 
would be most effective; and 
"(2) work in cooperation with other Federal, State, and pri-
vate agencies, and nonprofit organizations, which serve blind or 
disabled individuals and have knowledge of potential recipients 
of supplemental security income benefits, and with agencies and 
organizations (including school systems and public and private 
social service agencies) which focus on the needs of children.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall take effect 3 months after the date of the enactment of this 
Act. 
SEC. 8009. ELIGIBILITY FOR BENEFITS OF CHILDREN OF ARMED FORCES 
PERSONNEL RESIDING OVERSEAS. 
(a) IN GENERAL.—Section 1611(f) (42 U.S.C. 1382(f)) is amended by 
inserting "(other than a child described in section 1614(aXl)(BXii)) 
after "no individual". 
(b) CONFORMING 
AMENDMENT.—Section 1614(aXl) (42 U.S.C. 
1382c(aXl)) is amended— 
(1) in subparagraph (B)— 
(A) by redesignating clauses (i) and (ii) as subclauses (I) 
and (II), respectively; 
(B) by inserting "(i)" after "(B)"; and 
(C) by striking the period and inserting ", or"; and 
(2) by adding after and below subparagraph (B) the following: 
"(ii) is a child who is a citizen of the United States, who is 
living with a parent of the child who is a member of the Armed 
Forces of the United States ass^ed to permanent duty ashore 
outside the United States, the District of Columbia, Puerto Rico, 
and the territories and possessions of the United States, and 
who, during the month before the parent reported for such 
assignment, was receiving benefits under this title.". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply with respect to benefits for months after March 
1990. 
SEC. 8010. RULE FOR DEEMING TO CHILDREN THE INCOME AND RE-
SOURCES OF THEIR PARENTS WAIVED FOR CERTAIN DIS-
ABLED CHILDREN. 
(a) IN GENERAL.—Section 1614(fX2) (42 U.S.C. 1382c(fX2)) is 
amended— 
(1) by inserting "(A)" after "(2)"; and 
(2) by adding at the end the following: 
"(B) Subparagraph (A) shall not apply in the case of any child who 
has not attained the age of 18 years who— 
"(i) is disabled; 
Blind persons. 
Handicapped 
persons. 
42 u s e 13833. 
42 u s e 1383d 
note. 
42 use 1382 
note. 
103 STAT. 2464 
PUBLIC LAW 101-239—DEC. 19, 1989 
' 
"(ii) received benefits under this title, pursuant to section 
1611(eXlXB), while in an institution described in section 
leiKeXlXB); 
"(iii) is eligible for medical assistance under a State home care 
plan approved by the Secretary under the provisions of section 
1915(c) relating to waivers, or authorized under section 
1902(eX3); and 
6 
"(iv) but for this subparagraph, would not be eligible for 
benefits under this title.", 
(b) PERSONAL NEEDS ALLOWANCE.—Section 1611(eXlXB) (42 U.S.C. 
1382(eXlXB)) is amended by inserting "or an eligible individual is a 
child described in section 1614(fX2XB)," before "the benefit under 
this title". 
42 use 1382 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
note. 
and (b) shall take effect on the 1st day of the 6th calendar month 
beginning after the date of the enactment of this Act. 
SEC. 8011. EXCLUSION 
FROM INCOME OF DOMESTIC 
COMMERCIAL 
TRANSPORTATION TICKETS RECEIVED AS GIFTS. 
'J^^ 
(a) EXCLUSION FROM INCOME.—Section 1612(b) (42 U.S.C. 1382a(b)) 
is amended— 
(1) by striking "and" at the end of paragraph (13); 
(2) by striking the period at the end of paragraph (14) and 
inserting "; and ; and 
(3) by adding at the end the following: 
"(15) the value of any commercial transportation ticket, for 
travel by such individual (or spouse) among the 50 States, the 
District of Columbia, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Northern 
Mariana Islands, which is received as a gift by such individual 
(or such spouse) and is not converted to cash.". 
42 use 1382a 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
"°*®- 
shall take effect on the 1st day of the 3rd calendar month beginning 
after the date of the enactment of this Act. 
SEC. 8012. REDUCTION IN TIME DURING WHICH INCOME AND RESOURCES 
OF SEPARATED COUPLES MUST BE TREATED AS JOINTLY 
AVAILABLE. 
(a) IN GENERAL.—Section 1614(b) (42 U.S.C. 1382c(b)) is amended 
by striking the 1st sentence and inserting "For purposes of this title, 
the term eligible spouse' means an aged, blind, or disabled individ-
ual who is the husband or wife of another aged, blind, or disabled 
individual, and who, in a month, is living with such aged, blind, or 
disabled individual on the first day of the month or, in any case in 
which either spouse files an application for benefits or requests 
restoration of eligibility under this title during the month, at the 
time the application or request is filed.". 
42 use 1382c 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall take effect on October 1,1990. 
SEC. 8013. EXCLUSION OF ACCRUED INCOME WITH RESPECT TO PUR-
CHASE OF CERTAIN BURIAL SPACES. 
(a) EXCLUSION FROM INCOME.—Section 1612(b) (42 U.S.C. 1382a(b)), 
as amended by section 8011(a) M this Act, is amended— 
(1) by striking "and" at the end of paragraph (14); 
(2) by striking the period at the end of paragraph (15) and 
inserting "; and ; and 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2465 
(3) by adding at the end the following: 
"(16) interest accrued on the value of an agreement entered 
into by such individual (or such spouse) representing the pur-
chase of a burial space excluded under section 1613(aX2XB), and 
left to accumulate.'. 
(b) EXCLUSION FROM RESOURCES.—Section 1613(aX2XB) (42 U.S.C. 
1382b(aX2XB)) is amended by inserting "or agreement (including any 
interest accumulated thereon) representing the purchase of a burial 
space" after "the value of any burial space". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 42 USC 1382a 
and (b) shall take effect on the 1st day of the 4th month beginning note. 
after the date of the enactment of this Act. 
SEC. 8014. EXCLUSION FROM RESOURCES OF ALL INCOME-PRODUCING 
PROPERTY. 
(a) IN GENERAL.—Section 1613(aX3) (42 U.S.C. 1382b(aX3)) is 
amended to read as follows: 
"(3) other property which is so essential to the means of self-
support of such individual (and such spouse) as to warrant its 
exclusion, as determined in accordance with and subject to 
> 
limitations prescribed by the Secretary, except that the Sec-
retary shall not establish a limitation on property (including the 
tools of a tradesperson and the machinery ana livestock of a 
farmer) that is used in a trade or business or by such individual 
as an employee;". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 42 USC 1382b 
shall take effect on the 1st day of the 5th calendar month beginning note. 
after the date of the enactment of this Act. 
SEC. 8015. DEMONSTRATION OF EFFECTIVENESS OF MINNESOTA FAMILY 
INVESTMENT PLAN. 
(a) IN GENERAL.—Upon written application of the State of Min- 42 USC 602 note, 
nesota (in this section referred to as the "State") within 24 months 
after the date of the enactment of this Act, and after the Secretary 
of Health and Human Services approves the application as meeting 
the requirements set forth in subsection (b), the State may conduct a 
demonstration project to determine whether the State family invest-
ment plan helps families to become self-supporting and enhances 
the ability of families to care for their children more effectively than 
does the State program of aid to families with dependent children 
under part A of title IV of the Social Security Act. 
(b) PROJECT REQUIREMENTS.—In an application submitted under 
subsection (a), the State shall provide that the following terms and 
conditions shall be in effect under the demonstration project: 
(1) FIELD TRIALS.—The project will consist of 2 field trials, 
conducted as follows: 
(A) URBAN FIELD TRIAL.—1 field trial will be conducted in 
1 or more of the following counties in the State: 
(i) Anoka. 
(ii) Carver. 
(iii) Dakota. 
(iv) Hennepin. 
• 
(v) Scott. 
(vi) Washington. 
(B) RURAL FIELD TRIAL.—1 field trial will be conducted in 
1 or more counties in the State not specified in subpara-
graph (A). 
103 STAT. 2466 
PUBLIC LAW 101-239—DEC. 19, 1989 
(C) NUMBER OF FAMIUES INVOLVED.—The field trials will 
not involve more than a total of 6,000 families at any one 
time, excluding families whose sole involvement is as mem-
bers of control groups needed to evaluate the project. 
(2) AUTHORITY TO IMPLEMENT FIELD TRIALS DIFFERENTLY.—The 
implementation of the family investment plan in 1 field trial 
may be different from the implementation of such plan in the 
other field trial. 
(3) WAIVERS REQUIRED BEFORE PROJECT BEGINS.—The project 
will not begin before all waivers required sis described in subsec-
tion (e) have been granted. 
(4) BEGINNING OF PROJECT.— 
(A) IN GENERAL.—The project will begin during the first 
month of a calendar quarter. 
(B) BEGIN DEFINED.—For purposes of this section, the 
project begins when the first family receives assistance 
under the project. 
(5) PROJECT TO BE OPERATED IN ACCORDANCE WITH CERTAIN 
MINNESOTA LAWS.—The project will be operated in accordance 
with the 1989 Minnesota Laws, sections 6 through 11, 13, 130, 
and 132 of article 5 of chapter 282, and all amendments to the 
Laws of Minnesota, to the extent that such laws and amend-
ments are consistent with the goals of the project and this 
subsection. 
(6) PROJECT PARTICIPANTS INEUGIBLE FOR AFDC.—Each family 
which participates in the project will not be eligible for aid 
under the State plan approved under section 402(a) of the Social 
Security Act. 
(7) MEDICAID EUGIBILITY RULES APPUCABLE TO PROJECT.— 
(A) EUGIBIUTY OF PARTICIPANTS.— 
(i) IN GENERAL.—Each family which participates in 
: 
^?: ^ 
the project and would (but for such participation) be 
eligible for cud under the State plan approved under 
section 402(a) of the Social Security Act will be treated 
as receiving such aid for purposes of the State plan 
approved under section 1902(a) of such Act. 
(ii) EUGIBIUTY EXTENDED FOR PROJECT PARTICIPANTS 
WITH INCREASED EMPLOYMENT INCOME.—Each family 
which participates in the project and, during such 
participation, would (but for such participation) become 
ineligible for aid under the State plan approved under 
section 402(a) of the Social Security Act by reason of 
increased income from employment will, for purposes 
of section 1925 of such Act, be treated as a family that 
ji.-.i.:,:. 
has become ineligible for such aid. 
(B) ELIGIBILITY EXTENDED FOR PERSONS LEAVING PROJECT 
BECAUSE OF INCREASED RECEIPT OF CHILD SUPPORT.—Each 
family whose participation in the project is terminated by 
reason of the collection or increased collection of child 
support under part D of title IV of the Social Security Act 
will be treated as a recipient of aid to families with depend-
ent children for purposes of title XIX of such Act for an 
additional 4 calendar months beginning with the month in 
which the termination occurs. 
(8) A F D C RULES TO APPLY GENERALLY.— 
(A) IN GENERAL.—Except where inconsistent with this 
subsection, the requirements of the State plan approved 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2467 
under section 402(a) of the Social Security Act will apply to 
the project, unless waived by the Secretary of Health and 
Human Services in accordance with subsection (d). 
(B) 
RULES RELATING TO PARTICIPATION IN EDUCATION, 
EMPLOYMENT, AND TRAINING ACnVITIES.— 
(i) PARTICIPATION GENERALLY NOT REQUIRED.—Except 
as provided in clause (ii), the State will not require any 
individual who applies for or receives assistance under 
the project to comply with any education, emplovment, 
or training requirement of title IV of the Social Secu-
rity Act, unless required to do so under a contract 
entered into under the project. 
(ii) AUTHORITY TO REQUIRE PARTICIPATION OP PARENT 
O
F CHILD AGE 1 O
R OLDER.—The State may require any 
individual to comply with any education, employment, 
or training requirement imposed under the project if 
the State plan approved under section 402(a) of the 
Social Security Act does not prohibit the State from 
requiring such compliance, and the individual— 
(I) receives assistance under the project; 
(II) is the parent or relative of a cnild who has 
attained the age of 1 year; and 
(III) is personally providing care for the child. 
(9) AVAILABILITY OF EDUCATION, EMPLOYMENT, AND TRAINING 
SERVICES.—The education, employment, and training services 
avcdlable under the State plan approved under part F of title IV 
of the Social Security Act will be made available to each family 
required to enter into a contract with a coun^ agency under 
the 1989 Minnesota Laws, section 10 of article 5 of chapter 282. 
(10) ASSISTANCE UNDER PROJECT NOT LESS THAN UNDER AFDC 
AND FOOD STAMP PROGRAM.— 
(A) 
ESTABLISHMENT OF POUCIES AND STANDARDS.—The 
State will establish policies and standards to ensure that 
families participating in the project receive cash assistance 
under the project in an amount not less than the aggregate 
value of the assistance that such families would nave re-
ceived under the State plan approved under section 402(a) 
of such Act and under the food stamp program established 
under the Food Stamp Act of 1977 in the absence of the 
project. 
(B) IDENTIFICATION OF CHARACTERISTICS OF PARTICIPANTS 
W
H
O M
I
G
H
T R
E
C
E
I
V
E L
E
S
S B
E
N
E
F
F
T
S THAN UNDER A
F
D
C AND 
F
O
O
D S
T
A
M
P PROGRAM.—The State will identify the set or 
sets of characteristics of families that (but for this para-
graph) might receive benefits under the project in an 
amount less than the amount required under subparagraph 
(A) to be provided to such family. 
(C) DETERMINATION OF BENEFIT LEVEL FOR PARTICIPANTS 
W
I
T
H IDENTIFIED CHARACTERISTICS.—The State wiU establish 
a mechanism to determine, for each family with any set of 
characteristics identified under subparagraph (B), whether 
the family would (but for this pari^aph) receive benefits 
under the project in an amount less than the amount 
required under subparagraph (A) to be provided to such 
family. 
(D) ASSISTANCE UNDER PROJECT INCREASED WHERE NEC-
ESSARY.—The State will, for each family which would (but 
103 STAT. 2468 
PUBLIC LAW 101-239—DEC. 19, 1989 
for this paragraph) receive benefits under the project in an 
amount less than the amount required under subparagraph 
(A) to be provided to such family, increase the amount of 
such benefits to such family to the amount so required. 
(11) TERMINATION OF PROJECT.—The project will terminate at 
the end of the 5-year period beginning on the first day of the 
month during which the project begins, or, if earlier— 
(A) 180 days after the State notifies the Secretary of 
Health and Human Services that the State intends to 
terminate the project; 
(B) 180 days after the Secretary of Health and Human 
Services, after 30 days written notice to the State and 
opportunity for a hearing, determines that the State has 
materially failed to comply with this section; or 
(C) on agreement by the State and the Secretary of 
Health and Human Services. 
^' 
v 
(c) FUNDING.— 
(1) IN GENERAL.—If an application submitted under subsection 
(a) by the State complies with the requirements specified in 
subsection (b) and contains an evaluation plan which meets the 
requirements of subsection (g), and the Secretary of Hesilth and 
Human Services approves the application, then the Secretary 
shall, from amounts made available under parts A and F of title 
IV of the Social Security Act— 
(A) pay the State for each calendar quarter, pursuant to 
section 403 of such Act, the amounts that would have been 
payable to the State during such calendar quarter, in the 
absence of the demonstration project, for cash assistance, 
child care, education, employment and training, and 
administrative expenses under the State plan approved 
under section 402(a) of such Act; 
(B) reimburse the State at the rate of 50 percent, for 
expenses of evaluating the effects of the project. 
(2) RULE OF CONSTRUCTION.—Paragraph (1) shall not be con-
strued to prevent the State from claiming and receiving re-
imbursement for additional persons who would qualify for 
assistance under the State plan approved under section 402(a) of 
the Social Security Act, for costs attributable to increases in the 
State's pa3rment standard under such plan, or for any other 
benefits and services for which Federal matching funds are 
available under part A of title IV of such Act. 
(d) WAIVER AUTHORITY.— 
(1) AFDC WAIVERS.— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the Secretary of Health and Human Services shall, with 
respect to the demonstration project under this section, 
waive any requirement of part A or F of title IV of the 
.. 
Social Security Act that, if applied, would prevent the State 
' 
from (i) carrying out the project in accordance with subsec-
tion (b), or (ii) effectively achieving its purposes, but only to 
the extent necessary to enable the State to carry out the 
project, 
(B) LIMITATIONS.—The Secretary of Health and Human 
Services may not, with respect to the demonstration project 
under this section— 
(i) waive any requirement of section 402(aX4) or 
482(h) of the Social Security Act; 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2469 
(ii) permit the State to provide cash assistance to any 
family under the project in an amount less than the 
aggregate value of the assistance that would have been 
provided to such family under the State plan approved 
under section 402(a) of such Act and under the food 
stamp program established under the Food Stamp Act 
of 1977 in the absence of the project; or 
(iii) waive any requirement of section 402(aX19XC) of 
such Act. 
(2) OTHER WAIVERS.—If, under this section, the Secretary of 
Health and Human Services approves an application by the 
State to conduct a demonstration project relating to the State 
family investment plan, the Secretary of Health and Human 
Services shall, in order to enable the State to implement the 
demonstration project— 
(AXi) require that the State treat each family participat-
ing in the project as individuals eligible for medical assist-
ance under section 1902(aX10XA) of the Social Security Act, 
(ii) require that the State treat, for purposes of section 
1925 of such Act, each family whose participation in the 
project is terminated by reason of increased income from 
employment as a family that has become ineligible for aid 
under the State plan approved under part A of title IV of 
such Act, and 
(iii) require that the State treat each family whose 
participation in the project is terminated by reason of the 
collection or increased collection of child support under 
part D of title IV of the Social Security Act as a recipient of 
aid to families with dependent children for purposes of title 
XIX of such Act for an additional 4 calendar months begin-
ning with the month in which such termination occurs; and 
(B) make payment, under section 1903 of such Act, for 
medical assistance and administrative expenses for families 
participating in the prqject in the same manner as such 
pa3anents may be made for medical assistance and adminis-
trative expenses for individuals entitled to benefits under 
title XIX of such Act, except that the aggregate amount of 
such payments mav not exceed the aggregate amount of 
pajrments that would have been made for those families in 
the absence of such project. 
(e) DEFiNmoNS OF CERTAIN TERMS.—As used in this section, the 
terms "family" and "contract" shall have the meaning given such 
terms by the 1989 Minnesota Laws, sections 6 through 11, 13, 130, 
and 132 of article 5 of chapter 282. 
(f) QuAUTY CONTROL.—Cases participating in the demonstration 
project under this section during a fiscsJ year shall be excluded from 
any sample taken for purposes of determining under section 403(i) or 
408 of the Social Security Act, whichever is applicable, the rate at 
which the State made overpa3mients under part A of title IV of such 
Act for the fiscal year. For purposes of such sections 403(i) and 408, 
payments made by the State under the project shall be treated as 
payments made under the State plan approved under section 402(a) 
of such Act. 
(g) EVALUATION OF PROJECT.— 
(1) EVALUATION PLAN.—The State shall develop and imple-
ment an evaluation plan designed to provide reliable informa-
tion on the impact and implementation of the demonstration 
103 STAT. 2470 
PUBLIC LAW 101-239—DEC. 19,1989 
project. The evaluation plan shall include groups of project 
participants and control groups assigned at random in the field 
trial conducted in accordance with subsection (bXlXA). 
(2) EVALUATION.—The evaluation conducted under the evalua-
tion plan shall measure the extent to which the project in-
creases family emplojrment and income, prevents long-term 
dependency, moves families toward self-support, reduces total 
assistance payments, and simplifies the welfare system. 
(3) REPORTS.—The State shall issue an interim report and a 
final report on the results of the evaluation described in para-
graph (2) to the Secretary of Health and Human Services at 
such times as the Secretary shall require. 
(h) REPORT TO CONGRESS.—Within 3 months after receipt of the 
final report issued pursuant to subsection (gX3), the Secretary of 
Health and Human Services shall report to the Congress the results 
of the evaluation described in subsection (gX2). 
SEC. 8016. INCREASE IN FUNDING FOR TITLE XX SOCIAL SERVICES 
BLOCK GRANT. 
Section 2003(c) (42 U.S.C. 1397b(c)) is amended— 
(1) in paragraph (3), by striking "and 1987, and for each 
succeeding fiscsd year other than the fiscal year 1988; and" and 
mserting ^'1987, and 1989;"; 
(2) in paragraph (4), by striking the period and inserting "; 
and"; £ind 
(3) by adding at the end the following: 
"(5) $2,800,000,000 for each fiscal year after fiscal year 1989.". 
TITLE IX—OFFSHORE OIL POLLUTION 
COMPENSATION FUND 
43 use 1812. 
SEC. 9001. PAYMENTS TO THE OFFSHORE OIL POLLUTION COMPENSA-
TION FUND. 
(a) IN GENERAL.—(1) Section 302(dXl) of the Outer Contin-
ental Shelf Lands Act Amendments of 1978 (43 U.S.C. 1812(dXl)) is 
amended by striking out "not to exceed". 
(2) Section 302(dX2) of the Outer Continental Shelf Lands Act 
Amendments of 1978 (43 U.S.C. 1812(dX2)) is amended by striking 
out "not less than $100,000,000 and not more than" and adding in 
lieu thereof "not more than or less than". 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on the date of enactment of this Act. 
Miscellaneoiis 
and Technical 
Social Security 
Act 
Amendments of 
1989. 
42 use 1305 
note. 
TITLE X—MISCELLANEOUS AND TECHNL 
CAL SOCIAL SECURITY ACT AMEND-
MENTS 
SEC. 10000. SHORT TITLE; TABLE OF CONTENTS. 
This title may be cited as the "Miscellaneous and Technical Social 
Security Act Amendments of 1989". 
Table of Contents 
Sec. 10000. Short title; table of contents. 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2471 
Subtitle A—Time-Sensitive Provisions 
Sec. 10101. Continuation of disability benefits during appeal. 
Sec. 10102. Transfer to railroeui retirement account 
Sec. 10103. Extension of disability insurance program demonstration project author-
ity. 
Subtitle B—Technical Provisions 
Sec. 10201. Prohibition of termination of coverage of U.S. citizens and residents em-
ployed abroad by a foreign affiliate of an American employer. 
Sec. 10202. Exclusion from wages and compensation of refunds required from em-
ployers to compensate for duplication of medicare benefits by health 
care benefits provided by the employers. 
Sec. 10203. Elimination of any carryover reduction in retirement or disability bene-
fits due to receipt of widow's or widower's benefits before attaining age 
62. 
Sec. 10204. Qarification of rules governing taxation under FICA and SECA of indi-
viduals of certain religious faiths. 
Sec. 10205. Treatment of group-term life insurance under railroad retirement taxes. 
Sec. 10206. Treatment of certain deferred compensation and salary reduction ar-
rangements under railroad retirement taxes. 
Sec. 10207. Treatment of Rowan decision under railroad retirement taxes. 
Sec. 10208. Inclusion of certain deferred compensation in determination of wage-
based a4justments. 
Subtitle C—Additional Amendments 
Sec. 10301. Elimination of the dependency test applicable to certain adopted chil-
dren. 
Sec. 10302. Authority for Secretary to take into accoimt misinformation provided to 
applicants in determining date of application for benefits. 
Sec. 10303. Same-day personal interviews at field offices of the Social Security Ad-
ministration in certain cases where time is of the essence. 
Sec. 10304. Authority to amend wage records after expiration of time limitation. 
Sec. 10305. Standards applicable in certain determinations of good cause, fault, and 
k 
good faith. 
Sec. 10306. Notice requirements. 
Sec. 10307. Representation of claimants. 
Sec. 10308. Earnings and benefit statements. 
Subtitle D—Human Resource and Income Security Provisions 
Sec. 10401. Increase in authorization for child welfare services imder title IV-B of 
the Social Security Act. 
Sec. 10402. Extension and permanent increase in foster care ceiling. 
Sec. 10403. Miscellaneous technical corrections. 
Sec. 10404. Demonstration project. 
Sec. 10405. Agent Orange settlement payments excluded from countable income 
and resources under Federal means-tested programs. 
Sec. 10406. Treatment of triennial reviews of State foster care protections for fiscal 
years before October 1,1990. 
Subtitle A—Time-Sensitive Provisions 
SEC. 10101. CONTINUATION OF DISABILITY BENEFITS DURING APPEAL. 
Subsection (g) of section 223 of the Social Security Act (42 U.S.C. 
423(g)) is amended— 
(1) in paragraph (lXiii)t by striking "June 1990" and inserting 
"June 1991"; and 
(2) in paragraph (3XB), by striking "January 1, 1990" and 
inserting "January 1,1991". 
SEC 10102. TRANSFER TO RAILROAD RETIREMENT ACCOUNT. 
Subsection (cXlXA) of section 224 of the Railroad Retirement 
Solvency Act of 1983 (relating to section 72(r) revenue increase 45USC23ln 
transferred to certain railroad accounts) is amended by striking ^°^-
"1989" and mserting "1990". 
103 STAT. 2472 
PUBLIC LAW 101-239—DEC. 19,1989 
SEC. 10103. EXTENSION OF DISABILITY INSURANCE PROGRAM DEM-
ONSTRATION PROJECT AUTHORITY. 
(a) IN GENERAL.—Section 505 of the Social Security Disability 
Amendments of 1980 (Public Law 96-265), as amended by section 
12101 of the Consolidated Omnibus Budget Reconciliation Act of 
42 use 1310 
1985 (Public Law 99-272), is further amended— 
^°*®- 
(1) in paragraph (3) of subsection (a), by striking "June 10, 
1990" and inserting "June 10,1993"; 
(2) in paragraph (4) of subsection (a), by striking "in each of 
the years 1986,1987,1988, and 1989" and insertmg "in 1986 and 
each of the succeeding years through 1992"; and 
(3) in subsection (c), by striking "June 9, 1990" and inserting 
"June 9,1993". 
42 use 1310 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
•^°**- 
take effect on the date of the enactment of this Act. 
Subtitles—Technical Provisions 
SEC. 10201. PROHIBITION OF TERMINATION OF COVERAGE OF U.S. CITI-
ZENS AND RESIDENTS EMPLOYED ABROAD BY A FOREIGN 
AFFILIATE OF AN AMERICAN EMPLOYER. 
(a) IN GENERAL.—Subsection (1) of section 3121 of the Internal 
26 use 3121. 
Revenue Code of 1986 (relating to agreements entered into by 
American 
employers 
with 
respect to foreign 
affiliates) 
is 
/ 
amended— 
(1) in paragraph (2), by adding at the end the following: 
"Notwithstanding any other provision of this subsection, the 
period for which any such agreement is effective with respect to 
any foreign entity shall terminate at the end of any calendar 
quarter in which the foreign entity, at any time in such quarter, 
ceases to be a foreign affiliate as defined in paragraph (6)."; 
(2) by striking paragraphs (3), (4), and (5); 
(3) by inserting after paragraph (2) the following new para-
graph: 
"(3) No TERMINATION O
F AGREEMENT.—No agreement under 
this subsection may be terminated, either in its entirety or with 
respect to any foreign afHiliate, on or after June 15, 1989."; and 
(4) by redesignating paragraphs (6) through (10) as paragraphs 
(4) through (8), respectively. 
(b) CONFORMING AMENDMENTS.—(1) Subsection (a) of section 210 of 
the Social Security Act (42 U.S.C. 41()(a)) and subsection (a) of section 
406 of the Internal Revenue Code of 1986 (relating to treatment of 
employees of American employer) are each amended by striking 
"section 3121(1X8)" and inserting "section 3121(1X6)". 
(2) Paragraph (3) of section 406(c) of the Internal Revenue Code of 
1986 (relating to termination of status as deemed employee not be 
treated as sepeiration from service for purposes of limitation of tax) 
is amended by striking "section 3121(1)(8)(B)" and inserting "section 
3121(1X6XB)". 
(3) Paragraph (1) of section 3121(1) of such Code (relating to 
agreements entered into by American employers with respect to 
foreign affiliates) is amended, in the matter preceding subparagraph 
(A), by striking "paragraph (8)" and inserting "paragraph (6)". 
26 use 406 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to any agreement in effect under section 3121(1) 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2473 
of the Internal Revenue Code of 1986 on or after June 15,1989, with 
respect to which no notice of termination is in effect on such date. 
SEC. 10202. EXCLUSION FROM WAGES AND COMPENSATION OF REFUNDS 
42 USC 1395b 
REQUIRED 
FROM EMPLOYERS TO COMPENSATE FOR note. 
DUPLICATION OF MEDICARE BENEFITS BY HEALTH CARE 
BENEFITS PROVIDED BY THE EMPLOYERS. 
(a) OLD-AGE, SURVIVORS, AND DISABILITY, AND HOSPITAL INSUR-
ANCE PROGRAMS.—For purposes of title II of the Social Security Act 
and chapter 21 of the Intemsd Revenue Code of 1986, the term 
"wages" shall not include the amount of any refund required under 
section 421 of the Medicare Catastrophic Coverage Act of 1988. 
(b) RAILROAD RETIREMENT PROGRAM.—For purposes of chapter 22 
of the Internal Revenue Code of 1986, the term "compensation" 
shall not include the amount of any refund required under section 
421 of the Medicare Catastrophic Coverage Act of 1988. 
(c) FEDERAL UNEMPLOYMENT PROGRAMS.— 
(1) FEDERAL UNEMPLOYMENT TAX.—For purposes of chapter 23 
of the Internal Revenue Code of 1986, the term "wages shall 
not include the amount of any refund required under section 
421 of the Medicare Catastrophic Coverage Act of 1988. 
(2) RAILROAD UNEMPLOYMENT CONTRIBUTIONS.—For purposes 
of the Railroad UnemplojTnent Insurance Act, the term ' com-
pensation" shall not include the amount of any refund required 
under section 421 of the Medicare Catastrophic Coverage Act of 
1988. 
(3) RAILROAD UNEMPLOYMENT REPAYMENT TAX.—For purposes 
of chapter 23A of the Internal Revenue Code of 1986, the term 
* 
"rail wages" shall not include the amount of any refund re-
quired under section 421 of the Medicare Catastrophic Coverage 
Act of 1988. 
(d) REPORTING REQUIREMENTS.—Any refund required under sec-
tion 421 of the Medicare Catastrophic Coverage Act of 1988 shall be 
reported to the Secretary of the TVeasury or his delegate and to the 
person to whom such refund is made in such manner as the Sec-
retary of the Treasury or his delegate shall prescribe. 
(e) EFFECTIVE DATE.—This section shall apply with respect to 
refunds provided on or after January 1,1989. 
SEC. 10203. ELIMINATION OF ANY CARRYOVER REDUCTION IN RETIRE-
MENT OR DISABILITY BENEFITS DUE TO RECEIPT OF 
WIDOW'S OR WIDOWER'S BENEFITS BEFORE ATTAINING 
AGE 62. 
(a) IN GENERAL.—Section 202(qX3) of the Social Security Act (42 
U.S.C. 402(qX3)) is amended— 
(1) by striking subparagraphs (E), (F), and (G); and 
(2) by redesignating subpareigraph (H) as subparagraph (E). 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
42 USC 402 note, 
apply— 
(1) in the case of any individual's old-age insurance benefit 
referred to in section 202(qX3XE) of the Social Security Act (as 
in effect before the amendments made by this section), only if 
such individual attains age 62 on or after January 1, 1990, and 
(2) in the case of any individual's disability insurance benefit 
referred to in section 202(qX3) (F) or (G) of such Act (as so in 
effect), only if such individual both attains age 62 and becomes 
disabled on or after such date. 
103 STAT. 2474 
PUBLIC LAW 101-239—DEC. 19, 1989 
SEC. 10204, CLARIFICATION OF RULES GOVERNING TAXATION UNDER 
FICA AND SECA OF INDIVIDUALS OF CERTAIN RELIGIOUS 
FAITHS. 
•'*'-• ' 
(a) EXEMPTION FROM SECA TAXATION FOR CERTAIN EMPLOYEES 
EXEMPT FROM FICA TAXATION.— 
(1) IN GENERAL.—Paragraph (3) of section 1402(g) of the In-
26 use 1402. 
ternal Revenue Code of 1986 (relating to inapplicability of 
exemption to certain church employees) is amended— 
(A) in the heading, by striking "NOT TO APPLY" and 
( 
inserting "TO APPLY"; and 
(B) by striking "shall not" and inserting "shall". 
26 use 1402 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
»iote. 
shall apply with respect to taxable years beginning after Decem-
ber 31,1989. 
(b) TECHNICAL AMENDMENT CLARIFYING INCLUSION OF PARTNER-
SHIPS AMONG EMPLOYERS EUGIBLE FOR REUGIOUS EXEMPTION FROM 
FICA.— 
(1) IN GENERAL.—Section 3127 of the Internal Revenue Code of 
1986 (relating to exemption for employers and their employees 
where both are members of religious faiths opposed to participa-
tion in Social Security Act programs) is amended— 
X 
(A) in subsection (aXD, by inserting "(or, if the employer 
is a partnership, each partner therein)" after "an em-
V 
.: 
ployer"; 
(B) in subsection (a), in the matter following paragraph 
(2), by striking "his employees" and inserting the employ-
3.^,,. 
ees thereof; 
(C) in subsection (b), by inserting "(or a partner)" after 
', 
"an employer"; 
rj,. 
(D) in subsection (c), by striking "his employees" and 
inserting "the employees thereof; 
(E) in subsection (cXl), by inserting "(or, if the employer is 
a partnership, each partner therein)" after "such em-
ployer"; and 
(F) in subsection (cX2), by striking "such employer or the 
employee involved ceases to meet" and inserting "such 
.'.•:' 
employer (or, if the employer is a partnership, anv partner 
therein) or the employee involved does not meet', and by 
inserting "(or, if the employer is a partnership, any partner 
therein) 
after "such employer" the second place it ap-
pears. 
26 use 3127 
(2) EFFECTIVE DATE.—The amendments made by this subsec-
note. 
tion shall be effective as if they were included in the amend-
ments made by section 8007(aXl) of the Technical and Mis-
cellaneous Revenue Act of 1988 (102 Stat. 3781). 
SEC. 10205. TREATMENT OF GROUP-TERM LIFE INSURANCE UNDER RAIL-
ROAD RETIREMENT TAXES. 
(a) IN GENERAL.—The second sentence of section 3231(eXl) of the 
Internal Revenue Code of 1986 (defining compensation) is amended 
by striking ", (ii) tips" and inserting 
or death, except that this 
clause does not apply to a payment for group-term life insurance to 
the extent that such payment is includible in the gross income of the 
employee, (ii) tips". 
26 use 3231 
(b) EFFECTIVE DATE.— 
note- 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply to— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2475 
(A) group-term life insurance coverage in effect after 
December 31,1989, and 
(B) remuneration paid before January 1, 1990, which the 
employer treated as compensation when paid. 
(2) EXCEPTION.—The amendment made by subsection (a) shall 
not apply with respect to pajnnents by the employer (or a 
successor of such employer) for group-term life insurance for 
such employer's former employees who separated from employ-
ment with the employer on or before December 31, 1989, to the 
extent that such pa3rments are not for coverage for any such 
employee for any period for which such employee is employed 
by such employer (or a successor of such employer) after the 
date of such separation. 
(3) BENEFIT DETERMINATIONS TO TAKE INTO ACCOUNT REMU-
NERATION ON WHICH TAX PAID.—The term "compensation" as 
defined in section 1(h) of the Railroad Retirement Act of 1974 
includes any remuneration which is included in the term "com-
pensation" as defined in section 3231(eXl) of the Internal Reve-
nue Code of 1986 by reason of the amendment made by subsec-
tion (a). 
SEC. 10206. TREATMENT OF CERTAIN DEFERRED COMPENSATION AND 
SALARY REDUCTION ARRANGEMENTS UNDER RAILROAD 
RETIREMENT TAXES. 
(a) IN GENERAL.—The second sentence of section 3231(eXl) of the 
Internal Revenue (Code of 1986 (defining compensation) is amended 
26 USC 3231. 
by striking "or (iii)" and inserting "(iii) and by inserting before the 
period ", or (iv) any remuneration which would not (if chapter 21 
applied to such remuneration) be treated as wages (as defined in 
section 3121(a)) by reason of section 3121(aX5)". 
(b) TREATMENT OF CERTAIN DEFERRED COMPENSATION AND SALARY 
REDUCTION ARRANGEMENTS.—Subsection (e) of section 3231 of such 
Code is amended by adding at the end thereof the following new 
paragraph: 
"(9) TREATMENT OF CERTAIN DEFERRED COMPENSATION AND 
SALARY REDUCTION ARRANGEMENTS.— 
"(A) CERTAIN EMPLOYER CONTRIBUTIONS TREATED AS COM-
PENSATION.—Nothing in any paragraph of this subsection 
(other than paragraph (2)) snail exclude from the term 
'compensation' any amount described in subparagraph (A) 
or (B) of section 3121(vXl). 
"(B) TREATMENT OF CERTAIN NONQUAUFIED DEFERRED COM-
PENSATION.—The rules of section 3121(vX2) which applv for 
purposes of chapter 21 shall also apply for purposes of this 
chapter.". 
(c) EFFECTIVE DATES.— 
26 use 3231 
(1) SUBSECTION (a).—The amendment made by subsection (a) note, 
shall apply to remuneration paid after December 31, 1989. 
(2) SUBSECTION (b).—Except as otherwise provided in this 
subsection— 
(A) IN GENERAL.—The amendment made by subsection (b) 
shall apply to— 
\i 
V 
(i) remuneration paid after December 31, 1989, and 
(ii) remuneration paid before January 1, 1990, which 
the employer treated as compensation when paid. 
(B) 
BENEFIT DETERMINATIONS TO TAKE INTO ACCOUNT 
5' 
REMUNERATION ON WHICH TAX PAID.—The term "compensa- 
. 
103 STAT. 2476 
PUBLIC LAW 101-239—DEC. 19, 1989 
tion" as defined in section 1(h) of the Railroad Retirement 
"' 
Act of 1974 includes any remuneration which is included in 
5
^ 
the term "compensation" as defined in section 3231(eXl) of 
the Internal Revenue Code of 1986 by reason of the amend-
ment made by subsection (b). 
(3) SPECIAL RULE FOR CERTAIN PAYMENTS.—For purposes of 
applying the amendment made by subsection (b) to remunera-
tion paid after December 31,1989, which would have been taken 
into account before January 1, 1990, if such amendments had 
applied to periods before January 1, 1990, such remuneration 
\ 
shall be taken into account when paid (or, at the election of the 
payor, at the time which would be appropriate if such amend-
ments had applied). 
(4) EXCEPTION FOR CERTAIN 40i(k) 
CONTRIBUTIONS.—The 
amendment made by subsection (b) shall not apply to employer 
contributions made during 1990 and attributable to services 
performed during 1989 under a qualified cash or deferred 
arrangement (as defined in section 401(k) of the Internal Reve-
nue Code of 1986) if, under the terms of the arrangement as in 
effect on June 15,1989— 
(A) the employee makes an election with respect to such 
contributions before January 1,1990, and 
(B) the employer identifies the amount of such contribu-
tion before January 1,1990. 
(5) SPECIAL RULE WITH RESPECT TO NONQUALIFIED DEFERRED 
COMPENSATION PLANS.—In the case of an agreement in existence 
on June 15,1989, between a nonqualified deferred compensation 
plan (£is defined in section 3121(vX2XC) of such Code) and an 
individual, the amendment made by subsection (b) shall apply 
with respect to services performed by the individual after 
December 31, 1989. The preceding sentence shall not apply in 
the case of a plan to which section 457(a) of such Code applies. 
SEC. 10207. TREATMENT OF ROWAN DECISION UNDER RAILROAD RETIRE-
MENT TAXES. 
(a) EXCLUSION OP MEALS AND LODGING.—Subsection (e) of section 
3231 of the Internal Revenue Code of 1986 is further amended by 
adding at the end the following new paragraph: 
"(10) MEALS AND LODGING.—The term 'compensation' shall 
not include the value of meals or lodging furnished by or on 
behalf of the employer if at the time of such furnishing it is 
reasonable to believe that the employee will be able to exclude 
such items from income under section 119.". 
(b) INCOME TAX WITHHOLDING REGULATIONS NOT TO APPLY.— 
Paragraph (1) of section 3231(e) of such diode is amended by adding 
at the end the following new sentence: "Nothing in the regulations 
prescribed for purposes of chapter 24 (relating to wage withholding) 
which provides an exclusion irom 'wages' as used in such chapter 
shall be construed to require a similar exclusion from 'compensa-
tion' in regulations prescribed for purposes of this chapter.". 
26 use 3231 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
**°*®- 
apply to remuneration paid after December 31,1989. 
SEC. 10208. INCLUSION OF CERTAIN DEFERRED COMPENSATION IN 
DETERMINATION OF WAGE-BASED ADJUSTMENTS. 
(a) IN GENERAL.—Section 209 of the Social Security Act (42 U.S.C. 
409) is amended by adding at the end the following new subsection: 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2477 
"(kXD For purposes of sections 203(fX8XBXii), 213(dX2XB), 
215(aXlXBXii), 215(bX3XAXii), 224(fX2XB), and 230(bX2) (and 230(bX2) 
as in effect immediately prior to the enactment of the Social Secu-
rity Amendments of 1977), the term 'deemed average total wages' 
for any particular calendar year means the product o£^ 
"(A) the SSA aversige wage index (as defined in section 
215(iXlXG) and promulgated by the Secretary) for the calendar 
year preceding such particular calendar year, and 
"(B) the quotient obtained by dividing— 
"(i) the average of total wages (as defined in regulations 
of the Secretary and computed without regard to the limita-
tion specified in subsection (aXD and by including deferred 
compensation amounts) reported to the Secretary of the 
Treasury or his delegate for such particular calendar year, 
by 
"(ii) the average of total wages (as so defined and com-
puted) reported to the Secretary of the Treasury or his 
delegate for the calendar year preceding such particular 
csdendar year. 
"(2) For purposes of paragraph (1), the term 'deferred compensa-
tion amount' means— 
"(A) any amount excluded from gross income under chapter 1 
of the Internal Revenue Code of 1986 by reason of section 
402(aX8), 402(hXlXB), or 457(a) of such Code or by reason of a 
salary reduction agreement under section 403(b) of such Code, 
"(B) any amount with respect to which a deduction is allow-
able under chapter 1 of such Code by reason of a contribution to 
a plan described in section 501(cX18) of such Code, and 
"(C) to the extent provided in regulations of the Secretary, 
deferred compensation provided under any arrangement, agree-
ment, or plan referred to in subsection (i) or O)-"-
(b) CONFORMING AMENDMENTS.— 
(1) Sections 203(fK8XBXii), 215(bX3XAXii), and 230(bX2XA) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
403(fX8XBXiiXI), 
415(bX3XAXiiXI), and 430(bX2XA)), as amended by subsection 
(dX2XAXi), are each further amended— 
(A) by striking "the average of the total wages (as defined 
in regulations of the Secretary and computed without 
i 
regard to the limitations specified in section 209(aXl)) 
reported to the Secretary of the Treasury or his delegate" 
and inserting "the deemed average total wages (as defined 
in section 209(kXl))"; 
(B) by striking "the average of the total wages (as so 
defined and computed) reported to the Secretary of the 
Treasury or his delegate" and inserting "the deemed aver-
age total wages (as so defined)"; and 
(C) in section 215(bX3XAXiiXI), by striking "(after 1976)". 
(2) Sections 213(dX2XB), 215(aXlXBXii), and 224(fK2XB) of such 
Act (42 U.S.C. 413(dX2XB), 415(aXlXBXii), and 424a(fX2XB)), as 
amended by subsection (d)(2XA)(i), are each further amended— 
(A) by striking "the average of the total wages (as defined 
in regulations of the Secretary and computed without 
regard to the limitations specified in section 209(aXl)) re- 
, 
ported to the Secretary of the Treasury or his delegate" and 
inserting "the deemed average total wages (as defined in 
section 209(kXl))"; 
103 STAT. 2478 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 413,415. 
(B) in section 213(dX2XB) and 215(aXlXBXiiXII), by striking 
"(as so defined and computed)" and inserting "(as defined in 
regulations of the Secretary and computed without regard 
to the limitations specified in section 209(aXl))"; and 
42 use 424a. 
(C) in section 224(fX2XBXii), by inserting "G)" after "(ii)", 
by striking "as so defined and computed)" and inserting 
"(as defined in regulations of the Secretary and computed 
without regard to the limitations specified in section 
209(aXl))", and by insertmg after "disability)" the following: 
", if such calendar year is before 1991, or (II) the deemed 
average total wages (as defined in section 2()9(kXl)) for the 
calendar year before the year in which the reduction was 
first computed (but not counting any reduction made in 
benefits for a previous period of disabUity), if such calendar 
year is after 1990". 
(3) Section 215(iXlXG) of such Act (42 U.S.C. 415(iXlXG)) is 
amended by striking "the average of the total wages reported to 
the Secretary of the Treasury or his delegate as determined for 
purposes of subsection (bX3XAXii)" and inserting "the amount 
determined 
for 
such 
calendar 
year 
under 
subsection 
(bX3XAXiiXI)". 
(4) Section 215(aXlXCXii) of such Act (42 U.S.C. 415(aXlXCXii)) 
is amended by striking "change." and inserting "change (except 
that, for purposes of subsection (bX2XA) of such section 230 as so 
in effect, the reference therein to the average of the wages of all 
employees as reported to the Secretary of the Treasury for any 
calendar year shall be deemed a reference to the deemed aver-
age total wages (within the meaning of section 209(kXl)) for 
such calendar year).". 
(5) Section 230(d) of such Act (42 U.S.C. 430(d)) is amended by 
striking "change." and inserting "change (except that, for pur-
poses of subsection (bX2XA) of such section 230 cus so in effect, 
the reference therein to the average of the wages of all employ-
ees as reported to the Secretary of the Treasury for any cal-
endar year shall be deemed a reference to the deemed average 
total wage (within the meaning of section 209(kXl)) for such 
calendar year).". 
42 use 430 note. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by subsections (a) 
and (b) shall apply with respect to the computation of average 
total wage amounts (under the amended provisions) for cal-
" 
endar years after 1990. 
(2) TRANSITIONAL RULE.—For purposes of determining the 
contribution and benefit base for 1990, 1991, and 1992 under 
section 230(b) of the Social Security Act (and section 230(b) of 
such Act as in effect immediately prior to enactment of the 
Social Security Amendments of 1977)— 
(A) the average of total wages for 1988 shall be deemed to 
be equal to the amount which would have been determined 
without regard to this paragraph, plus 2 percent of the 
amount which has been determined to the average of total 
wages for 1987, 
(B) the average of total wages for 1989 shall be deemed to 
^ 
be equal to the amount which would have been determined 
without regard to this paragraph, plus 2 percent of the 
amount which would have bc^n determined to be the aver-
PUBLIC LAW 101-239—DEC. 19, 1989 
l O l ^ T A t . 2479 
age of total wages for 1988 without regard to subparagraph 
(A), and 
(C) the average of total wages reported to the Secretary of 
the Treasury for 1990 shall be deemed to be equal to the 
product of— 
(i) the SSA average wage index (as defined in section 
215(iXlXG) of the Social Security Act and promulgated 
by the Secretary) for 1989, and 
(ii) the quotient obtained by dividing— 
(I) the average of total wages (as defined in 
regulations of the Secretary and computed without 
regard to the limitations of section 209(aXl) of the 
Social Security Act and by including deferred com-
pensation amounts, within the meaning of section 
209(kX2) of such Act as added by this section) 
reported to the Secretary of the Treasury or his 
delegate for 1990, by 
(II) the average of total wages (as so defined and 
computed without regard to the limitations speci-
fied in such section 209(aXl) and by excluding de-
ferred compensation amounts within the meaning 
of such section 209(kX2)) reported to the Secretary 
of the Treasury or his delegate for 1989. 
(3) DETERMINATION OF CONTRIBUTION AND BENEFIT BASE FOR 
1993.—For purposes of determining the contribution and benefit 
base for 1993 under section 230(b) of the Social Security Act (and 
section 230(b) of such Act as in effect immediately prior to 
enactment of the Social Securitj'^ Amendments of 1977), the 
average of total wages for 1990 shall be determined without 
regard to subparagraph (C) of paragraph (2). 
(4) REVISED DETERMINATION UNDER SECTION 230 OF THE SOCIAL 
SECURITY ACT.—As soon as possible after the enactment of this 
Act, the Secretary of Health and Human Services shall revise 
and publish, in accordance with the provisions of this Act and 
the amendments made thereby, the contribution and benefit 
base under section 230 of the Social Security Act with respect to 
remuneration paid after 1989 and taxable years beginning after 
calendar year 1989. 
(d) CLERICAL AMENDMENTS.— 
(1) DESIGNATION OF UNDESIGNATED PROVISIONS.—Section 209 of 
the Social Security Act is further amended— 
42 USC 409. 
(A) by redesignating paragraphs (1) through (9) of subsec-
tion (a) as subparagraphs (A) through (I), respectively; 
(B) by redesignating clauses (1) through (3) of subsection 
(b) as clauses (A) through (C), respectively; 
(C) by redesignating clauses (1) through (9) of subsection 
(e) as clauses (A) through (I), respectively; 
(D) by redesignating paragraphs (1) and (2) of subsection 
(f) £is subparagraphs (A) and (B), respectively; 
(E) by redesignating paragraphs (1), (2), and (3) of subsec-
tion (g) as subparagraphs (A), (B), and (C), respectively; 
(F) in subsection (h), by redesignating clauses (i), (ii), and 
(iii) as clauses (I), (II), and (III), respectively, by redesignat-
ing subparagraphs (A) and (B) of paragraph (2) as clauses (i) 
and (ii), respectively, and by redesignating paragraphs (1) 
and (2) as subparagraphs (A) and (B), respectively; 
103 STAT. 2480 
PUBLIC LAW 101-239—DEC. 19,1989 
(G) by redesignating paragraphs (1) and (2) of subsection 
(1) as subparagraphs (A) and (B), respectively; 
(H) by redesignating paragraphs (1) and (2) of subsection 
(m) as subparagraphs (A) and (B), respectively; 
(I) by redesignating paragraphs (1) and (2) of subsection 
(p) as subparagraphs (A) and (B), respectively; 
(J) by redesignating subsections (a), (b), (d), (e), (f), (g), (h), 
(j)» (k), (1), (m), (n), (o), (p), (q), (r), (s), and (t) (in the matter 
preceding subsection (k) added by subsection (a) of this 
., 
section, and as amended by the preceding provisions of this 
paragraph) as paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (9), 
(10), (11), (12), (13), (14), (15), (16), (17), and (18), respectively; 
(K) by inserting "(a)" after "SEC. 209."; 
(L) by striking "Nothing in the regulations" and inserting 
the following: 
"(b) Nothing in the regulations"; 
(M) in the undesignated paragraph commencing with 
r 
"For purposes of this title, in the case of domestic service", 
by inserting "(c)" at the beginning thereof, and by striking 
"subsection (gX2)" each place it appears and inserting 
"subsection (aX6XB)"; 
(N) in the undesignated paragraph commencing with 
"For purposes of this title, in the case of an individual 
performing service, as a member", by inserting "(d)" at the 
beginning thereof, and by striking "subsection (a)" and 
inserting "subsection (aXD , 
(O) by inserting "(e)" at the beginning of the undesig-
nated paragraph commencing with "For purposes of this 
title, in the case of an individual performing service, as a 
volunteer"; 
(P) by inserting "(f)" at the beginning of the undesignated 
par£^aph commencing with "For purposes of this title, tips 
received ; 
(Q) by inserting "(g)" at the beginning of the undesig-
nated paragraph commencing with "For purposes of this 
title, in any case where"; 
(R) by inserting "(h)" at the beginning of the undesig-
nated peiragraph commencing with "For purposes of thus 
title, in the case of an individual performing service under 
the provisions"; 
(S) by inserting "(i)" at the beginning of the undesignated 
paragraph commencing with "Nothing in any of the fore-
going"; and 
(T) by inserting "(j)" at the beginning of the undesignated 
paragraph commencing with "Any amount deferred". 
(2) CONFORMING AMENDMENTS.— 
(A) Title II of such Act is amended— 
(i) 
in 
sections 
203(fX8XBXiiXI), 
213(dX2XB), 
215(aXlXBXiiXI). 215(bX3XAXiiXI), 224(fX2XBXi), and 
230(bX2XA) (42 U.S.C. 403(fX8XBXiiXI), 413(dX2XB), 
415(aXlXBXiiXI), 415(bX3XAXiiXI), 424a(fX2XBXi), and 
430(bX2XA)), by striking "section 209(a)" and inserting 
"section 209(aXl)"; 
(ii) in section 203(fK5XC), by striking "subsections (a), 
(gX2), (gX3), (hX2), and (j) of section 209" and inserting 
^paragraphs (1), (6XB), (6XC), (7XB), and (8) of section 
209(ar; 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2481 
(iii) in clauses (B) and (C) of the Isist sentence of 
section 224(a), by striking "209(a)" and inserting 
42 use 424a. 
' 
"209(aXl)"' 
(iv) in section 217(bXl), by striking "209(eX2)" and 42 USC 417. 
inserting "209(aX4XB)"; 
(v) in section 218(cX5), by striking "paragraph (2) of 42 USC 418. 
section 209(h)" and inserting "subparagraph (B) of sec-
tion 209(aX7)"; and 
(vi) m section 203(fK5XCXii), by striking "209(mX2)" 
42 USC 403. 
and inserting "209(aXllXB)". 
(BXi) Section 6(fKl) of the Fair Labor Standards Act of 
1938 (29 U.S.C. 206(fXl)) is amended by striking "209(g)" 
and inserting "209(aX6)". 
(ii) Section l(hX5Xiii) of the Railroad Retirement Act 
of 1974 (45 U.S.C. 231(hX5Xiii)) is amended by striking 
"the third paragraph of section 209" and inserting 
"section 209(d)". 
Subtitle C—Additional Amendments 
SEC. 10301. ELIMINATION OF THE DEPENDENCY TEST APPLICABLE TO 
* 
CERTAIN ADOPTED CHILDREN. 
(a) IN GENERAL.—Section 202(dX8XD) of the Social Security Act (42 
U.S.C. 402(dX8XD)) is amended— 
(1) by adding "and" after the comma at the end of clause (i); 
and 
(2) by striking clauses (ii) and (iii) and inserting the following 
new clause: 
"(ii) in the case of a child who attained the age of 18 
prior to the commencement of proceedings for adop-
tion, the child was living with or receiving at least one-
half of the child's support from such individual for the 
year immediately preceding the month in which the 
adoption is decreed ". 
O
t
>
) CONFORMING AMENDMENT.—Paragraph (8) of section 202(d) of 
such Act is further amended by striking the last sentence. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
42 USC 402 note. 
apply with respect to benefits payable for months after Decem-
ber 1989, but only on the basis of applications filed on or after 
January 1,1990. 
SEC. 10302. AUTHORITY FOR SECRETARY TO TAKE INTO ACCOUNT MISIN-
FORMATION PROVIDED TO APPLICANTS IN DETERMINING 
DATE OF APPLICATION FOR BENEFITS. 
(a) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.— 
(1) IN GENERAL.—Scction 202(j) of the Social Security Act (42 
U.S.C. 402(j)) is amended by adding at the end the following new 
paragraph: 
"(6) In any case in which it is determined to the satisfaction of the 
Secretary that an individual failed as of any date to apply for 
monthly insuremce benefits under this title by reason of misinforma-
tion provided to such individual bv any officer or employee of the 
SocisJ Security Administration relating to such individual's eligi- 
r 
bility for benefits under this title, such individual shall be deemed to 
have applied for such benefits on the later of— 
103 STAT. 2482 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) the date on which such misinformation was provided to 
such individual, or 
"(B) the date on which such individual met all requirements 
for entitlement to such benefits (other than application there-
for).". 
42 use 402 note. 
(2) EFFECTIVE DATE.—The smiendment made by paragraph (1) 
shall apply with respect to misinformation furnished after 
December 1982 and to benefits for months after December 1982. 
V |. 
(b) SUPPLEMENTAL SECURITY INCOME.— 
(1) IN GENERAL.—Section 1631(e) of such Act (42 U.S.C. 1383(e)) 
is amended by adding at the end the following new paragraph: 
"(5) In any case in which it is determined to the satisfaction of the 
Secretary that an individual failed as of any date to apply for 
benefits under this title by reason of misinformation provided to 
such individual by any officer or employee of the Social Security 
Administration relating to such individual's eligibility for benefite 
under this title, such individual shall be deemed to have applied for 
such benefits on the later of— 
"(A) the date on which such misinformation was provided to 
such individual, or 
"(B) the date on which such individual met all requirements 
« 
for entitlement to such benefits (other than application there-
for).". 
42 use 1383 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
'*<**®- 
shall apply with respect to misinformation furnished on or after 
the date of the enactment of this Act and to benefits for months 
after the month in which this Act is enacted. 
SEC. 10303. SAME-DAY PERSONAL INTERVIEWS AT FIELD OFFICES OF 
THE SOCIAL SECURITY ADMINISTRATION IN CERTAIN CASES 
WHERE TIME IS OF THE ESSENCE. 
(a) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.—Section 205 
of the Social Security Act (42 U.S.C. 405) is amended by adding at 
the end the following new subsection: 
"Same-Day Personal Interviews at Field Offices In Cases Where 
Time Is of The Essence 
.,, 
;. 
"(t) In any case in which an individual visits a field office of the 
Social Security Administration and represents during the visit to an 
officer or employee of the Social Security Administration in the 
office that the individual's visit is occasioned by— 
"(1) the receipt of a notice from the Social Security Adminis-
tration indicating a time limit for response by the individual, or 
"(2) the theft, loss, or nonreceipt of a benefit pajonent under 
this title, 
the Secretary shall ensure that the individual is granted a face-to-
face interview at the office with an officer or employee of the Social 
Security Administration before the close of business on the day of 
the visit.". 
(b) SUPPLEMENTAL SECURFTY INCOME.—Section 1631(e) of such Act 
(42 U.S.C. 1383(e)) is amended by adding after the paragraph added 
by section 10302(bXl) of this Act the following new paragraph: 
"(6) In any case in which an individual visits a field office of the 
Social Security Administration and represents during the visit to an 
officer or employee of the Social Security Administration in the 
office that the individual's visit is occasioned by— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2483 
"(1) the receipt of a notice from the Social Security Adminis-
tration indicating a time limit for response by the individual, or 
"(2) the theft, loss, or nonreceipt of a benefit pasrment under 
this title, 
the Secretary shall ensure that the individual is granted a face-to-
face interview at the office with an officer or employee of the Social 
Security Administration before the close of business on the day of 
the visit.". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
42 USC 405 note. 
apply to visits to field offices of the Social Security Administration 
on or after Jsinuary 1,1990. 
SEC. 10304. AUTHORITY TO AMEND WAGE RECORDS AFTER EXPIRATION 
OF TIME LIMITATION. 
Subparagraph (H) of section 205(cX5) of the Social Security Act (42 
U.S.C. 405(cX5XH)) is amended by strikmg "if' and all that follows 
through "period". 
SEC. 10305. STANDARDS APPLICABLE IN CERTAIN DETERMINATIONS OF 
• ^. 
GOOD CAUSE, FAULT, AND GOOD FAITH. 
(a) GOOD CAUSE FOR FAILURE TO MAKE EARNINGS REPORTS 
TIMELY.—Section 2030) of the Social Security Act (42 U.S.C. 403(1)) is 
amended in the last sentence by striking "Secretary" and inserting 
"Secretary, except that in making any such determination, the 
Secretary shall specifically take into account any physical, mental, 
educational, or linguistic limitation such individual may have 
(including any lack of facility with the English language)". 
(b) WAIVERS OP RECOVERY OF OVERPAYMENTS.—Section 204(b) of 
such Act (42 U.S.C. 404(b)) is amended by adding at the end the 
following new sentence: "In making for purposes of this subsection 
any determination of whether any individual is without fault, the 
Secretary shall specifically take into accoimt any phjrsical, mental, 
educational, or linguistic limitation such individual may have 
(including any lack of facility with the English Icmguage).". 
(c) STANDARD OF REVIEW IN TERMINATION OF DISABILITY BENE-
FITS.—Section 223(f) of such Act (42 U.S.C. 423(f)) is amended bv 
inserting after the first sentence in the matter following paragraph 
(4) the following new sentence: "In making for purposes of the 
preceding sentence any determination relating to fraudulent behav-
ior by any individual or failure by any individual without good cause 
to cooperate or to take any required action, the Secretary shall 
specifically take into account any physical, mental, educational, or 
linguistic limitation such individual may have (including any lack of 
* 
? 
facility with the English lemguage).". 
(d) 
CONTINUATION 
OF BENEFITS 
PENDING 
APPEAL.—Section 
223(gX2XB) of such Act (42 U.S.C. 423(gX2XB)) is amended by adding 
at the end the following new sentence: "In making for purposes of 
this subparagraph any determination of whether any individual's 
appeal is made in good faith, the Secretory shall specifically take 
into account any physical, mental, educational, or linguistic limito-
tion such individual may have (including any lack of facility with 
the English language).". 
(e) SUPPLEMENTAL SECURITY INCOME.—Section 1631(cXl) of such 
Act (42 U.S.C. 1383(cXl)) is amended bv adding at the end the 
following: "The Secretary shall specifically take into account any 
physical, mental, educational, or linguistic limitetion of such 
individual (including any lack of facility with the English language) 
103 STAT. 2484 
PUBLIC LAW 101-239—DEC. 19, 1989 
in determining, with respect to the eligibility of such individual for 
benefits under this title, whether such individual acted in good faith 
or was at fault, and in determining fraud, deception, or intent.". 
42 use 403 note. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to determinations made on or after July 1, 1990. 
SEC. 10306. NOTICE REQUIREMENTS. 
(a) APPUCABIUTY TO BUND BENEFICIARIES UNDER TITLE II OF 
?' 
< 
NOTICE STANDARDS CURRENTLY APPUCABLE TO BUND BENEFICIARIES 
UNDER TITLE XVI.— 
(1) IN GENERAL.—Section 221 of the Social Security Act (42 
U.S.C. 421) is amended by adding at the end the following new 
subsection: 
"(IXD In any case where an individual who is appl3dng for or 
receiving benefits under this title on the basis of disability by reason 
of blindness is entitled to receive notice from the Secretary of any 
decision or determination made or other action taken or proposed to 
be taken with respect to his or her rights under this title, such 
individual shall at his or her election be entitled either (A) to receive 
a supplementary notice of such decision, determination, or action, 
by telephone, within 5 working days after the initial notice is 
mailed, (B) to receive the initial notice in the form of a certified 
letter, or (C) to receive notification by some alternative procedure 
^ 
established by the Secretary and agreed to by the individual. 
"(2) The election under paragraph (1) may be made at any time, 
but an opportunity to make such an election shall in any event be 
given, to every individual who is an applicant for benefits under this 
title on the basis of disability by reason of blindness, at the time of 
his or her application. Such an election, once made by an individual, 
shall apply with respect to all notices of decisions, determinations, 
and actions which such individual may thereafter be entitled to 
receive under this title until such time as it is revoked or changed.". 
42 use 421 note. 
(2) AppuCATiON T
O CURRENT RECIPIENTS.—Not later than July 
1, 1990, the Secretary of Health and Human Services shall 
provide every individual receiving benefits under title II of the 
Social Security Act on the basis of disability by reason of 
blindness an opportunity to make an election under section 
221(1X1) of such Act (as added by paragraph (1)). 
42 use 421 note. 
(3) EFFECTIVE DATE.—The amendment made by this section 
shall apply with respect to notices issued on or after July 1, 
1990. 
42 u s e 902 note. 
0)) REPORT REGARDING NOTICES IN LANGUAGES O T H E R T H A N E N G -
USH.—Not later than January 1, 1991, the Secretary of Health and 
Human Services shall submit a report to the Committee on Ways 
and Means of the House of Representatives and the Committee on 
Finance of the Senate setting forth— 
(1) the procedures of the Social Security Administration cur-
rently in effect for issuing notices in languages other than 
English to individuals who have a limited capacity to commu-
nicate with such Administration in English, and 
(2) reasonable options for expanding the use of notices in 
languages other than English. 
SEC. 10307. REPRESENTATION OP CLAIMANTS. 
(a) RECORDING OF IDENTITY OF REPRESENTATIVES IN ELECTRONIC 
INFORMATION RETRIEVAL SYSTEM.— 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2485 
(1) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.—Section 
206(a) of the Social Security Act (42 U.S.C. 406(a)) is amended by 
adding at the end the following new sentence: "The Secretary 
shall maintain in the electronic information retrieval system 
used by the Social Security Administration a current record, 
with respect to any claimant before the Secretary, of the iden-
tity of any person representing such claimant in accordance 
with this subsection.". 
(2) SUPPLEMENTAL SECURITY INCOME.—Section 1631(dX2) of 
such Act (42 U.S.C. 1383(dX2)) is amended by adding at the end 
the following new sentence: "The Secretary shall maintain in 
the electronic information retrieval system used by the Social 
Security Administration a current record, with respect to any 
claimant before the Secretary, of the identity of any person 
' 
representing such claimant in accordance with this para-
graph.". 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
42 USC 406 note, 
tion shall take effect June 1,1991. 
(b) NOTIFICATION OF OPTIONS FOR OBTAINING ATTORNEYS.— 
(1) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.—Section 
206 of such Act (42 U.S.C. 406) is further amended by adding at 
the end the following new subsection: 
"(c) The Secretary shall notify each claimant in writing, together 
^ 
with the notice to such claimant of an adverse determination, of the 
options for obtaining attorneys to represent individuals in present-
ing their cases before the l^cretary. Such notification shall also 
advise the claimant of the availability to qualifying claimants of 
legal services organizations which provide legal services free of 
charge.". 
(2) SUPPLEMENTAL SECURITY INCOME.—Section 1631(dX2) of 
such Act (42 U.S.C. 1383(dX2)) is amended— 
(A) by inserting "(A)" after "(2)"; and 
(B) by adding at the end the following new subparagraph: 
"(B) The Secretary shall notify each claimant in writing, together 
with the notice to such claimant of an adverse determination, of the 
options for obtaining attorneys to represent individuals in present-
ing their cases before the l&cretary. Such notification shall also 
advise the claimant of the availability to qualifving claimants of 
legal services organizations which provide legal services free of 
charge.". 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
42 USC 406 note, 
tion shall apply with respect to adverse determinations made on 
or after January 1,1991. 
SEC. 10308. EARNINGS AND BENEFIT STATEMENTS. 
Part A of title XI of the Social Security Act is amended by adding 
at the end thereof the following new section: 
"SOCIAL SECURITY ACCOUNT STATEMENTS 
"Provision Upon Request 
"SEC. 1142. (aXD Beginning not later than October 1, 1990, the 42 USC 
Secretary shall provide upon the request of an eligible individual a 1320b-13. 
social security account statement (hereinafter referred to as the 
'statement'). 
"(2) Each statement shall contain— 
103 STAT. 2486 
PUBLIC LAW 101-239—DEC. 19, 1989 
"(A) the amount of wages paid to and self-emplojrment income 
derived by the eligible individual as shown by the records of the 
Secretary at the date of the request; 
"(B) an estimate of the aggregate of the employee and self-
employment contributions of the eligible individu£d for old-age, 
survivors, and disability insurance as shown by the records of 
the Secretary on the date of the request; 
"(C) a separate estimate of the aggregate of the employee and 
self-emplojrment contributions of the eligible individual for hos-
pital insurance as shown by the records of the Secretary on the 
date of the request; and 
"(D) an estimate of the potential monthly retirement, disabil-
ity, survivor, and auxiliary benefits payable on the eligible 
individual's account together with a description of the benefits 
payable under the medicare program of title XVIII. 
"(3) For purposes of this section, the term 'eligible individual' 
means an individual who— 
^ 
"(A) has a social security account number, 
« 
< 
"(B) has attained age 25 or over, and 
"(C) has wages or net earnings from self-emplojmaent. 
"Notice to Eligible Individuals 
* 
"(b) The Secretary shsdl, to the maximum extent practicable, take 
such steps as are necessary to assure that eligible individuals are 
informed of the availability of the statement described in subsection 
(a). 
"Mandatory Provision of Statements 
"(cXl) By not later than September 30, 1995, the Secretary shall 
provide a statement to each eligible individual who has attained age 
60 by October 1,1994, and who is not receiving benefits under title II 
and for whom a current mailing address can be determined through 
such methods as the Secretary determines to be appropriate. In 
fiscal years 1995 through 1999 the Secretary shall provide a state-
ment to each eligible individual who attains age 60 in such fiscal 
years and who is not receiving benefits under title 11 and for whom a 
current mailing address can be determined through such methods as 
., , 
p. 
the Secretary determines to be appropriate, llie Secretary shall 
provide with each statement to an eligible individual notice that 
such statement is updated annually and is available upon request. 
"(2) Beginning not later than October 1, 1999, the Secretary shall 
provide a statement on a biennial basis to each eligible individual 
who is not receiving benefits under title II and for whom a mailing 
address can be determined through such methods as the Secretary 
determines to be appropriate. With respect to statements provided 
to eligible individuals who have not attained age 50, such statements 
need not include estimates of monthly retirement benefits. How-
ever, if such statements provided to eligible individuals who have 
not attained age 50 do not include estimates of retirement benefit 
amounts, such statements shall include a description of the benefits 
(including auxilieuy benefits) that are available upon retirement.". 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2487 
Subtitle D—Human Resource and Income 
Security Provisions 
SEC. 10401. INCREASE IN AUTHORIZATION FOR CHILD WELFARE SERV-
ICES UNDER TITLE IV-B OF THE SOCIAL SECURITY ACT. 
(a) IN GENERAL.—Sections 
420(a), 427(b), 474(cX4XB), and 
474(cX4XC) of the Social Security Act (42 U.S.C. 620(a), 627(b), 
674(cX4XB), and 674(cX4XC)) are each amended by striking 
"$266,000,000" and inserting "$325,000,000". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 use 620 note. 
shall take effect on October 1,1989. 
SEC. 10402. EXTENSION AND PERMANENT INCREASE IN FOSTER CARE 
CEILING. 
(a) PERMANENT INCREASE IN APPROPRIATIONS LEVEL WHICH TRIG-
GERS FOSTER CARE CEIUNG.—Section 474(bX2XA) of the Social Secu-
rity Act (42 U.S.C. 674(bX2XA)) is amended— 
(1) by striking "and" at the end of clause (ii); 
- -
(2) by striking the period at the end of clause (iii) and insert-
ing "; and"; and 
(3) by adding at the end the following new clause: 
"(iv) with respect to each fiscal year succeeding the fiscal year 
1989, only if $325,000,000 is appropriated under section 420 for 
such succeeding fiscal year.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 use 674 note. 
shall take effect on October 1,1989. 
SEC. 10403. MISCELLANEOUS TECHNICAL CORRECTIONS. 
(a) TECHNICAL CORRECTIONS RELATING T
O THE FAMILY SUPPORT ACT 
OP 1988.— 
(1) CORRECTIONS TAKING EFFECT RETROACTIVELY.— 
(AXi) Section 407(bXlXBXiiiXI) of the Social Security Act 
(42 U.S.C. 607(bXlXBXiiiXI)), as amended by section 
202(bX8XA), and redesignated by section 401(bXl), of the 
Family Support Act of 1988, is amended by striking 
"409(aX19XC)" and inserting "402(aX19XC)". 
(ii) The amendment made by clause (i) shall take effect as 42 USC 607 note, 
if such amendment had been included in section 202(bX8XA) 
of the Family Support Act of 1988 on the date of the 
6I13.CtlI16Ilt of such, .^cti 
(BXi) Sections 402(aX30) and 452(dX2XB) of the Social 
Security Act (42 U.S.C. 602(aX30) and 652(dX2XB)) are each 
amended by striking "automatic" and inserting "auto-
mated". 
(ii) The amendments made by clause (i) shall take effect 
42 USC 602 note, 
as if such amendments had been included in section 123(d) 
- 
of the Family Support Act of 1988 on the date of the 
6iid.ct/in6ni^ of SUPII Apt 
(CXi) Section 402(gXlXA) of the Social Security Act (42 
U.S.C. 602(gXlXA)) is amended— 
(I) in clause (iv), by striking "includes a child who is 
(or, if needy," and inserting "received aid to families 
with dependent"; and 
(II) in clause (v), by striking the first comma. 
103 STAT. 2488 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 602 note. 
(ii) The amendments made by clause (i) shall take effect 
as if such amendments had been included in section 302(c) 
of the Family Support Act of 1988 on the date of the 
enactment of such Act. 
(2) 
CORRECTION TAKING EFFECT 
PROSPECTIVELY.—Effective 
September 30, 1998, section 407(dXl) of the Social Security Act 
(42 U.S.C. 607(dXl)) is amended by striking "participated" and 
all that follows and inserting "participated in a program under 
part F". 
(b) TECHNICAL CORRECTION RELATING TO THE TAX REFORM ACT OF 
. 
1986.— 
" 
" 
(1) CORRECTION.—Section 422(bXlXA) of the Social Security 
Act (42 U.S.C. 622(bXlXA)) is amended by striking "the individ-
ual or agency designated pursuant to section 2003(dXlXC) to 
administer or supervise the administration of the State's serv-
ices program" and inserting "the individual or agency that 
/ 
administers or supervises the administration of the State's 
services program under title XX". 
42 use 622 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall take effect as if such amendment had been included in 
section 1883(eXl) of the Tax Reform Act of 1986 on the date of 
the enactment of such Act. 
(c) TECHNICAL CORRECTION RELATING TO SECTION 474(bX2(B) OF THE 
SOCIAL SECURITY ACT ~~ 
42 use 674. 
(1) CORRECTION.—Section 4(aXl) of Public Law 98-617 is 
amended to read as follows: 
"(IXA) in paragraphs (1) and (4XB), by striking out '1981 
through 1984 and inserting in lieu thereof '1981 through 1985'; 
and 
"(B) in paragraph (2XB), by striking out '1982 through 1984' 
and inserting in lieu thereof '1981 through 1985'.". 
42 use 674 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
of this subsection shall take effect as if included in section 4 of 
Public Law 98-617 at the time such section became law. 
Children and 
SEC. 10404. DEMONSTRATION PROJECT. 
Handicapped 
(^) NuMBER OF PROJECTS.—In order to determine whether, and if 
persons. 
SO, the extent to which, the use of volunteer senior aides to provide 
Volunta^m. 
basic medical assistance and support to families with moderately or 
42 use I395b-l 
severely disabled or chronically ill children contributes to reducing 
'*°*®" 
the costs of care for such children, not more than 10 communities 
may conduct demonstration projects under this section, 
(b) DUTIES OF THE SECRETARY.— 
(1) CJoNSiDERATiON OF APPUCATiONS.—The Secretary of Health 
and Human Services (in this section referred to as the "Sec-
retary") shall consider all applications received from commu-
nities desiring to conduct demonstration projects under this 
section. 
(2) APPROVAL OF CERTAIN APPUCATIONS.—The Secretary shall 
approve not more than 10 applications to conduct projects 
which appear likely to contribute significantly to the achieve-
ment of the purpose of this section. 
(3) GRANTS.—The Secretary shall make grants to each 
community the application of which to conduct a demonstration 
project under this section is approved by the Secretary to assist 
the community in carrying out the project. 
PUBLIC LAW 101-239—DEC. 19,1989 
103 STAT. 2489 
(c) REQUIREMENTS.—Each community receiving a grant with re-
spect to a demonstration project under this section shall conduct the 
project in accordance with such requirements as the Secretary may 
prescribe. 
(d) 
LIMITATION ON AUTHORIZATION OP APPROPRIATIONS.—For 
grsints under this section, there are authorized to be appropriated to 
the Secretary of Health and Human Services not to exceed— 
(1) $1,000,000 for each of the fiscal years 1990 and 1991; and 
(2) $2,000,000 for each of the fiscal years 1992, 1993, and 1994. 
(e) EFFECTIVE DATE.—This section shall take effect on October 1, 
1989. 
SEC. 10405. AGENT ORANGE SETTLEMENT PAYMENTS EXCLUDED FROM 
COUNTABLE INCOME AND RESOURCES UNDER FEDERAL 
MEANS-TESTED PROGRAMS. 
(a) IN GENERAL.— 
' 
(1) TREATMENT OP PAYMENTS.—The pa3nnents made from the 
Agent Orange Settlement Fund or any other fund established 
pursuant to the settlement in the In re Agent Orange product 
liability litigation, M.D.L. No. 381 (E.D.N.Y.), shall not be 
considered income or resources in determining eligibility for the 
amount of benefits under any Federal or federally assisted 
program described in paragraph (2). 
(2) PROGRAMS INVOLVED.—The program benefits described in 
this paragraph are— 
(A) benefits under the supplemental security income pro-
gram under title XVI of the Social Security Act; 
(B) aid to families with dependent children under a State 
plan approved under section 402(a) of the Social Security 
Act; 
(C) medical assistance under a State plan approved under 
section 1902(a) of the Socied Security Act; 
(D) benefits under title XX of the Social Security Act; 
(E) benefits under the food stamp program (as defined in 
section 3(h) of the Food Stamp Act of 1977); 
(F) benefits under the special supplemental food program 
for women, infants, and children established under section 
17 of the Child Nutrition Act of 1966; 
(G) benefits under section 336 of the Older Americans 
Act; 
(H) benefits under the National School Lunch Act; 
(I) benefits under any housing assistance program for 
lower income families or elderly or handicapped persons 
which is administered by the Secretary of Housing and 
Urban Development or the Secretary of Agriculture; 
(J) benefits under the Low-Income Home Energy Assist-
ance Act of 1981; 
(K) benefits under part A of the Energy Conservation in 
Existing Buildings Act of 1976; 
(L) benefits under any educationed assistance grant or 
loan program which is administered by the Secretary of 
Education; and 
(M) benefits under a State pian approved under title I, X, 
XIV, or XVI of the Social Security Act, 
(b) EFFECTIVE DATE.—Subsection (a) shall take effect on January 1, 
1989. 
103 STAT. 2490 
PUBLIC LAW 101-239—DEC. 19, 1989 
42 use 627 note. 
SEC. 10406. TREATMENT OF TRIENNIAL REVIEWS OF STATE FOSTER CARE 
PROTECTIONS FOR FISCAL YEARS BEFORE OCTOBER 1,1990. 
The Secretary of Health and Human Services shall not, before 
October 1, 1990, reduce any payment to, withhold any payment 
from, or seek any repayment from, any State under part B or E of 
title IV of the Soci^ Security Act, by reason of a determination 
made in connection with any triennial review of State compliance 
with the foster care protections of section 427 of such Act for any 
Federed fiscal year preceding fiscal year 1991. 
TITLE XI—MISCELLANEOUS 
SEC. 11001. SECTION 202(b) EXCEPTION. 
Any transfer of outlays, receipts, or revenues from one fiscal year 
to an adjacent fiscal year that occurs pursuant to any provision of 
this Act or any amendment made by this Act shall be considered a 
necessary G)ut secondary) result of a significant policy change as 
provided in section 202(D) of the Balanced Budget and Emergency 
Deficit Control Reaffirmation Act of 1987. 
2 use 902 note. 
SEC. 11002. RESTORATION OF FLT^DS SEQUESTERED. 
President of U.S. 
(a) ORDER RESCINDED.—(1) Upon the issuance of a new final order 
by the President under subsection Ot)X4), the order issued by the 
President on October 16, 1989, pursuant to section 252 of the Bal-
anced Budget and Emergency Deficit Control Act of 1985 is re-
scinded. 
(2) Except as otherwise provided in sections 6001, 6101, and 6201, 
and subject to subsection (b), any action taken to implement the 
order issued by the President on October 16,1989, shall be reversed, 
and any sequesterable budgetary resource that has been reduced or 
sequestered by such order is restored, revived, or released and shall 
be available to the same extent and for the same purposes as if an 
order had not been issued. 
(3) For purposes of section 702(d) and 1101(c) of the Ethics Reform 
Act of 1989, the order issued by the President on October 16, 1989, 
pursuant to section 252 of the Balanced Budget and Emergency 
Deficit Control Act of 1985 is deemed to be rescinded on January 31, 
1990. 
(b) ADJUSTED REDUCTION.— 
Reports. 
(1) Before the close of the fifteenth calendar day beginning 
after the date of enactment of this Act, the Director of OMB 
shall issue a revised report using the exact budget baseline set 
forth in the report of October 16, 1989, and foUoMring the 
requirements, specifications, definitions, and calculations re-
quired by the Balanced Budget and Emergency Deficit Control 
Act of 1985 for the final report issued under section 251(cX2) for 
fiscal year 1990, except that the aggregate outlay reduction to 
be achieved shall be an amount equal to $16.1 billion multiplied 
by 130 divided by 365. Calculations made to carry out the 
preceding sentence shall take into account the reductions and 
cancellations achieved by paragraphs (2) and (3) and shall not be 
affected by subsection (d). 
(2) Notwithstending any provision of law other than this 
paragraph, the reductions and cancellations in the student loan 
programs described in section 256(c) of the Balanced Budget and 
Emergency Deficit Control Act of 1985 achieved by the order 
PUBLIC LAW 101-239—DEC. 19, 1989 
103 STAT. 2491 
issued by the President on October 16, 1989, shall remain in 
effect through December 31,1989, and no reductions or cancella-
tions in such programs shall be made by the order issued under 
paragraph (4). 
(3) Notwithstanding any provision of law other than this 
paragraph, any automatic spending increase suspended or can-
celled by the order issued by the President on October 16, 1989, 
shall be paid at a rate that is 130/365ths less than the rate that 
would have been paid imder the laws providing for such auto-
matic spending increase. 
(4) On the date that the Director submits a revised report to President of U.S. 
the President under paragraph (1) for fiscal year 1990, the 
President shall issue a new final order to make all of the 
reductions and cancellations specified in such report in 
conformity with section 252(aX2) of the Balanced Budget and 
Emergency Deficit Control Act of 1985. Such order shall be 
deemed to have become effective on October 16,1989. 
(c) COMPLIANCE REPORT BY COMPTROLLER GENERAL.—Before the 
close of the thirtieth day beginning after the date the President 
issues a new final order under subsection 0>X4), the Comptroller 
General shall submit to the Congress and the President a compli-
ance report setting forth the information required under section 253 
of the Balanced Budget and Emergency Deficit Control Act of 1985 
with respect to such order. 
(d) No DOUBLE REDUCTION IN MEDiCARE.-^With respect to items 
and services described in section 6001, 6101, or 6201 for periods for 
which reductions are made pursuant to the respective sections, no 
reduction shall be made under subsection 0)). 
Approved December 19, 1989. 
LEGISLATIVE HISTORY—H.R. 3299 (S. 1750) {See S. 1726): 
HOUSE REPORTS: No. 101-247 (Comm. on the Budget) and No. 101-386 (Ck)mm. of 
Conference). 
CONGRESSIONAL RECORD, Vol. 135 (1989): 
Sept. 26-28, Oct. 3-5, considered and passed House. 
Oct. 12, S. 1750 considered in Senate. 
Oct. 13, H.R. 3299 considered and passed Senate, amended. 
Nov. 21, House and Senate agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 25 (1989): 
Dec. 19, Presidential statement.