Economic Growth and Tax Relief Reconciliation Act of 2001
PL 107-16 (H.R.1836), enacted 06/07/2001

115 STAT. 38 
PUBLIC LAW 107-16^JUNE 7, 2001 
Public Law 107-16 
107th Congress 
June 7, 2001 
[H.R. 1836] 
Economic Growth 
and Tax Relief 
Reconciliation 
Act of 2001. 
26 u s e 1 note. 
An Act 
To provide for reconciliation pursuant to section 104 of the concurrent resolution 
on the budget for fiscal year 2002. 
Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the "Economic 
Growth and Tax Relief ReconciUation Act of 2001". 
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly 
provided, whenever in this Act 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 Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents of this Act 
is as follows: 
Sec. 1. Short title; references; table of contents. 
TITLE I—INDIVIDUAL INCOME TAX RATE REDUCTIONS 
Sec. 101. Reduction in income tax rates for individuals. 
Sec. 102. Repeal of phaseout of personal exemptions. 
Sec. 103. Phaseout of overall limitation on itemized deductions. 
TITLE II—TAX BENEFITS RELATING TO CHILDREN 
Sec. 201. Modifications to child tax credit. 
Sec. 202. Expansion of adoption credit and adoption assistance programs. 
Sec. 203. Refunds disregarded in the administration of Federal programs and feder-
ally assisted programs. 
Sec. 204. Dependent care credit. 
Sec. 205. Allowance of credit for eniployer expenses for child care assistance. 
TITLE III—MARRIAGE PENALTY RELIEF 
Sec. 301. Elimination of marriage penalty in standard deduction. 
Sec. 302. Phaseout of marriage penalty in 15-percent bracket. 
Sec. 303. Marriage penalty relief for earned income credit; earned income to include 
only amounts includible in gross income; simplification of earned income 
credit. 
TITLE IV—AFFORDABLE EDUCATION PROVISIONS 
Subtitle A—Education Savings Incentives 
Sec. 401. Modifications to education individual retirement accounts. 
Sec. 402. Modifications to qualified tuition programs. 
Subtitle B—Educational Assistance 
Sec. 411. Extension of exclusion for employer-provided educational assistance. 
Sec. 412. Elimination of 60-month limit and increase in income limitation on 
student loan interest deduction. 
Sec. 413. Exclusion of certain amounts received under the National Health Service 
Corps Scholarship Program and the F. Edward Hebert Armed Forces 
Health Professions Scholarship and Financial Assistance Program. 
PUBLIC LAW 107-16-JUNE 7, 2001 
115 STAT. 39 
Subtitle C—Liberalization of Tax-Exempt Financing Rules for Public School 
Construction 
Sec. 421. Additional increase in arbitrage rebate exception for governmental bonds 
used to finance educational facilities. 
Sec. 422. Treatment of qualified public educational facility bonds as exempt facility 
bonds. 
Subtitle D—Other Provisions 
Sec. 431. Deduction for higher education expenses. 
' 
TITLE V—ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX 
PROVISIONS 
Subtitle A—Repeal of Estate and Generation-Skipping Transfer Taxes 
Sec. 501. Repeal of estate and generation-skipping transfer taxes. 
Subtitle B—Reductions of Estate and Gift Tax Rates 
Sec. 511. Additional reductions of estate and gift tax rates. 
Subtitle C—Increase in Exemption Amounts 
Sec. 521. Increase in exemption equivalent of unified credit, lifetime gifts exemp-
tion, and GST exemption amounts. 
Subtitle D—Credit for State Death Taxes 
Sec. 531. Reduction of credit for State death taxes. 
Sec. 532. Credit for State death taxes replaced with deduction for such taxes. 
Subtitle E—Carryover Basis at Death; Other Changes Taking Effect With Repeal 
Sec. 541. Termination of step-up in basis at death. 
Sec. 542. Treatment of property acquired from a decedent dying after December 31, 
2009. 
Subtitle F—Conservation Easements 
Sec. 551. Expansion of estate tax rule for conservation easements. 
Subtitle G—Modifications of Generation-Skipping Transfer Tax 
Sec. 561. Deemed allocation of GST exemption to lifetime transfers to trusts; retro-
active allocations. 
Sec. 562. Severing of trusts. 
Sec. 563. Modification of certain valuation rules. 
Sec. 564. Relief provisions. 
Subtitle H—Extension of Time for Payment of Estate Tax 
Sec. 571. Increase in number of allowable partners and shareholders in closely held 
businesses. 
Sec. 572. Expansion of availability of installment payment for estates with inter-
ests qualifying lending and finance businesses. 
Sec. 573. Clarification of availability of installment payment. 
Subtitle I—Other Provisions 
Sec. 581. Waiver of statute of limitation for taxes on certain farm valuations. 
TITLE VI—PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT 
PROVISIONS 
Subtitle A—Individual Retirement Accounts 
Sec. 601. Modification of IRA contribution limits. 
Sec. 602. Deemed IRAs under employer plans. 
Subtitle B—Expanding Coverage 
Sec. 611. Increase in benefit and contribution limits. 
Sec. 612. Plan loans for subchapter S owners, partners, and sole proprietors. 
Sec. 613. Modification of top-heavy rules. 
Sec. 614. Elective deferrals not taken into account for purposes of deduction limits. 
Sec. 615. Repeal of coordination requirements for deferred compensation plans of 
State and local governments and tax-exempt organizations. 
Sec. 616. Deduction limits. 
Sec. 617. Option to treat elective deferrals as after-tax Roth contributions. 
115 STAT. 40 
PUBLIC LAW 107-16—JUNE 7, 2001 
Sec. 618. Nonrefundable credit to certain individuals for elective deferrals and IRA 
contributions. 
Sec. 619. Credit for pension plan startup costs of small employers. 
Sec. 620. Elimination of user fee for requests to IRS regarding pension plans. 
Sec. 621. Treatment of nonresident aliens engaged in international transportation 
services. 
Subtitle C—Enhancing Fairness for Women 
Sec. 631. Catch-up contributions for individuals age 50 or over. 
Sec. 632. Equitable treatment for contributions ofemployees to defined contribution 
plans. 
Sec. 633. Faster vesting of certain employer matching contributions. 
Sec. 634. Modification to minimum distriijution rules. 
Sec. 635. Clarification of tax treatment of division of section 457 plan benefits upon 
divorce. 
Sec. 636. Provisions relating to hardship distributions. 
Sec. 637. Waiver of tax on nondeductible contributions for domestic or similar 
workers. 
Subtitle D—Increasing Portability for Participants 
Sec. 641. Rollovers allowed among various types of plans. 
Sec. 642. Rollovers of IRAs into workplace retirement plans. 
Sec. 643. Rollovers of after-tax contributions. 
Sec. 644. Hardship exception to 60-dav rule. 
Sec. 645. Treatment of forms of distribution. 
Sec. 646. Rationalization of restrictions on distributions. 
Sec. 647. Piu-chase of service credit in governmental defined benefit plans. 
Sec. 648. Employers may disregard rollovers for purposes of cash-out amounts. 
Sec. 649. Minimum distribution and inclusion requirements for section 457 plans. 
Subtitle E—Strengthening Pension Security and Enforcement 
PART I—GENERAL PROVISIONS 
Sec. 651. Repeal of 160 percent of current liability fiinding limit. 
Sec. 652. Maximum contribution deduction rules modified and applied to all 
defined benefit plans. 
Sec. 653. Excise tax relief for sound pension funding. 
Sec. 654. Treatment of multiemployer plans under section 415. 
Sec. 655. Protection of investment of employee contributions to 401(k) plans. 
Sec. 656. Prohibited allocations of stock m S corporation ESOP. 
Sec. 657. Automatic rollovers of certain mandatory distributions. 
Sec. 658. Clarification of treatment of contributions to multiemployer plan. 
PART II—TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS 
Sec. 659. Excise tax on failure to provide notice by defined benefit plans signifi-
cantly reducing future benefit accruals. 
Subtitle F—Reducing Regulatory Burdens 
Sec. 661. Modification of timing of plan valuations. 
Sec. 662. ESOP dividends may be reinvested without loss of dividend deduction. 
Sec. 663. Repeal of transition rule relating to certain highly compensated employ-
ees. 
Sec. 664. Employees of tax-exempt entities. 
Sec. 665. Clarification of treatment of employer-provided retirement advice. 
Sec. 666. Repeal of the multiple use test. 
Subtitle G—Miscellaneous Provisions 
Sec. 671. Tax treatment and information requirements of Alaska Native Settlement 
Trusts. 
TITLE VII—ALTERNATIVE MINIMUM TAX 
Sec. 701. Increase in alternative minimum tax exemption. 
TITLE VIII—OTHER PROVISIONS 
Sec. 801. Time for payment of corporate estimated taxes. 
Sec. 802. Expansion of authority to postpone certain tax-related deadlines by rea-
son of Presidentially declared disaster. 
Sec. 803. No Federal income tax on restitution received by victims of the Nazi 
regime or their heirs or estates. 
TITLE IX—COMPLIANCE WITH CONGRESSIONAL BUDGET ACT 
Sec. 901. Sunset of provisions of Act. 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 41 
TITLE I—INDIVIDUAL INCOME TAX 
RATE REDUCTIONS 
SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS. 
(a) IN GENERAL.—Section 1 (relating to tax imposed) is amended 
26 USC i. 
by adding at the end the following new subsection: 
"(i) RATE REDUCTIONS AFTER 2000.— 
"(1) 10-PERCENT RATE BRACKET.— 
"(A) IN GENERAL.—In the case of taxable years begin-
ning after December 31, 2000— 
"(i) the rate of tax under subsections (a), (b), (c), 
and (d) on taxable income not over the initial bracket 
amount shall be 10 percent, and 
"(ii) the 15 percent rate of tax shall apply only 
to taxable income over the initial bracket amount but 
not over the maximum dollar amount for the 15-percent 
rate bracket. 
"(B) INITIAL BRACKET AMOUNT.—For purposes of this 
paragraph, the initial bracket amount is— 
"(i) $14,000 ($12,000 in the case of taxable years 
beginning before January 1, 2008) in the case of sub-
section (a), 
"(ii) $10,000 in the case of subsection (b), and 
"(iii) V2 the amount applicable under clause (i) 
(after adjustment, if any, under subparagraph (C)) in 
the case of subsections (c) and (d). 
"(C) INFLATION ADJUSTMENT.—In prescribing the tables Appiicabmty. 
under subsection (f) which apply with respect to taxable 
years beginning in calendar years after 2000— 
"(i) the Secretary shall make no adjustment to 
the initial bracket amount for any taxable year begin-
ning before January 1, 2009, 
"(ii) the cost-of-living adjustment used in making 
adjustments to the initial bracket amount for any tax-
able year beginning after December 31, 2008, shall 
be determined under subsection (f)(3) by substituting 
'2007'for'1992'in subparagraph (B) thereof, and 
"(iii) such adjustment shall not apply to the 
amount referred to in subparagraph (B)(iii). 
If any amount after adjustment under the preceding sen-
tence is not a multiple of $50, such amount shall be rounded 
to the next lowest multiple of $50. 
"(D) COORDINATION WITH ACCELERATION OF 10 PERCENT 
RATE BRACKET BENEFIT FOR 2001.—This paragraph shall 
not apply to any taxable year to which section 6428 applies. 
"(2) REDUCTIONS IN RATES AFTER JUNE 30, 2001.—In the 
case of taxable years beginning in a calendar year after 2000, 
the corresponding percentage specified for such calendar year 
in the following table shall be substituted for the otherwise 
applicable tax rate in the tables under subsections (a), (b), 
(c), (d), and (e). 
115 STAT. 42 
PUBLIC LAW 107-16-^UNE 7, 2001 
The corresponding percentages 
"In the case of taxable years 
iifi'f^li^tf^^^^l'iitffJ^L. 
beginning during calendar year: 
the following percentages; 
28% 
31% 
36% 
39.6% 
2001 
27.5% 
2002 and 2003 
27.0% 
2004 and 2005 
26.0% 
2006 and thereafter 
25.0% 
30.5% 
30.0% 
29.0% 
28.0% 
35.5% 
35.0% 
34.0% 
33.0% 
39.1% 
38.6% 
37.6% 
35.0% 
"(3) ADJUSTMENT OF TABLES.—The Secretary shall adjust 
the tables prescribed under subsection (f) to carry out this 
subsection.". 
(b) ACCELERATION OF 10 PERCENT RATE BRACKET BENEFIT FOR 
2001.— 
(1) IN GENERAL.—Subchapter B of chapter 65 (relating to 
abatements, credits, and refunds) is amended by adding at 
the end the following new section: 
"SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE 
BRACKET BENEFIT FOR 2001. 
"(a) IN GENERAL.—In the case of an eligible individual, there 
shall be allowed as a credit against the tax imposed by chapter 
1 for the taxpayer's first taxable year beginning in 2001 an amount 
equal to 5 percent of so much of the taxpayer's taxable income 
as does not exceed the initial bracket amount (as defined in section 
KiXlXB)). 
"(b) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed 
by subsection (a) shall not exceed the excess (if any) of— 
"(1) the sum of the regular tax liability (as defined in 
section 26(b)) plus the tax imposed by section 55, over 
"(2) the sum of the credits allowable under part IV of 
subchapter A of chapter 1 (other than the credits allowable 
under subpart C thereof, relating to refundable credits). 
"(c) ELIGIBLE INDIVIDUAL.—For purposes of this section, the 
term 'eligible individual' means any individual other than— 
"(1) any estate or trust, 
"(2) any nonresident alien individual, and 
"(3) any individual with respect to whom a deduction under 
section 151 is allowable to another taxpayer for a taxable 
year beginning in the calendar year in which the individual's 
taxable year begins. 
"(d) SPECIAL RULES.— 
"(1) COORDINATION WITH ADVANCE REFUNDS OF CREDIT.— 
"(A) IN GENERAL.—The amount of credit which would 
(but for this paragraph) be allowable under this section 
shall be reduced (but not below zero) by the aggregate 
refunds and credits made or allowed to the taxpayer under 
subsection (e). Any failure to so reduce the credit shall 
be treated as arising out of a mathematical or clerical 
error and assessed according to section 6213(b)(1). 
"(B) JOINT RETURNS.—In the case of a refund or credit 
made or allowed under subsection (e) with respect to a 
joint return, half of such refund or credit shall be treated 
as having been made or allowed to each individual filing 
such return. 
"(2) COORDINATION WITH ESTIMATED TAX.—The credit under 
this section shall be treated for purposes of section 6654(f) 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 43 
in the same manner as a credit under subpart A of part IV 
of subchapter A of chapter 1. 
"(e) ADVANCE REFUNDS OF CREDIT BASED ON PRIOR YEAR 
DATA.— 
"(1) IN GENERAL.—Each individual who was an eUgible 
individual for such individual's first taxable year beginning 
in 2000 shall be treated as having made a payment against 
the tax imposed by chapter 1 for such first taxable year in 
an amount equal to the advance refund amount for such taxable 
year. 
"(2) ADVANCE REFUND AMOUNT.—For purposes of paragraph 
(1), the advance refund amount is the amount that would 
have been allowed as a credit under this section for such 
first taxable year if this section (other than subsection (d) 
and this subsection) had applied to such taxable year. 
"(3) TIMING OF PAYMENTS.—In the case of any overpayment 
attributable to this subsection, the Secretary shall, subject to 
the provisions of this title, refund or credit such overpayment 
as rapidly as possible and, to the extent practicable, before 
October 1, 2001. No refund or credit shall be made or allowed 
under this subsection after December 31, 2001. 
"(4) No INTEREST.—No interest shall be allowed on any 
overpayment attributable to this subsection.". 
(2) CLERICAL AMENDMENT.—The table of sections for sub-
• 
chapter B of chapter 65 is amended by adding at the end 
the following new item: 
"Sec. 6428. Acceleration of 10 percent income tax rate bracket benefit for 
2001.". 
(c) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of section 1(g)(7) is amended by 26USC1. 
striking "15 percent" in clause (ii)(II) and inserting "10 per-
cent.". 
(2) Section 1(h) is amended— 
(A) by striking "28 percent" both places it appears 
in paragraphs (l)(A)(ii)(I) and (l)(B)(i) and inserting "25 
percent", and 
(B) by striking paragraph (13). 
(3) Section 15 is amended by adding at the end the fol-
lowing new subsection: 
"(f) RATE REDUCTIONS ENACTED BY ECONOMIC GROWTH AND 
TAX RELIEF RECONCILIATION ACT OF 2001.—This section shall not 
apply to any change in rates under subsection (i) of section 1 
(relating to rate reductions after 2000).". 
(4) Section 531 is amended by striking "equal to" and 
all that follows and inserting "equal to the product of the 
highest rate of tax under section 1(c) and the accumulated 
taxable income.". 
(5) Section 541 is amended by striking "equal to" and 
all that follows and inserting "equal to the product of the 
highest rate of tax under section 1(c) and the undistributed 
personal holding company income.". 
(6) Section 3402(p)(l)(B) is amended by striking "7, 15, 
28, or 31 percent" and inserting "7 percent, any percentage 
applicable to any of the 3 lowest income brackets in the table 
under section 1(c),". 
(7) Section 3402(p)(2) is amended by striking "15 percent" 
and inserting "10 percent". 
89-194 O - 03 - 3 QL 3 Part 1 
115 STAT. 44 
PUBLIC LAW 107-16—JUNE 7, 2001 
26 use 3402. 
(8) Section 3402(q)(l) is amended by striking "equal to 
28 percent of such payment" and inserting "equal to the product 
of the third lowest rate of tax applicable under section 1(c) 
and such payment". 
(9) Section 3402(r)(3) is amended by striking "31 percent" 
and inserting "the fourth lowest rate of tax applicable under 
section 1(c)". 
(10) Section 3406(a)(1) is amended by striking "equal to 
31 percent of such payment" and inserting "equal to the product 
of the fourth lowest rate of tax applicable under section 1(c) 
and such payment". 
(11) Section 13273 of the Revenue Reconciliation Act of 
1993 is amended by striking "28 percent" and inserting "the 
third lowest rate of tax applicable under section 1(c) of the 
Internal Revenue Code of 1986". 
26 u s e 1 note. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 2000. 
(2) 
AMENDMENTS 
TO 
WITHHOLDING 
PROVISIONS.—The 
amendments made by paragraphs (6), (7), (8), (9), (10), and 
(11) of subsection (c) shall apply to amounts paid after the 
60th day after the date of the enactment of this Act. References 
to income brackets and rates of tax in such paragraphs shall 
be applied without regard to section l(i)(l)(D) of the Internal 
Revenue Code of 1986. 
SEC. 
1
0
2
. 
REPEAL 
OF 
PHASEOUT 
OF 
PERSONAL 
EXEMPTIONS. 
(a) IN GENERAL.—Paragraph (3) of section 151(d) (relating to 
exemption amount) is amended by adding at the end the following 
new subparagraphs: 
"(E) REDUCTION OF PHASEOUT.— 
"(i) IN GENERAL.—In the case of taxable years 
beginning after December 31, 2005, and before January 
1, 2010, the reduction under subparagraph (A) shall 
be equal to the applicable fraction of the amount which 
would (but for this subparagraph) be the amount of 
such reduction. 
"(ii) APPLICABLE FRACTION.—For purposes of clause 
(i), the applicable fraction shall be determined in 
accordance with the following table: 
"For taxable years beginning 
The applicable 
in calendar year— 
fraction is— 
2006 and 2007 
% 
2008 and 2009 
Va. 
"(F) TERMINATION.—This paragraph shall not apply 
to any taxable year beginning after December 31, 2009.". 
Applicability. 
(b) EFFECTIVE DATE.—The amendment made by this section 
26 use 151 note, shall apply to taxable years beginning after December 31, 2005. 
SEC. 103. PHASEOUT OF OVERALL LIMITATION ON ITEMIZED DEDUC-
TIONS. 
(a) IN GENERAL.—Section 68 is amended by adding at the 
end the following new subsections: 
"(f) PHASEOUT OF LIMITATION.— 
"(1) IN GENERAL.—In the case of taxable years beginning 
after December 31, 2005, and before January 1, 2010, the 
reduction under subsection (a) shall be equal to the applicable 
PUBLIC LAW 1 0 7 - 1 6 ^ J U N E 7, 2001 
115 STAT. 45 
fraction of the amount which would (but for this subsection) 
be the amount of such reduction. 
"(2) APPLICABLE FRACTION.—For purposes of paragraph (1), 
the apphcable fraction shall be determined in accordance with 
the following table: 
"For taxable years beginning 
The applicable 
in calendar year— 
fraction is— 
2006 and 2007 
% 
2008 and 2009 
Va. 
"(g) TERMINATION.—This section shall not apply to any taxable 
year beginning after December 31, 2009.". 
(b) EFFECTIVE DATE.—The amendment made by this section Applicability, 
shall apply to taxable years beginning after December 31, 2005. 26USC68note. 
TITLE II—TAX BENEFITS RELATING TO 
CHILDREN 
SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT. 
(a) INCREASE IN PER CHILD AMOUNT.—Subsection (a) of section 
24 (relating to child tax credit) is amended to read as follows: 26USC24. 
"(a) ALLOWANCE OF CREDIT.— 
"(1) IN GENERAL.—There shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year with 
respect to each qualifying child of the taxpayer an amount 
equal to the per child amount. 
"(2) PER CHILD AMOUNT.—For purposes of paragraph (1), 
the per child amount shall be determined as follows: 
"In the case of any taxable year 
The per child amount is— 
beginning in— 
2001, 2002, 2003, or 2004 
$ 600 
2005, 2006, 2007, or 2008 
700 
2009 
800 
2010 or thereafter 
1,000.". 
(b) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.— 
(1) IN GENERAL.—Subsection (b) of section 24 (relating to 
child tax credit) is amended by adding at the end the following 
new paragraph: 
"(3) LIMITATION BASED ON AMOUNT OF TAX.—The credit 
allowed under subsection (a) for any taxable year shall not 
exceed the excess of— 
"(A) the sum of the regular tax liability (as defined 
in section 26(b)) plus the tax imposed by section 55, over 
"(B) the sum of the credits allowable under this subpart 
(other than this section) and section 27 for the taxable 
year.". 
(2) CONFORMING AMENDMENTS.— 
(A) The heading for section 24(b) is amended to read 
as follows: "LIMITATIONS.—". 
(B) The heading for section 24(b)(1) is amended to 
read as follows: "LIMITATION BASED ON ADJUSTED GROSS 
INCOME.—". 
(C) Section 24(d), as amended by subsection (c), is 
amended— 
(i) by striking "section 26(a)" each place it appears 
and inserting "subsection (bX3)", and 
115 STAT. 46 
PUBLIC LAW 107-16^JUNE 7, 2001 
(ii) in paragraph (1)(B) by striking "aggregate 
amount of credits allowed by this subpart" and 
inserting "amount of credit allowed by this section". 
26 use 26. 
(D) Paragraph (1) of section 26(a) is amended by 
inserting "(other than section 24)" after "this subpart". 
(E) Subsection (c) of section 23 is amended by striking 
"and section 1400C" and inserting "and sections 24 and 
1400C". 
(F) Subparagraph (C) of section 25(e)(1) is amended 
by inserting ", 24," after "sections 23". 
(G) Section 904(h) is amended by inserting "(other 
than section 24)" after "chapter". 
(H) Subsection (d) of section 1400C is amended by 
inserting "and section 24" after "this section". 
(c) REFUNDABLE CHILD CREDIT.— 
(1) IN GENERAL.—So much of section 24(d) (relating to 
additional credit for families with 3 or more children) as pre-
cedes paragraph (2) is amended to read as follows: 
"(d) PORTION OF CREDIT REFUNDABLE.— 
"(1) IN GENERAL.—The aggregate credits allowed to a tax-
payer under subpart C shall be increased by the lesser of— 
"(A) the credit which would be allowed under this 
section without regard to this subsection and the limitation 
under section 26(a), or 
"(B) the amount by which the amount of credit allowed 
by this section (determined without regard to this sub-
section) would increase if the limitation imposed by section 
26(a) were increased by the greater of— 
"(i) 15 percent (10 percent in the case of taxable 
years beginning before January 1, 2005) of so much 
of the taxpayer's earned income (within the meaning 
of section 32) which is taken into account in computing 
taxable income for the taxable year as exceeds $10,000, 
or 
"(ii) in the case of a taxpayer with 3 or more 
qualifying children, the excess (if any) of— 
"(I) the taxpayer's social security taxes for the 
taxable year, over 
"(II) the credit allowed under section 32 for 
the taxable year. 
The amount of the credit allowed under this subsection shall 
not be treated as a credit allowed under this subpart and 
shall reduce the amount of credit otherwise allowable under 
subsection (a) without regard to section 26(a).". 
(2) INFLATION ADJUSTMENT.—Subsection (d) of section 24 
is amended by adding at the end the following new paragraph: 
"(4) INFLATION ADJUSTMENT.—In the case of any taxable 
year beginning in a calendar year after 2001, the $10,000 
amount contained in paragraph (1)(B) shall be increased by 
an amount equal to— 
"(A) such dollar amount, multiplied by 
"(B) the cost-of-living adjustment determined under 
section 1(f)(3) for the calendar year in which the taxable 
year begins, determined by substituting 'calendar year 
2000' for 'calendar year 1992' in subparagraph (B) thereof. 
Any increase determined under the preceding sentence shall 
be rounded to the nearest multiple of $50.". 
PUBLIC LAW 107-16-^JUNE 7, 2001 
115 STAT. 47 
(3) CONFORMING AMENDMENT.—Section 32 is amended by 
26 use 32. 
striking subsection (n). 
(d) ELIMINATION OF REDUCTION OF CREDIT TO TAXPAYER SUB-
JECT TO ALTERNATIVE MINIMUM TAX PROVISION.—Section 24(d) is 
amended— 
(1) by striking paragraph (2), and 
(2) by redesignating paragraphs (3) and (4) as paragraphs 
(2) and (3), respectively. 
(e) EFFECTIVE DATES.— 
Appiicabmty. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 26USC24note. 
amendments made by this section shall apply to taxable years 
beginning after December 31, 2000. 
(2) SUBSECTION (b).—The amendments made by subsection 
(b) shall apply to taxable years beginning after December 31, 
2001. 
SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSIST-
ANCE PROGRAMS. 
(a) IN GENERAL.— 
(1) ADOPTION CREDIT.—Section 23(aXl) (relating to allow-
ance of credit) is amended to read as follows: 
"(1) IN GENERAL.—In the case of an individual, there shall 
be allowed as a credit against the tax imposed by this chapter— 
"(A) in the case of an adoption of a child other than 
a child with special needs, the amount of the qualified 
adoption expenses paid or incurred by the taxpayer, and 
"(B) in the case of an adoption of a child with special 
needs, $10,000.". 
(2) 
ADOPTION 
ASSISTANCE 
PROGRAMS.—Section 
137(a) 
(relating to adoption assistance programs) is amended to read 
as follows: 
"(a) IN GENERAL.—Gross income of an employee does not 
include amounts paid or expenses incurred by the employer for 
adoption expenses in connection with the adoption of a child by 
an employee if such amounts are furnished pursuant to an adoption 
assistance program. The amount of the exclusion shall be— 
"(1) in the case of an adoption of a child other than a 
child with special needs, the amount of the qualified adoption 
expenses paid or incurred by the taxpayer, and 
"(2) in the case of an adoption of a child with special 
needs, $10,000.". 
(b) DOLLAR LIMITATIONS.— 
(1) DOLLAR AMOUNT OF ALLOWED EXPENSES.— 
(A) ADOPTION EXPENSES.—Section 23(b)(1) (relating to 
allowance of credit) is amended— 
(i) by striking "$5,000" and inserting "$10,000", 
(ii) by striking "($6,000, in the case of a child 
with special needs)", and 
(iii) by striking "subsection (a)" and inserting "sub-
section (a)( 1)(A)". 
(B) 
ADOPTION 
ASSISTANCE 
PROGRAMS.—Section 
137(b)(1) (relating to dollar limitations for adoption assist-
ance programs) is amended— 
(i) by striking "$5,000" and inserting "$10,000", 
and 
(ii) by striking "($6,000, in the case of a child 
with special needs)", and 
115 STAT. 48 
PUBLIC LAW 1 0 7 - 1 6 ^ J U N E 7, 2001 
(iii) by striking "subsection (a)" and inserting "sub-
section (a)(1)". 
(2) PHASE-OUT LIMITATION.— 
(A) 
ADOPTION 
EXPENSES.—Clause 
(i) of section 
26 use 23. 
23(bX2)(A) (relating to income limitation) is amended by 
striking "$75,000" and inserting "$150,000". 
(B) 
ADOPTION 
ASSISTANCE 
PROGRAMS.—Section 
137(b)(2)(A) (relating to income limitation) is amended by 
striking "$75,000" and inserting "$150,000". 
(c) YEAR CREDIT ALLOWED.—Section 23(aX2) (relating to year 
credit allowed) is amended by adding at the end the following 
new flush sentence: 
"In the case of the adoption of a child with special needs, 
the credit allowed under paragraph (1) shall be allowed for 
the taxable year in which the adoption becomes final.". 
(d) REPEAL OF TERMINATIONS.— 
(1) CHILDREN WITHOUT SPECL^L NEEDS.—Paragraph (2) of 
section 23(d) (relating to definition of eligible child) is amended 
to read as follows: 
"(2) ELIGIBLE CHILD.—The term 'eHgible child' means any 
individual who— 
"(A) has not attained age 18, or 
"(B) is physically or mentally incapable of caring for 
himself.". 
(2) ADOPTION ASSISTANCE PROGRAMS.—Section 137 (relating 
to adoption assistance programs) is amended by striking sub-
section (f). 
(e) ADJUSTMENT OF DOLLAR AND INCOME LIMITATIONS FOR 
INFLATION.— 
(1) ADOPTION CREDIT.—Section 23 (relating to adoption 
expenses) is amended by redesignating subsection (h) as sub-
section (i) and by inserting after subsection (g) the following 
new subsection: 
"(h) ADJUSTMENTS FOR INFLATION.—In the case of a taxable 
year beginning after December 31, 2002, each of the dollar amounts 
in subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of subsection 
(b) shall be increased by an amount equal to— 
"(1) such dollar amount, multiplied by 
"(2) the cost-of-living adjustment determined under section 
1(f)(3) for the calendar year in which the taxable year begins, 
determined by substituting 'calendar year 2001' for 'calendar 
year 1992' in subparagraph (B) thereof.". 
(2) ADOPTION ASSISTANCE PROGRAMS.—Section 137 (relating 
to adoption assistance programs), as amended by subsection 
(d), is amended by adding at the end the following new sub-
section: 
"(f) ADJUSTMENTS FOR INFLATION.—In the case of a taxable 
year beginning after December 31, 2002, each of the dollar amounts 
in subsection (a)(2) and paragraphs (1) and (2)(A) of subsection 
(b) shall be increased by an amount equal to— 
"(1) such dollar amount, multiplied by 
"(2) the cost-of-living adjustment determined under section 
1(f)(3) for the calendar year in which the taxable year begins, 
determined by substituting 'calendar year 2001' for 'calendar 
year 1992' in subparagraph (B) thereof.". 
(f) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.— 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 49 
(1) IN GENERAL.—Subsection (b) of section 23 is amended 26USC23. 
by adding at the end the following new paragraph: 
"(4) 
LIMITATION BASED ON AMOUNT OF TAX.—The credit 
allowed under subsection (a) for any taxable year shall not 
exceed the excess o
f
— 
"(A) the sum of the regular tax liability (as defined 
, 
in section 26(b)) plus the tax imposed by section 55, over 
"(B) the sum of the credits allowable under this subpart 
(other than this section) and section 27 for the taxable 
year.". 
(2) CONFORMING AMENDMENTS.— 
(A) Section 23(c), as amended by section 201(b), is 
amended— 
(i) by striking "section 26(a)" and inserting "sub-
section (b)(4)", and 
(ii) by striking "reduced by the sum of the credits 
allowable under this subpart (other than this section 
and sections 24 and 1400C)". 
(B) Section 24(b)(3)(B), as added by section 201(b), 
is amended by striking "this section" and inserting "this 
section and section 23". 
(C) Sections 26(a)(1), 904(h), and 1400C(d), as amended 
by section 201(b), are each amended by striking "section 
24" and inserting "sections 23 and 24". 
(g) EFFECTIVE DATE.— 
Applicability. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 26USC23note. 
amendments made by this section shall apply to taxable years 
beginning after December 31, 2001. 
(2) SUBSECTION (a).—The amendments made by subsection 
(a) shall apply to taxable years beginning after December 31, 
2002. 
SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FED- 26 USC 24 note. 
E R A L 
PROGRAMS AND FEDERALLY ASSISTED 
PRO-
GRAMS. 
Any payment considered to have been made to any individual 
by reason of section 24 of the Internal Revenue Code of 1986, 
as amended by section 201, shall not be taken into account as 
income and shall not be taken into account as resources for the 
month of receipt and the following month, for purposes of deter-
mining the eligibility of such individual or any other individual 
for benefits or assistance, or the amount or extent of benefits 
or assistance, under any Federal program or under any State or 
local program financed in whole or in part with Federal funds. 
SEC. 204. DEPENDENT CARE CREDIT. 
(a) INCREASE IN DOLLAR LIMIT.—Subsection (c) of section 21 
(relating to expenses for household and dependent care services 
necessary for gainful employment) is amended— 
, (1) by striking "$2,400" in paragraph (1) and inserting 
"$3,000", and 
(2) by striking "$4,800" in paragraph (2) and inserting 
"$6,000". 
(b) INCREASE IN APPLICABLE PERCENTAGE.—Section 21(a)(2) 
(defining applicable percentage) is amended— 
(1) by striking "30 percent" and inserting "35 percent", 
and 
(2) by striking "$10,000" and inserting "$15,000". 
115 STAT. 50 
PUBLIC LAW 107-16-^UNE 7, 2001 
Applicability. 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 use 21 note. 
shall apply to taxable years beginning after December 31, 2002. 
SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR 
CHILD CARE ASSISTANCE. 
(a) IN GENERAL.—Subpart D of part IV of subchapter A of 
chapter 1 (relating to business related credits), as amended by 
section 619, is further amended by adding at the end the following: 
"SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT. 
"(a) IN GENERAL.—For purposes of section 38, the employer-
provided child care credit determined under this section for the 
taxable year is an amount equal to the sum o
f
— 
"(1) 25 percent of the qualified child care expenditures, 
and 
"(2) 10 percent of the qualified child care resource and 
referral expenditures, 
of the taxpayer for such taxable year. 
"(b) DOLLAR LIMITATION.—The credit allowable under sub-
section (a) for any taxable year shall not exceed $150,000. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) QUALIFIED CHILD CARE EXPENDITURE.— 
"(A) IN GENERAL.—The term 'qualified child care 
expenditure' means any amount paid or incurred— 
"(i) to acquire, construct, rehabilitate, or expand 
property— 
"(I) which is to be used as part of a qualified 
child care facility of the taxpayer, 
"(II) with respect to which a deduction for 
depreciation (or amortization in lieu of deprecia-
tion) is allowable, and 
"(III) which does not constitute part of the 
principal residence (within the meaning of section 
121) of the taxpayer or any employee of the tax-
payer, 
"(ii) for the operating costs of a qualified child 
care facility of the taxpayer, including costs related 
to the training of employees, to scholarship programs, 
and to the providing of increased compensation to 
employees with higher levels of child care training, 
or 
"(iii) under a contract with a qualified child care 
facility to provide child care services to employees of 
the taxpayer. 
"(B) FAIR MARKET VALUE.—The term 'qualified child 
care expenditures' shall not include expenses in excess 
of the fair market value of such care. 
"(2) QUALIFIED CHILD CARE FACILITY.— 
"(A) IN GENERAL.—The term 'qualified child care 
facility' means a facility— 
"(i) the principal use of which is to provide child 
care assistance, and 
"(ii) which meets the requirements of all applicable 
laws and regulations of the State or local government 
in which it is located, including the licensing of the 
facility as a child care facility. 
PUBLIC LAW 107-16-JUNE 7, 2001 
115 STAT. 51 
Clause (i) shall not apply to a facility which is the principal 
residence (within the meaning of section 121) of the oper-
ator of the facility. 
"(B) SPECIAL RULES WITH RESPECT TO A TAXPAYER.— 
A facility shall not be treated as a qualified child care 
facility with respect to a taxpayer unless— 
"(i) enrollment in the facility is open to employees 
of the taxpayer during the taxable year, 
"(ii) if the facility is the principal trade or business 
of the taxpayer, at least 30 percent of the enrollees 
of such facility are dependents of employees of the 
taxpayer, and 
"(iii) the use of such facility (or the eligibility to 
use such facility) does not discriminate in favor of 
employees of the taxpayer who are highly compensated 
employees (within the meaning of section 414(q)). 
"(3) 
QUALIFIED CHILD CARE RESOURCE AND REFERRAL 
EXPENDITURE.— 
"(A) IN GENERAL.—The term 'qualified child care 
resource and referral expenditure' means any amount paid 
or incurred under a contract to provide child care resource 
and referral services to an employee of the taxpayer. 
"(B) NONDISCRIMINATION.—The services shall not be 
treated as qualified unless the provision of such services 
(or the eligibility to use such services) does not discriminate 
in favor of employees of the taxpayer who are highly com-
pensated employees (within the meaning of section 414(q)). 
"(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION CREDIT.— 
"(1) IN GENERAL.—If, as of the close of any taxable year, 
there is a recapture event with respect to any qualified child 
care facility of the taxpayer, then the tax of the taxpayer 
under this chapter for such taxable year shall be increased 
by an amount equal to the product of— 
"(A) the applicable recapture percentage, and 
"(B) the aggregate decrease in the credits allowed 
under section 38 for all prior taxable years which would 
have resulted if the qualified child care expenditures of 
the taxpayer described in subsection (c)(1)(A) with respect 
to such facility had been zero. 
"(2) APPLICABLE RECAPTURE PERCENTAGE.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
applicable recapture percentage shall be determined from 
the following table: 
The applicable 
recapture 
"If 
the 
recapture 
event percentage is: 
occurs in: 
Years 1-3 
100 
Year 4 
85 
Years 
70 
Year 6 
55 
Year 7 
40 
. Years 
25 
Years 9 and 10 
10 
Years 11 and thereafter 
0. 
"(B) YEARS.—For purposes of subparagraph (A), year 
1 shall begin on the first day of the taxable year in which 
the qualified child care facility is placed in service by 
the taxpayer. 
, 
115 STAT. 52 
PUBLIC LAW 107-16^JUNE 7, 2001 
Regulations. 
Applicability. 
"(3) RECAPTURE EVENT DEFINED.—For purposes of this sub-
section, the term 'recapture event' means— 
"(A) CESSATION OF OPERATION.—The cessation of the 
operation of the faciHty as a quahfied child care faciHty. 
"(B) CHANGE IN OWNERSHIP.— 
"(i) IN GENERAL.—Except as provided in clause 
(ii), the disposition of a taxpayer's interest in a quali-
fied child care facility with respect to which the credit 
described in subsection (a) was allowable. 
"(ii) 
AGREEMENT 
TO 
ASSUME 
RECAPTURE 
LIABILITY.—Clause (i) shall not apply if the person 
acquiring such interest in the facility agrees in writing 
to assume the recapture liability of the person dis-
posing of such interest in effect immediately before 
such disposition. In the event of such an assumption, 
the person acquiring the interest in the facility shall 
be treated as the taxpayer for purposes of assessing 
any recapture liability (computed as if there had been 
no change in ownership). 
"(4) SPECIAL RULES.— 
"(A) TAX BENEFIT RULE.—The tax for the taxable year 
shall be increased under paragraph (1) only with respect 
to credits allowed by reason of this section which were 
used to reduce tax liability. In the case of credits not 
so used to reduce tax liability, the carryforwards and 
carrybacks 
under 
section 39 shall be appropriately 
adjusted. 
"(B) No CREDITS AGAINST TAX.—^Any increase in tax 
under this subsection shall not be treated as a tax imposed 
by this chapter for purposes of determining the amount 
of any credit under subpart A, B, or D of this part. 
"(C) No RECAPTURE BY REASON OF CASUALTY LOSS.— 
The increase in tax under this subsection shall not apply 
to a cessation of operation of the facility as a qualified 
child care facility by reason of a casualty loss to the extent 
such loss is restored by reconstruction or re^aaement 
within a reasonable period established by the Secretary. 
"(e) SPECIAL RULES.—For purposes of this section— 
"(1) AGGREGATION RULES.—^All persons which are treated 
as a single employer under subsections (a) and (b) of section 
52 shall be treated as a single taxpayer. 
"(2) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS.— 
Under regulations prescribed by the Secretary, rules similar 
to the rules of subsection (d) of section 52 shall apply. 
"(3) ALLOCATION IN THE CASE OF PARTNERSHIPS.—In the 
case of partnerships, the credit shall be allocated among part-
ners under regulations prescribed by the Secretary. 
"(f) No DOUBLE BENEFIT.— 
"(1) REDUCTION IN BASIS.—For purposes of this subtitle— 
"(A) IN GENERAL.—If a credit is determined under this 
section with respect to any property by reason of expendi-
tures described in subsection (c)(1)(A), the basis of such 
property shall be reduced by the amount of the credit 
so determined. 
"(B) CERTAIN DISPOSITIONS.—If, during any taxable 
year, there is a recapture amount determined with respect 
to any property the basis of which was reduced under 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 53 
subparagraph (A), the basis of such property (immediately 
before the event resulting in such recapture) shall be 
increased by an amount equal to such recapture amount. 
For purposes of the preceding sentence, the term 'recapture 
amount' means any increase in tax (or adjustment in 
carrybacks or carryovers) determined under subsection (d). 
"(2) OTHER DEDUCTIONS AND CREDITS.—No deduction or 
credit shall be allowed under any other provision of this chapter 
with respect to the amount of the credit determined under 
this section.". 
(b) CONFORMING AMENDMENTS.— 
(1) Section 38(b), as amended by section 619, is amended 26USC38. 
by striking "plus" at the end of paragraph (13), by striking 
the period at the end of paragraph (14) and inserting ", plus", 
and by adding at the end the following: 
"(15) the employer-provided child care credit determined 
under section 45F.". 
(2) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end the 
following: 
"Sec. 45F. Employer-provided child care credit.". 
(3) Section 1016(a) is amended by striking "and" at the 
end of paragraph (26), by striking the period at the end of 
paragraph (27) and inserting ", and", and by adding at the 
end the following: 
"(28) in the case of a facility with respect to which a 
credit was allowed under section 45F, to the extent provided 
in section 45F(f)(l).". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to taxable years beginning after December 31, 2001. 26 USC 38 note. 
TITLE III—MARRIAGE PENALTY RELIEF 
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUC-
TION. 
(a) IN GENERAL.—Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended— 
(1) by striking "$5,000" in subparagraph (A) and inserting 
"the applicable percentage of the dollar amount in effect under 
subparagraph (C) for the taxable year"; 
(2) by adding "or" at the end of subparagraph (B); 
(3) by striking "in the case of and all that follows in 
subparagraph (C) and inserting "in any other case."; and 
(4) by striking subparagraph (D). 
(b) 
APPLICABLE 
PERCENTAGE.—Section 
63(c) 
(relating 
to 
standard deduction) is amended by adding at the end the following 
new paragraph: 
"(7) APPLICABLE PERCENTAGE.—For purposes of paragraph 
(2), the applicable percentage shall be determined in accordance 
with the following table: 
"For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2005 
174 
2006 
184 
2007 
187 
2008 
190 
2009 and thereafter 
200.". 
115 STAT. 54 
PUBLIC LAW 107-16-^UNE 7, 2001 
26 use 1. 
Applicability. 
26 u s e 1 note. 
Applicability. 
26 u s e 1 note. 
(c) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (B) of section 1(f)(6) is amended by 
striking "(other than with" and all that follows through "shall 
be applied" and inserting "(other than with respect to sections 
63(c)(4) and 151(d)(4)(A)) shall be applied". 
(2) Paragraph (4) of section 63(c) is amended by adding 
at the end the following flush sentence: 
"The preceding sentence shall not apply to the amount referred 
to in paragraph (2)(A).". 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004. 
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT 
BRACKET. 
(a) IN GENERAL.—Section 1(f) (relating to adjustments in tax 
tables so that inflation will not result in tax increases) is amended 
by adding at the end the following new paragraph: 
"(8) 
PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT 
BRACKET.— 
"(A) IN GENERAL.—^With respect to taxable years begin-
ning after December 31, 2004, in prescribing the tables 
under paragraph (1)— 
"(i) the maximum taxable income in the 15-percent 
rate bracket in the table contained in subsection (a) 
(and the minimum taxable income in the next higher 
taxable income bracket in such table) shall be the 
applicable percentage of the maximum taxable income 
in the 15-percent rate bracket in the table contained 
in subsection (c) (after any other adjustment under 
this subsection), and 
"(ii) the comparable taxable income amounts in 
the table contained in subsection (d) shall be V
2 of 
the amounts determined under clause (i). 
"(B) 
APPLICABLE 
PERCENTAGE.—For 
purposes 
of 
subparagraph (A), the applicable percentage shall be deter-
mined in accordance with the following table: 
"For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2005 
180 
2006 
187 
2007 
193 
2008 and thereafter 
200. 
"(C) ROUNDING.—If any amount determined under 
subparagraph (A)(i) is not a multiple of $50, such amount 
shall be rounded to the next lowest multiple of $50.". 
(b) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (A) of section 1(f)(2) is amended by 
inserting "except as provided in paragraph (8)," before "by 
increasing". 
(2) The heading for subsection (f) of section 1 is amended 
by inserting "PHASEOUT OF MARRL^GE PENALTY IN 15-PERCENT 
BRACKET;" before "ADJUSTMENTS". 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004. 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 55 
SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; 
EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUD-
IBLE IN GROSS INCOME; SIMPLIFICATION OF EARNED 
INCOME CREDIT. 
(a) INCREASED PHASEOUT AMOUNT.— 
(1) IN GENERAL.—Section 32(b)(2) (relating to amounts) 26USC32. 
is amended— 
(A) by striking "AMOUNTS.—The earned" and inserting 
"AMOUNTS.— 
"(A) IN GENERAL.—Subject to subparagraph (B), the 
earned", and 
(B) by adding at the end the following new subpara-
graph: 
"(B) JOINT RETURNS.—In the case of a joint return 
filed by an eligible individual and such individual's spouse, 
the phaseout amount determined under subparagraph (A) 
shall be increased by— 
"(i) $1,000 in the case of taxable years beginning 
in 2002, 2003, and 2004, 
"(ii) $2,000 in the case of taxable years beginning 
in 2005, 2006, and 2007, and 
"(iii) $3,000 in the case of taxable years beginning 
after 2007.". 
(2) INFLATION ADJUSTMENT.—Paragraph (1)(B) of section 
32(j) (relating to inflation adjustments) is amended to read 
as follows: 
"(B) the cost-of-living adjustment determined under 
section 1(f)(3) for the calendar year in which the taxable 
year begins, determined— 
"(i) in the case of amounts in subsections (b)(2)(A) 
and (i)(l), by substituting 'calendar year 1995' for 'cal-
endar year 1992' in subparagraph (B) thereof, and 
"(ii) in the case of the $3,000 amount in subsection 
(b)(2)(B)(iii), by substituting 'calendar year 2007' for 
'calendar year 1992' in subparagraph (B) of such sec-
tion 1.". 
(3) ROUNDING.—Section 32(j)(2)(A) (relating to rounding) 
is amended by striking "subsection (b)(2)" and inserting "sub-
section (b)(2)(A) (after being increased under subparagraph (B) 
thereof)". 
(b) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE 
IN GROSS INCOME.—Clause (i) of section 32(c)(2)(A) (defining earned 
income) is amended by inserting ", but only if such amounts are 
includible in gross income for the taxable year" after "other 
employee compensation". 
(c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS SUBJECT 
TO ALTERNATIVE MINIMUM TAX.—Section 32(h) is repealed. 
(d) REPLACEMENT OF MODIFIED ADJUSTED GROSS INCOME WITH 
ADJUSTED GROSS INCOME.— 
(1) IN GENERAL.—Section 32(a)(2)(B) is amended by striking 
"modified". 
(2) CONFORMING AMENDMENTS.— 
(A) Section 32(c) is amended by striking paragraph 
(5). 
(B) Section 32(f)(2)(B) is amended by striking "modi-
fied" each place it appears. 
(e) RELATIONSHIP TEST.— 
115 STAT. 56 
PUBLIC LAW 107-16^JUNE 7, 2001 
26 use 32. 
(1) IN GENERAL.—Clause (i) of section 32(c)(3)(B) (relating 
to relationship test) is amended to read as follows: 
"(i) IN GENERAL.—^An individual bears a relation-
ship to the taxpayer described in this subparagraph 
if such individual is— 
"(I) a son, daughter, stepson, or stepdaughter, 
or a descendant of any such individual, 
"(II) a brother, sister, stepbrother, or step-
sister, or a descendant of any such individual, 
who the taxpayer cares for as the taxpayer's own 
child, or 
"(III) an eligible foster child of the taxpayer.". 
(2) ELIGIBLE FOSTER CHILD.— 
(A) IN GENERAL.—Clause (iii) of section 32(c)(3)(B) is 
amended to read as follows: 
"(iii) ELIGIBLE FOSTER CHILD.—For purposes of 
clause (i), the term 'eligible foster child' means an 
individual not described in subclause (I) or (II) of clause 
(i) who— 
"(I) is placed with the taxpayer by an author-
ized placement agency, and 
"(II) the taxpayer cares for as the taxpayer's 
own child.". 
(B) CONFORMING AMENDMENT.—Section 32(c)(3)(A)(ii) 
is amended by striking "except as provided in subparagraph 
(B)(iii),". 
(f) 
2 
O
R 
MORE 
CLAIMING 
QUALIFYING 
CHILD.—Section 
32(c)(1)(C) is amended to read as follows: 
"(C) 2 O
R MORE CLAIMING QUALIFYING CHILD.— 
"(i) IN GENERAL.—Except as provided in clause 
(ii), if (but for this paragraph) an individual may be 
claimed, and is claimed, as a qualifying child by 2 
or more taxpayers for a taxable year beginning in 
the same calendar year, such individual shall be 
treated as the qualifying child of the taxpayer who 
is— 
"(I) a parent of the individual, or 
"(II) if subclause (I) does not apply, the tax-
payer with the highest adjusted gross income for 
such taxable year. 
"(ii) MORE THAN i CLAIMING CREDIT.—If the par-
ents claiming the credit with respect to any qualifying 
child do not file a joint return together, such child 
shall be treated as the qualifying child of— 
"(I) the parent with whom the child resided 
for the longest period of time during the taxable 
year, or 
"(II) if the child resides with both parents 
for the same amount of time during such taxable 
year, the parent with the highest adjusted gross 
income.". 
(g) EXPANSION OF MATHEMATICAL ERROR AUTHORITY.—Para-
graph (2) of section 6213(g) is amended by striking "and" at the 
end of subparagraph (K), by striking the period at the end of 
subparagraph (L) and inserting ", and", and by inserting after 
subparagraph (L) the following new subparagraph: 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 57 
"(M) the entry on the return claiming the credit under 
section 32 with respect to a child if, according to the Federal 
Case Registry of Child Support Orders established under 
section 453(h) of the Social Security Act, the taxpayer 
is a noncustodial parent of such child.". 
(h) 
CLERICAL 
AMENDMENT.—Subparagraph (E) of section 
32(c)(3) is amended by striking "subparagraphs 
(A)(ii) and 26USC32. 
(B)(iii)(II)" and inserting "subparagraph (A)(ii)". 
(i) EFFECTIVE DATES.— 
26 use 32 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the Applicability. 
amendments made by this section shall apply to taxable years 
beginning after December 31, 2001. 
(2) SUBSECTION (g).—The amendment made by subsection 
(g) shall take effect on January 1, 2004. 
TITLE IV—AFFORDABLE EDUCATION 
PROVISIONS 
Subtitle A—Education Savings Incentives 
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT 
ACCOUNTS. 
(a) MAXIMUM ANNUAL CONTRIBUTIONS.— 
(1) IN GENERAL.—Section 530(b)(l)(A)(iii) (defining edu-
cation individual retirement account) is amended by striking 
"$500" and inserting "$2,000". 
(2) CONFORMING AMENDMENT.—Section 4973(e)(1)(A) is 
amended by striking "$500" and inserting "$2,000". 
(b) MODIFICATION OF A G I LIMITS TO REMOVE MARRIAGE PEN-
ALTY.—Section 530(c)(1) (relating to reduction in permitted contribu-
tions based on adjusted gross income) is amended— 
(1) by striking "$150,000" in subparagraph (A)(ii) and 
inserting "$190,000", and 
(2) by striking "$10,000" in subparagraph (B) and inserting 
"$30,000". 
(c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY 
SCHOOL EXPENSES.— 
(1) IN GENERAL.—Section 530(b)(2) (defining 
quahfied 
higher education expenses) is amended to read as follows: 
"(2) QUALIFIED EDUCATION EXPENSES.— 
"(A) IN GENERAL.—The term 'qualified 
education 
expenses' means— 
"(i) qualified higher education expenses (as defined 
in section 529(e)(3)), and 
"(ii) qualified elementary and secondary education 
expenses (as defined in paragraph (4)). 
"(B) QUALIFIED STATE TUITION PROGRAMS.—Such term 
shall include any contribution to a qualified State tuition 
program (as defined in section 529(b)) on behalf of the 
designated beneficiary (as defined in section 529(e)(1)); but 
there shall be no increase in the investment in the contract 
for purposes of applying section 72 by reason of any portion 
of such contribution which is not includible in gross income 
by reason of subsection (d)(2).". 
115 STAT. 58 
PUBLIC LAW 107-16-^UNE 7, 2001 
(2) 
QUALIFIED ELEMENTARY AND SECONDARY EDUCATION 
26 use 530. 
EXPENSES.—Section 530(b) (relating to definitions and special 
rules) is amended by adding at the end the following new 
paragraph: 
"(4) 
QUALIFIED ELEMENTARY AND SECONDARY EDUCATION 
EXPENSES.— 
"(A) IN GENERAL.—The term 'qualified elementary and 
secondary education expenses' means— 
"(i) expenses for tuition, fees, academic tutoring, 
special needs services in the case of a special needs 
beneficiary, books, supplies, and other equipment 
which are incurred in connection with the enrollment 
or attendance of the designated beneficiary of the trust 
as an elementary or secondary school student at a 
public, private, or religious school, 
"(ii) expenses for room and board, uniforms, 
transportation, and supplementary items and services 
(including extended day programs) which are required 
or provided by a public, private, or religious school 
in connection with such enrollment or attendance, and 
"(iii) expenses for the purchase of any computer 
technology 
or equipment 
(as defined 
in 
section 
170(e)(6)(F)(i)) or Internet access and related services, 
if such technology, equipment, or services are to be 
used by the beneficiary and the beneficiary's family 
during any of the years the beneficiary is in school. 
Clause (iii) shall not include expenses for computer soft-
ware designed for sports, games, or hobbies unless the 
software is predominantly educational in nature. 
"(B) SCHOOL.—^The term 'school' means any school 
which provides elementary education or secondary edu-
cation (kindergarten through grade 12), as determined 
under State law.". 
(3) CONFORMING AMENDMENTS.—Section 530 is amended— 
(A) by striking "higher" each place it appears in sub-
sections (b)(1) and (d)(2), and 
(B) by striking "HIGHER" in the heading for subsection 
(d)(2). 
Regulations. 
(d) WAIVER OF A G E LIMITATIONS FOR CHILDREN WiTH SPECIAL 
NEEDS.—Section 530(b)(1) (defining education individual retirement 
account) is amended by adding at the end the following flush 
sentence: 
"The age limitations in subparagraphs (A)(ii) and (E), and 
paragraphs (5) and (6) of subsection (d), shall not apply to 
any designated beneficiary with special needs (as determined 
under regulations prescribed by the Secretary).". 
(e) ENTITIES PERMITTED TO CONTRIBUTE TO ACCOUNTS.—Sec-
tion 530(c)(1) (relating to reduction in permitted contributions based 
on adjusted gross income) is amended by striking "The maximum 
amount which a contributor" and inserting "In the case of a contrib-
utor who is an individual, the maximum amount the contributor". 
(f) TIME WHEN CONTRIBUTIONS DEEMED MADE.— 
(1) IN GENERAL.—Section 530(b) (relating to definitions and 
special rules), as amended by subsection (c)(2), is amended 
by adding at the end the following new paragraph: 
"(5) TIME WHEN CONTRIBUTIONS DEEMED MADE.—^An indi-
vidual shall be deemed to have made a contribution to an 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 59 
education individual retirement account on the last day of 
the preceding taxable year if the contribution is made on 
account of such taxable year and is made not later than the 
time prescribed by law for filing the return for such taxable 
year (not including extensions thereof).". 
(2) EXTENSION OF TIME TO RETURN EXCESS CONTRIBU-
TIONS.—Subparagraph (C) of section 530(d)(4) (relating to addi- 
26 USC 530. 
tional tax for distributions not used for educational expenses) 
is amended— 
(A) by striking clause (i) and inserting the following 
new clause: 
"(i) such distribution is made before the first day 
of the sixth month of the taxable year following the 
taxable year, and", and 
(B) by striking "DUE DATE OF RETURN" in the heading 
and inserting "CERTAIN DATE". 
(g) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS 
AND QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 530(d)(2)(C) is amended to read 
as follows: 
"(C) COORDINATION WITH HOPE AND LIFETIME LEARNING 
CREDITS AND QUALIFIED TUITION PROGRAMS.—For purposes 
of subparagraph (A)— 
"(i) CREDIT COORDINATION.—The total amount of 
qualified higher education expenses with respect to 
an individual for the taxable year shall be reduced— 
"(I) as provided in section 25A(g)(2), and 
"(II) by the amount of such expenses which 
were taken into account in determining the credit 
allowed to the taxpayer or any other person under 
section 25A. 
"(ii) COORDINATION WITH QUALIFIED TUITION PRO-
GRAMS.—If, with respect to an individual for any tax-
able year— 
"(I) the aggregate distributions during such 
year to which subparagraph (A) and section 
529(c)(3)(B) apply, exceed 
"(II) the total amount of qualified education 
expenses (after the applicauon of clause (i)) for 
such year, 
the taxpayer shall allocate such expenses among such 
distributions for purposes of determining the amount 
of the exclusion under subparagraph (A) and section 
529(c)(3)(B).". 
,-; (2) CONFORMING AMENDMENTS.— 
(A) Subsection (e) of section 25A is amended to read 
as follows: 
"(e) ELECTION NOT TO HAVE SECTION APPLY.—^A taxpayer may 
elect not to have this section apply with respect to the qualified 
tuition and related expenses of an individual for any taxable year.". 
(B) Section 135(d)(2)(A) is amended by striking "allow-
able" and inserting "allowed". 
(C) Section 530(d)(2)(D) is amended— 
(i) by striking "or credit" and inserting ", credit, 
or exclusion", and 
115 STAT. 60 
PUBLIC LAW 107-16^JUNE 7, 2001 
(ii) by striking "CREDIT O
R DEDUCTION" in the 
heading and inserting "DEDUCTION, CREDIT, O
R EXCLU-
SION". 
26 use 4973. 
(D) Section 4973(e)(1) is amended by adding "and" 
at the end of subparagraph (A), by striking subparagraph 
(B), and by redesignating subparagraph (C) as subpara-
graph (B). 
Applicability. 
(h) EFFECTIVE DATE.—The amendments made by this section 
26 use 25A note, shall apply to taxable years beginning after December 31, 2001. 
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS. 
(a) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAIN-
TAIN QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 529(b)(1) (defining qualified State 
tuition program) is amended— 
(A) by inserting "or by 1 or more eligible educational 
institutions" after "maintained by a State or agency or 
instrumentality thereof" in the matter preceding subpara-
graph (A), and 
(B) by adding at the end the following new flush sen-
tence: 
"Except to the extent provided in regulations, a program estab-
lished and maintained by 1 or more eligible educational institu-
tions shall not be treated as a qualified tuition program unless 
such program provides that amounts are held in a qualified 
trust and such program has received a ruling or determination 
that such program meets the applicable requirements for a 
qualified tuition program. For purposes of the preceding sen-
tence, the term 'qualified trust' means a trust which is created 
or organized in the United States for the exclusive benefit 
of designated beneficiaries and with respect to which the 
requirements of paragraphs (2) and (5) of section 408(a) are 
met.". 
(2) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BEN-
EFIT PLANS.—Clause (ii) of section 529(b)(1)(A) is amended by 
inserting "in the case of a program established and maintained 
by a State or agency or instrumentality thereof," before "may 
make". 
(3) ADDITIONAL TAX ON NONQUALIFIED WITHDRAWALS.—Sec-
tion 529 is amended— 
(A) by striking paragraph (3) of subsection (b) and 
by redesignating paragraphs (4), (5), (6), and (7) of such 
subsection as paragraphs (3), (4), (5), and (6), respectively, 
and 
(B) by adding at the end of subsection (c) the following 
new paragraph: 
"(6) ADDITIONAL TAX.—The tax imposed by section 530(d)(4) 
shall apply to any payment or distribution from a qualified 
tuition program in the same manner as such tax applies to 
a payment or distribution from an education individual retire-
ment account. This paragraph shall not apply to any payment 
or distribution in any taxable year beginning before January 
1, 2004, which is includible in gross income but used for quali-
fied higher education expenses of the designated beneficiary.". 
(4) CONFORMING AMENDMENTS.— 
(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 61 
striking "qualified State tuition" each place it appears and 
inserting "qualified tuition". 
(B) The headings for sections 72(eX9) and 135(c)(2)(C) 
26 USC 72,135. 
are amended by striking "QUALIFIED STATE TUITION" each 
place it appears and inserting "QUALIFIED TUITION". 
(C) The headings for sections 529(b) and 530(b)(2)(B) 
are amended by striking "QUALIFIED STATE TUITION" each 
place it appears and inserting "QUALIFIED TUITION". 
(D) The heading for section 529 is amended by striking 
"STATE". 
(E) The item relating to section 529 in the table of 
sections for part VIII of subchapter F of chapter 1 is 
amended by striking "State". 
(b) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBU-
TIONS FROM QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 529(c)(3)(B) (relating to distribu-
tions) is amended to read as follows: 
"(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION 
EXPENSES.—For purposes of this paragraph— 
"(i) IN-KIND DISTRIBUTIONS.—No amount shall be 
includible in gross income under subparagraph (A) by 
' 
reason of a distribution which consists of providing 
a benefit to the distributee which, if paid for by the 
distributee, would constitute payment of a qualified 
higher education expense. 
"(ii) CASH DISTRIBUTIONS.—In the case of distribu-
tions not described in clause (i), if— 
"(I) such distributions do not exceed the quali-
fied 
higher 
education 
expenses 
(reduced 
by 
expenses described in clause (i)), no amount shall 
be includible in gross income, and 
"(II) in any other case, the amount otherwise 
includible in gross income shall be reduced by 
£Ui amount which bears the same ratio to such 
amount as such expenses bear to such distribu-
tions. 
"(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS.— 
In the case of any taxable year beginning before 
January 1, 2004, clauses (i) and (ii) shall not apply 
with respect to any distribution during such taxable 
year under a qualified tuition program established and 
maintained by 1 or more eligible educationgJ institu-
tions. 
"(iv) TREATMENT AS DISTRIBUTIONS.—Any benefit 
furnished to a designated beneficiary under a qualified 
tuition program shall be treated as a distribution to 
the beneficiary for purposes of this paragraph. 
"(v) 
COORDINATION WITH 
HOPE 
AND LIFETIME 
LEARNING CREDITS.—The total amount of qualified 
higher education expenses with respect to an individual 
for the taxable year shall be reduced— 
"(I) as provided in section 25A(g)(2), and 
"(II) by the amount of such expenses which 
were taken into account in determining the credit 
edlowed to the taxpayer or any other person under 
section 25A. 
115 STAT. 62 
PUBLIC LAW 107-16—JUNE 7, 2001 
"(vi) COORDINATION WITH EDUCATION INDIVIDUAL 
RETIREMENT ACCOUNTS.—If, with respect to an indi-
vidual for any taxable year— 
"(I) the aggregate distributions to which 
clauses (i) and (ii) and section 530(d)(2)(A) apply, 
exceed 
"(II) the total amount of qualified higher edu-
cation expenses otherwise taken into account 
under clauses (i) and (ii) (after the application 
of clause (v)) for such year, 
the taxpayer shall allocate such expenses among such 
distributions for purposes of determining the amount 
of the exclusion under clauses (i) and (ii) and section 
530(d)(2)(A).". 
(2) CONFORMING AMENDMENTS.— 
26 use 135. 
(A) Section 135(d)(2)(B) is amended by striking "the 
exclusion under section 530(d)(2)" and inserting "the exclu-
sions under sections 529(c)(3)(B) and 530(d)(2)". 
(B) Section 221(e)(2)(A) is amended by inserting "529," 
after "135,". 
(c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT OF SAME 
DESIGNATED BENEFICIARY.—Section 529(c)(3)(C) (relating to change 
in beneficiaries) is amended— 
(1) by striking "transferred to the credit" in clause (i) 
and inserting "transferred— 
"(I) to another qualified tuition program for 
the benefit of the designated beneficiary, or 
"(II) to the credit", 
(2) by adding at the end the following new clause: 
"(iii) LIMITATION ON CERTAIN ROLLOVERS.—Clause 
(i)(I) shall not apply to any transfer if such transfer 
occurs within 12 months from the date of a previous 
transfer to any qualified tuition program for the benefit 
of the designated beneficiary.", and 
(3) by inserting "OR PROGRAMS" after "BENEFICIARIES" in 
the heading. 
(d) 
MEMBER OF FAMILY INCLUDES FIRST COUSIN.—Section 
529(e)(2) (defining member of family) is amended by striking "and" 
at the end of subparagraph (B), by striking the period at the 
end of subparagraph (C) and by inserting "; and", and by adding 
at the end the following new subparagraph: 
"(D) any first cousin of such beneficiary.". 
(e) ADJUSTMENT OF LIMITATION ON ROOM AND BOARD DISTRIBU-
TIONS.—Section 529(e)(3)(B)(ii) is amended to read as follows: 
"(ii) LIMITATION.—The amount treated as qualified 
higher education expenses by reason of clause (i) shall 
not exceed— 
"(I) the allowance (applicable to the student) 
for room and board included in the cost of attend-
ance (as defined in section 472 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 108711), as in effect 
on the date of the enactment of the Economic 
Growth and Tax Relief Reconciliation Act of 2001) 
as determined by the eligible educational institu-
tion for such period, or 
"(II) if greater, the actual invoice amount the 
student residing in housing owned or operated by 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 63 
the eligible educational institution is charged by 
such institution for room and board costs for such 
period.". 
(f) SPECIAL NEEDS SERVICES.—Subparagraph (A) of section 
529(e)(3) (defining qualified higher education expenses) is amended 26USC529. 
to read as follows: 
"(A) IN GENERAL.—The term 'qualified higher education 
expenses' means— 
"(i) tuition, fees, books, supplies, and equipment 
required for the enrollment or attendance of a des-
ignated beneficiary at an eligible educational institu-
tion; and 
"(ii) expenses for special needs services in the case 
of a special needs beneficiary which are incurred in 
connection with such enrollment or attendance.". 
(g) 
TECHNICAL 
AMENDMENTS.—Section 
529(c)(3)(D) 
is 
amended— 
(1) by inserting "except to the extent provided by the Sec-
retary," before "all distributions" in clause (ii), and 
(2) by inserting "except to the extent provided by the Sec-
retary," before "the value" in clause (iii). 
(h) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001. 
Applicability. 
26 u s e 72 note. 
Subtitle B—Educational Assistance 
SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDU-
CATIONAL A S S I S T A N C E . 
(a) IN GENERAL.—Section 127 (relating to exclusion for edu-
cational assistance programs) is amended by striking subsection 
(d) and by redesignating subsection (e) as subsection (d). 
(b) REPEAL OF LIMITATION ON GRADUATE EDUCATION.—The last 
sentence of section 127(c)(1) is amended by striking ", and such 
term also does not include any payment for, or the provision of 
any benefits with respect to, any graduate level course of a kind 
normally taken by an individual pursuing a program leading to 
a law, business, medical, or other advanced academic or professional 
degree". 
(c) 
CONFORMING AMENDMENT.—Section 
51A(b)(5)(B)(iii) is 
amended by striking "or would be so excludable but for section 
127(d)". 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply with respect to expenses relating to courses beginning 
after December 31, 2001. 
Applicability. 
26 u s e 5 lA note. 
SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
LIMITATION ON STUDENT LOAN INTEREST DEDUCTION. 
(a) ELIMINATION OF 60-MONTH LIMIT.— 
(1) IN GENERAL.—Section 221 (relating to interest on edu-
cation loans), as amended by section 402(b)(2)(B), is amended 
by striking subsection (d) and by redesignating subsections 
(e), (f), and (g) as subsections (d), (e), and (f), respectively. 
(2) 
CONFORMING 
AMENDMENT.—Section 
6050S(e) 
is 
amended by striking "section 221(e)(1)" and inserting "section 
221(d)(1)". 
115 STAT. 64 
PUBLIC LAW 107-16—JUNE 7, 2001 
Applicability. 
26 u s e 221 note. 
26 u s e 221. 
Applicability. 
26 u s e 221 note. 
Applicability. 
26 u s e 117 note. 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply with respect to any loan interest paid after 
December 31, 2001, in taxable years ending after such date. 
(b) INCREASE IN INCOME LIMITATION.— 
(1) IN GENERAL.—Section 221(b)(2)(B) (relating to amount 
of reduction) is amended by striking clauses (i) and (ii) and 
inserting the following: 
"(i) the excess o
f
— 
"(I) the taxpayer's modified adjusted gross 
income for such taxable year, over 
"(II) $50,000 ($100,000 in the case of a joint 
return), bears to 
"(ii) $15,000 ($30,000 in the case of a joint 
return).". 
(2) 
CONFORMING 
AMENDMENT.—Section 
221(g)(1) 
is 
amended by striking "$40,000 and $60,000 amounts" and 
inserting "$50,000 and $100,000 amounts". 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to taxable years ending after December 
31, 2001. 
SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE 
NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PRO-
GRAM AND THE F. EDWARD HEBERT ARMED FORCES 
HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
ASSISTANCE PROGRAM. 
(a) IN GENERAL.—Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is 
amended— 
(1) by striking "Subsections (a)" and inserting the following: 
"(1) IN GENERAL.—Except as provided in paragraph (2), 
subsections (a)", and 
(2) by adding at the end the following new paragraph: 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply to any 
amount received by an individual under— 
"(A) the National Health Service Corps Scholarship 
Program under section 338A(g)(l)(A) of the Public Health 
Service Act, or 
"(B) the Armed Forces Health Professions Scholarship 
and Financial Assistance program under subchapter I of 
chapter 105 of title 10, United States Code.". 
(b) EFFECTIVE DATE.—The amendments made by subsection 
(a) shall apply to amounts received in taxable years beginning 
after December 31, 2001. 
Subtitle C—Liberalization of Tax-Exempt 
Financing Rules for Public School Con-
struction 
SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION 
FOR GOVERNMENTAL BONDS USED TO FINANCE EDU-
CATIONAL FACILITIES. 
(a) IN GENERAL.—Section 148(f )(4)(D)(vii) (relating to increase 
in exceptian for bonds financing public school capital expenditures) 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 65 
is amended by striking "$5,000,000" the second place it appears 
and inserting "$10,000,000". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) Applicability. 
shall apply to obligations issued in calendar years beginning after 
26 USC 148 note. 
December 31, 2001. 
SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY 
BONDS AS EXEMPT FACILITY BONDS. 
(a) TREATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of 
section 142 (relating to exempt facility bond) is amended by striking 
26 USC 142. 
"or" at the end of paragraph (11), by striking the period at the 
end of paragraph (12) and inserting ", or", and by adding at the 
end the following new paragraph: 
"(13) qualified public educational facilities.". 
(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—Section 142 
(relating to exempt facility bond) is amended by adding at the 
end the following new subsection: 
"(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.— 
"(1) IN GENERAL.—For purposes of subsection (a)(13), the 
term 'qualified public educational facility' means any school 
facility which is— 
"(A) part of a public elementary school or a public 
secondary school, and 
"(B) owned by a private, for-profit corporation pursuant 
to a public-private partnership agreement with a State 
or local educational agency described in paragraph (2). 
"(2) 
PUBLIC-PRIVATE 
PARTNERSHIP 
AGREEMENT 
DESCRIBED.—^A 
public-private 
partnership 
agreement 
is 
described in this paragraph if it is an agreement— 
"(A) under which the corporation agrees— 
"(i) to do 1 or more of the following: construct, 
rehabilitate, refurbish, or equip a school facility, and 
"(ii) at the end of the term of the agreement, 
to transfer the school facility to such agency for no 
additional consideration, and 
"(B) the term of which does not exceed the term of 
the issue to be used to provide the school facility. 
"(3) SCHOOL FACILITY.—For purposes of this subsection, 
the term 'school facility' means— 
"(A) any school building, 
"(B) any functionally related and subordinate facility 
and land with respect to such building, including any sta-
dium or other facility primarily used for school events, 
and 
"(C) any property, to which section 168 applies (or 
would apply but for section 179), for use in a facility 
described in subparagraph (A) or (B). 
"(4) PUBLIC SCHOOLS.—For purposes of this subsection, the 
terms 'elementary school' and 'secondary school' have the 
meanings given such terms by section 14101 of the Elementary 
and Secondary Education Act of 1965 (20 U.S.C. 8801), as 
in effect on the date of the enactment of this subsection. 
"(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-EXEMPT 
FINANCING.— 
"(A) IN GENERAL.—^An issue shall not be treated as 
an issue described in subsection (a)(13) if the aggregate 
face amount of bonds issued by the State pursuant thereto 
115 STAT. 66 
PUBLIC LAW 107-16-^UNE 7, 2001 
(when added to the aggregate face amount of bonds pre-
viously so issued during the calendar year) exceeds an 
amount equal to the greater o
f
— 
"(i) $10 multiplied by the State population, or 
"(ii) $5,000,000. 
"(B) ALLOCATION RULES.— 
"(i) IN GENERAL.—Except as otherwise provided 
in this subparagraph, the State may allocate the 
amount described in subparagraph (A) for any calendar 
year in such manner as the State determines appro-
priate. 
"(ii) RULES FOR CARRYFORWARD OF UNUSED LIMITA-
TION.—^A State may elect to carry forward an unused 
limitation for any calendar year for 3 calendar years 
following the calendar year in which the unused limita-
tion arose under rules similar to the rules of section 
146(f), except that the only purpose for which the 
carryforward may be elected is the issuance of exempt 
facility bonds described in subsection (a)(13).". 
(c) EXEMPTION FROM GENERAL STATE VOLUME CAPS.—Para-
26 use 146. 
graph (3) of section 146(g) (relating to exception for certain bonds) 
is amended— 
(1) by striking "or (12)" and inserting "(12), or (13)", and 
(2) by striking "and environmental enhancements of hydro-
electric generating facilities" and inserting "environmental 
enhancements of hydroelectric generating facilities, and quali-
fied public educational facilities". 
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND ACQUISI-
TION.—Section 147(h) (relating to certain rules not to apply to 
mortgage revenue bonds, qualified student loan bonds, and qualified 
501(c)(3) bonds) is amended by adding at the end the following 
new paragraph: 
"(3) EXEMPT FACILITY BONDS FOR QUALIFIED PUBLIC-PRIVATE 
SCHOOLS.—Subsection (c) shall not apply to any exempt facility 
bond issued as part of an issue described in section 142(a)(13) 
(relating to qualified public educational facilities).". 
(e) CONFORMING AMENDMENT.—The heading for section 147(h) 
is amended by striking "MORTGAGE REVENUE BONDS, QUALIFIED 
STUDENT LOAN 
BONDS, AND QUALIFIED 
501(C)(3) 
BONDS" and 
inserting "CERTAIN BONDS". 
Applicability. 
(f) EFFECTIVE DATE.—The amendments made by this section 
26 use 142 note, 
shall apply to bonds issued after December 31, 2001. 
Subtitle D—Other Provisions 
SEC. 
431. 
DEDUCTION 
FOR 
HIGHER 
EDUCATION 
EXPENSES. 
(a) DEDUCTION ALLOWED.—Part VII of subchapter B of chapter 
1 (relating to additional itemized deductions for individuals) is 
amended by redesignating section 222 as section 223 and by 
inserting after section 221 the following: 
"SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES. 
"(a) ALLOWANCE OF DEDUCTION.—In the case of an individual, 
there shall be allowed as a deduction an amount equal to the 
qualified tuition and related expenses paid by the taxpayer during 
the taxable year. 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 67 
"(b) DOLLAR LIMITATIONS.— 
"(1) IN GENERAL.—The amount allowed as a deduction 
under subsection (a) with respect to the taxpayer for any tax-
able year shall not exceed the applicable dollar limit. 
"(2) APPLICABLE DOLLAR LIMIT.— 
"(A) 2002 AND 2003.—In the case of a taxable year 
beginning in 2002 or 2003, the applicable dollar limit shall 
be equal to— 
"(i) in the case of a taxpayer whose adjusted gross 
income for the taxable year does not exceed $65,000 
($130,000 in the case of a joint return), $3,000, and— 
"(ii) in the case of any other taxpayer, zero. 
"(B) 2004 AND 2005.—In the case of a taxable year 
beginning in 2004 or 2005, the applicable dollar amount 
shall be equal to— 
"(i) in the case of a taxpayer whose adjusted gross 
income for the taxable year does not exceed $65,000 
($130,000 in the case of a joint return), $4,000, 
"(ii) in the case of a taxpayer not described in 
clause (i) whose adjusted gross income for the taxable 
year does not exceed $80,000 ($160,000 in the case 
of a joint return), $2,000, and 
"(iii) in the case of any other taxpayer, zero. 
"(C) ADJUSTED GROSS INCOME.—For purposes of this 
paragraph, adjusted gross income shall be determined— 
"(i) without regard to this section and sections 
911, 931, and 933, and 
"(ii) after application of sections 86, 135, 137, 219, 
221, and 469. 
"(c) No DOUBLE BENEFIT.— 
"(1) IN GENERAL.—No deduction shall be allowed under 
subsection (a) for any expense for which a deduction is allowed 
to the taxpayer under any other provision of this chapter. 
"(2) COORDINATION WITH OTHER EDUCATION INCENTIVES.— 
"(A) 
DENIAL OF DEDUCTION IF CREDIT ELECTED.—No 
deduction shall be allowed under subsection (a) for a tax-
able year with respect to the qualified tuition and related 
expenses with respect to an individual if the taxpayer 
or any other person elects to have section 25A apply with 
respect to such individual for such year. 
"(B) 
COORDINATION 
WITH 
EXCLUSIONS.—The 
total 
amount of qualified tuition and related expenses shall be 
reduced by the amount of such expenses taken into account 
in determining any amount excluded under section 135, 
529(c)(1), or 530(d)(2). For purposes of the preceding sen-
tence, the amount taken into account in determining the 
amount excluded under section 529(c)(1) shall not include 
that portion of the distribution which represents a return 
of any contributions to the plan. 
"(3) DEPENDENTS.—No deduction shall be allowed under 
subsection (a) to any individual with respect to whom a deduc-
tion under section 151 is allowable to another taxpayer for 
a taxable year beginning in the calendar year in which such 
individual's taxable year begins. 
"(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
115 STAT. 68 
PUBLIC LAW 107-16^JUNE 7, 2001 
"(1) QUALIFIED TUITION AND RELATED EXPENSES.—The term 
'qvialified tuition and related expenses' has the meaning given 
such term by section 25A(f). Such expenses shall be reduced 
in the same manner as under section 25A(g)(2). 
"(2) IDENTIFICATION REQUIREMENT.—No deduction shall be 
allowed under subsection (a) to a taxpayer with respect to 
the qualified tuition and related expenses of an individual 
unless the taxpayer includes the name and taxpayer identifica-
tion number of the individual on the return of tax for the 
taxable year. 
"(3) LIMITATION ON TAXABLE YEAR OF DEDUCTION.— 
"(A) IN GENERAL.—^A deduction shall be allowed under 
subsection (a) for qualified tuition and related expenses 
for any taxable year only to the extent such expenses 
are in connection with enrollment at an institution of 
higher education during the taxable year. 
"(B) CERTAIN PREPAYMENTS ALLOWED.—Subparagraph 
(A) shall not apply to qualified tuition and related expenses 
paid during a taxable year if such expenses are in connec-
tion with an academic term beginning during such taxable 
year or during the first 3 months of the next taxable 
year. 
ApplicabUity. 
"(4) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPA-
RATE RETURNS.—If the taxpayer is a married individual (within 
the meaning of section 7703), this section shall apply only 
if the taxpayer and the taxpayer's spouse file a joint return 
for the taxable year. 
"(5) NONRESIDENT ALIENS.—If the taxpayer is a nonresident 
alien individual for any portion of the taxable year, this section 
shall apply only if such individual is treated as a resident 
alien of the United States for purposes of this chapter by 
reason of an election under subsection (g) or (h) of section 
6013. 
"(6) REGULATIONS.—The Secretary may prescribe such 
regulations as may be necessary or appropriate to carry out 
this section, including regulations requiring recordkeeping and 
information reporting. 
"(e) TERMINATION.—This section shall not apply to taxable years 
beginning after December 31, 2005.". 
(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED 
GROSS 
26 use 62. 
INCOME.—Section 62(a) is amended by inserting after paragraph 
(17) the following: 
"(18) 
HIGHER 
EDUCATION 
EXPENSES.—The 
deduction 
allowed by section 222.". 
(c) CONFORMING AMENDMENTS.— 
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are 
each amended by inserting "222," after "221,". 
(2) Section 221(b)(2)(C) is amended by inserting "222," 
before "911". 
(3) Section 469(i)(3)(F) is amended by striking "and 221" 
and inserting ", 221, and 222". 
(4) The table of sections for part VII of subchapter B 
of chapter 1 is amended by striking the item relating to section 
222 and inserting the following: 
"Sec. 222. Qualified tuition and related expenses. 
"Sec. 223. Cross reference.". 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 69 
(d) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to payments made in taxable years beginning after 
26USC62note, 
December 31, 2001. 
TITLE V—ESTATE, GIFT, AND GENERA-
TION-SKIPPING TRANSFER TAX PRO-
VISIONS 
Subtitle A—Repeal of Estate and 
Generation-Skipping Transfer Taxes 
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER 
TAXES. 
(a) ESTATE TAX REPEAL.—Subchapter C of chapter 11 of subtitle 
B (relating to miscellaneous) is amended by adding at the end 
the following new section: 
"SEC. 2210. TERMINATION. 
"(a) IN GENERAL.—Except as provided in subsection (b), this 
chapter shall not apply to the estates of decedents dying after 
December 31, 2009. 
"(b) 
CERTAIN 
DISTRIBUTIONS FROM 
QUALIFIED DOMESTIC 
TRUSTS.—In applying section 2056A with respect to the surviving 
spouse of a decedent dying before Jcinuary 1, 2010— 
"(1) section 2056A(b)(l)(A) shall not apply to distributions 
made after December 31, 2020, and 
"(2) section 2056A(b)(lXB) shall not apply after December 
31, 2009.". 
(b) GENERATION-SKIPPING TRANSFER TAX REPEAL.—Subchapter 
G of chapter 13 of subtitle B (relating to administration) is amended 
by adding at the end the following new section: 
"SEC. 2664. TERMINATION. 
"This chapter shall not apply to generation-skipping transfers 
after December 31, 2009.". 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter C of chapter 11 
is amended by adding at the end the following new item: 
"Sec. 2210. Termination.". 
(2) The table of sections for subchapter G of chapter 13 
is amended by adding at the end the following new item: 
"Sec. 2664. Termination.". 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to the estates of decedents dying, and generation-skip-
ping transfers, after December 31, 2009. 
Applicability. 
26 u s e 2210 
note. 
115 STAT. 70 
PUBLIC LAW 107-16—JUNE 7, 2001 
Subtitle B—Reductions of Estate and Gift 
Tax Rates 
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES. 
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT.—The 
26 use 2001. 
table contained in section 2001(c)(1) is amended by striking the 
two highest brackets and inserting the following: 
"Over $2,500,000 
$1,025,800, plus 50% of the excess over 
$2,500,000.". 
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—Subsection 
(c) of section 2001 is amended by striking paragraph (2). 
(c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF TAX.—Sub-
section (c) of section 2001, as amended by subsection (b), is amended 
by adding at the end the following new paragraph: 
"(2) PHASEDOWN OF MAXIMUM RATE OF TAX.— 
Regulations. 
"(A) IN GENERAL.—In the case of estates of decedents 
dying, and gifts made, in calendar years after 2002 and 
before 2010, the tentative tax under this subsection shall 
be determined by using a table prescribed by the Secretary 
(in lieu of using the table contained in paragraph (1)) 
which is the same as such table; except that— 
"(i) the maximum rate of tax for any calendar 
year shall be determined in the table under subpara-
graph (B), and 
"(ii) the brackets and the amounts setting forth 
the tax shall be adjusted to the extent necessary to 
reflect the adjustments under subparagraph (A). 
"(B) MAXIMUM RATE.— 
The maximum 
"In calendar year: 
rate is: 
2003 
49 percent 
2004 
48 percent 
2005 
47 percent 
2006 
46 percent 
2007, 2008, and 2009 
45 percent.". 
(d) MAXIMUM GIFT TAX RATE REDUCED TO MAXIMUM INDIVIDUAL 
RATE AFTER 2009.—Subsection (a) of section 2502 (relating to rate 
of tax) is amended to read as follows: 
"(a) COMPUTATION OF TAX.— 
"(1) IN GENERAL.—The tax imposed by section 2501 for 
each calendar year shall be an amount equal to the excess 
o
f
— 
"(A) a tentative tax, computed under paragraph (2), 
on the aggregate sum of the taxable gifts for such calendar 
year and for each of the preceding calendar periods, over 
"(B) a tentative tax, computed under paragraph (2), 
on the aggregate sum of the taxable gifts for each of the 
preceding calendar periods. 
"(2) RATE SCHEDULE.— 
"If the amount with respect to The tentative tax is: 
which the tentative tax to be 
computed is: 
Not over $10,000 
18% of such amount. 
Over $10,000 but not over $20,000 ... 
$1,800, plus 20% of the excess over 
$10,000. 
Over $20,000 but not over $40,000 ... 
$3,800, plus 22% of the excess over 
$20,000. 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 71 
"If the amount with respect to 
which the tentative tax to be 
computed is: 
Over $40,000 but not over $60,000 ... 
Over $60,000 but not over $80,000 ... 
Over $80,000 but not over $100,000 
Over $100,000 but not over $150,000 
Over $150,000 but not over $250,000 
Over $250,000 but not over $500,000 
Over $500,000 
The tentative tax is: 
$8,200, plus 24% of the excess over 
$40,000. 
$13,000, plus 26% of the excess over 
$60,000. 
$18,200, plus 28% of the excess over 
$80,000. 
$23,800, plus 30% of the excess over 
$100,000. 
$38,800, plus 32% of the excess over 
$150,000. 
$70,800, plus 34% of the excess over 
$250,000. 
$155,800, plus 35% of the excess over 
$500,000.". 
(e) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Section 2511 
(relating to transfers in general) is amended by adding at the 
end the following new subsection: 
"(c) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Notwith-
standing any other provision of this section and except as provided 
in regulations, a transfer in trust shall be treated as a taxable 
gift under section 2503, unless the trust is treated as wholly owned 
by the donor or the donor's spouse under subpart E of part I 
of subchapter J of chapter 1.". 
(f) EFFECTIVE DATES.— 
(1) SUBSECTIONS (a) AND (b).—The amendments made by 
subsections (a) and (b) shall apply to estates of decedents dying, 
and gifts made, after December 31, 2001. 
(2) SUBSECTION (O.—The amendment made by subsection 
(c) shall apply to estates of decedents dying, and gifts made, 
after December 31, 2002. 
(3) SUBSECTIONS (d) AND (e).—The amendments made by 
subsections (d) and (e) shall apply to gifts made after December 
31, 2009. 
26 u s e 2511. 
Applicability. 
26 u s e 2001 
note. 
26 u s e 2001 
note. 
26 u s e 2502 
note. 
Subtitle C- -Increase in Exemption 
Amounts 
SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, 
LIFETIME GIFTS EXEMPTION, AND GST EXEMPTION 
AMOUNTS. 
(a) IN GENERAL.—Subsection (c) of section 2010 (relating to 
applicable credit amount) is amended by striking the table and 
inserting the following new table: 
''In the case of estates of decedents 
The applicable 
dying during: 
exclusion amount is: 
2002 and 2003 
$1,000,000 
2004 and 2005 
$1,500,000 
2006, 2007, and 2008 
$2,000,000 
2009 
$3,500,000.". 
(b) LIFETIME GIFT EXEMPTION INCREASED TO $1,000,000.— 
(1) FOR PERIODS BEFORE ESTATE TAX REPEAL.—Paragraph 
(1) of section 2505(a) (relating to unified credit against gift 
tax) is amended by inserting "(determined as if the applicable 
exclusion amount were $1,000,000)" after "calendar year". 
(2) FOR PERIODS AFTER ESTATE TAX REPEAL.—Paragraph 
(1) of section 2505(a) (relating to unified credit against gift 
note. 
115 STAT. 72 
PUBLIC LAW 107-16-^UNE 7, 2001 
tax), as amended by paragraph (1), is amended to read as 
follows: 
"(1) the amount of the tentative tax which would be deter-
mined under the rate schedule set forth in section 2502(a)(2) 
if the amount with respect to which such tentative tax is 
to be computed were $1,000,000, reduced by". 
(c) GST EXEMPTION.— 
26 use 2631. 
(1) IN GENERAL.—Subsection (a) of 2631 (relating to GST 
exemption) is amended by striking "of $1,000,000" and inserting 
"amount". 
(2) EXEMPTION AMOUNT.—Subsection (c) of section 2631 
is amended to read as follows: 
"(c) GST EXEMPTION AMOUNT.—For purposes of subsection (a), 
the GST exemption amount for any calendeir year shall be equal 
to the applicable exclusion amount under section 2010(c) for such 
calendar year.". 
(d) REPEAL OF SPECIAL BENEFIT FOR FAMILY-OWNED BUSINESS 
INTERESTS.—Section 2057 (relating to family-owned 
business 
interests) is amended by adding at the end the following new 
subsection: 
"(j) TERMINATION.—This section shall not apply to the estates 
of decedents dying after December 31, 2003.". 
Applicability. 
(e) EFFECTIVE DATES.— 
26 use 2010 
(1) IN GENERAL.—Except as provided in paragraphs (2) 
£ind (3), the amendments made by this section shall apply 
to estates of decedents dying, and gifts made, after December 
31, 2001. 
(2) SUBSECTION (b)(2).—The amendments made by sub-
section (b)(2) shall apply to gifts made after December 31, 
2009. 
(3) SUBSECTIONS (O AND (d).—The amendments made by 
subsections (c) and (d) shall apply to estates of decedents dying, 
and generation-skipping transfers, after December 31, 2003. 
Subtitle D—Credit for State Death Taxes 
SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES. 
(a) IN GENERAL.—Section 2011(b) (relating to amount of credit) 
is amended— 
(1) by striking "CREDIT.—The credit allowed" and inserting 
"CREDIT.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), 
the credit allowed", 
(2) by striking "For purposes" and inserting the following: 
"(3) ADJUSTED TAXABLE ESTATE.—For purposes", and 
(3) by inserting after paragraph (1) the following new para-
graph: 
"(2) REDUCTION OF MAXIMUM CREDIT.— 
"(A) IN GENERAL.—In the case of estates of decedents 
dying after December 31, 2001, the credit allowed by this 
section shall not exceed the applicable percentage of the 
credit otherwise determined under paragraph (1). 
"(B) APPLICABLE PERCENTAGE.— 
''In the case of estates of decedents 
The applicable 
dying during: 
percentage is: 
2002 
75 percent 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 73 
2003 
50 percent 
2004 
25 percent.". 
(b) EFFECTIVE DATE.—The amendments made by this sub- Applicability. 
section shall apply to estates of decedents dying after December 26USC2011 
31,2001. 
"°*«-
SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUC-
TION FOR SUCH TAXES. 
(a) REPEAL OF CREDIT.—Section 2011 (relating to credit for 
26 use 2011. 
State death taxes) is amended by adding at the end the following 
new subsection: 
"(g) TERMINATION.—This section shall not apply to the estates 
of decedents dying after December 31, 2004.". 
(b) DEDUCTION FOR STATE DEATH TAXES.—Part IV of sub-
chapter A of chapter 11 is amended by adding at the end the 
following new section: 
"SEC. 2058. STATE DEATH TAXES. 
"(a) ALLOWANCE OF DEDUCTION.—For purposes of the tax 
imposed by section 2001, the value of the taxable estate shall 
be determined by deducting from the value of the gross estate 
the amount of any estate, inheritance, legacy, or succession taxes 
actually paid to any State or the District of Columbia, in respect 
of any property included in the gross estate (not including any 
such teixes paid with respect to the estate of a person other than 
the decedent). 
"(b) PERIOD OF LIMITATIONS.—The deduction allowed by this 
section shall include only such taxes as were actually paid and 
deduction therefor claimed before the later o
f
— 
"(1) 4 years after the filing of the return required by 
section 6018, or 
"(2) if— 
"(A) a petition for redetermination of a deficiency has 
been filed with the Tax Court within the time prescribed 
in section 6213(a), the expiration of 60 days after the 
decision of the Tax Court becomes final, 
"(B) an extension of time has been granted under sec-
tion 6161 or 6166 for payment of the tax shown on the 
return, or of a deficiency, the date of the expiration of 
the period of the extension, or 
"(C) a claim for refund or credit of an overpayment 
of tax imposed by this chapter has been filed within the 
time prescribed in section 6511, the latest of the expiration 
of— 
"(i) 60 days from the date of mailing by certified 
mail or registered mail by the Secretary to the taxpayer 
of a notice of the disallowance of any part of such 
claim, 
"(ii) 60 days after a decision by any court of com-
petent jurisdiction becomes final with respect to a 
timely suit instituted upon such claim, or 
"(iii) 2 years after a notice of the waiver of disallow-
ance is filed under section 6532(a)(3). 
Notwithstanding sections 6511 and 6512, refund based on the 
deduction may be made if the claim for refund is filed within 
the period provided in the preceding sentence. Any such refund 
shall be made without interest.". 
(c) CONFORMING AMENDMENTS.— 
115 STAT. 74 
26 u s e 2012. 
Regulations. 
PUBLIC LAW 107-16^JUNE 7, 2001 
(1) Subsection (a) of section 2012 is amended by striking 
"the credit for State death taxes provided by section 2011 
and". 
(2) Subparagraph (A) of section 2013(c)(1) is amended by 
striking "2011,". 
(3) Paragraph (2) of section 2014(b) is amended by striking 
", 2011,". 
(4) Sections 2015 and 2016 are each amended by striking 
"2011 or". 
(5) Subsection (d) of section 2053 is amended to read as 
follows: 
"(d) CERTAIN FOREIGN DEATH TAXES.— 
"(1) IN GENERAL.—Notwithstanding the provisions of sub-
section (c)(1)(B), for purposes of the tax imposed by section 
2001, the value of the taxable estate may be determined, if 
the executor so elects before the expiration of the period of 
limitation for assessment provided in section 6501, by deducting 
from the value of the gross estate the amount (as determined 
in accordance with regulations prescribed by the Secretary) 
of any estate, succession, legacy, or inheritance tax imposed 
by and actually paid to any foreign country, in respect of 
any property situated within such foreign country and included 
in the gross estate of a citizen or resident of the United States, 
upon a transfer by the decedent for public, charitable, or reli-
gious uses described in section 2055. The determination under 
this paragraph of the country within which property is situated 
shall be made in accordance with the rules applicable under 
subchapter B (sec. 2101 and following) in determining whether 
property is situated within or without the United States. Any 
election under this paragraph shall be exercised in accordance 
with regulations prescribed by the Secretary. 
"(2) CONDITION FOR ALLOWANCE OF DEDUCTION.—No deduc-
tion shall be allowed under paragraph (1) for a foreign death 
tax specified therein unless the decrease in the tax imposed 
by section 2001 which results from the deduction provided 
in paragraph (1) will inure solely for the benefit of the public, 
charitable, or religious transferees described in section 2055 
or section 2106(a)(2). In any case where the tax imposed by 
section 2001 is equitably apportioned among all the transferees 
of property included in the gross estate, including those 
described in sections 2055 and 2106(a)(2) (taking into account 
any exemptions, credits, or deductions allowed by this chapter), 
in determining such decrease, there shall be disregarded any 
decrease in the Federal estate tax which any transferees other 
than those described in sections 2055 and 2106(a)(2) are 
required to pay. 
"(3) 
EFFECT ON CREDIT FOR FOREIGN DEATH TAXES OF 
DEDUCTION UNDER THIS SUBSECTION.— 
"(A) ELECTION.—^An election under this subsection shall 
be deemed a waiver of the right to claim a credit, against 
the Federal estate tax, under a death tax convention with 
any foreign country for any tax or portion thereof in respect 
of which a deduction is taken under this subsection. 
"(B) CROSS REFERENCE.— 
"See section 2014(f) for the effect of a deduction taken under this 
paragraph on the credit for foreign death taxes.". 
(6) Subparagraph (A) of section 2056A(b)(10) is amended— 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 75 
(A) by striking "2011,", and 
(B) by inserting "2058," after "2056,". 
- (7)(A) Subsection (a) of section 2102 is amended to read 26USC2102. 
as follows: 
"(a) IN GENERAL.—The tax imposed by section 2101 shall be 
credited with the amounts determined in accordance with sections 
2012 and 2013 (relating to gift tax and tax on prior transfers).". 
(B) Section 2102 is amended by striking subsection (b) 
and by redesignating subsection (c) as subsection (b). 
(C) Section 2102(b)(5) (as redesignated by subparagraph 
(B)) and section 2107(c)(3) are each amended by striking "2011 
; 
to 2013, inclusive," and inserting "2012 and 2013". 
(8) Subsection (a) of section 2106 is amended by adding 
at the end the following new paragraph: 
"(4) STATE DEATH TAXES.—The amount which bears the 
same ratio to the State death taxes as the value of the property, 
as determined for purposes of this chapter, upon which State 
/ death taxes were paid and which is included in the gross 
estate under section 2103 bears to the value of the total gross 
estate under section 2103. For purposes of this paragraph, 
the term 'State death taxes' means the taxes described in 
section 2011(a).". 
(9) Section 2201 is amended— 
(A) by striking "as defined in section 2011(d)", and 
(B) by adding at the end the following new flush sen-
tence: 
"For purposes of this section, the additional estate tax is the dif-
ference between the tax imposed by section 2001 or 2101 and 
the amount equal to 125 percent of the maximum credit provided 
by section 2011(b), as in effect before its repeal by the Economic 
Growth and Tax Relief Reconciliation Act of 2001.". 
(10) Section 2604 (relating to credit for certain State taxes) 
is amended by adding at the end the following new subsection: 
"(c) TERMINATION.—This section shall not apply to the genera-
tion-skipping transfers after December 31, 2004.". 
(11) Paragraph (2) of section 6511(i) is amended by striking 
"2011(c), 2014(b)," and inserting "2014(b)". 
(12) Subsection (c) of section 6612 is amended by striking 
"section 2011(c) (relating to refunds due to credit for State 
taxes),". 
(13) The table of sections for part II of subchapter A of 
chapter 11 is amended by striking the item relating to section 
2011. 
(14) The table of sections for part IV of subchapter A 
of chapter 11 is amended by adding at the end the following 
new item: 
"Sec. 2058. State death taxes.". 
(15) The table of sections for subchapter A of chapter 
13 is amended by striking the item relating to section 2604. 
(d) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to estates of decedents dying, and generation-skipping 
26 USC 2011 
transfers, after December 31, 2004. 
°°*^-
89-194 O - 03 - 4 QL 3 Part 1 
115 STAT. 76 
PUBLIC LAW 107-16—JUNE 7, 2001 
Subtitle E—Carryover Basis at Death; 
Other Changes Taking Effect With Repeal 
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH. 
26 use 1014. 
Section 1014 (relating to basis of property acquired from a 
decedent) is amended by adding at the end the following new 
subsection: 
"(f) TERMINATION.—This section shall not apply with respect 
to decedents dying after December 31, 2009.". 
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT 
DYING AFTER DECEMBER 31, 2009. 
(a) GENERAL R U L E . — P a r t II of subchapter O of chapter 
1 
(relating to basis rules of general application) is amended by 
inserting after section 1021 the following new section: 
"SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT 
DYING AFTER DECEMBER 31, 2009, 
"(a) I N GENERAL.—Except as otherwise 
provided in this 
section— 
"(1) 
property 
acquired 
from 
a decedent 
dying 
after 
December 31, 2009, shall be treated for purposes of this subtitle 
as transferred by gift, and 
"(2) the basis of the person acquiring property from such 
a decedent shall be the lesser of— 
"(A) the adjusted basis of the decedent, or 
"(B) the fair market value of the property at the date 
of the decedent's death. 
"(b) BASIS INCREASE FOR CERTAIN PROPERTY.— 
"(1) I N GENERAL.—In the case of property to which this 
subsection applies, the basis of such property under subsection 
(a) shall be increased by its basis increase under this subsection. 
"(2) BASIS INCREASE.—For purposes of this subsection— 
"(A) I N GENERAL.—The basis increase under this sub-
section for any property is the portion of the aggregate 
basis increase which is allocated to the property pursuant 
to this section. 
"(B) AGGREGATE BASIS INCREASE.—In the case of any 
estate, the aggregate basis increase under this subsection 
is $1,300,000. 
"(C) LIMIT INCREASED BY UNUSED BUILT-IN LOSSES AND 
LOSS CARRYOVERS.—The limitation under subparagraph (B) 
shall be increased by— 
"(i) the sum of the amount of any capital loss 
carryover under section 1212(b), and the amount of 
any net operating loss carryover under section 172, 
which would (but for the decedent's death) be carried 
from the decedent's last taxable year to a later taxable 
year of the decedent, plus 
"(ii) the sum of the amount of any losses that 
would have been allowable under section 165 if the 
property acquired from the decedent had been sold 
at fair market value immediately before the decedent's 
death. 
PUBLIC LAW 107-16-JUNE 7, 2001 
115 STAT. 77 
"(3) DECEDENT NONRESIDENTS WHO ARE NOT CITIZENS OF 
THE UNITED STATES.—In the case of a decedent nonresident 
not a citizen of the United States— 
"(A) paragraph (2)(B) shall be applied by substituting 
'$60,000' for '$1,300,000', and 
"(B) paragraph (2)(C) shall not apply. 
"(c) ADDITIONAL BASIS INCREASE FOR PROPERTY ACQUIRED BY 
SURVIVING SPOUSE.— 
"(1) IN GENERAL.—In the case of property to which this 
subsection applies and which is qualified spousal property, 
the basis of such property under subsection (a) (as increased 
under subsection (b)) shall be increased by its spousal property 
basis increase. 
"(2) SPOUSAL PROPERTY BASIS INCREASE.—For purposes of 
this subsection— 
"(A) IN GENERAL.—The spousal property basis increase 
for property referred to in paragraph (1) is the portion 
of the aggregate spousal property basis increase which 
is allocated to the property pursuant to this section. 
"(B) AGGREGATE SPOUSAL PROPERTY BASIS INCREASE.— 
In the case of any estate, the aggregate spousal property 
basis increase is $3,000,000. 
"(3) QUALIFIED SPOUSAL PROPERTY.—For purposes of this 
subsection, the term 'qualified spousal property' means— 
"(A) outright transfer property, and 
"(B) qualified terminable interest property. 
"(4) OUTRIGHT TRANSFER PROPERTY.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The term 'outright transfer prop-
erty' means any interest in property acquired from the 
decedent by the decedent's surviving spouse. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply 
where, on the lapse of time, on the occurrence of an event 
or contingency, or on the failure of an event or contingency 
to occur, an interest passing to the surviving spouse will 
terminate or fail— 
"(i)(I) if an interest in such property passes or 
has passed (for less than an adequate and full consider-
ation in money or money's worth) from the decedent 
to any person other than such surviving spouse (or 
the estate of such spouse), and 
"(II) if by reason of such passing such person (or 
his heirs or assigns) may possess or enjoy any part 
of such property after such termination or failure of 
the interest so passing to the surviving spouse, or 
"(ii) if such interest is to be acquired for the sur-
viving spouse, pursuant to directions of the decedent, 
by his executor or by the trustee of a trust. 
For purposes of this subparagraph, an interest shall not 
be considered as an interest which will terminate or fail 
merely because it is the ownership of a bond, note, or 
similar contractual obligation, the discharge of which would 
not have the effect of an annuity for life or for a term. 
"(C) INTEREST OF SPOUSE CONDITIONAL ON SURVIVAL 
FOR LIMITED PERIOD.—For purposes of this paragraph, an 
115 STAT. 78 
PUBLIC LAW 107-16-JUNE 7, 2001 
interest passing to the surviving spouse shall not be consid-
ered as an interest which will terminate or fail on the 
death of such spouse i
f
— 
"(i) such death will cause a termination or failure 
of such interest only if it occurs within a period not 
exceeding 6 months after the decedent's death, or only 
if it occurs as a result of a common disaster resulting 
in the death of the decedent and the surviving spouse, 
or only if it occurs in the case of either such event, 
and 
"(ii) such termination or failure does not in fact 
occur. 
"(5) QUALIFIED TERMINABLE INTEREST PROPERTY.—For pur-
poses of this subsection— 
"(A) IN GENERAL.—The term 'qualified terminable 
interest property' means property— 
"(i) which passes from the decedent, and 
"(ii) in which the surviving spouse has a qualifying 
income interest for life. 
"(B) QUALIFYING INCOME INTEREST FOR LIFE.—The sur-
viving spouse has a qualifying income interest for life if— 
"(i) the surviving spouse is entitled to all the 
income from the property, payable annually or at more 
frequent intervals, or has a usufruct interest for life 
in the property, and 
"(ii) no person has a power to appoint any part 
of the property to any person other than the surviving 
spouse. 
Clause (ii) shall not apply to a power exercisable only 
at or after the death of the surviving spouse. To the extent 
provided in regulations, an annuity shall be treated in 
a manner similar to an income interest in property (regard-
less of whether the property from which the annuity is 
payable can be separately identified). 
"(C) PROPERTY INCLUDES INTEREST THEREIN.—The term 
'property' includes an interest in property. 
"(D) 
SPECIFIC PORTION TREATED AS SEPARATE PROP-
ERTY.—^A specific portion of property shall be treated as 
separate property. For purposes of the preceding sentence, 
the term 'specific portion' only includes a portion deter-
mined on a fractional or percentage basis. 
"(d) DEFINITIONS AND SPECIAL RULES FOR APPLICATION OF SUB-
SECTIONS (b) AND 
(c).— 
"(1) PROPERTY TO WHICH SUBSECTIONS (b) AND (O APPLY.— 
"(A) IN GENERAL.—The basis of property acquired from 
a decedent may be increased under subsection (b) or (c) 
only if the property was owned by the decedent at the 
time of death. 
"(B) RULES RELATING TO OWNERSHIP.— 
"(i) JOINTLY HELD PROPERTY.—In the case of prop-
erty which was owned by the decedent and another 
person as joint tenants with right of survivorship or 
tenants by the entirety— 
"(I) if the only such other person is the sur-
viving spouse, the decedent shall be treated as 
the owner of only 50 percent of the property. 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 79 
"(II) in any case (to which subclause (I) does 
not apply) in which the decedent furnished consid-
eration for the acquisition of the property, the 
decedent shall be treated as the owner to the 
extent of the portion of the property which is 
proportionate to such consideration, and 
"(III) in any case (to which subclause (I) does 
not apply) in which the property has been acquired 
by gift, bequest, devise, or inheritance by the 
decedent and any other person as joint tenants 
with right of survivorship and their interests are 
not otherwise specified or fixed by law, the 
decedent shall be treated as the owner to the 
extent of the value of a fractional part to be deter-
mined by dividing the value of the property by 
the number of joint tenants with right of survivor-
ship. 
"(ii) REVOCABLE TRUSTS.—The decedent shall be 
treated as owning property transferred by the decedent 
during life to a qualified revocable trust (as defined 
in section 645(b)(1)). 
"(iii) POWERS OF APPOINTMENT.—The decedent 
shall not be treated as owning any property by reason 
of holding a power of appointment with respect to 
such property. 
"(iv) COMMUNITY PROPERTY.—Property which rep-
resents the surviving spouse's one-half share of commu-
nity property held by the decedent and the surviving 
spouse under the community property laws of any State 
or possession of the United States or any foreign 
country shall be treated for purposes of this section 
as owned by, and acquired from, the decedent if at 
least one-half of the whole of the community interest 
in such property is treated as owned by, and acquired 
from, the decedent without regard to this clause. 
"(C) PROPERTY ACQUIRED BY DECEDENT BY GIFT WITHIN 
3 YEARS OF DEATH.— 
"(i) IN GENERAL.—Subsections (b) and (c) shall not 
apply to property acquired by the decedent by gift 
or by inter vivos transfer for less than adequate and 
full consideration in money or money's worth during 
the 3-year period ending on the date of the decedent's 
death. 
"(ii) EXCEPTION FOR CERTAIN GIFTS FROM SPOUSE.— 
Clause (i) shall not apply to property acquired by the 
decedent from the decedent's spouse unless, during 
such 3-year period, such spouse acquired the property 
in whole or in part by gift or by inter vivos transfer 
for less than adequate and full consideration in money 
or money's worth. 
"(D) STOCK OF CERTAIN ENTITIES.—Subsections (b) and 
(c) shall not apply to— 
"(i) stock or securities of a foreign personal holding 
company, 
"(ii) stock of a DISC or former DISC, 
"(iii) stock of a foreign investment company, or 
115 STAT. 80 
PUBLIC LAW 107-16-^UNE 7, 2001 
"(iv) stock of a passive foreign investment company 
unless such company is a qualified electing fund (as 
defined in section 1295) with respect to the decedent. 
"(2) FAIR MARKET VALUE LIMITATION.—The adjustments 
under subsections (b) and (c) shall not increase the basis of 
any interest in property acquired from the decedent above 
its fair market value in the hands of the decedent as of the 
date of the decedent's death. 
"(3) ALLOCATION RULES.— 
"(A) IN GENERAL.—The executor shall allocate the 
adjustments under subsections (b) and (c) on the return 
required by section 6018. 
"(B) CHANGES IN ALLOCATION.—Any allocation made 
pursuant to subparagraph (A) may be changed only as 
provided by the Secretary. 
"(4) 
INFLATION 
ADJUSTMENT 
OF 
BASIS 
ADJUSTMENT 
AMOUNTS.— 
"(A) IN GENERAL.—In the case of decedents dying in 
a calendar year after 2010, the $1,300,000, $60,000, and 
$3,000,000 dollar amounts in subsections (b) and (c)(2)(B) 
shall each be increased by an amount equal to the product 
of— 
"(i) such dollar amount, and 
"(ii) the 
cost-of-living 
adjustment 
determined 
under section 1(f)(3) for such calendar year, deter-
mined by substituting '2009' for '1992' in subparagraph 
(B) thereof. 
"(B) ROUNDING.—If any increase determined under 
subparagraph (A) is not a multiple of— 
"(i) $100,000 in the case of the $1,300,000 amount, 
"(ii) $5,000 in the case of the $60,000 amount, 
and 
"(iii) $250,000 in the case of the $3,000,000 
amount, 
such increase shall be rounded to the next lowest multiple 
thereof 
"(e) PROPERTY ACQUIRED FROM THE DECEDENT.—For purposes 
of this section, the following property shall be considered to have 
been acquired from the decedent: 
"(1) Property acquired by bequest, devise, or inheritance, 
or by the decedent's estate from the decedent. 
"(2) Property transferred by the decedent during his 
lifetime— 
"(A) to a qualified revocable trust (as defined in section 
645(b)(1)), or 
"(B) to any other trust with respect to which the 
decedent reserved the right to make any change in the 
enjoyment thereof through the exercise of a power to alter, 
amend, or terminate the trust. 
"(3) Any other property passing from the decedent by rea-
son of death to the extent that such property passed without 
consideration. 
"(f) COORDINATION WITH SECTION 691.—This section shall not 
apply to property which constitutes a right to receive an item 
of income in respect of a decedent under section 691. 
"(g) CERTAIN LIABILITIES DISREGARDED.— 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 81 
"(1) IN GENERAL.—In determining whether gain is recog-
nized on the acquisition of property— 
"(A) from a decedent by a decedent's estate or any 
beneficiary other than a tax-exempt beneficiary, and 
"(B) from the decedent's estate by any beneficiary other 
than a tax-exempt beneficiary, 
and in determining the adjusted basis of such property, habil-
ities in excess of basis shall be disregarded. 
"(2) TAX-EXEMPT BENEFICIARY.—For purposes of paragraph 
(1), the term 'tax-exempt beneficiary' means— 
"(A) the United States, any State or political subdivi-
sion thereof, any possession of the United States, any 
Indian tribal government (within the meaning of section 
7871), or any agency or instrumentality of any of the fore-
going, 
"(B) an organization 
(other 
than a 
cooperative 
described in section 521) which is exempt from tax imposed 
by chapter 1, 
"(C) any foreign person or entity (within the meaning 
of section 168(h)(2)), and 
"(D) to the extent provided in regulations, any person 
to whom property is transferred for the principal purpose 
of tax avoidance. 
"(h) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section.". 
(b) INFORMATION RETURNS, ETC.— 
(1) LARGE TRANSFERS AT DEATH.—So much of subpart C 
of part II of subchapter A of chapter 61 as precedes section 
6019 is amended to read as follows: 
"Subpart C—Returns Relating to Transfers 
During Life or at Death 
"Sec. 6018. Returns relating to large transfers at death. 
"Sec. 6019. Gift tax returns. 
"SEC. 6018. RETURNS 
RELATING 
TO 
LARGE TRANSFERS 
AT 
DEATH. 
"(a) IN GENERAL.—If this section applies to property acquired 
from a decedent, the executor of the estate of such decedent shall 
make a return containing the information specified in subsection 
(c) with respect to such property. 
"(b) PROPERTY TO WHICH SECTION APPLIES.— 
"(1) LARGE TRANSFERS.—This section shall apply to all prop-
erty (other than cash) acquired from a decedent if the fair 
market value of such property acquired from the decedent 
exceeds 
the 
dollar 
amount 
applicable 
under 
section 
1022(b)(2)(B) (without regard to section 1022(b)(2)(C)). 
"(2) TRANSFERS OF CERTAIN GIFTS RECEIVED BY DECEDENT 
WITHIN 3 YEARS OF DEATH.—This section shall apply to any 
appreciated property acquired from the decedent i
f
— 
"(A) subsections (b) and (c) of section 1022 do not 
apply to such property by reason of section 1022(d)(1)(C), 
and 
"(B) such property was required to be included on 
a return required to be filed under section 6019. 
"(3) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES.— 
In the case of a decedent who is a nonresident not a citizen 
of the United States, paragraphs (1) and (2) shall be applied— 
115 STAT. 82 
PUBLIC LAW 107-16-JUNE 7, 2001 
Applicability. 
Deadline. 
26 use 6019. 
"(A) by taking into account only— 
"(i) tangible property situated in the United States, 
and 
"(ii) other property acquired from the decedent 
by a United States person, and 
"(B) by substituting the dollar amount applicable under 
section 1022(b)(3) for the dollar amount referred to in para-
graph (1). 
"(4) RETURNS BY TRUSTEES OR BENEFICIARIES.—If the 
executor is unable to make a complete return as to any property 
acquired from or passing from the decedent, the executor shall 
include in the return a description of such property and the 
name of every person holding a legal or beneficial interest 
therein. Upon notice from the Secretary, such person shall 
in like manner make a return as to such property. 
"(c) INFORMATION REQUIRED TO BE FURNISHED.—The informa-
tion specified in this subsection with respect to any property 
acquired from the decedent is— 
"(1) the name and TIN of the recipient of such property, 
"(2) an accurate description of such property, 
"(3) the adjusted basis of such property in the hands of 
the decedent and its fair market value at the time of death, 
"(4) the decedent's holding period for such property, 
"(5) sufficient information to determine whether any gain 
on the sale of the property would be treated as ordinary income, 
"(6) the amount of basis increase allocated to the property 
under subsection (b) or (c) of section 1022, and 
"(7) such other information as the Secretary may by regula-
tions prescribe. 
"(d) PROPERTY ACQUIRED FROM DECEDENT.—For purposes of 
this section, section 1022 shall apply for purposes of determining 
the property acquired from a decedent. 
"(e) STATEMENTS TO B E FURNISHED TO CERTAIN PERSONS.— 
Every person required to make a return under subsection (a) shall 
furnish to each person whose name is required to be set forth 
in such return (other than the person required to make such return) 
a written statement showing— 
"(1) the name, address, and phone number of the person 
required to make such return, and 
"(2) the information specified in subsection (c) with respect 
to property acquired from, or passing from, the decedent to 
the person required to receive such statement. 
The written statement required under the preceding sentence shall 
be furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.". 
(2) GIFTS.—Section 6019 (relating to gift tax returns) is 
amended— 
(A) by striking "Any individual" and inserting "(a) IN 
GENERAL.—^Any individual", and 
(B) by adding at the end the following new subsection: 
"(b) STATEMENTS TO B E FURNISHED TO CERTAIN PERSONS.— 
Every person required to make a return under subsection (a) shall 
furnish to each person whose name is required to be set forth 
in such return (other than the person required to make such return) 
a written statement showing— 
"(1) the name, address, and phone number of the person 
required to make such return, and 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 83 
"(2) the information specified in such return with respect 
to property received by the person required to receive such 
statement. 
The written statement required under the preceding sentence shall Deadline. 
be furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.". 
(3) TIME FOR FILING SECTION eois RETURNS.— 
(A) 
RETURNS 
RELATING 
TO LARGE 
TRANSFERS AT 
DEATH.—Subsection (a) of section 6075 is amended to read 
26 USC 6075. 
as follows: 
"(a) RETURNS RELATING TO LARGE TRANSFERS AT DEATH.— 
The return required by section 6018 with respect to a decedent 
shall be filed with the return of the tax imposed by chapter 1 
for the decedent's last taxable year or such later date specified 
in regulations prescribed by the Secretary.". 
(B) CONFORMING AMENDMENTS.—Paragraph (3) of sec-
tion 6075(b) is amended— 
(i) by striking "ESTATE TAX RETURN" in the heading 
and inserting "SECTION 6018 RETURN", and 
(ii) by striking "(relating to estate tax returns)" 
and inserting "(relating to returns relating to large 
transfers at death)". 
(4) PENALTIES.—Part I of subchapter B of chapter 68 
(relating to assessable penalties) is amended by adding at the 
end the following new section: 
"SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CER-
TAIN TRANSFERS AT DEATH AND GIFTS. 
"(a) INFORMATION REQUIRED TO BE FURNISHED TO THE SEC-
RETARY.—^Any person required to furnish any information under 
section 6018 who fails to furnish such information on the date 
prescribed therefor (determined with regard to any extension of 
time for filing) shall pay a penalty of $10,000 ($500 in the case 
of information required to be furnished under section 6018(b)(2)) 
for each such failure. 
"(b) 
INFORMATION REQUIRED TO BE FURNISHED TO BENE-
FICIARIES.—^Any person required to furnish in writing to each person 
described in section 6018(e) or 6019(b) the information required 
under such section who fails to furnish such information shall 
pay a penalty of $50 for each such failure. 
"(c) REASONABLE 
CAUSE EXCEPTION.—No penalty shall be 
imposed under subsection (a) or (b) with respect to any failure 
if it is shown that such failure is due to reasonable cause. 
"(d) INTENTIONAL DISREGARD.—If any failure under subsection 
(a) or (b) is due to intentional disregard of the requirements under 
sections 6018 and 6019(b), the penalty under such subsection shall 
be 5 percent of the fair market value (as of the date of death 
or, in the case of section 6019(b), the date of the gift) of the 
property with respect to which the information is required. 
"(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B 
of chapter 63 (relating to deficiency procedures for income, estate, 
gift, and certain excise taxes) shall not apply in respect of the 
assessment or collection of any penalty imposed by this section.". 
(5) CLERICAL AMENDMENTS.— 
115 STAT. 84 
PUBLIC LAW 107-16^JUNE 7, 2001 
(A) The table of sections for part I of subchapter B 
of chapter 68 is amended by adding at the end the following 
new item: 
"Sec. 6716. Failure to file information with respect to certain transfers at 
death and gifts.". 
(B) The item relating to subpart C in the table of 
subparts for part II of subchapter A of chapter 61 is 
amended to read as follows: 
"Subpart C. Returns relating to transfers during life or at death.". 
(c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE MADE 
AVAILABLE TO HEIR OF DECEDENT IN CERTAIN CASES.—Subsection 
26 use 121. 
(d) of section 121 (relating to exclusion of gain from sale of principal 
residence) is amended by adding at the end the following new 
paragraph: 
"(9) PROPERTY ACQUIRED FROM A DECEDENT.—The exclusion 
under this section shall apply to property sold by— 
"(A) the estate of a decedent, 
"(B) any individual who acquired such property from 
the decedent (within the meaning of section 1022), and 
"(C) a trust which, immediately before the death of 
the decedent, was a qualified revocable trust (as defined 
in section 645(b)(1)) established by the decedent, 
determined by taking into account the ownership and use by 
the decedent.". 
(d) TRANSFERS OF APPRECIATED CARRYOVER BASIS PROPERTY 
To SATISFY PECUNIARY BEQUEST.— 
(1) IN GENERAL.—Section 1040 (relating to transfer of cer-
tain farm, etc., real property) is amended to read as follows: 
"SEC. 1
0
4
0
. 
USE 
OF 
APPRECIATED 
CARRYOVER BASIS 
PROPERTY 
TO 
SATISFY 
PECUNIARY 
BEQUEST. 
"(a) IN GENERAL.—If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest 
with appreciated property, then gain on such exchange shall be 
recognized to the estate only to the extent that, on the date of 
such exchange, the fair market value of such property exceeds 
such value on the date of death. 
Regulations. 
"(b) SIMILAR RuLE FOR CERTAIN TRUSTS.—To the extent pro-
vided in regulations prescribed by the Secretary, a rule similar 
to the rule provided in subsection (a) shall apply where— 
"(1) by reason of the death of the decedent, a person has 
a right to receive from a trust a specific dollar amount which 
is the equivalent of a pecuniary bequest, and 
"(2) the trustee of a trust satisfies such right with property. 
"(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE DESCRIBED 
IN SUBSECTION (a) OR (b).—The basis of property acquired in an 
exchange with respect to which gain realized is not recognized 
by reason of subsection (a) or (b) shall be the basis of such property 
immediately before the exchange increased by the amount of the 
gain recognized to the estate or trust on the exchange.". 
(2) The item relating to section 1040 in the table of sections 
for part III of subchapter O of chapter 1 is amended to read 
as follows: 
"Sec. 1040. Use of appreciated carryover basis property to satisfy pecuniary 
bequest.". 
(e) AMENDMENTS RELATED TO CARRYOVER BASIS.— 
PUBLIC LAW 107-16-JUNE 7, 2001 
115 STAT. 85 
(1) 
RECOGNITION 
OF GAIN 
ON TRANSFERS 
TO NON-
RESIDENTS.— 
(A) Subsection (a) of section 684 is amended by 26USC684. 
inserting "or to a nonresident alien" after "or trust". 
(B) Subsection (b) of section 684 is amended to read 
as follows: 
"(b) EXCEPTIONS.— 
"(1) TRANSFERS TO CERTAIN TRUSTS.—Subsection (a) shall 
not apply to a transfer to a trust by a United States person 
to the extent that any United States person is treated as 
the owner of such trust under section 671. 
"(2) LIFETIME TRANSFERS TO NONRESIDENT ALIENS.—Sub-
section (a) shall not apply to a lifetime transfer to a nonresident 
alien.". 
(C) The section heading for section 684 is amended 
by inserting "AND NONRESIDENT ALIENS" after "ESTATES". 
(D) The item relating to section 684 in the table of 
sections for subpart F of part I of subchapter J of chapter 
1 is amended by inserting "and nonresident aliens" after 
"estates". 
(2) CAPITAL GAIN TREATMENT FOR INHERITED ART WORK 
OR SIMILAR PROPERTY.— 
(A) 
IN GENERAL.—Subparagraph 
(C) of 
section 
1221(a)(3) (defining capital asset) is amended by inserting 
"(other than by reason of section 1022)" after "is deter-
mined". 
(B) COORDINATION WITH SECTION 170.—Paragraph (1) 
of section 170(e) (relating to certain contributions of ordi-
nary income and capital gain property) is amended by 
adding at the end the following: "For purposes of this 
paragraph, the determination of whether property is a 
capital asset shall be made without regard to the exception 
contained in section 1221(a)(3)(C) for basis determined 
under section 1022.". 
(3) DEFINITION OF EXECUTOR.—Section 7701(a) (relating 
to definitions) is amended by adding at the end the following: 
"(47) EXECUTOR.—The term 'executor' means the executor 
or administrator of the decedent, or, if there is no executor 
or administrator appointed, qualified, and acting within the 
United States, then any person in actual or constructive posses-
sion of any property of the decedent.". 
(4) 
CERTAIN 
TRUSTS.—Subparagraph 
(A) 
of 
section 
4947(a)(2) is amended by inserting "642(c)," after "170(f)(2)(B),". 
(5) OTHER AMENDMENTS.— 
(A) Section 
1246 is amended by striking 
sub-
section (e). 
(B) Subsection (e) of section 1291 is amended— 
(i) by striking "(e),"; and 
(ii) by striking "; except that" and all that follows 
and inserting a period. 
(C) Section 
1296 is amended by striking 
sub-
section (i). 
115 STAT. 86 
PUBLIC LAW 107-16—JUNE 7, 2001 
(6) CLERICAL AMENDMENT.—The table of sections for part 
II of subchapter O of chapter 1 is amended by inserting after 
the item relating to section 1021 the following new item: 
"Sec. 1022. Treatment of property acquired from a decedent dying after 
December 31, 2009.". 
Applicability. 
(f ) EFFECTIVE DATE.— 
26 use 121 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to estates of 
decedents dying after December 31, 2009. 
(2) TRANSFERS TO NONRESIDENTS.—The amendments made 
by subsection (e)(1) shall apply to transfers after December 
31, 2009. 
(3) SECTION 4947.—The amendment made by subsection 
(e)(4) shall apply to deductions for taxable years beginning 
after December 31, 2009. 
26 u s e 2031. 
Applicability. 
26 u s e 2031 
note. 
Subtitle F—Conservation Easements 
SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASE-
MENTS. 
(a) 
REPEAL OF CERTAIN RESTRICTIONS ON WHERE LAND IS 
LOCATED.—Clause (i) of section 2031(c)(8)(A) (defining land subject 
to a qualified conservation easement) is amended to read as follows: 
"(i) which is located in the United States or any 
possession of the United States,". 
(b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND 
AND EASEMENT.—Section 2031(c)(2) (defining applicable percentage) 
is amended by adding at the end the following new sentence: 
"The values taken into account under the preceding sentence shall 
be such values as of the date of the contribution referred to in 
paragraph (8)(B).". 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to estates of decedents dying after December 31, 2000. 
Subtitle G—Modifications of Generation-
Skipping Transfer Tax 
SEC 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME 
TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS. 
(a) IN GENERAL.—Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating sub-
section (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections: 
"(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO 
GST TRUSTS.— 
"(1) IN GENERAL.—If any individual makes an indirect skip 
during such individual's lifetime, any unused portion of such 
individual's GST exemption shall be allocated to the property 
transferred to the extent necessary to make the inclusion ratio 
for such property zero. If the amount of the indirect skip 
exceeds such unused portion, the entire unused portion shall 
be allocated to the property transferred. 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 87 
"(2) UNUSED PORTION.—For purposes of paragraph (1), the 
unused portion of an individual's GST exemption is that portion 
of such exemption which has not previously been— 
"(A) allocated by such individual, 
"(B) treated as allocated under subsection (b) with 
respect to a direct skip occurring during or before the 
calendar year in which the indirect skip is made, or 
"(C) treated as allocated under paragraph (1) with 
respect to a prior indirect skip. 
"(3) DEFINITIONS.— 
"(A) INDIRECT SKIP.—For purposes of this subsection, 
the term 'indirect skip' means any transfer of property 
(other than a direct skip) subject to the tax imposed by 
chapter 12 made to a GST trust. 
"(B) GST TRUST.—The term 'GST trust' means a trust 
that could have a generation-skipping transfer with respect 
to the transferor unless— 
"(i) the trust instrument provides that more than 
25 percent of the trust corpus must be distributed 
to or may be withdrawn by one or more individuals 
who are non-skip persons— 
"(I) before the date that the individual attains 
age 46, 
"(II) on or before one or more dates specified 
in the trust instrument that will occur before the 
date that such individual attains age 46, or 
"(III) upon the occurrence of an event that, 
in accordance with regulations prescribed by the 
Secretary, may reasonably be expected to occur 
before the date that such individual attains age 
46, 
"(ii) the trust instrument provides that more than 
25 percent of the trust corpus must be distributed 
to or may be withdrawn by one or more individuals 
who are non-skip persons and who are living on the 
date of death of another person identified in the 
instrument (by name or by class) who is more than 
10 years older than such individuals, 
"(iii) the trust instrument provides that, if one 
or more individuals who are non-skip persons die on 
or before a date or event described in clause (i) or 
(ii), more than 25 percent of the trust corpus either 
must be distributed to the estate or estates of one 
or more of such individuals or is subject to a general 
power of appointment exercisable by one or more of 
such individuals, 
"(iv) the trust is a trust any portion of which 
would be included in the gross estate of a non-skip 
person (other than the transferor) if such person died 
immediately after the transfer, 
"(v) the trust is a charitable lead annuity trust 
(within the meaning of section 2642(e)(3)(A)) or a chari-
table 
remainder 
annuity 
trust or a 
charitable 
remainder unitrust (within the meaning of section 
664(d)), or 
"(vi) the trust is a trust with respect to which 
a deduction was allowed under section 2522 for the 
115 STAT. 88 
PUBLIC LAW 1 0 7 - 1 6 - J U N E 7, 2001 
amount of an interest in the form of the right to 
receive annual payments of a fixed percentage of the 
net fair market value of the trust property (determined 
yearly) and which is required to pay principal to a 
non-skip person if such person is alive when the yearly 
payments for which the deduction was allowed termi-
nate. 
For purposes of this subparagraph, the value of transferred 
property shall not be considered to be includible in the 
gross estate of a non-skip person or subject to a right 
of withdrawal by reason of such person holding a right 
to withdraw so much of such property as does not exceed 
the amount referred to in section 2503(b) with respect 
to any transferor, and it shall be assumed that powers 
of appointment held by non-skip persons will not be exer-
cised. 
"(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS.— 
For purposes of this subsection, an indirect skip to which section 
2642(f) applies shall be deemed to have been made only at 
the close of the estate tax inclusion period. The fair market 
value of such transfer shall be the fair market value of the 
trust property at the close of the estate tax inclusion period. 
"(5) APPLICABILITY AND EFFECT.— 
"(A) IN GENERAL.—^An individual— 
"(i) may elect to have this subsection not apply 
to— 
"(I) an indirect skip, or 
"(II) any or all transfers made by such indi-
vidual to a particular trust, and 
"(ii) may elect to treat any trust as a GST trust 
for purposes of this subsection with respect to any 
or all transfers made by such individual to such trust. 
"(B) ELECTIONS.— 
"(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS.— 
An election under subparagraph (A)(i)(I) shall be 
deemed to be timely if filed on a timely filed gift 
tax return for the calendar year in which the transfer 
was made or deemed to have been made pursuant 
to paragraph (4) or on such later date or dates as 
may be prescribed by the Secretary. 
"(ii) OTHER ELECTIONS.—^An election under clause 
(i)(II) or (ii) of subparagraph (A) may be made on 
a timely filed gift tax return for the calendar year 
for which the election is to become effective. 
"(d) RETROACTIVE ALLOCATIONS.— 
"(1) IN GENERAL.—If^ 
"(A) a non-skip person has an interest or a future 
interest in a trust to which any transfer has been made, 
"(B) such person— 
"(i) is a lineal descendant of a grandparent of 
the transferor or of a grandparent of the transferor's 
spouse or former spouse, and 
"(ii) is assigned to a generation below the genera-
tion assignment of the transferor, and 
"(C) such person predeceases the transferor, 
note. 
PUBLIC LAW 107-16-JUNE 7, 2001 
115 STAT. 89 
then the transferor may make an allocation of any of such 
transferor's unused GST exemption to any previous transfer 
or transfers to the trust on a chronological basis. 
"(2) SPECIAL RULES.—If the allocation under paragraph 
(1) by the transferor is made on a gift tax return filed on 
or before the date prescribed by section 6075(b) for gifts made 
within the calendar year within which the non-skip person's 
death occurred— 
"(A) the value of such transfer or transfers for purposes 
of section 2642(a) shall be determined as if such allocation 
had been made on a timely filed gift tax return for each 
calendar year within which each transfer was made, 
"(B) such allocation shall be effective immediately 
before such death, and 
"(C) the amount of the transferor's unused GST exemp-
tion available to be allocated shall be determined imme-
diately before such death. 
"(3) FUTURE INTEREST.—For purposes of this subsection, 
a person has a future interest in a trust if the trust may 
permit income or corpus to be paid to such person on a date 
or dates in the future.". 
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 2632(b) 
26 use 2632. 
is amended by striking "with respect to a prior direct skip" and 
inserting "or subsection (c)(1)". 
(c) EFFECTIVE DATES.— 
AppUcabmty. 
(1) DEEMED ALLOCATION.—Section 2632(c) of the Internal 26USC2632 
Revenue Code of 1986 (as added by subsection (a)), and the 
amendment made by subsection (b), shall apply to transfers 
subject to chapter 11 or 12 made after December 31, 2000, 
and to estate tax inclusion periods ending after December 31, 
2000. 
(2) RETROACTIVE ALLOCATIONS.—Section 2632(d) of the 
Internal Revenue Code of 1986 (as added by subsection (a)) 
shall apply to deaths of non-skip persons occurring after 
December 31, 2000. 
SEC. 562. SEVERING OF TRUSTS. 
(a) IN GENERAL.—Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following 
new paragraph: 
"(3) SEVERING OF TRUSTS.— 
"(A) IN GENERAL.—If a trust is severed in a qualified 
severance, the trusts resulting from such severance shall 
be treated as separate trusts thereafter for purposes of 
this chapter. 
"(B) QUALIFIED SEVERANCE.—For purposes of subpara-
graph (A>— 
"(i) IN GENERAL.—The term 'qualified severance' 
''•'• 
means the division of a single trust and the creation 
(by 
any means 
available 
under 
the 
governing 
instrument or under local law) of two or more trusts 
if— 
"(I) the single trust was divided on a fractional 
basis, and 
"(II) the terms of the new trusts, in the aggre-
gate, provide for the same succession of interests 
115 STAT. 90 
PUBLIC LAW 1 0 7 - 1 6 ^ J U N E 7, 2001 
of beneficiaries as are provided in the original 
trust. 
"(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN 
ZERO.—If a trust has an inclusion ratio of greater 
than zero and less than 1, a severance is a qualified 
severance only if the single trust is divided into two 
trusts, one of which receives a fractional share of the 
total value of all trust assets equal to the applicable 
fraction of the single trust immediately before the 
severance. In such case, the trust receiving such frac-
tional share shall have an inclusion ratio of zero and 
the other trust shall have an inclusion ratio of 1. 
"(iii) REGULATIONS.—The term 'qualified severance' 
includes any other severance permitted under regula-
tions prescribed by the Secretary. 
"(C) TIMING AND MANNER OF SEVERANCES.—A sever-
ance pursuant to this paragraph may be made at any 
Regulations. 
time. The Secretary shall prescribe by forms or regulations 
the manner in which the qualified severance shall be 
reported to the Secretary.". 
Applicability. 
(b) EFFECTIVE DATE.—The amendment made by this section 
26 use 2642 
shall apply to severances after December 31, 2000. 
note. 
^^ -
^ 
SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES. 
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED 
26 use 2642. 
ALLOCATION MADE.—Paragraph (1) of section 2642(b) (relating to 
valuation rules, etc.) is amended to read as follows: 
"(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED 
ALLOCATION MADE.—If the allocation of the GST exemption 
to any transfers of property is made on a gift tax return 
filed on or before the date prescribed by section 6075(b) for 
such transfer or is deemed to be made under section 2632 
(b)(1) or (c)(1)— 
"(A) the value of such property for purposes of sub-
section (a) shall be its value as finally determined for 
purposes of chapter 12 (within the meaning of section 
2001(f)(2)), or, in the case of an allocation deemed to have 
been made at the close of an estate tax inclusion period, 
its value at the time of the close of the estate tax inclusion 
period, and 
"(B) such allocation shall be effective on and after 
the date of such transfer, or, in the case of an allocation 
deemed to have been made at the close of an estate tax 
inclusion period, on and after the close of such estate 
tax inclusion period.". 
(b) 
TRANSFERS 
AT DEATH.—Subparagraph (A) of section 
2642(b)(2) is amended to read as follows: 
"(A) TRANSFERS AT DEATH.—If property is transferred 
as a result of the death of the transferor, the value of 
such property for purposes of subsection (a) shall be its 
value as finally determined for purposes of chapter 11; 
except that, if the requirements prescribed by the Secretary 
respecting allocation of post-death changes in value are 
not met, the value of such property shall be determined 
as of the time of the distribution concerned.". 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 91 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability. 
shall apply to transfers subject to chapter 11 or 12 of the Internal 26USC2642 
Revenue Code of 1986 made after December 31, 2000. 
°°*^ 
SEC. 564. RELIEF PROVISIONS. 
(a) IN GENERAL.—Section 2642 is amended by adding at the 26USC2642. 
end the following new subsection: 
"(g) RELIEF PROVISIONS.— 
"(1) RELIEF FROM LATE ELECTIONS.— 
"(A) IN GENERAL.—The Secretary shall by regulation Regulations. 
prescribe such circumstances and procedures under which 
extensions of time will be granted to make— 
;; 
"(i) an allocation of GST exemption described in 
paragraph (1) or (2) of subsection (b), and 
"(ii) an election under subsection (b)(3) or (c)(5) 
of section 2632. 
Such regulations shall include procedures for requesting 
comparable relief with respect to transfers made before 
the date of the enactment of this paragraph. 
"(B) 
BASIS FOR DETERMINATIONS.—In 
determining 
whether to grant relief under this paragraph, the Secretary 
shall 
take 
into 
account all relevant 
circumstances, 
including evidence of intent contained in the trust 
instrument or instrument of transfer and such other factors 
as the Secretary deems relevant. For purposes of deter-
mining whether to grant relief under this paragraph, the 
time for making the allocation (or election) shall be treated 
as if not expressly prescribed by statute. 
"(2) SUBSTANTIAL COMPLIANCE.—^An allocation of GST 
: exemption under section 2632 that demonstrates an intent 
to have the lowest possible inclusion ratio with respect to 
a transfer or a trust shall be deemed to be an allocation 
of so much of the transferor's unused GST exemption as pro-
duces the lowest possible inclusion ratio. In determining 
whether there has been substantial compliance, all relevant 
circumstances shall be taken into account, including evidence 
of intent contained in the trust instrument or instrument of 
transfer and such other factors as the Secretary deems rel-
evant.". 
(b) EFFECTIVE DATES.— 
(1) RELIEF FROM LATE ELECTIONS.—Section 2642(g)(1) of 
the Internal Revenue Code of 1986 (as added by subsection 
(a)) shall apply to requests pending on, or filed after, December 
31,2000. 
(2) SUBSTANTIAL COMPLIANCE.—Section 2642(g)(2) of such 
Code (as so added) shall apply to transfers subject to chapter 
11 or 12 of the Internal Revenue Code of 1986 made after 
December 31, 2000. No implication is intended with respect 
. to the availability of relief from late elections or the application 
of a rule of substantial compliance on or before such date. 
Applicability. 
26 u s e 2642 
note. 
115 STAT. 92 
PUBLIC LAW 107-16—JUNE 7, 2001 
Subtitle H—Extension of Time for Payment 
of Estate Tax 
SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND 
SHAREHOLDERS IN CLOSELY HELD BUSINESSES. 
(a) 
IN 
GENERAL.—Paragraphs 
(l)(B)(ii), 
(l)(C)(ii), 
and 
26 use 6166. 
(9)(B)(iii)(I) of section 6166(b) (relating to definitions and special 
rules) are each amended by striking "15" and inserting "45". 
Applicability. 
(b) EFFECTIVE DATE.—The amendments made by this section 
26 use 6166 
shall apply to estates of decedents dying after December 31, 2001. 
note. 
SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT 
FOR ESTATES WITH INTERESTS QUALIFYING LENDING 
AND FINANCE BUSINESSES. 
(a) I N GENERAL.—Section 6166(b) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraph: 
"(10) 
STOCK IN QUALIFYING LENDING AND FINANCE BUSINESS 
TREATED AS STOCK IN AN ACTIVE TRADE OR BUSINESS COMPANY.— 
"(A) I N GENERAL.—If the executor elects the benefits 
of this paragraph, then— 
"(i) 
STOCK IN QUALIFYING LENDING AND FINANCE 
BUSINESS TREATED AS STOCK IN AN ACTIVE TRADE OR 
BUSINESS COMPANY.—For purposes of this section, any 
asset used in a qualifying lending and finance business 
shall be treated as an asset which is used in carrying 
on a trade or business. 
"(ii) 5-YEAR DEFERRAL FOR PRINCIPAL NOT TO 
APPLY.—The executor 
shall 
be 
treated 
as 
having 
selected under subsection (a)(3) the date prescribed 
by section 6151(a). 
"(iii) 5 EQUAL INSTALLMENTS ALLOWED.—For pur-
poses of applying subsection (a)(1), '5' shall be sub-
stituted for '10'. 
"(B) DEFINITIONS.—For purposes of this paragraph— 
"(i) QUALIFYING LENDING AND FINANCE BUSINESS.— 
The term 'qualifying lending and 
finance 
business' 
means a lending and finance business, if— 
"(I) based on all the facts and circumstances 
immediately before the date of the 
decedent's 
death, there was substantial activity with respect 
to the lending and finance business, or 
"(II) during at least 3 of the 5 taxable years 
ending before the date of the decedent's death, 
such business had at least 1 full-time employee 
substantially all of whose services were the active 
management of such business, 10 full-time, non-
owner employees substantially all of whose serv-
ices were directly related to such business, and 
$5,000,000 
in 
gross 
receipts 
from 
activities 
described in clause (ii). 
"(ii) 
LENDING AND FINANCE BUSINESS.—The term 
'lending and finance business' means a trade or busi-
ness of— 
"(I) making loans, 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 93 
. : 
"(II) 
purchasing 
or 
discounting 
accounts 
receivable, notes, or installment obligations, 
"(III) engaging in rental and leasing of real 
and tangible personal property, including entering 
into leases and purchasing, servicing, and dis-
posing of leases and leased assets, 
"(IV) rendering services or making facilities 
available in the ordinary course of a lending or 
finance business, and 
"(V) rendering services or making facilities 
available in connection with activities described 
in subclauses (I) through (IV) carried on by the 
corporation rendering services or making facilities 
available, or another corporation which is a 
member of the same affiliated group (as defined 
in 
section 
1504 
without 
regard 
to 
section 
1504(b)(3)). 
"(iii) LIMITATION.—The term 'qualifying lending 
and finance business' shall not include any interest 
in an entity, if the stock or debt of such entity or 
a controlled group (as defined in section 267(f)(1)) of 
' 
which such entity was a member was readily tradable 
on an established securities market or secondary 
market (as defined by the Secretary) at any time within 
3 years before the date of the decedent's death.". 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to estates of decedents dying after December 31, 2001. 
SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAY-
MENT. 
(a) IN GENERAL.—Subparagraph (B) of section 6166(b)(8) 
(relating to all stock must be non-readily-tradable stock) is amended 
to read as follows: 
"(B) 
ALL 
STOCK 
MUST 
BE 
NON-READILY-TRADABLE 
STOCK.— 
"(i) IN GENERAL.—No stock shall be taken into 
account for purposes of applying this paragraph unless 
it is non-readily-tradable stock (within the meaning 
of paragraph (7)(B)). 
"(ii) SPECIAL APPLICATION WHERE ONLY HOLDING 
COMPANY STOCK IS NON-READILY-TRADABLE STOCK.—If 
the requirements of clause (i) are not met, but all 
of the stock of each holding company taken into account 
is non-readily-tradable, then this paragraph shall 
apply, but subsection (a)(1) shall be applied by sub-
stituting'5'for'10'.". 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to estates of decedents dying after December 31, 2001. 
Subtitle I—Other Provisions 
Applicability. 
26 u s e 6166 
note. 
26 u s e 6166. 
Applicability. 
26 u s e 6166 
note. 
SEC. 581. WAIVER OF STATUTE OF LIMITATION FOR TAXES ON CERTAIN 
FARM VALUATIONS. 
If on the date of the enactment of this Act (or at any time 
within 1 year after the date of the enactment) a refund or credit 
of any overpayment of tax resulting from the application of section 
26 u s e 2032A 
note. 
115 STAT. 94 
PUBLIC LAW 107-16^JUNE 7, 2001 
2032A(c)(7)(E) of the Internal Revenue Code of 1986 is barred 
by any law or rule of law, the refund or credit of such overpayment 
shall, nevertheless, be made or allowed if claim therefor is filed 
before the date 1 year after the date of the enactment of this 
Act. 
TITLE VI—PENSION AND INDIVIDUAL 
RETIREMENT ARRANGEMENT PROVI-
SIONS 
Subtitle A—Individual Retirement 
Accounts 
SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS. 
(a) INCREASE IN CONTRIBUTION LIMIT.— 
26 use 219. 
(1) IN GENERAL.—Paragraph (1)(A) of section 219(b) 
(relating to maximum amount of deduction) is amended by 
striking "$2,000" and inserting "the deductible amount". 
(2) DEDUCTIBLE AMOUNT.—Section 219(b) is amended by 
adding at the end the following new paragraph: 
"(5) DEDUCTIBLE AMOUNT.—For purposes of paragraph 
(1)(A)— 
"(A) IN GENERAL.—The deductible amount shall be 
determined in accordance with the following table: 
"For taxable years 
The deductible 
beginning in: 
amount is: 
2002 through 2004 
$3,000 
2005 through 2007 
$4,000 
2008 and thereafter 
$5,000. 
"(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS SO OR 
OLDER.— 
"(i) IN GENERAL.—In the case of an individual who 
has attained the age of 50 before the close of the 
taxable year, the deductible amount for such taxable 
year shall be increased by the applicable amount. 
"(ii) APPLICABLE AMOUNT.—For purposes of clause 
(i), the applicable amount shall be the amount deter-
mined in accordance with the following table: 
"For taxable years 
The applicable 
beginning in: 
amount is: 
2002 through 2005 
$500 
2006 and thereafter 
$1,000. 
"(C) COST-OF-LIVING ADJUSTMENT.— 
"(i) IN GENERAL.—In the case of any taxable year 
beginning in a calendar year after 2008, the $5,000 
amount under subparagraph (A) shall be increased 
by an amount equal to— 
"(I) such dollar amount, multiplied by 
"(II) the cost-of-living adjustment determined 
under section 1(f)(3) for the calendar year in which 
the taxable year begins, determined by sub-
stituting 'calendar year 2007' for 'calendar year 
1992' in subparagraph (B) thereof. 
"(ii) ROUNDING RULES.—If any amount after adjust-
ment under clause (i) is not a multiple of $500, such 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
115 STAT. 95 
amount shall be rounded to the next lower multiple 
of $500.". 
(b) CONFORMING AMENDMENTS.— 
(1) Section 408(a)(1) is amended by striking "in excess 26USC408. 
of $2,000 on behalf of any individual" and inserting "on behalf 
of any individual in excess of the amount in effect for such 
taxable year under section 219(b)(1)(A)". 
(2) Section 408(b)(2)(B) is amended by striking "$2,000" 
and inserting "the dollar amount in effect under section 
• 219(b)(1)(A)". 
(3) Section 408(b) is amended by striking "$2,000" in the 
matter following paragraph (4) and inserting "the dollar amount 
in effect under section 219(b)(1)(A)". 
(4) Section 408( j) is amended by striking "$2,000". 
(5) Section 408(p)(8) is amended by striking "$2,000" and 
inserting 
"the 
dollar 
amount 
in 
effect 
under 
section 
219(b)(1)(A)". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability. 
shall apply to taxable years beginning after December 31, 2001. 26 USC 219 note. 
SEC. 602. DEEMED IRAs UNDER EMPLOYER PLANS. 
(a) IN GENERAL.—Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection 
(r) and by inserting after subsection (p) the following new sub-
section: 
"(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.— 
"(1) GENERAL RULE.—If— 
"(A) a qualified employer plan elects to allow employees 
to make voluntary employee contributions to a separate 
account or annuity established under the plan, and 
"(B) under the terms of the qualified employer plan, 
such account or annuity meets the applicable requirements 
of this section or section 408A for an individual retirement 
account or annuity, 
then such account or annuity shall be treated for purposes 
of this title in the same manner as an individual retirement 
plan and not as a qualified employer plan (and contributions 
to such account or annuity as contributions to an individual 
retirement plan and not to the qualified employer plan). For 
purposes of subparagraph (B), the requirements of subsection 
(a)(5) shall not apply. 
"(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For 
purposes of this title, a qualified employer plan shall not fail 
to meet any requirement of this title solely by reason of estab-
lishing and maintaining a program described in paragraph 
(1). 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) QUALIFIED EMPLOYER PLAN.—The term 'qualified 
employer plan' has the meaning given such term by section 
72(p)(4); except such term shall not include a government 
plan which is not a qualified plan unless the plan is an 
eligible deferred compensation plan (as defined in section 
457(b)). 
"(B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The term 
Voluntary employee contribution' means any contribution 
(other than a mandatory contribution within the meaning 
of section 411(c)(2)(C))— 
115 STAT. 96 
PUBLIC LAW 107-16-^UNE 7, 2001 
"(i) which is made by an individual as an employee 
under 
a 
qualified 
employer 
plan 
which 
allows 
employees to elect to make contributions described in 
paragraph (1), and 
"(ii) with respect to which the individual has des-
ignated the contribution as a contribution to which 
this subsection applies.". 
(b) AMENDMENT OF ERISA.— 
(1) IN GENERAL.—Section 4 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1003) is amended by 
adding at the end the following new subsection: 
"(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as pro-
vided in section 408(q) of the Internal Revenue Code of 1986, 
such accounts and annuities (and contributions thereto) shall not 
be treated as part of such plan (or as a separate pension plan) 
for purposes of any provision of this title other than section 403(c), 
404, or 405 (relating to exclusive benefit, and fiduciary and co-
fiduciary responsibilities).". 
(2) CONFORMING AMENDMENT.—Section 4(a) of such Act 
(29 U.S.C. 1003(a)) is amended by inserting "or (c)" after "sub-
section (b)". 
Applicability. 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 use 408 note, shall apply to plan years beginning after December 31, 2002. 
Subtitle B—Expanding Coverage 
SEC. 611. EVCREASE IN BENEFIT AND CONTRIBUTION LIMITS. 
(a) DEFINED BENEFIT PLANS.— 
(1) DOLLAR LIMIT.— 
26 use 415. 
(A) Subparagraph (A) of section 415(b)(1) (relating to 
limitation for defined benefit plans) is amended by striking 
"$90,000" and inserting "$160,000". 
(B) Subparagraphs (C) and (D) of section 415(b)(2) 
are each amended in the headings and the text, by striking 
"$90,000" and inserting "$160,000", 
(C) Paragraph (7) of section 415(b) (relating to benefits 
under certain collectively bargained plans) is amended by 
striking "the greater of $68,212 or one-half the amount 
otherwise applicable for such year under paragraph (1)(A) 
for '$90,000'" and inserting "one-half the amount otherwise 
applicable for such year under paragraph (1)(A) for 
'$160,000'". 
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62.— 
Subparagraph (C) of section 415(b)(2) is amended by striking 
"the social security retirement age" each place it appears in 
the heading and text and inserting "age 62" and by striking 
the second sentence. 
(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65.— 
Subparagraph (D) of section 415(b)(2) is amended by striking 
"the social security retirement age" each place it appears in 
the heading and text and inserting "age 65". 
(4) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 
415 (related to cost-of-living adjustments) is amended— 
(A) by striking "$90,000" in paragraph (1)(A) and 
inserting "$160,000"; and 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 97 
(B) in paragraph (3)(A)— 
(i) by striking "$90,000" in the heading and 
inserting "$160,000"; and 
(ii) by striking "October 1, 1986" and inserting 
"July 1, 2001". 
(5) CONFORMING AMENDMENTS.— 
(A) Section 415(b)(2) is amended by striking subpara- 26USC415. 
graph (F). 
(B) Section 415(b)(9) is amended to read as follows: 
"(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), in the case of any participant who is a commercial 
airline pilot, if, as of the time of the participant's retire-
ment, regulations prescribed by the Federal Aviation 
Administration require an individual to separate from 
service as a commercial airline pilot after attaining any 
age occurring on or after age 60 and before age 62, para-
graph (2)(C) shall be applied by substituting such age for 
age 62. 
"(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE 
AGE 60.—If a participant described in subparagraph (A) 
separates from service before age 60, the rules of paragraph 
(2)(C) shall apply.". 
(C) Section 415(b)(10)(C)(i) is amended by striking 
"applied without regard to paragraph (2)(F)". 
(b) DEFINED CONTRIBUTION PLANS.— 
(1) DOLLAR LIMIT.—Subparagraph (A) of section 415(c)(1) 
(relating to limitation for defined contribution plans) is 
amended by striking "$30,000" and inserting "$40,000". 
(2) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section 
415 (related to cost-of-living adjustments) is amended— 
(A) by striking "$30,000" in paragraph (1)(C) and 
inserting "$40,000"; and 
(B) in paragraph (3)(D)— 
(i) by striking "$30,000" in the heading and 
inserting "$40,000"; and 
(ii) by striking "October 1, 1993" and inserting 
"July 1, 2001". 
(c) QUALIFIED TRUSTS.— 
(1) 
COMPENSATION 
LIMIT.—Sections 401(a)(17), 404(1), 
408(k), and 505(b)(7) are each amended by striking "$150,000" 
each place it appears and inserting "$200,000". 
(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUST-
MENT.—Subparagraph (B) of section 401(a)(17) is amended— 
(A) by striking "October 1, 1993" and inserting "July 
1, 2001"; and 
(B) by striking "$10,000" both places it appears and 
inserting "$5,000". 
(d) ELECTIVE DEFERRALS.— 
(1) IN GENERAL.—Paragraph (1) of section 402(g) (relating 
to limitation on exclusion for elective deferrals) is amended 
to read as follows: 
"(1) IN GENERAL.— 
"(A) LIMITATION.—Notwithstanding subsections (e)(3) 
and (h)(1)(B), the elective deferrals of any individual for 
any taxable year shall be included in such individual's 
115 STAT. 98 
PUBLIC LAW 107-16-^UNE 7, 2001 
gross income to the extent the amount of such deferrals 
for the taxable year exceeds the applicable dollar amount. 
"(B) APPLICABLE DOLLAR AMOUNT.—For purposes of 
subparagraph (A), the applicable dollar amount shall be 
the amount determined in accordance with the following 
table: 
"For taxable years 
The applicable 
beginning in 
dollar amount: 
calendar year: 
2002 
$11,000 
2003 
$12,000 
2004 
$13,000 
2005 
$14,000 
2006 or thereafter 
$15,000.". 
(2) COST-OF-LIVING ADJUSTMENT.—Paragraph (5) of section 
26 use 402. 
402(g) is amended to read as follows: 
"(5) COST-OF-LIVING ADJUSTMENT.—In the case of taxable 
years beginning after December 31, 2006, the Secretary shall 
adjust the $15,000 amount under paragraph (1)(B) at the same 
time and in the same manner as under section 415(d), except 
that the base period shall be the calendar quarter beginning 
July 1, 2005, and any increase under this paragraph which 
is not a multiple of $500 shall be rounded to the next lowest 
multiple of $500.". 
(3) CONFORMING AMENDMENTS.— 
(A) Section 402(g) (relating to limitation on exclusion 
for elective deferrals), as amended by paragraphs (1) and 
(2), is further amended by striking paragraph (4) and 
redesignating paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively. 
(B) Paragraph (2) of section 457(c) is amended by 
striking "402(g)(8)(A)(iii)" and inserting "402(g)(7)(A)(iii)". 
(C) Clause (iii) of section 501(c)(18)(D) is amended 
by striking "(other than paragraph (4) thereof)". 
(e) 
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.— 
(1) IN GENERAL.—Section 457 (relating to deferred com-
pensation plans of State and local governments and tax-exempt 
organizations) is amended— 
(A) in subsections (b)(2)(A) and (c)(1) by striking 
"$7,500" each place it appears and inserting "the applicable 
dollar amount"; and 
(B) in subsection (b)(3)(A) by striking "$15,000" and 
inserting "twice the dollar amount in effect under sub-
section (b)(2)(A)". 
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUST-
MENT.—Paragraph (15) of section 457(e) is amended to read 
as follows: 
"(15) APPLICABLE DOLLAR AMOUNT.— 
"(A) IN GENERAL.—The applicable dollar amount shall 
be the amount determined in accordance with the following 
table: 
"For taxable years 
The applicable 
beginning in 
dollar amount: 
calendar year: 
2002 
$11,000 
2003 
$12,000 
2004 
$13,000 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 99 
2005 
$14,000 
2006 or thereafter 
$15,000. 
"(B) COST-OF-LIVING ADJUSTMENTS.—In the case of tax-
able years beginning after December 31, 2006, the Sec-
retary shall adjust the $15,000 amount under subpara-
graph (A) at the same time and in the same manner 
as under section 415(d), except that the base period shall 
be the calendar quarter beginning July 1, 2005, and any 
, 
increase under this paragraph which is not a multiple 
of $500 shall be rounded to the next lowest multiple of 
$500.". 
(f) SIMPLE RETIREMENT ACCOUNTS.— 
(1) LIMITATION.—Clause (ii) of section 408(p)(2)(A) (relating 
26 USC 408. 
to general rule for qualified salary reduction arrangement) 
is amended by striking "$6,000" and inserting "the applicable 
dollar amount". 
(2) APPLICABLE DOLLAR AMOUNT.—Subparagraph (E) of 
408(p)(2) is amended to read as follows: 
"(E) 
APPLICABLE 
DOLLAR 
AMOUNT; 
COST-OF-LIVING 
ADJUSTMENT.— 
"(i) IN GENERAL.—^For purposes of subparagraph 
(A)(ii), the applicable dollar amount shall be the 
amount determined in accordance with the following 
table: 
"For years 
The applicable 
beginning in 
dollar amount: 
calendar year: 
2002 
$7,000 
2003 
$8,000 
2004 
$9,000 
2005 or thereafter 
$10,000. 
"(ii) COST-OF-LIVING ADJUSTMENT.—In the case of 
a year beginning after December 31, 2005, the Sec-
retary shall adjust the $10,000 amount under clause 
(i) at the same time and in the same manner as under 
section 415(d), except that the base period taken into 
account shall be the calendar quarter beginning July 
1, 2004, and any increase under this subparagraph 
which is not a multiple of $500 shall be rounded to 
the next lower multiple of $500.". 
(3) CONFORMING AMENDMENTS.— 
(A) Subclause (I) of section 401(k)(ll)(B)(i) is amended 
by striking "$6,000" and inserting "the amount in effect 
under section 408(p)(2)(A)(ii)". 
(B) Section 401(k)(ll) is amended by striking subpara-
graph (E). 
(g) CERTAIN COMPENSATION LIMITS.— 
(1) IN GENERAL.—Subparagraph (A) of section 401(c)(2) 
(defining earned income) is amended by adding at the end 
thereof the following new sentence: "For purposes of this part 
only (other than sections 419 and 419A), this subparagraph 
shall be applied as if the term 'trade or business' for purposes 
of section 1402 included service described in section 1402(c)(6).". 
(2) SIMPLE RETIREMENT ACCOUNTS.—Clause (ii) of section 
408(p)(6)(A) (defining self-employed) is amended by adding at 
the end the following new sentence: "The preceding sentence 
shall be applied as if the term 'trade or business' for purposes 
of section 1402 included service described in section 1402(c)(6).". 
115 STAT. 100 
PUBLIC LAW 107-16-^UNE 7, 2001 
(h) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS 
AND DEFINED CONTRIBUTION PLANS.—Paragraph (4) of section 
26 use 415. 
415(d) is amended to read as follows: 
"(4) ROUNDING.— 
"(A) $160,000 AMOUNT.—^Any increase under subpara-
graph (A) of paragraph (1) which is not a multiple of 
$5,000 shall be rounded to the next lowest multiple of 
$5,000. 
"(B) $40,000 AMOUNT.—^Any increase under subpara-
graph (C) of paragraph (1) which is not a multiple of 
$1,000 shall be rounded to the next lowest multiple of 
$1,000.". 
(i) EFFECTIVE DATES.— 
Applicability. 
(1) IN GENERAL.—The amendments made by this section 
26 use 415 note. 
shall apply to years beginning after December 31, 2001. 
(2) DEFINED BENEFIT PLANS.—The amendments made by 
subsection (a) shall apply to years ending after December 31, 
2001. 
SEC. 
612. 
PLAN 
LOANS 
FOR 
SUBCHAPTER 
S 
OWNERS, 
PARTNERS, 
AND 
SOLE 
PROPRIETORS. 
(a) IN GENERAL.—Subparagraph (B) of section 
4975(f)(6) 
(relating to exemptions not to apply to certain transactions) is 
amended by adding at the end the following new clause: 
"(iii) LOAN EXCEPTION.—^For purposes of subpara-
graph (A)(i), the term 'owner-employee' shall only 
include a person described in subclause (II) or (III) 
of clause (i).". 
(b) AMENDMENT OF ERISA.—Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) 
is amended by adding at the end the following new subparagraph: 
"(C) For purposes of paragraph (1)(A), the term 'owner-
employee' shall only include a person described in clause (ii) or 
(iii) of subparagraph (A).". 
Applicability. 
(c) EFFECTIVE DATE.—The amendment made by this section 
26 use 4975 
shall apply to years beginning after December 31, 2001. 
note. 
SEC. 613. MODIFICATION OF TOP-HEAVY RULES. 
(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE.— 
(1) IN GENERAL.—Section 
416(i)(l)(A) 
(defining key 
employee) is amended— 
(A) by striking "or any of the 4 preceding plan years" 
in the matter preceding clause (i); 
(B) by striking clause (i) and inserting the following: 
"(i) an officer of the employer having an annual 
compensation greater than $130,000,"; 
(C) by striking clause (ii) and redesignating clauses 
(iii) and (iv) as clauses (ii) and (iii), respectively; and 
(D) by striking the second sentence in the matter fol-
lowing clause (iii), as redesignated by subparagraph (C), 
and by inserting the following: "in the case of plan years 
beginning after December 31, 2002, the $130,000 amount 
in clause (i) shall be adjusted at the same time and in 
the same manner as under section 415(d), except that 
the base period shall be the calendar quarter beginning 
July 1, 2001, and any increase under this sentence which 
is not a multiple of $5,000 shall be rounded to the next 
lower multiple of $5,000.". 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 101 
(2) CONFORMING AMENDMENT.—Section 416(i)(l)(B)(iii) is 26USC4i6. 
amended by striking "and subparagraph (A)(ii)". 
(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MIN-
IMUM CONTRIBUTION REQUIREMENTS.—Section 416(c)(2)(A) (relating 
to defined contribution plans) is amended by adding at the end 
the following: "Employer matching contributions (as defined in sec-
tion 401(m)(4)(A)) shall be taken into account for purposes of this 
subparagraph (and any reduction under this sentence shall not 
be taken into account in determining whether section 401(k)(4)(A) 
applies).". 
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION 
DATE TAKEN INTO ACCOUNT.— 
(1) IN GENERAL.—Paragraph (3) of section 416(g) is 
amended to read as follows: 
"(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINA-
TION DATE TAKEN INTO ACCOUNT.— 
"(A) IN GENERAL.—For purposes of determining— 
"(i) the present value of the cumulative accrued 
benefit for any employee, or 
"(ii) the amount of the account of any employee, 
such present value or amount shall be increased by the 
aggregate distributions made with respect to such employee 
under the plan during the 1-year period ending on the 
determination date. The preceding sentence shall also apply 
to distributions under a terminated plan which if it had 
not been terminated would have been required to be 
included in an aggregation group. 
"(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBU-
TION.—In the case of any distribution made for a reason 
other than separation from service, death, or disability, 
subparagraph (A) shall be applied by substituting '5-year 
period'for'1-year period'.". 
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Subparagraph 
(E) of section 416(g)(4) is amended— 
(A) by striking "LAST 5 YEARS" in the heading and 
inserting "LAST YEAR BEFORE DETERMINATION DATE"; and 
(B) by striking "5-year period" and inserting "1-year 
period". 
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph (4) of section 
416(g) (relating to other special rules for top-heavy plans) is 
amended by adding at the end the following new subparagraph: 
"(H) CASH OR DEFERRED ARRANGEMENTS USING ALTER-
NATIVE METHODS OF MEETING NONDISCRIMINATION REQUIRE-
MENTS.—The term 'top-heavy plan' shall not include a plan 
which consists solely o
f
— 
"(i) a cash or deferred arrangement which meets 
the requirements of section 40 l(k)( 12), and 
"(ii) matching contributions with respect to which 
the requirements of section 40 l(m)( 11) are met. 
If, but for this subparagraph, a plan would be treated 
as a top-heavy plan because it is a member of an aggrega-
tion group which is a top-heavy group, contributions under 
the plan may be taken into account in determining whether 
any other plan in the group meets the requirements of 
subsection (c)(2).". 
115 STAT. 102 
PUBLIC LAW 107-16-JUNE 7, 2001 
Applicability. 
26 u s e 416 note. 
26 u s e 404. 
Applicability. 
26 u s e 404 note. 
Applicability. 
26 u s e 457 note. 
(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIRE-
MENT.—Subparagraph (C) of section 416(c)(1) (relating to defined 
benefit plans) is amended— 
(A) by striking "clause (ii)" in clause (i) and inserting 
"clause (ii) or (iii)"; and 
(B) by adding at the end the following: 
"(iii) EXCEPTION FOR FROZEN PLAN.—For purposes 
of determining an employee's years of service with 
the employer, any service with the employer shall be 
disregarded to the extent that such service occurs 
during a plan year when the plan benefits (within 
the meaning of section 410(b)) no key employee or 
former key employee.". 
(f) EFFECTIVE DATE.—The amendments made by this section 
shall apply to years beginning after December 31, 2001. 
SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PUR-
POSES OF DEDUCTION LIMITS. 
(a) IN GENERAL.—Section 404 (relating to deduction for con-
tributions of an employer to an employees' trust or annuity plan 
and compensation under a deferred payment plan) is amended 
by adding at the end the following new subsection: 
"(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PUR-
POSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in sec-
tion 402(g)(3)) shall not be subject to any limitation contained 
in paragraph (3), (7), or (9) of subsection (a), and such elective 
deferrals shall not be taken into account in applying any such 
limitation to any other contributions.". 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to years beginning after December 31, 2001. 
SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
COMPENSATION PLANS OF STATE AND LOCAL GOVERN-
MENTS AND TAX-EXEMPT ORGANIZATIONS. 
(a) IN GENERAL.—Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and 
tax-exempt organizations), as amended by section 611, is amended 
to read as follows: 
"(c) LIMITATION.—The maximum amount of the compensation 
of any one individual which may be deferred under subsection 
(a) during any taxable year shall not exceed the amount in effect 
under subsection (b)(2)(A) (as modified by any adjustment provided 
under subsection (b)(3)).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to years beginning after December 31, 2001. 
SEC. 616. DEDUCTION LIMITS. 
(a) MODIFICATION OF LIMITS.— 
(1) STOCK BONUS AND PROFIT SHARING TRUSTS.— 
(A) IN GENERAL.—Subclause (I) of section 404(a)(3)(A)(i) 
(relating to stock bonus and profit sharing trusts) is 
amended by striking "15 percent" and inserting "25 per-
cent". 
(B) CONFORMING AMENDMENT.—Subparagraph (C) of 
section 404(h)(1) is amended by striking "15 percent" each 
place it appears and inserting "25 percent". 
(2) DEFINED CONTRIBUTION PLANS.— 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 103 
(A) IN GENERAL.—Clause (v) of section 404(a)(3)(A) 26USC404. 
(relating to stock bonus and profit sharing trusts) is 
amended to read as follows: 
"(v) DEFINED CONTRIBUTION PLANS SUBJECT TO THE 
FUNDING STANDARDS.—Except as provided by the Sec-
retary, a defined contribution plan which is subject 
to the funding standards of section 412 shall be treated 
in the same manner as a stock bonus or profit-sharing 
plan for purposes of this subparagraph.". 
(B) CONFORMING AMENDMENTS.— 
(i) Section 404(a)(1)(A) is amended by inserting 
"(other than a trust to which paragraph (3) applies)" 
after "pension trust". 
(ii) Section 404(h)(2) is amended by striking "stock 
bonus or profit-sharing trust" and inserting "trust sub-
ject to subsection (a)(3)(A)". 
(iii) The heading of section 404(h)(2) is amended 
by striking "STOCK BONUS AND PROFIT-SHARING TRUST" 
and inserting "CERTAIN TRUSTS". 
(b) COMPENSATION.— 
(1) IN GENERAL.—Section 404(a) (relating to general rule) 
is amended by adding at the end the following: 
"(12) DEFINITION OF COMPENSATION.—For purposes of para-
graphs (3), (7), (8), and (9), the term 'compensation' shall include 
amounts treated as 'participant's compensation' under subpara-
graph (C) or (D) of section 415(c)(3).". 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraph (B) of section 404(a)(3) is amended 
by striking the last sentence thereof. 
(B) Clause (i) of section 4972(c)(6)(B) is amended by 
striking "(within the meaning of section 404(a))" and 
inserting "(within the meaning of section 404(a) and as 
adjusted under section 404(a)( 12))". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to years beginning after December 31, 2001. 
26 USC 404 note. 
SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
ROTH CONTRIBUTIONS. 
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 
1 (relating to deferred compensation, etc.) is amended by inserting 
after section 402 the following new section: 
"SEC. 402A. O P T I O N A L TREATMENT OF ELECTIVE DEFERRALS AS ROTH 
CONTRIBUTIONS. 
"(a) GENERAL RULE.—If an applicable retirement plan includes 
a qualified Roth contribution program— 
"(1) any designated Roth contribution made by an employee 
pursuant to the program shall be treated as an elective deferral 
for purposes of this chapter, except that such contribution shall 
not be excludable from gross income, and 
"(2) such plan (and any arrangement which is part of 
such plan) shall not be treated as failing to meet any require-
ment of this chapter solely by reason of including such program. 
"(b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—For purposes 
of this section— 
"(1) IN GENERAL.—The term 'qualified Roth contribution 
program' means a program under which an employee may 
elect to make designated Roth contributions in lieu of all or 
115 STAT. 104 
PUBLIC LAW 107-16^JUNE 7, 2001 
a portion of elective deferrals the employee is otherwise eligible 
to make under the applicable retirement plan. 
"(2) SEPARATE ACCOUNTING REQUIRED.—^A program shall 
not be treated as a qualified Roth contribution program unless 
the applicable retirement plan— 
"(A) establishes separate accounts ('designated Roth 
accounts') for the designated Roth contributions of each 
employee and any earnings properly allocable to the con-
tributions, and 
"(B) maintains separate recordkeeping with respect to 
each account. 
"(c) DEFINITIONS AND RULES RELATING TO DESIGNATED ROTH 
CONTRIBUTIONS.—For purposes of this section— 
"(1) DESIGNATED ROTH CONTRIBUTION.—The term 'des-
ignated Roth contribution' means any elective deferral which— 
"(A) is excludable from gross income of an employee 
without regard to this section, and 
"(B) the employee designates (at such time and in 
such manner as the Secretary may prescribe) as not being 
so excludable. 
"(2) DESIGNATION LIMITS.—The amount of elective deferrals 
which an employee may designate under paragraph (1) shall 
not exceed the excess (if any) o
f
— 
"(A) the maximum amount of elective deferrals exclud-
able from gross income of the employee for the taxable 
year (without regard to this section), over 
"(B) the aggregate amount of elective deferrals of the 
employee for the taxable year which the employee does 
not designate under paragraph (1). 
"(3) ROLLOVER CONTRIBUTIONS.— 
"(A) IN GENERAL.—^A rollover contribution of any pay-
ment or distribution from a designated Roth account which 
is otherwise allowable under this chapter may be made 
only if the contribution is to— 
"(i) another designated Roth account of the indi-
vidual from whose account the payment or distribution 
was made, or 
"(ii) a Roth IRA of such individual. 
"(B) COORDINATION WITH LIMIT.—^Any rollover contribu-
tion to a designated Roth account under subparagraph 
(A) shall not be taken into account for purposes of para-
graph (1). 
"(d) DISTRIBUTION RULES.—For purposes of this title— 
"(1) EXCLUSION.—^Any qualified distribution from a des-
ignated Roth account shall not be includible in gross income. 
"(2) 
QUALIFIED 
DISTRIBUTION.—For 
purposes of this 
subsection— 
"(A) IN GENERAL.—The term 'qualified distribution' has 
the meaning given such term by section 408A(d)(2)(A) 
(without regard to clause (iv) thereof). 
"(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.— 
A payment or distribution from a designated Roth account 
shall not be treated as a qualified distribution if such 
payment or distribution is made within the 5-taxable-year 
period beginning with the earlier o
f
— 
"(i) the first taxable year for which the individual 
made a designated Roth contribution to any designated 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 105 
Roth account established for such individual under 
the same applicable retirement plan, or 
"(ii) if a rollover contribution was made to such 
designated Roth account from a designated Roth 
account previously established for such individual 
under another applicable retirement plan, the first tax-
able year for which the individual made a designated 
Roth contribution 
to such previously 
established 
account. 
"(C) 
DISTRIBUTIONS OF EXCESS DEFERRALS AND CON-
TRIBUTIONS AND EARNINGS THEREON.—The term 'qualified 
distribution' shall not include any distribution of any excess 
deferral under section 402(g)(2) or any excess contribution 
under section 401(k)(8), and any income on the excess 
deferral or contribution. 
"(3) 
TREATMENT OF DISTRIBUTIONS OF CERTAIN EXCESS 
DEFERRALS.—Notwithstanding section 72, if any excess deferral 
under section 402(g)(2) attributable to a designated Roth con-
tribution is not distributed on or before the 1st April 15 fol-
lowing the close of the taxable year in which such excess 
deferral is made, the amount of such excess deferral shall— 
"(A) not be treated as investment in the contract, and 
"(B) be included in gross income for the taxable year 
in which such excess is distributed. 
"(4) AGGREGATION RULES.—Section 72 shall be applied sepa-
rately with respect to distributions and payments from a des-
ignated Roth account and other distributions and payments 
from the plan. 
"(e) OTHER DEFINITIONS.—For purposes of this section— 
"(1) APPLICABLE RETIREMENT PLAN.—The term 'applicable 
retirement plan' means— 
"(A) an employees' trust described in section 401(a) 
which is exempt from tax under section 501(a), and 
"(B) a plan under which amounts are contributed by 
an individual's employer for an annuity contract described 
in section 403(b). 
"(2) ELECTIVE DEFERRAL.—The term 'elective deferral' 
means any elective deferral described in subparagraph (A) or 
(Oof section 402(g)(3).". 
(b) EXCESS DEFERRALS.—Section 402(g) (relating to limitation 
26 use 402. 
on exclusion for elective deferrals) is amended— 
(1) by adding at the end of paragraph (1)(A) (as added 
by section 201(c)(1)) the following new sentence: "The preceding 
sentence shall not apply the portion of such excess as does 
not exceed the designated Roth contributions of the individual 
for the taxable year."; and 
(2) by inserting "(or would be included but for the last 
sentence thereof)" after "paragraph (1)" in paragraph (2)(A). 
(c) ROLLOVERS.—Subparagraph (B) of section 402(c)(8) is 
amended by adding at the end the following: 
"If any portion of an eligible rollover distribution is attrib-
utable to payments or distributions from a designated Roth 
account (as defined in section 402A), an eligible retirement 
plan with respect to such portion shall include only another 
designated Roth account and a Roth IRA.". 
(d) REPORTING REQUIREMENTS.— 
115 STAT. 106 
PUBLIC LAW 107-16—JUNE 7, 2001 
26 use 6051. 
(1) W-2 INFORMATION.—Section 6051(a)(8) is amended by 
inserting ", including the amount of designated Roth contribu-
tions (as defined in section 402A)" before the comma at the 
end. 
(2) INFORMATION.—Section 6047 is amended by redesig-
nating subsection (f) as subsection (g) and by inserting after 
subsection (e) the following new subsection: 
"(f) DESIGNATED ROTH CONTRIBUTIONS.—The Secretary shall 
require the plan administrator of each applicable retirement plan 
(as defined in section 402A) to make such returns and reports 
regarding designated Roth contributions (as defined in section 402A) 
to the Secretary, participants and beneficiaries of the plan, and 
such other persons as the Secretary may prescribe.". 
(e) CONFORMING AMENDMENTS.— 
(1) Section 408A(e) is amended by adding after the first 
sentence the following new sentence: "Such term includes a 
rollover contribution described in section 402A(c)(3)(A).". 
(2) The table of sections for subpart A of part I of sub-
chapter D of chapter 1 is amended by inserting after the item 
relating to section 402 the following new item: 
"Sec. 402A. Optional treatment of elective deferrals as Roth contributions.". 
Applicability. 
(f) EFFECTIVE DATE.—The amendments made by this section 
26 use 402 note, shall apply to taxable years beginning after December 31, 2005. 
SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR 
ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS. 
(a) IN GENERAL.—Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits) is amended 
by inserting after section 25A the following new section: 
"SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CER-
TAIN INDIVIDUALS. 
"(a) ALLOWANCE OF CREDIT.—In the case of an eligible indi-
vidual, there shall be allowed as a credit against the tax imposed 
by this subtitle for the taxable year an amount equal to the 
applicable percentage of so much of the qualified retirement savings 
contributions of the eligible individual for the taxable year as do 
not exceed $2,000. 
"(b) APPLICABLE PERCENTAGE.—For purposes of this section, 
the applicable percentage is the percentage determined in accord-
ance with the following table: 
Joint return 
Over 
30,000 
32,500 
50,000 
Not over 
$30,000 
32,500 
50,000 
Adjusted Gross Income 
Head of a 
Over 
22,500 
24,375 
37,500 
household 
Not over 
$22,500 
24,375 
37,500 
All other cases 
Over 
15,000 
16,250 
25,000 
Not over 
$15,000 
16,250 
25,000 
Applica-
ble per-
centage 
50 
20 
10 
0 
"(c) ELIGIBLE INDIVIDUAL.—For purposes of this section— 
"(1) IN GENERAL.—The term 'eligible individual' means any 
individual if such individual has attained the age of 18 as 
of the close of the taxable year. 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 107 
"(2) DEPENDENTS AND FULL-TIME STUDENTS NOT ELIGIBLE.— 
The term 'eligible individual' shall not include— 
"(A) any individual with respect to whom a deduction 
under section 151 is allowed to another taxpayer for a 
taxable year beginning in the calendar year in which such 
individual's taxable year begins, and 
"(B) any individual who is a student (as defined in 
section 151(c)(4)). 
"(d) 
QUALIFIED RETIREMENT SAVINGS CONTRIBUTIONS.—For 
purposes of this section— 
"(1) IN GENERAL.—The term 'qualified retirement savings 
contributions' means, with respect to any taxable year, the 
sum of— 
"(A) the amount of the qualified retirement contribu-
tions (as defined in section 219(e)) made by the eligible 
individual, 
"(B) the amount o
f
— 
"(i) any elective deferrals (as defined in section 
402(g)(3)) of such individual, and 
, 
"(ii) any elective deferral of compensation by such 
individual under an eligible deferred compensation 
plan (as defined in section 457(b)) of an eligible 
employer described in section 457(e)(1)(A), and 
"(C) the amount of voluntary employee contributions 
by such individual to any qualified retirement plan (as 
defined in section 4974(c)). 
"(2) REDUCTION FOR CERTAIN DISTRIBUTIONS.— 
"(A) IN GENERAL.—The qualified retirement savings 
contributions determined under paragraph (1) shall be 
reduced (but not below zero) by the sum o
f
— 
"(i) any distribution from a qualified retirement 
plan (as defined in section 4974(c)), or from an eligible 
deferred compensation plan (as defined in section 
457(b)), received by the individual during the testing 
period which is includible in gross income, and 
"(ii) any distribution from a Roth IRA or a Roth 
account received by the individual during the testing 
period which is not a qualified rollover contribution 
(as defined in section 408A(e)) to a Roth IRA or a 
rollover under section 402(c)(8)(B) to a Roth account. 
"(B) TESTING PERIOD.—For purposes of subparagraph 
(A), the testing period, with respect to a taxable year, 
is the period which includes— 
"(i) such taxable year, 
"(ii) the 2 preceding taxable years, and 
"(iii) the period after such taxable year and before 
the due date (including extensions) for filing the return 
of tax for such taxable year. 
"(C) EXCEPTED DISTRIBUTIONS.—There shall not be 
taken into account under subparagraph (A)— 
"(i) any distribution referred to in section 72(p), 
401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and 
"(ii) any distribution to which section 408A(d)(3) 
applies. 
"(D) 
TREATMENT 
OF 
DISTRIBUTIONS 
RECEIVED BY 
SPOUSE OF INDIVIDUAL.—For purposes of determining dis-
tributions received by an individual under subparagraph 
89-194 0 - 03 - 5 QL 3 Part 1 
115 STAT. 108 
PUBLIC LAW 107-16-JUNE 7, 2001 
(A) for any taxable year, any distribution received by the 
spouse of such individual shall be treated as received by 
such individual if such individual and spouse file a joint 
return for such taxable year and for the taxable year during 
which the spouse receives the distribution. 
"(e) ADJUSTED GROSS INCOME.—For purposes of this section, 
adjusted gross income shall be determined without regard to sec-
tions 911, 931, and 933. 
"(f) 
INVESTMENT IN THE CONTRACT.—Notwithstanding 
any 
other provision of law, a qualified retirement savings contribution 
shall not fail to be included in determining the investment in 
the contract for purposes of section 72 by reason of the credit 
under this section. 
"(g) TERMINATION.—This section shall not apply to taxable years 
beginning after December 31, 2006.". 
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND ALTERNATIVE 
MINIMUM TAX.— 
26USC25B. 
(1) IN GENERAL.—Section 25B, as added by subsection (a), 
is amended by inserting after subsection (f) the following new 
subsection: 
"(g) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed 
under subsection (a) for the taxable year shall not exceed the 
excess o
f
— 
"(1) the sum of the regular tax liability (as defined in 
section 26(b)) plus the tax imposed by section 55, over 
"(2) the sum of the credits allowable under this subpart 
(other than this section and section 23) and section 27 for 
the taxable year.". 
(2) CONFORMING AMENDMENTS.— 
(A) Section 24(b)(3)(B), as amended by sections 201(b) 
and 203(d), is amended by striking "section 23" and 
inserting "sections 23 and 25B". 
(B) Section 25(e)(1)(C), as amended by section 201(b), 
is amended by inserting "25B," after "24,". 
(C) Section 26(a)(1), as amended by sections 201(b) 
and 203, is amended by striking "and 24" and inserting 
", 24, and 25B". 
(D) Section 904(h), as amended by sections 201(b) and 
203, is amended by striking "and 24" and inserting ", 
24, and 25B". 
(E) Section 1400C(d), as amended by sections 201(b) 
and 203, is amended by striking "and 24" and inserting 
", 24, and 25B". 
(c) CONFORMING AMENDMENT.—The table of sections for subpart 
A of part IV of subchapter A of chapter 1, as amended by section 
432, is amended by inserting after the item relating to section 
25A the following new item: 
"Sec. 25B. Elective deferrals and IRA contributions by certain individuals.". 
Applicability. 
(d) EFFECTIVE DATE.—The amendments made by this section 
26 use 24 note. 
shall apply to taxable years beginning after December 31, 2001. 
SEC. 619. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL 
EMPLOYERS. 
(a) IN GENERAL.—Subpart D of part IV of subchapter A of 
chapter 1 (relating to business related credits) is amended by adding 
at the end the following new section: 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 109 
"SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS. 
"(a) GENERAL RULE.—For purposes of section 38, in the case 
of an eligible employer, the small employer pension plan startup 
cost credit determined under this section for any taxable year 
is an amount equal to 50 percent of the qualified startup costs 
paid or incurred by the taxpayer during the taxable year. 
"(b) DOLLAR LIMITATION.—The amount of the credit determined 
under this section for any taxable year shall not exceed— 
"(1) $500 for the first credit year and each of the 2 taxable 
years immediately following the first credit year, and 
"(2) zero for any other taxable year. 
"(c) ELIGIBLE EMPLOYER.—For purposes of this section— 
"(1) IN GENERAL.—The term 'eligible employer' has the 
meaning given such term by section 408(p)(2)(C)(i). 
"(2) REQUIREMENT FOR NEW QUALIFIED EMPLOYER PLANS.— 
Such term shall not include an employer if, during the 3-
taxable year period immediately preceding the 1st taxable year 
for which the credit under this section is otherwise allowable 
for a qualified employer plan of the employer, the employer 
or any member of any controlled group including the employer 
(or any predecessor of either) established or maintained a quali-
fied employer plan with respect to which contributions were 
made, or benefits were accrued, for substantially the same 
employees as are in the qualified employer plan. 
"(d) OTHER DEFINITIONS.—For purposes of this section— 
"(1) QUALIFIED STARTUP COSTS.— 
"(A) IN GENERAL.—The term 'qualified startup costs' 
means any ordinary and necessary expenses of an eligible 
employer which are paid or incurred in connection with— 
"(i) the establishment or administration of an 
eligible employer plan, or 
"(ii) the retirement-related education of employees 
with respect to such plan. 
"(B) PLAN MUST HAVE AT LEAST i PARTICIPANT.—Such 
term shall not include any expense in connection with 
a plan that does not have at least 1 employee eligible 
to participate who is not a highly compensated employee. 
"(2) ELIGIBLE EMPLOYER PLAN.—The term 'eligible employer 
plan' means a qualified employer plan within the meaning 
of section 4972(d). 
"(3) FIRST 
CREDIT YEAR.—The term 'first credit year' 
means— 
"(A) the taxable year which includes the date that 
the eligible employer plan to which such costs relate 
becomes effective, or 
"(B) at the election of the eligible employer, the taxable 
year preceding the taxable year referred to in subparagraph 
(A). 
"(e) SPECIAL RULES.—For purposes of this section— 
"(1) AGGREGATION RULES.—^All persons treated as a single 
employer under subsection (a) or (b) of section 52, or subsection 
(n) or (o) of section 414, shall be treated as one person. All 
eligible employer plans shall be treated as 1 eligible employer 
plan. 
"(2) DISALLOWANCE OF DEDUCTION.—No deduction shall be 
allowed for that portion of the qualified startup costs paid 
115 STAT. 110 
PUBLIC LAW 107-16^JUNE 7, 2001 
or incurred for the taxable year which is equal to the credit 
determined under subsection (a). 
"(3) ELECTION NOT TO CLAIM CREDIT.—This section shall 
not apply to a taxpayer for any taxable year if such taxpayer 
elects to have this section not apply for such taxable year.". 
(b) CREDIT ALLOWED AS PART OF GENERAL BUSINESS CREDIT.— 
26 use 38. 
Section 38(b) (defining current year business credit) is amended 
by striking "plus" at the end of paragraph (12), by striking the 
period at the end of paragraph (13) and inserting ", plus", and 
by adding at the end the following new paragraph: 
"(14) in the case of an eligible employer (as defined in 
section 45E(c)), the small employer pension plan startup cost 
credit determined under section 45E(a).". 
(c) CONFORMING AMENDMENTS.— 
(1) Section 39(d) is amended by adding at the end the 
following new paragraph: 
"(10) No CARRYBACK OF SMALL EMPLOYER PENSION PLAN 
STARTUP COST CREDIT BEFORE JANUARY 1, 2002.—No portion 
of the unused business credit for any taxable year which is 
attributable to the small employer pension plan startup cost 
credit determined under section 45E may be carried back to 
a taxable year beginning before January 1, 2002.". 
(2) Subsection (c) of section 196 is amended by striking 
"and" at the end of paragraph (8), by striking the period at 
the end of paragraph (9) and inserting ", and", and by adding 
at the end the following new paragraph: 
"(10) the small employer pension plan startup cost credit 
determined under section 45E(a).". 
(3) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end the 
following new item: 
"Sec. 45E. Small employer pension plan startup costs.". 
Applicability. 
(d) EFFECTIVE DATE.—The amendments made by this section 
26 use 38 note. 
shall apply to costs paid or incurred in taxable years beginning 
after December 31, 2001, with respect to qualified employer plans 
established after such date. 
26 use 7801 
SEC. 620. ELIMINATION OF USER FEE FOR REQUESTS TO IRS 
note. 
REGARDING PENSION PLANS. 
(a) ELIMINATION OF CERTAIN USER FEES.—The Secretary of 
the Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 10511 
of the Revenue Act of 1987 for requests to the Internal Revenue 
Service for determination letters with respect to the qualified status 
of a pension benefit plan maintained solely by one or more eligible 
employers or any trust which is part of the plan. The preceding 
sentence shall not apply to any request— 
(1) made after the later of— 
(A) the fifth plan year the pension benefit plan is 
in existence; or 
(B) the end of any remedial amendment period with 
respect to the plan beginning within the first 5 plan years; 
or 
(2) made by the sponsor of any prototype or similar plan 
which the sponsor intends to market to participating employers. 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. I l l 
(b) PENSION BENEFIT PLAN.—For purposes of this section, the 
term "pension benefit plan" means a pension, profit-sharing, stock 
bonus, annuity, or employee stock ownership plan. 
(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term 
"eligible employer" means an eligible employer (as defined in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986) which has 
at least one employee who is not a highly compensated employee 
(as defined in section 414(q)) and is participating in the plan. 
The determination of whether an employer is an eligible employer 
under this section shall be made as of the date of the request 
described in subsection (a). 
(d) DETERMINATION OF AVERAGE FEES CHARGED.—For purposes 
of any determination of average fees charged, any request to which 
subsection (a) applies shall not be taken into account. 
(e) EFFECTIVE DATE.—The provisions of this section shall apply 
with respect to requests made after December 31, 2001. 
SEC. 621. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTER-
NATIONAL TRANSPORTATION SERVICES. 
(a) EXCLUSION FROM INCOME SOURCING RULES.—The second 
sentence of section 861(a)(3) (relating to gross income from sources 
within the United States) is amended by striking "except for pur-
poses of sections 79 and 105 and subchapter D,". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to remuneration for services performed in plan years 
beginning after December 31, 2001. 
Applicability. 
26 u s e 861. 
Applicability. 
26 u s e 861 note. 
Subtitle C—Enhancing Fairness for Women 
SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR 
OVER. 
(a) IN GENERAL.—Section 414 (relating to definitions and spe-
cial rules) is amended by adding at the end the following new 
subsection: 
"(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR 
OVER.— 
"(1) IN GENERAL.—^An applicable employer plan shall not 
be treated as failing to meet any requirement of this title 
solely because the plan permits an eligible participant to make 
additional elective deferrals in any plan year. 
"(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.— 
"(A) IN GENERAL.—A plan shall not permit additional 
elective deferrals under paragraph (1) for any year in an 
amount greater than the lesser o
f
— 
"(i) the applicable dollar amount, or 
"(ii) the excess (if any) o
f
— 
"(I) the participant's compensation (as defined 
in section 415(c)(3)) for the year, over 
"(II) any other elective deferrals of the partici-
pant for such year which are made without regard 
to this subsection. 
"(B) APPLICABLE DOLLAR AMOUNT.—For purposes of 
this paragraph— 
"(i) In the case of an applicable employer plan 
other than a plan described in section 401(k)(ll) or 
115 STAT. 112 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
408(p), the applicable dollar amount shall be deter-
mined in accordance with the following table: 
"For taxable years 
The 
applicable 
beginning in: 
dollar amount 
is: 
2002 
$1,000 
2003 
$2,000 
2004 
$3,000 
2005 
$4,000 
2006 and thereafter 
$5,000. 
"(ii) In the case of an applicable employer plan 
described in section 401(k)(ll) or 408(p), the applicable 
dollar amount shall be determined in accordance with 
the following table: 
"For taxable years 
The 
applicable 
beginning in: 
dollar amount 
is: 
2002 
$500 
2003 
$1,000 
2004 
$1,500 
2005 
$2,000 
2006 and thereafter 
$2,500. 
"(C) COST-OF-LIVING ADJUSTMENT.—In the case of a 
year beginning after December 31, 2006, the Secretary 
shall adjust annually the $5,000 amount in subparagraph 
(B)(i) and the $2,500 amount in subparagraph (B)(ii) for 
increases in the cost-of-living at the same time and in 
the same manner as adjustments under section 415(d); 
except that the base period taken into account shall be 
the calendar quarter beginning July 1, 2005, and any 
increase under this subparagraph which is not a multiple 
of $500 shall be rounded to the next lower multiple of 
$500.". 
"(3) TREATMENT OF CONTRIBUTIONS.—In the case of any 
contribution to a plan under paragraph (1)— 
"(A) such contribution shall not, with respect to the 
year in which the contribution is made— 
"(i) be subject to any otherwise applicable limita-
tion contained in section 402(g), 402(h), 403(b), 404(a), 
404(h), 408(k), 408(p), 415, or 457, or 
"(ii) be taken into account in applying such limita-
tions to other contributions or benefits under such 
plan or any other such plan, and 
"(B) except as provided in paragraph (4), such plan 
shall not be treated as failing to meet the requirements 
of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(ll), 
401(k)(12), 403(b)(12), 408(k), 408(p), 408B, 410(b), or 416 
by reason of the making of (or the right to make) such 
contribution. 
"(4) APPLICATION OF NONDISCRIMINATION RULES.— 
"(A) IN GENERAL.—^An applicable employer plan shall 
be treated as failing to meet the nondiscrimination require-
ments under section 401(a)(4) with respect to benefits, 
rights, and features unless the plan allows all eligible 
participants to make the same election with respect to 
the additional elective deferrals under this subsection. 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 113 
"(B) AGGREGATION.—For purposes of subparagraph (A), 
all plans maintained by employers who are treated as 
a single employer under subsection (b), (c), (m), or (o) 
of section 414 shall be treated as 1 plan. 
"(5) ELIGIBLE PARTICIPANT.—For purposes of this sub-
section, the term 'eligible participant' means, with respect to 
any plan year, a participant in a plan— 
"(A) who has attained the age of 50 before the close 
of the plan year, and 
"(B) with respect to whom no other elective deferrals 
may (without regard to this subsection) be made to the 
plan for the plan year by reason of the application of 
any limitation or other restriction described in paragraph 
(3) or comparable limitation or restriction contained in 
the terms of the plan. 
"(6) OTHER DEFINITIONS AND RULES.—For purposes of this 
subsection— 
"(A) 
APPLICABLE 
EMPLOYER 
PLAN.—The 
term 
'applicable employer plan' means— 
"(i) an employees' trust described in section 401(a) 
which is exempt from tax under section 501(a), 
"(ii) a plan under which amounts are contributed 
by an individual's employer for an annuity contract 
described in section 403(b), 
"(iii) an eligible deferred compensation plan under 
section 457 of an eligible employer described in section 
457(e)(1)(A), and 
"(iv) an arrangement meeting the requirements 
of section 408 (k) or (p). 
"(B) ELECTIVE DEFERRAL.—The term 'elective deferral' 
has the meaning given such term by subsection (u)(2)(C). 
"(C) EXCEPTION FOR SECTION 457 PLANS.—This sub-
section shall not apply to an applicable employer plan 
described in subparagraph (A)(iii) for any year to which 
section 457(b)(3) applies.". 
(b) EFFECTIVE DATE.—The amendment made by this section 
Eflfective date. 
shall apply to contributions in taxable years beginning after 
26 USC 414 note. 
December 31, 2001. 
SEC. 
632. 
EQUITABLE 
TREATMENT 
FOR 
CONTRIBUTIONS 
OF 
EMPLOYEES TO DEFINED CONTRIBUTION PLANS. 
(a) EQUITABLE TREATMENT.— 
(1) IN GENERAL.—Subparagraph (B) of section 415(c)(1) 26 USC 415. 
(relating to limitation for defined contribution plans) is 
amended by striking "25 percent" and inserting "100 percent". 
(2) APPLICATION TO SECTION 403(b).—Section 403(b) is 
amended— 
(A) by striking "the exclusion allowance for such tax-
able year" in paragraph (1) and inserting "the applicable 
limit under section 415", 
(B) by striking paragraph (2), and 
(C) by inserting "or any amount received by a former 
employee after the fifth taxable year following the taxable 
year in which such employee was terminated" before the 
period at the end of the second sentence of paragraph 
(3). 
(3) CONFORMING AMENDMENTS.— 
115 STAT. 114 
PUBLIC LAW 107-16-JUNE 7, 2001 
26 use 72. 
(A) Subsection (f) of section 72 is amended by striking 
"section 
403(b)(2)(D)(iii))" 
and 
inserting 
"section 
403(b)(2)(D)(iii), as in effect before the enactment of the 
Economic Growth and Tax Rehef Reconciliation Act of 
2001". 
(B) Section 404(a)(10)(B) is amended by striking ", 
the exclusion allowance under section 403(b)(2),"-
(C) Section 415(a)(2) is amended by striking ", and 
the amount of the contribution for such portion shall reduce 
the exclusion allowance as provided in section 403(b)(2)". 
(D) Section 415(c)(3) is amended by adding at the end 
the following new subparagraph: 
"(E) ANNUITY CONTRACTS.—In the case of an annuity 
contract described in section 403(b), the term 'participant's 
compensation' means the participant's includible compensa-
tion determined under section 403(b)(3).". 
(E) Section 415(c) is amended by striking paragraph 
(4). 
(F) Section 415(c)(7) is amended to read as follows: 
"(7) 
CERTAIN 
CONTRIBUTIONS BY CHURCH PLANS NOT 
TREATED AS EXCEEDING LIMIT.— 
"(A) IN GENERAL.—Notwithstanding any other provi-
sion of this subsection, at the election of a participant 
who is an employee of a church or a convention or associa-
tion of churches, including an organization described in 
section 414(e)(3)(B)(ii), contributions and other additions 
for an annuity contract or retirement income account 
described in section 403(b) with respect to such participant, 
when expressed as an annual addition to such participant's 
account, shall be treated as not exceeding the limitation 
of paragraph (1) if such annual addition is not in excess 
of $10,000. 
"(B) 
$40,000 
AGGREGATE 
LIMITATION.—^The 
total 
amount of additions with respect to any participant which 
may be taken into account for purposes of this subpara-
graph for all years may not exceed $40,000. 
"(C) ANNUAL ADDITION.—For purposes of this para-
graph, the term 'annual addition' has the meaning given 
such term by paragraph (2).". 
(G) Subparagraph (B) of section 402(g)(7) (as redesig-
nated by section 611(c)(3)) is amended by inserting before 
the period at the end the following: "(as in effect before 
the enactment of the Economic Growth and Tax Relief 
Reconciliation Act of 2001". 
(H) Section 664(g) is amended— 
(i) in paragraph (3)(E) by striking "limitations 
under section 415(c)" and inserting "applicable limita-
tion under paragraph (7)", and 
(ii) by adding at the end the following new para-
graph: 
"(7) APPLICABLE LIMITATION.— 
"(A) IN GENERAL.—For purposes of paragraph (3)(E), 
the applicable limitation under this paragraph with respect 
to a participant is an amount equal to the lesser of— 
"(i) $30,000, or 
"(ii) 25 percent of the participant's compensation 
(as defined in section 415(c)(3)). 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
115 STAT. 115 
"(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall 
adjust annually the $30,000 amount under subparagraph 
(A)(i) at the same time and in the same manner as under 
section 415(d), except that the base period shall be the 
calendar quarter beginning October 1, 1993, and any 
increase under this subparagraph which is not a multiple 
of $5,000 shall be rounded to the next lowest multiple 
of $5,000.". 
(4) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to years beginning after December 31, 2001. 
(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.— 
(1) IN GENERAL.—Subsection (k) of section 415 is amended 
by adding at the end the following new paragraph: 
"(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For pur-
poses of this section, any annuity contract described in section 
403(b) for the benefit of a participant shall be treated as a 
defined contribution plan maintained by each employer with 
respect to which the participant has the control required under 
subsection (b) or (c) of section 414 (as modified by subsection 
(h)). For purposes of this section, any contribution by an 
employer to a simplified employee pension plan for an indi-
vidual for a taxable year shall be treated as an employer 
contribution to a defined contribution plan for such individual 
for such year.". 
(2) EFFECTIVE DATE.— 
(A) IN GENERAL.—The amendment made by paragraph 
(1) shall apply to limitation years beginning after December 
31, 1999. 
(B) EXCLUSION ALLOWANCE.—Effective for limitation 
years beginning in 2000, in the case of any annuity contract 
described in section 403(b) of the Internal Revenue Code 
of 1986, the amount of the contribution disqualified by 
reason of section 415(g) of such Code shall reduce the 
exclusion allowance as provided in section 403(b)(2) of such 
Code. 
(3) ELECTION TO MODIFY SECTION 403(b) EXCLUSION ALLOW-
ANCE TO CONFORM TO SECTION 415 MODIFICATION.—In the case 
of taxable years beginning after December 31, 1999, and before 
January 1, 2002, a plan may disregard the requirement in 
the regulations regarding the exclusion allowance under section 
403(b)(2) of the Internal Revenue Code of 1986 that contribu-
tions to a defined benefit pension plan be treated as previously 
excluded amounts for purposes of the exclusion allowance. 
(c) 
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.— 
(1) IN GENERAL.—Subparagraph (B) of section 457(b)(2) 
(relating to salary limitation on eligible deferred compensation 
plans) is amended by striking "33 V
b percent" and inserting 
"100 percent". 
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to years beginning after December 31, 2001. 
SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CON-
TRIB'UTIONS. 
(a) IN GENERAL.—Section 411(a) (relating to minimum vesting 
standards) is amended— 
Applicability. 
26 u s e 72 note. 
26 u s e 415. 
26 u s e 415 note. 
Applicability. 
26 u s e 403 note. 
Applicability. 
26 u s e 457 note. 
115 STAT. 116 
PUBLIC LAW 107-16^JUNE 7, 2001 
(1) in paragraph (2), by striking "A plan" and inserting 
"Except as provided in paragraph (12), a plan"; and 
(2) by adding at the end the following: 
"(12) 
FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In 
the case of matching contributions (as defined in section 
401(m)(4)(A)), paragraph (2) shall be applied— 
"(A) by substituting '3 years' for '5 years' in subpara-
graph (A), and 
"(B) by substituting the following table for the table 
contained in subparagraph (B): 
The nonforfeitable 
"Years of service: 
percentage is: 
2 
20 
3 
40 
4 
60 
5 
80 
6 
100.". 
(b) AMENDMENT OF ERISA.—Section 203(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended— 
(1) in paragraph (2), by striking "A plan" and inserting 
"Except as provided in paragraph (4), a plan", and 
(2) by adding at the end the following: 
"(4) In the case of matching contributions (as defined in 
section 401(m)(4)(A) of the Internal Revenue Code of 1986), 
paragraph (2) shall be applied— 
"(A) by substituting '3 years' for '5 years' in subpara-
graph (A), and 
"(B) i)y substituting the following table for the table 
contained in subparagraph (B): 
The nonforfeitable 
**Years of service: 
percentage is: 
2 
20 
3 
40 
4 
60 
5 
80 
6 
100.". 
26 u s e 411 note. 
(c) EFFECTIVE DATES.— 
Applicability. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to contributions 
for plan years beginning after December 31, 2001. 
(2) COLLECTIVE BARGAINING AGREEMENTS.—In the case of 
a plan maintained pursuant to one or more collective bargaining 
agreements between employee representatives and one or more 
employers ratified by the date of the enactment of this Act, 
the amendments made by this section shall not apply to con-
tributions on behalf of employees covered by any such agree-
ment for plan years beginning before the earlier o
f
— 
(A) the later of— 
(i) the date on which the last of such collective 
bargaining agreements terminates (determined without 
regard to any extension thereof on or after such date 
of the enactment); or 
(ii) January 1, 2002; or 
(B) January 1, 2006. 
(3) SERVICE REQUIRED.—With respect to any plan, the 
amendments made by this section shall not apply to any 
employee before the date that such employee has 1 hour of 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 117 
service under such plan in any plan year to which the amend-
ments made by this section apply. 
SEC. 634. MODIFICATION TO MINIMUM DISTRIBUTION RULES. 
The Secretary of the Treasury shall modify the life expectancy 
tables under the regulations relating to minimum distribution 
requirements 
under 
sections 
401(a)(9), 408(a)(6) and (b)(3), 
403(b)(10), and 457(d)(2) of the Internal Revenue Code to reflect 
current life expectancy. 
SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SEC-
TION 457 PLAN BENEFITS UPON DIVORCE. 
(a) IN GENERAL.—Section 414(p)(ll) (relating to application 
of rules to governmental and church plans) is amended— 
(1) by inserting "or an eligible deferred compensation plan 
(within the meaning of section 457(b))" after "subsection (e))"; 
and 
(2) in the heading, by striking 
"GOVERNMENTAL A
N
D 
CHURCH PLANS" and inserting "CERTAIN OTHER PLANS". 
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—Para-
graph (10) of section 414(p) is amended by striking "and section 
409(d)" and inserting "section 409(d), and section 457(d)". 
(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN.— 
Subsection (p) of section 414 is amended by redesignating paragraph 
(12) as paragraph (13) and inserting after paragraph (11) the fol-
lowing new paragraph: 
"(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 
PLAN.—If a distribution or payn>ent from an eligible deferred 
compensation plan described in section 457(b) is made pursuant 
to a qualified domestic relations order, rules similar to the 
rules of section 402(e)(1)(A) shall apply to such distribution 
or payment.". 
(d) EFFECTIVE DATE.—The amendment made by this section 
shall apply to transfers, distributions, and payments made after 
December 31, 2001. 
SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS. 
(a) SAFE HARBOR RELIEF.— 
(1) IN GENERAL.—The Secretary of the Treasury shall revise 
the regulations relating to hardship distributions under section 
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to 
provide that the period an employee is prohibited from making 
elective and employee contributions in order for a distribution 
to be deemed necessary to satisfy financial need shall be equal 
to 6 months. 
(2) EFFECTIVE DATE.—The revised regulations under this 
subsection shall apply to years beginning after December 31, 
2001. 
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELIGIBLE ROLL-
OVER DISTRIBUTIONS.— 
(1) MODIFICATION OF DEFINITION OF ELIGIBLE ROLLOVER.— 
Subparagraph (C) of section 402(c)(4) (relating to eligible roll-
over distribution) is amended to read as follows: 
"(C) any distribution which is made upon hardship 
of the employee.". 
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to distributions made after December 31, 
2001. 
26 u s e 414. 
Applicability. 
26 u s e 414 note. 
Applicability. 
Applicability. 
26 u s e 402 note. 
115 STAT. 118 
PUBLIC LAW 107-16^JUNE 7, 2001 
SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR 
DOMESTIC OR SIMILAR WORKERS. 
26 use 4972. 
(a) IN GENERAL.—Section 4972(c)(6) (relating to exceptions to 
nondeductible 
contributions), as amended by section 616, is 
amended by striking "and" at the end of subparagraph (A), by 
striking the period and inserting ", or" at the end of subparagraph 
(B), and by inserting after subparagraph (B) the following new 
subparagraph: 
"(C) so much of the contributions to a simple retirement 
account (within the meaning of section 408(p)) or a simple 
plan (within the meaning of section 401(k)(ll)) which are 
not deductible when contributed solely because such con-
tributions are not made in connection with a trade or 
business of the employer.". 
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Section 4972(c)(6), 
as amended by subsection (a), is amended by adding at the end 
the following new sentence: "Subparagraph (C) shall not apply 
to contributions made on behalf of the employer or a member 
of the employer's family (as defined in section 447(e)(1)).". 
26 use 4972 
(c) No INFERENCE.—Nothing in the amendments made by this 
^^^^- 
section shall be construed to infer the proper treatment of non-
deductible contributions under the laws in effect before such amend-
ments. 
Applicability. 
(d) EFFECTIVE DATE.—The amendments made by this section 
26 use 4972 
shall apply to taxable years beginning after December 31, 2001. 
note. 
Subtitle D—Increasing Portability for 
Participants 
SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS. 
(a) ROLLOVERS F R O M AND TO SECTION 457 P L A N S . — 
(1) ROLLOVERS FROM SECTION 457 PLANS.— 
(A) I N GENERAL.—Section 457(e) (relating to other 
definitions and special rules) is amended by adding at 
the end the following: 
"(16) ROLLOVER AMOUNTS.— 
"(A) GENERAL RULE.—In the case of an eligible deferred 
compensation 
plan established and maintained by an 
employer described in subsection (e)(1)(A), if— 
"(i) any portion of the balance to the credit of 
an employee in such plan is paid to such employee 
in an eligible rollover distribution (within the meaning 
of section 402(c)(4)), 
"(ii) the employee transfers any portion of the prop-
erty such employee receives in such distribution to 
an 
eligible 
retirement 
plan 
described 
in 
section 
402(c)(8)(B), and 
"(iii) in the case of a distribution of property other 
than money, the amount so transferred consists of 
the property distributed, 
then such distribution (to the extent so transferred) shall 
not be includible in gross income for the taxable year 
in which paid. 
"(B) CERTAIN RULES MADE APPLICABLE.—The rules of 
paragraphs (2) through (7) and (9) of section 402(c) and 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
115 STAT. 119 
section 402(f) shall apply for purposes of subparagraph 
(A). 
"(C) REPORTING.—Rollovers under this paragraph shall 
be reported to the Secretary in the same manner as roll-
overs from qualified retirement plans (as defined in section 
4974(c)).". 
(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO 
ROLLOVER AMOUNTS.—Section 457(b)(2) (defining eligible 26USC457. 
deferred compensation plan) is amended by inserting 
"(other than rollover amounts)" after "taxable year". 
(C) DIRECT ROLLOVER.—Paragraph (1) of section 457(d) 
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 inserting after subpara-
graph (B) the following: 
"(C) in the case of a plan maintained by an employer 
described in subsection (e)(1)(A), the plan meets require-
ments similar to the requirements of section 401(a)(31). 
Any amount transferred in a direct trustee-to-trustee transfer 
in accordance with section 401(a)(31) shall not be includible 
in gross income for the taxable year of transfer.". 
(D) WITHHOLDING.— 
(i) Paragraph (12) of section 3401(a) is amended 
by adding at the end the following: 
"(E) under or to an eligible deferred compensation plan 
which, at the time of such payment, is a plan described 
in section 457(b) which is maintained by an eligible 
employer described in section 457(e)(1)(A), or". 
(ii) Paragraph (3) of section 3405(c) is amended 
to read as follows: 
"(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of 
this subsection, the term 'eligible rollover distribution' has the 
meaning given such term by section 402(f)(2)(A).". 
(iii) LIABILITY FOR WITHHOLDING.—Subparagraph 
(B) of section 3405(d)(2) is amended by striking "or" 
at the end of clause (ii), by striking the period at 
the end of clause (iii) and inserting ", or", and by 
adding at the end the following: 
"(iv) section 457(b) and which is maintained by 
an eligible employer described in section 457(e)(1)(A).". 
(2) ROLLOVERS TO SECTION 457 PLANS.— 
(A) IN GENERAL.—Section 402(c)(8)(B) (defining eligible 
retirement plan) is amended by striking "and" at the end 
of clause (iii), by striking the period at the end of clause 
(iv) and inserting ", and", and by inserting after clause 
(iv) the following new clause: 
"(v) an eligible 
deferred 
compensation 
plan 
described in section 457(b) which is maintained by 
an eligible employer described in section 457(e)(1)(A).". 
(B) SEPARATE ACCOUNTING.—Section 402(c) is amended 
by adding at the end the following new paragraph: 
"(10) SEPARATE ACCOUNTING.—Unless a plan described in 
clause (v) of paragraph (8)(B) agrees to separately account 
for amounts rolled into such plan from eligible retirement plans 
not described in such clause, the plan described in such clause 
may not accept transfers or rollovers from such retirement 
plans.". 
115 STAT. 120 
PUBLIC LAW 107-16-^UNE 7, 2001 
(C) 10 PERCENT ADDITIONAL TAX.—Subsection (t) of sec-
tion 72 (relating to 10-percent additional tax on early dis-
tributions from qualified retirement plans) is amended by 
adding at the end the following new paragraph: 
"(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.— 
For purposes of this subsection, a distribution from an eligible 
deferred compensation plan (as defined in section 457(b)) of 
an eligible employer described in section 457(e)(1)(A) shall be 
treated as a distribution from a qualified retirement plan 
described in 4974(c)(1) to the extent that such distribution 
is attributable to an amount transferred to an eligible deferred 
compensation plan from a qualified retirement plan (as defined 
in section 4974(c)).". 
(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS.— 
(1) 
ROLLOVERS 
FROM 
SECTION 403(b) PLANS.—Section 
26 use 403. 
403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
striking "such distribution" and all that follows and inserting 
"such distribution to an eligible retirement plan described in 
section 402(c)(8)(B), and". 
(2) 
ROLLOVERS 
TO 
SECTION 
403(b) 
PLANS.—Section 
402(c)(8)(B) (defining eligible retirement plan), as amended by 
subsection (a), is amended by striking "and" at the end of 
clause (iv), by striking the period at the end of clause (v) 
and inserting ", and", and by inserting after clause (v) the 
following new clause: 
"(vi) an annuity contract described in section 
403(b).". 
(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DIS-
TRIBUTIONS.—Paragraph (1) of section 402(f) (relating to written 
explanation to recipients of distributions eligible for rollover treat-
ment) is amended by striking "and" at the end of subparagraph 
(C), by striking the period at the end of subparagraph (D) and 
inserting ", and", and by adding at the end the following new 
subparagraph: 
"(E) of the provisions under which distributions from 
the eligible retirement plan receiving the distribution may 
be subject to restrictions and tax consequences which are 
different from those applicable to distributions from the 
plan making such distribution.". 
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relating to rollover 
where spouse receives distribution after death of employee) is 
amended by striking "; except that" and all that follows up to 
the end period. 
(e) CONFORMING AMENDMENTS.— 
(1) Section 72(o)(4) is amended by striking "and 408(d)(3)" 
and inserting "403(b)(8), 408(d)(3), and 457(e)(16)". 
(2) Section 219(d)(2) is amended by striking "or 408(d)(3)" 
and inserting "408(d)(3), or 457(e)(16)". 
(3) Section 401(a)(31)(B) is amended by striking "and 
403(a)(4)" and inserting ", 403(a)(4), 403(b)(8), and 457(e)(16)". 
(4) Subparagraph (A) of section 402(f)(2) is amended by 
striking "or paragraph (4) of section 403(a)" and inserting ", 
paragraph (4) of section 403(a), subparagraph (A) of section 
403(b)(8), or subparagraph (A) of section 457(e)(16)". 
(5) Paragraph (1) of section 402(f) is amended by striking 
"from an eligible retirement plan". 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 121 
(6) Subparagraphs (A) and (B) of section 402(f)(1) are 26USC402. 
amended by striking "another eUgible retirement plan" and 
inserting "an eligible retirement plan". 
(7) Subparagraph (B) of section 403(b)(8) is amended to 
read as follows: 
"(B) CERTAIN RULES MADE APPLICABLE.—The rules of 
paragraphs (2) through (7) and (9) of section 402(c) and 
section 402(f) shall apply for purposes of subparagraph 
(A), except that section 402(f) shall be applied to the payor 
in lieu of the plan administrator.". 
(8) Section 408(a)(1) is amended by striking "or 403(b)(8)," 
and inserting "403(b)(8), or 457(e)(16)". 
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
amended by striking "and 408(d)(3)" and inserting "403(b)(8), 
408(d)(3), and 457(e)( 16)". 
(10) Section 415(c)(2) is amended by striking "and 408(d)(3)" 
and inserting "408(d)(3), and 457(e)(16)". 
(11) Section 4973(b)(1)(A) is amended by striking "or 
. 
408(d)(3)" and inserting "408(d)(3), or 457(e)(16)". 
(f) EFFECTIVE DATE; SPECIAL RULE.— 
26 use 402 note. 
(1) EFFECTIVE DATE.—The amendments made by this sec- Applicability. 
tion shall apply to distributions after December 31, 2001. 
(2) REASONABLE NOTICE.—No penalty shall be imposed on 
a plan for the failure to provide the information required by 
the amendment made by subsection (c) with respect to any 
distribution made before the date that is 90 days after the 
date on which the Secretary of the Treasury issues a safe 
harbor rollover notice after the date of the enactment of this 
Act, if the administrator of such plan makes a reasonable 
attempt to comply with such requirement. 
(3) SPECIAL RULE.—Notwithstanding any other provision 
of law, subsections (h)(3) and (h)(5) of section 1122 of the 
Tax Reform Act of 1986 shall not apply to any distribution 
from an eligible retirement plan (as defined in clause (iii) 
or (iv) of section 402(c)(8)(B) of the Internal Revenue Code 
of 1986) on behalf of an individual if there was a rollover 
to such plan on behalf of such individual which is permitted 
solely by reason of any amendment made by this section. 
SEC. 642. ROLLOVERS OF IRAS ESfTO WORKPLACE RETIREMENT PLANS. 
(a) IN GENERAL.—Subparagraph (A) of section 
408(d)(3) 
(relating to rollover amounts) is amended by adding "or" at the 
end of clause (i), by striking clauses (ii) and (iii), and by adding 
at the end the following: 
"(ii) the entire amount received (including money Deadline, 
and any other property) is paid into an eligible retire-
ment plan for the benefit of such individual not later 
than the 60th day after the date on which the payment 
or distribution is received, except that the maximum 
amount which may be paid into such plan may not 
exceed the portion of the amount received which is 
includible in gross income (determined without regard 
to this paragraph). 
For purposes of clause (ii), the term 'eligible retirement 
plan' means an eligible retirement plan described in clause 
(iii), (iv), (v), or (vi) of section 402(c)(8)(B).". 
(b) CONFORMING AMENDMENTS.— 
115 STAT. 122 
PUBLIC LAW 107-16—JUNE 7, 2001 
26 use 403. 
(1) Paragraph (1) of section 403(b) is amended by striking 
"section 408(d)(3)(A)(iii)" and inserting "section 408(d)(3)(A)(ii)". 
(2) Clause (i) of section 408(d)(3)(D) is amended by striking 
"(i), (ii), or (iii)" and inserting "(i) or (ii)". 
(3) Subparagraph (G) of section 408(d)(3) is amended to 
read as follows: 
"(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of 
any payment or distribution out of a simple retirement 
account (as defined in subsection (p)) to which section 
72(t)(6) applies, this paragraph shall not apply unless such 
payment or distribution is paid into another simple retire-
ment account.". 
26 u s e 408 note. 
(c) EFFECTIVE DATE; SPECIAL RULE.— 
Applicability. 
(1) EFFECTIVE DATE.—The amendments made by this sec-
tion shall apply to distributions after December 31, 2001. 
(2) SPECIAL RULE.—Notwithstanding any other provision 
of law, subsections (h)(3) and (h)(5) of section 1122 of the 
Tax Reform Act of 1986 shall not apply to any distribution 
from an eligible retirement plan (as defined in clause (iii) 
or (iv) of section 402(c)(8)(B) of the Internal Revenue Code 
of 1986) on behalf of an individual if there was a rollover 
to such plan on behalf of such individual which is permitted 
solely by reason of the amendments made by this section. 
SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS. 
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph (2) of section 
402(c) (relating to maximum amount which may be rolled over) 
is amended by adding at the end the following: "The preceding 
sentence shall not apply to such distribution to the extent— 
"(A) such portion is transferred in a direct trustee-
to-trustee transfer to a qualified trust which is part of 
a plan which is a defined contribution plan and which 
agrees to separately account for amounts so transferred, 
including separately accounting for the portion of such 
distribution which is includible in gross income and the 
portion of such distribution which is not so includible, 
or 
"(B) such portion is transferred to an eligible retire-
ment plan described in clause (i) or (ii) of paragraph 
(8)(B).". 
(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DIS-
TRlBUTlONS.^^ubparagraph (B) of section 401(a)(31) (relating to 
limitation) is amended by adding at the end the following: "The 
preceding sentence shall not apply to such distribution if the plan 
to which such distribution is trsmsferred— 
"(i) agrees to separately account for amounts so 
transferred, including separately accounting for the 
portion of such distribution which is includible in gross 
income and the portion of such distribution which is 
not so includible, or 
"(ii) is an eligible retirement plan described in 
clause (i) or (ii) of section 402(c)(8)(B).". 
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—Paragraph (3) 
of section 408(d) (relating to special rules for applying section 
72) is amended by inserting at the end the following: 
"(H) APPLICATION OF SECTION 72.— 
"(i) IN GENERAL.—If— 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 123 
"(I) a distribution is made from an individual 
retirement plan, and 
"(II) a rollover contribution is made to an 
eligible 
retirement 
plan 
described in section 
402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to 
all or part of such distribution, 
then, notwithstanding paragraph (2), the rules of 
clause (ii) shall apply for purposes of applying section 
72. 
"(ii) APPLICABLE RULES.—In the case of a distribu-
tion described in clause (i)— 
"(I) section 72 shall be applied separately to 
such distribution, 
"(II) notwithstanding the pro rata allocation 
of income on, and investment in, the contract to 
distributions under section 72, the portion of such 
distribution rolled over to an eligible retirement 
plan described in clause (i) shall be treated as 
from income on the contract (to the extent of the 
aggregate income on the contract from all indi-
vidual retirement plans of the distributee), and 
"(III) appropriate adjustments shall be made 
in applying section 72 to other distributions in 
such taxable year and subsequent taxable years.", 
(d) EFFECTIVE DATE.—The amendments made by this section Applicability. 
shall apply to distributions made after December 31, 2001. 
26 USC 401 note. 
SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE. 
(a) EXEMPT TRUSTS.—Paragraph (3) of section 402(c) (relating 
to transfer must be made within 60 days of receipt) is amended 
to read as follows: 
"(3) TRANSFER MUST BE MADE WITHIN G
O DAYS OF RECEIPT.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
, 
(B), paragraph (1) shall not apply to any transfer of a 
distribution made after the 60th day following the day 
on which the distributee received the property distributed. 
"(B) HARDSHIP EXCEPTION.—The Secretary may waive 
the 60-day requirement under subparagraph (A) where the 
failure to waive such requirement would be against equity 
or good conscience, including casualty, disaster, or other 
events beyond the reasonable control of the individual sub-
ject to such requirement.". 
(b) IRAs.—Paragraph (3) of section 408(d) (relating to rollover 26USC408. 
contributions), as amended by section 643, is amended by adding 
after subparagraph (H) the following new subparagraph: 
"(I) WAIVER OF 60-DAY REQUIREMENT.—The Secretary 
may waive the 60-day requirement under subparagraphs 
"'' 
(A) and (D) where the failure to waive such requirement 
"
^ 
would be against equity or good conscience, including cas-
'• 
ualty, disaster, or other events beyond the reasonable con-
trol of the individual subject to such requirement.". 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 USC 402 note, 
shall apply to distributions after December 31, 2001. 
SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION. 
(a) PLAN TRANSFERS.— 
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph 
(6) of section 411(d) (relating to accrued benefit not to be 
115 STAT. 124 
PUBLIC LAW 107-16^JUNE 7, 2001 
decreased by amendment) is amended by adding at the end 
the following: 
"(D) PLAN TRANSFERS.— 
"(i) IN GENERAL.—A defined contribution plan (in 
this subparagraph referred to as the 'transferee plan') 
shall not be treated as failing to meet the requirements 
of this subsection merely because the transferee plan 
does not provide some or all of the forms of distribution 
previously available under another defined contribu-
tion plan (in this subparagraph referred to as the 
'transferor plan') to the extent that— 
"(I) the forms of distribution previously avail-
able under the transferor plan applied to the 
account of a participant or beneficiary under the 
transferor plan that was transferred from the 
transferor plan to the transferee plan pursuant 
to a direct transfer rather than pursuant to a 
distribution from the transferor plan, 
"(II) the terms of both the transferor plan 
and the transferee plan authorize the transfer 
described in subclause (I), 
"(III) the transfer described in subclause (I) 
was made pursuant to a voluntary election by 
the participant or beneficiary whose account was 
transferred to the transferee plan, 
"(IV) the election described in subclause (III) 
was made after the participant or beneficiary 
received a notice describing the consequences of 
making the election, and 
"(V) the transferee plan allows the participant 
or beneficiary described in subclause (III) to receive 
any distribution to which the participant or bene-
ficiary is entitled under the transferee plan in 
the form of a single sum distribution. 
"(ii) SPECIAL RULE FOR MERGERS, ETC.—Clause (i) 
shall apply to plan mergers and other transactions 
having the effect of a direct transfer, including consoli-
dations of benefits attributable to different employers 
within a multiple employer plan. 
"(E) ELIMINATION OF FORM OF DISTRIBUTION.—Except 
to the extent provided in regulations, a defined contribution 
plan shall not be treated as failing to meet the require-
ments of this section merely because of the elimination 
of a form of distribution previously available thereunder. 
This subparagraph shall not apply to the elimination of 
a form of distribution with respect to any participant 
unless— 
"(i) a single sum payment is available to such 
participant at the same time or times as the form 
of distribution being eliminated, and 
"(ii) such single sum payment is based on the 
same or greater portion of the participant's account 
as the form of distribution being eliminated.". 
(2) AMENDMENT OF ERISA.—Section 204(g) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) 
is amended by adding at the end the following: 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 125 
"(4XA) A defined contribution plan (in this subparagraph 
referred to as the 'transferee plan') shall not be treated as failing 
to meet the requirements of this subsection merely because the 
transferee plan does not provide some or all of the forms of distribu-
tion previously available under another defined contribution plan 
(in this subparagraph referred to as the 'transferor plan') to the 
extent that— 
"(i) the forms of distribution previously available under 
the transferor plan applied to the account of a participant 
or beneficiary under the transferor plan that was transferred 
from the transferor plan to the transferee plan pursuant to 
a direct transfer rather than pursuant to a distribution from 
the transferor plan; 
"(ii) the terms of both the transferor plan and the transferee 
plan authorize the transfer described in clause (i); 
"(iii) the transfer described in clause (i) was made pursuant 
to a voluntary election by the participant or beneficiary whose 
account was transferred to the transferee plan; 
"(iv) the election described in clause (iii) was made sifter 
the participant or beneficiary received a notice describing the 
consequences of making the election; and 
"(v) the transferee plan allows the participant or beneficiary 
described in clause (iii) to receive any distribution to which 
the participant or beneficiary is entitled under the transferee 
plan in the form of a single sum distribution. 
"(B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including consoli-
dations of benefits attributable to different employers within a 
multiple employer plan. 
"(5) Except to the extent provided in regulations promulgated 
by the Secretary of the Treasury, a defined contribution plan shall 
not be treated as failing to meet the requirements of this subsection 
merely because of the elimination of a form of distribution pre-
viously available thereunder. This paragraph shall not apply to 
the elimination of a form of distribution with respect to any partici-
pant unless— 
"(A) a single sum payment is available to such participant 
at the same time or times as the form of distribution being 
eliminated; and 
"(B) such single sum payment is based on the same or 
greater portion of the participant's account as the form of 
distribution being eliminated.". 
(3) EFFECTIVE DATE.—^The amendments made by this sub- ApplicabUity. 
section shall apply to years beginning after December 31, 2001. 26 USC 411 note. 
(b) REGULATIONS.— 
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph 
(6XB) of section 411(d) (relating to accrued benefit not to be 
decreased by amendment) is amended by inserting after the 
second sentence the following: "The Secretary shall by regula-
tions provide that this subparagraph shall not apply to any 
plan amendment which reduces or eliminates benefits or sub-
sidies which create significant burdens or complexities for the 
plan and plan participants, unless such amendment adversely 
affects the rights of any participant in a more than de minimis 
manner.". 
(2) 
AMENDMENT OF ERISA.—Section 204(g)(2) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
115 STAT. 126 
PUBLIC LAW 107-16-^UNE 7, 2001 
Deadline. 
26 u s e 411 note. 
Effective date. 
Applicability. 
26 u s e 401 note. 
1054(g)(2)) is amended by inserting after the second sentence 
the following: "The Secretary of the Treasury shall by regula-
tions provide that this paragraph shall not apply to any plan 
amendment which reduces or eliminates benefits or subsidies 
which create significant burdens or complexities for the plan 
and plan participants, unless such amendment adversely affects 
the rights of any participant in a more than de minimis 
manner.". 
(3) SEeRETARY DIRECTED.—Not later than December 31, 
2003, the Secretary of the Treasury is directed to issue regula-
tions under section 411(d)(6) of the Internal Revenue Code 
of 1986 and section 204(g) of the Employee Retirement Income 
Security Act of 1974, including the regulations required by 
the amendment made by this subsection. Such regulations shall 
apply to plan years beginning after December 31, 2003, or 
such earlier date as is specified by the Secretary of the 
Treasury. 
SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS. 
(a) MODIFICATION OF SAME DESK EXCEPTION.— 
(1) SECTION 40i(k).— 
(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
or deferred arrangements) is amended by striking "separa-
tion from service" and inserting "severance from employ-
ment". 
(B) Subparagraph (A) of section 401(k)(10) (relating 
to distributions upon termination of plan or disposition 
of assets or subsidiary) is amended to read as follows: 
"(A) IN GENERAL.—^An event described in this subpara-
graph is the termination of the plan without establishment 
or maintenance of another defined contribution plan (other 
than an employee stock ownership plan as defined in sec-
tion 4975(e)(7)).". 
(C) Section 40l(k)( 10) is amended— 
(i) in subparagraph (B)— 
(I) by striking "An event" in clause (i) and 
inserting "A termination"; and 
(II) by striking "the event" in clause (i) and 
inserting "the termination"; 
(ii) by striking subparagraph (C); and 
(iii) by striking "OR DISPOSITION OF ASSETS OR SUB-
SIDIARY" in the heading. 
(2) SECTION 403(b).— 
(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) 
are each amended by striking "separates from service" 
and inserting "has a severance from employment". 
(B) The heading for paragraph (11) of section 403(b) 
is amended by striking "SEPARATION FROM SERVICE" and 
inserting "SEVERANCE FROM EMPLOYMENT". 
(3) SECTION 457.—Clause (ii) of section 457(d)(1)(A) is 
amended by striking "is separated from service" and inserting 
"has a severance from employment". 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to distributions after December 31, 2001. 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 127 
SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL 
DEFINED BENEFIT PLANS. 
(a) SECTION 403(b) PLANS.—Subsection (b) of section 403 is 26 use 403. 
amended by adding at the end the following new paragraph: 
"(13) 
TRUSTEE-TO-TRUSTEE 
TRANSFERS 
TO 
PURCHASE 
PERMISSIVE SERVICE CREDIT.—No amount shall be includible 
in gross income by reason of a direct trustee-to-trustee transfer 
to a defined benefit governmental plan (as defined in section 
414(d)) if such transfer is— 
"(A) for the purchase of permissive service credit (as 
defined in section 415(n)(3)(A)) under such plan, or 
"(B) a repayment to which section 415 does not apply 
by reason of subsection (k)(3) thereof". 
(b) SECTION 457 PLANS.—Subsection (e) of section 457, as 
amended by section 641, is amended by adding after paragraph 
(16) the following new paragraph: 
"(17) 
TRUSTEE-TO-TRUSTEE 
TRANSFERS 
TO 
PURCHASE 
PERMISSIVE SERVICE CREDIT.—No amount shall be includible 
in gross income by reason of a direct trustee-to-trustee transfer 
to a defined benefit governmental plan (as defined in section 
414(d)) if such transfer is— 
"(A) for the purchase of permissive service credit (as 
defined in section 415(n)(3)(A)) under such plan, or 
"(B) a repayment to which section 415 does not apply 
by reason of subsection (k)(3) thereof.". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to trustee-to-trustee transfers after December 31, 2001. 26 USC 403 note. 
SEC. 648. EMPLOYERS M
A
Y DISREGARD ROLLOVERS FOR PURPOSES 
OF CASH-OUT AMOUNTS. 
(a) QUALIFIED PLANS.— 
(1) 
AMENDMENT OF INTERNAL REVENUE CODE.—Section 
411(a)(ll) (relating to restrictions on certain mandatory dis-
tributions) is amended by adding at the end the following: 
"(D) 
SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.— 
A plan shall not fail to meet the requirements of this 
paragraph if, under the terms of the plan, the present 
value of the nonforfeitable accrued benefit is determined 
without regard to that portion of such benefit which is 
attributable to rollover contributions (and earnings allo-
cable thereto). For purposes of this subparagraph, the term 
'rollover contributions' means any rollover contribution 
under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), 
and457(e)(16).". 
(2) AMENDMENT OF ERISA.—Section 203(e) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) 
is amended by adding at the end the following: 
"(4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value of 
the nonforfeitable accrued benefit is determined without regard 
to that portion of such benefit which is attributable to rollover 
contributions (and earnings allocable thereto). For purposes of this 
subparagraph, the term 'rollover contributions' means any rollover 
contribution 
under 
sections 
402(c), 
403(a)(4), 
403(b)(8), 
408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code of 
1986.". 
115 STAT. 128 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—Clause (i) of 
26 use 457. 
section 457(e)(9)(A) is amended by striking "such amount" and 
inserting "the portion of such amount which is not attributable 
to rollover contributions (as defined in section 411(a)(ll)(D))". 
Applicability. 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 use 411 note, shall apply to distributions after December 31, 2001. 
SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS 
FOR SECTION 457 PLANS. 
(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Paragraph (2) of 
section 457(d) (relating to distribution requirements) is amended 
to read as follows: 
"(2) MINIMUM DISTRIBUTION REQUIREMENTS.—^A plan meets 
the minimum distribution requirements of this paragraph if 
such plan meets the requirements of section 401(a)(9).". 
(b) INCLUSION IN GROSS INCOME.— 
(1) YEAR OF INCLUSION.—Subsection (a) of section 457 
(relating to year of inclusion in gross income) is amended to 
read as follows: 
"(a) YEAR OF INCLUSION IN GROSS INCOME.— 
"(1) IN GENERAL.—^Any amount of compensation deferred 
under an eligible deferred compensation plan, and any income 
attributable to the amounts so deferred, shall be includible 
in gross income only for the taxable year in which such com-
pensation or other income— 
"(A) is paid to the participant or other beneficiary, 
in the case of a plan of an eligible employer described 
in subsection (e)(1)(A), and 
"(B) is paid or otherwise made available to the partici-
pant or other beneficiary, in the case of a plan of an 
eligible employer described in subsection (e)(1)(B). 
"(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent 
provided in section 72(t)(9), section 72(t) shall apply to any 
amount includible in gross income under this subsection.". 
(2) CONFORMING AMENDMENTS.— 
(A) So much of paragraph (9) of section 457(e) as 
precedes subparagraph (A) is amended to read as follows: 
"(9) 
BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT 
TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, 
ETC.—In the case of an eligible deferred compensation plan 
of an employer described in subsection (e)(1)(B)—". 
(B) Section 457(d) is amended by adding at the end 
the following new paragraph: 
"(3) 
SPECIAL RULE FOR GOVERNMENT PLAN.—^An eligible 
deferred compensation plan of an employer described in sub-
section (e)(1)(A) shall not be treated as failing to meet the 
requirements of this subsection solely by reason of making 
a distribution described in subsection (e)(9)(A).". 
Applicability. 
(c) EFFECTIVE DATE.—The amendments made by subsections 
26 use 457 note, (a) and (b) shall apply to distributions after December 31, 2001. 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 129 
Subtitle E—Strengthening Pension 
Security and Enforcement 
PART I—GENERAL PROVISIONS 
SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING 
LIMIT. 
(a) 
AMENDMENTS 
TO INTERNAL 
REVENUE 
CODE.—Section 
412(c)(7) (relating to full-funding limitation) is amended— 
26 USC 412. 
(1) by striking "the applicable percentage" in subparagraph 
(A)(i)(I) and inserting "in the case of plan years beginning 
before January 1, 2004, the applicable percentage"; and 
(2) by amending subparagraph (F) to read as follows: 
"(F) 
APPLICABLE 
PERCENTAGE.—For 
purposes 
of 
subparagraph (A)(i)(I), the applicable percentage shall be 
determined in accordance with the following table: 
"In the case of any plan year 
The applicable 
beginning in— 
percentage is— 
2002 
165 
2003 
170.". 
(b) AMENDMENT OF ERISA.—Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is 
amended— 
(1) by striking "the applicable percentage" in subparagraph 
(A)(i)(I) and inserting "in the case of plan years beginning 
before January 1, 2004, the applicable percentage", and 
(2) by amending subparagraph (F) to read as follows: 
"(F) 
APPLICABLE 
PERCENTAGE.—For 
purposes 
of 
subparagraph (A)(i)(I), the applicable percentage shall be 
determined in accordance with the following table: 
"In the case of any plan year 
The applicable 
beginning in calendar year— 
percentage is— 
2002 
165 
2003 
170.". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability. 
shall apply to plan years beginning after December 31, 2001. 
26 USC 412 note. 
SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED 
AND APPLIED TO ALL DEFINED BENEFIT PLANS. 
(a) IN GENERAL.—Subparagraph (D) of section 
404(a)(1) 
(relating to special rule in case of certain plans) is amended to 
read as follows: 
"(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.— 
"(i) IN GENERAL.—In the case of any defined benefit 
plan, except as provided in regulations, the maximum 
amount deductible under the limitations of this para-
graph shall not be less than the unfunded current 
liability determined under section 412(1). 
"(ii) PLANS WITH loo OR LESS PARTICIPANTS.—For 
purposes of this subparagraph, in the case of a plan 
which has 100 or less participants for the plan year, 
unfunded current liability shall not include the liability 
attributable to benefit 
increases for highly com-
pensated employees (as defined in section 414(q)) 
resulting from a plan amendment which is made or 
115 STAT. 130 
PUBLIC LAW 107-16-^UNE 7, 2001 
becomes effective, whichever is later, within the last 
2 years. 
"(iii) RULE FOR DETERMINING NUMBER OF PARTICI-
PANTS.—For purposes of determining the number of 
plan participants, all defined benefit plans maintained 
by the same employer (or any member of such 
employer's controlled group (within the meaning of 
section 412(1)(8)(C))) shall be treated as one plan, but 
only employees of such member or employer shall be 
taken into account. 
"(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE 
EMPLOYERS.—In the case of a plan which, subject to 
section 4041 of the Employee Retirement Income Secu-
rity Act of 1974, terminates during the plan year, 
clause (i) shall be applied by substituting for unfunded 
current liability the amount required to make the plan 
sufficient for benefit liabilities (within the meaning 
of section 4041(d) of such Act).". 
(b) 
CONFORMING AMENDMENT.—Paragraph 
(6) 
of 
section 
26 use 4972. 
4972(c), as amended by sections 616 and 637, is amended— 
(1) by striking subparagraph (A) and redesignating sub-
paragraphs (B) and (C) as subparagraphs (A) and (B), respec-
tively, 
(2) by striking the first sentence following subparagraph 
(B) (as so redesignated), 
(3) by striking "subparagraph (B)" in the next to last sen-
tence and inserting "subparagraph (A)", and 
(4) by striking "Subparagraph (C)" in the last sentence 
and inserting "Subparagraph (B)". 
Applicability. 
(c) EFFECTIVE DATE.—^The amendments made by this section 
26 use 404 note, 
shall apply to plan years beginning after December 31, 2001. 
SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING. 
(a) IN GENERAL.—Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph: 
"(7) DEFINED BENEFIT PLAN EXCEPTION.—In determining 
the amount of nondeductible contributions for any taxable year, 
an employer may elect for such year not to take into account 
any contributions to a defined benefit plan except to the extent 
that such contributions exceed the full-funding limitation (as 
defined in section 412(c)(7), determined without regard to 
subparagraph (A)(i)(I) thereof). For purposes of this paragraph, 
the deductible limits under section 404(a)(7) shall first be 
applied to amounts contributed to defined contribution plans 
and then to amounts described in this paragraph. If an 
employer makes an election under this paragraph for a taxable 
year, paragraph (6) shall not apply to such employer for such 
taxable year.". 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to years beginning after December 31, 2001. 
Applicability. 
26 u s e 4972 
note. 
SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 
415. 
(a) COMPENSATION LIMIT.— 
(1) IN GENERAL.—Paragraph (11) of section 415(b) (relating 
to limitation for defined benefit plans) is amended to read 
as follows: 
PUBLIC LAW 107-16^JUNE 7, 2001 
115 STAT. 131 
"(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND 
MULTIEMPLOYER PLANS.—In the case of a governmental plan 
(as defined in section 414(d)) or a multiemployer plan (as 
defined in section 414(f)), subparagraph (B) of paragraph (1) 
shall not apply.". 
(2) CONFORMING AMENDMENT.—Section 415(b)(7) (relating 
26 use 415. 
to benefits under certain collectively bargained plans) is 
amended by inserting "(other than a multiemployer plan)" after 
"defined benefit plan" in the matter preceding subparagraph 
(A). 
(b) COMBINING AND AGGREGATION OF PLANS.— 
(1) COMBINING OF PLANS.—Subsection (f) of section 415 
(relating to combining of plans) is amended by adding at the 
end the following: 
"(3) 
EXCEPTION FOR MULTIEMPLOYER 
PLANS.—Notwith-
standing paragraph (1) and subsection (g), a multiemployer 
plan (as defined in section 414(f)) shall not be combined or 
aggregated— 
"(A) with any other plan which is not a multiemployer 
plan for purposes of applying subsection (b)(1)(B) to such 
other plan, or 
"(B) with any other multiemployer plan for purposes 
of applying the limitations established in this section.". 
(2) 
CONFORMING 
AMENDMENT 
FOR AGGREGATION OF 
PLANS.—Subsection (g) of section 415 (relating to aggregation 
of plans) is amended by striking "The Secretary" and inserting 
"Except as provided in subsection (f)(3), the Secretary". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability. 
shall apply to years beginning after December 31, 2001. 
26 USC 415 note. 
SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBU-
TIONS TO 401(k) PLANS. 
(a) IN GENERAL.—Section 1524(b) of the Taxpayer Relief Act 
of 1997 is amended to read as follows: 
29 USC 1107 
"(b) EFFECTIVE DATE.— 
note. 
"(1) IN GENERAL.—Except as provided in paragraph (2), 
the amendments made by this section shall apply to elective 
deferrals for plan years beginning after December 31, 1998. 
"(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROP-
ERTY.—The amendments made by this section shall not apply 
to any elective deferral which is invested in assets consisting 
of qualifying employer securities, qualifying employer real prop-
erty, or both, if such assets were acquired before January 
1,1999.". 
(b) EFFECTIVE DATE.—The amendment made by this section 29USCii07 
shall apply as if included in the provision of the Taxpayer Relief ^^ote-
Act of 1997 to which it relates. 
SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION 
ESOP. 
(a) IN GENERAL.—Section 409 (relating to qualifications for 
tax credit employee stock ownership plans) is amended by redesig-
nating subsection (p) as subsection (q) and by inserting after sub-
section (o) the following new subsection: 
"(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORA-
TION.— 
115 STAT. 132 
PUBLIC LAW 107-16^JUNE 7, 2001 
"(1) IN GENERAL.—^An employee stock ownership plan 
holding employer securities consisting of stock in an S corpora-
tion shall provide that no portion of the assets of the plan 
attributable to (or allocable in lieu of) such employer securities 
may, during a nonallocation year, accrue (or be allocated 
directly or indirectly under any plan of the employer meeting 
the requirements of section 401(a)) for the benefit of any dis-
qualified person. 
"(2) FAILURE TO MEET REQUIREMENTS.— 
"(A) IN GENERAL.—If a plan fails to meet the require-
ments of paragraph (1), the plan shall be treated as having 
distributed to any disqualified person the amount allocated 
to the account of such person in violation of paragraph 
(1) at the time of such allocation. 
"(B) CROSS REFERENCE.— 
"For excise tax relating to violations of paragraph (1) and owner-
ship of synthetic equity, see section 4979A. 
"(3) 
NONALLOCATION 
YEAR.—For 
purposes 
of 
this 
subsection— 
"(A) IN GENERAL.—The term 'nonallocation year' means 
any plan year of an employee stock ownership plan if, 
at any time during such plan year— 
"(i) such plan holds employer securities consisting 
of stock in an S corporation, and 
"(ii) disqualified persons own at least 50 percent 
of the number of shares of stock in the S corporation. 
"(B) ATTRIBUTION RULES.—For purposes of subpara-
graph (A)— 
Applicability. 
"(i) IN GENERAL.—The rules of section 318(a) shall 
apply for purposes of determining ownership, except 
that— 
"(I) in applying paragraph (1) thereof, the 
members of an individual's family shall include 
members of the family described in paragraph 
(4)(D), and 
"(II) paragraph (4) thereof shall not apply. 
"(ii) 
DEEMED-OWNED 
SHARES.—Notwithstanding 
the employee trust exception in section 318(a)(2)(B)(i), 
an individual shall be treated as owning deemed-owned 
shares of the individual. 
Solely for purposes of applying paragraph (5), this subpara-
graph shall be applied after the attribution rules of para-
graph (5) have been applied. 
"(4) 
DISQUALIFIED 
PERSON.—For 
purposes 
of 
this 
subsection— 
"(A) IN GENERAL.—The term 'disqualified 
person' 
means any person if— 
"(i) the aggregate number of deemed-owned shares 
of such person and the members of such person's family 
is at least 20 percent of the number of deemed-owned 
shares of stock in the S corporation, or 
"(ii) in the case of a person not described in clause 
(i), the number of deemed-owned shares of such person 
is at least 10 percent of the number of deemed-owned 
shares of stock in such corporation. 
"(B) TREATMENT OF FAMILY MEMBERS.—In the case of 
a disqualified person described in subparagraph (A)(i), any 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
115 STAT. 133 
member of such person's family with deemed-owned shares 
shall be treated as a disqualified person if not otherwise 
treated as a disqualified person under subparagraph (A). 
"(C) DEEMED-OWNED SHARES.— 
"(i) IN GENERAL.—^The term 'deemed-owned shares' 
means, with respect to any person— 
"(I) the stock in the S corporation constituting 
employer securities of an employee stock owner-
ship plan which is allocated to such person under 
the plan, and 
"(II) such person's share of the stock in such 
corporation which is held by such plan but which 
is not allocated under the plan to participants. 
"(ii) 
PERSON'S SHARE OF UNALLOCATED STOCK.— 
For purposes of clause (i)(II), a person's share of 
unallocated S corporation stock held by such plan is 
the amount of the unallocated stock which would be 
allocated to such person if the unallocated stock were 
allocated to all participants in the same proportions 
as the most recent stock allocation under the plan. 
"(D) MEMBER OF FAMILY.—For purposes of this para-
graph, the term 'member of the family' means, with respect 
to any individual— 
"(i) the spouse of the individual, 
"(ii) an ancestor or lineal descendant of the indi-
vidual or the individual's spouse, 
"(iii) a brother or sister of the individual or the 
individual's spouse and any lineal descendsmt of the 
brother or sister, and 
"(iv) the spouse of any individual described in 
clause (ii) or (iii). 
A spouse of an individual who is legally separated from 
such individual under a decree of divorce or separate 
maintenance shall not be treated as such individual's 
spouse for purposes of this subparagraph. 
"(5) TREATMENT OF SYNTHETIC EQUITY.—For purposes of 
paragraphs (3) and (4), in the case of a person who owns 
synthetic equity in the S corporation, except to the extent 
provided in regulations, the shares of stock in such corporation 
on which such synthetic equity is based shall be treated as 
outstanding stock in such corporation and deemed-owned shares 
of such person if such treatment of synthetic equity of 1 or 
more such persons results in— 
"(A) the treatment of any person as a disqualified 
person, or 
"(B) the treatment of any year as a nonallocation year. 
For purposes of this paragraph, synthetic equity shall be treated 
as owned by a person in the same manner as stock is treated 
as owned by a person under the rules of paragraphs (2) and 
(3) of section 318(a). If, without regard to this paragraph, 
a person is treated as a disqualified person or a year is treated 
as a nonallocation year, this paragraph shall not be construed 
to result in the person or year not being so treated. 
"(6) DEFINITIONS.—For purposes of this subsection— 
"(A) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 
'employee stock ownership plan' has the meaning given 
such term by section 4975(e)(7). 
115 STAT. 134 
PUBLIC LAW 107-16^JUNE 7, 2001 
"(B) EMPLOYER SECURITIES.—The term 'employer secu-
rity' has the meaning given such term by section 409(1). 
"(C) SYNTHETIC EQUITY.—The term 'synthetic equity' 
means any stock option, warrant, restricted stock, deferred 
issuance stock right, or similar interest or right that gives 
the holder the right to acquire or receive stock of the 
S corporation in the future. Except to the extent provided 
in regulations, synthetic equity also includes a stock appre-
ciation right, phantom stock unit, or similar right to a 
future cash payment based on the value of such stock 
or appreciation in such value. 
"(7) REGULATIONS AND GUIDANCE.— 
"(A) IN GENERAL.—The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes 
of this subsection. 
"(B) AVOIDANCE OR EVASION.—The Secretary may, 
by 
regulation or other guidance of general applicability, pro-
vide that a nonallocation year occurs in any case in which 
the principal purpose of the ownership structure of an 
S corporation constitutes an avoidance or evasion of this 
subsection.". 
(b) COORDINATION WITH SECTION 4975(e)(7).—The last sentence 
26 use 4975. 
of section 4975(e)(7) (defining employee stock ownership plan) is 
amended by inserting ", section 409(p)," after "409(n)". 
(c) EXCISE TAX.— 
(1) APPLICATION OF TAX.—Subsection (a) of section 4979A 
(relating to tax on certain prohibited allocations of employer 
securities) is amended— 
(A) by striking "or" at the end of paragraph (1), and 
(B) by striking all that follows paragraph (2) and 
inserting the following: 
"(3) there is any allocation of employer securities which 
violates the provisions of section 409(p), or a nonallocation 
year described in subsection (e)(2)(C) with respect to an 
employee stock ownership plan, or 
"(4) any synthetic equity is owned by a disqualified person 
in any nonallocation year, 
there is hereby imposed a tax on such allocation or ownership 
equal to 50 percent of the amount involved.". 
(2) LIABILITY.—Section 4979A(c) (defining liability for tax) 
is amended to read as follows: 
"(c) LIABILITY FOR TAX.—The tax imposed by this section shall 
be paid— 
"(1) in the case of an allocation referred to in paragraph 
(1) or (2) of subsection (a), by— 
"(A) the employer sponsoring such plan, or 
"(B) the eligible worker-owned cooperative, 
which made the written statement 
described in section 
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), 
and 
"(2) in the case of an allocation or ownership referred 
to in paragraph (3) or (4) of subsection (a), by the S corporation 
the stock in which was so allocated or owned.". 
(3) DEFINITIONS.—Section 4979A(e) (relating to definitions) 
is amended to read as follows: 
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 135 
"(1) DEFINITIONS.—Except as provided in paragraph (2), 
terms used in this section have the same respective meanings 
as when used in sections 409 and 4978. 
"(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON 
OF 
PARAGRAPH 
(
3
) 
OR 
(
4
) 
OF 
SUBSECTION 
(a).— 
"(A) PROHIBITED ALLOCATIONS.—The amount involved 
with respect to any tax imposed by reason of subsection 
(a)(3) is the amount allocated to the account of any person 
in violation of section 409(p)(l). 
"(B) SYNTHETIC EQUITY.—The amount involved with 
respect to any tax imposed by reason of subsection (a)(4) 
is the value of the shares on which the synthetic equity 
is based. 
"(C) 
SPECIAL 
RULE 
DURING 
FIRST 
NONALLOCATION 
YEAR.—For purposes of subparagraph 
(A), the amount 
involved for the first nonallocation year of any employee 
stock ownership plan shall be determined by taking into 
account the total value of all the deemed-owned 
shares 
of all disqualified persons with respect to such plan. 
"(D) STATUTE O F LIMITATIONS.—The statutory period 
for the assessment of any tax imposed by this 
section 
by reason of paragraph (3) or (4) of subsection (a) shall 
not expire before the date which is 3 years from the later 
of— 
"(i) the allocation or ownership referred to in such 
paragraph giving rise to such tax, or 
"(ii) the date on which the Secretary is notified 
of such allocation or ownership.". 
(d) EFFECTIVE D A T E S . — 
AppUcabiUty. 
(1) IN GENERAL.—The amendments made by this section 
26 USC 409 note, 
shall apply to plan years beginning after December 31, 2004. 
(2) EXCEPTION FOR CERTAIN PLANS.—In the case of any— 
(A) employee stock ownership plan established after 
March 14, 2001, or 
(B) employee stock ownership plan established on or 
... 
before such date if employer securities held by the plan 
consist of stock in a corporation with respect to which 
an election under section 1362(a) of the Internal Revenue 
Code of 1986 is not in effect on such date, 
the amendments made by this section shall apply to plan years 
ending after March 14, 2001. 
SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY 
DIS-
TRIBUTIONS. 
(a) DIRECT TRANSFERS OF MANDATORY 
DISTRIBUTIONS.— 
(1) IN GENERAL.—Section 401(a)(31) (relating to optional 
26 USC 401. 
direct transfer of eligible rollover distributions), as amended 
by section 643, is amended by redesignating subparagraphs 
(B), (C), and (D) as subparagraphs (C), (D), and (E), respec-
tively, and by inserting after subparagraph (A) the following 
new subparagraph: 
"(B) CERTAIN MANDATORY DISTRIBUTIONS.— 
- 
"(i) IN GENERAL.—In case of a trust which is part 
of an eligible plan, such trust shall not constitute a 
qualified trust under this section unless the plan of 
which such trust is a part provides that i
f
— 
115 STAT. 136 
PUBLIC LAW 107-16—JUNE 7, 2001 
"(I) a distribution described in clause (ii) in 
excess of $1,000 is made, and 
"(II) the distributee does not make an election 
under subparagraph (A) and does not elect to 
receive the distribution directly, 
the plan administrator shall make such transfer to 
an individual retirement plan of a designated trustee 
or issuer and shall notify the distributee in writing 
(either separately or as part of the notice under section 
402(f)) that the distribution may be transferred to 
another individual retirement plan. 
"(ii) ELIGIBLE PLAN.—For purposes of clause (i), 
the term 'eligible plan' means a plan which provides 
that any nonforfeitable accrued benefit for which the 
present value (as determined under section 411(a)(ll)) 
does not exceed $5,000 shall be immediately distributed 
to the participant.". 
(2) CONFORMING AMENDMENTS.— 
(A) The heading of section 401(a)(31) is amended by 
striking "OPTIONAL DIRECT" and inserting "DIRECT". 
(B) Section 401(a)(31)(C), as redesignated by paragraph 
(1), is amended by striking "Subparagraph (A)" and 
inserting "Subparagraphs (A) and (B)". 
(b) 
NOTICE REQUIREMENT.—Subparagraph (A) of section 
402(f)(1) is amended by inserting before the comma at the end 
the following: "and that the automatic distribution by direct transfer 
applies 
to certain 
distributions 
in 
accordance with 
section 
401(a)(31)(B)". 
(c) FIDUCIARY RULES.— 
(1) IN GENERAL.—Section 404(c) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1104(c)) is 
amended by adding at the end the following new paragraph: 
"(3) In the case of a pension plan which makes a transfer 
to an individual retirement account or annuity of a designated 
trustee or issuer under section 401(a)(31)(B) of the Internal 
Revenue Code of 1986, the participant or beneficiary shall, 
for purposes of paragraph (1), be treated as exercising control 
over the assets in the account or annuity upon— 
"(A) the earlier of the earlier of— 
"(i) a rollover of all or a portion of the amount 
to another individual retirement account or annuity; 
or 
"(ii) one year after the transfer is made; or 
"(B) if the transfer is made in a manner consistent 
with guidance provided by the Secretary.". 
26 u s e 401 note. 
(2) REGULATIONS.— 
Deadline. 
(A) AUTOMATIC ROLLOVER SAFE HARBOR.—Not l a t e r 
than 3 yeeirs after the date of enactment of this Act, the 
Secretary of Labor shall prescribe regulations providing 
for safe harbors under which the designation of an institu-
tion and investment of funds in accordance with section 
401(a)(31)(B) of the Internal Revenue Code of 1986 is 
deemed to satisfy the fiduciary requirements of section 
404(a) of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1104(a)). 
(B) USE OF LOW-COST INDIVIDUAL RETIREMENT PLANS.— 
The Secretary of the Treasury and the Secretary of Labor 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 137 
may provide, and shall give consideration to providing, 
special relief with respect to the use of low-cost individual 
retirement plans for purposes of transfers under section 
401(a)(31)(B) of the Internal Revenue Code of 1986 and 
for other uses that promote the preservation of assets for 
retirement income purposes, 
(d) EFFECTIVE DATE.—The amendments made by this section 
Applicability. 
shall apply to distributions made after final regulations imple- 
26 USC 401 note. 
menting subsection (c)(2)(A) are prescribed. 
SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO 26 USC 404 note. 
MULTIEMPLOYER PLAN. 
(a) NOT CONSIDERED METHOD OF ACCOUNTING.—For purposes 
of section 446 of the Internal Revenue Code of 1986, a determination 
under section 404(a)(6) of such Code regarding the taxable year 
with respect to which a contribution to a multiemployer pension 
plan is deemed made shall not be treated as a method of accounting 
of the taxpayer. No deduction shall be allowed for any taxable 
year for any contribution to a multiemployer pension plan with 
respect to which a deduction was previously allowed. 
(b) REGULATIONS.—The Secretary of the Treasury shall promul-
gate such regulations as necessary to clarify that a taxpayer shall 
not be allowed an aggregate amount of deductions for contributions 
to a multiemployer pension plan which exceeds the amount of 
such contributions made or deemed made under section 404(a)(6) 
of the InternaJ Revenue Code of 1986 to such plan. 
(c) EFFECTIVE DATE.—Subsection (a), and any 
regulations 
promulgated under subsection (b), shall be effective for years ending 
after the date of the enactment of this Act. 
PART II—TREATMENT OF PLAN AMENDMENTS 
REDUCING FUTURE BENEFIT ACCRUALS 
SEC. 659. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED 
BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE 
BENEFIT ACCRUALS. 
(a) AMENDMENT OF INTERNAL REVENUE CODE.— 
(1) I N GENERAL.—Chapter 43 (relating to qualified pension, 
etc., plans) is amended by adding at the end the following 
new section: 
"SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT 
ACCRUALS TO SATISFY NOTICE REQUIREMENTS. 
"(a) IMPOSITION OF TAX.—There is hereby imposed a tax on 
the fsdlure of any applicable pension plan to meet the requirements 
of subsection (e) with respect to any applicable individual. 
"(b) AMOUNT OF TAX.— 
"(1) I N GENERAL.—The eunount of the tax imposed by sub-
section (a) on any failure with respect to any applicable indi-
vidual shall be $100 for each day in the noncompliance period 
with respect to such failure. 
"(2) NONCOMPLIANCE PERIOD.—For purposes of this section, 
the term 'noncompliance period' means, with respect to any 
failure, the period beginning on the date the failure first occurs 
and ending on the date the notice to which the failure relates 
is provided or the failure is otherwise corrected. 
"(c) LIMITATIONS ON AMOUNT OF TAX.— 
115 STAT. 138 
PUBLIC LAW 107-16-JUNE 7, 2001 
"(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED 
AND REASONABLE 
DILIGENCE EXERCISED.—No tax 
shall 
be 
imposed by subsection (a) on any failure during any period 
for which it is established to the satisfaction of the Secretary 
that any person subject to liability for the tax under subsection 
(d) did not know that the failure existed and exercised reason-
able diligence to meet the requirements of subsection (e). 
"(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 
30 DAYS.—No tax shall be imposed by subsection (a) on any 
failure if— 
"(A) any person subject to liability for the tax under 
subsection (d) exercised reasonable diligence to meet the 
requirements of subsection (e), and 
"(B) such person provides the notice described in sub-
section (e) during the 30-day period beginning on the first 
date such person knew, or exercising reasonable diligence 
would have known, that such failure existed. 
"(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.— 
"(A) IN GENERAL.—If the person subject to liability 
for tax under subsection (d) exercised reasonable diligence 
to meet the requirements of subsection (e), the tax imposed 
by subsection (a) for failures during the taxable year of 
the employer (or, in the case of a multiemployer plan, 
the taxable year of the trust forming part of the plan) 
shall not exceed $500,000. For purposes of the preceding 
sentence, all multiemployer plans of which the same trust 
forms a part shall be treated as 1 plan. 
"(B) TAXABLE YEARS IN THE CASE OF CERTAIN CON-
TROLLED GROUPS.—For purposes of this paragraph, if all 
persons who are treated as a single employer for purposes 
of this section do not have the same taxable year, the 
taxable years taken into account shall be determined under 
principles similar to the principles of section 1561. 
"(4) WAIVER BY SECRETARY.—In the case of a failure which 
is due to reasonable cause and not to willful neglect, the Sec-
retary may waive part or all of the tax imposed by subsection 
(a) to the extent that the payment of such tax would be exces-
sive or otherwise inequitable relative to the failure involved. 
"(d) LL^BILITY FOR TAX.—The following shall be liable for the 
tax imposed by subsection (a): 
"(1) In the case of a plan other than a multiemployer 
plan, the employer. 
"(2) In the case of a multiemployer plan, the plan. 
"(e) 
NOTICE 
REQUIREMENTS 
FOR 
PLANS 
SIGNIFICANTLY 
REDUCING BENEFIT ACCRUALS.— 
"(1) IN GENERAL.—If an applicable pension plan is amended 
to provide for a significant reduction in the rate of future 
benefit accrual, the plan administrator shall provide written 
notice to each applicable individual (and to each employee 
organization representing applicable individuals). 
"(2) NOTICE.—The notice required by paragraph (1) shall 
be written in a manner calculated to be understood by the 
average plan participant and shall provide sufficient informa-
tion (as determined in accordance with regulations prescribed 
by the Secretary) to allow applicable individuals to understand 
the effect of the plan amendment. The Secretary may provide 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 139 
a simplified form of notice for, or exempt from any notice 
requirement, a plan— 
"(A) which has fewer than 100 participants who have 
accrued a benefit under the plan, or 
"(B) which offers participants the option to choose 
between the new benefit formula and the old benefit for-
mula. 
"(3) TIMING OF NOTICE.—Except as provided in regulations, 
the notice required by paragraph (1) shall be provided within 
a reasonable time before the effective date of the plan amend-
ment. 
"(4) DESIGNEES.—^Any notice under paragraph (1) may be 
provided to a person designated, in writing, by the person 
to which it would otherwise be provided. 
"(5) NOTICE BEFORE ADOPTION OF AMENDMENT.—A plan 
shall not be treated as failing to meet the requirements of 
paragraph (1) merely because notice is provided before the 
adoption of the plan amendment if no material modification 
of the amendment occurs before the amendment is adopted. 
"(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section^^— 
"(1) APPLICABLE INDIVIDUAL.—The term 'applicable indi-
vidual' means, with respect to any plan amendment— 
"(A) each participant in the plan, and 
"(B) any beneficiary who is an alternate payee (within 
the meaning of section 414(p)(8)) under an applicable quali-
fied domestic relations order (within the meaning of section 
414(p)(l)(A)), 
whose rate of future benefit accrual under the plan may reason-
ably be expected to be significantly reduced by such plan 
amendment. 
"(2) APPLICABLE PENSION PLAN.—The term 'applicable pen-
sion plan' means— 
"(A) any defined benefit plan, or 
"(B) an individual account plan which is subject to 
the funding standards of section 412. 
Such term shall not include a governmental plan (within the 
meaning of section 414(d)) or a church plan (within the meaning 
of section 414(e)) with respect to which the election provided 
by section 410(d) has not been made. 
"(3) EARLY RETIREMENT.—^A plan amendment which elimi-
nates or significantly reduces any early retirement benefit or 
retirement-type 
subsidy (within the meaning 
of section 
411(d)(6)(B)(i)) shall be treated as having the effect of signifi-
cantly reducing the rate of future benefit accrual. 
"(g) NEW TECHNOLOGIES.—The Secretary may by regulations 
allow any notice under subsection (e) to be provided by using 
new technologies.". 
(2) CLERICAL AMENDMENT.—The table of sections for 
chapter 43 is amended by adding at the end the following 
new item: 
"Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy 
notice requirements.". 
(b) AMENDMENT OF ERISA.—Subsection (h) of section 204 of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1054) is amended to read as follows: 
89-194 O - 03 - 6 QL 3 Part 1 
115 STAT. 140 
PUBLIC LAW 107-16-^UNE 7, 2001 
"(h)(1) An applicable pension plan may not be amended so 
as to provide for a significant reduction in the rate of future benefit 
accrual unless the plan administrator provides the notice described 
in paragraph (2) to each applicable individual (and to each employee 
organization representing applicable individuals). 
"(2) The notice required by paragraph (1) shall be written 
in a manner calculated to be understood by the average plan partici-
pant and shall provide sufficient information (as determined in 
accordance with regulations prescribed by the Secretary of the 
Treasury) to allow applicable individuals to understand the effect 
of the plan amendment. The Secretary of the Treasury may provide 
a simplified form of notice for, or exempt from any notice require-
ment, a plan— 
"(A) which has fewer than 100 participants who have 
accrued a benefit under the plan, or 
"(B) which offers participants the option to choose between 
the new benefit formula and the old benefit formula. 
"(3) Except as provided in regulations prescribed by the Sec-
retary of the Treasury, the notice required by paragraph (1) shall 
be provided within a reasonable time before the effective date 
of the plan amendment. 
"(4) Any notice under paragraph (1) may be provided to a 
person designated, in writing, by the person to which it would 
otherwise be provided. 
"(5) A plan shall not be treated as failing to meet the require-
ments of paragraph (1) merely because notice is provided before 
the adoption of the plan amendment if no material modification 
of the amendment occurs before the amendment is adopted. 
"(6)(A) In the case of any egregious failure to meet any require-
ment of this subsection with respect to any plan amendment, the 
provisions of the applicable pension plan shall be applied as if 
such plan amendment entitled all applicable individuals to the 
greater o
f
— 
"(i) the benefits to which they would have been entitled 
without regard to such amendment, or 
"(ii) the benefits under the plan with regard to such amend-
ment. 
"(B) For purposes of subparagraph (A), there is an egregious 
failure to meet the requirements of this subsection if such failure 
is within the control of the plan sponsor and is— 
"(i) an intentional failure (including any failure to promptly 
provide the required notice or information after the plan 
administrator discovers an unintentional failure to meet the 
requirements of this subsection), 
"(ii) a failure to provide most of the individuals with most 
of the information they are entitled to receive under this sub-
section, or 
"(iii) a failure which is determined to be egregious under 
regulations prescribed by the Secretary of the Treasury. 
"(7) The Secretary of the Treasury may by regulations allow 
any notice under this subsection to be provided by using new 
technologies. 
"(8) For purposes of this subsection— 
"(A) The term 'applicable individual' means, with respect 
to any plan amendment— 
"(i) each participant in the plan; and 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 141 
"(ii) any beneficiary who is an alternate payee (within 
the meaning of section 206(d)(3)(K)) under an appHcable 
quaUfied domestic relations order (within the meaning of 
section 206(d)(3)(B)(i)), 
whose rate of future benefit accrual under the plan may reason-
ably be expected to be significantly reduced by such plan 
amendment. 
"(B) The term 'applicable pension plan' means— 
"(i) any defined benefit plan; or 
"(ii) an individual account plan which is subject to 
the funding standards of section 412 of the Internal Rev-
enue Code of 1986. 
"(9) For purposes of this subsection, a plan amendment which 
eliminates or significantly reduces any early retirement benefit 
or retirement-type subsidy (within the meaning of subsection 
(g)(2)(A)) shall be treated as having the effect of significantly 
reducing the rate of future benefit accrual.". 
(c) EFFECTIVE DATES.— 
26USC4980F 
(1) IN GENERAL.—The amendments made by this section note 
shall apply to plan amendments taking effect on or after the Applicability, 
date of the enactment of this Act. 
(2) TRANSITION.—Until such time as the Secretary of the 
Treasury issues regulations under sections 4980F(e)(2) and (3) 
of the Internal Revenue Code of 1986, and section 204(h) of 
the Employee Retirement Income Security Act of 1974, as added 
by the amendments made by this section, a plan shall be 
treated as meeting the requirements of such sections if it makes 
a good faith effort to comply with such requirements. 
(3) SPECIAL NOTICE RULE.— 
(A) IN GENERAL.—The period for providing any notice 
required by the amendments made by this section shall 
not end before the date which is 3 months after the date 
of the enactment of this Act. 
(B) REASONABLE NOTICE.—The amendments made by 
this section shall not apply to any plan amendment taking 
effect on or after the date of the enactment of this Act 
if, before April 25, 2001, notice was provided to participants 
and beneficiaries adversely affected by the plan amendment 
(or their representatives) which was reasonably expected 
to notify them of the nature and effective date of the 
plan amendment. 
Subtitle F—Reducing Regulatory Burdens 
SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS. 
(a) IN GENERAL.—Paragraph (9) of section 412(c) (relating to 26USC412. 
annual valuation) is amended to read as follows: 
"(9) ANNUAL VALUATION.— 
"(A) IN GENERAL.—For purposes of this section, a deter-
mination of experience gains and losses and a valuation 
of the plan's liability shall be made not less frequently 
than once every year, except that such determination shall 
be made more frequently to the extent required in par-
ticular cases under regulations prescribed by the Secretary. 
"(B) VALUATION DATE.— 
115 STAT. 142 
PUBLIC LAW 107-16-^UNE 7, 2001 
29 u s e 1082. 
Applicability. 
26 u s e 412 note. 
Applicability. 
26 u s e 404 note. 
26 u s e 414 note. 
"(i) CURRENT YEAR.—Except as provided in clause 
(ii), the valuation referred to in subparagraph (A) shall 
be made as of a date within the plan year to which 
the valuation refers or within one month prior to the 
beginning of such year. 
"(ii) USE OF PRIOR YEAR VALUATION.—The valu-
ation referred to in subparagraph (A) may be made 
as of a date within the plan year prior to the year 
to which the valuation refers if, as of such date, the 
value of the assets of the plan are not less than 125 
percent of the plan's current liability (as defined in 
paragraph (7)(B)). 
"(iii) ADJUSTMENTS.—Information under clause (ii) 
shall, in accordance with regulations, be actuarially 
adjusted to reflect significant differences in partici-
pants.". 
(b) AMENDMENT OF ERISA.—Paragraph (9) of section 302(c) 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(c)) is amended— 
(1) by inserting "(A)" after "(9)", and 
(2) by adding at the end the following: 
"(B)(i) Except as provided in clause (ii), the valuation referred 
to in subparagraph (A) shall be made as of a date within the 
plan year to which the valuation refers or within one month prior 
to the beginning of such year. 
"(ii) The valuation referred to in subparagraph (A) may be 
made as of a date within the plan year prior to the year to which 
the valuation refers if, as of such date, the value of the assets 
of the plan are not less than 125 percent of the plan's current 
liability (as defined in paragraph (7)(B)). 
"(iii) Information under clause (ii) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant differences 
in participants.". 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to plan years beginning after December 31, 2001. 
SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF 
DIVIDEND DEDUCTION. 
(a) IN GENERAL.—Section 404(k)(2)(A) (defining applicable divi-
dends) is amended by striking "or" at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after clause 
(ii) the following new clause: 
"(iii) is, at the election of such participants or 
their beneficiaries— 
"(I) payable as provided in clause (i) or (ii), 
or 
"(II) paid to the plan and reinvested in quali-
fying employer securities, or". 
(b) 
STANDARDS 
FOR 
DISALLOWANCE.—Section 
404(k)(5)(A) 
(relating to disallowance of deduction) is amended by inserting 
"avoidance or" before "evasion". 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001. 
SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CERTAIN 
HIGHLY COMPENSATED EMPLOYEES. 
(a) IN GENERAL.—Paragraph (4) of section 1114(c) of the Tax 
Reform Act of 1986 is hereby repealed. 
PUBLIC LAW 107-16-^UNE 7, 2001 
115 STAT. 143 
(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall Applicability, 
apply to plan years beginning after December 31, 2001. 
26 USC 414 note. 
SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES. 
(a) IN GENERAL.—The Secretary of the Treasury shall modify 
Treasury 
Regulations 
section 
1.410(b)-6(g) 
to 
provide 
that 
employees of an organization described in section 403(b)(l)(A)(i) 
of the Internal Revenue Code of 1986 who are eligible to make 
contributions under section 403(b) of such Code pursuant to a 
salary reduction agreement may be treated as excludable with 
respect to a plan under section 401(k) or (m) of such Code that 
is provided under the same general arrangement as a plan under 
such section 401(k), if— 
(1) no employee of an organization described in section 
403(b)(l)(A)(i) of such Code is eligible to participate in such 
section 401(k) plan or section 401(m) plan; and 
(2) 95 percent of the employees who are not employees 
of an organization described in section 403(b)(l)(A)(i) of such 
Code are eligible to participate in such plan under such section 
401(k)or(m). 
(b) EFFECTIVE DATE.—The modification required by subsection 
(a) shall apply as of the same date set forth in section 1426(b) 
of the Small Business Job Protection Act of 1996. 
SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED 
RETIREMENT ADVICE. 
(a) IN GENERAL.—Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking "or" at the 
end of paragraph (5), by striking the period at the end of paragraph 
(6) and inserting ", or", and by adding at the end the following 
new paragraph: 
"(7) qualified retirement planning services.". 
(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED.—Sec-
tion 132 is amended by redesignating subsection (m) as subsection 
(n) and by inserting after subsection (1) the following: 
"(m) QUALIFIED RETIREMENT PLANNING SERVICES.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'qualified retirement planning services' means any retirement 
planning advice or information provided to an employee and 
his spouse by an employer maintaining a qualified employer 
plan. 
"(2) NONDISCRIMINATION RULE.—Subsection (a)(7) shall 
apply in the case of highly compensated employees only if 
such services are available on substantially the same terms 
to each member of the group of employees normally provided 
education and information regarding the employer's qualified 
employer plan. 
"(3) QUALIFIED EMPLOYER PLAN.—For purposes of this sub-
section, the term 'qualified employer plan' means a plan, con-
tract, pension, or account described in section 219(g)(5).". 
(c) EFFECTIVE DATE.—The amendments made by this section Applicability, 
shall apply to years beginning after December 31, 2001. 
26 USC 132 note. 
SEC. 666. REPEAL OF THE MULTIPLE USE TEST. 
(a) IN GENERAL.—Paragraph (9) of section 401(m) is amended 
to read as follows: 
"(9) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes 
115 STAT. 144 
PUBLIC LAW 107-16^JUNE 7, 2001 
of this subsection and subsection (k), including regulations 
permitting appropriate aggregation of plans and contributions.". 
Applicability. 
(b) EFFECTIVE DATE.—The amendment made by this section 
26 use 401 note, 
shall apply to years beginning after December 31, 2001. 
Subtitle G—Miscellaneous Provisions 
SEC. 671. TAX TREATMENT AND INFORMATION REQUIREMENTS OF 
ALASKA NATIVE SETTLEMENT TRUSTS. 
(a) TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.—Sub-
part A of part I of subchapter J of chapter 1 (relating to general 
rules for taxation of trusts and estates) is amended by adding 
at the end the following new section: 
"SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE SETTLE-
MENT TRUSTS. 
"(a) IN GENERAL.—If an election under this section is in effect 
with respect to any Settlement Trust, the provisions of this section 
shall apply in determining the income tax treatment of the Settle-
ment Trust and its beneficiaries with respect to the Settlement 
Trust. 
"(b) TAXATION OF INCOME OF TRUST.—Except as provided in 
subsection (f )(l)(B)(ii)— 
f 
"(1) IN GENERAL.—There is hereby imposed on the taxable 
income of an electing Settlement Trust, other than its net 
capital gain, a tax at the lowest rate specified in section 1(c). 
"(2) CAPITAL GAIN.—In the case of an electing Settlement 
Trust with a net capital gain for the taxable year, a tax is 
hereby imposed on such gain at the rate of tax which would 
apply to such gain if the taxpayer were subject to a tax on 
its other taxable income at only the lowest rate specified in 
section 1(c). 
Any such tax shall be in lieu of the income tax otherwise imposed 
by this chapter on such income or gain. 
"(c) ONE-TIME ELECTION.— 
"(1) IN GENERAL.—^A Settlement Trust may elect to have 
the provisions of this section apply to the trust and its bene-
ficiaries. 
"(2) TIME AND METHOD OF ELECTiON.^An election under 
paragraph (1) shall be made by the trustee of such trust— 
"(A) on or before the due date (including extensions) 
for filing the Settlement Trust's return of tax for the first 
taxable year of such trust ending after the date of the 
enactment of this section, and 
"(B) by attaching to such return of tax a statement 
specifically providing for such election. 
"(3) PERIOD ELECTION IN EFFECT.—Except as provided in 
subsection (f), an election under this subsection— 
"(A) shall apply to the first taxable year described 
in paragraph (2)(A) and all subsequent taxable years, and 
"(B) may not be revoked once it is made. 
"(d) CONTRIBUTIONS TO TRUST.— 
"(1) BENEFICLA.RIES OF ELECTING TRUST NOT TAXED ON CON-
TRIBUTIONS.—In the case of an electing Settlement Trust, no 
amount shall be includible in the gross income of a beneficiary 
of such trust by reason of a contribution to such trust. 
PUBLIC LAW 107-16—JUNE 7, 2001 
115 STAT. 145 
"(2) EARNINGS AND PROFITS.—The earnings and profits of 
the sponsoring Native Corporation shall not be reduced on 
account of any contribution to such Settlement Trust. 
"(e) TAX TREATMENT OF DISTRIBUTIONS TO BENEFICIARIES.— 
Amounts distributed by an electing Settlement Trust during any 
taxable year shall be considered as having the following characteris-
tics in the hands of the recipient beneficiary: 
"(1) First, as amounts excludable from gross income for 
the taxable year to the extent of the taxable income of such 
trust for such taxable year (decreased by any income tax paid 
by the trust with respect to the income) plus any amount 
excluded from gross income of the trust under section 103. 
"(2) Second, as amounts excludable from gross income to 
the extent of the amount described in paragraph (1) for all 
taxable years for which an election is in effect under subsection 
(c) with respect to the trust, and not previously taken into 
account under paragraph (1). 
"(3) Third, as amounts distributed by the sponsoring Native 
Corporation with respect to its stock (within the meaning of 
section 301(a)) during such taxable year and taxable to the 
recipient beneficiary as amounts described in section 301(c)(1), 
to the extent of current or accumulated earnings and profits 
of the sponsoring Native Corporation as of the close of such 
taxable year after proper adjustment is made for all distribu-
tions made by the sponsoring Native Corporation during such 
taxable year. 
"(4) Fourth, as amounts distributed by the trust in excess 
of the distributable net income of such trust for such taxable 
year. 
Amounts distributed to which paragraph (3) applies shall not be 
treated as a corporate distribution subject to section 311(b), and 
for purposes of determining the amount of a distribution for pur-
poses of paragraph (3) and the basis to the recipients, section 
643(e) and not section 301 (b) or (d) shall apply. 
"(f) 
SPECIAL RULES WHERE TRANSFER RESTRICTIONS MODI-
FIED.— 
"(1) TRANSFER OF BENEFICIAL INTERESTS.—If, at any time, 
a beneficial interest in an electing Settlement Trust may be 
disposed of to a person in a manner which would not be per-
mitted by section 7(h) of the Alaska Native Claims Settlement 
Act (43 U.S.C. 1606(h)) if such interest were Settlement 
Common Stock— 
"(A) no election may be made under subsection (c) 
with respect to such trust, and 
"(B) if such an election is in effect as of such time— 
"(i) such election shall cease to apply as of the 
first day of the taxable year in which such disposition 
is first permitted, 
"(ii) the provisions of this section shall not apply 
to such trust for such taxable year and all taxable 
years thereafter, and 
"(iii) the distributable net income of such trust 
shall be increased by the current or accumulated 
earnings and profits of the sponsoring Native Corpora-
tion as of the close of such taxable year after proper 
adjustment is made for all distributions made by the 
115 STAT. 146 
PUBLIC LAW 107-16-^UNE 7, 2001 
sponsoring Native Corporation during such taxable 
year. 
In no event shall the increase under clause (iii) exceed the 
fair market value of the trust's assets as of the date the bene-
ficial interest of the trust first becomes so disposable. The 
earnings and profits of the sponsoring Native Corporation shall 
be adjusted as of the last day of such taxable year by the 
amount of earnings and profits so included in the distributable 
net income of the trust. 
"(2) STOCK IN CORPORATION.—If— 
"(A) stock in the sponsoring Native Corporation may 
be disposed of to a person in a manner which would not 
be permitted by section 7(h) of the Alaska Native Claims 
Settlement Act (43 U.S.C. 1606(h)) if such stock were 
Settlement Common Stock, and 
"(B) at any time after such disposition of stock is 
first permitted, such corporation transfers assets to a 
Settlement Trust, 
paragraph (1)(B) shall be applied to such trust on and after 
the date of the transfer in the same manner as if the trust 
permitted dispositions of beneficial interests in the trust in 
a manner not permitted by such section 7(h). 
"(3) CERTAIN DISTRIBUTIONS.—For purposes of this section, 
the surrender of an interest in a Native Corporation or an 
electing Settlement Trust in order to accomplish the whole 
or partial redemption of the interest of a shareholder or bene-
ficiary in such corporation or trust, or to accomplish the whole 
or partial liquidation of such corporation or trust, shall be 
deemed to be a transfer permitted by section 7(h) of the Alaska 
Native Claims Settlement Act. 
"(g) TAXABLE INCOME.—For purposes of this title, the taxable 
income of an electing Settlement Trust shall be determined under 
section 641(b) without regard to any deduction under section 651 
or66L 
"(h) DEFINITIONS.—For purposes of this section— 
"(1) ELECTING SETTLEMENT TRUST.—The term 'electing 
Settlement Trust' means a Settlement Trust which has made 
the election, effective for a taxable year, described in subsection 
(c). 
"(2) NATIVE CORPORATION.—The term 'Native Corporation' 
has the meaning given such term by section 3(m) of the Alaska 
Native Claims Settlement Act (43 U.S.C. 1602(m)). 
"(3) SETTLEMENT COMMON STOCK.—The term 'Settlement 
Common Stock' has the meaning given such term by section 
3(p) of the Alaska Native Claims Settlement Act (43 U.S.C. 
1602(p)). 
"(4) SETTLEMENT TRUST.—The term 'Settlement Trust' 
means a trust that constitutes a settlement trust under section 
3(t) of the Alaska Native Claims Settlement Act (43 U.S.C. 
1602(t)). 
"(5) SPONSORING NATIVE CORPORATION.—The term 'spon-
soring Native Corporation' means the Native Corporation which 
transfers assets to an electing Settlement Trust. 
"(i) SPECIAL LOSS DISALLOWANCE RULE.—^Any loss that would 
otherwise be recognized by a shareholder upon a disposition of 
a share of stock of a sponsoring Native Corporation shall be reduced 
(but not below zero) by the per share loss adjustment factor. The 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
115 STAT. 147 
per share loss adjustment factor shall be the aggregate of all con-
tributions to all electing Settlement Trusts sponsored by such 
Native Corporation made on or after the first day each trust is 
treated as an electing Settlement Trust expressed on a per share 
basis and determined as of the day of each such contribution. 
"(j) CROSS REFERENCE.— 
"For information required with respect to electing Settlement 
Trusts and sponsoring Native Corporations, see section GOSSH.". 
(b) REPORTING.—Subpart A of part III of subchapter A of 
chapter 61 of subtitle F (relating to information concerning persons 
subject to special provisions) is amended by inserting after section 
6039G the following new section: 
"SEC. 
6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE 
SETTLEMENT TRUSTS AND SPONSORING NATIVE COR-
PORATIONS. 
"(a) REQUIREMENT.—The fiduciary of an electing Settlement 
Trust (as defined in section 646(h)(1)) shall include with the return 
of income of the trust a statement containing, the information 
required under subsection (c). 
"(b) APPLICATION WITH OTHER REQUIREMENTS.—The filing of 
any statement under this section shall be in lieu of the reporting 
requirements under section 6034A to furnish any statement to 
a beneficiary regarding amounts distributed to such beneficiary 
(and such other reporting rules as the Secretary deems appropriate). 
"(c) REQUIRED INFORMATION.—^The information required under 
this subsection shall include— 
"(1) the amount of distributions made during the taxable 
year to each beneficiary, 
"(2) the treatment of such distribution under the applicable 
provision of section 646, including the amount that is excludable 
from the recipient beneficiary's gross income under section 646, 
and 
"(3) the amount (if any) of any distribution during such 
year that is deemed to have been made by the sponsoring 
Native Corporation (as defined in section 646(h)(5)). 
"(d) SPONSORING NATIVE CORPORATION.— 
"(1) IN GENERAL.—The electing Settlement Trust shall, on 
or before the date on which the statement under subsection 
(a) is required to be filed, furnish such statement to the spon-
soring Native Corporation (as so defined). 
"(2) DISTRIBUTEES.—The sponsoring Native Corporation 
shall furnish each recipient of a distribution described in section 
646(e)(3) a statement containing the amount deemed to have 
been distributed to such recipient by such corporation for the 
taxable year.". 
(c) CLERICAL AMENDMENT.— 
(1) The table of sections for subpart A of part I of sub-
chapter J of chapter 1 of such Code is amended by adding 
at the end the following new item: 
"Sec. 646. Tax treatment of electing Alaska Native Settlement Trusts.". 
(2) The table of sections for subpart A of part III of sub-
chapter A of chapter 61 of subtitle F of such Code is amended 
115 STAT. 148 
PUBLIC LAW 107-16^JUNE 7, 2001 
by inserting after the item relating to section 603 9G the fol-
lowing new item: 
"Sec. 6039H. Information with respect to Alaska Native Settlement Trusts 
and sponsoring Native Corporations.". 
Applicability. 
(d) EFFECTIVE DATE.—The amendments made by this section 
26 use 646 note, shall apply to taxable years ending after the date of the enactment 
of this Act and to contributions made to electing Settlement Trusts 
for such year or any subsequent year. 
TITLE VII—ALTERNATIVE MINIMUM 
TAX 
SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION. 
(a) IN GENERAL.— 
(1) Subparagraph (A) of section 55(d)(1) (relating to exemp-
tion amount for taxpayers other than corporations) is amended 
by striking "$45,000" and inserting "$45,000 ($49,000 in the 
case of taxable years beginning in 2001, 2002, 2003, and 2004)". 
(2) Subparagraph (B) of section 55(d)(1) (relating to exemp-
tion amount for taxpayers other than corporations) is amended 
by striking "$33,750" and inserting "$33,750 ($35,750 in the 
case of taxable years beginning in 2001, 2002, 2003, and 2004)". 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 55(d) is amended by striking 
"and" at the end of subparagraph (B), by striking subparagraph 
(C), and by inserting after subparagraph (B) the following new 
subparagraphs: 
"(C) 50 percent of the dollar amount applicable under 
paragraph (1)(A) in the case of a married individual who 
files a separate return, and 
"(D) $22,500 in the case of an estate or trust.". 
(2) Subparagraph (C) of section 55(d)(3) is amended by 
striking "paragraph (1)(C)" £ind inserting "subparagraph (C) 
or (D) of paragraph (1)". 
(3) The last sentence of section 55(d)(3) is amended— 
(A) by striking "paragraph (l)(C)(i)" and inserting 
"paragraph (1)(C)"; and 
(B) by striking "$165,000 or (ii) $22,500" and inserting 
"the minimum amount of such income (as so determined) 
for which the exemption amount under paragraph (1)(C) 
is zero, or (ii) such exemption amount (determined without 
regard to this paragraph)". 
Applicability. 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 use 55 note. 
shall apply to taxable years beginning after December 31, 2000. 
TITLE VIII—OTHER PROVISIONS 
26 u s e 6655 
SEC. 801. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 
Notwithstanding section 6655 of the Internal Revenue Code 
of 1986— 
(1) 100 percent of the amount of any required installment 
of corporate estimated tax which is otherwise due in September 
2001 shall not be due until October 1, 2001; and 
PUBLIC LAW 1 0 7 - 1 6 - J U N E 7, 2001 
115 STAT. 149 
(2) 20 percent of the amount of any required installment 
of corporate estimated tax which is otherwise due in September 
2004 shall not be due until October 1, 2004. 
SEC. 802. 
EXPANSION OF 
AUTHORITY TO POSTPONE CERTAIN 
TAX-
RELATED 
DEADLINES 
BY 
REASON 
OF 
PRESIDENTIALLY 
DECLARED 
DISASTER. 
(a) IN GENERAL.—Section 7508A(a) (relating to authority to 
postpone certain tax-related deadlines l3y reason of presidentially 
declared disaster) is amended by striking "90 days" and inserting 
"120 days". 
(b) EFFECTIVE DATE.—The amendment made by this section 26USC7508A 
shall take effect on the date of enactment of this Act. 
»ote. 
SEC. 803. NO FEDERAL INCOME TAX ON RESTITUTION RECEIVED BY 
26 USC note 
VICTIMS OF THE NAZI REGIME OR THEIR HEIRS OR 
Prec. lOL 
ESTATES. 
(a) IN GENERAL.—For purposes of the Internal Revenue Code 
of 1986, any excludable restitution payments received by an eligible 
individual (or the individual's heirs or estate) and any excludable 
interest— 
(1) shall not be included in gross income; and 
(2) shall not be taken into account for purposes of applying 
any provision of such Code v hich takes into account excludable 
income in computing adjusted gross income, including section 
86 of such Code (relating to taxation of Social Security benefits). 
For purposes of such Code, the basis of any property received 
by an eligible individual (or the individual's heirs or estate) as 
part of an excludable restitution payment shall be the fair market 
value of such property as of the time of the receipt. 
(b) ELIGIBLE INDIVIDUAL.—For purposes of this section, the 
term "eligible individual" means a person who was persecuted on 
the basis of race, religion, physical or mental disability, or sexual 
orientation by Nazi Germany, any other Axis regime, or any other 
Nazi-controlled or Nazi-allied country. 
(c) EXCLUDABLE RESTITUTION PAYMENT.—For purposes of this 
section, the term "excludable restitution payment" means any pay-
ment or distribution to an individual (or the individual's heirs 
or estate) which— 
(1) is payable by reason of the individual's status as an 
eligible individual, including any amount payable by any foreign 
country, the United States of America, or any other foreign 
or domestic entity, or a fund established by any such country 
or entity, any amount payable as a result of a final resolution 
of a legal action, and any amount payable under a law providing 
for payments or restitution of property; 
(2) constitutes the direct or indirect return of, or compensa-
tion or reparation for, assets stolen or hidden from, or otherwise 
lost to, the individual before, during, or immediately after World 
War II by reason of the individual's status as an eligible indi-
vidual, including any proceeds of insurance under policies 
issued on eligible individuals by European insurance companies 
immediately before and during World War II; or 
(3) consists of interest which is payable as part of any 
payment or distribution described in paragraph (1) or (2). 
(d) EXCLUDABLE INTEREST.—For purposes of this section, the 
term "excludable interest" means any interest earned by— 
115 STAT. 150 
PUBLIC LAW 1 0 7 - 1 6 - ^ U N E 7, 2001 
(1) escrow accounts or settlement funds established pursu-
ant to the settlement of the action entitled "In re: Holocaust 
Victim Assets Litigation," (E.D.N.Y.) C.A. No. 96-4849, 
(2) funds to benefit eligible individuals or their heirs cre-
ated by the International Commission on Holocaust Insurance 
Claims as a result of the Agreement between the Government 
of the United States of America and the Government of the 
Federal Republic of Germany concerning the Foundation 
"Remembrance, Responsibility, and Future," dated July 17, 
2000, or 
(3) similar funds subject to the administration of the United 
States courts created to provide excludable restitution payments 
to eligible individuals (or eligible individuals' heirs or estates), 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—This section shall apply to any amount 
received on or after January 1, 2000. 
(2) No INFERENCE.—Nothing in this Act shall be construed 
to create any inference with respect to the proper tax treatment 
of any amount received before January 1, 2000. 
TITLE IX—COMPLIANCE WITH 
CONGRESSIONAL BUDGET ACT 
26 u s e 1 note. 
SEC. 901. SUNSET OF PROVISIONS OF ACT. 
(a) IN GENERAL.—^All provisions of, and amendments made 
by, this Act shall not apply— 
(1) to taxable, plan, or limitation years beginning after 
December31, 2010, or 
(2) in the case of title V, to estates of decedents dying, 
gifts made, or generation skipping transfers, after December 
31, 2010. 
(b) APPLICATION OF CERTAIN LAWS.—The Internal Revenue 
Code of 1986 and the Employee Retirement Income Security Act 
of 1974 shall be applied and administered to years, estates, gifts, 
and transfers described in subsection (a) as if the provisions and 
amendments described in subsection (a) had never been enacted. 
Approved June 7, 2001. 
L E G I S L A T I V E H I S T O R Y — H . R . 1836: 
HOUSE REPORTS: No. 107-84 (Comm. of Conference). 
C O N G R E S S I O N A L RECORD, Vol. 147 (2001): 
May 16, considered and passed House. 
May 17, 21-23, considered and passed Senate, amended. 
May 25, House agreed to conference report. 
May 26, Senate agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTLVL DOCUMENTS, Vol. 37 (2001): 
June 7, Presidential remarks.