Omnibus Budget Reconciliation Act of 1987
PL 100-203 (H.R.3545), enacted 12/22/1987

101 STAT. 1330 
PUBLIC LAW 100-203—DEC. 22, 1987 
•Public Law 100-
100th Congress 
-203 
An Act 
Dec. 22, 1987 
[H.R. 3545] 
Omnibus Budget 
Reconciliation 
Act of 1987. 
To provide for reconciliation pursuant to section 4 of the concurrent resolution on the 
budget for the fiscal year 1988. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE. 
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This Act may be cited as the "Omnibus Budget ReconciUation Act 
of 1987". 
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SEC. 2. TABLE OF CONTENTS. 
<i 
Title I—Agriculture and related programs. 
Title II—National Ek:onomic Commission. 
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Title III—Education programs. 
Title IV—Medicare, medicaid, and other health-related programs. 
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Title V—Energy and environmental programs. 
Title VI—Civil service and postal service programs. 
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Title VII—Veterans' programs. 
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Title VIII—Budget policy and fiscal procedures. 
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Title IX—Income security and related programs. 
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Title X—Revenues. 
Agricultural 
Reconciliation 
Act of 1987. 
TITLE I—AGRICULTURE AND RELATED 
PROGRAMS 
ix: 
SEC. 1001. SHORT TITLE; TABLE OF CONTENTS. 
7 use 1421 note. 
(a) SHORT TITLE.—This title may be cited as the "Agricultural 
Reconciliation Act of 1987". 
(b) TABLE OF CONTENTS.—The table of contents is as follows: 
TABLE OF CONTENTS 
,. 
Sec. 1001. Short title; table of contents. 
Sec. 1101. 
Sec. 1102. 
Sec. 1103. 
Sec. 1104. 
Sec. 1105. 
Sec. 1106. 
Sec. 1107. 
Sec. 1108. 
Sec. 1109. 
Sec. 1110. 
Sec. n i l . 
Sec. 1112. 
Sec. 1113. 
Subtitle A—Adjustments to Agricultural Commodity Programs 
Target price reductions. 
Loan rates. 
Feed grain diversion program. 
Price support reduction tor nontarget price commodities. 
Loan rate differentials. 
Storage cost adjustment. 
Acreage limitation program for oats. 
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y 
Producer reserve program. 
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Yield adjustments. 
Advance pa}rments. 
Advanced emergency compensation pajrments for wheat. 
Tobacco provisions. 
Haying and grazing. 
ENROLLMENT ERRATA 
Pursuant to the provisions of section 8004 of this Act (appearing on 101 Stat. 
1330-282), changes made are indicated by footnote. 
'Note: For information on the printing of this law and a related Presidential memorandum, see the editorial note 
at the end. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-1 
Subtitle B—Optional Acreage Diversion 
Sec. 1201. Wheat optional acreage diversion program. 
Sec. 1202. Feed grains optional acreage diversion program. 
Sec. 1203. Regulations. 
Subtitle C—Farm Program Payments 
Sec. 1301. Prevention of the creation of entities to qualify as separate persons. 
Sec. 1302. Payments limited to active farmers. 
Sec. 1303. Definition of person: eligible individuals and entities; restrictions applic-
able to cash-rent tenants. 
Sec. 1304. More effective and uniform application of payment limitations. 
Sec. 1305. Regulations; transition rules; equitable adjustments. 
Sec. 1306. Foreign persons made ineligible for program benefits. 
Sec. 1307. Honey loan limitation. 
Subtitle D—Prepayment of Rural Electrification Loans ' 
Chapter 1—Prepayment of Rural Electrification Loans 
Sec. 1401. Prepayment of loans. 
Sec. 1402. Use of funds. 
Sec. 1403. Cushion of credit payments program. 
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Chapter 2—Rural Telephone Bank Borrowers 
Sec. 1411. Rural Telephone Bank interest rates and loan prepayments. 
Sec. 1412. Interest rate to be considered for purposes of assessing eligibility for 
loans. 
Sec. 1413. Establishment of reserve for losses due to interest rate fluctuations. 
Sec. 1414. Publication of Rural Telephone Bank policies and regulations. 
Subtitle E—Miscellaneous 
Sec. 1501. Marketing order penalties. 
Sec. 1502. Study of use of agricultural commodity futures and options markets. 
Sec. 1503. Authorization of appropriations for Philippine food aid initiative. 
Sec. 1504. Rural industrialization assistance. 
Sec. 1505. Plant variety protection fees. 
Sec. 1506. Annual appropriations to reimburse the Commodity Credit Corporation 
for net realized losses. 
Sec. 1507. Federal crop insurance. 
,; 
Sec. 1508. Ethanol usage. 
Sec. 1509. Demonstration of family independence program. 
, 
Subtitle A—Adjustments to Agricultural 
Commodity Programs 
SEC. 1101. TARGET PRICE REDUCTIONS. 
(a) WHEAT.—Effective only for the 1988 and 1989 crops of wheat, 
section 107D(c)(l)(G) of the Agricultural Act of 1949 (7 U.S.C. 1445b-
3(c)(1)(G)) is amended by striking out "$4.29 per bushel for the 1988 
crop, $4.16 per bushel for the 1989 crop" and inserting in lieu 
thereof "$4.23 per bushel for the 1988 crop, $4.10 per bushel for the 
1989 crop". 
(b) FEED GRAINS.—Effective only for the 1988 and 1989 crops of 
feed grains, section 105C(c)(l)(E) of such Act (7 U.S.C. 1444e(c)(l)(E)) 
is amended by striking out "$2.97 per bushel for the 1988 crop, $2.88 
per bushel for the 1989 crop" and inserting in lieu thereof "$2.93 per 
bushel for the 1988 crop, $2.84 per bushel for the 1989 crop". 
(c) COTTON.—Effective only for the 1988 and 1989 crops of upland 
cotton, section 103A(c)(l)(D) of such Act (7 U.S.C. 1444-l(c)(l)(D)) is 
amended by striking out "$0.77 per pound for the 1988 crop, $0,745 
' Copy read "loans". 
101 STAT. 1330-2 
PUBLIC LAW 100-203—DEC. 22, 1987 
per pound for the 1989 crop" and inserting in lieu thereof "$0,759 
per pound for the 1988 crop, $0,734 per pound for the 1989 crop". 
(d) EXTRA LONG STAPLE COTTON.—Effective only for the 1988 and 
1989 crops of extra long staple cotton, section 103(h)(8)(B) of such Act 
(7 U.S.C. 1444(h)(3)(B)) is amended— 
(1) by striking out "The" and inserting in lieu thereof "Except 
as provided in clause (ii), the"; and 
(2) by adding at the end thereof the following new clause: 
"(ii) In the case of each of the 1988 and 1989 crops of extra long 
staple cotton, the established price for each such crop shall be 118.3 
percent of the loan level determined for such crop under paragraph 
(2).". 
(e) RICE.—Effective only for the 1988 and 1989 crops of rice, 
section 101 A(c)(l)(D) of such Act (7 U.S.C. 1441-l(c)(l)(D)) is amended 
by striking out "$11.30 per hundredweight for the 1988 crop, $10.95 
per hundredweight for the 1989 crop" and inserting in lieu thereof 
"$11.15 per hundredweight for the 1988 crop, $10.80 per hundred-
weight for the 1989 crop". 
SEC. 1102. LOAN RATES. 
' 
(a) WHEAT.—Effective only for the 1988 through 1990 crops of 
wheat, section 107D(a)(3XB) of the Agricultural Act of 1949 (7 U.S.C. 
1445b-3(a)(3)(B)) is amended by striking out "not be reduced by more 
than 5 percent from the level determined for the preceding crop." 
and inserting in lieu thereof the following: "not be reduced by more 
than— 
"(i) in the case of the 1987 crop, 5 percent from the level 
determined for the preceding crop; 
"(ii) in the case of the 1988 crop, 3 percent from the level 
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determined for the preceding crop; 
"(iii) in the case of the 1989 crop, 5 percent from the level 
determined for the preceding crop, plus an additional 2 
percent from the level determined for the preceding crop if 
the Secretary, after taking into account any reduction that 
is provided for under paragraph (4XAXii), determines that 
5 
such additional percentage reduction is necessary to main-
tain a competitive market position for wheat; and 
"(iv) in the case of the 1990 crop, 5 percent from the level 
determined for the preceding crop.". 
(b) FEED GRAINS.—Effective only for the 1988 through 1990 crops 
of feed grains, section 
105C(aX2XB) of such Act (7 U.S.C. 
1444e(aX2XB)) is amended by striking out "not be reduced by more 
than 5 percent from the level determined for the preceding crop." 
and inserting in lieu thereof the following: "not be reduced by more 
than— 
"(i) in the case of the 1987 crop, 5 percent from the level 
determined for the preceding crop; 
"(ii) in the case of the 1988 crop, 3 percent from the level 
determined for the preceding crop; 
"(iii) in the case of the 1989 crop, 5 percent from the level 
determined for the preceding crop, plus an additional 2 
percent from the level determined for the preceding crop if 
the Secretary, after taking into account any reduction that 
^ 
is provided for under paragraph (3XAXii), determines that 
such additional percentage reduction is necessary to msdn-
tain a competitive market position for feed grains; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-3 
"(iv) in the case of the 1990 crop, 5 percent from the level 
determined for the preceding crop.". 
(c) COTTON.—Effective only for the 1988 through 1990 crops of 
upland cotton, subparagraph (A) of section 103A(aX2) of such Act (7 
U.S.C. 1444-l(a)(2)(A)) is amended to read as follows: 
"(A) The loan level for any crop determined under paragraph 
(1)(B) may not be reduced below 50 cents per pound nor more than— 
"(i) in the case of the 1987 crop, 5 percent from the level 
determined for the preceding crop; 
"(ii) in the case of the 1988 crop, 3 percent from the level 
determined for the preceding crop; 
"(iii) in the case of the 1989 crop, 5 percent from the level 
determined for the preceding crop, plus an additional 2 percent 
from the level determined for the preceding crop if the Sec-
retary determines that such additional percentage reduction is 
necessary to maintain a competitive market position for upland 
cotton; and 
"(iv) in the case of the 1990 crop, 5 percent from the level 
determined for the preceding crop.". 
(d) RICE.—Effective only for the 1988 through 1990 crops of rice, 
paragraph (2) of section lOlA(a) of such Act (7 U.S.C. 1441-l(aX2)) is 
amended to read as follows: 
"(2) The loan level for any crop determined under paragraph (IXB) 
may not be reduced by more than— 
"(A) in the case of the 1987 crop, 5 percent from the level 
determined for the preceding crop; 
"(B) in the case of the 1988 crop, 3 percent from the level 
determined for the preceding crop; 
"(C) in the case of the 1989 crop, 5 percent from the level 
determined for the preceding crop, plus an additional 2 percent 
from the level determined for the preceding crop if the Sec-
retary determines that such additional percentage reduction is 
necessary to maintain a competitive market position for rice; 
and 
"(D) in the case of the 1990 crop, 5 percent from the level 
determined for the preceding crop,". 
SEC. 1103. FEED GRAIN DIVERSION PROGRAM. 
Effective only for the 1988 and 1989 crops of feed grains, section 
105C(fK5) of the Agricultural Act of 1949 (7 U.S.C. 1444e(fX5)) is 
amended by adding at the end thereof the following new 
subparagraph: 
"(DXi) In the case of the 1988 and 1989 crops of corn, grain 
sorghums, and barley, except as provided in clause (ii), the Secretary 
sh£ill make land diversion payments to producers of corn, grain 
sorghums, and barley, in accordance with this paragraph, under 
which the required reduction in the crop acreage base shall be 10 
percent and the diversion payment rate shall be $1.75 per bushel for 
corn. The Secretary shall establish the diversion payment rate for 
grain sorghums and barley at such level as the Secretary determines 
is fair and reasonable in relation to the rate established for corn. 
"(ii) In the case of the 1989 crop of corn, grain sorghums, or 
barley, the Secretary may waive the application of clause (i) if the 
Secretary determines that it is necessary to maintain an adequate 
supply of corn, gredn sorghums, or barley.". 
101 STAT. 1330-4 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 1104. PRICE 
SUPPORT 
REDUCTION 
FOR 
NONTARGET 
PRICE 
COMMODITIES. 
(a) TOBACCO.—Effective only for the 1988 and 1989 crops of to-
bacco, section 106(f) of the Agricultural Act of 1949 (7 U.S.C. 1445(f)) 
is amended by adding at the end thereof the following new 
paragraph: 
"(8)(A) Notwithstanding any other provision of this subsec-
l&-^ tion, in the case of each of the 1988 and 1989 crops of any kind 
of tobacco, the Secretary shall reduce the support level for such 
i fv crop by an amount equal to 1.4 percent of the level otherwise 
established under this subsection. Any such reduction shall not 
':. 
be taken into consideration in determining the support level for 
a subsequent crop of tobacco. 
"(B) In lieu of making any such reduction, the Secretary may 
impose assessments on the producers and purchasers in an 
i 
amount sufficient to realize a reduction in outlays equal to the 
amount that would have been achieved as a result of the 
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reduction required under subparagraph (A). Such assessments 
shall not apply to purchasers if it is judicially determined that 
the imposition of the purchaser assessment will adversely affect 
the contracts entered into under section 1109 of the Consoli-
dated Omnibus Budget Reconciliation Act of 1986 (7 U.S.C. 
— 
1445-3).". 
(b) PEANUTS.—Effective only for the 1988 and 1989 crops of pea-
nuts, section 108B of such Act (7 U.S.C. 1445c-2) is amended by 
adding at the end thereof the following new paragraph: 
"(6) Notwithstanding any other provision of this section, in 
the case of each of the 1988 and 1989 crops of peanuts, the 
Secretary shall reduce outlays under the program provided for 
under this subsection by an amount equal to 1.4 percent of the 
amount of outlays that would otherwise be incurred in the 
absence of the reduction required by this paragraph.". 
(c) HONEY.—Effective only for the 1987 through 1990 crops of 
honey, section 201(bXl) of such Act (7 U.S.C. 14460^X1)) is amended 
by adding at the end thereof the following new subparagraph: 
"(D) Notwithstanding the foregoing provisions of this para-
graph, effective for each of the 1987 through 1990 crops, the 
loan and purchase level for honey that would otherwise apply 
under subparagraphs (B) and (C), without regard to this 
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f 
subparagraph, shall be reduced for loans and purchases made 
after the date of the enactment of this subparagraph by 2 cents 
'^'' 
per pound for the 1987 crop, % cents per pound for the 1988 
crop, Vz cent per pound for the 1989 crop, and V4 cent per pound 
^'' 
for the 1990 crop.^'. 
(d) MILK.—Section 201(dX2) of such Act (7 U.S.C. 1446(d)) is 
amended— 
(1) in subparagraph (C), by striking out "subparagraph (A)" 
and inserting in lieu thereof this paragraph"; and 
(2) by adding at the end thereof the following new 
subparagraph: 
"(F) During calendar year 1988, the Secretary shall provide for a 
reduction of 2y2 cents per hundredweight to be made in the price 
received by producers for all milk produced in the United States and 
marketed by producers for commercial use.". 
(e) SUGAR.—Section 201(j) of such Act (7 U.S.C. 14460')) is amended 
by adding at the end thereof the following new paragraph: 
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PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-5 
"(1) Notwithstanding any other provision of this section, in 
the case of each of the 1988 and 1989 crops of sugar beets and 
sugarcane, the Secretary shall reduce outlays under the pro- 
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gram provided for under this subsection by an amount equal to 
1.4 percent of the amount of outlays that would otherwise be 
incurred in the absence of the reduction required by this 
> 
paragraph.". 
(f) WOOL AND MOHAIR.—Section 703(b) of the National Wool Act of 
1954 (7 U.S.C. 1782) is amended— 
(1) by striking out "The" and inserting in lieu thereof "(1) 
Except as provided in paragraphs (2) and (3), the"; 
(2) by striking out ": Provided," and all that follows through 
the period and inserting in lieu thereof a period; and 
(3) by adding at the end thereof the following new paragraphs: 
"(2) Except as provided in paragraph (3), for the marketing years 
beginning January 1, 1982, and ending December 31, 1990, the 
support price for shorn wool shall be 77.5 percent (rounded to the 
nearest full cent) of the amount calculated according to para-
graph (1). 
"(3) For the marketing years beginning January 1, 1988, and 
ending December 31, 1989, the support price for shorn wool shall be 
76.4 percent (rounded to the nearest full cent) of the amount cal-
culated according to paragraph (1).". 
SEC. 1105. LOAN RATE DIFFERENTIALS. 
Section 403 of the Agricultural Act of 1949 (7 U.S.C. 1423) is 
amended by adding at the end thereof the following new sentence: 
"Notwithstanding the preceding provisions of this section, for each 
of the 1988 through 1990 crops of wheat and feed grains, no adjust-
ment in the loan rate applicable to a particular region. State, or 
county for the purpose of reflecting transportation differentials may 
increase or decrease such regional. State, or county loan rate from 
the level established for the previous year by more than the percent-
age change in the national average loan rate plus or minus 2 
percent.". 
SEC. 1106. STORAGE COST ADJUSTMENT, 
15 USC 714b 
For the fiscal years 1988 and 1989, the Secretary of Agriculture 
shall ensure that expenditures of the Commodity Credit Corporation 
for commercial storage, transportation, and handling of commod-
ities owned by the Corporation (excluding storage payments made in 
accordance with section 110 of the Agricultural Act of 1949 (7 U.S.C. 
1445e)) are reduced by $230,000,000 in such fiscal years from the 
amount of funds otherwise projected to be expended in fiscal years 
1988 and 1989 under the budget base determined under section 251 
of the Balanced Budget and Emergency Deficit Control Act of 1985 
(2 U.S.C. 901) for commercial storage, transportation, and handling 
of such commodities. In order to achieve the savings required by this 
section, the Secretary shall adjust storage, handling, or transpor-
tation expenditures paid by the Corporation or take other appro-
priate actions. 
SEC. 1107. ACREAGE LIMITATION PROGRAM FOR OATS. 
Effective only for the 1988 through 1990 crops of feed grains, 
section 105C(fK2) of the Agricultural Act of 1949 (7 U.S.C. 1444e(fK2)) 
is amended by adding at the end thereof the following new subpara-
graph: 
101 STAT. 1330-6 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(G) In the case of the 1988 through 1990 crops of oats, the 
Secretary shall not establish a percentage reduction in accordance 
Regulations. 
with paragraph (1) in excess of 5 percent. In implementing this 
subparagraph, the Secretary shall issue regulations that provide for 
the fair and equitable treatment of producers on a farm for which 
an oat and barley crop acreage base has been established. To ensure 
the efficient and fair implementation of this subparagraph, the 
Secretary shall announce revisions of the acreage limitation pro-
gram for the 1988 crop of feed grains that implement this subpara-
graph £is soon as practicable after the date of enactment of the 
Agricultural Reconciliation Act of 1987. In the case of the 1990 crop 
of oats, the Secretary may waive the application of this subpara-
graph if the Secretary determines that the supply of oats will be 
excessive.". 
SEC. 1108. PRODUCER RESERVE PROGRAM. 
Subparagraph (A) of the fourth sentence of section llOOt)) of the 
Agricultural Act of 1949 (7 U.S.C. 1445eOb)) is amended— 
(1) in clause (i), by striking out "17 percent of the estimated 
total domestic and export usage of wheat during the then 
current marketing year for wheat, as determined by the Sec-
retary" and inserting in lieu thereof "300 million bushels"; and 
(2) in clause (ii), by striking out "7 percent of the estimated 
total domestic and export usage of feed grains during the then 
current marketing year for feed grains, as determined by the 
Secretary" and inserting in lieu thereof "450 million bushels". 
SEC. 1109. YIELD ADJUSTMENTS. 
Effective only for the 1988 through 1990 crops of wheat, feed 
grains, upland cotton, and rice, section 50603X2) of the Agricultural 
Act of 1949 (7 U.S.C. 146603X2)) is amended by adding at the end 
thereof the following new subparagraph: 
"(C) In the C£ise of each of the 1988 through 1990 crop years for a 
commodity, if the farm program payment yield for a farm is reduced 
more than 10 percent below the farm program payment yield for the 
> 1985 crop year, the Secretary shall make available to producers 
established price payments for the commodity in such amount as the 
Secretary determines is necessary to provide the same total return 
to producers as if the farm program payment yield had not been 
reduced more than 10 percent below the farm program payment 
yield for the 1985 crop year. Such pajmients shall be made available 
to producers at the time final deficiency payments are made 
available.". 
SEC. 1110. ADVANCE PAYMENTS. 
Effective only for the 1988 through 1990 crops of wheat, feed 
grains, upland cotton, and rice, section 107C(a) of the Agricultural 
Act of 1949 (7 U.S.C. 1445b-2(a)) is amended— 
(1) by striking out paragraph (1) and inserting in lieu thereof 
the following new paragraph: 
"(1) If the Secretary establishes an acreage limitation or set-aside 
program for any of the 1988 through 1990 crops of wheat, feed 
grains, upland cotton, or rice under this Act and determines that 
deficiency payments will likely be made for such commodity for 
such crop, the Secretary shall make advance deficiency payments 
available to producers for each of such crops."; and 
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PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-7 
(2) in paragraph (2XF), by striking out clause (iii) and insert-
ing in lieu thereof the following new clause: 
"(iiiXD in the case of wheat and feed grains, not less than 
40 percent, nor more than 50 percent, of the projected 
payment rate; and 
"(11) in the case of rice and upland cotton, not less than 30 
percent, nor more than 50 percent, of the projected pay-
ment rate,". 
SEC. nil. ADVANCED EMERGENCY COMPENSATION PAYMENTS FOR 
WHEAT. 
Effective only for the 1987 through 1990 crops of wheat, section 
107D(cXlXE) of the Agricultural Act of 1949 (7 U.S.C. 1445b-
3(cXlXE)) is amended by adding at the end thereof the following new 
clauses: 
"(iii) Notwithstanding any other provision of this Act, in the case 
of each of the 1987 through 1990 crops of wheat, the Secretary 
shall— 
"(I) by December 1 of each of the marketing years for such 
crops (or, in the case of the 1987 crop, £is soon as practicable 
after the date of enactment of the Agricultural Reconciliation 
Act of 1987), estimate the national weighted average market 
price, per bushel of wheat, received by producers during such 
marketing year; 
"(II) by Etecember 15 of such marketing year (or, in the case of 
the 1987 crop, as soon as practicable, but not later than 75 days, 
after the date of enactment of such Act), use the estimate to 
make available to producers who have elected the pajonent 
option authorized by this clause not less than 75 percent of the 
increase in established price pajmtients estimated to be payable 
with respect to such crop under this subparagraph; and 
"(III) adjust the amount of each final established price pay-
ment for wheat to reflect any difference between the amount of 
any estimated payment made under this clause and the amount 
of actual payment due under this subparagraph, 
"(iv) Producers shall elect the payment option authorized by 
clause (iii)— 
"(I) in the case of the 1987 crop of wheat, not later than 45 
days after the date of the enactment of this clause; and 
(II) in the case of each of the 1988 through 1990 crops of 
wheat, at the time of entering into a contract to participate in 
the progreim established by this section for the crop.". 
SEC. 1112. TOBACCO PROVISIONS. 
(a) TRANSFER AUTHORITY.—Section 316 of the Agricultural Adjust-
ment Act of 1938 (7 U.S.C. 316(h)) is amended by adding at the end 
thereof the following new subsection: 
"(hXD Notwithstanding any other provision of this section, the 
Secretary may permit, after June 30 of any crop year, the lease and 
transfer of flue-cured tobacco quota assigned to a farm i
f
— 
"(A) the planted acreage of flue-cured tobacco on the farm to 
which the quota is assigned is determined by the Secretary to be 
equal to or greater than 90 percent of the farm's acreage 
allotment, or the planted acreage is determined to be sufflcient 
to produce the farm marketing quota under average conditions; 
and 
Contracts. 
7 use 1314b. 
91-194 O - 90 - 26 : QL.3 Part 2 
101 STAT. 1330-8 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) the farm's expected production of flue-cured tobacco is 
less than 80 percent of the farm's effective marketing quota as a 
result of a natural disaster condition. 
"(2) Any lease and transfer of quota under this paragraph may be 
made to any other farm within the same State in accordance with 
regulations issued by the Secretary.". 
(b) PERIODIC ADJUSTMENT OF YIELD FACTOR FOR ^ FLUE-CURED 
TOBACCO 
ACREAGE-POUNDAGE QUOTAS.—Section 317(a) of such 
Act (7 U.S.C. 1314c(a)) is amended by striking out "and at five year 
intervals thereafter" each place it appears in paragraphs (2), (4), and 
(6)(A). 
(c) IMPROVED TOBACCO FIELD MEASUREMENT.—It is the sense of 
Congress that the Secretary of Agriculture should review current 
compliance procedures for acreage or poundage quotas with respect 
to cigar and dark-air and fire-cured tobaccos under the Agricultural 
Act of 1949 (7 U.S.C. 1421 et seq.) to determine means of improving 
such procedures. The Secretary shall recommend to Congress 
changes in existing law that would be necessary to implement any 
such improvements. 
SEC. 1113. HAYING AND GRAZING. 
(a) WHEAT.—Effective only for the 1988 through 1990 crops of 
wheat, section 107D of the Agricultural Act of 1949 (7 U.S.C. 
1445b-3) is amended— 
(1) in subsection (cXlXK)— 
(A) in clause (i)— 
(i) by striking out "(i)"; and 
(ii) by redesignating subclauses (I) and (II) as clauses 
(i) and (ii), respectively; and 
(B) by striking out clause (ii); 
(2) in subsection (^4)— 
(A) in subparagraph (B)— 
(i) by striking out "Subject to subparagraph (C), the" 
and inserting in lieu thereof "The"; and 
(ii) by striking out "hay and grazing,"; and 
(B) by striking out subparagraph (C) and inserting in lieu 
thereof the following new subparagraph: 
"(CXi) Except as provided in clauses (ii) and (iii), haying and 
grazing of acreage designated as conservation use acreage for the 
purpose of meeting any requirements established under an acreage 
limitation program (including a program conducted under subsec-
tion (cXlXC)), set-£iside program, or land diversion program estab-
lished under this section shall be permitted, except during any 
consecutive 5-month period that is established by the State commit-
tee established under section 8(b) of the Soil Ck)nservation and 
Domestic Allotment Act (16 U.S.C. 590h(b)) for a State. Such 5-
month period shall be established during the period beginning April 
1, and ending October 31, of a year. 
"(ii) In the case of a natural disaster, the Secretary may permit 
unlimited haying and grazing on such acreage. 
"(iii) Haying and grazing shall not be permitted for any crop 
under clause (i) if the Secretary determines that haying and grazing 
would have an adverse economic effect.". 
» Copy read "FOR". 
iSfljg 
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PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-9 
(b) FEED GRAINS.—Effective only for the 1988 through 1990 crops 
of feed grains, section 105C of such Act (7 U.S.C. 1445b-3) is 
7 USC I444e. 
amended— 
(1) in subsection (cXlXD— 
(A) in clause (i)— 
(i) by striking out "(i)"; and 
(ii) by redesignating subclauses (I) and (II) as clauses 
^.. 
(i) and (ii), respectively; and 
' 
(B) by striking out clause (ii); 
(2) in subsection (f)(4)— 
(A) in subparagraph (B)— 
(i) by striking out "Subject to subparagraph (C), the" 
to^if^^ 
and inserting in lieu thereof "The"; and 
(ii) by striking out hay and grazing, ; and 
(B) by striking out subparagraph (C) and inserting in lieu 
thereof the following new subparagraph: 
"(C)(i) Except as provided in clauses (ii) and (iii), haying and 
grazing of acreage designated as conservation use acreage for the 
purpose of meeting any requirements established under an acreage 
limitation program (including a program conducted under subsec-
tion (c)(lXB)), set-aside program, or land diversion program estab-
lished under this section shall be permitted, except during any 
consecutive 5-month period that is established by the State commit-
tee established under section 8(b) of the Soil Conservation and 
Domestic Allotment Act (16 U.S.C. 590h(b)) for a State. Such 5-
month period shall be established during the period beginning April 
1, and ending October 31, of a year. 
"(ii) In the case of a natural disaster, the Secretary may permit 
unlimited haying and grazing on such acreage. 
"(iii) Haying and grazing shall not be permitted for any crop 
under clause (i) if the Secretary determines that haying and grazing 
would have an adverse economic effect.". 
(c) COTTON.—Effective only for the 1988 through 1990 crops of 
upland cotton, section 103A of such Act (7 U.S.C. 1444-1) is 
amended— 
(1) in subsection (cXlXG)— 
(A) in clause (i)— 
(i) by striking out "(i)"; and 
(ii) by redesignating subclauses (I) and (II) sis clauses 
(i) and (ii), respectively; and 
(B) by striking out clause (ii); 
(2) in subsection (fX3)— 
(A) in subparagraph (B)— 
(i) by striking out "Subject to subpar^raph (C), the" 
and inserting in lieu thereof "The"; and 
(ii) by striking out "hay and grazing,"; and 
(B) by striking out subparagraph (C) and inserting in lieu 
thereof the following new subparagraph: 
"(CXi) Except as provided in clauses (ii) and (iii), haying and 
grazing of acreage designated as conservation use acreage for the 
purpose of meeting any requirements established under an acreage 
limitation 
progrsim 
(including 
a 
program 
conducted 
under 
subsection (cXlXC)), set-aside program, or land diversion program 
established under this section shall be permitted, except during any 
consecutive 5-month period that is established by the State commit-
tee established under section 8(b) of the Soil Conservation and 
Domestic Allotment Act (16 U.S.C. 590h(b)) for a State. Such 5-
101 STAT. 1330-10 
PUBLIC LAW 100-203—DEC. 22, 1987 
month period shall be established during the period beginning 
April 1, and ending October 31, of a year. 
"(ii) In the case of a natural disaster, the Secretary may permit 
unlimited haying and grazing on such acreage. 
"(iii) Haying and grazing shall not be permitted for any crop 
under clause (i) if the Secretary determines that haying and grazing 
would have an adverse economic effect.". 
(d) RICE.—Effective only for the 1988 through 1990 crops of rice, 
section 101A of such Act (7 U.S.C. 1441-1) is amended— 
(1) in subsection (c)(1)(G)— 
(A) in clause (i)— 
(i) by striking out "(i)"; and 
(ii) by redesignating subclauses (I) and (II) as clauses 
(i) and (ii), respectively; and 
(B) by striking out clause (ii); 
(2) in subsection (f)(3)— 
(A) in subparagraph (B)— 
(i) by striking out "Subject to subparagraph (C), the" 
and inserting in lieu thereof "The"; and 
(ii) by striking out "hay and grazing,"; and 
(B) by striking out subparagraph (C) and inserting in lieu 
thereof the following new subparagraph: 
"(CXi) Except as provided in clauses (ii) and (iii), haying and 
grazing of acreage designated as conservation use acreage for the 
purpose of meeting any requirements established under an acreage 
limitation program (including a program conducted under subsec-
tion (c)(lXB)), set-aside program, or land diversion program estab-
lished under this section shall be permitted, except during any 
consecutive 5-month period that is established by the State commit-
tee established under section 8(b) of the Soil Conservation and 
Domestic Allotment Act (16 U.S.C. 590h(b)) for a State. Such 5-
month period shall be established during the period beginning 
April 1, and ending October 31, of a year. 
"(ii) In the case of a natural disaster, the Secretary may permit 
unlimited haying and grazing on such acreage. 
"(iii) Haying and grazing shall not be permitted for any crop 
under clause (i) if the Secretary determines that haying and grazing 
would have an adverse economic effect.". 
Subtitle B—Optional Acreage Diversion 
SEC. 1201. WHEAT OPTIONAL ACREAGE DIVERSION PROGRAM. 
Effective only for the 1988 through 1990 crops of wheat, 
section 107D(cXlXC) of the Agricultural Act of 1949 (7 U.S.C. 
1445b-3(cXlXC)) is amended— 
(1) in clause (iXII), by striking out ", subject to the compliance 
of the producers with clause (ii)"; 
(2) by striking out clauses (ii) and (iii) and inserting in lieu 
thereof the following new clauses: 
"(ii) Notwithstanding any other provision of this section, any 
producer who elects to devote all or a portion of the permitted wheat 
acreage of the farm to conservation uses (or other uses as provided 
in subparagraph (K)) under this subparagraph shall receive defi-
ciency payments on the acreage that is considered to be planted to 
wheat and eligible for payments under this subparagraph for such 
crop at a per-bushel rate established by the Secretary, except that 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-11 
such rate may not be established at less than the projected defi-
ciency payment rate for the crop, as determined by the Secretary. 
Such projected payment rate for the crop shall be announced by the 
Secretary prior to the period during which wheat producers may 
agree to participate in the program for such crop. 
"(iii) The Secretary shall implement this subparagraph in such a 
manner as to minimize the adverse effect on agribusiness and other 
agriculturally related economic interests within any county, State, 
or region. In carrying out this subparagraph, the Secretary is au-
thorized to restrict the total amount of wheat acreage that may be 
taken out of production under this subparagraph, taking into consid-
eration the total amount of wheat acreage that has or will be 
removed from production under other price support, production 
adjustment, or conservation program activities. No restrictions on 
the amount of acreage that may be taken out of production in 
accordance with this subparagraph in a crop year shall be imposed 
in the case of a county in which producers were eligible to receive 
disaster emergency loans under section 321 of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 1961) as a result of a 
disaster that occurred during such crop year."; and 
(3) in clause (iv)— 
(A) by inserting "(or all)" after "such portion"; and 
(B) by inserting 
"under 
this subparagraph" 
after 
"subparagraph (K))^. 
SEC. 1202. FEED GRAINS OPTIONAL ACREAGE DIVERSION PROGRAM. 
Effective only for the 1988 through 1990 crops of feed grains, 
section 105C(cXlXB) of the Agricultural Act of 1949 (7 U.S.C. 
1444e(cXlXB)) is amended— 
(1) in clause (iXH), by striking out ", subject to the compliance 
of the producers with clause (ii)"; 
(2) by striking out clauses (ii) and (iii) and inserting in lieu 
thereof the following new clauses: 
"(ii) Notwithstanding any other provision of this section, any 
producer who elects to devote all or a portion of the permitted feed 
grsdn acreage of the farm to conservation uses (or other uses as 
provided in subparagraph (I)) under this subparagraph shall receive 
deficiency pajrments on the acreage that is considered to be planted 
to feed grains and eligible for pa3anents under this subparagraph for 
such crop at a per-bushel rate established by the Secretary, except 
that such rate may not be established at less than the projected 
deficiency payment rate for the crop, as determined by the Sec-
retary. Such projected pajonent rate for the crop shall be announced 
by the Secretary prior to the period during which feed grain pro-
ducers may agree to participate in the program for such crop. 
"(iii) The Secretary shall implement this subparagraph in such a 
manner as to minimize the adverse effect on agribusiness and other 
agriculturally related economic interests within £uiy county. State, 
or region. In carrsdng out this subparagraph, the Secretary is au-
thorized to restrict the total amount of feed grain acreage that may 
be taken out of production under this subparagraph, taking into 
consideration the total amount of feed grain acreage that has or will 
be removed from production under other price support, production 
adjustment, or conservation program activities. No restrictions on 
the amount of acreage that may be taken out of production in 
accordance with this subparagraph in a crop year shall be imposed 
in the case of a county in which producers were eligible to receive 
101 STAT. 1330-12 
PUBLIC LAW 100-203—DEC. 22, 1987 
disaster emergency loans under section 321 of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 1961) as a result of a 
disaster that occurred during such crop year."; and 
(3) in clause (iv)— 
(A) by inserting "(or all)" after "such portion"; and 
(B) by inserting 
"under 
this subparagraph" 
after 
"subparagraph (I))". 
7 u s e 1444e 
SEC. 1203. REGULATIONS. 
(a) IN GENERAL.—Not later than 30 days after the date of enact-
ment of this Act, the Secretary of Agriculture shall issue regulations 
implementing the amendments made to sections 107D(c)(l)(C) and 
105C(c)(l)(B) of the Agricultural Act of 1949 (7 U.S.C. 1445b-3(c)(l)(C) 
and 1444e(c)(l)(B)) by sections 1201 and 1202, respectively. 
(b) NoNREDUCTiON OF BASES AND YiELDS.—Such regulations shall 
include provisions that ensure that the wheat or feed grain crop 
acreage base and farm program payment yield for any farm will not 
be reduced if the producers on the farm set aside from production 
all, or a portion, of the producer's permitted acreage under the 
acreage 
diversion 
program 
under 
section 
107D(c)(l)(C) or 
105C(c)(l)(B) as amended by section 1201 or 1202, respectively. 
(c) EFFECT ON LANDLORD-TENANT RELATIONS.—Such regulations 
shall ensure, to the maximum extent practicable, that the programs 
authorized under this subtitle will not adversely affect the relation-
ships between landlords and tenants, regarding any crop acreage 
base entered into such programs, in existence on the date of enact-
ment of this Act. 
Subtitle C—Farm Program Payments 
SEC. 1301. PREVENTION OF THE CREATION OF ENTITIES TO QUALIFY AS 
SEPARATE PERSONS. 
(a) IN GENERAL.—Effective beginning with the 1989 crops, the 
Food Security Act of 1985 is amended— 
(1) in section 1001(1) (7 U.S.C. 1308), by striking out "For 
each" and inserting in lieu thereof "Subject to sections lOOlA 
through lOOlC, for each"; 
(2) in section 1001(2)— 
(A) in subparagraph (A), by striking out "For each" and 
inserting in lieu thereof "Subject to sections lOOlA through 
lOOlC, for each"; and 
(B) in subparagraph (C), by striking out "The total" and 
inserting in lieu thereof "Subject to sections lOOlA through 
lOOlC, the total"; and 
(3) by inserting after section 1001 the following new section: 
7 u s e 1308-1. 
"SEC. lOOlA. PREVENTION OF CREATION OF ENTITIES TO QUALIFY AS 
SEPARATE PERSONS; PAYMENTS LIMITED TO ACTIVE 
FARMERS. 
"(a) PREVENTION OF CREATION OF ENTITIES TO QUAUFY AS SEPA-
RATE PERSONS.—For the purposes of preventing the use of multiple 
legal entities to avoid the effective application of the pajrment 
limitations under section 1001: 
"(1) IN GENERAL.—A person (as defined in section 1001(5XBXi)) 
that receives farm program payments (as described in para-
graphs (1) and (2) of this section as being subject to limitation) 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-13 
for a crop year under the Agricultural Act of 1949 (7 U.S.C. 1421 
et seq.) may not also hold, directly or indirectly, substantial 
beneficial interests in more than two entities (as defined in 
section 1001(5)(BXi)(II)) engaged in farm operations that also 
receive such payments as separate persons, for the purposes of 
the application of the limitations under section 1001. A person 
that does not receive such payments for a crop year may not 
hold, directly or indirectly, substantial beneficial interests in 
more than three entities that receive such payments as separate 
persons, for the purposes of the application of the limitations 
under section 1001. 
"(2) MINIMAL BENEFICIAL INTERESTS.—For the purpose of this 
subsection, a beneficial interest in any entity that is less than 10 
percent of all beneficial interests in such entity combined shall 
not be considered a substantial beneficial interest, unless the 
Secretary determines, on a case-by-case basis, that a smaller 
percentage should apply to one or more beneficial interests to 
ensure that the purpose of this subsection is achieved. 
"(3) NOTIFICATION BY ENTITIES.—To facilitate administration 
of this subsection, each entity receiving such pa3mients as a 
separate person shall notify each individual or other entity that 
acquires or holds a substantial beneficial interest in it of the 
requirements and limitations under this subsection. Each such 
entity receiving pa3mients shall provide to the Secretary of 
Agriculture, at such times and in such manner as prescribed by 
the Secretary, the name and social security number of each 
individual, or the name and taxpayer identification number of 
each entity, that holds or acquires a substantial beneficial 
interest. 
"(4) NOTIFICATION OF INTEREST.— 
"(A) IN GENERAL.—If a person is notified that the person 
holds substantisd beneficial interests in more than the 
number of entities receiving pajmients that is permitted 
under this subsection for the purposes of the application of 
the limitations under section 1001, the person immediately 
shall notify the Secretary, designating those entities that 
should be considered as permitted entities for the person for 
purposes of applying the limitations. Each remaining entity 
in which the person holds a substantial beneficial interest 
shall be subject to reductions in the pa)mients to the entity 
subject to limitation under section 1001 in accordance with 
this subparagraph. Each such pa)anent applicable to the 
entity shall be reduced by an smiount that bears the same 
relation to the full payment that the person's beneficial 
interest in the entity bears to all beneficial interests in the 
entity combined. Before making such reductions, the Sec-
retary shall notify all individuals or entities affected 
thereby and permit them to adjust among themselves their 
interests in the designated entity or entities. 
"(B) NOTICE NOT PROVIDED.—If the person does not so 
notify the Secretary, all entities in which the person holds 
substantisd beneficial interests shall be subject to reduc-
tions in the per person limitations under section 1001 in the 
manner described in subparagraph (A). Before making such 
reductions, the Secretary shall notify all individueds or 
entities affected thereby and permit them to adjust among 
101 STAT. 1330-14 
PUBLIC LAW 100-203—DEC. 22, 1987 
themselves their interests in the designated entity or 
entities.". 
SEC. 1302. PAYMENTS LIMITED TO ACTIVE FARMERS. 
Effective beginning with the 1989 crops, section 1001A of the Food 
Security Act of 1985, as added by section 1301, is amended by adding 
at the end the following: 
"0)) PAYMENTS LIMITED TO ACTIVE FARMERS.— 
"(1) IN GENERAL.—To be separately eligible for farm program 
payments (as described in paragraphs (1) and (2) of section 1001 
as being subject to limitation) under the Agricultural Act of 
1949 with respect to a particular farming operation (whether in 
the person's own right or as a partn3r in a general partnership, 
a grantor of a revocable trust, a participant in a joint venture, 
or a participant in a similar entity (as determined by the 
Secretary) that is the producer of the crops involved), a person 
must be an individual or entity described in section 1001(5)(B)(i) 
and actively engaged in farming with respect to such operation, 
as provided under paragraphs (2), (3), and (4). 
(2) GENERAL CLASSES ACTIVELY ENGAGED IN FARMING.^—For 
the purposes of paragraph (1), except £is otherwise provided in 
paragraph (3): 
"(A) INDIVIDUALS.—An individual shall be considered to 
be actively engaged in farming with respect to a farm 
operation i
f
— 
"(i) the individual makes a significant contribution 
(based on the total value of the farming operation) of^ 
"(I) capital, equipment, or land; and 
"(II) personal labor or active personal manage-
ment; 
to the farming operation; and 
"(ii) the individual's share of the profits or losses 
from the farming operation is commensurate with the 
individual's contributions to the operation; and 
"(iii) the individual's contributions are at risk. 
"(B) CORPORATIONS OR OTHER ENTITIES.—A corporation or 
other entity described in section 1001(5)(B)(iXII) shall be 
considered as actively engaged in farming with respect to a 
farming operation i
f
— 
(i) the entity separately makes a significant con-
tribution (based on the total value of the farming oper-
ation) of capital, equipment, or land; 
"(ii) the stockholders or members collectively make a 
significant contribution of personal labor or active per-
sonal management to the operation; and 
"(iii) the standards provided in clauses (ii) and (iii) of 
paragraph (A), as applied to the entity, are met by the 
entity. 
"(C) ENTITIES MAKING SIGNIFICANT CONTRIBUTIONS.—If a 
general partnership, joint venture, or similar entity (as 
determined by the Secretary) separately makes a signifi-
cant contribution (based on the total value of the farming 
operation involved) of capital, equipment, or land, and the 
standards provided in clauses (ii) and (iii) of paragraph (A), 
as applied to the entity, are met by the entity, the partners 
' Copy read "CLASSES ACTIVELY ENGAGED IN FARMING". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-15 
or members making a significant contribution of personal 
labor or active personal management shall be considered to 
be actively engaged in farming with respect to the farming 
operation involved. 
"(D) EQUIPMENT AND PERSONAL LABOR.—In making deter-
minations under this subsection regarding equipment and 
personal labor, the Secretary shall take into consideration 
the equipment and personal labor normally and customar-
ily provided by farm operators in the area involved to 
produce program crops. 
"(3) SPECIAL CLASSES ACTIVELY ENGAGED IN FARMING.—Not-
withstanding paragraph (2), the following persons shall be 
considered to be actively engaged in farming with respect to a 
farm operation: 
"(A) LANDOWNERS.—A person that is a landowner 
contributing the owned land to the farming operation if the 
landowner receives rent or income for such use of the land 
based on the land's production or the operation's operating 
results, and the person meets the standard provided in 
clauses (ii) and (iii) of paragraph (2XA). 
"(B) FAMILY MEMBERS.—With respect to a farming oper-
ation conducted by persons, a majority of whom are individ-
uals who are family members, an adult family member who 
makes a significant contribution (based on the total value of 
the farming operation) of active personal management or 
personal labor and, with respect to such contribution, who 
meets the standards provided in clauses (ii) and (iii) of 
paragraph (2XA). For the purposes of the preceding sen-
tence, the term 'family member' means an individual to 
whom another family member in the farming operation is 
related as lineal ancestor, lineal descendant, or sibling 
(including the spouses of those family members who do not 
make a significant contribution themselves). 
"(C) SHARECROPPERS.—A sharecropper who makes a 
significant contribution of personal labor to the farming 
operation and, with respect to such contribution, who meets 
the standards provided in clauses (ii) and (iii) of paragraph 
(2XA). 
"(4) PERSONS NOT ACTIVELY ENGAGED IN FARMING.—For 
the 
purposes of paragraph (1), except as provided in paragraph (3), 
the following persons shall not be considered to be actively 
engaged in farming with respect to a farm operation: 
"(A) LANDLORDS.—A landlord contributing land to the 
farming operation if the landlord receives cash rent, or a 
crop share guaranteed as to the amount of the commodity 
to be paid in rent, for such use of the land. 
"(B) OTHER PERSONS.—Any other person, or class of per-
sons, determined by the Secretary as failing to meet the 
standards set out in paragraphs (2) and (3). 
"(5) CUSTOM FARMING SERVICES.—A person receiving custom 
farming services will be considered separately eligible for pay-
ment limitation purposes if such person is actively engaged in 
farming based on paragraphs (1) through (3). No other rules 
with respect to custom farming shall apply.". 
101 STAT. 1330-16 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 1303. DEFINITION OF PERSON: ELIGIBLE INDIVIDUALS AND ENTI-
TIES; RESTRICTIONS APPLICABLE TO CASH-RENT TENANTS. 
7 use 1308 note. 
Effective beginning with the 1989 crops: 
(a) IN GENERAL.—Section 1001(5) of the Food Security Act of 1985 
(7 U.S.C. 1308(5)) is amended— 
(1) by inserting after the first sentence of subparagraph (A) 
Regulations. 
the following new sentence: "Such regulations shall incorporate 
the provisions in subparagraphs (B) through (E) of this para-
graph, paragraphs (6) and (7), and sections lOOlA through 
lOOlC"; 
(2) by striking out the second sentence of subparagraph (A) 
and inserting in lieu thereof the following new subparagraph: 
"(B)(i) For the purposes of the regulations issued under subpara-
graph (A), subject to clause (ii), the term 'person' means— 
"(I) an individual, including any individual participating in a 
farming operation as a partner in a general partnership, a 
participant in a joint venture, a grantor of a revocable trust, or 
a participant in a similar entity (as determined by the 
Secretary); 
"(II) a corporation, joint stock company, association, limited 
partnership, charitable organization, or other similar entity (as 
determined by the Secretary), including any such entity or 
organization participating in the farming operation as a partner 
in a general partnership, a participant in a joint venture, a 
grantor of a revocable trust, or as a participant in a similar 
entity (as determined by the Secretary); and 
"(III) a State, political subdivision, or agency thereof. 
"(ii)(I) Such regulations shall provide that the term 'person' does 
not include any cooperative association of producers that markets 
commodities for producers with respect to the commodities so mar-
keted for producers. 
"(II) In defining the term 'person' as it will apply to irrevocable 
trusts and estates, the Secretary shall ensure that fair and equitable 
treatment is given to trusts and estates and the beneficiaries 
thereof. 
"(iii) Such regulations shall provide that, with respect to any 
married couple, the husband and wife shall be considered to be one 
person, except that any married couple consisting of spouses who, 
prior to their marriage, were separately engaged in unrelated farm-
ing operations, each spouse shall be treated as a separate person 
with respect to the farming operation brought into the marriage by 
such spouse so long as such operation remains as a separate farming 
operation, for the purposes of the application of the limitations 
under this section."; 
(3) by redesignating subparagraph (B) as subparagraph (C); 
and 
(4) by adding at the end thereof the following new subpara-
graphs: 
"(D) Any person that conducts a farming operation to produce a 
crop subject to limitations under this section as a tenant that rents 
the land for cash (or a crop share guaranteed £is to the amount of the 
commodity to be paid in rent) and that makes a significant contribu-
tion of active personal management but not of personal labor shall 
be considered the same person as the landlord unless the tenant 
makes a significant contribution of equipment used in the farming 
operation. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-17 
"(E) The Secretary may not approve (for purposes of the applica-
tion of the limitations under this section) any change in a farming 
operation that otherwise will increase the number of persons to 
which the limitations under this section are applied unless the 
Secretary determines that the change is bona fide and substantive. 
In the implementation of the preceding sentence, the addition of a 
family member to a farming operation under the criteria set out in 
section 1001A(b)(lXB) shall be considered a bona fide and sub-
stantive change in the farming operation.". 
(b) LANDS OWNED BY STATES, POUTICAL SUBDIVISIONS, AND PUBUC 
SCHOOLS.—Paragraph (6) of section 1001 of the Food Security Act of 
1985 (7 U.S.C. 1308(6)) is amended to read as follows: 
"(6) The provisions of this section that limit payments to any 
person shall not be applicable to land owned by a public school 
district or land owned by a State that is used to maintain a public 
school.". 
SEC. 1304. MORE EFFECTIVE AND UNIFORM APPLICATION OF PAYMENT 
LIMITATIONS. 
(a) EDUCATION PROGRAM. 
7 use 1308 note. 
(1) IN GENERAL.—The Secretary of Agriculture shall imple-
ment a payment provisions education program for appropriate 
personnel of the Department of Agriculture and members and 
other personnel of local, county, and State committees estab-
lished under section 8(b) of the Soil Conservation and Domestic 
Allotment Act (16 U.S.C. 590h(b)), for the purpose of fostering 
more effective and uniform application of the payment limita-
tions and restrictions under sections 1001 through lOOlC of the 
Food Security Act of 1985. 
(2) TRAINING.—The education program shall provide training 
to such personnel in the fair, accurate, and uniform application 
to individual farming operations of the provisions of law and 
regulation relating to the payment provisions of sections 1001 
through lOOlC of the Food Security Act of 1985. Particular 
emphasis shall be given to the changes in the law made by 
sections 1301,1302, and 1303 of this Act. 
(3) IMPLEMENTATION.—The education program shall be fully 
implemented, and the training completed, not later than 30 
days after the date final regulations are issued to carry out the 
amendments made by this subtitle. 
(4) COMMODITY CREDIT CORPORATION.—The Secretary shall 
carry out the program provided under this subsection through 
the Commodity Credit (Corporation. 
(b) SCHEMES OR DEVICES.—Effective beginning with the 1989 crops, 
the Food Security Act of 1985 is amended by inserting after section 
lOOlA, as added by sections 1301 and 1302 of this Act, the following 
new section: 
"SEC. lOOlB. SCHEMES OR DEVICES. 
7 USC 1308-2. 
"If the Secretary of Agriculture determines that any person has 
adopted a scheme or device to evade, or that has the purpose of 
evading, section 1001, lOOlA, or lOOlC, such person shall be ineli-
gible to receive farm program pa3mients (as described in paragraphs 
(1) and (2) of section 1001 as being subject to limitation) applicable to 
the crop year for which such scheme or device was adopted and the 
succeeding crop year.". 
101 STAT. 1330-18 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 1305. REGULATIONS: TRANSITION 
RULES; 
EQUITABLE ADJUST-
MENTS. 
7 u s e 1308 note. 
(a) REGULATIONS.— 
(1) ISSUANCE.—The Secretary of Agriculture shall issue— 
(A) proposed regulations to carry out the amendments 
made by this subtitle not later than April 1, 1988; and 
(B) final regulations to carry out such amendments not 
later than August 1,1988. 
(2) FIELD INSTRUCTIONS.—Any field instructions relating to, or 
other supplemental clarifications of, the regulations issued 
under sections 1001 through lOOlC of the Food Security Act of 
1985 shall not be used in resolving issues involved in the 
application of the payment limitations or restrictions under 
such sections or regulations to individuals, other entities, or 
farming operations until copies of the publication are made 
available to the public. 
(b) ALLOWANCE FOR EQUITABLE REORGANIZATIONS.—To allow for 
the equitable reorganization of farming operations to conform to the 
limitations and restrictions contained in the amendments made to 
the Food Security Act of 1985 by this subtitle in cases in which the 
application of such limitations and restrictions will reduce pay-
ments to the farming operation (as determined by the Secretary), 
the Secretary may waive the application of the substantive change 
rule under section 1001(5XE), as added by section 1303 of this Act, or 
any regulation of the Secretary containing a comparable rule, to any 
reorganization applied for prior to the final date when producers are 
eligible to enter into contracts to participate in the commodity 
programs established for the 1989 crop year, to the extent the 
Secretary determines appropriate to facilitate any such equitable 
reorganizations that does not increase such payments. 
(c) GOOD FAITH REUANCE ON OFFICIAL ADVICE.—Section 1001 of 
the Food Security Act of 1985 (7 U.S.C. 1308) is amended by adding 
at the end thereof the following new paragraph: 
"(7) Regulations of the Secretary shall establish time limits for the 
various steps involved with notice, hearing, decision, and the ap-
peals procedure in order to ensure expeditious handling and settle-
ment of payment limitation disputes. Notwithstanding any other 
provision of law, actions taken by an individual or other entity in 
good faith on action or advice of an authorized representative of the 
Secretary may be accepted as meeting the requirement under this 
section or section lOOlA, to the extent the Secretary deems it 
desirable in order to provide fair and equitable treatment.". 
Contracts. 
(d) CONSERVATION RESERVE AppucATiON.—Notwithstanding sec-
7 use 1308 note, tion 1234(fK2) of the Food Security Act of 1985 (16 U.S.C. 3834(f)), 
paragraphs (5) through (7) of section 1001, as amended by this 
subtitle, and sections 1001A through lOOlC, of the Food Security Act 
of 1985 shall apply to the conservation reserve program under 
subtitle D of title XII of such Act (16 U.S.C. 3831 et seq.) with respect 
to rental payments to persons under contracts entered into after the 
date of the enactment of this Act, except with respect to landlords 
that receive C£ish rent, or a crop share guaranteed as to the amount 
of the commodity to be paid in rent, for the use of the land. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-19 
SEC 1306. FOREIGN PERSONS MADE INELIGIBLE FOR PROGRAM BENE-
FITS. 
Effective beginning with the 1989 crops, the Food Security Act of 
1985 is amended by inserting after section lOOlB, as added by 
section 1304 of this Act, the following new section: 
"SEC. lOOlC. FOREIGN PERSONS MADE INELIGIBLE FOR PROGRAM 
7 USC 1308-3. 
BENEFITS. 
"Notwithstanding any other provision of law: 
"(a) IN GENERAL.—For each of the 1989 and 1990 crops, any person 
who is not a citizen of the United States or an alien lawfully 
admitted into the United States for permanent residence under the 
Immigration and Nationality Act (8 U.S.C. 1101 et seq.) shall be 
ineligible to receive any type of production adjustment payments, 
price support program loans, payments, or benefits made available 
under the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.), the 
Commodity Credit Corporation Charter Act (15 U.S.C. 714 et seq.), or 
subtitle D of title XII of the Food Security Act of 1985 (16 U.S.C. 
3831 et seq.) with respect to any commodity produced, or land set 
aside from production, on a farm that is owned or operated by such 
person, unless such person is an individual who is providing land, 
capital, and a substantial amount of personal labor in the produc-
tion of crops on such farm. 
"(b) CORPORATIONS OR OTHER ENTITIES.—For purposes of subsec-
tion (a), a corporation or other entity shall be considered a person 
that is ineligible for production adjustment payments, price support 
program loans, payments, or benefits if more than 10 percent of the 
beneficial ownership of the entity is held by persons who are not 
citizens of the United States or aliens lawfully admitted into the 
uasH 
United States for permanent residence under the Immigration and 
Nationality Act, unless such persons provide a substantial amount 
of personal labor in the production of crops on such farm. Notwith-
standing the foregoing provisions of this subsection, with respect to 
an entity that is determined to be ineligible to receive such pay-
ments, loans, or other benefits, the Secretary may make payments, 
loans, and other benefits in an amount determined by the Secretary 
to be representative of the percentage interests of the entity that is 
owned by citizens of the United States and aliens lawfully admitted 
into the United States for permanent residence under the Immigra-
tion and Nationality Act. 
"(c) PROSPECTIVE APPUCATION.—No person shall become ineligible Contracts. 
under this section for production adjustment pa3anents, price sup-
port program loans, payments or benefits as the result of the 
production of a crop of an agricultural commodity planted, or 
commodity program or conservation reserve contract entered into, 
before the date of the enactment of this section.". 
SEC. 1307. HONEY LOAN LIMITATION. 
Section 1001(2XC) of the Food Security Act of 1985 (7 U.S.C. 
1308(2XC)) is amended— 
(1) by striking out clause (i); and 
(2) in clause (ii), by striking out "(ii)". 
101 STAT. 1330-20 
PUBLIC LAW 100-203—DEC. 22, 1987 
Subtitle D—Rural Electrification ^
^
^ -^^ 
Administration Programs 
CHAPTER 
1—PREPAYMENT 
OF 
RURAL 
ELECTRIFICATION 
LOANS 
1 u s e 936a note. 
SEC. 1401. PREPAYMENT OF LOANS. 
(a) ELIGIBILITY TO PREPAY.—Notwithstanding subsections (c), (d), 
and (e) of section 306A of the Rural Electrification Act of 1936 (7 
U.S.C. 936a (c), (d), and (e)), during fiscal year 1988, a borrower of a 
loan made by the Federal Financing Bank and guaranteed under 
section 306 of such Act (7 U.S.C. 936) may, at the option of the 
borrower, prepay such loan (or any loan advance thereunder) in 
accordance with subsections (a) and (b) of section 306A of such Act, 
except that any prepayment that would cause the total amount of 
such prepayments during fiscal year 1988 to exceed $2,000,000,000 
shall be subject solely to the approval of the Secretary of the 
Treasury. 
Oa) PRIORITY FOR APPROVAL.—In determining which borrowers 
shall be permitted to prepay loans under subsection (a): 
(1) The Administrator of the Rural Electrification Adminis-
tration shall give priority to those 8 borrowers that were deter-
mined by the Administrator, prior to the date of the enactment 
of this Act, to be eligible to prepay, or that prepaid, an advance 
under section 306A of such Act (as in effect prior to the date of 
the enactment of this Act), except that to retain such priority a 
borrower shall— 
Regulations. 
(A) notify the Administrator in writing, within 30 days 
after the issuance of regulations to carry out this section, of 
the intent of the borrower to prepay; and 
(B) complete such prepayment by disbursing funds to the 
Federal Financing Bank to prepay loan advances within 
120 days after the issuance of such regulations. 
(2) In considering requests for prepayment under subsection 
(a) by borrowers not described in paragraph (1), the Adminis-
trator shall permit prepayment based on the order in which 
borrowers are prepared to disburse funds to the Federal Financ-
ing Bank to complete such prepayments. If more than 1 bor-
rower is so prepared at the same time, and if the combined 
amount of such prepayments would cause the total amount of 
prepayments during fiscal year 1988, under this section, to 
exceed $2,000,000,000, the Administrator shall— 
(A) base the determination on the date on which prepay-
ment applications have been submitted; or 
(B) permit partial prepayment by two or more borrowers. 
(c) REGULATIONS.—Not later than 30 days after the date of enact-
ment of this Act, the Administrator of the Rural Electrification 
Administration shall issue such regulations as are necessary to 
carry at this section. 
(d) STUDY.—Not later than January 1, 1989, the Comptroller 
General of the United States shall— 
(1) study— 
(A) all benefits provided by Federal Financing Bank lend-
ing and the procedures and conditions for the prepayment 
of current Federal Financing Bank loans; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-21 
(B) the benefits and costs to Federal Financing Bank 
borrowers of making prepayments; and 
(C) alternative conditions and procedures for prepayment 
of all Federal Financing Bank loans to balance Federal 
benefits with Federal costs; and 
(2) submit to Congress a report describing the results of such Reports, 
study, together with any appropriate recommendations. 
SEC. 1402. USE OF FUNDS. 
The Rural Electrification Act of 1936 is amended by inserting 
after section 311 (7 U.S.C. 940a) the following new section: 
"SEC. 312. USE OF FUNDS. 
7 USC 940b. 
"A borrower of an insured or guaranteed electric loan under this 
Act may, without restriction or prior approval of the Administrator, 
invest its own funds or make loans or guarantees, not in excess of 15 
percent of its total utility plant.". 
SEC. 1403. CUSHION OF CREDIT PAYMENTS PROGRAM. 
Title III of the Rural Electrification Act of 1936 (as amended by 
section 1402 of this Act) is amended by adding at the end thereof the 
following new section: 
"SEC. 313. CUSHION OF CREDIT PAYMENTS PROGRAM. 
7 USC 940c. 
"(a) ESTABUSHMENT.— 
"(1) IN GENERAL.—The Administrator shall develop and pro-
mote a program to encourage borrowers to voluntarily make 
deposits into cushion of credit accounts established within the 
Rural Electrification and Telephone Revolving Fund. 
"(2) INTEREST.—Amounts in each cushion of credit account 
shall accrue interest to the borrower at a rate of 5 percent per 
annum. 
"(3) BALANCE.—A borrower may reduce the balance of its 
cushion of credit account only if the amount obtained from the 
reduction is used to make scheduled payments on loans made or 
guaranteed under this Act. 
"(h) USES OF CUSHION OF CREDIT PAYMENTS.— 
"(1) IN GENERAL.— 
"(A) CASH BALANCE.—Cushion of credit payments shall be 
held in the Rural Electrification and Telephone Revolving 
Fund as a cash balance in the cushion of credit accounts of 
borrowers. 
"(B) INTEREST.—All cash balance amounts (obtained from 
cushion of credit payments, loan pajrments, and other 
sources) held by the Fund shall bear interest to the Fund at 
a rate equal to the weighted average rate on outstanding 
certificates of beneficial ownership issued by the Fund. 
"(C) CREDITS.—The amount of interest accrued on the 
cash balances shall be credited to the Fund as an offsetting 
reduction to the amount of interest paid by the Fund on its 
certificates of beneficial ownership. 
"(2) RURAL ECONOMIC DEVELOPMENT SUBACCOUNT.— 
"(A) MAINTENANCE OF ACCOUNT.—The Administrator 
shall maintain a subaccount within the Rural Electrifica-
tion and Telephone Revolving Fund to which shall be cred-
ited, on a monthly basis, a sum determined by multiplying 
the outstanding cushion of credit payments made after 
jHli 
101 STAT. 1330-22 
PUBLIC LAW 100-203—DEC. 22, 1987 
October 1, 1987, by the difference (converted to a monthly 
basis) between the average weighted interest rate paid on 
outstanding certificates of beneficial ownership issued by 
the Fund and the 5 percent rate of interest provided to 
borrowers on cushion of credit payments. 
"(B) GRANTS.—The Administrator is authorized, from the 
interest differential sums credited this subaccount and from 
any other funds made available thereto, to provide grants 
or zero interest loans to borrowers under this Act for the 
purpose of promoting rural economic development and job 
creation projects, including funding for project feasibility 
studies, start-up costs, incubator projects, and other 
reasonable expenses for the purpose of fostering rural 
development. 
"(C) REPAYMENTS.—In the case of zero interest loans, the 
Administrator shall establish such reasonable repayment 
terms as will ensure borrower participation. 
"(D) PROCEEDS.—All proceeds from the repayment of such 
loans shall be returned to the subaccount. 
"(E) NUMBER OF GRANTS.—Such loans and grants shall be 
made during each fiscal year to the full extent of the 
amounts 
held 
by 
the 
rural 
economic 
development 
subaccount, subject only to limitations as may be from time-
to-time imposed by law.". 
CHAPTER 
2—RURAL 
TELEPHONE 
BANK 
BORROWERS 
SEC. 1
4
1
1
. 
RURAL TELEPHONE BANK INTEREST RATES AND LOAN 
PREPAYMENTS. 
7 use 948 note. 
(a) FINDINGS.—Congress finds that— 
(1) overcharging of Rural Telephone Bank borrowers has 
resulted in $179,000,000 in excess profits and has imperiled 
borrowers by raising costs to ratepayers; 
(2) borrowers will be able to seek redress under section 
408(bX3XG) of the Rural Electrification Act of 1936, as added by 
subsection (c), or may leave the Rural Telephone Bank, but in 
no case may the Governor of the Bank issue regulations requir-
ing any penalty from borrowers seeking to retire debt prior to 
maturity; and 
(3) any reduction in Federal Government * expenditures in 
the operation of the Rural Telephone Bank, from borrowers' 
conduct resulting from the implementation of the amendments 
made by subsections 0>) and (c), should be included in all 
calculations of the budget of the United States Government, 
authorized under the *^ Balanced Budget and Emergency Deficit 
Control Reaffirmation Act of 1987. 
(b) RURAL TELEPHONE BANK LOAN PREPAYMENTS.— ® 
(1) PREPAYMENTS AUTHORIZED.—Section 408(b) of the Rural 
Electrification Act of 1936 (7 U.S.C. 9480))) is amended by 
adding at the end the following new paragraph: 
"(8) A borrower with a loan from the Rural Telephone Bank 
may prepay such loan (or any part thereof) by paying the face 
amount thereof without being required to pay the prepayment 
* Copy read "government". 
**Copy read "under of the". 
' Copy read "PREPAYMENTS.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-23 
penalty set forth in the note covering such loan, if such prepay-
ment is not made later than September 30,1988.". 
(2) PREPAYMENT REGULATIONS.—The Governor of the Rural 
7 USC 948 note. 
Telephone Bank shall issue regulations to carry out the amend-
ment made by paragraph (1) within 30 days after the date of 
enactment of this Act. Such regulations shall implement the 
amendment made by paragraph (1) without the addition of any 
restrictions not set forth in such amendment. 
(c) DETERMINATION OF INTEREST RATES ON RURAL TELEPHONE BANK 
LOANS.—Paragraph (3) of section 4080t)) of the Rural Electrification 
Act of 1936 (7 U.S.C. 948(bX3)) is amended— 
(1) by inserting "(A)" after the paragraph designation; 
and 
(2) by adding at the end thereof the following 
new 
subparagraphs: 
"(B) On and after the date of the enactment of this paragraph, 
advances made on or after such date of enactment under loan 
commitments made on or after October 1, 1987, shall bear 
interest at the rate determined under subparagraph (C), but in 
no event at a rate that is less than 5 percent per annum. 
"(C) The rate determined under this subparagraph shall be— 
"(i) for the period beginning on the date the advance is 
made and ending at the close of the fiscal year in which 
the advance is made, the average yield (on the date of the 
advance) on outstanding marketable obligations of the 
United States having a final maturity comparable to the 
final maturity of the advance; and 
"(ii) after the fiscal year in which the advance is made, 
the cost of money rate for such fiscal year, as determined 
under subparagraph (D). 
"(D) Within 30 days after the end of each fiscal year, the 
Governor shall determine to the nearest 0.01 percent the cost of 
money rate for the fiscal year, by calculating the sum of the 
resultis of the following calculations: 
"(i) The aggregate of all amounts received by the tele-
phone bank during the fiscal year from the issuance of class 
A stock, multiplied by the rate of return payable by the 
telephone bank during the fiscal year, as specified in sec-
tion 406(c), to holders of class A stock, which product is 
divided by the aggregate of the amounts advanced by the 
telephone bank during the fiscal year. 
"(ii) The aggregate of all amounts received by the tele-
phone bank during the fiscal year from the issuance of class 
B stock, multiplied by the rate at which dividends are 
payable by the telephone bank during the fiscal year, as 
specified in section 406(d), to holders of class B stock, which 
product is divided by the aggregate of the amounts ad-
vanced by the telephone bank during the fiscal year. 
"(iii) The aggregate of all amounts received by the tele-
phone bank during the fiscal year from the issuance of class 
C stock, multiplied by the rate at which dividends are 
payable by the telephone bank during the flsc£d year, under 
section 406(e), to holders of class C stock, which product is 
divided by the aggregate of the amounts advanced by the 
telephone bank during the fiscal year. 
"(ivXD The sum of the results of the calculations de-
scribed in subclause (II). 
101 STAT. 1330-24 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(II) The amounts received by the telephone bank during 
the fiscal year from each issue of telephone debentures and 
other obligations of the telephone bank, multiplied, respec-
tively, by the rates at which interest is payable during the 
fiscal year by the telephone bank to holders of each issue, 
each of which products is divided, respectively, by the 
aggregate of the amounts advanced by the telephone bank 
during the fiscal year. 
"(vXD The amount by which the aggregate of the amounts 
advanced by the telephone bank during the fiscal year 
exceeds the aggregate of the amounts received by the tele-
phone bank from the issuance of class A stock, class B 
stock, class C stock, and telephone debentures and other 
obligations of the telephone bank during the fiscal year, 
multiplied by the historic cost of money rate as of the close 
of the fiscal year immediately preceding the fiscal year, 
which product is divided by the aggregate of the amounts 
advanced by the telephone bank during the fiscal year. 
"(II) For purposes of this clause, the term 'historic cost of 
money rate', with respect to the close of a preceding fiscal 
year, means the sum of the results of the following calcula-
tions: The amounts advanced by the telephone bank in each 
fiscal year during the period beginning with fiscal year 1974 
and ending with the preceding fiscal year, multiplied, 
respectively, by the cost of money rate for the fiscal year (as 
set forth in the table in subparagraph (E)) for fiscal years 
1974 through 1987, and as determined by the Governor 
under this subparagraph for fiscal years after fiscal year 
1987), each of which products is divided, respectively, by the 
aggregate of the amounts advanced by the telephone bank 
during the period. 
"(E) For purposes of subparagraph (DXII), the cost of 
money rate for the fiscal years in which each advance was 
made shall be as set forth in the following table: 
The cost of money 
"For advances made in— 
rate shall be— 
Fiscal year 1974 
5.01 percent 
Fiscal year 1975 
5.85 percent 
Fiscal year 1976 
5.33 percent 
Fiscal year 1977 
5.00 percent 
Fiscal year 1978 
5.87 percent 
Fiscal year 1979 
5.93 percent 
Fiscal year 1980 
8.10 percent 
Fiscal year 1981 
9.46 percent 
Fiscal year 1982 
8.39 percent 
Fiscal year 1983 
6.99 percent 
Fiscal year 1984 
6.55 percent 
Fiscal year 1985 
5.00 percent 
Fiscal year 1986 
5.00 percent 
Fiscal year 1987 
5.00 percent. 
For purposes of this subparagraph, the term 'fiscal year' means 
the 12-month period ending on September 30 of the designated 
year. 
"(FXi) Notwithstanding subparagraph (B), if a borrower holds 
a commitment for a loan under this section made on or after 
October 1, 1987, and before the date of the enactment of this 
paragraph, part or all of the proceeds of which have not been 
advanced as of such date of enactment, the borrower may, until 
the later of the date the next advance under the loan commit-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-25 
ment is made or 90 days after such date of enactment, elect to 
have the interest rate specified in the loan commitment apply to 
the unadvanced portion of the loan in lieu of the rate which (but 
for this clause) would apply to the unadvanced portion under 
this paragraph. If any borrower makes an election under this 
clause with respect to a loan, the Governor shall adjust the 
interest rate which applies to the unadvanced portion of the 
loan accordingly. 
"(iiXD If the telephone bank, pursuant to section 407(b), issues 
telephone debentures on any date to refinance telephone deben-
tures or other obligations of the telephone bank, the telephone 
bank shall, in addition to any interest rate reduction required 
by any other provision of this paragraph, for the period ap-
plicable to the advance, reduce the interest rate charged on 
each advance made under this section during the fiscal year in 
which the refinanced debentures or other obligations were origi-
nally issued by the amount applicable to the advance. 
"(II) For purposes of subclause (I), the term 'the period ap-
plicable to the advance' means the period beginning on the issue 
date described in subclause (I) and ending on the earlier of the 
date the advance matures or is completely prepaid. 
"(Ill) For purposes of subclause (I), the term 'the amount 
applicable to the advance' means an amount which fully reflects 
that percentage of the funds saved by the telephone bank £is a 
result of the refinancing which is equal to the percentage 
representation of the advance in all advances described in 
subclause (I). 
"(IV) Within 60 days after any issue date described in 
subclause (I), the Governor shall amend the loan documentation 
for each advance described in subclause (I), as necessary, to 
reflect any interest rate reduction applicable to the advance by 
reason of this clause, and shall notify each affected borrower of 
the reduction. 
"(G) Within 30 days after the publication of any determina-
tion made under subparagraph (D), any affected borrower may 
obtain review of the determination, or any other equitable relief 
as may be determined appropriate, by the United States court of 
appeals for the judicial circuit in which the borrower does 
business by filing a written petition requesting the court to set 
aside or modify such determination. On receipt of such a peti-
tion, the clerk of the court shall transmit a copy of the petition 
to the Governor. On receipt of a copy of such a petition from the 
clerk of the court, the Governor shall file with the court 
the record on which the determination is based. The court 
shall have jurisdiction to affirm, set aside, or modify the 
determination. 
"(H) Within 5 days after determining the cost of money rate 
for a fiscal year, the Governor shall— 
"(i) cause the determination to be published in the Fed-
eral Register in accordance with section 552 of title 5, 
United States Code; and 
"(ii) furnish a copy of the determination to the Comptrol-
ler General of the United States. 
"(I) The Comptroller General shall review, on an expedited 
basis, each determination a copy of which is received from the 
Governor and, within 15 days after the date of such receipt, 
furnish Congress a report on the accuracy of the determination. 
Federal 
Register, 
publication. 
Reports. 
101 STAT. 1330-26 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(J) The telephone bank shall not sell or otherwise dispose of 
any loan made under this section, except as provided in this 
paragraph.". 
SEC. 1412. INTEREST RATE TO BE CONSIDERED FOR PURPOSES OF 
ASSESSING ELIGIBILITY FOR LOANS. 
Paragraph (4) of section 408(b) of the Rural Electrification Act of 
1936 (7 U.S.C. 948(bX4)) is amended by inserting at the end the 
following: "For purposes of determining the creditworthiness of a 
borrower for a loan under this paragraph, the Governor shall 
assume that the loan, if made, would bear interest at a rate equal to 
the average yield (on the date of the determination) on outstanding 
marketable obligations of the United States having a final maturity 
comparable to the final maturity of the loan.". 
SEC. 1413. ESTABLISHMENT OF RESERVE FOR LOSSES DUE TO INTEREST 
RATE FLUCTUATIONS. 
(a) EsTABUSHMENT OF RESERVE; FUNDING.—Section 406 of the 
7 use 946. 
Rural Electrification Act of 1936 (7 U.S.C. 947) is amended by adding 
at the end the following: 
"(h) There is hereby established in the telephone bank a reserve 
for losses due to interest rate fluctuations. Within 30 days after the 
date of the enactment of this subsection, the Governor of the 
telephone bank shall transfer to the reserve for losses due to in-
terest rate fluctuations all amounts in the reserve for contingencies 
as of the date of the enactment of this subsection. Amounts in the 
reserve for interest rate fluctuations may be expended only to cover 
operating losses of the telephone bank (other than losses attrib-
utable to loan defaults) and only after taking into consideration any 
recommendations made by the General Accounting Office under 
section 1413(b) of the Rural Telephone Bank Borrowers Fairness Act 
of 1987.". 
Reports. 
(b) STUDY B
Y GENERAL ACCOUNTING OFFICE.—Within 180 days 
after the date of the enactment of this Act, the General Accounting 
Office shall complete a study of operations of the telephone bank 
and report its recommendations to the Committees on Agriculture 
and Government Operations of the House of Representatives and 
the Committee on Agriculture, Nutrition, and Forestry of the 
Senate with respect to— 
(1) the appropriate level of funding for the reserve for losses 
due to interest rate fluctuations established in section 406(h) of 
the Rural Electrification Act of 1936 (7 U.S.C. 947(h)) (as added 
by subsection (a)); 
(2) the circumstances under which amounts in the reserve for 
losses due to interest rate fluctuations should be expended; 
(3) the circumstances under which amounts should be added 
to the reserve for losses due to interest rate fluctuations; and 
(4) the disposition of excess reserves. 
In such study, the General Accounting Office shall consider the 
effects of such recommendations on telephone bank borrowers, the 
subscribers of such borrowers, and the United States Government, 
(c) LIMITATION ON ESTABUSHMENT OF NEW RESERVES.—Subsection 
7 use 946. 
(g) of section 406 of the Rural Electrification Act of 1936 (7 U.S.C. 
947(g)) is amended— 
(1) by striking out "reserves for losses," and inserting in lieu 
thereof "the reserve for loan losses,"; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-27 
(2) by adding at the end the following: "The telephone bank 
may not establish any reserve other than the reserves referred 
to in this subsection and in subsection (h).". 
SEC. 1414. PUBLICATION OF RURAL TELEPHONE BANK POLICIES AND 
REGULATIONS. 
Notwithstanding the exemption contained in section 553(a)(2) of 
title 5, United States Code, the Governor of the telephone bank shall 
cause to be published in the Federal Register, in accordance with 
section 553 of title 5, United States Code, all rules, regulations, 
bulletins, and other written policy standards governing the oper-
ation of the telephone bank's programs relating to public property, 
loans, grants, benefits, or contracts. After September 30, 1988, the 
telephone bank may not deny a loan or advance to, or take any 
other adverse action against, any applicant or borrower for any 
reason which is based upon a rule, regulation, bulletin, or other 
written policy standard which has not been published pursuant to 
such section. 
Federal 
Register, 
publication. 
Grants. 
Contracts. 
7 u s e 944a. 
Subtitle E—Miscellaneous 
SEC. 1501. MARKETING ORDER PENALTIES. 
Section 8c(14) of the Agricultural Adjustment Act of 1933 (7 U.S.C. 
608c(14)), reenacted with amendments by the Agricultural Market-
ing Agreement Act of 1937, is amended— 
(1) by inserting "(A)" before "Any"; and 
(2) by adding at the end thereof the following new 
subparagraph: 
"(B) Any handler subject to an order issued under this section, or 
any officer, director, agent, or employee of such handler, who vio-
lates any provision of such order (other than a provision calling for 
payment of a pro rata share of expenses) may be assessed a civil 
penalty by the Secretary not exceeding $1,000 for each such viola-
tion. Each day during which such violation continues shall be 
deemed a separate violation, except that if the Secretary finds that a 
petition pursuant to paragraph (15) was filed and prosecuted by the 
handler in good faith and not for delay, no civil penalty may be 
assessed under this paragraph for such violations as occurred be-
tween the date on which the handler's petition was filed with the 
Secretary, and the date on which notice of the Secretary's ruling 
thereon was given to the handler in accordeuice with regulations 
prescribed pursuant to paragraph (15). The Secretary may issue an 
order assessing a civil penalty under this paragraph only after 
notice and an opportunity for an agency hearing on the record. Such 
order shall be treated as a final order reviewable in the district 
courts of the United States in any district in which the handler 
subject to the order is an inhabitant, or has the handler's principal 
place of business. The validity of such order may not be reviewed in 
an action to collect such civil penalty.". 
SEC. 1502. STUDY OF USE OF AGRICULTURAL COMMODITY FUTURES AND 
OPTIONS MARKETS. 
The last sentence of section 1742 of the Food Security Act of 1985 
(7 U.S.C. 1421 note) is amended by striking out "1988" and inserting 
in lieu thereof "1989". 
101 STAT. 1330-28 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 1503. AUTHORIZATION OF APPROPRIATIONS FOR PHILIPPINE FOOD 
AID INITIATIVE. 
Section 416(b) of the Agricultural Act of 1949 (7 U.S.C. 1431(b)) is 
amended by adding at the end thereof the following new paragraph: 
"(12) There is authorized to be appropriated for fiscal year 1988, in 
addition to any other funds authorized to be appropriated, 
$1,000,000 for technical assistance for the sale or barter of commod-
ities under paragraph (7) to strengthen nonprofit private organiza-
tions and cooperatives in the Philippines.". 
SEC. 1504. RURAL INDUSTRIALIZATION ASSISTANCE. 
Section 310B(c) of the Consolidated Farm and Rural Development 
Act (7 U.S.C. 1932(c)) is amended— 
(1) by inserting "and private nonprofit corporations" after 
"public bodies"; and 
(2) by striking out "to facilitate development o f and inserting 
in lieu thereof "to finance and facilitate development of small 
and emerging". 
- 
„ - - . . „ 
SEC. 1505. PLANT VARIETY PROTECTION FEES. 
Section 31 of the Plant Variety Protection Act (7 U.S.C. 2371) is 
amended to read as follows: 
"SEC. 
31. 
PLANT 
VARIETY 
PROTECTION 
FEES. 
"(a) IN GENERAL.—The Secretary shall, under such regulations as 
the Secretary may prescribe, charge and collect reasonable fees for 
services performed under this Act. 
"Ot)) LATE PAYMENT PENALTY.—On failure to pay such fees, the 
Secretary shall assess a late payment penalty. Such overdue fees 
shall accrue interest as required by section 3717 of title 31, United 
States Code, 
"(c) DISPOSITION OF FUNDS.—Such fees, late payment penalties, 
and accrued interest collected shall be credited to the account that 
incurs the cost and shall remain available without fiscal year 
limitation to pay the expenses incurred by the Secretary in carrying 
out this Act. Such funds collected (including late payment penalties 
and any interest earned) may be invested by the Secretary in 
insured or fully collateralized, interest-bearing accounts or, at the 
discretion of the Secretary, by the Secretary of the Treasury in 
United States Government debt instruments. 
"(d) ACTIONS FOR NONPAYMENT.—The Attorney General may 
bring an action for the recovery of charges that have not been paid 
in accordance with this Act against any person obligated for pay-
ment of such charges under this Act in any United States district 
court or other United States court for any territory or possession in 
any jurisdiction in which the person is found, resides, or transacts 
business. The court shall have jurisdiction to hear and decide the 
action. 
"(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 
be appropriated such sums as are necessary to carry out this Act.". 
SEC. 1506. ANNUAL APPROPRIATIONS TO REIMBURSE THE COMMODITY 
CREDIT CORPORATION FOR NET REALIZED LOSSES. 
(a) IN GENERAL.—The first sentence of section 2 of Public Law 
87-155 (15 U.S.C. 713a-ll) is amended by striking out ", commenc-
ing with the fiscal year ending June 30, 1961" and inserting in lieu 
thereof "by means of a current, indefinite appropriation". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-29 
(b) OPERATING EXPENSES.—No funds may be appropriated for 
15 USC 7i3a-li 
operating expenses of the Commodity Credit Corporation except as 
^°^-
authorized under section 2 of Public Law 87-155 to reimburse the 
Corporation for net realized losses. 
(c) EFFECTIVE DATE.—This section and the amendment made by 
15 USC 7i3a-il 
this section shall apply beginning with fiscal year 1988. 
^
°
*
^
® 
SEC. 1507. FEDERAL CROP INSURANCE. 
7 USC 1508 note. 
It is the sense of Congress that, in carrying out the Federal Crop 
Insurance Act (7 U.S.C. 1501 et seq.), the Federal Crop Insurance 
Corporation-
C
D should not be required to assume 100 percent of all loss 
adjustments in the Federal crop insurance program; and 
(2) should assume and perform the loss adjustment obligations 
of a reinsured company if the Corporation determines that such 
company's loss adjustment performance and practices are not 
carried out in accordance with the applicable reinsurance 
agreement. 
SEC. 1508. ETHANOL USAGE. 
42 USC 7545 
(a) FINDINGS.—Congress finds that— 
'^°*^®' 
(1) the United States is dependent for a large and growing 
share of its energy needs on the Middle East at a time when 
world petroleum reserves are declining; 
(2) the burning of gEisoline causes pollution; 
(3) ethanol can be blended with gasoline to produce a cleaner 
source of fuel; 
(4) ethanol can be produced from grain, a renewable resource 
that is in considerable surplus in the United States; 
(5) the conversion of grain into ethanol would reduce farm 
program costs and grain surpluses; and 
(6) increasing the quantity of motor fuels that contain at least 
10 percent ethanol from current levels to 50 percent by 1992 
would create thousands of new jobs in ethanol production 
facilities. 
(b) SENSE OF CONGRESS.—It is the sense of Congress that the 
Administrator of the Environmental Protection Agency should use 
authority provided under the Clean Air Act (42 U.S.C. 7401 et seq.) 
to require greater use of ethanol as motor fuel. 
SEC. 1509. DEMONSTRATION OF FAMILY INDEPENDENCE PROGRAM. 
The Food Stamp Act of 1977 is amended by adding after section 20 
(7 U.S.C. 2029) the following new section: 
"SEC. 21. DEMONSTRATION OF FAMILY INDEPENDENCE PROGRAM. 
7 USC 2030. 
"(a) IN GENERAL.—Upon written application of the State of 
Washington (in this section referred to as the 'State') and after the 
approval of such application by the Secretary, the State may con-
duct a Family Independence Demonstration Project (in this section 
referred to as the 'Project') in all or in part of the State in accord-
ance with this section to determine whether the Project, as an 
alternative to providing benefits under the food stamp program, 
would more effectively break the cycle of poverty and would provide 
families with opportunities for economic independence and strength-
ened family functioning. 
"(b) NATURE OF PROJECT.—In an application submitted under 
subsection (a), the State shall provide the following: 
101 STAT. 1330-30 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(1) Except as provided in this section, the provisions of 
chapter 434 of the 1987 Washington Laws, as enacted in May 
1987, shall apply to the operation of the Project. 
"(2) All of the following terms and conditions shall be in effect 
under the Project: 
"(AXi) Except as provided in clause (ii), individuals with 
respect to whom benefits may be paid under part A of title 
IV of the Social Security Act, and such other individuals as 
are included in the Project pursuant to chapter 434 of the 
1987 Washington Laws, as enacted in May 1987, shall be 
eligible to participate in the Project in lieu of receiving 
benefits under the food stamp program and cash assistance 
under any other Federal program covered by the Project. 
"(ii) Individuals who receive only child care or medical 
benefits under the Project shall not be eligible to receive 
food assistance under the Project. Such individuals may 
receive coupons under the food stamp program if eligible. 
"(B) Individuals who participate in the Project shall re-
ceive for each month an amount of cash assistance that is 
not less than the total value of the assistance such individ-
uals would otherwise receive, in the aggregate, under the 
food stamp program and any cash-assistance Federal pro-
gram covered by the Project for such month, including 
income and resource exclusions and deductions, and benefit 
levels. 
"(CXi) The State may provide a standard benefit for food 
assistance under the Project, except that individuals who 
participate in the Project shall receive as food assistance for 
a month an amount of cash that is not less than the value 
of the assistance such individuals would otherwise receive 
under the food stamp program. 
"(ii) The State may provide a cash benefit for food assist-
ance equal to the value of the thrifty food plan. 
"(D) Each month participants in the Project shall be 
notified by the State of the amount of Project assistance 
that is provided as food assistance for such month. 
"(E) The State shall have a program to require partici-
pants to engage in employment and training activities car-
ried out under chapter 434 of the 1987 Washington Laws, as 
enacted in May 1987.^ 
"(F) Food assistance shall be provided under the Project— 
"(i) to any individual who is accepted for participa-
tion in the Project, not later than 30 days after such 
individued applies to participate in the Project; 
"(ii) to any participant for the period that begins on 
the date such participant applies to participate in the 
Project, except that the amount of such assistance shall 
be reduced to reflect the pro rata value of any coupons 
received under the food stamp program for such period 
for the benefit of such participant; and 
"(iii) until— 
"(I) the participant's cash assistance under the 
Project is terminated; 
• Copy read "May, 1987.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-31 
"(II) such participant is informed of such termi-
nation and is advised of the eligibility require-
ments for participation in the food stamp program; 
"(III) the State determines whether such partici-
pant will be eligible to receive coupons as a 
member of a household under the food stamp pro-
gram; and 
"(IV) coupons under the food stamp program are 
received by such participant if such participant 
will be eligible to receive coupons as a member of a 
household under the food stamp program. 
"(G)(i)' Paragraphs (IXB), (8), (10), and (19) of section 
11(e) shall apply with respect to the participants in the 
Project in the same manner as such paragraphs apply with 
respect to participants in the food stamp program. 
"(ii) Each individual who contacts the State in person 
during office hours to make what may reasonably be inter-
preted as an oral or written request to participate in the 
Project shall receive and shall be permitted to file on the 
same day that such contact is first made, an application 
form to participate in the Project. 
"(iii) The Project shall provide for telephone contact by, 
mail delivery of forms to and mail return of forms by, and 
subsequent home or telephone interview with, the elderly 
persons, physically or mentally handicapped, and persons 
otherwise unable, solely because of transportation difficul-
ties and similar hardships, to appear in person. 
"(iv) An individual who applies to participate in the 
Project may be represented by another person in the review 
process if the other person has been clearly designated as 
the representative of such individual for that purpose, by 
such individual or the spouse of such individual, and, in the 
case of the review process, the representative is an adult 
who is sufficiently aware of relevant circumstances, except 
that the State may— 
"(I) restrict the number of individuals who may be 
represented by such person; and 
-
"(II) otherwise establish criteria and verification 
standards for representation under this clause. 
"(v) The State shall provide a method for reviewing ap-
plications to participate in the Project submitted by, and 
distributing food assistance under the Project to, individ-
uals who do not reside in permanent dwellings or who have 
no fixed mailing address. In carrying out the preceding 
sentence, the State shall take such steps as are necessary to 
ensure that participation in the Project is limited to eligible 
individuals. 
"(3) An assurance that the State will allow any individual to 
apply to participate in the food stamp program without apply-
ing to participate in the Project. 
"(4) An assurance that the cost of food assistance provided 
under the Project will not be such that the aggregate amount of 
payments made under this section by the Secretary to the State 
over the period of the Project will exceed the sum of— 
' Copy read " '(HXi)". 
101 STAT. 1330-32 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) the anticipated aggregate value of the coupons that 
would have been distributed under the food stamp program 
if the individuals who participate in the Project had partici-
pated instead in the food stamp program; and 
"(B) the portion of the administrative costs for which the 
State would have received reimbursement under— 
"(i) subsections (a) and (g) of section 16 (without 
regard to the first proviso to such subsection (g)) if the 
individuals who participated in the Project had partici-
pated instead in the food stamp program; and 
"(ii) section 16(h) if the individuals who participated 
in the Project had participated in an employment and 
training program under section 6(d)(4); 
except that this paragraph shall not be construed to pre-
vent the State from claiming payments for additional 
households that would qualify for benefits under the food 
stamp program in the absence of a cash out of such benefits 
as a result of changes in economic, demographic, and other 
conditions in the State or a subsequent change in the 
benefit levels approved by the State legislature. 
"(5) An assurance that the State will continue to carry out the 
food stamp program while the State carries out the Project. 
"(6) If there is a change in existing State law that would 
eliminate guaranteed benefits or reduce the rights of applicants 
or participants under this section during, or as a result of 
participation in, the Project, the Project shall be terminated. 
"(7) An assurance that the Project shall include procedures 
and due process guarantees no less beneficial than those which 
are available under Federal law and under State law to partici-
pants in the food stamp program. 
"(8)(A) An assurance that, except as provided in subparagraph 
(B), the State will carry out the Project during a 5-year period 
beginning on the date the first individual is approved for 
participation in the Project. 
Termination 
"(B) The Project may be terminated 180 days after— 
date. 
"(i) the State gives notice to the Secretary that it intends 
to terminate the Project; or 
"(ii) the Secretary, after notice and an opportunity for a 
hearing, determines that the State materially failed to 
comply with this section. 
"(c) FUNDING.—If an application submitted under subsection (a) by 
the State complies with the requirements specified in subsection (b), 
then the Secretary shall— 
"(1) approve such application; and 
"(2) from funds appropriated under this Act, pay the State 
for— 
"(A) the actual cost of the food assistance provided under 
the Project; and 
"(B) the percentage of the administrative costs incurred 
by the State to provide food assistance under the Project 
that is equal to the percentage of the State's aggregate 
administrative costs incurred in operating the food stamp 
program in the most recent fiscal year for which data are 
available, that was paid under subsections (a), (g), and (h) of 
section 16 of this Act. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-33 
"(d)(1) PROJECT APPLICATION.—Unless and until an application to 
participate in the Project is approved, and food assistance under the 
Project is made available to the applicant— 
"(A) such application shall also be treated as an application to 
participate in the food stamp program; and 
"(B) section 11(e)(9) shall apply with respect to such 
application, 
, ^,- ,^, .^ 
"(2) Coupons provided under the food stamp program with respect 
to an individual who— 
"(A) is participating in such program; and 
"(B) applies to participate in the Project; 
may not be reduced or terminated because such individual applies to 
participate in the Project. 
"(3) For purposes of the food stamp program, individuals who 
participate in the Project shall not be considered to be members of a 
household during the period of such participation. 
"(e) WAIVER.—The Secretary shall (with respect to the Project) 
waive compliance with any requirement contained in this Act (other 
than this section) that (if applied) would prevent the State from 
carrying out the Project or effectively achieving its purpose. 
;ybi*»i'i 
"(f) CONSTRUCTION.—For purposes of any other Federal, State or 
local law— 
"(1) cash assistance provided under the Project that rep-
resents food assistance shall be treated in the same manner as 
coupons provided under the food stamp program are treated; 
and 
® "(2) participants in the program who receive food assistance 
under the Project shall be treated in the same manner as 
recipients of coupons under the food stamp program are treated. 
"(g) PROJECT AUDITS.—The Comptroller General of the United 
States shall— 
"(1) conduct periodic audits of the operation of the Project to 
verify the amounts payable to the State from time to time under 
subsection (bX4); and 
"(2) submit to the Secretary of Agriculture, the Secretary of 
Health and Human Services, the Committee on Agriculture of 
the House of Representatives, and the Committee on Agri-
culture, Nutrition, and Forestry of the Senate a report describ-
ing the results of each such audit. 
"(h) 
EVALUATION.—With 
funds 
appropriated 
under 
section 
18(aXl), the Secretary shall conduct, in consultation with the Sec-
retary of Health and Human Services, an evaluation of the 
Project.". 
TITLE II—NATIONAL ECONOMIC 
COMMISSION 
SEC. 2101. ESTABLISHMENT OF COMMISSION. 
2 USC 901 note. 
There is established a commission to be known as the National 
Economic Commission 
(in this subtitle 
referred 
to as 
the 
"Commission"). 
' Copy had wrong indention for paragraph " '(2)". 
101 STAT. 1330-34 
PUBLIC LAW 100-203—DEC. 22, 1987 
2 u s e 901 note. 
SEC. 2102. MEMBERSHIP OF COMMISSION. 
(a) APPOINTMENT.—The Commission shall be initially composed of 
12 members, appointed not later than March 1, 1988. After the 
meeting of the Presidential Electors in December 1988, the Commis-
sion shall be expanded to 14 members. The members shall be as 
follows: 
President of U.S. 
(1) 2 citizens of the United States, appointed by the President. 
(2) 1 Senator and 2 citizens of the United States, appointed by 
the President pro tempore of the Senate upon the recommenda-
tions of the Majority Leader of the Senate. 
(3) 1 Senator and 1 citizen of the United States, appointed by 
the President pro tempore of the Senate upon the recommenda-
tion of the Minority Leader of the Senate. 
(4) 1 Member of the House of Representatives and 2 citizens of 
the United States, appointed by the Speaker of the House of 
Representatives. 
(5) 1 Member of the House of Representatives and 1 citizen of 
the United States, appointed by the Minority Leader of the 
House of Representatives. 
President of U.S. 
(6) 2 citizens of the United States, 1 of whom is a Democrat 
and 1 of whom is a Republican, appointed by the President-elect 
as established by the allocation of electoral college votes in the 
Presidential election of November 8,1988. 
(b) ADDITIONAL QUAUFICATIONS.— 
(1) Individuals appointed under subsection (aXD may be offi-
cers or employees of the Executive Branch or may be private 
citizens. 
(2) Individuals who are not Members of the Congress, and are 
appointed under paragraphs (2) through (6) of subsection (a) 
shall be individuals who— 
(A) are leaders of business or labor, distinguished aca-
demics. State or local government officials, or other individ-
uals with distinctive qualifications or experience; and 
(B) are not officers or employees of the United States. 
(c) CHAIRPERSON.—The Commission shall elect a Chairperson from 
among the members of the Commission. 
(d) QUORUM.—A majority of the members of the Commission shall 
constitute a quorum for the transaction of business. 
(e) VOTING.—Each member of the Commission shall be entitled to 
1 vote, which shall be equal to the vote of every other member of the 
Commission. 
(f) VACANCIES.—Any vacancy on the Commission shall not affect 
its powers, but shall be filled in the manner in which the original 
appointment was made. 
(g) PROHIBITION OF ADDITIONAL PAY.—Members of the Commission 
shedl receive no additional pay, allowances, or benefits by reason of 
their service on the Commission. Members appointed from among 
private citizens of the United States may be allowed travel expenses, 
including per diem, in lieu of subsistence, as authorized by law for 
persons serving intermittently in the government service to the 
extent funds are av£dlable for such expenses. 
2 u s e 901 note. 
SEC. 2103. FUNCTIONS OF COMMISSION. 
(a) SPECIFIC RECOMMENDATIONS.—The Commission shall make spe-
cific recommendations regarding the following: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-35 
(1) Methods to reduce the Federal budget deficit while promot-
ing economic growth and encouraging saving and capital 
formation. 
(2) A means of ensuring that the burden of achieving the 
Federal budget deficit reduction goals of the United States does 
not undermine economic growth and is equitably distributed 
and not borne disproportionately by any one economic group, 
social group, region or State. 
(b) FINAL REPORT.— 
(1) Subject to section 2108(bX3), the Commission shall submit 
to the President and to the Congress on March 1, 1989, a final 
report which shall contain a detailed statement of the findings 
and conclusions of the Commission, including its recommenda-
tions for administrative and legislative action that the Commis-
sion considers advisable. 
(2) Any recommendation may be made by the Commission to 
the President and to the Congress only if adopted by a majority 
vote of the members of the Commission who are present and 
voting. 
(3) On February 1, 1989, the President may issue an order 
extending the date for submission of the final report to Septem-
ber 1,1989. 
SEC. 2104. POWERS OF COMMISSION. 
2 USC 901 note. 
(a) HEARINGS.—The Commission may, for the purpose of carrying 
out this, subtitle, hold such hearings and sit and act at such times 
and places, as the Commission mayfind advisable. 
(b) RULES AND REGULATIONS.—The Commission may adopt such 
rules and regulations as may be necessary to establish its procedures 
and to govern the manner of its operations, organization, and 
personnel. 
(c) ASSISTANCE FROM FEDERAL AGENCIES.— 
(1) The Commission may request from the head of any Federal 
agency or instrumentality such information as the Commission 
may require for the purpose of this subtitle. Each such agency 
or instrumentality shall, to the extent permitted by law and 
subject to the exceptions set forth in section 552 of title 5, 
United States Code (commonly referred to as the Freedom of 
Information Act), furnish such information to the Commission, 
upon request made by the Chairperson of the Commission. 
(2) Upon request of the Chairperson of the Commission, the 
head of any Federal agency or instrumentality shall, to the 
extent possible and subject to the discretion of such head— 
(A) make any of the facilities and services of such agency 
or instrumentality available to the Commission; and 
(B) detail any of the personnel of such agency or 
instrumentality to the Commission, on a non-reimburseable 
bsisis, to assist the Commission in carrying out its duties 
under this subtitle, except that any expenses of the 
Commission incurred under this subparagraph shall be 
subject to the limitation on total expenses set forth in 
section 2105(b). 
(c) MAILS.—The Commission may use the United States mails in 
the same manner and under the same conditions sis other Federal 
agencies. 
(d) CONTRACTING.—The Commission may, to such extent and in 
such amounts as are provided in appropriation Acts, enter into 
101 STAT. 1330-36 
PUBLIC LAW 100-203—DEC. 22, 1987 
contracts with State agencies, private firms, institutions, and 
individuals for the purpose of conducting research or surveys nec-
essary to enable the Commission to discharge its duties under this 
subtitle, subject to the limitation on total expenses set forth in 
section 2105(b). 
(e) STAFF.—Subject to such rules and regulations as may be 
adopted by the Commission, the Chairperson of the Commission 
(subject to the limitation on total expenses set forth in section 
2105(b)) shall have the power to appoint, terminate, and fix the 
compensation (without regard to the provisions of title 5, United 
States Code, governing appointments in the competitive service, and 
without regard to the provisions of chapter 51 and subchapter III of 
chapter 53 of such title, or of any other provision, or of any other 
provision of law, relating to the number, classification, and General 
Schedule rates) of an Executive Director, and of such additional staff 
as the Chairperson deems advisable to assist the Commission, at 
rates not to exceed a rate equal to the maximum rate for GS-18 of 
the General Schedule under section 5332 of such title. 
if) ADVISORY COMMITTEE.—The Commission shall be considered an 
advisory committee within the meaning of the Federal Advisory 
Committee Act (5 U.S.C. App.). 
2 u s e 901 note. 
SEC. 2105. EXPENSES OF COMMISSION. 
(a) IN GENERAL.—Any expenses of the Commission shall be paid 
from such funds as may be available to the Secretary of the 
Treasury. 
(b) LIMITATION.—The total expenses of the Commission shall not 
exceed $1,000,000. 
(c) GAO AUDIT.—Prior to the termination of the Commission, 
pursuant to section 2106, the Comptroller General of the United 
States shall conduct an audit of the financial books and records of 
the Commission to determine that the limitation on expenses has 
been met, and shall include its determination in an opinion to be 
included in the report of the Commission. 
2 u s e 901 note. 
SEC. 2106. TERMINATION OF COMMISSION. 
The Commission shall cease to exist on the date that is 30 days 
after the date on which the Commission submits its report. 
TITLE III—EDUCATION PROGRAMS 
Subtitle A—Guaranteed Student Loan 
Program Savings 
SEC. 3001. RECOVERY OF EXCESS CASH RESERVES ACCUMULATED 
UNDER THE GUARANTEED STUDENT LOAN PROGRAM. 
(a) IN GENERAL.—Section 422 of the Higher Education Act of 1965 
(2() U.S.C. 1072) is amended by adding at the end thereof the 
following new subsection: 
"(e) REDUCTION OF EXCESS CASH RESERVES.— 
"(1) LIMITATION ON MAXIMUM CASH RESERVES.—A guaranty 
agency shall not accumulate cash reserves in excess of the 
greater of— 
"(A) 40 percent of the total amount paid by that agency 
on insurance claims during the preceding fiscal year; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-37 
"(B) 0.3 percent of original principal amount of loans that 
are insured by that agency and that are outstanding at the 
end of such preceding fiscal y6ar; 
"(C) an amount which, when combined with all other 
parts of total agency reserves, equals 0.4 percent of such 
original principal amount; 
"(D) $500,000; or 
"(E) the amount required to comply with the reserve 
requirements of a State law as in effect on October 17, 1986. 
"(2) 
RECOVERY OF EXCESS CASH RESERVES.—The Secretary 
shall, not later than March 31, 1988, determine for each guar-
anty agency the maximum cash reserve permitted under para-
graph (1) for fiscal year 1986. Subject to paragraphs (3) and (4), if 
the Secretary determines that any guaranty agency had, at the 
end of fiscal year 1986, a cash reserve that exceeded such 
maximum, the Secretary shall direct the agency to eliminate 
such excess by any one or more of the following methods, as 
selected by the guaranty agency: 
"(A) by repaying any advances to such agency made by 
the Secretary under this section that are not required to be 
repaid under subsection (d); 
'(B) by withholding and canceling claims for reimburse-
ment otherwise payable under section 428(c)(1); 
"(C) by reducing the amount of payments for which ap-
plication will be made by such agency under section 428(f); 
or 
"(D) by any other method of reducing payments from or 
increasing payments to the Federal Government, including 
payment of additional reinsurance fees in addition to the 
fees required by section 428(cX9), as proposed by the agency 
and agreed to by the Secretary. 
"(3) APPEALS BASED ON SPECIAL CIRCUMSTANCES.—(A) If 
the 
Secretary determines, on the basis of an application from a 
guaranty agency, that— 
"(i) the agency's financial position has deteriorated 
significantly since the end of the preceding fiscal year; 
"(ii) significant changes in the economic circumstances 
(such as a change in agency current cash reserves) or the 
loan insurance program render the limitations of para-
graph (1) inadequate for the continued functioning of the 
agency; or 
"(iii) in recovering funds as required by this subsection, a 
guaranty agency would be compelled to violate contractual 
obligations existing on the date of enactment of this subsec-
tion that require a specified level of reserve funds to be 
maintained by such agency; 
the Secretary may waive, in whole or in part, the imposition of 
the remedies required by paragraph (2) for such agency. 
"(B) The Secretary shall respond to request for waivers from 
guaranty agencies in an expedited manner and, except for 
unusual circumstances or with the consent of the guaranty 
agency, shall resolve such request within 6 weeks of submission. 
"(4) RECOVERY UMITS.—The Secretary shall not require a total 
reduction of cash reserves for all guaranty agencies in excess of 
$250,000,000 during fiscal year 1988. If the total of cash reserves 
of all guaranty agencies exceeds the maximum amounts per-
mitted under paragraph (1) by more than $250,000,000, the 
101 STAT. 1330-38 
PUBLIC LAW 100-203—DEC. 22, 1987 
Secretary shall ratably reduce the amounts that guaranty agen-
cies are directed to eliminate under paragraph (2), so that the 
total excess cash reserves to be eliminated equals $250,000,000. 
"(5) DEFINITIONS.—As used in this subsection— 
"(A) the 'cash reserves' for any guaranty agency for any 
fiscal year are equal to the agency's cumulative cash re-
ceipts less the agency's cumulative cash disbursements at 
the end of such fiscal year; 
"(B) the 'total reserves' for any guaranty agency for any 
fiscal year are equal to the agency's cash reserves plus the 
agency's cumulative accounts receivable less the agency's 
accounts payable, as of the end of such fiscal year; 
"(C) the term 'cumulative cash receipts' includes such 
receipts as insurance premiums. Federal reinsurance pay-
ments, and collections on defaulted loans; 
"(D) the term 'cumulative cash disbursements' includes 
such disbursements as payments for default claims, repay-
ment of Federal advances, transfers to other State activi-
ties, and payment of collection costs and other operating 
costs; 
"(E) the term 'accounts receivable' includes Federal re-
insurance pa3rments and administrative cost allowances 
owed but not yet paid to the guaranty agency, as of the end 
of a fiscal year; and 
"(F) the term 'accounts payable' includes collections and 
reinsurance fees due (hut not paid) to the Department of 
Education, as of the end of a fiscal year.". 
O
b
) CONFORMING AMENDMENTS.— 
(1) The second sentence of section 428(cXlXA) of such Act (20 
U.S.C. 1078(cXlXA)) is amended by striking out "shall be 
deemed" and inserting "shall, subject to section 422(e), be 
deemed". 
(2) Section 428(cX9XA) of such Act is amended by striking out 
"an amount equal to" and inserting "an amount, subject to 
section 422(e), equal to". 
(3) The second sentence of section 428(fKlXB) of such Act is 
amended by striking out "shall be deemed" and inserting 
"shall, subject to section 422(e), be deemed". 
SEC. 3002. REPEAL. 
(a) IN GENERAL.—Subsection (e) of section 422 of the Higher 
Education Act of 1965 (20 U.S.C. 1072) is repealed on September 30, 
1989. 
0)) CONFORMING AMENDMENTS.— 
(1) Effective September 30, 1989, the second sentence of sec-
tion 428(cXlXA) of such Act (20 U.S.C. 1078(cXlXA)) is amended 
by striking out "shall, subject to section 422(e), be deemed" and 
inserting "shall be deemed". 
(2) Effective September 30, 1989, section 428(cX9XA) of such 
Act is amended by striking out "an amount, subject to section 
422(e), equal to" and inserting "an amount equal to". 
(3) Effective September 30, 1989, the second sentence of sec-
tion 428(fXlXB) of such Act is amended by striking out "shall, 
subject to section 422(e), be deemed" and inserting "shall be 
deemed". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-39 
SEC. 3003. INFORMATION ON DEFAULTS REQUIRED. 
(a) GENERAL RULE.—The first sentence of section 428(kXl) of the 
Higher Education Act of 1965 (20 U.S.C. 1078(kKl)) is amended— 
(1) by striking out "In" and inserting in lieu thereof "Not-
withstanding any other provision of law, in"; and 
(2) by striking out "may" and inserting in lieu thereof "shall". 
Qo) CONFORMING AMENDMENT.—The second sentence of section 
428(k)(l) of such Act is amended by striking out "may" and inserting 
in lieu thereof "shall". 
Subtitle B—Sale of College Facilities and 
Housing Loans 
SEC. 3101. SALE OF COLLEGE FACILITIES AND HOUSING LOANS. 
Section 783 of the Higher Education Act of 1965 (20 U.S.C. 11321-
2) is amended by adding at the end thereof the following: "Notwith-
standing any other provision of this title, after September 30, 1988, 
the Secretary shall not sell any of such obligations. Any agreement 
providing for delaying payment (with respect to obligations sold) 
until after September 30, 1988, or for delaying delivery of such 
obligations or delaying taking other actions in furtherance of such a 
sale until after such date, shall be considered to be a violation of the 
preceding sentence.". 
TITLE IV—MEDICARE, MEDICAID, AND 
OTHER HEALTH-RELATED PROGRAMS 
TABLE OF CONTENTS OF TITLE 
TITLE IV—MEDICARE, MEDICAID, AND OTHER HEALTH-RELATED 
PROGRAMS 
Subtitle A—Medicare 
' 
" * 
PART 1—RELATING ONLY TO PART A 
Sec. 4001. Extension of reductions under sequester order. 
Sec. 4002. Basic hospital prospective payment rates. 
Sec. 4003. Increase in disproportionate share adjustment and reduction in indirect 
medical education payments. 
Sec. 4004. Provisions relating to wage index. 
Sec. 4005. Rural hospitals. 
Sec. 4006. Payments for hospital capital. 
Sec. 4007. Reporting hospital information. 
Sec. 4008. Other provisions relating to payment for inpatient hospital services. 
Sec. 4009. Miscellaneous provisions. 
* 
PART 2—PROVISIONS RELATING TO PARTS A AND B 
SUBPART A—HEALTH MAINTENANCE ORGANIZATION REFORMS 
, 
,, ; 
Sec. 4011. Beneficiary protection. 
Sec. 4012. Payments for hospital services. 
Sec. 4013. Two-year extension on period for benefit stabilization. 
Sec. 4014. Civil money penalties and intermediate sanctions against HMOs/CMPs. 
Sec. 4015. Medicare payment demonstration projects. 
Sec. 4016. Delay in effective date in physician incentive rules for health mainte-
nance organizations. 
Sec. 4017. GAO study and reports on medicare capitation. 
Sec. 4018. Special rules. 
91-194O-90-27:QL.3Part2 
101 STAT. 1330-40 
PUBLIC LAW 100-203—DEC. 22, 1987 
SUBPART B—HOME HEALTH QUALITY 
Sec. 4021. Conditions of participation for home health agencies. 
Sec. 4022. Standard and extended survey. 
' ^^ 
Sec. 4023. Enforcement. 
• * 
• /--r • ' 
Sec. 4024. Requirement that individual be confined to home. 
Sec. 4025. Home health toll-free hotline and investigative unit. 
, 
Sec. 4026. Home health agency cost limits. 
Sec. 4027. Home health prospective payment demonstration project. 
SUBPART C—OTHER PROVISIONS 
Sec. 4031. Payment cycle standards. 
Sec. 4032. Denials and reconsiderations of claims for home health services, 
extended care services, and post-hospital extended care services. 
Sec. 4033. Permitting disabled individuals to renew entitlement to medicare after 
gainful employment without a 2-year waiting period. 
Sec. 4034. Application of secondary payer provisions to governmental entities. 
Sec. 4035. Publication and notification of policies. 
Sec. 4036. End-stage renal disease amendments. 
Sec. 4037. Medicare hearings and appeals. 
* 
. ' 
, 
Sec. 4038. Rural health medical education demonstration project. 
Sec. 4039. Miscellaneous and technical provisions. 
•, * -S. 
,; 
PART 3—RELATING T
O PART B 
SUBPART A—PROVISIONS RELATING TO PAYMENTS FOR PHYSICIANS* SERVICES 
Sec. 4041. Freeze in payments for physicians' services; extension of sequester order. 
Sec. 4042. General update in payments for physicians' services. 
Sec. 4043. Incentive payments for physicians' services furnished in underserved 
areas. 
Sec. 4044. Adjustment in prevailing charge level for primary care services. 
Sec. 4045. Reduction in prevailing charge level for overpriced procedures. 
Sec. 4046. Limits on payment for ophthalmic ultrasound. 
Sec. 4047. Customary charges for primary care services of new physicians. ..,y.^.. 
Sec. 4048. Payment for physician anesthesia services. 
i 
tk 
Sec. 4049. Fee schedules for radiologist services. 
f 
x 
Sec. 4050. Fee schedules for physician pathology services. 
Sec. 4051. Elimination of markup for certain purchased services. 
Sec. 4052. Collection of past-due amounts owed by physicians who breached con-
tracts under the National Health Service Corps Scholarship Program. 
' Sec. 4053. Elimination of 1975 floor for prevailing physician charges. 
• ° Sec. 4054. Application of maximum allowable actual charge (MAAC). 
*' Sec. 4055. Applying copayment and deductible to certain outpatient physicians' 
services. 
• * Sec. 4056. Physician payment studies. 
SUBPART B—PROVISIONS RELATING TO PAYMENTS FOR OTHER SERVICES 
Sec. 4061. Extension of reduction for other part B items and services payments 
under sequester order. 
Sec. 4062. Payments for durable medical equipment, prosthetic devices, orthotics, 
and prosthetics. 
Sec. 4063. Payment for intraocular lenses. 
Sec. 4064. Clinical diagnostic laboratory tests. 
" *
S .I'M-- 
•
• S 
Sec. 4065. Return on equity payments to outpatient departments. 
Sec. 4066. Payments to hospital outpatient departments for radiology. 
Sec. 4067. Updating maximum rate of payment per visit for independent rural 
health clinics. 
Sec. 4068. Payment for ambulatory surgery at eye, and eye and ear, specialty 
hospitals. 
SUBPART C—EUGIBIUTY AND BENEFITS CHANGES 
Sec. 4070. Coverage of mental health services. 
.p vt; j ' : 
Sec. 4071. Coverage of influenza vaccine and its administration. 
Sec. 4072. Payment for therapeutic shoes for individuals with severe diabetic foot 
disease. 
Sec. 4073. Coverage of certified nurse-midwife services. 
, 
^^ 
» Copy read "Sec. 4052.". 
'"Copy read "Sec. 4053.". 
'' Copy read "Sec. 4054.". 
»
» Copy read "Sec. 4055.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-41 
Sec. 4074. Coverage of social worker services furnished by a health maintenance or-
ganization to its members. 
Sec. 4075. Clarification of coverage of drugs used in immunosuppressive therapy. 
Sec. 4076. Services of a physician assistant. 
Sec. 4077. Psychologist services in clinics. 
Sec. 4078. Provision of offsite comprehensive outpatient rehabilitation services. 
Sec. 4079. Demonstration projects to provide payment on a prepaid, capitated basis 
for community nursing and ambulatory care furnished to medicare 
beneficiaries. 
Sec. 4080. Part B premium. 
, v ; 
^< 
SUBPART D—OTHER PROVISIONS 
Sec. 4081. Submission of claims to supplemental insurance carriers. 
Sec. 4082. Revision of part B hearings. 
Sec. 4083. Provisions relating to Physician Payment Review Commission. 
Sec. 4084. Technical amendments related to certified registered nurse anesthetists. 
Sec. 4085. Miscellaneous and technical provisions. 
PART 4—PEER REVIEW ORGANIZATIONS 
V
^
, 
Sec. 4091. Contract provisions. 
* '--^-^ 
Sec. 4092. Preference in contracting with in-State organizations. 
Sec. 4093. Requiring reasonable notice and opportunity for discussion prior to 
denial of claim. 
Sec. 4094. Peer '^ review norms and education. 
Sec. 4095. Preexclusion hearings. 
Sec. 4096. Limitation of beneficiary liability for services disallowed by peer review 
organizations. 
Sec. 4097. Separate funding levels. 
Subtitle B—Medicaid 
; 
PART 1—EUGIBIUTY AND BENEFITS 
. .• 
, 
Sec. 4101. Medicaid benefits for poor children and pregnant women. 
Sec. 4102. Home and community-based services for the elderly. 
' 
Sec. 4103. Physicians' services furnished by dentists. 
Sec. 4104. Optional medicaid coverage of individuals in certain States '* receiving 
only optional State '* supplementary payments. 
Sec. 4105. Miscellaneous SSI-related amendments. 
Sec. 4106. Clarification of coverage of clinic services furnished to homeless outside 
facility. 
Sec. 4107. Medically needy income levels for certain 2-member couples in 
California.' * 
PART 2—OTHER PROVISIONS 
Sec. 4111. Increasing the maximum annual medicaid payments that may be made 
to the commonwealths and territories. 
Sec. 4112. Adjustment in medicaid payment for inpatient hospital services fur-
nished by disproportionate share hospitals. 
Sec. 4113. HMO-related provisions. 
Sec. 4114. Medicaid waiver for hospice care for AIDS patients. 
Sec. 4115. State demonstration projects. 
Sec. 4116. Waiver authority under the medicaid program for the Northern Mariana 
Islands.' * 
Sec. 4117. Delay quality control sanctions for medicaid. 
Sec. 4118. Technical and miscellaneous amendments. 
Subtitle C—Nursing Home Reform 
PART 1—MEDICARE PROGRAM 
Sec. 4201. Requirements for skilled nursing facilities. 
' ^ 
Sec. 4202. Survey and certification process. 
£j 
Sec. 4203. Enforcement process. 
,H 
Sec. 4204. Effective dates. 
Sec. 4205. Annual report. 
Sec. 4206. Construction. 
' ^ 
'^Copy read "reer". 
'* Copy read "states", and "state", respectively. 
'*Copy read "California.". 
' * Copy read "northern mariana islands.". 
101 STAT. 1330-42 
PUBLIC LAW 100-203—DEC. 22, 1987 
PART 2—MEDICAID PROGRAM 
Sec. 4211. Requirements for nursing facilities. 
Sec. 4212. Survey and certification process. 
Sec. 4213. Enforcement process. 
Sec. 4214. Effective dates. 
' 
Sec. 4215. Annual report. 
Sec. 4216. Construction. 
Sec. 4217. Final regulations with respect to plans of correction or reduction. 
Sec. 4218. Medicaid certifications and recertifications for certain services. 
" " '
^
^ 
Subtitle D—Vaccine Compensation 
Sec. 4301. Short title, reference. 
Sec. 4302. Effective date. 
Sec. 4303. Compensation. 
'•'•: 
Sec. 4304. Petitions. 
Sec. 4305. Citizen's actions. 
Sec. 4306. Vaccine'** administrators. 
Sec. 4307. Court jurisdiction. 
Subtitle E—Rural Health 
.
.
. 
Sec. 4401. Office of Rural Health Policy. 
Sec. 4402. Impact analyses of medicare rules and regulations on small rural 
hospitals. 
S^c. 4403. Set aside for experiments and demonstration projects relating to rural 
health care issues. 
PART l—RELATING ONLY TO PART A 
2 u s e 902 note. 
SEC. 4001. EXTENSION OF REDUCTIONS UNDER SEQUESTER ORDER. 
President o
f U.S. 
Notwithstanding any other provision of law (including any other 
provision of this Act), the reductions in the amount of pajmients 
required under title XVIII of the Social Security Act made by the 
final sequester order issued by the President on November 20, 1987, 
pursuant to section 2520b) of the Balanced Budget Emergency Deficit 
Control Act of 1985 shall continue to be effective (as provided by 
sections 252(aX4XB) and 256(dX2) of such Act) through— 
(1) March 31, 1988, with respect to payments for inpatient 
hospital services under such title (including payments under 
section 1886 of such title attributable or allocated to part A of 
such title); £md 
(2) December 31, 1987, with respect to payments for other 
items and services under part A of such title. 
SEC. 4002. BASIC HOSPITAL PROSPECTIVE PAYMENT RATES. 
(a) BASIC UPDATE FACTOR FOR P P S HOSPITALS.—Clause (i) of sec-
tion 
1886(bX3XB) of the Social Security Act (42 U.S.C. 
1395ww(bX3XB)) is amended by striking "and for fiscal year 1988" in 
subclause (II) and all that follows through the end of such clause and 
inserting after such subclause the following: 
"(III) for fiscal year 1988, 3.0 percent for hospitals located in a 
rural area, 1.5 percent for hospitals located in a large urban 
area (as defined in subsection (dX2XD)), and 1.0 percent for other 
hospitals, 
"(IV) for fiscal year 1989, the market basket percentage in-
crease minus 1.5 percent for hospitals located in a rural area, 
the market basket percentage increase minus 2.0 percent for 
hospitals located in a large urban area, and the market basket 
percentage increase minus 2.5 percent for other hospitals, and 
"(V) for fiscal year 1990 and each subsequent fiscal year, the 
market basket percentage for hospitals in ail areas.". 
'*• Copy read "Vacine". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-43 
0>) LARGE URBAN AREA DEFINED.—The second sentence of section 
1886(dX2XD) of such Act (42 U.S.C. 1395ww(d)(2XD)) ** is amended 
by inserting after "under subsection (a) by regulation;" the follow-
ing: "the term 'large urban area' means, with respect to a fiscal 
year, such an urban area which the Secretary determines (in the 
publication described in subsection (eX5XB) before the fiscal year) 
has a population of more than 1,000,000 (as determined by the 
Secretary based on the most recent available population data pub-
lished by the Bureau of the Census);". 
(c) ADJUSTMENT FOR HOSPITALS IN LARGE URBAN AREAS OR IN 
RURAL AREAS.— 
(1) IN GENERAL.—Section 1886(dX3) of such Act (42 U.S.C. 
1395ww(dX3)) is amended— 
(A) in the matter before subparagraph (A), by striking 
"urban or rural areas" and inserting "large urban, other 
urban, or rural areas"; 
(B) in first sentence of subparagraph (A)— 
(i) by striking "The Secretary" and inserting "(i) For 
discharges occuring in a Hscal year beginning before 
October 1,1987, the Secretary", 
(ii) by striking "each of fiscal years 1985, 1986, 1987, 
and 1988" and inserting "the fiscal year involved", and 
(iii) by striking ", and adjusted for subsequent fiscal 
years in accordance with the final determination of the 
Secretary under subsection (eX4), and adjusted to re-
flect the most recent case-mix data available,"; 
;; .5 
(C) by adding at the end of subparagraph (A) the follow-
ing new clauses: 
"(ii) For discharges occurring in a fiscal year beginning on or 
after October 1, 1987, the Secretary shall compute an average 
standardized amount for hospitals located in a large urban area, 
for hospitals located in a rural area, and for hospitals located in 
urban areas, within the United States and within each region, 
equal to the respective average standardized amount computed 
for the previous fiscal year under this subparagraph increased 
by the applicable percentage increase under 
subsection 
(bX3XBXi) with respect to hospitals located in the respective 
areas for the fiscal year involved. 
"(iii) Average standardized amounts computed under this 
paragraph shall be adjusted to reflect the most recent case-mix 
data available."; and 
(D) in subparagraph (D)— 
(i) by striking "URBAN AND RURAL HOSPITALS" in the 
heading and inserting "HOSPITALS IN DIFFERENT AREAS", 
(ii) in clause (i), by inserting "(or, for discharges 
occurring on or aifter April 1, 1988, in a large urban 
area or other urban area)" after "urbsm area" the first 
place it appears, and 
(iii) in clause (i), by inserting "such" before "an 
urban area" the second place it appears. 
(2) CONFORMING AMENDMENTS.—Section 1886(dX9XA) of such 
Act (42 U.S.C. 1395ww(dX9XA)) is amended— 
(A) in clause (ii)(I), by striking "an urban area, and" and 
inserting "a large urban area,"; 
'""Copy read "(42 U.S.C. 1395www(dX2XD))". 
101 STAT. 1330-44 
PUBLIC LAW 100-203—DEC. 22, 1987 
(B) by redesignating subclause (II) of clause (ii) as 
subclause (III); and 
(C) by inserting after subclause (I) of clause (ii) the follow-
ing new subclause: 
"(II) such rate for hospitals located in other urban areas, 
and". 
(d) ESTABLISHMENT OF REGIONAL FLOOR.—Section 1886(d)(lXAXiii) 
of such Act (42 U.S.C. 1395ww(d)(lXA)(iii)) is amended by inserting 
before the period at the end the following: ", or, if greater for 
discharges occurring during the period beginning on April 1, 1988, 
and ending on September 30, 1990, the sum of (I) 85 percent of the 
national adjusted DRG prospective payment rate determined under 
paragraph (3) for such discharges, and (II) 15 percent of the regional 
adjusted DRG prospective payment rate determined under such 
paragraph". 
(e) UPDATE FOR PPS-EXEMPT HOSPITALS.—Section 1886(bX3XB) of 
such Act (42 U.S.C. 1395ww(bX3XB)) is amended— 
(1) in clause (i), by striking "subparagraph (A) for 12-month 
cost reporting periods beginning during a fiscal year and for 
purposes of, 
r 
(2) in clause (ii), by striking "(ii) For purposes of clause (i)" 
and inserting "(iii) For purposes of this subparagraph", and 
(3) by inserting after clause (i) the following new clause: 
"(ii) For purposes of subparagraph (A), the 'applicable percentage 
increase' for 12-month cost reporting periods beginning during— 
"(I) fiscal year 1986, is 0.5 percent, 
"(II) fiscal year 1987, is 1.15 percent, 
-Wij 
"(III) fiscal year 1988, is the market basket percentage in-
crease minus 2.0 percentage points, and 
"(IV) subsequent fiscal years is the market basket percentage 
increase.". 
(f) RELATED CONFORMING AND TECHNICAL AMENDMENTS.— 
(1) Section 1886 of such Act (42 U.S.C. 1395ww) is further 
amended— 
(A) by adding at the end of subsection (dX2XD) the follow-
ing new sentence: "For purposes of payment under this 
subsection, a hospital is considered to be located in an 
^v,.,;. i^j urban area or large urban area, respectively, if the hospital 
is paid under this subsection at the rate for hospitals 
located in such an area."; 
(B) in subsection (e)(3XB), by striking "or determine"; 
(C) in subsection (eX4)— 
(i) by striking "for fiscal year 1988" and inserting 
*3'^' " 
"for each fiscal year Ot>eginning with fiscal year 1988)', 
(ii) by striking "and shall determine for each subse-
quent fiscal year" and all that follows through "fiscal 
year, and", and 
(iii) by amending the last sentence to read as follows: 
"The appropriate change factor may be different for all 
CB'* S oir^d large urban subsection (d) hospitals, other urban 
subsection (d) hospitals, urban subsection (d) Puerto 
is:>ijR lo t- ' Rico hospitals, rural subsection (d) hospitals, and rural 
subsection (d) Puerto Rico hospitals, and all other hos-
of s "br» 
^ pitals and units not paid under subsection (d), and may 
vary among such other hospitals and units."; and 
(D) in paragraph (5), by striking "or determination" each 
place it appears. , 
• t,••:-::••>.-w<<;:-^ .-A^^ /'-^/.^-v, /.^.o-^' 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-45 
(2) Subsection (a)(l)(B)(ii) of section 107 of the Balanced 
Budget and Emergency Deficit Control Reaffirmation Act of 
1987 (Public Law 100-119) is amended, effective as of the date of 
the enactment of such Act, by inserting ", the target percentage 
and DRG percentage shall be those specified in subsection 
(dXl)(C)(iv) of such section, and the applicable percentage in-
crease in a hospital's target amount shall be deemed to be 0 
percent" before the period at the end. 
(g) EFFECTIVE DATES.— 
(1) PPS HOSPITALS, D
R
G PORTION OF PAYMENT.—In the case of a 
subsection (d) hospital (as defined in paragraph (6))— 
(A) the amendments made by subsections (a) and (c) shall 
apply to payments made under section 1886(a)(l)(A)(iii) of 
the Social Security Act on the basis of discharges occurring 
on or after April 1,1988, and 
(B) for discharges occurring on or after October 1, 1988, 
the applicable percentage increase (described in section 
1886(d)(3XB) of such Act) *' for discharges occurring during 
fiscal year 1987 is deemed to have been such percentage 
increase £is amended by subsection (a). 
(2) PPS SOLE COMMUNITY HOSPITALS, HOSPITAL SPECIFIC PORTION 
OF PAYMENT.—In the case of a subsection (d) hospital which 
receives payments made under section 1886(dXl)(A) of the Social 
Security Act because it is a sole community hospital— 
(A) the amendment made by subsections (a) and (c) shall 
apply to payments under section 1886(dXlXAXii)(I) of the 
Social Security Act made on the basis of discharges occur-
ring during a cost reporting period of a hospital, for the 
hospital's cost reporting period beginning on or after Octo-
ber 1, 1987; 
,.. 
(B) notwithstanding subparagraph (A), for cost reporting 
period beginning during fiscal year 1988, the applicable 
percentage increase (as defined in section 1886(dX3XB) of 
such Act) for the— 
(i) first 51 days of the cost reporting period shall be 0 
percent, 
(ii) next 132 days of such period shall be 2.7 percent, 
and 
(iii) remainder of such period of the cost reporting 
period shall be the applicable percentage increase (as so 
defined, as amended by subsection (a)); and 
(C) for cost reporting periods beginning on or after Octo-
ber 1, 1988, the applicable percentage increase (as so de-
fined) with respect to the previous cost reporting period 
shall be deemed to have been the applicable percentage 
increase (as so defined, as amended by subsection (a)). 
(3) PPS-EXEMPT HOSPITALS.—In the case of a hospital that is 
not a subsection (d) hospital— 
(A) the amendments made by subsection (e) shall apply to 
cost reporting periods beginning on or after October 1,1987; 
(B) notwithstanding subparagraph (A), for the hospital's 
cost reporting period beginning during fiscal year 1988, 
payment under title XVIII of the Social Security Act shall 
be made as though the applicable percentage increase de-
gfst; 
42 u s e 1395WW 
note. 
42 u s e 1395WW 
note. 
«' Copy read "Act))". 
101 STAT. 1330-46 
PUBLIC LAW 100-203—DEC. 22, 1987 
scribed in section 1886(b)(3XB) of such Act were equal to the 
product of 2.7 percent and the ratio of 315 to 366; and 
-: « 
(C) for cost reporting periods beginning on or after Octo-
•
^ = 
ber 1, 1988, the applicable percentage increase (as so de-
fined) with respect to the cost reporting period beginning 
during fiscal year 1988 shall be deemed to have been 2.7 
percent. 
Effective date. 
(4) 
DEFINITION, 
REGIONAL 
FLOOR, 
AND 
TECHNICAL 
AND 
CONFORMING AMENDMENTS.—The amendments made by subsec-
V >. 
tions (b) and (d) and paragraphs (1) and (2) of subsection (0 shall 
take effect on the date of the enactment of this Act. 
(5) TRANSITION FOR LARGE URBAN AREA RATES.—In computing 
the average standardized amount for hospitals located in a large 
, 
urban area or other urban area under section 1886(dX3)(A)(ii) of 
the Social Security Act (as amended by subsection (c)) for fiscal 
year 1988, the reference to "the respective average standardized 
amount computed for the previous fiscal year under this 
subparagraph" is deemed a reference to the average standard-
ized amount computed for hospitals located in an urban area for 
the 51-day period beginning on October 1, 1987. 
. 
(6) DEFINITION.—In this subsection, the term "subsection (d) 
hospital" has the meaning given such term in section 
1886(dX10XB) of the Social Security Act. 
SEC. 4003. INCREASE IN DISPROPORTIONATE SHARE ADJUSTMENT AND 
REDUCTION IN INDIRECT MEDICAL EDUCATION PAYMENTS. 
(a) REDUCTION IN INDIRECT MEDICAL EDUCATION PAYMENTS.— 
(1) Section 1886(dX5XBXii) of the Social Security Act (42 U.S.C. 
1395ww(dX5XBXii)) is amended— 
(A) in subclause (I), by striking "2" and inserting in lieu 
thereof "1.89"; and 
(B) in subclause (II), by striking "1.5" and inserting in 
lieu thereof "1.43". 
(2) 
Section 
1886(dX3XCXii) 
of 
such 
Act 
(42 
U.S.C. 
; , 1395ww(dX3)(CXii)) is amended by inserting "and by section 
* "'' 4003(aXl) of the Omnibus Budget Reconciliation Act of 1987" 
after "1985" each place it appears in subclauses (I) and (II). 
(b) INCREASE I N DISPROPORTIONATE SHARE ADJUSTMENT.—Section 
1886(d)(5XF) of such Act (42 U.S.C. 1395ww(dX5)(B))— 
(1) in clause (iii), by striking "15 percent" and inserting "25 
percent", and 
(2) in clause (ivXD, by striking "the lesser of 15 percent, or". 
(c) 
EXTENSION 
OF DISPROPORTIONATE SHARE ADJUSTMENT.—Sec-
tions 1886(dX2)(CXiv) (42 U.S.C. 1395ww(dX2XCXiv)), 1886(dX3XCXiiXI) 
(42 U.S.C. 
1395ww(dX3XCXiiXI)), 
1886(dX3XCXiiXII) (42 U.S.C. 
1395ww(dX3XCXiiXII)), 
1886(dX5XBXiiXI) 
(42 
U.S.C. 
1395ww(dX5XBXiiXI)), 
1886(dX5XBXiiXII) 
(42 
U.S.C. 
1395ww(dX5XBXiiXII)), 
and 
1886(dX5XFXi) 
(42 
U.S.C. 
1395ww(dX5XFXi)) of the Social Security Act are each amended by 
striking "1989" and inserting in lieu thereof "1990". 
(d) SPECIAL RULE.—In the case of a hospital which— 
(1) consists of 2 inpatient hospital facilities which are more 
than 4 miles apart and each of which is in a separate political 
jurisdiction within the same State and one of which meets the 
criteria under section 1886(dX5XF) of the Social Security Act for 
serving a significantly disproportionate number of low-income 
patients as if that facility were a separate hospital; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-47 
(2) receives payments for inpatient hospital services under 
title XVIII of the Social Security Act which are less than the 
hospital's reasonable costs, 
the Secretary of Health and Human Services, upon application by 
the hospital, may treat each of the facilities of hospital as separate 
hospitals for purposes of applying section 1886(d)(5)(F) of the Social 
Security Act, for discharges occurring on or after October 1, 1988. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply to payments for discharges occurring on or after October 1, 
1988. 
SEC. 4004. PROVISIONS RELATING TO WAGE INDEX. 
(a) SURVEY.—Section 1886(d)(3)(E) of the Social Security Act (42 
U.S.C. 1395ww(d)(3)(E)) is amended by adding at the end the follow-
ing: "Not later than October 1, 1990 (and at least every 36 months 
thereafter), the Secretary shall update the factor under the preced-
ing sentence on the basis of a survey conducted by the Secretary 
(and updated as appropriate) of the wages and wage-related costs of 
subsection (d) hospitals in the United States. To the extent deter-
mined feasible by the Secretary, such survey shall measure the 
earnings and paid hours of employment by occupational category 
and shall exclude data with respect to the wages and wage-related 
costs incurred in furnishing skilled nursing facility services.". 
(b) CLINIC HOSPITAL WAGE INDICES.—In calculating the wage index 
under section 1886(d) of the Social Security Act for purposes of 
making payment adjustments after September 30, 1988, as required 
under paragraphs (2)(H) and (3)(E) of such section, in the case of any 
institution which received the waiver specified in section 602(k) of 
the Social Security Amendments of 1983, the Secretary of Health 
and Human Services shall include wage costs paid to related 
organization employees directly involved in the delivery and 
administration of care provided by the related organization to hos-
pital inpatients. For purposes of the preceding sentence, the term 
"wage costs" does not include costs of overhead or home office 
administrative salaries or any costs that are not incurred in the 
hospital's Metropolitan Statistical Area. 
SEC. 4005. RURAL HOSPITALS. 
(a) REVISION OF STANDARDS FOR INCLUDING A RURAL COUNTY IN AN 
URBAN AREA.— 
(1) TREATING CERTAIN RURAL HOSPITALS ADJACENT TO URBAN 
AREAS AS URBAN HOSPITALS.—Section 1886(d)(8) of the Social 
Security Act (42 U.S.C. 1395ww(d)(8))— 
(A) by redesignating clauses (i) and (ii) of subparagraphs 
(A) and (B) as subclauses (I) and (II), respectively, 
(B) by redesignating subparagraphs (A) and (B) as clauses 
(i) and (ii), respectively, 
(C) by inserting "(A)" after "(8)", and 
(D) by adding at the end the following new subparagraph: 
"(B) The Secretary shall treat a hospital located in a rural county 
adjacent to one or more urban areas as being located in the urban 
metropolitan statistical area to which the greatest number of 
workers in the county commute, i
f
— 
"(i) the rural county would otherwise be considered part of an 
urban area but for the fact that the rural county does not meet 
the standard relating to the rate of commutation between the 
42 u s e 1395WW 
note. 
42 u s e 1395WW 
note. 
101 STAT. 1330-48 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1
3
9
5
W
W 
note. 
42 use 1395tt. 
Regulations. 
-r; 
rural county and the central county or counties of any adjacent 
i
>
f 
urban area; and 
"(ii) either (I) the number of residents of the rural county who 
/f 
commute for employment to the central county or counties of 
any adjacent urban area is equal to at least 15 percent of the 
number of residents of the rural county who are employed, or 
(II) the sum of the number of residents of the rural county who 
commute for employment to the central county or counties of 
,1 
any adjacent urban area and the number of residents of any 
adjacent urban area who commute for employment to the rural 
county is at least equal to 20 percent of the number of residents 
of the rural county who are employed. 
"(C) The Secretary shall make a proportional adjustment in the 
standardized amount determined under paragraph (3) for hospitals 
located in an urban area to assure that the provisions of subpara-
graph (B) do not result in aggregate payments under this section 
that are greater or less than those that would otherwise be made. 
The Secretary shall make such adjustment in payments under this 
section to hospitals located in rural areas as are necessary to assure 
that the aggregate of payments to rural hospitals not affected by 
subparagraph (B) are not changed as a result of the application of 
subparagraph (B).". 
(2) LOCATION OF HOSPITAL.—For purposes of section 1886 of the 
Social Security Act, Watertown Memorial Hospital in Water-
town, Wisconsin is deemed to be located in Jefferson County, 
Wisconsin. 
(3) EFFECTIVE DATE.—This section, and the amendments made 
by paragraph (1), shall apply to discharges occurring on or after 
October 1,1988. 
(b) EXPANSION OF SWING-BED PROGRAM.— 
(1) EXPANSION TO HOSPITALS WITH FEWER THAN lOO BEDS.— 
Section 1883(b)(1) of the Social Security Act (42 U.S.C. 
1395tt(b)(l)) is amended by striking "50 beds" and inserting "100 
beds". 
(2) REQUIREMENTS FOR HOSPITALS WITH MORE THAN 49 BEDS.— 
Section 1883(d) of such Act (42 U.S.C. 1395dd(d)) is amended— 
(A) by inserting "(1)" after "(d)", and 
(B) by adding at the end the following new paragraphs: 
"(2)(A) Any agreement under this section with a hospital with 
more than 49 beds shall provide that no payment may be made for 
extended care services which are furnished to an extended care 
patient after the end of the 5-day period (excluding weekends and 
holidays) beginning on an availability date for a skilled nursing 
facility, unless the patient's physician certifies, within such 5-day 
period, that the transfer of that patient to that facility is not 
medically appropriate on the availability date. The Secretary shall 
prescribe regulations to provide for notice by skilled nursing facili-
ties of availability dates to hospitals which have agreements under 
this section and which are located within the same geographic 
region (as defined by the Secretary). 
"(B) In this paragraph: 
"(i) The term 'availability date' means, with respect to an 
extended care patient at a hospital, any date on which a bed is 
available for the patient in a skilled nursing facility located 
,.!; 
within the geographic region in which the hospital is located. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-49 
te 
"(ii) The term 'extended care patient' means an individual 
being furnished extended care services at a hospital pursuant to 
an agreement with the Secretary under this section. 
"(3) In the case of an agreement for a cost reporting period under 
this section with a hospital that has more than 49 beds, payment 
may not be made in the period for patient-days of extended care 
services that exceed 15 percent of the product of the number of days 
in the period and the average number of licensed beds in the 
hospital in the period.". 
(3) REPORT.—The Secretary of Health and Human Services 
shall report to Congress, not later than February 1, 1989, 
concerning— 
(A) the proportion of admissions to hospitals for extended 
care services under section 1883 of the Social Security Act 
which are denied or approved by a peer review organization 
under section 1154(aXl) of such Act, and 
(B) on recommendations for methods of encouraging hos-
pitals that— 
(i) have a low occupancy rate, 
,;_ 
(ii) are eligible to enter (but have not entered) into an 
agreement under section 1883 of such Act, and 
(iii) are located in areas with a need for additional 
providers of extended care services, 
to enter into such agreements. 
(4) EFFECTIVE DATE.—The amendments made by paragraphs 
(1) and (2) shall apply to agreements under section 1883 of the 
Social Security Act entered into after March 31,1988. 
(c) PAYMENTS TO SOLE COMMUNITY HOSPITALS.— 
(1) Section 1886(d)(5)(C)(ii) of the Social Security Act (42 U.S.C. 
1395ww(dX5)(CXii)) is amended— 
(A) by striking "1988" in the second sentence and insert-
-^* ' 
ing "1990", and 
(B) by inserting after the second sentence the following: 
>>• 
"A subsection (d) hospital that meets the criteria for clas-
sification as a sole community hospital and otherwise 
-
^ 
qualifies for the adjustment authorized by the preceding 
sentence may qualify for such an adjustment without 
regard to the formula by which payments are determined 
for the hospital under paragraph (IXA).". 
(2XA) The amendments made by paragraph (1) shall apply to 
cost reporting periods beginning on or after October 1, 1987 
(B) The Secretary of Health and Human Services shall take 
appropriate steps to ensure that the total amount paid in a 
fiscal year under title XVIII of the Social Security Act by reason 
of the amendment made by paragraph (IXB) does not exceed 
$5,000,000 in the case of fiscal year 1988 and $10,000,000 for 
fiscal year 1989. 
(d) MEDICARE CLASSIFICATION OF RURAL REFERRAL CENTERS.— 
(1) EXTENSION OF CLASSIFICATION.— 
(A) IN GENERAL.—The 
first 
sentence 
of 
section 
1886(dX5XCXiXI) of the Social Security Act (42 U.S.C. 
1395ww(dX5XCXiXI)) is amended by striking "500" and 
-- 
inserting "275". 
(B) EFFECTIVE DATE.—The amendment made by subpara-
graph (A) shall apply to discharges occurring on or after 
April 1,1988. 
(2) STUDY.— 
mil. 
42 use 1395tt 
note. 
42 use 1395tt 
note. 
42 use 1
3
9
5
W
W 
note. 
42 u s e 1
3
9
5
W
W 
note. 
42 use 1
3
9
5
W
W 
note. 
101 STAT. 1330-50 
PUBLIC LAW 100-203—DEC. 22, 1987 
(A) IN GENERAL.—The Secretary of Health and Human 
' . 
Services shall provide for a study of the criteria used for the 
classification of hospitals as rural referral centers under 
/.. 
. 
section 1886(dX5XCXi) of the Social Security Act. The study 
shall include an examination of— 
(i) the extent that hospitals classified as rural refer-
ral centers receive more or less than their actual costs 
of providing inpatient hospital services, and 
(ii) the appropriateness of providing for payment for 
- "^ 
such centers at a rate other than the rate for a hospital 
. ' ' 
located in an other urban area. 
(B) REPORT.—The Secretary shall report to Congress, by 
not later than March 1, 1989, on the study conducted under 
subparagraph (A) and on recommendations for the criteria 
that should be applied under section 1886(dX5XCXi) of the 
Social Security Act for the classification of hospitals as 
rural referral centers for cost reporting periods beginning 
on or after October 1,1989. 
42 u s e 1395WW 
(e) G R A N T PROGRAM FOR RURAL HEALTH C A R E TRANSITION.— 
note. 
(1) The Administrator of the Health Care Financing Adminis-
f 
tration, in consultation with the Assistant Secretary for Health 
(or a designee), shall establish a program of grants to assist 
eligible small rural hospitals and their communities in the 
planning and implementation of projects to modify the type and 
extent of services such hospitals provide in order to adjust for 
one or more of the following factors: 
(A) Changes in clinical practice patterns. 
;. n ^ 
(B) Changes in service populations. 
(C) Declining demand for acute-care inpatient hospital 
,,^. ., 
capacity. 
(D) Declining ability to provide appropriate staffing for 
inpatient hospitals. 
(E) Increasing demand for ambulatory and emergency 
services. 
(F) Increasing demand for appropriate integration of 
community health services. 
(G) The need for adequate access (including appropriate 
transportation) to emergency care and inpatient care in 
areas in which a significant number of underutilized hos-
pital beds are being eliminated. 
(H) The Administrator shall submit a final report on the 
program to the Congress not later than 180 days after all 
projects 
receiving a grant 
under 
the program 
are 
completed. 
,
^ Each demonstration project under this subsection shall dem-
onstrate methods of strengthening the financial and managerial 
capability of the hospital involved to provide necessary services. 
Such methods may include programs of cooperation with other 
health care providers, of diversification in services furnished 
(including the provision of home health services), of physician 
recruitment, and of improved management systems. 
(2) For purposes of this subsection, the term "eligible small 
J, 
rural hospital" *
® means any non-Federal, short-term general 
acute care hospital that— 
• • Copy read " 'eligible small rural hospital' ". 
PUBLIC LAW 100-208—DEC. 22, 1987 
101 STAT. 1330-51 
(A) is located in a rural area (as determined in accordance 
with subsection (d)), 
(B) has less than 100 beds, and 
(C) is not for profit. 
(3)(A) Any eligible small rural hospital that desires to modify 
the type or extent of health care services that it provides in 
order to adjust for one or more of the factors specified in 
paragraph (1) may submit an application to the Governor of the 
State in which it is located. The application shall specify the 
nature of the project proposed by the hospital, the data and 
information on which the project is based, and a timetable (of 
not more than 24 months) for completion of the project. The 
application shall be submitted on or before a date specified by 
the Administrator and shall be in such form as the Adminis-
trator may require. 
(B) The Governor shall transmit any application submitted 
pursuant to subparagraph (A) to the Secretary not later than 30 
days after it is received by the Governor, accompanied by any 
comments with respect to the application that the Governor 
deems appropriate. 
(C) The Governor of a State may designate an appropriate 
State agency to receive and comment on applications submitted 
under subparagraph (A). 
(4) A hospital shall be considered to be located in a rural area 
for purposes of this subsection if it is treated as being located in 
a rural area for purposes of section 1886(d)(3)(D) of the Social 
Security Act. 
(5) In determining which hospitals making application under 
paragraph (3) will receive grants under this subsection, the 
Administrator shall take into account— 
(A) any comments received under paragraph (3)(B) with 
respect to a proposed project; 
(B) the effect that the project will have on— 
(i) reducing expenditures from the Federal Hospital 
Insurance Trust Fund, 
(ii) improving the access of medicare beneficiaries to 
health care of a reasonable quality; 
(C) the extent to which the proposal of the hospital, using 
appropriate data, demonstrates an understanding o
f
— 
(i) the primary market or service area of the hospital, 
and 
(ii) the health care needs of the elderly and disabled 
' 
that are not currently being met by providers in such 
market or area, and 
(D) the degree of coordination that may be expected 
between the proposed project and— 
(i) other local or regional health care providers, and 
(ii) community and government leaders, 
as evidenced by the availability of support for the project (in 
cash or in kind) and other relevant factors. 
(6) A grant to a hospital under this subsection may not exceed 
$50,000 a year and may not exceed a term of 2 years. 
(7XA) Except as provided in subparagraphs (D) and (C), a 
hospital receiving a grant under this subsection may use the 
grant for any of expenses incurred in planning and implement-
ing the project with respect to which the grant is made. 
101 STAT. 1330-52 
PUBLIC LAW 100-203—DEC. 22, 1987 
Reports. 
Reports. 
: 
(B) A hospital receiving a grant under this subsection for a 
project may not use the grant to retire debt incurred with 
respect to any capital expenditure made prior to the date on 
which the project is initiated. 
(C) Not more than one-third of any grant made under this 
subsection may be expended for capital-related costs (as defined 
by the Secretary for purposes of section 1886(aX4) of the Social 
Security Act) of the project. 
. •. 
(8XA) A hospital receiving a grant under this section shall 
K 
furnish the Administrator with such information as the 
Administrator may require to evaluate the project with respect 
to which the grant is made and to ensure that the grant is 
expended for the purposes for which it was made. 
(B) The Administrator shall report to the Congress at least 
once every 6 months on the program of grants established under 
this subsection. The report shall assess the functioning and 
status of the program, shall evaluate the progress made toward 
achieving the purposes of the program, and shall include any 
recommendations the Secretary may deem appropriate with 
respect to the program. In preparing the report, the Secretary 
shall solicit and include the comments and recommendations of 
utJ J private and public entities with an interest in rural health care. 
(C) The Administrator shall submit a final report on the 
program to the Congress not later than 180 days after all 
projects receiving a grant under the program are completed. 
(9) For purposes of carrying out the program of grants under 
this subsection, there are authorized to be appropriated from 
the Federal Hospital Insurance Trust Fund $15,000,000 for each 
of the fiscal years 1989 and 1990. 
,, 
. 
SEC. 4006. PAYMENTS FOR HOSPITAL CAPITAL. 
(a) REDUCTIONS IN PAYMENTS FOR CAPITAL.—Section 1886(gX3XA) 
of the Social Security Act (42 U.S.C. 1395ww(gX3XA)) is amended— 
(A) in clause (ii), by striking ", and" and inserting "on or 
after October 1, 1987, and before January 1,1988,", 
c' 
(B) by striking clause (iii) and inserting the following: 
"(iii) 12 percent for payments attributable to portions of cost 
reporting periods or discharges (as the case may be) in fiscal 
year 1988, occurring on or after January 1,1988, and 
"(iv) 15 percent to portions of cost reporting periods or dis-
charges (as the case may) be occurring during fiscal year 1989.". 
(b) PROSPECTIVE PAYMENT FOR CAPITAL-RELATED COSTS.— 
(1) IN GENERAL.—Paragraph (1) of section 1886(g) of such Act 
(42 U.S.C. 1395ww(g)) is amended to read as follows: 
"(gXlXA) Notwithstanding section 1861(v), instead of any amounts 
that are otherwise payable under this title with respect to the 
reasonable costs of subsection (d) hospitals and subsection (d) Puerto 
Rico hospitals for capital-related costs of inpatient hospital services, 
the Secretary shall, for hospital cost reporting periods beginning on 
or after October 1, 1991, provide for payments for such costs in 
accordance with a prospective pa3mient system established by the 
Secretary. 
•.-. .-s-vv • ••.'•:• v, 
•
•
• u-. ^j--
"(B) Such system— 
"(i) shall provide for (I) a payment on a per discharge basis, 
and (II) an appropriate weighting of such payment amount as 
relates to the classification of the discharge; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-53 
"(ii) may provide for an adjustment to take into account 
variations in the relative costs of capital and construction for 
the different types of facilities or areas in which they are 
located; 
"(iii) may provide for such exceptions (including appropriate 
exceptions to reflect capital obligations) as the Secretary deter-
i 
mines to be appropriate, and 
r 
"(iv) may provide for suitable adjustment to reflect hospital 
occupancy rate. 
"(C) In this paragraph, the term 'capital-related costs' has the 
meaning given such term by the Secretary under subsection (a)(4) as 
of September 30, 1987, and does not include a return on equity 
capital.". 
(2) CONFORMING AMENDMENT.—Section 1886 of such Act is 
amended— 
(A) in subsection (a)(4), by striking "with respect to costs 
^ 
incurred in cost reporting periods beginning prior to Octo-
ber 1 of 1987 (or of such later year £is the Secretary may, in 
.
J i& 
his discretion, select), other capital-related costs, as defined 
by the Secretary" and inserting "other capital-related costs 
:'* 
(as defined by the Secretary for periods before October 1, 
1987)", and 
(B) by striking subparagraph (C) of subsection (gX3). 
to ^•^ (3) EFFECTIVE DATES.—The amendment made by paragraph (1) 
shall take effect on October 1, 1987. The amendments made by 
paragraph (2) shall apply to cost reporting periods beginning on 
or after October 1,1987. 
(c) PROPAC REPORT ON ADJUSTMENT FOR HOSPITAL OCCUPANCY.— 
The Prospective Payment Assessment Commission shall study and 
report to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate, by not 
later than May 1, 1988, on the suitability and feasibility of linking 
gayment for capital-related costs under part A of title XVIII of the 
ocial Security Act to hospital occupancy rates. 
SEC. 4007. REPORTING HOSPITAL INFORMATION. 
' ' 
(a) DEVELOPMENT OF DATA BASE.—The Secretary of Health and 
Human Services (in ^^ this section referred to as the "Secretary") 
shall develop and place into effect not later than June 1, 1989, a 
data base of the operating costs of inpatient hospital services with 
respect to all hospitals under title XVIII of the Social Security Act, 
which data base shall be updated at least once every quarter (and 
maintained for the 12-month period preceding any such update). The 
data base under this subsection may include data from preliminary 
cost reports (but the Secretary shall make available an updata 
analysis of the differences between preliminary and settled cost 
reports). 
O
t
)
) REPORTING OF INFORMATION ELECTRONICALLY.— 
2° (1) Subject to paragraph (2), with respect to hospital cost 
reporting periods beginning on or after October 1, 1989, the 
Secretary shall place into effect a standardized electronic cost 
reporting format for hospitals under the medicare program. 
(2) The Secretary may delay or waive the implementation of 
such format in particular instances where such implementation 
42 u s e 1395WW. 
42 u s e 1395WW 
note. 
42 u s e 1395WW 
note. 
'* Copy read "Services, (in". 
*° Copy read "ELECTRONICALLY.—Subject" 
101 STAT. 1330-54 
PUBLIC LAW 100-203—DEC. 22, 1987 
would result in financial hardship (in particular with respect to 
a small percentage of medicare volume), 
(c) DEMONSTRATION PROJECT.— 
(1) The Secretary of Health and Human Services shall provide 
for a 3-year demonstration project to develop, and determine 
the costs and benefits of establishing a uniform system for the 
reporting by medicare participating hospitals of balance sheet 
Contracts. 
* " and information described in paragraph (2), In contracting the 
^ project, the Secretary shall require hospitals in at least 2 States, 
one of which maintains a uniform hospital reporting system, to 
report such information based on standard information estab-
lished by the Secretary. 
(2) The information described in this paragraph is as follows: 
(A) Hospital discharges (classified by category of service 
and by class of primary payer). 
(B) Patient days (classified by category of service and by 
class of primary payer). 
(C) Licensed beds, staffed beds, and occupancy (by cat-
egory of service). 
f 
(D) Outpatient visits (classified by class of primary payer). 
(E) Inpatient charges and revenues (classified by clsiss of 
primary payer). 
., • ., „. 
(F) Outpatient charges and revenues (classified by class of 
primary payer). 
a. 
(G) Inpatient and outpatient hospital expenses (by cost-
center cl£issifled for operating and capital). 
(H) Reasonable costs. 
(I) Other income. 
(J) Uncompensated care (classified by bad debt and char-
ity care). 
(K) Capital acquisitions. 
(L) Capital assets. 
(3) The Secretary shall develop the system under subsection 
(c) in a manner so as— 
(A) to facilitate the submittal of the information in the 
report in an electronic form, and 
(B) to be compatible with the needs of the medicare 
prospective payment system. 
(4) The Secretary shall prepare and submit, to the Prospective 
Payment Assessment Commission, the Comptroller General, the 
Committee on Ways and Means of the House of Representa-
tives, and the Committee on Finance of the Senate, by not later 
than 45 days after the end of each calendar quarter, data 
collected under the system. 
(5) In paragraph (3): 
(A) The terms "bad debt" and "charity care" have such 
meanings as the Secretary establishes. 
(B) The term "class" means, with respect to payers, the 
programs under this title VIII of the Social Security Act, a 
State plan approved under title XIX of such Act, other 
third party-payers, and self-paying individuals. 
(6) 21 The Secretary shall set aside at least $1,000,000 for each 
of fiscal years 1988, 1989, and 1990 from existing research funds 
»'Copy read "(7)" 
•*;• 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-55 
to develop the format, according to paragraph (1), and at least 
$2,000,000 from program operations funds for data collection 
and analysis, but total funds shall not exceed $15,000,000 over 3 
years. 
(7) 2 2 Tj^g Comptroller General shall analyze the adequacy of 
the existing system for reporting of hospital information and 
the costs and benefits of data reporting under the demonstra-
tion system and will recommend improvements in hospital data 
collection and in analysis and display of data in support of 
policy making. 
^^ (d) CONSULTATION.—The Secretary shall consult representatives 
of the hospital industry in carrying out the provisions of this section. 
SEC. 4008. OTHER PROVISIONS RELATING TO PAYMENT FOR INPATIENT 
HOSPITAL SERVICES. 
(a) MASSACHUSETTS MEDICARE REPAYMENT.—The Secretary of 
Health and Human Services shall not, on or after the date of the 
enactment of this Act, and before January 1, 1989, recoup from, or 
otherwise reduce payments to, hospitals in the State of Massachu-
setts because of alleged overpayments to such hospitals under part 
A of title XVIII of the Social Security Act which occurred during the 
period of the statewide hospital reimbursement demonstration 
project conducted in that State, between October 1, 1982, and June 
30, 1986, under section 402 of the Social Security Amendments of 
1967 and section 222 of the Social Security Amendments of 1972. 
O
o
) CLARIFICATION OF SECTION 18140)) STATE WAIVER AUTHORITY.— 
(1) APPUCATION OF AGGREGATE TEST.—Section 181403)(3)(B) of 
the Social Security Act (42 U.S.C. 1395f(b)(3)(B)) is amended bv 
striking "rate of increase for the previous three-year period' 
and inserting "aggregate rate of increeise from October 1, 1983, 
to the most recent date for which annual data are available". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall take effect on the date of the enactment of this Act. 
(c) CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL SERV-
ICES.—In making payments to hospitals under title XVIII of the 
Social Security Act, the Secretary of Health and Human Services 
shall not make any change in the policy in effect on August 1, 1987, 
with respect to payment under title XVIII of the Social Security Act 
to providers of service for reasonable costs relating to unrecovered 
costs associated with unpaid deductible and coinsurance amounts 
incurred under such title (including criteria for what constitutes a 
reasonable collection effort). 
(d) HOSPITAL OUTUER PAYMENTS AND POUCY.— 
(1) INCREASE IN OUTUER PAYMENTS FOR BURN CENTER DRGS.— 
(A) IN GENERAL.—For discharges classified in diagnosis-
related groups relating to burn cases and occurring on or 
after April 1,1988, and before October 1, 1989, the marginal 
cost of care permitted by the Secretary of Health and 
Human Services under section 1886(dX5XAXiii) of the Social 
Security Act shall be 90 percent of the appropriate per diem 
cost of care or 90 percent of the cost for cost outliers. 
(B) BUDGET NEUTRAUTY.—Subparagraph (A) shall be im-
plemented in a manner that ensures that total payments 
under section 1886 of the Social Security Act are not in-
42 use 1395f 
note. 
42 use 1395f 
note. 
42 use 1
3
9
5
W
W 
note. 
2" Copy read "(8)". 
23 "(J)' Paragraph had wrong indention. 
101 STAT. 1330-56 
PUBLIC LAW 100-203—DEC. 22, 1987 
creased or decreased by reason of the adjustments required 
by such subparagraph. 
' ' 
(2) LIMITATION ON CHANGES IN OUTLIER REGULATIONS.— 
(A) IN GENERAL.—Notwithstanding any other provision of 
law, except as required to implement specific provisions 
required under statute, the Secretary of Health and Human 
Services is not authorized to issue in final form, after the 
date of the enactment of this Act and before September 1, 
1988, any final regulation which changes the method of 
gayment for outlier cases under section 1886(d)(5)(A) of the 
ocial Security Act. 
^ ^ 
(B) PROPAC 24 REPORT.—The chairman of the Prospective 
i^ J 
Payment Assessment Commission shall report to the Con-
gress and the Secretary of Health and Human Services, by 
not later than June 1, 1988, on the method of payment for 
^'',^ 
outlier cases under such section and providing more ade-
^' 
quate and appropriate payments with respect to burn 
outlier cases. 
(3) REPORT ON OUTLIER PAYMENTS.—The Secretary of Health 
and Human Services shall include in the annual report sub-
mitted to the Congress pursuant to section 1875(b) of the Social 
Security Act a comparison with respect to hospitals located in 
an urban area and hospitals located in a rural area in the 
amount of reductions under section 1886(d)(3)(B) of the Social 
Security 
Act 
and 
additional 
payments 
under 
section 
1886(d)(5)(A) of such Act. 
(e) MISCELLANEOUS ACCOUNTING PROVISION.—Effective as if in-
cluded in the enactment of the Omnibus Budget Reconciliation Act 
42 use I395ww 
of 1986, subsection (d) of section 9307 of such Act is amended to read 
^°^- 
as follows: 
"(d) 
MISCELLANEOUS ACCOUNTING PROVISION.—Notwithstanding 
any other provision of law, for purposes of section 1886(d)(1)(A) of 
,, 
the Social Security Act, in the case of a hospital that— 
, *' 
"(1) had a cost reporting period beginning on September 28, 
29, or 30 of 1985, 
"(2) is located in a State in which inpatient hospital services 
were paid in fiscal year 1985 pursuant to a Statewide dem-
onstration project under section 402 of the Social Security 
Amendments of 1967 and section 222 of the Social Security 
Amendments of 1972, and 
"(3) elects, by notice to the Secretary of Health and Human 
,,,, 
, 
Services by not later than April 1, 1988, to have this subsection 
apply, 
during the first 7 months of such cost reporting period the target 
percentage' shall be 75 percent and the 'DRG percentage' shall be 25 
percent, and during the remaining 5 months of such period the 
'target percentage' and the 'DRG percentage' shall each be 50 
percent.'. 
SEC. 4009. MISCELLANEOUS PROVISIONS. 
''"''-
(a) 
RESPONSIBILITIES OF MEDICARE HOSPITALS IN EMERGENCY 
CASES.— 
(1) INCREASE IN CIVIL MONETARY PENALTY.—Section 1867(d)(2) 
of the Social Security Act (42 U.S.C. 1395dd(d)(2)) is amended by 
striking "$25,000" and inserting "$50,000". 
24 "Copy read "PROPAC". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-57 
(2) EXCLUSION FROM MEDICARE PROGRAM FOR VIOLATIONS — 
Section 1867(dKl) of such Act is amended by adding at the end 
the following new sentence: 
"If a civil money penalty is imposed on a responsible physician 
under paragraph (2), the Secretary may impose the sanction de-
scribed in section 1842(jX2)(A) (relating to barring from participation 
in the medicare program) in the same manner as it is imposed under 
section 1842(j).". 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply to actions occurring on or after the date of the 
enactment of this Act. 
(b) DESIGNATION OF PEDIATRIC HOSPITALS AS MEETING CERTIFI-
CATION AS HEART TRANSPLANT FACILITY.—For purposes of determin-
ing whether a pediatric hospital that performs pediatric heart 
transplants meets the criteria established by the Secretary of 
Health and Human Services for facilities in which the heart trans-
plants performed will be considered to meet the requirement of 
section 1862(aXlXA) of the Social Security Act, the Secretary shall 
treat such a hospital as meeting such criteria if— 
(1) the hospital's pediatric heart transplant program is oper-
ated jointly by the hospital and another facility that meets such 
criteria, 
,, 
(2) the unified program shares the same transplant surgeons 
and quality assurance program (including oversight committee, 
patient protocol, and patient selection criteria), and 
(3) the hospital demonstrates to the satisfaction of the 
Secretary that it is able to provide the sp)ecialized facilities, 
services, and personnel that are required by pediatric heart 
transplant patients. 
(c) WAIVER OF INPATIENT LIMITATIONS FOR THE CONNECTICUT HOS-
PICE. ^^—Subsection (a) of section 9307 of the Omnibus Budget Rec-
onciliation Act of 1986 is amended— 
(1) by striking "TEMPORARY" in the heading, and 
(2) by striking "for hospice care provided before October 1, 
r 
1988,". 
" (d) REVISION OF APPOINTMENT PROCESS FOR PROSPECTIVE PAYMENT 
ASSESSMENT COMMISSION.— 
(1) IN GENERAL.—Section 1886(eX6XB) of the Social Security 
Act (42 U.S.C. 1395ww(eX6XB)) is amended— 
* 
(A) in the first sentence, by striking "provide expertise 
and experience in the provision and financing of health 
; 
care" and inserting "include individuals with national rec-
ognition for their expertise in health economics, hospital 
reimbursement, hospital financial management, and other 
related fields, who provide a mix of different professionals, 
broad geographic representation, and a balance between 
urban and rural representatives,"; and 
(B) by striking the last sentence. 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
. 
shall apply to appointments made after the date of the enact-
ment of this Act. 
(e) 
PSYCHOLOGISTS' 
SERVICES 
FURNISHED 
TO 
HOSPITAL 
INPATIENTS.— 
42 u s e 1395dd 
note. 
42 u s e 1395y 
note. 
100 Stat. 1995. 
42 u s e 1395WW 
note. 
** Copy read "UMITATIONS FOR THE CONNECTICUT HOSPICE.". 
101 STAT. 1330-58 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395x 
note. 
42 use 1320b-
note. 
Effective date. 
42 use 1320b-8 
note. 
42 use 1
3
9
5
W
W 
note. 
42 use 1395WW 
note. 
(1) IN GENERAL.—Section 1861(bX3) of such Act (42 U.S.C. 
1395x(bX3)) is amended by inserting "(including clinical 
psychologist (£is defined by the Secretary))" after "others" the 
first place it appears. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply with respect to services furnished on or after 
April 1,1988. 
(f) HOSPITAL CONDITION OF PARTICIPATION RELATED TO INDIVIDUAL 
RESPONSIBLE FOR CARE OF PATIENT.—Section 1861(eX4) of such Act 
(42 U.S.C. 1395x(eX4)) is amended by inserting "with respect to 
whom payment may be made under this title" after "patient", 
(g) DELAY IN REQUIREMENTS RELATING TO HOSPITAL STANDARDS 
F
O
R ORGAN TRANSPLANTS AND STANDARDS FOR ORGAN PROCUREMENT 
AGENCIES.— 
(1) Section 9318(bX2) of the Omnibus Budget Reconciliation 
Act of 1986, as amended by section 107(c) of the Balanced 
Budget and Emergency Deficit (Dontrol Reaffirmation Act of 
1987, is amended by striking "November 21,1987" and inserting 
"March 31,1988". 
(2) The amendment made by paragraph (1) shall be effective 
as if included in the enactment of the Omnibus Budget Rec-
onciliation Act of 1986. 
(h) PROPAC STUDIES AND REPORTS.— 
(1) PROPAC REPORTS ON STUDY OF DRG RATES FOR HOSPITALS IN 
R
U
R
A
L AND URBAN AREAS.—The Prospective Pa3nment Assess-
ment Commission shall evaluate the study conducted by the 
Secretary of Health and Human Services pursuant to section 
603(aX2XCXi) of the Social Security Amendments of 1983 (relat-
ing to the feasibility, impact, and desirability of eliminating or 
phasing out separate urban and rural DRG prospective pay-
ment rates) and report its conclusions and recommendations to 
the Congress not later than March 1,1988. 
(2) PROPAC REPORT ON SEPARATE URBAN PAYMENT RATES.—The 
Prospective Payment Assessment Commission shall evaluate 
' 
the desirability of maintaining separate DRG prospective pay-
ment rates for hospitals located in large urban areas (as defined 
Y ? in section 1886(dX2XD)) of the Social Security Act) and in other 
urban areas, and shall report to Congress on such evaluation 
' 
• not later than January 1,1989. 
(3) 
REPORT ON ADJUSTMENT FOR NON-LABOR COSTS.—The 
Prospective Payment Assessment Commission shall perform an 
analysis to determine the feasibility and appropriateness of 
acljusting the non-wage-related portion of the adjusted average 
standardized amounts under section 1886(dX3) of the Social 
Security Act based on area differences in hospitals' costs (other 
than wage-related costs) and input prices. The Commission shall 
report to the Congress on such analysis by not later than 
October 1,1989. 
(i) SPECIAL RULE.—In the case of New England county metropoli-
tan areas, the Secretarv of Health and Human Services shall apply 
the second sentence of section 1886(dX2XD) of the Social Security 
Act, as amended by section 4001(b) of this subtitle, as though 970,000 
were substituted for 1,000,000. 
(j) TECHNICAL CORRECTIONS.— 
(1) Section 1886(aX4) of the Social Security Act (42 U.S.C. 
1395ww(aX4)) is amended by inserting a comma after "edu-
cational activities". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-59 
(2) Section 
1886(d)(5)(CXiXII) of such 
Act 
(42 U.S.C. 
1395ww(d)(5)(C)(i)(II)) is amended by inserting "index" after 
"case mix" both places it appears. 
(3) Section 1886(dX5XF) of such Act (42 U.S.C. 1395ww(dX5XF)) 
is amended— 
(A) in clause (iXH), by striking "such revenues" the 
second place it appears and inserting "such net inpatient 
care revenues", and 
(B) in clause (ivXI), by striking "subclause (III)" and 
inserting "clause (v)". 
(4) Section 1886(dX9) of such Act (42 U.S.C. 1395ww(dX9)) is 
amended by moving the matter in subparagraph (B) before 
clause (i) 2 ems to the left so the left margin of such matter is 
aligned with the left margin of the matter in subparagraph (A) 
(5) Section 1886(hX4XC) of such Act (42 U.S.C. 1395ww(hX4XC)) 
is amended by striking "subparagraph (E)" and inserting 
"subparagraph (D)". 
(6) Effective as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1986— 
(A) subparagraph (B) of section 9307(cXl) of such Act is 
amended to read as follows: 
"(B) in paragraph (2)— 
"(i) by striking subparagraphs (A) and (B), 
"(ii) in subparagraph (C), by striking 'such subsection' 
and inserting 'of section 1886(d) of the Social Security Act 
(42 U.S.C. 1395ww(d)' and by redesignating such subpara-
graph as subparagraph (A), and 
"(iii) by amending subparagraph (D) to read as follows: 
" '(B) The amendments made by subparagraph (A) apply to 
discharges occurring on or after May 1,1986.' "; 
(B) section 9302(aX2XC) of such Act is amended by strik-
ing "1866(eX5)" and inserting "1886(eX5)"; 
(C) section 9320(hXl) of such Act is amended by striking 
"before the period" and inserting "before the semicolon"; 
(D) section 9321(cX4) of such Act is amended by striking 
"second sentence" and all that follows through "operating 
costs" and inserting "second sentence of section 1886(aX4) of 
the Social Security Act, from the term 'operating costs"; 
(E) the second sentence of section 9335(dX2) of such Act is 
amended by striking "establish" and inserting "designate"; 
and 
(F) section 9321(cX3) of such Act is amended by inserting 
"section 1861(vXlXO) and 1886(gX2) of the Social Security 
Act and" after "implementing". 
(7) Section 218(v) of the Social Security Act (42 U.S.C. 418(v)) is 
amended by striking paragraph (3). 
(8) Effective as if included in the Tax Reform Act of 1986, 
section 1895(dX6XC) of such Act is amended by striking "603" 
and inserting "2203". 
42 use 1395WW. 
42 use 1
3
9
5
W
W 
note. 
42 use 1395WW. 
42 use 1395y. 
42 use 1
3
9
5
W
W 
note. 
42 use 1395rr 
note. 
42 u s e 1
3
9
5
W
W 
note. 
42 use 300bb-6. 
101 STAT. 1330-60 
PUBLIC LAW 100-203—DEC. 22, 1987 
PART 2—PROVISIONS RELATING TO PARTS A 
A N D B 
•^'l! Subpart A—Health Maintenance Organization 
Reforms 
42 u s e 1395mm 
note. 
•'•Pufi'^H: 
42 u s e 1395mm 
note. 
.ji-ddtHm naiJ 
eontracts. 
SEC. 4011. BENEFICIARY PROTECTION. 
(a) 
POST-CONTRACT PROTECTION FOR ENROLLEES WITH ELIGIBLE 
ORGANIZATIONS UNDER ^e THE MEDICARE PROGRAM.— 
(1) Section 1876(cX3) of such Act (42 U.S.C. 1395mm(b)(2)) is 
amended by adding at the end the following new subparagraph: 
"(F) Each eligible organization that provides items and 
services pursuant to a contract under this section shall 
provide assurances to the Secretary that in the event the 
organization ceases to provide such items and services, the 
organization shall provide or arrange for supplemental cov-
erage of benefits under this title related to a pre-existing 
Bi'f'i 
condition with respect to any exclusion period, to all 
individuals enrolled with the entity who receive benefits 
under this title, for the lesser of six months or the duration 
of such period.". 
(2) The amendment made by paragraph (1) shall apply with 
respect to contracts entered into or renewed on or after the date 
of enactment of this Act. 
(b) NOTIFICATION OF TERMINATION OF RISK-SHARING CONTRACT.— 
(1) Section 1876(c)(3) of such Act, as amended by subsection 
(a)(1), is further amended by adding at the end the following 
new subparagraph: 
"(G)(i) Each eligible organization having a risk-sharing contract 
under this section shall notify individuals eligible to enroll with the 
organization under this section and individuals enrolled with the 
organization under this section that— 
"(I) the organization is authorized by law to terminate or 
refuse to renew the contract, and 
"(II) termination or nonrenewal of the contract may result in 
termination of the enrollments of individuals enrolled with the 
organization under this section. 
"(ii) The notice required by clause (i) shall be included in— 
"(I) any marketing materials described in subparagraph (C) 
that are distributed by an eligible organization to individuals 
eligible to enroll under this section with the organization, and 
"(II) any explanation provided to enrollees by the organiza-
tion pursuant to subparagraph (E).". 
(2) The amendment made by paragraph (1) shall apply to 
contracts entered into or renewed on or after the date of the 
enactment of this Act. 
SEC. 4012. PAYMENTS FOR HOSPITAL SERVICES. 
(a) IN GENERAL.—Section 1866(aXl) of such Act (42 U.S.C. 
1395cc(aXl)) is amended by inserting immediately after subpara-
graph (N) the following new subparagraph: 
"(O) in the cgise of hospitals and skilled nursing facilities, to 
accept as pajonent in full for inpatient hospital and extended 
** Copy read "UNDER". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-61 
care services that are covered under this title and are furnished 
• 
to any individual enrolled with an eligible organization with a 
risk-sharing contract under section 1876 the amounts (in the 
case of hospitals) or limits (in the case of skilled nursing facili-
ties) that would be made as a payment in full under this title if 
the individuals were not so enrolled.". 
(b) REPEAL.—Section 1876(g)(4) of the Social Security Act (42 
U.S.C. 1395mm(g)(4)) is repealed. 
(c) IMPLEMENTATION.—The Secretary of Health and Human Serv-
ices shall provide (in machine readable form) to eligible organiza-
tions under section 1876 of the Social Security Act medicare DRG 
rates for payments required by the amendment made by paragraph 
(2) and data on cost pass-through items for all inpatient services 
provided to medicare beneficiaries enrolled with such organizations. 
(d) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply to admissions occurring on or after April 1, 1988, 
or, if later, the earliest date the Secretary can provide the informa-
tion required under subsection (c) in machine readable form. 
SEC. 40L3. TWO-YEAR EXTENSION ON PERIOD FOR BENEFIT STABILIZA-
TION. 
(a) IN GENERAL.—Section 1876(g)(5) of the Social Security Act 
(42 U.S.C. 1395mm(g)(5)), as added by the amendment made by 
section 2350(a)(2) of the Deficit Reduction Act of 1984, is amended by 
striking "four" and inserting "six". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall be effective as if included in the enactment of the amendment 
made by section 2350(a)(2) of the Deficit Reduction Act of 1984. 
SEC. 4014. CIVIL MONEY PENALTIES AND INTERMEDIATE SANCTIONS 
AGAINST HMOS/CMPS. 
Section 1876(i)(6) of the Social Security Act (42 U.S.C. 1395mm) is 
amended to read as follows: 
"(6)(A) If the Secretary determines that an eligible organization 
with a contract under this section— 
"(i) fails substantially to provide medically necessary items 
and services that are required (under law or under the contract) 
to be provided to an individual covered under the contract, if 
the failure has adversely affected (or has substantial likelihood 
of adversely affecting) the individual; 
"(ii) imposes premiums on individuals enrolled under this 
section in excess of the premiums permitted; 
"(iii) acts to expel or to refuse to re-enroll an individual in 
violation of the provisions of this section; 
I i 
"(iv) engages in any practice that would reasonably be ex-
pected to have the effect of denying or discouraging enrollment 
(except as permitted by this section) by eligible individuals with 
. , 
the organization whose medical condition or history indicates a 
need for substantial future medical services; 
"(v) misrepresents or falsifies information that is furnished— 
"(I) to the Secretary under this section, or 
"(II) to an individual or to any other entity under this 
section; or 
"(vi) fails to comply with the requirements of subsection 
(gXeXA); 
the Secretary may provide for any of the remedies described in 
subparagraph (B). 
42 u s e 1395mm 
note. 
42 u s e 1395mm 
note. 
42 u s e 1395mm 
note. 
Contracts. 
101 STAT. 1330-62 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) The remedies described in this subparagraph are— 
"(i) civil money penalties of not more than $25,000 for each 
"' 
determination under subparagraph (A) or, with respect to a 
determination under clause (iv) or (v)(I), of not more than 
$100,000 for each such determination, 
"(ii) suspension of enrollment of individuals under this section 
' 
after the date the Secretary notifies the organization of a 
determination under subparagraph (A) and until the Secretary 
' 
is satisfied that the basis for such determination has been 
corrected and is not likely to recur, or 
"(iii) suspension of payment to the organization under this 
section for individuals enrolled after the date the Secretary 
notifies the organization of a determination under subpara-
graph (A) and until the Secretary is satisfied that the basis for 
such determination has been corrected and is not likely to 
recur. 
The provisions of section 1128A (other than subsections (a) and (b)) 
shall apply to a civil money penalty under clause (i) in the same 
manner as they apply to a civil money penalty under that section.", 
42 u s e 1395mm 
SEC. 4015. MEDICARE PAYMENT DEMONSTRATION PROJECTS. 
(a) MEDICARE INSURED GROUP DEMONSTRATION PROJECTS.— 
Contracts. 
(1) The Secretary of Health and Human Services (in this 
subsection referred to as the "Secretary") may provide for 
capitation demonstration projects (in this subsection referred to 
as "projects") with an entity which is an eligible organization 
with a contract with the Secretary under section 1876 of the 
Social Security Act or which meets the restrictions and require-
ments of this subsection. The Secretary may not approve a 
project unless it meets the requirements of this subsection. 
(2) The Secretary may not conduct more than 3 projects and 
may not expend, from funds under title XVIII of the Social 
Security Act, more than $600,000,000 in any fiscal year for all 
such projects. 
(3) The per capita rate of payment under a project— 
(A) may be based on the adjusted average per capita cost 
(as defined in section 1876(a)(4) of the Social Security Act) 
determined only with respect to the group of individuals 
involved (rather than with respect to medicare beneficiaries 
generally), but 
(B) the rate of payment may not exceed the lesser of— 
\ *' ""' 
(i) 95 percent of the adjusted average per capita cost 
described in subparagraph (A), or 
(iiXD in the 4th year or 5th year of a project, 115 
percent of the adjusted 
average per capita cost (as 
defined in section 1876(aX4) of such Act) for classes of 
individuals described in section 1876(aXlXB) of that 
. , .^f • . 
Act, or 
(II) in any subsequent year of a project, 95 percent of 
.i.» 
the adjusted 
average per capita cost (as defined 
in 
section 1876(aX4)) for such cleisses. 
(4) If the payment amounts made to a project are greater than 
the costs of the project (as determined by the Secretary or, if 
applicable, on the basis of adjusted community rates described 
in section 1876(eX3) of the Social Security Act), the project— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-63 
(A) may retain the surplus, but not to exceed 5 percent of 
the average adjusted per capita cost determined in accord-
ance with paragraph (3XA), and 
(B) with respect to any additional surplus not retained by 
the project, shall apply such surplus to additional benefite 
for individuals served by the project or return such surplus 
to the Secretary. 
(5) Enrollment under the project shall be voluntary. Individ-
uals enrolled with the project may terminate such enrollment 
as of the beginning of the first calendar month following the 
date on which the request is made for such termination. Upon 
such termination, such individuals shall retain the same rights 
to other health benefits that such individuals would have had if 
they had never enrolled with the project without any exclusion 
or waiting period for pre-existing conditions. 
(6) The requirements of— 
(A) subsection (cX3XC) (relating to dissemination of 
information), 
(B) subsection (cX3XE) (annual statement of rights), 
(C) subsection (cX5) (grievance procedures), 
(D) subsection (c)(6) (on-going quality), 
(E) subsection (gX6) (relating to prompt payment of 
claims), 
(F) subsection (iX3XA) and (B) (relating to access to 
information and termination notices), 
(G) subsection (iX6) (relating to providing necessary serv-
ices), and 
(H) subsection (iX7) (relating to agreements with peer 
Contracts. 
review organizations), 
of section 1876 of the Social Security Act shall apply to a project 
in the same manner as they apply to eligible organizations with 
risk-sharing contracts under such section, 
(7) The benefits provided under a project must be at least 
actuarially equivalent to the combination of the benefits avail-
able under title XVIII of the Social Security Act and the 
benefits available through any alternative plans in which the 
individual can enroll through the the employer. The project 
shall guarantee the actuarial value of benefits available under 
the employer plan for the duration of the project. 
(8) A project shall comply with all applicable State laws. 
(9) The Secretary may not authorize a project unless the 
entity offering the project demonstrates to the satisfaction of 
the Secretaiy that it has the necessary financial reserves to pay 
for any liability for benefits under the project (including those 
liabilities for health benefits under medicare and any supple-
mental benefits). 
(10) The Comptroller General shall monitor projects under 
Reports. 
this subsection and shall report periodically (not less often than 
once every year) to the (Dommittee on Finance of the Senate and 
the CJommittee on Energy and Commerce and Committee on 
Ways and Means of the House of Representatives on the status 
of such projects and the affect on such projects of the require-
ments of this section and shall submit a final report to each 
such committee on the results of such projects. 
(b) PAYMENT METHODOLOGY REFORM DEMONSTRATIONS PROJECTS.— 
(1) The Secretary of Health and Human Services (in this 
subsection referred to as the "Secretary") is specifically au-
101 STAT. 1330-64 
PUBLIC LAW 100-203—DEC. 22, 1987 
thorized to conduct demonstration projects under this subsec-
tion for the purpose of testing alternative payment methodolo-
gies pertaining to capitation payments under title XVIII of the 
Social Security Act, including— 
(A) computing adjustments to the average per capita cost 
under section 1876 of such Act on the basis of health status 
or prior utilization of services, and 
.t\p /
•
^
r 
(B) accounting for geographic variations in cost in the 
adjusted average per capita costs applicable to an eligible 
organization under such section which differs from pay-
ments currently provided on a county-by-county basis. 
(2) No project may be conducted under this subsection— 
(A) with an entity which is not an eligible organization 
(as defined in section 1876(b) of the Social Security Act), and 
(B) unless the project meets all the requirements of 
subsections (c) and (iX3) of section 1876 of such Act. 
Appropriation 
(3) There are authorized to be appropriated to carry out 
authorization. 
projects Under this subsection $5,000,000 in each of fiscal years 
1989 and 1990. 
(c) APPLICATION OF PROVISIONS.—The provisions of subsection (a)(2) 
and the first sentence of subsection (b) of section 402 of the Social 
Security Amendments of 1967 shall apply to the demonstration 
projects under this section in the same manner as they apply to 
experiments under subsection (a)(1) of that section. 
42 u s e 1320a-7a 
SEC. 4016. DELAY IN EFFECTIVE DATE IN PHYSICIAN INCENTIVE RULES 
note. 
FOR HEALTH MAINTENANCE ORGANIZATIONS. 
Section 9313(c)(2)(B) of the Omnibus Budget Reconciliation Act of 
100 Stat. 2002. 
1986 is amended by striking "April 1, 1989" and inserting "April 1, 
1990". 
42 u s e 1395mm 
SEC. 4017. GAO STUDY AND REPORTS ON MEDICARE CAPITATION. 
(a) STUDY.—The Comptroller General shall conduct a study on 
medicare capitation rates that shall include an analysis and assess-
ment of— 
(1) the current method for computing per capita rates of 
payment under section 1876 of the Social Security Act (includ-
ing the method for determining the United States per capita 
cost); 
(2) the method for establishing relative costs for geographic 
areas and the data used to establish age, sex, and other 
weighting factors; 
(3) ways to refine the calculation of adjusted average per 
capita costs under section 1876 of such Act (including making 
adjustments for health status or prior utilization of services and 
improvements in the definition of geographic areas); 
Contracts. 
(4) the extent to which individuals enrolled with organizations 
with a risk-sharing contract with the Secretary under section 
1876 of such Act differ in utilization and cost from fee-for-
service beneficiaries and ways for modifying enrollment pat-
terns through program changes or for reflecting the differences 
in rates through group experience rating or other means; 
(5) approaches for limiting the liability of the contracting 
organization under section 1876 of such Act in catastrophic 
cases: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-65 
s 
(6) ways of establishing capitation rates on a basis other than 
fee-for-service experience in areas with high prepaid market 
penetration; and 
.j«i»« 
(7) methods for providing the rate levels necessary to main-
tain access to quality prepaid services in rural or medically 
underserved areas (while maintaining cost savings), 
(b) REPORTS. 
V 
(1) Not later than January 1 of 1989 and 1990, the Comptrol-
ler General shall submit to the Committee on Finance of the 
0 
Senate and the Committee on Energy and Commerce and 
Committee on Ways and Means of the House of Representatives 
interim reports on the progress of the study conducted under 
subsection (a). 
^ 
(2) Not later than January 1, 1991, the Comptroller General 
shall submit to each such committee a final report on the 
g 
results of such study. 
SEC. 4018. SPECIAL RULES. 
(a) ASSIGNMENT OF MEMBERS FOR HIP 
HEALTH MAINTENANCE 
ORGANIZATION.—Section 1876(f) of such Act (42 U.S.C. 1395mm(f)) is 
amended by redesignating paragraph (3) as paragraph (4) and by 
inserting after paragraph (2) the following new paragraph: 
"(3)(A) An eligible organization described in subparagraph (B) 
may elect, for purposes of determining the compliance of a subdivi- 
., ,r 
.. 
sion, subsidiary, or affiliate described in subparagraph (BXiii) with 
.jr. 
the requirement of paragraph (1) for the period before October 1, 
.-a% 
1992, to have members of the subdivision, subsidiary, or affiliate 
considered to be members of the parent organization. 
"(B) An eligible organization described in this subparagraph is an 
eligible organization which— 
"(i) is described in section 1903(mX2XBXiii); 
"(ii) has members who have a collectively bargained contrac-
tual right to obtain health benefits from the organization; 
"(iii) elects to provide benefits under a risk-sharing contract Contracts. 
to individuals residing in a service area, who have a collectively 
bargained contractual right to obtain benefits from the 
organization, through a subdivision, subsidiary, or affiliate 
which itself is an eligible organization serving the area and 
which is owned or controlled by the parent eligible organization; 
and 
T 
"(iv) has assumed any risk of insolvency and quality assur-
ance with respect to individuals receiving benefits through such 
a subdivision, subsidiary, or affiliate.". 
(b) EXTENSION OF WAIVERS FOR SOCIAL HEALTH MAINTENANCE 
ORGANIZATIONS.— 
(1) The Secretary of Health and Human Services shall extend 
without interruption, through September 30,1992, the approval 
of waivers granted under subsection (a) of section 2355 of the 
Deficit Reduction Act of 1984 for the demonstration project 
described in subsection (b) of that section, subject to the terms 
and conditions (other than duration of the project) established 
under that section (as amended by paragraph (2) of this subsec-
tion). 
(2) Section 2355(bX5) of the Deficit Reduction Act of 1984 is 
98 Stat. 1103. 
amended by inserting "and in succeeding years" after "third 
year". 
101 STAT. 1330-66 
PUBLIC LAW 100-203—DEC. 22, 1987 
98 Stat. 1103. 
(3) Section 2355(dX2) of the Deficit Reduction Act of 1984 is 
amended by striking "final" and inserting "interim". 
Reports. 
(4) The Secretary of Health and Human Services shall submit 
•'* a final report to the Congress on the project referred to in 
paragraph (1) not later than March 31,1993. 
(c) TREATMENT OF MICHIGAN BLUE CARE HMO NETWORK UNDER ^^ 
50 PERCENT RULE.—Blue Care, Inc., a nonprofit corporation which is 
indirectly owned and operated by Blue Cross and Blue Shield of 
Michigan, Inc. and which enrolls individuals for the purpose of 
providing them with health care services through assignment to 
health maintenance organizations which are indirectly or wholly 
owned and operated by Blue Cross and Blue Shield of Michigan, Inc., 
is deemed to meet the requirement of section 1876(fKl) of the Social 
Security Act (relating to limitation on enrollment of medicare and 
medicaid beneficiaries with an eligible organization) if— 
(1) such requirement would be met if applied to all individuals 
enrolled with (or otherwise assigned to) each of such health 
maintenance organizations, and 
(2) not more than 20 percent of the number of individuals who 
are members of (or otherwise assigned to) each such organiza-
tion consists of individuals who are entitled to benefits under 
title XVIII of the Social Security Act. 
(d) TEMPORARY WAIVER FOR WATTS HEALTH FOUNDATION.—Section 
42 use 1395mm 9312(c)(3) of the Omnibus Budget Reconciliation Act of 1986 is 
note. 
amended by adding at the end the following new subparagraph: 
Grants. 
"(D) TREATMENT OF CERTAIN WAIVERS.—In t h e CaSC of an 
eligible organization (or successor organization) that is de-
scribed in clauses (i) and (ii) of subparagraph (C) and that 
• e • 
N received a grant or grante totaling at least $3,000,000 in 
fiscal year 1987 under section 329(dXlXA) or 330(dXl) of the 
Public Health Service Act— 
"(i) before January 1, 1990, section 1876(f) of the 
Social Security Act shall not apply to the organization; 
"(ii) beginning on January 1, 1990, the Secretary of 
Health and Human Services shall waive the require-
ment of such section with respect to the organization 
if— 
"(I) before such date, the organization has 
submitted to the Secretary a schedule for the 
organization to comply with the requirement of 
section 1876(fKl) of such Act, and the Secretary has 
found such schedule to be reasonable and has ap-
proved such schedule; and 
V •• 
• ' 
^ 
"(II) periodically after such date, the Secretary 
reviews the organization's compliance with such 
schedule and determines that the organization has 
complied, or made significant progress towards 
compliance, with such schedule; and 
"(iii) after January 1, 1990, if the Secretary has 
approved a schedule under clause (iiXD and has deter-
mined, in a periodic review under clause (iiXII), that 
> 
. 
the organization has not complied, or made significant 
progress towards compliance, with such schedule, the 
•
> 
Secretary may provide for a sanction described in sec-
*' Copy read "UNDER". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-67 
tion 1876(fX3) of the Social Security Act effective with 
respect to individuals enrolling with the organization 
after the date the Secretary notifies the organization of 
such noncompliance.". 
Subpart B—Home Health Quality 
SEC. 4021. CONDITIONS 
OF 
PARTICIPATION 
FOR 
HOME 
HEALTH 
AGENCIES. 
(a) DEFINITION OF HOME HEALTH AGENCY.—Section 1861(o)(6) of 
the Social Security Act (42 U.S.C. 1395x(o)(6)) is amended by insert-
ing "the conditions of participation specified in section 1891(a) and" 
after "meets". 
(b) CONDITIONS OF PARTICIPATION.—Title XVIII of such Act is 
amended by adding at the end the following new section: 
"CONDITIONS OF PARTICIPATION FOR HOME HEALTH AGENCIES; HOME 
HEALTH QUAUTY 
"SEC. 1891. (a) The conditions of participation that a home health 
42 USC I395bbb. 
agency is required to meet under this subsection are as follows: 
"(1) The agency protects and promotes the rights of each 
individual under its care, including each of the following rights: 
"(A) The right to be fully informed in advance about the 
care and treatment to be provided by the sigency, to be fully 
informed in advance of any changes in the care or treat-
ment to be provided by the agency that may affect the 
individual's well-being, and (except with respect to an 
individual adjudged incompetent) to participate in planning 
care and treatment or changes in care or treatment. 
"(B) The right to voice grievances with respect to treat-
ment or care that is (or fails to be) furnished without 
'-•"' 
discrimination or reprisal for voicing grievances. 
"(C) The right to confidentiality of the clinical records 
described in section 1861(oX3). 
"(D) The right to have one's property treated with 
respect. 
"(E) The right to be fully informed orally and in writing 
(in advance of coming under the care of the agency) of— 
"(i) all items and services furnished by (or under 
arrangements with) the agency for which payment may 
be made under this title, 
"(ii) the coverage available for such items and serv-
ices under this title, title XIX, and any other Federal 
program of which the agency is reasonably aware, 
"(iii) any charges for items and services not covered 
under this title and any charges the individual may 
have to pay with respect to items and services fur-
; 
nished by (or under arrangements with) the agency, 
and 
"(iv) any changes in the charges or items and services 
described in clause (i), (ii), or (iii). 
"(F) The right to be fully informed in writing (in advance 
of coming under the care of the agency) of the individual's 
rights and obligations under this title. 
101 STAT. 1330-68 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(G) The right to be informed of the availability of the 
State home health agency hot-line established under sec-
lu . 
tion 1864(a). 
"(2) The agency notifies the State entity responsible for the 
licensing or certification of the agency of a change in— 
"(A) the persons with an ownership or control interest (as 
defined in section 1124(a)(3)) in the agency, 
m.iP'-M 
"(B) the persons who are officers, directors, agents, or 
managing employees (as defined in section 1126(b)) of the 
agency, and 
"(C) the corporation, association, or other company 
, J
* ' 
responsible for the management of the agency. 
•'* Such notice shall be given at the time of the change and shall 
include the identity of each new person or company described in 
'
S
J 
the previous sentence. 
"(3XA) The agency must not use as a home health aide (on a 
full-time, temporary, per diem, or other basis), any individual 
who is not a licensed health care professional (as defined in 
subparagraph (F)) to provide items or services described in 
section 1861(m) on or after January 1, 1990, unless the individ-
.M?(-0;= ;/3US^ 
ual— 
"(i) has completed a training and competency evaluation 
program, or a competency evaluation program, that meets 
the minimum standards established by the Secretary under 
subparagraph (D), and 
"(ii) is competent to provide such items and services. 
For purposes of clause (i), an individual is not considered to 
have completed a training and competency evaluation program, 
or a competency evaluation program if, since the individual's 
most recent completion of such a program, there has been a 
continuous period of 24 consecutive months during none of 
which the individual provided items and services described in 
section 1861(m) for compensation. 
"(B)(i) The agency must provide, with respect to individuals 
used as a home health aide by the agency as of July 1, 1989, for 
a competency evaluation program (as described in subpara-
graph (A)(i)) and such preparation as may be necessary for the 
individual to complete such a program by January 1, 1990. 
"(ii) The agency must provide such regular performance 
review and regular in-service education as assures that individ-
uals used to provide items and services described in section 
1861(m) are competent to provide those items and services. 
"(C) The agency must not permit an individual, other than in 
a training and competency evaluation program that meets the 
minimum standards established by the Secretary 
under 
subparagraph (D), to provide items or services of a type for 
which the individual has not demonstrated competency. 
"(DXi) The Secretary shall establish minimum standards for 
the programs described in subparagraph (A) by not later than 
October 1,1988. 
"(ii) Such standards shall include the content of the curricu-
lum, minimum hours of training, qualification of instructors, 
and procedures for determination of competency. 
"(iii) Such standards may permit approval of programs of-
fered by or in home health agencies, as well as outside agencies 
(including employee organizations), and of programs in effect on 
the date of the enactment of this section; except that they may 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-69 
not provide for the approval of a program offered by or in a 
home health agency which has been determined to be out of 
compliance with the requirements specified in or pursuant to 
section 1861(o) or subsection (a) within the previous 2 years, 
"(iv) Such standards shall permit a determination that an 
individual who has completed (before July 1, 1989) a training 
and competency evaluation program or a competency evalua-
tion program shall be deemed for purposes of subparagraph (A) 
to have completed a program that is approved by the Secretary 
under the standards established under this subparagraph if the 
Secretary determines that, at the time the program was offered, 
the program met such standards. 
"(E) In this paragraph, the term 'home health aide' means 
any individual who provides the items and services described in 
section 1861(m), but does not include an individual— 
"(i) who is a licensed health professional (as defined in 
subparagraph (F)), or 
"(ii) who volunteers to provide such services without 
monetary compensation. 
"(F) In this paragraph, the term 'licensed health professional' 
means a physician, physician assistant, nurse practitioner, 
physical, speech, or occupational therapist, registered profes-
sional nurse, licensed practical nurse, or licensed or certified 
social worker. 
"(4) With respect to durable medical equipment furnished to 
rt 
individuals for whom the agency provides items and services, 
suppliers of such equipment do not use (on a full-time, tem-
porary, per diem, or other basis) any individual who does not 
meet minimum training standards (established by the Secretary 
by October 1, 1988) for the demonstration and use of any such 
equipment furnished to individuals with respect to whom pay-
ments may be made under this title. 
"(5) The agency includes an individual's plan of care required 
under section 186l(m) as part of the clinical records described in 
- 
section 1861(o)(3). 
"(6) The agency operates and provides services in compliance 
with all applicable Federal, State, and local laws and regula-
tions (including the requirements of section 1124) and with 
accepted professional standards and principles which apply to 
professionals providing items and services in such an agency. 
"(b) It is the duty and responsibility of the Secretary to assure 
that the conditions of participation and requirements specified in or 
pursuant to section 1861(o) and subsection (a) of this section and the 
enforcement of such conditions and requirements are adequate to 
protect the health and safety of individuals under the care of a home 
health agency and to promote the effective and efficient use of 
public moneys.". 
(c) EFFECTIVE DATE.—Except as otherwise provided, the amend- 
42 use I395x 
ments made by subsections (a) and (b) shall apply to home health 
^°^-
agencies as of the first day of the 18th calendar month that begins 
after the date of the enactment of this Act. 
SEC. 4022. STANDARD AND EXTENDED SURVEY. 
(a) IN GENERAL.—Section 1891 of the Social Security Act (as added 
by section 4021) is amended by adding at the end the following new 
subsections: 
101 STAT. 1330-70 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(c)(1) Any agreement entered into or renewed by the Secretary 
pursuant to section 1864 relating to home health agencies shall 
provide that the appropriate State or local agency shall conduct, 
without any prior notice, a standard survey of each home health 
agency. Any individual who notifies (or causes to be notified) a home 
health agency of the time or date on which such a survey is 
scheduled to be conducted is subject to a civil money penalty of not 
to exceed $2,000. The Secretary shall provide for imposition of civil 
money penalties under this clause in a manner similar to that for 
the imposition of civil money penalties under section 1128A. The 
Secretary shall review each State's or local agency's procedures for 
scheduling and conduct of standard surveys to assure that the State 
or agency has taken all reasonable steps to avoid giving notice of 
such a survey through the scheduling procedures and the conduct of 
the surveys themselves. 
"(2)(A) Except as provided in subparagraph (B), each home health 
agency shall be subject to a standard survey not later than 15 
months after the date of the previous standard survey conducted 
under this paragraph. The statewide-'^ average interval between 
standard surveys of any home health agency shall not exceed 12 
months. 
"(B) If not otherwise conducted under subparagraph (A), a stand-
ard survey (or an abbreviated standard survey) of an agency— 
"(i) may be conducted within 2 months of any change of 
a 
ownership, administration, or management of the agency to 
determine whether the change has resulted in any decline in 
the quality of care furnished by the agency, and 
"(ii) shall be conducted within 2 months of when a significant 
number of complaints have been reported with respect to the 
agency to the Secretary, the State, the entity responsible for the 
;. licensing of the agency, the State or local agency responsible for 
maintaining a toll-free hotline and investigative unit (under 
section 1864(a)), or any other appropriate Federal, State, or local 
agency. 
"(C) A standard survey conducted under this paragraph with 
respect to a home health agency— 
"(i) shall include (to the extent practicable), for a case-mix 
stratified sample of individuals furnished items or services by 
5
; 
the agency— 
"(I) visits to the homes of such individuals, but only with 
the consent of such individuals, for the purpose of evaluat-
''.- 
ing (in accordance with a standardized reproducible assess-
ment instrument (or instruments) approved by the Sec-
retary under subsection (d)) the extent to which the quality 
and scope of items and services furnished by the agency 
' > 
attained and maintained the highest practicable functional 
capacity of each such individual as reflected in such individ-
y...' 
ual's written plan of care required under section 1861(m) 
and clinical records required under section 1861(o)(3); and 
"(II) a survey of the quality of care and services furnished 
by the agency as measured by indicators of medical, nurs-
ing, and rehabilitative care; 
"(ii) shall be based upon a protocol that is developed, tested, 
and validated by the Secretary not later than January 1, 1989; 
and 
"(iii) shall be conducted by an individual— 
"• Copy read "Statewide". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-71 
"(I) who meets minimum qualifications established by the 
Secretary not later than July 1, 1989, 
"(II) who is not serving (or has not served within the 
previous 2 years) as a member of the staff of, or as a 
consultant to, the home health agency surveyed respecting 
compliance with the conditions of participation specified in 
or pursuant to section 1861(o) or subsection (a) of this 
section, and 
"(III) who has no personal or familial financial interest in 
the home health agency surveyed. 
"(D) Each home health agency that is found, under a standard 
survey, to have provided substandard care shall be subject to an 
extended survey to review and identify the policies and procedures 
which produced such substandard care and to determine whether 
the agency has complied with the conditions of participation speci-
fied in or pursuant to section 1861(o) or subsection (a) of this section. 
Any other agency may, at the Secretary's or State's discretion, be 
subject to such an extended survey (or a partial extended survey). 
The extended survey shall be conducted immediately after the 
standard survey (or, if not practical, not later than 2 weeks after the 
date of completion of the standard survey). 
"(E) Nothing in this paragraph shall be construed as requiring an 
extended (or partial extended) survey as a prerequisite to imposing a 
sanction against an agency under subsection (e) on the basis of the 
findings of a standard survey. 
"(d)(1) Not later than January 1, 1989, the Secretary shall des-
ignate an assessment instrument (or instruments) for use by an 
agency in complying with subsection (cX2XCXI). 
"(2XA) Not later than January 1, 1991, the Secretary shall— 
"(i) evaluate the assessment process, 
"(ii) report to Congress on the results of such evaluation, and 
"(iii) based on such evaluation, make such modifications in 
the assessment process as the Secretary determines are appro-
priate. 
"(B) The Secretary shall periodically update the evaluation con-
ducted under subparagraph (A), report the results of such update to 
Congress, and, based on such update, make such modifications in the 
assessment process as the Secretary determines are appropriate. 
"(3) The Secretary shall provide for the comprehensive training of 
State and Federal surveyors in matters relating to the performance 
of standard and extended surveys under this section, including the 
use of any assessment instrument (or instruments) designated under 
paragraph (1).". 
(b) EFFECTIVE DATE.—Except as otherwise specifically provided in 
section 1891(d) of the Social Security Act (as added by subsection (a)), 
the amendment made by subsection (a) shall become effective on the 
first day of the 18th calendar month to begin after the date of the 
enactment of this Act. 
SEC. 4023. ENFORCEMENT. 
Section 1891 of the Social Security Act (as added by section 4021 
and amended by section 4022) is further amended by adding at the 
end the following new subsections: 
"(eXD If the Secretary determines on the basis of a standard, 
extended, or partial extended survey or otherwise, that a home 
health agency that is certified for participation under this title is no 
longer in compliance with the requirements specified in or pursuant 
Reports. 
Reports. 
42 u s e 1395bbb 
note. 
91-194 O - 90 - 28 : QL.3 Part 2 
101 STAT. 1330-72 
PUBLIC LAW 100-203—DEC. 22, 1987 
to section 1861(o) or subsection (a) and determines that the defi-
ciencies involved immediately jeopardize the health and safety of 
the individuals to whom the agency furnishes items and services, 
the Secretary shall take immediate action to remove the jeopardy 
and correct the deficiencies through the remedy specified in subsec-
tion (fK2XA)(iii) or terminate the certification of the agency, and 
may provide, in addition, for 1 or more of the other remedies 
described in subsection (f)(2)(A). 
"(2) If the Secretary determines on the basis of a standard, 
extended, or partial extended survey or otherwise, that a home 
health agency that is certified for participation under this title is no 
longer in compliance with the requirements specified in or pursuant 
to section 1861(o) or subsection (a) and determines that the defi-
ciencies involved do not immediately jeopardize the health and 
safety of the individuals to whom the agency furnishes items and 
services, the Secretary may (for a period not to exceed 6 months) 
impose intermediate sanctions developed pursuant to subsection (f), 
in lieu of terminating the certification of the agency. If, after such a 
period of intermediate sanctions, the agency is still no longer in 
compliance with the requirements specified in or pursuant to sec-
tion 1861(o) or subsection (a), the Secretary shall terminate the 
certification of the agency. 
"(3) If the Secretary determines that a home health agency that is 
certified for participation under this title is in compliance with the 
requirements specified in or pursuant to section 1861(o) or subsec-
tion (a) but, as of a previous period, did not meet such requirements, 
the Secretary may provide for a civil money penalty under subsec-
tion (f)(2)(A)(i) for the days in which it finds that the agency was not 
in compliance with such requirements. 
"(4) The Secretary may continue payments under this title with 
respect to a home health agency not in compliance with the require-
ments specified in or pursuant to section 1861(o) or subsection (a) 
over a period of not longer than 6 months, i
f
— 
,. 
"(A) the State or local survey agency finds that it is more 
appropriate to take alternative action to assure compliance of 
the agency with the requirements than to terminate the certifi-
cation of the agency, 
"(B) the agency has submitted a plan and timetable for 
corrective action to the Secretary for approval and the Sec-
retary approves the plan of corrective action, and 
"(C) the agency agrees to repay to the Federal Government 
payments received under this subparagraph if the corrective 
: i irf ''tp^'i '? 
action is not taken in accordance with the approved plan and 
.,;. . 
timetable. 
The Secretary shall establish guidelines for approval of corrective 
actions requested by home health agencies under this subparagraph. 
"(fKD The Secretary shall develop and implement, by not later 
than April 1, 1989— 
"(A) a range of intermediate sanctions to apply to home 
health agencies under the conditions described in subsection (e), 
and 
"(B) appropriate procedures for appealing determinations 
relating to the imposition of such sanctions. 
"(2XA) The intermediate sanctions developed under paragraph (1) 
shall include— 
"(i) civil money penalties for each day of noncompliance, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-73 
-
= 
"(ii) suspension of all or part of the payments to which a 
• 
home health agency would otherwise be entitled under this 
title with respect to items and services furnished by a home 
health agency on or after the date on which the Secretary 
determines that intermediate sanctions should be imposed 
«
i '• 
pursuant to subsection (e)(2), and 
h 
"(iii) the appointment of temporary management to over-
1 
see the operation of the home health agency and to protect 
and Eissure the health and safety of the individuals under 
the care of the agency while improvements are made in 
order to bring the agency into compliance with all the 
requirements specified in or pursuant to section 1861(o) or 
subsection (a). 
,y- The temporary management under clause (iii) shall not be 
terminated until the Secretary has determined that the agency 
, 
has the management capability to ensure continued compliance 
,., 
-, 
with all the requirements referred to in that clause. 
' 
"" T 
"(B) The sanctions specified in subparagraph (A) are in addition to 
sanctions otherwise available under State or Federal law and shall 
not be construed as limiting other remedies, including any remedy 
available to an individual at common law. 
"(C) A finding to suspend payment under subparagraph (A)(ii) 
shall terminate when the Secretary finds that the home health 
agency is in substantial compliance with all the requirements speci-
fied in or pursuant to section 1861(o) and subsection (a). 
"(3) The Secretary shall develop and implement, by not later than 
April 1, 1989, specific procedures with respect to the conditions 
under which each of the intermediate sanctions developed under 
paragraph (1) is to be applied, including the amount of any fines and 
the severity of each of these sanctions. Such procedures shall be 
designed so as to minimize the time between identification of defi-
ciencies and imposition of these sanctions and shall provide for the 
imposition of incrementally more severe fines for repeated or uncor-
rected deficiencies.". 
(b) EFFECTIVE DATE.—Except as otherwise specifically provided in 
42 use I395bbb 
sulasections (e) and (f) of section 1891 of the Social Security Act (as "ot^. 
added by subsection (a)), the amendment made by subsection (a) 
shall become effective on the first day of the 18th calendar month to 
begin after the date of the enactment of this Act. 
SEC. 4024. REQUIREMENT THAT INDIVIDUAL BE CONFINED TO HOME. 
(a) PART A.—Section 1814(a) of the Social Security Act (42 U.S.C. 
1395f(a)) is amended by adding at the end the following: "For 
purposes of paragraph (2XC), an individual shall be considered to be 
confined to his home' if the individual has a condition, due to an 
^ \, 
illness or injury, that restricts the ability of the individual to leave 
his or her home except with the assistance of another individual or 
the aid of a supportive device (such as crutches, a cane, a wheel-
chair, or a walker), or if the individual has a condition such that 
leaving his or her home is medically contraindicated. While an 
individual does not have to be bedridden to be considered 'confined 
to his home', the condition of the individual should be such that 
there exists a normal inability to leave home, that leaving home 
requires a considerable and taxing effort by the individual, and that 
absences of the individual from home are infrequent or of relatively 
short duration, or are attributable to the need to receive medical 
treatment.". 
101 STAT. 1330-74 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395f 
note. 
42 use 1395aa 
note. 
(b) PART B.—Section 1835(a) of such Act (42 U.S.C. 1395n(a)) is 
amended by adding at the end the following: "For purposes of 
paragraph (2)(A), an individual shall be considered to be 'confined to 
his home' if the individual has a condition, due to an illness or 
injury, that restricts the ability of the individual to leave his or her 
home except with the assistance of another individual or the aid of a 
supportive device (such as crutches, a cane, a wheelchair, or a 
walker), or if the individual has a condition such that leaving his or 
her home is medically contraindicated. While an individual does not 
have to be bedridden to be considered 'confined to his home', the 
condition of the individual should be such that there exists a normal 
inability to leave home, that leaving home requires a considerable 
and taxing effort by the individual, and that absences of the individ-
ual from home are infrequent or of relatively short duration, or are 
attributable to the need to receive medical treatment.". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply to items and services provided on or after 
January 1,1988. 
SEC. 4025. HOME HEALTH TOLL-FREE HOTLINE AND INVESTIGATIVE 
UNIT. 
(a) IN GENERAL.—Section 1864(a) of the Social Security Act (42 
U.S.C. 1395aa(a)) is amended by adding at the end the following: 
"Any agreement under this subsection shall provide for the appro-
priate State or local agency to maintain a toll-free hotline (1) to 
collect, maintain, and continually update information on home 
health agencies located in the State or locality that are certified to 
participate in the program established under this title (which 
information shall include any significant deficiencies found with 
respect to patient care in the most recent certification survey 
conducted with respect to the agency, when that survey was com-
pleted, whether corrective actions have been taken or are planned, 
and the sanctions, if any, imposed under this title with respect to 
the agency) and (2) to receive complaints (and answer questions) 
with respect to home health agencies in the State or locality. Any 
such agreement shall provide for such agency to maintain a unit for 
investigating such complaints that possesses enforcement authority 
and has access to survey and certification reports, information 
gathered by any private accreditation agency pursuant to an agree-
ment with the Secretary under section 1864, and consumer medical 
records (but only with the consent of the consumer or his or her 
legal representative).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to agreements entered into or renewed on 
or after the date of enactment of this Act. 
SEC. 4026. HOME HEALTH AGENCY COST LIMITS. 
(a) DATA USED TO DETERMINE LIMITS.— 
(1) Section 1861(vXlXL) of the Social Security Act (42 U.S.C. 
1395x(vXlXL)) is amended by adding at the end the following 
new clause: 
"(iii) In establishing limits under this subparagraph, the Secretary 
shall— 
"(I) utilize a wage index that is based on audited wage data 
obtained from home health sigencies, and 
s 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-75 
42 use 1395x 
note. 
Reports. 
42 use 1395n 
note. 
.'. 
"(ID base such limits on the most recent audited wage data 
available, which data may be for cost reporting periods begin-
ning no earlier than July 1,1985.". 
(2) The amendment made by paragraph (1) shall apply to cost 
reporting periods beginning on or after July 1,1988. 
(b) STUDY OF LIMITS.—The Secretary of Health and Human Serv-
ices shall study and report to the Congress, not later than June 1, 
1988, on— 
(1) whether the separate schedules of cost limits currently 
applied to home health agencies under title XVIII of the Social 
Security Act located in urban and rural areas accurately reflect 
differences in the costs of urban and rural home health agen-
j
f
c 
cies, and 
(2) the appropriateness of modifying such limits to take into 
account the proportion of agency patients who are from urban 
and rural areas. 
SEC. 4027. HOME HEALTH PROSPECTIVE PAYMENT DEMONSTRATION 
PROJECT. 
(a) IN GENERAL.—The Secretary of Health and Human Services (in 
this section referred to as the "Secretary") shall provide for a 
demonstration project to develop and test alternative methods of 
paying home health agencies on a prospective basis for services 
furnished under the medicare and medicaid programs. The project 
shall be designed in a manner to enable the Secretary to evaluate 
the effects of various methods of prospective payment (including 
payments on a per-visit, per-case, and per-episode basis) on program 
expenditures, access to, and quality of, home health care, and home 
health agency operations. The Secretary shall assure that services Contracts. 
are first furnished under the project not later than July 1,1988, and, 
for this purpose, the Secretary may reinstate a previously awarded 
contract, or award a sole source contract, to carry out the project. 
(b) FUNDING.—The provisions of subsection (a)(2) and the first 
sentence of subsection (b) of section 402 of the Social Security 
Amendments of 1967 shall apply to the demonstration project under 
subsection (a) of this section as they apply to experiments under 
< 
subsection (a)(1) of that section. 
(c) REPORT.—The Secretary shall submit to Congress, not later 
than one year after the date of the enactment of this Act, an interim 
report on the demonstration project and, not later than four years 
after the date of the enactment of this Act, a final report on the 
results of the project. 
Subpart C—Other Provisions 
SEC. 4031. PAYMENT CYCLE STANDARDS. 
(a) PAYMENT FLOOR STANDARDS.— 
(1) Section 1816(c) of the Social Security Act (42 U.S.C. 
1395h(c)) is amended by adding at the end the following new 
•- 
pars^aph: 
"(3XA) Each agreement under this section shall provide that no 
payment shall be issued, mailed, or otherwise transmitted with 
respect to any claim submitted under this title within the applicable 
number of calendar days after the date on which the claim is 
received. 
"(B) In this paragraph, the term 'applicable number of calendar 
days' means— 
101 STAT. 1330-76 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395h 
note. 
C!ontracts. 
Regulations. 
42 u s e 1395h 
note. 
"(i) with respect to claims received in the 3-month period 
•
f
. 
beginning July 1,1988,10 days, and 
"(ii) with respect to claims received in the 12-month period 
K
< !>ii :>ai, ^; 
» e beginning October 1,1988,14 days.".27»> 
'^-; 
(2) Section 1842(c) of such Act (42 U.S.C. 1395u(c)) is amended 
.; ,-v;5 
by adding at the end the following new paragraph: 
eontracts. 
"(3)(A) Each contract under this section which provides for the 
disbursement of funds, as described in subsection (a)(1)(B), shall 
provide that no payment shall be issued, mailed, or otherwise 
transmitted with respect to any claim submitted under this title 
within the applicable number of calendar days after the date on 
which the claim is received. 
"(B) In this paragraph, the term 'applicable number of calendar 
days' means— 
"(i) with respect to claims received in the 3-month period 
beginning July 1,1988,10 days, and 
ai;f;' )/;.;-f. m 
"(u) with respect to claims received in the 12-month period 
beginning October 1, 1988, 14 days.''.^"* 
(3XA) The amendments made by paragraphs (1) and (2) shall 
apply to claims received on or after July 1,1988. 
(B) The Secretary of Health and Human Services shall pro-
vide for such timely amendments to agreements under section 
1816 of the Social Security Act and contracts under section 1842 
of such Act, and regulations, to such extent as may be necessary 
to implement the provisions of this subsection on a timely basis, 
(b) PROHIBITION OF OTHER POUCIES INTENDED TO SLOW DOWN 
MEDICARE PAYMENTS.—Notwithstanding any other provision of law, 
«{ir'j 
except as specifically provided in this section, the Secretary of 
Health and Human Services is not authorized to issue, after the date 
of the enactment of this Act, and before October 1, 1990, any final 
regulation, instruction, or other policy change which is primarily 
intended to have the effect of slowing down claims processing, or 
dela3dng payment of claims, under title XVIII of the Social Security 
Act. 
42 use I395h 
(c) BUDGET CONSIDERATIONS.—For purposes of section 202 of the 
note. 
Balanced Budget and Emergency Deficit Control Reaffirmation Act 
of 1987, this section is a necessary (but secondary) result of a 
significant policy change. 
SEC. 4032. DENIALS AND RECONSIDERATIONS OF CLAIMS FOR HOME 
HEALTH SERVICES, EXTENDED CARE SERVICES, AND POST-
HOSPITAL EXTENDED CARE SERVICES. 
(a) NOTIFICATION AND PHYSICIAN REVIEW.—Section 1816 of the 
Social Security Act (42 U.S.C. 1395h) is amended by adding at the 
end the following new subsection: 
"(j) An agreement with an agency or organization under this 
section shall require that, with respect to a claim for home health 
services, extended care services, or post-hospital extended care serv-
ices submitted by a provider to such agency or organization that is 
denied, such agency or organization— 
"(1) furnish the provider and the individual with respect to 
whom the claim is made with a written explanation of the 
denial and of the statutory or regulatory basis for the denial; 
and 
jdt- 
"(2) promptly notify such individual and the provider of 
disposition of such reconsideration.". 
- • 
< . j^ * 
' Copy read "days.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-77 
(b) PERFORMANCE STANDARDS FOR FISCAL INTERMEDIARIES AND 
CARRIERS.—Section 1816(f) of such Act (42 U.S.C. 1395h(f)) is 
amended by adding at the end the following: "Such standards and 
criteria shall include with respect to claims for services furnished 
under this part by any provider of services other than a hospital 
whether such agency or organization is able to process 75 percent of 
reconsiderations within 60 days (except in the case of the fiscal year 
1989, 66 percent of reconsiderations) and 90 percent of reconsider-
ations within 90 days and the extent to which its determinations are 
reversed on appeal.". 
(c) EFFECTIVE DATE.— 
(IXA) The amendment made by subsection (a) shall apply with 
respect to claims received on or after January 1,1988. 
(B) The amendment made by subsection (b) shall apply with 
t 
respect to claims filed on or after October 1,1988. 
(2) The Secretary of Health and Human Services shall provide 
for such timely amendments to agreements under section 1816 
and contracts under section 1842 of the Social Security Act, and 
regulations, to such extent as may be necessary to implement 
the amendments made by subsections (a) and (b) on a timely 
basis. 
42 use 1395h 
note. 
Contracts. 
Regulations. 
•'••3^---
SEC. 4033. PERMITTING DISABLED INDIVIDUALS TO RENEW ENTITLE-
MENT TO MEDICARE AFTER GAINFUL EMPLOYMENT WITH. 
OUT A 2.YEAR WAITING PERIOD. 
(a) IN GENERAL.— 
(1) Section 226(0 of the Social Security Act (42 U.S.C. 426(f)) is 
amended by inserting before the period at the end the following: 
", unless the physical or mental impairment which is the basis 
for disability is the same as (or directly related to) the physical 
or mental impairment which served as the bsisis for disability in 
such previous period". 
(2XA) The amendment made by subsection (a) shall apply to 42 USC 426 note. 
months beginning after the end of the 60-day period beginning 
on the date of enactment of this Act. 
(B) The amendment made by subsection (a) shall not apply so 
as to include (for the purposes described in section 226(f) of the 
Social Security Act) monthly benefits paid for any month in a 
previous period (described in that section) that terminated 
before the end of the 60-day period described in paragraph (1). 
SEC. 4034. APPLICATION 
OF 
SECONDARY 
PAYER 
PROVISIONS 
TO 
GOVERNMENTAL ENTITIES. 
(a) IN GENERAL.—Section 1862(bX4XBXi) of the Social Security Act 
(42 U.S.C. 1395y(bX4XBXi)), as added by the amendment made by 
, , . . . 
section 9319(a) of the Omnibus Budget Reconciliation Act of 1986, is 
amended by striking "section 5000(b) of the Internal Revenue (Dode 
of 1986" and inserting "subsection (b) of section 5000 of the Internal 
Revenue Code of 1986 without regard to subsection (d) of such 
section". 
Oa) EFFECTIVE DATE.—The amendment made by subsection (a) 42 use I395y 
shall be effective as if included in the enactment of section 9319(a) of note. 
the Omnibus Budget Reconciliation Act of 1986. 
SEC. 4035. PUBLICATION AND NOTIFICATION OF POLICIES. 
(a) 
REQUIRING 
PUBUCATION 
OF INTERMEDIARY 
AND CARRIER 
BUDGET METHODOLOGY.— 
Federal 
Register, 
publication. 
101 STAT. 1330-78 
PUBLIC LAW 100-203—DEC. 22, 1987 
Effective date. 
42 use 1395h 
note. 
-^' 
(1) Section 1816(cXl) of the Social Security Act (42 U.S.C. 
1395h(cXl)) is amended by adding at the end the following 
sentence: "The Secretary shall cause to have published in the 
Federal Register, by not later than September 1 before each 
fiscal year, data, standards, and methodology to be used to 
establish budgets for fiscal intermediaries under this section for 
that fiscal year, and shall cause to be published in the Federal 
Register for public comment, at least 90 days before such data, 
standards, and methodology are published, the data, standards, 
and methodology proposed to be used.". 
(2) Section 1842(cXl) of such Act (42 U.S.C. 1395u(cXl)) is 
amended by adding at the end the following sentence: "The 
Secretary shall cause to have published in the Federal Register, 
•i 
by not later than September 1 before each fiscal year, data, 
standards, and methodology to be used to establish budgets for 
carriers under this section for that fiscal year, and shall cause 
to be published in the Federal Register for public comment, at 
least 90 days before such data, standards, and methodology are 
published, the data, standards, and methodology proposed to be 
used.". 
(3) The amendments made by this section shall take effect on 
the date of the enactment of this Act and shall apply to budgets 
for fiscal years beginning with fiscalyear 1989. 
(b) PuBUCATiON AS REGULATIONS OF SIGNIFICANT PouciES.—Sec-
tion 1871(a) of such Act (42 U.S.C. 1395hh(a)) is amended— 
(1) by inserting "(1)" after "(a)"; and 
(2) by adding at the end the following new paragraph: 
"(2) No rule, requirement, or other statement of policy (other than 
a national coverage determination) that establishes or changes a 
substantive legal standard governing the scope of benefits, the 
pajrment for services, or the eligibility of individuals, entities, or 
organizations to furnish or receive services or benefits under this 
- 
- i- 
title shall take effect unless it is promulgated by the Secretary by 
regulation under paragraph (1).". 
(c) MISCELLANEOUS PUBUCATION AND INFORMATION ACCESS PROVI-
SIONS.—Section 1871 of such Act (42 U.S.C. 1395hh) is amended by 
adding at the end the following new subsection: 
"(cXD The Secretary shall publish in the Federal Register, not less 
frequently than every 3 months, a list of all manual instructions, 
interpretative rules, statements of policy, and guidelines of general 
applicability which— 
"(A) are promulgated to carry out this title, but 
"(B) are not published pursuant to subsection (aXD and have 
not been previously published in a list under this subsection. 
Effective date. 
"(2) Effective June 1, 1988, each fiscal intermediary and carrier 
administering claims for extended care, post-hospital extended care, 
home health care, and durable medical equipment benefits under 
this title shall make available to the public all interpretative mate-
rials, guidelines, and clarifications of policies which relate to pay-
ments for such benefits. 
^- 
"(3) The Secretary shall to the extent feasible make such changes 
• 
in automated data collection and retrieval by the Secretary and 
fiscal intermediaries with agreements under section 1816 as are 
necessary to make easily accessible for the Secretary and other 
appropriate parties a data base which fairly and accurately reflects 
the provision of extended care, post-hospital extended care and 
home health care benefits pursuant to this title, including such 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-79 
categories as benefit denials, results of appeals, and other relevant 
factors, and selectable by such categories and by fiscal intermediary, 
service provider, and region.". 
SEC. 4036. END-STAGE RENAL DISEASE AMENDMENTS. 
(a) IMPLEMENTATION OF PRIMARY PAYER REQUIREMENTS FOR END-
STAGE RENAL DISEASE PROGRAM.— 
(1) Section 1862(b)(2XA) of the Social Security Act (42 U.S.C. 
J, 
1395y(bX2XA)) is amended by striking "(ii)" and all that follows 
through "under this title" and inserting "(ii) can reasonably be 
expected to be made under such a plan". 
(2) The amendment made by paragraph (1) shall apply with 
respect to items and services furnished on or after 30 days after 
the date of the enactment of this Act. 
(b) LIMITATION OF MINIMUM UTIUZATION RATE REQUIREMENT FOR 
END-STAGE RENAL DISEASE TRANSPLANTATIONS.—The last sentence 
of section 1881(bXl) of such Act (42 U.S.C. 1395rr(bXl)) is amended 
by striking "covered procedures and for self-dialysis training pro-
grams" and inserting "transplantations". 
(c) EXTENSION OF DEADUNE FOR ESTABUSHING PROTOCOLS ON 
REUSE OF DIALYSIS FILTERS AND OTHER DIALYSIS SUPPLIES AS IT 
RELATES TO THE REUSE OF BLOODUNES.— 
(IXA) Section 9335(kX2) of the Omnibus Budget Reconciliation 
Act of 1986 is amended by inserting "(or July 1, 1988, with 
respect to protocols that relate to the reuse of bloodlines)" after 
"October 1,1987". 
(B) The amendment made by subparagraph (A) shall be effec-
tive as if included in the enactment of section 9335(k)(2) of the 
Omnibus Budget Reconciliation Act of 1986. 
(2) Section 1881(fK7XB) of the Social Security Act (42 U.S.C. 
1395rr(f)(7XB)) is amended by inserting "(or July 1, 1988, with 
respect to protocols that relate to the reuse of bloodlines)" after 
"January 1,1988". 
(d) STUDIES OF END-STAGE RENAL DISEASE PROGRAM.— 
(1) The Secretary of Health and Human Services (in this 
sult)section referred to as the "Secretary") shall arrange for a 
study of the end-stage renal disease program within the medi-
care program. 
(2) Among other items, the study shall address— 
(A) access to treatment by both individuals eligible for 
medicare benefits and those not eligible for such benefits; 
(B) the quality of care provided to end-stage renal disease 
beneficiaries, as measured by clinical indicators, functional 
* 
status of patients, and patient satisfaction; 
(C) the effect of reimbursement on quality of treatment; 
(D) major epidemiological and demographic changes in 
the end-stage renal disease population that may affect 
access to treatment, the quality of care, or the resource 
requirements of the program; and 
(E) the adequacy of existing data systems to monitor 
these matters on a continuing basis. 
(3) The Secretary shall submit to Congress, not later than 3 
years after the date of the enactment of this Act, a report on the 
study. 
(4) The Secretary shall request the National Academy of 
Sciences, acting through the Institute of Medicine, to submit an 
application to conduct the study described in this section. If the 
Effective date. 
42 u s e 1395y 
note. 
42 u s e 1395rr 
note. 
42 u s e 1395rr 
note. 
42 u s e 1395rr 
note. 
Reports. 
101 STAT. 1330-80 
PUBLIC LAW 100-203—DEC. 22, 1987 
>'.;j 
42 u s e 1395ff 
note. 
Ifi 
Academy submits an acceptable application, the Secretary shall 
, ' 
enter into an appropriate arrangement with the Academy for 
the conduct of the study. If the Academy does not submit an 
acceptable application to conduct the study, the Secretary may 
request one or more appropriate nonprofit private entities to 
'-<i submit an application to conduct the study and may enter into 
an appropriate arrangement for the conduct of the study by the 
.'-) entity which submits the best acceptable application. 
: '^' 
(5) Section 1881 of the Social Security Act (42 U.S.C. 1395rr) is 
' 
amended— 
(A) in subsection (c)(2)(F), by striking "and subsection (g)", 
/' 'iv • 
(B) by striking the last sentence of subsection (c)(6), 
-?r' 
(C) by striking subsection (g), and 
(D) by redesignating subsection (h), as added by section 20 
of the Medicare and Medicaid Patient and Program Protec-
tion Act of 1987 (Public Law 100-93), as subsection (g). 
SEC. 4037. MEDICARE HEARINGS AND APPEALS. 
(a) MAINTAINING CURRENT SYSTEM FOR HEARINGS AND APPEALS.— 
Any hearing conducted under section 1869(b)(1) of the Social Secu-
rity Act prior to the earliest of the date on which the Secretary of 
Health and Human Services submits the report required to be 
submitted by the Secretary under subsection (l))(l) or September 1 
•
5 ' • ;) 
shall be conducted by Administrative Law Judges of the Office of 
Hearings and Appeals of the Social Security Administration in the 
same manner as are hearings conducted under section 205(b)(1) of 
' ' ' ' ' 
such Act. 
'
^
*
*
'
^ 
(b) STUDY AND REPORT ON USE OF TELEPHONE HEARINGS.— 
(1) The Secretary of Health and Human Services and the 
Comptroller General of the United States shall each conduct a 
• 
study on holding hearings under section 1869(b)(1) of the Social 
'9 
Security Act by telephone and shall each report the results of 
the study not later than 6 months after the date of enactment of 
; {•%.. >::;r! ,; 
this Act. 
" 
*'• 
(2) The studies under paragraph (1) shall focus on whether 
telephone hearings allow for a full and fair evidentiary hearing, 
in general, or with respect to any particular category of claims 
and shall examine the possible improvements to the hearing 
process (such as cost-effectiveness, convenience to the claimant, 
and reduction in time under the process) resulting from the use 
of such hearings as compared to the adoption of other changes 
to the process (such as expansions in staff and resources). 
42 u s e 1395WW 
SEC. 4038. RURAL 
HEALTH 
MEDICAL 
EDUCATION DEMONSTRATION 
note. 
PROJECT. 
(a) IN GENERAL.—The Secretary of Health and Human Services (in 
this section referred to as the ' Secretary") shall enter into agree-
ments with four sponsoring hospitals submitting applications under 
this subsection to conduct demonstration projects to assist resident 
physicians in developing field clinical experience in rural areas. 
(b) NATURE OF PROJECT.—Under a demonstration project con-
.iff:i^sSi ducted under subsection (a), a sponsoring hospital entering into an 
agreement with the Secretary under such subsection shall enter into 
arrangements with a small rural hospital to provide to such rural 
hospital, for a period of one to three months of training, physicians 
(in such number as the agreement under subsection (a) may provide) 
who have completed one year of residency training. 
- . ,, . 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-81 
(c) SELECTION.—In selecting from among applications submitted 
under subsection (a), the Secretary shall ensure that four small 
rural hospitals located in different counties participate in the dem-
onstration project and that— 
(1) two of such hospitals are located in rural counties of more 
than 2,700 square miles (one of which is east of the Mississippi 
River and one of which is west of such river); and 
(2) two of such hospitals are located in rural counties with (as 
o 
determined by the Secretary) a severe shortage of physicians 
-
* 
(one of which is east of the Mississippi River and one of which is 
west of such river). 
(d) CLARIFICATION OF PAYMENT.—For purposes of section 1886 of 
the Social Security Act— 
(1) with respect to subsection (d)(5)(B) of such section, any 
resident physician participating in the project under subsection 
A 
(a) for any part of a year shall be treated as if he or she were 
it 
working at the appropriate sponsoring hospital with an agree-
ment under subsection (a) on September 1 of such year (and 
shall not be treated as if working at the small rural hospital); 
and 
(2) with respect to subsection (h) of such section, the payment 
amount permitted under such subsection for a sponsoring hos-
pital with an agreement under subsection (a) shall be increased 
(for the duration of the project only) by an amount equal to the 
amount of any direct graduate medical education costs (as 
defined in paragraph (5) of such subsection (h)) incurred by such 
hospital in supervising the education and training activities 
'"••- under a project under subsection (a). 
(e) DURATION OF PROJECT.—Each demonstration project under 
subsection (a) shall be commenced not later than six months after 
the date of enactment of this Act and shall be conducted for a period 
of three years. 
. „ ^ 
(D DEFINITION.—In this section, the term "sponsoring hospital" 
means a hospital that receives payments under sections 1886(d)(5)(B) 
and 1886(h) of the Social Security Act. 
' " 
',; ;_ 
SEC. 4039. MISCELLANEOUS AND TECHNICAL PROVISIONS. 
(a) CLARIFICATION OF CRIMINAL PENALTIES FOR WILLFUL MISREPRE-
SENTATIONS.—Subsection (c) of section 1128B of the Social Security 
Act (42 U.S.C. 1320a-7(b)), ^s as redesignated by section 4(d) of the 
Medicare and Medicaid Patient and Program Protection Act of 1987 
(Public Law 100-93), is amended— 
42 USC 
(1) by striking "institution or facility" each place it appears 
1320a-7b. 
and inserting "institution, facility, or entity", and 
, 
(2) by inserting "(including an eligible organization under 
section 1876(b))" after "other entity". 
-, (b) PODIATRISTS.— 
(1) Section 1861(rX3) of the Social Security Act (42 U.S.C. 
1395x(rX3)) is amended— 
;,^ _ 
(A) by striking "subsection (s) of this section" and insert-
ing "subsections (k), (m), (pXD, and (s) of this section and 
t 
sections 1814(a), 1832(aX2XFXii), and 1835", and 
(B) by striking "; and for the purposes" and all that 
follows through "which he is legally authorized to per-
form". 
" Copy read "1320a-7b)),". 
101 STAT. 1330-82 
PUBLIC LAW 100-203—DEC. 22, 1987 
Effective date. 
42 u s e 1395y 
note. 
42 u s e 1395WW 
note. 
42 u s e 1395x 
note. 
Federal 
Register, 
publication. 
42 u s e 1395x 
note. 
(2) Section 1861(b)(6) of such Act (42 U.S.C. 1395x(b)(6)) is 
amended by striking "Council on Podiatry Education of the 
American Podiatry Association" and inserting "Council on 
Podiatric Medical Education of the American Podiatric Medical 
Association". 
(c) RECOVERY OF PAYMENTS FOR CERTAIN PACEMAKER DEVICES.— 
(1) Section 1862(h) of such Act (42 U.S.C. 1395y(h)) is 
^ 
amended— 
(A) in paragraph dXB), by striking "law," and inserting 
"law (and any amount paid to a provider under any such 
warranty),"; 
d ^k:ii 
(B) in paragraph (1)(D), by striking "(3)," and inserting 
"(3), in determining the amount subject to repayment under 
paragraph (2XC),"; 
(C) in paragraph (2)— 
(i) by striking "and" at the end of subparagraph (A), 
> 
(ii) by striking the period at the end of subparagraph 
> 
(B) and inserting ", and", and 
(iii) by adding at the end the following new subpara-
graph: 
•'v--- "(C) to make repayment to the Secretary of amounts paid 
under this title to the provider with respect to any cardiac 
pacemaker device or lead which has been replaced by the 
manufacturer, or for which the manufacturer has made pay-
ment to the provider, under an express or implied warranty.'; 
and 
(D) in paragraph (4XB)— 
(i) by striking "or has" and inserting ", has", and 
» ' --: 
(ii) by striking "(2XB)," and inserting "(2XB), or has 
failed to make repayment to the Secretary as required 
under paragraph (2XC),". 
(2) The amendments made by paragraph (1) shall become 
effective on January 1, 1988. 
(d) EXTEND AND CLARIFY PROHIBITION ON COST SAVINGS POUCIES 
BEFORE BEGINNING OF FISCAL YEAR.—Notwithstanding any other 
provision of law, except as required to implement specific provisions 
required under statute, the Secretary of Health and Human Serv-
ices is not authorized to issue in final form, after the date of the 
enactment of this Act and before October 15, 1988, any regulation, 
instruction, or other policy which is estimated by the Secretary to 
result in a net reduction in expenditures under title XVIII of the 
Social Security Act in fiscal year 1989 of more than $50,000,000. 
(e) MORATORIUM ON PRIOR AUTHORIZATION FOR HOME HEALTH AND 
POST-HOSPITAL EXTENDED CARE SERVICES.—The Secretary of Health 
and Human Services shall not implement any voluntary or manda-
tory program of prior authorization for home health services, ex-
tended care services, or post-hospital extended care services under 
part A or B of title XVIII of the Social Security Act at any time 
prior to six months after the date on which the Congress receives 
the report required under section 9305(kX4) of the Omnibus Budget 
Reconciliation Act of 1986. 
(f) DELAY IN PUBUSHING REGULATIONS WITH RESPECT TO DEEMING 
THE STATUS OF ENTITIES.—The Secretary of Health and Human 
Services (in this subsection referred to as the "Secretary") shall not 
deem any entity to be a provider of services (as defined in section 
1861(u) of the Social Security Act) for purposes of title XVIII of such 
Act— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-83 
(1) on any date prior to 6 months after the date on which the 
Secretary has published a proposed rule with respect to the 
deeming of the entity, and 
(2) until the Secretary publishes a final rule with respect to 
the deeming of the entity. 
(g) USE OF INTERIM FINAL REGULATIONS.—The Secretary of Health 
and Human Services shall issue such regulations (on an interim or 
other beisis) as may be necessary to implement this subtitle and the 
amendments made by this subtitle. 
PART 3—RELATING TO PART B 
$ Subpart A—Provisions Relating to Payments for 
Physicians' Services 
SEC. 4041. FREEZE IN PAYMENTS FOR PHYSICIANS' SERVICES; EXTEN-
SION OF SEQUESTER ORDER. 
(a) THREE-MONTH 
FREEZE ON INCREASES IN PHYSICIAN 
PAY-
MENTS.— 
(1) IN GENERAL.—Section 1842 of the Social Security Act (42 
U.S.C. 1395u) is amended— 
(A) in subsection (b)(4)— 
(i) in subparagraph (A), by redesignating clause (v) as 
clause (vi) and by inserting after clause (iv) the follow-
ing new clause: 
"(v) In determining the prevailing charge levels under the third 
and fourth sentences of paragraph (3) for physicians' services fur-
nished during the 3-month period beginning January 1, 1988, the 
Secretary shall not set any level higher than the same level as was 
set for the 12-month period beginning January 1,1987.", and 
(ii) in subparagraph (B), by adding at the end the 
following new clause: 
"(iii) In determining the reasonable charge under paragraph (3) 
for physicians' services furnished during the 3-month period begin-
ning January 1, 1988, the customary charges shall be the same 
customary charges as were recognized under this section for the 12-
month period beginning January 1,1987."; and 
(B) in subsection (jXlKC), by adding at the end thereof the 
following new clause: 
"(vii) Notwithstanding any other provision of this subparagraph, 
the maximum allowable actual charge for a particular physician's 
service furnished by a nonparticipating physician to individuals 
enrolled under this part during the 3-month period beginning on 
January 1, 1988, shall be the amount determined under this 
subparagraph for 1987. The maximum allowable actual charge for 
any such service otherwise determined under this subparagraph for 
1988 shall take effect on April 1,1988.". 
(2) EXTENSION OF PHYSICIAN PARTICIPATION AGREEMENTS AND 
RELATED PROVISIONS.—Notwithstanding any other provision of 
law— 
(A) subject to the last sentence of this paragraph, each 
agreement with a participating physician in effect on 
December 31, 1987, under section 1842(hXl) of the Social 
Security Act shall remain in effect for the 3-month period 
beginning on January 1,1988; 
42 use 1395hh 
note. 
Effective date. 
42 use 1395u 
note. 
101 STAT. 1330-84 
PUBLIC LAW 100-203—DEC. 22, 1987 
(B) the effective period for agreements under such section 
'
> . K entered into for 1988 shall be the nine-month period begin-
ning on April 1, 1988, and the Secretary shall provide an 
iij 'ji,' opportunity for physicians to enroll as participating physi-
cians prior to April 1, 1988; 
'i'") _i. ii - 
(C) instead of publishing, under section 1842(hX4) of the 
"'• 
Social Security Act at the beginning of 1988, directories of 
participating physicians for 1988, the Secretary shall pro-
vide for such publication, at the beginning of the 9-month 
period beginning on April 1, 1988, of such directories of 
participating physicians for such period; and 
(D) instead of providing to nonparticipating physicians, 
under section 1842(b)(3)(G) of the Social Security Act at the 
beginning of 1988, a list of maximum allowable actual 
charges for 1988, the Secretary shall provide, at the begin-
ning of the 9-month period beginning on April 1, 1988, to 
-»it 
such physicians such a list for such 9-month period. 
An agreement with a participating physician in effect on 
,Y^ December 31, 1987, under section 1842(h)(1) of the Social Secu-
rity Act shall not remain in effect for the period described in 
,i|, subparagraph (A) if the participating physician requests on or 
before December 31, 1987, that the agreement be terminated. 
(3)(A) Section 1842 of the Social Security Act (42 U.S.C. 1395u) 
is amended— 
,^„ 
(i) in subsection (b)(2), by adding at the end the following: 
' 
"In establishing such standards and criteria, the Secretary 
shall provide a system to measure a carrier's performance 
of responsibilities described in paragraph (3)(H) and subsec-
tion (h)."; and 
(ii) in subsection (c)(1), by inserting "(A)" after "(c)(1)" and 
by adding at the end the following new subparagraph: 
"(B) Of the amounts appropriated for administrative activities to 
carry out this part, the Secretary shall provide payments, totaling 1 
percent of the total payments to carriers for claims processing in 
any fiscal year, to carriers under this section, to reward carriers for 
their success in increasing the proportion of physicians in the 
carrier's service area who are participating physicians or in increas-
ing the proportion of total payments for physicians' services which 
are payments for such services rendered by participating physi-
cians.". 
(B) Section 9332(a) of the Omnibus Budget Reconciliation Act 
of 1986 is amended— 
42 use I395u 
(i) by striking paragraphs (2) and (3), 
notes. 
(ii) in paragraph (4XB), by striking "under paragraph (2)'^'^ 
iote 
^^^^" 
^^^ inserting "under the last sentence of section 1842(b)(2) 
of the Social Security Act", and 
42 use 1
3
9
5
U 
(iii) in paragraph (4)(C)— 
note. 
(I) by striking "under paragraph (3)" and inserting 
"under section 1842(c)(lXB) of the Social Security Act", 
y.-: 
jviA r^ - .;^. 
(II) by striking "April" and inserting "July", and 
^ 
(III) by striking "at the end of 1987" and inserting 
"before April 1,1988". 
President of U.S. 
(b) EXTENSION OF REDUCTION U N D E R SEQUESTER O R D E R . — N o t w i t h -
2 use 902 note, 
standing any other provision of law (including any other provision of 
this Act), the reductions in the amount of payments required under 
title XVIII of the Social Security Act made by the final sequester 
order issued by the President on November 20, 1987, pursuant to 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-85 
section 252Cb) of the Balanced Budget Emergency Deficit Control Act 
of 1985 shall continue to be effective (as provided by sections 
252(a)(4XB) and 256(d)(2) of such Act) through March 31, 1988, with 
• 
'' '• 
respect to payments for physicians' services under part B of such 
title. 
SEC. 4042. GENERAL UPDATE IN PAYMENTS FOR PHYSICIANS* SERVICES. 
, . 
,. 
(a) INCREASE IN M E I FOR 1988 AND 1989.—Section 1842(b)(4) of the 
'« 
Social Security Act (42 U.S.C. 1395u(b)(4)) is amended by adding at 
the end the following new subparagraph: 
"(F)(i) For purposes of this part for physicians' services furnished 
in 1987, the percentage increase in the MEI is 3.2 percent. 
"(ii) For purposes of this part for physicians' services furnished in 
1988, on or after April 1, the percentage increase in the MEI is— 
"(I) 3.6 percent for primary care services (as defined in 
subparagraph (E)(iii)), and 
"(II) 1 percent for other physicians' services, 
"(iii) For purposes of this part for physicians' services furnished in 
1989, the percentage increase in the MEI is— 
"(I) 3.0 percent for primary care services; and 
"(II) 1 percent for other physician's services.". 
(b) PRIMARY CARE SERVICES DEFINED.—Section 1842(b)(4)(E) of such 
Act (42 U.S.C. 1395u(b)(4)(E)) is amended by adding at the end 
thereof the following new clause: 
"(iii) The term 'primary care services' means physicians' 
services which constitute office medical services, emergency 
. 
department services, home medical services, skilled nursing, 
intermediate care, and long-term care medical services, or nurs-
ing home, boarding home, domiciliary, or custodial care medical 
-i ;8U a 
services.". 
' '" 
(c) 
PARTICIPATING 
PHYSICIAN 
DIFFERENTIAL.—Section 
1842(b)(4)(A)(iv) of such 
Act (42 U.S.C. 1395u(b)(4)(A)(iv)) is 
amended— 
(1) by striking "96 percent" and inserting "applicable per-
cent", and 
(2) by adding at the end the following: "In the previous 
sentence, the term 'applicable percent' means for services fur-
nished (I) on or after January 1, 1987, and before April 1, 1988, 
96 percent, (II) on or after April 1, 1988, and before January 1, 
1988, 95.5 percent, and (III) on or after January 1, 1989, 95 
percent.". 
SEC. 4043. INCENTIVE PAYMENTS FOR PHYSICIANS' SERVICES FUR-
NISHED IN UNDERSERVED AREAS. 
(a) IN GENERAL.—Section 1833 of the Social Security Act (42 U.S.C. 
13951) is amended by adding at the end the following new subsection: 
"(m) In the case of physicians' services furnished to an individual, 
who is covered under the insurance program established by this part 
and who incurs expenses for such services, in an area that is 
designated (under section 332(a)(lXA) of the Public Health Service 
Act) as a class 1 or class 2 health manpower shortage area, in 
addition to the amount otherwise paid under this part, there also 
shall be paid to the physician (or to an employer or facility in the 
cases described in clause (A) of section 1842(b)(6)) (on a monthly or 
quarterly basis) from the Federal Supplementary Medical Insurance 
'Trust Fund an amount equal to 5 percent of the payment amount 
for the service under this part.". 
101 STAT. 1330-86 
PUBLIC LAW 100-203—DEC. 22, 1987 
Reports. 
42 use 1395/ 
note. 
42 use 1395/ 
note. 
42 use 1395u 
note. 
(b) STUDY.—The Secretary of Health and Human Services shall 
study and report to Congress, by not later than January 1, 1990, on 
the feasibility of making additional payments described in section 
1833(m) of the Social Security Act with respect to physician services 
which are performed in health manpower shortage areas located in 
urban areas. 
(c) EFFECTIVE DATE.—The amendments made by this subsection (a) 
shall apply with respect to services furnished in a rural area (as 
defined in section 1886(d)(2XD) of the Social Security Act) ^ 9 on or 
after January 1, 1989, and to other services furnished on or after 
January 1,1991. 
SEC. 4044. ADJUSTMENT IN PREVAILING CHARGE LEVEL FOR PRIMARY 
CARE SERVICES. 
(a) INCREASE IN PREVAIUNG CHARGES FOR PRIMARY CARE SERV-
ICES.—Section 1842(b)(4XA) of the Social Security Act (42 U.S.C. 
1395u(b)(4XA)), as amended by section 4041(aXl) of this subtitle, is 
further amended by redesignating clause (vi) as clause (vii) and by 
inserting after clause (v) the following new clause: 
"(vi) Before each year (beginning with 1989), the Secretary shall 
establish a prevailing charge floor for primary care services (as 
defined in subparagraph (E)(iii)) equal to 50 percent of the average of 
the prevailing charge levels (determined, for participating physi-
cians under the third and fourth sentences of paragraph (3) and 
under paragraph (4), without regard to this clause and without 
regard to physician specialty) for such service for all localities in the 
United States (weighted by the relative frequency of the service in 
each locality) for the year. . 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to payment for physicians' services furnished on or after 
January 1,1989. 
SEC. 4045. REDUCTION IN PREVAILING CHARGE LEVEL FOR OVERPRICED 
PROCEDURES. 
(a) IN GENERAL.—Paragraph (10) of section 1842(b) of the Social 
Security Act (42 U.S.C. 1395u(b)) is amended to read as follows: 
"(lOXAXi) In determining the reasonable charge under paragraph 
(3) for procedures described in subparagraph (C) and performed 
during the 9-month period beginning on April 1,1988, the prevailing 
charge for such procedure for participating and nonparticipating 
physicians shall be the prevailing charge otherwise recognized for 
such procedure for 1987— 
"(I) subject to clause (iii), reduced by 2.0 percent, and 
"(II) further reduced by the applicable percentage specified in 
clause (ii). 
"(ii) For purposes of clause (i), the applicable percentage specified 
in this clause is— 
"(I) 15 percent, in the case of a prevailing charge otherwise 
recognized (without regard to this paragraph and determined 
without regard to physician specialty) that is at least 150 per-
cent of the weighted national average (as determined by the 
Secretary) of such prevailing charges for such procedure for all 
localities in the United States for 1987; 
"(II) 0 percent, in the case of a prevailing charge that does not 
exceed 85 percent of such weighted national average; and 
*" Copy read "Act))". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-87 
"(III) in the case of any other prevailing charge, a percent 
determined on the basis of a straight-line sliding scale, equal to 
% 3 of a percentage point for each percent by which the prevail-
ing charge exceeds 85 percent of such weighted national 
average. 
"(iii) In no case shall the reduction under clause (i) for a procedure 
result in a prevailing charge in a locality for 1988 which is less than 
85 percent of the Secretary's estimate of the weighted national 
average of such prevailing charges for such procedure for all local-
ities in the United States for 1987 0)ased upon the best available 
data and determined without regard to physician specialty) after 
making the reduction described in clause (iXII). 
"(B) The procedures described in this subparagraph are as follows: 
bronchoscopy,^^ carpal tunnel repair, cataract surgery, coronary 
artery bypass surgery, diagnostic and/or therapeutic dilation and 
curettage, 
knee 
arthroscopy, 
knee 
arthroplasty, 
pacemaker 
implantation surgery, total hip replacement, suprapubic prostatec-
tomy, transurethral resection of the prostate, and upper gastro-
intestinal endoscopy. 
"(C) In the case of a reduction in the reasonable charge ifor a 
physicians' service under subparagraph (A), if a nonparticipating 
physician furnishes the service to an individual entitled to benefits 
under this part, after the effective date of such reduction, the 
physician's actual charge is subject to a limit under subsection 
OXIXD). 
"(D) There shall be no administrative or judicial review section 
1869 or otherwise of any determination under subpareigraph (A) or 
under "
»
> paragraph (llXBXii).". 
(h) MODIFICATION OF GEOGRAPHIC INDEX.—Section 1845(eX4XAXi) 
of such Act (42 U.S.C. 1395w-l(eX4XAXi)) is amended by inserting 
"and costs of living" after "costs of practice". 
(C) CONSOUDATED CHARGE LIMITATION PROVISIONS.— 
(1) PENALTIES FOR EXCESS CHARGES.—Section 1842 of such Act 
is further amended— 
(A) in subsection (bXllXC)— 
,; 
(i) in clause (i), by striking "(subject to clause (iv))" 
and all that follows through the end and inserting the 
following: ", the physician's actual charge is subject to 
•'• 
a limit under subsection (jXlXD)."; 
. t
^ 
(ii) in clause (i), by striking "(i)" after "(C)"; and 
(iii) by striking clauses (ii) through (iv); and 
(B) in subsection (jXD, by adding at the end the following 
new subparagraph: 
"(DXi) If an action described in clause (ii) results in a reduction in 
a reasonable charge for a physicians' service or item and a 
nonparticipating physician furnishes the service or item to an 
individual entitled to benefits under this part after the effective date 
of such action, the physician may not charge the individual more 
than 125 percent of the reduced pajrment allowance (as defined in 
clause (iii)) plus (for services or items furnished during the 12-month 
period (or 9-month period in the case of an action described in clause 
(iiXID) beginning on the effective date of the action) Vz of the amount 
by which the physician's maximum allowable actual charge for the 
service or item for the previous 12-month period exceeds such 125 
percent level. 
"(ii) The first sentence of clause (i) shall apply to— 
' Copy read "bronschoscopy,". 
' Copy read "under under'. 
101 STAT. 1330-88 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395u 
note. 
42 use 1395u 
note. 
"(I) an adjustment under subsection (b)(8)(B) (relating to 
inherent reasonableness), 
"(II) a reduction under subsection (b)(10)(A) (relating to cer-
tain overpriced procedures), 
"(III) a reduction under subsection (b)(ll)(B) (relating to cer-
tain cataract procedures), and 
"(IV) an adjustment under section 1833(1)(3)(B) (relating to 
physician supervision of certified registered nurse anesthetists), 
"(iii) In clause (i), the term 'reduced payment allowance' means, 
with respect to an action— 
"(I) under subsection (b)(8)(B), the inherently reasonable 
charge established under subsection (b)(8); or 
"(II) under subsection (b)(10)(A) or (b)(ll)(B) or under section 
1833(1)(3)(B), the prevailing charge for the service after the 
action, 
"(iv) If a physician knowingly and willfully imposes a charge in 
violation of clause (i) (whether or not such charge violates subpara-
graph (B)), the Secretary may apply sanctions against such physi-
cian in accordance with paragraph (2). 
"(v) Clause (i) shall not apply to items and services furnished after 
the earlier of (I) December 31, 1990, or (II) one-year after the date 
the Secretary reports to Congress, under section 1845(e)(3), on the 
development of the relative value scale under section 1845.". 
(2) CONFORMING AMENDMENTS.—(A) Section 1833(1)(6) of such 
Act (42 U.S.C. 13951(1)(6)) is amended— 
(i) in subparagraph (A), by striking "(subject to subpara-
V
' V
I 
graph (D))" and all that follows through the end and insert-
ing the following: "after the effective date of the reduction, 
the physician's actual charge is subject to a limit under 
, -- 
section 1842(j)(l)(D)."; 
(ii) in subparagraph (A), by striking "(A)" after "(6)"; and 
(iii) by striking subparagraphs (B) through (D). 
(B) 
Section 
1842(b)(ll)(B)(i) 
of 
such 
Act 
(42 
U.S.C. 
1395u(b)(ll)(B)(i)) is amended by striking "and shall be further 
reduced" and all that follows through "1988". 
(C) Section 9334(b)(2) of the Omnibus Budget Reconciliation 
Act of 1986 is amended by striking "1842(bX10)" and inserting 
"18420X1)(D)". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to items and services furnished on or after April 1, 1988, 
except the amendment made by subsection (c)(2)(B) shall apply to 
services furnished on or after January 1,1988. 
SEC. 4046. LIMITS ON PAYMENT FOR OPHTHALMIC ULTRASOUND. 
(a) IN GENERAL.—Section 1842 of the Social Security Act (42 U.S.C. 
1395u), as previously amended by this subpart is amended— 
(1) in subsection (b)(ll)— 
(A) in subparagraph (C), as redesignated under section 
4045(cXl)(AXii) of this title, by inserting "or (C)" after 
"subparagraph (B)"; 
(B) by redesignating subparagraph (C) as subparagraph 
(D); and 
(C) by inserting after subparagraph (B) the following new 
subparagraph: 
"(C) The prevailing charge level determined with respect to A-
mode ophthalmic ultrsisound procedures may not exceed 5 percent 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-89 
of the prevailing charge level established with respect to extra-
capsular cataract removal with lens implantation."; and 
(2) in subparagraph (D) of subsection (jXD, as added by section 
4045(cXl)(B) of this subtitle— 
(A) in clause (ii), by striking "and" at the end of subclause 
(III), by redesignating subclause (IV) as subclause (V) and 
by inserting before such subclause the following new 
,r'- 
subclause: 
"(IV) a prevailing charge limit is established under subsection 
(b)(llXC)(i), and"; and 
(B) in clause (iii)(II), by striking "or (bXllXB)" and insert-
ing ", (bXllXB), or (bXll)(C)(i)". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to services furnished on or after April 1,1988. 
SEC. 4047. CUSTOMARY CHARGES FOR PRIMARY CARE SERVICES OF NEW 
PHYSICIANS. 
(a) IN GENERAL.—Section 1842(bX4) of the Social Security Act, as 
amended by section 4042(a), is further amended by adding at the end 
thereof the following new subparagraph: 
"(G) In determining the customary charges for physicians' serv-
ices (other primary care services and other than services furnished 
in a rural area (as defined in section 1886(dX2XD)) that is designated, 
under section 332(a)(1)(A) of the Public Health Service Act, as a 
health manpower shortage area) for which adequate actual charge 
data are not available because a physician has not yet been in 
practice for a sufficient period of time, the Secretary shall set a 
customary charge at a level no higher than 80 percent of the 
prevailing charge (as determined under the third and fourth sen-
tences of paragraph (3) and under paragraph (4)) for a service.". 
0)) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to physicians who first furnish services to medicare 
beneficiaries after April 1,1988. 
SEC. 4048. PAYMENT FOR PHYSICIAN ANESTHESIA SERVICES. 
(a) IN GENERAL.—Section 1842(b) of the Social Security Act (42 
U.S.C. 1395u(b)) is further amended by adding at the end the 
following new paragraph: 
"(14)(A) In determining the reasonable charge under paragraph (3) 
of a physician for medical direction of two or more nurse anes-
thetists performing, on or after April 1, 1988, and before January 1, 
1991, anesthesia services in whole or in part concurrently, the 
number of base units which may be recognized with respect to such 
medical direction for each concurrent procedure (other than cata-
ract surgery or an iridectomy) shall be reduced by— 
"(i) 10 percent, in the case of medical direction of 2 nurse 
anesthetists concurrently, 
"(ii) 25 percent, in the case of medical direction of 3 nurse 
anesthetists concurrently, and 
"(iii) 40 percent, in the case of medical direction of 4 nurse 
anesthetists concurrently. 
"(B) In determining the reasonable charge under paragraph (3) of 
a physician for medical direction of two or more nurse anesthetists 
performing, on or after January 1, 1989, and before January 1, 1991, 
anesthesia services in whole or in part concurrently, the number of 
base units which may be recognized with respect to such medical 
42 u s e 1395u 
note. 
42 u s e 1395U 
note. 
nvQun. 
101 STAT. 1330-90 
PUBLIC LAW 100-203—DEC. 22, 1987 
Regulations. 
42 use 1395u 
note. 
Reports. 
42 use 1395u 
note. 
42 use 1395u 
note. 
Reports. 
Reports. 
direction for each concurrent cataract surgery or iridectomy proce-
dure shall be reduced by 10 percent. 
"(C) The Secretary shall require claims for physicians' services for 
medical direction of nurse anesthetists during the periods in which 
the provisions of subparagraph (A) or (B) apply to indicate the 
number of such anesthetists being medically directed concurrently 
at any time during the procedure, the name of each nurse anes-
thetist being directed, and the type of procedure for which the 
services are provided.". 
(b) DEVELOPMENT OF UNIFORM RELATIVE VALUE GUIDE.—The Sec-
retary of Health and Human Services, in consultation with groups 
representing physicians who furnish anesthesia services, shall estab-
lish by regulation a relative value guide for use in all carrier 
localities in making payment for physician anesthesia services fur-
nished under part B of title XVIII of the Social Security Act on and 
after January 1, 1989. Such guide shall be designed so as to result in 
expenditures under such title for such services in an amount that 
would not exceed the amount of such expenditures which would 
otherwise occur. 
(c) STUDY OF PREVAIUNG CHARGES FOR ANESTHESIA SERVICES.— 
The Secretary of Health and Human Services shall conduct a study 
of the variations in conversion factors used by carriers under section 
184203) of the Social Security Act to determine the prevailing charge 
for anesthesia services and shall report the results of the study and 
make recommendations for appropriate adjustments in such factors 
not later than January 1,1989. 
(d) GAG STUDIES.—(1) The Comptroller General shall conduct a 
study— 
(A) to determine the average anesthesia times reported for 
medicare reimbursement purposes, 
(B) to verify those times from patient medical records, 
(C) to compare anesthesia times to average surgical times, and 
(D) to determine whether the current payments for physician 
supervision of nurse anesthetists are excessive. 
The Comptroller General shall report to Congress, by not later than 
January 1, 1989, on such study and in the report include rec-
ommendations regarding the appropriateness of the anesthesia 
times recognized by medicare for reimbursement purposes and rec-
ommendations regarding adjustments of payments for physician 
supervision of nurse anesthetists. 
(2) The Comptroller General shall conduct a study on the impact 
of the amendment made by subsection (a), and shall report to 
Congress on the results of such study by April 1,1990. 
SEC. 4049. FEE SCHEDULES FOR RADIOLOGIST SERVICES. 
(a) IN GENERAL.—Part B of title XVIII of the Social Security Act is 
(1) in section 1833(aXl) (42 U.S.C. 13951(aXl)), as amended by 
section 4062(cX3) of this subtitle by striking "and" before "(I)", 
and by adding at the end the following new clause: "and (J) with 
respect to expenses incurred for radiologist services (as defined 
in section 18340)X5)), the amounts paid shall be 80 percent of the 
lesser of the actual charge for the services or the amount 
provided under the fee schedule established under section 
1834(b),"; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
iCl STAT. 1330-91 
(2) by adding at the end of section 1834, as subsequently 
inserted by section 4062(a) of this subtitle, the following new 
subsection: 
"(b) FEE SCHEDULES FOR RADIOLOGIST SERVICES.— 
42 USC I395m. 
"(1) DEVELOPMENT.—The Secretary shall develop— 
"(A) a relative value scale to serve as the basis for the 
payment for radiologist services under this part, and 
"(B) using such scale and appropriate conversion factors, 
fee schedules (on a regional, statewide, or carrier service 
area basis) for payment for radiologist services under this 
part, to be implemented for such services furnished during 
1989. 
"(2) CONSULTATION.—In carrying out paragraph (1), the Sec-
retary shall regularly consult closely with the Physician Pay-
ment Review Commission, the American College of Radiology, 
and other organizations representing physicians or suppliers 
who furnish radiologist services and shall share with them the 
data and data analysis being used to make the determinations 
under paragraph (1), including data on variations in current 
medicare payments by geographic area, and by service and 
physician specialty. 
"(3) CONSIDERATIONS.—In developing the relative value scale 
and fee schedules under paragraph (1), the Secretary— 
"(A) shall take into consideration variations in the cost of 
furnishing such services among geographic areas and 
among different sites where services are furnished, and 
"(B) may also take into consideration such other factors 
respecting the manner in which physicians in different 
specialties furnish such services as may be appropriate to 
assure that payment amounts are equitable and designed to 
promote effective and efficient provision of radiologist serv-
ices by physicians in the different specialties. 
"(4) SAVINGS.— 
"(A) BUDGET NEUTRAL FEE SCHEDULES.—The Secretary 
shall develop preliminary fee schedules for 1989, which are 
designed to result in the same amount of aggregate pay-
ments (net of any insurance and deductibles under section 
1835(aXlXI) and 1833(b)) for radiologist services furnished in 
1989 as would have been made if this subsection had not 
been enacted. 
"(B) INITIAL SAVINGS.—The fee schedules established for 
payment purposes under this subsection for services fur-
nished in 1989 shall be 97 percent of the amounts permitted 
under these ^° preliminary fee schedules developed under 
subparagraph (A). 
"(C) SUBSEQUENT UPDATING.—Radiologist services fur-
nished in subsequent years, the fee schedules shall be the 
schedules for the previous year updated by the percentage 
increase in the MET (as defined in section 1842(bX4XEXii)) 
for the year. 
"(D) ^* NONPARTICIPATING PHYSICIANS.—Each fee sched-
ule so established shall provide that the payment rate 
'° Copy read "this". 
=" Copy read " '(C)". 
101 STAT. 1330-92 
PUBLIC LAW 100-203—DEC. 22, 1987 
recognized for nonparticipating physicians and suppliers is 
' '' 
equal to the appropriate percent (as defined in section 
^,,,, -,,,, 
1842(b)(4)(AXiv)) of the payment rate recognized for partici-
m .<.. ... .^ 
pating physicians and suppliers. 
, 
"(5) LIMITING CHARGES OF NONPARTICIPATING PHYSICIANS.— 
*
*
'
*
" 
"(A) IN GENERAL.—In the case of radiologist services fur-
nished after January 1, 1989, for which payment is made 
under 
a 
fee 
schedule 
under 
this subsection, 
if a 
nonparticipating physician or supplier furnishes the service 
to an individual entitled to benefits under this part, the 
physician or supplier may not charge the individual more 
,
_
. 
than the limiting charge (as defined in subparagraph (B)). 
.-, - 
w^g^ LIMITING CHARGE DEFINED.—In subparagraph (A), the 
term 'limiting charge' means, with respect to a service 
furnished— 
"(i) in 1989, 125 percent of the amount specified for 
the service in the appropriate fee schedule established 
under paragraph (1), 
^ 
"(ii) in 1990, 120 percent of the amount specified for 
''*' 
the service in the appropriate fee schedule established 
J 
under paragraph (1), and 
^'' •" 
" 
"(iii) after 1990, 115 percent of the amount specified 
for the service in the appropriate fee schedule estab-
I' ""'•'' 
lished under paragraph (1). 
"-"'' 
"(C) ENFORCEMENT.—If a physician or supplier knowingly 
and willfully imposes a charge in violation of subparagraph 
(A), the Secretary may apply sanctions against such physi-
cian or supplier in accordance with section 1842(j)(2). 
"(6) ^2 RADIOLOGIST SERVICES DEFINED.—For the purposes of 
this subsection, section 1833(aXlXI), and section 1842(hXlXB), 
the term 'radiologist services' only includes radiologic services 
performed by, or under the direction or supervision of, a 
physician— 
"(A) who is certified, or eligible to be certified, by the 
American Board of Radiology, or 
"(B) for whom radiologic services account for at least 50 
percent of billings made under this part.". 
Reports. 
(b) DEADLINES AND EFFECTIVE D A T E . — 
note^^ ^^^^^ 
^^^ '^^® Secretary of Health and Human Services shall estab-
lish the relative value scale and fee schedules for radiologist 
services (under section 1834(b) of the Social Security Act) by not 
later than August 1, 1988, and shall report to Congress on the 
development of such fee schedules not later than August 1, 
1988. 
(2) The amendments made by this section shall apply to 
services performed on or after January 1, 1989, and until such 
time as the Secretary of Health and Human Services imple-
ments physician fee schedules based on the relative value scale 
developed under section 1845(e) of the Social Security Act. 
42 u s e 1395/ 
SEC. 4050. FEE SCHEDULES FOR PHYSICIAN PATHOLOGY SERVICES. 
(a) IN GENERAL.—The Secretary of Health and Human Servipes 
shall develop— 
'* Copy read "'(5)". 
i " " •
. < 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-93 
(1) a relative value scale to serve as the basis for the payment 
for physician pathology services under part B of title XVIII of 
the Social Security Act, 
(2) using such scale and appropriate conversion factors, pro-
posed fee schedules (on a regional, statewide, or carrier service 
area basis) for payment for physician pathology services under 
such part, that could be implemented for such services fur-
ytf nished during 1990, and 
(3) an appropriate index to be applied to updating such fee 
schedules annually for physician pathology services furnished 
in years after 1990. 
(b) CONSULTATION.—In carrying out subsection (a), the Secretary 
shall regularly consult closely with the Physician Payment Review 
Commission, the College of American Pathologists, and other 
c ; ; ysii S[ 
organizations representing physicians who furnish physician pathol-
ogy services and shall share with them the data and data analysis 
being used to make the determinations under subsection (a), includ-
ing data on variations in current medicare payments by geographic 
area, and by service and physician specialty. 
(c) CONSIDERATION.—In developing the fee schedules under subsec-
tion (a), the Secretary shall take into consideration variations in the 
cost of furnishing physician pathology services among geographic 
areas. 
(d) REPORT.—The Secretary shall report, not later than April 1, 
1989, to the Committees on Energy and Commerce and Ways and 
Means of the House of Representatives and the Committee on 
Finance of the Senate on the relative value scale, fee schedules, and 
the index developed under this section. Such report shall include 
recommendations on how to protect medicare beneficiaries against 
excessive charges for physician pathology services above the pay-
ment amounts established by the fee schedules. 
SEC. 4051. ELIMINATION OF MARKUP FOR CERTAIN PURCHASED SERV-
ICES. 
(a) IN GENERAL.—Section 1842 of the Social Security Act (42 U.S.C. 42 use I395u. 
1935u) is amended by adding at the end the following new subsec-
tion: 
"(n)(l) If a physician's bill or a request for payment for services 
billed by a physician includes a charge to a patient for a diagnostic 
test described in section 1861(sX3) (other than a clinical diagnostic 
» J ic ) 
laboratory test) for which payment does not indicate that the billing 
physician personally performed or supervised the performance of 
the test or that another physician with whom the physician who 
shares his practice personally performed or supervised the test, the 
amount payable with respect to the test shall be determined as 
follows: 
"(A) If the bill or request for payment indicates that the test 
was performed by a supplier, identifies the supplier, and in-
dicates the amount the supplier charged the billing physician, 
' i ^•"'." "^ 
t J payment for the test (less the applicable deductible and coinsur-
ance amounts) shall be the actual acquisition costs (net of any 
r 
discounts) or, if lower, the [ 
] [ 
] [ 
] [ 
] 
; 
[ 
]32a enrolled under [ 
] [ 
] [ 
] [ 
] 
- 
[ 
].^* 
"(B) If the bill or request for payment (i) does not indicate who 
performed the test, or (ii) indicates that the test was performed 
by a supplier but does not identify the supplier or include the 
'" Copy not legible. 
101 STAT. 1330-94 
PUBLIC LAW 100-203—DEC. 22, 1987 
amount charged by the supplier, no payment shall be made 
tf 
under this part. 
"(2) A physician may not bill an individual enrolled under this 
part— 
"(A) any amount other than any applicable deductible and 
coinsurance for a diagnostic test for which payment is made 
pursuant to paragraph (IXA), or 
"(B) any amount for a diagnostic test for which payment may 
not be made pursuant to paragraph (1)(B). 
"(3) If a physician knowingly and willfully in repeated cases bills 
one or more individuals in violation of paragraph (2), the Secretary 
may apply sanctions against such physician or supplier in accord-
ance with section 1842(jX2).". 
42 u s e 1395u. 
(b) ADJUSTMENT IN MEDICARE PREVAILING CHARGES.— 
(1) REVIEW.—The Secretary of Health and Human Services 
shall review payment levels under part B of title XVIII of the 
Social Security Act for diagnostic tests (described in section 
1861(sX3) of such Act, but excluding clinical diagnostic labora-
tory tests) which are commonly performed by independent 
suppliers, sold as a service to physicians, and billed by such 
physicians, in order to determine the reasonableness of pay-
ment amounts for such tests (and for associated professional 
services component of such tests). The Secretary may require 
physicians and suppliers to provide such information on the 
purchase or sale price (net of any discounts) for such tests as is 
necessary to complete the review and make the adjustments 
under this subsection. The Secretary shall also review the 
reasonableness of payment levels for comparable in-office diag-
nostic tests. 
(2) ESTABLISHMENT OF REVISED PAYMENT SCREENS.—If, as 
a 
result of such review, the Secretary determines, after notice and 
opportunity of at least 60 days for public comment, that the 
current prevailing charge levels (under the third and fourth 
sentences of section 1842(b) of the Social Security Act) for any 
such tests or associated professional services are excessive, the 
Secretary shall establish such charge levels at levels which, 
consistent with assuring that the test is widely and consistently 
available to medicare beneficiaries, reflect a reasonable price 
for the test without any markup. Alternatively, the Secretary, 
pursuant to guidelines published after notice and opportunity of 
at least 60 days for public comment, may delegate to carriers 
with contracts under section 1842 of the Social Security Act the 
establishment of new prevailing charge levels under this para-
graph. When such charge levels are established, the provisions 
of section 1842(jXlXD) of such Act shall apply in the same 
manner as they apply to a reduction under section 1842(bX8XA) 
of such Act. 
42 u s e 1395u 
(c) EFFECTIVE D A T E S . — 
note. 
(1) The amendment made by subsection (a) shall apply to 
diagnostic tests performed on or sifter April 1,1988. 
(2) The Secretary of Health and Human Services shall com-
plete the review and make an appropriate adjustment of 
prevailing charge levels under subsection (b) for items and 
services furnisheid no later than January 1,1989. 
.liti'-jfi 
eontracts. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-95 
SEC. 4052. COLLECTION OF PAST-DUE AMOUNTS OWED BY PHYSICIANS 
WHO BREACHED CONTRACTS UNDER THE NATIONAL HEALTH 
SERVICE CORPS SCHOLARSHIP PROGRAM. 
(a) IN GENERAL.—Title XVIII of the Social Security Act, as pre-
viously amended by this subtitle, is amended by adding at the end 
thereof the following new section: 
"OFFSET OF PAYMENTS TO PHYSICIANS TO COLLECT PAST-DUE OBUGATIONS 
42 USC 1395ccc. 
ARISING FROM BREACH OF SCHOLARSHIP CONTRACT 
"SEC. 1892. (a) IN GENERAL.— 
"(IXA) Subject to subparagraph (B), the Secretary shall enter 
into an agreement under this section with any physician who, 
by reason of a breach of a contract entered into by such 
physician pursuant to the National Health Service Corps Schol-
arship Program, owes a past-due obligation to the United States 
(as defined in subsection (b)). 
"(B) The Secretary shall not enter into an agreement with a 
physician under this section to the extent— 
"(iXD the physician has entered into a contract with the 
Secretary pursuant to section 204(aXl) of the Public Health 
Service Amendments of 1987, and 
"(II) the physician has fulfilled or (as determined by the 
Secretary) is fulfilling the terms of such contract; or 
T i • 
"(ii) the liability of the physician under such section 
204(aXl) has otherwise been relieved under such section; or 
"(iii) the physician is performing such physician's service 
obligation under a forbearance agreement entered into with 
the Secretary under subpart II of part D of title III of the 
Public Health Service Act. 
"(2) The agreement under this section shall provide that— 
"(A) deductions shall be made from the amounts other-
wise payable to the physician under this title, in accordance 
with a formula and schedule agreed to by the Secretary and 
the physician, until such past-due obligation (and accrued 
interest) have been repaid; 
"(B) payment under this title for services provided by 
such physician shall be made only on an assignment-related 
basis; 
"(C) if the physician does not provide services, for which 
payment would otherwise be made under this title, of a 
sufficient quantity to maintain the offset collection accord-
ing to the agreed upon formula and schedule— 
"(i) the Secretary shall immediately inform the 
Attorney General, and the Attorney General shall 
immediately commence an action to recover the full 
amount of the past-due obligation, and 
"(ii) subject to paragraph (3), the Secretary shedl 
immediately exclude the physician from the program 
under this title, until such time as the entire past-due 
obligation has been repaid. 
"(3) If the physician refuses to enter into an agreement or 
breaches any provision of the s^eement— 
"(A) the Secretary shall immediately inform the Attorney 
General, and the Attorney General shall immediately com-
mence an action to recover the full amount of the past-due 
obligation, and 
101 STAT. 1330-96 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) subject to paragraph (3), the Secretary shall imme-
diately exclude the physician from the program under this 
title, until such time as the entire past-due obligation has 
.^.j,. 
been repaid. 
Sv„c 
"(4) The Secretary shall not bar a physician pursuant to 
paragraph (2)(CXii) or paragraph (3)(B) if such physician is a sole 
community physician or sole source of essential specialized 
.r)s?«'£r 0^1 ii 
~ 
services in a community. 
"(b) PAST-DUE OBUGATION.—For purposes of this section, a past-
due obligation is any amount— 
"(1) owed by a physician to the United States by reason of a 
V 
breach of a scholarship contract under section 338E of the 
Public Health Service Act, and 
"(2) which has not been paid by the deadline established by 
the Secretary pursuant to section 338E of the Public Health 
Service Act, and has not been canceled, waived, or suspended by 
the Secretary pursuant to such section. 
"(c) COLLECTION UNDER THIS SECTION SHALL NOT BE EXCLUSIVE.— 
This section shall not preclude the United States from applying 
other provisions of law otherwise applicable to the collection of 
obligations owed to the United States, including (but not limited to) 
the use of tsix refund offsets pursuant to section 3720A of title 31, 
United States Code, and the application of other procedures pro-
vided under chapter 37 of title 31, United States Code. 
"(d) 
COLLECTION FROM PROVIDERS AND HEALTH MAINTENANCE 
ORGANIZATIONS.— 
"(1) In the case of a physician who owes a psist-due obligation, 
and who is an employee of, or affiliated by a medical services 
agreement with, a provider having an agreement under section 
1866 or a health maintenance organization or competitive medi-
cal plan having a contract under section 1833 or section 1876, 
the Secretary shall deduct the amounts of such past-due obliga-
tion from amounts otherwise payable under this title to such 
provider, organization, or plan. 
"(2) Deductions shall be in accordance with a formula and 
schedule agreed to by the Secretary, the physician and the 
provider, organization, or plan. The deductions shall be made 
from the amounts otherwise payable to the physician under this 
title as long as the physician continued to be employed or 
affiliated by a medical services agreement. 
"(3) Such deduction shall not be made until 6 months after 
the Secretary notifies the provider, organization, or pl£m of the 
amount to be deducted and the particular physicians to whom 
C's 
the deductions are attributable. 
• 
"(4) A deduction made under this subsection shall relieve the 
physician of the obligation (to the extent of the amount col-
lected) to the United States, but the provider, organization, or 
plan shall have a right of action to collect from such physician 
the amount deducted pursuant to this subsection (including 
accumulated interest). 
"(5) No deduction shall be made under this subsection if, 
70 :.' within the 6-month period after notice is given to the provider, 
organization, or plan, the physician pays the past-due obliga-
~ tion, or ceases to be employed by the provider, organization, or 
plan. 
"(6) The Secretary shall also apply the provisions of this 
subsection in the case of a physician who is a member of a group 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-97 
T JO practice, if such group practice submits bills under this program 
as a group, rather than by individual physicians. 
"(e) TRANSFER FROM TRUST FUNDS.—Amounts equal to the 
amounts deducted pursuant to this section shall be transferred from 
the Trust Fund from which the payment to the physician, provider, 
or other entity would otherwise have been made, to the general fund 
in the Treasury, and shall be credited as payment of the past-due 
obligation of the physician from whom (or with respect to whom) the 
deduction was made.". 
(b) CONFORMING REFERENCE.—Section 338E(b)(l) of the Public 
Health Service Act (42 U.S.C. 254o(b)(l)) is amended by adding at the 
end thereof the following new sentence: "Amounts not paid within 
such period shall be subject to collection through deductions in 
Medicare payments pursuant to section 1892 of the Social Security 
Act.". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
be effective on the date of the enactment of this Act. 
SEC. 40.52. ELIMINATION OF 197.5 FLOOR FOR PREVAILING PHYSICIAN 
CHARGES. 
(a) IN GENERAL.—Section 1842(b)(3) of the Social Security Act (42 
U.S.C. 1395u(b)(3)) is amended by striking the next-to-last sentence 
(which begins "Notwithstanding the provisions of). 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to payment for services furnished on or after January 1, 
1988. 
SEC. 4053. APPLICATION OF MAXIMUM ALLOWABLE ACTUAL CHARGE 
(MAAC). 
(a) APPLICATION ON INDIVIDUAL CHARGE BASIS.—Section 1842(j)(l) 
of the Social Security Act (42 U.S.C. 1395u(jXl)) is amended— 
', -, 
(1) in the first sentence of subparagraph (BXi), by striking 
"each such physician's actual charges" and inserting "the 
5itt 
actual charges of each such physician"; 
(2) in the second sentence of subparagraph (B)(i)^ by striking 
"for such a service a physician's actual charge {as defined in 
' 
subparagraph (CXvi)" and inserting "on a repeated basis for 
such a service an actual charge"; and 
(3) in subparagraph (CXvi), by striking "and subparagraph 
(B)". 
(b) ADJUSTMENT.—In the case of a physician who did not have 
actual charges under title XVIII of the Social Security Act for a 
procedure in the calendar quarter beginning on April 1, 1984, but 
who establishes to the satisfaction of a carrier that he or she had 
actual charges (whether under such title or otherwise) for the 
procedure performed prior to June 30, 1984, the carrier shall com-
pute the maximum allowable actual charge under section 1842(j) of 
the Social Security Act for such procedure performed by such 
physician in 1988 based on such physician's actual charges for the 
procedure. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply to charges imposed for services furnished on or after April 1, 
1988. 
42 u s e 1395CCC 
note. 
42 u s e 1395u 
note. 
42 u s e 1395u 
note. 
42 u s e 1395u 
note. 
101 STAT. 1330-98 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1395/ 
SEC. 4054. APPLYING COPAYMENT AND DEDUCTIBLE TO CERTAIN OUT-
note. 
PATIENT PHYSICIANS' SERVICES. 
Notwithstanding any other provision of law, payment under part 
B of title XVIII of the Social Security Act for physicians' services 
specified in section 1833(i)(l) of such Act and furnished on or after 
April 1, 1988, in an ambulatory surgical center or hospital out-
patient department on an assignment-related basis shall be subject 
to the deductible under section 1833(b) of such Act and 20 percent 
coinsurance. 
SEC. 4055. PHYSICIAN PAYMENT STUDIES. 
42 u s e 1395u 
(a) DEFINITIONS OF MEDICAL AND SURGICAL PROCEDURES.— 
note. 
(1) REPORT ON VARIATIONS IN CARRIER PAYMENT PRACTICE.— 
The Secretary of Health and Human Services (in this section 
referred to as the "Secretary") shall conduct a study of vari-
.4j 
ations in payment practices for physicians' services among the 
different carriers under section 1842 of the Social Security Act. 
Such study shall examine carrier variations in the services 
included in global fees and pre- and post-operative services 
included in payment for the operation. The Secretary shall 
report to Congress on such study by not later than May 1, 1988. 
(2) UNIFORM DEFINITIONS OF PROCEDURES FOR PAYMENT PUR-
POSES.—The Secretary shall develop, in consultation with appro-
priate national medical specialty societies and by not later than 
July 1, 1989, uniform definitions of physicians' services (includ-
ing appropriate classification scheme for procedures) which 
could serve as the basis for making payments for such services 
under part B of title XVIII of the Social Security Act. In 
developing such list, to the extent practicable— 
(A) ancillary services commonly performed in conjunction 
with a major procedure would be included with the major 
procedure; 
(B) pre- and post-procedure services would be included in 
the procedure; and 
(C) similar procedures would be listed together if the 
procedures are similar in resource requirements. 
(b) EXPANSION OF RELATIVE VALUE SCALE (RVS) STUDY.— 
(1) ADDITIONAL SERVICES.—The Secretary shall expand the 
study being conducted, under section 1845(e) of the Social Secu-
rity Act, to develop a relative value scale for physicians' services 
to include physicians' services in the fields of cardiology, der-
i#x 
matology, emergency medicine, gastroenterology, hematology, 
infectious disease, nephrology, neurology, neurosurgery, nuclear 
medicine, oncology, physical medicine and rehabilitation, plas-
tic surgery, pulmonary medicine, and radiation therapy, and for 
physicians who specialize in osteopathic procedures. 
(2) No D
E
L
A
Y IN CURRENT STUDY.—The expansion under para-
graph (1) shall not be conducted in a manner that delays the 
completion of the current study or the report to Congress 
Reports. 
required under section 1845(e)(3) of the Social Security Act. The 
Secretary shall report to Congress on the services described in 
paragraph (1) by not later than October 1,1989. 
Reports. 
(3) PROMPT SUBMITTAL OF S
T
U
D
Y RESULTS T
O PHYSICIAN PAY-
MENT REVIEW COMMISSION.—The Secretary shall submit to the 
Physician Payment Review Commission a copy of any report 
submitted to the Secretary pursuant to a cooperative agreement 
in the fulfillment of the requirement of section 1845(e) of such 
42 u s e 1395W-1 
note. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-99 
Act, with all relevant supporting data (including survey data, 
analj^ic data files, and file documentation), by no later than 30 
days after the date the final report is received by the Secretary. 
^c) OTHER PHYSICIAN PAYMENT STUDIES.— 
(1) FEE SCHEDULE IMPLEMENTATION.—The Secretary shall con-
duct a study of changes in the payment system for physicians' 
services, under part B of title XVIII of the Social Security Act, 
that would be required for the implementation of a national fee 
schedule for such services furnished on or after January 1, 1990. 
Such study shall identify any major technical problems related 
to such implementation and recommendations on ways in which 
to address such problems. The Secretary shall report to the 
Congress on such study by not later than July 1,1989. 
(2) VOLUME AND INTENSITY OF PHYSICIAN SERVICES.—The Sec-
retary shall conduct a study of issues relating to the volume and 
intensity of physicians' services under part B of title XVIII of 
the Social Security Act, including— 
(A) historical trends with regard to increeises in the 
volume and intensity of physicians' services furnished on a 
per enrollee basis (with appropriate adjustments to account 
for changes in the demographic composition of the medi-
care population); 
; ;, 
(B) geographic variations in volume and intensity in 
physicians' services; 
(C) an analysis of the effectiveness of methods currently 
used under such part to ensure that payments under such 
part are made only for services which are medically 
necessary; 
(D) the development and analysis of alternative methods 
to control the volume of services; and 
(E) the impact of the implementation of the relative value 
scale developed under section 1845(e) of such Act on the 
volume and intensity of physicians' services. 
The Secretary shall submit to Congress an interim report on 
such study not later than May 1, 1988, and a final report on 
such study not later than May 1,1989. 
(3) SURVEY OF OUT-OF-POCKET COSTS OF MEDICARE BENEFICIARIES 
FOR HEALTH CARE SERVICES.—The Secretary shall conduct a 
survey to determine the distribution o
f
— 
(A) the liabilities and expenditures for health care serv-
ices of individuals entitled to benefits under title XVIII of 
the Social Security Act, including liabilities for charges (not 
paid on an assignment-related basis) in excess of the reason-
able charge recognized, and 
(B) the collection rates among different classes of physi-
cians for such liabilities, including collection rates for re-
}j, t 
quired coinsurance and for charges (not paid on an assign-
ment-related basis) in excess of the reasonable charge recog-
nized. 
The Secretary shall report to Congress on such study by not 
later than July 1,1990. 
(d) 
STUDY OF PAYMENT FOR CHEMOTHERAPY IN PHYSICIANS' 
OFFICES.— 
(1) IN GENERAL.—The Secretary shall study ways of modifying 
part B of title XVIII of the Social Security Act to permit 
adequate payment under such part for the costs associated with 
providing chemotherapy to cancer patients in physicians' of-
42 use 1395/ 
note. 
Reports. 
Reports. 
Reports. 
42 u s e 1395/ 
note. 
101 STAT. 1330-100 
PUBLIC LAW 100-203—DEC. 22, 1987 
2 use 902 note. 
42 use 1395u 
note. 
42 use 1395m. 
• • • J o « 
flees. The study shall be performed in consultation with physi-
cians and other health care providers who are experts in cancer 
therapy and with representation of health insurers who have 
experience in these payment issues. 
(2) REPORT.—The Secretary shall report to Congress on the 
results of the study by not later than April 1, 1989. 
Subpart B—Provisions Relating to Payments for Other 
Services 
SEC. 4061. EXTENSION OF REDUCTION FOR OTHER PART B ITEMS AND 
SERVICES PAYMENTS UNDER SEQUESTER ORDER. 
Notwithstanding any other provision of law (including any other 
provision of this Act), the reductions in the amount of payments 
required under title XVIII of the Social Security Act made by the 
final sequester order issued by the President on November 20, 1987, 
pursuant to section 252(b) of the Balanced Budget Emergency Deficit 
Control Act of 1985 shall continue to be effective (as provided by 
sections 252(aX4XB) and 256(dK2) of such Act) through March 31, 
1988, with respect to payments for all items and services (other than 
physicians' services) under part B of such title. 
SEC. 4062. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT, PROSTHETIC 
DEVICES, ORTHOTICS. AND PROSTHETICS. 
(a) 1-YEAR FREEZE ON CHARGE LIMITATIONS.— 
(1) IN GENERAL.—In imposing limitations on allowable charges 
for items and services (other than physicians' services) fur-
nished in 1988 under part B of title XVIII of such Act and for 
which payment is made on the basis of the reasonable charge 
for the item or service, the Secretary of Health and Human 
Services shall not impose any limitation at a level higher than 
the same level as was in effect in December 1987. 
(2) TRANSITION.—The provisions of section 4041(aX2) (other 
than subparagraph (D) thereof) of this subtitle shall apply to 
suppliers of items and services described in paragraph (1), and 
directories of participating suppliers of such items and services, 
in the same manner as such section applies to physicians fur-
nishing physicians' services, and directories of participating 
physicians. 
(b) AMOUNT AND FREQUENCY OF PAYMENT FOR DURABLE MEDICAL 
EQUIPMENT, PROSTHETIC DEVICES, ORTHOTICS, AND PROSTHETICS.— 
Part B of title XVIII of the Social Security Act is amended by 
inserting after section 1833 the following new section: 
"SPECIAL PAYMENT RULES FOR PARTICULAR SERVICES 
"SEC. 1834. (a) PAYMENT FOR DURABLE MEDICAL EQUIPMENT, PROS-
THETIC DEVICES, ORTHOTICS, AND PROSTHETICS.— 
"(1) GENERAL RULE FOR PAYMENT.— 
"(A) IN GENERAL.—With respect to a covered item (as 
defined in paragraph (13)) for which payment is determined 
* '
"
^ 
under this subsection, payment shall be made in the fre-
quency specified in paragraphs (2) through (7) and in an 
-
^ 
amount equal to 80 percent of the payment basis described 
in subparagraph (B). 
"(B) PAYMENT BASIS.—The payment basis described in 
' ^ 
this subparagraph is the lesser of— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-101 
"(i) the actual charge for the item, or 
"(ii) the payment amount recognized under para-
graphs (2) through (7) of this subsection for the item; 
except that clause (i) shall not apply if the covered item is 
'* 
furnished by a public home health agency (or by another 
home health agency which demonstrates to the satisfaction 
of the Secretary that a significant portion of its patients are 
low income) free of charge or at nominal charges to the 
public. 
"(C) EXCLUSIVE PAYMENT RULE.—This subsection shall 
constitute the exclusive provision of this title for payment 
for covered items under this part. 
"(2) PAYMENT FOR INEXPENSIVE AND OTHER ROUTINELY PUR-
CHASED DURABLE MEDICAL EQUIPMENT.— 
"(A) IN GENERAL.—Payment for an item of durable medi-
cal equipment (as defined in paragraph (13XA))— 
"(i) the purchase price of which does not exceed $150, 
or 
"(ii) which the Secretary determines is acquired at 
least 75 percent of the time by purchase, 
shall be made on a rental basis or in a lump-sum amount 
for the purchase of the item. The payment amount recog-
nized for purchase or rental of such equipment is the 
amount specified in subparagraph (B) for purchase or 
rental, except that the total amount of rental payments 
with respect to an item may not exceed the payment 
amount specified in subparagraph (B) with respect to the 
purchase of the item. 
"(B) PAYMENT AMOUNT.—For purposes of subparagraph 
(A), the amount specified in this subparagraph, with respect 
to the purchase or rental of an item furnished in a carrier 
service area— 
"(i) in 1989 is the average allowed charge in the area 
'!ii'. 
for the purchase or rental, respectively, of the item for 
the 12-month period ending on June 30, 1987, increased 
by the percentage increase in the consumer price index 
for all urban consumers (U.S. city average) for the 6-
month period ending with December 1987; or 
"(ii) in a subsequent year, is the amount specified in 
i' '
• 
this subparagraph for the preceding year increased by 
the percentage increase in the consumer price index for 
all urban consumers (U.S. city average) for the 12-
month period ending with June of that preceding year. 
"(3) PAYMENT FOR ITEMS REQUIRING FREQUENT AND SUBSTAN-
TIAL SERVICING.— 
"(A) IN GENERAL.—Pajrment for a covered item (such as 
ventilators , aspirators, IPPB machines, and nebulizers) for 
which there must be frequent smd substantial servicing in 
order to avoid risk to the patient's health shall be made on 
a monthly basis for the rental of the item and the amount 
recognized is the amount specified in subparagraph (B). 
"(B) PAYMENT AMOUNT.—For purposes of subparagraph 
(A), the amount specified in this subparagraph, with respect 
to an item or device furnished in a carrier service area— 
"(i) in 1989 is the average allowable charge in the 
area for the rental of the item or device for the 12-
101 STAT. 1330-102 
PUBLIC LAW 100-203—DEC. 22, 1987 
month period ending with June 1987,^^ increased by 
fx t 
the percentage increase in the consumer price index for 
all urban consumers (U.S. city average) for the 6-month 
period ending with December 1987; or 
"(ii) in a subsequent year, is the amount specified in 
this subparagraph for the preceding year increased by 
the percentage increase in the consumer price index for 
all urban consumers (U.S. city average) for the 12-
month period ending with June of that preceding year. 
"(4) PAYMENT FOR CERTAIN CUSTOMIZED ITEMS.—Payment with 
respect to a covered item that is uniquely constructed or 
substantially modified to meet the specific needs of an individ-
ual patient shall be made in a lump-sum ^* amount for the 
purchase of the item in a payment amount based upon the 
carrier's individual consideration for that item, and for the 
reasonable and necessary maintenance and service for parts 
and labor not covered by the supplier's or manufacturer's war-
ranty, when necessary during the period of medical need, and 
the amount recognized for such maintenance and service shall 
be paid on a lump-sum, as needed basis b£ised upon the carrier's 
individual consideration for that item. 
"(5) PAYMENT FOR OXYGEN AND OXYGEN EQUIPMENT.— 
"(A) IN GENERAL.—Payment for oxygen and oxygen 
equipment shall be made on a monthly basis in the monthly 
payment amount recognized under paragraph (9) for oxygen 
and oxygen equipment (other than portable oxygen equip-
ment), subject to subpargigraphs (B) and (C). 
"(B) ADD-ON FOR PORTABLE OXYGEN EQUIPMENT.—When 
portable oxygen equipment is used, but subject to subpara-
graph (D), the payment amount recognized under subpara-
graph (A) shall be increased by the monthly payment 
amount recognized under paragraph (9) for portable oxygen 
equipment. 
"(C) VOLUME ADJUSTMENT.—When the attending physi-
cian prescribes an oxygen flow rate— 
"(i) exceeding 4 liters per minute, the payment 
;
< 
amount recognized under subparagraph (A), subject to 
subparagraph (D), shall be increased by 50 percent, or 
"(ii) of less than 1 liter per minute, the payment 
amount recognized under subparagraph (A) shall be 
decreased by 50 percent. 
"(D) LIMIT ON ADJUSTMENT.—When portable oxygen 
equipment is used and the attending physician prescribes 
an oxygen flow rate exceeding 4 liters per minute, there 
shall only be an increase under either subparagraph (B) or 
(C), whichever increase is larger, and not under both such 
subparagraphs. 
"(6) PAYMENT FOR OTHER COVERED ITEMS (OTHER THAN DUR-
ABLE MEDICAL EQUIPMENT).—Pa3rment for other covered items 
(other than durable medical equipment and other covered items 
described in paragraph (3), (4), or (5)) shall be made in a lump-
sum amount for the purchase of the item in the amount of the 
purchase price recognized under paragraph (8). 
" Copy read "June, 1987,", 
** Copy read "lump sum". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-103 
"(7) PAYMENT FOR OTHER ITEMS OF DURABLE MEDICAL EQUIP-
MENT.— 
"(A) IN GENERAL.—In the case of an item of durable 
medical equipment not described in paragraphs (2) through 
(6)-
"(i) payment shall be made on a monthly basis for the 
rental of such item during the period of medical need 
O^ut pajrments under this subparagraph may not 
extend over a period of continuous use of longer than 
15 months), and, subject to subparagraph (B), the 
amount recognized for each such month is 10 percent of 
the purchase price recognized under paragraph (8) with 
respect to the item; 
(ii) during the succeeding 6-month period of medical 
need, no pajnnent shall be made for rental or servicing 
of the item; and 
"(iii) during the first month of each succeeding 6-
month period of medical need, a service and mainte-
nance pa3rment may be made (for parts and labor not 
covered by the supplier's or manufacturer's warranty, 
as determined by the Secretary to be appropriate for 
the particular type of durable medical equipment) and 
the amount recognized for each such 6-month period is 
the lower of (I) a reasonable and necessary mainte-
nance and servicing fee established by the carrier, or 
(II) 10 percent of the total of the purchase price recog-
nized under paragraph (8) with respect to the item. 
The Secretary shall determine the meaning of the term 
'continuous' in subparagraph (A). 
"(B) RANGE FOR RENTAL AMOUNTS.— 
"(i) FOR 1989.—For items furnished during 1989, the 
payment amount recognized under subparagraph (AXi) 
shall not be more than 115 percent, and shall not be 
less than 85 percent, of the prevailing charge estab-
lished for rental of the item January 1987, increased by 
the percentage increase in the consumer price index for 
all urbgm consumers (U.S. city average) for the 6-month 
period ending with December [ 
].^*^ 
"(ii) FOR 1990.—For items furnished during 1990, the 
payment amount recognized under subparagraph (AXi) 
shall not be more than the maximum amount estab-
' 
lished under clause (i), and shall not be less than the 
minimum amount established under such clause, for 
1989, each such amount increased by the percents^e 
increase in the consumer price index for all urban 
consumers (U.S. city average) for the 12-month period 
ending with June 1989. 
"(8) PURCHASE PRICE RECOGNIZED FOR MISCELLANEOUS DEVICES 
AND ITEMS.—For purposes of paragraphs (6) and (7), the amount 
that is recognized under this paragraph as the purchase price 
for a covered item is the amount described in subparagraph (C) 
of this paragraph, determined as follows: 
(A) COMPUTATION OF LOCAL PURCHASE PRICE.—Each car-
rier under section 1842 shall compute a base local purchase 
price for the item as follows: 
"(i) The carrier shall compute a base local purchase 
price, for each item described— 
'** Copy not legible. 
91-194 O - 90 - 29 : QL.3 Part 2 
101 STAT. 1330-104 
PUBLIC LAW 100-203—DEC. 22, 1987 
-<irj|!S .; oir • 
"(I) in paragraph (6) equal to the average allow-
able charge in the locality for the purchase of the 
'.'--• 
item for the 12-month period ending with June 
1987, or 
"(11) in paragraph (7) equal to the average of the 
QH 
purchase prices on the claims submitted on an 
assignment-related basis for the unused item sup-
plied during the 6-month period ending with 
December 1986. 
"(ii) The carrier shall compute a local purchase price, 
with respect to the furnishing of each particular item— 
"(I) in 1989, equal to the base local purchase 
price computed under clause (i) increased by the 
'souV^iii 1' 
percentage increase in the consumer price index 
, 
•^il'>i\^--b'- X. 
for all urban consumers (U.S. city average) for the 
6-month period ending with December 1987, or 
"(II) in 1990, 1991, or 1992, equal to the local 
purchase price computed under this clause for the 
previous year increased by the percentage increase 
in the consumer price index for all urban con-
sumers (U.S. city average) for the 12-month period 
ending with June of the previous year. 
"(B) COMPUTATION OF REGIONAL PURCHASE PRICE.—With 
respect to the furnishing of a particular item in each region 
(as defined in section 1886(dX2XD)), the Secretary shall 
compute a regional purchase price— 
"(i) for 1991, and for 1992, equal to the average 
(weighted by relative volume of all claims among car-
riers) of the local purchase prices for the carriers in the 
region computed under subparagraph (AXiiXII) for the 
>Hj i
>
n 
year, and 
"(ii) for each subsequent year, equal to the regional 
purchase price computed under this subparagraph for 
the previous year increased by the percentage increase 
in the consumer price index for all urban consumers 
(U.S. city average) for the 12-month period ending with 
June of the previous year. 
"(C) PURCHASE PRICE RECOGNIZED.—For purposes of para-
graphs (6) and (7) and subject to subparagraph (D), the 
amount that is recognized under this paragraph as the 
purchase price for each item furnished— 
"(i) in 1989 or 1990, is 100 percent of the local pur-
chase price computed under subparagraph (A)(iiXI); 
"(ii) in 1991, is the sum of (I) 75 percent of the local 
purchase price computed under subparagraph (AXiiXII) 
for 1991, and (II) 25 percent of the regional purchase 
price computed under subparagraph (B) for 1991; 
"(iii) in 1992, is the sum of (I) 50 percent of the local 
purchase price computed under subparagraph (AXiiXII) 
for 1992, and (II) 50 percent of the regional purchase 
^ 
price computed under subparagraph (B) for 1992; and 
"(iv) in 1993 or a subsequent year, is the regional 
purchase price computed under subparagraph (B) for 
that year. 
"(D) RANGE ON AMOUNT RECOGNIZED.—The amount that is 
e2J? 
recognized under subparagraph (C) as the purchase price 
for an item furnished— 
. „ 
.; „ ... „
. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-105 
"(i) in 1991, may not exceed 130 percent, and may not 
be lower than 80 percent, of the average of the pur-
chase prices recognized under such subparagraph for 
all the carrier service areas in the United States in that 
year; and 
Is . J 
"(ii) in a subsequent year, may not exceed 125 per-
cent, and may not be lower than 85 percent, of the 
l^-)Ki[ '*:. 
average of the purchase prices recognized under such 
•! vb 
subparagraph for all the carrier service areas in the 
United States in that year. 
I 
"(9) MONTHLY PAYMENT AMOUNT RECOGNIZED WITH RESPECT TO 
O
X
Y
G
E
N AND OXYGEN EQUIPMENT.—For purposcs of paragraph 
(5), the amount that is recognized under this paragraph for 
payment for oxygen and oxygen equipment is the monthly 
payment amount described in subparagraph (C) of this para-
graph. Such amount shall be computed separately (i) for all 
items of oxygen and oxygen equipment (other than portable 
oxygen equipment) and (ii) for portable oxygen equipment (each 
such group referred to in this paragraph as an 'item ). 
"(A) COMPUTATION OF LOCAL MONTHLY PAYMENT RATE.— 
Each carrier under this section shall compute a base local 
payment rate for each item as follows: 
,^.;^, ^ 
"(i) The carrier shall compute a base local average 
monthly payment rate per beneficiary as an amount 
equal to (I) the total reasonable charges for the item 
during the 12-month period ending with December 
1986, divided by (II) the total number of months for all 
A , 
. 
beneficiaries receiving the item in the area during the 
12-month period for which the carrier made payment 
for the item under this title. 
"(ii) The carrier shall compute a local average 
monthlv payment rate for the item applicable— 
(I) to 1989, equal to 95 percent of the base local 
average monthly payment rate computed under 
clause (i) for the item increased by the percentage 
increase in the consumer price index for all urban 
consumers (U.S. city average) for the 12-month 
period ending with December 1987, or 
"(II) to 1990 and to 1991, equal to the local 
'^'''^' 
average monthly payment rate computed under 
this clause for the item for the previous year in-
creased 
by the 
percentage 
increase 
in 
the 
^
'
"
^ 
consumer price index for all urban consumers (U.S. 
city average) for the 12-month period ending with 
June of the previous year. 
"(B) 
COMPUTATION 
OF 
REGIONAL 
MONTHLY 
PAYMENT 
RATE.—With respect to the furnishing of an item in each 
region (as defined in section 1886(dX2XD)), the Secretary 
shall compute a regional monthly payment rate— 
"(i) for 1991, and 1992, equal to the average (weighted 
by relative volume of all claims among carriers) of the 
local monthly pajmnient rates for the carriers in the 
region computed under subparagraph (AXiiXID for the 
year, and 
"(ii) for each subsequent year, equal to the regional 
monthly pajmtient rates computed under this subpara-
graph for the previous year increased by the percent-
101 STAT. 1330-106 
PUBLIC LAW 100-203—DEC. 22, 1987 
age increase in the consumer price index for all urban 
consumers (U.S. city average) for the 12-month period 
"
^
1 
ending with June of the previous year. 
' 
"(C) MONTHLY PAYMENT AMOUNT RECOGNIZED.—For pur-
poses of paragraph (5), the amount that is recognized under 
this paragraph as the base monthly payment amount for 
each item furnished— 
"(i) in 1989 and in 1990, is 100 percent of the local 
'
^
<
^ 
'^ 
average 
monthly 
payment 
rate computed 
under 
subparagraph (A)(iiXI) for the item; 
"(ii) in 1991, is the sum of (I) 75 percent of the local 
average 
monthly 
payment 
rate computed 
under 
subparagraph (AXii)(II) for the item for 1991, and (II) 25 
percent of the regional monthly payment rate com-
^. 
puted under subparagraph (BXi) for the item for 1991; 
' 
"(iii) in 1992, is the sum of (I) 50 percent of the local 
'' 
average monthly 
payment 
rate computed 
under 
subparagraph (AXiiXII) for the item for 1992, and (II) 50 
percent of the regional monthly payment rate com-
^" ^ ' 
puted under subparagraph (BXi) for the item for 1992; 
" 
and 
"(iv) in a subsequent year, is the regional monthly 
? ' 
payment rate computed under subparagraph (B) for the 
item for that year. 
"(D) RANGE ON AMOUNT RECOGNIZED.—The amount that is 
recognized under subparagraph (C) as the base monthly 
payment amount for an item furnished— 
"(i) in 1991, may not exceed 130 percent, and may not 
be lower than 80 percent, of the average of the base 
,^ _ 
. 
monthly pa)rment amounts recognized under such 
subparagraph for all the carrier service areas in the 
^
> ' 
United States in that year; and 
"(ii) in a subsequent year, may not exceed 125 per-
cent, and may not be lower than 85 percent, of the 
average of the base monthly payment amounts recog-
nized under such subparagraph for all the carrier serv-
ice areas in the United States in that year. 
IJ. ^ 
"(10) EXCEPTIONS AND ADJUSTMENTS.— 
"(A) AREAS OUTSIDE CONTINENTAL UNITED STATES.—Excep-
tions to the amounts recognized under the previous provi-
sions of this subsection shall be made to take into account 
the unique circumstances of covered items furnished in 
ri 
Alaska, Hawaii, or Puerto Rico, 
"(B) ADJUSTMENT FOR INHERENT REASONABLENESS.—For 
fv 
covered items furnished on or after January 1, 1991, the 
•f 
Secretary is authorized to apply the provisions of para-
?; 
graphs (8) and (9) (other than subparagraph (D)) of section 
1842(b) to covered items and suppliers of such items. 
b 
"(C) 
TRANSCUTANEOUS ELECTRICAL NERVE STIMULATOR 
(TENS).—In order to permit an attending physician time to 
determine whether the purchase of a transcutaneous elec-
trical nerve stimulator is medically appropriate for a 
particular patient, the Secretary may determine an appro-
priate payment amount for the initial rental of such item 
i 
for a period of not more than 2 months. If such item is 
subsequently purchased, the pajonent amount with respect 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-107 
to such purchase is the payment amount determined under 
paragraph (2). 
"(11) IMPROPER BILLING AND REQUIREMENT OF PHYSICIAN 
ORDER.— 
"(A) IMPROPER BILLING FOR CERTAIN RENTAL ITEMS.—Not-
withstanding any other provision of this title, a supplier of 
a covered item for which payment is made under this 
subsection and which is furnished on a rental basis shall 
continue to supply the item without charge (other than a 
charge provided under this subsection for the servicing of 
the item) after rental payments may no longer be made 
under this subsection. If a supplier knowingly and willfully 
violates the previous sentence, the Secretary may apply 
sanctions against the supplier under subsection (j)(2) in the 
same manner such sanctions may apply with respect to a 
physician. 
"(B) REQUIREMENT OF PHYSICIAN ORDER.—The Secretary is 
authorized to require, for specified covered items, that pay-
ment may be made under this subsection with respect to 
the item only if a physician has communicated to the 
supplier, before delivery of the item, a written order for the 
item. 
"(12) REGIONAL CARRIERS.—The Secretary may designate, by 
regulation under section 1842, one carrier for each region (as 
defined in section 1886(dX2)(D)) to process all claims within the 
region for covered items under this section. 
"(13) COVERED ITEM.—In this subsection, the term 'covered 
item' means— 
"(A) durable medical equipment (as defined in section 
1861(n)), including such equipment described in section 
1861(m)(5); 
BtK;.: 
"(B) prosthetic devices (described in section 1861(sX8)), but 
not including parenteral and enteral nutrition nutrients, 
supplies, and equipment; and 
"(C) orthotics and prosthetics (described in section 
1861(sX9)); 
but does not include intraocular lenses. 
"(14) CARRIER.—In this subsection, any reference to the term 
'carrier' includes a reference, with respect to durable medical 
equipment furnished by a home health agency as part of home 
health services, to a fiscal intermediary.", 
(c) STUDY AND EVALUATION.—(1) The Secretary of Health and 
Human Services shall monitor the impact of the amendments made 
by this section on the availability of covered items and shall evalu-
ate the appropriateness of the volume adjustment for oxygen and 
oxygen equipment under section 1834(aX5XC) of the Social Security 
Act (as amended by subsection (b) of this section). The Secretary 
shall report to Congress, by not later than January 1, 1991, on such 
impact and on the evaluation and shall include in such report 
recommendations for changes in payment methodology for covered 
items under section 1834(a) of such Act. 
(2) Before January 1, 1991, the Secretary may not conduct any 
demonstration project respecting alternative methods of payment 
for covered items under title XVIII of the Social Security Act. 
(3) In this subsection, the term "covered item" has the meaning 
given such term in section 1834(aX13) of the Social Security Act (as 
amended by subsection (b) of this section). 
42 u s e 1395m 
note. 
Reports. 
101 STAT. 1330-108 
PUBLIC LAW 100-203—DEC. 22, 1987 
(4) The Secretary shall, upon written request, provide the data 
and information used in determining the payment amounts for 
covered items under section 1834(a) of the Social Security Act. 
Reports. 
(5) The Comptroller General shall conduct a study on the appro-
priateness of the level of payments allowed for covered items under 
the medicare program, and shall report to Congress on the results of 
such study (including recommendations on the transition to regional 
or national rates) by not later than January 1, 1991. Entities fur-
nishing such items which fail to provide the Comptroller General 
with reasonable access to necessary records to carry out the study 
under this paragraph are subject to exclusion from the medicare 
program under section 1128(a) of the Social Security Act. 
(d) CONFORMING AMENDMENTS.— 
^. ^
_ , (1) Section 1814 of such Act (42 U.S.C. 1395f) is amended— 
(A) in subsection (jX2XB), by amending subparagraph (B) 
,; 
to read as follows: 
X- 
"(B) Section 1834(aXlXB).", and 
(B) in subsection (k), by striking all that follows "shall be" 
«, 
and insert "the amount described in section 1834(a)(1).". 
li' 
(2) Section 1832(a) of such Act (42 U.S.C. 1395k(a)) is 
amended— 
/ 
(A) in paragraph (2XA), by inserting "(other than items 
ki 
described in subparagraph (G))" after "services"; 
(B) in paragraph (2XB), by inserting "(other than items 
described in subparagraph (G))" after "medical and other 
biv ^' 
health services"; and 
(C) in paragraph (2)— 
"*"• 
(i) by striking "and" at the end of subparagraph (E), 
AO: Ttt. 
(ii) by striking the period at the end of subparagraph 
(F) and inserting "; and", and 
*' 
(iii) by adding at the end the following new subpara-
graph: 
"(G) covered items (described in section 1834(aX13)) fur-
nished by a provider of services or by others under arrange-
ments with them made by a provider of services.". 
42 use 1395/. 
(3) Section 1833(a) of such Act (42 U.S.C. 13951(a)) is 
amended— 
_ .., , 
(A) in paragraph (1)— 
"" 
(i) by striking "; and" at the end of clause (G) and 
tj„^. . 
inserting a comma, and 
?
;
^ n 
3
1
3
^
^ ^ 
(ii) by adding at the end the following: "and (I) with 
respect to covered 
items 
(described 
in 
section 
i.^. 
1834(aX13)), the amounts paid shall be the amounts 
'•-. 
described in section 1834(aXl),"; 
/l 
(B) in paragraph (2)— 
,{ 
(i) by striking "and (F)" and inserting "(F), and (G)", 
f, 
and 
i>f 
(ii) in subparagraph (A), by striking "(other than 
durable medical equipment)"; 
^os i 
'**>(C) by striking "and" at the end of paragraph (3); 
tc 
'^(D) by striking the period at the end of pareigraph (4) 
and inserting "; and"; and 
•.y&C. 
>q&y 
'*^ Copy read "(B)". 
'*= Copy read "(C)". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-109 
3«(E) by adding at the end the following new paragraph: 
"(5) in the case of covered items (described in section 
1834(aX13)) the amounts described in section 1834(aKl).". 
(4) Section 1866(aX2XA) of such Act (42 U.S.C. 1395cc(a)(2XA)) 
is amended by adding at the end the following new sentence: 
"Notwithstanding the first sentence of this subparagraph, a 
>• • 
home health agency may charge such an individual or person, 
""'" 
with respect to covered items subject to payment under section 
1834(a), the amount of a n y deduction imposed under section 
1833(b) and 20 percent of the payment basis described in section 
1834(aX2).". 
(5) Section 1889 of such Act (42 U.S.C. 1395zz) is repealed. 
42 use I395zz. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
42 use I395f 
apply to covered items furnished on or after January 1, 1989. "ote. 
SEC. 4063. PAYMENT FOR INTRAOCULAR LENSES. 
(a) PROVIDED IN PHYSICIAN'S OFFICE.—Section 1842 of the Social 
Security Act (42 U.S.C. 1395u), as previously amended is amended— 
(1) in subsection (bXll)(C), as inserted by section 4046(aXlXC) 
of this subtitle— 
(A) by inserting "(i)" after "(C)" and by adding at the end 
the following new clause: 
"(ii) The reasonable charge for an intraocular lens implanted 
during cataract surgery in a physician's office may not exceed the 
actual acquisition cost for the lens (taking into account any dis-
count) plus a handling fee (not to exceed 5 percent of such actual 
acquisition cost).", and 
(B)^^ in subparagraph (D), as so redesignated and as 
:. >
c
i
i
3 s* 
amended by section 4046(aXl) of this subtitle, by inserting 
"or item" after "service" or "services" each place either 
appears; and 
(2) in subsection (jXlXD), as added by section 4045(cXlXB) of 
this subtitle and as amended by 4046(aX2) of this subtitle— 
(A) in clause (ii), by striking "and" at the end of subclause 
(IV), by redesignating subclause (V) as subclause (VI) and 
by inserting before such subclause the following new 
^1- 
subclause: 
"(FV) a reasonable charge limit is established under subsec-
W 
tion (bXllXCXii), and"; and 
(B) in clause (iii)— 
(i) by striking "or" at the end of subclause (I), 
-ri ir 
(ii) in subclause (II), by striking "(bXllXO" and 
inserting "(bXllXCXi)", 
(iii) by striking the period at the end of subclause (II) 
and inserting "; or", and 
£-'.«' -^ 
(iv) by adding at the end the following new subclause: 
* ' ''^: ,"t 
"(III) under subsection (bXUXCXii), the payment allowance 
*''^ 
established under such subsection.". 
(b) 
PROVIDED 
IN 
AMBULATORY 
SURGICAL 
CENTERS.—Section 
1833(iX2XA) of such Act (42 U.S.C. 13951(iX2XA)) is amended— 
42 use 1395Z. 
(1) by striking "and" at the end of clause (i), 
(2) by striking the period at the end of clause (ii) and inserting 
",and^and 
(3) by inserting after clause (ii) the following new clause: 
•xmH 
3*"'Copy read "(D)". 
"» Copy read "(C)". 
101 STAT. 1330-110 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395/ 
note. 
42 use 1395u 
note. 
42 use 1395/ 
note. 
42 use 1395/. 
42 use 1395/ 
note. 
42 use 1395/ 
note. 
Reports. 
"(iii) in the case of implantation of an intraocular lens during 
cataract surgery includes payment which is reasonable and 
related to the cost of acquiring the class of lens involved.". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to items furnished on or after July 1,1988. 
(d) SPECIAL RULE.—With respect to the^^ establishment of a 
reasonable charge limit under section 1842(b)(ll)(C)(ii) of the Social 
Security Act, in applying section 1842(jXlXDXi) of such Act, the 
matter beginning with "plus" shall be considered to have been 
deleted. 
SEC. 4064. CLINICAL DIAGNOSTIC LABORATORY TESTS. 
(a) LIMITATION ON CHANGES IN FEE SCHEDULES.— 
(1) 3-MONTH FREEZE IN FEE SCHEDULES.—Notwithstanding any 
other provision of law, any change in the fee schedules for 
clinical laboratory diagnostic laboratory tests under part B of 
title XVIII of such Act which would have become effective for 
tests furnished on or after January 1,1988, shall not be effective 
for tests furnished during the 3-month period beginning on 
January 1,1988. 
(2) ^fo CPi INCREASE IN 1988.—Notwithstanding any other 
provision of law, the Secretary of Health and Human Services 
shall not adjust the fee schedules established under section 
1833(h) of the Social Security Act for 1988 to take into account 
any increase in the consumer price index. 
Oa) FEE SCHEDULES AND PAYMENT LIMITS.— 
(1) REBASING OF FEE SCHEDULES FOR CERTAIN AUTOMATED AND 
SIMILAR TESTS.—Section 1833(hX2) of the Social Security Act (42 
U.S.C. 13951(hX2)) is amended by adding at the end the follow-
ing: "In establishing fee schedules under the first sentence of 
this par£igraph with respect to automated tests and tests (other 
than cytopathology tests) which before July 1, 1984, the Sec-
retary made subject to a limit based on lowest charge levels 
under the sixth sentence of section 1842(bX3) performed after 
March 31,1988, the Secretary shall reduce by 8.3 percent the fee 
,/j 
schedules otherwise established for 1988.". 
(2) NATIONWIDE PAYMENT UMITS.—Section 1833(hX4XB) of 
^
2
^
. such Act is amended— 
(A) in clause (i), by striking "January" and inserting 
"April", and 
(B) by amending clause (ii) to read £is follows: 
I 
"(ii) March 31, 1988, and so long as a fee schedule for the test 
has not been established on a nationwide basis, is equal to the 
median of all the fee schedules established for that test for that 
laboratory setting under paragraph (1).". 
(3) EFFECTIVE DATES.—The amendments made by paragraphs 
(1) and (2) shall apply with respect to services furnished on or 
after April 1,1988. 
(4) GAO STUDY OF FEE SCHEDULES.—The Comptroller General 
shall conduct a study of the level of the fee schedules estab-
lished for clinical diagnostic laboratory services under section 
^r- 1833(hX2) of the Social Security Act to determine, bsised on the 
costs of, and revenues received for, such tests the appropriate-
;
*
^ 
ness of such schedules. The Comptroller General shall report to 
the Congress on the results of such study by not later than 
January 1,1990. Suppliers of such tests which fail to provide the 
Comptroller General with reasonable access to necessary 
records to carry out the study under this paragraph are subject 
' Copy read "the the". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-111 
to exclusion from the medicare program under section 1128(a) of 
the Social Security Act. 
(c) LIMITATION ON APPLICATION OF 2 PERCENT HOSPITAL LAB DIF-
FERENTIAL.—Section 1833(hX2) of such Act is amended by striking 
42 USC 1395Z. 
"hospital laboratory" and inserting "laboratory in a sole community 
hospital". 
(d) INTERMEDIATE SANCTIONS.— 
(1) Part B of title XVIII of such Act is amended by adding at 
the end thereof the following new section: 
"INTERMEDIATE SANCTIONS FOR PROVIDERS OF CLINICAL DIAGNOSTIC 
LABORATORY TESTS 35b 
"SEC. 1846. (a) If the Secretary determines that any provider or 
42 USC 1395w-2. 
clinical laboratory certified for participation under this title no 
longer substantially meets the conditions of participation specified 
under this title with respect to the provision of clinical diagnostic 
laboratory tests under this part, the Secretary may (for a period not 
to exceed one year) impose intermediate sanctions developed pursu- 
t 
ant to subsection (b), in lieu of canceling immediately the certifi-
cation of the provider or clinical laboratory. 
"(b)(1) The Secretary shall develop and implement— 
"(A) a range of intermediate sanctions to apply to providers or 
certified clinical laboratories under the conditions described in 
subsection (a), and 
"(B) appropriate procedures for appealing determinations 
relating to the imposition of such sanctions. 
"(2)(A) The intermediate sanctions developed under paragraph (1) 
shall include— 
"(i) directed plans of correction, 
"(ii) civil fines and penalties, 
"(iii) payment for the costs of onsite monitoring by an agency 
responsible for conducting certification surveys, and 
"(iv) suspension of all or part of the payments to which a 
provider or certified clinical laboratory would otherwise be 
entitled under this title with respect to clinical diagnostic lab-
oratory tests provided on or after the date in which the Sec-
retary determines that intermediate sanctions should be im-
posed pursuant to subsection (a).^* 
"(B) The sanctions specified in subparagraph (A) are in addition to 
sanctions otherwise available under State or Federal law. 
"(3) The Secretary shall develop and implement specific proce-
dures with respect to when and how each of the intermediate 
sanctions developed under paragraph (1) is to be applied, the 
amounts of any fines, and the severity of each of these penalties. 
Such procedures shall be designed so as to minimize the time 
between identification of violations and imposition of these sanc-
tions and shall provide for the imposition of incrementally more 
severe fines for repeated or uncorrected deficiencies.". 
(2) The amendment made by paragraph (1) shall become 
Effective date. 
effective on January 1,1990. 
42 USC l395w-2 
(e) 
STATE CERTIFICATION OF HIGH-VOLUME PHYSICIAN OFFICE 
"
°
*
® 
LABS.— 
(1) Section 1861(s) of such Act (42 U.S.C. 1395x(s)) is amended, 
in the sentence following paragraph (11), by inserting "a labora-
^""Copy read "TESTS" ". 
'• Subparagraphs " '(i)", " '(ii)", " '(iii)", and " '(iv)" indented incorrectly. 
101 STAT. 1330-112 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1395x 
note. 
42 u s e 1395x 
note. 
tory not independent of a physician's office that has a volume of 
clinical diagnostic laboratory tests exceeding 5,000 per year" 
after "physician's office,". 
(2) The amendment made by paragraph (1) shall apply to 
diagnostic tests performed on or after January 1,1990. 
SEC. 4065. RETURN ON EQUITY PAYMENTS TO OUTPATIENT DEPART-
MENTS. 
(a) IN GENERAL.—Section 1861(vXl) of the Social Security Act (42 
U.S.C. 1395x(vXl)) is amended by adding at the end thereof the 
following new subparagraph: 
"(S) Such regulations shall not include provision for specific rec-
ognition of any return on equity capital with respect to hospital 
outpatient departments.". 
O
t
>
) CONFORMING AMENDMENT.—Section 18810t)X2)(C) of such Act 
(42 U.S.C. 1395rra)X2XC)) is amended by striking "facilities" and 
inserting "facilities (other than hospital outpatient departments)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
become effective on January 1,1988. 
SEC. 4066. PAYMENTS TO HOSPITAL OUTPATIENT DEPARTMENTS FOR 
RADIOLOGY. 
(a) AMOUNTS PAYABLE.—Section 1833 of the Social Security Act (42 
U.S.C. 13951) is amended— 
(1) in subsection (aX2)— 
iU ' '^ 
.-..,•,:,'> '^,^.:. 
(A) by striking "and" in subparagraph (C), 
(B) by adding "and" at the end of subparagraph (D), and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(E) with respect to— 
"(i) outpatient hospital radiology services (including 
diagnostic and therapeutic radiology, nuclear medicine 
and CAT scan procedures, magnetic resonance imag-
ing, and ultrasound and other imaging services), and 
*(ii) effective for procedures performed on or after 
October 1, 1989, diagnostic procedures (as defined by 
the Secretary) described in section 1861(sX3) (other 
than diagnostic x-ray tests and diagnostic laboratory 
, , ,j 
tests), 
the amount determined under subsection (n);"; and 
(2) by adding at the end, as previously amended, the following 
new subsection: 
"(nXlXA) The aggregate amount of the payments to be made for 
all or part of a cost reporting period beginning on or after October 1, 
1988 under this part for services described in subsection (aX2XE) 
shall be equal to the lesser of— 
"(i) the amount determined with respect to such services 
under subsection (aX2XB), or 
"(ii) the blend amount for radiology services and diagnostic 
procedures determined in accordance with subparagraph (B). 
"(BXi) The blend amount for radiology services and diagnostic 
procedures for a cost reporting period is the sum o
f
— 
"(I) the cost proportion (as defined in clause (ii)) of the amount 
described in subparagraph (AXi); and 
"(II) the charge proportion (as defined in clause (iiXID) of 62 
percent (for services described in subsection (aX2XEXi)), or (for 
procedures described in subsection (aX2XEXii)), 42 percent or 
ii) ii-
•jn-jL 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-113 
such other percent established by the Secretary (or carriers 
acting pursuant to guidelines issued by the Secretary) based on 
prevailing charges established with actual charge data, of 80 
percent of the prevailing charge for participating physicians for 
the same services as if they were furnished in a physician's 
office in the same locality £is determined under section 1842(b). 
"(ii) In this subparagraph: 
"(I) The term 'cost proportion' means 65 percent for all or any 
part of cost reporting periods which occur in fiscal year 1989 
and 50 percent for other cost reporting periods. 
"(II) The term 'charge proportion' means 35 percent for all or 
any parts of cost reporting periods which occur in fiscal year 
1989 and 50 percent for other cost reporting periods.". 
(b) CONFORMING AMENDMENT.—Section 1833(a)(2)(B) of such Act 
(42 U.S.C. 13951(aX2XB)) is amended in the matter preceding clause 
(i) by striking "(C) or (D)" and inserting "(C), (D), or (E)". 
(c) EFFECTIVE DATE.—The amendments made by subsection (a) 42 USC 1395/ 
shall apply with respect to outpatient hospital radiology services note. 
furnished on or after October 1, 1988, and other diagnostic proce-
dures performed on or after October 1,1989. 
SEC. 4067. UPDATING MAXIMUM RATE OF PAYMENT PER VISIT FOR 
INDEPENDENT RURAL HEALTH CLINICS. 
(a) IN GENERAL.—Section 1833 of the Social Security Act (42 U.S.C. 
13951) is further amended by inserting after subsection (e) the 
following new subsection: 
c-. - >>' S* 
"(f) In establishing limits under subsection (a) on payment for 
-'-^ 
rural health clinic services provided by independent rural health 
clinics, the Secretary shall establish such limit, for services pro-
vided— 
. , J 
"(1) in 1988, after March 31, at $46, and 
"(2) in a subsequent year, at the limit established under this 
subsection for the previous year increased by the percentage 
increase in the medicare economic index (referred to in the 
fourth sentence of section 1842(bX3)) applicable to physicians' 
services furnished as of the first day of that year.". 
0)) REPORT ON RATES.—The Secretary of Health and Human Serv- 
42 USC 1395/ 
ices shall report to Congress, by not later than March 1,1989, on the 
note, 
adequacy of the amounts paid under title XVIII of the Social 
Security Act for rural health clinic services provided by independent 
rural health clinics. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
42 USC 1395/ 
apply to services furnished on or after April 1,1988. 
note. 
SEC. 4068. PAYMENT FOR AMBULATORY SURGERY AT EYE, AND EYE AND 
EAR, SPECIALTY HOSPITALS. 
(a) IN GENERAL.—Section 1833(iX3XBXii) of the Social Security Act 
(42 U.S.C. 13951(iX3XBXii)) is amended— 
(1) by striking "In" and inserting "Subject to the last sentence 
of this clause, in"; and 
(2) by adding at the end thereof the following: 
"In the case of a hospital that makes application to the Secretary 
and demonstrates that it specializes in eye services or eye and ear 
services (as determined by the Secretary), receives more than 30 
percent of its total revenues from outpatient services and was an eye 
specialty hospital or an eye and ear specialty hospital on October 1, 
1987, the cost proportion and ASC proportion in effect under 
101 STAT. 1330-114 
PUBLIC LAW 100-203—DEC. 22, 1987 
subclauses (I) and (II) for cost reporting periods beginning in fiscal 
year 1988 shall remain in effect for cost reporting periods beginning 
in fiscal year 1989 or fiscal year 1990.". 
(b) DEVELOPMENT OF PROSPECTIVE PAYMENT METHODOLOGY FOR 
OUTPATIENT HOSPITAL SERVICES.—Section 1135(d) of the Social Secu-
rity Act (42 U.S.C. 1320b-5(d)) is amended— 
(1) by adding at the end of paragraph (3) the following: "In 
{ 
establishing such rates, the Secretary shall consider whether a 
r 
differential payment rate is appropriate for speciality hos-
pitals."; and 
^ 
(2) by adding at the end the following new paragraph: 
"(7) The Secretary shall solicit the views of the Prospective Pay-
ment Assessment Commission in developing the systems under 
paragraphs (1) and (6), and shall include in the Secretary's reports 
under this subsection any views the Commission may submit with 
respect to such systems.". 
42 use 1395Z. 
(c) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall be effective as if included in the amendment made by section 
9343(aXlXB) of the Omnibus Budget Reconciliation Act of 1986. 
Subpart C—Eligibility and Benefits Changes 
SEC. 4070. COVERAGE OF MENTAL HEALTH SERVICES. 
(a) OUTPATIENT SERVICES UNDER PART B.—Section 1833(c) of the 
42 use 1395/ 
Social Security Act (42 U.S.C. 13951(c)) is amended— 
"ote. 
(1) by striking "$312.50" and inserting "$1375.00"; and 
(2) by adding at the end thereof the following: 
"For purposes of this subsection, the term 'treatment' does not 
include brief office visits (as defined by the Secretary) for the sole 
purpose of prescribing or monitoring prescription drugs used in the 
treatment of such disorders.". 
(b) PARTIAL HOSPITAUZATION COVERAGE.— 
(1) Section 1861(sX2XB) of such Act (42 U.S.C. 1395x(sX2XB)) is 
amended by inserting "and partial hospitalization services in-
cident to such services" before the semicolon. 
"^ 
^ ^ 
^ 
(2) Section 1861 of such Act (42 U.S.C. 1395x) is amended by 
adding at the end thereof the following new subsection: 
"(ffKl) The term 'partial hospitalization services' means the items 
and services described in paragraph (2) prescribed by a physician 
and provided under a program described in paragraph (3) under the 
supervision of a physician pursuant to an individualized, written 
plan of treatment established and periodically reviewed by a physi-
cian (in consultation with appropriate staff participating in such 
program), which plan sets forth the physician's diagnosis, the type, 
amount, frequency, and duration of the items and services provided 
under the plan, and the goals for treatment under the plan. 
"(2) The items and services described in this paragraph are— 
"(A) individual and group therapy with physicians or 
psychologists (or other mental health professionals to the extent 
authorized under State law), 
"(B) occupational therapy requiring the skills of a qualified 
occupational therapist, 
•y 
"(C) services of social workers, trained psychiatric nurses, and 
other staff trained to work with psychiatric patients, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-115 
"(D) drugs and biologicals furnished for therapeutic purposes 
(which cannot, as determined in accordance with regulations, be 
self-administered), 
"(E) individualized activity therapies that are not primarily 
recreational or diversionary, 
"(F) family counseling (the primary purpose of which is treat-
ment of the individual's condition), 
"(G) patient training and education (to the extent that train-
,y, ing and educational activities are closely and clearly related to 
'IT individual's care and treatment), 
"(H) diagnostic services, and 
"(I) such other items and services as the Secretary may 
provide (but in no event to include meals and transportation); 
that are reasonable and necessary for the diagnosis or active treat-
ment of the individual's condition, reasonably expected to improve 
or maintain the individual's condition and functional level and to 
prevent relapse or hospitalization, and furnished pursuant to such 
guidelines relating to frequency and duration of services as the 
Secretary shall by regulation establish (taking into account accepted 
norms of medical practice and the reasonable expectation of patient 
improvement). 
(3) A program described in this paragraph is a program which is 
hospital-based or hospital-affiliated (as defined by the Secretary) and 
which is a distinct and organized intensive ambulatory treatment 
service offering less than 24-hour-daily care.". 
(3) Section 1835(aX2) of such Act (42 U.S.C. 1395n(aX2)) is 
amended— 
(A) by striking "and" at the end of subparagraph (D); 
(B) by striking the period at the end of subparagraph (E) 
and inserting "; £md"; and 
*' 
(C) by inserting sifter subparagraph (E) the following new 
subparagraph: 
"(F) in the case of partial hospitalization services, (i) the 
individual would require inpatient psychiatric care in the 
e f 
absence of such services, (ii) an individualized, written plan 
for furnishing such services has been established by a 
phjrsician and is reviewed periodically by a physician, and 
tifi 
(iii) such services are or were furnished while the individual 
is or was under the care of a physician.". 
& 
1 
(4) Section 1833(c) of such Act, as amended by subsection (a), is 
further amended at the end thereof by inserting "or partial 
hospitalization services that are not directly provided by a 
ph3rsician" before the period. 
(c) EFFECTIVE DATE; IMPLEMENTATION.— 
(1) The amendment made b^ subsection (aXD shall apply with 
respect to calendar years beginning with 1988; except that with 
respect to 1988, any reference in section 1833(c) of the Social 
Security Act, as amended by subsection (a), to "$1375.00" is 
deemed a reference to "$562.50". The amendment made by 
subsection (aX2) shall apply to services furnished on or after 
January 1,1989. 
(2XA) The amendments made by subsection (b) shall become 
effective on the date of enactment of this Act. 
(B) The Secretary of Health and Human Services shall imple-
ment the amendments made by subsection (b) so as to ensure 
that there is no additional cost to the medicare program by 
reason of such amendments. 
42 use 1395/ 
note. 
42 use 1395x 
note. 
101 STAT. 1330-116 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 4071. COVERAGE OF INFLUENZA VACCINE AND ITS ADMINISTRATION. 
(a) IN GENERAL.—Section 1861(s)(10)(A) of the Social Security Act 
(42 U.S.C. 1395x(a)(10)(A)) is amended by inserting before the semi-
colon the following: "and influenza vaccine and its administration". 
42 u s e 1395x 
(b) CONTINGENT EFFECTIVE DATE; DEMONSTRATION PROJECT.— 
note. 
(1) The provisions of subsection (e) of section 4072 of this 
subpart shall apply to this section in the same manner as it 
"^ 
applies to section 4072. 
t'^ 
(2) In conducting the demonstration project pursuant to para-
graph (1), in order to determine the cost effectiveness of includ-
ing influenza vaccine in the medicare program, the Secretary of 
Health and Human Services is required to conduct a demonstra-
tion of the provision of influenza vaccine as a service for medi-
care beneficiaries and to expend $25,000,000 each year of the 
demonstration project for this purpose. In conducting this dem-
onstration, the Secretary is authorized to purchase in bulk 
influenza vaccine and to distribute it in a manner to make it 
widely available to medicare beneficiaries, to develop projects to 
provide vaccine in the same manner as other covered medicare 
services in large scale demonstration projects, including state-
wide projects, and to engage in other appropriate use of moneys 
to provide influenza vaccine to medicare beneficiaries and 
evaluate the cost effectiveness of its use. In determining cost 
effectiveness, the Secretary shall consider the direct cost of the 
vaccine, the utilization of vaccine which might otherwise not 
^- 
have occurred, the costs of illnesses and nursing home days 
avoided, and other relevant factors, except that extended life for 
beneficiaries shall not be considered to reduce the cost effective-
ness of the vaccine. 
SEC. 4072. PAYMENT FOR THERAPEUTIC SHOES FOR INDIVIDUALS WITH 
SEVERE DIABETIC FOOT DISEASE. 
(a) COVERAGE UNDER PART B.—Section 1861(s) of the Social Secu-
rity Act (42 U.S.C. 1395x(s)) is amended— 
(1) by redesignating paragraphs (12) through (15) as para-
graphs (13) through (16), respectively, 
bi 
(2) by striking out "and" at the end of paragraph (10), 
k 
(3) by striking out the period at the end of paragraph (11) and 
inserting "; and", and 
ai 
(4) by inserting after paragraph (11) the following new para-
ift 
graph: 
& 
"(12) extra-depth shoes with inserts or custom molded shoes 
for an individual with diabetes, i
f
— 
"(A) the physician who is managing the individual's dia-
XMIJ. 
?<>•''• .. 
betic condition (i) documents that the individual has periph-
eral neuropathy with evidence of callus formation, a history 
; 
of pre-ulcerative calluses, a history of previous ulceration, 
foot deformity, or previous amputation, or poor circulation, 
and (ii) certifies that the individual needs such shoes under 
I' 
a comprehensive plan of care related to the individual's 
diabetic condition; 
.«''41 03 ; yi 
o^c^o* 
"(B) the particular t3T)e of shoes are prescribed by a 
'' •' 
podiatrist or other qualified physician (as established by the 
'Sl:7~T 
Secretary); and 
@
' 
"(C) the shoes are fitted and furnished by a podiatrist or 
t 
other qualified individual (such as a pedorthist or orthotist, 
as established by the Secretary) who is not the physician 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-117 
.-.a<|9S 
ni:>Hi¥H 
described in subparagraph (A) (unless the Secretary 
finds 
, , f 
that the physician is the only such qualified individual in 
the area).'. 
(b) LIMITATION ON BENEFIT.—Section 1833 of such Act (42 U.S.C. 42 USC 1395/. 
1395) is amended by inserting after subsection (e) the following new 
subsection: 
"(fKl) In the case of shoes described in section 1861(s)(12)— 
"(A) no payment may be made under this part for the furnish-
ing of more than one pair of shoes for any individual for any 
calendar year, and 
"(B) with respect to expenses incurred in any calendar year, 
no more than the limit established under paragraph (2) shall be 
considered as incurred expenses for purposes of subsections (a) 
and (b). 
Payment for shoes under this part shall be considered to include 
payment for any expenses for the fitting of such shoes. 
'(2)(A) Except as provided by the Secretary under subparagraphs 
(B) and (C), the limit established under this paragraph— 
"(i) for the furnishing of one pair of custom molded shoes is 
$300; 
"(ii) for the furnishing of extra-depth shoes and inserts is— 
"(I) $100 for the pair of shoes itself, and 
i
,
« -v 
„Qj^ ^gQ ^^j. ijjggj.^ fQj. a pg^jj. Qf shoes. 
"(B) The Secretary or a carrier may establish limits for shoes that 
are lower than the limits established under subparagraph (A) if the 
Secretary finds that shoes and inserts of an appropriate quality are 
readily available at or below such lower limits. 
"(C) For each year after 1988, each dollar amount under subpara-
graph (A) or (B) (as previously adjusted under this subparagraph) 
shall be increased by the same percentage increase as the Secretary 
provides with respect to durable medical equipment for that year, 
except that if such increase is not a multiple of $1, it shall be 
rounded to the nearest multiple of $1. 
"(3) In this title, the term 'shoes' includes, except for purposes of 
subparagraphs (AXii) and (B) of paragraph (2), inserts for extra-
depth shoes.". 
(c) MODIFICATION OF EXCLUSION.—Section 1862(aX8) of such Act (42 
U.S.C. 1395y(aX8)) is amended by inserting ", other than shoes 
furnished pursuant to section 1861(sX12)" before the semicolon. 
(d) 
CONFORMING 
AMENDMENTS.—Sections 
1864(a), 
1865(a), 
1902(aX9XC), and 1915(aXlXBXiiXI) of such Act (42 U.S.C. 1395aa(a), 
1395bb(a), 1396a(aX9XC), 1396n(aXlXBXiiXI)) are each amended by 
striking out "paragraphs (12) and (13)" and inserting "paragraphs 
(13) and (14)". 
(e) CONTINGENT EFFECTIVE DATE; DEMONSTRATION PROJECT.— 
42 use I395x 
(1) The amendments made by this section shall become effec- 
^°^-
tive (if at all) in accordance with paragraph (2). 
(2XA) The Secretary of Health and Human Services (in this 
paragraph referred to as the "Secretary"), shall establish a 
demonstration project to begin on October 1, 1988, to test the 
cost-effectiveness of furnishing therapeutic shoes under the 
medicare program to the extent provided under the amend-
ments made by this section to a sample group of medicare 
beneficiaries. 
(BXi) The demonstration project under subparagraph (A) shall 
be conducted for an initial period of 24 months. Not later than 
Reports. 
October 1, 1990, the Secretary shall report to the Congress on 
../BU ilP 
101 STAT. 1330-118 
PUBLIC LAW 100-203—DEC. 22, 1987 
Effective date. 
the results of such project. If the Secretary finds, on the basis of 
existing data, that furnishing therapeutic shoes under the medi-
care program to the extent provided under the amendments 
i
r
i
i
^
< :;«0 ij^ 
made by this section is cost-effective, the Secretary shall include 
such finding in such report, such project shall be discontinued, 
and the amendments made by this section shall become effec-
tive on November 1,1990. 
(ii) If the Secretary determines that such finding cannot be 
made on the basis of existing data, such project shall continue 
Reports. 
for an additional 24 months. Not later than April 1, 1993, the 
Secretary shall submit a final report to the Congress on the 
Effective date. 
results of such project. The amendments made by this section 
shall become effective on the first day of the first month to 
begin after such report is submitted to the Congress unless the 
report contains a finding by the Secretary that furnishing 
therapeutic shoes under the medicare program to the extent 
provided under the amendments made by this section is not 
cost-effective (in which case the amendments made by this 
section shall not become effective). 
SEC. 4073. COVERAGE OF CERTIFIED NURSE-MIDWIFE SERVICES. 
(a) COVERAGE OF SERVICES.—Section 1861(s)(2) of the Social Secu-
rity Act (42 U.S.C. 1395x(s)(2)) is amended— 
(1) by striking "and" at the end of subparagraph (J); 
(2) by adding "and" at the end of subparagraph (K); and 
(3) by adding at the end thereof the following new subpara-
graph: 
"(L) certified nurse-midwife services;". 
(b) PAYMENT OF BENEFITS.— 
(1) Section 1832(a)(2XB) of such Act (42 U.S.C. 1395k(a)(2)(B)) is 
amended— 
(A) by striking "and" at the end of clause (ii); 
(B) by striking the semicolon at the end of clause (iii) and 
inserting a comma; and 
(C) by adding at the end thereof the following new clause: 
'i^ 
"(iv) certified nurse-midwife services; and". 
42 use 1395Z. 
(2) Section 1833(a)(1) of such Act (42 U.S.C. 1395k(a)(l)) is 
amended— 
(A) by striking "and" at the end of clause (F); 
(B) by striking "services; and" in clause (G) and inserting 
"services,"; and 
(C) ^' by adding at the end thereof the following: "and (I) 
with respect to certified nurse-midwife services under sec-
.x.v 5
^ '^F't 
tion 1861(s)(2)(L), the amounts paid shall be the amount 
"" 
determined by a fee schedule established by the Secretary 
for the purposes of this subparagraph (but in no event more 
c 
than 65 percent of the prevailing charge that would be 
allowed for the same service performed by a physician);". 
(3) Section 1833 of such Act (42 U.S.C. 13951) is amended by 
adding at the end the following new subsection: 
"(m) In the case of certified nurse-midwife services for which 
pajmient may be made under this part only pursuant to section 
1861(s)(2)(L), payment may only be made under this part for such 
services on an assignment-related basis.". 
»' Ck)py read "(D)". 
..^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-119 
(c) DEFINITION.—Section 1861 of such Act (42 U.S.C. 1395x) is 
amended by adding at the end thereof the following new subsection: 
"Certified Nurse-Midwife Services 
"(ffKD The term 'certified nurse-midwife services' means such 
-' 
services furnished by a certified nurse-midwife (as defined in para-
graph (2)) and such services and supplies furnished as an incident to 
his service which the certified nurse-midwife is legally authorized to 
perform under State law (or the State regulatory mechanism pro-
vided by State law) as would otherwise be covered if furnished by a 
physician or as an incident to a physician's service. 
"(2) The term 'certified nurse-midwife' means a registered nurse 
who has successfully completed a program of study and clinical 
experience meeting guidelines prescribed by the Secretary, or has 
been certified by an organization recognized by the Secretary, and 
performs services in the area of management of the care of mothers 
and babies throughout the maternity cycle.". 
(d) 3* CONFORMING CHANGES.— 
(1) Section 1905(aX17) of such Act (42 U.S.C. 1396d(aX17)) is 
amended by striking "as defined in subsection (m)" and insert-
ing "as defined in section 1861(ff)". 
(2) Section 1905 of such Act (42 U.S.C. 1396d) is amended by 
striking subsection (m). 
(e) ^^ EFFECTIVE DATE.—The amendments made by this section 
42 USC 1395k ^ 
shall be effective with respect to services performed on or after July 
note. 
"' 
1,1988. 
SEC. 4074. COVERAGE OF SOCIAL WORKER SERVICES FURNISHED BY A 
HEALTH MAINTENANCE ORGANIZATION TO ITS MEMBERS. 
(a) IN GENERAL.—Section 1861(sX2XHXii) of the Social Security Act 
(42 U.S.C. 1395x(sX2XHXii)) is amended— 
(1) by inserting "or by a clinical social worker (as defined in 
subsection (ff))" after '^clinical psychologist (as defined by the 
Secretary)"; and 
(2) by striking "incident to his services" and inserting "in- 
• •
- f -• 
cident to such clinical psychologist's services or clinical social 
^' 
worker's services". 
(b) CuNiCAL SOCIAL WORKER DEFINED.—Section 1861 of such Act 
(42 U.S.C. 1395x) is amended by adding at the end the following new 
subsection: 
"Clinical Social Worker 
"(ff) The term 'clinical social worker' means an individual who— 
"(1) possesses a master's or doctor's degree in social work; 
"(2) after obtaining such degree has performed at least 2 years 
of supervised clinical social work; and 
"(3XA) is licensed or certified as a clinical social worker by the 
State in which the services are performed, or 
"(B) in the case of an individual in a State which does not 
provide for licensure or certification— 
"(i) has completed at least 2 years or 3,000 hours of post-
•»v 
master's degree supervised clinical social work practice 
under the supervision of a master's level social worker in 
" Copy read "(c)". 
»8 Copy read "(d)". 
101 STAT. 1330-120 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1395x 
note. 
42 u s e 1395x 
note. 
42 u s e 1395x 
note. 
42 u s e 1395x 
note. 
42 u s e 1395Z. 
an appropriate setting (as determined by the Secretary), 
and 
"(ii) meets such other criteria as the Secretary estab-
lishes.", 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
be effective with respect to services performed on or after January 1, 
1988. 
SEC. 4075. CLARIFICATION OF COVERAGE OF DRUGS USED IN IMMUNO-
SUPPRESSIVE THERAPY. 
(a) IN GENERAL.—Section 1861(sX2)(J) of the Social Security Act 
(42 U.S.C. 1395x(sX2XJ)) is amended by striking "immunosuppressive 
drugs" and inserting 
"prescription 
drugs used in immuno-
suppressive therapy". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to drugs dispensed on or after the date of the enactment 
of this Act. 
SEC. 4076. SERVICES OF A PHYSICIAN ASSISTANT. 
(a) SERVICES COVERED.—Section 1861(sX2XK) of the Social Security 
Act (42 U.S.C. 1395x(sX2XK)) is amended by inserting ", in a rural 
area (as defined in section 1886(dX2XD)) that is designated, under 
section 332(aXlXA) of the Public Health Service Act, as a health 
manpower shortage area," after "1905(c))". 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to services furnished on or after January 1, 1989. 
SEC. 4077. PSYCHOLOGIST SERVICES IN CLINICS. 
(a) COVERAGE OF PSYCHOLOGISTS' SERVICES FURNISHED AT RURAL 
HEALTH CUNICS.— 
(1) Section 1861(aaXlXB) of the Social Security Act (42 U.S.C. 
1395x(aaXlXB)) is amended by striking "physician assistant or 
by a nurse practitioner" and inserting "physician assistant or a 
nurse practitioner (as defined in paragraph (3)), or by a clinical 
psychologist (as defined by the Secretary),'. 
(2) The amendment made by paragraph (1) shall be effective 
with respect to services furnished on or after the date of enact-
ment of this Act. 
(b) DIRECT PAYMENT FOR PSYCHOLOGISTS' SERVICES FURNISHED AT A 
COMMUNITY MENTAL HEALTH CENTER.— 
(1) Section 1861(sX2) of the Social Security Act (42 U.S.C. 
1395x(sX2)), as amended, is amended— 
(A) by striking "and" at the end of subparagraph (K); 
--.; 
(B) by adding 'and" at the end of subparagraph (L); and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(M) qualified psychologist services;". 
(2) Section 1832(aX2XB) of such Act (42 U.S.C. 1395k(aX2XB)) is 
amended— 
(A) by striking "and" at the end of clause (ii); 
(B) by striking the semicolon in clause (iii) and inserting a 
comma; and 
(C) bv adding at the end thereof the following new clause: 
(iv) qualified psychologist services; and'. 
(3) Section 1833(aXl) of such Act (42 U.S.C. 1395k(aXl)) is 
amended— 
(A) by striking "and" at the end of subparagraph (G); 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-121 
, 
(B) by striking "services; and" in subparagraph (H) and 
inserting "services,"; 
(C) by adding "and" at the end of subparagraph (I); and 
(D) by adding at the end thereof the following new 
3 
subparagraph: "(J) with respect to qualified psychologist 
services under section 1861(sX2XM), the amounts paid shall 
be the amount determined by a fee schedule established by 
the Secretary for the purposes of this subparagraph;". 
(4) The subsection added by section 4073(bX3) of this subpart is 
amended by inserting "and in the case of qualified psychologists 
services for which payment may be made under this part only 
pursuant to section 1861(sX2XM)" after "1861(sX2XL)". 
(5) Section 1861 of such Act (42 U.S.C. 1395x) is amended by 
adding at the end thereof the following new subsection: 
42 u s e 1395/. 
"Qualified Psychologist Services 
"(gg) The term 'qualified psychologist services' means such serv-
ices and such services and supplies furnished as an incident to his 
service furnished by a clinical psychologist (as defined by the Sec-
retary) at a community mental health center (as such term is used 
in the Public Health Service Act) which the psychologist is legally 
authorized to perform under State law (or the State regulatory 
mechanism provided by State law) as would otherwise be covered if 
furnished by a physician or as an incident to a physician's 
service.".*" 
(6) * ^ The amendments made by this subsection shall be 
pf 
effective with respect to services performed on or after July 1, 
, 
1988. 
SEC. 4078. PROVISION OF OFFSITE COMPREHENSIVE OUTPATIENT RE-
HABILITATION SERVICES. 
Section 
1861(ccXl) of the Social Security Act (42 U.S.C. 
1395x(ccXl)) is amended by adding at the end thereof the following: 
"In the case of physical therapy, occupational therapy, and speech 
pathology services, there shall be no requirement that the item or 
service be furnished at any single fixed location if the item or 
service is furnished pursuant to such plan and payments are not 
otherwise made for the item or service under this title.". 
SEC. 4079. DEMONSTRATION PROJECTS TO PROVIDE PAYMENT ON A PRE-
« rw ' 
PAW, CAPITATED BASIS FOR COMMUNITY NURSING AND 
* ' 
AMBULATORY CARE FURNISHED TO MEDICARE BENE-
FICIARIES. 
(a) IN GENERAL.—The Secretary of Health and Human Services (in 
this section referred to as the "Secretary") shall enter into an 
agreement with not less than four eligible organizations submitting 
applications under this section to conduct demonstration projects to 
provide payment on a prepaid, capitated basis for community nurs-
ing and ambulatory care furnished to any individual entitled to 
benefits under part A and enrolled under part B of title XVIII of the 
Social Security Act (other than an individual medically determined 
to have end-stage renal disease) who resides in the geographic area 
Effective date. 
42 u s e 1395k 
note. 
42 u s e 1395mm 
note. 
*o Copy read "service.". 
*• Ck)py read "(5)". 
101 STAT. 1330-122 
PUBLIC LAW 100-203—DEC. 22, 1987 
served by the organization and enrolls with such organization (in 
accordance with subsection (cX2)). 
(b) DEFINITIONS OF COMMUNITY NURSING AND AMBULATORY CARE 
AND EuGiBLE ORGANIZATION.—As used in this section: 
(1) The term "community nursing and ambulatory care" 
means the following services: 
(A) Part-time or intermittent nursing care furnished by 
or under the supervision of registered professional nurses. 
'^^ '^' 
(B) Physical, occupational, or speech therapy. 
(C) Social and related services supportive of a plan of 
ambulatory care. 
(D) Part-time or intermittent services of a home health 
¥ci fe^; aide. 
(E) Medical supplies (other than drugs and biologicals) 
and durable medical equipment while under a plan of care. 
(F) Medical and other health services described in para-
graphs (2XHXii) and (5) through (9) of section 1861(s) of the 
Social Security Act. 
(G) Rural health clinic services described in section 
1861(aaXlXC) of such Act. 
(H) Certain other related services listed in section 
1915(cX4XB) of such Act to the extent the Secretary finds 
such services are appropriate to prevent the need for 
institutionalization of a patient. 
(2) The term "eligible organization" means a public or private 
entity, organized under the laws of any State, which meets the 
''' 
following requirements: 
. , 
• 
(A) The entity (or a division or part of such entity) is 
primarily engaged in the direct provision of community 
nursing and ambulatory care. 
(B) The entity provides directly, or through arrangements 
with other qualified personnel, the services described in 
paragraph (1). 
(C) The entity provides that all nursing care (including 
services of home health aids) is furnished by or under the 
supervision of a registered nurse. 
(D) The entity provides that all services are furnished by 
qualified staff and are coordinated by a registered profes-
sional nurse. 
(E) The entity has policies governing the furnishing of 
"^ 
. ^ 
community nursing and ambulatory care that are devel-
oped by registered professional nurses in cooperation with 
(as appropriate) other professionals. 
(F) The entity maintains clinical records on all patients. 
(G) The entity has protocols and procedures to assure, 
when appropriate, timely referral to or consultation with 
other health care providers or professionals. 
(H) The entity complies with applicable State and local 
laws governing the provision of community nursing and 
ambulatory care to patients. 
(I) The requirements of subparagraphs (B), (D), and (E) of 
section 1876(bX2) of the Social Security Act. 
(c) AGREEMENTS WITH EUGIBLE ORGANIZATIONS TO*^ CONDUCT 
DEMONSTRATION PROJECTS.— 
*' Copy read "WITH EUGIBLE ORGANIZATIONS TO". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-123 
(1) The Secretary may not enter into an agreement with an 
eligible oi^anization to conduct a demonstration project under 
th^ section unless the organization meets the requirements of 
this subsection and subsection (d) with respect to members 
enrolled with the organization under this section. 
(2) The organization shall have an open enrollment period for 
the enrollment of individuals under this section. The duration 
of such period of enrollment and any other requirement 
pertaining to enrollment or termination of enrollment shall be 
specified in the agreement with the organization. 
(3) The organization must provide to members enrolled with 
the organization under this section, through providers and 
other persons that meet the applicable requirements of titles 
XVIII and XIX of the Social Security Act, community nursing 
and ambulatory care (as defined in subsection O
^
X
D
) which is 
generally available to individuals residing in the geographic 
area served by the organization, except that the organization 
may provide such members with such additional health care 
services as the members may elect, at their option, to have 
covered. 
(4) The organization must make community nursing and 
ambulatory care (and such other health care services as such 
individuals have contracted for) available and accessible to each 
individual enrolled with the organization under this section, 
within the area served by the organization, with reasonable 
promptness £md in a manner which assures continuity. 
(5) Section 1876(cX5) of the Social Security Act shall apply to 
organizations under this section in the same manner as it 
applies to organizations under section 1876 of such Act. 
(6) The organization must have arrangements, established in 
accordance with regulations of the Secretary, for an ongoing 
quality assurance program for health care services it provides to 
such individuals under the demonstration project conducted 
under this section, which program (A) stresses health outcomes 
and (B) provides review by health care professionals of the 
process followed in the provision of such health care services. 
(7) Under a demonstration project under this section— 
(A) the Secretary could require the organization to pro-
vide financial or other assurances (includmg financial risk-
sharing) that minimize the inappropriate substitution of 
other services under title XVIII of such Act for community 
nursing services; and 
(B) if the Secretary determines that the organization has 
failed to perform in accordance with the requirements of 
the project (including meeting fincmcial responsibility 
requirements under the project, any pattern of dispropor-
tionate or inappropriate institutionalization) the Secretory 
shall, after notice, terminate the project. 
(d) DETERMINATION OF PER CAPITA PAYMENT RATES.— 
(1) The Secretary shall determine for each 12-month period in 
which a demonstration project is conducted under this section, 
and shall announce (in a mcmner intended to provide notice to 
interested parties) not later than three months before the begin-
ning of such period, with respect to each eligible organization 
conducting a demonstration project under this section, a per 
capita rate of pajonent for each class of individuals who are 
enrolled with such organization who are entitled to benefits 
101 STAT. 1330-124 
PUBLIC LAW 100-203—DEC. 22, 1987 
under part A and enrolled under part B of title XVIII of the 
Social Security Act. 
(2XA) Except as provided in paragraph (3), the per capita rate 
a 
of payment under paragraph (1) shall be determined in accord-
ance with this paragraph. 
' < 
(B) The Secretary shall define appropriate classes of members, 
based on age, disability status, and such other factors as the 
Secretary determines to be appropriate, so as to ensure actuar-
;; 
ial equivalence. The Secretary may add to, modify, or substitute 
for such classes, if such changes will improve the determination 
of actuarial equivalence. 
(C) The per capita rate of pa5mient under paragraph (1) for 
each such class shall be equal to 95 percent of the adjusted 
average per capita cost (as defined in subparagraph (D)) for that 
class. 
(D) For purposes of subparagraph (C), the term 'adjusted 
average per capita cost' means the average per capita amount 
that the Secretary estimates in advance (on the basis of actual 
s 
experience, or retrospective actuarial equivalent based upon an 
adequate sample and other information and data, in a geo-
c t 
graphic area served by an eligible organization or in a similar 
area, with appropriate adjustments to assure actuarial equiva-
lence) would be payable in any contract year for those services 
covered under parts A and B of title XVIII of the Social Security 
Act and types of expenses otherwise reimbursable under such 
parts A and B which are described in subparagraphs (A) 
o: 
through (G) of subsection (bXl) (including administrative costs 
ii 
incurred by organizations described in sections 1816 and 1842 of 
such Act), if the services were to be furnished by other than an 
eligible organization. 
(3) The Secretary shall, in consultation with providers, health 
policy experts, and consumer groups develop capitation-based 
reimbursement rates for such classes of individuals entitled to 
benefits under part A and enrolled under part B of the Social 
Security Act as the Secretary shall determine. Such rates shall 
.*-. be applied in determining per capita rates of payment under 
paragraph (1) with respect to at least one eligible organization 
conducting a demonstration project under this section. 
(4XA) In the case of an eligible organization conducting a 
demonstration project under this section, the Secretary shall 
make monthly pa)anents in advance and in accordance with the 
rate determined under paragraph (2) or (3), except as provided 
in subsection (eX3XB), to the organization for each individual 
enrolled with the organization. 
(B) The amount of payment under paragraph (2) or (3) may be 
retroactively adjusted to take into account any difference be-
tween the actual number of individuals enrolled in the plan 
under this section and the number of such individuals estimated 
to be so enrolled in determining the amount of the advance 
m 
payment. 
(5) The payment to an eligible orgsmization under this section 
for individuals enrolled under this section with the organization 
and entitled to benefits under part A and enrolled under part B 
of the Social Security Act shall be made from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund established under such Act in 
m, such proportions from each such trust fund as the Secretary 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-125 
deems to be fair and equitable taking into consideration benefits 
attributable to such parts A and B, respectively. 
(6) During any period in which an individual is enrolled with 
an eligible organization conducting a demonstration project 
under this section, only the eligible organization (and no other 
individual or person) shall be entitled to receive payments from 
the Secretary under this title for community nursing and 
ambulatory care (as defined in subsection (b)(1)) furnished to the 
individual. 
(e) RESTRICTION ON PREMIUMS, DEDUCTIBLES, COPAYMENTS, AND 
COINSURANCE.— 
(1) In no case may the portion of an eligible organization's 
premium rate and the actuarial value of its deductibles, coinsur-
ance, and copayments charged (with respect to community nurs-
ing and ambulatory care) to individuals who are enrolled under 
this section with the organization, exceed the actuarial value of 
^
^ ,^ ^ ^ 
the coinsurance and deductibles that would be applicable on the 
average to individuals enrolled under this section with the 
organization (or, if the Secretary finds that adequate data are 
not available to determine that actuarial value, the actuarial 
value of the coinsurance and deductibles applicable on the 
average to individuals in the area, in the State, or in the United 
States, eligible to enroll under this section with the organiza-
tion, or other appropriate data) and entitled to benefits under 
part A and enrolled under part B of the Social Security Act, if 
they were not members of an eligible organization. 
(2) If the eligible organization provides to its members en-
rolled under this section services in addition to community 
nursing and ambulatory care, election of coverage for such 
additional services shall be optional for such members and such 
organization shall furnish such members with information on 
the portion of its premium rate or other charges applicable to 
such additional services. In no case may the sum of^ 
(A) the pwrtion of such organization's premium rate 
charged, with respect to such additional services, to mem-
#iJis» 
bers enrolled under this section, and 
(B) the actuarial value of its deductibles, coinsurance, and 
'^^ S- 
copayments charged, with respect to such services to such 
members 
exceed the adjusted community rate for such services (as de-
fined in section 1876(eX3) of the Social Security Act). 
(3XA) Subject to subparagraphs (B) and (C), each agreement to 
conduct a demonstration project under this section shall provide 
that if— 
(i) the adjusted community rate, referred to in paragraph 
(2), for community nursing and ambulatory care covered 
- '^ 
under parts A and B of title XVIII of the Social Security 
Act (as reduced for the actuarial value of the coinsurance 
and deductibles under those parts) for members enrolled 
under this section with the organization, 
is less than 
(ii) the average of the per capita rates of payment to be 
made under subsection (dXD at the beginning of the 12-
month period (as determined on such basis as the Secretary 
determines appropriate) described in such subsection for 
members enrolled under this section with the organization. 
101 STAT. 1330-126 
PUBLIC LAW 100-203—DEC. 22, 1987 
the eligible organization shall provide to such members the 
additional benefits described in section 1876(g)(3) of the Social 
Security Act which are selected by the eligible organization and 
which the Secretary finds are at least equal in value to the 
difference between that average per capita payment and the 
adjusted community rate (as so reduced). 
(B) Subparagraph (A) shall not apply with respect to any 
organization which elects to receive a lesser payment to the 
extent that there is no longer a difference between the average 
per capita payment and adjusted community rate (as so 
reduced). 
(C) An organization conducting a demonstration project under 
this section may provide (with the approval of the Secretary) 
that a part of the value of such additional benefits under 
subparagraph (A) be withheld and reserved by the Secretary as 
provided in section 1876(g)(5) of the Social Security Act. 
Contracts. 
(4) The provisions of paragraphs (3), (5), and (6) of section 
1876(g) of the Social Security Act shall apply in the same 
manner to agreements under this section as they apply to risk-
sharing contracts under section 1876 of such Act, and, for this 
purpose, any reference in such paragraphs to paragraph (2) is 
deemed a reference to paragraph (3) of this subsection. 
(5) Section 1876(e)(4) of the Social Security Act shall apply to 
eligible organizations under this section in the same manner as 
it applies to eligible organizations under section 1876 of such 
Act. 
(f) COMMENCEMENT AND DURATION OF PROJECTS.—Each dem-
onstration project under this section shall begin not later than July 
1, 1989, and shall be conducted for a period of three years. 
(g) REPORT.—Not later than January 1, 1992, the Secretary shall 
submit to the Congress a report on the results of the demonstration 
projects conducted under this section. 
SEC. 4080. PART B PREMIUM. 
Section 1839 of the Social Security Act (42 U.S.C. 1395r) is 
amended— 
(1) in subsection (e), by striking "1989" each place it appears 
and inserting in lieu thereof "1990"; 
(2) in subsection (0(1), by striking "or 1987" and inserting in 
lieu thereof "1987, or 1988"; and 
(3) in subsection (fK2), by striking "or 1988" and inserting in 
lieu thereof "1988, or 1989". 
Subpart D—Other Provisions 
SEC. 4081. SUBMISSION OF CLAIMS TO SUPPLEMENTAL INSURANCE 
CARRIERS. 
(a) IN GENERAL.—Section 1842(h)(3) of the Social Security Act (42 
U.S.C. 1395u(hX3)) is amended by inserting "(A)" after "(3)" and by 
adding at the end the following new subparagraph: 
"(B) The Secretary shall establish a procedure whereby an individ-
ual enrolled under this part may assign, in an appropriate manner 
on the form claiming a benefit under this part for an item or service 
furnished by a participating physician or supplier, the individual's 
rights of payment under a medicare supplemental policy (described 
in section 1882(gXl)) in which the individual is enrolled. In the case 
such an assignment is properly executed and a claims determination 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-127 
is made by a carrier with a contract under this section, the carrier 
shall transmit to the private entity issuing the medicare supple-
mental policy notice of such fact and including such information as 
the Secretary determines is generally provided to enable the entity 
to decide whether (and the amount of) any payment is due under the 
policy. The Secretary may enter into arrangements for the transmit-
tal of such information to entities electronically. The Secretary shall 
impose user fees for the transmittal of information under this 
subparagraph, whether electronically or otherwise.". 
(b) MEDIGAP POUCY STANDARDS.—Section 1882 of such Act (42 
U.S.C. 1395ss) is amended— 
(1) in subsection (bXD— 
(A) by amending subparagraph (B) to read as follows: 
"(B) includes requirements equal to or more stringent than 
' 
the requirements described in paragraphs (2) and (3) of subsec-
tion (c);", 
*3 (B) by adding "and" at the end of subparagraph (C), 
~c 
and 
*^ (C) by inserting after subparagraph (C) the following 
new subparagraph: 
"(D) provides the Secretary periodically (but at least an-
nually) with a list containing the name and address of the issuer 
of each such policy and the name and number of each such 
policy (including an indication of policies that have been pre-
viously approved, newly approved, or withdrawn from approval 
since the previous list was provided),"; 
(2) in subsection (c)— 
' 
(A) by striking "and" at the end of paragraph (1), 
(B) by striking the period at the end of paragraph (2) and 
inserting "; and ', and 
(C) by inserting after paragraph (2) the following new 
paragraph: 
"(3XA) accepts a notice under section 1842(hX3XB) £is a claims 
form for benefits under such policy in lieu of any claims form 
otherwise required and agrees to make a payment determina-
tion on the basis of the information contained in such claims 
form; 
"(B) where such a notice is received— 
"(i) provides notice to such physician or supplier and the 
beneficiary of the pajrment determination, and 
"(ii) provides any appropriate pa3mient directly to the 
{ 
participating physician or supplier involved; 
"(C) provides each enroUee at the time of enrollment a card 
listing the policy name and number and a single mailing ad-
dress to which notices under section 1842(hX3XB) respecting the 
policy are to be sent; 
"(D) agrees to pay any user fees established under section 
1842(hX3XB) with respect to information transmitted to the 
issuer of the policy; and 
"(E) provides to the Secretary at least annually, for transmit-
tal to carriers, a single mailing address to which notices under 
section 1842(hX3XB) respecting the policy are to be sent.". 
(c) EFFECTIVE DATES.—(1) The amendment made by subsection (a) Contracts. 
shall apply to contracts with carriers for clsiims for items and 
42 USC I395u 
*' Paragraphs (B) and (C) were indented wrong. 
101 STAT. 1330-128 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1395SS 
note. 
42 u s e 1395u 
note. 
Reports. 
42 u s e 1395ff 
note. 
services furnished by participating physicians and suppliers on or 
after January 1,1989. 
(2)(A) The amendments made by subsection (b) shall apply to 
medicare supplemental policies as of January 1, 1989 (or, if ap-
plicable, the date established under subparagraph (B)). 
(B) In the case of a State which the Secretary of Health and 
Human Services identifies as— 
(i) requiring State legislation (other than legislation appro-
priating funds) in order for medical supplemental policies to be 
i 
changed to meet the requirements of section 1882(cX3) of the 
Social Security Act, and 
(ii) having a legislature which is not scheduled to meet in 
1988 in a legislative session in which such legislation may be 
considered, 
the date specified in this subparagraph is the first day of the first 
calendar quarter beginning after the close of the first legislative 
session of the State legislature that begins on or after January 1, 
1989, and in which legislation described in clause (i) may be 
considered. 
SEC. 4082. REVISION OF PART B HEARINGS. 
(a) CLARIFICATION OF O B R A AMENDMENT.—Section 1869(b)(3XB) of 
the Social Security Act (42 U.S.C. 1395ff(b)(3)(B)) is amended *^ by 
striking "chapter 5" and inserting "section 553". 
(b) EXPEDITED ADMINISTRATIVE HEARING WHERE ONLY ISSUES OF 
LAW.—Section 1869(b) of such Act (42 U.S.C. 1395ffrb)) is amended by 
adding at the end the following new paragraph: 
"(5) In an administrative hearing pursuant to paragraph (1), 
where the moving party alleges that there are no material issues of 
fact in dispute, the administrative law judge shall make an expe-
dited determination as to whether any such facts are in dispute and, 
if not, shall determine the case expeditiously.". 
(c) TIMELY CARRIER HEARINGS ON PART B APPEALS.—Section 
1842(bX5) of such Act (42 U.S.C. 1395u(bX5)) is amended— 
(1) by inserting "(A)" after "(5)", and 
(2) by adding at the end the following new subparagraph: 
"(B) The Secretary shall establish standards for evaluating car-
riers' performance of reviews of initial carrier determinations and of 
fair hearings under paragraph (3XC), under which a carrier is 
expected— 
- 
"(i) to complete such reviews, within 45 days after the date of 
a request by an individual enrolled under this part for such a 
'' 
review, in 95 percent of such requests, and 
"(ii) to make a final determination, within 120 days after the 
date of receipt of a request by an individual enrolled under this 
part for a fair hearing under paragraph (3XC), in 90 percent of 
such cases.". 
(d) GAO STUDY.—The Comptroller General shall conduct a study 
concerning the cost effectiveness of requiring hearings with a car-
rier under part B of title XVIII of the Social Security Act before 
having a hearing before an administrative law judge respecting 
carrier determinations under that part. The Comptroller General 
shall report to the (Dongress on the results of such study by not later 
than June 30,1989. 
(e) EFFECTIVE DATES.—(1) The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act. 
'Copy read "is amended is amended". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-129 
(2) The amendment made by subsection (b) shall apply to requests 
for hearings filed after the end of the 60-day period beginning on the 
date of the enactment of this Act. 
(3) The amendments made by subsection (c) shall apply to evalua-
tion of performance of carriers under contracts entered into or 
renewed on or after October 1,1988. 
SEC. 4083. PROVISIONS RELATING TO PHYSICIAN PAYMENT REVIEW 
COMMISSION. 
(a) REVISION OF APPOINTMENT PROCESS FOR THE PHYSICIAN PAY-
MENT REVIEW COMMISSION.— 
(1) IN GENERAL.—Section 1845(a) of the Social *^^ Security Act 
(42 U.S.C. 1395w-l(a)(3)) is amended— 
.J, 
(A) in paragraph (1), by striking "with expertise in the 
provision and financing of physicians' services" and insert-
>0: 
ing "with national recognition for their expertise in health 
economics, physician reimbursement, medical practice, and 
other related fields"; and 
(B) in paragraph (3), by striking the Isist sentence. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to appointments made after the date of the enact-
ment of this Act. 
O
t
)
) TREATMENT OF EMPLOYEES FOR CERTAIN PURPOSES.— 
(1) IN ** GENERAL.—Section 1886(eX6)(D) of the Social Security 
Act (42 U.S.C. 1395ww(e)(6)(D)) is amended by adding at the end 
the following: "For purposes of pay (other than pay of members 
of the Commission) and employment benefits, rights, and privi-
leges, all personnel of the Commission shall be treated as if they 
were employees of the United States Senate.". 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall take effect on the date of the enactment of this Act. 
(c) CHANGE IN DATE FOR ANNUAL REPORT OF PHYSICIAN PAYMENT 
REVIEW COMMISSION.— 
(1) Section 1845(bXl) of such Act (42 U.S.C. 1395w-l(bXl)) is 
-i amended by striking "March 1" and inserting "March 31". 
^d:^ (2) The amendment made by paragraph (1) shall apply with 
respect to reports for years after 1987. 
SEC. 4084. TECHNICAL AMENDMENTS RELATED TO CERTIFIED REG-
ISTERED NURSE ANESTHETISTS. 
(a) IN GENERAL.—Section 1833(1) of the Social Security Act (42 
U.S.C. 13951(1)), as added by section 9320(e) of the Omnibus Budget 
Reconciliation Act of 1986, is amended— 
(1) in paragraph (2), by striking "1985" and inserting "1985 
and such other data as the Secretary determines necessary"; 
and 
(2) in paragraph (5XA), by striking "or group practice" each 
place it appears and inserting "group practice, or ambulatory 
surgical center". 
0)) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply as if included in the amendment made by section 
9320(eX2) of the Omnibus Budget Reconciliation Act of 1986. 
42 u s e 1395u 
note. 
42 u s e 1395W-1 
note. 
42 u s e 1395WW 
note. 
42 u s e 1395W-1 
note. 
42 u s e 1395/ 
note. 
'•^''Copy read "of Social". 
** Copy 
read 
"General.". 
101 STAT. 1330-130 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1395/ 
note. 
42 u s e 1395WW 
note. 
SEC. 4085. MISCELLANEOUS AND TECHNICAL PROVISIONS. 
(a) PROMPT SUBMITTAL OF DATA BY SECRETARY.—Section 1845 
of 
the Social Security Act (42 U.S.C. 1395w-l) is amended by adding at 
the end the following new subsection: 
"(f)(1) Not later than October 1st of each year (beginning with 
1988), the Secretary shall transmit to the Physician Payment 
Review Commission, to the Congressional Budget Office, and to the 
Congressional Research Service of the Library of Congress national 
data (known as the Part B Medicare Annual Data System) for the 
previous year respecting part B of this title. 
"(2) In order to ensure that the data are available for transmittal 
under paragraph (1) on a timely basis, the Secretary shall require, in 
the standards and criteria established under section 1842(b)(2), that 
carriers submit data for a year under the system referred to in 
paragraph (1) not later than July 1st of the following year. 
"(3) The Secretary, in consultation with the Physician Payment 
Review Commission, the Congressional Budget Office, and the 
Congressional Research Service of the Library of Congress, shall 
establish and annually revise standards for the data reporting 
system described in paragraph (1). 
"(4) The Secretary shall also provide to the entities described in 
paragraph (1) additional data respecting the program under this 
part as may be reasonably requested by them on an agreed-upon 
schedule. 
"(5) The Secretary shall develop, in consultation with the Physi-
cian Payment Review Commission, the Congressional Budget Office, 
and the Congressional Research Service of the Library of Congress, 
a system for providing to each of such entities on a quarterly basis 
summary data on aggregate expenditures under this part by type of 
service and by type of provider. Such data shall be provided not later 
than 90 days after the end of each quarter (for quarters beginning 
with the calendar quarter ending on March 31, 1989).". 
(b) CLARIFICATION OF PENALTIES FOR UNASSIGNED LABORATORY 
SERVICES.— 
(1) IN GENERAL.—Section 1833(h)(5) of the Social Security Act 
(42 U.S.C. 13951(h)(5)) is amended by adding at the end the 
following new subparagraph: 
"(D) If a person knowingly and willfully and on a repeated basis 
bills an individual enrolled under this part for charges for a clinical 
diagnostic laboratory test for which payment may only be made on 
an assignment-related basis under subparagraph (C), the Secretary 
may apply sanctions against the person in the same manner as the 
Secretary may apply sanctions against a physician in accordance 
with section 1842(j)(2).". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to procedures performed on or after January 1,1988. 
(c) EXTENSION OF MORATORIUM ON LABORATORY PAYMENT DEM-
ONSTRATION.—Section 9204(a) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985, as amended by section 9339(e) of the 
Omnibus Budget Reconciliation Act of 1986, is amended by striking 
"January 1,1988" and inserting "January 1,1989". 
(d) 
PROMPT PAYMENT 
FOR COMPREHENSIVE OUTPATIENT RE-
HABIUTATION FACIUTIES.— 
(1) Section 1816(cX2)(C) of the Social Security Act (42 U.S.C. 
1395h(cX2XC)) is amended by striking "or hospice program" and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-131 
inserting "hospice program, comprehensive outpatient re-
habilitation facility, or rehabilitation agency". 
(2)(A) The amendment made by paragraph (1) shall apply to 
claims received on or after the date of enactment of this Act. 
(B) The Secretary of Health and Human Services shall pro-
vide for such timely amendments to agreements under section 
1816, and regulations, to such extent as may be necessary to 
implement the amendment made by paragraph (1). 
(e) CAPACITY TO ** SET GEOGRAPHIC PAYMENT LIMITS.—The Sec-
retary of Health and Human Services shall develop the capability to 
implement (for services furnished on or after January 1, 1989) 
geographic limits on charges and payments under part B of title 
XVIII of the Social Security Act for physicians* services based on 
statewide, regional, or national average (or percentile in a distribu-
tion) of prevailing charges or payment amounts (weighted by fre-
quency of services). Any such limits shall take into account adjust-
ments for geographic differences in cost of practice and cost of 
living. 
(f) DELAY IN EFFECTIVE DATE FOR ESTABUSHING PHYSICIAN IDENTI-
FIER SYSTEM.—Section 9202(g) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 is amended by striking "July 1,1987" and 
inserting "October 1,1988". 
(g) DATE FOR APPLYING CIVIL PENAUTIES FOR IMPROPER USE OF 
ASSISTANTS IN PERFORMING CATARACT SURGERY.— 
(1) Section 1842(k) of the Social Security Act (42 U.S.C. 
, 
1395u(k)) is amended in paragraphs (1) and (2) by striking 
"(j)(2)" each place it appears and inserting "(jX2) in the case of 
^i. surgery performed on or after March 1,1987". 
(2) The amendment made by paragraph (1) shall be effective 
as if included in section 9307(c) of the Consolidated Omnibus 
Budget Reconciliation Act of 1985. 
(h) UTIUZATION SCREENS FOR PHYSICIAN SERVICES PROVIDED TO 
PATIENTS IN REHABIUTATION HOSPITALS.— 
(1) The Secretary of Health and Human Services shall estab-
lish (in consultation with appropriate physician groups, includ-
ing those representing rehabilitative medicine) a separate utili-
zation screen for physician visits to patients in rehabilitation 
hospitals and rehabilitative units (and patients in long-term 
care hospitals receiving rehabilitation services) to be used by 
carriers under section 1842 of the Social Security Act in 
performing functions under subsection (a) of such section re-
lated to the utilization practices of physicians in such hospitals 
and units. 
(2) Not later than 12 months after the date of enactment of 
this Act, the Secretary of Health and Human Services shsdl 
take appropriate steps to implement the utilization screen 
established under paragraph (1). 
(i) TECHNICAL AMENDMENTS.— 
(1) Section 1833(a) of the Social Security Act (42 U.S.C. 
13951(a)) is amended— 
(A) in paragraphs dXDXi) and (2XDXi), by striking, "on 
the 
basis 
of 
an 
assignment 
described 
in 
section 
1842(bX3XBXii), under the procedure described in section 
1870(f)(1)," and inserting "on an assignment-related basis"; 
42 u s e 1395h 
note. 
42 u s e 1395u 
note. 
42 u s e 1395WW 
note. 
42 u s e 1395u 
note. 
42 u s e 1395u 
note. 
*' Copy read "TO". 
101 STAT. 1330-132 
PUBLIC LAW 100-203—DEC. 22, 1987 
i, .; 
(B) in paragraph (1), by striking "and" before "(G)"; and 
(C) in subsection (b)(3)(A), by striking "on the basis of an 
ddt?. oai? t
i
= 
assignment described in section 1842(b)(3)(B)(ii), under the 
procedure described in section 1870(f)(1)" and inserting "on 
an assignment-related basis". 
(2) Section 1833(h)(1)(C) of such Act (42 U.S.C. 13951(h)(1)(C)) is 
C
i amended by inserting before the period the following: ", and 
ending on December 31, 1989. For such tests furnished on or 
iic^ir .fj > .., after January 1, 1990, the fee schedule shall be established on a 
-'" 
nationwide basis". 
(3) Section 1833(h)(5XA) of such Act (42 U.S.C. 13951(hX5)(A)) is 
amended by striking "and" at the end of clause (i), by striking 
the period at the end of clause (ii) and inserting ", and", and by 
adding at the end the following new clause: 
"(iii) in the case of a clinical diagnostic laboratory test pro-
vided under an arrangement (as defined in section 1861(w)(l)) 
made by a hospital, payment shall be made to the hospital.". 
(4) Section 1835(a)(2)(C) of such Act (42 U.S.C. 1395n(aX2)(C)) is 
. 
amended by striking the second comma at the end of clause (i). 
(5) Section 1842(bX3)(C) of such Act (42 U.S.C. 1395u(bX3)(C)) is 
„ .rv , .p^ ' 
amended by striking "not more than" and inserting "less than". 
" 
"^Q 
(6) Section 1842(hX5) of such Act (42 U.S.C. 1395u(hX5)) is 
,^ 
amended by striking "the" before "participation". 
(7) Effective as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1986, section 1842(jXl) of the Social 
Security Act (42 U.S.C. 1395u(jXl)) is amended— 
(A) in subparagraph (C)(i), by inserting "maximum allow-
able" after "If the physician's , 
. ,, , ,^. 
(B) in subparagraph (CXv), by striking "1987" and insert-
••' •" ''^ ; 
' 
ing *« "1986^', and 
(C) by adding at the end of subparagraph (C) the following 
new clause: 
'•• "(vii) In the case of a nonparticipating physician who was a 
participating physician during a previous period, for the purpose of 
computing the physician's maximum allowable actual charge during 
the physician's period of nonparticipation, the physician shall be 
deemed to have had a maximum allowable actual charge during the 
period of participation, and such deemed maximum allowable actual 
charge shall be determined accordingly to clauses (i) through (vi).". 
(8) Paragraph (4) of section 1845(e) of the Social Security Act 
(42 U.S.C. 1395w-l(e)) is amended by moving the alignment of 
each of its provisions (including any clauses therein) 2 ems to 
8 
the left. 
(9) Section 1861(bX4) of such Act (42 U.S.C. 1395x(bX4)) is 
amended by striking the comma before "anesthesia" and insert-
ing "and" and by striking "certified" the second place it 
appears. 
(10) The heading of subsection (g) of section 1861 of such Act 
(42 U.S.C. 1395x) is amended to read as follows: 
"Outpatient Occupational Therapy Services". 
f
f 
(11) Section 1861(s) of such Act (42 U.S.C. 1395x(s)), as 
amended by section 9367(a) of this Act, is amended by striking 
"which—" before paragraph (15) and all that follows through 
bCfi^. 
*' Copy read "insert". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-133 
the end of paragraph (16) and inserting the following: "which 
would not be included under subsection (b) if it were furnished 
to an inpatient of a hospital.". 
(12) Section 1861(vX5)(A) of such Act (42 U.S.C. 1395x(v)(5)(A)) 
is amended by striking "section 1861(p)" and "section 1861(g)" 
and inserting "subsection (p)" and "subsection (g)", respectively. 
(13) The heading of subsection (bb) of section 1861 of such Act 
(42 U.S.C. 1395x) is amended to read £is follows: 
., "Services of a Certified Registered Nurse Anesthetist". 
(14) The heading of subsection (ee) of section 1861 of such Act 
(42 U.S.C. 1395x) is amended to read as follows: 
X^Miii C>&Jti 
"Discharge Planning Process". 
(15) Section 1862(aXl)(A) of such Act (42 U.S.C. 1395y(aXlXA)) 
is amended by striking "or (D)" and inserting "(D), or (E)". 
(16) Section 1862(aX14) of such Act (42 U.S.C. 1395y(aX14)) is 
amended by striking "an patient" and inserting "a patient". 
(17) Effective as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1986, section 1866(g) of the Social 
Security Act (42 U.S.C. 1395cc(g)) is amended by striking "for a 
hospital outpatient service" and all that follows through 
"subsection (aXlXH)" and inserting "inconsistent with an 
arrangement under subsection (aXlXH) or in violation of the 
requirement for such an arrangement". 
(18) Section 1869(a) of the Social Security Act (42 U.S.C. 
1395ffl[a)) is amended by inserting "or a claim for benefits with 
respect to home health services under part B" before "shall". 
(19) Section 1869(bX2) of such Act (42 U.S.C. 1395ffGt)X2)) is 
amended by inserting "and (IXD)" after "paragraph (IXC)" each 
place it appears. 
(20) Section 1875(cX3XB) of such Act (42 U.S.C. 139511(cX3XB)) 
is amended by striking "years 1987" and inserting "year 1987". 
(21) Effective as if included in the enactment of the Omnibus 
Budget Reconciliation Act of 1986— 
(A) section 9313(dX3) of such Act is amended by striking 
"2 years after the date of the enactment of this Act" and 
inserting "January 1,1990"; 
(B) section 9332(aX3) of such Act is amended by inserting 
before the period at the end the following: "or in increasing 
the proportion of total payments for physicians' services 
which are payments for such services rendered by partici-
pating physicians"; 
(C) section 9335(jX2) of such Act is amended by inserting 
before the period at the end the following: "except that, 
until network administrative organizations are established 
under section 1881(cXlXA) of the Social Security Act (as 
amended by subsection (dXD of this section), the distribu-
tion of payments described in the leist sentence of section 
1881(bX7) of such Act shall be made based on the distribu-
tion of payments under section 1881 of such Act to network 
administrative organizations for fiscal year 1986"; and 
(D) section 9343 of such Act is amended— 
(i) amending subparagraph (A) of subsection (eX2) to 
read as follows: 
42 use 1395// 
note. 
42 use 1395u 
note. 
42 use 1395rr 
note. 
42 use 1395/. 
101 STAT. 1330-134 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(2XA) Section 1833 (42 U.S.C. 13951) is amended— 
"(i) in subsection (aXlXF), by striking '(iX3)' and inserting 
'(iX4y,and 
"(ii) in subsection (bX3), by striking 'or under subsection 
(iX2)or(iX4)'."; 
(ii) in subsection (hX2), by striking "(d)" and inserting 
"(c)" and by adding at the end the following: "The 
amendments made by subsection (c) shall apply to serv-
ices furnished after June 30,1987."; and 
(iii) in subsection (hX4), by striking "(c)" and insert-
ing "(d)". 
42 use 1395/ 
note. 
42 use 1395/ 
note. 
PART 4—PEER REVIEW ORGANIZATIONS 
42 use 1320C-2 
note. 
42 u s e 1320C-2 
note. 
Federal Register, 
publication. 
Federal Register, 
publication. 
Reports. 
SEC. 4091. CONTRACT PROVISIONS. 
(a) EXTENSIONS OF PEER REVIEW CONTRACT PERIOD.— 
(1) ONE-TIME EXTENSIONS TO PERMIT STAGGERING OF EXPIRA-
TION DATES.— 
(A) IN GENERAL.—In order to permit the Secretary of 
Health and Human Services an adequate time to complete 
contract renewal negotiations with utilization and quality 
control peer review organizations under part B of title XI of 
the Social Security Act and to provide for a staggered 
period of contract expiration dates, notwithstanding section 
1153(c) of such Act, the Secretary may provide for exten-
sions of existing contracts, but the total of such extensions 
may not exceed 24 months for any contract. 
(B) EFFECTIVE DATE,—The amendment made by subpara-
graph (A) shall apply to renewals occurring on or after the 
date of the enactment of this Act. 
(2) 3"YEAR CONTRACT PERIOD.—" 
(A) Section 1153(cX3) of such Act (42 U.S.C. 1320c-2(cX3)) 
is amended by striking "two" and "biennial" and inserting 
"three" and "triennial", respectively. 
(B) The amendment made by subparagraph (A) shall 
apply with respect to contracts entered into or renewed on 
or after the date of the enactment of this Act. 
(b) CONTRACT REQUIREMENTS.— 
(1) Section 1153 of the Social Security Act (42 U.S.C. 1320c-2) 
is amended by adding at the end the following new subsection: 
"(hXD The Secretary shall publish in the Federal Register any 
new policy or procedure adopted by the Secretary that affects 
substantially the performance of contract obligations under this 
section not less than 30 days before the date on which such policy or 
procedure is to take effect. This paragraph shall not apply to the 
extent it is inconsistent with a statutory deadline. 
"(2) The Secretary shall publish in the Federal Register the 
general criteria and standards used for evaluating the efficient and 
effective performance of contract obligations under this section and 
shall provide opportunity for public comment with respect to such 
criteria and standards. 
"(3) The Secretary shall regularly furnish each peer review 
organization with a contract under this section with a report that 
documents the performance of the organization in relation to the 
performance of other such organizations.". - .. ..~ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-135 
(2) Section 1153(e) of such Act (42 U.S.C. 1320c-2(e)) is 
amended— 
(A) by inserting "(1)" after "(e)"; 
"
? 
(B) by striking "Contracting" and inserting "Except as 
provided in paragraph (2), contracting"; and 
(C) by adding at the end the following new paragraph: 
"(2) If a peer review organization with a contract under this 
section is required to carry out a review function in addition to any 
function required to be carried out at the time the Secretary entered 
into or renewed the contract with the organization, the Secretary 
shall, before requiring such organization to carry out such addi-
tional function, negotiate the necessary contractual modifications, 
including modifications that provide for an appropriate adjustment 
(in light of the cost of such additional function) to the amount of 
reimbursement made to the organization.". 
(3) The amendments made by paragraphs (1) and (2) shall 
become effective on the date of enactment of this Act. 
SEC. 4092. PREFERENCE IN CONTRACTING WITH IN-STATE ORGANIZA-
TIONS. 
(a) IN GENERAL.—Section 1153 of the Social Security Act (42 U.S.C. 
1320C-2), as amended by section 4091(bKl) of this part, is further 
amended by adding at the end the following new subsection: 
"(iXD Notwithstanding any other provision of this section, the 
Secretary shall not renew a contract with any organization that is 
not an in-State organization (as defined in paragraph (3)) unless the 
Secretary has first complied with the requirements of paragraph (2). 
"(2XA) Not later than six months before the date on which a 
contract period ends with respect to an organization that is not an 
in-State organization, the Secretary shall publish in the Federal 
Register— 
"(i) the date on which such period ends; and 
"(ii) the period of time in which an in-State organization may 
submit a proposal for the contract ending on such date. 
"(B) If one or more qualified in-State organizations submits a 
proposal within the period of time specified under subparagraph 
(AXii), the Secretary shall not automatically renew the current 
contract on a noncompetitive basis, but shall provide for competition 
for the contract in the same manner as a new contract under 
subsection (b). 
"(3) For purposes of this subsection, an in-State organization is an 
organization that has its primary place of business in the State in 
which review will be conducted (or, which is owned by a parent 
corporation the headquarters of which is located in such State).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to contracts scheduled to be renewed on or 
after the first day of the eighth month to begin after the date of 
enactment of this Act. 
SEC. 4093. REQUIRING REASONABLE NOTICE AND OPPORTUNITY FOR 
DISCUSSION PRIOR TO DENIAL OF CLAIM. 
(a) IN GENERAL.—Section 1154(aX3) of the Social Security Act (42 
U.S.C. 1320c-3(aX3)) is amended to read as follows: 
"(3XA) Subject to subparagraph (B), whenever the organiza-
tion makes a determination that any health care services or 
items furnished or to be furnished to a patient by any practi-
tioner or provider are disapproved, the organization shall 
42 use 1320C-2 
note. 
Federal Register, 
publication. 
42 use 1320C-2 
note. 
91-194 O - 90 - 30 : QL.3 Part 2 
101 STAT. 1330-136 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1320C-3 
note. 
Contracts. 
gi promptly notify such patient and the agency or oi^anization 
responsible for the payment of claims under title XVIII of this 
Act of such determination. 
.^^ 
"(B) The notification under subparagraph (A) shall not occur 
until 20 days after the date that the organization has— 
,^. 
"(i) made a preliminary notification to such practitioner 
, or provider of such proposed determination, and 
V . 
"(ii) provided such practitioner or provider an oppor-
Kc 
tunity for discussion and review of the proposed determina-
tion. 
The discussion and review conducted under subparagraph (BXii) 
shall not affect the rights of a practitioner or provider to a formal 
reconsideration of a determination under this part (as provided 
under section 1155).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to determinations made on or after April 1, 
>
-
r
, 1988. 
SEC. 4094. PEER REVIEW NORMS AND EDUCATION. 
(a) STANDARDS APPUED BY PROS.—Section 1154(aX6) of the Social 
Security Act (42 U.S.C. 1320c-3(aX6)) is amended by adding after and 
below subparagraph (B) thereof the following: 
"As a component of the norms described in clause (i) or (ii), the 
organization shall take into account the special problems associ-
ated with delivering care in remote rural areas, the availability 
of service alternatives to inpatient hospitalization, and other 
appropriate factors (such as the distance from a patient's resi-
dence to the site of care, family support, availability of proxi-
mate alternative sites of care, and the patient's ability to carry 
jj, out necessary or prescribed self-care regimens) that could ad-
versely affect the safety or effectiveness of treatment provided 
on an outpatient basis. . 
(b) ON-SITE REVIEW.—Section 1154(a) of such Act (42 U.S.C. 
1320c-3(a)) is amended by adding at the end the following new 
paragraph: 
"(15) During each year of the contract entered into under 
section 1153(b), the organization shall perform significant on-
site review activities, including on-site review at at least 20 
percent of the rural hospitals in the organization's area.". 
(c) REPORTS TO PROVIDERS AND EDUCATIONAL ACTIVITIES.— 
(IXA) Section 1154(aX6) of such Act" (42 U.S.C. 132Gc-3(aX6)) 
n is amended— 
tf 
(i) by redesignating subparagraphs (A) and (B) as clauses 
(i) and (ii), respectively, 
^)au SI {,: 
(ii) by inserting "(A)" after "(6)", and 
^, 
(iii) by adding at the end the following: 
ic 
"(B) The organization shall— 
"(i) offer to provide, several times each year, for a physi-
cian representing the organization to meet (at a hospital or 
^1^* 
at a regional meeting) with medical and administrative 
staff of each hospital (the services of which are reviewed by 
g 
the organization) respecting the organization's review of 
the hospital's services for which payment may be made 
under title XVIII, and 
*"* Copy read "1154(aK6) such Act". 
'siiVv iv| 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-137 
"(ii) publish (not less often than annually) and distribute 
to providers and practitioners whose services are subject to 
review a report that describes the organization's findings 
with respect to the types of cases in which the organization 
has frequently determined that (I) inappropriate or un-
necessary care has been provided, (II) services were ren-
dered in an inappropriate setting, or (III) services did not 
meet professionally recognized standards of health care.". 
(B) The amendments made by subparagraph (A) shall apply to 
contracts under part B of title XI of the Social Security Act 
entered into or renewed more than 6 months after the date of 
the enactment of this Act. 
(2)(A) Section 1154(aX4XB) of the Social Security Act (42 U.S.C. 
1320c-3(aX4XB)) is amended— 
(i) by inserting before the period at the end of the first 
sentence the following: "and whether individuals enrolled 
with an eligible organization have adequate access to 
health care services provided by or through such organiza-
tion (as determined, in part, by a survey of individuals 
enrolled with the organization who have not yet used the 
organization to receive such services). The contract of each 
organization shall also provide that with respect to health 
care provided by a health maintenance organization or 
competitive medical plan under section 1876, the organiza-
tion shall maintain a beneficiary outreach program de-
signed to apprise individuals receiving care under such 
section of the role of the peer review system, of the rights of 
the individual under such system, and of the method and 
purposes for contacting the organization"; and 
(ii) by striking "previous sentence" and inserting "pre-
vious two sentences". 
(B) Section 1154(aX7)(A) of such Act (42 U.S.C. 1320c-
3(aX7XA)) is amended— 
(i) by inserting "(i)" after "(A)", 
(ii) by striking the semicolon and inserting "; and", and 
(iii) by adding at the end thereof the following new clause: 
"(ii) in the case of psychiatric and physical rehabilitation 
services, make arrangements to ensure that (to the extent 
:
> 
possible) initial review of such services be made by a physi-
cian who is trained in psychiatry or physical rehabilitation 
(as appropriate).''. 
(C) The amendments made by this paragraph shall apply with 
respect to contracts entered into or renewed on or after the date 
of enactment of this Act. 
(d) PEER REVIEW EMPHASIS ON EDUCATIONAL ACTIVITIES.— 
(1) Section 1153(c) of such Act (42 U.S.C. 1320c-2(c)) is 
amended by adding after and below paragraph (8) the following: 
"In evaluating the performance of utilization and quality con-
trol peer review organizations under contracts under this part, 
the Secretary shall place emphasis on the performance of such 
organizations in educating providers and practitioners (particu-
larly those in rural areas) concerning the review process and 
criteria being applied by the organization.". 
(2) The amendment made by paragraph (1) shall apply to 
contracts under part B of title XI of the Social Security Act as of 
January 1,1988. 
'VRx'<}ti 
Contracts. 
42 use 1320C-3 
note. 
m. 
Contracts. 
42 use 1320C-3 
note. 
Contracts. 
42 use 1320C-2 
note. 
101 STAT. 1330-138 
PUBLIC LAW 100-203—DEC. 22, 1987 
Contracts. 
42 use 1320C-5 
note. 
42 use 1320C-5 
note. 
42 use 1320C-5 
note. 
42 use 1320C-5 
note. 
(e) TELECOMMUNICATIONS DEMONSTRATION PROJECTS.—The Sec-
retary of Health and Human Services shall enter into agreements 
with entities submitting applications under this subsection (in such 
form as the Secretary may provide) to establish demonstration 
projects to examine the feasability of requiring instruction and 
oversight of rural physicians, in lieu of imposing sanctions, through 
use of video communication between rural hospitals and teaching 
hospitals under this title. Under such demonstration projects, the 
Secretary may provide for payments to physicians consulted via 
video communication systems. No funds may be expended under the 
demonstration projects for the acquisition of capital items including 
computer hardware. 
SEC. 4095. PREEXCLUSION HEARINGS. 
(a) IN GENERAL.—Section 11560t>) of the Social Security Act (42 
U.S.C. 1320c-5(b)) is amended by adding at the end the following 
new paragraph: 
"(5) Before the Secretary may effect an exclusion under paragraph 
(2) in the case of a provider or practitioner located in a rural health 
manpower shortage area (HMSA) or in a county with a population 
of less than 70,000, the provider or practitioner adversely affected by 
the determination is entitled to a hearing before an administrative 
law judge (described in section 205(b)) respecting whether the pro-
vider or practitioner should be able to continue furnishing services 
to individuals entitled to benefits under this Act, pending comple-
tion of the administrative review procedure under paragraph (4). If 
the judge does not determine, by a preponderance of the evidence, 
that the provider or practitioner will pose a serious risk to such 
individuals if permitted to continue furnishing such services, the 
Secretary shall not effect the exclusion under paragraph (2) until 
the provider or practitioner has been provided reasonable notice and 
opportunity for an administrative hearing thereon under paragraph 
(4).". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
shall apply to determinations made by the Secretary of Health and 
Human Services under section 1156(b) of the Social Security Act on 
or after the date of the enactment of this Act. 
(c) TRANSITION FOR CURRENT CASES.—In the case of a practitioner 
or person— 
(1) for whom a notice of determination under section 1156(b) 
of the Social Security Act has been provided within 365 days 
before the date of the enactment of this Act, 
(2) who has not exhausted the administrative remedies avail-
able under section 11560)X4) of such Act for review of the 
determination, and 
(3) who requests, within 90 days after the date of the enact-
ment of this Act, a hearing established under this subsection, 
the Secretary of Health and Human Services shall provide for a 
hearing described in section 1156ft)K5) of the Social Security Act (as 
amended by subsection (a) of this section). 
(d) REDETERMINATIONS IN CERTAIN CASES.—If, in hearing under 
subsection (c), the judge does not determine, by a preponderance of 
the evidence, that the provider or practitioner will pose a serious 
risk to individuals entitled to benefits under title XVIII of the Social 
Security Act if permitted to continue or resume furnishing such 
services, the Secretary shall not effect the exclusion (or shall sus-
pend the exclusion, if previously effected) under paragraph (2) of 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-139 
section 1156(b) of such Act until the provider or practitioner has 
been provided an administrative hearing thereon under paragraph 
(4) of such section, notwithstanding any failure by the provider or 
practitioner to request the hearing on a timely basis. 
(e) REPORT ON IMPROVEMENTS IN PROCEDURES FOR IMPOSING SANC-
TIONS.—Not later than one year after the date of enactment of this 
Act, the Secretary of Health and Human Services shall report to 
Congress on the improved procedures for imposing sanctions against 
a practitioner or person under section 1156 of the Social Security 
Act established through agreement by the Health Care Financing 
Administration, the American Association of Retired Persons, the 
American Medical Association, and the Office of the Inspector 
General in the Department of Health and Human Services. The 
report shall set forth such improved procedures, describe the re-
sponse of physicians and providers to the procedures, assess whether 
the procedures effect an appropriate balance between procedural 
fairness and the need for ensuring quality medical care, comment on 
the alternative provider-patient notification procedure contained in 
the agreement, and recommend whether such procedures should 
apply to institutional providers of health care services. 
SEC. 4096. LIMITATION OF BENEFICIARY LIABILITY FOR SERVICES DIS-
ALLOWED BY PEER REVIEW ORGANIZATIONS. 
(a\ p^jii' B SERVICES. 
(1) Section 1842 of the Social Security Act (42 U.S.C 1395u) is— 
amended— 
(A) in subsection (bX3Xii), by inserting "(and to refund 
amounts already collected)" after "agrees not to charge", 
and by striking 'and (II)" and inserting ", (II) the physician 
or other person furnishing such service agrees not to charge 
(and to refund amounts already collected) for services for 
which payment under this title is denied under section 
1154(aX2) by reason of a determination under section 
1154(aXlXB), and (III)"; 
(B) in subsection (IXlXAXiii), by inserting "(I)" after "(iii)" 
and by inserting before the comma the following: "or (II) 
payment under this title for such services is denied under 
i-A^-><'<'} 
section 1154(aX2) by reason of a determination under sec-
tion 1154(aXlXB)"; and 
(C) in subsection (IXIXC), by inserting "in the case de-
scribed in subparagraph (AXiiiXD" after to an individual". 
(2) Section 1870(f) of such Act (42 U.S.C. 1395gg(f)) is amended 
by striking "that the reasonable charge is the full charge for the 
services" each place it appears and inserting "to the terms 
specified in subclauses (I) and (II) of section 1842(bX3XBXii) with 
respect to the services". 
(b) INDEMNIFICATION.—Section 1879(b) of such Act (42 U.S.C. 
1395pp(b)) is amended— 
(1) in the first sentence, by striking ", subject to the deductible 
and coinsurance provisions of this title,", and 
(2) by adding at the end the following: "No item or service for 
which an individual is indemnified under this subsection shall 
be taken into account in applying any limitation on the amount 
of items and services for which pajonent may be made to or on 
behalf of the individual under this title.". 
(c) PATIENT LIABILITY FOR HOSPITAL CHARGES DURING APPEAL OF 
DISCHARGE NOTICE.— 
101 STAT. 1330-140 
PUBLIC LAW 100-203—DEC. 22, 1987 
(1) Section 1154(e)(2) of such Act (42 U.S.C. 1320c-3(eX2)) is 
'-; amended by adding at the end thereof the following: "If the 
^ 
hospital requests such a review, it shall also notify the patient 
that the review has been requested.". 
(2) Sections 1154(e)(3XA)(i) (42 U.S.C. 1320c-3(e)(3)(A)(i)) and 
1154(e)(3XB) (42 U.S.C. 1320c-3(eX3XB)) of such Act are each 
amended by inserting "or (2)" after "paragraph (1)". 
42 use 1320C-3 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
"°*®- 
apply to services furnished on or after January 1, 1988. 
SEC. 4097. SEPARATE FUNDING LEVELS. 
(a) AGGREGATE FUNDING.—Section 1866(aXlXFXiXIII) of the Social 
Security Act (42 U.S.C. 1395cc(aXlXFXiXIII)) is amended— 
(1) by striking "1986" and inserting "1988"; and 
t, 
(2) inserting "and for any direct or administrative costs in-
curred as a result of review functions added with respect to a 
subsequent fiscal year" after "inflation". 
(b) PAYMENT.—Section 1866(aX4XCXii) of such Act (42 U.S.C. 
1395cc(aX4XCXii)) is amended to read as follows: 
"(ii) shall not be less in the aggregate for a fiscal year— 
"(I) in the case of hospitals, than the amount specified in 
paragraph (IXFXiXIII), and 
"(II) in the case of facilities and agencies, than the 
£i (i;,- 
amounts the Secretary determines to be sufficient to cover 
the costs of such organizations' conducting the activities 
^^»;, 
described in subparagraph (A) with respect to such facilities 
or agencies under part B of title XL". 
42 use 1
3
9
5
C
C 
(c) EFFECTIVE DATE.—The amendments made by this section 
"°'^- 
shall apply with respect to fiscal years beginning on or after 
October 1, 1988. 
Subtitle B—Medicaid 
• 
PART 1—ELIGIBILITY AND BENEFITS 
SEC. 4101. MEDICAID BENEFITS FOR POOR CHILDREN AND PREGNANT 
WOMEN. 
"' (a) MEDICAID OPTIONAL COVERAGE FOR ADDITIONAL LOW-INCOME 
PREGNANT WOMEN AND CHILDREN.— 
(1) Section 1902(1) of the Social Security Act (42 U.S.C. 
1396a(l)) is amended— 
... 
(A) in paragraph (2)— 
£ij'.« ... 
(J) ijy striking "(2) For purposes of paragraph (1)" and 
r^.-,y., , . 
inserting "(2XA) For purposes of paragraph (1) with 
"
* • ' 
" 
respect to individuals described in subparagraph (A) or 
,,..^ 
, ^ 
(B) of that paragraph", 
* " ' ' * * ' ' 
(ii) by striking "100 percent" and inserting "185 per-
cent", and 
',' 
(iii) by adding at the end the following new subpara-
graph: 
"(B) If a State elects, under subsection (aXlOXAXiiXIX), to cover 
individuals not described in subparagraph (A) or (B) of paragraph 
(1), for purposes of that paragraph and with respect to individuals 
not described in such subparagraphs the State shall establish an 
income level which is a percentage (not more than 100 percent, or, if 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-141 
less, the percentage established under subparagraph (A)) of the 
income official poverty line described in subparagraph (A)."; and 
(B) in paragraph (3XD), by inserting "appropriate" after 
flUoliGci is tiiG 
(2) Section 1902(eX4) of such Act (42 U.S.C. 1396a(e)(4)) is 
amended by adding at the end the following new sentence: 
w 
"During the period in which a child is deemed under the 
preceding sentence to be eligible for medical assistance, the 
^
^ medical assistance eligibility identification number of the 
mother shall also serve as the identification number of the 
child, and all claims shall be submitted and paid under such 
number (unless the State issues a separate identification 
number for the child before such period expires).". 
(3) The amendments made by this subsection shall apply to 
medical assistance furnished on or after July 1,1988. 
(b) 
ALLOWING ACCELERATED COVERAGE OF CHILDREN UP''* TO 
(1) Section 1902(1X1) of such Act (42 U.S.C. 1396a(lXl)) is 
-. 
amended— 
(A) by inserting "and" at the end of subparagraph (B), 
and 
(B) by striking subparagraphs (C) through (F) and insert-
ing the following: 
"(C) children born after September 30, 1983, and who have 
attained one year of age but have not attained 2, 3, 4, or 5 years 
of age (as selected by the State),". 
(2XA) Section 1902(1) of such Act is further amended— 
i: 
(i) in paragraph (3XC), by striking ", (C), (D), (E), or (F)" 
f 
and inserting "or (C)", and 
(ii) in paragraph (4XBXii), by striking ", (D), (E), or (F)". 
(B) Section 1902(eX7) of such Act (42 U.S.C. 1396a(eX7)) is 
amended by striking ", (C), (D), (E), or (F)" and inserting 
"or (C)". 
(C) Section 9401(fK2) of the Omnibus Budget Reconciliation 
Act of 1986 is amended by striking "(A)" after "(2)" and by 
striking subparagraphs (B) through (D). 
(3) The amendments made by this subsection shall apply with 
respect to medical assistance furnished on or after July 1, 1988. 
< (c) COVERAGE OF CHILDREN U P *^ TO AGE 8.— 
(1) Section 1905(nX2) of such Act (42 U.S.C. 1396d(nX2)) is 
K
i 
amended by striking "is under 5 years of age" and inserting 
"has not attained the age of 7 (or any age designated by the 
:
^ 
State that exceeds 7 but does not exceed 8)". 
(2) Section 1902(1X1XC) of such Act, as amended by subsection 
Ot)XlXB), is further amended by striking "or 5 years" and insert-
ing "5, 6, 7, or 8 years". 
(3XA) The amendments made by this subsection shall apply to 
medical assistance furnished on or after October 1,1988. 
(B) For purposes of section 1905(nX2) of the Social Security 
8 
Act (as amended by subsection (a)) for medical assistance fur-
nished during fiscal year 1989, any reference to "age of 7" is 
deemed to be a reference to "age of 6". 
(d) PREMIUM.— 
Effective date. 
42 u s e 1396a 
note. 
42 u s e 1396a 
note. 
Effective date. 
42 u s e 1396a 
note. 
Effective date. 
42 u s e 1396d 
note. 
**Copy read "UP". 
*'Copy read "UP". 
101 STAT. 1330-142 
PUBLIC LAW 100-203—DEC. 22, 1987 
(1) Section 1916 of the Social Security Act (42 U.S.C. 1396o) is 
amended— 
(A) in subsection (a)(1), by inserting "(except for a pre-
mium imposed under subsection (c))" before the semicolon; 
(B) by redesignating subsections (c) and (d) £is subsections 
(d) and (e), respectively; and 
(C) by inserting after subsection (b) the following new 
subsection: 
"(cXD The State plan of a State may at the option of the State 
provide for imposing a monthly premium (in an amount that does 
not exceed the limit established under paragraph (2)) with respect to 
an individual described in subparagraph (A) or (B) of section 
1902(1)(1) who is receiving medical assistance on the basis of section 
; 
• 1902(a)(10XAXiiXIX) and whose family income (as determined in 
accordance with the methodology specified in section 1902(1X3)) 
equals or exceeds 150 percent of the nonfarm income official poverty 
line (as defined by the Office of Management and Budget, and 
revised annually in accordance with section 673(2) of the Omnibus 
Budget Reconciliation Act of 1981) applicable to a family of the size 
involved. 
"(2) In no case may the amount of any premium imposed under 
paragraph (1) exceed 10 percent of the amount by which the family 
income (less expenses for the care of a dependent child) of an 
individual exceeds 150 percent of the line described in paragraph (1). 
"(3) A State shall not require prepayment of a premium imposed 
pursuant to paragraph (1) and shall not terminate eligibility of an 
individual for medical assistance under this title on the basis of 
failure to pay any such premium until such failure continues for a 
period of not less than 60 days. The State may waive payment of any 
such premium in any case where the State determines that requir-
ing such payment would create an undue hardship. 
"(4) A State may permit State or local funds available under other 
programs to be used for payment of a premium imposed under 
paragraph (1). Payment of a premium with such funds shall not be 
'" 
counted as income to the individual with respect to whom such 
payment is made.". 
Effective date. 
(2) The amendments made by paragraph (1) shall become 
42 use 13960 
effective on July 1,1988. 
(e) MiSCELXANEOUS PROVISIONS RELATING T
O SERVICES FOR PREG-
NANT WOMEN AND CHILDREN.— 
(1) Section 1902(aX10) of such Act (42 U.S.C. 1396a(aX10)) is 
. 
amended, in subdivision (VII) of the matter following subpara-
graph (E), by striking "and postpartum" and 
inserting 
"postpartum, and family planning". 
(2) Section 1902(eX5) of such Act (42 U.S.C. 1396a(eX5)) is 
amended by striking "until the end of the 60-day period begin-
^ 
ning on the last day of her pregnancy" and inserting "through 
the end of the month in which the 60-day period (beginning on 
the last day of her pregnancy) ends". 
(3) Section 1902(1X3XE) of such Act (42 U.S.C. 1396a(l)(3XE)) is 
amended by inserting after "title IV" the following: "(except to 
the extent such methodology is inconsistent with clause (D) of 
subsection (aX17))". 
(4) Section 1902(1X4XA) of such Act (42 U.S.C. 1396a(lX4)(A)) is 
amended by striking "April 17, 1986" and inserting "July 1, 
1987". 
note. 
note. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-143 
(5) Section 1902(1X4) of such Act (42 U.S.C. 1396a(lX4)) is 
amended by adding at the end the following new subparagraph: 
"(C) A State plan may not provide, in its election of the option of 
furnishing medical eissistance to individuals described in paragraph 
(1), that such individuals must apply for benefits under part A of 
title IV as a condition of applying for, or receiving, medical assist-
ance under this title.". 
(6XA) The amendment made by paragraph ^o (i) shall become Effective dates. 
effective on the date of enactment of this Act. 
^2JJSC I396a 
(B) The amendments made by paragraphs (2) and (3) shall be 
effective as if they had been included in the enactment of the 
Consolidated Omnibus Budget Reconciliation Act of 1985. 
(C) The amendment made by paragraph (4) shall apply to 
elections made on or after the enactment of this Act. 
(D) The amendment made by paragraph (5) shall apply £is if 
included in the enactment of section 9401 of the Omnibus 
Budget Reconciliation Act of 1986. 
SEC. 4102. HOME AND COMMUNITY-BASED SERVICES FOR THE ELDERLY. 
(a) IN GENERAL.— 
(1) Section 1915 of the Social Security Act (42 U.S.C. 1396n) is 
amended— 
(A) by transferring subsection (d) to the end of such 
section and redesignating it as subsection (h), and 
(B) by inserting after subsection (c) the following new 
subsection: 
"(dXD Subject to paragraph (2), the Secretary shall grant a waiver 
to provide that a State plan approved under this title shall include 
as 'medical assistance' under such plan pajnnent for part or all of 
the cost of home or community-based services (other than room and 
board) which are provided pursuant to a written plan of care to 
individuals 65 years of age or older with respect to whom there has 
been a determination that but for the provision of such services the 
individuals would be likely to require the level of care provided in a 
skilled nursing facility or intermediate care facility the cost of 
which could be reimbursed under the State plan. 
"(2) A wgdver shall not be granted under this subsection unless the 
State provides assurances satisfactory to the Secretary that— 
"(A) necessary safeguards (including adequate standards for 
provider participation) have been taken to protect the health 
and welfare of individuals provided services under the waiver 
and to assure financial accountability for funds expended with 
respect to such services; 
(B) with respect to individuals 65 years of age or older who— 
"(i) are entitled to medical assistance for skilled nursing 
or intermediate care facility services under the State plan, 
',. 
"(ii) may require such services, and 
"(iii) may be eligible for such home or community-based 
services under such waiver, 
the State will provide for an evaluation of the need for such 
skilled nursing facility or intermediate care facility services; 
and 
"(C) such individuals who are determined to be likely to 
require the level of care provided in a skilled nursing facility or 
intermediate care facility are informed of the feasible alter-
*° Ckjpy read "paragraphs". 
101 STAT. 1330-144 
PUBLIC LAW 100-203—DEC. 22, 1987 
natives to the provision of skilled nursing facility or intermedi-
ate care facility services, which such individuals may choose if 
available under the waiver. 
Each State with a waiver under this subsection shall provide to the 
Secretary annually, consistent with a reasonable data collection 
plan designed by the Secretary, information on the impact of the 
waiver granted under this subsection on the type and amount of 
/ , 
' ; 
medical assistance provided under the State plan and on the health 
',. , 
and welfare of recipients. 
"(3) A waiver granted under this subsection may include a waiver 
of the requirements of section 1902(aXl) (relating to statewideness), 
section 1902(aX10XB) (relating to comparability), and 
section 
1902(aX10XCXiXni) (relating to income and resource rules applicable 
in the community). Subject to a termination by the State (with 
notice to the Secretary) at any time, a waiver under this subsection 
shall be for an initial term of 3 years and, upon the request of a 
State, shall be extended for additional 5-year periods unless the 
Secretary determines that for the previous waiver period the assur-
ances provided under paragraph (2) have not been met. A waiver 
may provide, with respect to post-eligibility treatment of income of 
all individuals receiving services under the waiver, that the maxi-
mum amount of the individual's income which may be disregarded 
for any month is equal to the amount that may be allowed for that 
purpose under a waiver under subsection (c). 
"(4) A waiver under this subsection may, consistent with para-
graph (2), provide medical Eissistance to individuals for case manage-
ment services, homemaker/home health aide services and personal 
care services, adult day health services, respite care, and other 
medical and social services that can contribute to the health and 
well-being of individuals and their ability to reside in a community-
based care setting. 
"(5XA) In the case of a State having a waiver approved under this 
subsection, notwithstanding any other provision of section 1903 to 
the contrary, the total amount expended by the State for medical 
assistance with respect to skilled nursing facility services, inter-
mediate care facility services, and home and community-based serv-
ices under the State plan for individuals 65 years of age or older 
during a waiver year under this subsection may not exceed the 
projected amount determined under subparagraph (B). 
"(B) For purposes of subparagraph (A), the projected amount 
under this subparagraph is the sum of the following: 
"(i) The aggregate amount of the State's medical assistance 
under this title for skilled nursing facility services and inter-
mediate care facility services furnished to individuals who have 
attained the age of 65 for the base year increased by a percent-
age which is equal to the lesser of 7 percent times the number of 
years beginning after the base year and ending before the 
waiver vear involved or the sum o
f
— 
(I) the percentage increase (based on an appropriate 
;/* 
market-basket index representing the costs of elements of 
^"* 
such services) between the base year and the waiver year 
involved, plus 
"(II) the percentage increase between the base year and 
the W£dver year involved in the number of residents in the 
' ^ ^
^ 
State who have attained the age of 65, plus 
"(III) 2 percent for each year beginning after the base 
year and ending before the waiver year. 
9-ifia 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-145 
"(ii) The aggregate amount of the State's medical assistance 
under this title for home and community-based services for 
individuals who have attained the age of 65 for the base year 
increased by a percentage which is equal to the lesser of 7 
percent times the number of years beginning after the base year 
and ending before the waiver year involved or the sum o
f
— 
"(I) the percentage increase (based on an appropriate 
market-basket index representing the costs of elements of 
9ff' 
such services) between the base year and the waiver year 
; * 
involved, plus 
' 
'"' j , " ^ , 
"(ID the percentage increase between the base year and 
the waiver year involved in the number of residents in the 
State who have attained the age of 65, plus 
"(III) 2 percent for each year beginning after the base 
year and ending before the waiver year, 
"(iii) The Secretary shall develop and promulgate by regulation Regulations, 
(by not later than October 1,1989)— 
"(I) a method, based on an index of appropriately weighted 
indicators of changes in the wages and prices of the mix of goods 
J«' t >
8
U :,|\ 
and services which comprise both skilled nursing facility serv-
ices and intermediate care facility services (regardless of the 
source of payment for such services), for projecting the percent-
age increase for purposes of clause (iXI); 
"(II) a method, based on an index of appropriately weighted 
indicators of changes in the wages and prices of the mix of goods 
and services which comprise home and community-based serv-
ices (regardless of the source of payment for such services), for 
projecting the percentage increase for purposes of clause (iiXD; 
and 
"(III) a method for projecting, on a State specific basis, the 
percentage increase in the number of residents in each State 
who are over 75 years of age for any period. 
Effective on and after the date the Secretary promulgates the 
regulation under clause (iii), any reference in this subparagraph to 
the 'lesser of 7 percent' shall be deemed to be a reference to the 
'greater of 7 percent'. 
"(C) In this paragraph: 
"(i) The term 'home and community-based services' includes 
services described in sections 1905(aX7) and 1905(aX8), services 
described in subsection (cX4XB), services described in paragraph 
(4XB), personal care services, and services furnished pursuant to 
a waiver under subsection (c). 
"(iiXD Subject to subclause (II), the term 'base year' means the 
most recent year (ending before the date of the enactment of 
this subsection) for which actual final expenditures under this 
title have been reported to, and accepted by, the Secretary. 
"(II) For purposes of subparagraph (C), in the case of a State 
that does not report expenditures on the basis of the age 
categories described in such subparagraph for a year ending 
before the date of the enactment of this subsection, the term 
'base year' means fiscal year 1989. 
"(iii) The term 'intermediate care facility services' does not 
include services furnished in an institution certified in accord-
ance with section 1905(d). 
"(6XA) A determination by the Secretary to deny a request for a 
waiver (or extension of waiver) under this subsection shall be subject 
to review to the extent provided under section 1116(b). 
101 STAT. 1330-146 
PUBLIC LAW 100-203—DEC. 22, 1987 
Effective date. 
42 use 1396n 
uote. 
42 use 1396n 
note. 
42 use 1396d 
note. 
"(B) Notwithstanding any other provision of this Act, if the Sec-
retary denies a request of the State for an extension of a waiver 
under this subsection, any waiver under this subsection in effect on 
the date such request is made shall remain in effect for a period of 
not less than 90 days after the date on which the Secretary denies 
such request (or, if the State seeks review of such determination in 
accordance with subparagraph (A), the date on which a final deter-
mination is made with respect to such review).". 
(2) The amendments made by paragraph (1) shall become 
effective on January 1,1988. 
(h) CONFORMING AMENDMENTS.— 
(1) Section 1902(a)(10)(A)(ii)(VI) of such Act (42 U.S.C. 
1396a(a)(10)(AXiiXVI)) is amended by striking "section 1915(c)" 
each place it appears and inserting "subsection (c) or (d) of 
section 1915". 
(2) Section 1915(h) of such Act, as redesignated by subsection 
(a), is amended by striking "(c)" and inserting in lieu thereof "(c) 
or(d)". 
(c) EXTENSION OF WAIVER.—In the case of a State which, as of 
December 1, 1987, has a waiver approved with respect to elderly 
individuals under section 1915(c) of the Social Security Act, which 
waiver is scheduled to expire before July 1,1988, if the State notifies 
the Secretary of Health and Human Services of the State's intention 
to file an application for a waiver under section 1915(d) of such Act 
(£is amended by subsection (a) of this section), the Secretary shall 
extend approval of the State's waiver, under section 1915(c) of such 
Act, on the same terms and conditions through September 30, 1988. 
SEC. 4103. PHYSICIANS* SERVICES FURNISHED BY DENTISTS. 
(a) CLARIFYING COVERAGE.—Section 1905(a)(5) of the Social Secu-
rity Act (42 U.S.C. 1396d(a)(5)) is amended by inserting "(A)" after 
"(5)" and by inserting before the semicolon at the end the following: 
", and (B) medical and surgical services furnished by a dentist 
(described in section 1861(rX2)) to the extent such services may be 
performed under State law either by a doctor of medicine or by a 
doctor of dental surgery or dental medicine and would be described 
in subparagraph (A) if furnished by a physician (as defined in 
section 1861(rXl))". 
(b) EFFECTIVE DATE.— 
(1) The amendment made by subsection (a) applies (except as 
provided under paragraph (2)) to payments under title XIX of 
the Social Security Act for calendar quarters beginning on or 
after January 1, 1988, without regard to whether or not final 
regulations to carry out such amendment have been promul-
gated by such date. 
(2) In the case of a State plan for medical assistance under 
title XIX of the Social Security Act which the Secretary of 
Health and Human Services determines requires State legisla-
tion (other than legislation appropriating funds) in order for the 
plan to meet the additional requirement imposed by the amend-
ment made by subsection (a), the State plan shall not be re-
garded as failing to comply with the requirements of such title 
solely on the basis of its failure to meet this additional require-
ment before the first day of the first calendar quarter beginning 
after the close of the first regular session of the State legislature 
that begins after the date of enactment of this Act. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-147 
SEC. 4104. OPTIONAL MEDICAID COVERAGE OF INDIVIDUALS IN CERTAIN 
STATES 
RECEIVING 
ONLY 
OPTIONAL 
STATE 
SUPPLE-
MENTARY PAYMENTS. 
Section 1902(a)(10)(A){ii) of the Social Security Act (42 U.S.C. 
1396a(aK10)(AXii)) is amended— 
(1) by striking "or" at the end of subclause (IX) and inserting 
"or" at the end of subclause (X); and 
(2) by adding at the end the following new subclause: 
i^5^> 
"(XI) who receive only an optional State supple-
mentary payment based on need and paid on a 
'^ 
J'" 
regular basis, equal to the difference between the 
individual's countable income and the income 
standard used to determine eligibility for such 
supplementary payment (with countable income 
being the income remaining after deductions as 
established by the State pursuant to standards that 
are more restrictive than the standards for supple-
mentary security income benefits under title XVI), 
which are available to all individuals in the State 
(but which may be based on different income stand-
ards by political subdivision according to cost of 
living differences), and which are paid by a State 
that does not have an agreement with the Sec-
retary under section 1616 or 1634.". 
SEC. 4105. CLARIFICATION OF COVERAGE OF CLINIC SERVICES FUR-
NISHED TO HOMELESS OUTSIDE FACILITY. 
(a) IN GENERAL.—Section 1905(a)(9) of the Social Security Act (42 
U.S.C. 1396d(a)(9)) is amended by inserting before the semicolon at 
• ^' ' 
the end the following: ", including such services furnished outside 
the clinic by clinic personnel to an eligible individual who does not 
reside in a permanent dwelling or does not have a fixed home or 
mailing address". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 42 use I396d 
shall apply to services furnished on or after January 1, 1988, ^°^-
without regard to whether regulations to implement such amend-
ment are promulgated by such date. 
SEC. 4106. MEDICALLY NEEDY INCOME LEVELS FOR CERTAIN 2-MEMBER 
COUPLES IN CALIFORNIA. 
For purposes of section 1903(0(1)(B) of the Social Security Act, for 
payments made to California on or after July 1,1983, in the C£ise of a 
family consisting only of two individuals both of whom are adults 
and at least one of whom is aged, blind, or disabled, the "highest 
amount which would ordinarily be paid to a family of the same size" 
under the State's plan approved under part A of title IV of such Act 
shall, at California's option, be the amount determined by the State 
agency to be the amount of the aid which would ordinarily be 
payable under such plan to a family which consists of one adult and 
two children and which is without any income or resources. Section 
1902(aX10)(C)(iXIII) of the Social Security Act shall not prevent 
California from establishing (under the previous sentence) an ap-
plicable income limitation for families described in that sentence 
which is greater than the income limitation applicable to other 
families, if California has an applicable income limitation under 
section 1903(f) of such Act which is equal to the maximum ap-
plicable income limitation permitted consistent with paragraph 
101 STAT. 1330-148 
PUBLIC LAW 100-203—DEC. 22, 1987 
(IXB) of such section for families other than those described in the 
previous sentence. 
PART 2—OTHER PROVISIONS 
SEC. 4111. INCREASING THE MAXIMUM ANNUAL MEDICAID PAYMENTS 
' '' 
THAT MAY BE MADE TO THE COMMONWEALTHS AND TERRI-
TORIES. 
(a) IN GENERAL.—Subsection (c) of section 1108 of the Social 
Security Act (42 U.S.C. 1308) is amended to read as follows: 
"(c) The total amount certified by the Secretary under title XIX 
with respect to a fiscal year for payment to— 
"(1) Puerto Rico shall not exceed (A) $73,400,000 for fiscal year 
1988, (B) $76,200,000 for fiscal year 1989, and (C) $79,000,000 for 
fiscal year 1990 (and each succeeding fiscal year); 
"(2) the Virgin Islands shall not exceed (A) $2,430,000 for 
fiscal year 1988, (B) $2,515,000 for fiscal year 1989, and (C) 
$2,600,000 for fiscal year 1990 (and each succeeding fiscal year); 
"(3) Guam shall not exceed (A) $2,320,000 for fiscal year 1988, 
(B) $2,410,000 for fiscal year 1989, and (C) $2,500,000 for fiscal 
year 1990 (and each succeeding fiscal year); 
"(4) the Northern Mariana Islands shall not exceed (A) 
$636,700 for fiscal year 1988, (B) $693,350 for fiscal year 1989, 
and (C) $750,000 for fiscal year 1990 (and each succeeding fiscal 
year); and 
"(5) American Samoa shall not exceed (A) $1,330,000 for fiscal 
year 1988, (B) $1,390,000 for fiscal year 1989, and (C) $1,450,000 
for fiscal year 1990 (and each succeeding fiscal year).". 
42 use 1308 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
"°*® 
shall apply to payments for fiscal years beginning with fiscal year 
1988. 
42 u s e 1396a 
SEC. 4112. ADJUSTMENT IN MEDICAID PAYMENT FOR INPATIENT HOS-
note. 
PITAL SERVICES FURNISHED BY DISPROPORTIONATE SHARE 
HOSPITALS. 
(a) IMPLEMENTATION OF REQUIREMENT.— 
(1) A State's plan under title XIX of the Social Security Act 
shall not be considered to meet the requirement of section 
• 
1902(aX13XA) of such Act (insofar as it requires payments to 
hospitals to take into account the situation of hospitals which 
serve a disproportionate number of low income patients with 
special needs), as of July 1, 1988, unless the State has submitted 
to the Secretary of Health and Human Services, by not later 
than such date, an amendment to such plan that— 
(A) specifically defines the hospitals so described (and 
J 
includes in such definition any disproportionate share hos-
pital described in subsection (bXD which meets the require-
ment of subsection (d)), and 
(B) provides, effective for inpatient hospital services pro-
vided not later than July 1, 1988, for an appropriate in-
t 
crease in the rate or amount of payment for such services 
provided by such hospitals, consistent with subsection (c). 
f 
(2)(A) In order to be considered to have met such requirement 
of section 1902(aX13XA) as of July 1,1989, the State must submit 
-' 
to the Secretary of Health and Human Services by not later 
than such date, the State plan amendment described in para-
graph (1), consistent with subsection (c). 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-149 
t 
(B) In order to be considered to have met such requirement of 
section 1902(a)(13)(A) as of July 1, 1990, the State must submit 
to the Secretary of Health and Human Services by not later 
than such date, the State plan amendment described in para-
graph (1), consistent with subsection (c). 
The Secretary shall, not later than June 30 of each year in which 
the State is required to submit an amendment under this subsection, 
review each such amendment for compliance with such requirement 
and by such date shall approve or disapprove each such amendment. 
If the Secretary disapproves such an amendment, the State shall 
immediately submit a revised amendment which meets such 
requirement. The requirement of this subsection may not be waived 
under section 1915(b)(4) of the Social Security Act. 
(b) HOSPITALS DEEMED DISPROPORTIONATE SHARE.— 
(1) For purposes of subsection (a)(1), a hospital which meets 
the requirement of subsection (d) is deemed to be a dispropor-
t 
tionate share hospital i
f
— 
(A) the hospital's medicaid inpatient utilization rate (as 
defined in paragraph (2)) is at lesist one standard deviation 
above the mean medicaid inpatient utilization rate for 
hospitals receiving medicaid payments in the State; or 
(B) the hospital's low-income utilization rate (as defined 
1 
in paragraph (3)) exceeds 25 percent. 
(2) For purposes of paragraph (1)(A), the term "medicaid 
inpatient utilization rate" means, for a hospital, a fraction 
(expressed as a percentage), the numerator of which is the 
hospital's number of inpatient days attributable to patients who 
(for such days) were eligible for medical assistance under the 
State plan approved under title XIX of the Social Security Act 
i 
in a period, and the denominator of which is the total number of 
the hospital's inpatient days in that period. 
(3) For purposes of paragraph (1)(B), the term "low-income 
utilization rate" means, for a hospital, the sum of— 
(A) the fraction (expressed as a percentage)— 
1 
(i) the numerator of which is the sum (for a period) of 
(I) the total revenues paid the hospital for patient 
services under a State plan under title XIX of the 
. 
_
; 
Social Security Act and (II) the amount of the cash 
subsidies for patient services received directly from 
t; ' 
State and local governments, and 
(ii) the denominator of which is the total amount of 
revenues of the hospital for patient services (including 
c 
the amount of such cash subsidies) in the period; and 
(B) a fraction (expressed as a percentage)— 
(i) the numerator of which is the total amount of the 
"^ 
hospital's charges for inpatient hospital services which 
are attributable to charity care in a period, and 
s^c;,v 
(ii) the denominator of which is the total amount of 
the hospital's charges for inpatient hospital services in 
the hospital in the period. 
The numerator under subparagraph (BXi) shall not include 
contractual allowances and discounts (other than for indigent 
patients not eligible for medical assistance under a State plan 
daee 
7 
approved under title XIX of the Social Security Act). 
(c) PAYMENT ADJUSTMENT.—In order to be consistent with this 
subsection, a payment adjustment for a disproportionate share hos-
pital must either— 
101 STAT. 1330-150 
PUBLIC LAW 100-203—DEC. 22, 1987 
(1) be in an amount equal to the product of (A) the amount 
paid under the State plan to the hospital for operating costs for 
inpatient hospital services (of the kind described in section 
1886(a)(4)), and (B) the hospital's disproportionate share adjust-
ment percentage (established under section 1886(d)(5)(F)(iv)); or 
(2) provide for a minimum specified additional payment 
amount (or increased percentage payment) and for an increase 
in such a payment amount (or percentage payment) in propor-
tion to the percentage by which the hospital's medicaid utiliza-
tion rate (as defined in subsection (bX2)) exceeds one standard 
deviation above the mean medicaid inpatient utilization rate for 
hospitals receiving medicaid payments in the State; 
except that, for purposes of paragraphs (2XA) and (2)(B), the pay-
ment adjustment for a disproportionate share hospital is consistent 
with this subsection if the appropriate increase in the rate or 
amount of payment is equal to one-third of the increase otherwise 
applicable under subsection (c) (in the case of paragraph (2XA)) and 
two-thirds of such increase (in the case of paragraph (2)(B)). 
(d) REQUIREMENT TO ^^ QUAUFY AS DISPROPORTIONATE SHARE HOS-
PITAL.— 
(1) Except as provided in paragraph (2), no hospital may be 
defined or deemed as a disproportionate share hospital under a 
State plan under title XIX of the Social Security Act or under 
subsection (b) of this section unless the hospital has at least 2 
obstetricians who have staff privileges at the hospital and who 
have agreed to provide obstetric services to individuals who are 
entitled to medical assistance for such services under such State 
plan. 
(2XA) Paragraph (1) shall not apply to a hospital— 
(i) the inpatients of which are predominantly individuals 
under 18 years of age; or 
(ii) which does not offer nonemergency obstetric services 
to the general population as of the date of the enactment of 
this Act. 
(B) In the case of a hospital located in a rural area (as defined 
for purposes of section 1886 of the Social Security Act), in 
paragraph (1) the term "obstetrician" includes any physician 
with staff privileges at the hospital to perform nonemergency 
obstetric procedures. 
(e) SPECIAL RULE.—A State plan shall be considered to meet the 
requirement of section 1902(aX13XA) (insofar as it requires pay-
ments to hospitals to take into account the situation of hospitals 
which serve a disproportionate number of low income patients with 
special needs) without regard to the requirement of subsection (a) if 
the plan provided for payment adjustments for disproportionate 
share hospitals as of January 1,1984, and if the aggregate amount of 
the payment adjustments under the plan for such hospitals is not 
less than the aggregate amount of such adjustments otherwise 
required to be made under such subsection. 
SEC. 4113. HMO-RELATED PROVISIONS. 
(a) TREATMENT OF GARDEN STATE HEALTH PLAN.— 
42 use 1396b. 
(1) Section 1903(m) of the Social Security Act (42 U.S.C. 
1396(m)) is amended— 
(A) by adding at the end the following new paragraph: 
" Copy read "TO". 
- ' 
- ^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-151 
"(6XA) For purposes of this subsection and section 1902(eX2KA), in Contracts. 
the C£ise of the State of New Jersey, the term 'contract' shall be 
deemed to include an undertaking by the State agency, in the State 
plan under this title, to operate a program meeting all requirements 
of this subsection. 
"(B) The undertaking described in subparagraph (A) must 
provide— 
"(i) for the establishment of a separate entity responsible for 
the operation of a program meeting the requirements of this 
subsection, which entity may be a subdivision of the State 
agency administering the State plan under this title; 
"(ii) for separate accounting for the funds used to operate 
such program; 
"(iii) for setting the capitation rates and any other payment 
rates for services provided in accordance with this subsection 
using a methodology satisfactory to the Secretary designed to 
ensure that total Federal matching payments under this title 
for such services will be lower than the matching payments that 
would be made for the same services, if provided under the 
State plan on a fee for service basis to an actuarially equivalent 
population; and 
"(iv) that the State agency will contract, for purposes of Contracts. 
meeting the requirement under section 1902(aX30)(C), with an 
organization or entity that under section 1154 reviews services 
provided by an eligible organization pursuant to a contract 
under section 1876 for the purpose of determining whether the 
quality of services meets professionally recognized standards of 
health care. 
"(C) The undertaking described in subparagraph (A) shall be Contracts. 
subject to approval (and annual re-approval) by the Secretary in the 
same manner as a contract under this subsection. 
"(D) The undertaking described in subparagraph (A) shall not be 
eligible for a waiver under section 1915(b)."; and 
(B) in paragraph (2XF), by striking all that precedes "a 
^ 
State plan may restrict" and inserting the following: 
" "(E) In the case of— 
^^ "(i) a contract with an entity described in subparagraph (G) Contracts. 
or with a qualified health maintenance organization (as defined 
in section 1310(d) of the Public Health Service Act) which meets 
the requirement of subparagraph (AXii), or 
"(ii) a program pursuant to an undertaking described in 
paragraph (6) in which at least 25 percent of the membership 
enrolled on a prepaid basis are individuals who (I) are not 
insured for benefits under part B of title XVIII or eligible for 
benefits under this title, and (II) (in the case of such individuals 
whose prepayments are made in whole or in part by any 
government entity) had the opportunity at the time of enroll-
ment in the program to elect other coverage of health care costs 
that would have been paid in whole or in part by any govern-
meffital entity,". 
(2) Section 1902(eX2XA) of such Act (42 U.S.C. 1396a(eX2XA)) is 
amended by striking "section 1903(mX2XG)" and inserting 
"paragraph (2XG) or (6) of section 1903(m)". 
»
=
• Copy read " '(F)". 
*' Copy read "(i)". 
101 STAT. 1330-152 
PUBLIC LAW 100-203—DEC. 22, 1987 
Contracts. 
.aJos-f^ri': 
l'v> 
Effective date. 
42 u s e 1396a 
note. 
(b) MEDICAID MATCHING RATE FOR QUALITY REVIEW OF 
HMO 
SERVICES.— 
(1) Section 1902(a)(30)(C) of such Act (42 U.S.C. 1396a(aX30)(C)) 
is amended by inserting ", an entity which meets the require-
ments of section 1152, as determined by the Secretary," after 
"title XI)". 
(2) Section 1902(d) of such Act (42 U.S.C. 1396a(d)) is 
amended— 
(i) by inserting after "contracts with" the following: "an 
entity which meets the requirements of section 1152, as 
determined by the Secretary, for the performance of the 
^ g^ 
quality review functions described in subsection (aX30)(C), 
or", and 
(ii) by striking "organization (or organizations)" each 
place it appears and inserting "such an entity or organiza-
tion". 
(3) Section 1903(a)(3XC) of such Act (42 U.S.C. 1396b(aX3)(C)) is 
amended by inserting "or by an entity which meets the require-
ments "of section 1152, as determined by the Secretary," after 
"utilization and quality control peer review organization". 
(c) FREEDOM OF CHOICE.— 
(1) Section 1902(aX23) of such Act (42 U.S.C. 1396a(aX23)) is 
amended— 
(A) by inserting "(A)" after "Guam, provide that", and 
(B) by inserting before the semicolon at the end the 
following: ", and (B) an enrollment of an individual eligible 
for medical assistance in a primary care case-management 
system (described in section 1915(bXl)), a health mainte-
nance organization, or a similar entity shall not restrict the 
choice of the qualified person from whom the individual 
may receive services under section 1905(aX4XC)". 
(2) Section 1902(eX2XA) of such Act (42 U.S.C. 1396a(eX2XA)) is 
amended by striking "but only" and inserting "but, except for 
benefits furnished under section 1905(aX4XC), only". 
(3) The amendments made by this subsection shall apply to 
services furnished on and after July 1,1988. 
(d) TECHNICAL AMENDMENTS.— 
(1) Section 1903(mX2XF) of such Act (42 U.S.C. 1396b(mX2XF)) 
' 
is amended by striking "subparagraph (G)" and inserting "sub-
paragraphs (E) or (G)". 
(2) Section 1902(eX2XA) of such Act (42 U.S.C. 1396a(eX2XA)) is 
amended by striking "section 1903(mX2XG)" and inserting 
"subparagraph (BXiii), (E), or (G) of section 1903(mX2)". 
(e) CONTINUED EUGIBIUTY AND RESTRICTION ON DISENROLLMENT 
WITHOUT CAUSE FOR METROPOUTAN HEALTH PLAN HMO.—For pur-
poses of sections 1902(eX2XA) and 1903(mX2XF) of the Social Security 
Act, the Metropolitan Health Plan HMO operated by the New York 
City public hospitals shall be treated in the same manner as a 
qualiHed health maintenance organization (as defined in section 
1310(d) of the Public Health Service Act). 
SEC. 4114. MEDICAID WAIVER FOR HOSPICE CARE FOR AIDS PATIENTS. 
Section 1905(oXl) of the Social Security Act (42 U.S.C. 1396d(oXl)) 
is amended— 
(1) by inserting "(A)" after "(1)"; 
(2) by striking "The" and inserting "Subject to subparagraph 
(B), the"; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-153 
(3) by adding at the end the following new subparagraph: 
"(B) For purposes of this title only, with respect to the definition 
of hospice program under section 1861(ddX2), the Secretary may 
allow an agency or organization to make the assurance under 
subparagraph (AXiii) of such section without taking into account 
any individual who is afflicted with acquired immunodeficiency 
syndrome.". 
SEC. 4115. STATE DEMONSTRATION PROJECTS. 
(a) 
EXTENSION 
OF 
ARIZONA 
HEALTH 
CARE 
DEMONSTRATION 
PROJECT.— 
(1) Notwithstanding any limitations contained in section 1115 
of the Social Security Act, but subject to paragraphs (2) and (3) 
of this subsection, the Secretary of Health and Human Services 
(in this subsection referred to as the "Secretary") upon applica-
tion shall renew until September 30, 1989, approval of dem-
onstration project number ll-P-98239/9-05 ("Arizona Health 
Care Cost Containment System—AHCCCS—A statewide ap-
proach to cost effective health care financing"), including all 
waivers granted by the Secretary under such section 1115 as of 
September 30,1987. 
(2) The Secretary's renewed approval of the project under 
paragraph (1) shall— 
ca-fo^s?! 
(A) subject to paragraph (3) be on the same terms and 
conditions that existed between the applicant and the Sec-
retary as of September 30,1987; and 
(B) remain in effect through September 30, 1989, unless 
the Secretary finds that the applicant no longer complies 
with such terms and conditions. 
(3) Nothing in this subsection shall be construed to prohibit or 
require the Secretary from granting additional waivers to the 
applicant— 
(A) for coverage of additional optional groups, and 
(B) for coverage of long-term care and other services 
which were not covered as of September 30,1987. 
O
t
>
) NEW YORK STATE PILOT PROGRAM FOR PRENATAL, MATERNITY, 
AND NEWBORN CARE.— 
(1) Upon application by the State of New York and approval 
by the Secretary of Health and Human Services (in this subsec-
tion referred to as the "Secretary"), the State of New York (in 
this subsection referred to as the "State") may conduct a dem-
onstration project in accordance with this subsection for the 
purpose of testing its Prenatal/Maternity/Newborn Care Pilot 
Program (in this subsection referred to as the "Program"), as 
'' > -^-
the Program is set forth in the Prenatal Care Act of 1987 
*-'^^ 
(enacted by the State in February 1987), as an alternative to 
existing Federal programs. 
(2) Under the demonstration project conducted under this 
subsection— 
(A) any individual who receives benefits under the Pro-
gram shall not receive any of such benefits under the plan 
of the State under title XIX of the Social Security Act; and 
.0 
(B) the Secretary shall make payments to the State with 
respect to individuals receiving benefits under the Program 
in the same amounts as would be payable for such benefits 
liv „. 
under title XIX of the Social Security Act if such individ-
101 STAT. 1330-154 
PUBLIC LAW 100-203—DEC. 22, 1987 
Reports. 
42 u s e 1396b 
note. 
uals were receiving such benefits under such title (as deter-
mined by the Secretary). 
(3) The Secretary may (with respect to the demonstration 
project under this subsection) waive compliance with any 
requirement contained in section 1902(a)(1), 1902(a)(10XB), 
, 
1902(aX17XD), 1902(aX23), 1902(aX30), or 1903(0 of the Social 
Security Act which (if applied) would prevent the State from 
carrying out the project, effectively achieving its purpose, or 
receiving payments in accordance with paragraph (2XB). 
(4) As a condition of approval of the demonstration project 
under this subsection, the State shall provide assurances satis-
factory to the Secretary that— 
(A) the State will continue to make benefits available 
under title XIX of the Social Security Act to all pregnant 
women entitled to receive benefits under such title to the 
extent such benefits are not provided under the Program; 
and 
J 
(B) the State has in effect a quality assurance mechanism 
; 
to ensure the quality and accessibility of the services fur-
nished under the program. 
(5XA) The demonstration project under this subsection shall 
w be conducted for a period not to exceed three years. 
(B) The Secretary shall conduct an evaluation of the dem-
,, onstration project under this subsection and shall report the 
. results of such evaluation to the Congress not later than one 
year after completion of the project, 
(c) WAIVERS FOR FAMILY INDEPENDENCE PROGRAM.—Upon 
ap-
proval of the demonstration project relating to the Family Independ-
ence Program in the State of Washington and with respect to such 
project, the Secretary of Health and Human Services shall waive 
compliance with any requirements of sections 1902(aXl), 1916, and 
1924 of the Social Security Act, but only to the extent necessary to 
enable the State to carry out the project as enacted by the State of 
Washington in May 198f. 
SEC. 4116. WAIVER AUTHORITY UNDER THE MEDICAID PROGRAM FOR 
THE NORTHERN MARIANA ISLANDS. 
Section 1902(j) of the Social Security Act (42 U.S.C. 1396a(j)) is 
amended— 
(1) by inserting "and the Northern Mariana Islands" after 
"American Samoa" the first place it appears; and 
(2) by inserting "or the Northern Mariana Islands" after 
"American Samoa" the second place it appears. 
SEC. 4117. DELAY QUALITY CONTROL SANCTIONS FOR MEDICAID. 
The Secretary of Health and Human Services shall not, prior to 
July 1, 1988, implement any reductions in payments to States 
pursuant to section 1903(u) of the Social Security Act (or any 
provision of law described in subsection (c) of section 133 of the Tax 
Equity and Fiscal Responsibility Act of 1982). 
SEC. 4118. TECHNICAL AND MISCELLANEOUS AMENDMENTS. 
(a) SECTION 2176 WAIVER TECHNICALS.— 
(1) Section 1915(cX3) of the Social Security Act (42 U.S.C. 
1396n(cX3)) is amended by striking "and section 1902(aX10XB) 
(relating 
to 
comparability)" 
and 
inserting 
", 
section 
1902(aX10XB) 
(relating 
to 
comparability), 
and 
section 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-155 
1902(aK10)(C)(i)(III) (relating to income and resource rules ap-
plicable in the community)". 
(2) The amendment made by paragraph (1) shall be effective 
as if included in the enactment of the Omnibus Budget Rec-
onciliation Act of 1986. 
flj) INCREASE IN NUMBER OF INDIVIDUALS WHO MAY ** BE SERVED 
UNDER MODEL HOME AND COMMUNITY-BASED SERVICES WAIVERS.— 
Section 1915(c) of the Social Security Act (42 U.S.C. 1396n(c)) is 
amended by adding at the end the following new paragraph: 
"(10) No waiver under this subsection shall limit by an amount 
less than 200 the number of individuals in the State who may 
receive home and community-based services under such waiver.'. 
(c) KATIE BECKETT TECHNICAL.— 
(1) Section 1902(eX3XC) of such Act (42 U.S.C. 1396a(e)(3)(C)) is 
amended by striking "to have a supplemental security income 
(or State supplemental) payment made with respect to him 
under title XVI" and inserting "for medical assistance under 
the State plan under this title". 
(2) The amendment made by paragraph (1) shall be effective 
as if it were included in section 134 of the Tax Equity and Fiscal 
Responsibility Act of 1982. 
(d) ORGAN TRANSPLANT TECHNICAL.— 
(1) Section 1903(i) of the Social Security Act (42 U.S.C. 
1396b(i)) is amended— 
(A) in paragraph (1), by striking the period at the end and 
inserting "; or", and 
(B) by adding at the end the following new sentence: 
"Nothing in paragraph (1) shall be construed as permitting 
a State to provide services under its plan under this title 
that are not reasonable in amount, duration, and scope to 
achieve their purpose.". 
(2) The amendments made by paragraph (1) shall be effective 
as if included in the enactment of section 9507 of the Consoli-
dated Omnibus Budget Reconciliation Act of 1985. 
(e) CIVIL MONEY PENALTY AND EXCLUSION CLARIFICATIONS.— 
(1) Section 1128A(aXl) of the Social Security Act (42 U.S.C. 
1320a-7(aXl)), as amended by section 3(aXl) of the Medicare and 
Medicaid Patient and Program Protection Act of 1987 (Public 
i 
Law 100-93), is amended by striking "or has reason to know" 
each place it appears and inserting "or should know". 
(2) Section 1128(dX3XB) of the such Act (42 U.S.C. 1320a-
6(dX3XB)), as amended by section 2 of the Medicare and Medic-
aid Patient and Program Protection Act of 1987 (Public Law 
100-93), is amended— 
(A) by inserting "(i)" after "(B)", and 
(B) by adding at the end the following new clause: 
"(ii) A State health care program may provide for a period of 
exclusion which is longer than the period of exclusion under a 
program under title XVIII.". 
(3) The amendment made by paragraph (1) shall apply to 
activities occurring before, on, or after the date of the enact-
ment of this Act. 
(f) INCORPORATION OF CERTAIN PROVISIONS RELATING TO INDIAN 
HEALTH SERVICE FACILITIES.— 
42 u s e 1396n 
note. 
42 u s e 1396a 
note. 
Effective date. 
42 u s e 1396b 
note. 
42 u s e 1320a-7a. 
42 u s e 1320a-7. 
Effective date. 
42 u s e 1320a-7a 
note. 
•* Copy read "WHO MAY". 
101 STAT. 1330-156 
PUBLIC LAW 100-203—DEC. 22, 1987 
Effective date. 
42 u s e 1396J 
note. 
100 Stat. 2063. 
r).8.i 
k 
Effective date. 
Effective date. 
42 u s e 1396a 
note. 
Effective date. 
42 u s e 1396n 
note. 
42 u s e 1396n 
note. 
(1) Section 1911 of the Social Security Act (42 U.S.C. 1396j), as 
amended by section 4111(g)(8) of this title, is amended— 
(A) by striking "or nursing facility" each place it appears 
and inserting ", nursing facility, or any other type of 
. facility which provides services of a type otherwise covered 
under the State plan"; and 
(B) by adding at the end the following new subsection: 
"(c) The Secretary is authorized to enter into agreements with the 
State agency for the purpose of reimbursing such agency for health 
care and services provided in Indian Health Service facilities to 
Indians who are eligible for medical assistance under the State 
plan.".55 
(2) The amendments made by paragraph (1) shall apply to 
health care services performed on or after the date of the 
enactment of this Act. 
(g) FRAIL ELDERLY DEMONSTRATION PROJECT WAIVERS.— 
(1) Section 9412(b)(2) of the Omnibus Budget Reconciliation 
Act of 1986 is amended— 
(A) in subparagraph (A), by inserting before the period at 
"*"^ 
the end the following: ", including permitting the organiza-
tion to assume progressively (over the initial 3-year period 
of the waiver) the full financial risk", and 
(B) in subparagraph (B), by striking "be awarded a grant 
from the Robert Wood Johnson Foundation" and insert 
"participate in an organized initiative to replicate the find-
ings of the On Lok long-term care demonstration project 
(described in section 603(c)(1) of the Social Security Amend-
ments of 1983)". 
(2) The amendments made by paragraph (1) shall take effect 
as though it were included in the Omnibus Budget Reconcili-
ation Act of 1986. 
(h) MEDICALLY NEEDY INCURRED EXPENSES. 
(1) Section 1902(a)(17) of the Social Security Act (42 U.S.C. 
1396a(a)(17)) is amended by striking "(whether in the form of 
insurance premiums or otherwise)" and inserting "(whether in 
the form of insurance premiums or otherwise and regardless of 
whether such costs are reimbursed under another public pro-
gram of the State or political subdivision thereof)". 
(2) The amendment made by paragraph (1) shall apply to costs 
incurred after the date of the enactment of this Act. 
(i) QUAUFICATIONS FOR CASE MANAGERS FOR INDIVIDUALS WITH 
DEVELOPMENT DISABIUTIES AND CHRONIC MENTAL ILLNESS.— 
(1) Section 1915(g)(1) of such Act (42 U.S.C. 1396n(g)(l)) is 
amended by adding at the end the following new sentence: "The 
State may limit the case managers available with respect to 
case management services for eligible individuals with devel-
'•'•' opmental disabilities or with chronic mental illness in order to 
*
^ 
ensure that the case managers for such individuals are capable 
of ensuring that such individuals receive needed services.". 
(2) The amendment made by paragraph (1) shall take effect as 
though it were included in the enactment of the Consolidated 
Omnibus Budget Reconciliation Act of 1985. 
(j) HABIUTATION SERVICES EFFECTIVE DATE.—Effective £is if in-
cluded in the enactment of section 9502 of the Consolidated Omni-
** Subparagraph " "(c)"' indented incorrectly. 
<:-. -eqc:^^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-157 
bus Budget Reconciliation Act of 1985, subsection (jXl) of such 
section is amended by inserting before the period at the end the 
following: "to individuals eligible for services under a waiver 
granted under section 1915(c) of the Social Security Act, without 
regard to whether such individuals were receiving institutional 
services before their participation in the waiver". 
(k) SECTION 2176 
WAIVER FOR INSTITUTIONALIZED DEVELOPMEN-
T
A
L
L
Y DISABLED.—Section 1915(c)(7) of the Social Security Act (42 
U.S.C. 1396n(c)(7)) is amended by inserting "(A)" after "(7)" and 
adding at the end the following new subparagraph: 
"(B) In making estimates under paragraph (2)(D) in the case of a 
waiver that applies only to individuals with developmental disabil-
ities who are inpatients in a skilled nursing facility or intermediate 
care facility and whom the State has determined, on the basis of an 
evaluation under paragraph (2)(B), to need the level of services 
provided by an intermediate care facility for the mentally retarded, 
the State may determine the average per capita expenditures that 
would have been made in a fiscal year for those individuals under 
the State plan on the bsisis of the average per capita expenditures 
under the State plan for services to individuals who are inpatients 
in an intermediate care facility for the mentally retarded.". 
(1) RENEWAL OF FREEDOM-OF-CHOICE WAIVERS.— 
(1) Section 1915(h) of such Act (42 U.S.C. 1396n(h)) is amended 
by striking "denies such request in writing within 90 days after 
the date of its submission to the Secretary." and inserting ", 
within 90 days after the date of its submission to the Secretary, 
either denies such request in writing or informs the State 
agency in writing with respect to any additional information 
which is needed in order to make a final determination with 
6 
respect to the request. After the date the Secretary receives 
such additional information, the request shall be deemed 
granted unless the Secretary, within 90 day of such date, denies 
; - > such request.". 
(2) The amendment made by paragraph (1) shall apply to 
requests for continuation of waivers received after the date of 
the enactment of this Act. 
(m) REPEAL OF COORDINATED AUDIT REQUIREMENT.— 
(IXA) Section 1129 of such Act (42 U.S.C. 1320a-8) is repealed. 
(B) Section 1902(aX42) of such Act (42 U.S.C. 1396a(aX42)) is 
*
^
i 
amended— 
(i) by striking "(A)", and 
:-5 
(ii) by striking ", (B)" and all that follows up to the 
^^- 
semicolon at the end. 
(2) The amendments made by paragraph (1) shall apply to 
audits conducted after the date of the enactment of this Act. 
(n) TEMPORARY TECHNICAL ERROR DEFINITION.—For purposes of 
section 1903(uXlXEXii) of the Social Security Act, effective for the 
period beginning on the date of enactment of this Act and ending 
December 31, 1988, a "technical error" ^^ is gm error in eligibility 
condition (such as assignment of social security numbers and assign-
ment of rights to third-party benefits as a condition of eligibility) 
that, if corrected, would not result in a difference in the amount of 
medical assistance paid. 
Effective date. 
42 u s e 1396n 
note. 
Effective date. 
42 u s e 1396a 
note. 
42 u s e 1396b 
note. 
" Copy read " 'technical error' ". 
101 STAT. 1330-158 
PUBLIC LAW 100-203—DEC. 22, 1987 
(o) TECHNICAL AMENDMENTS RELATING TO NEW JERSEY RESPITE 
CARE PILOT PROJECT.— 
(1) Section 9414(b) of the Omnibus Budget Reconciliation Act 
100 Stat. 2064. 
of 1986 is amended— 
(A) by redesignating paragraphs (2), (3), and (4), as para-
graphs (3), (4), and (5), respectively, 
(B) by inserting after paragraph (1) the following new 
paragraph: 
"(2) provide that the State may submit a detailed proposal 
describing the project (in lieu of a formal request for the waiver 
of applicable provisions of title XIX of the Social Security Act) 
and that submission of such a description by the State will be 
treated as such a request for purposes of subsection (g),", and 
(C) in paragraph (3), as redesignated by *
^
» paragraph (1) of 
this subsection, by striking "if the project" and all that 
follows through "Act" the second place it appears and 
inserting "the State shall utilize a post-eligibility cost-shar-
ing formula based on the available income of participants 
with income in excess of the nonfarm income ofRcial pov-
erty line (as defined by the Office of Management and 
^ 
Budget, and revised annually in accordance with section 
673(2) of the Omnibus Budget Reconciliation Act of 1981)". 
(2XA) Section 9414(a) of the Omnibus Budget Reconciliation 
Act of 1986 is amended by striking "elderly and disabled 
individuals" and inserting "eligible individuals". 
(B) Section 941(c) of the Omnibus Budget Reconciliation Act 
of 1986 is amended to read as follows: 
"(C) DEFINITIONS.—For purposes of this section— 
"(1) the term 'eligible individual' means an individual— 
"(A) who is elderly or disabled, 
"(BXi) whose income (not including the income of the 
spouse or family of the individual) does not exceed 300 
percent of the amount in effect under section 1611(aXlXA) 
of the Social Security Act (as increased pursuant to section 
1617ofsuchAct),or 
"(ii) in the case of an individual and spouse who are both 
dependent on a caregiver, whose combined incomes do not 
exceed such amount, 
"(C) whose liquid resources (as declared by the individual) 
do not exceed $40,000, 
"(D) who is at risk of institutionalization unless the 
individual's caregiver is provided with respite care, and 
"(E) who has been determined to meet the requirements 
of subparagraphs (A) through (D) in accordance with an 
application process designed by the State; and 
"(2) the term 'respite care services' shall include— 
"(A) short-term and intermittent— 
"(i) companion or sitter services (paid as well as 
volunteer), 
V
; .1 a?; 
"(ii) homemaker and personal care-services, 
v
t 
"(iii) adult day care, and 
"(iv) inpatient care in a hospital, a skilled nursing 
facility, or an intermediate care facility (not to exceed a 
total of 14 da}^ for any individual), and 
"(B) peer support and training for family caregivers 
(using informal support groups and organized counseling).". 
**• Copy read "by by". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-159 
(3) Section 9414(g) of the Omnibus Budget Reconciliation Act 
of 1986 is amended by inserting "section 1902(a)(10)(C)(i)(III)," 100 Stat. 2064. 
after "section 1902(aX10XB),". 
(4) The amendments made by this subsection shall be effective 
Effective date. 
as if included in the enactment of the Omnibus Budget 
Reconciliation Act of 1986. 
(p) MISCELLANEOUS TECHNICAL CORRECTIONS.— 
(1) Subclause (IX) of section 1902(a)(10)(AXii) of the Social 
Security Act (42 U.S.C. 1396a(aX10XAXii)) is amended by moving 
it 4 ems to the right so as to align its left margin with that of 
subclause (VIII) of that section. 
(2) Subclause (X) of section 1902(aX10XAXii) of such Act (42 
U.S.C. 1396a(aX10XAXii)) is amended by moving it 2 ems to the 
right so as to align its left margin with that of subclause (VIII) 
of that section. 
(3) Section 1902(aX17) of such Act (42 U.S.C. 1396a(aX17)) is 
amended by striking "subsection (1X3)" and inserting "subsec-
tions (1X3), (mX4), and (mX5)". 
(4) Section 1902(aX30XC) of such Act (42 U.S.C. 1396(aX30XC)) 42 use I396a. 
is amended by striking "provide" and inserting "use". 
(5) Section 1903(fX4) of such Act (42 U.S.C. 1396b(f)(4)) is 
amended by inserting ", 1902(aX10XAXiiXX), or 1905(pXl)" after 
* 
* 
1902(aX 
1 
O
X 
AXiiXIX) 
(6) Paragraph (9) of section 1902(e) of such Act (42 U.S.C. 
1396a(e)) is amended by moving the paragraph 2 ems to the left 
so as to align the left margin of subparagraph (A) (before clause 
(i)) and subparagraphs (B) and (C) with the left margin of 
paragraph (8). 
: JJU 
(7) Section 1902(1X1) of such Act (42 U.S.C. 1396a(lXl)) is 
amended— 
(A) by striking "(IXD Individuals" and inserting "(IXD 
Individuals", 
(B) by moving the matter before subparagraph (A) 2 ems 
* 
to the left so it is indented only once, and 
(C) by striking ", whose" and inserting "and whose". 
(8) Sections 1902(1X2), 1902(mX2XA), 1905(pX2XA), and 501(bX2) 
of such Act (42 U.S.C. 1396a(lX2), 1396a(mX2XA), 1396d(pX2XA), 
"' 
' 
701(bX2)) are each amended by striking "nonfarm". 
(9) Paragraphs (1) and (2) of section 1925(a), as redesignated by 
section (4111(a)) of this title, are amended to read as follows: 42 USC 1396s. 
"(1) AFDC.—(A) Section 402(aX32) of this Act (relating to 
individuals who are deemed recipients of aid but for whom a 
payment is not made). 
'^(B) Section 402(aX37) of this Act (relating to individuals who 
lose AFDC eligibility due to increased earnings). 
"(C) Section 406(h) of this Act (relating to individuals who lose 
AFDC eligibility due to increased collection of child or spousal 
support). 
(D) Section 414(g) of this Act (relating to certain individuals 
participating in work supplementation programs). 
"(2) SSL—(A) Section 1611(e) of this Act (relating to treatment 
of couples sharing an accommodation in a facility). 
"(B) Section 1619 of this Act (relating to benefits for individ-
uals who perform substantial gainful activity despite severe 
medical impairment). 
"(C) Section 1634(b) of this Act (relating to preservation of 
benefit status for disabled widows and widowers who lost SSI 
101 STAT. 1330-160 
PUBLIC LAW 100-203—DEC. 22, 1987 
benefits because of 1983 changes in actuarial 
reduction 
l-S!;? te a ;?0l 
formula). 
"(D) Section 1634(c) of this Act (relating to individuals who 
Qi«i . rs^spf'? 
loge eligibility for SSI benefits due to entitlement to child's 
insurance benefits under section 202(d) of this Act).". 
Effective date. 
(10) Effective as if included in the enactment of the Omnibus 
42 use 1396n. 
Budget Reconciliation Act of 1986, section 9411(a)(2)(B) of such 
Act is amended by inserting "such" after "need for". 
Subtitle C—Nursing Home Reform ;: 
i 
PART 1—MEDICARE PROGRAM 
i 
SEC. 4201. REQUIREMENTS FOR SKILLED NURSING FACILITIES. 
> 
(a) SPECIFICATION OF FACILITY REQUIREMENTS.—Title XVIII of the 
Social Security Act is amended— 
I 
(1) by amending subsection (j) of section 1861 (42 U.S.C. 1395x) 
to read as follows: 
.tsd'i&i ^)£l 
"Skilled Nursing Facility 
"(j) The term 'skilled nursing facility' has the meaning given such 
term in section 1819(a)."; 
(2) by adding at the end of section 1864 (42 U.S.C. 1395aa) the 
following new subsection: 
Contracts. 
"(d) The Secretary may not enter an agreement under this section 
with a State with respect to determining whether an institution 
therein is a skilled nursing facility unless the State meets the 
requirements specified in section 1819(e)."; and 
(3) by adding at the end of part A the following new section: 
"REQUIREMENTS FOR, AND ASSURING QUAUTY OF CARE IN, SKILLED 
NURSING FACILITIES 
42 use 1395i-3. 
"SEC. 1819. (a) SKILLED NURSING FACIUTY DEFINED.—In this title, 
the term 'skilled nursing facility' means an institution (or a distinct 
part of an institution) which— 
.^<^^i 
,, , 
V 
"(1) is primarily engaged in providing to residents— 
"(A) skilled nursing care and related services for resi-
£ 
dents who require medical or nursing care, or 
"(B) rehabilitation services for the rehabilitation of in-
jured, disabled, or sick persons, 
and is not primarily for the care and treatment of mental 
.; 
diseases; 
f 
"(2) has in effect a transfer agreement (meeting the require-
ments of section 1861(1)) with one or more hospitals having 
agreements in effect under section 1866; and 
"(3) meets the requirements for a skilled nursing facility 
described in subsections (b), (c), and (d) of this section. 
"Ot)) REQUIREMENTS RELATING TO PROVISION OF SERVICES.— 
"(1) QUAUTY OF UFE.— 
t 
"(A) IN GENERAL.—A skilled nursing facility must care 
for its residents in such a manner and in such an environ-
i (.: 
ment as will promote maintenance or enhancement of the 
'}'•'"'' :t 
quality of life of each resident, 
ng •
> JM stih ; 
. a ; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-161 
i, i h: 
"(B) 
QUALITY ASSESSMENT AND ASSURANCE.—A skilled 
nursing facility must maintain a quality assessment and 
assurance committee, consisting of the director of nursing 
services, a physician designated by the facility, and at least 
S
u 
3 other members of the facility's staff, which (i) meets at 
least quarterly to identify issues with respect to which 
.>tf i 
quality assessment and assurance activities are necessary 
:o 
and (ii) develops and implements appropriate plans of 
!;/ 
action to correct identified quality deficiencies. 
i 
"(2) SCOPE OF SERVICES AND ACTIVITIES UNDER PLAN OF CARE.— 
A skilled nursing facility must provide services to attain or 
maintain 
the 
highest 
practicable 
physical, 
mental, 
and 
, psychosocial well-being of each resident, in accordance with a 
,.; written plan of care which— 
"(A) describes the medical, nursing, and psychosocial 
needs of the resident and how such needs will be met; 
3Q im. 
"(B) is initially prepared, with the participation to the 
extent practicable of the resident or the resident's family or 
legal representative, by a team which includes the resi-
dent's attending physician and a registered professional 
io- 
nurse with responsibility for the resident; and 
*
i
- 
"(C) is periodically reviewed and revised by such team 
after each assessment under paragraph (3). 
£
>
£
• 
"(3) RESIDENTS' ASSESSMENT.— 
"(A) REQUIREMENT.—A skilled nursing facility must con-
s'i 
duct a comprehensive, accurate, standardized, reproducible 
assessment of each resident's functional capacity, which 
vt' 
assessment— 
"(i) describes the resident's capability to perform 
ai' 
daily life functions and significant impairments in 
r: 
functional capacity; 
"(ii) is based on a uniform minimum data set speci-
^H5 
fied by the Secretary under subsection (fK6)(A); 
: ..,;, 
"(iii) in the case of a resident eligible for benefits 
under title XIX, uses an instrument which is specified 
by the State under subsection (eX5); and 
"(iv) in the case of a resident eligible for benefits 
'.. .vjj 
under part A of this title, includes the identification of 
medical problems. 
"(B) CERTIFICATION.— 
;'){ 
"(i) IN GENERAL.—Each such assessment must be con-
v.r 
ducted or coordinated (with the appropriate participa-
,^i 
tion of health professionals) by a registered profes-
;ij J 
sional nurse who signs and certifies the completion of 
the assessment. Each individual who completes a por-
y 
tion of such an assessment shall sign and certify as to 
the accuracy of that portion of the assessment. 
i 
"(ii) PENALTY FOR FALSIFICATION.— 
"(I) An individual who willfully and knowingly 
ytx /jv 
certifies under clause (i) a material and false state-
tja 
. 
ment in a resident assessment is subject to a civil 
money penalty of not more than $1,000 with re-
spect to each assessment. 
"(II) An individual who willfully and knowingly 
, > 
causes another individual to certify under clause (i) 
a material and false statement in a resident assess-
101 STAT. 1330-162 
PUBLIC LAW 100-203—DEC. 22, 1987 
' 
ment is subject to a civil money penalty of not 
'•' 
more than $5,000 with respect to each assessment. 
"(Ill) The Secretary shall provide for imposition 
of civil money penalties under this clause in a 
manner similar to that for the imposition of civil 
money penalties under section 1128A. 
'• 
"(iii) USE OF INDEPENDENT ASSESSORS.—If a State 
determines, under a survey under subsection (g) or 
otherwise, that there has been a knowing and willful 
certification of false assessments under this paragraph, 
the State may require (for a period specified by the 
State) that resident assessments under this paragraph 
-''''• 
be conducted and certified by individuals who are 
independent of the facility and who are approved by 
^ 
the State. 
"(C) FREQUENCY.— 
"(i) IN GENERAL.—Such an £issessment must be 
conducted— 
"(I) promptly upon (but no later than 4 days 
' 
' 
after the date of) admission for each individual 
admitted on or after October 1, 1990, and by not 
"•-•••''• 
later than October 1, 1990, for each resident of the 
facility on that date; 
"(II) promptly after a significant change in the 
resident's physical or mental condition; and 
"(III) in no case less often than once every 12 
months. 
"(ii) RESIDENT REVIEW.—The skilled nursing facility 
must examine each resident no less frequently than 
' 
once every 3 months and, as appropriate, revise the 
resident's assessment to assure the continuing accuracy 
yr-/: •'- 
of the assessment. 
"(D) USE.—The results of such an assessment shall be 
used in developing, reviewing, and revising the resident's 
- 
plan of care under paragraph (2). 
"(E) COORDINATION.—Such assessments shall be coordi-
nated with any State-required preadmission screening pro-
gram to the maximum extent practicable in order to avoid 
duplicative testing and effort. 
"(4) PROVISION OF SERVICES AND ACTIVITIES.— 
"(A) IN GENERAL.—To the extent needed to fulfill all 
plans of care described in paragraph (2), a skilled nursing 
facility must provide, directly or under arrangements (or, 
with respect to dental services, under agreements) with 
others for the provision of— 
'
^ 
"(i) nursing services and specialized rehabilitative 
services to attain or maintain the highest practicable 
physical, mental, and psychosocial well-being of each 
'• 
' 
' 
resident; 
"(ii) medically-related social services to attain or 
maintain the highest practicable physical, mental, and 
psychosocial well-being of each resident; 
"(iii) pharmaceutical services (including procedures 
that assure the accurate acquiring, receiving, dispens-
ing, and administering of all drugs and biologicals) to 
v ,-,. - meet the needs of each resident; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-163 
"(iv) dietary services that assure that the meals meet 
the daily nutritional and special dietary needs of each 
resident; 
"(v) an on-going program, directed by a qualified 
professional, of activities designed to meet the interests 
and the physical, mental, and psychosocial well-being 
of each resident; and 
"(vi) routine and emergency dental services to meet 
the needs of each resident. 
The services provided or arranged by the facility must meet 
professional standards of quality. Nothing in clause (vi) 
shall be construed as requiring a facility to provide or 
arrange for dental services described in that clause without 
additional charge. 
"(B) QuAUFiED PERSONS PROVIDING SERVICES.—Services 
described in clauses (i), (ii), (iii), (iv), and (vi) of subpara-
graph (A) must be provided by qualified persons in accord-
ance with each resident's written plan of care. 
"(C) REQUIRED NURSING CARE.— 
"(i) IN GENERAL.—Except as provided in clause (ii), a 
skilled nursing facility must provide 24-hour nursing 
service which is sufficient to meet nursing needs of its 
residents and must employ the services of a registered 
professional nurse at least during the day tour of duty 
(of at legist 8 hours a day) 7 days a week. 
"(ii) EXCEPTION.—To the extent that clause (i) may be 
deemed to require that a skilled nursing facility engage 
the services of a registered professional nurse for more 
than 40 hours a week, the Secretary is authorized to 
waive such requirement if the Secretary finds that— 
"(I) the facility is located in a rural area and the 
supply of skilled nursing facility services in such 
area is not sufficient to meet the needs of individ-
uals residing therein, 
"(II) the facility has one full-time registered 
professional nurse who is regularly on duty at such 
facility 40 hours a week, and 
"(III) the facility either has only patients whose 
physicians have indicated (through physicians' 
orders or admission notes) that each such patient 
does not require the services of a registered nurse 
or a physician for a 48-hour period, or has made 
arrangements for a registered professional nurse 
or a physician to spend such time at such facility 
as may be indicated as necessary by the physician 
to provide necessary skilled nursing services on 
days when the regular full-time registered profes-
sional nurse is not on duty. 
A waiver under this subparagraph shall be subject to 
annual renewal. 
*(5) REQUIRED TRAINING OF NURSE AIDES.— 
"(A) IN GENERAL.—A skilled nursing facility must not use 
(on a full-time, temporary, per diem, or other basis) any 
individual, who is not a licensed health professional (as 
defined in subparagraph (E)), as a nurse aide in the facility 
on or after October 1, 1989, (or January 1, 1990, in the CEise 
of an individual used by the facility as a nurse aide before 
101 STAT. 1330-164 
PUBLIC LAW 100-203—DEC. 22, 1987 
i 
July 1, 1989) for more than 4 months unless the 
* 
individual— 
"(i) has completed a training and competency evalua-
fc"?^l?' ir 
tion program, or a competency evaluation program, 
approved by the State under subsection (e)(1)(A), and 
J, 
"(ii) is competent to provide such services. 
"(B) OFFERING COMPETENCY EVALUATION PROGRAMS FOR 
i&*jffi 
CURRENT EMPLOYEES.—A skilled nursing facility must pro-
vide, for individuals used as a nurse aide by the facility as 
N" ' 
of July 1, 1989, for a competency evaluation program ap-
i; 
proved by the State under subsection (e)(1) and such 
j! 
preparation as may be necessary for the individual to com-
I 
plete such a program by January 1,1990. 
"(C) COMPETENCY.—The skilled nursing facility must not 
• 
- 
permit an individual, other than in a training and com-
petency evaluation program approved by the State, to serve 
as a nurse aide or provide services of a type for which the 
individual has not demonstrated competency and must not 
use such an individual as a nurse aide unless the facility 
•
> 
has inquired of the State registry established under subsec-
» 
tion (e)(2)(A) as to information in the registry concerning 
the individual. 
b; 
"(D) RE-TRAINING REQUIRED.—For purposes of subpara-
mni? 
graph (A), if, since an individual's most recent completion 
of a training and competency evaluation program, there 
tw 
has been a continuous period of 24 consecutive months 
^ 
during none of which the individual performed nursing or 
3. 
nursing-related services for monetary compensation, such 
•: 
individual shall complete a new training and competency 
evaluation program. 
»r 
"(E) REGULAR IN-SERVICE EDUCATION.—The skilled nurs-
» 
ing facility must provide such regular performance review 
b. 
and regular in-service education as assures that individuals 
used as nurse aides are competent to perform services as 
b • 
nurse aides, including training for individuals providing 
1 
nursing and nursing-related services to residents with cog-
nitive impairments. 
SSNJP s 
"(F) NURSE AIDE DEFINED.—In this paragraph, the term 
'nurse aide' means any individual providing nursing or 
nursing-related services to residents in a skilled nursing 
facility, but does not include an individual— 
"(i) who is a licensed health professional (as defined 
in subparagraph (G)), or 
"(ii) who volunteers to provide such services without 
monetary compensation. 
Ti 
"(G) LICENSED HEALTH PROFESSIONAL DEFINED.—In this 
asii.: 
paragraph, the term 'licensed health professional' means a 
physician, physician assistant, nurse practitioner, physical, 
oi lo') 
speech, or occupational therapist, registered professional 
nurse, licensed practical nurse, or licensed or certified 
social worker. 
"(6) PHYSICIAN SUPERVISION AND CUNICAL RECORDS.—A skilled 
nursing facility must— 
"(A) require that the medical care of every resident be 
provided under the supervision of a physician; 
"(B) provide for having a physician available to furnish 
'-n 
necessary medical care in case of emergency; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-165 
ynp* s 
"(C) maintain clinical records on all residents, which 
records include the plans of care (described in paragraph 
(2)) and the residents' assessments (described in para-
graph (3)). 
"(7) REQUIRED SOCIAL SERVICES.—In the case of a skilled nurs-
ing facility with more than 120 beds, the facility must have at 
least one social worker (with at least a bachelor's degree in 
social work or similar professional qualifications) employed full-
time to provide or assure the provision of social services. 
"(c) REQUIREMENTS RELATING TO RESIDENTS' RIGHTS.— 
"(1) GENERAL RIGHTS.— 
.
V 
"(A) SPECIFIED RIGHTS.—A skilled nursing facility must 
. 
protect and promote the rights of each resident, including 
each of the following rights: 
istfiie. 
"(i) FREE CHOICE.—The right to choose a personal 
attending physician, to be fully informed in advance 
(lolfe'yoK 
about care and treatment, to be fully informed in 
advance of any changes in care or treatment that may 
8fiCH">;ri 
affect the resident's well-being, and (except with re-
spect to a resident adjudged incompetent) to participate 
in planning care and treatment or changes in care and 
treatment. 
"(ii) FREE FROM RESTRAINTS.—The right to be free 
.£. 
." 
from physical or mental abuse, corporal punishment, 
involuntary seclusion, and any physical or chemical 
restraints imposed for purposes of discipline or conven-
ience and not required to treat the resident's medical 
, . 
symptoms. Restraints may only be imposed— 
^.^ 
"(I) to ensure the physical safety of the resident 
r^'^^ 
or other residents, and 
,..". 
"(II) only upon the written order of a physician 
that specifies the duration and circumstances 
^. ^. .f . 
under which the restraints are to be used (except 
,.,cy^^ 
in emergency circumstances specified by the Sec-
r ;j,, 
retary) until such an order could reasonably be 
obtained. 
"(iii) PRIVACY.—The right to privacy with regard to 
accommodations, medical treatment, written and tele-
P 
phonic communications, visits, and meetings of family 
and of resident groups. 
"(iv) CONFIDENTIAUTY.—The right to confidentiality 
of personal and clinical records. 
^^ 
"(v) ACCOMMODATION OF NEEDS.—The right— 
;il\;,j^lj^^ 
"(I) to reside and receive services with reason-
able accommodations of individual needs and pref-
erences, except where the health or safety of the 
individual or other residents would be endangered, 
and 
"(II) to receive notice before the room or room-
. . 
]-^f 
mate of the resident in the facility is changed, 
"(vi) GRIEVANCES.—The right to voice grievances 
..^,. 
with respect to treatment or care that is (or fails to be) 
^''.' .^ 
furnished, without discrimination or reprisal for voic-
ing the grievances and the right to prompt efforts by 
the facility to resolve grievances the resident may 
have, including those with respect to the behavior of 
other residents. 
101 STAT. 1330-166 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(vii) 
PARTICIPATION 
IN 
RESIDENT AND FAMILY 
GROUPS.—The right of the resident to organize and 
• ' i 
participate in resident groups in the facility and the 
right of the resident's family to meet in the facility 
with the families of other residents in the facility. 
^'' "(viii) PARTICIPATION IN OTHER ACTIVITIES.—The 
right of the resident to participate in social, religious, 
and community activities that do not interfere with the 
rights of other residents in the facility. 
®
® "(ix) EXAMINATION OF SURVEY RESULTS.—The right 
to examine, upon reasonable request, the results of the 
^••'f* 
most recent survey of the facility conducted by the 
•' " ' 
Secretary or a State with respect to the facility and any 
plan of correction in effect with respect to the facility. 
5^ "(x) OTHER RIGHTS.—Any other right established 
by the Secretary. 
Clause (iii) shall not be construed as requiring the provision 
of a private room. 
"(B) NOTICE OF RIGHTS AND SERVICES.—A skilled nursing 
facility must— 
"(i) inform each resident, orally and in writing at the 
time of admission to the facility, of the resident's legal 
rights during the stay at the facility; 
, 
"(ii) make available to each resident, upon reason-
able request, a written statement of such rights (which 
statement is updated upon changes in such rights); and 
"(iii) inform each other resident, in writing before or 
at the time of admission and periodically during the 
^ 
resident's stay, of services available in the facility and 
of related charges for such services, including any 
charges for services not covered under this title or by 
the facility's basic per diem charge. 
The written description of legal rights under this subpara-
graph shall include a description of the protection of per-
sonal funds under paragraph (6) and a statement that a 
resident may file a complaint with a State survey and 
certification agency respecting resident abuse and neglect 
and misappropriation of resident property in the facility. 
"(C) RIGHTS OF INCOMPETENT RESIDENTS.—In the case of a 
y,; 
resident adjudged incompetent under the laws of a State, 
' 
the rights of the resident under this title shall devolve 
upon, and, to the extent judged necessary by a court of 
competent jurisdiction, be exercised by, the person ap-
pointed under State law to act on the resident's behalf. 
"(2) TRANSFER AND DISCHARGE RIGHTS.— 
"(A) IN GENERAL.—A skilled nursing facility must permit 
each resident to remain in the facility and must not trans-
fer or discharge the resident from the facility unless— 
• 
"(i) the transfer or discharge is necessary to meet the 
resident's welfare and the resident's welfare cannot be 
met in the facility; 
"(ii) the transfer or discharge is appropriate because 
the resident's health has improved sufficiently so the 
"'Copy read " "(ix)". 
*'Copy read " "(%)". 
**Copy read " "(xi)". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-167 
resident no longer needs the services provided by the 
facihty; 
"(iii) the safety of individuals in the facility is 
endangered; 
"(iv) the health of individuals in the facility would 
otherwise be endangered; 
"(v) the resident has failed, after reasonable and 
appropriate notice, to pay (or to have paid under this 
title or title XIX on the resident's behalf) an allowable 
charge imposed by the facility for an item or service 
requested by the resident and for which a charge may 
be imposed consistent with this title and title XIX; or 
"(vi) the facility ceases to operate. 
In each of the cases described in clauses (i) through (v), the 
basis for the transfer or discharge must be documented in 
the resident's clinical record. In the cases described in 
clauses (i) and (ii), the documentation must be made by the 
resident's physician, and in the cases described in clauses 
(iii) and (iv) the documentation must be made by a 
physician. 
"(B) PRE-TRANSFER AND PRE-DISCHARGE NOTICE.— 
"(i) IN GENERAL.—Before effecting a transfer or dis-
charge of a resident, a skilled nursing facility must— 
"(I) notify the resident (and, if known, a family 
member of the resident or legal representative) of 
the transfer or discharge and the reasons therefor, 
"(II) record the reasons in the resident's clinical 
record (including any documentation 
required 
under subparagraph (A)), and 
"(III) include in the notice the items described in 
clause (iii). 
"(ii) TIMING OF NOTICE.—The notice under clause (i)(I) 
must be made at least 30 days in advance of the 
resident's transfer or discharge except— 
"(I) in a case described in clause (iii) or (iv) of 
subparagraph (A); 
"(II) in a case described in clause (ii) of subpara-
graph (A), where the resident's health improves 
sufficiently to allow a more immediate transfer or 
discharge; 
"(III) in a case described in clause (i) of subpara-
graph (A), where a more immediate transfer or 
discharge is necessitated by the resident's urgent 
medical needs; or 
"(IV) in a case where a resident has not resided 
in the facility for 30 days. 
In the case of such exceptions, notice must be given as 
many days before the date of the transfer or discharge 
as is practicable. 
"(iii) ITEMS INCLUDED IN NOTICE.—Each notice under 
clause (i) must include— 
"(I) for transfers or discharges effected on or 
after October 1, 1990, notice of the resident's right 
to appeal the transfer or discharge under the State 
process established under subsection (eX3); and 
"(II) the name, mailing address, and telephone 
number of the State long-term care ombudsman 
91-194 O - 90 - 31 : QL.3 Part 2 
101 STAT. 1330-168 
PUBLIC LAW 100-203—DEC. 22, 1987 
(established under section 307(a)(12) of the Older 
Americans Act of 1965). 
"(C) ORIENTATION.—A skilled nursing facility must pro-
vide sufficient preparation and orientation to residents to 
ensure safe and orderly transfer or discharge from the 
facility. 
"(3) ACCESS AND VISITATION RIGHTS.—A skilled nursing facility 
must— 
"(A) permit immediate access to any resident by any 
representative of the Secretary, by any representative of 
the State, by an ombudsman described in paragraph 
(2)(B)(iii)(II), or by the resident's individual physician; 
"(B) permit immediate access to a resident, subject to the 
resident's right to deny or withdraw consent at any time, by 
immediate family or other relatives of the resident; 
"(C) permit immediate access to a resident, subject to 
reasonable restrictions and the resident's right to deny or 
withdraw consent at any time, by others who are visiting 
with the consent of the resident; 
"(D) permit reasonable access to a resident by any entity 
or individual that provides health, social, legal, or other 
services to the resident, subject to the resident's right to 
deny or withdraw consent at any time; and 
"(E) permit representatives of the State ombudsman (de-
scribed in paragraph (2)(B)(iiiXII)), with the permission of 
the resident (or the resident's legal representative) and 
consistent with State law, to examine a resident's clinical 
records. 
"(4) EQUAL ACCESS TO QUALITY CARE.—A skilled nursing facil-
ity must establish and maintain identical policies and practices 
regarding transfer, discharge, and covered services under this 
title for all individuals regardless of source of payment. 
"(5) ADMISSIONS POUCY.— 
"(A) ADMISSIONS.—With respect to admissions practices, a 
skilled nursing facility must— 
"(i)(I) not require individuals applying to reside or 
residing in the facility to waive their rights to benefits 
under this title or under a State plan under title XIX, 
(II) not require oral or written assurance that such 
individuals are not eligible for, or will not apply for, 
benefits under this title or such a State plan, and (III) 
prominently display in the facility and provide to such 
individuals written information about how to apply for 
and use such benefits and how to receive refunds for 
previous payments covered by such benefits; and 
"(ii) not require a third party guarantee of payment 
to the facility as a condition of admission (or expedited 
admission) to, or continued stay in, the facility. 
"(B) CONSTRUCTION.— 
"(i) 
No 
PREEMPTION 
OF STRICTER 
STANDARDS.— 
Subparagraph (A) shall not be construed as preventing 
States or political subdivisions therein from prohibit-
ing, under State or local law, the discrimination 
against individuals who are entitled to medical assist-
ance under this title with respect to admissions prac-
tices of skilled nursing facilities. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-169 
"(ii) CONTRACTS WITH 
LEGAL REPRESENTATIVES.— 
Subparagraph (AXii) shall not be construed as prevent-
ing a facility from requiring an individual, who has 
legal access to a resident's income or resources avail-
able to pay for care in the facility, to sign a contract 
(without incurring personal financial liability) to pro-
vide payment from the resident's income or resources 
for such care. 
"(6) PROTECTION OP RESIDENT FUNDS.— 
"(A) IN GENERAL.—The skilled nursing facility— 
"(i) may not require residents to deposit their per-
sonal funds with the facility, and 
"(ii) once the facility accepts the written authoriza-
tion of the resident, must hold, safeguard, and account 
for such personal funds under a system established and 
maintained by the facility in accordance with this para-
graph. 
"(B) MANAGEMENT OP PERSONAL FUNDS.—Upon a facility's 
acceptance of written authorization of a resident under 
subparagraph (AXii), the facility must manage and account 
for the personal funds of the resident deposited with the 
facility as follows: 
"(i) DEPOSIT.—The facility must deposit any amount 
of personal funds in excess of $50 with respect to a 
resident in an interest bearing account (or accounts) 
that is separate from any of the facility's operating 
accounts and credits all interest earned on such sepa-
rate account to such account. With respect to any other 
personal funds, the facility must maintain such funds 
in a non-interest bearing account or petty cash fund, 
"(ii) ACCOUNTING AND RECORDS.—The facility must 
assure a full and complete separate accounting of each 
such resident's personal funds, maintain a written 
record of all financial transactions involving the per-
sonal funds of a resident deposited with the facility, 
and afford the resident (or a legal representative of the 
resident) reasonable access to such record. 
"(iii) CONVEYANCE UPON DEATH.—Upon the death 
of a resident with such an account, the facility must 
convey promptly the resident's personal funds (and a 
final accounting of such funds) to the individual admin-
istering the resident's estate. 
"(C) ASSURANCE OP FINANCIAL SECURITY.—The facility 
must purchase a surety bond, or otherwise provide assur-
ance satisfactory to the Secretary, to assure the security of 
all personal funds of residents deposited with the facility. 
"(D) LIMITATION ON CHARGES TO PERSONAL FUNDS.—The 
facility may not impose a charge against the personal funds 
of a resident for any item or service for which payment is 
made under this title or title XIX. 
"(d) 
REQUIREMENTS RELATING TO ADMINISTRATION AND OTHER 
MATTERS.— 
"(1) ADMINISTRATION.— 
"(A) IN GENERAL.—A skilled nursing facility must be 
administered in a manner that enables it to use its re-
sources effectively and efficiently to attain or maintain the 
highest practicable physical mental, and psychosocial well-
101 STAT. 1330-170 
PUBLIC LAW 100-203—DEC. 22, 1987 
being of each resident (consistent with requirements estab-
hshed under subsection (f)(5)). 
"(B) REQUIRED NOTICES.—If a change occurs in— 
"(i) the persons with an ownership or control interest 
(as defined in section 1124(a)(3)) in the facility, 
"(ii) the persons who are officers, directors, agents, or 
managing employees (as defined in section 1126(b)) of 
the facility, 
"(iii) the corporation, association, or other company 
responsible for the management of the facility, or 
"(iv) the individual who is the administrator or direc-
tor of nursing of the facility, 
the skilled nursing facility must provide notice to the State 
agency responsible for the licensing of the facility, at the 
time of the change, of the change and of the identity of each 
new person, company, or individual described in the respec-
tive clause. 
"(C) 
SKILLED NURSING FACILITY ADMINISTRATOR.—The 
administrator of a skilled nursing facility must meet stand-
ards established by the Secretary under subsection (f)(4). 
"(2) LICENSING AND LIFE SAFETY CODE.— 
"(A) LICENSING.—A skilled nursing facility must be li-
censed under applicable State and local law. 
"(B) LIFE SAFETY CODE.—A skilled nursing facility must 
meet such provisions of such edition (as specified by the 
Secretary in regulation) of the Life Safety Code of the 
National Fire Protection Association as are applicable to 
nursing homes; except that— 
"(i) the Secretary may waive, for such periods as he 
deems appropriate, specific provisions of such Code 
which if rigidly applied would result in unreasonable 
hardship upon a facility, but only if such waiver would 
not adversely affect the health and safety of residents 
or personnel, and 
' (ii) the provisions of such Code shall not apply in 
any State if the Secretary finds that in such State there 
is in effect a fire and safety code, imposed by State law, 
which adequately protects residents of and personnel in 
skilled nursing facilities. 
"(3) SANITARY AND INFECTION CONTROL AND PHYSICAL ENVIRON-
MENT.—A skilled nursing facility must— 
"(A) establish and maintain an infection control program 
designed to provide a safe, sanitary, and comfortable 
environment in which residents reside and to help prevent 
the development and transmission of disease and infection, 
and 
"(B) be designed, constructed, equipped, and maintained 
in a manner to protect the health and safety of residents, 
personnel, and the general public. 
"(4) MISCELLANEOUS.— 
"(A) COMPUANCE WITH FEDERAL, STATE, AND LOCAL LAWS 
AND PROFESSIONAL STANDARDS.—A skilled nursing facility 
must operate and provide services in compliance with all 
applicable Federal, State, and local laws and regulations 
(including the requirements of section ^
^
^ 1124) and with 
accepted professional standards and principles which apply 
to professionals providing services in such a facility. 
'Copy read "sections". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-171 
"(B) OTHER.—A skilled nursing facility must meet such 
other requirements relating to the health, safety, and well-
being of residents or relating to the physical facilities 
thereof as the Secretary may find necessary. 
"(e) STATE REQUIREMENTS RELATING TO SKILLED NURSING FACILITY 
REQUIREMENTS.—The requirements, referred to in section 1864(d), 
with respect to a State are as follows: 
"(1) SPECIFICATION AND REVIEW OF NURSE AIDE TRAINING AND 
COMPETENCY EVALUATION PROGRAMS AND OF NURSE AIDE COM-
PETENCY EVALUATION PROGRAMS.—The State must— 
"(A) by not later than March 1, 1989, specify those train-
ing and competency evaluation programs, and those com-
petency evaluation programs, that the State approves for 
purposes of subsection (b)(5) and that meet the require-
ments established under clause (i) or (ii) of subsection 
(f)(2)(A), and 
"(B) by not later than March 1, 1990, provide for the 
review and reapproval of such programs, at a frequency and 
using a methodology consistent with the requirements 
established under subsection (f)(2)(A)(iii). 
The failure of the Secretary to establish requirements under 
subsection (f)(2) shall not relieve any State of its responsibility 
under this paragraph. 
"(2) NURSE AIDE REGISTRY.— 
"(A) IN GENERAL.—By not later than March 1, 1989, the 
State shall establish and maintain a registry of all individ-
uals who have satisfactorily completed a nurse aide train-
ing and competency evaluation program, or a nurse aide 
competency evaluation program, approved under para-
graph (1) in the State. 
"(B) INFORMATION IN REGISTRY.—The registry under 
subparagraph (A) shall provide (in accordance with regula-
tions of the Secretary) for the inclusion of specific docu-
mented findings by a State under subsection (gXlXC) of 
resident neglect or abuse or misappropriation of resident 
property involving an individual listed in the registry, as 
well as any brief statement of the individual disputing the 
findings. In the case of inquiries to the registry concerning 
an individual listed in the registry, any information dis-
closed concerning such a finding shall also include disclo-
sure of any such statement in the registry relating to the 
finding or a clear and accurate summary of such a 
statement. 
"(3) STATE APPEALS PROCESS FOR TRANSFERS.—The State, for 
transfers from skilled nursing facilities effected on or after 
October 1, 1990, must provide for a fair mechanism for hearing 
appeals on transfers of residents of such facilities. Such mecha-
nism must meet the guidelines established by the Secretary 
under subsection (fX3); but the failure of the Secretary to estab-
lish such guidelines shall not relieve any State of its responsibil-
ity to provide for such a fair mechanism. 
"(4) SKILLED NURSING FACILITY ADMINISTRATOR STANDARDS.— 
By not later than January 1, 1990, the State must have imple-
mented and enforced the skilled nursing facility administrator 
standards developed under subsection (fX4) respecting the quali-
fication of administrators of skilled nursing facilities. 
101 STAT. 1330-172 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(5) SPECIFICATION OF RESIDENT ASSESSMENT INSTRUMENT.— 
Effective July 1, 1989, the State shall specify the instrument to 
be used by nursing facilities in the State in complying with the 
requirement of subsection (b)(3)(A)(iii). Such instrument shall 
be— 
"(A) one of the instruments designated under subsection 
(f)(6)(B), or 
"(B) an instrument which the Secretary has approved as 
being consistent with the minimum data set of core ele-
ments, common definitions, and utilization guidelines speci-
fied by the Secretary under subsection (fK6)(A). 
"(f) RESPONSIBIUTIES OF SECRETARY RELATING TO SKILLED NURSING 
FACILITY REQUIREMENTS.— 
"(1) GENERAL RESPONSIBILITY.—It is the duty and responsibil-
ity of the Secretary to assure that requirements which govern 
the provision of care in skilled nursing facilities under this title, 
and the enforcement of such requirements, are adequate to 
protect the health, safety, welfare, and rights of residents and to 
promote the effective and efficient use of public moneys. 
"(2) 
REQUIREMENTS 
FOR NURSE 
AIDE 
TRAINING 
AND COM-
PETENCY 
EVALUATION 
PROGRAMS AND FOR NURSE 
AIDE 
COM-
PETENCY EVALUATION PROGRAMS.— 
"(A) IN GENERAL.—For purposes of subsections (b)(5) and 
(e)(1)(A), the Secretary shall establish, by not later than 
September 1, 1988— 
"(i) requirements for the approval of nurse aide 
training and competency evaluation programs, includ-
ing requirements relating to (I) the areas to be covered 
in such a program (including at least basic nursing 
skills, personal care skills, cognitive, behavioral and 
social care, beisic restorative services, and residents' 
rights), content of the curriculum, (II) minimum hours 
of initial and ongoing training and retraining (includ-
ing not less than 75 hours in the C£ise of initial train-
ing), (III) qualifications of instructors, and (IV) proce-
dures for determination of competency; 
"(ii) requirements for the approval of nurse aide 
competency evaluation programs, including require-
ment relating to the areas to be covered in such a 
program, including at least basic nursing skills, per-
sonal care skills, cognitive, behavioral and social care, 
basic restorative services, residents' rights, and proce-
dures for determination of competency; and 
"(iii) requirements respecting the minimum fre-
quency and methodology to be used by a State in 
reviewing such programs compliance with the require-
ments for such programs. 
"(B) 
APPROVAL OF CERTAIN PROGRAMS.—Such require-
ments— 
"(i) may permit approval of programs offered by or in 
facilities, as well as outside facilities (including em-
ployee organizations), and of programs in effect on the 
date of the enactment of this section; 
"(ii) shall permit a State to find that an individual 
who has completed (before July 1, 1989) a nurse aide 
training and competency evaluation program shall be 
deemed to have completed such a program approved 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-173 
under subsection (bX5) if the State determines that, at 
the time the program was offered, the program met the 
requirements for approval under such paragraph; and 
"(iii) shall prohibit approval of such a program— 
"(I) offered by or in a skilled nursing facility 
which has been determined to be out of compliance 
with the requirements of subsection (b), (c), or (d), 
within the previous 2 years, or 
"(II) offered by or in a skilled nursing facility 
unless the State makes the determination, upon an 
individual's completion of the program, that the 
individual is competent to provide nursing and 
nursing-related 
services 
in 
skilled 
nursing 
facilities. 
A State may not delegate its responsibility under 
clause (iiiXII) to the skilled nursing facility. 
"(3) 
FEDERAL GUIDELINES FOR STATE APPEALS PROCESS FOR 
TRANSFERS.—For purposcs of subsections (cX2)(BXiii)(I) and (eX3), 
by not later than October 1, 1989, the Secretary shall establish 
guidelines for minimum standards which State appeals proc-
esses under subsection (eX3) must meet to provide a fair mecha-
nism for hearing appeals on transfers of residents from skilled 
nursing facilities. 
"(4) SECRETARIAL STANDARDS FOR QUAUFICATION OF ADMINIS- 
* 
TRATORS.—For purposes of subsections (dXlXC) and (eX4), the 
Secretary shall develop, by not later than March 1, 1989, stand-
ards to be applied in sissuring the qualifications of administra-
tors of skilled nursing facilities. 
"(5) CRITERIA FOR ADMINISTRATION.—The Secretary shall 
establish criteria for assessing a skilled nursing facility's 
compliance with the requirement of subsection (dXD with 
respect to— 
"(A) its governing body and management, 
"(B) agreements with hospitals regarding transfers of 
residents to and from the hospitals and to and from other 
skilled nursing facilities, 
"(C) disaster preparedness, 
"(D) direction of medical care by a physician, 
"(E) laboratory and radiological services, 
"(F) clinical records, and 
"(G) resident and advocate participation. 
"(6) SPECIFICATION OF RESIDENT ASSESSMENT DATA SET AND 
INSTRUMENTS.—The Secretary shall— 
"(A) not later than July 1, 1989, specify a minimum data 
set of core elements and common definitions for use by 
nursing facilities in conducting the assessments required 
under subsection (bX3), and establish guidelines for utiliza-
tion of the data set; and 
"(B) by not later than October 1, 1990, designate one or 
more instruments which are consistent with the specifica-
tion made under subparagraph (A) and which a State may 
specify under subsection (eX5XA) for use by nursing facili-
ties in complying with the requirements of subsection 
a)X3XAXiii). 
"(7) LIST OF ITEMS AND SERVICES FURNISHED IN SKILLED NURS-
ING FACILITIES NOT CHARGEABLE TO THE PERSONAL FUNDS OF A 
RESIDENT.— 
101 STAT. 1330-174 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1395x. 
Reports. 
42 use 1395i-3 
note. 
"(A) REGULATIONS REQUIRED.—Pursuant to the require-
ment of section 21(b) of the Medicare-Medicaid Anti-Fraud 
and Abuse Amendments of 1977, the Secretary shall issue 
regulations, on or before the first day of the seventh month 
to begin after the date of enactment of this section, that 
define those costs which may be charged to the personal 
funds of patients in skilled nursing facilities who are 
individuals receiving benefits under this part and those 
costs which are to be included in the reasonable cost (or 
other payment amount) under this title for extended care 
services. 
"(B) RULE IF FAILURE TO PUBLISH REGULATIONS.—-If the 
Secretary does not issue the regulations under subpara-
graph (A) on or before the date required in such subpara-
graph, in the case of a resident of a skilled nursing facility 
who is eligible to receive benefits under this part, the costs 
which may not be charged to the personal funds of such 
resident (and for which payment is considered to be made 
under this title) shall not include, at a minimum, the costs 
for routine personal hygiene items and services furnished 
by the facility.". 
(b) COSTS OF MEETING REQUIREMENTS.— 
(1) UNDER REASONABLE COST.—Section 1861(vXlXE) of such Act 
(42 U.S.C. 1395s(vXl)(E)) is amended by adding at the end the 
following new sentence: "Notwithstanding the previous sen-
tence, such regulations with respect to skilled nursing facilities 
shall take into account (in a manner consistent with subpara-
graph (A) and based on patient-days of services furnished) the 
costs of such facilities complying with the requirements of 
subsections (b), (c), and (d) of section 1819 (including the costs of 
conducting nurse aide training and competency evaluation pro-
grams and competency evaluation programs).". 
(2) ADJUSTMENT IN PROSPECTIVE PAYMENTS.—Section 1888(d) of 
such Act (42 U.S.C. 1395yy(d)) is amended by adding at the end 
the following new paragraph: 
"(7) In computing the rates of payment to be made under this 
subsection, there shall be taken into account the costs described in 
the last sentence of section 1861(vXlXE) (relating to compliance with 
nursing facility requirements and of conducting nurse aide training 
and competency evaluation programs and competency evaluation 
programs).". 
(c) EVALUATION.—The Secretary of Health and Human Services 
shall evaluate, and report to Congress by not later than January 1, 
1992, on the implementation of the resident assessment process for 
residents of skilled nursing facilities under the amendments made 
by this section. 
(d) CONFORMING AMENDMENT.—Section 1861(aX2) of the Social 
Security Act (42 U.S.C. 1395x(aX2)) is amended by striking "skilled 
nursing facility" and inserting "facility described in section 
1919(aX2) or subsection (yXD". 
SEC. 4202. SURVEY AND CERTIFICATION PROCESS. 
(a) STATE REQUIREMENT FOR PROCESS.—Title XVIII of the Social 
Security Act is amended— 
(1) in section 1864(d) (42 U.S.C. 1395aa(d)), as added by section 
4201(aX2) of this Act, by inserting before the period "and section 
1819(g)", and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-175 
(2) in section 1819, as added by section 4201(a)(3) of this Act, 
by adding at the end the following new subsection: 
'(g) SURVEY AND CERTIFICATION PROCESS.— 
"(1) STATE AND FEDERAL RESPONSIBILITY.— 
"(A) IN GENERAL.—Pursuant to an agreement under sec-
tion 1864, each State shall be responsible for certifying, in 
accordance with surveys conducted under paragraph (2), 
the compliance of skilled nursing facilities (other than 
facilities of the State) with the requirements of subsections 
(b), (c), and (d). The Secretary shall be responsible for 
certifying, in accordance with surveys conducted under 
paragraph (2), the compliance of State skilled nursing facili-
ties with the requirements of such subsections. 
"(B) EDUCATIONAL PROGRAM.—Each State shall conduct 
periodic educational programs for the staff and residents 
(and their representatives) of skilled nursing facilities in 
order to present current regulations, procedures, and poli-
cies under this section. 
"(C) INVESTIGATION OF ALLEGATIONS OF RESIDENT NEGLECT 
AND ABUSE AND MISAPPROPRIATION OF RESIDENT PROPERTY.— 
The State shall provide, through the agency responsible for 
surveys and certification of nursing facilities under this 
subsection, for a process for the receipt, review, and inves-
tigation of allegations of neglect and abuse and misappro-
priation of resident property by a nurse aide of a resident in 
a nursing facility. If the State finds, after notice to the 
nurse aide involved and a reasonable opportunity for a 
hearing for the nurse aide to rebut allegations, that a nurse 
aide whose name is contained in a nurse aide registry has 
neglected or abused a resident or misappropriated resident 
property in a facility, the State shall notify the nurse aide 
and the registry of such finding. 
"(D) CONSTRUCTION.—The failure of the Secretary to 
establish standards under subsection (f) shall not relieve a 
State of its responsibility under this subsection. 
"(2) SURVEYS.— 
"(A) STANDARD SURVEY.— 
"(i) IN GENERAL.—Each skilled nursing facility shall 
be subject to a standard survey, to be conducted with-
out any prior notice to the facility. Any individual who 
notifies (or causes to be notified) a skilled nursing 
facility of the time or date on which such a survey is 
scheduled to be conducted is subject to a civil money 
r ^ 
penalty of not to exceed $2,000. The Secretary shall 
provide for imposition of civil money penalties under 
this clause in a manner similar to that for the imposi-
tion of civil money penalties under section 1128A. The 
Secretary shall review each State's procedures for the 
scheduling and conduct of standard surveys to assure 
that the State has taken all reasonable steps to avoid 
giving notice of such a survey through the scheduling 
procedures and the conduct of the surveys themselves, 
"(ii) CONTENTS.—Each standard survey shall include, 
for a case-mix stratified sample of residents— 
"(I) a survey of the quality of care furnished, as 
measured by indicators of medical, nursing, and 
rehabilitative care, dietary and nutrition services, 
101 STAT. 1330-176 
PUBLIC LAW 100-203—DEC. 22, 1987 
activities and social participation, and sanitation, 
infection control, and the physical environment, 
"(II) written plans of care provided under subsec-
tion (bX2) and an audit of the residents' assess-
ments under subsection (b)(3) to determine the ac-
curacy of such assessments and the adequacy of 
such plans of care, and 
"(III) a review of compliance with residents' 
rights under subsection (c). 
"(iii) FREQUENCY.— 
"(I) IN GENERAL.—Each skilled nursing facility 
shall be subject to a standard survey not later than 
15 months after the date of the previous standard 
survey conducted under this subparagraph. The 
Statewide average interval between standard sur-
veys of skilled nursing facilities under this subsec-
tion shall not exceed 12 months. 
"(II) SPECIAL SURVEYS.—If not otherwise con-
ducted under subclause (I), a standard survey (or 
an abbreviated standard survey) may be conducted 
within 2 months of any change of ownership, 
administration, management of a skilled nursing 
facility, or the director of nursing in order to deter-
mine whether the change has resulted in any de-
cline in the quality of care furnished in the facility. 
"(B) EXTENDED SURVEYS.— 
"(i) IN GENERAL.—Each skilled nursing facility which 
is found, under a standard survey, to have provided 
substandard quality of care shall be subject to an ex-
tended survey. Any other facility may, at the Sec-
retary's or State's discretion, be subject to such an 
extended survey (or a partial extended survey). 
"(ii) TIMING.—The extended survey shall be con-
ducted immediately after the standard survey (or, if not 
practical, not later than 2 weeks after the date of 
completion of the standard survey). 
"(iii) CONTENTS.—In such an extended survey, the 
survey team shall review and identify the policies and 
procedures which produced such substandard quality of 
care and shall determine whether the facility has com-
plied with all the requirements described in subsections 
Contracts. 
(b), (c), and (d). Such review shall include an expansion 
of the size of the sample of residents' assessments 
reviewed and a review of the staffing, of in-service 
training, and, if appropriate, of contracts with consult-
ants. 
"(iv) CONSTRUCTION.—Nothing in this paragraph 
shall be construed as requiring an extended or partial 
extended survey as a prerequisit-e to imposing a sanc-
tion against a facility under subsection (h) on the basis 
of findings in a standard survey. 
"(C) SURVEY PROTOCOL.—Standard and extended surveys 
shall be conducted— 
"(i) based upon a protocol which the Secretary has 
developed, tested, and validated by not later than Octo-
ber 1,1990, and 
, . „ _ . . . . , , 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-177 
"(ii) by individuals, of a survey team, who meet such 
minimum qualifications £is the Secretary establishes by 
not later than such date. 
The failure of the Secretary to develop, test, or validate 
such protocols or to establish such minimum qualifications 
shall not relieve any State of its responsibility (or the 
Secretary of the Secretary's responsibility) to conduct sur-
veys under this subsection. 
(D) CONSISTENCY OF SURVEYS.—Each State and the Sec-
retary shall implement programs to measure and reduce 
inconsistency in the application of survey results among 
surveyors. 
"(E) SURVEY TEAMS.— 
"(i) IN GENERAL.—Surveys under this subsection shall 
be conducted by a multidisciplinary team of profes-
sionals (including a registered professional nurse). 
"(ii) PROHIBITION OF CONFLICTS OF INTEREST.—A State 
may not use as a member of a survey team under this 
subsection an individual who is serving (or has served 
within the previous 2 years) as a member of the staff of, 
or as a consultant to, the facility surveyed respecting 
compliance with the requirements of subsections (b), (c), 
and (d), or who has a personal or familial financial 
interest in the facility being surveyed. 
"(iii) TRAINING.—The Secretary shall provide for the 
comprehensive training of State and Federal surveyors 
in the conduct of standard and extended surveys under 
this subsection, including the auditing of resident 
assessments and plans of care. No individual shall 
serve as a member of a survey team unless the individ-
ual has successfully completed a training and testing 
program in survey and certification techniques that 
has been approved by the Secretary. 
'(3) VAUDATION SURVEYS.— 
"(A) IN GENERAL.—The Secretary shall conduct onsite 
surveys of a representative sample of skilled nursing facili-
ties in each State, within 2 months of the date of surveys 
conducted under paragraph (2) by the State, in a sufficient 
number to allow inferences about the adequacies of each 
State's surveys conducted under paragraph (2). In conduct-
ing such surveys, the Secretary shall use the same survey 
protocols as the State is required to use under paragraph 
(2). If the State has determined that an individual skilled 
nursing facility meets the requirements of subsections (b), 
(c), and (d), but the Secretary determines that the facility 
does not meet such requirements, the Secretary's deter-
mination as to the facility's noncompliance with such 
requirements is binding and supersedes that of the State 
survey. 
"(B) SCOPE.—With respect to each State, the Secretary 
shall conduct surveys under subparagraph (A) each year 
with respect to at least 5 percent of the number of skilled 
nursing facilities surveyed by the State in the year, but in 
no case less than 5 skilled nursing facilities in the State. 
"(C) REMEDIES FOR SUBSTANDARD PERFORMANCE.—If 
the 
Secretary finds, on the basis of such surveys, that a State 
has failed to perform surveys as required under paragraph 
101 STAT. 1330-178 
PUBLIC LAW 100-203—DEC. 22, 1987 
(2) or that a State's survey and certification performance 
otherwise is not adequate, the Secretary shall provide for 
an appropriate remedy, which may include the training of 
survey teams in the State. 
^° "(D) SPECIAL SURVEYS OF COMPLIANCE.—Where the Sec-
retary has reason to question the compliance of a skilled 
nursing facility with any of the requirements of subsections 
03), (c), and (d), the Secretary may conduct a survey of the 
facility and, on that basis, make independent and binding 
determinations concerning the extent to which the skilled 
nursing facility meets such requirements. 
"(4) INVESTIGATION OF COMPLAINTS AND MONITORING COMPLI-
ANCE.—Each State shall maintain procedures and adequate 
staff to— 
"(A) investigate complaints of violations of requirements 
by skilled nursing facilities, and 
"(B) monitor, on-site, on a regular, GS needed basis, a 
skilled nursing facility's compliance with the requirements 
of subsections (b), (c), and (d), if— 
"(i) the facility has been found not to be in compli-
ance with such requirements and is in the process of 
correcting deficiencies to achieve such compliance; 
"(ii) the facility was previously found not to be in 
compliance with such requirements, has corrected defi-
ciencies to achieve such compliance, and verification of 
continued compliance is indicated; or 
"(iii) the State has reason to question the compliance 
of the facility with such requirements. 
A State may maintain and utilize a specialized team (including 
an attorney, an auditor, and appropriate health care profes-
sionals) for the purpose of identifying, surveying, gathering and 
preserving evidence, and carrying out appropriate enforcement 
actions 
against 
chronically 
substandard 
skilled 
nursing 
facilities. 
"(5) DISCLOSURE OF RESULTS OF INSPECTIONS AND ACTIVITIES.— 
"(A) PuBuc INFORMATION.—Each State, and the Sec-
retary, shall make available to the public— 
"(i) information respecting all surveys and certifi-
cations made respecting skilled nursing facilities, 
including statements of deficiencies and plans of 
correction. 
Reports. 
"(ii) copies of cost reports of such facilities filed under 
this title or title XIX, 
"(iii) copies of statements of ownership under section 
1124, and 
"(iv) information disclosed under section 1126. 
"(B) NOTICE TO OMBUDSMAN.—Each State shall notify the 
State long-term care ombudsman (established under section 
307(a)(12) of the Older Americans Act of 1965) of the State's 
findings of noncompliance with any of the requirements of 
subsections (b), (c), and (d), with respect to a skilled nursing 
facility in the State. 
"(C) NOTICE TO PHYSICIANS AND SKILLED NURSING FACIUTY 
ADMINISTRATOR UCENSING BOARD.—If a State finds that a 
'Copy read ""(C)". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-179 
skilled nursing facility has provided substandard quality of 
care, the State shall notify— 
"(i) the attending physician of each resident with 
respect to which such finding is made, and 
"(ii) the State board responsible for the licensing of 
the skilled nursing facility administrator at the facility. 
"(D) ^°° ACCESS TO FRAUD CONTROL UNITS.—Each State shall 
provide its State medicaid fraud and abuse control unit 
(established under section 1903(q)) with access to all 
information of the State agency responsible for surveys and 
certifications under this subsection.". 
(c) POSTING SURVEY RESULTS.—Section 1864(a) of such Act (42 
U.S.C. 1395aa(a)) is amended by inserting, after "readily available 
form and place" in the fifth sentence, the following: ", and require 
(in the case of skilled nursing facilities) the posting in a place readily 
accessible to patients (and patients' representatives),". 
SEC. 4203. ENFORCEMENT PROCESS. 
(a) STATE REQUIREMENT.—Title XVIII of the Social Security Act is 
amended— 
(1) in section 1864(d) (42 U.S.C. 1395aa(d)), as added by section 
4201(aX2) and as amended by section 4202(a)(1) of this Act, by 
inserting before the period at the end the following: "and the 
establishment of remedies under sections 1819(h)(2)(B) and 
1819(h)(2)(C) (relating to establishment and application of rem-
edies)"; and 
(2) by adding at the end of section 1819 of such Act, as added 
by section 4201(a)(3) and as amended by section 4202(aX2), the 
end the following new subsection: 
"(h) ENFORCEMENT PROCESS.— 
"(1) IN GENERAL.—If a State finds, on the basis of a standard, 
extended, or partial extended survey under subsection (gX2) or 
otherwise, that a skilled nursing facility no longer meets a 
requirement of subsection (b), (c), or (d), and further finds that 
the facility's deficiencies— 
"(A) immediately jeopardize the health or safety of its 
residents, the State shall recommend to the Secretary that 
the Secretary take such action as described in para-
graph (2XAXi); or 
"(B) do not immediately jeopardize the health or safety of 
its residents, the State may recommend to the Secretary 
that the Secretary take such action as described in para-
graph (2XAXii). 
If a State finds that a skilled nursing facility meets the require-
ments of subsections (b), (c), and (d), but, as of a previous period, 
did not meet such requirements, the State may recommend a 
civil money penalty under paragraph (2XBXii) for the days in 
which it finds that the facility was not in compliance with such 
requirements. 
"(2) SECRETARIAL AUTHORITY.— 
"(A) IN GENERAL.—With respect to any skilled nursing 
facility in a State, if the Secretary finds, or pursuant to a 
recommendation of the State under paragraph (1) finds, 
that a skilled nursing facility no longer meets a require-
ment of subsection (b), (c), (d), or (e), and further finds that 
the facility's deficiencies— 
**• Copy read ""(C)". 
101 STAT. 1330-180 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(i) immediately jeopardize the health or safety of its 
residents, the Secretary shall take immediate action to 
remove the jeopardy and correct the deficiencies 
through the remedy specified in subparagraph (BXiii), 
or terminate the facility's participation under this title 
and may provide, in addition, for one or more of the 
other remedies described in subparagraph (B); or 
"(ii) do not immediately jeopardize the health or 
safety of its residents, the Secretary may impose any of 
the remedies described in subparagraph (B). 
Nothing in this subparagraph shall be construed as restrict-
ing the remedies available to the Secretary to remedy a 
skilled nursing facility's deficiencies. If the Secretary finds, 
or pursuant to the recommendation of the State under 
paragraph (1) finds, that a skilled nursing facility meets 
such requirements but, as of a previous period, did not meet 
such requirements, the Secretary may provide for a civil 
money penalty under subparagraph (BXii) for the days on 
which he finds that the facility was not in compliance with 
such requirements. 
"(B) SPECIFIED REMEDIES.—The Secretary may take the 
following actions with respect to a finding that a facility 
has not met an applicable requirement: 
"(i) DENIAL OF PAYMENT.—The Secretary may deny 
any further payments under this title with respect to 
all individuals entitled to benefits under this title in 
the facility or with respect to such individuals admitted 
to the facility after the effective date of the finding. 
"(ii) AUTHORITY WITH RESPECT TO CIVIL MONEY PEN-
ALTIES.—The Secretary may impose a civil money pen-
alty in an amount not to exceed $10,000 for each day of 
noncompliance and the Secretary shall impose and 
collect such a penalty in the same manner as civil 
money penalties are imposed and collected under sec-
tion 1128 
A. 
"(iii) APPOINTMENT OF TEMPORARY MANAGEMENT.—In 
consultation with the State, the Secretary may appoint 
temporary management to oversee the operation of the 
facility and to assure the health and safety of the 
facility's residents, where there is a need for temporary 
management while— 
"(I) there is an orderly closure of the facility, or 
"(II) improvements are made in order to bring 
the facility into compliance with all the require-
ments of subsections (b), (c), and (d). 
The temporary management under this clause shall 
not be terminated under subclause (II) until the Sec-
retary has determined that the facility has the manage-
ment capability to ensure continued compliance with 
all the requirements of subsections (b), (c), and (d). 
The Secretary shall specify criteria, as to when and how 
each of such remedies is to be applied, the amounts of any 
fines, and the severity of each of these remedies, to be used 
in the imposition of such remedies. Such criteria shall be 
designed so as to minimize the time between the identifica-
tion of violations and final imposition of the remedies and 
shall provide for the imposition of incrementally more 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-181 
severe fines for repeated or uncorrected deficiencies. In 
addition, the Secretary may provide for other specified 
remedies, such as directed plans of correction. 
"(C) 
CONTINUATION 
OF 
PAYMENTS 
PENDING 
REMEDI-
ATION.—The Secretary may continue payments, over a 
period of not longer than 6 months, under this title with 
respect to a skilled nursing facility not in compliance with a 
requirement of subsection (b), (c), or (d), i
f
— 
"(i) the State survey agency finds that it is more 
appropriate to take alternative action to assure compli-
ance of the facility with the requirements than to 
terminate the certification of the facility, 
"(ii) the State has submitted a plan and timetable for 
corrective action to the Secretary for approval and the 
Secretary approves the plan of corrective action, and 
"(iii) the facility agrees to repay to the Federal 
Government payments received under this subpara-
graph if the corrective action is not taken in accord-
ance with the approved plan and timetable. 
The Secretary shall establish guidelines for approval of 
corrective actions requested by States under this subpara-
graph. 
"(D) ASSURING PROMPT COMPLIANCE.—If a skilled nursing 
facility has not complied with any of the requirements of 
subsections (b), (c), and (d), within 3 months after the date 
the facility is found to h»e out of compliance with such 
requirements, the Secretary shall impose the remedy de-
scribed in subparagraph (BXi) for all individuals who are 
admitted to the facility after such date. 
"(E) REPEATED NONCOMPLIANCE.—In the case of a skilled 
nursing facility which, on 3 consecutive standard surveys 
conducted under subsection (gX2), has been found to have 
provided substandard quality of care, the Secretary shall 
(regardless of what other remedies are provided)— 
"(i) impose the remedy described in subparagraph 
(BXi), and 
"(ii) monitor the facility under subsection (gX4XB), 
until the facility has demonstrated, to the satisfaction of 
the Secretary, that it is in compliance with the require-
ments of subsections (b), (c), and (d), and that it will remain 
in compliance with such requirements. 
"(3) EFFECTIVE PERIOD OF DENIAL OF PAYMENT.—A finding to 
deny payment under this subsection shall terminate when the 
Secretary finds that the facility is in substantial compliance 
with all the requirements of subsections (b), (c), and (d). 
"(4) IMMEDIATE TERMINATION OF PARTICIPATION FOR FACIUTY 
WHERE SECRETARY FINDS NONCOMPUANCE AND IMMEDIATE JEOP-
ARDY.—If the Secretary finds that a skilled nursing facility has 
not met a requirement of subsection (b), (c), or (d), and finds that 
the failure immediately jeopardizes the health or safety of its 
residents, the Secretary shall take immediate action to remove 
the jeopardy and correct the deficiencies through the remedy 
specified in paragraph (2XBXiii), or the Secretary shall termi-
nate the facility's participation under this title. If the facility's 
participation under this title is terminated, the State shall 
provide for the safe and orderly transfer of the residents eligible 
101 STAT. 1330-182 
PUBLIC LAW 100-203—DEC. 22, 1987 
under this title consistent with the requirements of subsection 
(0(2). 
"(5) CONSTRUCTION.—The remedies provided 
under 
this 
subsection are in addition to those otherwise available under 
State or Federal law and shall not be construed as limiting such 
other remedies, including any remedy available to an individual 
at common law. The remedies described in clauses (i), (iii), and 
(iv) of paragraph (2)(A) may be imposed during the pendency of 
any hearing. 
"(6) SHARING OF INFORMATION.—Notwithstanding any other 
provision of law, all information concerning skilled nursing 
facilities required by this section to be filed with the Secretary 
or a State agency shall be made available to Federal or State 
employees for purposes consistent with the effective administra-
tion of programs established under this title and title XIX, 
including investigations by State medicaid fraud control units.". 
42 u s e 1395i-3 
SEC. 4204. EFFECTIVE DATES. 
(a) NEW REQUIREMENTS AND SURVEY AND CERTIFICATION PROC-
ESS.—Except as otherwise specifically provided in section 1819 of the 
Social Security Act, the amendments made by this part shall apply 
to extended care services furnished on or after October 1, 1990, 
without regard to whether regulations to implement such amend-
ments are promulgated by such date. 
(b) WAIVER OF PAPERWORK REDUCTION.—Chapter 35 of title 44, 
United States Code, shall not apply to information required for 
purposes of carrying out this part and implementing the amend-
ments made by this part. 
42 u s e 1395i-3 
SEC. 420.5. ANNUAL REPORT. 
The Secretary of Health and Human Services shall report to the 
Congress annually on the extent to which skilled nursing facilities 
are complying with the requirements of subsections (b), (c), and (d) of 
section 1819 of the Social Security Act (as added by the amendments 
made by this part) and the number and type of enforcement actions 
taken by States and the Secretary under section 1819(h) of such Act 
(as added by section 4203 of this Act). 
SEC. 4206. CONSTRUCTION. 
42 use l395i-3. 
Section 1819 of the Social Security Act is amended by adding at 
the end the following new subsection: 
"(i) CONSTRUCTION.—Where requirements or obligations under 
this section are identical to those provided under section 1919 of this 
Act, the fulfillment of those requirements or obligations under 
section 1919 shall be considered to be the fulfillment of the cor-
responding requirements or obligations under this section.". 
PART 2—MEDICAID PROGRAM 
# 
SEC. 4211. REQUIREMENTS FOR NURSING FACILITIES. 
(a) SPECIFICATION OF FACILITY REQUIREMENTS.—Title XIX of 
the 
Social Security Act is amended— 
42 use 1396s. 
(1) by redesignating section 1922 as section 1923, 
42 use I396r, 
(2) by redesignating section 1919 as section 1922 and by 
i396r-3. 
transferring and inserting such section after section 1921, and 
(3) by inserting after section 1918 the following new section: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-183 
"REQUIREMENTS FOR NURSING FACIUTIES 
"SEC. 1919. (a) NURSING FACIUTY DEFINED.—In this title, the term 
42 use I396r. 
'nursing facility' means an institution (or a distinct part of an 
institution) which— 
"(1) is primarily engaged in providing to residents— 
"(A) skilled nursing care and related services for resi-
dents who require medical or nursing care, 
"(B) rehabilitation services for the rehabilitation of in-
jured, disabled, or sick persons, or 
"(C) on a regular basis, health-related care and services to 
individuals who because of their mental or physical condi-
tion require care and services (above the level of room and 
board) which can be made available to them only through 
institutional facilities, 
and is not primarily for the care and treatment of mental 
diseases; 
"(2) has in effect a transfer agreement (meeting the require-
ments of section 1861(1)) with one or more hospitals having 
agreements in effect under section 1866; and 
"(3) meets the requirements for a nursing facility described in 
subsections (b), (c), and (d) of this section. 
Such term also includes any facility which is located in a State on 
an Indian reservation and is certified by the Secretary as meeting 
the requirements of paragraph (1) and subsections (b), (c), and (d). 
"(b) REQUIREMENTS RELATING TO PROVISION OF SERVICES.— 
"(1) QUAUTY OF UFE.— 
"(A) IN GENERAL.—A nursing facility must care for its 
residents in such a manner and in such an environment as 
will promote maintenance or enhancement of the quality of 
life of each resident. 
"(B) 
QuAUTY ASSESSMENT AND ASSURANCE.—A nursing 
facility must maintain a quality assessment and assurance 
committee, consisting of the director of nursing services, a 
physician designated by the facility, and at least 3 other 
members of the facility's staff, which (i) meets at least 
quarterly to identify issues with respect to which quality 
assessment and assurance activities are necessary and (ii) 
develops and implements appropriate plans of action to 
correct identified quality deficiencies. 
"(2) SCOPE OF SERVICES AND ACTIVITIES UNDER PLAN OF CARE.— 
A nursing facility must provide services and activities to attain 
or maintain the highest practicable physical, mental, and 
psychosocial well-being of each resident in accordance with a 
written plan of care which— 
"(A) describes the medical, nursing, and psychosocial 
needs of the resident and how such needs will be met; 
"(B) is initially prepared, with the participation to the 
extent practicable of the resident or the resident's family or 
legal representative, by a team which includes the resi-
dent's attending physician and a registered professional 
nurse with responsibility for the resident; and 
"(C) is periodically reviewed and revised by such team 
after each assessment under paragraph (3). 
"(3) RESIDENTS' ASSESSMENT.— 
"(A) REQUIREMENT.—A nursing facility must conduct a 
comprehensive, accurate, standardized, reproducible assess-
101 STAT. 1330-184 
PUBLIC LAW 100-203—DEC. 22, 1987 
ment of each resident's functional capacity, which assess-
ment— 
"(i) describes the resident's capability to perform 
daily life functions and significant impairments in 
functional capacity; 
"(ii) is based on a uniform minimum data set speci-
fied by the Secretary under subsection (f)(6)(A); 
"(iii) in the case of a resident eligible for benefits 
under this title, uses an instrument which is specified 
by the State under subsection (eX5); and 
"(iv) in the case of a resident eligible for benefits 
under part A of title XVIII, includes the identification 
of medical problems. 
"(B) CERTIFICATION.— 
"(i) IN GENERAL.—Each such assessment must be con-
ducted or coordinated (with the appropriate participa-
tion of health professionals) by a registered profes-
sional nurse who signs and certifies the completion of 
the assessment. Each individual who completes a por-
tion of such an assessment shall sign and certify as to 
the accuracy of that portion of the eissessment. 
"(ii) PENALTY FOR FALSIFICATION.— 
"(I) An individual who willfully and knowingly 
certifies under clause (i) a material and false state-
ment in a resident assessment is subject to a civil 
money penalty of not more than $1,000 with re-
spect to each assessment. 
"(II) An individual who willfully and knowingly 
causes another individual to certify under clause (i) 
a material and false statement in a resident assess-
ment is subject to a civil money penalty of not 
more than $5,000 with respect to each assessment. 
"(Ill) The Secretary shall provide for imposition 
of civil money penalties under this clause in a 
manner similar to that for the imposition of civil 
money penalties under section 1128A. 
"(iii) USE OF INDEPENDENT ASSESSORS.—If a State 
determines, under a survey under subsection (g) or 
otherwise, that there has been a knowing and willful 
certification of false assessments under this paragraph, 
the State may require (for a period specified by the 
State) that resident assessments under this paragraph 
be conducted and certified by individuals who are 
independent of the facility and who are approved by 
the State. 
"(C) FREQUENCY.— 
"(i) IN GENERAL.—Such an assessment must be con-
ducted— 
"(I) promptly upon (but no later than 4 days 
after the date of) admission for each individual 
admitted on or after October 1, 1990, and by not 
later than October 1, 1991, for each resident of the 
facility on that date; 
"(II) promptly after a significant change in the 
resident's physical or mental condition; and 
"(III) in no case less often than once every 12 
months. 
• 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-185 
"(ii) RESIDENT REVIEW.—The nursing facility must 
examine each resident no less frequently than once 
every 3 months and, as appropriate, revise the resi-
dent s assessment to assure the continuing accuracy of 
the assessment. 
"(D) USE.—The results of such an assessment shall be 
used in developing, reviewing, and revising the resident's 
plan of care under paragraph (2). 
"(E) COORDINATION.—Such assessments shall be coordi-
nated with any State-required preadmission screening pro-
gram to the maximum extent practicable in order to avoid 
duplicative testing and effort. 
"(F) REQUIREMENTS RELATING TO PREADMISSION SCREENING 
FOR MENTALLY ILL AND MENTALLY RETARDED INDIVIDUALS.— 
A nursing facility must not admit, on or after January 1, 
1989, any new resident who— 
"(i) is mentally ill (as defined in subsection (eXTXGXi)) 
unless the State mental health authority has deter-
mined (based on an independent physical and mental 
evaluation performed by a person or entity other than 
the State mental health authority) prior to admission 
that, because of the physical and mental condition of 
the individual, the individual requires the level of serv-
ices provided by a nursing facility, and, if the individ-
ual requires such level of services, whether the individ-
ual requires active treatment for mental illness, or 
"(ii) is mentally retarded (as defined in subsection 
(eXTXGXii)) unless the State mental retardation or 
developmental disability authority has determined 
prior to admission that, because of the physical and 
mental condition of the individual, the individual re-
quires the level of services provided by a nursing facil-
ity, and, if the individual requires such level of services, 
whether the individual requires active treatment for 
mental retardation. 
"(4) PROVISION OF SERVICES AND ACTIVITIES.— 
"(A) IN GENERAL.—To the extent needed to fulfill all 
plans of care described in paragraph (2), a nursing facility 
must provide (or arrange for the provision of)— 
"(i) nursing and related services and specialized re-
habilitative services to attain or maintain the highest 
practicable physical, mental, and psychosocial well-
being of each resident; 
"(ii) medically-related social services to attain or 
maintain the highest practicable physical, mental, and 
psychosocial well-being of each resident; 
"(iii) pharmaceutical services (including procedures 
that assure the accurate acquiring, receiving, dispens-
ing, and administering of all drugs and biologicals) to 
meet the needs of each resident; 
"(iv) dietary services that assure that the meals meet 
the daily nutritional and special dietary needs of each 
resident; 
"(v) an on-going program, directed by a qualified 
professional, of activities designed to meet the interests 
and the physical, mental, and psychosocial well-being 
of each resident; and 
101 STAT. 1330-186 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(vi) routine dental services (to the extent covered 
under the State plan) and emergency dental services to 
meet the needs of each resident. 
The services provided or arranged by the facility must meet 
professional standards of quality. 
"(B) QUALIFIED PERSONS PROVIDING SERVICES.—Services 
described in clauses (i), (ii), (iii), (iv), and (vi) of subpara-
graph (A) must be provided by qualified persons in accord-
ance with each resident's written plan of care. 
"(C) REQUIRED NURSING CARE; FACIUTY WAIVERS.— 
"(i) GENERAL REQUIREMENTS.—With respect to nurs-
ing facility services provided on or after October 1, 
1990, a nursing facility— 
"(I) except as provided in clause (ii), must provide 
24-hour licensed nursing services which are suffi-
cient to meet the nursing needs of its residents, 
and 
"(II) except as provided in clause (ii), must use 
the services of a registered nurse for at least 8 
consecutive hours a day, 7 days a week, 
"(ii) FACIUTY WAIVERS.— 
"(i) WAIVER BY STATE.—A State may waive the 
requirement of subclause (I) or (II) of clause (i) with 
respect to a facility i
f
— 
"(I) the facility demonstrates to the satisfaction 
of the State that the facility has been unable, 
despite diligent efforts (including offering wages at 
the community prevailing rate for nursing facili-
ties), to recruit appropriate personnel, 
"(II) the State determines that a waiver of the 
requirement will not endanger the health or safety 
of individuals staying in the facility, and 
"(III) the State finds that, for any such periods in 
which licensed nursing services are not available, a 
registered nurse or a physician is obligated to re-
spond immediately to telephone calls from the 
facility. 
A waiver under this clause shall be subject to annual 
review and to the review of the Secretary and subject to 
clause (ii) shall be accepted by the Secretary for pur-
poses of this title to the same extent as is the State's 
certification of the facility. In granting or renewing a 
waiver, a State may require the facility to employ other 
qualified, licensed personnel. 
"(ii) 
ASSUMPTION OF WAIVER AUTHORITY BY SEC-
RETARY.—If the Secretary determines that a State has 
shown a clear pattern and practice of allowing waivers 
in the absence of diligent efforts by facilities to meet 
the staffing requirements, the Secretan^ shall assume 
and excercise the authority of the State to grant 
waivers. 
"(5) REQUIRED TRAINING OF NURSE AIDES.— 
"(A) IN GENERAL.—A nursing facility must not use (on a 
full-time, temporary, per diem, or other basis) any individ-
ual, who is not a licensed health professional (as defined in 
subparagraph (E)), as a nurse aide in the facility on or after 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-187 
January 1, 1990, for more than 4 months unless the individ-
ual— 
"(i) has completed a training and competency evalua-
tion program, or a competency evaluation program, 
approved by the State under subsection (eXlXA), and 
'(ii) is competent to provide such services. 
"(B) OFFERING COMPETENCY EVALUATION PROGRAMS FOR 
CURRENT EMPLOYEES.—A nursing facility must provide, for 
individuals used as a nurse aide by the facility as of July 1, 
1989, for a competency evaluation program approved by the 
State under subsection (eXD and such preparation as may 
be necessary for the individual to complete such a program 
by January 1,1990. 
"(C) COMPETENCY.—The nursing facility must not permit 
an individual, other than in a training and competency 
evaluation program approved by the State, to serve as a 
nurse aide or provide services of a type for which the 
individual has not demonstrated competency and must not 
use such an individual as a nurse aide unless the facility 
has inquired of the State registry established under subsec-
tion (e)(2XA) as to information in the registry concerning 
the individual. 
"(D) RE-TRAINING REQUIRED.—For purposes of subpara-
graph (A), if, since an individual's most recent completion 
of a training and competency evaluation program, there 
has been a continuous period of 24 consecutive months 
during none of which the individual performed nursing or 
nursing-related services for monetary compensation, such 
individual shall complete a new training and competency 
evaluation program. 
"(E) REGULAR IN-SERVICE EDUCATION.—The nursing facil-
ity must provide such regular performance review and 
regular in-service education as assures that individuals 
used as nurse aides are competent to perform services as 
nurse aides, including training for individuals providing 
nursing and nursing-related services to residents with cog-
nitive impairments. 
"(F) NURSE AIDE DEFINED.—In this paragraph, the term 
'nurse aide' means any individual providing nursing or 
nursing-related services to residents in a nursing facility, 
but does not include an individual— 
"(i) who is a licensed health professional (as defined 
in subparagraph (G)), or 
"(ii) who volunteers to provide such services without 
monetary compensation. 
"(G) LICENSED HEALTH PROFESSIONAL DEFINED.—In this 
paragraph, the term 'licensed health professional' means a 
physician, physician assistant, nurse practitioner, physical, 
speech, or occupational therapist, registered professional 
nurse, licensed practical nurse, or licensed or certified 
social worker. 
"(6) PHYSICIAN SUPERVISION AND CUNICAL RECORDS.—A nurs-
ing facility must— 
"(A) require that the health care of every resident be 
provided under the supervision of a physician; 
"(B) provide for having a physician available to furnish 
necessary medical care in case of emergency; and 
101 STAT. 1330-188 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(C) maintain clinical records on all residents, which 
records include the plans of care (described in paragraph 
(2)) and the residents' assessments (described in paragraph 
(3)), as well as the results of any pre-admission screening 
conducted under subsection (eX7). 
"(7) REQUIRED SOCIAL SERVICES.—In the case of a nursing 
facility with more than 120 beds, the facility must have at least 
one social worker (with at least a bachelor's degree in social 
work or similar professional qualifications) employed full-time 
to provide or eissure the provision of social services. 
"(c) REQUIREMENTS RELATING TO RESIDENTS' RIGHTS.— 
"(1) GENERAL RIGHTS.— 
"(A) SPECIFIED RIGHTS.—A nursing facility must protect 
and promote the rights of each resident, including each of 
the following rights: 
"(i) FREE CHOICE.—The right to choose a personal 
attending physician, to be fully informed in advance 
about care and treatment, to be fully informed in 
advance of any changes in care or treatment that may 
affect the resident's well-being, and (except with re-
spect to a resident adjudged incompetent) to participate 
in planning care and treatment or changes in care and 
treatment. 
"(ii) FREE FROM RESTRAINTS.—The right to be free 
from physical or mental abuse, corporal punishment, 
involuntary seclusion, and any physical or chemical 
restraints imposed for purposes of discipline or conven-
ience and not required to treat the resident's medical 
symptoms. Restraints may only be imposed— 
"(I) to ensure the physical safety of the resident 
or other residents, and 
"(II) only upon the written order of a physician 
that specifies the duration and circumstances 
under which the restraints are to be used (except 
in emergency circumstances specified by the Sec-
retary) until such an order could reasonably be 
obtained, 
"(iii) PRIVACY.—The right to privacy with regard to 
accommodations, medical treatment, written and tele-
phonic communications, visits, and meetings of family 
and of resident groups. 
"(iv) CONFIDENTIAUTY.—The right to confidentiality 
of personal and clinical records. 
"(v) ACCOMMODATION OF NEEDS.—The right— 
"(I) to reside and receive services with reason-
able accommodations of individual needs and pref-
erences, except where the health or safety of the 
individual or other residents would be endangered, 
and 
"(II) to receive notice before the room or room-
mate of the resident in the facility is changed, 
"(vi) GRIEVANCES.—The right to voice grievances 
with respect to treatment or care that is (or fails to be) 
furnished, without discrimination or reprisal for voic-
ing the grievances and the right to prompt efforts by 
the facility to resolve grievances the resident may 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-189 
have, including those with respect to the behavior of 
other residents. 
"(vii) 
PARTICIPATION 
IN 
RESIDENT 
AND 
FAMILY 
GROUPS.—The right of the resident to organize and 
participate in resident groups in the facility and the 
right of the resident's family to meet in the facility 
with the families of other residents in the facility. 
^^ "(viii) PARTICIPATION IN OTHER ACTIVITIES.—The 
right of the resident to participate in social, religious, 
and community activities that do not interfere with the 
rights of other residents in the facility. 
^2 "(ix) EXAMINATION OF SURVEY RESULTS.—The right 
to examine, upon reasonable request, the results of the 
most recent survey of the facility conducted by the 
Secretary or a State with respect to the facility and any 
plan of correction in effect with respect to the facility. 
^3 "(x) OTHER RIGHTS.—Any other right established 
by the Secretary. 
Clause (iii) shall not be construed as requiring the provision 
of a private room. 
"(B) NOTICE OP RIGHTS.—A nursing facility must— 
"(i) inform each resident, orally and in writing at the 
time of admission to the facility, of the resident's legal 
rights during the stay at the facility; 
"(ii) make available to each resident, upon reason-
able request, a written statement of such rights (which 
statement is updated upon changes in such rights); 
"(iii) inform each resident who is entitled to medical 
assistance under this title— 
"(I) at the time of admission to the facility or, if 
later, at the time the resident becomes eligible for 
such assistance, of the items and services (includ-
ing those specified under section 1902(aX28XB)) 
that are included in nursing facility services under 
the State plan and for which the resident may not 
be charged (except as permitted in section 1916), 
and of those other items and services that the 
facility offers and for which the resident may be 
charged and the amount of the charges for such 
items and services, and 
"(II) of changes in the items and services de-
scribed in subclause (I) and of changes in the 
charges imposed for items and services described in 
that subclause; and 
"(iv) inform each other resident, in writing before or 
at the time of admission and periodically during the 
resident's stay, of services available in the facility and 
of related charges for such services, including any 
charges for services not covered under title XVIII or by 
the facility's basic per diem charge. 
The written description of legal rights under this subpara-
graph shall include a description of the protection of per-
sonal funds under paragraph (6) and a statement that a 
"Copy read " 
"(ix)". 
"Copy read 
" "(x)". 
"Copy read " 
"(xi)". 
101 STAT. 1330-190 
PUBLIC LAW 100-203—DEC. 22, 1987 
resident may file a complaint with a State survey and 
certification agency respecting resident abuse and neglect 
and misappropriation of resident property in the facility. 
"(C) RIGHTS OF INCOMPETENT RESIDENTS.—In the case of a 
resident adjudged incompetent under the laws of a State, 
the rights of the resident under this title shall devolve 
upon, and, to the extent judged necessary by a court of 
competent jurisdiction, be exercised by, the person ap-
pointed under State law to act on the resident's behalf. 
"(D) 
USE 
OF 
PSYCHOPHARMACOLOGIC DRUGS.—Psycho-
pharmacologic drugs may be administered only on the 
orders of a physician and only as part of a plan (included in 
the written plan of care described in paragraph (2)) de-
signed to eliminate or modify the symptoms for which the 
drugs are prescribed and only if, at least annually an 
independent, external consultant reviews the appropriate-
ness of the drug plan of each resident receiving such drugs. 
"(2) TRANSFER AND DISCHARGE RIGHTS.— 
"(A) IN GENERAL.—A nursing facility must permit each 
resident to remain in the facility and must not transfer or 
discharge the resident from the facility unless— 
"(i) the transfer or discharge is necessary to meet the 
resident's welfare and the resident's welfare cannot be 
met in the facility; 
"(ii) the transfer or discharge is appropriate because 
the resident's health has improved sufficiently so the 
resident no longer needs the services provided by the 
facility; 
"(iii) the safety of individuals in the facility is 
endangered; 
"(iv) the health of individuals in the facility would 
otherwise be endangered; 
"(v) the resident has failed, after reasonable and 
appropriate notice, to pay (or to have paid under this 
title or title XVIII on the resident's behalf) an allow-
able charge imposed by the facility for an item or 
service requested by the resident and for which a 
charge may be imposed consistent with this title and 
title XVIII; or 
"(vi) the facility ceases to operate. 
In each ^* of the cases described in clauses (i) through (iv), 
the basis for the transfer or discharge must be documented 
in the resident's clinical record. In the cases described in 
clauses (i) and (ii), the documentation must be made by the 
resident's physician, and in the case described in clause (iv) 
the documentation must be made by a physician. For pur-
poses of clause (v), in the case of a resident who becomes 
eligible for assistance under this title after admission to the 
facility, only charges which may be imposed under this title 
shall be considered to be allowable. 
"(B) PRE-TRANSFER AND PRE-DISCHARGE NOTICE.— 
"(i) IN GENERAL.—Before effecting a transfer or dis-
charge of a resident, a nursing facility must— 
•* Copy read "In the each". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-191 
"(I) notify the resident (and, if known, an imme-
diate family member of the resident or legal rep-
resentative) of the transfer or discharge and the 
reasons therefor, 
"(II) record the reasons in the resident's clinical 
record (including any documentation 
required 
under subparagraph (A)), and 
"(III) include in the notice the items described in 
clause (iii). 
"(ii) TIMING OF NOTICE.—The notice under clause (iXI) 
must be made at least 30 days in advance of the 
resident's transfer or discharge except— 
"(I) in a case described in clause (iii) or (iv) of 
subparagraph (A); 
"(II) in a case described in clause (ii) of subpara-
graph (A), where the resident's health improves 
sufficiently to allow a more immediate transfer or 
discharge; 
"(III) in a case described in clause (i) of subpara-
graph (A), where a more immediate transfer or 
discharge is necessitated by the resident's urgent 
medical needs; or 
"(IV) in a case where a resident has not resided 
in the facility for 30 days. 
In the case of such exceptions, notice must be given as 
many days before the date of the transfer or discharge 
as is practicable. 
"(iii) ITEMS INCLUDED IN NOTICE.—Each notice under 
clause (i) must include— 
"(I) for transfers or discharges effected on or 
after October 1, 1989, notice of the resident's right 
to appeal the transfer or discharge under the Stete 
process established under subsection (eX3); 
"(II) the name, mailing address, and telephone 
number of the State long-term care ombudsman 
(established under section 307(aX12) of the Older 
Americans Act of 1965); 
"(III) in the case of residents with developmental 
disabilities, the mailing address and telephone 
number of the agency responsibile for the protec-
tion and advocacy system for developmentally dis-
abled individuals established under part C of the 
Developmental Disabilities Assistance and Bill of 
Rights Act; and 
*(IV) in the case of mentally ill residents (as 
defined in subsection (eX^XGXi)), the mailing ad-
dress and telephone number of the agency respon-
sible for the protection and advocacy system for 
mentally ill individuals established under the 
Protection and Advocacy for Mentally 111 Individ-
uals Act. 
"(C) ORIENTATION.—A nursing facility must provide suffi-
cient preparation and orientation to residents to ensure 
safe and orderly transfer or discharge from the facility. 
"(D) NOTICE ON BED-HOLD POUCY AND READMISSION.— 
"(i) NOTICE BEFORE TRANSFER.—Before a resident of a 
nursing facility is transferred for hospitalization or 
101 STAT. 1330-192 
PUBLIC LAW 100-203—DEC. 22, 1987 
therapeutic leave, a nursing facility must provide writ-
ten information to the resident and an immediate 
family member or legal representative concerning— 
"(I) the provisions of the State plan under this 
title regarding the period (if any) during which the 
resident will be permitted under the State plan to 
return and resume residence in the facility, and 
"(II) the policies of the facility regarding such a 
period, which policies must be consistent with 
clause (iii). 
"(ii) NOTICE UPON TRANSFER.—At the time of transfer 
of a resident to a hospital or for therapeutic leave, a 
nursing facility must provide written notice to the 
resident and an immediate family member or legal 
representative of the duration of any period described 
in clause (i). 
"(iii) PERMITTING RESIDENT TO RETURN.—A nursing 
facility must establish and follow a written policy 
under which a resident— 
"(I) who is eligible for medical sissistance for 
nursing facility services under a State plan, 
"(II) who is transferred from the facility for hos-
pitalization or therapeutic leave, and 
"(III) whose hospitalization or therapeutic leave 
exceeds a period paid for under the State plan for 
the holding of a bed in the facility for the resident, 
will be permitted to be readmitted to the facility imme-
diately upon the first availability of a bed in a 
semiprivate room in the facility if, at the time of 
readmission, the resident requires the services provided 
by the facility. 
"(3) ACCESS AND VISITATION RIGHTS.—A nursing 
facility 
must— 
"(A) permit immediate access to any resident by any 
representative of the Secretary, by any representative of 
the State, by an ombudsman or agency described in 
subclause (II), (III), or (IV) of paragraph (2XBXiii), or by the 
resident's individual physician; 
"(B) permit immediate access to a resident, subject to the 
resident's right to deny or withdraw consent at any time, by 
immediate family or other relatives of the resident; 
"(C) permit immediate access to a resident, subject to 
reasonable restrictions and the resident's right to deny or 
withdraw consent at any time, by others who are visiting 
with the consent of the resident; 
"(D) permit reasonable access to a resident by any entity 
or individual that provides health, social, legal, or other 
services to the resident, subject to the resident's right to 
deny or withdraw consent at any time; and 
"(E) permit representatives of the State ombudsman (de-
scribed in paragraph (2XBXiiiXII)), with the permission of 
the resident (or the resident's legal representative) and 
consistent with State law, to examine a resident's clinical 
records. 
"(4) EQUAL ACCESS TO QUAUTY CARE.— 
"(A) IN GENERAL.—A nursing facility must establish and 
maintain identical policies and practices regarding trans-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-193 
fer, discharge, and the provision of services required under 
the State plan for all individuals regardless of source of 
pavment. 
(B) CONSTRUCTION.— 
"(i) NOTHING PROHIBITING ANY CHARGES FOR NON-
MEDiCAiD PATIENTS.—Subparagraph (A) shall not be 
construed as prohibiting a nursing facility from charg-
ing any amount for services furnished, consistent with 
the notice in paragraph (IXB) describing such charges, 
"(ii) No ADDITIONAL SERVICES REQUIRED.—Subpara-
graph (A) shall not be construed as requiring a State to 
offer additional services on behalf of a resident than 
are otherwise provided under the State plan. 
'(5) ADMISSIONS POUCY.— 
"(A) ADMISSIONS.—With respect to admissions practices, a 
nursing facility must— 
"(iXD not require individuals applying to reside or 
residing in the facility to waive their rights to benefits 
under this title or title XVIII, (II) not require oral or 
written assurance that such individuals are not eligible 
for, or will not apply for, benefits under this title or 
title XVIII, and (III) prominently display in the facility 
written information, and provide to such individuals 
oral and written information, about how to apply for 
and use such benefits and how to receive refunds for 
previous payments covered by such benefits; 
"(ii) not require a third party guarantee of payment 
to the facility as a condition of admission (or expedited 
admission) to, or continued stay in, the facility; and 
"(iii) in the case of an individual who is entitled to 
medical Eissistance for nursing facility services, not 
charge, solicit, accept, or receive, in addition to any 
amount otherwise required to be paid under the State 
plan under this title, any gift, money, donation, or 
other consideration as a precondition of admitting (or 
expediting the admission of) the individual to the facil-
ity or as a requirement for the individual's continued 
stay in the facility. 
"(B) CONSTRUCTION.— 
"(i) 
N o 
PREEMPTION 
OF 
STRICTER 
STANDARDS.— 
Subparagraph (A) shall not be construed as preventing 
States or political subdivisions therein from prohibit-
ing, under State or local law, the discrimination 
against individuals who are entitled to medical assist-
ance under the State plan with respect to admissions 
practices of nursing facilities. 
"(ii) 
CONTRACTS WITH 
LEGAL REPRESENTATIVES.— 
Subparagraph (AXii) shall not be construed as prevent-
ing a facility from requiring an individual, who has 
legal access to a resident's income or resources avail-
able to pay for care in the facility, to sign a contract 
(without incurring personal financial liability) to pro-
vide payment from the resident's income or resources 
for such care. 
"(iii) CHARGES FOR ADDITIONAL SERVICES REQUESTED.— 
Subparagraph (AXiii) shall not be construed as prevent-
ing a facility from charging a resident, eligible for 
101 STAT. 1330-194 
PUBLIC LAW 100-203—DEC. 22, 1987 
medical assistance under the State plan, for items or 
services the resident has requested and received and 
that are not specified in the State plan as included in 
the term 'nursing facility services'. 
"(iv) 
BONA 
FIDE 
CONTRIBUTIONS.—Subparagraph 
(AXiii) shall not be construed as prohibiting a nursing 
facility from soliciting, accepting, or receiving a chari-
table, religious, or philanthropic contribution from an 
organization or from a person unrelated to the resident 
(or potential resident), but only to the extent that such 
contribution is not a condition of admission, expediting 
admission, or continued stay in the facility. 
"(6) PROTECTION OF RESIDENT FUNDS.— 
"(A) IN GENERAL.—The nursing facility— 
"(i) may not require residents to deposit their per-
sonal funds with the facility, and 
"(ii) once the facility accepts the written authoriza-
tion of the resident, must hold, safeguard, and account 
for such personal funds under a system established and 
maintained by the facility in accordance with this para-
graph. 
"(B) MANAGEMENT OF PERSONAL FUNDS.—Upon a facility's 
acceptance of written authorization of a resident under 
subparagraph (AXii), the facility must manage and account 
for the personal funds of the resident deposited with the 
facility as follows: 
"(i) DEPOSIT.—The facility must deposit any amount 
of personal funds in excess of $50 with respect to a 
resident in an interest bearing account (or accounts) 
that is separate from any of the facility's operating 
accounts and credits all interest earned on such sepa-
rate account to such account. With respect to any other 
personal funds, the facility must maintain such funds 
in a non-interest bearing account or petty cash fund. 
"(ii) ACCOUNTING AND RECORDS.—The facility must 
assure a full and complete separate accounting of each 
such resident's personal funds, maintain a written 
record of all financial transactions involving the per-
sonal funds of a resident deposited with the facility, 
and afford the resident (or a legal representative of the 
resident) reasonable access to such record. 
"(iii) NOTICE OF CERTAIN BALANCES.—The facility 
must notify each resident receiving medical assistance 
under the State plan under title XIX when the amount 
in the resident's account reaches $200 less than the 
dollar amount determined under section 1611(aX3XB) 
and the fact that if the amount in the account (in 
addition to the value of the resident's other nonexempt 
resources) reaches the amount determined under such 
section the resident may lose eligibility for such medi-
cal assistance or for benefits under title XVI. 
"(iv) CONVEYANCE UPON DEATH.—Upon the death of a 
resident with such an account, the facility must convey 
promptly the resident's personal funds (and a final 
accounting of such funds) to the individual administer-
ing the resident's estate. 
' ' ^" 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-195 
"(C) ASSURANCE OF FINANCIAL SECURITY.—The facility 
must purchase a surety bond, or otherwise provide assur-
ance satisfactory to the Secretary, to assure the security of 
all personal funds of residents deposited with the facility. 
"(D) LIMITATION ON CHARGES TO PERSONAL FUNDS.—The 
facility may not impose a charge against the personal funds 
of a resident for any item or service for which payment is 
made under this title or title XVIIL 
"(d) 
REQUIREMENTS RELATING TO ADMINISTRATION AND OTHER 
MATTERS.— 
"(1) ADMINISTRATION.— 
"(A) IN GENERAL.—A nursing facility must be adminis-
tered in a manner that enables it to use its resources 
effectively and efficiently to attain or maintain the highest 
practicable physical, mental, and psychosocial well-being of 
each resident (consistent with requirements established 
under subsection (fK5)). 
"(B) REQUIRED NOTICES.—If a change occurs in— 
"(i) the persons with an ownership or control interest 
(as defined in section 1124(aX3)) in the facility, 
"(ii) the persons who are officers, directors, agents, or 
managing employees (as defined in section 1126(b)) of 
the facility, 
"(iii) the corporation, association, or other company 
responsible for the management of the facility, or 
"(iv) the individual who is the administrator or direc-
tor of nursing of the facility, 
the nursing facility must provide notice to the State agency 
responsible for the licensing of the facility, at the time of 
the change, of the change and of the identity of each new 
person, company, or individual described in the respective 
clause. 
"(C) 
NURSING FACIUTY ADMINISTRATOR.—The adminis-
trator of a nursing facility must meet standards established 
by the Secretary under subsection (fK4). 
"(2) LICENSING AND UFE SAFETY CODE.— 
"(A) LICENSING.—A nursing facility must be licensed 
under applicable State and local law. 
"(B) LIFE SAFETY CODE.—A nursing facility must meet 
such provisions of such edition (as specified by the Sec-
retary in regulation) of the Life Safety Code of the National 
Fire Protection Association as are applicable to nursing 
homes; except that— 
"(i) the Secretary may waive, for such periods £is he 
deems appropriate, specific provisions of such Code 
which if rigidly applied would result in unreasonable 
hardship upon a facility, but only if such waiver would 
not adversely affect the health and safety of residents 
or personnel, and 
"(ii) the provisions of such Code shall not apply in 
any State if the Secretary finds that in such State there 
is in effect a fire and safety code, imposed by State law, 
which adequately protects residents of and personnel in 
nursing facilities. 
"(3) SANITARY AND INFECTION CONTROL AND PHYSICAL ENVIRON-
MENT.—A nursing facility must— 
101 STAT. 1330-196 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) establish and maintain an infection control program 
designed to provide a safe, sanitary, and comfortable 
environment in which residents reside and to help prevent 
the development and transmission of disease and infection, 
and 
"(B) be designed, constructed, equipped, and maintained 
in a manner to protect the health and safety of residents, 
personnel, and the general public. 
"(4) MISCELLANEOUS.— 
"(A) COMPUANCE WITH FEDERAL, STATE, AND LOCAL LAWS 
AND PROFESSIONAL STANDARDS.—A nursing facility must 
operate and provide services in compliance with all ap-
plicable Federal, State, and local laws and regulations 
(including the requirements of section 1124 and with 
accepted professional standards and principles which apply 
to professionals providing services in such a facility. 
"(B) OTHER.—A nursing facility must meet such other 
requirements relating to the health and safety of residents 
or relating to the physical facilities thereof as the Secretary 
may find necessary.' . 
(c) STATE REQUIREMENTS RELATING TO NURSING FACIUTY REQUIRE-
42 use I396r. 
MENTS.—Section 1919 of such Act is further amended by adding at 
the end the following new subsection: 
"(e) 
STATE 
REQUIREMENTS RELATING 
TO 
NURSING 
FACILITY 
REQUIREMENTS.—As a condition of approval of ** its plan under this 
title, a State must provide for the following: 
"(1) SPECIFICATION AND REVIEW OF NURSE AIDE TRAINING AND 
COMPETENCY EVALUATION PROGRAMS AND OF NURSE AIDE COM-
PETENCY EVALUATION PROGRAMS.—The State must— 
"(A) by not later than September 1, 1988, specify those 
training and competency evaluation programs, and those 
competency evaluation programs, that the State approves 
for purposes of subsection (bX5) and that meet the require-
ments established under clause (i) or (ii) of subsection 
(fK2XA), and 
"(B) by not later than September 1, 1990, provide for the 
review and reapproval of such programs, at a frequency and 
using a methodology consistent with the requirements 
established under subsection (fK2XAXiii). 
The failure of the Secretary to establish requirements under 
subsection (fX2) shall not relieve any State of its responsibility 
under this paragraph. 
"(2) NURSE AIDE REGISTRY.— 
"(A) IN GENERAL.—By not later than January 1, 1989, the 
State shall establish and maintain a registry of all individ-
uals who have satisfactorily completed a nurse aide train-
ing and competency evaluation program, or a nurse aide 
competency evaluation program, approved under para-
graph (1) in the State. 
"(B) INFORMATION IN REGISTRY.—The registry under 
subparagraph (A) shall provide (in accordance with regula-
tions of the Secretary) for the inclusion of specific docu-
mented findings by a State under subsection (gXlXC) of 
resident neglect or abuse or misappropriation of resident 
•* Copy read "approval its". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-197 
property involving an individual listed in the registry, as 
well as any brief statement of the individual disputing the 
findings. In the case of inquiries to the registry concerning 
an individual listed in the registry, any information dis-
closed concerning such a finding shall also include disclo-
sure of any such statement in the registry relating to the 
finding or a clear and accurate summary of such a 
statement. 
"(3) STATE APPEALS PROCESS FOR TRANSFERS.—The State, for 
transfers from nursing facilities effected on or after October 1, 
1989, must provide for a fair mechanism, meeting the guidelines 
established under subsection (fK3), for hearing appeals on trans-
fers of residents of such facilities; but the failure of the Sec-
retary to establish such guidelines under such subsection shall 
not relieve any State of its responsibility under this paragraph. 
"(4) NURSING FACILITY ADMINISTRATOR STANDARDS.—By 
not 
later than July 1, 1989, the State must have implemented and 
enforced the nursing facility administrator standards developed 
under subsection (f)(4) respecting the qualification of adminis-
trators of nursing facilities. 
"(5) SPECIFICATION OF RESIDENT ASSESSMENT INSTRUMENT.— 
Effective July 1, 1990, the State shall specify the instrument to 
be used by nursing facilities in the State in complying with the 
requirement of subsection (bXSXAXiii). Such instrument shall 
b e -
"(A) one of the instruments designated under subsection 
(fK6XB), or 
"(B) an instrument which the Secretary has approved as 
being consistent with the minimum data set of core ele-
ments, common definitions, and utilization guidelines speci-
fied by the Secretary under subsection (fK6XA). 
"(6) NOTICE OF MEDICAID RIGHTS.—Each State, as a condition of 
approval of its plan under this title, effective April 1, 1988, must 
develop (and periodically update) a written notice of the rights 
and obligations of residents of nursing facilities (and spouses of 
such residents) under this title. 
"(7) STATE REQUIREMENTS FOR PREADMISSION SCREENING AND 
RESIDENT REVIEW.— 
"(A) 
PREADMISSION SCREENING.—Effective January 
1, 
1989, the State must have in effect a preadmission screen-
ing program, for making determinations (using any criteria 
developed under subsection (fX8)) described in subsection 
(bX3XF) for mentally ill and mentally retarded individuals 
(as defined in subparagraph (G)) who are admitted to nurs-
ing facilities on or after January 1, 1989. The failure of the 
Secretary to develop minimum criteria under subsection 
(fX8) shall not relieve any State of its responsibility to have 
a preadmission screening program under this subparagraph 
or to perform resident reviews under subparagraph (B). 
"(B) STATE REQUIREMENT FOR ANNUAL RESIDENT REVIEW.— 
"(i) FOR MENTALLY ILL RESIDENTS.—As of April 1, 
1990, in the case of each resident of a nursing facility 
who is mentally ill, the State mental health authority 
must review and determine (using any criteria devel-
oped under subsection (fX8) and based on an independ-
ent physical and mental evaluation performed bv a 
101 STAT. 1330-198 
PUBLIC LAW 100-203—DEC. 22, 1987 
person or entity other than the State mental health 
authority)— 
"(I) whether or not the resident, because of the 
resident's physical and mental condition, requires 
the level of services provided by a nursing facility 
or requires the level of services of an inpatient 
psychiatric hospital for individuals under age 21 
(as described in section 1905(h)) or of an institution 
for mental diseases providing medical assistance to 
individuals 65 years of age or older; and 
"(II) whether or not the resident requires active 
treatment for mental illness, 
"(ii) FOR MENTALLY RETARDED RESIDENTS.—As of April 
1,1990, in the case of each resident of a nursing facility 
who is mentally retarded, the State mental retardation 
or developmental disability authority must review and 
determine (using any criteria developed under sub-
section (0(8))— 
"(I) whether or not the resident, because of the 
resident's physical and mental condition, requires 
the level of services provided by a nursing facility 
or requires the level of services of an intermediate 
care facility described under section 1905(d); and 
"(II) whether or not the resident requires active 
treatment for mental retardation, 
"(iii) FREQUENCY OF REVIEWS.— 
"(I) ANNUAL.—Except as provided in subclauses 
(II) and (III), the reviews and determinations under 
clauses (i) and (ii) must be conducted with respect 
to each mentally ill or mentally retarded resident 
not less often than annually. 
"(II) PREADMISSION REVIEW CASES.—In the case of 
a resident subject to a preadmission review under 
subsection (bX3XF), the review and determination 
under clause (i) or (ii) need not be done until the 
resident has resided in the nursing facility for 1 
year. 
"(Ill) INITIAL REVIEW.—The reviews and deter-
minations under clauses (i) and (ii) must first be 
conducted 
(for each resident not subject 
to 
preadmission review under subsection (bX3XF)) by 
not later than April 1,1990. 
"(C) RESPONSE TO PREADMISSION SCREENING AND RESIDENT 
REVIEW.—AS of April 1, 1990, the State must meet the 
following requirements: 
"(i) LONG-TERM RESIDENTS NOT REQUIRING NURSING 
FACIUTY SERVICES, BUT REQUIRING ACTIVE TREATMENT.— 
In the case of a resident who is determined, under 
subparagraph (B), not to require the level of services 
provided by a nursing facility, but to require active 
treatment for rciental illness or mental retardation, and 
who has continuously resided in a nursing facility for 
at least 30 months before the date of the determination, 
the State must, in consultation with the resident's 
family or legal representative and care-givers— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-199 
"(I) inform the resident of the institutional and 
noninstitutional alternatives covered under the 
State plan for the resident, 
"(11) offer the resident the choice of remaining in 
the facility or of receiving covered services in an 
alternative appropriate institutional or noninstitu-
tional setting, 
"(III) clarify the effect on eligibility for services 
under the State plan if the resident chooses to 
leave the facility (including its effect on readmis-
sion to the facility), and 
"(IV) regardless of the resident's choice, provide 
for (or arrange for the provision of) such active 
treatment for the mental illness or mental retarda-
tion. 
A State shall not be denied payment under this title for 
nursing facility services for a resident described in this 
clause because the resident does not require the level of 
services provided by such a facility, if the resident 
chooses to remain in such a facility. 
"(ii) 
O T H E R RESIDENTS N O T REQUIRING N U R S I N G FACIL-
ITY SERVICES, BUT REQUIRING ACTIVE TREATMENT.—In 
the case of a resident who is determined, under 
subparagraph (B), not to require the level of services 
provided by a nursing facility, but to require active 
treatment for mental illness or mental retardation, and 
who has not continuously resided in a nursing facility 
for at least 30 months before the date of the determina-
tion, the State must, in consultation with the resident's 
family or legal representative and care-givers— 
"(I) arrange for the safe and orderly discharge of 
the resident from the facility, consistent with the 
requirements of subsection (cX2), 
"(II) prepare and orient the resident for such 
discharge, and 
"(III) provide for (or arrange for the provision of) 
such active treatment for the mental illness or 
mental retardation, 
"(iii) RESIDENTS NOT REQUIRING NURSING FACILITY 
SERVICES AND NOT REQUIRING ACTIVE TREATMENT.—In 
the case of a resident who is determined, under 
subparagraph (B), not to require the level of services 
provided by a nursing facility and not to require active 
treatment for mental illness or mental retardation, the 
State must— 
"(I) arrange for the safe and orderly discharge of 
the resident from the facility, consistent with the 
requirements of subsection (cX2), and 
"(II) prepare and orient the resident for such 
discharge. 
"(D) 
DENIAL OF PAYMENT WHERE FAILURE TO CONDUCT 
PREADMISSION SCREENING.—No payment may be made 
under section 1903(a) with respect to nursing facility serv-
ices furnished to an individual for whom a determination is 
required under subsection 0)X3XF) or subparagraph (B) but 
for whom the determination is not made. 
91-194 O - 90 - 32 : QL.3 Part 2 
101 STAT. 1330-200 
PUBLIC LAW 100-203—DEC. 22, 1987 
Contracts. 
ITY 
"(E) PERMITTING ALTERNATIVE DISPOSITION PLANS.—With 
respect to residents of a nursing facility who are mentally 
retarded or mentally ill and who are determined under 
subparagraph (B) not to require the level of services of such 
a facility, but who require active treatment for mental 
illness or mental retardation, a State and the nursing 
facility shall be considered to be in compliance with the 
requirement of this paragraph if, before October 1, 1988, 
the State and the Secretary have entered into an agree-
ment relating to the disposition of such residents of the 
facility and the State is in compliance with such agreement. 
Such an agreement may provide for the disposition of the 
residents after the date specified in subparagraph (C). 
"(F) APPEALS PROCEDURES.—Each State, as a condition of 
approval of its plan under this title, effective January 1, 
^ 
1989, must have in effect an appeals process for individuals 
adversely affected by determinations under subparagraph 
(A) or (B). 
"(G) DEFINITIONS.—In this paragraph and in subsection 
(bX3XF): 
^ 
"(i) An individual is considered toT)e 'mentally ill' if 
the individual has a primary or secondary diagnosis of 
mental disorder (as defined in the Diagnostic and 
Statistical Manual of Mental Disorders, 3rd edition) 
and does not have a primary diagnosis of dementia 
(including Alzheimer's disease or a related disorder), 
"(ii) An individual is considered to be 'mentally re-
tarded' if the individual is mentally retarded or a 
person with a related condition (as described in section 
1905(d)). 
^ / 
"(iii) The term 'active treatment' has the meaning 
' . 
given such term by the Secretary in regulations, but 
does not include, in the case of a resident of a nursing 
"' » 
facility, services within the scope of services which the 
facility must provide or arrange for its residents under 
subsection (b)(4). 
(f) RESPONSIBIUTIES OF SECRETARY RELATING TO NURSING FACIL-
REQUIREMENTS.— 
"(1) GENERAL RESPONSIBIUTY.—It is the duty and responsibil-
ity of the Secretary to assure that requirements which govern 
the provision of care in nursing facilities under State plans 
approved under this title, and the enforcement of such require-
ments, are adequate to protect the health, safety, welfare, and 
rights of residents and to promote the effective and efficient use 
of public moneys. 
(2) 
REQUIREMENTS FOR NURSE AIDE TRAINING AND COM-
PETENCY EVALUATION PROGRAMS AND FOR NURSE AIDE COM-
PETENCY EVALUATION PROGRAMS.— 
"(A) IN GENERAL.—For purposes of subsections (bX5) and 
(eXlXA), the Secretary shall establish, by not later than 
July 1,1988— 
"(i) requirements for the approval of nurse aide 
training and competency evaluation programs, includ-
ing requirements relating to (I) the areas to be covered 
in such a program (including at least b£isic nursing 
skills, personal care skills, cognitive, behavioral and 
social care, basic restorative services, and residents' 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-201 
rights), content of the curriculum, (II) minimum hours 
of initial and ongoing training and retraining (includ-
ing not less than 75 hours in the case of initial train-
ing), 
(III) qualifications 
of instructors, and 
(IV) 
procedures for determination of competency; 
"(ii) requirements for the approval of nurse aide 
competency evaluation programs, including require-
ment relating to the areas to be covered in such a 
program, including at least basic nursing skills, per-
sonal care skills, cognitive, behavioral and social care, 
basic restorative services, and residents' rights, and 
procedures for determination of competency; 
"(iii) requirements respecting the minimum fre-
- 
quency and methodology to be used by a State in 
reviewing such programs' compliance with the require-
ments for such programs. 
"(B) 
APPROVAL OF CERTAIN PROGRAMS.—Such require-
ments— 
"(i) may permit approval of programs offered by or in 
- 
facilities, as well as outside facilities (including em-
ployee organizations), and of programs in effect on the 
date of the enactment of this section; 
"(ii) shall permit a State to find that an individual 
who has completed (before January 1, 1989) a nurse 
aide training and competency evaluation program shall 
be deemed to have completed such a program approved 
under subsection (b)(5) if the State determines that, at 
the time the program was offered, the program met the 
requirements for approval under such paragraph; and 
"(iii) shall prohibit approval of such a program— 
"(I) offered by or in a nursing facility which has 
been determined to be out of compliance with the 
requirements of subsection (b), (c), or (d), within the 
previous 2 years, or 
"(II) offered 
by or 
in 
a 
nursing 
facility 
unless the State makes the determination, upon an 
individual's completion of the program, that the 
individual is competent to provide nursing and 
nursing-related services in nursing facilities. 
A State may not delegate its responsibility under 
clause (iiiXII) to the nursing facility. 
"(3) 
FEDERAL GUIDELINES FOR STATE APPEALS PROCESS FOR 
TRANSFERS.—For purposes of subsections (cX2XBXiii) and (eX3), 
by not later than October 1, 1988, the Secretary shall establish 
guidelines for minimum standards which State appeals proc-
esses under subsection (eX3) must meet to provide a fair mecha-
nism for hearing appeals on transfers of residents from nursing 
facilities. 
"(4) SECRETARIAL STANDARDS QUALIFICATION OF ADMINISTRA-
TORS.—For purposes of subsections (dXlXC) and (eX4), the Sec-
retary shall develop, by not later than March 1, 1988, standards 
to be applied in assuring the qualifications of administrators of 
nursing facilities. 
"(5) CRITERIA FOR ADMINISTRATION.—The Secretary shall 
establish criteria for assessing a nursing facility's compliance 
with the requirement of subsection (dXD with respect to— 
"(A) its governing body and management, 
101 STAT. 1330-202 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) agreements with hospitals regarding transfers of 
residents to and from the hospitals and to and from other 
nursing facilities, 
"(C) disaster preparedness, 
"(D) direction of medical care by a physician, 
"(E) laboratory and radiological services, 
"(F) clinical records, and 
"(G) resident and advocate participation. 
"(6) SPECIFICATION OF RESIDENT ASSESSMENT DATA SET AND 
INSTRUMENTS.—The Secretary shall— 
"(A) not later than January 1, 1989, specify a minimum 
data set of core elements and common dehnitions for use by 
nursing facilities in conducting the assessments required 
under subsection (bX3), and establish guidelines for utiliza-
• 
tion of the data set; and 
"(B) by not later than April 1, 1990, designate one or 
more instruments which are consistent with the specifica-
tion made under subparagraph (A) and which a State may 
specify under subsection (eX5XA) for use by nursing facili-
ties in complying with the requirements of subsection 
s; 
(bX3XAXiii). 
"(7) LIST OF ITEMS AND SERVICES FURNISHED IN NURSING FACIU-
TIES NOT CHARGEABLE TO THE PERSONAL FUNDS OF A RESIDENT.— 
"(A) REGULATIONS REQUIRED.—Pursuant to the require-
ment of section 21(b) of the Medicare-Medicaid Anti-Fraud 
and Abuse Amendments of 1977, the Secretary shall issue 
regulations, on or before the first day of the seventh month 
to begin after the date of enactment of this section, that 
define those costs which may be charged to the personal 
funds of patients in nursing facilities who are individuals 
receiving medical assistance with respect to nursing facility 
services under this title and those costs which are to be 
included in the payment amount under this title for nurs-
ing facility services. 
(B) RULE IF FAILURE TO PUBUSH REGULATIONS.—If the 
Secretary does not issue the regulations under subpara-
graph (A) on or before the date required in that subpara-
^' 
graph, in the case of a resident of a nursing facility who is 
eligible to receive benefits for nursing facility services 
' 
under this title, for purposes of section 1902(aX28XB), the 
Secretary shall be deemed to have promulgated regulations 
under this paragraph which provide that the costs which 
may not be charged to the personal funds of such resident 
(and for which payment is considered to be made under this 
title) do not include, at a minimum, the costs for routine 
personal hygiene items and services furnished by the 
fsicility. 
"(8) 
FEDERAL 
MINIMUM 
CRITERIA AND MONITORING FOR 
•
^ PREADMISSION SCREENING AND RESIDENT REVIEW.— 
"(A) MINIMUM CRITERIA.—The Secretary shall develop, by 
not later than October 1, 1988, minimum criteria for States 
to use in making determinations under subsections (bX3XF) 
and (eX7XB) and in permitting individuals adversely af-
fected to appeal such determinations, and shall notify the 
States of such criteria. 
"(B) 
MONITORING COMPLIANCE.—The Secretary 
shall 
review, in a sufficient number of cases to allow reasonable 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-203 
inferences, each State's compliance with the requirements 
of subsection (e)(7)(C)(ii) (relating to discharge and place-
ment for active treatment of certain residents). 
"(9) ®
^ CRITERIA FOR MONITORING STATE WAIVERS.—The Sec-
retary shall develop, by not later than October 1, 1988, criteria 
and procedures for monitoring State performances in granting 
waivers pursuant to subsection (b)(4)(C)(ii).". 
(b) INCORPORATING REQUIREMENTS INTO STATE PLAN.— 
(1) IN GENERAL.—Section 1902(a) of such Act (42 U.S.C. 
. -
1396a(a)) is amended— 
(A) in paragraph (13)(A), by inserting "which, in the case 
of nursing facilities, take into account the costs of comply-
ing with subsections (b) (other than paragraph (3)(F) 
thereof), (c), and (d) of section 1919 and provide (in the case 
- 
of a nursing facility with a waiver under 
section 
1919(b)(4)(C)(ii)) for an appropriate reduction to take into 
account the lower costs (if any) of the facility for nursing 
care," after "State" the second place it appears; and 
(B) by amending paragraph (28) to read as follows: 
"(28) provide— 
"(A) that any nursing facility receiving payments under 
such plan must satisfy all the requirements of subsections 
(b) through (d) of section 1919 as they apply to such 
facilities; 
"(B) for including in 'nursing facility services' at least the 
items and services specified (or deemed to be specified) by 
the Secretary under section 1919(f)(7) and making available 
upon request a description of the items and services so 
included; 
"(C) for procedures to make available to the public the 
data and methodology used in establishing payment rates 
for nursing facilities under this title; and 
"(D) for compliance (by the date specified in the respec-
tive sections) with the requirements o
f
— 
"(i) section 1919(0 (relating to implementation of 
, 
nursing facility requirements, including paragraph 
,: 
(6)(B), relating to specification of resident assessment 
instrument); 
"(ii) section 1919(g) (relating to responsibility for 
survey and certification of nursing facilities); and 
"(iii) sections 1919(hX2)(B) and 1919(h)(2)(D) (relating 
to establishment and application of remedies);". 
(2) STATE PLAN AMENDMENT REQUIRED.—A plan of a State 
42 use I396a 
under title XIX of the Social Security Act shall not be consid- note. 
ered to have met the requirement of section 1902(a)(13)(A) of the 
Social Security Act (as amended by paragraph (1)(A) of this 
subsection), as of the first day of a Federal fiscal year (beginning 
on or after October 1, 1990), unless the State has submitted to 
the Secretary of Health and Human Services, as of April 1 
before the fiscal year, an amendment to such State plan to 
provide for an appropriate adjustment in payment amounts for 
nursing facility services furnished during the Federal fiscal 
year. The Secretary shall, not later than September 80 before 
the fiscal year concerned, review each such plan amendment for 
•e Copy read " "(8)". 
101 STAT. 1330-204 
PUBLIC LAW 100-203—DEC. 22, 1987 
- 
compliance with such requirement and by such date shall ap-
prove or disapprove each such amendment. If the Secretary 
disapproves such an amendment, the State shall immediately 
submit a revised amendment which meets such requirement. 
The absence of approval of such a plan amendment does not 
relieve the State or any nursing facility of any obligation or 
requirement under title XIX of the Social Security Act (as 
amended by this Act). 
Reports. 
(c) EVALUATION.—The Secretary of Health and Human Services 
42 use 1396r 
shall evaluate, and report to Congress by not later than January 1, 
"°^®- 
1993, on the implementation of the resident assessment process for 
residents of nursing facilities under the amendments made by this 
section. 
(d) FUNDING.— 
(1) IN GENERAL.—Section 1903(a)(2) of such Act (42 U.S.C. 
1396b(a)(2)) is amended— 
(A) by inserting "(A)" after "(2)", and 
(B) by adding at the end the following new subpara-
graphs: 
"(B) notwithstanding paragraph (1) or subparagraph (A), with 
.
V respect to amounts expended for nursing aide training and 
competency evaluation programs, and competency evaluation 
programs, described in section 1919(e)(1), regardless of whether 
the programs are provided in or outside nursing facilities or of 
the skill of the personnel involved in such programs, an amount 
equal to 50 percent of so much of the sums expended during 
such quarter (as found necessary by the Secretary for the proper 
and efficient administration of the State plan) as are attrib-
utable to such programs; plus 
J 
"(C) an amount equal to 75 percent of so much of the sums 
^ 
expended during such quarter (as found necessary by the Sec-
retary for the proper and efficient administration of the State 
plan) as are attributable to preadmission screening and resident 
review activities conducted by the State under section 1919(e)(7); 
plus". 
42 u s e 1396b 
(2) ENHANCED FUNDING FOR NURSE AIDE TRAINING.—For Cal-
iiote. 
endar quarters during fiscal years 1988 and 1989, with respect 
^' 
to payment under section 1903(a)(2)(B) of the Social Security Act 
to a State for additional amounts expended by the State under 
' ' its plan approved under title XIX of such Act for nursing aide 
training and competency evaluation programs, and competency 
'*' evaluation programs, described in section 1919(e)(1) of such title, 
\^ 
, 
any reference to "50 percent" is deemed a reference to the sum 
^''' ^' ' : ; 
of the Federal medical assistance percentage (determined under 
section 1905(b) of such Act) plus 25 percentage points, but not to 
exceed 90 percent. 
(e) REVISION OF PREVIOUS DEFINITIONS.—Section 1905 of such Act 
(42 U.S.C. 1396d) is amended— 
(1) by amending subsection (c) to read as follows: 
"(c) For definition of the term 'nursing facility', see section 
1919(a)."; 
(2) in subsection (d)— 
(A) by striking "intermediate care facility services" and 
inserting "intermediate care facility for the mentally re-
>
^
^ -i 
tarded", 
(B) by striking "may include services in a public" and 
inserting "means an", 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-205 
ft' 
(C) in paragraph (3), by inserting "in the case of a public 
institution," after "(3)"; 
(3) in subsection (f), by striking "skilled" each place it 
appears; and 
(4) by striking subsection (i). 
(f) MAKING COVERAGE OF NURSING FACILITY SERVICES MANDATORY 
FOR ADULTS.—Section 
1905(a)(4XA) of such 
Act (42 U.S.C. 
1396d(aX4XA)) is amended by striking "skilled". 
(g) ELIMINATION OF PAYMENT DIFFERENTIAL.—Section 1903 of such 
Act (42 U.S.C. 1396b) is amended— 
(1) by striking subsection (h), and 
(2) in subsection (aXD, by striking ", (h), and" and inserting 
"and". 
(h) CLARIFYING TERMINOLOGY.—(1) Section 1902(aX10) of such Act 
(42 U.S.C. 1396a(aX10)) is amended— 
(A) in subparagraph (AXiiXVI), by striking "skilled" and by 
inserting "for the mentally retarded" after "intermediate care 
facility"; 
(B) in subparagraph (CXiv), by striking "intermediate care 
facility services" and inserting "in an intermediate care facil-
ity"; and 
(C) in subparagraph (D), by striking "skilled". 
(2) Section 1902(aX13) of such Act (42 U.S.C. 1396a(aX13)) is 
amended— 
(A) in subparagraph (A), by striking ", skilled nursing facility, 
and intermediate care facility services" and inserting "services, 
nursing facility services, and services in an intermediate care 
facility for the mentally retarded"; *'^ 
(B) in subparagraph (A), by striking ", skilled nursing facility, 
and intermediate care facility and" and inserting "nursing 
facility, and intermediate care facility for the mentally retarded 
and"; 
(C) in subparagraph (C), by striking "skilled nursing facilities 
and intermediate care facilities" and inserting "nursing facili-
ties"; and 
(D) in subparagraph (D)— 
(i) by striking "skilled nursing facility or intermediate 
care facility" and inserting "nursing facility", and 
(ii) by striking "skilled nursing facility services or inter-
mediate care facility services" and inserting "nursing facil-
itv services" 
(3) Section 1902(aX30XB) of such Act (42 U.S.C. 1396a(aX30XB)) is 
amended by striking "skilled nursing facility, intermediate care 
facility," each place it appears and inserting "intermediate care 
facility for the mentally retarded,". 
(4) Section 1902(eX3XBXi) of such Act (42 U.S.C. 1396a(eX3XBXi)) is 
amended by striking "skilled nursing facility, or intermediate care 
facility" and inserting "nursing facility, or intermediate care facil-
ity for the mentally retarded". 
(5) Section 1902(eX9) of such Act (42 U.S.C. 1396a(eX9)) is 
amended— 
(A) in subparagraph (AXiii), by striking "skilled nursing facil-
ity, or intermediate care facility," and inserting "nursing facil-
ity, or intermediate care facility for the mentally retarded" and 
*' Copy read "retarded",". 
101 STAT. 1330-206 
PUBLIC LAW 100-203—DEC. 22, 1987 
(B) in subparagraph (B), by striking "skilled nursing facilities, 
or intermediate care facilities" and inserting "nursing facilities, 
*i 
or intermediate care facilities for the mentally retarded". 
(6) Section 1905(a) of such Act (42 U.S.C. 1396d(a)) is amended— 
(A) in paragraph (5), by striking "skilled", 
y 
(B) in paragraph (14), by striking ", skilled nursing facility 
services, and intermediate care facility services" and inserting 
"and nursing facility services", and 
4; 
(C) in paragraph (15), by striking "intermediate care facility 
services (other than such services" and inserting "services in an 
intermediate care facility for the mentally retarded (other 
than". 
(7) Section 1128B of such Act (42 U.S.C. 1320a-7b) is amended— 
(A) in subsection (c), by striking "intermediate care facility" 
and inserting "nursing facility, intermediate care facility for 
the mentally retarded", and 
(B) in subsection (d)(2)(A), by striking "skilled nursing facility, 
or intermediate care facility" and inserting "nursing facility, or 
t 
intermediate care facility for the mentally retarded". 
(8) Section 1911 of such Act (42 U.S.C. 1396j) is amended by 
striking ", intermediate care facility, or skilled nursing facility ' 
each place it appears and inserting "or nursing facility". 
(9) Section 1913 of such Act (42 U.S.C. 13961) is amended— 
(A) in the heading, by striking "SKILLED NURSING AND INTER-
MEDIATE CARE SERVICES" and inserting "NURSING FACILITY SERV-
ICES"; 
(B) in subsection (a)— 
(i) by striking "skilled nursing facility services and inter-
mediate care facility services" and inserting "nursing facil-
ity services", and 
V 
(ii) by inserting before the period at the end the following: 
"and which, with respect to the provision of such services, 
meets the requirements of subsections (b) through (d) of 
section 1919"; 
(C) in subsection (b)(1)— 
(i) by striking "skilled nursing or intermediate care facil-
^jj. . 
ity services" and inserting "nursing facility services", and 
(ii) by striking "skilled nursing and intermediate care 
facilities" and inserting "nursing facilities"; and 
(D) in subsection (b)(3), by striking "skilled nursing or inter-
mediate care facility services" and inserting "nursing facility 
services' 
(10) Section 1915(c) of such Act (42 U.S.C. 1396n(c)) is amended— 
(A) in paragraph (1), by striking "skilled nursing facility or 
intermediate care facility" and inserting "nursing facility or 
intermediate care facility for the mentally retarded"; 
(B) in paragraph (2)(B)(i), by striking ", skilled nursing facil-
ity, or intermediate care facility services" and inserting "serv-
ices, nursing facility services, or services in an intermediate 
care facility for the mentally retarded"; 
(C) in paragraph (2)(B), by striking "need" and all that follows 
up to the semicolon and inserting "need for inpatient hospital 
services, nursing facility services, or services in an intermediate 
care facility for the mentally retarded"; 
(D) in paragraph (2)(C), by striking "or skilled nursing facility 
or intermediate care facility" and inserting ", nursing facility, 
or intermediate care facility for the mentally retarded'; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-207 
(E) in paragraph (2)(C), by striking "or skilled nursing facility 
or intermediate care facility services" and inserting ", nursing 
facility services, or services in an intermediate care facility for 
the mentally retarded"; 
(F) in paragraph (5), by striking "skilled nursing facility or 
intermediate care facility" and inserting "nursing facility or 
intermediate care facility for the mentally retarded"; and 
(G) in paragraph (7), by striking "or in skilled nursing or 
intermediate care facilities" and inserting ", nursing facilities, 
or intermediate care facilities for the mentally retarded". 
(11) Section 1916 of such Act (42 U.S.C. 1396m) is amended, in 42 USC 139Go. 
subsections (aX2XC) and (b)(2XC), by striking "skilled nursing facil-
ity, intermediate care facility" and inserting "nursing facility, inter-
mediate care facility for the mentally retarded". 
(12) Section 1917 of such Act (42 U.S.C. 1396p), as amended by this 
title, is further amended— 
(A) in subsections (aXlXBXi) and (cX2)(BXi), by striking 
"skilled nursing facility, intermediate care facility" and insert-
ing "nursing facility, intermediate care facility for the mentally 
retarded", and 
(B) in subsection (cX3XA), by striking "skilled". 
(i) UTILIZATION REVIEW.—Section 1903(iX4) of such Act (42 U.S.C. 
1396b(iX4)) is amended by striking "or skilled nursing facility" each 
place it appears. 
(j) TECHNICAL ASSISTANCE.—The Secretary of Health and Human 
Services shall, upon request by a State, furnish technical assistance 
with respect to the development and implementation of reimburse-
ment methods for nursing facilities that take into account the case 
mix of residents in the different facilities. 
(k) REPORT ON STAFFING REQUIREMENTS.—The Secretary of Health 
and Human Services shall report to Congress, by not later than 
January 1, 1993, on the progress made in implementing the nursing 
facility staffing requirements of subparagraph (C) of section 
1919(bX4) of the Social Security Act (as amended by subsection (a) of 
this section), including the number and types of waivers approved 
under subparagraph (CXii) of such section and the number of facili-
ties which have received waivers. 
(1) CONFORMING AMENDMENT.—Section 9516(c) of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 is amended by striking 
"section 1919" and inserting "section 1922". 
SEC. 4212. SURVEY AND CERTIFICATION PROCESS. 
(a) IN GENERAL.—Section 1919 of the Social Security Act, as 
inserted by section 4211, is amended by adding at the end the 
following new subsection: 
"(g) SURVEY AND CERTIFICATION PROCESS.— 
"(1) STATE AND FEDERAL RESPONSIBIUTY.— 
"(A) IN GENERAL.—Under each State plan under this title, 
^ 
the State shall be responsible for certifying, in accordance 
with surveys conducted under paragraph (2), the compli-
ance of nursing facilities (other than facilities of the State) 
with the requirements of subsections (b), (c), and (d). The 
Secretary shall be responsible for certifying, in accordance 
with surveys conducted under paragraph (2), the compli-
ance of State nursing facilities with the requirements of 
such subsections. 
42 USC 1396a 
note. 
42 USC 1396r 
note. 
42 USC 1396r-3 
note. 
101 STAT. 1330-208 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) EDUCATIONAL PROGRAM.—Each State shall conduct 
periodic educational programs for the staff and residents 
: 'i 
(and their representatives) of nursing facilities in order to 
present current regulations, procedures, and policies under 
this section. 
"(C) INVESTIGATION OF ALLEGATIONS OF RESIDENT NEGLECT 
AND ABUSE AND MISAPPROPRIATION OF RESIDENT PROPERTY.— 
The State shall provide, through the agency responsible for 
surveys and certification of nursing facilities under this 
subsection, for a process for the receipt, review, and inves-
t. ( \: 
tigation of allegations of neglect and abuse and misappro-
priation of resident property by a nurse aide of a resident in 
a nursing facility. If the State finds, after notice to the 
nurse aide involved and a reasonable opportunity for a 
iMs 
hearing for the nurse aide to rebut allegations, that a nurse 
aide whose name is contained in a nurse aide registry has 
- s u t neglected or abused a resident or misappropriated resident 
property in a facility, the State shall notify the nurse aide 
and the registry of such finding. 
"(D) CONSTRUCTION.—The failure of the Secretary to 
establish standards under subsection (f) shall not relieve a 
State of its responsibility under this subsection. 
"(2) SURVEYS.— 
"(A) ANNUAL STANDARD SURVEY.— 
"(i) IN GENERAL.—Each nursing facility shall be sub-
ject to a ^^ standard survey, to be conducted without 
any prior notice to the facility. Any individual who 
. .^, 
notifies (or causes to be notified) a nursing facility of 
the time or date on which such a survey is scheduled to 
be conducted is subject to a civil money penalty of not 
to exceed $2,000. The Secretary shall provide for im-
position of civil money penalties under this clause in a 
manner similar to that for the imposition of civil 
money penalties under section 1128A. The Secretary 
shall review each State's procedures for scheduling and 
conduct of standard surveys to assure that the State 
has taken all reasonable steps to avoid giving notice of 
such a survey through the scheduling procedures and 
. 
theconductof the surveys themselves. 
"(ii) CONTENTS.—Each standard survey shall include, 
for a case-mix stratified sample of residents— 
"(I) a survey of the quality of care furnished, as 
measured by indicators of medical, nursing, and 
ji 
rehabilitative care, dietary and nutrition services, 
activities and social participation, and sanitation, 
infection control, and the physical environment, 
"(II) written plans of care provided under subsec-
tion (bX2) and an audit of the residents' assess-
ments under subsection (bX3) to determine the ac-
curacy of such assessments and the adequacy of 
such plans of care, and 
"(III) a review of compliance with residents' 
rights under subsection (c). 
"(iii) FREQUENCY.— 
m 
•8 Copy read "to an standard". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-209 
"(I) IN GENERAL.—Each nursing facility shall be 
subject to a standard survey not later than 15 
months after the date of the previous standard 
survey conducted under this subparagraph. The 
statewide ®
^ average interval between standard 
surveys of a nursing facility shall not exceed 12 
months. 
"(II) SPECIAL SURVEYS.—If not otherwise con-
ducted under subclause (I), a standard survey (or 
an abbreviated standard survey) may be conducted 
within 2 months of any change of ownership, 
administration, management of a nursing facility, 
or director of nursing in order to determine 
whether the change has resulted in any decline in 
the quality of care furnished in the facility. 
"(B) EXTENDED SURVEYS.— 
"(i) IN GENERAL.—Each nursing facility which is 
found, under a standard survey, to have provided sub-
standard quality of care shall be subject to an extended 
survey. Any other facility may, at the Secretary's or 
State's discretion, be subject to such an extended 
survey (or a partial extended survey). 
"(ii) TIMING.—The extended survey shall be con-
ducted immediately after the standard survey (or, if not 
practical, not later than 2 weeks after the date of 
completion of the standard survey). 
"(iii) CONTENTS.—In such an extended survey, the 
survey team shall review and identify the policies and 
procedures which produced such substandard quality of 
care and shall determine whether the facility has com-
plied with all the requirements described in subsections 
(b), (c), and (d). Such review shall include an expansion 
of the size of the sample of residents' assessments 
reviewed and a review of the staffing, of in-service 
training, and, if appropriate, of contracts with consult-
ants. 
"(iv) CONSTRUCTION.—Nothing in this paragraph 
shall be construed as requiring an extended or partial 
extended survey as a prerequisite to imposing a sanc-
tion against a facility under subsection (h) on the basis 
of findings in a standard survey. 
"(C) SURVEY PROTOCOL.—Standard and extended surveys 
shall be conducted— 
"(i) based upon a protocol which the Secretary has 
developed, tested, and validated by not later than Janu-
ary 1,1990, and 
"(ii) by individuals, of a survey team, who meet such 
minimum qualifications as the Secretary establishes by 
not later than such date. 
The failure of the Secretary to develop, test, or validate 
such protocols or to establish such minimum qualifications 
shall not relieve any State of its responsibility (or the 
Secretary of the Secretary's responsibility) to conduct sur-
veys under this subsection. 
*" Copy read "Statewide". 
101 STAT. 1330-210 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(D) CONSISTENCY OF SURVEYS.—Each State shall imple-
ment programs to measure and reduce inconsistency in the 
application of survey results among surveyors. 
"(E) SURVEY TEAMS.— 
"(i) IN GENERAL.—Surveys under this subsection shall 
be conducted by a multidisciplinary team of profes-
sionals (including a registered professional nurse). 
"(ii) PROHIBITION OF CONFLICTS OF INTEREST.—A State 
may not use as a member of a survey team under this 
subsection an individual who is serving (or has served 
within the previous 2 years) as a member of the staff of, 
or as a consultant to, the facility surveyed respecting 
compliance with the requirements of subsections (b), (c), 
and (d), or who has a personal or familial financial 
interest in the facility being surveyed. 
"(iii) TRAINING.—The Secretary shall provide for the 
comprehensive training of State and Federal surveyors 
in the conduct of standard and extended surveys under 
this subsection, including the auditing of resident 
assessments and plans of care. No individual shall 
serve as a member of a survey team unless the individ-
ual has successfully completed a training and testing 
program in survey and certification techniques that 
has been approved by the Secretary. 
"(3) VALIDATION SURVEYS.— 
"(A) IN GENERAL.—The Secretary shall conduct onsite 
surveys of a representative sample of nursing facilities in 
each State, within 2 months of the date of surveys con-
ducted under paragraph (2) by the State, in a sufficient 
number to allow inferences about the adequacies of each 
State's surveys conducted under paragraph (2). In conduct-
ing such surveys, the Secretary shall use the same survey 
protocols as the State is required to use under paragraph 
(2). If the State has determined that an individual nursing 
_, 
facility meets the requirements of subsections (b), (c), and 
(d), but the Secretary determines that the facility does not 
meet such requirements, the Secretary's determination as 
to the facility s noncompliance with such requirements is 
binding and supersedes that of the State survey. 
"(B) SCOPE.—With respect to each State, the Secretary 
shall conduct surveys under subparagraph (A) each year 
with respect to at least 5 percent of the number of nursing 
facilities surveyed by the State in the year, but in no case 
less than 5 nursing facilities in the State. 
"(C) 
REDUCTION IN 
ADMINISTRATIVE COSTS FOR SUB-
STANDARD PERFORMANCE.—If the Secretary finds, on the 
basis of such surveys, that a State has failed to perform 
surveys as required under paragraph (2) or that a State's 
survey and certification performance otherwise is not ade-
quate, the Secretary may provide for the training of survey 
teams in the State and shall provide for a reduction of the 
payment otherwise made to the State under section 
1903(aX2XD) with respect to a quarter equal to 33 percent 
multiplied by a fraction, the denominator of which is equal 
to the total number of residents in nursing facilities sur-
veyed by the Secretary that quarter and the numerator of 
which is equal to the total number of residents in nursing 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-211 
facilities which were found pursuant to such surveys to be 
not in compliance with any of the requirements of subsec-
tions (b), (c), and (d). A State that is dissatisfied with the 
Secretary's findings under this subparagraph may obtain 
reconsideration and review of the findings under section 
1116 in the same manner as a State may seek reconsider-
ation and review under that section of the Secretary's 
determination under section 1116(aXl). 
"(C) SPECIAL SURVEYS OF COMPUANCE.—Where the Sec-
retary has reason to question the compliance of a nursing 
facility with any of the requirements of subsections (b), (c), 
and (d), the Secretary may conduct a survey of the facility 
and, on that basis, make independent and binding deter-
minations concerning the extent to which the nursing facil-
ity meets such requirements. 
"(4) INVESTIGATION OF COMPLAINTS AND MONITORING NURSING 
FACiuTY COMPUANCE.—Each State shall maintain procedures 
and adequate staff to— 
"(A) investigate complaints of violations of requirements 
by nursing facilities, and 
"(B) monitor, on-site, on a regular, as needed basis, a 
nursing facility's compliance with the requirements of 
subsections (b), (c), and (d), if^ 
"(i) the facility has been found not to be in compli-
ance with such requirements and is in the process of 
correcting deficiencies to achieve such compliance; 
"(ii) the facility WEIS previously found not to be in 
compliance with such requirements, has corrected defi-
ciencies to achieve such compliance, and verification of 
continued compliance is indicated; or 
"(iii) the State has reason to question the compliance 
of the facility with such requirements. 
A State may maintain and utilize a specialized team (including 
an attorney, an auditor, and appropriate health care profes- 
»„ 
sionals) for the purpose of identifying, surveying, gathering and 
preserving evidence, and carrying out appropriate enforcement 
actions against chronically substandard nursing facilities. 
"(5) DISCLOSURE OF RESULTS OF INSPECTIONS AND ACTIVITIES.— 
"(A) PuBuc INFORMATION.—Each State, and the Sec-
retary, shall make available to the public— 
"(i) information respecting all surveys and certifi-
cations made respecting nursing facilities, including 
statements of deficiencies and plans of correction, 
"(ii) copies of cost reports of such facilities filed under 
this title or under title XVIII, 
"(iii) copies of statements of ownership under section 
1124, and 
"(iv) information disclosed under section 1126. 
"(B) NOTICE TO OMBUDSMAN.— Each State shall notify the 
State long-term care ombudsman (established under section 
307(aX12) of the Older Americans Act of 1965) of the State's 
findings of noncompliance with any of the requirements of 
subsections (b), (c), and (d), with respect to a nursing facility 
in the State. 
"(C) 
NOTICE 
TO 
PHYSICIANS AND 
NURSING FACILITY 
ADMINISTRATOR UCENSING BOARD.—If a State finds that a 
101 STAT. 1330-212 
PUBLIC LAW 100-203—DEC. 22, 1987 
nursing facility hsis provided substandard quality of care, 
the State shall notify— 
• 
"(i) the attending physician of each resident with 
p 
respect to which such finding is made, and 
"(ii) any State board responsible for the licensing of 
the nursing facility administrator of the facility. 
fc 
"(D) ACCESS TO FRAUD CONTROL UNITS.—Each State shall 
provide its State medicaid fraud and abuse control unit 
(established under section 1903(q)) with access to all 
information of the State agency responsible for surveys and 
certifications under this subsection. '. 
(b) POSTING SURVEY RESULTS.—Section 1864(a) of such Act (42 
U.S.C. 1395aa(a)) is amended by inserting, after "readily available 
form and place" in the fifth sentence, the following: ", and require 
(in the case of skilled nursing facilities) the posting in a place readily 
accessible to patients (and patients' representatives),". 
(c) INCREASING MATCHING PERCENTAGE FOR NURSING HOME 
SURVEY AND CERTIFICATION ACTIVITIES.—(1) Section 1903(aX2) of 
such Act (42 U.S.C. 1396b(a)(2)), as amended by this title, is further 
amended by adding at the end the following new subparagraph: 
"(D) for each calendar quarter during— 
"(i) fiscal year 1991, an amount equal to 90 percent, 
"(ii) fiscal year 1992, an amount equal to 85 percent, 
; , 
"(iii) fiscal year 1993, an amount equal to 80 percent, and 
"(iv) fiscal year 1994 and thereafter, an amount equal to 
75 percent, 
of so much of the sums expended during such quarter (as found 
necessary by the Secretary for the proper and efficient adminis-
tration of the State plan) as are attributable to State activities 
under section 1919(g); plus". 
(2) Section 1903(r) of such Act (42 U.S.C. 1396b(r)) is amended by 
striking "paragraphs (2)" each place it appears and inserting "para-
graphs (2KA)". 
42 use 1396b 
(3) For purposes of section 1903(a) of the Social Security Act, 
note. 
proper expenses incurred by a State for medical review by independ-
ent professionals of the care provided to residents of nursing facili-
ties who are entitled to medical assistance under title XIX of such 
Act shall be reimbursable as expenses necessary for the proper and 
efficient administration of the State plan under that title. 
(d) REVISION OF PENALTY PROVISIONS.—(1) Section 1903(g) of such 
Act (42 U.S.C. 1396b(g)) is amended— 
(A) in paragraph (1)— 
(i) by striking "or intermediate care facility services" the 
first place it appears and inserting "or services in an 
• •^.'•: intermediate care facility for the mentally retarded", 
(ii) by striking ", skilled nursing facility services for 30 
i 
' •' days,", 
(iii) by striking ", skilled nursing facility services, or 
intermediate care facility services" and inserting "or serv-
ices in an intermediate care facility for the mentally 
retarded", 
(iv) by striking ", skilled nursing facilities, and intermedi-
ate care facilities" and inserting "and intermediate care 
facilities for the mentally retarded"; 
(B) in paragraph (4XB), by striking ", skilled nursing facilities, 
* and intermediate care facilities" and inserting "and intermedi-
fi ate care facilities for the mentally retarded"; 
x 
v 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-213 
(C) in paragraph (6)— 
(i) by striking subparagraph (B), 
(ii) in subparagraph (C), by striking "intermediate care 
facility services" and inserting "services in an intermediate 
care facility for the mentally retarded", and 
\ 
(iii) by redesignating subparagraphs (C) and (D) as sub-
paragraphs (B) and (C), respectively; and 
(D) by striking paragraph (7). 
(2) Section 1902(aX31) of such Act (42 U.S.C. 1396a(a)(31)) is 
amended— 
(A) in the matter before subparagraph (A), by striking "skilled 
nursing facility services" and all that follows through "where" 
and inserting "services in an intermediate care facility for the 
mentally retarded (where", and 
(B) in subparagraph (B), by striking "skilled nursing or inter-
mediate care facility" and inserting "intermediate care facility 
for the mentally retarded". 
(3) Section 1902(aX33)(B) of such Act (42 U.S.C. 1396a(a)(33)(B)) is 
amended by inserting ", except as provided in section 1919(d)," after 
"(B) that". 
(4) The amendments made by this subsection shall not apply to a Effective date. 
State until such date (not earlier than October 1, 1990) as of which 
42 use I396a 
the Secretary determines that— 
"°*® 
(A) the State has specified the resident assessment in-
strument under section 1919(e)(5) of the Social Security Act, and 
(B) the State has begun conducting surveys under section 
1919(gX2)ofsuchAct. 
(e) 
MISCELLANEOUS 
CONFORMING 
AMENDMENTS.—(1) 
Section 
1902(aX44) of such Act (42 U.S.C. 1396a(aX44)) is amended— 
(A) in the matter before subparagraph (A), by striking "skilled 
nursing facility services, intermediate care facility services" 
and inserting "services in an intermediate care facility for the 
mentally retarded", and 
(B) in subparagraph (A), by striking "that are intermediate 
care facility services in an institution for the mentally re-
tarded" and inserting "that are services in an intermediate care 
facility for the mentally retarded". 
(2) Section 1903(aX7) of such Act (42 U.S.C. 1396b(aX7)) is amended 
by inserting "subject to section 1919(gX3XB)," after "(7)". 
(3) Section 1910 of such Act (42 U.S.C. 13961) is amended— 
(A) by striking "SKILLED NURSING FACILITIES AND" in the 
heading, 
(B) by striking subsection (a), and 
(C) by redesignating subsections (b) and (c) as subsections (a) 
and (b) resoectivelv. 
(4) Section 1866(c) of such Act (42 U.S.C. 1395cc(c)) is amended by 
striking paragraph (2) and by redesignating paragraph (3) as para-
graph (2). 
SEC. 4213. ENFORCEMENT PROCESS. 
(a) IN GENERAL.—Section 1919 of the Social Security Act, as 
inserted by section 4201 and amended by section 4202, is further 
amended by adding at the end the following new subsection: 
"(h) ENFORCEMENT PROCESS.— 
"(1) IN GENERAL.—If a State finds, on the basis of a standard, 
extended, or partial extended survey under subsection (gX2) or 
otherwise, that a nursing facility no longer meets a requirement 
101 STAT. 1330-214 
PUBLIC LAW 100-203—DEC. 22, 1987 
of subsection 0)), (c), or (d), and further finds that the facility's 
deficiencies— 
"(A) immediately jeopardize the health or safety of its 
residents, the State shall take immediate action to remove 
the jeopardy and correct the deficiencies through the 
remedy specified in paragraph (2XAXiii), or terminate the 
facility's participation under the State plan and may pro-
vide, in addition, for one or more of the other remedies 
; 
described in paragraph (2); or 
"(B) do not immediately jeopardize the health or safety of 
its residents, the State may— 
"(i) terminate the facility's participation under the 
State plan, 
"(ii) provide for one or more of the remedies de-
scribed in paragraph (2), or 
"(iii) do both. 
Nothing in this paragraph shall be construed as restricting the 
remedies available to a State to remedy a nursing facility's 
deficiencies. If a State finds that a nursing facility meets the 
requirements of subsections (b), (c), and (d), but, as of a previous 
period, did not meet such requirements, the State may provide 
for a civil money penalty under paragraph (2XAXi) for the days 
in which it finds that the facility was not in compliance with 
such requirements. 
Regulations. 
"(2) SPECIFIED REMEDIES.— 
"(A) LISTING.—Except as provided in subparagraph (BXii), 
each State shall establish by law (whether statute or regula-
f
, 
tion) at least the following remedies: 
"(i) Denial of payment under the State plan with 
respect to any individual admitted to the nursing facil-
ity involved after such notice to the public and to the 
facility as may be provided for by the State. 
"(ii) A civil money penalty assessed and collected, 
with interest, for each day in which the facility is or 
was out of compliance with a requirement of subsection 
(b), (c), or (d). Funds collected by a State as a result of 
imposition of such a penalty (or as a result of the 
|. i. 
imposition by the State of a civil money penalty for 
activities 
described 
in 
subsections 
(bXSXBXiiXD, 
(bX3XBXiiXII), or (gX2XAXi)) shall be applied to the 
i^ , 
protection of the health or property of residents of 
nursing facilities that the State or the Secretary finds 
deficient, including payment for the costs of relocation 
J . 
of residents to other facilities, maintenance of oper-
ation of a facility pending correction of deficiencies or 
closure, and reimbursement of residents for personal 
, 
funds lost. 
" 
"(iii) The appointment of temporary management to 
oversee the operation of the facility and to assure the 
health and safety of the facility s residents, where 
there is a need for temporary management while— 
"(I) there is an orderly closure of the facility, or 
"(II) improvements are made in order to bring 
the facility into compliance with all the require-
ments of subsections (b), (c), and (d). 
The temporary management under this clause shall 
, . 
not be terminated under subclause (II) until the State 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-215 
h£is determined that the facility has the management 
capability to ensure continued compliance with all the 
requirements of subsections (b), (c), and (d). 
"(iv) The authority, in the case of an emergency, to 
close the facility, to transfer residents in that facility to 
other facilities, or both. 
The State also shall specify criteria, as to when and how 
each of such remedies is to be applied, the amounts of any 
fines, and the severity of each of these remedies, to be used 
in the imposition of such remedies. Such criteria shall be 
designed so as to minimize the time between the identifica-
tion of violations and final imposition of the remedies and 
shall provide for the imposition of incrementally more 
severe fines for repeated or uncorrected deficiencies. In 
addition, the State may provide for other specified rem-
edies, such as directed plans of correction. 
"(B) DEADLINE AND GUIDANCE,—(i) Except as provided in 
clause (ii), as a condition for approval of a State plan for 
calendar quarters beginning on or after October 1, 1989, 
each State shall establish the remedies described in clauses 
(i) through (iv) of subparagraph (A) by not later than Octo-
ber 1, 1989. The Secretary shall provide, through regula- Regulations. 
tions or otherwise by not later than October 1, 1988, guid-
ance to States in establishing such remedies; but the failure 
of the Secretary to provide such guidance shall not relieve a 
State of the responsibility for establishing such remedies. 
"(ii) A State may establish alternative remedies (other 
than termination of participation) other than those de-
scribed in clauses (i) through (iv) of subparagraph (A), if the 
State demonstrates to the Secretary's satisfaction that the 
alternative remedies are as effective in deterring non-
compliance and correcting deficiencies as those described in 
subparagraph (A). 
"(C) ASSURING PROMPT COMPUANCE.—If a nursing facility 
has not complied with any of the requirements of subsec-
tions (b), (c), and (d), within 3 months after the date the 
facility is found to be out of compliance with such require-
ments, the State shall impose the remedy described in 
subparagraph (AXi) for all individuals who are admitted to 
the facility after such date. 
"(D) REPEATED NONCOMPUANCE.—In the case of a nursing 
facility which, on 3 consecutive standard surveys conducted 
under subsection (gX2), has been found to have provided 
substandard quality of care, the State shall (regardless of 
what other remedies are provided)— 
"(i) impose the remedy described in subparagraph 
(AXi), and 
"(ii) monitor the facility under subsection (gX4XB), 
until the facility has demonstrated, to the satisfaction of 
the State, that it is in compliance with the requirements of 
subsections (b), (c), and (d), and that it will remain in 
compliance with such requirements. 
"(E) FUNDING.—The reasonable expenditures of a State to 
provide for temporary management and other expenses 
associated with implementing the remedies described in 
clauses (iii) and (iv) of subparagraph (A) shall be considered, 
101 STAT. 1330-216 
PUBLIC LAW 100-203—DEC. 22, 1987 
t*f 
for purposes of section 1903(aX7), to be necessary for the 
*? 
proper and efficient administration of the State plan. 
"(F) INCENTIVES FOR HIGH QUAUTY CARE.—In addition to 
the remedies specified in this paragraph, a State may estab-
lish a program to reward, through public recognition, incen-
tive payments, or both, nursing facilities that provide the 
highest quality care to residents who are entitled to medical 
assistance under this title. For purposes of section 
1903(aX7), proper expenses incurred by a State in carrying 
out such a program shall be considered to be expenses 
necessary for the proper and efficient administration of the 
State plan under this title. 
"(3) SECRETARIAL AUTHORITY.— 
"(A) FOR STATE NURSING FACILITIES.—With respect to a 
-»« 
State nursing facility, the Secretary shall have the author-
ity and duties of a State under this subsection, including 
the authority to impose remedies described in clauses (i), 
(ii), and (iii) of paragraph (2X 
A). 
"(B) OTHER NURSING FACILITIES.—With respect to any 
other nursing facility in a State, if the Secretary finds that 
a nursing facility no longer meets a requirement of subsec-
i 
tion (b), (c), (d), or (e), and further finds that the facility's 
deficiencies— 
"(i) immediately jeopardize the health or safety of its 
residents, the Secretary shall take immediate action to 
remove the jeopardy and correct the deficiencies 
through the remedy specified in subparagraph (CXiii), 
or terminate the facility's participation under the State 
plan and may provide, in addition, for one or more of 
the other remedies described in subparagraph (C); or 
"(ii) do not immediately jeopardize the health or 
J 
safety of its residents, the Secretary may impose any of 
the remedies described in subparagraph (C). 
Nothing in this subparagraph shall be construed as restrict-
ing the remedies available to the Secretary to remedy a 
nursing facility's deficiencies. If the Secretary finds that a 
nursing facility meets such requirements but, as of a pre-
vious period, did not meet such requirements, the Secretary 
5 
may provide for a civil money penalty under subparagraph 
(CXii) for the days on which he finds that the facility was 
not in compliance with such requirements. 
"(C) SPECIFIED REMEDIES.—The Secretary may take the 
following actions with respect to a finding that a facility 
h£is not met an applicable requirement: 
"(i) DENIAL OF PAYMENT.—The Secretary may deny 
' '"•;,,':•• 
any further payments to the State for medical assist-
ance furnished by the facility to all individuals in the 
facility or to individuals admitted to the facility after 
the effective date of the finding. 
"(ii) AUTHORITY WITH RESPECT TO CIVIL MONEY PEN-
¥ 
ALTiES.—The Secretary may impose a civil money pen-
alty in an amount not to exceed $10,000 for each day of 
noncompliance and the Secretary shall impose and 
collect such a penalty in the same manner as civil 
money penalties are imposed and collected under 
section 1128A. 
„ , 
, 
„. ... , 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-217 
"(iii) APPOINTMENT OF TEMPORARY MANAGEMENT.—In 
consultation with the State, the Secretary may appoint 
temporary management to oversee the operation of the 
facility and to assure the health and safety of the 
facility's residents, where there is a need for temporary 
management while— 
"(I) there is an orderly closure of the facility, or 
,0, 
, 
"(II) improvements are made in order to bring 
the facility into compliance with all the require-
ments of subsections (b), (c), and (d). 
The temporary management under this clause shall 
not be terminated under subclause (II) until the Sec-
retary has determined that the facility has the manage-
ment capability to ensure continued compliance with 
all the requirements of subsections (b), (c), and (d). 
The Secretary shall specify criteria, as to when and how 
each of such remedies is to be applied, the amounts of any 
fines, and the severity of each of these remedies, to be used 
in the imposition of such remedies. Such criteria shall be 
designed so as to minimize the time between the identifica-
tion of violations and final imposition of the remedies and 
shall provide for the imposition of incrementally more 
severe fines for repeated or uncorrected deficiencies. In 
addition, the Secretary may provide for other specified 
remedies, such as directed plans of correction. 
"(D) 
CONTINUATION 
OF 
PAYMENTS 
PENDING 
REMEDI-
ATION.—The Secretary may continue payments, over a 
period of not longer than 6 months, under this title with 
respect to a nursing facility not in compliance with a 
requirement of subsection (b), (c), or (d), i
f
— 
"(i) the State survey agency finds that it is more 
appropriate to take alternative action to assure compli-
ance of the facility with the requirements than to 
terminate the certification of the facility, 
"(ii) the State has submitted a plan and timetable for 
corrective action to the Secretary for approval and the 
Secretary approves the plan of corrective action, and 
"(iii) the State agrees to repay to the Federal Govern-
ment payments received under this subparagraph if 
the corrective action is not taken in accordance with 
the approved plan and timetable. 
The Secretary shall establish guidelines for approval of 
corrective actions requested by States under this subpara-
graph. 
"(4) EFFECTIVE PERIOD OF DENIAL OF PAYMENT.—A finding to 
deny payment under this subsection shall terminate when the 
State or Secretary (or both, as the case may be) finds that the 
facility is in substantial compliance with all the requirements of 
subsections (b), (c), and (d). 
"(5) IMMEDIATE TERMINATION OF PARTICIPATION FOR FACIUTY 
WHERE STATE O
R SECRETARY FINDS NONCOMPUANCE AND IMME-
DIATE JEOPARDY.—If either the State or the Secretary finds that 
a nursing facility has not met a requirement of subsection (b), 
(c), or (d), and finds that the failure immediately jeopardizes the 
health or safety of its residents, the State and the Secretary 
shall notify the other of such finding, and the State or the 
Secretary, respectively, shall take immediate action to remove 
101 STAT. 1330-218 
PUBLIC LAW 100-203—DEC. 22, 1987 
the jeopardy and correct the deficiencies through the remedy 
specified in paragraph (2XAXiii) or (SXCXiii), or terminate the 
facility's participation under the State plan. If the facility's 
participation in the State plan is terminated by either the State 
or the Secretary, the State shall provide for the safe and orderly 
transfer of the residents eligible under the State plan consistent 
with the requirements of subsection (cX2). 
"(6) SPECIAL RULES WHERE STATE AND SECRETARY DO NOT AGREE 
ON FINDING OF NONCOMPLIANCE.— 
"(A) STATE FINDING OF NONCOMPUANCE AND NO SECRETAR-
IAL FINDING OF NONCOMPLIANCE.—If the Secretary finds 
that a nursing facility has met all the requirements of 
subsections (b), (c), and (d), but a State finds that the facility 
has not met such requirements and the failure does not 
immediately jeopardize the health or safety of its residents, 
the State's findings shall control and the remedies imposed 
by the State shall be applied. 
"(B) 
SECRETARIAL FINDING OF NONCOMPLIANCE AND NO 
STATE FINDING OF NONCOMPUANCE.—If the Secretary finds 
that a nursing facility has not met all the requirements of 
subsections (b), (c), and (d), and that the failure does not 
immediately jeopardize the health or safety of its residents, 
but the State has not made such a finding, the Secretary— 
"(i) may impose any remedies specified in paragraph 
(3XC) with respect to the facility, and 
"(ii) shall (pending any termination by the Secretary) 
permit continuation of payments in accordance with 
paragraph (3XD). 
"(7) SPECIAL RULES FOR TIMING OF TERMINATION OF PARTICIPA-
TION WHERE REMEDIES OVERLAP.—If both the Secretary and the 
State find that a nursing facility has not met all the require-
ments of subsections (b), (c), and (d), and neither 
finds 
that the failure immediately jeopardizes the health or safety of 
its residents— 
"(AXi) if both find that the facility's participation under 
the State plan should be terminated, the State's timing of 
any termination shall control so long £is the termination 
date does not occur later than 6 months after the date of 
the finding to terminate; 
"(ii) if the Secretary, but not the State, finds that the 
facility's participation under the State plan should be 
terminated, the Secretary shall (pending any termination 
by the Secretary) permit continuation of payments in 
accordance with paragraph (3XD); or 
"(iii) if the State, but not the Secretary, finds that the 
facility's participation under the State plan should be 
terminated, the State's decision to terminate, and timing of 
such termination, shall control; and 
"(BXi) if the Secretary or the State, but not both, estab-
lishes one or more remedies which are additional or alter-
native to the remedy of terminating the facility's participa-
tion under the State plan, such additional or alternative 
remedies shall also be applied, or 
"(ii) if both the Secretary and the State establish one or 
more remedies which are additional or alternative to the 
remedy of terminating the facility's participation under the 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-219 
State plan, only the additional or alternative remedies of 
the Secretary shall apply. 
"(8) CONSTRUCTION.—The remedies provided under 
this 
subsection are in addition to those otherwise available under 
State or Federal law and shall not be construed as limiting such 
other remedies, including any remedy available to an individual 
at common law. The remedies described in clauses (i), (iii), and 
(iv) of paragraph (2)(A) may be imposed during the pendency of 
any hearing. 
"(9) SHARING OF INFORMATION.—Notwithstanding any other 
provision of law, all information concerning nursing facilities 
required by this section to be filed with the Secretary or a State 
agency shall be made available to Federal or State employees 
for purposes consistent with the effective administration of 
programs established under this title and title XVIII, including 
investigations by State medicaid fraud control units.", 
(b) CONFORMING AMENDMENTS.—(1) Section 1902 of such Act (42 
U.S.C. 1396a) is amended by striking subsection (i). 
(2) Section 1903(i) of such Act (42 U.S.C. 1396b(i)) is amended by 
striking the period at the end of paragraph (7) and inserting "; or" 
and by adding at the end the following new paragraph: 
"(8) with respect to any amount expended for medical assist-
ance for nursing facility services to reimburse (or otherwise 
compensate) a nursing facility for payment of a civil money 
penalty imposed under section 1919(h).'. 
SEC. 4214. EFFECTIVE DATES. 
42 USC 1396r 
(a) 
NEW 
REQUIREMENTS 
AND 
SURVEY 
AND 
CERTIFICATION 
PROCESS.—Except as otherwise specifically provided in section 1919 
of the Social Security Act, the amendments made by sections 4211 
and 4212 (relating to nursing facility requirements and survey and 
certification requirements) shall apply to nursing facility services 
furnished on or after October 1, 1990, without regard to whether 
regulations to implement such amendments are promulgated by 
such date; except that section 1902(a)(28XB) of the Social Security 
Act (as amended by section 4211(b) of this Act), relating to requiring 
State medical assistance plans to specify the services included in 
nursing facility services, shall apply to calendar quarters beginning 
more than 6 months after the date of the enactment of this Act, 
without regard to whether regulations to implement such section 
are promulgated by such date. 
(b) ENFORCEMENT.—(1) Except as otherwise specifically provided in 
section 1919 of the Social Security Act, the amendments made by 
section 4213 of this Act apply to payments under title XIX of the 
Social Security Act for calendar quarters beginning on or after the 
date of the enactment of this Act, without regard to whether 
regulations to implement such amendments are promulgated by 
such date. 
(c) TRANSITIONAL RULE.—In applying the amendments made by 
this part for services furnished before October 1,1990— 
(A) any reference to a nursing facility is deemed a reference 
to a skilled nursing facility or intermediate care facility (other 
than an intermediate care facility for the mentally retarded), 
and 
(B) with respect to such a skilled nursing facility or intermedi-
ate care facility, any reference to a requirement of subsection 
101 STAT. 1330-220 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1396r 
note. 
42 u s e 1396r. 
Effective date. 
42 u s e 1396r-3 
note. 
100 Stat. 82. 
(b), (c), or (d), is deemed a reference to the provisions of section 
186l(j) or section 1905(c), respectively, of the Social Security Act. 
(d) WAIVER OF PAPERWORK REDUCTION.—Chapter 35 of title 44, 
United States Code, shall not apply to information required for 
purposes of carrying out this part and implementing the amend-
ments made by this part. 
SEC. 4215. ANNUAL REPORT. 
The Secretary of Health and Human Services shall report to the 
Congress annually on the extent to which nursing facilities are 
complying with the requirements of subsections (b), (c), and (d) of 
section 1919 of the Social Security Act (as added by the amendments 
made by this part) and the number and type of enforcement actions 
taken by States and the Secretary under section 1919(h) of such Act 
(as added by section 4213 of this Act). 
SEC. 4216. CONSTRUCTION. 
Section 1919 of the Social Security Act is amended by adding at 
the end the following new subsection: 
"(i) CONSTRUCTION.—Where requirements or obligations under 
this section are identical to those provided under section 1819 of this 
Act, the fulfillment of those requirements or obligations under 
section 1819 shall be considered to be the fulfillment of the cor-
responding requirements or obligations under this section.". 
SEC. 4217. FINAL REGULATIONS WITH RESPECT TO PLANS OF CORREC-
TION OR REDUCTION. 
(a) IN GENERAL.—Not later than 30 days after the date of enact-
ment of this Act, the Secretary of Health and Human Services shall 
promulgate final regulations to implement the amendments made 
by section 9516 of the Consolidated Omnibus Budget Reconciliation 
Act of 1985. 
(b) The regulations promulgated under paragraph (1) shall be 
effective as if promulgated on the date of enactment of the Consoli-
dated Omnibus Budget Reconciliation Act of 1985. 
SEC. 4218. MEDICAID CERTIFICATIONS AND RECERTIFICATIONS FOR CER-
TAIN SERVICES. 
(a) IN GENERAL.—Section 1902(aX44) of the Social Security Act (42 
U.S.C. 1396a(aX44)) is amended— 
(1) in subparagraph (A)— 
(A) by striking "physician certifies" and inserting "physi-
cian (or, in the case of skilled nursing facility services or 
intermediate care facility services, a physician, or a nurse 
practitioner or clinical nurse specialist who is not an em-
ployee of the facilitv but is working in collaboration with a 
physician) certifies', and 
(B) by striking "the physician, or a physician assistant or 
nurse practitioner under the supervision of a physician," 
and inserting "a physician, a physician assistant under the 
supervision of a physician, or, in the case of skilled nursing 
facility services or intermediate care facility services, a 
physician, or a nurse practitioner or clinical nurse special-
ist who is not an employee of the facility but is working in 
collaboration with a physician,"; and 
" (2) in subparagraph (B), by striking "a physician;" and insert-
ing "a physician, or, in the case of skilled nursing facility 
~M 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-221 
services or intermediate care facility services, a physician, or a 
nurse practitioner or clinical nurse specialist who is not an 
employee of the facility but is working in collaboration with a 
physician;". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to certifications or recertifications during 
the period beginning on July 1, 1988, and ending on October 1, 1990. 
Subtitle D—Vaccine Compensation 
42 u s e 1396a 
note. 
Vaccine 
Compensation 
Amendments of 
1987. 
SEC. 4301. SHORT TITLE, REFERENCE. 
(a) SHORT TITLE.—This subtitle may be cited as the "Vaccine 42 USC 201 note. 
Compensation Amendments of 1987". 
(b) REFERENCE.—Whenever in this subtitle (other than in section 
4302(a)) an amendment or repeal is expressed in terms of an amend-
ment to, or repeal of, a section or other provision, the reference shall 
be considered to be made to a section or other provision of the Public 
Health Service Act. 
SEC. 4302. EFFECTIVE DATE. 
(a) IN GENERAL.—Section 323(a) of the National Childhood Vac-
cine Injury Act of 1986 (42 U.S.C. 300aa-l note) is amended by 
striking out "Subtitle 2 of such title and this title shall take effect 
on the effective date of a tax" and all that follows in that section 
and inserting in lieu thereof "parts A and B of subtitle 2 of such title 
shall take effect on October 1, 1988 and parts C and D of such title 
and this title shall take effect on the date of the enactment of the 
Vaccine Compensation Amendments of 1987.". 
(b) REFERENCES."— 
(1) Sections 2111, 2115, 2119(a), 2122, 2123, 2125, 2126, 2127, 42 USC 
and 2128 (42 U.S.C. 300aa-ll, 300aa-15, 300aa-199a), 300aa-22, 300aa-i9. 
300aa-23, 300aa-25, 300aa-26, 300aa-27, 300aa-28) are each 
amended by striking out "effective date of this subtitle" each 
place it appears and inserting in lieu thereof "effective date of 
this part". 
(2) Sections 2111(aX5)(A), 2115(eX2) and 2116 (42 U.S.C. 300aa- 42 USC 
ll(a)(5XA), 300aa-15(eX2), 300a-16) are each amended by strik- 300aa-16. 
ing out "effective date of this title" each place it appears and 
inserting in lieu thereof "effective date of this part". 
SEC. 4303. COMPENSATION. 
(a) SOURCE.—Section 2115 (42 U.S.C. 300aa-15) is amended by 
adding at the end the following: 
"(i) SOURCE OF COMPENSATION.— 
"(1) Payment of compensation under the Program to a peti-
tioner for a vaccine-related injury or death associated with the 
administration of a vaccine before the effective date of this part 
shall be made from appropriations under subsection (i). 
"(2) Payment of compensation under the Program to a peti-
tioner for a vaccine-related injury or death associated with the 
administration of a vaccine on or after the effective date of this 
part shall be made from the Vaccine Injury Compensation Trust 
Fund established under section 9510 of the Internal Revenue 
Code of 1986.". 
101 STAT. 1330-222 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 
300aa-15. 
42 use 
300aa-12. 
(b) AUTHORIZATION.—Section 2115 (42 U.S.C. 300aa-15) (as 
amended by subsection (a)) is amended by adding at the end 
the following: 
"0") AUTHORIZATION.—For the payment of compensation under the 
Program to a petitioner for a vaccine-related injury or death associ-
ated with the administration of a vaccine before the effective date of 
this part there are authorized to be appropriated $80,000,000 for 
fiscal year 1989, $80,000,000 for fiscal year 1990, $80,000,000 for 
fiscal year 1991, and $80,000,000 for fiscal year 1992. Amounts 
appropriated under this subsection shall remain available until 
expended.". 
(c) MINIMUM.—Section 2115(a)(1) (42 U.S.C. 300a-15(aXl)) is 
amended by striking out the last sentence of subparagraphs 
(A)and(B). 
(d) LUMP SUM.— 
^.^' 
^? 
(1) Section 2115 (42 U.S.C. 300aa-15) is amended— 
(A) by striking out the last two sentences after paragraph 
. : 
(4) in subsection (a), and 
(B) by adding at the end of the first subsection (f) the 
following: 
"(4XA) Except as provided in subparagraph (B), payment of 
compensation under the Program shall be made in a lump sum 
determined on the basis of the net present value of the elements 
of the compensation. 
"(B) In the case of a payment of compensation under the 
Program to a petitioner for a vaccine-related injury or death 
associated with the administration of a vaccine before the effec-
tive date of this part the compensation shall be paid in 4 equal 
annual installments. If the appropriations under subsection (i) 
are insufficient to make a payment of an annual installment, 
section 2111(a) shall not apply to a civil action for damages 
brought by the petitioner entitled to the payment.". 
(2XA) Subsections (e) and (f) of section 2112 (42 U.S.C. 300a-12) 
are repealed and subsection (g) of such section is redesignated as 
(B) Section 2118 (42 U.S.C. 300aa-18) is repealed. 
(e) LIMIT.—Section 2115(b) (42 U.S.C. 300aa-15(b)) is amended by 
striking out "shall only include the compensation described in 
paragraphs (IXA) and (2) of subsection (a)" and inserting in lieu 
thereof the following: "may not include the compensation described 
in paragraph (IXB) of subsection (a) and may include attorneys' fees 
and other costs included in a judgment under subsection (e), except 
that the total amount that may be paid as compensation under 
paragraphs (3) and (4) of subsection (a) and included as attorneys' 
fees and other costs under subsection (e) may not exceed $30,000". 
(f) TERMINATION OF PROGRAM.—Part D of title XXI is amended by 
adding at the end the following: 
42 use 
300aa-34. 
TERMINATION OF PROGRAM 
"SEC. 2134. (a) REVIEWS.—The Secretary shall review the number 
of awards of compensation made under the program to petitioners 
under section 2111 for vaccine-related injuries and deaths associated 
with the administration of vaccines on or after the effective date of 
this part as follows: 
?
-
s
^ • j ..i 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-223 
"(1) The Secretary shall review the number of such awards 
made in the 12-month period beginning on the effective date of 
this part. 
"(2) At the end of each 3-month period beginning after the 
expiration of the 12-month period referred to in paragraph (1) 
the Secretary shall review the number of such awards made in 
the 3-month period. 
"(b) REPORT.— 
"(1) If in conducting a review under subsection (a) the Sec-
retary determines that at the end of the period reviewed the 
total number of awards made by the end of that period and 
accepted under section 2121(a) exceeds the number of awards 
listed next to the period reviewed in the table in paragraph (2)— 
"(A) the Secretary shall notify the Congress of such deter-
mination, and 
"(B) beginning 180 days after the receipt by Congress of a 
notification under paragraph (1), no petition for a vaccine-
related injury or death associated with the administration 
of a vaccine on or after the effective date of this part may 
be filed under section 2111. 
Section 2111(a) and part B shall not apply to civil actions for 
damages for a vaccine-related injury or death for which a 
petition may not be filed because of subparagraph (B). 
"(2) The table referred to in paragraph (1) is as follows: 
Total number of awards 
by the end of the period 
•
"
* "Period reviewed: 
reviewed 
12 months after the effective date of part 
150 
13th through the 15th month after such date 
188 
16th through the 18th month after such date 
225 
19th through the 21st month after such date 
263 
22nd through the 24th month after such date 
300 
25th through the 27th month after such date 
338 
28th through the 30th month after such date 
375 
31st through the 33rd month after such date 
413 
34th through the 36th month after such date 
450 
37th through the 39th month after such date 
488 
40th through the 42nd month after such date 
525 
43rd through the 45th month after such date 
563 
46th through the 48th month after such date 
600.". 
(g) TECHNICAL.—Section 2115 (42 U.S.C. 300a-15) is amended by 
redesignating the second subsection (f) and subsection (g) as subsec-
tions (g) and (h), respectively. 
SEC. 4304. PETITIONS. 
(a) APPUCATION OF LIMITS.—Section 2111(a) (42 U.S.C. 300aa-ll) is 
amended by adding at the end the following: 
"(8) This subsection applies only to a person who has sustained a 
vaccine-related injury or death and who is qualified to file a petition 
for compensation under the Program.". 
Ot)) QUAUFICATION.— 
(1) Section 2111(bXl) (42 U.S.C. 300a-l 
1(b)(1)(A)) is amended by 
striking out "may file" and inserting in lieu thereof "may, if the 
person meets the requirements of subsection (c)(1), file". 
(2) Section 2111(cXlXD) (42 U.S.C. 300a-ll(cXl)(D)) is amended 
(A) by striking out "for more than 1 year" and inserting in lieu 
thereof "for more than 6 months", (B) by striking out ",Tii)" and 
42 use 
300aa-15. 
42 use 
300aa-ll. 
'"Copy read "Period reviewed:". 
101 STAT. 1330-224 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 
300aa-21. 
42 use 
300aa-31. 
42 use 
300aa-ll. 
inserting in lieu thereof "and", and (C) by striking out "(iii)" 
and inserting in lieu thereof "(ii)". 
(c) WITHDRAWAL.—Section 2121 (42 U.S.C. 300a-21) is amended by 
redesignating subsection (b) as subsection (c) and by inserting after 
subsection (a) the following: 
"(b) WITHDRAWAL OF PETITION.—If the United States Claims Court 
fails to enter a judgment under section 2112 on a petition filed under 
section 2111 within 365 days after the date on which the petition 
was filed, the petitioner may submit to the court a notice in writing 
withdrawing the petition. Such a notice shall be filed not later than 
90 days after the expiration of such 365-day period. A person who 
has submitted a notice under this subsection may, notwithstanding 
section 2111(a)(2), thereafter maintain a civil action for damages in a 
State or Federal court without regard to part B and consistent with 
otherwise applicable law.". 
SEC. 4305. CITIZEN'S ACTIONS. 
Section 2131(c) (42 U.S.C. 300a-31(c)) '^ is amended by striking out 
"to any party, whenever the court determines that such award is 
appropriate" and inserting in lieu thereof "to any plaintiff who 
substantially prevails on one or more significant issues in the 
action". 
SEC. 4306. VACCINE ADMINISTRATORS. 
^ ^ 
Section 2111(a) (42 U.S.C. 300a-ll) is amended by striking out 
"vaccine manufacturer" each place it appears and inserting in lieu 
thereof "vaccine administrator or manufacturer". 
SEC. 4307. COURT JURISDICTION. 
Subtitle 2 of title XXI is amended as follows: 
(1) Section 2111(aXl) (42 U.S.C. 300aa-ll(aXl)) is amended by 
striking out "with the United States district court for the 
district in which the petitioner resides or the injury or death 
occurred" and inserting in lieu thereof "with the United States 
Claims Court". 
(2) Section 2111(aX2)(AXii) (42 U.S.C. 300aa-ll(aX2XAXii)) is 
amended by striking out "a district court of the United States" 
and inserting in lieu thereof "the United States Claims Court". 
t 
(3) Section 2112 (42 U.S.C. 300aa-12) is amended— 
<Tk. .. 
(A) in subsection (a), by striking out "district courts of the 
United States" and inserting in lieu thereof "United States 
Claims Court" and by striking out "the courts" and insert-
ing in lieu thereof "the court", 
f (i ' 
(B) in subsection (cXD, by striking out "the district court 
of the United States in which the petition is filed" and 
>• 
inserting in lieu thereof "the United States Claims Court", 
' 
and 
(C) in subsection (g), by striking out "a district court of 
the United States" and inserting in lieu thereof "the 
United States Claims Court" and by striking out "for the 
V
" 
circuit in which the court is located" and inserting in lieu 
thereof "for the Federal Circuit". 
(4) Section 2113(c) (42 U.S.C. 300aa-13(c)) is amended by strik-
ing out "a district court of the United States" and inserting in 
lieu thereof "the United States Claims Court". 
" Copy read "300a-31(c)". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-225 
(5) Section 2115{eXl) (42 U.S.C. 300aa-15(eKl)) is amended by 
striking out "of a court" and inserting in lieu thereof "of the 
United States Claims Court". 
(6) Paragraph (2) of subsection (f) of section 2115 (42 U.S.C. 
300aa-15) is amended by striking out "district court of the 
United States" and inserting in lieu thereof "United States 
Claims Court". 
(7) Section 2117(a) (42 U.S.C. 300aa-17(a)) is amended by 
striking out "(1)", by running in the text of paragraph (1) into 
the subsection heading, and by striking out paragraph (2). 
(8) Section 2121(a) (42 U.S.C. 300aa-21(a)) is amended by 
striking out "a district court of the United States" and inserting 
in lieu thereof "the United States Claims Court" and by striking 
out "a court" each place it occurs and inserting in lieu thereof 
"the court". 
(9) Section 2123(e) (42 U.S.C. 300aa-23(e)) is amended by strik-
ing out "a district court of the United States" and inserting in 
lieu thereof "the United States Claims Court". 
Subtitle E^Rural Health 
SEC. 4401. OFFICE OF RURAL HEALTH POLICY. 
Title VII of the Social Security Act is amended by adding at the 
end thereof the following new section: 
"OFFICE OF RURAL HEALTH POUCY 
"SEC. 711. (a) There shall be established in the Department of Establishment. 
Health and Human Services (in this section referred to as the 
^^ use 912. 
'Department') "
^
^ an Office of Rural Health Policy (in this section 
referred to as the 'Office'). The Office shall be headed by a Director, 
who shall advise the Secretary on the effects of current policies and 
proposed statutory, regulatory, administrative, and budgetary 
changes in the programs established under titles XVIII and XIX on 
the financial viability of small rural hospitals, the ability of rural 
areas (and rural hospitals in particular) to attract and retain physi-
cians and other health professionals, and access to (and the quality 
of) health care in rural areas. 
"(b) In addition to advising the Secretary with respect to the 
* 
matters specified in subsection (a), the Director, through the Office, 
shall-
"(1) oversee compliance with the requirements of section 
' ^ -
^
^ 
1102(b) of this Act and section 4083 of the Omnibus Budget 
Reconciliation Act of 1987, 
"(2) establish and maintain a clearinghouse for collecting and 
disseminating information on— 
"(A) rural health care issues, 
"(B) research findings relating to rural health care, and 
"(C) innovative approaches to the delivery of health care 
in rural areas, 
"(3) coordinate the activities within the Department that 
relate to rural health care, and 
"" Copy read " "Department")". 
101 STAT. 1330-226 
PUBLIC LAW 100-203—DEC. 22, 1987 
Federal Register, 
publication. 
Federal Register, 
publication. 
42 u s e 1302 
note. 
42 u s e 1395b-l 
note. 
"(4) provide information to the Secretary and others in the 
Department with respect to the activities, of other Federal 
departments and agencies, that relate to rural health care.". 
SEC. 4402. IMPACT ANALYSES OF MEDICARE AND MEDICAID RULES AND 
REGULATIONS ON SMALL RURAL HOSPITALS. 
(a) IN GENERAL.—Section 1102 of the Social Security Act (42 U.S.C. 
1302) is amended— 
• 
(1) by inserting "(a)" after "SEC. 1102.", and 
(2) by adding at the end thereof the following new subsection: 
"O^XD Whenever the Secretary publishes a general notice of 
proposed rulemaking for any rule or regulation proposed under title 
XVIII, title XIX, or part B of this title that may have a significant 
impact on the operations of a substantial number of small rural 
hospitals, the Secretary shall prepare and make available for public 
comment an initial regulatory impact analysis. Such analysis shall 
describe the impact of the proposed rule or regulation on such 
hospitals and shall set forth, with respect to small rural hospitals, 
the matters required under section 603 of title 5, United States Code, 
to be set forth with respect to small entities. The initial regulatory 
impact analysis (or a summary) shall be published in the Federal 
Register at the time of the publication of general notice of proposed 
rulemaking for the rule or regulation. 
"(2) Whenever the Secretary promulgates a final version of a rule 
or regulation with respect to which an initial regulatory impact 
analysis is required by paragraph (1), the Secretary shall prepare a 
final regulatory impact analysis with respect to the final version of 
such rule or regulation. Such analysis shall set forth, with respect to 
small rural hospitals, the matters required under section 604 of title 
5, United States Code, to be set forth with respect to small entities. 
The Secretary shall make copies of the final regulatory impact 
analysis available to the public and shall publish, in the Federal 
Register at the time of publication of the final version of the rule or 
regulation, a statement describing how a member of the public may 
obtain a copy of such analysis. 
"(3) If a regulatory flexibility analysis is required by chapter 6 of 
title 5, United States Code, for a rule or regulation to which this 
subsection applies, such analysis shall specifically address the 
impact of the rule or regulation on small rural hospitals.". 
(b) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall apply to regulations proposed more than 30 days after the date 
of the enactment of this Act. 
SEC. 4403. SET 
ASIDE 
FOR 
EXPERIMENTS 
AND 
DEMONSTRATION 
PROJECTS RELATING TO RURAL HEALTH CARE ISSUES. 
(a) SET ASIDE.—Not less than ten percent of the total amounts 
expended in each fiscal year by the Secretary of Health and Human 
Services (in this section referred to as the "Secretary") after 
October 1, 1988, with respect to experiments and demonstration 
projects authorized by section 402 of the Social Security Amend-
ments of 1967 and the experiments and demonstration projects 
authorized by the Social Security Amendments of 1972 shall be 
expended for experiments and demonstration projects relating 
exclusively or substantially to rural health issues, including (but not 
limited to) the impact of the payment methodology under section 
1886(d) of the Social Security Act on the financial viability of small 
rural hospitals, the effect of medicare payment policies on the 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-227 
ability of rural areas (and rural hospitals in particular) to attract 
and retain physicians and other health professionals, the appro-
priateness of medicare conditions of participation and staffing 
requirements for small rural hospitals, and the impact of medicare 
policies on access to (and the quality oD health care in rural areas, 
(b) AGENDA.—The Secretary of Health and Human Services shall 
establish an agenda of experiments and demonstration projects, 
relating exclusively or substantially to rural health issues, that are 
in progress or have been proposed, and shall include such agenda in 
the annual report submitted pursuant to section 1875(b) of the Social 
Security Act. The agenda shall be accompanied by a statement 
setting forth the amounts that have been obligated and expended 
with respect to such experiments and projects in the current and 
most recently completed fiscal years. 
TITLE V—ENERGY AND ENVIRONMENT 
PROGRAMS 
Subtitle A—Nuclear Waste Amendments 
SEC. 5001. SHORT TITLE. 
This subtitle may be cited as the "Nuclear Waste Policy Amend-
ments Act of 1987". 
SEC. .5002. DEFINITIONS. 
Section 2 of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10101) 
is amended by adding at the end the following new paragraphs: 
"(30) The term 'Yucca Mountain site' means the candidate 
site in the State of Nevada recommended by the Secretary to 
the President under section 112a))(l)(B) on May 27,1986. 
"(31) The term 'affected unit of local government' means the 
unit of local government with jurisdiction over the site of a 
repository or a monitored retrievable storage facility. Such term 
may, at the discretion of the Secretary, include units of local 
government that are contiguous with such unit. 
"(32) The term 'Negotiator' means the Nuclear Waste Nego-
tiator. 
"(33) As used in title IV, the term 'Office' means the Office of 
the Nuclear Waste Negotiator established under title IV of this 
Act. 
"(34) The term 'monitored retrievable storage facility' means 
the storage facility described in section 141(b)(1).". 
> PART A—REDIRECTION OF THE NUCLEAR 
WASTE PROGRAM 
Nuclear Waste 
Policy 
Amendments 
Act of 1987. 
42 u s e 10101 
note. 
SEC. 5011. FIRST REPOSITORY. 
(a) SITE SPECIFIC ACTIVITIES.—Title I of the Nuclear Waste Policy 
Act of 1982 (42 U.S.C. 10121-10171) is amended by adding at the end 
the following new subtitle: 
101 STAT. 1330-228 
PUBLIC LAW 100-203—DEC. 22, 1987 
"SUBTITLE E—REDIRECTION OF THE NUCLEAR WASTE PROGRAM 
"SELECTION OF YUCCA MOUNTAIN SITE 
42 use 10172. 
"SEC. 160. (a) IN GENERAL.—(1) The Secretary shall provide for an 
orderly phase-out of site specific activities at all candidate sites 
other than the Yucca Mountain site. 
"(2) The Secretary shall terminate all site specific activities (other 
than reclamation activities) at all candidate sites, other than the 
Yucca Mountain site, within 90 days after the date of enactment of 
the Nuclear Waste Policy Amendments Act of 1987. 
"(h) Effective on the date of the enactment of the Nuclear Waste 
Policy Amendments Act of 1987, the State of Nevada shall be 
eligible to enter into a benefits agreement with the Secretary under 
section 170.". 
O
t
>
) SITE RECOMMENDATION TO THE PRESIDENT.—Section 112(b) of 
the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10132(b)) is amended 
b y -
(1) striking out paragraph (1)(C) and redesignating the subse-
quent subparagraphs accordingly; and 
(2) in subparagraph (C) '^ (as redesignated) by striking "sub-
paragraphs (B) and (C)" and inserting "subparagraph (B)'. 
(c) TERMINATION OF CANDIDATE SITE SCREENING.—Section 112 of 
the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10132) is amended 
by striking all of subsection (d) and redesignating subsequent subsec-
tions accordingly. 
(d) TIMELY SITE CHARACTERIZATION.—Section 112 of the Nuclear 
Waste Policy Act of 1982 (42 U.S.C. 10132) is amended by striking all 
of 
subsection 
(f) and redesignating 
subsequent 
subsections 
accordingly. 
(e) SITE CHARACTERIZATION.—Section 113(a) of the Nuclear Weiste 
Policy Act of 1982 (42 U.S.C. 10133(a)) is amended— 
(1) by striking "State involved" and all that follows through 
"tribe involved' and inserting "State of Nevada"; and 
(2) by striking "beginning" and all that follows through "geo-
logical media" and inserting "at the Yucca Mountain site". 
(f) COMMISSION AND STATES.—Section 113(b) of the Nuclear Waste 
Policy Act of 1982 (42 U.S.C. 101330))) is amended— 
(1) in paragraph (1)— 
(A) by striking "any candidate site" and inserting "the 
Yucca Mountain site"; 
(B) by striking "either" and all that follows through "may 
be" and insert "the Governor or legislature of the State of 
Nevada"; 
(2) in paragraph (2), by striking "at any candidate site" and 
inserting "at the Yucca Mountain site"; and 
(3) in paragraph (3)— 
(A) by striking "a candidate site" and inserting "the 
Yucca Mountain site"; 
(B) by striking "either"; and 
(C) by striking "the State" and all that follows through 
"may be" and inserting "the State of Nevada". 
(g) RESTRICTIONS.—Section 113(c) of the Nuclear Waste Policy Act 
of 1982 (42 U.S.C. 10133(c)) is amended— 
(1) in paragraph (1)— 
'^ Copy read "(C), (as" 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-229 
(A) by striking "any candidate site" and inserting "the 
Yucca Mountain site"; and 
(B) by striking "such candidate site" each place it appears 
and inserting "such site"; 
(2) in paragraph (2), by striking "candidate" each place it 
appears; and 
(3) by striking paragraphs (3) and (4) and inserting the 
following: 
"(3) If the Secretary at any time determines the Yucca Mountain 
site to be unsuitable for development as a repository, the Secretary 
shall— 
"(A) terminate all site characterization activities at such site; 
"(B) notify the Congress, the Governor and legislature of 
Nevada of such termination and the reasons for such termi-
nation; 
"(C) remove any high-level radioactive waste, spent nuclear 
fuel, or other radioactive materials at or in such site as 
promptly as practicable; 
"(D) take reasonable and necessary steps to reclaim the site 
and to mitigate any significant adverse environmental impacts 
caused by site characterization activities at such site; 
"(E) suspend all future benefits payments under subtitle F 
with respect to such site; and 
"(F) report to Congress not later than 6 months after such Reports. 
determination the Secretary's recommendations for further 
action to assure the safe, permanent disposal of spent nuclear 
fuel and high-level radioactive waste, including the need for 
new legislative authority.", 
(h) 
HEARINGS 
AND PRESIDENTIAL 
RECOMMENDATION.—Section 
114(a) of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10134(a)) is 
amended— 
(1) in paragraph (1)— 
(A) by striking "each site" through "development of a 
repository" and inserting "the Yucca Mountain site"; 
(B) by striking "in which such site is located"; 
(C) by striking "not less than 3" and all that follows 
through "subsequent repositories" and inserting "the 
Yucca Mountain site"; 
(D) by striking "in which such site" and all that follows 
through "case may be" and insert "of Nevada"; 
(E) by striking the sentence beginning with "In making 
site recommendations"; 
(F) by amending subparagraph (D) to read as follows: 
"(D) a final environmental impact statement prepared for 
the Yucca Mountain site pursuant to subsection (f) and the 
National Environmental Policy Act of 1969 (42 U.S.C. 4321 
et seq.), together with comments made concerning such 
environmental impact statement by the Secretary of the 
Interior, the Council on Environmental Quality, the 
Administrator, and the Commission, except that the Sec-
retary shall not be required in any such environmental 
impact statement to consider the need for a repository, the 
alternatives to geological disposal, or alternative sites to 
the Yucca Mountain site;"; and 
(G) in subparagraph (H), by striking "the State" and all 
that follows through the end of the sentence and inserting 
"the State of Nevada"; 
101 STAT. 1330-230 
PUBLIC LAW 100-203—DEC. 22, 1987 
(2) by striking paragraphs (2) and (3) and inserting the 
following: 
President of U.S. 
"(2)(A) If, after recommendation by the Secretary, the President 
considers the Yucca Mountain site qualified for application for a 
construction authorization for a repository, the President shall 
submit a recommendation of such site to Congress. 
"(B) The President shall submit with such recommendation a copy 
of the statement for such site prepared by the Secretary under 
paragraph (1)."; and 
(3) in paragraph (4) by— 
(A) striking "(4)(A)" and inserting "(3KA)"; 
(B) striking "any site under this subsection" and insert-
ing "the Yucca Mountain site"; and 
(C) by striking "report" and inserting "statement". 
(i) SUBMISSION OF APPLICATION.—Section 114(b) of the Nuclear 
Waste Policy Act of 1982 (42 U.S.C. 10134(b)) is amended— 
(1) by striking "a site for a repository" and inserting "the 
Yucca Mountain site"; and 
(2) by striking "in which" and all that follows through "may 
be," and inserting "of Nevada". 
(j) COMMISSION ACTION.—Section 114(d) of the Nuclear Waste 
Policy Act of 1982 (42 U.S.C. 10134(d)) is amended in the first 
sentence— 
,,,. 
(1) by striking "than—" and all that follows through "(2) the 
expiration" and inserting "than the expiration"; and 
(2) by striking "(e)(2); whichever occurs later" and inserting 
"(e)(2)< 
(k) PROJECT DECISION SCHEDULE.—Section 114(e) of the Nuclear 
Waste Policy Act of 1982 (42 U.S.C. 10134(e)) is amended by striking 
"repository involved" and inserting "repository". 
(1) ENVIRONMENTAL IMPACT STATEMENT.—Section 114(0 of the Nu-
clear Waste Policy Act of 1982 (42 U.S.C. 10134(f)) is amended to 
read as follows: 
"(f) ENVIRONMENTAL IMPACT STATEMENT.—(1) Any recommenda-
tion made by the Secretary under this section shall be considered a 
major Federal action significantly affecting the quality of the 
human environment for purposes of the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321 et seq.). A final environmental 
impact statement prepared by the Secretary under such Act shall 
accompany any recommendation to the President to approve a site 
for a repository. 
"(2) With respect to the requirements imposed by the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.), compli-
ance with the procedures and requirements of this Act shall be 
deemed adequate consideration of the need for a repository, the time 
of the initial availability of a repository, and all alternatives to the 
isolation of high-level radioactive waste and spent nuclear fuel in a 
repository. 
(3) For purposes of complying with the requirements of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) 
and this section, the Secretary need not consider alternate sites to 
the Yucca Mountain site for the repository to be developed under 
this subtitle. 
"(4) Any environmental impact statement prepared in connection 
with a repository proposed to be constructed by the Secretary under 
this subtitle shall, to the extent practicable, be adopted by the 
Commission in connection with the issuance by the Commission of a 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-231 
construction authorization and license for such repository. To the 
extent such statement is adopted by the Commission, such adoption 
shall be deemed to also satisfy the responsibilities of the Commission 
under the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.) and no further consideration shall be required, except 
that nothing in this subsection shall affect any independent respon-
sibilities of the Commission to protect the public health and safety 
under the Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq.). 
"(5) Nothing in this Act shall be construed to amend or otherwise 
detract from the licensing requirements of the Nuclear Regulatory 
Commission established in title II of the Energy Reorganization Act 
of 1974 (42 U.S.C. 5841 et seq.). 
"(6) In any such statement prepared with respect to the repository 
to be constructed under this subtitle, the Nuclear Regulatory 
Commission need not consider the need for a repository, the time of 
initial availability of a repository, alternate sites to the Yucca 
Mountain site, or nongeologic alternatives to such site.". 
(m) ON-SITE REPRESENTATIVE.—Section 117 of the Nuclear Waste 
Policy Act of 1982 (42 U.S.C. 10137) is amended by adding at the end 
the following new subsection: 
"(d) ON-SITE REPRESENTATIVE.—The Secretary shall offer to any 
State, Indian tribe or unit of local government within whose juris-
diction a site for a repository or monitored retrievable storage 
facility is located under this title an opportunity to designate a 
representative to conduct on-site oversight activities at such site. 
Reasonable expenses of such representatives shall be paid out of the 
Waste Fund.". 
SEC. 5012. SECOND REPOSITORY. 
Subtitle E of title I of the Nuclear Waste Policy Act of 1982 (as 
created by section 5011 of this Act) is amended by adding at the end 
the following new section: 
"SITING A SECOND REPOSITORY 
"SEC. 161. (a) CONGRESSIONAL ACTION REQUIRED.—The Secretary 
42 use ioi72a. 
may not conduct site-specific activities with respect to a second 
repository unless Congress has specifically authorized and appro-
priated funds for such activities. 
"Go) REPORT.—The Secretary shall report to the President and to 
Congress on or after January 1, 2007, but not later than January 1, 
: : , 
2010, on the need for a second repository. 
"(c) TERMINATION OF GRANITE RESEARCH.—Not later than 6 
months after the date of the enactment of the Nuclear Waste Policy 
Amendments Act of 1987, the Secretary shall phase out in an 
orderly manner funding for all research programs in existence on 
such date of enactment designed to evaluate the suitability of 
crystalline rock as a potential repository host medium. 
"(d) ADDITIONAL SITING CRITERIA.—In the event that the Secretary 
at any time after such date of enactment considers any sites in 
crystalline rock for characterization or selection as a repository, the 
Secretary shall consider (as a supplement to the siting guidelines 
under section 112) such potentially disqualifying factors as— 
"(1) seasonal increases in population; 
"(2) proximity to public drinking water supplies, including 
those of metropolitan areas; and 
91-194 O - 90 - 33 : QL.3 Part 2 
101 STAT. 1330-232 
PUBLIC LAW 100-203—DEC. 22, 1987 . 
"(3) the impact that characterization or siting decisions would 
have on lands owned or placed in trust by the United States for 
Indian tribes.". 
PART B—MONITORED RETRIEVABLE STORAGE 
SEC. 
.5021. AUTHORIZATION OF MONITORED RETRIEVABLE STORAGE. 
Subtitle C of the Nuclear '* Waste Policy Act of 1982 is amended 
by adding at the end the following new sections: 
"AUTHORIZATION OF MONITORED RETRIEVABLE STORAGE 
42 use 10162. 
"SEC. 142. (a) NULLIFICATION OF OAK RIDGE SITING PROPOSAL.— 
The proposal of the Secretary (EC-1022, 100th Congress) to locate a 
monitored retrievable storage facility at a site on the Clinch River 
in the Roane County portion of Oak Ridge, Tennessee, with alter-
native sites on the Oak Ridge Reservation of the Department of 
Energy and on the former site of a proposed nuclear powerplant in 
Hartsville, Tennessee, is annulled and revoked. In carrying out the 
provisions of sections 144 and 145, the Secretary shall make no 
presumption or preference to such sites by reason of their previous 
selection. 
"(b) AUTHORIZATION.—The Secretary is authorized to site, con-
struct, and operate one monitored retrievable storage facility subject 
to the conditions described in sections 143 through 149. 
42 use 10163. 
Reports. 
'>n ; h 
MONITORED RETRIEVABLE STORAGE COMMISSION 
"SEC. 143. (a) ESTABLISHMENT.—(1)(A) There is established a Mon-
itored Retrievable Storage Review Commission (hereinafter in this 
section referred to as the 'MRS Commission'), that shall consist of 3 
members who shall be appointed by and serve at the pleasure of the 
President pro tempore of the Senate and the Speaker of the House of 
Representatives. 
"(B) ^^ Members of the MRS Commission shall be appointed not 
later than 30 days after the date of the enactment of the Nuclear 
Waste Policy Amendments Act of 1987 from among persons who as a 
result of training, experience and attainments are exceptionally 
well qualified to evaluate the need for a monitored retrievable 
storage facility as a part of the Nation's nuclear waste management 
system. 
"(C) The MRS Commission shall prepare a report on the need for a 
monitored retrievable storage facility as a part of a national nuclear 
waste management system that achieves the purposes of this Act. In 
preparing the report under this subparagraph, the MRS Commis-
sion shall^ 
"(i) review the status and adequacy of the Secretary's evalua-
j{ tion of the systems advantages and disadvantages of bringing 
such a facility into the national nuclear waste disposal system; 
,j 
"(ii) obtain comment and available data on monitored retriev-
j able storage from affected parties, including States containing 
" potentially acceptable sites; 
.^ 
"(iii) evaluate the utility of a monitored retrievable storage 
facility from a technical perspective; and 
'•* Copy read "C of Nuclear". 
"Copy read " "(BXi)". 
'OlU 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-233 
"(iv) make a recommendation to Congress as to whether such 
a facility should be included in the national nuclear waste 
management system in order to achieve the purposes of this 
Act, including meeting needs for packaging and handling of 
spent nuclear fuel, improving the flexibility of the repository 
development schedule, and providing temporary storage of 
spent nuclear fuel accepted for disposal. 
"(2) In preparing the report and making its recommendation 
, •, <
< i?;;: 
under paragraph (1) the MRS Commission shall compare such a 
facility to the alternative of at-reactor storage of spent nuclear fuel 
prior to disposal of such fuel in a repository under this Act. Such 
comparison shall take into consideration the impact on— 
"(A) repository design and construction; 
"(B) waste package design, fabrication and standardization; 
"(C) waste preparation; 
"(D) w£iste transportation systems; 
i 
"(E) the reliability of the national system for the disposal of 
radioactive waste; 
"(F) the ability of the Secretary to fulfill contractual commit-
ments of the Department under this Act to accept spent nuclear 
fuel for disposal; and 
"(G) economic factors, including the impact on the costs likely 
to be imposed on ratepayers of the Nation's electric utilities for 
temporary at-reactor storage of spent nuclear fuel prior to final 
disposal in a repository, as well as the costs likely to be imposed 
on ratepayers of the Nation's electric utilities in building and 
operating such a facility. 
"(3) The report under this subsection, together with the rec- Reports. 
ommendation of the MRS Commission, shall be transmitted to 
Congress on June 1,1989. 
"(4XA)(i) Each member of the MRS Commission shall be paid at 
the rate provided for level III of the Executive Schedule for each day 
(including travel time) such member is engaged in the work of the 
MRS Commission, and shall receive travel expenses, including per 
diem in lieu of subsistence in the same manner as is permitted 
,,, y; -j^.- < 
under sections 5702 and 5703 of title 5, United States Code. 
"(ii) The MRS Commission may appoint and fix compensation, not 
to exceed the rate of basic pay payable for GS-18 of the General 
Schedule, for such staff as may be necessary to carry out its 
functions. 
"(BXi) The MRS Commission may hold hearings, sit and act at 
such times and places, take such testimony and receive such evi-
dence as the MRS Commission considers appropriate. Any member 
of the MRS Commission may administer oaths or affirmations to 
witnesses appearing before the MRS Commission. 
"(ii) The MRS Commission may request any Executive agency, 
including the Department, to furnish such assistance or informa-
tion, including records, data, files, or documents, as the Commission 
considers necessary to carry out its functions. Unless prohibited by 
law, such agency shall promptly furnish such £issistance or 
information. 
"(iii) To the extent permitted by law, the Administrator of the 
General Services Administration shall, upon request of the MRS 
Commission, provide the MRS Commission with necessary adminis-
trative services, facilities, and support on a reimbursable basis, 
"(iv) The MRS Commission may procure temporary and intermit-
tent services from experts and consultants to the same extent as is 
101 STAT. 1330-234 
PUBLIC LAW 100-203—DEC. 22, 1987 
authorized by section 3109(b) of title 5, United States Code, at rates 
and under such rules as the MRS Commission considers reasonable. 
"(C) The MRS Commission shall cease to exist 60 days after the 
submission to Congress of the report required under this subsection. 
"SURVEY 
42 use 10164. 
"SEC. 144. After the MRS Commission submits its report to the 
Congress under section 143, the Secretary may conduct a survey and 
evaluation of potentially suitable sites for a monitored retrievable 
storage facility. In conducting such survey and evaluation, the 
Secretary shall consider the extent to which siting a monitored 
retrievable storage facility at each site surveyed would— 
"(1) enhance the reliability and flexibility of the system for 
the disposal of spent nuclear fuel and high-level radioactive 
. waste established under this Act; 
"(2) minimize the impacts of transportation and handling of 
such fuel and waste; 
"(3) provide for public confidence in the ability of such system 
to safely dispose of the fuel and waste; 
"(4) impose minimal adverse effects on the local community 
and the local environment; 
"(5) provide a high probability that the facility will meet 
applicable environmental, health, and safety requirements in a 
, timely fashion; 
"(6) provide such other benefits to the system for the disposal 
of spent nuclear fuel and high-level radioactive waste as the 
n;;,» . 
Secretary deems appropriate; and 
"(7) unduly burden a State in which significant volumes of 
high-level radioactive waste resulting from atomic energy 
' defense activities are stored. 
SITE SELECTION 
42 use 10165. 
"SEC. 145. (a) IN GENERAL.—The Secretary may select the site 
evaluated under section 144 that the Secretary determines on the 
basis of available information to be the most suitable for a mon-
itored retrievable storage facility that is an integral part of the 
system for the disposal of spent nuclear fuel and high-level radio-
active waste established under this Act. 
"(b) LIMITATION.—The Secretary may not select a site under 
subsection (a) until the Secretary recommends to the President the 
approval of a site for development as a repository under section 
114(a). 
"(c) SITE SPECIFIC ACTIVITIES.—The Secretary may conduct such 
site specific activities at each site surveyed under section 144 as he 
determines may be necessary to support an application to the 
Commission for a license to construct a monitored retrievable stor-
age facility at such site. 
"(d) ENVIRONMENTAL ASSESSMENT.—Site specific activities and 
selection of a site under this section shall not require the prepara-
tion of an environmental impact statement under section 102(2)(C) 
of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332(2)(C)). The Secretary shall prepare an environmental assess-
ment with respect to such selection in accordance with regulations 
issued by the Secretary implementing such Act. Such environmental 
assessment shall be based upon available information regarding ^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-235 
alternative technologies for the storage of spent nuclear fuel and 
high-level radioactive waste. The Secretary shall submit such 
environmental assessment to the Congress at the time such site is 
selected. 
"(e) NOTIFICATION BEFORE SELECTION.—(1) At least 6 months 
before selecting a site under subsection (a), the Secretary shall 
notify the Governor and legislature of the State in which such site is 
located, or the governing body of the affected Indian tribe where 
such site is located, as the case may be, of such potential selection 
and the basis for such selection. 
"(2) Before selecting any site under subsection (a), the Secretary 
shall hold at least one public hearing in the vicinity of such site to 
solicit any recommendations of interested parties with respect to 
issues raised by the selection of such site. 
"(f) NOTIFICATION OF SELECTION.—The Secretary shall promptly 
notify Congress and the appropriate State or Indian tribe of the 
selection under subsection (a). 
"(g) LIMITATION.—No monitored retrievable storage facility au-
thorized pursuant to section 142(b) may be constructed in the State 
of Nevada. 
"NOTICE OF DISAPPROVAL 
"SEC. 146. (a) IN GENERAL.—The selection of a site under section 
42 use 10166. 
145 shall be effective at the end of the period of 60 calendar days 
beginning on the date of notification under such subsection, unless 
the governing body of the Indian tribe on whose reservation such 
site is located, or, if the site is not on a reservation, the Governor 
and the legislature of the State in which the site is located, has 
submitted to Congress a notice of disapproval with respect to such 
site. If any such notice of disapproval has been submitted under this 
subsection, the selection of the site under section 145 shall not be 
effective except as provided under section 115(c). 
"(b) REFERENCES.—For purposes of carrying out the provisions of 
this subsection, references in section 115(c) to a repository shall be 
considered to refer to a monitored retrievable storage facility and 
references to a notice of disapproval of a repository site designation 
under section 116(b) or 118(a) shall be considered to refer to a notice 
of disapproval under this section. 
BENEFITS AGREEMENT 
"SEC. 147. Once selection of a site for a monitored retrievable 
storage facility is made by the Secretary under section 145, the 
Indian tribe on whose reservation the site is located, or, in the case 
that the site is not located on a reservation, the State in which the 
site is located, shall be eligible to enter into a benefits agreement 
with the Secretary under section 170. 
42 use 10167. 
CONSTRUCTION 
AUTHORIZATION 
"SEC. 148. (a) ENVIRONMENTAL IMPACT STATEMENT.—(1) Once the 
selection of a site is effective under section 146, the requirements of 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et 
seq.) shall apply with respect to construction of a monitored retriev-
able storage facility, except that any environmental impact state-
ment prepared with respect to such facility shall not be required to 
42 use 10168. 
101 STAT. 1330-236 
PUBLIC LAW 100-203—DEC. 22, 1987 
consider the need for such faciHty or any alternative to the design 
criteria for such facility set forth in section 141(b)(1). 
"(2) Nothing in this section shall be construed to limit the consid-
eration of alternative facility designs consistent with the criteria 
described in section 141(b)(1) in any environmental impact state-
ment, or in any licensing procedure of the Commission, with respect 
to any monitored retrievable storage facility authorized under 
section 142(b). 
"(b) APPLICATION FOR CONSTRUCTION LICENSE.—Once the selection 
of a site for a monitored retrievable storage facility is effective 
under section 146, the Secretary may submit an application to the 
Commission for a license to construct such a facility as part of an 
integrated nuclear waste management system and in accordance 
with the provisions of this section and applicable agreements under 
this Act affecting such facility. 
"(c) LICENSING.—Any monitored retrievable storage facility au-
thorized pursuant to section 142(b) shall be subject to licensing 
under section 202(3) of the Energy Reorganization Act of 1974 (42 
U.S.C. 5842(3)). In reviewing the application filed by the Secretary 
for licensing of such facility, the Commission may not consider the 
need for such facility or any alternative to the design criteria for 
H,r,r ,ji; X 
such facility set forth in section 141(b)(1). 
"(d) LICENSING CONDITIONS.—Any license issued by the Commis-
sion for a monitored retrievable storage facility under this section 
shall provide that— 
"(1) construction of such facility may not begin until the 
,^^ 
Commission has issued a license for the construction of a reposi-
,4 
tory under section 115(d); 
"(2) construction of such facility or acceptance of spent nu-
y, 
clear fuel or high-level radioactive waste shall be prohibited 
during such time as the repository license is revoked by the 
t^ 
Commission or construction of the repository ceases; 
,1 
"(3) the quantity of spent nuclear fuel or high-level radio-
s' 
active waste at the site of such facility at any one time may not 
,. 
exceed 10,000 metric tons of heavy metal until a repository 
3* 
under this Act first accepts spent nuclear fuel or solidified high-
level radioactive waste; and 
"(4) the quantity of spent nuclear fuel or high-level radio-
active waste at the site of such facility at any one time may not 
exceed 15,000 metric tons of heavy metal. 
HC 
; 
"FINANCIAL ASSISTANCE 
. 
^' 
' \ 
42 use 10169. 
"SEC. 149. The provisions of section 116(c) or 118(b) with respect to 
grants, technical assistance, and other financial assistance shall 
apply to the State, to affected Indian tribes and to affected units of 
local government in the case of a monitored retrievable storage 
facility in the same manner as for a repository.". 
'3fo: ::>?•• h .vf: .<:.:;:.•-. 
; PART C—BENEFITS 
^ 
' " 
SEC. 5031. BENEFITS. 
^ ^ 
' 
Title I of the Nuclear Waste Policy Act of 1982 is further amended 
by adding at the end the following new subtitles: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-237 
"SUBTITLE F—BENEFITS 
"BENEFITS AGREEMENTS 
"SEC. 170. (a) IN GENERAL.—(1) The Secretary may enter into a 42 USC 10173. 
benefits agreement with the State of Nevada concerning a reposi-
tory or with a State or an Indian tribe concerning a monitored 
retrievable storage facility for the acceptance of high-level radio-
active waste or spent nuclear fuel in that State or on the reservation 
of that tribe, as appropriate. 
"(2) The State or Indian tribe may enter into such an agreement 
only if the State Attorney General or the appropriate governing 
authority of the Indian tribe or the Secretary of the Interior, in the 
absence of an appropriate governing authority, as appropriate, cer-
tifies to the satisfaction of the Secretary that the laws of the State or 
Indian tribe provide adequate authority for that entity to enter into 
the benefits agreement. 
"(3) Any benefits agreement with a State under this section shall 
be negotiated in consultation with affected units of local govern-
ment in such State. 
"(4) Benefits and payments under this subtitle may be made 
available only in accordance with a benefits agreement under this 
section. 
"(b) AMENDMENT.—A benefits agreement entered into under 
subsection (a) may be amended only by the mutual consent of the 
parties to the agreement and terminated only in accordance with 
section 173. 
"(c) AGREEMENT WITH NEVADA.—The Secretary shall offer to 
enter into a benefits agreement with the Governor of Nevada. Any 
benefits agreement with a State under this subsection shall be 
negotiated in consultation with any affected units of local govern-
ment in such State. 
"(d) MONITORED RETRIEVABLE STORAGE.—The Secretary shall offer 
to enter into a benefits agreement relating to a monitored retriev-
able storage facility with the governing body of the Indian tribe on 
whose reservation the site for such facility is located, or, if the site is 
not located on a reservation, with the Governor of the State in 
which the site is located and in consultation with affected units of 
local government in such State. 
"(e) LIMITATION.—Only one benefits agreement for a repository 
and only one benefits agreement for a monitored retrievable storage 
facility may be in effect at any one time. 
"(f) JUDICIAL REVIEW.—Decisions of the Secretary under this sec-
tion are not subject to judicial review. 
CONTENT OF AGREEMENTS 
"SEC. 171. (a) IN GENERAL.—(1) In addition to the benefits to which 
a State, an affected unit of local government or Indian tribe is 
entitled under title I, the Secretary shall make payments to a State 
or Indian tribe that is a party to a benefits agreement under section 
170 in accordance with the following schedule: 
42 USC 10173a. 
101 STAT. 1330-238 
PUBLIC LAW 100-203—DEC. 22, 1987 
, 
"BENEFITS SCHEDULE 
(amounts in $ millions) 
Event 
MRS 
Repository 
(A) Annual payments prior to first spent fuel receipt 
5 
10 
(B) Upon first spent fuel receipt 
10 
20 
(C) Annual payments after first spent fuel receipt until closure 
of the facility 
10 
20 
"(2) For purposes of this section, the term— 
"(A) 'MRS' means a monitored retrievable storage facility, 
"(B) 'spent fuel' means high-level radioactive waste or spent 
nuclear fuel, and 
"(C) 'first spent fuel receipt' does not include receipt of spent 
fuel or high-level radioactive waste for purposes of testing or 
operational demonstration. 
"(3) Annual payments prior to first spent fuel receipt under 
paragraph (1)(A) shall be made on the date of execution of the 
benefits agreement and thereafter on the anniversary date of such 
execution. Annual payments after the first spent fuel receipt until 
closure of the facility under paragraph (1)(C) shall be made on the 
anniversary date of such first spent fuel receipt. 
"(4) If the first spent fuel payment under paragraph (1)(B) is made 
within six months after the last annual payment prior to the receipt 
of spent fuel under paragraph (1)(A), such first spent fuel payment 
under paragraph (1)(B) shall be reduced by an amount equal to one-
twelfth of such annual payment under paragraph (IXA) for each full 
month less than six that has not elapsed since the last annual 
payment under paragraph (1)(A). 
"(5) Notwithstanding paragraph (1), (2), or (3), no payment under 
this section may be made before January 1, 1989, and any payment 
due under this title before January 1, 1989, shall be made on or after 
such date. 
"(6) Except as provided in paragraph (7), the Secretary may not 
restrict the purposes for which the payments under this section may 
be used. 
"(7)(A) Any State receiving a payment under this section shall 
transfer an amount equal to not less than one-third of the amount of 
such payment to affected units of local government of such State. 
"(B) A plan for this transfer and appropriate allocation of such 
portion among such governments shall be included in the benefits 
agreement under section 170 covering such payments. 
"(C) In the event of a dispute concerning such plan, the Secretary 
shall resolve such dispute, consistent with this Act and applicable 
State law. 
"(b) CONTENTS.—A benefits agreement under section 170 shall 
provide that— 
"(1) a Review Panel be established in accordance with section 
172; 
"(2) the State or Indian tribe that is party to such agreement 
waive its rights under title I to disapprove the recommendation 
of a site for a repository; 
"(3) the parties to the agreement shall share with one another 
information relevant to the licensing process for the repository 
or monitored retrievable storage facility, as it becomes avail-
able; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-239 
"(4) the State or Indian tribe that is party to such agreement 
participate in the design of the repository or monitored retriev-
able storage facility and in the preparation of documents re-
quired under law or regulation governing the effects of the 
facility on the public health and safety; and 
"(5) the State or Indian tribe waive its rights, if any, to impact 
assistance under sections 116(cXlXBXii), 116(cX2), 118(bX2XAXii), 
and 118(bX3). 
"(c) The Secretary shall make payments to the States or affected 
Indian tribes under a benefits agreement under this section from 
the Waste Fund. The signature of the Secretary on a valid benefits 
agreement under section 170 shall constitute a commitment by 
the United States to make payments in accordance with such 
agreement. 
"REVIEW PANEL 
"SEC. 172. (a) IN GENERAL.—The Review Panel required to be 42 use 10173b. 
established by section 171(bXl) of this Act shall consist of a Chair-
man selected by the Secretary in consultation with the Governor of 
the State or governing body of the Indian tribe, as appropriate, that 
is party to such agreement and 6 other members as follows: 
"(1) 2 members selected by the Governor of such State or 
governing body of such Indian tribe; 
"(2) 2 members selected by units of local government affected 
by the repository or monitored retrievable storage facility; 
"(3) 1 member to represent persons making payments into the 
Waste Fund, to be selected by the Secretary; and 
"(4) 1 member to represent other public interests, to be 
selected by the Secretary. 
» 
"(b) TERMS.—(1) The members of the Review Panel shall serve for 
terms of 4 years each. 
"(2) Members of the Review Panel who are not full-time em-
ployees of the Federal Government, shall receive a per diem com-
pensation for each day spent conducting work of the Review Panel, 
including their necessary travel or other expenses while engaged in 
the work of the Review Panel. 
"(3) Expenses of the Panel shall be paid by the Secretary from the 
Waste Fund. 
"(c) DUTIES.—The Review Panel shall— 
"(1) advise the Secretary on matters relating to the proposed 
repository or monitored retrievable storage facility, including 
issues relating to design, construction, operation, and decommis-
sioning of the facility; 
"(2) evaluate performance of the repository or monitored 
retrievable storage facility, as it considers appropriate; 
"(3) recommend corrective actions to the Secretary; 
"(4) assist in the presentation of State or affected Indian tribe 
and local perspectives to the Secretary; and 
"(5) participate in the planning for and the review of 
preoperational data on environmental, demographic, and socio-
economic conditions of the site and the local community. 
"(d) INFORMATION.—The Secretary shall promptly make available 
promptly any information in the Secretary's possession reouested by 
the Panel or its Chairman. 
"(e) FEDERAL ADVISORY COMMITTEE ACT.—The requirements of the 
Federal Advisory Committee Act shall not apply to a Review Panel 
established under this title. 
101 STAT. 1330-240 
PUBLIC LAW 100-203—DEC. 22, 1987 
TERMINATION 
42 use 10173c. 
"SEC. 173. (a) IN GENERAL.—The Secretary may terminate a bene-
fits agreement under this title if— 
"(1) the site under consideration is disqualified for its failure 
t 
to comply with guidelines and technical requirements estab-
(*; 
lished by the Secretary in accordance with this Act; or 
"(2) the Secretary determines that the Commission cannot 
license the facility within a reasonable time. 
"(b) TERMINATION BY STATE OR INDIAN TRIBE.—A State or Indian 
tribe may terminate a benefits agreement under this title only if the 
Secretary disqualifies the site under consideration for its failure to 
comply with technical requirements established by the Secretary in 
accordance with this Act or the Secretary determines that the 
Commission cannot license the facility within a reasonable time. 
"(c) DECISIONS OF THE SECRETARY.—Decisions of the Secretary 
ifiVfCi A
- J uf 
under this section shall be in writing, shall be available to Congress 
and the public, and are not subject to judicial review. 
"SUBTITLE G — O T H E R BENEFITS 
CONSIDERATION IN SITING FACILITIES 
42 use 10174. 
"SEC. 174. The Secretary, in siting Federal research projects, shall 
give special consideration to proposals from States where a reposi-
tory is located. 
"REPORT 
42 u s e 10174a. 
"SEC. 175. (a) IN GENERAL.—Within one year of the date of the 
enactment of the Nuclear Waste Policy Amendments Act of 1987, 
the Secretary shall report to Congress on the potential impacts of 
locating a repository at the Yucca Mountain site, including the 
recommendations of the Secretary for mitigation of such impacts 
and a statement of which impacts should be dealt with by the 
Federal Government, which should be dealt with by the State with 
State resources, including the benefits payments under section 171, 
and which should be a joint Federal-State responsibility. The report 
under this subsection shall include the analysis of the Secretary of 
the authorities available to mitigate these impacts and the appro-
priate sources of funds for such mitigation. 
"(b) IMPACTS T O B E ' ^ CONSIDERED.—Potential impacts to be ad-
dressed in the report under this subsection (a) shall include impacts 
on— 
"(1) education, including facilities and personnel for ele-
mentary and secondary schools, community colleges, vocational 
and technical schools and universities; 
sd' 
"(2) public health, including the facilities and personnel for 
treatment and distribution of water, the treatment of sewage, 
Ic 
the control of pests and the disposal of solid waste; 
"(3) law enforcement, including facilities and personnel for 
the courts, police and sheriffs departments, district attorneys 
;v and public defenders and prisons; 
vd 
"(4) fire protection, including personnel, the construction of 
fire stations, and the acquisition of equipment; 
"(5) medical care, including emergency services and hospitals; 
' Copy read "TO BE" 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-241 
"(6) cultural and recreational needs, including facilities and 
personnel for libraries and museums and the acquisition and 
expansion of parks; 
"(7) distribution of public lands to allow for the timely expan-
sion of existing, or creation of new, communities and the 
construction of necessary residential and commercial facilities; 
"(8) vocational training and employment services; 
"(9) social services, including public assistance programs, 
vocational and physical rehabilitation programs, mental health 
services, and programs relating to the abuse of alcohol and 
controlled substances; 
* 
"(10) transportation, including any roads, terminals, airports, 
bridges, or railways associated with the facility and the repair 
and maintenance of roads, terminals, airports, bridges, or rail- 
"''' -
ways damaged as a result of the construction, operation, and 
closure of the facility; 
^ 
"(11) equipment and training for State and local personnel in 
the management of accidents involving high-level radioactive 
waste; 
ji.r , "(12) availability of energy; 
"(13) tourism and economic development, including the poten-
tial loss of revenue and future economic growth; and 
"(14) other needs of the State and local governments that 
would not have arisen but for the characterization of the site 
and the construction, operation, and eventual closure of the 
repository facility.". 
SEC. 5032. PARTICIPATION OF STATES. 
(a) FINANCIAL ASSISTANCE.—Section 116(c) of the Nuclear Waste 
< .• 
Policy Act of 1982 (42 U.S.C. 10136(c)) is amended to read as follows: 
"(c) FINANCIAL ASSISTANCE.—(IXA) The Secretary shall make 
grants to the State of Nevada and any affected unit of local govern-
ment for the purpose of participating in activities required by this 
section and section 117 or authorized by written agreement entered 
into pursuant to section 117(c). Any salary or travel expense that 
would ordinarily be incurred by such State or affected unit of local 
government, may not be considered eligible for funding under this 
paragraph. 
"(B) The Secretary shall make grants to the State of Nevada and Grants. 
any affected unit of local government for purposes of enabling such 
State or affected unit of local government— 
- ; : 
"(i) to review activities taken under this subtitle with respect 
to the Yucca Mountain site for purposes of determining any 
' 
potential economic, social, public health and safety, and 
environmental impacts of a repository on such State, or affected 
unit of local government and its residents; 
"(ii) to develop a request for impact assistance under para-
graph (2); 
"(iii) to engage in any monitoring, testing, or evaluation 
' 
activities with respect to site characterization programs with 
regard to such site; 
(iv) to provide information to Nevada residents regarding 
any activities of such State, the Secretary, or the Commission 
with respect to such site; and 
^ 
"(v) to request information from, and make comments and 
' 
recommendations to, the Secretary regarding any activities 
^ 
taken under this subtitle with respect to such site. 
101 STAT. 1330-242 
PUBLIC LAW 100-203—DEC. 22, 1987 
Reports. 
Grants. 
Grants. 
"(C) Any salary or travel expense that would ordinarily be in-
curred by the State of Nevada or any affected unit of local govern-
ment may not be considered eligible for funding under this para-
graph. 
"(2)(A)(i) The Secretary shall provide financial and technical 
assistance to the State of Nevada, and any affected unit of local 
government requesting such assistance. 
"(ii) Such assistance shall be designed to mitigate the impact on 
such State or affected unit of local government of the development 
of such repository and the characterization of such site. 
"(iii) Such assistance to such State or affected unit of local govern-
ment of such State shall commence upon the initiation of site 
characterization activities. 
"(B) The State of Nevada and any affected unit of local govern-
ment may request assistance under this subsection by preparing and 
submitting to the Secretary a report on the economic, social, public 
health and safety, and environmental impacts that are likely to 
result from site characterization activities at the Yucca Mountain 
site. Such report shall be submitted to the Secretary after the 
Secretary has submitted to the State a general plan for site 
characterization activities under section 113(b). 
"(C) As soon as practicable after the Secretary has submitted such 
site characterization plan, the Secretary shall seek to enter into a 
binding agreement with the State of Nevada setting forth— 
"(i) the amount of assistance to be provided under this subsec-
tion to such State or affected unit of local government; and 
"(ii) the procedures to be followed in providing such 
assistance. 
"(3)(A) In addition to financial assistance provided under para-
graphs (1) and (2), the Secretary shall grant to the State of Nevada 
and any affected unit of local government an amount each fiscal 
year equal to the amount such State or affected unit of local 
government, respectively, would receive if authorized to tax site 
characterization activities at such site, and the development and 
operation of such repository, as such State or affected unit of local 
government taxes the non-Federal real property and industrial 
activities occurring within such State or affected unit of local 
government. 
"(B) Such grants shall continue until such time as all such activi-
ties, development, and operation are terminated at such site. 
"(4XA) The State of Nevada or any affected unit of local govern-
ment may not receive any grant under paragraph (1) after the 
expiration of the 1-year period following— 
"(i) the date on which the Secretary notifies the Governor and 
legislature of the State of Nevada of the termination of site 
characterization activities at the site in such State; 
;. 
"(ii) the date on which the Yucca Mountain site is dis-
approved under section 115; or 
(iii) the date on which the Commission disapproves an ap-
plication for a construction authorization for a repository at 
such site; 
whichever occurs first. 
"(B) The State of Nevada or any affected unit of local government 
may not receive any further assistance under paragraph (2) with 
respect to a site if repository construction activities or site 
characterization activities at such site are terminated by the Sec-
retary or if such activities are permanently enjoined by any court. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-243 
"(C) At the end of the 2-year period beginning on the effective date 
of any license to receive and possess for a repository in a State, no 
Federal funds, shall be made available to such State or affected unit 
of local government under paragraph (1) or (2), except for— 
"(i) such funds as may be necessary to support activities 
related to any other repository located in, or proposed to be 
located in, such State, and for which a license to receive and 
possess has not been in effect for more than 1 year; 
"(ii) such funds as may be necessary to support State activi-
ties pursuant to agreements or contracts for impact assistance 
entered into, under paragraph (2), by such State with the Sec-
retary during such 2-year period; and 
"(iii) such funds as may be provided under an agreement 
entered into under title IV. 
"(5) Financial assistance authorized in this subsection shall be 
made out of amounts held in the Waste Fund. 
"(6) No State, other than the State of Nevada, may receive 
financial assistance under this subsection after the date of the 
enactment of the Nuclear Waste Policy Amendments Act of 1987.". 
SEC. 5033. PARTICIPATION OF INDIAN TRIBES. 
Section 118(b)(5) of the Nuclear Waste Policy Act of 1982 (42 
U.S.C. 10138(b)(5)) is amended by— 
(1) striking "or" at the end of clause (ii); and 
(2) adding at the end the following new clause: 
"(iv) the date of the enactment of the Nuclear Waste Policy 
Amendments Act of 1987;". 
PART 
D—NUCLEAR 
WASTE 
NEGOTIATOR 
SEC. 5041. NUCLEAR WASTE NEGOTIATOR. 
The Nuclear Waste Policy Act of 1982 is amended by adding at the 
end the following new title: 
"TITLE IV—NUCLEAR WASTE NEGOTIATOR 
"DEFINITION 
"SEC. 401. For purposes of this title, the term 'State' means each 
of the several States, the District of Columbia, the Commonwealth of 
Puerto Rico, the Virgin Islands, Guam, American Samoa, the North-
ern Mariana Islands, the Trust Territory of the Pacific Islands, any 
other territory or possession of the United States, and the Republic 
of the Marshall Islands. 
42 u s e 10241. 
THE OFFICE OF THE NUCLEAR WASTE NEGOTIATOR 
"SEC. 402. (a) ESTABUSHMENT.—There is established within the 
Executive Office of the President the Office of the Nuclear Waste 
Negotiator. 
"(b) THE NUCLEAR WASTE NEGOTIATOR.—(1) The Office shall be 
headed by a Nuclear Waste Negotiator who shall be appointed by 
the President, by and with the advice and consent of the Senate. The 
Negotiator shall hold office at the pleasure of the President, and 
shall be compensated at the rate provided for level III of the 
Executive Schedule in section 5314 of title 5, United States Code. 
42 u s e 10242. 
President of U.S. 
101 STAT. 1330-244 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(2) The Negotiator shall attempt to find a State or Indian tribe 
willing to host a repository or monitored retrievable storage facility 
at a technically qualified site on reasonable terms and shall nego-
tiate with any State or Indian tribe which expresses an interest in 
hosting a repository or monitored retrievable storage facility. 
"DUTIES OF THE NEGOTIATOR 
42 use 10243. 
"SEC. 403. (a) NEGOTIATIONS WITH POTENTIAL HOSTS.—(1) The 
Negotiator shall— 
"(A) seek to enter into negotiations on behalf of the United 
States, with— 
, ^_. 
"(i) the Governor of any State in which a potential site is 
"' ~ 
located; and 
^ 
"(ii) the governing body of any Indian tribe on whose 
reservation a potential site is located; and 
"(B) attempt to reach a proposed agreement between the 
United States and any such State or Indian tribe specifying the 
terms and conditions under which such State or tribe would 
agree to host a repository or monitored retrievable storage 
facility within such State or reservation. 
"(2) In any case in which State law authorizes any person or entity 
other than the Governor to negotiate a proposed agreement under 
this section on behalf of the State, any reference in this title to the 
Governor shall be considered to refer instead to such other person or 
entity. 
"(b) 
CONSULTATION WITH AFFECTED STATES, SUBDIVISIONS OF 
STATES, AND TRIBES.—In addition to entering into negotiations under 
subsection (a), the Negotiator shall consult with any State, affected 
unit of local government, or any Indian tribe that the Negotiator 
determines may be affected by the siting of a repository or mon-
itored retrievable storage facility and may include in any proposed 
agreement such terms and conditions relating to the interest of such 
States, affected units of local government, or Indian tribes as the 
Negotiator determines to be reasonable and appropriate. 
"(c) CONSULTATION WITH OTHER FEDERAL AGENCIES.—The Nego-
tiator may solicit and consider the comments of the Secretary, the 
Nuclear Regulatory Commission, or any other Federal agency on 
the suitability of any potential site for site characterization. Nothing 
-
> " 
in this subsection shall be construed to require the Secretary, the 
Nuclear Regulatory Commission, or any other Federal agency to 
make a finding that any such site is suitable for site characteriza-
tion. 
"(d) PROPOSED AGREEMENT.—(1) The Negotiator shall submit to 
the Congress any proposed agreement between the United States 
and a State or Indian tribe negotiated under subsection (a) and an 
environmental assessment prepared under section 404(a) for the site 
concerned. 
- - 
"(2) Any such proposed agreement shall contain such terms and 
conditions (including such financial and institutional arrangements) 
as the Negotiator and the host State or Indian tribe determine to be 
'i-'- 
reasonable and appropriate and shall contain such provisions as are 
necessary to preserve any right to participation or compensation of 
such State, affected unit of local government, or Indian tribe under 
sections 116(c), 117, and 118(b). 
"(3XA) No proposed agreement entered into under this section 
shall have legal effect unless enacted into Federal law. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-245 
"(B) A State or Indian tribe shall enter into an agreement under 
this section in accordance with the laws of such State or tribe 
Nothing in this section may be construed to prohibit the disapproval 
of a proposed agreement between a State and the United States 
under this section by a referendum or an act of the legislature of 
such State. 
"(4) Notwithstanding any proposed agreement under this section, 
the Secretary may construct a repository or monitored retrievable 
storage facility at a site agreed to under this title only if authorized 
by the Nuclear Regulatory Commission in accordance with the 
Atomic Energy Act of 1954 (42 U.S.C. 2012 et seq.), title II of the 
Energy Reorganization Act of 1982 (42 U.S.C. 5841 et seq.) and any 
other law applicable to authorization of such construction. 
"ENVIRONMENTAL ASSESSMENT OF SITES 
"SEC. 404. (a) IN GENERAL.—Upon the request of the Negotiator, 
42 use 10244. 
the Secretary shall prepare an environmental assessment of any site 
that is the subject of negotiations under section 403(a). 
"(b) CONTENTS.—(1) Each environmental assessment prepared for 
a repository site shall include a detailed statement of the probable 
impacts of characterizing such site and the construction and oper-
ation of a repository at such site. 
"(2) Each environmental assessment prepared for a monitored 
retrievable storage facility site shall include a detailed statement of 
the probable impacts of construction and operation of such a facility 
-i Q, 
at such site. 
"(c) JUDICIAL REVIEW.—The issuance of an environmental assess-
ment under subsection (a) shall be considered to be a final agency 
action subject to judicial review in accordance with the provisions of 
chapter 7 of title 5, United States Code, and section 119. 
"(d) PuBuc HEARINGS.—(1) In preparing an environmental assess- 
r f.i) 
ment for any repository or monitored retrievable storage facility 
site, the Secretary shall hold public hearings in the vicinity of such 
site to inform the residents of the area in which such site is located 
that such site is being considered and to receive their comments. 
"(2) At such hearings, the Secretary shall solicit and receive any 
recommendations of such residents with respect to issues that 
should be addressed in the environmental sissessment required 
under subsection (a) and the site characterization plan described in 
- ' ' -
section 113(bXl). 
"(e) PuBuc AvAiLABiUTY.—Each environmental assessment pre-
pared under subsection (a) shall be made available to the public. 
"(f) EVALUATION OF SITES.—(1) In preparing an environmental 
assessment under subsection (a), the Secretary shall use available 
geophysical, geologic, geochemical and hydrologic, and other 
information and shall not conduct any preliminary borings or exca-
vations at any site that is the subject of such assessment unless— 
"(A) such preliminary boring or excavation activities were in 
progress on or before the date of the enactment of the Nuclear 
Waste Policy Amendments Act of 1987; or 
"(B) the Secretary certifies that, in the absence of preliminary 
borings or excavations, adequate information will not be avail-
able to satisfy the requirements of this Act or any other law. 
"(2) No preliminary boring or excavation conducted under this 
section shall exceed a diameter of 40 inches. 
101 STAT. 1330-246 
PUBLIC LAW 100-203—DEC. 22, 1987 
SITE CHARACTERIZATION; LICENSING 
42 use 10245. 
"SEC. 405. (a) SiTE CHARACTERIZATION.—Upon enactment of legis-
lation to implement an agreement to site a repository negotiated 
under section 403(a), the Secretary shall conduct appropriate site 
characterization activities for the site that is the subject of such 
agreement subject to the conditions and terms of such agreement. 
Any such site characterization activities shall be conducted in 
accordance with section 113, except that references in such section 
to the Yucca Mountain site and the State of Nevada shall be deemed 
to refer to the site that is the subject of the agreement and the State 
or Indian tribe entering into the agreement. 
"(b) LICENSING.—(1) Upon the completion of site characterization 
activities carried out under subsection (a), the Secretary shall 
submit to the Nuclear Regulatory Commission an application for 
construction authorization for a repository at such site. 
'^ - 
"(2) The Nuclear Regulatory Commission shall consider an ap-
plication for a construction authorization for a repository or mon-
itored retrievable storage facility in accordance with the laws 
applicable to such applications, except that the Nuclear Regulatory 
Commission shall issue a final decision approving or disapproving 
the issuance of a construction authorization not later than 3 years 
after the date of the submission of such application. 
42 use 10246. 
Grants. 
MONITORED RETRIEVABLE STORAGE 
"SEC. 406. (a) CONSTRUCTION AND OPERATION.—Upon enactment of 
legislation to implement an agreement negotiated under section 
403(a) to site a monitored retrievable storage facility, the Secretary 
shall construct and operate such facility as part of an integrated 
nuclear waste management system in accordance with the terms 
and conditions of such agreement. 
"(b) FINANCIAL ASSISTANCE.—The Secretary may make grants to 
any State, Indian tribe, or affected unit of local government to 
assess the feasibility of siting a monitored retrievable storage facil-
ity under this section at a site under the jurisdiction of such State, 
tribe, or affected unit of local government. 
ENVIRONMENTAL IMPACT STATEMENT 
42 use 10247. 
"SEC. 407. (a) IN GENERAL.—Issuance of a construction authoriza-
tion for a repository or monitored retrievable storage facility under 
section 405(b) shall be considered a major Federal action signifi-
cantly affecting the quality of the human environment for purposes 
of the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et 
seq.). 
"Go) PREPARATION.—A final environmental impact statement shall 
be prepared by the Secretary under such Act and shall accompany 
any application to the Nuclear Regulatory Commission for a 
construction authorization. 
"(c) ADOPTION.—(1) Any such environmental impact statement 
shall, to the extent practicable, be adopted by the Nuclear Regu-
latory Commission, in accordance with section 1506.3 of title 40, 
Code of Federal Regulations, in connection with the issuance by the 
Nuclear Regulatory Commission of a construction authorization and 
license for such repository or monitored retrievable storage facility. 
"(2XA) In any such statement prepared with respect to a reposi-
tory to be constructed under this title at the Yucca Mountain site, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-247 
the Nuclear Regulatory Commission need not consider the need for 
a repository, the time of initial availability of a repository, alternate 
sites to the Yucca Mountain site, or nongeologic alternatives to such 
site. 
"(B) In any such statement prepared with respect to a repository 
to be constructed under this title at a site other than the Yucca 
Mountain site, the Nuclear Regulatory Commission need not con-
sider the need for a repository, the time of initial availability of a 
repository, or nongeologic alternatives to such site but shall consider 
the Yucca Mountain site as an alternate to such site in the prepara-
tion of such statement. 
"ADMINISTRATIVE POWERS OF THE NEGOTIATOR 
"SEC. 408. In carrying out his functions under this title, the 
42 USC10248. 
Negotiator may— 
"(1) appoint such officers and employees as he determines to 
be necessary and prescribe their duties; 
"(2) obtain services as authorized by section 3109 of title 5, 
United States Code, at rates not to exceed the rate prescribed 
. , ^ 
for grade GS-18 of the General Schedule by section 5332 of title 
5, United States Code; 
"(3) promulgate such rules and regulations as may be nec-
essary to carry out such functions; 
"(4) utilize the services, personnel, and facilities of other 
Federal agencies (subject to the consent of the head of any such 
agency); 
"(5) for purposes of performing administrative functions 
Contracts. : ; . 
under this title, and to the extent funds are appropriated, enter 
into and perform such contracts, leases, cooperative agree-
ments, or other transactions as may be necessary and on such 
.i:.L.ir.;, 
terms as the Negotiator determines to be appropriate, with any 
agency or instrumentality of the United States, or with any 
public or private person or entity; 
"(6) accept voluntary and uncompensated services, notwith-
standing the provisions of section 1342 of title 31, United States 
..^ ,, ;• 
Code; 
"(7) adopt an official seal, which shall be judicially noticed; 
"(8) use the United States mails in the same manner and 
under the same conditions as other departments and agencies of 
the United States; 
"(9) hold such hearings as are necessary to determine the 
views of interested parties and the general public; and 
"(10) appoint advisory committees under the Federal Advisory 
Committee Act (5 U.S.C. App.). 
"COOPERATION OF OTHER DEPARTMENTS AND AGENCIES 
"SEC. 409. Each department, agency, and instrumentality of the 
42 USC 10249. 
United States, including any independent agency, may furnish the 
Negotiator such information as he determines to be necessary to 
carry out his functions under this title. 
"TERMINATION OF THE OFFICE 
"SEC. 410. The Office shall cease to exist not later than 30 days 
42 USC 10250. 
after the date 5 years after the date of the enactment of the Nuclear 
Waste Policy Amendments Act of 1987. 
101 STAT. 1330-248 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 10251. 
42 use 10261. 
42 use 10262. 
President of U.S. 
President of U.S. 
OdSD? 
AUTHORIZATION OF APPROPRIATIONS 
• 
-
"SEC. 411. Notwithstanding subsection (d) of section 302, and 
subject to subsection (e) of such section, there are authorized to be 
appropriated for expenditures from amounts in the Waste Fund 
established in subsection (c) of such section, such sums as may be 
necessary to carry out the provisions of this title.". 
PART E—NUCLEAR WASTE TECHNICAL REVIEW 
BOARD 
SEC. 5051. NUCLEAR WASTE TECHNICAL REVIEW BOARD. 
The Nuclear Waste Policy Act of 1982 (42 U.S.C. 10101 et seq.) is 
further amended by adding at the end the following new title: 
"TITLE V—NUCLEAR WASTE TECHNICAL REVIEW BOARD 
"DEFINITIONS 
"SEC. 501. As used in this title: 
"(1) The term 'Chairman' means the Chairman of the Nuclear 
Waste Technical Review Board. 
"(2) The term 'Board' means the Nuclear Waste Technical 
Review Board established under section 502. 
"NUCLEAR WASTE TECHNICAL REVIEW BOARD 
"SEC. 502. (a) ESTABLISHMENT.—There is established a Nuclear 
Waste Technical Review Board that shall be an independent 
establishment within the executive branch. 
"Oa) MEMBERS.—(1) The Board shall consist of 11 members who 
shall be appointed by the President not later than 90 days after the 
date of the enactment of the Nuclear Waste Policy Amendments Act 
of 1987 from among persons nominated by the National Academy of 
Sciences in accordance with paragraph (3). 
"(2) The President shall designate a member of the Board to serve 
as chairman. 
"(3)(A) The National Academy of Sciences shall, not later than 90 
days after the date of the enactment of the Nuclear Waste Policy 
Amendments Act of 1987, nominate not less than 22 persons for 
appointment to the Board from among persons who meet the quali-
fications described in subparagraph (C). 
"(B) The National Academy of Sciences shall nominate not less 
than 2 persons to fill any vacancy on the Board from among persons 
who meet the qualifications described in subparagraph (C). 
"(C)(i) Each person nominated for appointment to the Board shall 
b e -
"(I) eminent in a field of science or engineering, including 
environmental sciences; and 
"(II) selected solely on the basis of established records of 
distinguished service. 
"(ii) The membership of the Board shall be representative of the 
broad range of scientific and engineering disciplines related to 
activities under this title. 
"(iii) No person shall be nominated for appointment to the Board 
who is an employee of— 
"(I) the Department of Energy; 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-249 
"(11) a national laboratory under contract with the Depart-
ment of Energy; or 
"(III) an entity performing high-level radioactive waste or 
spent nuclear fuel activities under contract with the Depart-
ment of Energy. 
"(4) Any vacancy on the Board shall be filled by the nomination 
and appointment process described in paragraphs (1) and (3). 
"(5) Members of the Board shall be appointed for terms of 4 years, 
each such term to commence 120 days after the date of enactment of 
the Nuclear Waste Policy Amendments Act of 1987, except that of 
the 11 members first appointed to the Board, 5 shall serve for 2 
years and 6 shall serve for 4 years, to be designated by the President 
at the time of appointment. 
FUNCTIONS 
"SEC. 503. The Board shall evaluate the technical and scientific 
validity of activities undertaken by the Secretary after the date of 
the enactment of the Nuclear Waste Policy Amendments Act of 
1987, including— 
"(1) site characterization activities; and 
"(2) activities relating to the packaging or transportation of 
high-level radioactive waste or spent nuclear fuel. 
42 u s e 10263. 
i 
INVESTIGATORY POWERS 
"SEC. 504. (a) HEARINGS.—Upon request of the Chairman or a 
42 USC 10264. 
majority of the members of the Board, the Board may hold such 
hearings, sit and act at such times and places, take such testimony, 
and receive such evidence, as the Board considers appropriate. Any 
member of the Board may administer oaths or affirmations to 
witnesses appearing before the Board, 
"(b) PRODUCTION OF DOCUMENTS.—(1) Upon the request of the 
Chairman or a majority of the members of the Board, and subject to 
existing law, the Secretary (or any contractor of the Secretary) shall 
provide the Board with such records, files, papers, data, or informa-
tion as may be necessary to respond to any inquiry of the Board 
under this title. 
"(2) Subject to existing law, information obtainable under para-
graph (1) shall not be limited to final work products of the Secretary, 
but shall include drafts of such products and documentation of work 
in progress. 
"COMPENSATION OF MEMBERS 
"SEC. 505. (a) IN GENERAL.—Each member of the Board shall be 
42 USC 10265. 
paid at the rate of pay payable for level III of the Executive 
Schedule for each day (including travel time) such member is en-
gaged in the work of the Board. 
"Ot)) TRAVEL EXPENSES.—Each member of the Board may receive 
travel expenses, including per diem in lieu of subsistence, in the 
same manner as is permitted under sections 5702 and 5703 of title 5, 
United States Code. 
"STAFF 
"SEC. 506. (a) CLERICAL STAFF.—(1) Subject to paragraph (2), the 
42 usc 10266. 
Chairman may appoint and fix the compensation of such clerical 
,>ai< St 
101 STAT. 1330-250 
PUBLIC LAW 100-203—DEC. 22, 1987 
staff as may be necessary to discharge the responsibihties of the 
Board. 
"(2) Clerical staff shall be appointed subject to the provisions of 
title 5, United States Code, governing appointments in the competi-
tive service, and shall be paid in accordance with the provisions of 
chapter 51 and subchapter III of chapter 53 of such title relating to 
classification and General Schedule pay rates. 
"(b) PROFESSIONAL STAFF.—(1) Subject to paragraphs (2) and (3), 
the Chairman may appoint and fix the compensation of such profes-
sional staff as may be necessary to discharge the responsibilities of 
the Board. 
"(2) Not more than 10 professional staff members may be ap-
pointed under this subsection. 
"(3) Professional staff members may be appointed without regard 
to the provisions of title 5, United States Code, governing appoint-
ments in the competitive service, and may be paid without regard to 
the provisions of chapter 51 and subchapter III of chapter 53 of such 
title relating to classification and General Schedule pay rates, 
except that no individual so appointed may receive pay in excess of 
the annual rate of basic pay payable for GS-18 of the General 
Schedule. 
"SUPPORT SERVICES 
J 
42 use 10267. 
"SEC. 507. (a) GENERAL SERVICES.—To the extent permitted by law 
and requested by the Chairman, the Administrator of General 
Services shall provide the Board with necessary administrative 
services, facilities, and support on a reimbursable basis. 
"Oa) ACCOUNTING, RESEARCH, AND TECHNOLOGY ASSESSMENT SERV-
ICES.—The Comptroller General, the Librarian of Congress, and the 
Director of the Office of Technology Assessment shall, to the extent 
permitted by law and subject to the availability of funds, provide the 
Board with such facilities, support, funds and services, including 
staff, as may be necessary for the effective performance of the 
functions of the Board. 
"(c) ADDITIONAL SUPPORT.—Upon the request of the Chairman, the 
Board may secure directly from the head of any department or 
agency of the United States information necessary to enable it to 
carry out this title, 
"(d) MAILS.—The Board may use the United States mails in the 
same manner and under the same conditions as other departments 
and agencies of the United States. 
"(e) EXPERTS AND CONSULTANTS.—Subject to such rules as may be 
prescribed by the Board, the Chairman may procure temporary and 
intermittent services under section 310900) of title 5 of the United 
States Code, but at rates for individuals not to exceed the daily 
equivalent of the maximum annual rate of basic pay payable for 
GS-18 of the General Schedule. 
"REPORT 
i 
42 use 10268. 
"SEC. 508. The Board shall report not less than 2 times per year to 
Congress and the Secretary its findings, conclusions, and rec-
ommendations. The first such report shall be submitted not later 
than 12 months after the date of the enactment of the Nuclear 
Waste Policy Amendments Act of 1987. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-251 
AUTHORIZATION OF APPROPRIATIONS 
"SEC. 509. Notwithstanding subsection (d) of section 302, and 
42 USC 10269. 
subject to subsection (e) of such section, there are authorized to be 
appropriated for expenditures from amounts in the Waste Fund 
established in subsection (c) of such section such sums as may be 
necessary to carry out the provisions of this title. 
"TERMINATION OF THE BOARD 
"SEC. 510. The Board shall cease to exist not later than 1 year 42 USC 10270. 
after the date on which the Secretary begins disposal of high-level 
radioactive waste or spent nuclear fuel in a repository.". 
PART F—MISCELLANEOUS 
SEC. 5061. TRANSPORTATION. 
Title I of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10121-
10171) is further amended by adding at the end the following new 
subtitle: 
"SUBTITLE H—TRANSPORTATION 
' 'TRANSPORTATION 
"SEC. 180. (a) No spent nuclear fuel or high-level radioactive waste 42 USC 10175. 
may be transported by or for the Secretary under subtitle A or 
under subtitle C except in packages that have been certified for such 
purpose by the Commission. 
"(b) The Secretary shall abide by regulations of the Commission 
regarding advance notification of State and local governments prior 
to transportation of spent nuclear fuel or high-level radioactive 
waste under subtitle A or under subtitle C. 
"(c) The Secretary shall provide technical assistance and funds to 
States for training for public safety officials of appropriate units of 
local government and Indian tribes through whose jurisdiction the 
Secretary plans to transport spent nuclear fuel or high-level radio-
active waste under subtitle A or under subtitle C. Training shall 
cover procedures required for safe routine transportation of these 
materials, as well as procedures for dealing with emergency re-
sponse situations. The Waste Fund shall be the source of funds for 
work carried out under this subsection.". 
SEC. 5062. TRANSPORTATION OF PLUTONIUM B
Y AIRCRAFT THROUGH 42 USC 5841 
UNITED STATES AIR SPACE. 
note. 
(a) IN GENERAL.—Notwithstanding any other provision of law, no 
form of plutonium may be transported by aircraft through the air 
space of the United States from a foreign nation to a foreign nation 
unless the Nuclear Regulatory Commission has certified to Congress 
that the container in which such plutonium is transported is safe, as 
determined in accordance with subsection (b), the second undesig-
nated paragraph under section 201 of Public Law 94-79 (89 Stat. 413; 
42 U.S.C. 5841 note), and all other applicable laws. 
O
t
)
) RESPONSIBIUTIES OF THE NUCLEAR REGULATORY COMMISSION.— 
(1) DETERMINATION OF SAFETY.—The Nuclear Regulatory 
Commission shall determine whether the container referred to 
in subsection (a) is safe for use in the transportation of pluto-
nium by aircraft and transmit to Congress a certification for the 
101 STAT. 1330-252 
PUBLIC LAW 100-203—DEC. 22, 1987 
purposes of such subsection in the case of each container deter-
mined to be safe. 
H
r
. ', k t. 
^2) TESTING.—In order to make a determination with respect 
to a container under paragraph (1), the Nuclear Regulatory 
Commission shall— 
(A) require an actual drop test from maximum cruising 
altitude of a full-scale sample of such container loaded with 
test materials; and 
(B) require an actual crash test of a cargo aircraft fully ''^ 
. 
jr 
. T
i
j 
* 
loaded with full-scale samples of such container loaded with 
, > >
. 
test material unless the Commission determines, after con-
sultation with an independent scientific review panel, that 
the stresses on the container produced by other tests used 
in developing the container exceed the stresses which would 
occur during a worst case plutonium air shipment accident. 
(3) LIMITATION.—The Nuclear Regulatory Commission may 
I y not certify under this section that a container is safe for use in 
,;, 
the transportation of plutonium by aircraft if the container 
ruptured or released its contents during testing conducted in 
accordance with paragraph (2). 
(4) EVALUATION.—The Nuclear Regulatory Commission shall 
evaluate the container certification required by title II of the 
Energy Reorganization Act of 1974 (42 U.S.C. 5841 et seq.) and 
fT I 7. 
V
? 
subsection (a) in accordance with the National Environmental 
Policy Act of 1969 (83 Stat. 852; 42 U.S.C. 4321 et seq.) and all 
other applicable law. 
(c) CONTENT OF CERTIFICATION.—A certification referred to in 
subsection (a) with respect to a container shall include— 
(1) the determination of the Nuclear Regulatory Commission 
as to the safety of such container; 
(2) a statement that the requirements of subsection (b)(2) were 
satisfied in the testing of such container; and 
(3) a statement that the container did not rupture or release 
its contents into the environment during testing. 
(d) DESIGN OF TESTING PROCEDURES.—The tests required by subsec-
tion (b) shall be designed by the Nuclear Regulatory Commission to 
replicate actual worst case transportation conditions to the maxi-
mum extent practicable. In designing such tests, the Commission 
shall provide for public notice of the proposed test procedures, 
provide a reasonable opportunity for public comment on such proce-
i > IB' Si 
dures, and consider such comments, if any. 
a o: 
(e) TESTING RESULTS: REPORTS AND PUBLIC DISCLOSURE.—The Nu-
clear Regulatory Commission shall transmit to Congress a report on 
the results of each test conducted under this section and shall make 
such results available to the public. 
President of U.S. 
(f) ALTERNATIVE ROUTES AND M E A N S OF TRANSPORTATION.—With 
respect to any shipments of plutonium from a foreign nation to a 
foreign nation which are subject to United States consent rights 
contained in an Agreement for Peaceful Nuclear Cooperation, the 
President is authorized to make every effort to pursue and conclude 
arrangements for alternative routes and means of transportation, 
including sea shipment. All such arrangements shall be subject to 
stringent physical security conditions, and other conditions designed 
" Copy read "full". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-253 
to protect the public health and safety, and provisions of this 
section, and all other applicable laws. 
(g) INAPPLICABILITY TO MEDICAL DEVICES.—Subsections (a) through 
(e) shall not apply with respect to plutonium in any form contained 
in a medical device designed for individual human application. 
(h) INAPPLICABILITY TO MIUTARY USES.—Subsections (a) through 
(e) shall not apply to plutonium in the form of nuclear weapons nor 
to other shipments of plutonium determined by the Department of 
Energy to be directly connected with the United States national 
security or defense programs. 
'.', . 
(i) INAPPLICABILITY TO PREVIOUSLY CERTIFIED CONTAINERS.—This 
section shall not apply to any containers for the shipment of pluto-
nium previously certified as safe by the Nuclear Regulatory 
Commission under Public Law 94-79 (89 Stat. 413; 42 U.S.C. 5841 
note). 
(j) PAYMENT OF COSTS.—All costs incurred by the Nuclear Regu-
latory Commission associated with the testing program required by 
this section, and administrative costs related thereto, shall be re-
imbursed to the Nuclear Regulatory Commission by any foreign 
country receiving plutonium shipped through United States air-
space in containers specified by the Commission. 
SEC. 5063. SUBSEABED DISPOSAL. 
Title II of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10191-
10203) is amended by adding at the end the following new section: 
"SUBSEABED DISPOSAL 
"SEC. 224. (a) STUDY.—Within 270 days after the date of the 
Reports. 
enactment of the Nuclear Waste Policy Amendments Act of 1987, 42 USC 10204. 
the Secretary shall report to Congress on subseabed disposal of spent 
^ ^, ,,, 
nuclear fuel and high-level radioactive waste. The report under this 
subsection shall include— 
"(1) an assessment of the current state of knowledge of 
subseabed disposal as an alternative technology for disposal of 
spent nuclear fuel and high-level radioactive waste; 
"(2) an estimate of the costs of subseabed disposal; 
"(3) an analysis of institutional factors associated with 
subseabed disposal, including international aspects of a decision 
of the United States to proceed with subseabed disposal as an 
option for nuclear waste management; 
"(4) a full discussion of the environmental and public health 
and safety aspects of subseabed disposal; 
"(5) recommendations on alternative ways to structure an 
effort in research, development, and demonstration with respect 
ii.jac ' 
to subseabed disposal; and 
"(6) the recommendations of the Secretary with respect to 
research, development and demonstration in subseabed disposal 
of spent nuclear fuel and hiffh-level radioactive waste. 
"Ob) OFFICE OF SUBSEABED DISPOSAL RESEARCH.—(1) There is 
Establishment. 
hereby established an Office of Subseabed Disposal Research within 
the Office of Enersy Research of the Department of Energy. The 
Office shall be headed by the Director, who shall be a member of the 
Senior Executive Service appointed by the Director of the Office of 
Energy Research, and compensatea at a rate determined by 
applicable law. 
101 STAT. 1330-254 
PUBLIC LAW 100-203—DEC. 22, 1987 
Grants. 
Contracts. 
Reports. 
Reports. 
Reports. 
"(2) The Director of the Office of Subseabed Disposal Research 
shall be responsible for carrying out research, development, and 
demonstration activities on all aspects of subseabed disposal of high-
level radioactive waste and spent nuclear fuel, subject to the general 
supervision of the Secretary. The Director of the Office shall be 
directly responsible to the Director of the Office of Energy Research, 
and the first such Director shall be appointed within 30 days of the 
date of enactment of the Nuclear Waste Policy Amendments Act of 
1987. 
"(3) In carrying out his responsibilities under this Act, the Sec-
retary may make grants to, or enter into contracts with, the 
Subseabed Consortium described in subsection (d) of this section, 
and other persons. 
"(4)(A) Within 60 days of the date of enactment of the Nuclear 
Waste Policy Amendments Act of 1987, the Secretary shall establish 
a university-based Subseabed Consortium involving leading oceano-
graphic universities and institutions, national laboratories, and 
other organizations to investigate the technical and institutional 
feasibility of subseabed disposal. 
"(B) The Subseabed Consortium shall develop a research plan and 
budget to achieve the following objectives by 1995: 
"(i) demonstrate the capacity to identify and characterize 
potential subseabed disposal sites; 
"(ii) develop conceptual designs for a subseabed disposal 
system, including estimated costs and institutional require-
ments; and 
"(iii) identify and assess the potential impacts of subseabed 
disposal on the human and marine environment. 
"(C) In 1990, and again in 1995, the Subseabed Consortium shall 
report to Congress on the progress being made in achieving the 
objectives of paragraph (2). 
"(5) The Director of the Office of Subseabed Disposal Research 
shall annually prepare and submit a report to the Congress on the 
activities and expenditures of the Office.'. 
SEC. 5604. DRY CASK STORAGE. 
(a) STUDY.—During the period between the date of the enactment 
of the Nuclear Waste Policy Amendments Act of 1987 and October 1, 
1988, the Secretary of Energy (hereinafter in this section referred to 
as the "Secretary") shall conduct a study and evaluation of the use 
of dry cask storage technology at the sites of civilian nuclear power 
reactors for the temporary storage of spent nuclear fuel until such 
time as a permanent geologic repository has been constructed and 
licensed by the Nuclear Regulatory Commission (hereinafter in this 
section referred to as the "Commission") and is capable of receiving 
spent nuclear fuel. The Secretary shall report to Congress on the 
study under this paragraph by October 1,1988. 
(b) CONTENTS OF STUDY.—In conducting the study under para-
graph (1) the Secretary shall— 
(1) consider the costs of dry csisk storage technology, the 
extent to which dry cask storage on the site of civilian nuclear 
power reactors will affect human health and the environment, 
the extent to which the storage on the sites of civilian nuclear 
power reactors affects the costs and risk of transporting spent 
nuclear fuel to a central facility such as a monitored retrievable 
storage facility, and any other factors the Secretary considers 
appropriate; 
7 
> < ii» 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-255 
(2) consider the extent to which amounts in the Nuclear 
Waste Fund established in section 302(c) of the Nuclear Waste 
Policy Act of 1982 (42 U.S.C. 10222(c)) can be used, and should be 
used, to provide funds to construct, operate, maintain, and 
safeguard spent nuclear fuel in dry cask storage at the sites for 
civilian nuclear power reactors; 
(3) consult with the Commission and include the views of the 
Commission in the report under paragraph (1); and 
(4) solicit the views of State and local governments and the 
public. 
SEC. 506.5. AMENDMENTS TO THE TABLE OF CONTENTS. 
The table of contents of the Nuclear Waste Policy Act of 1982 is 
amended by— 
(1) adding at the end of subtitle C the following new sections: 
"Sec. 142. Authorization of monitored retrievable storage. 
"Sec. i43. Monitored Retrievable Storage Commission. 
"Sec. 144. Survey. 
"Sec. 145. Site selection. 
"Sec. 146. Notice of disapproval. 
"Sec. 147. Benefits agreement. 
"Sec. 148. Construction authorization. 
"Sec. 149. Financial assistance."; 
(2) adding at the end of title I the following new subtitles: 
"SUBTITLE E—REDIRECTION OF THE NUCLEAR WASTE PROGRAM 
"Sec. 160. Selection of Yucca Mountain site. 
"Sec. 161. Siting a second repository. 
"SUBTITLE F—BENEFITS 
"Sec. 170. Benefits agreements. 
"Sec. 171. Content of agreements. 
"Sec. 172. Review panel. 
"Sec. 173. Termination. 
"SUBTITLE G—OTHER BENEFITS 
"Sec. 174. Consideration in siting facilities. 
"Sec. 175. Report. 
"SUBTITLE H—TRANSPORTATION 
"Sec. 180. Transportation."; 
(3) adding at the end of title II the following new section. 
"Sec. 224. Subseabed disposal."; and 
iP iUi >
; 
(4) adding at the end the following new titles: 
"TITLE IV—NUCLEAR WASTE NEGOTIATOR 
"Sec. 401. Definition. 
"Sec. 402. The Office of Nuclear Waste Negotiator. 
"Sec. 403. Duties of the Negotiator. 
"Sec. 404. Environmental assessment of sites. 
"Sec. 405. Site characterization; licensing. 
"Sec. 406. Monitored retrievable storage 
"Sec. 407. Environmental impact statement. 
"Sec. 408. Administrative powers of the Negotiator 
"Sec. 409. Cooperation of other departments and agencies. 
"Sec. 410. Termination of the office.". 
101 STAT. 1330-256 
PUBLIC LAW 100-203—DEC. 22, 1987 
Federal Onshore 
Oil and Gas 
Leasing Reform 
Act of 1987. 
Contracts. 
30 u s e 181 note. 
Regulations. 
Subtitle B—Federal Onshore Oil and Gas 
Leasing Reform Act of 1987 
SEC. 5101. SHORT TITLE; REP^ERENCES. 
(a) SHORT TITLE.—This subtitle may be cited as the "Federal 
Onshore Oil and Gas Leasing Reform Act of 1987". 
(b) REFERENCES.—Any reference in this subtitle to the "Act of 
February 25, 1920", is a reference to the Act of February 25, 1920, 
entitled "An Act to promote the mining of coal, phosphate, oil, oil 
shale, gas, and sodium on the public domain" (30 U.S.C. 181 and 
following). 
, 
SEC. 5102. OIL AND GAS LEASING SYSTEM. 
" 
r 
(a) COMPETITIVE BIDDING.—Section 17(b)(1) of the Act of Febru-
ary 25, 1920 (30 U.S.C. 226(b)(1)), is amended to read as follows: 
"(b)(1)(A) All lands to be leased which are not subject to leasing 
under paragraph (2) of this subsection shall be leased as provided in 
this paragraph to the highest responsible qualified bidder by 
competitive bidding under general regulations in units of not more 
than 2,560 acres, except in Alaska, where units shall be not more 
than 5,760 acres. Such units shall be as nearly compact as possible. 
Lease sales shall be conducted by oral bidding. Lease sales shall be 
held for each State where eligible lands are available at least 
quarterly and more frequently if the Secretary of the Interior 
determines such sales are necessary. A lease shall be conditioned 
upon the payment of a royalty at a rate of not less than 12.5 percent 
in amount or value of the production removed or sold from the lease. 
The Secretary shall accept the highest bid from a responsible quali-
fied bidder which is equal to or greater than the national minimum 
acceptable bid, without evaluation of the value of the lands proposed 
for lease. Leases shall be issued within 60 days following payment by 
the successful bidder of the remainder of the bonus bid, if any, and 
the annual rental for the first lease year. All bids for less than the 
national minimum acceptable bid shall be rejected. Lands for which 
no bids are received or for which the highest bid is less than the 
national minimum acceptable bid shall be offered promptly within 
30 days for leasing under subsection (c) of this section and shall 
remain available for leasing for a period of 2 years after the 
competitive lease sale. 
"(B) The national minimum acceptable bid shall be $2 per acre for 
a period of 2 years from the date of enactment of the Federal 
Onshore Oil and Gas Leasing Reform Act of 1987. Thereafter, the 
Secretary may establish by regulation a higher national minimum 
acceptable bid for all leases based upon a finding that such action is 
necessary: (i) to enhance financial returns to the United States; and 
(ii) to promote more efficient management of oil and gas resources 
on Federal lands. Ninety days before the Secretary makes any 
change in the national minimum acceptable bid, the Secretary shall 
notify the Committee on Interior and Insular Affairs of the United 
States House of Representatives and the Committee on Energy and 
Natural Resources of the United States Senate. The proposal or 
promulgation of any regulation to establish a national minimum 
acceptable bid shall not be considered a major Federal action subject 
to the requirements of section 102(2)(C) of the National Environ-
mental Policy Act of 1969.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-257 
(b) NONCOMPETITIVE LEASING.—Section 17(c) of the Act of Feb-
ruary 25, 1920 (30 U.S.C. 226(c)), is amended to read as follows: 
"(cXD If the lands to be leased are not leased under subsection 
(b)(1) of this section or are not subject to competitive leasing under 
subsection (b)(2) of this section, the person first making application 
for the lease who is qualified to hold a lease under this Act shall be 
entitled to a lease of such lands without competitive bidding, upon 
payment of a non-refundable application fee of at least $75. A lease 
under this subsection shall be conditioned upon the payment of a 
royalty at a rate of 12.5 percent in amount or value of the produc-
tion removed or sold from the lease. Leases shall be issued within 60 
days of the date on which the Secretary identifies the first respon-
sible qualified applicant. 
"(2)(A) Lands (i) which were posted for sale under subsection (b)(1) 
of this section but for which no bids were received or for which the 
highest bid was less than the national minimum acceptable bid and 
(ii) for which, at the end of the period referred to in subsection (bXl) 
of this section no lease has been issued and no lease application is 
pending under paragraph (1) of this subsection, shall again be 
available for leasing only in accordance with subsection (b)(1) of this 
section. 
"(B) The land in any lease which is issued under paragraph (1) of 
this subsection or under subsection (bXD of this section which lease 
terminates, expires, is cancelled or is relinquished shall again be 
available for leasing only in accordance with subsection (bXD of this 
section.". 
(c) RENTAUS.—Section 17(d) of the Act of February 25, 1920 (30 
U.S.C. 226(d)), is amended to read as follows: 
"(d) All leases issued under this section, as amended by the 
Federal Onshore Oil and Gas Leasing Reform Act of 1987, shall be 
conditioned upon payment by the lessee of a rental of not less than 
$1.50 per acre per year for the first through fifth years of the lease 
and not less than $2 per acre per year for each year thereafter. A 
minimum royalty in lieu of rental of not less than the rental which 
otherwise would be required for that lease year shall be payable at 
the expiration of each lease year beginning on or after a discovery of 
oil or gas in paying quantities on the lands leased.". 
(d) NOTICE AND RECLAMATION.—(1) Section 17 of the Act of Feb-
ruary 25, 1920 (30 U.S.C. 226), is amended by redesignating subsec-
tions (f) through (k) as subsections (i) through (n) and by adding the 
following new subsections (f) through (h): 
"(f) At least 45 days before offering lands for lease under this 
section, and at least 30 days before approving applications for 
permits to drill under the provisions of a lease or substantially 
modifying the terms of any lease issued under this section, the 
Secretary shall provide notice of the proposed action. Such notice 
shall be posted in the appropriate local office of the leasing and land 
management agencies. Such notice shall include the terms or modi-
fied lease terms and maps or a narrative description of the affected 
lands. Where the inclusion of maps in such notice is not practicable, 
maps of the affected lands shall be made available to the public for 
review. Such maps shall show the location of all tracts to be leased, 
and of all leases already issued in the general area. The require-
ments of this subsection are in addition to any public notice required 
by other law. 
"(g) The Secretary of the Interior, or for National Forest lands. Regulations 
the Secretary of Agriculture, shall regulate all surface-disturbing 
Public 
information. 
101 STAT. 1330-258 
PUBLIC LAW 100-203—DEC. 22, 1987 
activities conducted pursuant to any lease issued under this Act, and 
shall determine reclamation and other actions as required in the 
interest of conservation of surface resources. No permit to drill on 
an oil and gas lease issued under this Act may be granted without 
the analysis and approval by the Secretary concerned of a plan of 
operations covering proposed surface-disturbing activities within the 
lease area. The Secretary concerned shall, by rule or regulation, 
establish such standards as may be necessary to ensure that an 
adequate bond, surety, or other financial arrangement will be estab-
lished prior to the commencement of surface-disturbing activities on 
any lease, to ensure the complete and timely reclamation of the 
leeise tract, and the restoration of any lands or surface waters 
adversely affected by lease operations after the abandonment or 
cessation of oil and gas operations on the lease. The Secretary shall 
not issue a lease or leases or approve the assignment of any lease or 
leases under the terms of this section to any person, association, 
corporation, or any subsidiary, affiliate, or person controlled by or 
under common control with such person, gissociation, or corporation, 
during any period in which, as determined by the Secretary of the 
Interior or Secretary of Agriculture, such entity has failed or re-
fused to comply in any material respect with the reclamation 
requirements and other standards established under this section for 
any prior lease to which such requirements and standards applied. 
Prior to making such determination with respect to any such entity 
the concerned Secretary shall provide such entity with adequate 
notification and an opportunity to comply with such reclamation 
requirements and other standards and shall consider whether any 
administrative or judicial appeal is pending. Once the entity has 
complied with the reclamation requirement or other standard con-
cerned an oil or gas lease may be issued to such entity under this 
Act. 
"(h) The Secretary of the Interior may not issue any lease on 
National Forest System Lands reserved from the public domain over 
the objection of the Secretary of Agriculture.". 
(2) Section 31(h) of the Act of February 25, 1920 (30 U.S.C. 188(h)), 
is amended by striking out "section 17(j)" and substituting "section 
17(m)". 
SEC. 5103. ASSIGNMENTS. 
Sections 30(a) and 30(b) of the Act of February 25, 1920 (30 U.S.C. 
187a, 187b), are redesignated as sections 30A and 30B, respec-
tively, and the third sentence of section 30A, as so redesignated, is 
amended to read as follows: "The Secretary shall disapprove the 
assignment or sublease only for lack of qualification of the assignee 
or sublessee or for lack of sufficient bond: Provided, however, That 
the Secretary may, in his discretion, disapprove an assignment of 
any of the following, unless the assignment constitutes the entire 
lease or is demonstrated to further the development of oil and gas: 
"(1) A separate zone or deposit under any lease. 
"(2) A part of a legal subdivision. 
"(3) Less than 640 acres outside Aleiska or of less than 2,560 
acres within Alaska. 
Requests for approval of assignment or sublease shall be processed 
promptly by the Secretary. Except where the assignment or sublease 
is not in accordance with applicable law, the approval shall be given 
7 
within 60 days of the date of receipt by the Secretary of a request for 
such approval.". 
^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-259 
SEC. 5104. LEASE CANCELLATION. 
The first sentence of section Slflj) of the Act of February 25, 1920 
(30 U.S.C. 1880t))) is amended to read as follows: "Any lease issued 
after August 21, 1935, under the provisions of section 17 of this Act 
shall be subject to cancellation by the Secretary of the Interior after 
30 days notice upon the failure of the lessee to comply with any of 
the provisions of the lease, unless or until the leasehold contains a 
well capable of production of oil or gas in paying quantities, or the 
lease is committed to an approved cooperative or unit plan or 
communitization agreement under section 17(m) of this Act which 
contains a well capable of production of unitized substances in 
,v ,,. 
paying quantities.". 
SEC. 5105. ALASKA NATIONAL INTEREST LANDS CONSERVATION ACT. 
Section 1008 of the Alaska National Interest Lands Conservation 
Act (16 U.S.C. 3148) is amended as follows: 
(1) Subsections (c) and (e) are deleted in their entirety. 
(2) The second sentence of subsection 1008(d) is deleted. 
SEC. 5106. PENDING APPLICATIONS, OFFERS, AND BIDS. 
30 USC 226 note. 
(a) Notwithstanding any other provision of this subtitle and except 
as provided in subsection (b) of this section, all noncompetitive oil 
and gas lease applications and offers and competitive oil and gas 
bids pending on the date of enactment of this subtitle shall be 
processed, and leases shall be issued under the provisions of the Act 
of February 25, 1920, as in effect before its amendment by this 
subtitle, except where the issuance of any such lease would not be 
lawful under such provisions or other applicable law, 
(b) No noncompetitive lease applications or offers pending on the 
date of enactment of this subtitle for lands within the Shawnee 
National Forest, Illinois; the Ouachita National Forest, Arkansas; 
Fort Chafee, Arkansas; or Eglin '* Air Force Base, Florida; shall be 
processed until these lands are posted for competitive bidding in 
accordance with section 5102 of this subtitle. If any such tract does 
not receive a bid equal to or greater than the national minimum 
acceptable bid from a responsible qualified bidder then the non-
competitive applications or offers pending for such a tract shall be 
reinstated and noncompetitive leases issued under the Act of Feb-
ruary 25, 1920, as in effect before its amendment by this subtitle, 
except where the issuance of any such lease would not be lawful 
under such provisions or other applicable law. If competitive leases 
are issued for any such tract, then the pending noncompetitive 
application or offer shall be rejected. 
(c) Except as provided in subsections (a) and (b) of this section, all 
oil and gas leasing pursuant to the Act of February 25, 1920, after 
the date of enactment of this subtitle shall be conducted in accord-
ance with the provisions of this subtitle. 
SEC. 5107. REGULATIONS; TEST SALE. 
30 USC 226 note. 
(a) REGULATIONS.—The Secretary shall issue final regulations to 
implement this subtitle within 180 days after the enactment of this 
subtitle. The regulations shall be effective when published in the 
Effective date. 
Federal Register. 
Federal Register, 
(b) TREATMENT UNDER OTHER LAW.—The proposal or promulga- 
publication. 
tion of such regulations shall not be considered a major Federal 
"Copy read "Elgin". 
101 STAT. 1330-260 
PUBLIC LAW 100-203—DEC. 22, 1987 
action subject to the requirements of section 102(2)(C) of the 
National Environmental Policy Act of 1969. 
(c) TEST SALE.—The Secretary may hold one or more lease sales 
conducted in accordance with the amendments made by this subtitle 
before promulgation of regulations referred to in subsection (a). Sale 
procedures for such sale shall be established in the notice of sale. 
SEC. .5108. ENFORCEMENT. 
The Act of February 25, 1920, is amended by inserting after 
section 40 the following new section: 
30USC195. 
"SEC. 41. ENFORCEMENT. 
•'- •'<'• ^"•.-•'-" ; -'-^ -^n.*•>•.;.;^ .:-: . -, 
"(a) VIOLATIONS.—It shall be unlawful for any person: 
"(1) to organize or participate in any scheme, arrangement, 
plan, or agreement to circumvent or defeat the provisions of 
this Act or its implementing regulations, or 
"(2) to seek to obtain or to obtain any money or property by 
means of false statements of material facts or by failing to state 
material facts concerning: 
" •' ' 
' ' " 
"(A) the value of any lease or portion thereof issued or to 
be issued under this Act; 
"(B) the availability of any land for leasing under this 
Act; 
"(C) the ability of any person to obtain leases under this 
Act; or 
"(D) the provisions of this Act and its implementing 
regulations. 
"(h) PENALTY.—Any person who knowingly violates the provisions 
of subsection (a) of this section shall be punished by a fine of not 
more than $500,000, imprisonment for not more than five years, or 
both. 
"(c) CIVIL ACTIONS.—Whenever it shall appear that any person is 
engaged, or is about to engage, in any act which constitutes or will 
constitute a violation of subsection (a) of this section, the Attorney 
General may institute a civil action in the district court of the 
United States for the judicial district in which the defendant resides 
or in which the violation occurred or in which the lease or land 
involved is located, for a temporary restraining order, injunction, 
civil penalty of not more than $100,000 for each violation, or other 
appropriate remedy, including but not limited to, a prohibition from 
participation in exploration, leasing, or development of any Federal 
mineral, or any combination of the foregoing. 
"(d) CORPORATIONS.—(1) Whenever a corporation or other entity is 
subject to civil or criminal action under this section, any officer, 
employee, or agent of such corporation or entity who knowingly 
authorized, ordered, or carried out the proscribed activity shall be 
subject to the same action. 
,, J ^
; 
,, 
"(2) Whenever any officer, employee, or agent of a corporation or 
other entity is subject to civil or criminal action under this section 
for activity conducted on behalf of the corporation or other entity, 
the corporation or other entity shall be subject to the same action, 
unless it is shown that the officer, employee, or agent was acting 
without the knowledge or consent of the corporation or other entity^ 
"(e) REMEDIES, FINES, AND IMPRISONMENT.—The remedies, pen-
alties, fines, and imprisonment p|rescribed in this section shall be 
concurrent and cumulative and the exercise of one shall not pre-
clude the exercise of the others. Further, the remedies, penalties. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-261 
fines, and imprisonment prescribed in this section shall be in addi-
tion to any other remedies, penalties, fines, and imprisonment 
afforded by any other law or regulation. 
"(f) STATE CIVIL ACTIONS.—(1) A State may commence a civil 
action under subsection (c) of this section against any person 
conducting activity within the State in violation of this section. Civil 
actions brought by a State shall only be brought in the United 
States district court for the judicial district in which the defendant 
' " <^^- '-'5 J C 
resides or in which the violation occurred or in which the lease or 
land involved is located. The district court shall have jurisdiction, 
without regard to the amount in controversy or the citizenship of 
the parties, to order appropriate remedies and penalties as described 
in subsection (c) of this section. 
"(2) A State shall notify the Attorney General of the United States 
of any civil action filed by the State under this subsection within 30 
days of filing of the action. The Attorney General of the United 
States shall notify a State of any civil action arising from activity 
conducted within that State filed by the Attorney General under 
this subsection within 30 days of filing of the action. 
"(3) Any civil penalties recovered by a State under this subsection 
shall be retained by the State and may be expended in such manner 
and for such purposes as the State deems appropriate. If a civil 
action is jointly brought by the Attorney General and a State, by 
more than one State or by the Attorney General and more than one 
State, any civil penalties recovered as a result of the joint action 
shall be shared by the parties bringing the action in the manner 
determined by the court rendering judgment in such action. 
"(4) If a State has commenced a civil action against a person 
conducting activity within the State in violation of this section, the 
Attorney General may join in such action but may not institute a 
separate action arising from the same activity under this section. If 
., ^ ^ 
the Attorney General has commenced a civil action against a person 
' '*^" 
conducting activity within a State in violation of this section, that 
State may join in such action but may not institute a separate action 
arising from the same activity under this section. 
"(5) Nothing in this section shall deprive a State of jurisdiction to 
enforce its own civil and criminal laws against any person who may 
also be subject to civil and criminal action under this section.'. 
SEC. 5109. PAYMENTS TO STATES. 
Section 35 of the Act of February 25, 1920 (30 U.S.C. 191) is 
amended by adding the following at the end thereof: "In determin-
ing the amount of payments to States under this section, the amount 
of such payments shall not be reduced by any administrative or 
other costs incurred by the United States.". 
SEC. 5110. REPORT. 
30 USC 226 note. 
The Secretary shall submit annually for 5 years after enactment 
of this subtitle to the Congress a report containing appropriate 
information to facilitate congressional monitoring of this subtitle. 
Such report shall include, but not be limited to— 
(1) the number of acres leased, and the number of leases 
issued, competitively and noncompetitively; 
(2) the amount of revenue received from bonus bids, filing^ 
fees, rentals, and royalties; 
(3) the amount of production from competitive and non-
competitive leases; and 
101 STAT. 1330-262 
PUBLIC LAW 100-203—DEC. 22, 1987 
(4) such other data and information as will facilitate— 
- 
(A) an assessment of the onshore oil and gas leasing 
system, and 
• * 
(B) a comparison of the system as revised by this subtitle 
with the system in operation prior to the enactment of this 
subtitle. 
30 u s e 226 note. 
SEC. ."il 11. LAND USE STUDY. 
The National Academy of Sciences and the Comptroller General 
of the United States shall conduct a study of the manner in which 
oil and gas resources are considered in the land use plans developed 
by the Secretary of the Interior in accordance with provisions of the 
Federal Land Policy and Management Act of 1976 (90 Stat. 2743) 
and the Secretary of Agriculture in accordance with the Forest and 
Rangeland Renewable Resources Planning Act of 1974 (88 Stat. 476), 
as amended by the National Forest Management Act of 1976 (90 
Stat. 2949), and recommend any improvements that may be nec-
essary to ensure that— 
(1) potential oil and gas resources are adequately addressed in 
planning documents; 
(2) the social, economic, and environmental consequences of 
exploration and development of oil and gas resources are deter-
mined; and 
(3) any stipulations to be applied to oil and gas leases are 
clearly identified. 
SEC. 5112. LANDS NOT SUBJECT TO OIL AND GAS LEASING. 
The Act of February 25, 1920, is amended by adding the following 
at the end thereof: 
30 u s e 226-3. 
"SEC. 43. LANDS NOT SUBJECT TO OIL AND GAS LEASING. 
"(a) PROHIBITION.—The Secretary shall not issue any oil and gas 
lease under this Act on any of the following Federal lands: 
"(1) Lands recommended for wilderness allocation by the 
surface managing agency. 
"(2) Lands within Bureau of Land Management wilderness 
study areas. 
"(3) Lands designated by Congress as wilderness study areas, 
except where oil and gas leasing is specifically allowed to 
continue by the statute designating the study area. 
"(4) Lands within areas allocated for wilderness or further 
planning in Executive Communication 1504, Ninety-Sixth Con-
gress (House Document numbered 96-119), unless such lands 
are allocated to uses other than wilderness by a land and 
resource management plan or have been released to uses other 
than wilderness by an act of Congress. 
"(b) EXPLORATION.—In the case of any area of National Forest or 
public lands subject to this section, nothing in this section shall 
affect any authority of the Secretary of the Interior (or for National 
Forest Lands reserved from the public domain, the Secretary of 
Agriculture) to issue permits for exploration for oil and gas by 
means not requiring construction of roads or improvement of exist-
ing roads if such activity is conducted in a manner compatible with 
the preservation of the wilderness environment.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-263 
SEC. 5113. SHORT TITLE. 
The Act of February 25, 1920, is amended by inserting after 
section 43 the following new section: 
"SEC. 44. SHORT TITLE. 
"This Act may be cited as the 'Mineral Leasing Act'.". 
Subtitle C—Land and Water Conservation 
Fund and Tongass Timber Supply Fund 
Mineral Leasing 
Act. 
30 u s e 181 note. 
SEC. 5201. LAND AND WATER CONSERVATION FUND ACT AMENDMENTS. 
(a) ADMISSION FEES.—Section 4(a) of the Land and Water Con-
servation Fund Act of 1965 (16 U.S.C. 4601-6a(a)) is amended as 
follows: 
(1) Paragraph (1) is amended by striking out "$10" and insert-
ing in lieu thereof "$25" in the first sentence. 
(2) Paragraph (1) is further amended by striking out "(1)" and 
inserting in lieu thereof "(IXA)" and adding the following new 
subparagraph at the end thereof: 
"(B) For admission into a specific designated unit of the 
National Park System, or into several specific units located in a 
particular geographic area, the Secretary is authorized to make 
available an annual admission permit for a reasonable fee. The 
fee shall not exceed $15 regardless of how many units of the 
park system are covered. The permit shall convey the privileges 
of, and shall be subject to the same terms and conditions as, the 
Golden Eagle Passport, except that it shall be valid only for 
admission into the specific unit or units of the National Park 
System indicated at the time of purchase.". 
(3) Paragraph (2) is amended by adding the following sen-
tences at the end thereof: "The fee for a single-visit permit at 
any designated area applicable to those persons entering by 
private, noncommercial vehicle shall be no more than $5 per 
vehicle. The single-visit permit shall admit the permittee and 
all persons accompanying him in a single vehicle. The fee for a 
single-visit permit at any designated area applicable to those 
persons entering by any means other than a private non-
commercial vehicle shall be no more than $3 per person. Except 
as otherwise provided in this subsection, the maximum fee 
amounts set forth in this paragraph shall apply to all des-
ignated areas.". 
(4) Paragraph (3) is amended by adding the following new 
sentence at the end thereof: "Notwithstanding any other provi-
sion of this Act, no admission fee may be charged at any unit of 
the National Park System which provides significant outdoor 
recreation opportunities in an urban environment and to which 
access is publicly available at multiple locations.". 
(5) Add the following new paragraphs: 
"(6XA) No later than 60 days after the date of enactment of 
this paragraph, the Secretary of the Interior shall submit to the 
Committee on Interior and Insular Affairs of the United States 
House of Representatives and the Committee on Energy and 
Natural Resources of the United States Senate a report on the 
entrance fees proposed to be charged at units of the National 
Park System. The report shall include a list of units of the 
Reports. 
91-194 O - 90 - 34 : QL.3 Part 2 
101 STAT. 1330-264 
PUBLIC LAW 100-203—DEC. 22, 1987 
National Park System and the entrance fee proposed to be 
charged at each unit. The Secretary of the Interior shall include 
in the report an explanation of the guidelines used in applying 
the criteria in subsection (d). 
"(B) Following submittal of the report to the respective 
^ 
committees, any proposed changes to matters covered in the 
"''>'' 
'"" •- 
report, including the addition or deletion of park units or the 
increase or decrease of fee levels at park units shall not take 
effect until 60 days after notice of the proposed change has been 
submitted to the committees. 
"(7) No admission fee may be charged at any unit of the 
National Park System for admission of any person 16 years of 
age or less. 
"(8) No admission fee may be charged at any unit of the 
j. 
National Park System for admission of organized school groups 
or outings conducted for educational purposes by schools or 
other bona fide educational institutions. 
"(9) No admission fee may be charged at the following units of 
f 
the National Park System; U.S.S. Arizona Memorial, Independ-
\ 
ence National Historical Park, any unit of the National Park 
System within the District of Columbia, Arlington House— 
?
- 
Robert E. Lee National Memorial, San Juan National Historic 
{ 
Site, and Canaveral National Seashore. 
t 
"(10) For each unit of the National Park System where an 
c
- 
admission fee is collected, the Director shall annually designate 
s 
at least one day during periods of high visitation as a 'Fee-Free 
£ 
Day' when no admission fee shall be charged. 
f> 
"(11) In the case of the following parks, the fee for a single-
^ 
visit permit applicable to those persons entering by private, 
> 
noncommercial vehicle (the permittee and all persons accom-
panying him in a single vehicle) shall be no more than $10 per 
vehicle and the fee for a single-visit permit applicable to persons 
^ 
entering by any means other than a private noncommercial 
'•" vehicle shall be no more than $5 per person: Yellowstone Na-
tional Park and Grand Teton National Park and after the end 
of fiscal year 1990, Grand Canyon National Park. In the case of 
^ 
Yellowstone and Grand Teton, a single-visit fee collected at one 
^ 
unit shall also admit the vehicle or person who paid such fee for 
' 
a single-visit to the other unit. 
' 
"(12) Notwithstanding section 203 of the Alaska National 
^ 
Interest Lands Conservation Act, the Secretary may charge an 
admission fee under this section at Denali National Park and 
Preserve in Alaska.". 
(b) VISITOR RESERVATION SERVICES.—Section 4(f) of the Land and 
Water Conservation Fund Act of 1965 (16 U.S.C. 4601-6a(f)) is 
amended to read as follows: 
Contracts. 
"(f) The head of any Federal agency, under such terms and 
conditions as he deems appropriate, may contract with any public or 
private entity to provide visitor reservation services. Any such 
contract may provide that the contractor shall be permitted to 
deduct a commission to be fixed by the agency head from the 
amount charged the public for providing such services and to remit 
the net proceeds therefrom to the contracting agency.". 
(c) SPECIAL PROVISIONS.—Section 4 of the Land and Water Con-
servation Fund Act of 1965 (16 U.S.C. 4601-6a) is amended by adding 
the following new subsections at the end thereof: 
.^i-ic 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-265 
"(iXD Except in the case of fees collected by the United States Contracts. 
Fish and Wildlife Service or the Tennessee Valley Authority, all 
receipts from fees collected pursuant to this section by any Federal 
agency (or by any public or private entity under contract with a 
Federal agency) shall be covered into a special account for that 
agency established in the Treasury of the United States. Fees 
collected by the Secretary of Agriculture pursuant to this subsection 
shall continue to be available for the purposes of distribution to 
States and counties in accordance with applicable law. 
"(2) Amounts covered into the special account for each agency 
during each fiscal year shall, after the end of such fiscal year, be 
available for appropriation solely for the purposes and in the 
manner provided in this subsection. No funds shall be transferred 
from fee receipts made available under this Act to each unit of the 
national park system: Provided, however, That in making appropria-
tions, funds derived from such fees may be used for any purpose 
authorized therein. Funds credited to the special account shall 
remain available until expended. 
"(3) For agencies other than the National Park Service, such 
funds shall be made available for resource protection, research, 
interpretation, and maintenance activities related to resource 
protection in areas managed by that agency at which outdoor 
recreation is available. To the extent feasible, such funds should be 
used for purposes (as provided for in this paragraph) which are 
directly related to the activities which generated the funds, includ-
ing but not limited to water-based recreational activities and 
camping. 
"(4) Amounts covered into the special account for the National 
Park Service shall be allocated among park system units in accord-
ance with subsection (j) for obligation or expenditure by the Director 
of the National Park Service for the following purposes: 
"(A) In the case of receipts from the collection of admission 
fees: for resource protection, research, and interpretation at 
units of the National Park System. 
"(B) In the case of receipts from the collection of user fees: for 
resource protection, research, interpretation, and maintenance 
activities related to resource protection at units of the National 
Park System. 
"(j)(l) 10 percent of the funds made available to the Director of the 
National Park Service under subsection (i) in each fiscal year shall 
be allocated among units of the National Park System on the basis 
of need in a manner to be determined by the Director. 
"(2) 40 percent of the funds made available to the Director of the 
National Park Service under subsection (i) in each fiscal year shall 
be allocated among units of the National Park System in accordance 
with paragraph (3) of this subsection and 50 percent shall be allo-
cated in accordance with paragraph (4) of this subsection. 
"(3) The amount allocated to each unit under this paragraph for 
each fiscal year shall be a fraction of the total allocation to all units 
under this paragraph. The fraction for each unit shall be deter-
mined by dividing the operating expenses at that unit during the 
' b 
prior fiscal year by the total operating expenses at all units during 
the prior fiscal year. 
"(4) The amount allocated to each unit under this paragraph for 
each fiscal year shall be a fraction of the total allocation to all units 
under this paragraph. The fraction for each unit shall be deter-
mined by dividing the user fees and admission fees collected under 
101 STAT. 1330-266 
PUBLIC LAW 100-203—DEC. 22, 1987 
this section at that unit during the prior fiscal year by the total of 
user fees and admission fees collected under this section at all units 
during the prior fiscal year. 
"(5) Amounts allocated under this subsection to any unit for any 
fiscal year and not expended in that fiscal year shall remain avail-
able for expenditure at that unit until expended. 
"(k) When authorized by the head of the collecting agency, volun-
teers at designated areas may sell permits and collect fees au-
thorized or established pursuant to this section. The head of such 
agency shall ensure that such volunteers have adequate training 
regarding— 
"(1) the sale of permits and the collection of fees, 
"(2) the purposes and resources of the areas in which they are 
assigned, and 
"(3) the provision of assistance and information to visitors to 
the designated area. 
The Secretary shall require a surety bond for any such volunteer 
performing services under this subsection. Funds available to the 
collecting agency may be used to cover the cost of any such surety 
bond. The head of the collecting agency may enter into arrange-
ments with qualified public or private entities pursuant to which 
such entities may sell (without cost to the United States) annual 
admission permits (including Golden Eagle Peissports) at any appro-
priate location. Such arrangements shall require each such entity to 
reimburse the United States for the full amount to be received from 
the sale of such permits at or before the agency delivers the permits 
to such entity for sale. 
"(1X1) Where the National Park Service provides transportation to 
view all or a portion of any unit of the National Park System, the 
Director may impose a charge for such service in lieu of an admis-
sion fee under this section. The charge imposed under this para-
graph shall not exceed the maximum admission fee under sub-
section (a). 
"(2) Notwithstanding any other provision of law, half of the 
charges imposed under paragraph (1) shall be retained by the unit of 
the National Park System at which the service was provided. The 
remainder shall be covered into the special account referred to in 
subsection (i) in the same manner as receipts from fees collected 
pursuant to this section. Fifty percent of the amount retained shall 
be expended only for maintenance of transportation systems at the 
unit where the charge was imposed. The remaining 50 percent of the 
retained amount shall be expended only for activities related to 
resource protection at such units. 
"(m) Where the primary public access to a unit of the National 
Park System is provided by a concessioner, the Secretary may 
charge an admission fee at such units only to the extent that the 
total of the fee charged by the concessioner for access to the unit 
and the admission fee does not exceed the maximum amount of 
the admission fee which could otherwise be imposed under sub-
section (a).". 
16 use 460/-5a. 
(d) REPEALS.—(1) Title I of Public Law 96-514 is amended by 
striking out the following provisions which appear under the head-
ing "Land and Water Conservation Fund": "Notwithstanding the 
provisions of Public Law 90-401, revenues from recreation fee collec-
tions by Federal agencies shall hereafter be paid into the Land and 
Water Conservation Fund, to be available for appropriation for any 
or all purposes authorized by the Land and Water Conservation 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-267 
Fund Act of 1965, as amended, without regard to the source of such 
(2) Section 402 of the Act of October 12, 1979 (93 Stat. 664), is 
hereby repealed. 
(3) The seventh paragraph of title I of the Energy and Water 
Development Appropriation Act, 1982, entitled "Special Recreation 
Use Fees" is hereby repealed. 
(e) STUDY.—(1) The Secretary of the Interior shall assess the 
extent to which traffic congestion and overcrowding occurs at cer-
tain park system units during times of sesisonally high usage and 
shall conduct a study of the following— 
(A) the feasibility of reducing vehicular traffic within national 
park system units through fee reductions for visitors traveling 
by bus and through other means which could shift visitation 
from automobiles to buses; and 
(B) the feasibility of encouraging more even seasonal distribu-
tion of visitation. 
(2) The study shall include a pilot project to be carried out in 
Yosemite National Park. For purposes of such pilot project, the 
Secretary may reduce the fees for admission of various classes or 
categories of visitors to Yosemite National Park and may reduce the 
admission fees imposed at the park during seasons with low visita-
tion. A report containing the results of the study shall be transmit-
ted to the Committee on Interior and Insular Affairs of the United 
States House of Representatives and to the Committee on Energy 
and Natural Resources of the United States Senate within 3 years 
after the enactment of this Act. 
(f) EXTENSION OF LAND AND WATER CONSERVATION FUND.—(1) 
Section 2 of the Land and Water Conservation Fund Act of 1965 (16 
U.S.C. 4601 and following) is amended as follows: 
(A) In the matter preceding subsection (a) strike "1989" and 
substitute "2015". 
(B) In subsection (cXD strike "1989" and substitute "2015". 
(2) The last sentence of section 3 of the Land and Water Conserva-
tion Fund Act of 1965 (16 U.S.C. 4601 and following) is amended to 
read as follows: "Moneys made available for obligation or expendi-
ture from the fund or from the special account established under 
section 4(i)(l) may be obligated or expended only as provided in this 
Act.". 
(g) RELATIONSHIP TO FISCAL YEAR 1988 APPROPRIATIONS.—For pur-
poses of legislation providing appropriations for the fiscal year 1988 
to the Department of the Interior, the provisions of this section shall 
be treated as "permanent statutory language" establishing entrance 
fees for the National Park Service. 
SEC. 
5
2
0
2
. 
TONGASS 
TIMBER 
SUPPLY 
FUND. 
From the period beginning on October 1,1987, and extending until 
September 30, 1989, the provisions of section 705(a) of the Alaska 
National Interest Lands Conservation Act of 1980 (16 U.S.C. 539(d)) 
shall not be effective. In lieu thereof, the following provision shall 
apply: 
"There is hereby authorized to be appropriated the sum of at least 
$40,000,000 annually (or such sums as the Secretary of Agriculture 
determines necessary) to maintain the timber supply from the 
Tongass National Forest to dependent industry at a rate of 
4,500,000,000 foot board measure per decade." 
16 u s e 460/-6b. 
16 u s e 460Z-5a 
note. 
16 use 460/-6a 
note. 
Reports. 
16 u s e 460Z-5. 
16 use 460/-6. 
16 use 539d 
note. 
Appropriation 
authorization. 
101 STAT. 1330-268 
PUBLIC LAW 100-203—DEC. 22, 1987 
Subtitle D—Reclamation 
43 u s e 421b 
note. 
Contracts. 
43 u s e 390ww. 
•mj 
Reports. 
Contracts. 
SEC. 5301. SALE OF BUREAU OF RECLAMATION LOANS. 
(a) SALE.—The Secretary of the Interior (hereinafter in this sec-
tion referred to as the "Secretary"), under such terms as the Sec-
retary shall prescribe, shall sell or otherwise dispose of loan» made 
pursuant to the Distribution System Loans Act (43 U.S.C. 421a-
421d), the Small Reclamation Projects Act (43 U.S.C. 422a-4221), and 
the Rehabilitation and Betterment Act (43 U.S.C. 504-505) in such 
amounts as to realize net proceeds to the Federal Government of not 
less than $130,000,000 in the fiscal year ending September 30, 1988. 
In the conduct of such sales, the Secretary shall take such actions as 
he deems appropriate to accommodate, effectuate, and otherwise 
protect the rights and obligations of the United States and the 
borrowers under the contracts executed to provide for repayment of 
such loans. 
(b) SAVINGS PROVISIONS.—Nothing in this section, including the 
prepayment or other disposition of any loan or loans, shall— 
^. 
(1) except to the extent that prepayment may have been 
, ^ authorized heretofore, relieve the borrower from the application 
^
^ 
of the provisions of Federal Reclamation law (Act of June 17, 
J 
1902, and Acts amendatory thereof or supplementary thereto, 
K
' 
including the Reclamation Reform Act of 1982), including acre-
'.. 
age limitations, to the extent such provisions would apply 
r
^ absent such prepayment, or 
(2) authorize the transfer of title to any federally owned 
f; 
facilities funded by the loans specified in subsection (a) of this 
section without a specific Act of Congress. 
(c) FEES AND EXPENSES OF PROGRAM.—Proceeds from the conduct 
of the program authorized by this section shall be first used to pay 
the fees and expenses of such program and the net proceeds shall be 
deposited in the Treasury of the United States as miscellaneous 
receipts. 
(d) TERMINATION.—The authority granted by this section to sell or 
otherwise dispose of loans shall terminate on December 31, 1988. 
SEC. 5302. RECLAMATION REFORM ACT AMENDMENTS. 
(a) AUDIT.—Section 224 of the Reclamation Reform Act of 1982 
(Public Law 97-293) is amended by adding the following new subsec-
tions after subsection (f): 
"(g) In addition to any other audit or compliance activities which 
may otherwise be undertaken, the Secretary of the Interior, or his 
designee, shall conduct a thorough audit of the compliance with the 
reclamation law of the United States, specifically including this Act, 
by legal entities and individuals subject to such law. At a minimum, 
the Secretary shall complete audits of those legal entities and 
individuals whose landholdings or operations exceed 960 acres 
within 3 years. The Secretary shall submit an annual written report 
to the Senate Committee on Energy and Natural Resources and the 
House Committee on Interior and Insular Affairs. Such report shall 
summarize the legal entities and individuals audited, the results of 
such audits, and the actions taken by the Secretary to correct any 
instances of noncompliance with the reclamation law. 
"(h) The provisions of section 205(c) are and have been applicable 
to all recordable contracts executed prior to October 12, 1982, and 
any decision, rule, or regulation promulgated by the Department of 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-269 
the Interior to the contrary is hereby revoked: Provided, That 
notwithstanding the provisions of subsection (i), the Secretary shall 
not seek reimbursement for any amounts due under this subsection 
or section 205(c) which was due prior to the date of enactment of this 
subsection. 
"(i) When the Secretary finds that any individual or legal entity 
subject to reclamation law, including this Act, has not paid the 
required amount for irrigation water delivered to a landholding 
pursuant to reclamation law, including this Act, he shall collect the 
amount of any underpayment with interest accruing from the date 
the required payment was due until paid. The interest rate shall be 
determined by the Secretary of the Treasury on the basis of the 
weighted average yield of all interest bearing marketable issues sold 
by the Treasury during the period of underpayment.". 
(b) REVOCABLE TRUSTS.—Section 214 of the Reclamation Reform 
Act of 1982 (Public Law 97-293) is amended by inserting "(a)" after 
43 use 390nn. 
"214" and by adding the following new subsection at the end 
thereof: 
"(b) Lands placed in a revocable trust shall be attributable to the 
grantor if— 
"(1) the trust is revocable at the discretion of the grantor and 
revocation results in the title to such lands reverting either 
directly or indirectly to the grantor; or 
"(2) the trust is revoked or terminated by its terms upon the 
expiration of a specified period of time and the revocation or 
termination results in the title to such lands reverting either 
directly or indirectly to the grantor.". 
^ 
Subtitle E—Panama Canal 
SEC. 
5
4
0
1
. 
REFERENCE 
TO 
THE 
PANAMA 
CANAL 
ACT 
OF 
1
9
7
9
. 
Except as otherwise expressly provided, whenever in this subtitle 
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 Panama 
Canal Act of 1979 (22 U.S.C. 3601 and following). 
PART 
1—PANAMA 
CANAL 
REAUTHORIZATION 
SEC. 5411. OPERATING EXPENSES. 
There is authorized to be appropriated from the Panama Canal 
Commission Fund to the Panama Canal Commission (hereafter in 
this part referred to as the "Commission") for the fiscal year 
beginning October 1, 1987, not to exceed $467,050,000, for necessary 
expenses of the Commission incurred under the Panama Canal Act 
of 1979 (22 U.S.C. 3601 and following), including expenses for— 
(1) the hire of passenger motor vehicles and aircraft; 
(2) the purchase of passenger motor vehicles as may be nec-
essary for fiscal year 1988, the number and price of which shall 
not exceed the amount provided in appropriation Acts; except 
that large heavy-duty passenger sedans used to transport 
Commission employees across the Isthmus of Panama may be 
purchased for fiscal year 1988 without regard to price limita-
tions set forth in applicable regulations of any department or 
agency of the United States; 
101 STAT. 1330-270 
PUBLIC LAW 100-203—DEC. 22, 1987 
J 
(3) official receptions and representation expenses, except 
1 
that not more than $43,000 may be made available for such 
. 
expenses, of which (A) not more than $10,000 may be made 
available for such expenses of the Supervisory Board of the 
Commission, (B) not more than $5,000 may be made available 
for such expenses of the Secretary of the Commission, and (C) 
not more than $28,000 may be made available for such expenses 
of the Administrator of the Commission; 
(4) the procurement of expert and consultant services as 
provided in section 3109 of title 5, United States Code; 
(5) a residence for the Administrator of the Commission; 
4 
(6) uniforms, or allowances therefor, as authorized by section 
>
• 
5901 and 5902 of title 5, United States Code; 
(7) disbursements by the Administrator of the Commission for 
J 
employee recreation and community projects; and 
'/: 
;,. ; 
(8) the operation of guide services. 
SEC. 5412. CAPITAL OUTLAY. 
Of any funds appropriated pursuant to section 5411, not more 
than $37,000,000 (which is authorized to remain available until 
expended) may be made available for the acquisition, construction, 
replacement and improvements of facilities, structures, and equip-
ment required by the Commission. 
SEC. 5413. AUTHORIZATION OF ADDITIONAL APPROPRIATIONS. 
In addition to the amount authorized to be appropriated by sec-
tion 5411, there are authorized to be appropriated to the Commis-
sion for the fiscal year 1988 such amounts as may be necessary for— 
(1) increases in salary, pay, retirement, and other employee 
benefits provided by law; 
(2) covering payments to Panama under paragraph 4(a) of 
Article XIII of the Panama Canal Treaty of 1977, as provided by 
section 1341(a) of the Panama Canal Act of 1979 (22 U.S.C. 
3751(a)); and 
(3) increased costs for fuel. 
. 
: 
SEC. 5414. INSURANCE. 
Section 1419 (22 U.S.C. 3779) is amended bv inserting "or other 
unpredictable events" after "marine accidents'. 
Contracts. 
SEC. 5415. AUTHORITY TO LEASE OFFICE SPACE. 
22 u s e 3712a 
Notwithstanding section 210 of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 490), the Commission 
is authorized to negotiate directly and enter into contracts for the 
lease of, and for improvements to, real property in the United States 
for use by the Commission as office space, on such terms as the 
Commission considers to be in the interest of the United States, and 
to make direct payments therefor. 
SEC. 5416. COMPENSATION OF BOARD MEMBERS. 
Section 11020)) (22 U.S.C. 3612(b)) is amended by inserting before 
the period at the end thereof the following: "or, as authorized by the 
Chairman of the Board, while on '^ official Panama Canal Commis-
sion business". 
"Copy read "an". 
t. 
• 
., 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-271 
SEC. 5117. SKTTLEMKNT OF CLAIMS. 
(a) SETTLEMENT OF CLAIMS.—Section 1401(b) (22 U.S.C. 3761(b)) is 
amended to read as follows: 
"(b) The Commission may pay not more than $50,000 on any claim 
described in subsection (a).". 
(b) INJURIES TO VESSELS WITHOUT PILOTS.—Section 1411(b)(1) (22 
U.S.C. 3771(b)(1)) is amended by striking out "adjust and pay" and 
all that follows through "$50,000" and inserting in lieu thereof "pay 
not more than $50,000 on the claim". 
SEC. 5118. REPORT TO CONGRESS. 
22 USC 3871 
Out of the funds authorized to be appropriated by this part, the 
Commission shall prepare and submit to the Congress a report on— 
(1) the condition of the Panama Canal and potential adverse 
effects on United States shipping and commerce; 
(2) tho effect on canal operations of the military forces under 
Manuel Noriega. 
General Noriega; and 
(8) the Commission's evaluation of the effect on canal oper-
ations if the Panamanian Government continues to withhold its 
consent to major factors in the United States Senate's ratifica-
tion of the Panama Canal Treaties. 
PART 2—PANAMA CANAL REVOLVING FUND 
Panama Canal 
Revolving Fund 
SEC. .5421. SHORT TITLE. 
^2 USC 3601 
This part may be referred to as the "Panama Canal Revolving note. 
Fund Act". 
SEC. 5422. ESTABLISHMENT OF REVOLVING FUND. 
(a) ESTABLISHMENT.—Section 1302 (22 U.S.C. 3712) is amended by 
striking out subsections (a) through (d) and inserting in lieu thereof 
the following: 
"SEC. 1302. (a)(1) There is established in the Treasury of the 
United States a revolving fund to be known as the 'Panama Canal 
Revolving Fund'. The Panama Canal Revolving Fund shall, subject 
to subsection (c), be available to the Commission to carry out the 
purposes, functions, and powers authorized by this Act, including 
for— 
"(A) the hire of passenger motor vehicles and aircraft; 
"(B) uniforms or allowances therefor, as authorized by sec-
tions 5901 and 5902 of title 5, United States Code; 
"(C) official receptions and representation expenses of the 
Board, the Secretary of the Commission, and the Administrator; 
"(D) the operation of guide services; 
"(E) a residence for the Administrator; 
"(F) disbursements by the Administrator for employee and 
community projects; and 
"(G) the procurement of expert and consultant services £is 
provided in section 3109 of title 5, United States Code. 
"(2) On the effective date of the Panama Canal Revolving Fund 
Act— 
"(A) the Panama Canal Commission Fund shall be terminated 
and the unappropriated balance, including undeposited receipts 
as of the close of business on the day before the effective date of 
the Panama Canal Revolving Fund Act, shall be transferred to 
the Panama Canal Revolving Fund; 
101 STAT. 1330-272 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) the unexpended balance of appropriations to the Commis-
c^i sion, as of the close of business on the day before the effective 
date of the Panama Canal Revolving Fund Act, shall be trans-
*n ferred to the Panama Canal Revolving Fund, and such amounts, 
including amounts appropriated for capital expenditures, shall 
remain available until expended; 
"(C) the assets and liabilities recorded before such effective 
date under the 'Panama Canal Commission Fund' shall be 
recorded under the Panama Canal Revolving Fund; and 
r.jji 
J 
"(D) the Panama Canal Emergency Fund shall be terminated 
jj ; 
and the remaining balance shall be transferred to the Panama 
Canal Revolving Fund. 
"(b) Upon completion of the transfers of funds under subsection 
( a ) -
"(1) amounts attributable to interest on the investment of the 
' "" 
' ' '' 
United States in the Panama Canal which accrued before Janu-
ary 1, 1986, shall be transferred from the Panama Canal Revolv-
ing Fund to the general fund of the Treasury; and 
"(2) such amounts as were appropriated to the Commission in 
the fiscal year which ended September 30, 1980, and for which 
the Commission has not reimbursed the general fund of the 
, , , „ . , , 
Treasury, shall be transferred to the general fund of the 
b <
. 
- ". 
Treasury. 
"(c)(1) There shall be deposited in the Panama Canal Revolving 
Fund, on a continuing basis, toll receipts and all other receipts of 
the Commission. Except as provided in section 1303 and subject to 
paragraph (2), no funds may be obligated or expended by the 
Commission in any fiscal year unless such obligation or expenditure 
has been specifically authorized by law. 
"(2) No funds may be obligated or expended by the Commission in 
any fiscal year for administrative expenses except to the extent or in 
such amounts as are provided in appropriations Acts. 
"(3) No funds may be authorized for the use of the Commission, or 
obligated or expended by the Commission in any fiscal year in excess 
of— 
"(A) the amount of revenues deposited in the Panama Canal 
' 
Revolving Fund during such fiscal year, plus 
"(B) the amount of revenues deposited in the Panama Canal 
Revolving Fund before such fiscal year and remaining unex-
pended at the beginning of such fiscal year. 
Reports. 
Not later than 30 days after the end of each fiscal year, the 
Secretary of the Treasury shall report to the Congress the amount of 
revenues deposited in the Panama Canal Revolving Fund during 
such fiscal year. 
"(d) With the approval of the Secretary of the Treasury, the 
Commission may deposit amounts in the Panama Canal Revolving 
Fund in any Federal Reserve bank, any depository for public funds, 
or in such other places and in such manner as the Commission and 
the Secretary may agree. 
"(e) The Committee on Appropriations of each House of Congress 
shall review the annual budget of the Commission, including oper-
ations and capital expenditures.". 
O
t
)
) CONFORMING AMENDMENTS.—(1) The section heading for sec-
22 use 3712. 
tion 1302 is amended to read as follows: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-273 
"PANAMA CANAL REVOLVING F U N D " . 
(2) The item relating to section 1302 in the table of contents of the 
Panama Canal Act of 1979 is amended to read as follows: 
"1302. Panama Canal Revolving Fund.". 
SEC. 5423. EMERGENCY AUTHORITY. 
(a) GRANT OF AUTHORITY.—Section 1303 (22 U.S.C. 3713) is 
amended to read as follows: 
"SEC. 1303. If authorizing legislation described in section 1302(cXl) 
has not been enacted for a fiscal year, then the Commission may 
withdraw funds from the Panama Canal Revolving Fund in order to 
defray emergency expenses and to ensure the continuous, efficient, 
and safe operation of the Panama Canal, including expenses for 
capital projects. The authority of this section may not be used for 
administrative expenses. The authority of this section may be exer-
cised only until authorizing legislation described in section 1302(c)(1) 
is enacted, or for a period of 24 months after the end of the fiscal 
year for which such authorizing legislation was last enacted, which-
ever occurs first. Within 60 days after the end of any calendar Reports. 
quarter in which expenditures are made under this section, the 
Commission shall report such expenditures to the appropriate 
committees of the Congress.". 
(b) CONFORMING AMENDMENTS.—(1) The section heading for sec-
tion 1303 is amended by striking out "FUND" and inserting in lieu 22 USC 3713. 
thereof "AUTHORITY". 
(2) The item relating to section 1303 in the table of contents of the 
Panama Canal Act of 1979 is amended by striking out "fund" and 
inserting in lieu thereof "authority". 
SEC. 5424. BORROWING AUTHORITY. 
(a) GRANT OF AUTHORITY.—Subchapter I of chapter 3 of title I (22 
U.S.C. 3711 and following) is amended by adding at the end thereof 
the following new section: 
"BORROWING AUTHORITY 
"SEC. 1304. (a) The Panama Canal Commission may borrow from 
22 USC 3714. 
the Treasury, for any of the purposes of the Commission, not more 
than $100,000,000 outstanding at any time. For this purpose, the 
Commission may issue to the Secretary of the Treasury its notes or 
other obligations— 
"(1) which shall have maturities (of not later than December 
31, 1999) agreed upon by the Commission and the Secretary of 
the Treasury, and 
"(2) which may be redeemable at the option of the Commis-
sion before maturity. 
"(h) Amounts borrowed under this section shall not be available 
for payments to Panama under Article XIII of the Panama Canal 
Treaty of 1977. 
"(c) Amounts borrowed under this section shall increase the 
investment of the United States in the Panama Canal, and repay-
ment of such amounts shall decrease such investment. 
"(d) The Commission shall report to the Congress and to the Office 
Reports. 
of Management and Budget on each exercise of borrowing authority 
under this section.". 
101 STAT. 1330-274 
PUBLIC LAW 100-203—DEC. 22, 1987 
(b) CONFORMING AMENDMENT.—The table of contents of the 
Panama Canal Act of 1979 is amended by inserting after the item 
relating to section 1303 the following: 
"1304. Borrowing authority.". 
SEC. 5425. CALCULATION OF INTEREST. 
(a) CALCULATION OF INTEREST.—Section 1603 (22 U.S.C. 3793) is 
amended— 
(1) in subsection OJXIXA), by striking out "appropriations to 
the Commission made on or after the effective date of this Act" 
and inserting in lieu thereof "the Panama Canal Revolving 
Fund,"; 
(2) in subsection fl3)(2XA), by striking out "covered into the 
Panama Canal Commission Fund pursuant to section 1302 of 
this Act" and inserting in lieu thereof "deposited in the Panama 
Canal Revolving Fund"; and 
(3) by adding at the end thereof the following new subsection: 
"(d) The Panama Canal Commission shall pay to the Treasury of 
the United States interest on the investment of the United States, as 
determined under this section. Such interest shall be deposited in 
the general fund of the Treasury.". 
SEC. 5426. PAYMENTS TO THE REPUBLIC OF PANAMA. 
The second sentence of section 1341(e) (22 U.S.C. 3751(e)) is 
amended— 
(1) by striking out "and" before "(6)"; and 
(2) by inserting before the period ", and (7) amounts pro-
grammed to meet working capital requirements". 
SEC. 5427. BASES OF TOLLS. 
Section 16020b) (22 U.S.C 3792(b)) is amended by inserting "work-
ing capital," after "depreciation,". 
SEC. 5428. TECHNICAL AND CONFORMING AMENDMENTS. 
(a) APPUANCES FOR EMPLOYEES INJURED BEFORE SEPTEMBER 7, 
1916.—Section 1246 (22 U.S.C. 3683) is amended by striking out 
"appropriated" and inserting in lieu thereof "available". 
(b) DISASTER REUEF.—Section 1343 (22 U.S.C. 3753) is amended by 
striking out "available funds appropriated" and inserting in lieu 
thereof "funds available". 
(c) CONGRESSIONAL RESTRAINTS ON PROPERTY TRANSFERS AND 
TAX EXPENDITURES.—Section 1344(bX4) (22 U.S.C. 375403X4)) is 
amended— 
(1) by striking out "appropriated to or" and inserting in lieu 
thereof "available"; and 
(2) by striking out "Panama Canal Commission Fund" and 
inserting in lieu thereof "Panama Canal Revolving Fund". 
(d) CIVIL SERVICE RETIREMENT AND DISABIUTY FUND.—Section 
8348(iX2) of title 5, United States Code, is amended by striking out 
"The Secretary of the Treasury shall pay to the Fund from appro-
priations" and inserting in lieu thereof "The Panama Canal 
Commission shall pay to the Fund from funds available to it". 
(e) CANAL ZONE GOVERNMENT FUNDS.—Section 1301 (22 U.S.C. 
3711) is amended— 
(1) by amending the second sentence to read as follows: "The 
Commission may, to the extent of funds available to it, pay 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-275 
claims or make payments chargeable to such accounts, upon 
proper audit of such claims or payments."; and 
(2) by striking out the third sentence. 
SEC. 5429. EFFECTIVE DATE. 
22 USC 3683 
This part and the amendments made by this part take effect on 
January 1, 1988. 
Subtitle F—Abandoned Mine Funds in 
Wyoming 
SEC. 5501. ALLOCATION OF ABANDONED MINE RECLAMATION FUNDS IN 
WYOMING. 
Notwithstanding any other provision of law, the State of Wyo-
ming may, subject to a plan approved by the Governor, expend not 
more than $2,000,000 from its allocation of fiscal year 1987 appro-
priated funds under section 402(g) of Public Law 95-87 for direct 
assistance to citizens evacuated from their homes in the Rawhide 
and Horizon Subdivisions in Campbell County, Wyoming, due to 
hazards from methane and hydrogen sulfide gases. 
Subtitle G—Nuclear Regulatory Commission 
User Fees 
SEC. 5601. USER FEES. 
Section 760103)(1)(A) of the Consolidated Omnibus Budget Rec-
onciliation Act of 1985 (Public Law 99-272; 100 Stat. 147) is amended 
42 USC 2213. 
by inserting "; except that for fiscal years 1988 and 1989, such 
percentage shall be increased an additional 6 percent of such costs 
plus all other assessments made by the Nuclear Regulatory Commis-
sion pursuant to House Joint Resolution 395, 100th Congress, 1st 
Session, as enacted; but in no event shall such percentage be less 
than a total of 45 percent of such costs in each such fiscal year" 
after "with respect to such fiscal year". 
TITLE VI—CIVIL SERVICE AND POSTAL 
SERVICE PROGRAMS 
SEC. 6001. PARTIAL DEFERRED PAYMENT OF LUMP-SUM CREDIT FOR 
5 USC 8343a 
CERTAIN INDIVIDUALS ELECTING ALTERNATIVE FORMS OF 
note. 
ANNUITIES. 
(a) IN GENERAL.—Notwithstanding any other provision of law, and 
except as provided in subsection (c), any lump-sum credit payable to 
an employee or Member pursuant to the election of an alternative 
form of annuity by such employee or Member under section 8343a or 
section 8420a of title 5, United States Code, shall be paid in accord-
ance with the schedule under subsection (b) (instead of the schedule 
which would otherwise apply), if the commencement date of the 
annuity payable to such employee or Member occurs after Janu-
ary 3,1988, and before October 1,1989. 
0>) SCHEDULE OF PAYMENTS.—The schedule of payment of any 
lump-sum credit subject to this section is as follows: 
101 STAT. 1330-276 
PUBLIC LAW 100-203—DEC. 22, 1987 
n:. 
(1) 60 percent of the lump-sum credit shall be payable on the 
date on which, but for the enactment of this section, the full 
amount of the lump-sum credit would otherwise be payable. 
(2) The remainder of the lump-sum credit shall be payable on 
,i f 
the date which occurs 12 months after the date described in 
paragraph (1). 
An amount payable in accordance with paragraph (2) shall be 
payable with interest, computed using the rate under section 
8334(e)(3) of title 5, United States Code. 
Regulations. 
(c) EXCEPTIONS.—The Office of Personnel Management shall pre-
scribe regulations under which this section shall not apply— 
(1) in the case of any individual who is separated from 
f' 
Government service involuntarily, other than for cause on 
charges of misconduct or delinquency; and 
(2) in the case of any individual as to whom the application of 
this section would be against equity and good conscience, due to 
a life-threatening affliction or other critical medical condition 
affecting such individual. 
(d) ANNUITY BENEFITS NOT AFFECTED.—Nothing in this section 
shall affect the commencement date, the amount, or any other 
aspect of any annuity benefits payable under section 8343a or 
section 8420a of title 5, United States Code. 
(e) DEFINITIONS.—For purposes of this section, the terms "lump-
sum credit", "employee , and "Member" each has the meaning 
given such term by section 8331 or section 8401 of title 5, United 
States Code, as appropriate. 
39 u s e 2003 
SEC. 6002. CONTRIBUTIONS BY THE UNITED STATES POSTAL SERVICE TO 
no<^e. 
THE CIVIL SERVICE RETIREMENT AND DISABILITY FUND. 
(a) ESTABUSHMENT OF POSTAL SERVICE ESCROW FUND.—There is 
established as a separate account in the United States Treasury, the 
"Postal Service Escrow Fund".'^ Such Fund shall— 
(1) have such amounts described under subsection (bX2) depos-
ited no later than October 31,1988; 
(2) not be available for expenditures of any amounts therein 
during the existence of such Fund; and 
(3) cease to exist on October 1, 1989, and on such date all 
amounts deposited in such Fund under subsection (bX2) shall be 
deposited in the Postal Service Fund established under section 
2003 of title 39, United States Code. 
(b) DEPOSIT OF CERTAIN SAVINGS IN CERTAIN FUNDS.— 
(1) FISCAL YEAR 1988.—From all funds available to the United 
States Postal Service in fiscal year 1988, the Postal Service shall 
^ '; 
deposit into the Civil Service Retirement and Disability Fund 
established under section 8348 of title 5, United States Code, an 
amount of $350,000,000 in fiscsd year 1988, in addition to any 
amount deposited pursuant to subsection (h) of such section. 
(2) FISCAL YEAR 1989.—From all funds available to the United 
States Postal Service in fiscal year 1989, the Postal Service shall 
deposit into the Postal Service Escrow Fund an amount of 
$465,000,000 no later than October 31,1988. 
(c) CAPITAL LIMITATIONS FOR FISCAL YEARS 1988 AND 1989.— 
(1) The United States Postal Service may not make any 
commitment or obligation to expend any monies deposited in 
the Postal Service Fund established under section 2003 of title 
39, United States Code, for the capital investment program— 
(A) in excess of $625,000,000 in fiscal year 1988; and 
"• Copy read "Fund." ". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-277 
(B) in excess of $1,995,000,000 in fiscal year 1989. 
(2) CAPITAL INVESTMENT PROGRAMS.—For the purposes of para-
graph (1) the term "capital investment program" shall include 
all investments in long-term assets and capital investment 
expenditures (including direct and indirect costs associated with 
such investments and expenditures, such as obligations through 
contracts). 
SEC. 6003. CONTRIBUTIONS BY THE UNITED STATES POSTAL SERVICE TO 5 USC 8906 note. 
THE EMPLOYEES HEALTH BENEFITS FUND. 
(a) CONTRIBUTIONS FOR CERTAIN ANNUITANTS OF THE UNITED 
STATES POSTAL SERVICE.—As partial payment to the Employees 
Health Benefits Fund established under section 8909 of title 5, 
United States Code, for benefits of certain annuitants and survivor 
annuitants (no portion of the cost of which was paid by the Postal 
Service before the date of enactment of this section) the Postal 
Service shall pay into the Employee Health Benefits Fund 
$160,000,000 in fiscal year 1988, and $270,000,000 in fiscal year 1989 
in addition to any amount deposited into such Fund pursuant to 
section 8906 of such title 5 in each such fiscal year. 
(b) PAYMENT LIMITATIONS IN FISCAL YEARS 1988 AND 1989.—The 
partial payment required by subsection (a) of this section shall— 
(1) be from all funds available to the United States Postal 
Service in each such fiscal year; 
(2) be from funds representing savings to the United States 
Postal Service resulting from savings from the operating budget 
of the United States Postal Service in each such fiscal year; and 
(3) be paid into such Fund in each such fiscal year, without— 
(A) increasing borrowing under section 2005 of title 39, 
United States Code; 
(B) using any budgetary resources other than budgetary 
resources derived from the operating budget of the United 
States Postal Service; or 
(C) increasing postal rates under chapter 36 of title 39, 
United States Code, 
for the purposes of financing such payment. 
(c) IMPLEMENTATION PLANS, PROGRESS REPORTS, AND COMPUANCE 
F
O
R FISCAL YEARS 1988 AND 1989.— 
(1) IMPLEMENTATION.—No later than March 1, 1988 for fiscal 
year 1988, and October 1, 1988 for fiscal year 1989, the United 
States Postal Service shall— 
(A) formulate an implementation 
plan 
specifically 
enumerating the methods by which the Postal Service shall 
make the payments required under subsection (b) and fulfill 
the conditions required under paragraphs (1), (2), and (3) of 
such subsection; and 
(B) submit such plan to the Committee on Governmental 
•—h 
Affairs of the Senate and the Committee on Post Office and 
Civil Service of the House of Representatives. 
(2) INTERIM REPORT.—NO later than July 15, 1988 for fiscal 
" * year 1988, and March 1, 1989 for fiscal year 1989, the United 
States Postal Service shall submit an interim report to the 
Committee on Governmental Affairs of the Senate and the 
Committee on Post Office and Civil Service of the House of 
Representatives on the status of meeting the guidelines and 
goals of the plans submitted under pargigraph (IXB), and any 
adjustments necessary to meet the requirements under the 
101 STAT. 1330-278 
PUBLIC LAW 100-203—DEC. 22, 1987 
provisions of subsection (b) of this section for each such fiscal 
year. 
(3) PRELIMINARY AUDIT AND REPORT BY THE GENERAL ACCOUNT-
ING OFFICE.—No later than September 1, 1988 for fiscal year 
1988, and September 1, 1989 for fiscal year 1989, the General 
Accounting Office shall— 
(A) conduct an audit of the plans and adjustments to the 
plans submitted by the United States Postal Service under 
paragraphs (1) and (2) of this subsection and determine the 
extent of compliance of the Postal Service with such plans 
and the requirements of subsection (b) of this section; and 
(B) submit a report of such audit and determinations to 
the Committee on Governmental Affairs of the Senate and 
the Committee on Post Office and Civil Service of the House 
of Representatives. 
^° (4) DETERMINATION OF COMPLIANCE.—On October 31, 1988 
for fiscal year 1988, and on October 31, 1989 for fiscal year 1989, 
the General Accounting Office shall— 
(A) make a final audit and determination of whether the 
United States Postal Service is in compliance with the 
requirements of subsection (b) of this section; 
(B) submit a final report for each such fiscal year on such 
compliance to the Committee on Governmental Affairs of 
the Senate and the Committee on Post Office and Civil 
Service of the House of Representatives; and 
(C) include in each final report submitted under subpara-
graph (B), such recommendations (if applicable) for any 
actions to enforce compliance with the provisions of subsec-
tion (b) of this section. 
(5) COMPLIANCE IN FISCAL YEARS 1988 AND 1989.—Based on the 
determination of compliance required by subsection (c)(4) of this 
section for fiscal years 1988 and 1989, the Congress shall (after 
receiving the recommendation of the General Accounting Office 
under paragraph (4)(C)) determine appropriate action, if nec-
essary, to enforce compliance with any payment limitation 
under subsection (b) of this section. 
SEC. 6004. TECHNICAL CLARIFICATION. 
For purposes of section 202 of the Balanced Budget and Emer-
gency Deficit Reaffirmation Act of 1987, the amendments made by 
this title shall be considered an exception under subsection (b) of 
such section. 
TITLE VII—VETERANS' PROGRAMS 
SEC. 7001. SALES OF VENDEE LOANS WITH OR WITHOUT RECOURSE. 
Section 1816(d) of title 38, United States Code, is amended— 
(1) by redesignating paragraph (3) as subparagraph (C); 
(2) by inserting after paragraph (2) the following: 
"(3)(A) Before October 1, 1989, notes evidencing such loans may be 
sold with or without recourse as determined by the Administrator, 
with respect to specific proposed sales of such notes, to be in the best 
interest of the effective functioning of the loan guaranty program 
under this chapter, taking into consideration the comparative cost-
'° Paragraphs "(4)", "(A)", "(B)", and "(C)", indented wrong. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-279 
effectiveness of each type of sale. In comparing the cost-effectiveness 
of conducting a proposed sale of such notes with recourse or without 
recourse, the Administrator shall, based on available estimates 
regarding likely market conditions and other pertinent factors as of 
the time of the sale, determine and consider— 
"(i) the average amount by which the selling price for such 
notes sold with recourse would exceed the selling price for such 
notes if sold without recourse; and 
"(ii) the total cost of selling such notes with recourse, 
• 
including— 
"(I) any estimated discount or premium; 
1(« 
"(II) the projected cost, based on Veterans' Administra-
tion experience with the sale of notes evidencing vendee 
loans with recourse and the quality of the loans evidenced 
by the notes to be sold, of repurchasing defaulted notes; 
"(III) the total servicing cost with respect to repurchased 
notes, including the costs of taxes and insurance, collecting 
monthly payments, servicing delinquent accounts, and 
terminating insoluble loans; 
"(IV) the costs of managing and disposing of properties 
acquired as the result of defaults on such notes; 
"(V) the loss or gain on resale of such properties; and 
"(VI) any other cost determined appropriate by the 
Administrator. 
"(B) Not later than 60 days after making any sale described in Reports. 
subparagraph (A) of this paragraph occurring before October 1, 
1989, the Administrator shall submit to the Committees on Veter-
ans' Affairs of the Senate and the House of Representatives a report 
describing— 
"(i) the application of the provisions of such subparagraph, 
and each of the determinations required thereunder, in the case 
of such sale; 
"(ii) the results of the sale in comparison to the anticipated 
results; and 
"(iii) actions taken by the Administrator to facilitate the 
marketing of the notes involved."; and 
(3) in subparagraph (C), as redesignated by clause (1) of this 
section— 
(A) by striking out "The Administrator may sell any note 
securing" and inserting in lieu thereof "Beginning on Octo-
ber 1, 1989, the Administrator may sell any note evidenc-
ing"; and 
(B) by redesignating clauses (A) and (B) as clauses (i) and 
(ii), respectively. 
SEC. 7002. LOAN FEE EXTENSION. 
Section 1829(c) of title 38, United States Code, is amended by 
striking out "1987" and inserting in lieu thereof "1989". 
SEC. 7003. CASH SALES OF PROPERTIES ACQUIRED THROUGH FORE-
CLOSURES. 
(a) IN GENERAL.—Section 1816(dXl) of title 38, United States Code, 
is amended by striking out "not more than 75 percent, nor less than 
60 percent," in the first sentence and inserting in lieu thereof "not 
more than 65 percent, nor less than 50 percent,'. 
O
t
>
) EFFECTIVE DATE.—The amendment made by subsection (a) 
38 USC 1816 
shall take effect as of October 1,1987. 
"ot^ 
note. 
101 STAT. 1330-280 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 7004. STATUTORY CONSTRUCTION. 
(a) STATUTORY CONSTRUCTION FOR PURPOSES OF THE BALANCED 
BUDGET AND EMERGENCY DEFICIT CONTROL REAFFIRMATION ACT OF 
1987.—For the purposes of subsections (a) and (b) of section 202 of 
the Balanced Budget and Emergency Deficit Control Reaffirmation 
Act of 1987 (Public Law 100-119), the amendments made by section 
7003 achieve savings made possible by changes in program require-
ments. 
wY^^ ^^^^ 
^^ RULE FOR CONSTRUCTION OF DUPUCATE PROVISIONS.—In apply-
ing the provisions of this title and the provisions of the Veterans' 
Home Loan Program Improvements and Property Rehabilitation 
Act of 1987 which make the same amendments as the provisions of 
this title— 
(1) the identical provisions of title 38, United States Code, 
amended by the provisions of this title and the provisions of 
such Act shall be treated £is having been amended only once; 
and 
(2) in executing to title 38, United States Code, the amend-
ments made by this title and by such Act, such amendments 
shall be executed so as to appear only once in the law. 
TITLE VIII—BUDGET POLICY AND FISCAL 
PROCEDURES 
SEC. 8001. DEFENSE AND DOMESTIC DISCRETIONARY SPENDING LIMITS. 
(a) AGGREGATE ALLOCATIONS FOR DEFENSE.—The levels of budget 
authority and budget outlays for fiscal years 1988 and 1989 for 
major functional category 050 (National Defense) shall be: 
(1) Fiscal year 1988: 
(A) New budget authority, $292,000,000,000. 
(B) Outlays, $285,400,000,000. 
(2) Fiscal year 1989: 
(A) New budget authority, $299,500,000,000. 
(B) Outlays, $294,000,000,000. 
O
t
>
) AGGREGATE ALLOCATIONS FOR DOMESTIC DISCRETIONARY SPEND-
ING.—The levels of total budget authority and total budget outlays 
for fiscal years 1988 and 1989 for all discretionary spending in 
categories other than major functional category 050 (National De-
fense) shall be: 
(1) Fiscal year 1988: 
c, 
(A) New budget authority, $162,900,000,000. 
(B) Outlays, $176,800,000,000. 
(2) Fiscal year 1989: 
(A) New budget authority, $166,200,000,000. 
(B) Outlays, $185,300,000,000. 
(c) FISCAL YEAR 1989 BUDGET RESOLUTION.— 
(1) 
HOUSE OF REPRESENTATIVES.—The Committee on 
the 
Budget of the House of Representatives ®
^ shall report a concur-
rent resolution on the budget for fiscal year 1989, pursuant to 
section 301 of the Congressional Budget Act of 1974, in accord-
ance with the appropriate levels of budget authority and budget 
outlays for major functional category 050 (National Defense) 
and for all discretionary spending in categories other than 
•• Copy read "Representative". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-281 
major functional category 050 as set forth in subsections (a)(2) 
and (b)(2). 
(2) P O I N T OF ORDER IN THE SENATE ON AGGREGATE ALLOCATIONS 
FOR DEFENSE AND DOMESTIC DISCRETIONARY SPENDING FOR FISCAL 
YEAR 1 9 8 9 . — 
(A) Except as provided in subparagraph (E), it shall not be 
in order in the Senate to consider any concurrent resolution 
on the budget for fiscal year 1989 (including a conference 
report thereon), or any amendment to such a resolution, 
'••^ 
that would fail to be consistent with the allocations in 
subsections (a) and (b) for such fiscal year. 
(B) Subparagraph (A) may be waived or suspended by a 
^' 
'" -
vote of three-fifths of the Members of the Senate, duly 
chosen and sworn. 
-
^ ' 
(C) If the ruling of the presiding officer of the Senate 
--^ - 
sustains a point of order raised pursuant to subparagraph 
(A), a vote of three-fifths of the Members of the Senate, duly 
* 
' ' 
chosen and sworn, shall be required to sustain an appeal of 
such ruling. Debate on any such appeal shall be limited to 
two hours, to be equally divided between, and controlled by, 
the Majority and Minority Leaders, or their designees. 
(D) For purposes of this paragraph, the levels of new 
budget authority, spending authority as described in section 
401(c)(2), outlays, and new credit authority for a fiscal year 
shall be determined on the basis of estimates made by the 
; 
Committee on the Budget of the Senate. 
. ^ ,. ,, ^ 
(E) This paragraph shall not apply if a declaration of war 
by the Congress is in effect or if a resolution pursuant to 
section 254(a) of the Balanced Budget and Emergency Defi-
cit Control Act of 1985 has been enacted. 
(d) ALLOCATIONS PURSUANT TO FISCAL YEAR 1989 BUDGET RESOLU-
TION.—(1) The allocations required to be included in the joint 
^
, 
explanatory statement accompanying the conference report on the 
concurrent resolution on the budget for fiscal year 1989, pursuant to 
section 302(a) of the Congressional Budget Act of 1974, shall be 
based upon the levels set forth in subsections (a)(2) and (b)(2) of this 
section. 
J
V :
t
i
%
M 
(2) The Committee on Appropriations of each House shall, after 
consulting with the Committee on Appropriations of the other 
House, make the subdivisions required under section 302(b)(1) of the 
Congressional Budget Act of 1974 consistent with the allocations in 
subsections (aX2) and Ot)X2) for fiscal year 1989. 
SEC. 8002. RESTORATION OF FUNDS SEQUESTERED. 
2 USC 902 note. 
(a) ORDER RESCINDED.—Upon the enactment of this Act and House 
Joint Resolution 395,100th Congress,* ^ IQI session, the orders issued 
by the President on October 20, 1987, and November 20, 1987, 
pursuant to section 252 of the Balanced Budget and Emergency 
Deficit Control Act of 1985 are hereby rescinded. 
3 CFR, 1987 
Ot)) AMOUNTS RESTORED.—Except as otherwise provided in sections 
Comp., pp. 3ii, 
4001, 4041(b), and 4061, any action taken to implement the orders 
referred to in subsection (a) shall be reversed, and any sequesterable 
resource that has been reduced or sequestered by such orders is 
hereby restored, revived, or released and shall be available to the 
** Copy read "Congres". 
101 STAT. 1330-282 
PUBLIC LAW 100-203—DEC. 22, 1987 
same extent and for the same purpose as if the orders had not been 
issued. 
SEC. 8003. TECHNICAL AMENDMENTS TO THE CONGRESSIONAL BUDGET 
ACT OF 1974. 
(a) REFERENCES IN SECTION.—Except as otherwise specifically pro-
vided, whenever in this section an amendment 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 that section or other 
provision of the Congressional Budget and Impoundment Control 
Act of 1974. 
88 Stat. 297. 
(b) REVISION OF TABLE OF CONTENTS.—Section 1(b) is amended by 
striking "Disapproval of proposed deferrals" and inserting "Pro-
posed deferrals'. 
(c) REDESIGNATiON OF SUBPARAGRAPH HEADINGS.—Section 3(7) (as 
amended by section 106(a) of the Balanced Budget and Emergency 
2 use 622. 
Deficit Control Reaffirmation Act of 1987) is amended by— 
(1) striking section 3(7)(C); 
(2) redesignating section 3(7XD) as 3(7)(C); 
(3) redesignating section 3(7XE) as 3(7)(D); 
(4) redesignating section 3(7)(F) as 3(7XE); 
(5) redesignating section 3(7XG) as 3(7XF); 
(6) redesignating section 3(7XH) as 3(7XG); and 
(7) redesignating section 3(7X1) as 3(7XH). 
(d) GRAMMATICAL CLARIFICATION OF SECTION 305(c).—Section 305(c) 
(as amended by section 209 of the Balanced Budget and Emergency 
2 use 636. 
Deficit Control Reaffirmation Act of 1987) is amended by inserting a 
comma after "therewith". 
(e) SUBSTITUTION OF "PROPOSED" FOR "MADE" WITH REGARD TO 
AMENDMENTS IN COMMITTEE.—Section 252(cX2XFXii) of the Balanced 
Budget and Emergency Deficit Control Act of 1985 (as amended by 
section 102(a) of the Balanced Budget and Emergency Deficit Con-
2 use 902. 
trol Reaffirmation Act of 1987) is amended by striking "made" and 
inserting "proposed". 
(f) CLARIFICATION OF BUDGET BASEUNE.—Section 251(aX6XB) of the 
Balanced Budget and Emergency Deficit Control Act of 1985 (as 
amended by section 102(a) of the Balanced Budget and Emergency 
2 use 901. 
Deficit Control Reaffirmation Act of 1987) is amended by striking 
out "and" before "contract authority" and by inserting before the 
semicolon at the end thereof the following: ", and that authority to 
provide insurance through the Federal Housing Administration 
Fund is continued". 
1 u s e 106 note. 
SEC. 8004. PREPARATION OF PRINTED ENROLLED BILL. 
(a) PREPARATION OF PRINTED ENROLLMENT.—(1) Upon the enact-
ment of this Act enrolled as a hand enrollment, the Clerk of the 
House of Representatives shall prepare a printed enrollment of this 
Act as in the case of a bill or joint resolution to which sections 106 
and 107 of title 1, United States Code, apply. Such enrollment 
shall be a correct enrollment of this Act as enrolled in the hand 
enrollment. 
(2) A printed enrollment prepared pursuant to paragraph (1) may, 
in order to conform to customary style for printed laws, include 
corrections in spelling, punctuation, indentation, type face, and type 
size and other necessary stylistic corrections to the hand enrollment. 
Such a printed enrollment shall include notations (in the margins or 
as otherwise appropriate) of all such corrections. 
o^a 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-283 
(b) TRANSMITTAL TO PRESIDENT.—A printed enrollment prepared 
pursuant to subsection (a) shall be signed by the presiding officers of 
both Houses of Congress as a correct printing of the hand enroll-
ment of this Act and shall be transmitted to the President. 
(c) CERTIFICATION BY PRESIDENT; LEGAL EFFECT.—Upon certifi-
cation by the President that a printed enrollment transmitted 
pursuant to subsection (b) is a correct printing of the hand enroll-
ment of this Act, such printed enrollment shall be considered for all 
purposes as the original enrollment of this Act and as valid evidence 
of the enactment of this Act. 
(d) ARCHIVES.—A printed enrollment certified by the President 
under subsection (c) shall be transmitted to the Archivist of the 
United States, who shall preserve it with the hand enrollment. In 
preparing this Act for publication in slip form and in the United 
States Statutes at Large pursuant to section 112 of title 1, United 
States Code, the Archivist of the United States shall use the printed 
enrollment certified by the President under subsection (c) in lieu of 
the hand enrollment. 
(e) HAND ENROLLMENT DEFINED.—As used in this section, the term 
"hand enrollment" means enrollment in a form other than the 
printed form required by sections 106 and 107 of title 1, United 
States Code, as authorized by the joint resolution entitled "Joint 
resolution authorizing the hand enrollment of the budget reconcili-
ation bill and of the full-year continuing resolution for fiscal year 
1988", approved December 1987 (H.J. Res. 426 of the 100th 
Congress). 
SEC. 8005. ASSET SALES. 
In the fiscal year 1989 budget process. Congress commits to pass 
legislation sufficient to achieve the budget summit agreement of 
$3,500,000,000 of asset sales in fiscal year 1989. 
TITLE IX—INCOME SECURITY AND 
RELATED PROGRAMS 
-. ^ 
TABLE OF CONTENTS 
Subtitle A—OASDI Provisions 
PART 1—COVERAGE AND BENEFITS 
Sec. 9001. Coverage of inactive duty military training. 
Sec. 9002. Coverage of all cash pay of agricultural employees whose employers 
spend $2,500 or more a year for agricultural labor. 
Sec. 9003. Coverage of the employer cost of group-term life insurance. 
Sec. 9004, Coverage of services performed by one spouse in the employ of the other. 
Sec. 9005. Treatment of service performed by an individual in the employ of a 
parent. 
Sec. 9006. Application of employer taxes to employees' cash tips. 
Sec. 9007. Applicability of Government pension offset to certain Federal employees. 
Sec. 9008. Modification of agreement with Iowa to provide coverage for certain po-
licemen and firemen. 
Sec. 9009. Continuation of disability benefits during appeal. 
Sec. 9010. Extension of disability re-entitlement period from 15 months to 36 
months. 
PART 2—OTHER SOCIAL SECURITY PROVISIONS 
Sec. 9021. Moratorium on reductions in attorneys' fees; studies of attorneys' fee 
payment system. 
Sec. 9022. Corporate directors. 
Sec. 9023. Technical corrections. 
101 STAT. 1330-284 
PUBLIC LAW 100-203—DEC. 22, 1987 
PART 3—RAILROAD RETIREMENT PROGRAM 
Sec. 9031. Increase in rates of tier 2 Railroad Retirement Tax on employees for 
1988 and thereafter. 
Sec. 9032. Increase in rates of tier 2 Railroad Retirement Tax on employers for 1988 
and thereafter. 
Sec. 9033. Commission on Railroad Retirement Reform. 
-7" 
Sec. 9034. Transfer to railroad retirement account. 
" 
' 
'^ '. 
Subtitle B—Provisions Relating to Public Assistance and Unemployment 
Compensation 
PART 1—AFDC AND SSI AMENDMENTS 
Sec. 9101. Permanent extension of disregard of nonprofit organizations' in-kind 
assistance to SSI and AFDC recipients. 
Sec. 9102. Fraud control under AFDC program. 
Sec. 9103. Exclusion of real property when it cannot be sold. 
Sec. 9104. Adjustment of penalty where asset is transferred for less than fair 
market value. 
Sec. 9105. Exclusion of interest on burial accounts. 
Sec. 9106. Exception from SSI retrospective accounting for AFDC and certain other 
assistance payments. 
Sec. 9107. Technical amendment relating to 1986 amendment concerning the treat-
ment of certain couples in medical institutions. 
Sec. 9108. Extension of deadline for disabled widows to apply for Medicaid protec-
tion under 1984 amendments. 
Sec. 9109. Increase in SSI emergency advance payments. 
Sec. 9110. Modification of interim assistance reimbursement program. 
Sec. 9111. Special notice to blind recipients. 
Sec. 9112. Rehabilitation services for blind SSI recipients. 
Sec. 9113. Extending the number of months that an individual in a public emer-
gency shelter can be eligible for SSI. 
Sec. 9114. Exclusion of underpayments from resources. 
Sec. 9115. Continuation of full benefit standard for individuals temporarily institu-
tionalized. 
Sec. 9116. Retention of Medicaid when SSI benefits are lost upon entitlement to 
early widow's or widower's insurance benefits. 
Sec. 9117. Demonstration program to assist homeless individuals. 
Sec. 9118. Assistance to homeless AFDC families. 
Sec. 9119. Increase in personal needs allowance for SSI recipients. 
Sec. 9120. Exclusion of death benefits to the extent spent on last illness and burial. 
Sec, 9121. Demonstration of Family Independence Program.*' 
Sec. 9122. Child support demonstration program in New York State.** 
Sec. 9123. Technical correction. 
PART 2—SOCIAL SERVICES, CHILD WELFARE SERVICES, AND OTHER PROVISIONS 
RELATING TO CHILDREN 
Sec. 9131. Permanent extension of authority for voluntary foster care placements. 
Sec. 9132. 2-year extension of foster care ceiling and of authority to transfer foster 
care funds to child welfare services. 
Sec. 9133. Mother/infant foster care. 
Sec. 9134. Increased funding for social services block grants. 
Sec. 9135. Extension of social services block grant and child welfare services pro-
grams to American Samoa. 
Sec. 9136. National Commission on Children.*^ 
Sec. 9137. Boarder babies demonstration project. 
Sec. 9138. Study of infants and children with AIDS in foster care. 
Sec. 9139. Technical corrections. 
|
^ , 
PART 3—CHILD SUPPORT ENFORCEMENT AMENDMENTS 
Sec. 9141. Continuation of child support enforcement services to families no longer 
receiving AFDC. 
Sec. 9142. Child support enforcement services required for certain families receiv-
ing Medicaid. 
Sec. 9143. Repeal of unnecessary child support revolving fund. 
*' Copy read "family independence program.". 
*
•
• Copy read "state.'. 
*•'' Copy read "commission on children.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-285 
PART 4—UNEMPLOYMENT COMPENSATION 
Sec. 9151. Determination of amount of Federal share with respect to certain ex-
tended benefits payments. 
Sec. 9152. Demonstration program to provide self-employment allowances for eligi-
ble individuals. 
Sec. 9153. Extension of FUTA tax. 
Sec. 9154. Transfer of funds into the Federal Unemployment Account and the Ex-
tended Unemployment Compensation Account. 
Sec. 9155. Interest on advances to the Federal Unemployment Account and the Ex- 
'• 
tended Unemployment Compensation Account. 
Sec. 9156. Crediting to the Federal Unemployment Account of interest earned on 
advances by the States. 
Subtitle C—Manufacturers Excise Tax on Certain Vaccines 
Sec. 9201. Manufacturers excise tax on certain vaccines. 
Sec. 9202. Vaccine Injury Compensation Trust Fund. 
Subtitle D—Pension Provisions 
PART I—FULL-FUNDING LIMITATIONS 
Sec. 9301. Full-funding limitation for deductions to qualified plans. 
PART II—PENSION FUNDING AND TERMINATION REQUIREMENTS 
; : ) 
; ; t. 
Sec. 9302. Short title; definitions. 
SUBPART A—ADDITIONAL FUNDING REQUIREMENTS 
Sec. 9303. Additional funding requirements. 
Sec. 9304. Time for making contributions. 
Sec. 9305. Liability of members of controlled group for taxes on failure to meet min-
imum funding standards and to make minimum funding contributions. 
Sec. 9307. Other funding changes. 
SUBPART B—PLANT TERMINATIONS 
Sec. 9311. Limitations on employer reversions upon plan termination. 
Sec. 9312. Elimination of section 4049 trust: increase in liability to pension benefit 
1 ' 
guaranty corporation and in payments by corporation to participants 
and beneficiaries. 
Sec. 9313. Standards for termination. 
Sec. 9314. Additional amendments relating to plan termination. 
SUBPART C—INCREASE IN PREMIUM RATES 
Sec. 9331. Increase in premium rates. 
SUBPART D—MISCELLANEOUS PROVISIONS 
Sec. 9341. Security required upon adoption of plan amendment resulting in signifi-
cant underfunding. 
Sec. 9342. Reporting requirements. 
Sec. 9343. Coordination of provisions of the Internal Revenue Code of 1986 with pro-
visions of the Employee Retirement Income Security Act of 1974. 
Sec. 9344. Clarification regarding the imposition of an annual sanction for pro-
hibited transactions which are continuing in nature. 
Sec. 9345. Additional limitations on investment by an individual account plan form-
ing part of a floor-offset arrangement and on investment by an individ-
ual account plan in employer stock. 
Sec. 9346. Interest rate on accumulated contributions. 
Subtitle E—Miscellaneous Provisions 
Sec. 9401. Restoration of trust funds for 1987. 
Sec. 9402. 6-month extension of provisions relating to collection of non-tax debts 
owed to Federal agencies. 
Sec. 9403. Increase in limit on long-term bonds. 
Subtitle F—Customs User Fees; Trade and Customs Authorizations 
Sec. 9501. Customs user fees. 
Sec. 9502. United States International Trade Commission authorizations. 
' 
Sec. 9503. United States Customs Service ** authorizations. 
*' 
Sec. 9504. Office of the United States Trade Representative authorizations. 
"• Copy read "service". 
101 STAT. 1330-286 
PUBLIC LAW 100-203—DEC. 22, 1987 
Subtitle A—OASDI Provisions 
PART 1—COVERAGE AND BENEFITS 
^ 
SEC. 9001. COVERAGE OF INACTIVE DUTY MILITARY TRAINING. 
(a) SOCIAL SECURITY ACT AMENDMENTS.—(1) Paragraph (1) of sec-
42 use 410. 
tion 210(1) of the Social Security Act is amended to read as follows: 
"(1)(1) Except as provided in paragraph (4), the term 'employment' 
shall, notwithstanding the provisions of subsection (a) of this section, 
include— 
"(A) service performed after December 1956 by an individual 
as a member of a uniformed service on active duty, but such 
term shall not include any such service which is performed 
while on leave without pay, and 
"(B) service performed after December 1987 by an individual 
as a member of a uniformed service on inactive duty training.". 
(2) The second indented paragraph following subsection (s) in 
42 use 409. 
section 209 of such Act (relating to service in the uniformed services) 
is amended by striking "only his basic pay" and all that follows and 
inserting "only (1) his basic pay as described in chapter 3 and section 
1009 of title 37, United States Code, in the case of an individual 
performing service to which subparagraph (A) of such section 
210(1)(1) applies, or (2) his compensation for such service as deter-
mined under section 206(a) of title 37, United States Code, in the 
case of an individual performing service to which subparagraph (B) 
of such section 210(1)(1) applies.". 
(b) FICA AMENDMENTS.—(1) Paragraph (1) of section 3121(m) of 
26 use 3121. 
the Internal Revenue Code of 1986 (relating to inclusion of service in 
the uniformed services) is amended to read as follows: 
"(1) INCLUSION OF SERVICE.—The term 'employment' shall, 
notwithstanding the provisions of subsection (b) of this section, 
include— 
"(A) service performed by an individual as a member of a 
uniformed service on active duty, but such term shall not 
include any such service which is performed while on leave 
r < I 
without pay, and 
"(B) service performed by an individual as a member of a 
uniformed service on inactive duty training.". 
(2) Paragraph (2) of section 3121(i) of such Code (relating to 
computation of wages for individuals performing service in the 
uniformed services) is amended by striking "only his basic pay" and 
all that follows and inserting "only (A) his basic pay as described in 
chapter 3 and section 1009 of title 37, United States Code, in the case 
of an individual performing service to which subparagraph (A) of 
such subsection (m)(l) applies, or (B) his compensation for such 
service as determined under section 206(a) of title 37, United States 
Code, in the case of an individual performing service to which 
subparagraph (B) of such subsection (m)(l) applies.". 
(c) CONFORMING AMENDMENT.—Section 229(a) of the Social Secu-
42 u s e 429. 
rity Act is amended by striking "section 210(1)" and inserting 
"210(1X1)(A)". 
26 u s e 3121 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
"°*®- 
apply with respect to remuneration paid after December 31, 1987. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-287 
SEC. 9002. COVERAGE OF ALL CASH PAY OF AGRICULTURAL EMPLOYEES 
WHOSE EMPLOYERS SPEND $2,500 OR MORE A YEAR FOR 
AGRICULTURAL LABOR. 
(a) SOCIAL SECURITY ACT AMENDMENT.—Paragraph (2) of section 
209(h) of the Social Security Act is amended by striking clause (B) 42 USC 409. 
and inserting "(B) the employer's expenditures for agricultural 
labor in such year equal or exceed $2,500;". 
(b) PICA AMENDMENT.—Subparagraph (B) of section 3121(a)(8) of 
the Internal Revenue Code of 1986 (relating to wages) is amended by 26 USC 3121. 
striking clause (ii) and inserting "(ii) the employer's expenditures for 
agricultural labor in such year equal or exceed $2,500;". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 3121 
apply with respect to remuneration for agricultural labor paid after 
December 31, 1987. 
note. 
SEC. 9003. COVERAGE OF THE EMPLOYER COST OF GROUP-TERM LIFE 
INSURANCE. 
(a) COVERAGE UNDER OLD-AGE, SURVIVORS, AND DISABILITY INSUR-
ANCE PROGRAM.— 
(1) SOCIAL SECURITY ACT AMENDMENT.—Clause (3) of section 
209(b) of the Social Security Act is amended by striking "death" 
42 USC 409. 
and inserting "death, except that this subsection does not apply 
to a payment for group-term life insurance to the extent that 
such payment is includible in the gross income of the employee 
under the Internal Revenue Code of 1986". 
(2) PICA AMENDMENT.—Subparagraph (C) of section 3121(a)(2) 
of the Internal Revenue Code of 1986 (relating to wages) is 26 USC 3121. 
amended by striking "death" and inserting "death, except that 
this paragraph does not apply to a payment for group-term life 
insurance to the extent that such payment is includible in the 
gross income of the employee". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
26 USC 3121 
shall apply with respect to group-term life insurance coverage in 
"ote. 
effect after December 31,1987. 
SEC. 9004. COVERAGE OF SERVICES PERFORMED BY ONE SPOUSE IN THE 
EMPLOY OF THE OTHER. 
(a) SOCIAL SECURITY ACT AMENDMENTS.— 
(1) IN GENERAL.—Subparagraph (A) of section 210(a)(3) of the 
Social Security Act is amended by striking "performed by an 
42 USC 410. 
individual in the employ of his spouse, and service". 
(2) EXCEPTION FOR CERTAIN DOMESTIC SERVICE IN THE PRIVATE 
HOME OF A SPOUSE.—Paragraph (3) of section 210(a) of such Act 
is amended by striking so much of subparagraph (B) as precedes 
clause (i) and inserting the following: 
"(B) Service not in the course of the employer's trade or 
business, or domestic service in a private home of the employer, 
performed by an individual in the employ of his spouse or son or 
daughter; except that the provisions of this subparagraph shall 
not be applicable to such domestic service performed by an 
individual in the employ of his son or daughter if—". 
Ob) PICA AMENDMENTS.— 
(1) I N GENERAL.—Subparagraph (A) of section 31210t))(3) of the 
Internal Revenue Code of 1986 (relating to employment) is 
26 USC 3121. 
amended by striking "performed by an individual in the employ 
of his spouse, and service". 
101 STAT. 1330-288 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 u s e 3121. 
(2) EXCEPTION FOR CERTAIN DOMESTIC SERVICE IN THE PRIVATE 
HOME OF A SPOUSE.—Paragraph (3) of section 3121(b) of such 
Code (relating to employment) is amended by striking so much 
of subparagraph (B) as precedes clause (i) and inserting the 
.'^^i in 
. 
f 
following: 
> 
"(B) service not in the course of the employer's trade or 
business, or domestic service in a private home of the employer, 
1 
performed by an individual in the employ of his spouse or son or 
c
&
i 
''?' 
daughter; except that the provisions of this subparagraph shall 
not be applicable to such domestic service performed by an 
individual in the employ of his son or daughter if—". 
26 use 3121 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^^- 
apply with respect to remuneration paid after December 31, 1987. 
SEC. 9005. TREATMENT OF SERVICE PERFORMED BY AN INDIVIDUAL IN 
THE EMPLOY OF A PARENT. 
42 u s e 410. 
(a) SOCIAL SECURITY ACT AMENDMENTS.— 
' 
(1) A G E BELOW WHICH SERVICE FOR PARENT IS EXCLUDED FROM 
COVERED EMPLOYMENT REDUCED TO AGE 18.—Subparagraph (A) of 
section 210(aX3) of the Social Security Act (as amended by 
5t't a < 
section 9004(a)(1) of this Act) is further amended by striking 
"twenty-one" and inserting "18". 
(2) EXCEPTION FOR CERTAIN DOMESTIC SERVICE IN THE PRIVATE 
i 
HOME OF PARENT.—Subparagraph (B) of section 210(a)(3) of such 
Act (as amended by section 9004(aX2) of this Act) is further 
amended by inserting "under the age of 21 in the employ of his 
111? au 
father or mother, or performed by an individual" after "individ-
ual" the first place it appears, 
r O
t
)
) FICA AMENDMENTS.— 
(1) AGE BELOW WHICH SERVICE FOR PARENT IS EXCLUDED FROM 
COVERED EMPLOYMENT REDUCED TO AGE 18.—Subparagraph (A) of 
I5{: 
w . { 
section 31210t)X3) of the Internal Revenue Code of 1986 (as 
.•j:6a i 
amended by section 9004(b)(1) of this Act) is further amended by 
striking "21" and inserting "18". 
(2) EXCEPTION FOR CERTAIN DOMESTIC SERVICE IN THE PRIVATE 
HOME OF PARENT.—Subparagraph (B) of section 3121(bX3) of such 
Code (as amended by section 9004(b)(2) of this Act) is further 
amended by inserting "under the age of 21 in the employ of his 
' 
father or mother, or performed by an individual" after "individ-
ual" the first place it appears. 
26 use 3121 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"°^ 
apply with respect to remuneration paid after December 31, 1987. 
SEC. 9006. APPLICATION OF EMPLOYER TAXES TO EMPLOYEES' CASH 
TIPS. 
(a) APPUCATION OF TAX TO TIPS.—Section 3121(q) of the Internal 
26 use 3121. 
Revenue Code of 1986 (relating to inclusion of tips for employee 
taxes) is amended— 
(1) by striking "EMPLOYEE TAXES" in the heading and insert-
ing "BOTH EMPLOYEE AND EMPLOYER TAXES"; 
(2) by striking "other than for purposes of the taxes imposed 
by section 3111"; 
(3) by striking "remuneration for employment" and inserting 
' - • '' • '• 
"remuneration for such employment (and deemed to have been 
paid by the employer for purposes of subsections (a) and (b) of 
section 3111)"; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-289 
(4) by inserting after "at the time received" the following: 
"; except that, in determining the employer's liability in 
connection with the taxes imposed by section 3111 with respect 
to such tips in any case where no statement including such tips 
'' 
was so furnished (or to the extent that the statement so fur-
nished was inaccurate or incomplete), such remuneration shall 
be deemed for purposes of subtitle F to be paid on the date on 
which notice and demand for such taxes is made to the em-
ployer by the Secretary". 
(b) CONFORMING AMENDMENTS.—(1) Subsections (a) and (b) of sec-
tion 3111(a) of such Code (relating to rate of tax on employers) are 26 USC 3iii. 
each amended by striking "and (t)". 
(2) Section 3121(t) of such Code (relating to special rule) is 
repealed. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 3iii 
apply with respect to tips received (and wages paid) on and after "°^® 
January 1,1988. 
SEC. 9007. APPLICABILITY OF GOVERNMENT PENSION OFFSET TO CER-
TAIN FEDERAL EMPLOYEES. 
(a) WIFE'S INSURANCE BENEFITS.—Paragraph (4) of section 202(b) of 
the Social Security Act is amended— 
42 USC 402. 
(1) by redesignating subparagraph (B) as subparagraph (C); 
and 
(2) by striking subparagraph (A) and inserting the following: 
"(A) The amount of a wife's insurance benefit for each month (as 
determined after application of the provisions of subsections (q) and 
(k)) shall be reduced (but not below zero) by an amount equal to two-
thirds of the amount of any monthly periodic benefit payable to the 
wife (or divorced wife) for such month which is based upon her 
earnings while in the service of the Federal Government or any 
State (or political subdivision thereof, as defined in section 218(bX2)) 
if, on the last day she was employed by such entity— 
"(i) such service did not constitute 'employment' as defined in 
section 210, or 
"(ii) such service was being performed while in the service of 
the Federal Government, and constituted 'employment' as so 
defined solely by reason of— 
"(I) clause (ii) or (iii) of subparagraph (G) of section 
210(aX5), where the lump-sum pa3mient described in such 
• ;^)v 
clause (ii) or the cessation of coverage described in such 
clause (iii) (whichever is applicable) was received or oc-
')) 
curred on or after January 1,1988, or 
"(II) an election to become subject to chapter 84 of title 5, 
United States Code, made pursuant to law after Decem-
ber 31,1987, 
unless subparagraph (B) applies. 
The amount of the reduction in any benefit under this subpara-
graph, if not a multiple of $0.10, shall be rounded to the next higher 
multiple of $0.10. 
"(B) Subparagraph (AXii) shall not apply with respect to monthly 
periodic benefits based in whole or in part on service which con-
stituted 'employment' as defined in section 210 if such service was 
performed for at least 60 months in the aggregate during the period 
beginning January 1, 1988, and ending with the close of the first 
calendar month as of the end of which the wife (or divorced wife) is 
101 STAT. 1330-290 
PUBLIC LAW 100-203—DEC. 22, 1987 
eligible for benefits under this subsection and has made a valid 
application for such benefits.". 
(b) HUSBAND'S INSURANCE BENEFITS.—Paragraph (2) of section 
42 use 402. 
202(c) of such Act is amended— 
(1) by redesignating subparagraph (B) as subparagraph (C); 
and 
(2) by striking subparagraph (A) and inserting the following: 
"(A) The amount of a husband's insurance benefit for each month 
(as determined after application of the provisions of subsections (q) 
and (k)) shall be reduced (but not below zero) by an amount equal to 
i i 
two-thirds of the amount of any monthly periodic benefit payable to 
the husband (or divorced husband) for such month which is based 
upon his earnings while in the service of the Federal Government or 
any State (or political subdivision thereof, as defined in section 
'' 
218(b)(2)) if, on the last day he was employed by such entity— 
"(i) such service did not constitute 'employment' as defined in 
section 210, or 
"(ii) such service was being performed while in the service of 
the Federal Government, and constituted 'employment' as so 
defined solely by reason o
f
— 
"(I) clause (ii) or (iii) of subparagraph (G) of section 
^
^
^ ? ' "* 
210(a)(5), where the lump-sum payment described in such 
• >
>
) 
clause (ii) or the cessation of coverage described in such 
clause (iii) (whichever is applicable) was received or 
v 
occurred on or after January 1, 1988, or 
"(II) an election to become subject to chapter 84 of title 5, 
United States Code, made pursuant to law after Decem-
ber 31, 1987, 
unless subparagraph (B) applies. 
The amount of the reduction in any benefit under this subpara-
graph, if not a multiple of $0.10, shall be rounded to the next higher 
multiple of $0.10. 
"(B) Subparagraph (A)(ii) shall not apply with respect to monthly 
periodic benefits based in whole or in part on service which con-
stituted 'employment' as defined in section 210 if such service was 
performed for at least 60 months in the aggregate during the period 
beginning January 1, 1988, and ending with the close of the first 
calendar month as of the end of which the husband (or divorced 
husband) is eligible for benefits under this subsection and has made 
a valid application for such benefits.". 
(c) WIDOW'S INSURANCE BENEFITS.—Paragraph (7) of section 202(e) 
of such Act is amended— 
(1) by redesignating subparagraph (B) as subparagraph (C); 
and 
(2) by striking subparagraph (A) and inserting the following: 
"(A) The amount of a widow's insurance benefit for each month 
(as determined after application of the provisions of subsections (q) 
and (k), paragraph (2)(D), and paragraph (3)) shall be reduced (but 
not below zero) by an amount equal to two-thirds of the amount of 
any monthly periodic benefit payable to the widow (or surviving 
divorced wife) for such month which is based upon her earnings 
while in the service of the Federal Government or any State (or 
political subdivision thereof, as defined in section 218(bX2)) if, on the 
last day she was employed by such entity— 
"(i) such service did not constitute 'employment' as defined in 
section 210, or 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-291 
"(ii) such service was being performed while in the service of 
the Federal Government, and constituted 'employment' as so 
defined solely by reason o
f
— 
"(I) clause (ii) or (iii) of subparagraph (G) of section 
210(a)(5), where the lump-sum payment described in such 
clause (ii) or the cessation of coverage described in such 
clause (iii) (whichever is applicable) was received or 
: 
* 
; 
•
V /: 
occurred on or after January 1, 1988, or 
"(II) an election to become subject to chapter 84 of title 5, 
United States Code, made pursuant to law after Decem-
ber 31, 1987, 
unless subparagraph (B) applies. 
The amount of the reduction in any benefit under this subpara-
graph, if not a multiple of $0.10, shall be rounded to the next higher 
multiple of $0.10. 
"(B) Subparagraph (A)(ii) shall not apply with respect to monthly 
periodic benefits based in whole or in part on service which con-
stituted 'employment' as defined in section 210 if such service was 
performed for at least 60 months in the aggregate during the period 
beginning January 1, 1988, and ending with the close of the first 
calendar month as of the end of which the widow (or surviving 
divorced wife) is eligible for benefits under this subsection and has 
made a valid application for such benefits.". 
(d) WIDOWER'S INSURANCE BENEFITS.—Paragraph (2) of section 
202(0 of such Act is amended— 
42 USC 402. 
(1) by redesignating subparagraph (B) as subparagraph (C); 
and 
(2) by striking subparagraph (A) and inserting the following: 
"(A) The amount of a widower's insurance benefit for each month 
(as determined after application of the provisions of subsections (q) 
and (k), paragraph (3)(D), and paragraph (4)) shall be reduced (but 
not below zero) by an amount equal to two-thirds of the amount of 
any monthly periodic benefit payable to the widower (or surviving 
divorced husband) for such month which is based upon his earnings 
while in the service of the Federal Government or any State (or 
political subdivision thereof, as defined in section 218(b)(2)) if, on the 
last dav he was employed by such entity— 
'(i) such service did not constitute 'employment' as defined in 
section 210, or 
"(ii) such service was being performed while in the service of 
the Federal Government, and constituted 'employment' as so 
defined solely by reason o
f
— 
"(I) clause (ii) or (iii) of subparagraph (G) of section 
210(a)(5), where the lump-sum payment described in such 
clause (ii) or the cessation of coverage described in such 
' 
clause (iii) (whichever is applicable) was received or oc-
curred on or after January 1, 1988, or 
"(II) an election to become subject to chapter 84 of title 5, 
United States Code, made pursuant to law after Decem-
ber 31, 1987, 
unless subparagraph (B) applies. 
The amount of the reduction in any benefit under this subpara-
graph, if not a multiple of $0.10, shall be rounded to the next higher 
multiple of $0.10. 
' ' ''' ' 
" 
"(B) Subparagraph (A)(ii) shall not apply with respect to monthly 
periodic benefits based in whole or in part on service which con-
stituted 'employment' as defined in section 210 if such service was 
101 STAT. 1330-292 
PUBLIC LAW 100-203—DEC. 22, 1987 
performed for at least 60 months in the aggregate during the period 
beginning January 1, 1988, and ending with the close of the first 
calendar month as of the end of which the widower (or surviving 
divorced husband) is eligible for benefits under this subsection and 
has made a valid application for such benefits.", 
(e) MOTHER'S AND FATHER'S INSURANCE BENEFITS.—Paragraph (4) 
42 use 202. 
of section 202(g) of such Act is amended— 
(1) by redesignating subparagraph (B) as subparagraph (C); 
and 
(2) by striking subparagraph (A) and inserting the following: 
"(A) The amount of a mother s or father's insurance benefit for 
each month (as determined after application of the provisions of 
subsection (k)) shall be reduced (but not below zero) by an amount 
equal to two-thirds of the amount of any monthly periodic benefit 
payable to the individual for such month which is based upon the 
individual's earnings while in the service of the Federal Govern-
ment or any State (or political subdivision thereof, as defined in 
section 218(b)(2)) if, on the last day the individual was employed by 
such entity— 
"(i) such service did not constitute 'employment' as defined in 
section 210, or 
"(ii) such service was being performed while in the service of 
the Federal Government, and constituted 'employment' as so 
defined solely by reason of— 
* I }«] ii 
"(I) clause (ii) or (iii) of subparagraph (G) of section 
210(a)(5), where the lump-sum payment described in such 
clause (ii) or the cessation of coverage described in such 
clause (iii) (whichever is applicable) was received or oc-
curred on or after January 1, 1988, or 
"(II) an election to become subject to chapter 84 of title 5, 
United States Code, made pursuant to law after Decem-
ber 31, 1987, 
unless subparagraph (B) applies. 
The amount of the reduction in any benefit under this subpara-
graph, if not a multiple of $0.10, shall be rounded to the next higher 
multiple of $0.10. 
"(B) Subparagraph (AXii) shall not apply with respect to monthly 
periodic benefits based in whole or in part on service which con-
stituted 'employment' as defined in section 210 if such service was 
performed for at least 60 months in the aggregate during the period 
beginning January 1, 1988, and ending with the close of the first 
calendar month as of the end of which the individual is eligible for 
benefits under this subsection and has made a valid application for 
such benefits.". 
42 use 402 note. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
apply only with respect to benefits for months after December 1987; 
except that nothing in such amendments shall affect any exemption 
(from the application of the pension offset provisions contained in 
subsection (b)(4), (cX2), (eX7), (fX2), or (gX4) of section 202 of the Social 
Security Act) which any individual may have by reason of subsec-
tion (g) or (h) of section 334 of the Social Security Amendments of 
1977. 
42 u s e 418 note. 
SEC. 9008. MODIFICATION OF AGREEMENT WITH IOWA TO PROVIDE COV-
ERAGE FOR CERTAIN POLICEMEN AND FIREMEN. 
(a) IN GENERAL.—Notwithstanding subsection (dX5XA) of section 
218 of the Social Security Act £ind the references thereto in subsec-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-293 
tions (d)(1) and (d)(3) of such section 218, the agreement with the 
State of Iowa heretofore entered into pursuant to such section 218 
may, at any time prior to January 1, 1989, be modified pursuant to 
subsection (c)(4) of such section 218 so as to apply to services 
performed in policemen's or firemen's positions required to be cov- 
' , . .
= 
ered by a retirement system pursuant to section 410.1 of the Iowa 
Code as in effect on July 1, 1953, if the State of Iowa has at any time 
prior to the date of the enactment of this Act paid to the Secretary 
of the Treasury, with respect to any of the services performed in 
such positions, the sums prescribed pursuant to subsection (e)(1) of 
such section 218 (as in effect on December 31, 1986, with respect to 
payments due with respect to wages paid on or before such date). 
dSi €Ui' 
(b) SERVICE TO BE COVERED.—Notwithstanding the provisions of 
subsection (e) of section 218 of the Social Security Act (as so redesig-
nated by section 9002(c)(1) of the Omnibus Budget Reconciliation Act 
of 1986)), any modification in the agreement with the State of Iowa 
under subsection (a) shall be made effective with respect to— 
(1) all services performed in any policemen's or firemen's 
, 
position to which the modification relates on or after January 1, 
1987, and 
(2) all services performed in such a position before January 1, 
1987, with respect to which the State of Iowa has paid to the 
Secretary of the Treasury the sums prescribed pursuant to 
subsection (e)(1) of such section 218 (as in effect on December 31, 
1986, with respect to payments due with respect to wages paid 
on or before such date) at the time or times established pursu-
ant to such subsection (e)(1), if and to the extent that— 
(A) no refund of the sums so paid has been obtained, or 
(B) a refund of part or all of the sums so paid has been 
obtained but the State of Iowa repays to the Secretary of 
the Treasury the amount of such refund within 90 days 
after the date on which the modification is agreed to by the 
.. 
State and the Secretary of Health and Human Services. 
SEC. 9009. CONTINUATION OF DISABILITY BENEFITS DURING APPEAL. 
Subsection (g) of section 223 of the Social Security Act is 42USC423. 
amended— 
(1) in paragraph (l)(iii), by striking "June 1988" and inserting 
"June 1989"; and 
(2) in paragraph (3)(B), by striking "January 1, 1988" and 
inserting "January 1, 1989". 
SEC. 9010. EXTENSION OF DISABILITY RE-ENTITLEMENT PERIOD FROM 15 
MONTHS TO 36 MONTHS. 
(a) DiSABiUTY INSURANCE BENEFITS.—Paragraph (1) of section 
223(a) of the Social Security Act is amended by striking "15 months" 
and inserting "36 months". 
O
b
) CHILD'S INSURANCE BENEFITS BASED ON DISABILITY.—Clause (i) 
of section 202(dXl)(G) of such Act is amended by striking "15 42USC402. 
months" and inserting "36 months". 
(c) WIDOW'S INSURANCE BENEFITS BASED ON DISABIUTY.—Para-
graph (1) of section 202(e) of such Act is amended, in subclause (II) of 
the last sentence, by striking "15 months" and inserting "36 
months". 
(d) WIDOWER'S INSURANCE BENEFITS BASED ON DISABILITY.—Para-
graph (1) of section 202(f) of such Act is amended, in subclause (II) of 
101 STAT. 1330-294 
PUBLIC LAW 100-203—DEC. 22, 1987 
the last sentence, by striking "15 months" and inserting "36 
months", 
(e) CONFORMING AMENDMENTS.— 
(1) TERMINATION OF PERIOD OF DISABILITY.—Subparagraph (D) 
42 use 416. 
of section 216(i)(2) of such Act is amended by striking "15-
month" and inserting "36-month". 
(2) 
TERMINATION 
OF 
BENEFITS 
DURING 
RE-ENTITLEMENT 
42 use 423. 
PERIOD.—Subsection (e) of section 223 of such Act is amended by 
striking "15-month" and inserting "36-month". 
(3) SPECIAL RULE FOR *' DETERMINATION OF CONTINUED MEDI-
CARE ELIGIBILITY BASED ON ENTITLEMENT TO DISABILITY BENE-
42 use 426. 
FITS.—Section 226(b) of such Act is amended by adding at the 
end the following new sentence: "In determining when an 
individual's entitlement or status terminates for purposes of the 
preceding sentence, the second sentence of section 223(a) shall 
be applied as though the term '36 months' (in such second 
sentence) read '15 months'.". 
42 use 402 note. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
take effect January 1, 1988, and shall apply with respect to— 
(1) individuals who are entitled to benefits which are payable 
under subsection (d)(l)(B)(ii), (d)(6)(A)(ii), (d)(6)(B), (e)(l)(B)(ii), or 
(f)(l)(B)(ii) of section 202 of the Social Security Act or subsection 
(a)(1) of section 223 of such Act for any month after December 
1987, and 
(2) individuals who are entitled to benefits which are payable 
under any provision referred to in paragraph (1) for any month 
before January 1988 and with respect to whom the 15-month 
period described in the applicable provision amended by this 
section has not elapsed as of January 1, 1988. 
PART 2—OTHER SOCIAL SECURITY PROVISIONS 
SEC. 9021. MORATORIUM ON REDUCTIONS IN ATTORNEYS' FEES; STUDIES 
OF ATTORNEYS' FEE PAYMENT SYSTEM. 
(a) MORATORIUM.—(1) The provisions of the memorandum of the 
Associate Commissioner of Social Security dated March 31, 1987 
(relating to revised delegations of authority for administrative law 
judges to determine fees of representatives) which amend sections 
1-220 through 1-226 of the Office of Hearings and Appeals Staff 
Guides and Programs Digest (commonly referred to as the OHA 
Handbook), and Interim Circular No. 122 (relating to the determina-
tion authority regarding fees for representation of claimants), are 
hereby declared to be null and void. The preceding sentence shall 
apply with respect to all attorneys' fees finally authorized in connec-
tion with claims for benefits under title II of the Social Security Act 
on and after the date of the enactment of this Act, regardless of 
when the legal services involved were performed; and no reconsider-
ation of any such fee finally authorized prior to that date shall be 
required. 
(2) Until July 1, 1989, neither the Secretary nor the Social Secu-
rity Administration may modify any of the rules and regulations 
relating to attorneys' fees in connection with claims for benefits 
under title II of the Social Security Act. 
*' Copy read "FOR". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-295 
(b) STUDIES.—(1) The Secretary of Health and Human Services 
shall conduct a study of the attorneys' fee payment process under 
title II of the Social Security Act. Such study shall— 
(A) assess the levels of reimbursement to attorneys, giving 
consideration to the contingent nature of most arrangements 
between claimants and their legal representatives, and propose 
alternative methods for establishing fees which take the nature 
of these arrangements into account, and 
(B) suggest changes aimed at eliminating unnecessary delays 
in the approval and payment of attorneys' fees and thereby 
streamlining the payment process. 
'' 
"' 
In conducting this study, the Secretary shall consult with individ-
uals who represent the views of attorneys and with others who 
represent the views of claimants. 
(2) At the same time, the Comptroller General shall conduct a 
study of the fee approval system, including at a minimum— 
(A) a study of the impact of the current system on claimants 
and attorneys, 
(B) an identification of obstacles to the timely payment of 
attorneys' fees under present law, and 
(C) an assessment of the effect, if any, which the reduced limit 
on attorneys' fees in effect immediately prior to the enactment 
of this Act has had on access to legal representation by 
applicants for disability insurance benefits. 
(3) 'The studies required by paragraphs (1) and (2), along with any 
recommendations resulting therefrom, shall be submitted to the 
Congress no later than July 1, 1988. 
SEC. 9022. CORPORATE DIRECTORS. 
(a) SOCIAL SECURITY ACT AMENDMENT.—Section 211(a) of the 
Social Security Act is amended by adding at the end thereof the 42 use 4ii. 
following new paragraph: 
"Any income of an individual which results from or is attributable 
to the performance of services by such individual as a director of a 
j 
;:.• > 
corporation during any taxable year shall be deemed to have been 
derived (and received) by such individual in that year, at the time 
the services were performed, regardless of when the income is 
actually paid to or received by such individual (unless it was actu-
ally paid and received prior to that year).". 
(b) SECA AMENDMENT.—Section 1402(a) of the Internal Revenue 
Code of 1986 (relating to definition of net earnings from self-employ- 
26 USC 1402. 
ment) is amended by adding at the end thereof the following new 
paragraph: 
"Any income of an individual which results from or is attributable 
to the performance of services by such individual gis a director of a 
corporation during any taxable year shall be deemed to have been 
derived (and received) by such individual in that year, at the time 
the services were performed, regardless of when the income is 
actually paid to or received by such individual (unless it was actu-
ally paid and received prior to that year).". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to services performed in taxable years beginning 
on or after January 1, 1988. 
SEC. 9023. TECHNICAL CORRECTIONS. 
(a) The heading of section 210(p) of the Social Security Act is 
42 USC 410. 
amended to read as follows: 
91-194 O - 90 - 35 : QL.3 Part 2 
101 STAT. 1330-296 
PUBLIC LAW 100-203—DEC. 22, 1987 
"Medicare Qualified Government Employment". 
42 use 411. 
(b)(1) Section 211(a)(7) of such Act is amended— 
(A) by inserting "and" before "section 911"; and 
(B) by striking "and section 931 (relating to income from 
sources within possessions of the United States) of the Internal 
Revenue Code of 1954". 
(2) Section 211(a)(8) of such Act is amended to read as follows: 
"(8) The exclusion from gross income provided by section 931 
of the Internal Revenue Code of 1986 shall not apply;". 
42 use 418. 
(c) Section 218(v) of such Act is amended— 
., 
, , ,, . ... 
(1) by striking "(v)" and inserting "(n)"; 
(
• 
(2) by striking paragraph (3); and 
(3) by redesignating paragraphs (4) and (5) as paragraphs (3) 
and (4) respectively. 
26 use 3121. 
(d) Section 3121(aX5) of the Internal Revenue Code of 1986 is 
amended— 
(1) by striking "; or" at the end of subparagraph (F) and 
f
. inserting ", or"; and 
(2) by striking the comma at the end of subparagraph (G) and 
j inserting a semicolon. 
PART 3—RAILROAD RETIREMENT PROGRAM 
SEC. 9031. INCREASE IN RATES OF TIER 2 RAILROAD RETIREMENT TAX 
ON EMPLOYEES FOR 1988 AND THEREAFTER. 
(a) I N GENERAL.—Subsection (b) of section 3201 of the Internal 
Revenue Code of 1986 (relating to tier 2 employee tax) is amended to 
read as follows: 
"OJ) TIER 2 TAX.—In addition to other taxes, there is hereby 
imposed on the income of each employee a tax equal to 4.90 percent 
of the compensation received during any calendar year by such 
employee for services rendered by such employee.". 
26 use 3201 
(b) EFFECTIVE DATE,—The amendment made by this section shall 
"°*®' 
apply with respect to compensation received after December 31, 
1987. 
SEC. 9032. INCREASE IN RATES OF TIER 2 RAILROAD RETIREMENT TAX 
ON EMPLOYERS FOR 1988 AND THEREAFTER. 
(a) IN GENERAL.—Subsection (b) of section 3221 of the Internal 
• 
' * '^''- Revenue Code of 1986 (relating to tier 2 employer tax) is amended to 
read as follows: 
"Ot)) TIER 2 TAX.—In addition to other taxes, there is hereby 
imposed on every employer an excise tax, with respect to having 
individuals in his employ, equal to 16.10 percent of the compensa-
tion paid during any calendar year by such employer for services 
rendered to such employer.". 
26 use 3221 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
^°^- 
apply with respect to compensation paid after December 31, 1987. 
45 u s e 231n 
SEC. 9033. COMMISSION ON RAILROAD RETIREMENT REFORM. 
note. 
(a) COMMISSION ON RAILROAD RETIREMENT REFORM.—There is 
established a commission to be known as the Commission on 
Railroad Retirement Reform (in this section referred to as the 
"Commission"). 
- ' 
(b) STUDY.—The Commission shall conduct a comprehensive study 
of the issues pertaining to the long-term financing of the railroad 
.ItivDfclf 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-297 
retirement system (in this section referred to as the "system") and 
^ 
' 
the system's short-term and long-term solvency. The Commission Reports, 
shall submit a report containing a detailed statement of its findings 
and conclusions together with recommendations to the Congress for 
revisions in, or alternatives to, the current system to assure the 
provision of retirement benefits to former, present, and future 
railroad employees on an actuarially sound basis. The study will 
take into account— 
(1) the possibility of restructuring the financing of railroad 
retirement benefits through increases in the tier 2 tax rate, 
increases in the tier 2 tax wage base, the imposition of a tax on 
operating revenues, revisions in the investment policy of the 
railroad retirement pension fund, and establishing a privately 
funded and administered railroad industry pension plan; 
(2) the economic outlook for the railroad industry, and the 
nature of the relationships between the railroad retirement 
system, levels of railroad employment and compensation, and 
the performance of the rail sector; 
(3) the ability of the system under current law to pay benefits 
to current and future retirees and other beneficiaries; 
(4) the financial relationship of the system to the railroad 
unemployment insurance system, the social security system, 
and the General Fund; and 
(5) any other matters which the Commission considers would 
be necessary, appropriate, or useful to the Congress in develop-
ing legislation to reform the system. 
(c) MEMBERSHIP OF THE COMMISSION.— 
(1) NUMBER AND APPOINTMENT.—The Commission shall be 
composed of seven members, as follows: 
(A) four individuals appointed by the President— 
President of U.S. 
(i) one of whom shall be appointed on the basis of 
recommendations made by representatives of em-
ployers (as defined in section 1(a) of the Railroad 
Retirement Act of 1974) so as to provide representation 
on the Commission satisfactory to the largest number 
of employers concerned, 
(ii) one of whom shall be appointed on the basis of 
recommendations made by representatives of em-
ployees (as defined in section 1(b) of the Railroad 
Retirement Act of 1974) so as to provide representation 
on the Commission satisfactory to the largest number 
of employees concerned, 
5 
(iii) one of whom shall be appointed on the basis of 
recommendations made by representatives of com-
muter railroads, and 
(iv) one of whom shall be appointed from members of 
the public; 
(B) one individual appointed by the Speaker of the House 
't 
of Representatives from among members of the public; 
ZYd 
(C) one individual appointed by the President pro tem-
pore of the Senate from among members of the public; and 
'' 
(D) one individual appointed by the Comptroller General 
from among members of the public with expertise in the 
fields of retirement systems and pension plans. 
All public members of the Commission shall be appointed from 
among individuals who are not in the employment of and are 
not j)ecuniarily or otherwise interested in any employer (as so 
101 STAT. 1330-298 
PUBLIC LAW 100-203—DEC. 22, 1987 
President of U.S. 
defined) or organization of employees (as so defined). In making 
appointments under this section, the President, the Speaker of 
the House of Representatives, and the President pro tempore of 
the Senate shall ensure that the members of the Commission, 
collectively, possess special knowledge of retirement income 
policy, social insurance, private pensions, taxation, and the 
structure of the transportation industry. A vacancy in the 
Commission shall be filled in the manner in which the original 
appointment was made. 
(2) PAY.—Members of the Commission shall serve without 
y compensation, but shall be reimbursed for travel, subsistence, 
and other necessary expenses incurred in the performance of 
their duties as members of the Commission. 
(3) QUORUM.—Five members of the Commission shall con-
stitute a quorum but a lesser number may hold hearings. 
(4) CHAIRMAN.—The members of the Commission shall elect a 
Chairman ^'° from among the membership. 
(d) STAFF OF COMMISSION; EXPERTS AND CONSULTANTS.— 
(1) STAFF.—Subject to such rules as may be prescribed by the 
Commission, the Chairman may appoint and fix the pay of such 
I personnel as the Chairman considers appropriate. 
(2) APPLICABILITY OF CERTAIN CIVIL SERVICE LAWS.—The staff 
of the Commission may be appointed without regard to the 
} provisions of title 5, United States Code, governing appoint-
ments in the competitive service, and may be paid without 
regard to the provisions of chapter 51 and subchapter III of 
chapter 53 of such title relating to classification and General 
•i Schedule pay rates, except that no individual so appointed may 
receive pay in excess of the annual rate of basic pay payable for 
; ' *; '.IPS. • 
GS-18 of the General Schedule. 
(3) EXPERTS AND CONSULTANTS.—Subject to such rules as may 
be prescribed by the Commission, the Chairman may procure 
I temporary and intermittent services under section 31090?) of 
(• title 5 of the United States Code, but at rates for individuals not 
to exceed the daily equivalent of the maximum annual rate of 
basic pay payable for GS-18 of the General Schedule. 
; 
(4) 
STAFF OF FEDERAL AGENCIES.—Upon request 
of 
the 
; Commission, the Railroad Retirement Board and any other 
J Federal agency may detail, on a reimbursable basis, any of the 
r personnel thereof to the Commission to assist the Commission 
in carrying out its duties under this section. 
(e) ACCESS TO OFFICIAL DATA AND SERVICES.— 
(1) OFFICIAL DATA.—The Commission may, as appropriate, 
.; secure directly from any department or agency of the United 
States information necessary to enable it to carry out this 
I section. Upon request of the Chairman of the Commission, the 
head of such department or agency shall, as appropriate, fur-
t nish such information to the Commission. 
(2) MAILS.—The Commission may use the United States mails 
in the same manner and under the same conditions as other 
; departments and agencies of the United States. 
(3) ADMINISTRATIVE SUPPORT SERVICES.—The Administrator of 
General Services shall provide to the Commission on a re-
imbursable basis such administrative support services as the 
Commission may request. 
(f) REPORT.—The Commission shall transmit a report to the Presi-
dent and to each House of the Congress not later than October 1, 
"'"Copy read "chairman". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-299 
1989. The report shall contain a detailed statement of the findings 
and conclusions of the Commission, together with its legislative 
recommendations. 
(g) TERMINATION.—The Commission shall cease to exist 60 days 
after submitting its report pursuant to subsection (f). 
(h) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to be 
appropriated the sum of $1,000,000 for purposes of this section, to 
remain available until expended but in no event beyond the date of 
termination provided in subsection (g). 
SEC. 9034. TRANSFER TO RAILROAD RETIREMENT ACCOUNT. 
Subsection (c)(1)(A) of section 224 of the Railroad Retirement 
Solvency Act of 1983 (relating to section 72(r) revenue increase 45 USC 23ln 
transferred to certain railroad accounts) is amended— 
"°*® 
(1) by inserting "(other than amounts described in subpara-
graph (B))" after "amounts"; 
(2) by striking "1988" and inserting "1989"; and 
(3) by striking the last sentence. 
Subtitle B—Provisions Relating to Public 
Assistance and Unemployment Compensation 
PART 1—AFDC AND SSI AMENDMENTS 
SEC. 9101. PERMANENT EXTENSION OF DISREGARD OF NONPROFIT 
ORGANIZATIONS' IN-KIND ASSISTANCE TO SSI AND AFDC 
RECIPIENTS. 
Effective as of October 1, 1987, section 2639(d) of the Deficit Effective date. 
Reduction Act of 1984 is amended by striking "; but" and all that 
42 USC 602 note, 
follows and inserting a period. 
SEC. 
9
1
0
2
. 
FRAUD 
CONTROL 
UNDER 
AFDC 
PROGRAM. 
(a) IN GENERAL.—Part A of title IV of the Social Security Act is 
amended by adding at the end the folloviring new section: 
"FRAUD CONTROL 
"SEC. 416. (a) Any State, in the administration of its State plan 
42 USC 616. 
approved under section 402, may elect to establish and operate a 
fraud control program in accordance with this section. 
"(b) Under any such program, if an individual who is a member of 
a family applying for or receiving aid under the State plan approved 
' ' • 
under section 402 is found by a Federal or State court or pursuant to 
an administrative hearing meeting requirements determined in 
regulations of the Secretary, on the basis of a plea of guilty or nolo 
contendere or otherwise, to have intentionally— 
"(1) made a false or misleading statement or misrepresented, 
concealed, or withheld facts, or 
"(2) committed any act intended to mislead, misrepresent, 
conceal, or withhold facts or propound a falsity, 
for the purpose of establishing or maintaining the family's eligibility 
for aid under such State plan or of increasing (or preventing a 
reduction in) the amount of such aid, then the needs of such 
individual shall not be taken into account in making the determina-
tion under section 402(3X7) with respect to his or her family (A) for a 
period of 6 months upon the first occasion of any such offense, (B) for 
101 STAT. 1330-300 
PUBLIC LAW 100-203—DEC. 22, 1987 
a period of 12 months upon the second occasion of any such offense, 
and (C) permanently upon the third or a subsequent occasion of any 
such offense. 
"(c) The State agency involved shall proceed against any individ-
ual alleged to have committed an offense described in subsection (b) 
either by way of administrative hearing or by referring the matter 
to the appropriate authorities for civil or criminal action in a court 
of law. The State agency shall coordinate its actions under this 
section with any corresponding actions being taken under the food 
stamp program in any case where the factual issues involved arise 
from the same or related circumstances. 
"(d) Any period for which sanctions are imposed under subsection 
(b) shall remain in effect, without possibility of administrative stay, 
unless and until the finding upon which the sanctions were imposed 
is subsequently reversed by a court of appropriate jurisdiction; but 
in no event shall the duration of the period for which such sanctions 
are imposed be subject to review. 
"(e) The sanctions provided under subsection (b) shall be in addi-
tion to, and not in substitution for, any other sanctions which may 
be provided for by law with respect to the offenses involved. 
"(f) Each State which has elected to establish and operate a fraud 
control program under this section must provide all applicants for 
aid to families with dependent children under its approved State 
plan, at the time of their application for such aid, with a written 
notice of the penalties for fraud which are provided for under this 
section.". 
42 use 602. 
(b) STATE PLAN REQUIREMENT.—Section 402(a) of such Act is 
amended— 
r,ru ,j > 
, 
*, 
(1) by striking "and" after the semicolon at the end of para-
graph (38); 
(2) by striking the period at the end of paragraph (39) and 
inserting "; and"; and 
^
^ 
(3) by inserting immediately after paragraph (39) the follow-
ing new paragraph: 
"(40) provide, if the State has elected to establish and operate 
a fraud control program under section 416, that the State will 
r. ,rn k 
.. submit to the Secretary (with such revisions as may from time 
y to time be necessary) a description of and budget for such 
program, and will operate such program in full compliance with 
that section.". 
42 use 603. 
(c) 
FEDERAL 
MATCHING.—Section 
403(aX3) of such 
Act 
is 
amended— 
(1) by striking "and" after the final comma in subpara-
0 
graph (B); 
(2) by redesignating subparagraph (C) as subparagraph (D); 
v
j 
(3) by inserting after subparagraph (B) the following new 
subparagraph: 
,: 
"(C) 75 percent of so much of such expenditures as are for 
the costs of carrying out a fraud control program under 
vih't 
section 416, including costs related to the investigation, 
u 
prosecution, and administrative hearing of fraudulent cases 
and the making of any resultant collections, and"; and 
(4) by striking "(C)" in the matter following subparagraph (D) 
*
. (as redesignated by paragraph (2) of this subsection) and 
?" inserting "(D)". 
:iv,, ,^ u.* • .. - < - 
..•.-^^..--j-i-. •-.-•: ^ .y.:ri*ta 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-301 
®
* (d) EFFECTIVE DATE.—The amendments made by this section 
shall become effective April 1, 1988. 
SEC. 9103. EXCLUSION OF REAL PROPERTY WHEN IT CANNOT BE SOLD. 
(a) IN GENERAL.—Section 1613(b) of the Social Security Act is 
amended— 
(1) by inserting "(1)" after "(b)"; and 
(2) by adding at the end the following new paragraph: 
"(2) Notwithstanding the provisions of paragraph (1), the Sec-
retary shall not require the disposition of any real property for so 
long as it cannot be sold because (A) it is jointly owned (and its sale 
would cause undue hardship, due to loss of housing, for the other 
owner or owners), (B) its sale is barred by a legal impediment, or (C) 
as determined under regulations issued by the Secretary, the 
owner's reasonable efforts to sell it have been unsuccessful.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective April 1, 1988. 
SEC. 9104. ADJUSTMENT OF PENALTY WHERE ASSET IS TRANSFERRED 
FOR LESS THAN FAIR MARKET VALUE. 
*^ (a) IN GENERAL.—Section 1613(c) of the Social Security Act is 
amended— 
(1) by inserting immediately after "the exclusions under 
subsection (a)" in paragraph (1) the following: ", and subject to 
paragraph (4) of this subsection"; and 
(2) by adding at the end the following new paragraph: 
"(4) The Secretary shall by regulation provide for suspending the 
application of paragraph (1) to the extent (in any instance) that the 
Secretary determines that such suspension is necessary to avoid 
undue hardship.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective April 1, 1988. 
SEC. 9105. EXCLUSION OF INTEREST ON BURIAL ACCOUNTS. 
(a) IN GENERAL.—Section 1613(d) of the Social Security Act is 
amended— 
(1) in paragraph (1), by striking "if the inclusion" and all that 
follows and inserting a period; and 
(2) in paragraph (3), by striking "aside" and inserting "aside 
in cases where the inclusion of any portion of the amount would 
cause the resources of such individual, or of such individual and 
spouse, to exceed the limits specified in paragraph (1) or (2) 
(whichever may be applicable) of section 1611(a)'. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective April 1, 1988. 
SEC. 9106. EXCEPTION FROM SSI RETROSPECTIVE ACCOUNTING FOR 
AFDC AND CERTAIN OTHER ASSISTANCE PAYMENTS. 
(a) IN GENERAL.—Section 1611(c) of the Social Security Act is 
amended— 
(1) by striking "paragraphs (2), (3), and (4)" in paragraph (1) 
and inserting "paragraphs (2), (3), (4), and (5)"; 
(2) by redesignating paragraphs (5) and (6) as paragraphs (6) 
and (7), respectively; and 
42 u s e 602 note. 
42 u s e 1382b. 
42 u s e 1382b 
note. 
Regulations. 
42 u s e 1382b 
note. 
42 u s e 1382b 
note. 
42 u s e 1382. 
** 
Copy 
read 
"EFFECTIVE 
DATE.—". 
*' 
Copy 
read "IN 
GENERAL.—". 
101 STAT. 1330-302 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1382 
note. 
Effective date. 
42 u s e 1382. 
Effective date. 
42 u s e 1383c. 
42 u s e 1383. 
42 u s e 1383 
note. 
(3) by inserting after paragraph (4) the following new para-
graph: 
"(5) Notwithstanding paragraphs (1) and (2), any income which is 
paid to or on behalf of an individual in any month pursuant to (A) a 
State plan approved under part A of title IV of this Act (relating to 
aid to families with dependent children), (B) section 472 of this Act 
(relating to foster care assistance), (C) section 412(e) of the Immigra-
tion and Nationality Act (relating to assistance for refugees), (D) 
section 501(a) of Public Law 96-422 (relating to assistance for Cuban 
and Haitian entrants), or (E) the Act of November 2, 1921 (42 Stat. 
208), as amended (relating to assistance furnished by the Bureau of 
Indian Affairs), shall be taken into account in determining the 
amount of the benefit under this title of such individual (and his 
eligible spouse, if any) only for that month, and shall not be taken 
into account in determining the amount of the benefit for any other 
month.". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective April 1, 1988. 
SEC. 9107. TECHNICAL AMENDMENT RELATING TO 1986 AMENDMENT 
s r; 
CONCERNING THE TREATMENT OF CERTAIN COUPLES IN 
MEDICAL INSTITUTIONS. 
Effective November 10, 1986, section 1611(eX5) of the Social Secu-
rity Act is amended— 
(1) by striking "sharing a room or comparable accommodation 
in a hospital, home, or facilitv" and inserting "living in the 
same hospital, home, or facility '; and 
(2) by striking "shared such a room or accommodation" and 
inserting "lived in the same such hospital, home, or facility". 
SEC. 9108. EXTENSION OF DEADLINE FOR DISABLED WIDOWS TO APPLY 
FOR MEDICAID PROTECTION UNDER 1984 AMENDMENTS. 
Effective July 1, 1987, section 1634(b)(3) of the Social Security Act 
is amended by striking "d'.iring the 15-month period beginning with 
the month in which this subsection is enacted" and inserting "no 
later than July 1,1988". 
SEC. 9109. INCREASE IN SSI EMERGENCY ADVANCE PAYMENTS. 
(a) IN GENERAL.—Section 1631(aX4XA) of the Social Security Act is 
amended by striking "a cash advance against such benefits in an 
amount not exceeding $100" and inserting "a cash advance against 
such benefits, including any federally-administered State supple-
mentary payments, in an amount not exceeding the monthly 
amount that would be payable to an eligible individual with no 
other income for the first month of such presumptive eligibility". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall become effective on the date of the enactment of this Act. 
SEC. 9110. MODIFICATION OF INTERIM ASSISTANCE REIMBURSEMENT 
PROGRAM. 
(a) IN GENERAL.—The first sentence of section 1631(gX2) of the 
Social Security Act is amended by striking "at the time the Sec-
retary makes the first payment of benefits' and inserting "at the 
time the Secretary makes the first payment of benefits with respect 
to the period described in clause (A) or (B) of paragraph (3)". 
Ob) DEFINITION OF INTERIM ASSISTANCE.—Section 1631(gX3) of such 
Act is amended— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-303 
(1) by inserting "(A)" after "basic needs"; and 
(2) by inserting before the period at the end the following: 
", or (B) during the period beginning with the tirst month for 
which the individual's benefits (as defined in paragraph (2)) 
have been terminated or suspended if the individual was subse- 
< 
quently found to have been eligible for such benefits", 
(c) EFFECTIVE DATE.—The amendments made by this section shall 42 use 1383 
become effective with the 13th month following the month in which "°*® 
this Act is enacted, or, if sooner, with the first month for which the 
Secretary of Health and Human Services determines that it is 
administratively feasible. 
SEC. 9111. SPECIAL NOTICE TO BLIND RECIPIENTS. 
(a) IN GENERAL.—(1) Section 1631 of the Social Security Act is 42 use 1383. 
amended by adding at the end the following new subsection: 
"Special Notice to Blind Individuals with Respect to Hearings and 
Other Official Actions 
"(1)(1) In any case where an individual who is applying for or 
• 
receiving benefits under this title on the basis of blindness is 
entitled (under subsection (c) or otherwise) to receive notice from the 
Secretary of any decision or determination made or other action 
: i: i 
taken or proposed to be taken with respect to his or her rights under 
rcrt 
this title, such individual shall at his or her election be entitled 
either (A) to receive a supplementary notice of such decision, deter-
mination, or action, by telephone, within 5 working days after the 
initial notice is mailed, (B) to receive the initial notice in the form of 
a certified letter, or (C) to receive notification by some alternative 
procedure established by the Secretary and agreed to by the individ-
ual. 
"(2) The election under paragraph (1) may be made at any time; 
but an opportunity to make such an election shall in any event be 
' 
given (A) to every individual who is an applicant for benefits under 
this title on the basis of blindness, at the time of his or her 
application, and (B) to every individual who is a recipient of such 
benefits on the beisis of blindness, at the time of each redetermina-
tion of his or her eligibility. Such an election, once made by an 
individual, shall apply with respect to all notices of decisions, deter-
minations, and actions which such individual may thereafter be 
entitled to receive under this title until such time as it is revoked or 
changed.". 
(2) Not later than one year after the date on which the amend- 
42 use 1383 
ment made by paragraph (1) becomes effective, the Secretary of "°*® 
Health and Human Services shall provide every individual receiving 
benefits under title XVI of the Social Security Act on the basis of 
blindness an opportunity to make an election under section 
1631(1X1) of such Act (as added by such amendment). 
(b) STUDY.—The Secretary of Health and Human Services shall Reports. 
study the desirability and feasibility of extending special or supple- f^^Y^^ ^^^^ 
mentary notices of the type provided to blind individuals by section 
1631(1) of the Social Security Act (as added by subsection (a) of this 
section) to other individuals who may lack the ability to read and 
comprehend regular written notices, and shall report the results of 
such study to the Congress, along with such recommendations as 
may be appropriate, within 12 months after the date of the enact-
ment of this Act. 
note. 
101 STAT. 1330-304 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 use 1383. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
"°*^ 
become effective July 1,1988. 
SEC. 9112. REHABILITATION SERVICES FOR BLIND SSI RECIPIENTS. 
42 use 1383. 
(a) IN GENERAL.—Section 1631(a)(6) of the Social Security Act is 
amended— 
(1) by inserting "blindness (as determined under section 
^^' 
1614(a)(2)) or" before "disability (as determined under section 
f 1614(a)(3))"; 
(2) by inserting "blindness or other" before "physical or 
mental impairment"; and 
(3) by inserting "blindness and" before "disability benefit 
rolls" in subparagraph (B). 
42 use 1383 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall become effective April 1,1988. 
SEC. 9113. EXTENDING THE NUMBER OF MONTHS THAT A
N INDIVIDUAL 
IN A PUBLIC EMERGENCY SHELTER C
A
N BE ELIGIBLE FOR 
SSI. 
42 use 1382. 
(a) IN GENERAL.—Section 1611(e)(1)(D) of the Social Security Act is 
amended by striking "three months in any 12-month period" and 
inserting "6 months in any 9-month period". 
42 use 1382 
(t)) EFFECTIVE DATE.—(1) The amendment made by subsection (a) 
"°*^ 
shall become effective January 1,1988. 
(2) In the application of section 1611(e)(1)(D) of the Social Security 
Act on and after the effective date of such amendment, months 
before January 1988 in which a person was an eligible individual or 
eligible spouse by reason of such section shall not be taken into 
account. 
SEC. 9114. EXCLUSION OF UNDERPAYMENTS FROM RESOURCES. 
42 use 1382b. 
(a) IN GENERAL.—Section 1613(a)(7) of the Social Security Act is 
amended by inserting after "shall be limited to the first 6 months 
following the month in which such amount is received" the follow-
ing: "(or to the first 9 months following such month with respect to 
any amount so received during the period beginning October 1,1987, 
and ending September 30,1989)". 
42 use 1382b 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall become effective January 1,1988. 
SEC. 9115. CONTINUATION OF FULL BENEFIT STANDARD FOR INDIVID-
UALS TEMPORARILY INSTITUTIONALIZED. 
• 
(a) IN GENERAL.—Section 1611(e)(1) of the Social Security Act is 
amended— 
(1) in subparagraph (A), by striking "and (E)" and inserting 
"(E), and (G)"; 
(2) in subparagraph (B), by inserting "(subject to subpara-
graph (G))" after "throughout any month"; and 
(3) by adding at the end the following new subpareigraphs: 
"(G) A person may be an eligible individual or eligible spouse for 
purposes of this title, and subparagraphs (A) and (B) shall not apply, 
with respect to any particular month throughout which he or sne is 
an inmate of a public institution the primary purpose of which is the 
provision of medical or psychiatric care, or which is a hospital, 
extended care facility, nursing home, or intermediate care facility 
receiving payments (with respect to such individual or spouse) under 
note. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-305 
a State plan approved under title XIX, if it is determined in 
accordance with subparagraph (H) that— 
"(i) such person's stay in that institution or facility (or in that 
institution or facility and one or more other such institutions or 
facilities during a continuous period of institutionalization) is 
likely (as certified by a physician) not to exceed 3 months, and 
the particular month involved is one of the first 3 months 
throughout which such person is in such an institution or 
facility during a continuous period of institutionalization; and 
"(ii) such person needs to continue to maintain and provide 
for the expenses of the home or living arrangement to which he 
or she may return upon leaving the institution or facility. 
The benefit of any person under this title (including State 
supplementation if any) for each month to which this subparagraph 
applies shall be payable, without interruption of benefit payments 
and on the date the benefit involved is regularly due, at the rate 
that was applicable to such person in the month prior to the first 
month throughout which he or she is in the institution or facility. 
"(H) The Secretary shall establish procedures for the determina-
tions required by clauses (i) and (ii) of subparagraph (G), and may 
enter into agreements for making such determinations (or for 
providing information or assistance in connection with the making 
of such determinations) with appropriate State and local public and 
private agencies and organizations. Such procedures and agree-
ments shall include the provision of appropriate assistance to 
individuals who, because of their physical or mental condition, are 
limited in their ability to furnish the information needed in connec-
tion with the making of such determinations.". 
(b) CONFORMING AMENDMENT.—Section 1902(1) of such Act is 
amended by striking "section 1611(e)(1)(E)" and inserting "subpara-
graph (E) or (G) of section 1611(e)(1)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
become effective July 1,1988. 
SEC. 9116. RETENTION OF MEDICAID WHEN SSI BENEFITS ARE LOST 
UPON ENTITLEMENT TO EARLY WIDOW'S OR WIDOWERS 
INSURANCE BENEFITS. 
(a) IN GENERAL.—Section 1634 of the Social Security Act is 
amended by adding at the end the following new subsection: 
"(d) If any person— 
"(1) applies for and obtains benefits under subsection (e) or (f) 
of section 202 (or under any other subsection of section 202 if 
such person is also eligible for benefits under such subsection (e) 
or (f)) as required by section 1611(e)(2), being then at least 60 
years of age but not entitled to hospital insurance benefits 
under part A of title XVIII, and 
"(2) is determined to be ineligible (by reason of the receipt of 
such benefits under section 202) for supplemental security 
income benefits under this title or for State supplementary 
payments of the type described in section 1616(a), 
such person shall nevertheless be deemed to be a recipient of 
supplemental security income benefits under this title for purposes 
of title XIX, so long as he or she (A) would be eligible for such 
supplemental security income benefits, or such State supplementary 
payments, in the absence of such benefits under section 202, and (B) 
is not entitled to hospital insurance benefits under part A of title 
XVIII.". 
Contracts. 
42 use 1396a. 
42 use 1382 
note. 
42 use 1383c. 
101 STAT. 1330-306 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 1383c 
note. 
42 u s e 1383c 
note. 
42 u s e 1396s. 
42 u s e 1383c 
note. 
42 u s e 1383 
note. 
Grants. 
Grants. 
(b) NOTICE.—The Secretary of Health and Human Services, acting 
through the Social Security Administration, shall (within 3 months 
after the date of the enactment of this Act) issue a notice to all 
individuals who will have attained age 60 but not age 65 as of April 
1, 1988, and who received supplemental security income benefits 
under title XVI of the Social Security Act prior to attaining age 60 
but lost those benefits by reason of the receipt of widow's or 
widower's insurance benefits (or other benefits as described in sec-
tion 1634(d)(1) of that Act as added by subsection (a) of this section) 
under title II of that Act. Each such notice shall set forth and 
explain the provisions of section 1634(d) of the Social Security Act 
(as so added), and shall inform the individual that he or she should 
contact the Secretary or the appropriate State agency concerning 
his or her possible eligibility for medical assistance benefits under 
such title XIX. 
(c) STATE DETERMINATIONS.—Any determination required under 
section 1634(d) of the Social Security Act with respect to whether an 
individual would be eligible for benefits under title XVI of such Act 
(or State supplementary payments) in the absence of benefits under 
section 202 shall be made by the appropriate State agency. 
(d) CONFORMING AMENDMENTS.—Section 1922(a)(2) of the Social 
Security Act is amended— 
(1) by striking "1634 (b)" in subparagraph (B) and inserting 
"1634 (b) and (c)"; and 
(2) by adding at the end the following new subparagraph: 
"(C) Section 1634(d) of this Act (relating to individuals who lose 
eligibility for SSI benefits due to entitlement to early widow's or 
widower's insurance benefits under section 202 (e) or (f) of this 
Act).". 
(e) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to any individual without regard to whether 
the determination of his or her ineligibility for supplemental secu-
rity income benefits by reason of the receipt of benefits under 
section 202 of the Social Security Act ^^ (EIS described in section 
1634(d)(2) of such Act) occurred before, on, or after the date of the 
enactment of this Act; but no individual shall be eligible for assist-
ance under title XIX of such Act by reason of such amendments for 
any period before July 1, 1988. 
SEC. 9117. DEMONSTRATION PROGRAM TO ASSIST HOMELESS INDIVID-
UALS. 
(a) IN GENERAL.—The Secretary of Health and Human Services (in 
this section referred to as the "Secretary") is authorized to make 
grants to States for projects designed to demonstrate and test the 
feasibility of special procedures and services to ensure that homeless 
individuals are provided SSI and other benefits under the Social 
Security Act to which they are entitled and receive assistance in 
using such benefits to obtain permanent housing, food, and health 
care. Each project approved under this section shall meet such 
conditions and requirements, consistent with this section, as the 
Secretary shall prescribe. 
(b) SCOPE OF PROJECTS.—Projects for which grants are made under 
this section shall include, more specifically, procedures and services 
to overcome barriers which prevent homeless individuals (particu-
•° Copy read "Social Security (as". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-307 
larly the chronically mentally ill) from receiving and appropriately 
using benefits, including— 
(1) the creation of cooperative approaches between the Social 
Security Administration, State and local governments, shelters 
for the homeless, and other providers of services to the 
homeless; 
(2) the establishment, where appropriate, of multi-agency SSI 
Outreach Teams (as described in subsection (c)), to facilitate 
communication between the agencies and staff involved in 
taking and processing claims for SSI and other benefits by the 
homeless who use shelters; 
(3) special efforts to identify homeless individuals who are 
potentially eligible for SSI or other benefits under the Social 
Security Act; 
(4) the provision of special assistance to the homeless in 
applying for benefits, including assistance in obtaining and 
developing evidence of disability and supporting documentation 
for nondisability-related eligibility requirements; 
(5) the provision of special training and assistance to public 
and private agency staff, including shelter employees, on 
disability eligibility procedures and evidentiary requirements; 
(6) the provision of ongoing assistance to formerly homeless 
individuals to ensure their responding to information requests 
related to periodic redeterminations of eligibility for SSI and 
other benefits; 
(7) the provision of assistance in ensuring appropriate use of 
benefit funds for the purpose of enabling homeless individuals 
to obtain permanent housing, nutrition, and physical and 
mental health care, including the use, where appropriate, of the 
disabled individual's representative payee for case management 
services; and 
(8) such other procedures and services as the Secretary may 
approve. 
(c) SSI OUTREACH TEAM PROJECTS.—(1) If a State applies for funds 
under this section for the purpose of establishing a multi-agency SSI 
Outreach Team, the membership and functions of such Team ^ ^ 
shall be as follows (except as provided in paragraph (2)): 
(A) The membership of the Team shall include a social serv-
ices case worker (or case workers, if necessary); a consultative 
medical examiner who is qualified to provide consultative 
examinations for the Disability Determination Service of the 
State; a disability examiner, from the State Disability Deter-
mination Service; and a claims representative from an office of 
the Social Security Administration. 
(B) The Team shall have designated members responsible 
for— 
(i) identification of homeless individuals who are poten-
tially eligible for SSI or other benefits under the Social 
Security Act; 
(ii) ensuring that such individuals understand their rights 
under the programs; 
(iii) gissisting such individuals in applying for benefits, 
including assistance in obtaining and developing evidence 
"' Copy read "team". 
101 STAT. 1330-308 
PUBLIC LAW 100-203—DEC. 22, 1987 
and supporting documentation relating to disability- and 
nondisability-related eligibility requirements; 
! 
(iv) arranging transportation and accompanying ap-
plicants to necessary examinations, if needed; and 
3f . . 
(v) providing for the tracking and monitoring of all claims 
for benefits by individuals under the project. 
(2) If the Secretary determines that an application by a State for 
an SSI Outreach Team Project under this section which proposes a 
membership and functions for such Team different from those 
prescribed in paragraph (1) but which is expected to be as effective, 
the Secretary may waive the requirements of such paragraph. 
(d) INFORMATION AND REPORTS; EVALUATION.—(1) Each State 
having an approved SSI Outreach Team Project shall periodically 
submit to the Secretary such information (with respect to the 
project) as may be necessary to enable the Secretary to evaluate 
such project in particular and the demonstration program under 
this section in general. 
(2)(A) The Secretary shall from time to time (but not less often 
than annually) submit to the Congress a full and complete report on 
the program under this section, together with a detailed evaluation 
of such program and of the projects thereunder along with such 
recommendations as may be deemed appropriate. Such evaluation 
and such recommendations shall be designed to serve as a basis for 
determining whether (and to what extent) the activities and proce-
dures included in the demonstration program under this section 
should be continued, expanded, or modified, or converted (with or 
without changes) into a regular feature of permanent law. 
(B) The criteria used by the Secretary in evaluating the program 
and the projects thereunder shall not be limited to those which 
would normally be used in evaluating programs and activities of the 
kind involved, but shall fully take into account the special cir-
cumstances of the homeless and their need for personalized atten-
tion and follow-through assistance, and shall emphasize the extent 
to which the procedures and assistance made available to applicants 
under such projects are recognizing those circumstances and meet-
ing that need. 
(e) AUTHORIZATION OF APPROPRIATIONS.—To carry out this section, 
there are authorized to be appropriated to the Secretary— 
(A) the sum of $1,250,000 for the fiscal year 1988; 
(B) the sum of $2,500,000 for the fiscal year 1989; and 
(C) such sums as may be necessary for each fiscal year 
thereafter. 
SEC. 9118. ASSISTANCE TO HOMELESS AFDC FAMILIES. 
Federal Register, 
The Secretary of Health and Human Services may not take any 
publication. 
action, prior to October 1, 1988, that would have the effect of 
implementing in whole or in part the proposed regulation published 
in the Federal Register on December 14, 1987, with respect to 
emergency assistance and the need for and amount of assistance 
under the program of aid to families with dependent children, or 
that would change current policy with respect to any of the matters 
addressed in such proposed regulation. 
SEC. 9119. INCREASE IN PERSONAL NEEDS ALLOWANCE FOR SSI RECIPI-
ENTS. 
(a) INCREASE IN STANDARD.—Section 1611(e)(1)(B) of the Social 
42 use 1382. 
Security Act is amended— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-309 
(1) by striking "$300 per year" in clauses (i) and (iiXI) and 
inserting "$360 per year"; and 
(2) by striking "$600 per year" in clause (iii) and inserting 
"$720 per year". 
(b) MANDATORY PASS-THROUGH OF INCREASED PERSONAL NEEDS 
ALLOWANCE.—Section 1618 of such Act is amended by adding at the 
42 USC I382g. 
end the following new subsection: 
"(g) In order for any State which makes supplementary payments 
of the type described in section 1616(a) (including payments pursu-
ant to an agreement entered into under section 212(a) of Public Law 
93-66) 
to 
recipients 
of benefits 
determined 
under 
section 
1611(e)(1)(B), on or after October 1, 1987, to be eligible for payments 
pursuant to title XIX with respect to any calendar quarter which 
begins— 
"(1) after October 1,1987, or, if later 
"(2) after the calendar quarter in which it first makes such 
supplementary payments to recipients of benefits so deter-
mined, 
such State must have in effect an agreement with the Secretary 
whereby the State will— 
"(3) continue to make such supplementary payments to recipi-
ents of benefits so determined, and 
"(4) maintain such supplementary payments to recipients of 
benefits so determined at levels which assure (with respect to 
any particular month beginning with the month in which this 
subsection is first effective) that— 
"(A) the combined level of such supplementary payments 
and the amounts payable to or on behalf of such recipients 
under section 1611(e)(1)(B) for that particular month, 
is not less than— 
"(B) the combined level of such supplementary payments 
and the amounts payable to or on behalf of such recipients 
under section 1611(e)(1)(B) for October 1987 (or, if no such 
supplementary payments were made for that month, the 
combined level for the first subsequent month for which 
.:^^() 
such payments were made), increased— 
"(i) in a case to which clause (i) of such section 
1611(e)(lXB) applies or (with respect to the individual or 
spouse who is in the hospital, home, or facility in-
volved) to which clause (ii) of such section applies, by 
|;,g 5T^y 
$5, and 
"(ii) in a case to which clause (iii) of such section 
1611(eXl)(B) applies, by $10.". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 42 USC 1382 
and O
t
)
) shall become effective July 1,1988. 
note. 
SEC. 9120. EXCLUSION OF DEATH BENEFITS TO THE EXTENT SPENT ON 
LAST ILLNESS AND BURIAL. 
(a) IN GENERAL.—Subparagraphs (D) and (E) of section 1612(aX2) of 
the Social Security Act are amended to read as follows: 
42 USC 1382a. 
"(D) payments to the individual occasioned by the death 
of another person, to the extent that the total of such 
payments exceeds the amount expended by such individual 
for purposes of the decesised person's last illness and burial; 
"(E) support and alimony payments, and (subject to the 
provisions of subparagraph (D) excluding certain amounts 
101 STAT. 1330-310 
PUBLIC LAW 100-203—DEC. 22, 1987 
expended for purposes of a last illness and burial) gifts (cash 
or otherwise) and inheritances; and". 
42 use 1382a 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note 
shall become effective April 1, 1988. 
42 u s e 602 note. SEC. 9121. DEMONSTRATION OF FAMILY INDEPENDENCE PROGRAM. 
(a) IN GENERAL.—Upon application of the State of Washington 
and approval by the Secretary of Health and Human Services, the 
State of Washington (in this section referred to as the "State") may 
conduct a demonstration project in accordance with this section for 
the purpose of testing whether the operation of its Family Independ-
ence Program enacted in May 1987 (in this section referred to as the 
"Program"), as an alternative to the AFDC program under title IV 
of the Social Security Act, would more effectively break the cycle of 
poverty and provide families with opportunities for economic 
independence and strengthened family functioning. 
(b) NATURE OF PROJECT.—Under the demonstration project con-
ducted under this section— 
(1) every individual eligible for aid under the State plan 
approved under section 402(a) of the Social Security Act shall be 
eligible to enroll in the Program, which shall operate simulta-
neously with the AFDC program so long as there are individuals 
who qualify for the latter; 
(2) cash assistance shall be furnished in a timely manner to 
all eligible individuals under the Program (and the State may 
not make expenditures for services under the Program until it 
has paid all necessary cash assistance), with no family receiving 
less in cash benefits than it would have received under the 
AFDC program; 
(3) individuals may be required to register, undergo assess-
ment, and participate in work, education, or training under the 
Program, except that— 
(A) work or training may not be required in the case o
f
— 
(i) a single parent of a child under six months of age, 
,^ 
or more than one parent of such a child in a two-parent 
"' " ' 
family, 
(ii) a single parent with a child of any age who has 
received assistance for less than six months, 
(iii) a single parent with a child under three years of 
^': 
age who has received assistance for less than three 
years, 
(iv) an individual under 16 years of age or over 64 
' *' 
years of age, 
(v) an individual who is incapacitated, temporarily 
..' 
'•"' 
ill, or needed at home to care for an impaired person, or 
(vi) an individual who has not yet been individually 
,
« ~
. Y 'A' notified in writing of such requirement or of the expira-
tion of his or her exempt status under this subpara-
^, 
graph; 
(B) participation in work or training shall in any case be 
voluntary during the first two years of the Program, and 
may thereafter be made mandatory only in counties where 
more than 50 percent of the enrollees can be placed in 
employment within three months after they are job ready; 
(C) in no case shall the work and training aspect of the 
Program be mandated in any county where the unemploy-
ment level is at least twice the State average; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-311 
(D) mandated work shall not include work in any position 
created by a reduction in the work force, a bona fide labor 
dispute, the decertification of a bargaining unit, or a new 
job classification which subverts the intention of the 
Program; 
(4) there shall be no change in existing State law which would 
eliminate guaranteed benefits or reduce the rights of applicants 
or enrollees; and 
(5) the Program shall include due process guarantees and 
procedures no less than those which are available to partici-
pants in the AFDC program under Federal law and regulation 
and under State law. 
(c) WAIVERS.—The Secretary shall (with respect to the project 
under this section) waive compliance with any requirements con-
tained in title IV of the Social Security Act which (if applied) would 
prevent the State from carrying out the project or effectively achiev-
ing its purpose, or with the requirements of sections 1902(a)(1), 
1902(e)(1), and 1916 of that Act Gout only to the extent necessary to 
enable the State to carry out the Program ^^ as enacted by the State 
in April 1987). 
(d) FUNDING.— 
(1) The Secretary, under section 403(b) or 1903(d) of the Social 
Security Act, shall reimburse the State for its expenditures 
under the Program— 
(A) at a rate equal to the Federal matching rate ap-
plicable to the State under section 403(aXl) (or 1118) of the 
Social Security Act, for cash assistance, medical assistance, 
and child care provided to enrollees; 
(B) at a rate equal to the applicable Federal matching 
- 
rate under section 403(a)(3) of such Act, for administrative 
expenses; and 
(C) at the rate of 75 percent for an evaluation plan 
approved by the Secretary. 
(2) As a condition of approval of the project under this section, 
the State must provide assurances satisfactory to the Secretary 
that the total amount of Federal reimbursement over the period 
of the project will not exceed the anticipated Federal reimburse-
ments (over that period) under the AFDC and Medicaid pro-
grams; but this paragraph shall not prevent the State from 
claiming reimbursement for additional persons who would qual-
ify for assistance under the AFDC program, for costs attrib-
utable to increases in the State's payment standard, or for any 
other federally-matched benefits or services. 
(e) EVALUATION.—The State must satisfy the Secretary that the 
Program ^^ will be evaluated using a reasonable methodology. 
(f) DURATION OF PROJECT.— 
(1) The project under this section shall begin on the date on 
which the first individual is enrolled in the Program and (sub-
ject to paragraph (2)) shall end five years after that date. 
(2) The project may be terminated at any time, on six months 
written notice, by the State or (upon a finding that the State has 
materially failed to comply with this section) by the Secretary. 
'" Copy read "program". 
»3 Copy read "program". 
101 STAT. 1330-312 
PUBLIC LAW 100-203—DEC. 22, 1987 
42 u s e 602 note. 
SEC. 9122. CHILD SUPPORT DEMONSTRATION PROGRAM IN NEW YORK 
STATE. 
(a) IN GENERAL.—Upon application by the State of New York and 
approval by the Secretary of Health and Human Services (in this 
section referred to as the "Secretary"), the State of New York (in 
this section referred to as the "State") may conduct a demonstration 
program in accordance with this section for the purpose of testing a 
State program as an alternative to the program of Aid to Families 
with Dependent Children under title IV of the Social Security Act. 
(b) NATURE OF PROGRAM.—Under the demonstration program con-
ducted under this section— 
(1) all custodial parents of dependent children who are eligible 
for supplements under the State plan approved under section 
402(a) of the Social Security Act (and such other types or classes 
of such parents as the State may specify) may elect to receive 
benefits under the State's Child Support Supplement Program 
in lieu of supplements under such plan; and 
(2) the Federal Government will pay to the State with respect 
to families receiving benefits under the State's Child Support 
Supplement Program the same amounts as would have been 
payable with respect to such families under sections 403 and 
1903 of the Social Security Act as if the families were receiving 
aid and medical assistance under the State plans in effect with 
respect to such sections. 
(c) WAIVERS.—The Secretary shall (with respect to the program 
under this section) waive compliance with any requirements con-
tained in title IV of the Social Security Act which (if applied) would 
prevent the State from carrying out the program or effectively 
achieving its purpose. 
(d) CONDITIONS OF APPROVAL.—As a condition of approval of the 
program under this section, the State shall— 
(1) provide assurances satisfactory to the Secretary that the 
State— 
(A) will continue to make assistance available to all 
eligible children in the State who are in need of financial 
support, and 
(B) will continue to operate an effective child support 
enforcement program; 
(2) agree— 
.,^^_,,,,: 
(A) to have the program evaluated, and 
Reports. 
u {
. 
(B) to report interim findings to the Secretary at such 
y], r 
times £is the Secretary shall provide; and 
(3) satisfy the Secretary that the program will be evaluated 
using a reasonable methodology that can determine whether 
changes in work behavior and changes in earnings are attrib-
utable to participation in the program. 
(e) APPLICATION PROCESS.—In order to participate in the program 
under this section, the State must submit an application under this 
section not later than two years after the date of enactment of this 
Act. The Secretary shall approve or disapprove the application of 
the State not later than 90 days after the date of its submission. If 
the application is disapproved, the Secretary shall provide to the 
State a statement of the reasons for such disapproval, of the changes 
needed to obtain approval, and of the date by which the State may 
resubmit the application. 
. -? 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-313 
(f) EFFECTIVE DATE.—The program under this section shall com-
mence not later than the first day of the third calendar quarter 
beginning on or after the date on which the application of the State 
is approved in accordance with subsection (e). 
(g) DURATION OF PROGRAM.— 
(1) Except as provided in paragraph (2), if the Secretary 
approves the application of the State, the demonstration pro-
gram under this section shall be conducted for a period not to 
?a jf/ ' 
exceed five years. 
(2)(A) The Governor of the State may before the end of the 
period described in paragraph (1) terminate the demonstration 
program under this section if the Governor finds that the 
v..: 'i2i 
program is not successful in testing the State's Child Support 
Supplement Program as an alternative to the program under 
title IV of the Social Security Act. The Governor shall notify the 
Secretary of the decision to terminate the program not less than 
three months prior to the date of such termination. 
(B) The Secretary may terminate the program before the end 
of such period if the Secretary finds that the program is not in 
compliance with the terms of the application. The Secretary 
shall notify the Governor of the decision to terminate the 
program not less than three months prior to the date of such 
termination. 
SEC. 9123. TECHNICAL CORRECTION. 
The subsection of section 1631 of the Social Security Act which 
was added as subsection (j) by section 11006 of the Anti-Drug Abuse 
Act of 1986 is redesignated as subsection (m) and is moved to the end 
42 USC 1383. 
of such section 1631 so that it appears immediately after subsection 
(1) thereof (as added by section 9111(a) of this Act); and the heading 
of such subsection is amended to read as follows: 
"Pre-Release Procedures for Institutionalized Persons". 
PART 2—SOCIAL SERVICES, CHILD WELFARE SERVICES, 
AND OTHER PROVISIONS RELATING TO CHILDREN 
SEC. 9131. PERMANENT EXTENSION OF AUTHORITY FOR VOLUNTARY 
FOSTER CARE PLACEMENTS. 
(a) IN GENERAL.—Section 102 of the Adoption Assistance and 
Child Welfare Act of 1980 is amended— 
42 USC 672 note. 
(1) in subsection (a)(1) (in the matter preceding subparagraph 
(A)), by striking "and before October 1,1987,"; 
(2) in subsection (c), by striking all that follows "Septem-
ber 30, 1979" and inserting a period; and 
(3) in subsection (e), by striking "with respect to which the 
amendments made by this section are in effect". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 use 672 note. 
shall become effective October 1,1987. 
SEC. 9132. 2-YEAR EXTENSION OF FOSTER CARE CEILING AND OF 
AUTHORITY TO TRANSFER FOSTER CARE FUNDS TO CHILD 
WELFARE SERVICES. 
(a) IN GENERAL.—Section 474 of the Social Security Act is 42 use 674. 
amended— 
101 STAT. 1330-314 
PUBLIC LAW 100-203—DEC. 22, 1987 
(1) in paragraphs (1), (2)(A)(iii), (2)(B), (4)(B), and (5)(A)(ii) of 
subsection (b), by striking "through 1987" and inserting 
"through 1989"; 
(2) in paragraph (5)(A) of subsection (b) (in the matter preced-
ing clause (i)), by striking "October 1, 1987" and inserting 
"October 1,1989"; and 
(3) in paragraphs (1) and (2) of subsection (c), by striking 
"through 1987" and inserting "through 1989". 
42 use 674 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective October 1, 1987. 
SEC. 9133. MOTHER/INFANT FOSTER CARE. 
42 use 675. 
(a) IN GENERAL.—Section 475(4) of the Social Security Act is 
amended— 
(1) by inserting "(A)" after "(4)"; and 
(2) by adding at the end the following new subparagraph: 
"(B) In cases where— 
"(i) a child placed in a foster family home or child-care 
institution is the parent of a son or daughter who is in the 
same home or institution, and 
"(ii) payments described in subparagraph (A) are being 
made under this part with respect to such child, 
the foster care maintenance payments made with respect to 
such child as otherwise determined under subparagraph (A) 
shall also include such amounts as may be necessary to cover 
the cost of the items described in that subparagraph with 
respect to such son or daughter.", 
(b) CONFORMING AMENDMENTS RELATING TO ELIGIBIUTY UNDER 
42 use 602. 
OTHER PROGRAMS.—(1) Section 402(a)(24) of such Act is amended by 
striking "if an individual is receiving benefits under title XVI, then, 
for the period for which such benefits are received," and inserting 
the following: "if an individual is receiving benefits under title XVI 
or his costs in a foster family home or child-care institution are 
covered by the foster care maintenance payments being made to his 
or her minor parent as provided in section 475(4)(B), then, for the 
period for which such benefits are received or such costs are so 
covered ". 
42 use 672. 
(2) Section 472(h) of such Act is amended by adding at the end the 
following new sentence: "For purposes of the preceding sentence, a 
child whose costs in a foster family home or child-care institution 
are covered by the foster care maintenance payments being made 
with respect to his or her minor parent, as provided in section 
475(4)(B), shall be considered a child with respect to whom foster 
care maintenance payments are made under this section.". 
42 use 673. 
(3)(A) Section 473(a)(2XA) of such Act is amended— 
(i) by striking "or" at the end of clause (i); 
(ii) by adding "or" at the end of clause (ii); and 
4 (iii) by adding after clause (ii) the following new clause: 
"(iii) is a child whose costs in a foster family home or child-
; % J : 
care institution are covered by the foster care maintenance 
payments being made with respect to his or her minor parent as 
provided in section 475(4)(B),". 
(B) Section 473(aX2)(B)(iii) of such Act is amended by inserting "or 
(A)(iii)" after "(A)(ii)". 
(4) Section 473(b) of such Act is amended by adding at the end the 
following new sentence: "For purposes of the preceding sentence, a 
child whose costs in a foster family home or child-care institution 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-315 
42 u s e 1397b 
note. 
are covered by the foster care maintenance payments being made 
with respect to his or her minor parent, as provided in section 
475(4)(B), shall be considered a child with respect to whom foster 
care maintenance payments are being made under section 472.". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 42 USC 602 note. 
become effective April 1,1988. 
SEC. 9134. INCREASED FUNDING FOR SOCIAL SERVICES BLOCK GRANTS. 
(a) INCREASE IN FUNDING.—Section 2003(c) of the Social Security 
Act is amended— 
42 USC 1397b. 
(A) by striking "and" at the end of paragraph (2); 
(B) in paragraph (3), by striking "year" the first place it 
appears and all that follows through the period and inserting 
"years 1984, 1985, 1986, and 1987, and for each succeeding fiscal 
year other than the fiscal year 1988; and"; and 
(C) by adding at the end the following new paragraph: 
"(4) $2,750,000,000 for the fiscal year 1988.". 
OJ) REQUIREMENT THAT ADDITIONAL FUNDS SUPPLEMENT AND NOT 
SUPPLANT FUNDS AVAILABLE FROM OTHER SOURCES.—The additional 
$50,000,000 made available to the States for the fiscal year 1988 
pursuant to the amendments made by subsection (a) shall— 
(A) be used only for the purpose of providing additional 
services under title XX of the Social Security Act; and 
(B) be expended only to supplement the level of any funds 
that would, in the absence of the additional funds appropriated 
pursuant to such amendments, be available from other sources 
(including any amounts available under title XX of the Social 
Security Act without regard to such amendments) for services 
in accordance with such title, and shall in no case supplant such 
funds from other sources or reduce the level thereof 
SEC. 9135. EXTENSION OF SOCIAL SERVICES BLOCK GRANT AND CHILD 
WELFARE SERVICES PROGRAMS TO AMERICAN SAMOA. 
(a) 
SOCIAL 
SERVICES 
BLOCK 
GRANT 
PROGRAM.—(1) 
Section 
1101(a)(1) of the Social Security Act is amended by inserting "Amer- 42 USC 1301. 
ican Samoa," after "Guam," in the last sentence. 
(2)(A) Section 2003(a) of such Act is amended by adding at the end 
the following new sentence: "The allotment for fiscal year 1989 and 
each succeeding fiscal year to American Samoa shall be an amount 
which bears the same ratio to the amount allotted to the Northern 
Mariana Islands for that fiscal year as the population of American 
Samoa bears to the population of the Northern Mariana Islands 
determined on the basis of the most recent data available at the 
time such allotment is determined.". 
(B) Section 20030t>) of such Act is amended by inserting "American 
Samoa," after "the Virgin Islands," each place it appears. 
(b) CHILD WELFARE SERVICES PROGRAM.—(1) Section 1101(a)(1) of 
such Act is amended by adding at the end thereof the following new 
sentence: "Such term when used in part B of title IV also includes 
American Samoa.". 
(2) Section 4210t)) of such Act is amended by striking "and Guam" 
42 USC 621. 
^ 
and inserting "Guam, and American Samoa". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
42 use 62i note. 
apply with respect to fiscal years beginning on or after October 1, 
1988. 
101 STAT. 1330-316 
PUBLIC LAW 100-203—DEC. 22, 1987 
Establishment. 
SEC. 9136. NATIONAL COMMISSION ON CHILDREN. 
Part A of title XI of the Social Security Act is amended by adding 
at the end the following new section: 
^ 
NATIONAL COMMISSION ON CHILDREN 
42 use 1320b-9. 
"SEC. 1139. (aXD There is hereby established a commission to be 
known as the National Commission on Children (in this section 
referred to as the'Commission'). 
.tv, 
"(b)(1) The Commission shall consist of— 
President of U.S. 
"(A) 12 members to be appointed by the President, 
"(B) 12 members to be appointed by the Speaker of the House 
of Representatives, and 
"(C) 12 members to be appointed by the President pro tempore 
of the Senate. 
President of U.S. 
"(2) The President, the Speaker, and the President pro tempore 
shall each appoint as members of the Commission— 
"(A) 4 individuals who— 
" 
j, 
"(i) are representatives of organizations providing serv-
ices to children, 
"(ii) are involved in activities on behalf of children, or 
"(iii) have engaged in academic research with respect to 
the problems and needs of children, 
"(B) 4 individuals who are elected or appointed public officials 
(at the Federal, State, or local level) involved in issues and 
programs relating to children, and 
"(C) 4 individuals who are parents or representatives of par-
ents or parents' organizations. 
"(3) The appointments made pursuant to subparagraphs (B) and 
(C) of paragraph (1) shall be made in consultation with the chairmen 
of committees of the House of Representatives and the Senate, 
respectively, having jurisdiction over relevant Federal programs. 
Reports. 
"(c)(1) It shall be the duty and function of the Commission to serve 
as a forum on behalf of the children of the Nation and to conduct 
the studies and issue the report required by subsection (d). 
^ '^ ' 
"(2) The Commission (and any committees that it may form) shall 
conduct public hearings in different geographic areas of the country, 
both urban and rural, in order to receive the views of a broad 
spectrum of the public on the status of the Nation's children and on 
ways to safeguard and enhance the physical, mental, and emotional 
well-being of all of the children of the Nation, including those with 
physical or mental disabilities, and others whose circumstances 
deny them a full share of the opportunities that parents of the 
Nation may rightfully expect for their children. 
"(3) The Commission shall receive testimony from individuals, and 
from representatives of public and private organizations and institu-
tions with an interest in the welfare of children, including edu-
cators, health care professionals, religious leaders, providers of 
social services, representatives of organizations with children as 
members, elected and appointed public officials, and from parents 
and children speaking in their own behalf. 
Reports. 
"(d) The Commission shall submit to the President, and to the 
Committees on Finance and Labor and Human Resources of the 
yon i 
J 
Senate and the Committees on Ways and Means, Education and 
Labor, and Energy and Commerce of the House of Representatives, 
an interim report no later than September 30, 1988, and a final 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-317 
report no later than March 31, 1989, setting forth recommendations 
with respect to the following subjects: 
"(1) Questions relating to the health of children that the 
Commission shall address include— 
f 
"(A) how to reduce infant mortality, 
"(B) how to reduce the number of low-birth-weight babies, 
5.1^'!; 
"(C) how to reduce the number of children with chronic 
illnesses and disabilities, 
irfi 
"(D) how to improve the nutrition of children, 
:-. 
"(E) how to promote the physical fitness of children, 
"(F) how to ensure that pregnant women receive ade-
quate prenatal care, 
%
:
i y 
"(G) how to ensure that all children have access to both 
preventive and acute care health services, and 
?' h. 
"(H) how to improve the quality and availability of health 
' 
care for children. 
* 
"(2) Questions relating to social and support services for 
children and their parents that the Commission shall address 
include— 
"(A) how to prevent and treat child neglect and abuse, 
"(B) how to provide help to parents who seek assistance 
in meeting the problems of their children, 
"(C) how to provide counseling services for children, 
"(D) how to strengthen the family unit, 
"(E) how children can be assured of adequate care while 
their parents are working or participating in education or 
training programs, 
"(F) how to improve foster care and adoption services, 
"(G) how to reduce drug and alcohol abuse by children 
and youths, and 
"(H) how to reduce the incidence of teenage pregnancy. 
"(3) Questions relating to education that the Commission 
shall address include— 
"(A) how to encourage academic excellence for all chil-
dren at all levels of education, 
"(B) how to use preschool experiences to enhance edu-
cational achievement, 
"(C) how to improve the qualifications of teachers, 
"(D) how schools can better prepare the Nation's youth to 
; 
compete in the labor market, 
"(E) how parents and schools can work together to help 
children achieve success at each step of the academic 
ladder, 
"(F) how to encourage teenagers to complete high school 
c . 
and remain in school to fulfill their academic potential, 
"(G) how to address the problems of drug and alcohol 
tQ 
abuse by young people, 
"(H) how schools might lend support to efforts aimed at 
reducing the incidence of teenage pregnancy, and 
"(I) how schools might better meet the special needs of 
children who have physical or mental handicaps. 
"(4) Questions relating to income security that the Commis-
sion shall address include— 
"(A) how to reduce poverty among children, 
"(B) how to ensure that parents support their cnildren to 
the fullest extent possible through improved child support 
101 STAT. 1330-318 
PUBLIC LAW 100-203—DEC. 22, 1987 
- . ' . .r collection services, including services on behalf of children 
whose parents are unmarried, and 
^ 
"(C) how to ensure that cash assistance to needy children 
is adequate. 
"(5) Questions relating to tax policy that the Commission 
shall address include— 
"(A) how to assure the equitable tax treatment of families 
with children, 
"(B) the effect of existing tax provisions, including the 
r, ,
%
• 
dependent care tax credit, the earned income tax credit, 
,. and the targeted jobs tax credit, on children living in 
poverty, 
,s,M. 
"(C) whether the dependent care tax credit should be 
refundable and the effect of such a policy, 
•i]: . 
"(D) whether the earned income tax credit should be 
adjusted for family size and the effect of such a policy, and 
"(E) whether there are other tax-related policies which 
would reduce poverty among children. 
"(6) In addition to addressing the questions specified in para-
graphs (1) through (5), the Commission shall— 
"(A) seek to identify ways in which public and private 
organizations and institutions can work together at the 
community level to identify deficiencies in existing services 
for families and children and to develop recommendations 
:. 
to ensure that the needs of families and children are met, 
, 
using all available resources, in a coordinated and com-
prehensive manner, and 
"(B) assess the existing capacities of agencies to collect 
and analyze data on the status of children and on relevant 
programs, identify gaps in the data collection system, and 
recommend ways to improve the collection of data and the 
coordination among agencies in the collection and utiliza-
tion of data. 
The reports required by this subsection shall be based upon the 
testimony received in the hearings conducted pursuant to subsection 
(c), and upon other data and findings developed by the Commission. 
"(e)(1)(A) Members of the Commission shall first be appointed not 
later than 60 days after the date of the enactment of this section, for 
terms ending on March 31, 1989. 
"(B) A vacancy in the Commission shall not affect its powers, but 
shall be filled in the same manner as the vacant position was first 
filled. 
"(2) The Commission shall elect one of its members to serve as 
Chairman of the Commission. The Chairman shall be a nonvoting 
member of the Commission. 
"(3) A majority of the members of the Commission shall constitute 
a quorum for the transaction of business. 
(4)(A) The Commission shall meet at the call of the Chairman, or 
at the call of a majority of the members of the Commission. 
"(B) The Commission shall meet not less than 4 times during the 
period beginning with the date of the enactment of this section and 
ending with March 31, 1989. 
"(5) Decisions of the Commission shall be according to the vote of a 
simple majority of those present and voting at a properly called 
meeting, 
"(6) Members of the Commission shall serve without compensa-
tion, but shall be reimbursed for travel, subsistence, and other 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-319 
necessary expenses incurred in the performance of their duties as 
members of the Commission. 
"(f)(1) The Commission shall appoint an Executive Director of the 
Commission who shall be compensated at a rate fixed by the 
Commission, but which shall not exceed the rate established for 
level V of the Executive Schedule under title 5, United States Code. 
"(2) In addition to the Executive Director, the Commission may 
appoint and fix the compensation of such personnel as it deems 
advisable, in accordance with the provisions of title 5, United States 
Code, governing appointments to the competitive service, and the 
provisions of chapter 51 and subchapter III of chapter 53 of such 
title, relating to classification and General Schedule pay rates. 
"(g) In carrying out its duties, the Commission, or any duly 
organized committee thereof, is authorized to hold such hearings, sit 
and act at such times and places, and take such testimony, with 
respect to matters for which it has a responsibility under this 
section, as the Commission or committee may deem advisable. 
"(h)(1) The Commission may secure directly from any department 
or agency of the United States such data and information as may be 
necessary to carry out its responsibilities. 
"(2) Upon request of the Commission, any such department or 
agency shall furnish any such data or information. 
"(i) The General Services Administration shall provide to the 
Commission, on a reimbursable basis, such administrative support 
services as the Commission may request. 
"(j) There are authorized to be appropriated such sums as may be 
necessary to carry out this section.", 
SEC. 9137. BOARDER BABIES DEMONSTRATION PROJECT, 
Section 426 of the Social Security Act is amended— 
42 USC 626. 
(1) by redesignating subsection (b) as subsection (c); and 
(2) by inserting immediately after subsection (a) the following 
new subsection: 
"(b)(1) There are authorized to be appropriated $4,000,000 for each 
of the fiscal years 1988, 1989, and 1990 for grants by the Secretary to 
public or private nonprofit entities submitting applications under 
this subsection for the purpose of conducting demonstration projects 
under this subsection to develop alternative care arrangements for 
infants who do not have health conditions that require hospitaliza-
tion and who would otherwise remain in inappropriate hospital 
settings. 
"(2) The demonstration projects conducted under this section may 
include— 
"(A) multidisciplinary projects designed to prevent the 
inappropriate hospitalization of infants and to allow infants 
described in paragraph (1) to remain with or return to a parent 
in a residential setting, where appropriate care for the infant 
and suitable treatment for the parent (including treatment for 
drug or alcohol addiction) may be assured, with the goal (where 
possible) of rehabilitating the parent and eliminating the need 
for such care for the infant; 
"(B) multidisciplinary projects that assure appropriate, 
individualized care for such infants in a foster home or other 
non-medical residential setting in cases where such infant does 
not require hospitalization and would otherwise remain in 
inappropriate hospital settings, including projects to dem-
101 STAT. 1330-320 
PUBLIC LAW 100-203—DEC. 22, 1987 
Grants. 
onstrate methods to recruit, train, and retain foster care 
families; and 
"(C) such other projects as the Secretary determines will best 
serve the interests of such infants and will serve as models for 
projects that agencies or organizations in other communities 
may wish to develop. 
"(3) In the case of any project which includes the use of funds 
authorized under this subsection for the care of infants in foster 
homes or other non-medical residential settings away from their 
parents, there shall be developed for each such infant a case plan of 
the type described in section 475(1) (to the extent that such infant is 
not otherwise covered by such a plan), and each such project shall 
include a case review system of the type described in section 475(5) 
(covering each such infant who is not otherwise subject to such a 
system). 
"(4) In evaluating applications from entities proposing to conduct 
demonstration projects under this subsection, the Secretary shall 
give priority to those projects that serve areas most in need of 
alternative care arrangements for infants described in paragraph 
(1). 
"(5) No project may be funded unless the application therefor 
contains assurances that it will— 
"(A) provide for adequate evaluation; 
"(B) provide for coordination with local governments; 
"(C) provide for community education regarding the inappro-
priate hospitalization of infants; 
"(D) use, to the extent practical, other available private, local. 
State, and Federal sources for the provision of direct services; 
and 
"(E) meet such other criteria as the Secretary may prescribe. 
"(6) Grants may be used to pay the costs of maintenance and of 
necessary medical and social services (to the extent that these costs 
are not otherwise paid for under other titles of this Act), and for 
such other purposes as the Secretary may allow. 
"(7) The Secretary shall provide training and technical assistance 
to grantees, as requested.". 
SEC. 9138. STUDY OF INFANTS AND CHILDREN WITH AIDS IN FOSTER 
CARE. 
(a) IN GENERAL.—The Secretary of Health and Human Services (in 
this section referred to as the "Secretary") shall conduct (or arrange 
for) a survey to determine— 
(1) the total number of infants and children in the United 
States who have been diagnosed as having acquired immune 
deficiency syndrome and who have been placed in foster care; 
(2) the problems encountered by social service agencies in 
placing infants and children with such syndrome in foster care; 
and 
(3) the potential increase (over the five-year period beginning 
on the date of the enactment of this Act) in the number of 
infants and children with such syndrome who will require foster 
care. 
For purposes of this section, an infant or child with acquired 
immune deficiency syndrome includes an infant or child who is 
infected with the virus associated with such syndrome. 
(b) RESTRICTION ON SCOPE OF SURVEY.—In conducting (or arrang-
ing for) the survey under subsection (a), the Secretary shall assure 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-321 
that survey activities do not duplicate research activities conducted 
by the Centers for Disease Control. 
(c) REPORT.—Not later than 12 months after the date of enactment 
of this Act, the Secretary shall report to the Congress on the results 
of the survey conducted under subsection (a) and shall make rec-
ommendations to the Congress with respect to improving the care of 
infants and children with acquired immune deficiency syndrome 
who lack ongoing parental involvement and support. 
SEC. 9139. TECHNICAL CORRECTIONS. 
• 
(a) The last sentence of section 472(a) of the Social Security Act is 42 USC 672. 
amended by striking out "473(a)(1)(B)" and inserting in lieu thereof 
"473(a)(2)(B)". 
(b) Section 201(b)(2)(B) of the Immigration Reform and Control Act 
of 1986 is amended by striking out "Section 473(a)(1) of such Act" 42 USC 673. 
and inserting in lieu thereof "Section 473(a)(2) of such Act (as 
amended by section 1711(a) of the Tax Reform Act of 1986)". 
•if \i 
PART 3—CHILD SUPPORT ENFORCEMENT AMENDMENTS 
SEC. 9141. CONTINUATION iW CHILD SUPPORT ENFORCEMENT SERVICES 
TO FAMILIES NO LONGER RECEIVING AFDC. 
(a) IN GENERAL.—(1) Section 457(c) of the Social Security Act is 42 USC 657. 
amended to read as follows: 
"(c) Whenever a family with respect to which child support 
enforcement services have been provided pursuant to section 454(4) 
'•'* " _
^ 
ceases to receive assistance under part A of this title, the State shall 
provide appropriate notice to the family and continue to provide 
such services, and pay any amount of support collected, subject to 
the same conditions and on the same basis as in the case of the 
individuals to whom services are furnished pursuant to section 
454(6), except that no application or other request to continue 
services shall be required of a family to which this subsection 
applies, and the provisions of section 454(6)(B) may not be applied.". 
(2) Section 454(5) of such Act is amended by striking "(except as 
42 USC 654. 
provided in section 457(c))". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 42 USC 654 note. 
shall become effective upon enactment. 
SEC. 9142. CHILD SUPPORT ENFORCEMENT SERVICES REQUIRED FOR 
CERTAIN FAMILIES RECEIVING MEDICAID. 
(a) IN GENERAL.—Section 454 of the Social Security Act is 
amended— 
(1)(A) by striking "an assignment under section 402(a)(26) of 
this title" in paragraph (4)(A) and inserting "an assignment 
under section 402(a)(26) or section 1912"; 
(B) by striking ", and" at the end of paragraph (4)(A) and 
inserting ", or, in the case of such a child with respect to whom 
an assignment under section 1912 is in effect, the State agency 
administering the plan approved under title XIX determines 
pursuant to section 1912(aXlXB) that it is against the best 
interests of the child to do so, and"; and 
(C) by inserting "or medical assistance under a State plan 
approved under title XIX" immediately after "aid to families 
with dependent children" in paragraph (4)(B); and 
(2)(A) by striking "provide that," and inserting "provide that 
(A)" in paragraph (5); and 
101 STAT. 1330-322 
PUBLIC LAW 100-203—DEC. 22, 1987 
(B) by striking the semicolon at the end of paragraph (5) and 
inserting "; and (B) in any case in which support payments are 
collected for an individual pursuant to the assignment made 
under section 1912, such payments shall be made to the State 
for distribution pursuant to section 1912, except that this clause 
shall not apply to such payments for any month after the month 
in which the individual ceases to be eligible for medical assist-
ance;". 
42 use 654 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall become effective on July 1, 1988. 
SEC. 9143. REPEAL OF UNNECESSARY CHILD SUPPORT REVOLVING FUND. 
42 use 652. 
(a) IN GENERAL.—Section 452(c) of the Social Security Act is 
amended to read as follows: 
"(c) The Secretary of the Treasury shall from time to time pay to 
each State for distribution in accordance with the provisions of 
section 457 the amount of each collection made on behalf of such 
State pursuant to subsection (b).". 
42 use 652 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to amounts collected after the date of the 
enactment of this Act. 
PART 4—UNEMPLOYMENT COMPENSATION 
26 u s e 3304 
SEC. 9151. DETERMINATION OF AMOUNT OF FEDERAL SHARE WITH RE-
note. 
SPECT TO CERTAIN EXTENDED BENEFITS PAYMENTS. 
For the purpose of determining the amount of the Federal pay-
ment to any State under section 204(aXl) of the Federal-State 
Extended Unemployment Compensation Act of 1970 with respect to 
the implementation of paragraph (3) of section 202 (a) of such Act (as 
added by section 1024(a) of the Omnibus Reconciliation Act of 1980), 
such paragraph shall be considered to apply only with respect to 
weeks of unemployment beginning after October 31, 1981, except 
that for any State in which the State legislature did not meet in 
1981, it shall be considered to apply for such purpose only with 
respect to weeks of unemployment beginning after October 31, 1982. 
Contracts. 
SEC. 9152. DEMONSTRATION PROGRAM TO PROVIDE SELF-EMPLOYMENT 
26 u s e 3304 
ALLOWANCES FOR ELIGIBLE INDIVIDUALS. 
(a) IN GENERAL.—The Secretary of Labor (hereinafter in this 
section referred to as the "Secretary") shall carry out a demonstra-
tion program under this section for the purpose of making available 
self-employment allowances to eligible individuals. To carry out 
such program, the Secretary shall enter into agreements with three 
States that— 
(1) apply to participate in such program, and 
(2) demonstrate to the Secretary that they are capable of 
implementing the provisions of the agreement. 
(b) SELECTION OF STATES.—(1) In determining whether to enter into 
an agreement with a State under this section, the Secretary shall 
take into consideration at least— 
(A) the availability and quality of technical assistance cur-
rently provided by agencies of the State to the self-employed; 
(B) existing local market conditions and the business climate 
for new, small business enterprises in the State; 
note. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-323 
(C) the adequacy of State resources to carry out a regular 
unemployment compensation program and a program under 
this section; 
(D) the range and extent of specialized services to be provided 
by the State to individuals covered by such an agreement; 
(E) the design of the evaluation to be applied by the State to 
the program; and 
(F) the standards which are to be utilized by the State for the 
purpose of assuring that individuals who will receive self-
employment assistance under this section will have sufficient 
experience (or training) and ability to be self employed. 
(2) The Secretary may not enter into an agreement with any State 
under this section unless the Secretary makes a determination that 
the State's unemployment compensation program has adequate 
reserves. 
(c) PROVISIONS OF AGREEMENTS.—Any agreement entered into 
with a State under this section shall provide that— 
(1) each individual who is an eligible individual with respect 
to any benefit year beginning during the three-year period 
commencing on the date on which such agreement is entered 
into shall receive a self-employment allowance; 
(2) self-employment allowances made to any individual under 
this section shall be made in the same amount, on the same 
terms, and subject to the same conditions as regular or extended 
---'C'^-- ^ 
unemployment compensation, as the case may be, paid by such 
State; except that— 
(A) State and Federal requirements relating to availabil-
ity for work, active search for work, or refusal to accept 
suitable work shall not apply to such individual; and 
(B) such individual shall be considered to be unemployed 
for purposes of the State and Federal laws applicable to 
unemployment compensation, as long as the individual 
meets the requirements applicable under this section to 
such individual; 
(3) to the extent that such allowances are made to an individ-
ual under this section, an amount equal to the amount of such 
allowances shall be charged against the amount that may be 
paid to such individual under State law for regular or extended 
unemployment compensation, as the case may be; 
(4) the total amount paid to an individual with respect to any 
benefit year under this section may not exceed the total amount 
that could be paid to such individual for regular or extended 
unemployment compensation, as the case may be, with respect 
to such benefit year under State law; 
(5) the State shall implement a program that— 
(A) is approved by the Secretary; 
(B) will not result in any cost to the Unemployment Trust 
Fund established by section 904(a) of the Social Security Act 
in excess of the cost which would have been incurred by 
such State and charged to such Fund if the State had not 
participated in the demonstration program under this 
'd- 
section; 
(C) is designed to select and assist individuals for self-
employment allowances, monitor the individual's self-
employment, and provide, as described in subsection (d), to 
the Secretary a complete evaluation of the use of such 
allowances; and 
101 STAT. 1330-324 
PUBLIC LAW 100-203—DEC. 22, 1987 
(D) otherwise meets the requirements of this section; and 
(6) the State, from its general revenue funds, shall— 
(A) repay to the Unemployment Trust Fund any cost 
•
"
"
*
> 
incurred by the State and charged to the Fund which 
exceeds the cost which would have been incurred by such 
State and charged to such Fund if the State had not partici-
pated in the demonstration program under this section; and 
'
^
^ ' 
(B) in any case in which any excess cost described in 
subparagraph (A) is not repaid in the fiscal year in which it 
was charged to the Fund, pay to the Fund an amount of 
interest, on the outstanding balance of such excess cost, 
which is sufficient (when combined with any repayment by 
the State described in subparagraph (A)) to reimburse the 
Fund for any loss which would not have been incurred if 
such excess cost had not been incurred. 
(d) EVALUATION.—(1) Each State that enters into an agreement 
under this section shall carry out an evaluation of its activities 
under this section. Such evaluation shall be based on an experi-
mental design with random assignment between a treatment group 
and a control group with not more than one-half of the individuals 
receiving assistance at any one time being assigned to the treatment 
group. 
Reports. 
(2) The Secretary shall use the data provided from such evaluation 
to analyze the benefits and the costs of the program carried out 
under this section, to formulate the reports under subsection (g), and 
to estimate any excess costs described in subsection (c)(6)(A). 
(e) FINANCING.—(1) Notwithstanding section 303(a)(5) of the Social 
Security Act and section 3304(a)(4) of the Internal Revenue Code of 
1986, amounts in the unemployment fund of a State may be used by 
a State to make payments (exclusive of expenses of administration) 
for self-employment allowances made under this section to an 
individual who is receiving them in lieu of regular unemployment 
compensation. 
(2) In any case in which a self-employment allowance is made 
under this section to an individual in lieu of extended unemploy-
ment compensation under the Federal-State Extended Unemploy-
ment Compensation Act of 1970, payments made under this section 
for self-employment allowances shall be considered to be compensa-
tion described in section 204(a)(1) of such Act and paid under State 
law. 
(f) LIMITATION.—No funds made available to a State under title III 
of the Social Security Act or any other Federal law may be used for 
the purpose of administering the program carried out by such State 
under this section. 
(g) REPORT TO CONGRESS.—(1) Not later than two years after the 
date of the enactment of this Act, the Secretary shall submit an 
interim report to the Congress on the effectiveness of the demonstra-
tion program carried out under this section. Such report shall 
include— 
(A) information on the extent to which this section has been 
utilized; 
(B) an analysis of any barriers to such utilization; and 
(C) an analysis of the feasibility of extending the provisions of 
this section to individuals not covered by State unemployment 
compensation laws. 
%' 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-325 
(2) Not later than four years after the date of the enactment of 
this Act, the Secretary shall submit a final report to the Congress on 
such program. 
(h) FRAUD AND OVERPAYMENTS.—(1) If an individual knowingly 
has made, or caused to be made by another, a false statement or 
representation of a material fact, or knowingly has failed, or caused 
another to fail, to disclose a material fact, and as a result of such 
false statement or representation or of such nondisclosure such 
individual has received payment under this section to which he was 
• K
. :\J 
not entitled, such individual shall be— 
(A) ineligible for further assistance under this section; and 
(B) subject to prosecution under section 1001 of title 18, 
United States Code. 
(2)(A) If any person received any payment under this section to 
which such person was not entitled, the State is authorized to 
require such person to repay such assistance; except that the State 
agency may waive such repayment if it determines that— 
(i) the providing of such assistance or making of such payment 
was without fault on the part of such person; and 
(ii) such repayment would be contrary to equity and good 
conscience. 
(B) No repayment shall be required under subparagraph (A) until 
a determination has been made, notice thereof and an opportunity 
for a fair hearing has been given to the person, and the determina-
tion has become final. Any determination under such subparagraph 
shall be subject to review in the same manner and to the same 
extent as determinations under the State unemployment compensa-
tion law, and only in that manner and to that extent. 
(i) DEFINITIONS.—For purposes of this section— 
(1) the term "eligible individual" means, with respect to any 
benefit year, an individual who— 
(A) is eligible to receive regular or extended compensa-
tion under the State law during such benefit year; 
I 
(B) is likely to receive unemployment compensation for 
( 
the maximum number of weeks that such compensation is 
made available under the State law during such benefit 
year; 
:' ' 
(C) submits an application to the State agency for a self-
^' ' 
employment allowance under this section; and 
(D) meets applicable State requirements, 
except that not more than (i) 3 percent of the number of 
individuals eligible to receive regular compensation in a State 
at the beginning of a fiscal year, or (ii) the number of persons 
who exhausted their unemployment compensation benefits in 
the fiscal year ending before such fiscal year, whichever is 
lesser, may be considered as eligible individuals for such State 
for purposes of this section during such fiscal year; 
(2) the term "self-employment allowance" means compensa-
tion paid under this section for the purpose of assisting an 
eligible individual with such individual's self-employment; and 
(3) the terms "compensation", "extended compensation", 
"regular compensation", "benefit year", "State", and "State 
law", have the respective meanings given to such terms by 
section 205 of the Federal-State Extended Unemployment Com-
pensation Act of 1970. 
101 STAT. 1330-326 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 9153. EXTENSION OF FUTA TAX. 
(a) IN GENERAL.—Paragraphs (1) and (2) of section 8301 of the 
Federal Unemployment Tax Act (26 U.S.C. 3301) are amended to 
read as follows: 
"(1) 6.2 percent in the case of calendar years 1988, 1989, and 
1990; or 
"(2) 6.0 percent in the case of calendar year 1991 and each 
calendar year thereafter;". 
26 use 3301 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall apply to wages paid on or after January 1, 1988. 
SEC. 
9
1
5
4
. 
TRANSFER OF FUNDS 
INTO 
THE FEDERAL UNEMPLOYMENT 
ACCOUNT 
AND 
THE 
EXTENDED 
UNEMPLOYMENT 
COMPENSA-
TION 
ACCOUNT. 
(a) IN GENERAL.—Section 901 of the Social Security Act (42 U.S.C. 
1101) is amended by adding at the end the following new subsection: 
"Transfers For Calendar Years 1988, 1989, and 1990 
"(g)(1) With respect to calendar years 1988, 1989, and 1990, the 
Secretary of the Treasury shall transfer from the employment 
security administration account— 
"(A) to the Federal unemployment account an amount equal 
to 50 percent of the amount of tax received under section 3301(1) 
of the Federal Unemployment Tax Act which is attributable to 
the difference in the tax rates between paragraphs (1) and (2) of 
such section; and 
"(B) to the extended unemployment compensation account an 
amount equal to 50 percent of such amount of tax received. 
"(2) Transfers under this subsection shall be as of the beginning of 
the month succeeding the month in which the moneys were credited 
to the employment security administration account pursuant to 
subsection (b)(2) with respect to wages paid during such calendar 
years.". 
O
t
)
) INCREASE IN THE LIMITATION ON THE AMOUNTS IN SUCH AC-
COUNTS.—(1) Section 902(a)(2) of such Act (42 U.S.C. 1102(a)(2)) is 
amended by striking out "one-eighth" and inserting in lieu thereof 
"five-eighths". 
(2) Section 905(b)(2)(B) of such Act (42 U.S.C. 1105a))(2XB)) is 
amended by striking out "one-eighth" and inserting in lieu thereof 
"three-eighths". 
(c) CONFORMING AMENDMENTS.—(1) Section 9050bXl) of such Act 
(42 U.S.C. 1105(bXl)) is amended by striking out the last sentence 
thereof 
(2) Section 901(cX3XC) of such Act (42 U.S.C. 1101(cX3XC)) is 
amended by striking out "(i)" and all that follows through the period 
and inserting in lieu thereof "a tax rate of 0.6 percent.". 
42 use 1101 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
become effective on the date of the enactment of this Act. 
SEC. 
9
1
5
5
. 
INTEREST 
ON 
ADVANCES 
TO 
THE 
FEDERAL 
UNEMPLOYMENT 
ACCOUNT 
AND 
THE 
EXTENDED 
UNEMPLOYMENT 
COMPENSA-
TION 
ACCOUNT. 
(a) EXTENDED UNEMPLOYMENT COMPENSATION ACCOUNT.—Section 
905(d) of the Social Securitv Act (42 U.S.C. 1105(d)) is amended— 
(1) by striking out 'Without interest)" and ", without in-
terest,' ; and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-327 
(2) by adding the following new sentence at the end: 
"Amounts appropriated as repayable advances for purposes of 
this subsection shall bear interest at a rate equal to the average 
rate of interest, computed as of the end of the calendar month 
next preceding the date of such advance, borne by all interest 
bearing obligations of the United States then forming part of 
the public debt; except that in cases in which such average rate 
is not a multiple of one-eighth of 1 percent, the rate of interest 
shall be the multiple of one-eighth of 1 percent next lower than 
such average rate.". 
(b) FEDERAL UNEMPLOYMENT ACCOUNT.—Section 1203 of such Act 
(42 U.S.C. 1323) is amended— 
(1) by striking out "(without interest)" and ", without in-
terest,"; and 
(2) by adding the following new sentence at the end: 
"Amounts appropriated as repayable advances for purposes of 
this subsection shall bear interest at a rate equal to the average 
rate of interest, computed as of the end of the calendar month 
next preceding the date of such advance, borne by all interest 
bearing obligations of the United States then forming part of 
the public debt; except that in cases in which such average rate 
is not a multiple of one-eighth of 1 percent, the rate of interest 
shall be the multiple of one-eighth of 1 percent next lower than 
such average rate.". 
(c) CONFORMING AMENDMENT.—Section 903(a)(1) of such Act (42 
U.S.C. 1103(a)(1)) is amended by inserting "and interest" after "all 
advances". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
42 use 1103 
apply to advances made on or after the date of the enactment of this "ot^. 
Act. 
SEC. 9156. CREDITING TO THE FEDERAL UNEMPLOYMENT ACCOUNT OF 
INTEREST EARNED ON ADVANCES TO THE STATES. 
(a) IN GENERAL.—Section 1202 of the Social Security Act is 
42 use 1322. 
amended by adding at the end the following new subsection: 
"(c) Interest paid by States in accordance with this section shall be 
credited to the Federal unemployment account established by sec-
tion 904(g) in the Unemployment Trust Fund.". 
O
b
) EFFECTIVE DATE.—The amendment made by subsection (a) 
42 USC 1322 
shall apply to interest paid on advances made on or after the date of ^°^^-
the enactment of this Act. 
Subtitle C—Manufacturers Excise Tax on 
Certain Vaccines 
SEC. 9201. MANUFACTURERS EXCISE TAX ON CERTAIN VACCINES. 
(a) IN GENERAL.—Chapter 32 of the Internal Revenue Code of 1986 
(relating to manufacturers excise taxes) is amended by inserting 
after subchapter B the following new subchapter: 
"Subchapter C—Certain Vaccines 
"Sec. 4131. Imposition of tax. 
"Sec. 4132. Definitions and special rules. 
91-194 O - 90 - 36 : QL.3 Part 2 
101 STAT. 1330-328 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 u s e 4131. 
"SEC. 4131. IMPOSITION OF TAX. 
"(a) GENERAL RULE,—There is hereby imposed a tax on any 
taxable vaccine sold by the manufacturer, producer, or importer 
thereof. 
"(b) AMOUNT OF TAX.— 
"(1) IN GENERAL.—The amount of the tax imposed by subsec-
r 
tion (a) shall be determined in accordance with the following 
table: 
'••" ^''' "•'••• 
'\*''' " ' " 
The tax per 
"If the taxable vaccine is: 
dose is: 
t 
DPT vaccine 
$4.56 
DT vaccine 
0.06 
,, 
MMR vaccine 
4.44 
• I .« 
Polio vaccine 
0.29. 
"(2) COMBINATIONS OF VACCINES.—If any taxable vaccine is 
r^j. 
included in more than 1 category of vaccines in the table 
y 
contained in paragraph (1), the amount of the tax imposed by 
.
<
• 
subsection (a) on such vaccine shall be the sum of the amounts 
.' 
determined under such table for each category in which such 
vaccine is so included. 
"(c) TERMINATION OF TAX IF AMOUNTS COLLECTED EXCEED PRO-
JECTED FUND LIABILITY.— 
"(1) IN GENERAL.—If the Secretary estimates under paragraph 
(3) that the Vaccine Injury Compensation Trust Fund would not 
have a negative projected balance were the tax imposed by this 
7j 
section to terminate as of the close of any applicable date, no 
tax shall be imposed by this section after such date. 
,,.. 
^ 
, 
"(2) APPLICABLE DATE.—For purposes of paragraph (1), the 
^ 
term 'applicable date' means— 
"(A) the close of any calendar quarter ending on or after 
December 31,1992, and 
'•I© i^- 
"(B) the 1st date on which petitions may not be filed 
under section 2111 and 2111(a) of the Public Health Service 
, 
V ;•> 
;; - 
^^^ ^y reason of section 2134 of such Act and each date 
,r,., ,- 
J ,j 
thereafter. 
, 
-- 
"(3) ESTIMATES BY SECRETARY.— 
*
; ." • 
"(A) IN GENERAL.—The Secretary shall estimate the pro-
""'''' '' 
jected balance of the Vaccine Injury Compensation Trust 
. , 
Fund as o
f
— 
"(i) the close of each calendar quarter ending on or 
after December 31,1992, and 
"(ii) such other times as are appropriate in the case 
of applicable dates described in paragraph (2)(B). 
•I* 
"(B) DETERMINATION OF PROJECTED BALANCE.—In deter-
mining the projected balance of the Fund as of any date, the 
Secretary shall assume that— 
"(i) the tax imposed by this section will not apply 
a 
after such date, and 
;
^ r ti . 
"(ii) there shall be paid from such Trust Fund all 
I
^
^ ^.r'Sf T
^ 
claims made or to be made against such Trust Fund— 
, . . - . . 1 { 
ttQ^ ^j^j^ respect to vaccines administered before 
October 1, 1992, in the case of an applicable date 
described in paragraph (2XA), or 
"(II) with respect to petitions filed under section 
2111 or section 2111(a) of the Public Health Service 
Act, in the case of an applicable date described in 
paragraph (2)(B). 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-329 
"SEC. 4132. DEFINITIONS AND SPECIAL RULES. 
26 USC 4132. 
"(a) DEFINITIONS RELATING TO TAXABLE VACCINES.—For purposes 
of this subchapter— 
"(1) TAXABLE VACCINE.—The term 'taxable vaccine' means 
any vaccine— 
"(A) which is listed in the table contained in section 
4131(b)(1), and 
"(B) which is manufactured or produced in the United 
States or entered into the United States for consumption, 
^ 
use, or warehousing. 
-''' 
"(2) DPT VACCINE.—The term 'DPT vaccine' means any vac-
cine containing pertussis bacteria, extracted or partial cell bac- 
.^^ 
teria, or specific pertussis antigens. 
' •' 
' 
"(3) DT VACCINE.—The term 'DT vaccine' means any vaccine 
(other than a DPT vaccine) containing diphtheria toxoid or 
tetanus toxoid. 
"(4) MMR VACCINE,—The term "MMR vaccine' means any 
vaccine against measles, mumps, or rubella. Not more than 1 
tax shall be imposed by section 4131 on any MMR vaccine by 
reason of being a vaccine against more than 1 of measles, 
mumps, or rubella. 
"(5) POLIO VACCINE.—The term 'polio vaccine' means any 
vaccine containing polio virus. 
"(6) VACCINE.—The term 'vaccine' means any substance de-
signed to be administered to a human being for the prevention 
of 1 or more diseases. 
"(7) UNITED STATES.—The term 'United States' has the mean-
ing given such term by section 4612(a)(4). 
"(8) IMPORTER.—The term 'importer* means the person enter-
ing the vaccine for consumption, use, or warehousing. 
"(b) CREDIT OR REFUND WHERE VACCINE RETURNED T
O MANUFAC- 
'.', 
TURER, ETC., OR DESTROYED.— 
"(1) IN GENERAL.—Under regulations prescribed by the Sec-
1 
retary, whenever any vaccine on which tax was imposed by 
section 4131 is— 
"(A) returned (other than for resale) to the person who 
paid such tax, or 
"(B) destroyed, 
^ ^^ 
the Secretary shall abate such tax or allow a credit, or pay a 
refund (without interest), to such person equal to the tax paid 
under section 4131 with respect to such vaccine. 
"(2) CLAIM MUST BE FILED WITHIN 6 MONTHS.—Paragraph (1) 
shall apply to any returned or destroyed vaccine only with 
respect to claims filed within 6 months after the date the 
vaccine is returned or destroyed. 
^ 
"(3) CONDITION OF ALLOWANCE OF CREDIT OR REFUND.—No 
credit or refund shall be allowed or made under paragraph (1) 
with respect to any vaccine unless the person who paid the tax 
establishes that he— 
"(A) has repaid or agreed to repay the amount of the tax 
fi >'! •> ^
Q |.jjg ultimate purchaser of the vaccine, or 
"(B) has obtained the written consent of such purchaser 
'^ ' 
to the allowance of the credit or the making of the refund. 
"(4) TAX IMPOSED ONLY ONCE.—No tax shall be imposed by 
section 4131 on the sale of any vaccine if tax was imposed by 
101 STAT. 1330-330 
PUBLIC LAW 100-203—DEC. 22, 1987 
section 4131 on any prior sale of such vaccine and such tax is 
not abated, credited, or refunded. 
"(c) OTHER SPECIAL RULES.— 
"(1) FRACTIONAL PART OF A DOSE.—In the case of a fraction of a 
dose, the tax imposed by section 4131 shall be the same fraction 
of the amount of such tax imposed by a whole dose. 
"(2) DISPOSITION OF REVENUES FROM PUERTO RICO AND THE 
i 
VIRGIN ISLANDS.—The provisions of subsections (a)(3) and (b)(3) 
of section 7652 shall not apply to any tax imposed by section 
4131." 
(b) CERTAIN PROVISIONS RELATING TO TAX-FREE SALES, ETC. NOT TO 
APPLY.— 
26 use 4221. 
(1) Subsection (a) of section 4221 of such Code (relating to 
certain tax-free sales) is amended by adding at the end thereof 
the following new sentence: "In the case of the tax imposed by 
section 4131, paragraphs (3), (4), and (5) shall not apply and 
paragraph (2) shall apply only if the use of the exported vaccine 
f: 
meets such requirements as the Secretary may by regulations 
I 
prescribe." 
' 
(2) Paragraph (2) of section 6416(b) of such Code (relating to 
^ 
specified uses or resales) is amended by adding at the end 
thereof the following new sentence: "In the case of the tax 
imposed by section 4131, subparagraphs (B), (C), and (D) shall 
not apply and subparagraph (A) shall apply only if the use of 
the exported vaccine meets such requirements as the Secretary 
may by regulations prescribe." 
(c) CLERICAL AMENDMENT.—The table of subchapters for chapter 
32 of such Code is amended by inserting after the item relating to 
subchapter B the following new item: 
"SUBCHAPTER C. Certain vaccines." 
26 use 4131 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on January 1, 1988. 
SEC. 9202. VACCINE INJURY COMPENSATION TRUST FUND. 
(a) IN GENERAL.—Subchapter A of chapter 98 of the Internal 
Revenue Code of 1986 (relating to trust fund code) is amended by 
adding at the end thereof the following new section: 
26 u s e 9510. 
"SEC. 9510. VACCINE INJURY COMPENSATION TRUST FUND. 
"(a) CREATION OF TRUST FUND.—There is established in the Treas-
ury of the United States a trust fund to be known as the 'Vaccine 
Injury Compensation Trust Fund', consisting of such amounts as 
may be credited to such Trust Fund as provided in section 9602(b). 
"Ot)) TRANSFERS TO TRUST FUND.— 
"(1) IN GENERAL.—There are hereby appropriated to the Vac-
cine Injury Compensation Trust Fund amounts equivalent to 
the net revenues received in the Treasury from the tax imposed 
by section 4131 (relating to tax on certain vaccines). 
"(2) NET REVENUES.—For purposes of paragraph (1), the term 
'net revenues' means the amount estimated by the Secretary 
based on the excess of— 
"(A) the taxes received in the Treasury under section 
4131 (relating to tax on certain vaccines), over 
"(B) the decrease in the tax imposed by chapter 1 result-
ing from the tax imposed by section 4131. 
"(c) EXPENDITURES FROM TRUST FUND.— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-331 
"(1) IN GENERAL.—Amounts in the Vaccine Injury Compensa-
tion Trust Fund shall be available, as provided in appropriation 
Acts, only for the payment of compensation under subtitle 2 of 
title XXI of the Public Health Service Act (as in effect on the 
date of the enactment of this section) for vaccine-related injury 
or death with respect to vaccines administered after Septem-
ber 30, 1988, and before October 1, 1992. 
"(2) TRANSFERS FOR CERTAIN REPAYMENTS.— 
"(A) IN GENERAL.—The Secretary shall pay from time to 
time from the Vaccine Injury Compensation Trust Fund 
into the general fund of the Treasury amounts equivalent 
to amounts paid under section 4132(b) and section 6416 with 
respect to the taxes imposed by section 4131. 
"(B) TRANSFERS BASED ON ESTIMATES.—Transfers under 
subparagraph (A) shall be made on the basis of estimates by 
the Secretary, and proper adjustments shall be made in the 
amounts subsequently transferred to the extent prior esti-
,,. 
mates were in excess of or less than the amounts required 
to be transferred. 
"(d) LIABILITY OF UNITED STATES LIMITED TO AMOUNT IN TRUST 
FUND.— 
"(1) GENERAL RULE.—Any claim filed against the Vaccine 
Injury Compensation Trust Fund may be paid only out of such 
Trust Fund. 
"(2) COORDINATION WITH OTHER PROVISIONS.—Nothing in 
the 
National Childhood Vaccine Injury Act of 1986 (or in any 
amendment made by such Act) shall authorize the payment by 
the United States Government of any amount with respect to 
any such claim out of any source other than the Vaccine Injury 
Compensation Trust Fund. 
"(3) ORDER IN WHICH UNPAID CLAIMS TO BE PAID.—If at 
any 
time the Vaccine Injury Compensation Trust Fund has insuffi-
cient funds to pay all of the claims out of such Trust Fund at 
such time, such claims shall, to the extent permitted under 
paragraph (1) be paid in full in the order in which they are 
finally determined." 
(b) CLERICAL AMENDMENT.—The table of sections for such sub-
chapter A is amended by adding at the end thereof the following 
new item: 
"Sec. 9510. Vaccine Injury Compensation Trust Fund." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 9510 
take effect on January 1, 1988. 
note. 
Subtitle D—Pension Provisions 
PART I—FULL-FUNDING LIMITATIONS 
SEC. 9301. FULL-FUNDING LIMITATION FOR DEDUCTIONS TO QUALIFIED 
PLANS. 
(a) GENERAL RULE.—Paragraph (7) of section 412(c) of the Internal 
Revenue Code of 1986 (defining full-funding limitation) is amended 
26 USC 412. 
to read as follows: 
"(7) FULL-FUNDING UMITATION.— 
"(A) IN GENERAL.—For purposes of paragraph (6), the 
term 'full-funding limitation' means the excess (if any) o
f
— 
101 STAT. 1330-332 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(i) the lesser of (I) 150 percent of current liability, or 
* 
(II) the accrued liability (including normal cost) under 
the plan (determined under the entry age normal fund-
•'"- 
• 
ing method if such accrued liability cannot be directly 
<^-'. 
calculated under the funding method used for the 
plan), over 
"(ii) the lesser of— 
"(I) the fair market value of the plan's assets, or 
'^' 
"(II) the value of such assets determined under 
paragraph (2). 
"(B) CURRENT LIABILITY.—For purposes of subparagraphs 
(A) and (D), the term 'current liability' has the meaning 
given such term by subsection (1)(7) (without regard to 
" *>' 
subparagraph (D) thereof). 
"(C) SPECIAL RULE FOR PARAGRAPH (GKB).—For purposes 
of paragraph (6)(B), subparagraph (A)(i) shall be applied 
without regard to subclause (I) thereof. 
"(D) REGULATORY AUTHORITY.—The Secretary 
may by 
regulations provide— 
''-" ' ' 
"(i) for adjustments to the percentage contained in 
subparagraph (A)(i) to take into account the respective 
'^ ' 
ages or lengths of service of the participants, 
' "^' 
"(ii) alternative methods based on factors other than 
current liability for the determination of the amount 
', 
taken into account under subparagraph (A)(i), and 
'* ' 
"(iii) for the treatment under this section of contribu-
^ 
tions which would be required to be made under the 
plan but for the provisions of subparagraph (A)(i)(I)." 
(b) AMENDMENT TO ERISA.—Paragraph (7) of section 302(c) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1082(c)(7)) is amended to read as follows: 
"(7) FULL-FUNDING LIMITATION.— 
"(A) I N GENERAL.—For purposes of paragraph (6), the 
term 'full-funding limitation' means the excess (if any) of— 
"(i) the lesser of (I) 150 percent of current liability, or 
^
^ 
J 
(II) the accrued liability (including normal cost) under 
^ J !
^
^ ' 
the plan (determined under the entry age normal fund-
ing method if such accrued liability cannot be directly 
calculated under the funding method used for the 
plan), over 
' - '^ ' 
•.''•' 
' 
"(ii) the lesser of— 
'• 
"(I) the fair market value of the plan's assets, or 
"(II) the value of such assets determined under 
paragraph (2). 
"(B) CURRENT LIABIUTY.—For purposes of subparagraphs 
(A) and (D), the term 'current liability' has the meaning 
given such term by subsection (d)(7) (without regard to 
subparagraph (D) thereof). 
fiai'f. 
<<(Q SPECIAL RULE FOR PARAGRAPH (GMB).—For purposes 
of paragraph (6)(B), subparagraph (A)(i) shall be applied 
>•;. 
without regard to subclause (I) thereof. 
.
.
.
. 
, fi'.,i 
"(D) 
REGULATORY 
AUTHORITY.—The 
Secretary 
of 
the 
Treasury may by regulations provide— 
"(i) for adjustments to the percentage contained in 
'^i 
.V' ». subparagraph (A)(i) to take into account the respective 
It* ( « ' ages or lengths of service of the participants, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-333 
^ 
"(ii) alternative methods based on factors other than 
current liability for the determination of the amount 
; y 
taken into account under subparagraph (A)(i), and 
"(iii) for the treatment under this section of contribu-
,, 
tions which would be required to be made under the 
plan but for the provisions of subparagraph (A)(i)(I)." 
(c) EFFECTIVE DATE.— 
26 USC 412 note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to years beginning after December 31, 1987. 
(2) REGULATIONS.—The Secretary of the Treasury or his dele-
gate shall prescribe such regulations as are necessary to carry 
out the amendments made by this section no later than 
August 15,1988. 
(3) STUDY.—The Secretary of the Treasury or his delegate 
shall study the effect of the amendments made by this section 
on benefit security under defined benefit pension plans and 
shall report the results of such study to the Committee on Ways 
and Means of the House of Representatives and to the Com-
mittee on Finance of the Senate no later than August 15, 1988. 
PART II—PENSION FUNDING AND TERMINATION Pension 
REQUIREMENTS 
Protection Act. 
SEC. 9302. SHORT TITLE; DEFINITIONS. 
(a) SHORT TITLE.—This part may be cited as the "Pension Protec- 26 USC l note. 
tion Act". 
(b) DEFINITIONS.—For purposes of this part— 
(1) 1986 CODE.—The term "1986 Code" means the Internal 
Revenue Code of 1986. 
(2) ERISA.—The term "ERISA" means the Employee Retire-
ment Income Security Act of 1974. 
Subpart A—Modifications of Minimum Funding 
* • 
Standard 
SEC. 9303. ADDITIONAL FUNDING REQUIREMENTS. 
(a) AMENDMENTS TO 1986 CODE.— 
(1) IN GENERAL.—Section 412 of the 1986 Code (relating to 26 USC 412. 
minimum funding standard) is amended by adding at the end 
thereof the following new subsection: 
"(1) ADDITIONAL FUNDING REQUIREMENTS FOR PLANS WHICH ARE 
NOT MULTIEMPLOYER PLANS.— 
"(1) IN GENERAL.—In the case of a defined benefit plan (other 
than a multiemployer plan) which has an unfunded current 
liability for any plan year, the amount charged to the funding 
standard account for such plan year shall be increased by the 
sum o
f
— 
"(A) the excess (if any) of^ 
"(i) the deficit reduction contribution determined 
under paragraph (2) for such plan year, over 
"(ii) the sum of the charges for such plan year under 
subparagraphs (B) (other than clauses (iv) and (v) 
thereof), (C), and (D) of subsection (b)(2), reduced by the 
-ii 
sum of the credits for such plan year under subpara-
graph (B)(i) of subsection (bX3), plus 
101 STAT. 1330-334 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) the unpredictable contingent event amount (if any) 
for such plan year. 
Such increase shall not exceed the amount necessary to increase 
the funded current liability percentage to 100 percent. 
"(2) DEFICIT REDUCTION CONTRIBUTION.—For purposes of para-
graph (1), the deficit reduction contribution determined under 
' - f
' - 
" -' 
this paragraph for any plan year is the sum o
f
— 
"(A) the unfunded old liability amount, plus 
"(B) the unfunded new liability amount. 
"(3) UNFUNDED OLD LIABILITY AMOUNT.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The unfunded old liability amount 
with respect to any plan for any plan year is the amount 
necessary to amortize the unfunded old liability under the 
plan in equal annual installments over a period of 18 plan 
years (beginning with the 1st plan year beginning after 
December 31, 1988). 
"(B) UNFUNDED OLD LIABIUTY.—The term 'unfunded old 
liability' means the unfunded current liability of the plan 
as of the beginning of the 1st plan year beginning after 
December 31, 1987 (determined without regard to any plan 
•' ./ "' -: -' 
amendment increasing liabilities adopted after October 16, 
1987). 
"(C) SPECIAL RULES FOR BENEFIT INCREASES UNDER EXIST-
ING COLLECTIVE BARGAINING AGREEMENTS.— 
' r-, '^ -^sK i 
"(i) IN GENERAL.—In the case of a plan maintained 
pursuant to 1 or more collective bargaining agreements 
between employee representatives and the employer 
i -^ - 
ratified before October 17, 1987, the unfunded old li-
ability amount with respect to such plan for any plan 
' 
year shall be increased by the amount necessary to 
amortize the unfunded existing benefit increase liabil-
ity in equal annual installments over a period of 18 
plan years beginning with— 
"(I) the plan year in which the benefit increase 
with respect to such liability occurs, or 
"(II) if the taxpayer elects, the 1st plan year 
beginning after December 31,1988. 
"(ii) UNFUNDED EXISTING BENEFIT INCREASE LikBiL-
• " 
ITIES.—For purposes of clause (i), the unfunded existing 
• 
benefit increase liability means, with respect to any 
benefit increase under the agreements described in 
/ 
clause (i) which takes effect during or after the 1st plan 
year beginning after December 31, 1987, the unfunded 
"" 
current liability determined— 
"(I) by taking into account only liabilities attrib-
:< 
utable to such benefit increase, and 
"(II) by reducing the amount determined under 
paragraph (8XA)(ii) by the current liability deter-
mined without regard to such benefit increase, 
"(iii) EXTENSIONS, MODIFICATIONS, ETC. NOT TAKEN 
INTO ACCOUNT.—For purposes of this subparagraph, 
any extension, amendment, or other modification of an 
agreement after October 16, 1987, shall not be taken 
into account. 
"(4) UNFUNDED NEW UABILITY AMOUNT.—For purposes of this 
subsection— 
-• -• — •
•
• «^-.'..-. >
•
.
.
<
: -•„,>-; ••• -
. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-335 
"(A) IN GENERAL.—The unfunded new liability amount 
with respect to any plan for any plan year is the applicable 
percentage of the unfunded new liability. 
"(B) UNFUNDED NEW LIABILITY.—The term 'unfunded new 
liability' means the unfunded current liability of the plan 
for the plan year determined without regard to— 
"(i) the unamortized portion of the unfunded old 
liability, and 
"(ii) the liability with respect to any unpredictable 
contingent event benefits (without regard to whether 
the event has occurred). 
"(C) 
APPLICABLE PERCENTAGE.—The term 
'applicable 
percentage' means, with respect to any plan year, 30 per-
cent, reduced by the product o
f
— 
"(i) .25 multiplied by 
"(ii) the number of percentage points (if any) by 
which the funded current liability percentage exceeds 
35 percent. 
"(5) UNPREDICTABLE CONTINGENT EVENT AMOUNT.— 
"(A) IN GENERAL.—The unpredictable contingent event 
amount with respect to a plan for any plan year is an 
amount equal to the greater o
f
— 
"(i) the applicable percentage of the product o
f
— 
"(I) 100 percent, reduced (but not below zero) by 
the funded current liability percentage for the plan 
year, multiplied by 
"(II) the amount of unpredictable contingent 
event benefits paid during the plan year, including 
(except as provided by the Secretary) any payment 
for the purchase of an annuity contract for a 
participant or beneficiary with respect to such 
' ; 
benefits, or 
"(ii) the amount which would be determined for the 
plan year if the unpredictable contingent event benefit 
liabilities were amortized in equal annual installments 
over 7 plan years (beginning with the plan year in 
which such event occurs). 
"(B) APPUCABLE PERCENTAGE.— 
"In 
the 
case 
of 
plan 
The applicable 
years 
beginning in: 
percentage 
is: 
1989 
and 1990 
5 
1991 
10 
1992 
15 
1993 
; 
20 
1994 
30 
1995 
40 
1996 
50 
1997 
60 
1998 
70 
1999 
80 
2000 
90 
2001 
and thereafter 
100. 
"(C) PARAGRAPH NOT TO APPLY TO EXISTING BENEFITS.— 
This paragraph shall not apply to unpredictable contingent 
event benefits (and liabilities attributable thereto) for 
which the event occurred before October 17,1987. 
"(D) SPECIAL RULE FOR FIRST YEAR OF AMORTIZATION.— 
Unless the employer elects otherwise, the amount deter-
101 STAT. 1330-336 
PUBLIC LAW 100-203—DEC. 22, 1987 
;.;;,-f 
mined under subparagraph (A) for the plan year in which 
,1..: • 
the event occurs shall be equal to 150 percent of the amount 
determined under subparagraph (AXi). The amount under 
./;; . subparagraph 
(A)(ii) for subsequent plan years in the 
ir/v 
amortization period shall be adjusted in the manner pro-
vided by the Secretary to reflect the application of this 
subparagraph. 
"(6) S P E C I A L RULES FOR SMALL PLANS.— 
, 
"(A) 
PLANS 
WITH 
lOO OR FEWER 
PARTICIPANTS.—This 
- 
subsection shall not apply to any plan for any plan year if on 
each day during the preceding plan year such plan had no 
. . . 
more than 100 participants. 
>
, 
"(B) PLANS WITH MORE THAN lOO BUT NOT MORE THAN 150 
PARTICIPANTS.—In the case of a plan to which subparagraph 
(A) does not apply and which on each day during the 
preceding plan year had no more than 150 participants, the 
^ 
amount of the increase under paragraph (1) for such plan 
year shall be equal to the product of— 
"(i) such increase determined without regard to this 
,/:vv.i 
subparagraph, multiplied by 
n- 
"(ii) 2 percent for the highest number of participants 
in excess of 100 on any such day. 
"(C) AGGREGATION OF PLANS.—For purposes of this para-
graph, all defined benefit plans maintained by the same 
employer (or any member of such employer's controlled 
group) shall be treated as 1 plan, but only employees of 
' 
such employer or member shall be taken into account. 
"(7) CURRENT LIABILITY.—For purposes of this subsection— 
"(A) IN GENERAL.—The term 'current liability' means all 
^ 
liabilities to employees and their beneficiaries under the 
>,.j, 
plan. 
"(B) TREATMENT OF UNPREDICTABLE CONTINGENT EVENT 
BENEFITS.— 
"(i) IN GENERAL.—For purposes of subparagraph (A), 
any unpredictable contingent event benefit shall not be 
.' 
''' 
taken into account until the event on which the benefit 
is contingent occurs. 
"(ii) UNPREDICTABLE CONTINGENT EVENT BENEFIT.— 
^ 
The term 
'unpredictable contingent event 
benefit' 
means any benefit contingent on an event other than— 
.; 
"(I) age, service, compensation, death, or disabil-
/ 
ity, or 
^., 
"(II) an event which is reasonably and reliably 
predictable (as determined by the Secretary). 
"(C) INTEREST RATES USED.—The rate of interest used to 
determine current liability shall be the rate of interest used 
under subsection (b)(5). 
"(D) CERTAIN SERVICE DISREGARDED.— 
"(i) IN GENERAL.—In the case of a participant to 
whom this subparagraph applies, only the applicable 
. . . 
»
, 
percentage of the years of service before such individ-
1 ' V 
ual became a participant shall be taken into account in 
-J 
computing the current liability of the plan. 
"(ii) APPLICABLE PERCENTAGE.—For purposes of this 
Xh 
subparagraph, the applicable percentage shall be deter-
. . . ' 
mined as follows: 
^ >„^ , 
. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-337 
"If the years of 
The applicable 
participation are: 
percentage is: 
1 
20 
2 
40 
3 
60 
4 
80 
5 or more 
100. 
"(iii) PARTICIPANTS TO WHOM SUBPARAGRAPH AP-
,,^s ., 
PLIES.—This subparagraph shall apply to any partici-
pant who, at the time of becoming a participant— 
,- 
"(I) has not accrued any other benefit under any 
,., 
defined benefit plan (whether or not terminated) 
maintained by the employer or a member of the 
... 
• ^ 
same controlled group of which the employer is a 
member, and 
., 
J 
"(II) who first becomes a participant under the 
plan in a plan year beginning after December 31, 
1987. 
"(8) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) UNFUNDED CURRENT LIABILITY.—The term 'unfunded 
current liability' means, with respect to any plan year, the 
excess (if any) o
f
— 
R
. 
"(i) the current liability under the plan, over 
"(ii) value of the plan's assets determined under 
subsection (c)(2) reduced by any credit balance in the 
funding standard account. 
"(B) FUNDED CURRENT LIABILITY PERCENTAGE.—The term 
'funded current liability percentage' means, with respect to 
; 
, 
any plan year, the percentage which— 
"(i) the amount determined under subparagraph 
(A)(ii), is of 
"(ii) the current liability under the plan. 
"(C) CONTROLLED GROUP.—The term 'controlled group' 
means any group treated as a single employer under 
• 
subsections (b), (c), (m), and (o) of section 414. 
"(D) ADJUSTMENTS TO PREVENT OMISSIONS AND DUPLICA-
TIONS.—The Secretary shall provide such adjustments in 
the unfunded old liability amount, the unfunded new liabil-
i- 
ity amount, the unpredictable contingent event amount, 
the current payment amount, and any other charges or 
credits under this section as are necessary to avoid duplica-
tion or omission of any factors in the determination of such 
amounts, charges, or credits." 
(2) CONFORMING AMENDMENT.—Paragraph (2) of section 412(b) 
of the 1986 Code is amended by adding at the end thereof the 
26 USC 412. 
following new sentence: ^^ "For additional requirements in the 
case of plans other than multiemployer plans, see subsection 
(1)." 
(b) AMENDMENTS TO ERISA.— 
(1) IN GENERAL.—Section 302 of ERISA (29 U.S.C. 1082) is 
amended by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection: 
"(d) ADDITIONAL FUNDING REQUIREMENTS FOR PLANS WHICH ARE 
NOT MULTIEMPLOYER PLANS.— 
'•• Incorrect indention in copy. 
101 STAT. 1330-338 
PUBLIC LAW 100-203—DEC. 22, 1987 
I 
"(1) IN GENERAL.—In the case of a defined benefit plan (other 
" than a multiemployer plan) which has an unfunded current 
liability for any plan year, the amount charged to the funding 
standard account for such plan year shall be increased by the 
sum o
f
— 
"(A) the excess (if any) of— 
"(i) the deficit reduction contribution determined 
under paragraph (2) for such plan year, over 
"(ii) the sum of the charges for such plan year under 
subparagraphs (B) (other than clauses (iv) and (v) 
thereof), (C), and (D) of subsection (b)(2), reduced by the 
sum of the credits for such plan year under subpara-
graph (B)(i) of subsection (b)(8), plus 
"(B) the unpredictable contingent event amount (if any) 
for such plan year. 
.; Such increase shall not exceed the amount necessary to increase 
the funded current liability percentage to 100 percent. 
"(2) DEFICIT REDUCTION CONTRIBUTION.—For purposes of para-
graph (1), the deficit reduction contribution determined under 
this paragraph for any plan year is the sum o
f
— 
"(A) the unfunded old liability amount, plus 
"(B) the unfunded new liability amount. 
"(3) UNFUNDED O
L
D LiABiUTY AMOUNT.—For purposes of this 
"]. subsection— 
"(A) IN GENERAL.—The unfunded old liability amount 
with respect to any plan for any plan year is the amount 
necessary to amortize the unfunded old liability under the 
plan in equal annual installments over a period of 18 plan 
years (beginning with the 1st plan year beginning after 
^ 
" December 31,1988). 
"(B) UNFUNDED OLD LIABIUTY.—The term 'unfunded old 
liability' means the unfunded current liability of the plan 
5 
^ ^s of the beginning of the 1st plan year beginning after 
'^ 
December 31, 1987 (determined without regard to any plan 
amendment increasing liabilities adopted after October 16, 
-
• 
1987). 
"(C) SPECIAL RULES FOR BENEFIT INCREASES UNDER EXIST-
ING COLLECTIVE BARGAINING AGREEMENTS.— 
"(i) IN GENERAL.—In the case of a plan maintained 
pursuant to 1 or more collective bargaining agreements 
between employee representatives and the employer 
ratified before October 17, 1987, the unfunded old li-
ability amount with respect to such plan for any plan 
year shall be increased by the amount necessary to 
' '^ 
amortize the unfunded existing benefit increase liabil-
ity in equal annual installments over a period of 18 
plan years beginning with— 
"(I) the plan year in which the benefit increase 
with respect to such liability occurs, or 
"(II) if the taxpayer elects, the 1st plan year 
• "\ 
beginning after December 31,1988. 
"(ii) 
UNFUNDED EXISTING BENEFIT INCREASE LIABIL-
»• •'. 
ITIES.—For purposes of clause (i), the unfunded existing 
benefit increase liability means, with respect to any 
benefit increase under the agreements described in 
clause (i) which takes effect during or after the 1st plan 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-339 
year beginning after December 31, 1987, the unfunded 
current liability determined— 
"(I) by taking into account only liabilities attrib-
utable to such benefit increase, and 
"(II) by reducing the amount determined under 
paragraph (8)(AXii) by the current liability deter-
mined without regard to such benefit increase, 
"(iii) EXTENSIONS, MODIFICATIONS, ETC. NOT TAKEN 
INTO ACCOUNT.—For purposes of this subparagraph, 
any extension, amendment, or other modification of an 
agreement after October 16, 1987, shall not be taken 
into account. 
"(4) UNFUNDED NEW LIABILITY AMOUNT.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The unfunded new liability amount 
with respect to any plan for any plan year is the applicable 
percentage of the unfunded new liability. 
"(B) UNFUNDED NEW LIABILITY.—The term 'unfunded new 
liability' means the unfunded current liability of the plan 
for the plan year determined without regard to— 
"(i) the unamortized portion of the unfunded old 
liability, and 
"(ii) the liability with respect to any unpredictable 
contingent event benefits (without regard to whether 
the event has occurred). 
"(C) 
APPLICABLE PERCENTAGE.—The term 
'applicable 
percentage' means, with respect to any plan year, 30 per-
cent, reduced by the product o
f
— 
"(i) .25 multiplied by 
"(ii) the number of percentage points (if any) by 
which the funded current liability percentage exceeds 
35 percent. 
"(5) UNPREDICTABLE CONTINGENT EVENT AMOUNT.— 
"(A) IN GENERAL.—The unpredictable contingent event 
amount with respect to a plan for any plan year is an 
amount equal to the greater o
f
— 
"(i) the applicable percentage of the product o
f
— 
"(I) 100 percent, reduced (but not below zero) by 
> 
the funded current liability percentage for the plan 
year, multiplied by 
"(II) the amount of unpredictable contingent Contracts. 
event benefits paid during the plan year, including 
(except as provided by the Secretary of the Treas-
ury) any payment for the purchase of an annuity 
contract for a participant or beneficiary with re-
spect to such benefits, or 
"(ii) the amount which would be determined for the 
plan year if the unpredictable contingent event benefit 
liabilities were amortized in equal annual installments 
, 
over 7 plan years (beginning with the plan year in 
which such event occurs). 
"(B) A P P U C A B L E PERCENTAGE.— 
101 STAT. 1330-340 
PUBLIC LAW 100-203—DEC. 22, 1987 
"In the 
case 
of 
plan 
years 
The 
applicable 
beginning 
in: 
- 
.
. 
* 
percentage 
is: 
,,..f, 
.
, 
1989 
and 1990 
.
' 
5 
'
^ ' 
' 
1991 
10 
1992 
15 
' ' 
1993 
20 
1994 
30 
1995 
40 
1996 
50 
' 
* 
• 
1997 
: 
60 
1998 
70 
1999 
80 
,.; . ,
; 
2000 
90 
2001 and 
thereafter 
100. 
• .!'.>. 
"(C) PARAGRAPH NOT TO APPLY TO EXISTING BENEFITS.— 
This paragraph shall not apply to unpredictable contingent 
event benefits (and liabilities attributable thereto) for 
';>;.: ^ which the event occurred before October 17,1987. 
"(D) SPECIAL RULE FOR FIRST YEAR OF AMORTIZATION.— 
Unless the employer elects otherwise, the amount deter-
mined under subparagraph (A) for the plan year in which 
the event occurs shall be equal to 150 percent of the amount 
'. 
determined under subparagraph (A)(i). The amount under 
subparagraph (A)(ii) for subsequent plan years in the 
; ' ' 
amortization period shall be adjusted in the manner pro-
'•'->•'' 
vided by the Secretary of the Treasury to reflect the ap-
plication of this subparagraph. 
"(6) SPECIAL RULES FOR SMALL PLANS.— 
"(A) 
PLANS WITH 
lOO OR FEWER 
PARTICIPANTS.—This 
subsection shall not apply to any plan for any plan year if 
on each day during the preceding plan year such plan had 
no more than 100 participants. 
•:.•>: >;-., 
"(B) PLANS WITH MORE THAN lOO BUT NOT MORE THAN 1 5 0 
PARTICIPANTS.—In the case of a plan to which subparagraph 
(A) does not apply and which on each day during the 
preceding plan year had no more than 150 participants, the 
amount of the increase under paragraph (1) for such plan 
year shall be equal to the product of— 
"(i) such increase determined without regard to this 
subparagraph, multiplied by 
• 
"(ii) 2 percent for the highest number of participants 
in excess of 100 on any such day. 
"(C) AGGREGATION OF PLANS.—For purposes of this para-
graph, all defined benefit plans maintained by the same 
employer (or any member of such employer's controlled 
group) shall be treated as 1 plan, but only employees of 
such employer or member shall be taken into account. 
'(7) CURRENT LIABILITY.—For purposes of this subsection— 
"(A) I N GENERAL.—The term 'current liability' means all 
liabilities to participants and their beneficiaries under the 
plan. 
"(B) TREATMENT OF UNPREDICTABLE CONTINGENT EVENT 
BENEFITS.— 
"(i) I N GENERAL.—For purposes of subparagraph (A), 
any unpredictable contingent event benefit shall not be 
taken into account until the event on which the benefit 
is contingent occurs. 
"(ii) UNPREDICTABLE CONTINGENT EVENT BENEFIT.— 
mi 
f:!^^'^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-341 
The term 'unpredictable contingent event benefit* 
means any benefit contingent on an event other than— 
"(I) age, service, compensation, death, or disabil-
ity, or 
"(II) an event which is reasonably and reliably 
predictable (as determined by the Secretary of the 
t
^ -
Treasury). 
"(C) INTEREST RATES USED.—The rate of interest used to 
determine current liability shall be the rate of interest used 
under subsection (b)(5). 
"(D) CERTAIN SERVICE DISREGARDED.— 
"(i) IN GENERAL.—In the case of a participant to 
whom this subparagraph applies, only the applicable 
percentage of the years of service before such individ-
ual became a participant shall be taken into account in 
computing the current liability of the plan. 
• 
;,\ ' 
"(ii) APPLICABLE PERCENTAGE.—For purposes of this 
subparagraph, the applicable percentage shall be deter-
mined as follows: 
"If the years of 
The applicable 
participation are: 
percentage is: 
1 
20 
2 
40 
)i 
i
(
<
5
^
: 
8 
60 
^ 
;^' ';, 
4 
80 
5 or more 
100. 
"(iii) PARTICIPANTS TO WHOM SUBPARAGRAPH AP-
PLIES.—This subparagraph shall apply to any partici-
pant who, at the time of becoming a participant— 
"(I) has not accrued any other benefit under any 
. , . 
defined benefit plan (whether or not terminated) 
' 
•' 
maintained by the employer or a member of the 
same controlled group of which the employer is a 
member, and 
"(II) who first becomes a participant under the 
plan in a plan year beginning after December 31, 
1987. 
"(8) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) UNFUNDED CURRENT LIABILITY.—The term 'unfunded 
current liability' means, with respect to any plan year, the 
excess (if any) of— 
"(i) the current liability under the plan, over 
"(ii) value of the plan's assets determined under 
subsection (c)(2) reduced by any credit balance in the 
funding standard account. 
"(B) FUNDED CURRENT LIABILITY PERCENTAGE.—The term 
'funded current liability percentage' means, with respect to 
any plan year, the percentage which— 
"(i) the amount determined under subparagraph 
(A)(ii), is of 
"(ii) the current liability under the plan. 
"(C) CONTROLLED GROUP.—The term 'controlled group' 
means any group treated as a single employer under 
subsections^"^ (b), (c), (m), and (o) of section 414 of the 
Internal Revenue Code of 1986. 
"(D) ADJUSTMENTS TO PREVENT OMISSIONS AND DUPLICA-
TIONS.—The Secretary of the Treasury shall provide such 
adjustments in the unfunded old liability amount, the un-
'Copy read "subsection". 
101 STAT. 1330-342 
PUBLIC LAW 100-203—DEC. 22, 1987 
Regulations. 
26 use 412. 
Regulations. 
29 u s e 1082 
funded new liability amount, the unpredictable contingent 
event amount, the current payment amount, and any other 
~"-'S , . charges or credits under this section as are necessary to 
avoid duplication or omission of any factors in the deter-
mination of such amounts, charges, or credits." 
26 use 412 note. 
(c) REVISION OF VALUATION REGULATIONS.—Effective with respect 
to plan years beginning after December 31, 1987, the provisions of 
the regulations prescribed under section 412(c)(2) of the 1986 Code 
which permit asset valuations to be based on a range between 85 
percent and 115 percent of average value shall have no force and 
effect with respect to plans other than multiemployer plans (as 
defined in section 414(f) of the 1986 Code). The Secretary of the 
Treasury or his delegate shall amend such regulations to carry out 
the purposes of the preceding sentence. 
(d) VALUATION OF BONDS.— 
(1) AMENDMENT TO 1986 CODE.—Subparagraph (B) of section 
412(c)(2) of the 1986 Code is amended by adding at the end 
thereof the following new sentence: "In the case of a plan other 
than a multiemployer plan, this subparagraph shall not apply, 
but the Secretary may by regulations provide that the value of 
any dedicated bond portfolio of such plan shall be determined 
by using the interest rate under subsection (b)(5)." 
(2) AMENDMENT TO ERISA.—Subparagraph (B) of section 
302(c)(2) of ERISA is amended by adding at the end thereof the 
following new sentence: "In the case of a plan other than a 
multiemployer plan, this subparagraph shall not apply, but the 
Secretary of the Treasury may by regulations provide that the 
value of any dedicated bond portfolio of such plan shall be 
determined by using the interest rate under subsection (bX5)." 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply with respect to 
plan years beginning after December 31,1988. 
(2) SUBSECTIONS (C) AND (D).—The amendments made by 
subsections (c) and (d) shall apply with respect to years begin-
ning after December 31, 1987. 
(3) SPECIAL RULE FOR STEEL COMPANIES.— 
(A) IN GENERAL.—For any plan year beginning before 
January 1, 1994, any increase in the funding standard 
account under section 412(1) of the 1986 Code or section 
302(d) of ERISA (as added by this section) with respect to 
any steel employee plan shall not exceed the sum o
f
— 
(i) the required percentage of the current liability 
under such plan, plus 
(ii) the amount determined under subparagraph (CXi) 
for such plan year. 
(B) REQUIRED PERCENTAGE.—For purposes of subpara-
graph (A), the term "required percentage" means, with 
respect to any plan year, the excess (if any) of— 
(i) the sum o
f
— 
^ 
(I) the funded current liability percentage as of 
I 
the beginning of the 1st plan year beginning after 
December 31, 1988 (determined without regard to 
any plan amendment adopted after June 30, 1987), 
plus 
(II) 1 percentage point for the plan year for 
which the determination under this paragraph is 
being made and for each prior plan year beginning 
after December 31,1988, over 
26 use 412 note. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-343 
, - 
^ 
(ii) the funded current liability percentage as of the 
beginning of the plan year for which such determina-
tion is being made. 
(C) SPECIAL RULES FOR CONTINGENT EVENTS.—In the case 
of any unpredictable contingent event benefit with respect 
I 
to which the event on which such benefits are contingent 
occurs after December 17,1987— 
(i) AMORTIZATION AMOUNT.—For purposes of subpara-
graph (AXii), the amount determined under this clause 
for any plan year is the amount which would be deter-
mined if the unpredictable contingent event benefit 
liability were amortized in equal annual installments 
over 10 plan years 0)eginning with the plan year in 
which such event occurs). 
(ii) BENEFIT AND CONTRIBUTIONS NOT TAKEN INTO AC-
COUNT.—For purposes of subparagraph (B), in deter-
mining the funded current liability percentage for any 
plan year, there shall not be taken into account— 
' 
(I) the unpredictable contingent event benefit 
liability, or 
(II) any amount contributed to the plan which is 
^ ' 
attributable to clause (i). 
(D) STEEL EMPLOYEE PLAN.—For purposes of this para-
graph, the term "steel employee plan" means any plan i
f
— 
(i) such plan is maintained by a steel company, and 
(ii) substantially all of the employees covered by such 
plan are employees of such company. 
(E) OTHER DEFINITIONS.—For purposes of this para-
graph— 
(i) STEEL COMPANY.—The term "steel company" 
means any corporation described in section 80603) of 
the Steel Import Stabilization Act. 
(ii) OTHER DEFINITIONS.—The terms "current liabil-
ity", 
"funded 
current 
liability 
percentage", 
and 
\ 
"unpredictable contingent event benefit" have the 
meanings given such terms by section 412(1) of the 1986 
Code (as added by this section). 
(F)95 SPECIAL RULE.—The provisions of this paragraph 
shall apply in the case of a company which was originally 
• i 
incorporated on April 25, 1927, in Michigan and reincorpo-
rated on June 3,1968, in Delaware in the same manner sis if 
such company were a steel company. 
SEC. 9304. TIME FOR MAKING CONTRIBUTIONS. 
(a) PERIOD DURING WHICH CONTRIBUTIONS MAY BE MADE AFTER 
CLOSE OF YEAR.— 
(1) AMENDMENT TO 1986 CODE.—Paragraph (10) of section 
412(c) of the 1986 Code (relating to time when certain contribu- 
26 USC 412. 
tions deemed made) is amended to read as follows: 
"(10) TIME WHEN CERTAIN CONTRIBUTIONS DEEMED MADE.—For 
purposes of this section— 
"(A) PLANS OTHER THAN MULTIEMPLOYER PLANS.—In the 
J case of a plan other than a multiemployer plan, any con-
tributions for a plan year made by gm employer during the 
period— 
»» Copy read "(E)" 
101 STAT. 1330-344 
PUBLIC LAW 100-203—DEC. 22, 1987 
,....., , ; 
"(i) beginning on the day after the last day of such 
plan year, and 
"(ii) ending on the day which is SVz months after the 
close of the plan year, 
shall be deemed to have been made on such last day. 
"(B) MULTIEMPLOYER PLANS.—In the case of a multiem-
ployer plan, any contributions for a plan year made by an 
employer after the Isist day of such plan year, but not later 
than two and one-half months after such day, shall be 
deemed to have been made on such leist day. For purposes of 
this subparagraph, such two and one-half month period 
may be extended for not more than six months under 
regulations prescribed by the Secretary." 
(2) AMENDMENT TO ERISA.—Paragraph (10) of section 302(c) of 
ERISA (relating to time when certain contributions deemed 
made) (29 U.S.C. 1082(cX10))»» is amended to read as follows: 
"(10) For purposes of this section— 
:, 
"(A) In the case of a plan other than a multiemployer plan, 
any contributions for a plan year made by an employer during 
sf ri the period— 
"(i) beginning on the day after the last day of such plan 
year, and 
"(ii) ending on the date which is 8V2 months after the 
close of the plan year, 
i 
shall be deemed to have been made on such last day. 
"(B) In the case of a multiemployer plan, any contributions 
for a plan year made by an employer after the last day of such 
plan year, but not later than two and one-half months after 
such day, shall be deemed to have been made on such last day. 
Regulations. 
For purposes of this subparagraph, such two and one-half 
month period may be extended for not more than six months 
under regulations prescribed by the Secretary of the Treasury." 
26 use 412 note. 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply to plan years beginning after December 31, 
1987. 
(b) QUARTERLY ESTIMATED PAYMENTS REQUIRED.— 
(1) AMENDMENT TO 1986 CODE.—Section 412 of the 1986 Code 
26 use 412. 
(relating to minimum funding standard) is amended by adding 
at the end thereof the following new subsection: 
"(m) QUARTERLY CONTRIBUTIONS REQUIRED.— 
"(1) IN GENERAL.—If a plan (other than a multiemployer plan) 
fails to pay the full amount of a required installment for any 
plan year, then the rate of interest charged to the funding 
' 
standard account under subsection Ot)X5) with respect to the 
amount 
of 
the 
underpayment 
for 
the 
period 
of 
the 
, . . ^ J , 
underpayment shall be equal to the greater of— 
y i 
ji; i. 
«^^j -
j
^
Y
g percent of the Federal mid-term rate (as in effect 
under section 1274 for the 1st month of such plan year), or 
lij I 
u(g) ^j^g j . ^ ^ ^jjjgj. subsection (bX5). 
"(2) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDERPAYMENT.— 
For purposes of paragraph (1)— 
^;^; 
"(A) AMOUNT.—The amount of the underpayment shall 
" " * 
be the excess of— 
"(i) the required installment, over 
»• Copy read "1082(cX10)". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-345 
.^.j. / . 
"(ii) the amount (if any) of the installment contrib-
uted to or under the plan on or before the due date for 
- • 
the installment. 
"(B) PERIOD OF UNDERPAYMENT.—The period for which 
interest is charged under this subsection with regard to any 
portion of the underpayment shall run from the due date 
for the installment to the date on which such portion is 
contributed to or under the plan (determined without 
regard to subsection (cXlO)). 
"(C) ORDER OF CREDITING CONTRIBUTIONS.—For purposes 
of subparagraph (AXii), contributions shall be credited 
against unpaid required installments in the order in which 
such installments are required to be paid. 
"(8) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For 
purposes of this subsection— 
"(A) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 re-
quired installments for each plan year. 
"(B) TIME FOR PAYMENT OF INSTALLMENTS.— 
'' = 
"In the case of the following 
required installments: 
The due date is: 
1st 
April 15 
2nd 
July 15 
3rd 
October 15 
4th 
January 15 of the 
following year. 
"(4) AMOUNT OF REQUIRED INSTALLMENT.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The amount of any required install-
ment shall be the applicable percentage of the required 
annual payment. 
"(B) 
REQUIRED ANNUAL PAYMENT.—For purposes of 
subparagraph (A), the term 'required annual payment' 
means the lesser o
f
— 
"(i) 90 percent of the amount required to be contrib-
uted to or under the plan by the employer for the plan 
year under section 412 (without regard to any waiver 
'l^'; 
under subsection (c) thereof), or 
"(ii) 100 percent of the amount so required for the 
preceding plan year. 
Clause (ii) shall not apply if the preceding plan year was not 
a year of 12 months. 
"(C) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the applicable percentage shall be determined in 
accordance with the following table: 
"For plan years 
The applicable 
beginning in: 
percentage is: 
1989 
6.25 
1990 
12.5 
1991 
18.75 
1992 and thereafter 
25. 
"(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT 
EVENT BENEFITS.—In the case of a plan with any unpredict-
able contingent event benefit liabilities— 
"(i) such liabilities shall not be taken into account in 
computing the required 
annual 
payment 
under 
subparagraph (B), and 
101 STAT. 1330-346 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(ii) each required installment shall be increased by 
the greater o
f
— 
"(I) the amount of benefits described in subsec-
• ' 
tion (lX5)(AXi) paid during the 3-month period 
preceding the month in which the due date for 
such installment occurs, or 
"(ID 25 percent of the amount determined under 
subsection (lX5)(AXii) for the plan year. 
"(5) FISCAL YEARS AND SHORT YEARS.— 
"(A) FISCAL YEARS.—In applying this subsection to a plan 
year beginning on any date other than January 1, there 
shall be substituted for the months specified in this subsec-
tion, the months which correspond thereto. 
-
^ vi 
"(B) SHORT PLAN YEAR.—This subsection shall be applied 
to plan years of less than 12 months in accordance with 
regulations prescribed by the Secretary." 
(2) AMENDMENT TO ERISA.—Section 302 of ERISA (29 U.S.C. 
1082) is amended by redesignating subsection (e) as subsection 
(f) and by inserting after subsection (d) the following new 
subsection: 
"(e) QUARTERLY CONTRIBUTIONS REQUIRED.— 
"(1) IN GENERAL.—If a plan (other than a multiemployer plan) 
fails to pay the full amount of a required installment for any 
plan year, then the rate of interest charged to the funding 
standard account under subsection (bX5) with respect to the 
amount of the underpa3mient for the period of the 
underpayment shall be equal to the greater of— 
"(A) 175 percent of the Federal mid-term rate (as in effect 
under section 1274 of the Internal Revenue Code of 1986 for 
the 1st month of such plan year), or 
"(B) the rate under subsection (b)(5). 
"(2) AMOUNT OF UNDERPAYMENT, PERIOD OF UNDERPAYMENT.— 
For purposes of paragraph (1)— 
"(A) AMOUNT.—The amount of the underpa3rment shall 
be the excess of— 
"(i) the required installment, over 
"(ii) the amount (if any) of the installment contrib-
, , . 
uted to or under the plan on or before the due date for 
the installment. 
"(B) PERIOD OF UNDERPAYMENT.—The period for which 
any interest is charged under this subsection with respect 
to any portion of the underpayment shall run from the due 
date for the installment to the date on which such portion 
is contributed to or under the plan (determined without 
regard to subsection (c)(10)). 
" 
(C) ORDER OF CREDITING CONTRIBUTIONS.—For purposes 
of subparagraph (AXii), contributions shall be credited 
against unpaid required installments in the order in which 
such installments are required to be paid. 
"(3) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For 
purposes of this subsection— 
"(A) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 re-
quired installments for each plan year. 
"(B) TIME FOR PAYMENT OF INSTALLMENTS.— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-347 
"In the case of the followin|r 
required installments: 
The due date is: 
1st 
April 15 
2nd 
July 15 
V 
3rd 
October 15 
4th 
January 15 of the 
following year. 
,, 
"(4) AMOUNT OF REQUIRED INSTALLMENT.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The amount of any required install-
ment shall be the applicable percentage of the required 
annual payment. 
"(B) 
REQUIRED 
ANNUAL PAYMENT.—For purposes of 
subparagraph (A), the term 'required annual payment' 
means the lesser o
f
— 
"(i) 90 percent of the amount required to be contrib-
uted to or under the plan by the employer for the plan 
year under section 412 of the Internal Revenue Code of 
1986 (without regard to any waiver under subsection (c) 
thereof), or 
"(ii) 100 percent of the amount so required for the 
preceding plan year. 
Clause (ii) shall not apply if the preceding plan year was not 
a year of 12 months. 
"(C) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the applicable percentage shall be determined in 
accordance with the following table: 
"For plan years 
The applicable 
beginning in: 
percentage is: 
' - 
1989 
6.25 
f'S ' 
1990 
12.5 
1991 
18.75 
. -:> 
-
^ 
1992 and thereaRer 
25. 
"(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT 
t 
EVENT BENEFITS.—In the case of a plan with any unpredict-
' 
able contingent event benefit liabilities— 
"(i) such liabilities shall not be taken into account in 
< 
computing the required 
annual 
payment 
under 
subparagraph (B), and 
"(ii) each required installment shall be increased by 
the greater o
f
— 
"(I) the amount of benefits described in subsec-
tion (d)(5)(A)(i) paid during the 3-month period 
preceding the month in which the due date for 
such installment occurs, or 
"(II) 25 percent of the amount determined under 
subsection (d)(5)(A)(ii) for the plan year. 
"(5) FISCAL YEARS AND SHORT YEARS.— 
"(A) FISCAL YEARS.—In applying this subsection to a plan 
year beginning on any date other than January 1, there 
shall be substituted for the months specified in this subsec-
tion, the months which correspond thereto. 
"(B) SHORT PLAN YEAR.—This section shall be applied to Regulations. 
plan years of less than 12 months in accordance with 
regulations prescribed by the Secretary of the Treasury." 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
26 USC 412 note. 
tion shall apply with respect to plan years beginning after 1988. 
(c) INCREASE IN EXCISE TAX FROM 5 PERCENT TO 10 PERCENT.— 
101 STAT. 1330-348 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 use 4971. 
(1) IN GENERAL.—Section 4971(a) of the 1986 Code (relating to 
initial tax on failure to meet minimum funding standards) is 
amended by striking out "5 percent" and inserting in lieu 
thereof "10 percent (5 percent in the case of a multiemployer 
plan)". 
26 use 4971 
(2) EFFECTIVE DATE.—The amendments made by this subsec-
"0*^- 
tion shall apply to plan years beginning after 1988. 
(d) REQUIREMENT OF NOTICE.—Section 101 of ERISA (relating to 
duty of disclosure and reporting) (29 U.S.C. 1021) is amended by 
redesignating subsection (d) as subsection (e) and by inserting after 
subsection (c) the following new subsection: 
"(d) NOTICE OF FAILURE TO MEET MINIMUM FUNDING STAND-
ARDS.— 
"(1) IN GENERAL.—If an employer of a plan other than a 
multiemployer plan fails to make a required installment or 
other payment required to meet the minimum funding standard 
under section 302 to a plan before the 60th day following the 
due date for such installment or other payment, the employer 
shall notify each participant and beneficiary (including an alter-
nate payee as defined in section 206(d)(3)(K)) of such plan of 
such failure. Such notice shall be made at such time and in such 
manner as the Secretary may prescribe. 
"(2) SUBSECTION NOT TO APPLY IF WAIVER PENDING.—This 
subsection shall not apply to any failure if the employer has 
filed a waiver request under section 303 with respect to the plan 
year to which the required installment relates, except that if 
the waiver request is denied, notice under paragraph (1) shall be 
provided within 60 days after the date of such denial. 
"(3) DEFINITIONS.—For purposes of this subsection, the terms 
'required installment' and 'due date' have the same meanings 
given such terms by section 302(e)." 
(e) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED CON-
TRIBUTIONS.— 
(1) AMENDMENT TO 1986 CODE.—Section 412 of the 1986 Code 
(as amended by this subtitle) is amended by adding at the end 
thereof the following new subsection: 
"(n) IMPOSITION OF LIEN W H E R E FAILURE TO MAKE REQUIRED 
CONTRIBUTIONS.— 
"(1) I N GENERAL.—In the case of a plan to which this section 
applies, if— 
"(A) any person fails to make a required 
installment 
under subsection (m) or any other payment required under 
this section before the due date for such installment or 
other payment, and 
;sj£ 
"(B) the unpaid balance of such installment or other 
payment (including interest), when added to the aggregate 
unpaid balance of all preceding such installments or other 
payments for which payment was not made before the due 
date (including interest), exceeds $1,000,000, 
then there shall be a lien in favor of the plan in the amount 
determined under paragraph (3) upon all property and rights to 
., ,,, 
property, whether real or personal, belonging to such person 
and any other person who is a member of the same controlled 
group of which such person is a member. 
- 
, , . ; ; , . 
"(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 
shall apply to a defined benefit plan (other than a multiem-
ployer plan) for any plan year for which the funded 
current 
liability percentage (within the meaning of subsection (1)(8)(B)) 
of such plan is less than 100 percent. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-349 
, 
"(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 
amount of the lien shall be equal to the lesser o
f
— 
"(A) the amount by which the unpaid balances described 
in paragraph (1)(B) (including interest) exceed $1,000,000, or 
, - 
"(B) the aggregate unpaid balance of required install-
, 
ments and other payments required under this section 
(including interest)— 
, _, 
: , 
"(i) for plan years beginning after 1987, and 
"(ii) for which payment has not been made before the 
due date. 
"(4) NOTICE OF FAILURE; LIEN.— 
"(A) NOTICE OF FAILURE.—A person committing a failure 
described in paragraph (1) shall notify the Pension Benefit 
Guaranty Corporation of such failure within 10 days of the 
due date for the required installment or other payment. 
"(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) 
shall arise on the 60th day following the due date for the 
•'- - 
required installment or other payment and shall continue 
until the last day of the first plan year in which the plan 
ceases to be described in paragraph (1)(B). Such lien shall 
continue to run without regard to whether such plan 
continues to be described in paragraph (2) during the period 
referred to in the preceding sentence. 
"(C) CERTAIN RULES TO APPLY.—Any amount with respect 
to which a lien is imposed under paragraph (1) shall be 
treated as taxes due and owing the United States and rules 
,^i 
similar to the rules of subsections (c), (d), and (e) of section 
4068 of the Employee Retirement Income Security Act of 
1974 shall apply with respect to a lien imposed by subsec-
tion (a) and the amount with respect to such lien. 
"(5) ENFORCEMENT.—Any lien created under paragraph (1) 
may be perfected and enforced only by the Pension Benefit 
Guaranty Corporation, or at the direction of the Pension Benefit 
Guaranty Corporation, by the contributing sponsor (or any 
member of the controlled group of the contributing sponsor). 
"(6) DEFINITIONS.—For purposes of this subsection— 
"(A) DUE DATE; REQUIRED INSTALLMENT.—The terms 'due 
i 
date' and 'required installment' have the meanings given 
such terms by subsection (m), except that in the case of a 
payment other than a required installment, the due date 
shall be the date such payment is required to be made 
under this section. ^'' 
"(B) CONTROLLED GROUP.—The term 'controlled group' 
means any group treated as a single employer under 
subsections Ot)), (c), (m), and (o) of section 414." 
(2) AMENDMENT TO ERISA.—Section 302 of ERISA (as amended 
by this subtitle) (29 U.S.C. 1082) is amended by redesignating 
subsection (f) as subsection (g) and by adding after subsection (e) 
the following new subsection: 
"(f) IMPOSITION OF LIEN WHERE FAILURE TO MAKE REQUIRED CON-
TRIBUTIONS.— 
"(1) IN GENERAL.—In the case of a plan to which this section 
applies, i
f
— 
" Copy read "section." ". 
101 STAT. 1330-350 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) any person fails to make a required installment 
J., 
under subsection (e) or any other payment required under 
this section before the due date for such installment or 
other payment, and 
"(B) the unpaid balance of such installment or other 
payment (including interest), when added to the aggregate 
unpaid balance of all preceding such installments or other 
payments for which payment was not made before the due 
date (including interest), exceeds $1,000,000, 
then there shall be a lien in favor of the plan in the amount 
determined under paragraph (3) upon all property and rights to 
property, whether real or personal, belonging to such person 
and any other person who is a member of the same controlled 
group of which such person is a member. 
"(2) PLANS TO WHICH SUBSECTION APPLIES.—This subsection 
shall apply to a defined benefit plan (other than a multiem-
ployer plan) for any plan year for which the funded current 
liability percentage (within the meaning of subsection (d)(8)(B)) 
of such plan is less than 100 percent. 
"(3) AMOUNT OF LIEN.—For purposes of paragraph (1), the 
amount of the lien shall be equal to the lesser o
f
— 
"(A) the amount by which the unpaid balances described 
in paragraph (1)(B) (including interest) exceed $1,000,000, or 
"(B) the aggregate unpaid balance of required install-
ments and other payments required under this section 
(including interest)— 
"(i) for plan years beginning after 1987, and 
"(ii) for which payment has not been made before the 
due date. 
"(4) NOTICE OF FAILURE; LIEN.— 
"(A) NOTICE OF FAILURE.—A person committing a failure 
described in paragraph (1) shall notify the Pension Benefit 
Guaranty Corporation of such failure within 10 days of the 
due date for the required installment or other payment. 
"(B) PERIOD OF LIEN.—The lien imposed by paragraph (1) 
shall arise on the 60th day following the due date for the 
required installment or other payment and shall continue 
until the last day of the first plan year in which the plan 
ceases to be described in paragraph (1)(B). Such lien shall 
continue to run without regard to whether such plan 
continues to be described in paragraph (2) during the period 
-"' 
referred to in the preceding sentence. 
"(C) CERTAIN RULES TO APPLY.—Any amount with respect 
to which a lien is imposed under paragraph (1) shall be 
treated as taxes due and owing the United States and rules 
similar to the rules of subsections vc), (d), and (e) of section 
4068 shall apply with respect to a lien imposed by subsec-
tion (a) and the amount with respect to such lien. 
"(5) ENFORCEMENT.—Any lien created under paragraph (1) 
may be perfected and enforced only by the Pension Benefit 
Guaranty Corporation, or at the direction of the Pension Benefit 
Guaranty Corporation, by the contributing sponsor (or any 
member of the controlled group of the contributing sponsor). 
"(6) DEFINITIONS.—For purposes of this subsection— 
"(A) DUE DATE; REQUIRED INSTALLMENT.—The terms 'due 
date' and 'required installment' have the meanings given 
such terms by subsection (e), except that in the case of a 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-351 
payment other than a required installment, the due date 
shall be the date such payment is required to be made 
under this section." 
"(B) CONTROLLED GROUP.—The term 'controlled 
group' 
means any group treated as a single employer 
under 
subsections (b), (c), (m), and (o) of section 414 of the Internal 
Revenue Code of 1986." 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
26 USC 412 note. 
tion shall apply to plan years beginning after December 31, 
1987. 
SEC. 9305. LIABILITY OF MEMBERS OF CONTROLLED GROUP FOR TAXES 
ON FAILURE TO MEET MINIMUM FUNDING STANDARDS AND 
TO MAKE MINIMUM FUNDING CONTRIBUTIONS. 
(a) EXCISE T A X . — 
(1) I N GENERAL.—Section 4971 of the 1986 Code (relating to 26 USC 4971. 
taxes on failure to meet minimum 
funding standards) is 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) LIABILITY FOR TAX.— 
"(1) I N GENERAL.—Except as provided in paragraph (2), the 
tax imposed by subsection (a) or (b) shall be paid by the 
employer responsible for contributing to or under the plan the 
amount described in section 412(b)(3)(A). 
"(2) JOINT AND SEVERAL LIABILITY WHERE EMPLOYER MEMBER 
OF CONTROLLED GROUP.— 
"(A) IN GENERAL.—In the case of a plan other than a 
multiemployer plan, if the employer referred to in para- 
" " 
i 1 
graph (1) is a member of a controlled group, each member of 
such group shall be jointly and severally liable for the tax 
,
^ 
- , 
imposed by subsection (a) or (b). 
"(B) CONTROLLED GROUP.—For purposes of subparagraph 
(A), the term 'controlled group' means any group treated as 
a single employer under subsection (b), (c), (m), or (o) of 
section 414." 
(2) TECHNICAL AMENDMENTS.— 
(A) Subsection (a) of section 4971 of the 1986 Coae is 
amended by striking out the last sentence. 
(B) Subsection (b) of section 4971 of the 1986 Code is 
amended by striking out the last sentence. 
(b) MINIMUM FUNDING CONTRIBUTIONS.— 
(1) AMENDMENT TO 1986 CODE.—Section 412(c) of the 1986 Code 
is amended by adding at the end thereof the following new 
paragraph: 
"(11) LlABIUTY FOR CONTRIBUTIONS.— 
. 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), the amount of any contribution required by this section 
and any required installments under subsection (m) shall be 
4 
paid by the employer responsible for contributing to or 
under the plan the amount described in subsection (b)(3)(A). 
"(B) 
JOINT 
AND SEVERAL 
UABILITY 
WHERE 
EMPLOYER 
MEMBER OF CONTROLLED GROUP.— 
"(i) IN GENERAL.—In the case of a plan other than a 
multiemployer plan, if the employer referred to in 
subparagraph (A) is a member of a controlled group, 
each member of such group shall be jointly and sever-
101 STAT. 1330-352 
PUBLIC LAW 100-203—DEC. 22, 1987 
ally liable for payment of such contribution or required 
' 
installment. 
"(ii) CONTROLLED GROUP.—For purposes of clause (i), 
. v^L • 
the term'controlled group'means any group treated as 
a single employer under subsection (b), (c), (m), or (o) of 
section 414.' 
(2) AMENDMENT TO ERISA.—Section 302(c) of ERISA (29 U.S.C. 
! -^ 
' 
1082(c)) is amended by adding at the end thereof the following 
new paragraph: 
,./;iv ,
5
^
o 
>
! . 
"(11) LIABILITY FOR CONTRIBUTIONS.— 
•'-
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the amount of any contribution required by this section 
*' 
and any required installments under subsection (e) shall be 
paid by the employer responsible for contributing to or 
under the plan the amount described in subsection (b)(3XA). 
v.; '>8U f
' 
' 
"(B) JOINT AND SEVERAL UABIUTY WHERE EMPLOYER 
MEMBER OF 
CONTROLLED 
GROUP.— 
V 
"(i) IN GENERAL.—In the case of a plan other than a 
multiemployer plan, if the employer referred to in 
subparagraph (A) is a member of a controlled group, 
^n- 
each member of such group shall be jointly and sever-
ally liable for payment of such contribution or required 
installment, 
"(ii) CONTROLLED GROUP.—For purposes of clause (i), 
ir^HMar 
^^® term 'controlled group' means any group treated as 
a single employer under subsection (b), (c), (m), or (o) of 
section 414 of the Internal Revenue Code of 1986." ^* 
26 use 414. 
(c) CONFORMING AMENDMENT.—Section 4140)) of the 1986 Code is 
amended by striking out "the minimum funding standard of section 
412, the tax imposed by section 4971, and". 
26 use 412 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 1987. 
SEC. 9306. FUNDING WAIVERS. 
(a) REQUIREMENTS F
O
R WAIVERS.— 
* 
(1) AMENDMENTS TO 1986 CODE.— 
(A) APPUCATION MUST BE SUBMITTED BEFORE DATE 2V2 
^•' -
^ 
MONTHS AFTER CLOSE OF YEAR.—Subsection (d) of section 412 
of the 1986 Code (relating to variance from minimum fund-
^' - 
ing standard) is amended by adding at the end thereof the 
following new paragraph: 
"(4) APPUCATION MUST BE SUBMITTED BEFORE DATE 2y2 MONTHS 
AFTER CLOSE OF YEAR.—In the case of a plan other than a 
multiemployer plan, no waiver may be granted under this 
subsection with respect to any plan for any plan year unless an 
application therefor is submitted to the Secretary not later than 
the 15th day of the 3rd month beginning after the close of such 
plan year." 
(B) WAIVER ALLOWED ONLY FOR TEMPORARY HARDSHIP.— 
Subsection (d) of section 412 of the 1986 Code is amended— 
(i) by striking out "substantial business hardship" in 
paragraphs (1) and (2) and inserting in lieu thereof 
temporary substantial business hardship (substantial 
.
-
^
i : ,;1; 
business hardship in the case of a multiemployer 
plan)", and 
•• Indention on paragraphs " '(11)", " '(A)", " '(B)", " '(i)", and " '(ii)", incorrect. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-353 
li -r b :, 
(ii) by striking out "SUBSTANTIAL" in the headings of 
paragraphs (1) and (2). 
(C) HARDSHIP MUST ALSO EXIST AT CONTROLLED GROUP 
LEVEL.—Subsection (d) of section 412 of the 1986 Code is 26 USC 412. 
amended by adding at the end thereof the following new 
paragraph: 
"(5) SPECIAL RULE IF EMPLOYER IS MEMBER OF CONTROLLED 
GROUP.— 
"(A) I N GENERAL.—In the case of a plan other than a 
multiemployer plan, if an employer is a member of a 
controlled group, the temporary substantial business hard-
ship requirements of paragraph (1) shall be treated as met 
' 
only if such requirements are met— 
"(i) with respect to such employer, and 
"(ii) with respect to the controlled group of which 
such employer is a member (determined by treating all 
members of such group as a single employer). 
The Secretary may provide that an analysis of a trade or 
business or industry of a member need not be conducted if 
•'" 
the Secretary determines such analysis is not necessary 
because the taking into account of such member would not 
significantly affect the determination under this subsection. 
"(B) CONTROLLED GROUP.—For purposes of subparagraph 
(A), the term 'controlled group' means any group treated as 
a single employer under subsection (b), (c), (m), or (o) of 
section 414." 
(2) AMENDMENTS TO ERISA.— 
(A) APPUCATION MUST BE SUBMITTED BEFORE DATE 2 ¥2 
MONTHS AFTER CLOSE OF YEAR.—SectioD 303 of ERISA (relat-
ing to variance from minimum funding standard) (29 U.S.C. 
1083) is amended by redesignating subsection (d) as subsec-
tion (f) and by inserting after subsection (c) the following 
new subsection: 
'(d) SPECIAL RULES.— 
"(1) APPUCATION MUST BE SUBMITTED BEFORE DATE 2 ¥2 MONTHS 
AFTER CLOSE OF YEAR.—In the case of a plan other than a 
multiemployer plan, no waiver may be granted under this 
section with respect to any plan for any plan year unless an 
application therefor is submitted to the Secretary of the Treas-
ury not later than the 15th day of the 3rd month beginning 
after the close of such plan year." 
(B) WAIVER ALLOWED ONLY FOR TEMPORARY HARDSHIP.— 
Section 303 of ERISA (29 U.S.C. 1083) is amended by strik-
ing out "substantial business hardship" in subsections (a) 
and (b) and inserting in lieu thereof "temporary substantial 
business hardship (substantial business hardship in the 
case of a multiemployer plan)". 
(C) HARDSHIP MUST ALSO EXIST AT CONTROLLED GROUP 
LEVEL.—Subsection (d) of section 303 of ERISA (as amended 
by subparagraph (A)) (29 U.S.C. 1083) is amended by adding 
at the end thereof the following new paragraph: 
"(2) SPECIAL RULE IF EMPLOYER IS MEMBER OF CONTROLLED 
GROUP.— 
"(A) I N GENERAL.—In the case of a plan other than a 
multiemployer plan, if an employer is a member of a 
controlled group, the temporary substantial business hard-
101 STAT. 1330-354 
PUBLIC LAW 100-203—DEC. 22, 1987 
ship requirements of subsection (a) shall be treated as met 
only if such requirements are met— 
"(i) with respect to such employer, and 
"(ii) with respect to the controlled group of which 
such employer is a member (determined by treating all 
members of such group as a single employer). 
u^: 
The Secretary of the Treasury may provide that an analysis 
of a trade or business or industry of a member need not be 
g 
, 
conducted if the Secretary of the Treasury determines such 
I 
analysis is not necessary because the taking into account of 
such member would not significantly affect the determina-
tion under this subsection. 
"(B) CONTROLLED GROUP.—For purposes of subparagraph 
(A), the term 'controlled group' means any group treated as 
ft ;
; 
a single employer under subsection (b), (c), (m), or (o) of 
section 414 of the Internal Revenue Code of 1986." 
(b) FREQUENCY OF WAIVERS.— 
(1) AMENDMENTS TO 1986 CODE.—The second sentence of sec-
26 use 412. 
tion 412(d)(1) of the 1986 Code is amended by striking out "more 
than 5 of any 15" and inserting in lieu thereof "more than 3 of 
any 15 (5 of any 15 in the case of a multiemployer plan)". 
(2) AMENDMENTS TO ERISA.—The second sentence of section 
303(a) of ERISA (29 U.S.C. 1083(a)) is amended by striking out 
"more than 5 of any 15" and inserting in lieu thereof "more 
than 3 of any 15 (5 of any 15 in the case of a multiemployer 
plan)". 
(c) INTEREST ON REPAYMENT OF WAIVED CONTRIBUTIONS.— 
^•i 
(1) AMENDMENTS TO 1986 CODE.— 
(A) Paragraph (1) of section 412(d) of the 1986 Code is 
amended by striking out the last sentence and inserting in 
lieu thereof the following new sentence: "The interest rate 
used for purposes of computing the amortization charge 
described in subsection (b)(2)(C) for any plan year shall be— 
"(A) in the case of a plan other than a multiemployer 
plan, the greater of (i) 150 percent of the Federal mid-
term rate (as in effect under section 1274 for the 1st 
month of such plan year), or (ii) the rate of interest 
used under the plan in determining costs, and 
"(B) in the case of a multiemployer plan, the rate 
determined under section 6621(b). ' 
(B) Subsection (e) of section 412 of the 1986 Code is 
amended by striking out the last sentence and inserting in 
lieu thereof the following new sentence: "In the case of a 
plan other than a multiemployer plan, the interest rate 
applicable for any plan year under any arrangement en-
tered into by the Secretary in connection with an extension 
granted under this subsection shall be the greater of (A) 150 
percent of the Federal mid-term rate (as in effect under 
section 1274 for the 1st month of such plan year), or (B) the 
^ 
rate of interest used under the plan in determining costs. In 
)l - 
the case of a multiemployer plan, such rate shall be the 
rate determined under section 6621(b)." 
* •' * (2) AMENDMENTS TO ERISA.— 
(A) Subsection (a) of section 303 of ERISA (29 U.S.C. 
1083(a)) is amended by striking out the last sentence and 
• 
inserting in lieu thereof the following new sentence: "The 
"•^' 
interest rate used for purposes of computing the amortiza-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-355 
tion charge described in subsection 03X2)(C) for any plan 
year shall be— 
"(A) in the case of a plan other than a multiemployer 
plan, the greater of (i) 150 percent of the Federal mid-
term rate (as in effect under section 1274 of the In-
ternal Revenue Code of 1986 for the 1st month of such 
plan year), or (ii) the rate of interest used under the 
plan in determining costs, and 
"(B) in the case of a multiemployer plan, the rate 
determined under section 6621(b)." 
(B) Subsection (a) of section 304 of ERISA (29 U.S.C. 
1084(a)) is amended by striking out the last sentence and 
inserting in lieu thereof the following new sentence: 
"In the case of a plan other than a multiemployer plan, the interest 
rate applicable for any plan year under any arrangement entered 
into by the Secretary in connection with an extension granted under 
this subsection shall be the greater of (A) 150 percent of the Federal 
mid-term rate (as in effect under section 1274 of the Internal 
Revenue Code of 1986 for the 1st month of such plan year), or (B) the 
rate of interest used under the plan in determining costs. In the case 
of a multiemployer plan, such rate shall be the rate determined 
under section 6621(b) of such Code." 
(d) 
NOTICE 
TO PARTICIPANTS OF APPUCATION 
FOR FUNDING 
WAIVERS.— 
(1) AMENDMENT TO 1986 CODE.—Section 412 (fK4)(A) of the 1986 
Code (relating to advance notice) is amended by striking out 
26 USC 412. 
"plan." and inserting in lieu thereof "plan, and each partici-
pant, beneficiary, and alternate payee (within the meaning of 
section 414(p)(8)). Such notice shall include a description of the 
extent to which the plan is funded for benefits which are 
guaranteed under title IV of such Act and the benefit 
liabilities.". 
(2) AMENDMENT TO ERISA.—Section 303(eXl) of ERISA (relat-
ing to advance notice) (29 U.S.C. 1083(eXl)) is amended by 
striking out "plan." and inserting in lieu thereof "plan, and 
each affected party (as defined in section 4001(aX21)) other than 
the Pension Benefit Guaranty Corporation. Such notice shall 
include a description of the extent to which the plan is funded 
for benefits which are guaranteed under title IV and the benefit 
liabilities.". 
(e) DECREASE IN AMOUNT OF DEFICIENCIES REQUIRED BEFORE SECU-
RITY REQUIRED.— 
(1) AMENDMENT TO 1986 CODE.—Subparagraph (C) of section 
412 (0(3) is amended by striking out "$2,000,000" and inserting 
in lieu thereof "$1,000,000". 
(2) AMENDMENT TO ERISA.—Section 306(cXl) of ERISA (29 
U.S.C. 1085a(cXl)) is amended by striking out "$2,000,000" and 
inserting in lieu thereof "$1,000,000". 
(f) EFFECTIVE DATES.— 
26 use 412 note. 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply in the case o
f
— 
(A) any application submitted after December 17, 1987, 
and 
(B) any waiver granted pursuant to such an application. 
(2) SPECIAL RULE FOR APPUCATION REQUIREMENT.— 
101 STAT. 1330-356 
PUBLIC LAW 100-203—DEC. 22, 1987 
. J 
(A) IN GENERAL.—The amendments made by subsections 
(a)(1)(A) and (a)(2)(A) shall apply to plan years beginning 
after December 31,1987. 
(B) TRANSITIONAL RULE FOR YEARS BEGINNING IN I988.—In 
the case of any plan year beginning during calendar 1988, 
,. 
section 412(d)(4) of the 1986 Code and section 303(d)(1) of 
ERISA (as added by subsection (a)(1)) shall be applied by 
substituting "6th month" for "3rd month". 
(3) FREQUENCY OF WAIVERS.—In applying the second sentence 
of section 412(d) of the 1986 Code and section 303(a) of ERISA to 
plans other than multiemployer plans, the number of waivers 
which may be granted pursuant to applications submitted after 
December 17, 1987, shall be determined without regard to 
waivers granted with respect to plan years beginning before 
January 1, 1988. 
(4) SUBSECTION (d).—The amendments made by subsection (d) 
shall apply to applications submitted more than 90 days after 
the date of the enactment of this Act. 
SEC. 9307. OTHER FUNDING CHANGES. 
, . 
•
« 
'; 
(a) A M O R T I Z A T I O N P E R I O D S . — 
*•• ' 
' 
-*• 
(1) AMENDMENTS TO 1986 CODE.— 
(A) Paragraphs (2)(B)(iv), (2)(C), and (3XB)(ii) of section 
26 use 412. 
o ? 
4120t>) of the 1986 Code are each amended by striking out 
"15 plan years" and inserting in lieu thereof "5 plan years 
i •<: 
(15 plan years in the case of a multiemployer plan)". 
.ftu>n: ti 
(B) Paragraphs (2)(B)(v) and (3)(B)(iii) of section 412(b) of 
;„ 
the 1986 Code are each amended by striking out "30 plan 
years" and inserting in lieu thereof "10 plan years (30 plan 
years in the case of a multiemployer plan)". 
(2) AMENDMENTS TO ERISA.— 
(A) Paragraphs (2)(B)(iv), (2)(C), and (3)(B)(ii) of section 
302(b) of ERISA (29 U.S.C. 1082(b)) are each amended by 
|. 
striking out "15 plan years" and inserting in lieu thereof "5 
plan years (15 plan years in the case of a multiemployer 
plan)". 
(B) Paragraphs (2)(B)(v) and (3)(B)(iii) of section 3020)) of 
ERISA (29 U.S.C. 1082(b)) are each amended by striking out 
"30 plan years" and inserting in lieu thereof' 10 plan years 
(30 plan years in the case of a multiemployer plan)". 
O
b
) ACTUARIAL ASSUMPTIONS MUST BE REASONABLE.— 
(1) AMENDMENT TO 1986 CODE.—Paragraph (3) of section 412(c) 
of the 1986 Code is amended to read £is follows: 
"(3) ACTUARIAL ASSUMPTIONS MUST BE REASONABLE.—For pur-
poses of this section, all costs, liabilities, rates of interest, and 
other factors under the plan shall be determined on the basis of 
actuarial assumptions and methods— 
--
"(A) in the case o
f
— 
^'' 
"(i) a plan other than a multiemployer plan, each of 
which is reasonable (taking into account the experience 
. • ! ,r 5 i 
of the plan and reasonable expectations) or which, in 
. •
• 
the aggregate, result in a total contribution equivalent 
to that which would be determined if each such 
, 
' 
assumption and method were reasonable, or 
"(ii) a multiemployer plan, which, in the aggregate, 
*ii •;-•';:.' 
are reasonable (taking into account the experiences of 
the plan and reasonable expectations), and 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-357 
'(B) which, in combination, offer the actuary's best esti-
mate of anticipated experience under the plan." 
(2) AMENDMENT TO ERISA.—Paragraph (3) of section 302(c) of 
ERISA (29 U.S.C. 1082(c)(3)) is amended to read as follows: 
"(3) For purposes of this section, all costs, liabilities, rates of 
interest, and other factors under the plan shall be determined on 
the basis of actuarial assumptions and methods— 
"(A) in the case o
f
— 
"(i) a plan other than a multiemployer plan, each of 
which is reasonable (taking into account the experience 
of the plan and reasonable expectations) or which, in 
the aggregate, result in a total contribution equivalent 
to that which would be determined if each such 
assumption and method were reasonable, or 
" 
"(ii) a multiemployer plan, which, in the aggregate, 
are reasonable (taking into account the experiences of 
the plan and reasonable expectations), and 
"(B) which, in combination, offer the actuary's best esti-
mate of anticipated experience under the plan.' 
(c) LIMITATION ON DEDUCTION FOR CONTRIBUTIONS TO CERTAIN 
PLANS NOT LESS THAN UNFUNDED CURRENT LIABIUTY.—Paragraph 
(1) of section 404(a) of the 1986 Code is amended by redesignating 
26 USC 404. 
subparagraph (D) as subparagraph (E) and by inserting after 
subparagraph (C) the following new subparagraph: 
"(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—In the case 
of any defined benefit plan (other than a multiemployer 
^^'^ 
plan) which has more than 100 participants for the plan 
year, except as provided in regulations, the maximum 
[ 
amount deductible under the limitations of this paragraph 
shall not be less than the unfunded current liability deter-
mined under section 412(1) (without regard to any reduction 
by the credit balance in the funding standard account). For 
purposes of this subparagraph, all defined benefit plans 
maintained by the same employer (or any member of such 
,f . 
employer's controlled group (within the meaning of section 
' 
412(l)(8Xc))) shall be treated as 1 plan, but only employees of 
such member or employer shall be taken into account." 
(d) LIMITATION ON AMORTIZATION OF PAST SERVICE CREDITS.— 
;.:; , 
Clause (iii) of section 404(aXlXA) of the 1986 Code (relating to 
pension trusts) is amended by striking out "to amortize such cred-
its" and inserting in lieu thereof "to amortize the unfunded costs 
attributable to such credits". 
(e) LIMITATION ON INTEREST RATE.— 
(1) AMENDMENT TO 1986 CODE.—Paragraph (5) of section 4120t>) 
of the 1986 Code (relating to interest) is amended to read as 
follows: 
"(5) INTEREST.— 
"(A) IN GENERAL.—The funding standard account (and Regulations. 
items therein) shall be charged or credited (as determined 
.Si' 
under regulations prescribed by the Secretary) with in-
•: 
terest at the appropriate rate consistent with the rate or 
rates of interest used under the plan to determine costs. 
"(B) REQUIRED CHANGE OF INTEREST RATE.—For purposes 
of determining a plan's current liability and for purposes of 
'in ^ 
determining a plan's required contribution under section 
412(1) for any plan year— 
101 STAT. 1330-358 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(i) IN GENERAL.—If any rate of interest used under 
the plan to determine cost is not within the permissible 
range, the plan shall establish a new rate of interest 
within the permissible range. 
o 
"(ii) 
PERMISSIBLE 
RANGE.—For purposes of this 
subparagraph— 
"(I) 
IN GENERAL.—Except 
as 
provided 
in 
subclause (II), the term 'permissible range' means 
a rate of interest which is not more than 10 per-
cent above, and not more than 10 percent below, 
the weighted average of the rates of interest on 30-
year Treasury securities during the 4-year period 
ending on the last day before the beginning of the 
plan year. 
, 
"(II) SECRETARIAL AUTHORITY.—If the Secretary 
finds that the lowest rate of interest permissible 
under subclause (I) is unreasonably high, the Sec-
j;. ^ ... 
retary may prescribe a lower rate of interest, 
except that such rate may not be less than 80 
percent of the average rate determined under 
subclause (I). 
icn 
"(iii) 
ASSUMPTIONS.—Notwithstanding 
subsection 
(c)(3)(A)(i), for purposes of this section and for purposes 
of determining current liability, the interest rate used 
, 
under the plan shall be— 
1 / 
"(I) determined without taking into account the 
experience of the plan and reasonable expecta-
tions, but 
"(II) consistent with the assumptions which re-
flect the purchase rates which would be used by 
insurance companies to satisfy the liabilities under 
the plan.". 
(2) AMENDMENT TO ERISA.—Paragraph (5) of section 3O20t>) of 
ERISA (relating to interest) (29 U.S.C. 1082(bX5)) is amended to 
read as follows: 
"(5) INTEREST.—For purposes of determining a plan's current li-
ability and for purposes of determining a plan's required contribu-
tion under section 412(1) for any plan year— 
Regulations. 
"(A) IN GENERAL.—The funding standard account (and items 
therein) shall be charged or credited (as determined under 
regulations prescribed by the Secretary of the Treasury) with 
interest at the appropriate rate consistent with the rate or rates 
of interest used under the plan to determine costs. 
"(B) REQUIRED CHANGE OF INTEREST RATE.— 
"(i) IN GENERAL.—If any rate of interest used under the 
plan to determine cost is not within the permissible range, 
the plan shall establish a new rate of interest within the 
permissible range. 
"(ii) PERMISSIBLE RANGE.—For purposes of this subpara-
graph— 
"(I) IN GENERAL.—Except as provided in subclause 
(II), the term 'permissible range' means a rate of in-
terest which is not more than 10 percent above, and not 
more than 10 percent below, the average rate of in-
terest on 30-year Treasury securities during the 4-year 
.1 
period ending on the last day before the beginning of 
the plan year. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-359 
"(II) SECRETARIAL AUTHORITY.—If the Secretary finds 
that the lowest rate of interest permissible under 
subclause (I) is unreasonably high, the Secretary may 
prescribe a lower rate of interest, except that such rate 
may not be less than 80 percent of the average rate 
determined under subclause (I). 
"(iii) 
ASSUMPTIONS.—Notwithstanding 
subsection 
(cX3)(A)(i), for purposes of this section and for purposes of 
determining current liability, the interest rate used under 
the plan shall be— 
"(I) determined without taking into account the 
experience of the plan and reasonable expectations, but 
"(11) consistent with the assumptions which reflect 
the purchase rates which would be used by insurance 
companies to satisfy the liabilities under the plan.".'** 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 404 note, 
apply to years beginning after December 31,1987. 
Subpart B—Plan Terminations 
SEC. 9311. LIMITATIONS ON 
EMPLOYER 
REVERSIONS UPON 
PLAN 
TERMINATION. 
(a) RESTRICTIONS ON REVERSIONS PURSUANT TO RECENTLY AMENDED 
PLANS.— 
(1) IN GENERAL.—Section 4044(d) of ERISA (29 U.S.C. 1344(d)) 
is amended— 
(A) by redesignating paragraph (2) as paragraph (3); and 
(B) by inserting after paragraph (1) the following new 
paragraph: 
"(2)(A) In determining the extent to which a plan provides for the 
distribution of plan assets to the employer for purposes of paragraph 
(1)(C), any such provision, and any amendment increasing the 
amount which may be distributed to the employer, shall not be 
treated as effective before the end of the fifth calendar year follow-
ing the date of the adoption of such provision or amendment. 
"(B) A distribution to the employer from a plan shall not be 
treated as failing to satisfy the requirements of this paragraph if the 
plan has been in effect for fewer than 5 years and the plan has 
provided for such a distribution since the effective date of the plan. 
"(C) Except as otherwise provided in regulations of the Secretary 
Regulations. 
of the Treasury, in any case in which a transaction described in 
section 208 occurs, subparagraph (A) shall continue to apply sepa-
rately with respect to the amount of any assets transferred in such 
transaction. 
"(D) For purposes of this subsection, the term 'employer' includes 
any member of the controlled group of which the employer is a 
member. For purposes of the preceding sentence, the term 'con-
trolled group' means any group treated as a single employer under 
subsection (b), (c), (m) or (o) of section 414 of the Internal Revenue 
Code of 1986." 
(2) TRANSITIONAL RULE.—The amendments made by para- 
29 use 1344 
graph (1) shall apply, in the case of plans which, as of 
note. 
December 17, 1987, have no provision relating to the distribu-
tion of plan assets to the employer for purposes of section 
4044(dXlXC) of the Employee Retirement Income Security Act of 
1974, only with respect to plan amendments providing for the 
"•Copy read "plan." 
91-194 O - 90 - 37 : QL.3 Part 2 
101 STAT. 1330-360 
PUBLIC LAW 100-203—DEC. 22, 1987 
distribution of plan assets to the employer which are adopted 
after 1 year after the effective date of such amendments made 
by paragraph (1). Such amendment shall not apply to any 
provision of the plan adopted on or before December 17, 1987, 
which provides for the distribution of plan assets to the em-
ployer. 
(b) DISTRIBUTION OF ASSETS ATTRIBUTABLE TO EMPLOYEE CONTRIBU-
TIONS.—Section 4044(d) of ERISA (29 U.S.C. 1344(d)) is amended— 
(1) in paragraph (1), by striking "Any" and inserting "Subject 
to paragraph (3), any"; and 
(2) by striking paragraph (3) (as redesignated by subsection 
(c)(1)) and inserting the following new paragraph: 
"(3)(A) Before any distribution from a plan pursuant to paragraph 
(1), if any assets of the plan attributable to employee contributions 
0;fcii f ;i 0'; 5 
remain after satisfaction of all liabilities described in subsection (a), 
such remaining assets shall be equitably distributed to the partici-
pants who made such contributions or their beneficiaries (including 
alternate payees, within the meaning of section 206(d)(3)(K)). 
"(B) For purposes of subparagraph (A), the portion of the remain-
ing assets which are attributable to employee contributions shall be 
an amount equal to the product derived by multiplying— 
"(i) the market value of the total remaining assets, by 
"(ii) a fraction— 
«lijV^ 
"(I) the numerator of which is the present value of all 
portions of the accrued benefits with respect to participants 
|,^^ 
which are derived from participants' mandatory contribu-
,^. "j 
tions (referred to in subsection (aX2)), and 
"(II) the denominator of which is the present value of all 
^,:; 
benefits with respect to which assets are allocated under 
paragraphs (2) through (6) of subsection (a). 
"(C) For purposes of this paragraph, each person who is, as of the 
termination date— 
"(i) a participant under the plan, or 
"(ii) an individual who has received, during the 3-year period 
ending with the termination date, a distribution from the plan 
of such individual's entire nonforfeitable benefit in the form of 
a single sum distribution in accordance with section 203(e) or in 
the form of irrevocable commitments purchased by the plan 
oiJElyati^; 
from an insurer to provide such nonforfeitable benefit, 
shall be treated as a participant with respect to the termination, if 
all or part of the nonforfeitable benefit with respect to such person 
is or was attributable to participants' mandatory contributions (re-
ferred to in subsection (a)(2))." 
(c) TECHNICAL AMENDMENT.—Section 404405X4) of ERISA (29 
U.S.C. 1344(bX4)) is amended by striking "section 401(a), 403(a), or 
405(a)" and inserting "section 401(a) or 403(a)". 
29 use 1344 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to— 
(1) plan terminations under section 4041(c) of ERISA with 
respect to which notices of intent to terminate are provided 
under section 4041(aX2) of ERISA after December 17, 1987, and 
(2) plan terminations with respect to which proceedings are 
instituted by the Pension Benefit Guaranty Corporation under 
section 4042 of ERISA after December 17,1987. 
;5g;7 |>C-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-361 
SEC. 9312. ELIMINATION OF SECTION 4049 TRUST: INCREASE IN LIABILITY 
TO PENSION BENEFIT GUARANTY CORPORATION AND IN 
;c 
PAYMENTS BY 
CORPORATION TO PARTICIPANTS AND 
BENEFICIARIES. 
(a) REPEAL.—Section 4049 of ERISA (29 U.S.C. 1349) is repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) ELIMINATION OF EMPLOYER LIABILITY TO SECTION 4049 
* 
TRUST.— 
(A) REPEAL.—Subsection (c) of section 4062 of ERISA (29 
f 
U.S.C. 1362(c)) is repealed. 
'•*• 
(B) CONFORMING AMENDMENTS.—Section 4062 of ERISA is 
further amended by redesignating subsections (d), (e), and 
"
* * 
(f) as subsections (c), (d), and (e), respectively. 
(2) INCREASE IN EMPLOYER LIABILITY TO THE CORPORATION.— 
-j^* 
(A) IN GENERAL.—Subparagraph (A) of section 4062(b)(1) 
of ERISA (29 U.S.C. 1362(bXlXA)) is amended to read as 
w»i; •' follows: 
"(A) IN GENERAL.—Exccpt as provided in subparagraph Regulations. 
'' 
(B), the liability to the corporation of a person described in 
subsection (a) shall be the total amount of the unfunded 
benefit liabilities (as of the termination date) to all partici-
pants and beneficiaries under the plan, together with in-
terest (at a reasonable rate) calculated from the termi-
nation date in accordance with regulations prescribed by 
the corporation." 
JUMC » 
(B) L I E N LIMITED TO 30 PERCENT OF NET WORTH.— 
(i) Subsection (a) of section 4068 of ERISA (29 U.S.C. 
"
^
^ 
1368(a)) is amended by striking out "to the extent of an 
'^ 
amount equal to the unpaid amount described in sec-
tion 4062(b)(l)(A)(i)" each place it appears and inserting 
in lieu thereof "to the extent such amount does not 
^^ 
exceed 30 percent of the collective net worth of all 
persons described in section 4062(a)". 
m'm- 
(ii) Title IV of ERISA (29 U.S.C. 4001 et seq.) is 
amended by transferring subsection (e) of section 4062 
^
'
^ 
of ERISA (29 U.S.C. 1362(e)) to the end of section 4068 
«' 
of ERISA (29 U.S.C. 1368) and by redesignating such 
subsection as subsection (f). 
fl; 
(C) TREATMENT OF MULTIPLE CONTROLLED GROUPS.— 
^
* 
(i) IN GENERAL.—So much of section 4064(b) of ERISA 
(29 U.S.C. 13640t))) as precedes the second sentence is 
"" ""' 
amended to read as follows: 
"(b) The corporation shall determine the liability with respect to 
each contributing sponsor and each member of its controlled group 
in a manner consistent with section 4062, except that the amount of 
liability determined under section 4062(bKl) with respect to the 
entire plan shall be allocated to each controlled group by multiply-
ing such amount by a fraction— 
"(1) the numerator of which is the amount required to be 
contributed to the plan for the last 5 plan years ending prior to 
the termination date by persons in such controlled group as 
"'' contributing sponsors, and 
"(2) the denominator of which is the total amount required to 
^ be contributed to the plan for such last 5 plan years by all 
persons as contributing sponsors, 
101 STAT. 1330-362 
PUBLIC LAW 100-203—DEC. 22, 1987 
and clauses (iXII) and (ii) of section 4062(bXlXA) shall be applied 
separately with respect to each controlled group." 
(ii) CONFORMING AMENDMENTS.—Section 4068(a) of 
ERISA (29 U.S.C. 1368(a)) is amended by adding at the 
: 
,,^, . 
end thereof the following new sentence: "The preceding 
pj.QyjgjQjjg Qf ^jjjg subsection shall be applied in a 
.,^..j ,. 
manner consistent with the provisions of section 
4064(d) relating to treatment of multiple controlled 
^
> 
groups." 
(3) PAYMENT BY CORPORATION TO PARTICIPANTS AND BENE-
, 
FICIARIES OF RECOVERY PERCENTAGE OF OUTSTANDING AMOUNT OF 
•
• 
BENKFIT LIABILITIES ~~' 
^ 
(A) IN GENERAL.—Section 4022 of ERISA (29 U.S.C. 1322) 
is amended— 
(i) by redesignating subsections (c) and (d) as subsec-
tions (d) and (e); and 
(ii) by inserting after subsection 0)) the following new 
_
^ 
subsection: 
"(cXD In addition to benefits paid under the preceding provisions 
of this section with respect to a terminated plan, the corporation 
shall pay the portion of the amount determined under paragraph (2) 
which is allocated with respect to each participant under section 
4044(a), to such participant or (in the case of a deceased participant) 
to such participant's beneficiaries (including alternate payees, 
within the meaning of section 206(dX3XK)). 
"(2) The amount determined under this paragraph is an amount 
equal to the product derived by multiplying— 
"(A) the outstanding amount of benefit liabilities under 
the plan (including interest calculated from the termination 
date), by 
"(B) the applicable recovery ratio. 
"(3XA) Except as provided in subparagraph (C), for purposes of 
this subsection, the term 'recovery ratio' means the average ratio, 
with respect to prior plan terminations described in subparagraph 
(B),of-
"(i) the value of the recovery of the corporation under section 
4062, 4063, or 4064 in connection with such prior terminations, 
to 
"(ii) the amount of unfunded benefit liabilities under such 
plans as of the termination date in connection with such prior 
terminations. 
"(B) A plan termination described in this subparagraph is a 
termination with respect to which— 
"(i) the corporation has determined the value of recoveries 
under section 4062, 4063, or 4064, and 
"(ii) notices of intent to terminate were provided after Decem-
ber 17,1987. 
"(C) In the case of a terminated plan with respect to which the 
outstanding amount of benefit liabilities exceeds $20,000,000, for 
purposes of this section, the term 'recovery ratio' means, with 
respect to the termination of such plan, the ratio o
f
— 
"(i) the value of the recoveries of the corporation under 
y section 4062, 4063, or 4064 in connection with such plan, to 
I 
"(ii) the amount of unfunded benefit liabilities under such 
plan as of the termination date. 
^ 
, v 
. 
.. , , , 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-363 
"(4) Determinations under this subsection shall be made by the 
corporation. Such determinations shall be binding unless shown by 
clear and convincing evidence to be unreasonable.' 
(B) TRANSITIONAL RULE.— 
29 use 1322 
(i) IN GENERAL.—In the case of any plan termination 
"ote. 
to which the amendments made by this section apply 
and with respect to which notices of intent to terminate 
were provided on or before December 17,1990— 
^;»ftfi 
(I) subparagraph (A) of section 4022(c)(1) of 
ERISA (as amended by this paragraph) shall not 
^u :'*'•• 
apply, and 
(II) subparagraph (B) of section 4022(c)(1) of 
ERISA (as so amended) shall apply irrespective of 
the outstanding amount of benefit liabilities under 
the plan, 
(ii) LIMITATION.—Clause (i) shall not apply in the case 
of any plan termination referred to in clause (i) with 
respect to which the recovery ratio is not finally deter-
mined under section 4022(c)(1)(B) of ERISA (as so 
amended) as of December 17,1990. 
(4) BENEFIT LIABIUTIES.—Paragraph (16) of section 4001(a) of 
ERISA (29 U.S.C. 1301(aX16)) is amended to read as follows: 
"(16) 'benefit liabilities' means the benefits of employees and 
their beneficiaries under the plan (within the meaning of sec-
tion 401(aX2) of the Internal Revenue Code of 1986);". 
(5) OUTSTANDING AMOUNT OF BENEFIT UABILITIES.—Paragraph 
(19) of section 4001(a) of ERISA (29 U.S.C. 1301(a)(19)) is 
amended to read as follows: 
"(19) 'outstanding amount of benefit liabilities' means, with 
respect to any plan, the excess (if any) o
f
— 
"(A) the value of the benefit liabilities under the plan 
(determined as of the termination date on the basis of 
assumptions prescribed by the corporation for purposes of 
section 4044), over 
"(B) the value of the benefit liabilities which would be so 
determined by only taking into account benefits which are 
guaranteed under section 4022 or to which assets of the 
plan are allocated under section 4044;". 
(c) ADDITIONAL CONFORMING AMENDMENTS.— 
(1) Section 4041(c)(3XB)(ii) of ERISA (29 U.S.C. 1341(cX3XBXii)) 
is amended— 
(A) by striking subclause (II); 
(B) by striking "plan, and" at the end of subclause (I) and 
inserting "plan.'; and 
^ 
(C) by striking "available to it—" and all that follows 
« • 
through "the plan administrator" and inserting "available 
to it, the plan administrator". 
- 
(2) 
Section 
4041(cX3XBXiii) 
of 
ERISA 
(29 
U.S.C. 
1341(cX3XBXiii)) is amended— 
(A) by striking subclause (II); 
(B) by striking "section 4042, and" at the end of subclause 
(I) and inserting "section 4042."; and 
(C) by striking "available to it—" and all that follows 
through "the corporation" in subclause (I) and inserting 
"available to it, the corporation". 
(3) Subsection (i) of section 4042 of ERISA (29 U.S.C. 1342(i)) is 
repealed. 
101 STAT. 1330-364 
PUBLIC LAW 100-203—DEC. 22, 1987 
.^^: 
(4) Section 4005(g) of ERISA (29 U.S.C. 1305(g)) is amended by 
t?f striking out "or fiduciaries with respect to trusts to which the 
requirements of section 4049 apply", 
(d) EFFECTIVE DATE.— 
29 use 1301 
,. 
(1) IN GENERAL.—The amendments made by this section shall 
"o**- 
apply with respect to— 
->j, . 
(A) plan terminations under section 4041(c) of ERISA 
with respect to which notices of intent to terminate are 
). 
' 
provided 
under 
section 
4041(a)(2) 
of 
ERISA 
after 
; . . . 
December 17, 1987, and 
(B) plan terminations with respect to which proceedings 
v^ 
are instituted by the Pension Benefit Guaranty Corporation 
;; 
under section 4042 of ERISA after December 17, 1987. 
Regulations. 
^ 
(2) SECTION 4049 ADMINISTRATIVE EXPENSES UNDER PRIOR 
29 use 1349. 
TERMINATIONS.—Section 4049(a) of ERISA (as effective under 
^; paragraph (1)), is amended by adding at the end thereof the 
^ 
following new sentence: "Reasonable administrative expenses 
.., incurred in carrying out the responsibilities under this section 
->,, prior to the receipt of any liability payments under section 
4062(c) shall be paid by the persons described in section 4062(a) 
li 
in accordance with procedures which shall be prescribed by the 
. 
corporation by regulation, and the amount of the liability deter-
f
, mined under section 4062(c) shall be reduced by the amount of 
such expenses so paid." 
SEC. 9313. STANDARDS FOR TERMINATION. 
' 
' 
-* ~ ' ' ^' 
(a) STANDARD TERMINATION PROCEDURES AVAILABLE ONLY WHEN 
ASSETS SUFFICIENT TO MEET BENEFIT LIABILITIES.— 
(1) IN GENERAL.—Subparagraph (D) of section 4041(b)(1) of 
ERISA (29 U.S.C. 1341(b)(1)(D)) is amended to read as follows: 
"(D) when the final distribution of assets occurs, the plan 
% 
is sufficient for benefit liabilities (determined as of the 
. 
termination date)." 
(2) TECHNICAL AMENDMENTS.— 
(A) Paragraphs (2)(A), (2)(C), (2)(D), and (3) of section 
ij, 
4041(b) of ERISA (29 U.S.C. 1341(b)(2XA), (2)(C), (2XD), (3)) 
,^j 
are each amended by striking out "benefit commitments" 
each place it appears and inserting in lieu thereof "benefit 
liabilities". 
,,^Vi. 
(B) Subparagraph (B) of section 4041(b)(2) of ERISA (29 
• 
' 
U.S.C. 134ia))(2)(B)) is amended— 
(i) by striking out "the amount of such person's 
. f . 
benefit commitments (if any)" and inserting in lieu 
thereof "the amount of the benefit liabilities (if any) 
,
^
, 
^ - 
attributable to such person"; and 
f 
' 
(ii) by striking out "such benefit commitments" and 
inserting in lieu thereof "such benefit liabilities". 
-^ - 
(CXi) Subparagraph (A) of section 4041(bX3) of ERISA (29 
U.S.C. 1341(bX3XA)) is amended by striking out clauses (i) 
and (ii) and inserting in lieu thereof the following: 
vo^' 
"(i) purchase irrevocable commitments from an in-
surer to provide all benefit liabilities under the plan, or 
"(ii) in accordance with the provisions of the plan and 
any applicable regulations, otherwise fully provide all 
benefit liabilities under the plan." 
,j-. ;iv 
(ii) Subparagraph (B) of section 4041(b)(3) of ERISA (29 
U.S.C. 1341(bX3)) is amended by striking out "so as to pay" 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-365 
and all that follows and inserting in lieu thereof "so as to 
pay all benefit liabilities under the plan". 
(D) Paragraphs (2) and (3) of section 4041(c) of ERISA (29 
U.S.C. 1341(c) (2), (3)) are each amended by striking out 
"benefit commitments" each place it appears (including in 
any heading) and inserting in lieu thereof 
"benefit 
liabilities". 
(E) Paragraph (1) of section 4041(d) of ERISA (29 U.S.C. 
1341(d)) is amended— 
• 
(i) by striking out "no amount of unfunded benefit 
, ; 
commitments" and inserting in lieu thereof "no 
amount of unfunded benefit liabilities", and 
r, 
•, 
(ii) by striking out "BENEFIT COMMITMENTS" in the 
paragraph heading and inserting in lieu thereof "BENE-
FIT u ABILITIES". 
(F) Paragraph (18) of section 4001(a) of ERISA (29 U.S.C. 
1301(a)(18)) is amended to read as follows: 
j, 
. 
t 
"(18) 'amount of unfunded benefit liabilities' means, as of any 
t^ ,: 
date, the excess (if any) of^ 
"(A) the value of the benefit liabilities under the plan 
(determined as of such date on the basis of assumptions 
prescribed by the corporation for purposes of section 4044), 
over 
"(B) the current value (as of such date) of the assets of the 
plan;". 
O
t
)
) CRITERIA FOR DISTRESS TERMINATION.— 
(1) APPUCABIUTY TO ALL MEMBERS OF CONTROLLED GROUP.— 
Section 4041(cX2) of ERISA (29 U.S.C. 1341(c)(2)) is amended— 
(A) in subparagraph (B), by striking "a substantial 
tJ 
member" in the matter preceding clause (i) and inserting "a 
member"; and 
(B) by striking subparagraph (C) and by redesignating 
subparagraph (D) as subparagraph (C). 
(2) REQUIREMENT OF ADDITIONAL FINDINGS TO QUALIFY FOR 
DISTRESS TERMINATION 
BASED ON REORGANIZATION 
IN 
BANK-
RUPTCY.—Scction 
4041(cX2XBXiiXIII) 
of 
ERISA 
(29 
U.S.C. 
1341(cX2XBXiiXIII)) is amended by striking "approves the termi-
nation" and inserting "determines that, unless the plan is 
terminated, such person will be unable to pay all its debts 
pursuant to a plan of reorganization and will be unable to 
continue in business outside the chapter 11 reorganization 
process and approves the termination". 
(3) CLARIFICATION OF DATE AS OF WHICH EMPLOYER MUST BE IN 
A BANKRUPTCY 
PROCEEDING TO QUAUFY FOR DISTRESS 
TERMI-
NATION.—ClaUSeS (i) and (ii) of section 4041(cX2XB) of ERISA (29 
U.S.C. 1341(cX2XB) (i) and (ii)) are each amended by inserting 
"proposed" before "termination date". 
(4) TREATMENT UNDER DISTRESS TESTS OF CASES CONVERTED TO 
UQuiDATiON.—Section 4041(cX2XBXiXI) of ERISA (29 U.S.C. 
1341(cX2XBXiXI)) is amended by inserting before the comma at 
the end the following: "(or a case described in clause (ii) filed by 
or against such person has been converted, as of such date, to a 
case in which liquidation is sought)". 
(5) NOTICE TO CORPORATION UNDER REORGANIZATION 
DISTRESS 
TEST.—Section 
4041(cX2XBXii) 
of 
ERISA 
(29 
U.S.C 
1341(cX2XBXii)) is amended— 
(A) in subclause (II), by striking "and" at the end; 
101 STAT. 1330-366 
PUBLIC LAW 100-203—DEC. 22, 1987 
(B) by redesignating subclause (III) as subclause (IV); 
(C) by inserting after subclause (II) the following new 
" 
subclause: 
"(III) such person timely submits to the corpora-
* 
tion any request for the approval of the bank-
r 
' f 
ruptcy court (or other appropriate court in a case 
under such similar law of a State or political sul>-
division) of the plan termination, and"; 
and 
(D) in subclause (IV) (as redesignated), by striking "(or 
<
>
•
" 
other" and all that follows through "subdivision) 
and 
inserting "(or such other appropriate court)". 
(6) ARRANGEMENTS FOR PAYMENT OF LIABILITY BY CONTROLLED 
GROUPS.—Section 4067 of ERISA (29 U.S.C. 1367) is amended by 
striking "controlled groups who are" and inserting "controlled 
groups who are or may become". 
29 use 1301 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to plan terminations under section 4041 of 
ERISA with respect to which notices of intent to terminate are 
provided under section 4041(a)(2) of ERISA after December 17, 1987. 
SEC. 9314. ADDITIONAL AMENDMENTS RELATING TO PLAN TERMINATION. 
(a) CERTAIN INFORMATION NOT REQUIRED FROM CERTAIN INSUR-
ANCE CONTRACT PLANS.— 
(1) STANDARD TERMINATION.—Section 4041(b)(2)(A) of ERISA 
(29 U.S.C. 1341(b)(2)(A)) is amended— 
(A) by striking clause (iii) and inserting the following: 
"(iii) certification by the plan administrator that— 
a 
"(I) the information on which the enrolled actu-
ary based the certification under clause (i) is ac-
curate and complete, and 
jii'^ 
"(II) the information provided to the corporation 
under clause (ii) is accurate and complete."; and 
(B) by adding at the end thereof the following: 
"Clause (i) and clause (iii)(I) shall not apply to a plan described 
in section 412(i) of the Internal Revenue Code of 1986.". 
(2) DISTRESS TERMINATION.—Section 4041(c)(2)(A) of ERISA (29 
U.S.C. 1341(c)(2)(A)) is amended— 
(A) by striking clause (iv) and inserting the following: 
"(iv) certification by the plan administrator that— 
"(I) the information on which the enrolled actu-
ary based the certifications under clause (ii) is 
t: 
- 
accurate and complete, and 
"(II) the information provided to the corporation 
under clauses (i) and (iii) is accurate and com-
vtf 
plete."; and 
(B) by adding at the end the following: 
"Clause (ii) and clause (iv)(I) shall not apply to a plan described 
in section 412(i) of the Internal Revenue Code of 1986.". 
(b) CLARIFICATION OF EXISTING AUTHORITY TO POOL ASSETS OF TERMI-
NATED PLANS.—Section 4042 of ERISA (29 U.S.C. 1342(a)) is amended 
by striking the third sentence and inserting the following: "Notwith-
standing any other provision of this title, the corporation is au-
thorized to pool assets of terminated plans for purposes of adminis-
tration, investment, payment of liabilities of all such terminated 
plans, and such other purposes as it determines to be appropriate in 
the administration of this title.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-367 
(b) SUBMISSION OF PLAN DATA IN INVOLUNTARY TERMINATION.— 
Section 4042(c) of ERISA (29 U.S.C. 1342(c)) is amended by adding at 
the end the following new paragraph: 
"(3) In the case of a proceeding initiated under this section, the 
plan administrator shall provide the corporation, upon the request 
of the corporation, the information described in clauses (ii), (iii), and 
(iv) of section 4041(cX2XA).". 
(c) CIVIL PENALTIES FOR FAILURE TO TIMELY PROVIDE REQUIRED 
INFORMATION RELATING TO SINGLE-EMPLOYER PLANS.— 
(1) IN GENERAL.—Subtitle D of ERISA (29 U.S.C. 1361 et seq.) 
is amended by adding at the end the following new section: 
"PENALTY FOR FAILURE TO TIMELY PROVIDE REQUIRED INFORMATION 
"SEC. 4071. The corporation may assess a penalty, payable to the 
29 USC 1371. 
corporation, against any person who fails to provide any notice or 
other material information required under this subtitle or subtitle 
A, B, or C, or any regulations prescribed under any such subtitle, 
within the applicable time limit specified therein. Such penalty 
shall not exceed $1,000 for each day for which such failure 
continues.". 
(2) CLERICAL AMENDMENTS.—The table of contents in section 1 
of ERISA (29 U.S.C. 1001 note) is amended by adding after the 
item relating to section 4070 the following new item: 
"Sec. 4071. Penalty for failure to timely provide required information.". 
Subpart C—Increase in Premium Rates 
SEC. 9331. INCREASE IN PREMIUM RATES. 
(a) GENERAL RULE.—Clause (i) of section 4006(aX3XA) of ERISA (29 
U.S.C. 1306(a)(3)(A)) is amended by striking out "for plan years 
beginning after December 31, 1985, an amount equal to $8.50" and 
inserting in lieu 
thereof 
"for plan 
years beginning 
after 
December 31, 1987, an amount equal to the sum of $16 plus the 
additional premium (if any) determined under subparagraph (E)". 
(b) DETERMINATION OF ADDITIONAL PREMIUM.—Paragraph (3) of 
section 4006(a) of ERISA (29 U.S.C. 1306(aX3)) is amended by adding 
at the end thereof the following new subparagraph: 
"(EXi) The additional premium determined under this subpara-
graph with respect to any plan for any plan year shall be an amount 
equal to the amount determined under clause (ii) divided by the 
number of participants in such plan £is of the close of the preceding 
plan year. 
"(ii) The amount determined under this clause for any plan year 
shall be an amount equal to $6.00 for each $1,000 (or fraction 
thereof) of unfunded vested benefits under the plan as of the close of 
the preceding plan year. 
"(iii) For purposes of clause (ii)— 
"(I) Except as provided in subclause (II), the term 'unfunded 
vested benefits' means the amount which would be the un-
funded 
current liability (within the meaning of section 
302(dX8XA)) if only vested benefits were taken into account. 
"(II) The interest rate used in valuing vested benefits for 
purposes of subclause (I) shall be equal to 80 percent of the 
annual yield on 30-year Treasury securities for the month 
preceding the month in which the plan year begins. 
101 STAT. 1330-368 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(iv)(I) Except as provided in this clause, the aggregate increase in 
the premium payable with respect to any participant by reason of 
this subparagraph shall not exceed $34. 
"(II) If an employer made contributions to a plan during 1 or more 
of the 5 plan years preceding the 1st plan year to which this 
subparagraph applies in an amount not less than the maximum 
amount allowable as a deduction with respect to such contributions 
under section 404 of such Code, the dollar amount in effect under 
subclause (I) for the 1st 5 plan years to which this subparagraph 
applies shall be reduced by $3 for each plan year for which such 
contributions were made in such amount. 
(c) LIABILITY FOR PREMIUM.— 
(1) IN GENERAL.—Section 4007 of ERISA (29 U.S.C. 1307) is 
amended by striking out "plan administrator" each place it 
cv,! 
J •
*
; 
> 
appears and inserting in lieu thereof "designated payor". 
'^\ 
(2) DESIGNATED PAYOR.—Section 4007 of ERISA (29 U.S.C. 
^ 
1307) is amended by adding at the end thereof the following new 
subsection: 
"(e)(1) For purposes of this section, the term 'designated payor' 
means— 
"(A) the contributing sponsor or plan administrator in the 
'• 
case of a single-employer plan, and 
'> 
"(B) the plan administrator in the case of a multiemployer 
plan. 
"(2) If the contributing sponsor of any single-employer plan is a 
member of a controlled group, each member of such group shall be 
jointly and severally liable for any premiums required to be paid by 
such contributing sponsor. For purposes of the preceding sentence, 
the term 'controlled group' means any group treated as a single 
employer under subsection (b), (c), (m), or (o) of section 414 of the 
Internal Revenue Code of 1986." 
(d) DEPOSIT OF PREMIUMS INTO SEPARATE REVOLVING FUND.— 
Section 4005 of ERISA (relating to establishment of Pension Benefit 
Guaranty funds) (29 U.S.C. 1305) is amended by redesignating 
subsections (f) and (g) as subsections (g) and (h) and by inserting 
after subsection (e) the following new subsection: 
''(f)(1) A seventh fund shall be established and credited with— 
"(A) premiums, penalties, and interest charges collected 
under section 4006(a)(3)(AXi) (not described in subparagraph (B)) 
' 
to the extent attributable to the amount of the premium in 
excess of $8.50, 
» 
"(B) premiums, penalties, and interest charges collected 
under section 4006(a)(3)(E), and 
"(C) earnings on investments of the fund or on assets credited 
to the fund. 
"(2) Amounts in the fund shall be available for transfer to other 
funds established under this section with respect to a single-
employer plan but shall not be available to pay— 
> 
"(A) administrative costs of the corporation, or 
& 
"(B) benefits under any plan which was terminated before 
October 1,1988, 
unless no other amounts are available for such payment. 
"(3) The corporation may invest amounts of the fund in such 
obligations as the corporation considers appropriate." 
(e) CONFORMING AMENDMENTS.—Section 4006(cXlXA) of ERISA (29 
U.S.C. 1306(cXlXA)) is amended by striking out "and" at the end of 
clause (i), by inserting "and before January 1, 1986," after "after 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-369 
December 31, 1977,", and by adding at the end thereof the following 
new clause: 
"(iii) with respect to each plan year beginning after 
December 31, 1985, and before January 1, 1988, an 
amount equal to $8.50 for each individual who was a 
participant in such plan during the plan year, and". 
(f) EFFECTIVE DATE.— 
29 use 1305 
(1) IN GENERAL.—The amendments made by this section shall 
^°^-
K
.
^
t apply to plan years beginning after December 31,1987. 
(2) 
SEPARATE 
ACCOUNTING.—The amendments made by 
subsection (d) shall apply to fiscal years beginning after Septem-
ber 30,1988. 
Subpart D—Miscellaneous Provisions 
a M
^
i
i
w
s
^
M 
SEC. 9341. SECURITY REQUIRED UPON ADOPTION OF PLAN AMENDMENT 
RESULTING IN SIGNIFICANT UNDERFUNDING. 
(a) AMENDMENTS TO 1986 CODE,—^® Subsection (a) of section 401 of 
the 1986 Code (relating to requirements for qualification) is 
26 USC 401. 
amended by inserting after paragraph (28) the following new para-
graph: 100 
"(29) SECURITY REQUIRED UPON ADOPTION OF PLAN AMENDMENT 
RESULTING IN SIGNIFICANT UNDERFUNDING.— 
"(A) IN GENERAL.—If— 
"(i) a defined benefit plan (other than a multiem-
ployer plan) adopts an amendment an effect of which is 
., ,,,. 
,^ 
to increase current liability under the plan for a plan 
-.i'.GLiW-'-' 
year, and 
"(ii) the funded current liability percentage of the 
"'' 
plan for the plan year in which the amendment takes 
effect is less than 60 percent, including the amount of 
the unfunded current liability under the plan attrib- 
:M[I-^1; i-t 
, ^ • „ „ 
utable to the plan amendment, 
V 
the trust of which such plan is a part shall not constitute a 
qualified trust under this subsection unless such amend-
ment does not take effect until the contributing sponsor (or 
any member of the controlled group of the contributing 
sponsor) provides security to the plan. 
"(B) FORM OF SECURITY.—The security required under 
.^, 
subparagraph (A) shall consist of— 
"(i) a bond issued by a corporate surety company that 
is an acceptable surety for purposes of section 412 of 
the Employee Retirement Income Security Act of 1974, 
,.^ gj * 
"(ii) cash, or United States obligations which mature 
in 3 years or less, held in escrow by a bank or similar 
;-. 
... 
financial 
institution, or 
- gt , . :, 
"(iii) such other form of security as is satisfactory to 
the Secretary and the parties involved. 
^^ 
"(C) AMOUNT OF SECURITY.—The security shall be in an 
amount equal to the excess o
f
— 
h . J. •., .- 
"(i) the lesser of— 
"(I) the amount of additional plan assets which 
would be necessary to increase the funded current 
•• Copy read "CODE—". 
»oo Copy read "paragraph:—". 
101 STAT. 1330-370 
PUBLIC LAW 100-203—DEC. 22, 1987 
liability percentage under the plan to 60 percent, 
including the amount of the unfunded current li-
' 
ability under the plan attributable to the plan 
amendment, or 
"(II) the amount of the increase in current liabil-
ity under the plan attributable to the plan amend-
cQ' 
ment, over 
i-' 
• " 
"(ii) $10,000,000. 
-'^ " 
1 
"(D) RELEASE OF SECURITY.—Thesecurity shall be released 
(and any amounts thereunder shall be refunded together 
' •; 
with any interest accrued thereon) at the end of the first 
plan year which ends after the provision of the security and 
for which the funded current liability percentage under the 
Regulations. 
plan is not less than 60 percent. The Secretary may pre-
scribe regulations for partial releases of the security by 
^'' ; 
reason of increases in the funded 
current 
liability 
percentage. 
n 
"(E) DEFINITIONS.—For purposes of this paragraph, the 
terms 'current liability', 'funded current liability percent-
age', and 'unfunded current liability' shall have the mean-
ings given such terms by section 412(1), except that in 
computing unfunded current liability there shall not be 
taken into account any unamortized portion of the un-
funded old liability amount as of the close of the plan year." 
(b) AMENDMENTS TO ERISA.—Part 3 of subtitle B of title I of 
ERISA (29 U.S.C. 1081 et seq.) is amended— 
29 use 1086. 
(1) by redesignating section 307 as section 308; and 
(2) by inserting after section 306 the following new section: 
"SECURITY REQUIRED UPON ADOPTION OF PLAN AMENDMENT 
RESULTING IN SIGNIFICANT UNDERFUNDING 
29 use 1085b. 
"SEC. 307. (a) IN GENERAL.—If— 
"(1) a defined benefit plan (other than a multiemployer plan) 
adopts an amendment an effect of which is to increase current 
liability under the plan for a plan year, and 
"(2) the funded current liability percentage of the plan for the 
plan year in which the amendment takes effect is less than 60 
percent, including the amount of the unfunded current liability 
under the plan attributable to the plan amendment, 
the contributing sponsor (or any member of the controlled group of 
the contributing sponsor) shall provide security to the plan. 
"(b) FORM OF SECURITY.—The security required under subsection 
(a) shall consist of— 
"(1) a bond issued by a corporate surety company that is an 
acceptable surety for purposes of section 412, 
"(2) cash, or United States obligations which mature in 3 
years or less, held in escrow by a bank or similar financial 
institution, or 
"(3) such other form of security as is satisfactory to the 
Secretary of the Treasury and the parties involved. 
"(c) AMOUNT OF SECURITY.—The security shall be in an amount 
equal to the excess of— 
"(1) the lesser of— 
"(A) the amount of additional plan assets which would be 
necessary to increase the funded current liability percent-
age under the plan to 60 percent, including the amount of 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-371 
/ 
the unfunded current liability under the plan attributable 
to the plan amendment, or 
"(B) the amount of the increase in current liability under 
the plan attributable to the plan amendment, over 
"(2) $10,000,000. 
"(d) RELEASE OF SECURITY.—The security shall be released (and 
any amounts thereunder shall be refunded together with any in-
terest accrued thereon) at the end of the first plan year which ends 
after the provision of the security and for which the funded current 
liability percentage under the plan is not less than 60 percent. The Regulations. 
Secretary may prescribe regulations for partial releases of the 
security by re£ison of increases in the funded current liability 
percentage. 
"(e) DEFINITIONS.—For purposes of this section, the terms 'current 
liability', 'funded current liability percentage', and 'unfunded cur-
rent liability' shall have the meanings given such terms by section 
302(d), except that in computing unfunded current liability there 
shall not be taken into account any unamortized portion of the 
unfunded old liability amount as of the close of the plan year." 
Ot)) CLERICAL AMENDMENT.—The table of contents in section 1 of 
ERISA (29 U.S.C. 1001 note) is amended by striking out the item 
relating to section 307 and inserting in lieu thereof the following 
new items: 
"Sec. 307. Security required upon adoption of plan amendment resulting in signifi-
cant underfunding. 
"Sec. 308. Effective dates." 
' 
" 
"' 
(c) EFFECTIVE DATE.— 
26 use 40i note. 
(1) IN GENERAL.—Except sis provided in this subsection, the 
amendments made by this section shall apply to plan amend-
ments adopted after the date of the enactment of this Act. 
(2) COLLECTIVE BARGAINING AGREEMENTS.—In the case of a 
plan maintained pursuant to 1 or more collective bargaining 
agreements between employee representatives and 1 or more 
employers ratified before the date of the enactment of this Act, 
the amendments made by this section shall not apply to plan 
amendments adopted pursuant to collective bargaining agree-
ments ratified before the date of enactment. 
SEC. 9342. REPORTING REQUIREMENTS. 
(a) FUNDED PERCENTAGE REQUIRED TO BE SHOWN IN ANNUAL 
REPORT "^ 
(i) Subsection (d) of section 103 of ERISA (29 U.S.C. 1023(d)) is 
amended by redesignating paragraphs (11) and (12) as para-
graphs (12) and (13), respectively, and by inserting after para-
graph (10) the following new paragraph: 
"(11) If the current value of the assets of the plan is less than 
60 percent of the current liability under the plan (within the 
meaning of section 302(dX7)), such percentage." 
(2) Paragraph (3) of section 1040t)) of ERISA (29 U.S.C. 
1024(bX3)) is amended by striking out "such other material" and 
inserting in lieu thereof "such other material (including the 
percentage determined under section 103(dXll))". 
(b) AMENDMENT OF STATUTE OF LIMITATIONS WITH RESPECT TO 
CERTAIN REPORTS.—Section 413(aX2) of ERISA (29 U.S.C. 1113(aX2)) 
is amended by striking "(A)" and by striking "or (B)" and all that 
follows through "title". 
101 STAT. 1330-372 
PUBLIC LAW 100-203—DEC. 22, 1987 
f6*Me^.r;as-
29 u s e 1132 
note. 
Reports. 
26 u s e 401 note. 
(c) PENALTY FOR FAILURE TO PROVIDE ANNUAL REPORT IN COM-
PLETE FORM.—Section 502(c) of ERISA (29 U.S.C. 1132(c)) is 
amended— 
(1) by inserting "(1)" after "(c)", and by striking "(1) who" and 
"(2) who" and inserting "(A) who" and "(B) who", respectively; 
and 
(2) by adding at the end the following new paragraph: 
"(2) The Secretary may assess a civil penalty of up to $1,000 a day 
from the date of a plan administrator's failure or refusal to file the 
annual report required to be filed with the Secretary under section 
101(b)(4). For purposes of this paragraph, an annual report that has 
been rejected under section 104(a)(4) for failure to provide material 
information shall not be treated as having been filed with the 
Secretary.". 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section shall 
? apply with respect to reports required to be filed after 
f December 31, 1987. 
(2) REGULATIONS.—The Secretary of Labor shall issue the 
i 
regulations required to carry out the amendments made by 
" subsection (c) not later than January 1, 1989. 
SEC. 9343. COORDINATION OF PROVISIONS OF THE INTERNAL REVENUE 
CODE OF 1986 WITH PROVISIONS OF THE EMPLOYEE RETIRE-
'fl^my 
MENT INCOME SECURITY ACT OF 1974."" 
(a) INTERPRETATION OF INTERNAL REVENUE CODE.—Except to the 
extent specifically provided in the Internal Revenue Code of 1986 or 
as determined by the Secretary of the Treasury, titles I and IV of 
the Employee Retirement Income Security Act of 1974 are not 
applicable in interpreting such Code. 
(b) CLARIFICATION REGARDING EFFECT OF DETERMINATION LETTER 
B
Y THE INTERNAL REVENUE SERVICE ON ENFORCEMENT BY THE 
DEPARTMENT 
OF LABOR 
OF FIDUCIARY 
STANDARDS 
UNDER ^°^ 
ERISA.—Section 3001(d) of ERISA (29 U.S.C. 1201(d)) is amended by 
adding after the second sentence the following: "The determination 
of the Secretary of the Treasury shall not be prima facie evidence on 
issues relating solely to part 4 of subtitle B of title I.". 
(c) CLARIFICATION REGARDING RETURNS OF CONTRIBUTIONS UPON 
RECEIPT OF ADVERSE DETERMINATION LETTERS.— 
(1) IN GENERAL.—Subparagraph (B) of section 403(c)(2) of 
ERISA (29 U.S.C. 1103(c)(2)(B)) is amended to read as follows: 
"(B) If a contribution is conditioned on initial qualification of the 
plan under section 401 or 403(a) of the Internal Revenue Code of 
1986, and if the plan receives an adverse determination with respect 
to its initial qualification, then paragraph (1) shall not prohibit the 
return of such contribution to the employer within one year after 
such determination, but only if the application for the determina-
tion is made by the time prescribed by law for filing the employer's 
return for the taxable year in which such plan was adopted, or such 
later date as the Secretary of the Treasury may prescribe.". 
(2) CONFORMING AMENDMENT.—Paragraph (3) of section 403(c) 
of ERISA (29 U.S.C. 1103(cX3)) is amended by striking out 
"49720^) of the Internal Revenue Code of 1954" and inserting in 
lieu thereof "4979(c) of the Internal Revenue Code of 1986" 
" " Copy read "1974". 
'"^ Copy read "UNDER". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-373 
SEC. 9344. CLARIFICATION REGARDING THE IMPOSITION OF AN ANNUAL 
SANCTION FOR PROHIBITED TRANSACTIONS WHICH ARE 
CONTINUING IN NATURE. 
Section 502(i) of ERISA (29 U.S.C. 1132(i)) is amended by striking 
the second sentence and inserting the following: "The amount of Regulations. 
such penalty may not exceed 5 percent of the amount involved in 
each such transaction (as defined in section 4975(f)(4) of the Internal 
Revenue Code of 1986) for each year or part thereof during which 
; in ,<; 
the prohibited transaction continues, except that, if the transaction 
is not corrected (in such manner as the Secretary shall prescribe ^°^ 
in regulations which shall be consistent with section 4975(f)(5) of 
such Code) within 90 days after notice from the Secretary (or such 
longer period as the Secretary may permit), such penalty may be in 
an amount not more than 100 percent of the amount involved.". 
SEC. 9345. ADDITIONAL LIMITATIONS ON INVESTMENT BY AN INDIVID-
UAL ACCOUNT PLAN FORMING PART OF A FLOOR-OFFSET 
ARRANGEMENT AND ON INVESTMENT BY AN INDIVIDUAL 
ACCOUNT PLAN IN EMPLOYER STOCK. 
(a) 
TREATMENT OF INDIVIDUAL ACCOUNT PORTIONS OF FLOOR-
OFFSET ARRANGEMENTS.— 
(1) IN GENERAL.—Section 407(d)(3) of ERISA (29 U.S.C. 
1107(d)(3)) is amended by adding at the end the following new 
subparagraph: 
ai^nil* 2 
"(C) The term 'eligible individual account plan' does not 
include any individual account plan the benefits of which 
" 
are taken into account in determining the benefits payable 
to a participant under any defined benefit plan." 
! 
(2) TREATMENT OF FLOOR-OFFSET ARRANGEMENT AS SINGLE 
PLAN.—Section 407(d) of ERISA (29 U.S.C. 1107(d)) is amended 
by adding at the end the following new paragraph: 
"(9) For purposes of this section, an arrangement which consists of 
a defined benefit plan and an individual account plan shall be 
treated as 1 plan if the benefits of such arrangement are taken into 
^
^
^ 
„, 
account in determining the benefits payable under such defined 
benefit plan." 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 29 USC 1107 
tion shall apply with respect to arrangements established after "
o
*
®
-
December 17,1987. 
O
b
) 
RESTRICTIONS ON 
TREATMENT OF STOCK AS QUALIFYING 
EMPLOYER SECURITY.—Section 407 of ERISA (29 U.S.C. 1107) is 
amended— 
(1) in subsection (d)(5), by adding at the end the following new 
sentence: "After December 17, 1987, in the case of a plan other 
than an eligible individual account plan, stock shall be consid-
ered a qualifying employer security only if such stock satisfies 
the requirements of subsection (f)(1)."; and 
(2) by adding at the end the following new subsection: 
"(f)(1) Stock satisfies the requirements of this subsection i
f
— 
"(A) no more than 25 percent of the aggregate amount of 
stock of the same class issued and outstanding at the time of 
acquisition is held by the plan, and 
"(B) at least 50 percent of the aggregate amount referred to in 
subparagraph (A) is held by persons independent of the issuer. 
e
s 
•03 Copy read "presribe". 
101 STAT. 1330-374 
PUBLIC LAW 100-203—DEC. 22, 1987 
Contracts. 
Contracts. 
26 use 411. 
29 use 1054 
note. 
"(2) Until January 1, 1993, a plan shall not be treated as violating 
subsection (a) solely by holding stock which fails to satisfy the 
requirements of paragraph (1) if such stock— 
"(A) has been so held since December 17,1987, or 
"(B) was acquired after December 17, 1987, pursuant to a 
legally binding contract in effect on December 17, 1987, and has 
been so held at all times after the acquisition. 
"(3) After December 17, 1987, no plan may acquire stock which 
does not satisfy the requirements of paragraph (1) unless the acquisi-
tion is made pursuant to a legally binding contract in effect on such 
date.". 
SEC. 9346. INTEREST RATE ON ACCUMULATED CONTRIBUTIONS. 
(a) AMENDMENTS TO ERISA.—Section 204(c)(2) of ERISA (29 U.S.C. 
1054(c)(2)) is amended— 
(1) in subparagraph (CXiii), by striking "5 percent per annum" 
and inserting "120 percent of the Federal mid-term rate (as in 
effect under section 1274 of the Internal Revenue Code of 1986 
for the 1st month of a plan year)"; and 
>!;; 
(2) in subparagraph (D)— 
(A) in the first sentence, by striking ", the rate of interest 
described in clause (iii) of subparagraph (C), or both,"; and 
(B) by striking the second sentence. 
(b) AMENDMENTS TO 1986 CODE.—Section 411(c)(2) of the 1986 Code 
(relating to accrued benefit derived from employee contributions) is 
amended— 
(1) in subparagraph (C)(iii), by striking "5 percent per annum" 
and inserting "120 percent of the Federal mid-term rate (as in 
effect under section 1274 for the 1st month of a plan year)"; and 
(2) in subparagraph (D)— 
(A) in the first sentence, by striking ", the rate of interest 
described in clause (iii) of subparagraph (C), or both,"; and 
(B) by striking the second sentence. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to plan years beginning after December 31,1987. 
(2) 
PLAN 
AMENDMENTS NOT REQUIRED UNTIL JANUARY i, 
1989.—If any amendment made by this section requires an 
amendment to any plan, such plan amendment shall not be 
required to be made before the first plan year beginning on or 
after January 1,1989, if— 
(A) during the period after such amendments made by 
this section take effect and before such first plan year, the 
plan is operated in accordance with the requirements of 
,, 
such amendments or in accordance with an amendment 
prescribed by the Secretary of the Treasury and adopted by 
the plan, and 
rv 
(B) such plan amendment applies retroactively to the 
period after such amendments take effect and such first 
plan year. 
A plan shall not be treated as failing to provide definitely 
determinable benefits or contributions, or to be operated in 
accordance with the provisions of the plan, merely because it 
operates in accordance with this subsection. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-375 
Subtitle E—Miscellaneous Provisions 
SEC. 9401. RESTORATION OF TRUST FUNDS FOR 1987. 
(a) IN GENERAL.— 
(1) OBLIGATIONS ISSUED.—Except as provided in subsection (b), 
within 30 days after the expiration of any debt issuance suspen-
sion period to which this section applies, the Secretary of the 
Treasury shall issue to each Federal fund obligations under 
chapter 31 of title 31, United States Code, which bear such issue 
dates, interest rates, and maturity dates as are necessary to 
ensure that, after such obligations are issued, the holdings of 
such Federal fund will replicate to the maximum extent prac-
ticable the obligations that would have been held by such 
Federal fund if any— 
(A) failure to invest amounts in such Federal fund (or any 
disinvestment) resulting from the limitation of section 
3101(b) of title 31, United States Code, had not occurred, 
and 
(B) issuance of such obligations had occurred immediately 
on the expiration of the debt issuance suspension period. 
(2) INTEREST CREDITED.—On the first normal interest payment 
date or within 30 days after the expiration of any debt issuance 
suspension period (whichever is later) to which this section 
applies, the Secretary of the Treasury shall credit to each 
Federal fund an amount determined by the Secretary, after 
taking into account the actions taken pursuant to paragraph (1), 
to be equal to the income lost by such Federal fund by reason of 
any failure to invest amounts in such Federal fund (or any 
disinvestment) resulting from the limitation of such section 
3101(b), including any income lost between the expiration of the 
debt issuance suspension period and the date of the credit. 
(b) INTEREST ON MARKET-BASED OBUGATIONS.—With respect to any 
Federal fund which invests in market-based special obligations, on 
the expiration of a debt issuance suspension period to which this 
section applies, the Secretary of the Treasury shall immediately 
^ r ,
^ 
credit to such fund an amount equal to the interest that would have 
been earned by such fund during the debt issuance suspension 
period if the daily balance in such fund that the Secretary was 
unable to invest by reason of the limitation of such section 3101(b) 
had been invested each day during such period, overnight, in obliga-
tions under chapter 31 of title 31, United States Code, earning 
interest at a rate determined by the Secretary in accordance with 
the standard practice of the Department of the Treasury. 
(c) INTEREST ON STATE AND LOCAL GOVERNMENT SERIES.—On the 
expiration of any debt issuance suspension period to which this 
section applies, the Secretary of the Treasury shall (as of the close of 
such period) credit to each holder of any obligation which is part of 
,,,, ^ 
the State and Local Government Series and which is in the nature of 
a demand deposit an amount equal to the income lost by such holder 
.
^ ,; 
by reason of not being able to reinvest the principal of, and interest 
' 
*.. 
on, such obligation during such period. 
(d) 
DEBT ISSUANCE SUSPENSION PERIODS TO WHICH SECTION 
APPUES.—This section shall apply to debt issuance suspension 
periods beginning on or after July 18, 1987, and ending before 
January 1,1988. 
101 STAT. 1330-376 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 u s e 6402 
note. 
26 u s e 6402 
note. 
Regulations. 
26 u s e 6402 
note. 
(e) CREDITED AMOUNTS TREATED AS INTEREST.—'°'' All amounts 
credited under this section shall be treated as interest on obligations 
issued under chapter 31 of title 31, United States Code, for all 
purposes of Federal law. 
(f) DEFINITIONS.—For purposes of this section— 
(1) DEBT ISSUANCE SUSPENSION PERIOD.—The term "debt issu-
ance suspension period" means any period for which the Sec-
retary of the Treasury determines that the issuance of obliga-
tions of the United States sufficient to conduct the orderly 
financial operations of the United States may not be made 
without exceeding the limitation imposed by section 3101(b) of 
title 31, United States Code. 
(2) FEDERAL FUND.—The term "Federal fund" means any 
' Federal trust fund or Government account established pursuant 
to Federal law to which the Secretary of the Treasury has 
issued or is expressly authorized by law directly to issue obliga-
tions under chapter 31 of title 31, United States Code, in respect 
of public money, money otherwise required to be deposited in 
the Treasury, or amounts appropriated; except that such term 
shall not include the Civil Service Retirement and Disability 
Fund or the Thrift Savings Fund of the Federal Employees' 
Retirement System. 
(g) SPECIAL RULES.—In the case of any debt suspension period 
beginning on or after July 18, 1987, and ending before the date of 
the enactment of this Act— 
(1) for purposes of determining the date on which the Sec-
retary of the Treasury is required to take the actions described 
in subsections (a), (b), and (c), such period shall be treated as 
having ended on such date of enactment, and 
(2) the amount required to be credited under subsection (c) 
shall include any income lost because the credit was not made 
upon the expiration of such period. 
SEC. 9402. 6-MONTH EXTENSION OF PROVISIONS RELATING TO COLLEC-
TION OF NON-TAX DEBTS OWED TO FEDERAL AGENCIES. 
(a) GENERAL RULE.—Subsection (c) of section 2653 of the Deficit 
Reduction Act of 1984 is amended by striking out "January 1, 1988" 
and inserting in lieu thereof "July 1, 1988". 
OJ) CLARIFICATION OF CONGRESSIONAL INTENT AS TO SCOPE OF 
PROVISION.— 
(1) Nothing in the amendments made by section 2653 of the 
Deficit Reduction Act of 1984 shall be construed as exempting, 
debts of corporations or any other category of persons from the 
application of such amendments. 
(2) It is the intent of the Congress that, to the extent prac-
ticable, the amendments made by section 2653 of the Deficit 
Reduction Act of 1984 shall extend to all Federal agencies (as ' 
defined in the amendments made by such section). 
(3) The Secretary of the Treasury shall issue regulations to 
carry out the purposes of this subsection. 
(c) STUDY BY THE GENERAL ACCOUNTING OFFICE.—The Comptroller 
General of the United States, in consultation with the Secretary of 
the Treasury or his delegate, shall conduct a study of the operation 
and effectiveness of the amendments made by section 2653 of the 
Deficit Reduction Act of 1984. The study shall compile and evaluate 
' °* Copy read "AMOUNTS TREATED AS INTEREST.-
^'^•^I 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-377 
information on the effect of those amendments on voluntary compli-
ance with the income tax laws. Not later than April 1, 1989, the Reports. 
Comptroller General shall submit to the Committee on Ways and 
Means of the House of Representatives and the Committee on 
Finance of the Senate a report of the study conducted under this 
subsection, together with such recommendations as he may deem 
advisable. 
SEC. 9403. INCREASE IN LIMIT ON LONG-TERM BONDS. 
The last sentence of section 3102(a) of title 31, United States Code, 
is amended by striking out "$250,000,000,000" and inserting in lieu 
thereof "$270,000,000,000". 
Subtitle F—Customs User Fees; Trade and 
Customs Agency Authorizations 
SEC. 9501. CUSTOMS USER FEES. 
(a) AMENDMENTS TO CUSTOMS USER FEES PROGRAM.—Section 13031 
of the Consolidated Budget Reconciliation Act of 1985 (19 U.S.C. 58c) 
is amended as follows: 
(1) MERCHANDISE PROCESSING FEE IMPOSED ON FOREIGN CON-
TENT OF CERTAIN SCHEDULE 8 ARTICLES.— 
(A) Subsection (aX9XA) is amended to read as follows: 
-ii':; 
"(A) provided for under any item in schedule 8 of the 
Tariff Schedules of the United States except item 806.30 or 
licfi 
807.00,". 
JB? 
(B) Subsection (b)(8XA) is amended— 
(i) by striking out "and" at the end of clause (i); 
(ii) by striking out the period at the end of clause (ii) 
^ 
and inserting a semicolon; and 
(iii) by adding at the end thereof the following: 
"(iii) in the case of merchandise classified under item 
806.30 of the Tariff Schedules of the United States, be 
applied to the value of the foreign repairs or alterations to 
the merchandise; and 
"(iv) in the case of merchandise classified under item 
807.00 of such Schedules, be applied to the full value of the 
merchandise, less the cost or value of the component 
United States products. 
With respect to merchandise that is classified under item 806.30 
or 807.00 of such Schedules and is duty-free, the Secretary may 
collect the fee charged on the processing of the merchandise 
under subsection (a) (9) or (10) on the basis of aggregate data 
derived from financial and manufacturing reports used by the 
importer in the normal course of business, rather than on the 
basis of entry-by-entry accounting.". 
(2) 
PROVISION 
OF CUSTOMS 
SERVICES.—Subsection 
(e) 
is 
amended— 
(A) by redesignating paragraph (4) as paragraph (6); 
(B) by inserting after paragraph (3) the following new 
•
u « 
paragraphs: 
"(4) Notwithstanding any other provision of law, all customs 
services (including, but not limited to, normal and overtime clear-
ance and preclearance services) shall be adequately provided, when 
requested, for— 
101 STAT. 1330-378 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) the clearance of any commercial vessel, vehicle, or air-
aj jof'. 
craft or its passengers, crew, stores, material, or cargo arriving, 
departing, or transiting the United States; 
'(B) the preclearance at any customs facility outside the 
United States of any commercial vessel, vehicle or aircraft or its 
peissengers, crew, stores, material, or cargo; and 
"(C) the inspection or release of commercial cargo or other 
commercial shipments being entered into, or withdrawn from, 
the customs territory of the United States. 
"(5) For purposes of this subsection, customs services shall be 
treated as being 'adequately provided' if such of those services that 
are necessary to meet the needs of parties subject to customs 
inspection are provided in a timely manner taking into account 
factors such as— 
"(A) the unavoidability of weather, mechanical, and other 
delays; 
"(B) the necessity for prompt and efficient passenger and 
baggage clearance; 
(C) the perishability of cargo; 
"(D) the desirability or unavoidability of late night and early 
morning arrivals from various time zones; 
"(E) the 
availability 
(in 
accordance 
with 
regulations 
prescribed under subsection (gX2)) of customs personnel and 
resources; and 
"(F) the need for specific enforcement checks."; and 
(C) by amending paragraph (6) (as redesignated by subpara-
graph (A)) to read as follows: 
"(6) Notwithstanding any other provision of law except paragraph 
(2), during any period when fees are authorized under subsection (a), 
no charges, other than such fees, may be collected— 
"(A) for any— 
"(i) cargo inspection, clearance, or other customs activity, 
expense, or service performed (regardless whether per-
iiitw 
formed outside of normal business hours on an overtime 
basis), or 
"(ii) customs personnel provided, 
in connection with the arrival or departure of any commercial 
vessel, vehicle, or aircraft, or its passengers, crew, stores, mate-
rial, or cargo, in the United States; 
"(B) for any preclearance or other customs activity, expense, 
or service performed, and any customs personnel provided, 
outside the United States in connection with the departure of 
any commercial vessel, vehicle, or aircraft, or its passengers, 
crew, stores, material, or cargo, for the United States; or 
"(C) in connection with— 
"(i) the activation or operation (including Customs Serv-
«f»j 
ice supervision) of any foreign trade zone or subzone estab-
lished under the Act of June 18, 1934 (commonly know as 
.8'. 
the Foreign Trade Zones Act, 19 U.S.C. 81a et seq.), or 
"(ii) the designation or operation (including Customs 
Service supervision) of any bonded warehouse under section 
555 of the Tariff Act of 1930 (19 U.S.C. 1555).". 
(3) DISPOSITION OF FEES.—Subsection (f) is amended by striking 
out paragraphs (1), (2), and (3) and inserting the following: 
"(f) DISPOSITION OF FEES.--(1) There is established in the general 
fund of the Treasury a separate account which shall be known as 
the 'Customs User Fee Account'. Notwithstanding section 524 of the 
Tariff Act of 1930 (19 U.S.C. 1524), there shall be deposited as 
offsetting receipts into the Customs User Fee Account all fees 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-379 
collected under subsection (a) except that portion of such fees that is 
required under paragraph (3) for the direct reimbursement of appro-
priations. 
"(2) All funds in the Customs User Fee Account shall be available, 
to the extent provided for in appropriations Acts, to pay the costs 
(other than costs for which direct reimbursement under paragraph 
(3) is required) incurred by the United States Customs Service in 
conducting commercial operations, including, but not limited to, all 
costs associated with commercial passenger, vessel, vehicle, aircraft, 
and cargo processing. So long as there is a surplus of funds in the 
Customs User Fee Account, the Secretary of the Treasury may not 
reduce personnel staffing levels for providing commercial clearance 
and preclearance services. 
"(3) The Secretary of the Treasury, in accordance with such 
section 524 and without regard to apportionment or any other 
administrative practice or limitation, shall directly reimburse, from 
the fees collected under subsection (a), each appropriation for the 
amount paid out of that appropriation for the costs incurred by the 
Secretary in providing— 
"(A) inspectional overtime services; and 
"(B) all preclearance services; 
for which the recipients of such services are not required to re-
imburse the Secretary of the Treasury. Reimbursement under this 
paragraph shall apply with respect to each fiscal year occurring 
after September 30, 1987, and shall be made at least quarterly. To 
the extent necessary, reimbursement of appropriations under this 
paragraph may be made on the basis of estimates made by the 
Secretary of the Treeisury of the costs for inspectional overtime and 
preclearance services, and adjustments shall oe made in subsequent 
reimbursements to the extent that the estimates were in excess of, 
or less than, the amounts required to be reimbursed.". 
(4) REGULATIONS.—Subsection (g) is amended— 
(A) by striking out "(g) REGULATIONS.—The" and insert-
ing "(g) REGULATIONS.—(1) In addition to the regulations 
required under paragraph (2), the "; and 
(B) by inserting at the end thereof the following new 
paragraph: 
: 
- -'' ' 
"(2) The Secretary of the Treasury shall prescribe regulations 
governing the work shifts of customs personnel at airports. Such 
regulations shall provide, among such other factors considered 
appropriate by the Secretary, that— 
"(A) the work shifts will be adjusted, as necessary, to meet 
cyclical and seasonal demands and to minimize the use of 
overtime; 
"(B) the work shifts will not be arbitrarily reduced or com-
pressed; and 
"(C) consultation with the Advisory Committee on Com-
mercial Operations of the United States Customs Service 
(established under section 9501(c) of the Omnibus Budget Rec-
onciliation Act of 1987) will be carried out before adjustments 
are made in the work shifts.". 
(5) EXTENSION OF CUSTOMS USER FEES PROGRAM.—Subsection 
(jX3) is amended by striking out "1989" and inserting "1990". 
(b) ADDITIONAL PERIOD To CLAIM CERTAIN REFUNDS.—Section 
1893(gX2) of the Tax Reform Act of 1986 is amended by striking out 
19 USC 58c note. 
"90 days after the date of enactment of this Act" and inserting "90 
dayff after the date of the enactment of the Omnibus Budget Rec-
onciliation Act of 1987". 
101 STAT. 1330-380 
PUBLIC LAW 100-203—DEC. 22, 1987 
19 u s e 3 note. 
(c) 
ANALYSIS 
REGARDING 
THE 
CES 
PROGRAM; 
EFFECT ON 
IMPLEMENTATION OF PROGRAM.— 
(1) The Comptroller General of the United States shall con-
duct a comprehensive analysis, including a cost-benefit study, of 
the centralized cargo examination station (CES) concept from 
the perspective of both the United States Customs Service and 
business community users. The analysis shall be submitted on 
the same day to the Committee on Ways and Means of the 
House of Representatives and the Committee on Finance of the 
Senate (hereinafter in this subsection referred to as the 
"Committees") not later than March 30, 1988, and shall include 
recommendations as to how best to implement cargo inspection 
procedures. 
(2) The United States Customs Service— 
(A) may not, after the date of the enactment of this Act, 
ixf. 
establish any new centralized cargo examination station at 
> ,i 
any ocean port, airport, or land border location unless the 
Customs Service provides to the Committees advance 
notice, in writing, of not less than 90 days regarding the 
proposed establishment; and 
(B) shall, on such date of enactment, suspend operations 
at each centralized cargo examination station that was 
operating at an airport on the day before such date until 
the 90th day after a date— 
(i) that is not earlier than the date on which the 
analysis required under paragraph (1) is submitted to 
'- ' 
the Committees, and 
I. 
(ii) on which the Customs Service provides to the 
Committees notice, in writing, that it intends to resume 
such operations at the station. 
During the period of suspension of operations under subpara-
graph (B) at any centralized cargo examination station at an 
airport, the Secretary of the Treasury shall maintain customs 
^ 
operations and staffing at that airport at a level not less than 
that which was in effect immediately before the suspension took 
effect. 
19 u s e 58c note. 
(d) EFFECTIVE D A T E S . — 
(1) Except as otherwise provided in this subsection, the provi-
sions of this section take effect on the date of the enactment of 
i 
this Act. 
(2) The amendments made by subsection (aXD apply with 
respect to articles entered, or withdrawn from warehouse for 
'? 
consumption, on or after the 15th day after the date of enact-
ment of this Act. 
(3) The amendment made by subsection (aX3) shall take effect 
on October 1,1987. 
SEC. 9502. UNITED 
STATES 
INTERNATIONAL 
TRADE 
COMMISSION 
AUTHORIZATIONS. 
Section 330(eX2) of the Tariff Act of 1930 (19 U.S.C. 1330(eX2)) is 
amended— 
(1) by striking out "1986" and inserting "1988"; and 
(2) by striking out "$28,901,000;" and inserting "$35,386,000;". 
SEC. 9503. UNITED STATES CUSTOMS SERVICE AUTHORIZATIONS. 
(a) AUTHORIZATION OF APPROPRIATIONS.—Section 301(b) of the Cus-
toms Procedural Reform and Simplification Act of 1978 (19 U.S.C. 
20750t))) is amended to read as follows: 
"(b) AUTHORIZATION OF APPROPRIATIONS.— 
*
-
.
»
« o8a osi. 
3ii-!:-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-381 
"(1) FOR NONCOMMERCIAL OPERATIONS.—There are authorized 
to be appropriated for fiscal year 1988 not to exceed 
$348,192,000 for the salaries and expenses of the United States 
Customs Service that are incurred in noncommercial oper-
ations, of which $171,857.06 shall be available only for conclud-
ing Contract TC-82-54 that was awarded for the development 
and testing of an automatic license plate reader. 
fh r " 
"(2) FOR COMMERCIAL OPERATIONS.—There are authorized to 
be appropriated for fiscal year 1988 not to exceed $615,000,000 
from the Customs User Fee Account for the salaries and ex-
penses of the United States Customs Service that are incurred 
in commercial operations. 
"(3) FOR AIR INTERDICTION.—There are authorized to be appro-
priated for fiscal year 1988 not to exceed $118,309,000 for the 
operation (including salaries and expenses) and maintenance of 
the air interdiction program of the United States Customs 
Service.". 
O
t
)
) CONGRESSIONAL NOTICE OF CERTAIN ACTIONS.—Section 301 of 
the Customs Procedural Reform and Simplification Act of 1978 
(19 U.S.C. 2075) is amended— 
(1) by striking out "USE OF SAVINGS RESULTING FROM ADMINIS-
TRATIVE CoNSOUDATiONS.—" in subsection (f); 
(2) by striking out "ALLOCATION OF RESOURCES.—" in subsec-
tion (g) and inserting "(1)"; and 
(3) by adding at the end of subsection (g) the following new 
paragraph: 
"(2) The Commissioner of Customs shall notify the Committee on 
Finance of the Senate and the (Dommittee on Ways and Means of the 
House of Representatives at least 180 days prior to taking any action 
which would— 
"(A) result in any significant reduction in force of employees 
other than by means of attrition; 
"(B) result in any significant reduction in hours of operation 
or services rendered at any office of the United States Customs 
i^^-
Service or any port of entry; 
'' 
"(C) eliminate or relocate any office of the United States 
Customs Service; 
, ^ 
"(D) eliminate any port of entry; or 
" ' 
' 
"(E) significantly reduce the number of employees assigned to 
any office of the United States Customs Service or any port of 
entry.", 
(c) ADVISORY COMMITTEE ON COMMERCIAL OPERATIONS OF THE Establishment 
UNITED STATES CUSTOMS SERVICE.— 
1
9 use 2071 
(1) The Secretary of the Treasury shall establish an advisory 
committee which shall be known as the "Advisory Committee 
on Commercial Operations of the United States Customs Serv-
ice" (hereafter in this subsection referred to as the "Advisory 
Committee"). 
(2XA) The Advisory Committee shall consist of 20 members 
appointed by the Secretary of the Treasury. 
(B) In making appointments under subparagraph (A), the 
Secretary of the Tresisury shall ensure that— 
(i) the membership of the Advisory Committee is rep-
resentative of the individuals and firms affected by the 
commercial operations of the United States Customs 
Service; and 
note. 
101 STAT. 1330-382 
PUBLIC LAW 100-203—DEC. 22, 1987 
Reports. 
19 u s e 2071 
note. 
(ii) a majority of the members of the Advisory Committee 
do not belong to the same political party. 
* 
(3) The Advisory Committee shall— 
(A) provide advice to the Secretary of the Treasury on all 
matters involving the commercial operations of the United 
States Customs Service; and 
(B) submit an annual report to the Committee on Finance 
i 
of the Senate and the Committee on Ways and Means of the 
W . 
House of Representatives that shall— 
(i) describe the operations of the Advisory Committee 
;
< It, 
during the preceding year, and 
(ii) set forth any recommendations of the Advisory 
s^- 
Committee regarding the commercial operations of the 
United States Customs Service. 
(4) The Assistant Secretary of the Treasury for Enforcement 
shall preside over meetings of the Advisory Committee. 
(d) DISSOLUTION OF EXISTING ADVISORY COMMITTEE.—Section 13033 
of the Consolidated Budget Reconciliation Act of 1985 is repealed. 
SEC. 9504. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE 
AUTHORIZATIONS. 
Section 141(0(1) of the Trade Act of 1974 (19 U.S.C. 2171(f)(1)) is 
amended to read as follows: 
"(f)(lXA) There are authorized to be appropriated for fiscal year 
1988 to the Office for the purposes of carrying out its functions not 
to exceed $15,172,000. 
"(B) Of the amounts authorized to be appropriated under subpara-
graph (A) for fiscal year 1988— 
"(i) not to exceed $69,000 may be used for entertainment and 
representation expenses of the Office; and 
'(ii) not to exceed $1,000,000 shall remain available until 
expended.". 
Revenue Act of 
1987. 
26 u s e 1 note. 
26 u s e 1 et seq. 
26 u s e 15 note. 
TITLE X—REVENUE PROVISIONS 
SEC. 10000. SHORT TITLE: AMENDMENT OF THE 1986 CODE. 
(a) SHORT TITLE.—This title may be cited as the "Revenue Act of 
1987". 
O
t
)
) AMENDMENT OF 1986 CODE.—Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is ex-
pressed 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) COORDINATION WITH SECTION 15.—No amendment made by this 
title shall be treated as a change in a rate of tax for purposes 
section 15 of the Internal Revenue Code of 1986. 
(d) TABLE OF CONTENTS.— 
'-'- 
• ' 
TITLE X—REVENUE PROVISIONS 
Sec. 10000. Short title; amendment of the 1986 Code. 
Subtitle A—Individual Income Tax Provisions 
Sec. 10101. Expenses of overnight camps not allowable for dependent care credit 
Sec. 10102. Changes to deduction for qualified residence interest. 
Sec. 10103. Clarification of treatment of Federal judges. 
Sec. 10104. Treatment of regulated investment companies under 2-percent floor. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-383 
Subtitle B—Business Provisions 
PART I—ACCOUNTING PROVISIONS 
Sec. 10201. Repeal of reserve for accrual of vacation pay. 
Sec. 10202. Provisions relating to installment sales. 
Sec. 10203. Reduction in percentage of items taken into account under completed 
contract method. 
Sec. 10204. Amortization of past service pension costs. 
Sec. 10205. Certain farm corporations required to use accrual method of accounting. 
Sec. 10206. Entities may elect taxable years other than required taxable year. 
PART II—PARTNERSHIP PROVISIONS 
Sec. 10211. Certain publicly traded partnerships treated as corporations. 
Sec. 10212. Treatment of publicly traded partnerships under section 469. 
Sec. 10213. Treatment of publicly traded partnerships for unrelated business tax. 
Sec. 10214. Treatment of certain partnership allocations. 
Sec. 10215. Study. 
PART III—CORPORATE PROVISIONS 
Sec. 10221. Reduction in dividends received deduction for dividends from corpora-
tions not 20-percent owned. 
Sec. 10222. Certain earnings and profits adjustments not to apply for certain pur-
poses. 
Sec. 10223. Treatment of mirror subsidiary transactions. 
Sec. 10224. Benefits of graduated corporate rates not allowed to personal service 
corporations. 
Sec. 10225. Amendments to section 382. 
Sec. 10226. Limitation on use of preacquisition losses to offset built-in gains. 
Sec. 10227. Recapture of LIFO amount in the case of elections by S corporations. 
Sec. 10228. Excise tax on receipt of greenmail. 
PART IV—FOREIGN TAX PROVISIONS 
Sec. 10231. Denial of foreign tax credit for taxes paid or accrued to South Africa. 
PART V—INSURANCE PROVISIONS 
Sec. 10241. Interest rate used in computing tax reserves for life insurance compa-
nies may not be less than applicable Federal rate. 
Sec. 10242. Treatment of foreign insurance. 
Sec. 10243. Treatment of mutual life insurance company policy holder dividends for 
purposes of book preference. 
Sec. 10244. Certain insurance sjmdicates. 
Subtitle C—Estimated Tax Provisions 
Sec. 10301. Revision of corporate estimated tax provisions. 
Sec. 10302. Revised withholding certificates required to be put into effect more 
promptly. 
Sec. 10303. Estimated tax penalties for 1987. 
Subtitle D—Estate and Gift Tax Provisions 
' 
PART I—GENERAL PROVISIONS 
Sec. 10401. 5-year extension of existing rates; phaseout of benefits of existing rates, 
and unified credit. 
Sec. 10402. Inclusion related to valuation freezes. 
PART II—ESTATE TAX PROVISIONS RELATING TO EMPLOYEE STOCK OWNERSHIP PLANS 
Sec. 10411. Congressional clarification of estate tax deduction for sales of employer 
securities. 
' 
* "*' v 
Sec. 10412. Modifications of estate tax deduction for sale of employer securities. 
Sec. 10413. Excise tax on plans or cooperatives disposing of employer securities for 
which estate tax deduction was allowed. 
Subtitle E—Provisions Relating to Excise Taxes and User Fees 
PART I—EXCISE TAXES 
Sec. 10501. Extension of telephone excise tax. 
Sec. 10502. Diesel fuel and aviation fuel taxes imposed at wholesale level. 
Sec. 10503. Extension of temporary increase in amount of tax imposed on coal 
producers. 
101 STAT. 1330-384 
PUBLIC LAW 100-203—DEC. 22, 1987 
PART II—TAX-RELATED USER FEES 
Sec. 10511. Fees for request for ruling, determination, and similar letters. 
Sec. 10512. Occupational taxes relating to alcohol, tobacco, and firearms. 
, 
Subtitle F—Other Revenue Provisions 
PART I—TARGETED JOBS CREDIT 
Sec. 10601. Denial of targeted jobs credit for wages paid during period of labor 
dispute. 
PART II—TREATMENT OF CERTAIN ILLEGAL IRRIGATION SUBSIDIES 
Sec. 10611. Treatment of certain illegal irrigation subsidies. 
; 
,r 
PART III—COMPLIANCE 
Sec. 10621. State escheat laws not to apply to refunds of Federal tax. 
Sec. 10622. Sense of Congress as to increased Internal Revenue Service funding for 
taxpayer assistance and enforcement. 
PART IV—TAX EXEMPT BOND PROVISIONS 
Sec. 10631. Issues used to acquire nongovernmental output property. 
_ .
» 
Sec. 10632. Bonds issued by Indian tribal governments. •"'^ 
Subtitle G—Lobbying and Political Activities of Tax-Exempt Organizations ^ •
; 
PART I—DISCLOSURE REQUIREMENTS 
Sec. 10701. Required disclosure of nondeductibility of contributions. 
Sec. 10702. Public inspection of annual returns and applications for tax-exempt 
status. 
Sec. 10703. Additional information required on annual returns of section 501(cX3) 
organizations. 
Sec. 10704. Penalties. 
; 
Sec. 10705. Required disclosure that certain information or service available from 
Federal Government. 
PART II—PoLrricAL AcTivrriES 
Sec. 10711. Clariflcation of prohibited political activities. 
Sec. 10712. Excise taxes on political expenditures by section 501(cX3) organizations. 
Sec. 10713. Additional enforcement authority in the case of flagrant political 
expenditures. 
v »
, >
. 
j . 
*.;< 
Sec. 10714. Tax on disqualifying lobbying expenditures. 
Subtitle A—Individual Income Tax Provisions 
SEC. 10101. EXPENSES OF OVERNIGHT CAMPS NOT ALLOWABLE FOR 
DEPENDENT CARE CREDIT. 
(a) GENERAL RULE.—Subparagraph (A) of section 21(bX2) (defining 
employment-related 
expenses) is amended by adding at the end 
thereof the following new sentence: 
"Such term shall not include any amount paid for services 
,4^ 
outside the taxpayer's household at a camp where the 
qualif3dng individual sta3rs overnight." 
26 use 21 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to expenses paid in taxable years beginning after Decem-
ber 31,1987. 
SEC. 10102. CHANGES TO DEDUCTION FOR QUALIFIED 
RESIDENCE 
INTEREST. 
(a) GENERAL RULE.—Paragraph (3) of section 163(h) (defining 
qualified residence interest) is amended to read as follows: 
los Ck)py read "Indian Tribal Governments.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-385 
"(3) QuAUFiED RESIDENCE INTEREST.—For purposes of this 
subsection— 
"(A) IN GENERAL.—The term 'qualified residence interest' 
means any interest which is paid or accrued during the 
taxable year on— 
"(i) acquisition indebtedness with respect to any 
qualified residence of the taxpayer, or 
"(ii) home equity indebtedness with respect to any 
qualified residence of the taxpayer. 
For purposes of the preceding sentence, the determination 
of whether any property is a qualified residence of the 
taxpayer shall be made as of the time the interest is 
accrued. 
"(B) ACQUISITION INDEBTEDNESS.— 
"(i) IN GENERAL.—The term 'acquisition indebted-
ness' means any indebtedness which— 
'^^^ 
"(I) is incurred in acquiring, constructing, or 
substantially improving any qualified residence of 
the taxpayer, and 
• •o ^ 
"(II) is secured by such residence. 
Such term also includes any indebtedness secured by 
- -*' '
^ 
such residence resulting from the refinancing of indebt-
edness meeting the requirements of the preceding sen-
tence (or this sentence); but only to the extent the 
amount of the indebtedness resulting from such re-
financing does not exceed the amount of the refinanced 
indebtedness. 
^t ;-. 
"(ii) $1,000,000 LIMITATION.—The aggregate amount 
treated as acquisition indebtedness for any period shall 
not exceed $1,000,000 ($500,000 in the case of a married 
r
^
*
? .. 
individual filing a separate return). 
"(C) HOME EQUITY INDEBTEDNESS.— 
i.x^U 
"(i) IN GENERAL.—The term 'home equity indebted- 
( t i S ) ; .;: 
ness' means any indebtedness (other than acquisition 
indebtedness) secured by a qualified residence to the 
extent the aggregate amount of such indebtedness does 
not exceed— 
lo z:ss' 
"(I) the fair market value of such qualified resi-
dence, reduced by 
;c ; f? 
"(II) the amount of acquisition indebtedness with 
respect to such residence. 
vksi|6 
"(ii) LIMITATION.—The aggregate amount treated as 
home equity indebtedness for any period shall not 
exceed $100,000 ($50,000 in the case of a separate 
Tf.11 r f
\ 
return by a married individual). 
"(D) TREATMENT OF INDEBTEDNESS INCURRED ON OR BEFORE 
C
K K 
OCTOBER 13, 1987.— 
, ' 
"(i) IN GENERAL.—In the case of any pre-October 13, 
1987, indebtedness— 
"(I) such indebtedness shall be treated as acquisi-
j 
tion indebtedness, and 
"(II) the limitation of subparagraph (BXii) shall 
/ 
not apply. 
"(ii) 
REDUCTION 
IN 
$1,000,000 
UMITATION.—The 
limitation of subparagraph (BXii) shall be reduced Oaut 
, ^^ 
not below zero) by the aggregate amount of outstanding 
pre-October 13,1987, indebtedness. 
101 STAT. 1330-386 
PUBLIC LAW 100-203—DEC. 22, 1987 
'• '^ ^ • 
"(iii) PRE-OCTOBER I3, I987, INDEBTEDNESS.—The term 
'pre-October 13,1987, indebtedness' means— 
jp^..-,. 
"(I) any indebtedness which was incurred on or 
- » t,:i J 
before October 13, 1987, and which was secured by 
, 
a qualified residence on October 13, 1987, and at all 
* ' "* 
'^ 
times thereafter before the interest is paid or 
,. 
. . 
,, 
accrued, or 
' ' 
"(ID any indebtedness which is secured by the 
qualified residence and was incurred after Octo-
;" 
.
^ .r 
ber 13,1987, to refinance indebtedness described in 
" 
subclause (I) (or refinanced indebtedness meeting 
the requirements of this subclause) to the extent 
(immediately after the refinancing) the principal 
..-.<(..».., - 
amount of the indebtedness resulting from the 
refinancing does not exceed the principal amount 
^
^ 
of the refinanced indebtedness (immediately before 
the refinancing). 
"(iv) 
LIMITATION 
ON PERIOD OF REFINANCING.— 
Subclause (II) of clause (iii) shall not apply to any 
, 
indebtedness after— 
^j, 
"(I) the expiration of the term of the indebted-
ness described in clause (iiiXD, or 
.,- 
"(II) if the principal of the indebtedness de-
scribed in clause (iiiXD is not amortized over its 
iy- ,^,, 
term, the expiration of the term of the 1st refinanc-
ing of such indebtedness (or if earlier, the date 
which is 30 years after the date of such 1st re-
financing)." 
(b) CONFORMING AMENDMENTS.—Subsection (h) of section 163 is 
amended by striking out paragraph (4) and by redesignating para-
graph (5) as paragraph (4). 
26 use 163 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1987. 
26 u s e 219 note. 
SEC. 10103. CLARIFICATION OF TREATMENT OF FEDERAL JUDGES. 
(a) GENERAL RULE.—A Federal judge— 
* 
(1) shall be treated as an active participant for purposes of 
section 219(g) of the Internal Revenue Code of 1986, and 
:^ 
(2) shall be treated as an employee for purposes of chapter 1 of 
such Code. 
(b) EFFECTIVE DATE.—The provisions of subsection (a) shall apply 
to taxable years beginning after December 31,1987. 
SEC. 10104. TREATMENT OF REGULATED 
INVESTMENT 
COMPANIES 
UNDER 2.PERCENT FLOOR. 
26 u s e 67 note. 
(a) 1-YEAR DELAY IN TREATMENT OF PUBUCLY OFFERED REGULATED 
INVESTMENT COMPANIES UNDER 2-PERCENT FLOOR.— 
(1) GENERAL RULE.—Section 67(c) of the Internal Revenue 
' Code of 1986 to the extent it relates to indirect deductions 
through a publicly offered regulated investment company shall 
'' apply only to taxable years beginning after December 31, 1987. 
(2) 
PUBUCLY 
OFFERED 
REGULATED 
INVESTMENT COMPANY 
-'^DEFINED.—For purposes of this subsection— 
(A) IN GENERAL.—The term "publicly offered regulated 
investment company" means a regulated investment com-
pany the shares of which are— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-387 
(i) continuously offered pursuant to a public offering 
(within the meaning of section 4 of the Securities Act of 
'• •' 
1933, as amended (15 U.S.C. 77a to 77aa)), 
(ii) regularly traded on an established securities 
market, or 
> . 
(iii) held by or for no fewer than 500 persons at all 
times during the taxable year. 
(B) SECRETARY MAY REDUCE 500 PERSON REQUIREMENT.— 
The Secretary of the Treasury or his delegate may by Regulations. 
regulation decrease the minimum shareholder requirement 
• J 
of subparagraph (AXiii) in the case of regulated investment 
companies which experience a loss of shareholders through 
net redemptions of their shares, 
(b) CHANGES IN DISTRIBUTION REQUIREMENTS.— 
(1) INCREASE IN REQUIRED DISTRIBUTION OF INCOME.—Para-
graph (1) of section 4982(b) (defining required distribution) is 
amended by striking out "90 percent in subparagraph (B) and 
inserting in lieu thereof "98 percent". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 4982 
shall take effect as if included in the amendments made by ^°^-
section 651 of the Tax Reform Act of 1986. 
Subtitle B—Business Provisions 
PART I—ACCOUNTING PROVISIONS 
SEC. 10201. REPEAL OF RESERVE FOR ACCRUAL OF VACATION PAY. 
(a) GENERAL RULE.—Section 463 (relating to accrual of vacation 
pay) is hereby repealed. 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 81 is hereby repealed. 
(2) Subparagraph (B) of section 404(bX2) is amended to read as 
follows: 
"(B) EXCEPTION.—Subparagraph (A) shall not apply to 
* 
any benefit provided through a welfare benefit fund (as 
denned in section 419(e))." 
(3) Section 404(aX5) is amended by adding at the end thereof 
the following new sentence: "For purposes of this section, any 
vacation pay which is treated as deferred compensation shall be 
deductible for the taxable year of the employer in which paid to 
the employee." 
(4) Paragraph (2) of section 419(e) is amended bv inserting 
"or" at the end of subparagraph (B), by striking out , or" at the 
end of subparagraph (C), and inserting in lieu thereof a period, 
and by striking out subparagraph (D). 
(5) Paragraph (5) of section 461(h) is amended to read as 
follows: 
"(5) SUBSECTION NOT TO APPLY TO CERTAIN ITEMS.—This subsec-
tion sh£dl not apply to any item for which a deduction is 
allowable under a provision of this title which specifically pro-
vides for a deduction for a reserve for estimated expenses." 
(6) The table of sections for part II of subchapter B of chapter 
1 is amended by striking out the item relating to section 81. 
(7) The table of sections for subpart C of part II of subchapter 
E of chapter 1 is amended by striking out the item relating to 
section 463. 
101 STAT. 1330-388 
PUBLIC LAW 100-203—DEC. 22, 1987 
(c) EFFECTIVE DATE.— 
26 use 404 note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1987. 
26 use 463 note. 
(2) CHANGE IN METHOD OF ACCOUNTING.—In the case of any 
taxpayer who elected to have section 463 of the Internal Reve-
nue Code of 1986 apply for such taxpayer's last taxable year 
„. beginning before January 1, 1988, and who is required to change 
>!r 'jjibiir>i; V ^is method of accounting by reason of the amendments made by 
ir. this section— 
(A) such change shall be treated as initiated by the 
taxpayer, 
(B) such change shall be treated as having been made 
with the consent of the Secretary, and 
-m 
(C) the net amount of adjustments required by section 481 
ai 
of such Code to be taken into account by the taxpayer— 
buB ;o. 
1
1 
(i) shall be reduced by the balance in the suspense 
account under section 463(c) of such Code as of the close 
'i; 
of such last taxable year, and 
1^ 
(ii) shall be taken into account over the 4-taxable 
year period beginning with the taxable year following 
such last taxable year as follows: 
The percentage taken 
In the 
case 
of 
the: 
into 
account 
is: 
1st 
year 
25 
2nd year 
5 
-
. 
3rd year 
..^^...y^^ 
3&.., 
«
?
r
j
, 
4th year 
35. 
^ Notwithstanding subparagraph (C)(ii), if the period the adjust- „ 
ments are required to be taken into account under section 481 of 
such Code is less than 4 years, such adjustments shall be taken 
g. into account ratably over such shorter period. 
SEC. 10202. PROVISIONS RELATING TO INSTALLMENT SALES. 
(a) REPEAL OF PROPORTIONATE DISALLOWANCE OF INSTALLMENT 
METHOD.— 
,,, 
(1) IN GENERAL.—Section 453C (relating to certain indebted-
7 ness treated as payment on installment obligations) is hereby 
"repealed. 
J 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
part B of part II of subchapter E of chapter 1 is amended by 
striking out the item relating to section 453C. 
(b) REPEAL OF INSTALLMENT METHOD FOR DEALERS IN PROPERTY.— 
(1) IN GENERAL.—Subparagraph (A) of section 453(bX2) (defin-
ing installment sale) is amended to read as follows: 
& 
"(A) DEALER DISPOSITIONS.—Any dealer disposition (as 
defined in subsection (1))." 
-. 
(2) DEALER DISPOSITION DEFINED.—Section 453 (relating to 
6
t
i installment method) is amended by adding at the end thereof 
the following new subsection: 
"(1) DEALER DISPOSITIONS.—For purposes of subsection (b)(2)(A)— 
"(1) IN GENERAL.—The term 'dealer disposition' means any of 
the following dispositions: 
"(A) PERSONAL PROPERTY.—Any disposition of personal 
' 
property by a person who regularly sells or otherwise dis-
poses of personal property on the installment plan. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-389 
"(B) REAL PROPERTY.—Any disposition of real property 
which is held by the taxpayer for sale to customers in the 
ordinary course of the taxpayer's trade or business. 
"(2) EXCEPTIONS.—The term 'dealer disposition' does not 
include— 
•Hm'^ 
"^^^ FARM PROPERTY.—The disposition on the installment 
plan of any property used or produced in the trade or 
business of farming (within the meaning of section 2032A(e) 
* 
(4) or (5)). 
"(B) TiMESHARES AND RESIDENTIAL LOTS.— 
"(i) IN GENERAL.—Any dispositions described in 
clause (ii) on the installment plan if the taxpayer elects 
to have paragraph (3) apply to any installment obliga-
tions which arise from such dispositions. An election 
under this paragraph shall not apply with respect to an 
installment obligation which is guaranteed by any 
person other than an individual. 
"(ii) DISPOSITIONS TO WHICH SUBPARAGRAPH APPLIES.— 
A disposition is described in this clause if it is a disposi-
tion in the ordinary course of the taxpayer's trade or 
business to an individual of— 
"(I) a timeshare right to use or a timeshare 
-- Rj'-u\- 
ownership interest in residential real property for 
'^'^'••'•" 
not more than 6 weeks per year, or a right to use 
specified campgrounds for recreational purposes, 
.¥'• •
: 
o r "(II) any residential lot, but only if the taxpayer 
0J itos.ifc.,- 
(QJ. g^jjy related person) is not to make any improve-
ments with respect to such lot. 
For purposes of subclause (I), a timeshare right to use 
*
v V .; 
(or timeshare ownership interest in) property held by 
the spouse, children, grandchildren, or parents of an 
individual shall be treated as held by such individual. 
"(C) CARRYING CHARGES OR INTEREST.—Any carrying 
charges or interest with respect to a disposition described in 
subparagraph (A) or (B) which are added on the books of 
account of the seller to the established cash selling price of 
the property shall be included in the total contract price of 
the property and, if such charges or interest are not so 
included, any payments received shall be treated as apply-
ing first against such carrying charges or interest. 
"(3) PAYMENT OF INTEREST ON TIMESHARES AND RESIDENTIAL 
LOTS.— 
"(A) IN GENERAL.—In the case of any installment obliga-
tion to which paragraph (2)(B) applies, the tax imposed by 
this chapter for any taxable year for which payment is 
received on such obligation shall be increased by the 
r 
amount of interest determined in the manner provided 
under subparagraph (B). 
"(B) COMPUTATION OF INTEREST.— 
"(i) IN GENERAL.—The amount of interest referred to 
in subparagraph (A) for any taxable year shall be 
j \™ i', 
determined— 
ztae^ - 
"(I) on the amount of the tax for such taxable 
year which is attributable to the payments re-
Qf^ 
ceived during such teixable year on installment 
obligations to which this subsection applies. 
101 STAT. 1330-390 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(II) for the period beginning on the date of sale, 
^ 
and ending on the date such payment is received, 
and 
'* 
-'' 
"(III) by using the applicable Federal rate under 
section 1274 (without regard to subsection (dX2) 
? mii " 
thereoO in effect 
at the time of the 
sale 
compounded semiannually, 
"(ii) INTEREST NOT TAKEN INTO ACCOUNT.—For pur-
poses of clause (i), the portion of any tax attributable to 
the receipt of any payment shall be determined 
^ 
without regard to any interest imposed under subpara-
graph (A). 
"(iii) TAXABLE YEAR OF SALE.—No interest shall be 
determined for any payment received in the taxable 
year of the disposition from which the installment 
obligation arises. 
"(C) TREATMENT AS INTEREST.—Any amount payable 
under this paragraph shall be taken into account in 
computing the amount of any deduction allowable to the 
taxpayer for interest paid or accrued during such taxable 
year.' 
(c) TREATMENT OF INSTALLMENT OBUGATIONS OF NONDEALERS.— 
Section 453A (relating to installment method for dealers in personal 
property) is amended to read as follows: 
"SEC. 453A. SPECIAL RULES FOR NONDEALERS OF REAL PROPERTY. 
"(a) GENERAL RULE.—In the case of an installment obligation to 
which this section applies— 
"(1) interest shall be paid on the deferred tax liability with 
respect to such obligation in the manner provided under subsec-
tion (c), and 
"(2) the pledging rules under subsection (d) shall apply. 
"(b) INSTALLMENT OBUGATIONS T
O WHICH SECTION APPUES.— 
"(1) IN GENERAL.—This section shall apply to any obligation 
which arises from the disposition of real property under the 
installment method which is property used in the taxpayer's 
trade or business or property held for the production of rental 
income, but only if the sales price of such property exceeds 
$150,000. 
"(2) SPECIAL RULE FOR INTEREST PAYMENTS.—For purposes of 
subsection (aXD, this section shall apply to an obligation de-
scribed in paragraph (1) arising during a taxable year only if— 
"(A) such obligation is outstanding as of the close of such 
taxable year, and 
"(B) the face amount of all obligations of the taxpayer 
described in paragraph (1) which arose during, and are 
outstanding as of the close of, such taxable year exceeds 
$5,000,000. 
Except as provided in regulations, all persons treated as a single 
employer under subsection (a) or (b) of section 52 shall be 
treated as one person for purposes of this paragraph. 
"(3) EXCEPTION FOR PERSONAL USE AND FARM PROPERTY.—An 
installment obligation shall not be treated as described in para-
graph (1) if it arises from the disposition— 
"(A) by an individual of personal use property (within the 
meaning of section 1275fll)X3)), or 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-391 
; H .; 
"(B) of any property used or produced in the trade or 
business of farming (within the meaning of section 2032A(e) 
(4) or (5)). 
"(4) SPECIAL RULE FOR TIMESHARES AND RESIDENTIAL LOTS.—An 
^' 
installment obligation shall not be treated as described in para-
graph (1) if it arises from a disposition described in section 
' 
453(1)(2)(B), but the provisions of section 453(1)(3) (relating to 
interest payments on timeshares and residential lots) shall 
apply to such obligation. 
"(5) SALES PRICE.—For purposes of paragraph (1), all sales or 
exchanges which are part of the same transaction (or a series of 
related transactions) shall be treated as 1 sale or exchange. 
"(c) INTEREST ON DEFERRED TAX LIABILITY.— 
"(1) IN GENERAL.—If an obligation to which this section ap-
plies is outstanding as of the close of any taxable year, the tax 
imposed by this chapter for such taxable year shall be increased 
by the amount of interest determined in the manner provided 
under paragraph (2). 
"(2) COMPUTATION OF INTEREST.—For purposes of paragraph 
(1), the interest for any taxable year shall be an amount equal to 
the product o
f
— 
"(A) the applicable percentage of the deferred tax liabil-
ity with respect to such obligation, multiplied by 
"(B) the underpayment rate in effect under section 
6621(a)(2) for the month with or within which the taxable 
year ends. 
"(3) DEFERRED TAX LIABIUTY.—For purposes of this section, 
the term 'deferred tax liability' means, with respect to any 
taxable year, the product o
f
— 
"(A) the amount of gain with respect to an obligation 
which has not been recognized as of the close of such 
taxable year, multiplied by 
"(B) the maximum rate of tax in effect under section 1 or 
^j^ 
11, whichever is appropriate, for such taxable year. 
y|^; 
"(4) APPUCABLE PERCENTAGE.—For purposes of this subsec-
tion, the term 'applicable percentage' means, with respect to 
obligations arising in any taxable year, the percentage deter-
mined by dividing— 
"(A) the portion of the aggregate face amount of such 
obligations outstanding as of the close of such taxable year 
in excess of $5,000,000, by 
"(B) the aggregate face amount of such obligations 
outstanding as of the close of such taxable year. 
"(5) REGULATIONS.*"^—The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this subsection including regulations providing for the applica- 
a ; c ) 
tion of this subsection in the case of contingent payments, short 
taxable years, and pass-thru entities. 
"(d) PLEDGES, ETC., OF INSTALLMENT OBLIGATIONS.— 
"(1) IN GENERAL.—For purposes of section 453, if any indebted-
y 
ness (hereinafter in this subsection referred to as 'secured 
indebtedness') is secured by an installment obligation to which 
this section applies, the net proceeds of the secured indebted-
">• Copy read "REGULATIONS—". 
91-194 O - 90 - 38 : QL.3 Part 2 
a' 
101 STAT. 1330-392 
PUBLIC LAW 100-203—DEC. 22, 1987 
ness shall be treated as a payment received on such installment 
{.^ obligation as of the later of— 
"(A) the time the indebtedness becomes secured indebted-
ness, or 
"(B) the proceeds of such indebtedness are received by the 
taxpayer. 
"(2) LIMITATION 
BASED ON TOTAL CONTRACT PRICE.—The 
amount treated as received under paragraph (1) by reason of 
any secured indebtedness shall not exceed the excess (if any) 
, 
o
f
— 
"(A) the total contract price, over 
"(B) any portion of the total contract price received under 
the contract before such secured indebtedness was incurred 
(including amounts previously treated as received under 
paragraph (1) but not including amounts not taken into 
!' 
account by reason of paragraph (3)). 
"(3) LATER PAYMENTS TREATED AS RECEIPT OF TAX PAID 
AMOUNTS.—If any amount is treated as received under para-
graph (1) with respect to any installment obligation, subsequent 
payments received on such obligation shall not be taken into 
account for purposes of section 453 to the extent that the 
aggregate of such subsequent payments does not exceed the 
' 
aggregate amount treated as received under paragraph (1). 
"(4) SECURED INDEBTEDNESS.—For purposes of this subsection 
n
^ 
indebtedness is secured by an installment obligation to the 
*
>
' 
extent that payment of principal or interest on such indebted-
ness is directly secured (under the terms of the indebtedness or 
i 
any underlying arrangements) by any interest in such install-
ment obligation." 
(2) CLERICAL AMENDMENT.—The table of sections for subpart B 
n 
of part II of subchapter E of chapter 1 is amended by striking 
i' 
out the item relating to section 453A and inserting in lieu 
thereof the following new item: 
"'• 
"Sec. 453A. Special rules for nondealers of real property." 
' 
(3) CONFORMING AMENDMENTS.—Sections 381(c)(8) and 691(a) 
; 
(4) and (5) are each amended by striking out "or 453A" each 
''^_ place it appears. 
(d) MINIMUM TAX.—Paragraph (6) of section 56(a) (relating to 
installment sales of certain property) is amended to read as follows: 
"(6) INSTALLMENT SALES OF CERTAIN PROPERTY.—In the 
' 
' 
case of any disposition after March 1, 1986, of any property 
described in section 1221(1), income from such disposition 
.i )
K f 
shall be determined without regard to the installment 
method under section 453. This paragraph shall not apply 
d :.K 
to any disposition with respect to which an election is in 
effect under section 453(1X2XB)." 
26 u s e 453 note. 
(e) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to dispositions in 
taxable years beginning after December 31,1987. 
^ / 
(2) SPECIAL RULES FOR DEALERS.— 
(A) IN GENERAL.—In the case of dealer dispositions 
':' > 
(within the meaning of section 453A of the Internal Reve-
./;«.! 5 
nue Code of 1986), the amendments made by subsections (a) 
and (b) shall apply to installment obligations arising from 
dispositions after December 31,1987. 
,; 
.,,,,,.,, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-393 
^...,.j.. ,. 
(B) SPECIAL RULES FOR OBLIGATIONS ARISING FROM DEALER 
DISPOSITIONS 
AFTER 
FEBRUARY 28, 1986, AND BEFORE 
JANUARY 1, 1988.— 
''*''•^^• 
(i) IN GENERAL.—In the case of an applicable install-
ment obligation arising from a disposition described in 
'>f' ';• 
subclause (I) or (II) of section 453C(e)(l)(A)(i) of the 
Internal Revenue Code of 1986 (as in effect before the 
amendments made by this section) before January 1, 
• O A . J 
1988, the amendments made by subsections (a) and (b) 
shall apply to taxable years beginning after Decem-
ber 31, 1987. 
^'' 
' " 
(ii) CHANGE IN METHOD OF ACCOUNTING.—In the case 
of any taxpayer who is required by clause (i) to change 
its method of accounting for any taxable year with 
respect to obligations described in clause (i)— 
" 
(I) such change shall be treated as initiated by 
'/ 
the taxpayer, 
. 
(II) such change shall be treated as made with 
J; "
^ l7 
the consent of the Secretary of the Treasury or his 
delegate, and 
-. y|j ^-t 
(III) the net amount of adjustments required by 
' 
section 481 of the Internal Revenue Code of 1986 
jl^^yg t ,
^ 
shall be taken into account over a period not 
, 
longer than 4 taxable years. 
(3) SPECIAL RULE FOR NONDEALERS.— 
(A) ELECTION.—A taxpayer may elect, at such time and in 
such manner as the Secretary of the Treasury or his dele-
gate may prescribe, to have the amendments made by 
00; ' 
< 
'3r''- ^ 
subsections (a) and (c) apply to taxable years ending after 
* ' 
s 
December 31, 1986, with respect to dispositions and pledges 
occurring after August 16,1986. 
(B) PLEDGING RULES.—Except as provided in subpara-
j 
graph (A)— 
(i) IN GENERAL.—Section 453A(d) of the Internal 
Revenue Code of 1986 shall apply to any installment 
obligation which is pledged to secure any secured 
f- 
''••• 
indebtedness (within the meaning of section 453A(d)(4) 
of such Code) after December 17, 1987, in taxable years 
ending after such date. 
(ii) COORDINATION WITH SECTION 453C.—For purposes 
-* 
' 
of section 453C of such Code (as in effect before its 
repeal), the face amount of any obligation to which 
section 453A(d) of such Code applies shall be reduced by 
the amount treated as payments on such obligation 
j^ 
under section 453A(d) of such Code and the amount of 
9
X
. • Y" " 
any indebtedness secured by it shall not be taken into 
^ 
account. 
" 
(4) MINIMUM TAX.—The amendment made by subsection (d) 
shall apply to dispositions in taxable years beginning after 
December 31,1986. 
(5) COORDINATION WITH TAX REFORM ACT OF 1986.—The amend-
ments made by this section shall not apply to any installment 
obligation or to any taxpayer during any period to the extent 
the amendments made by section 811 of the Tax Reform Act of 
1986 do not apply to such obligation or during such period. 
101 STAT. 1330-394 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 10203. REDUCTION IN PERCENTAGE OF ITEMS TAKEN INTO ACCOUNT 
UNDER COMPLETED CONTRACT METHOD. 
(a) IN GENERAL.—Section 460(a) (relating to percentage of comple-
tion—capitalized cost method) is amended— 
(1) by striking out "40 percent" each place it appears in the 
,„,, text and heading thereof and inserting in lieu thereof "70 
£ „ percent", and 
.
"
^ I 
(2) by striking out "60 percent" and inserting in lieu thereof 
"30 percent". 
26 use 460 note. 
(b) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to contracts 
entered into after October 13,1987. 
*" 
(2) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.— 
(A) IN GENERAL.—The amendments made by this section 
' ''• 
shall not apply in the case of a qualified ship contract. 
(B) QUALIFIED SHIP CONTRACT.—For purposes of subpara-
, 
graph (A), the term "qualified ship contract" ^°' means any 
"^ 
contract for the construction in the United States of not 
more than 5 ships if^ 
'' 
"T' 
(i) such ships will not be constructed (directly or 
indirectly) for the Federal Government, and 
^ ^ 
>" ' < 
(ii) the taxpayer reasonably expects to complete such 
contract within 5 years of the contract commencement 
date (as defined in section 460(g) of the Internal Reve-
r-r. k. 
... : nueCodeof 1986). 
26 use 263A 
SEC. 10204. AMORTIZATION OF PAST SERVICE PENSION COSTS. 
"°*® 
(a) I N GENERAL.—For purposes of sections 263A and 460 of the 
Internal Revenue Code of 1986, the allocable costs (within the 
meaning of section 263A(a)(2) or section 460(c) of such Code, which-
ever is applicable) with respect to any property shall include con-
tributions paid to or under a pension or annuity plan whether or not 
such contributions represent past service costs. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in paragraph (2), subsec-
tion (a) shall apply to costs incurred after December 31, 1987, in 
, ,ii taxable years ending after such date. 
(2) SPECIAL RULE FOR INVENTORY PROPERTY.—In the case of any 
... property which is inventory in the hands of the taxpayer— 
(A) IN GENERAL.—Subsection (a) shall apply to taxable 
years beginning after December 31,1987. 
(B) CHANGE IN METHOD OF ACCOUNTING.—If the taxpayer 
is required by this section to change its method of account-
ing for any taxable year— 
,, 
,. 
(i) such change shall be treated as initiated by the 
taxpayer, 
, ,. ,, 
(ii) such change shall be treated as made with the 
J,. ., . ., consent of the Secretary of the Treasury or his dele-
gate, and 
(iii) the net amount of adjustments required by sec-
tion 481 of the Internal Revenue Code of 1986 shall be 
taken into account over a period not longer than 4 
taxable years. 
"" Copy read " 'qualined ship contract' ". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-395 
SEC. 10205. CERTAIN FAKM CORPORATIONS REQUIRED TO USE ACCRUAL 
METHOD OF ACCOUNTING. 
(a) GENERAL RULE.—Section 447 (relating to method of accounting 
for corporations engaged in farming) is amended by striking out 
subsections (c) and (e), by redesignating subsection (d) as subsection 
(e), and by inserting after subsection (b) the following new sub-
sections: 
"(c) EXCEPTION FOR CERTAIN CORPORATIONS.—For purposes of 
subsection (a), a corporation shall be treated as not being a corpora-
tion if it is— 
"(1) an S corporation, or 
"(2) a corporation the gross receipts of which meet the 
requirements of subsection (d). 
„
, 
"(d) GROSS RECEIPTS REQUIREMENTS.— 
"(1) IN GENERAL.—A corporation meets the requirements of 
this subsection if, for each prior taxable year beginning after 
December 31, 1975, such corporation (and any predecessor cor-
poration) did not have gross receipts exceeding $1,000,000. For 
purposes of the preceding sentence, all corporations which are 
members of the same controlled group of corporations (within 
the meaning of section 1563(a)) shall be treated as 1 corporation. 
"(2) SPECIAL RULES FOR FAMILY CORPORATIONS.— 
"(A) IN GENERAL.—In the case of a family corporation, 
paragraph (1) shall be applied— 
"(i) by substituting 'December 31, 1985,' for 'Decem-
ber 31,1975,'; and 
:
^ 
"(ii) by substituting '$25,000,000' for '$1,000,000'. 
^' 
"(B) GROSS RECEIPTS TEST.— 
"(i) CONTROLLED GROUPS.—Notwithstanding the last 
sentence of paragraph (1), in the case of a family 
corporation— 
"(I) except as provided by the Secretary, only the 
applicable percentage of gross receipts of any other 
member of any controlled group of corporations of 
which such corporation is a member shall be taken 
' • ' " / " ' 
into account, and 
'•'''* 
"(II) under regulations, gross receipts of such 
corporation or of another member of such group 
';'" •' 
-
^ 
shall not be taken into account by such corporation 
^ ' 
more than once. 
"(ii) PASS-THRU ENTITIES.—For purposes of paragraph 
(1), if a family corporation holds directly or indirectly 
any interest in a partnership, estate, trust or other 
pass-thru entity, such corporation shall take into 
" 
account its proportionate share of the gross receipts of 
such entity. 
^ 
"(iii) 
APPUCABLE 
PERCENTAGE.—For purposes of 
' 
^ 
clause (i), the term 'applicable percentage' means the 
percentage equal to a fraction— 
^ 
"(I) the numerator of which is the fair market 
value of the stock of another corporation held di-
rectly or indirectly £is of the close of the taxable 
"'" 
year by the family corporation, and 
" 
"(II) the denominator of which is the fair market 
value of all stock of such corporation as of such 
time. 
101 STAT. 1330-396 
PUBLIC LAW 100-203—DEC. 22, 1987 
,..^ , 
For purposes of this clause, the term 'stock' does not 
include stock described in section 1563(c)(1). *°* 
^^, 
"(C) FAMILY 
CORPORATION.—For 
purposes 
of 
this 
/
* '
^ 
section,'"*" the term 'family corporation' means— 
"(i) any corporation if at least 50 percent of the total 
combined voting power of all classes of stock entitled to 
vote, and at least 50 percent of all other classes of stock 
-
s J ^ ,,^ 
of the corporation, are owned by members of the same 
L,^^ r 
family, and 
"(ii) any corporation described in subsection (h)." 
(b) SUSPENSE ACCOUNT IN LIEU OF 481 ADJUSTMENTS.—Section 447 
is amended by adding at the end thereof the following new subsec-
tion: 
"(i) SUSPENSE ACCOUNT FOR FAMILY CORPORATIONS.— 
"(1) IN GENERAL.—If any family corporation is required by 
this section to change its method of accounting for any taxable 
year (hereinafter in this subsection referred to as the 'year of 
the change'), notwithstanding subsection (f), such corporation 
shall establish a suspense account under this subsection in lieu 
of taking into account adjustments under section 481(a) with 
respect to amounts included in the suspense account. 
"(2) INITIAL OPENING BALANCE.—The initial opening balance 
of the account described in paragraph (1) shall be the lesser o
f
— 
"(A) the net adjustments which would have been required 
to be taken into account under section 481 but for this 
subsection, or 
., 
"(B) the amount of such net adjustments determined as of 
the beginning of the taxable year preceding the year of 
change. 
1^ If the amount referred to in subparagraph (A) exceeds the 
amount referred to in subparagraph (B), notwithstanding para-
graph (1), such excess shall be included in gross income in the 
^; year of the change. 
ijj 
"(3) REDUCTION IN ACCOUNT IF FARMING BUSINESS CON-
'*'[ TRACTS.—If— 
"•^ 
"(A) the gross receipts of the corporation from the trade 
^. ^ 
or business of farming for the year of the change or any 
.«3. 
subsequent taxable year, is less than 
"(B) such gross receipts for the taxpayer's last taxable 
year beginning before the year of the change (or for the 
,^ 
most recent taxable year for which a reduction in the 
* ' suspense account was made under this paragraph), 
the amount in the suspense account (after taking into account 
prior reductions) shall be reduced by the percentage by which 
the amount described in subparagraph (A) is less than the 
amount described in subparagraph (B). 
^ 
"(4) INCOME INCLUSION.—Any reduction in the suspense 
if account under paragraph (3) shall be included in gross income 
^ for the taxable year of the reduction. 
"(5) INCLUSION WHERE CORPORATION CEASES TO BE A FAMILY 
"' CORPORATION.— 
:;j , 
"(A) IN GENERAL.—If the corporation ceases to be a family 
''"^^~ corporation during any taxable year, the amount in the 
suspense account (after taking into account prior reduc-
'"•Copy read "1563(cKl)." 
"""Copy read "section.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-397 
H
i ^ad 
tions) shall be included in gross income for such taxable 
year. 
2 _ 
"(B) SPECIAL RULE FOR CERTAIN TRANSFERS.—For purposes 
", 
of subparagraph (A), any transfer in a corporation after 
;, 
December 15,1987, shall be treated as a transfer to a person 
.g, 
whose ownership could not qualify such corporation as a 
family corporation unless it is a transfer— 
,,,r. , 
"(i) to a member of the family of the transferor, or 
Y ,o~ 
"(ii) in the case of a corporation described in subsec-
tion (h), to a member of a family which on December 
15, 1987, held stock in such corporation which qualified 
the corporation under subsection (h). 
^' 
"(6) SUBCHAPTER C TRANSACTIONS.—The application of this 
subsection with respect to a taxpayer which is a party to any 
transaction with respect to which there is nonrecognition of 
gain or loss to any party by reason of subchapter C shall be 
determined under regulations prescribed by the Secretary." 
(c) TECHNICAL AMENDMENTS.— 
(1) Subsection (e) of section 447 (as redesignated by subsection 
(a)) is amended by striking out "subsection (c)(2)" and inserting 
in lieu thereof "subsection (d)". 
(2) Paragraph (1) of section 447(h) is amended— 
^i 
(A) by striking out "This section shall not apply to any 
?£ I 
corporation" and inserting in lieu thereof "A corporation is 
described in this subsection", 
(B) by striking out "subsection (d)" each place it appears 
llBtia ( and inserting in lieu thereof "subsection (e)', and 
iO ,««; 
(C) by striking out "subsection (d)(1)" each place it ap-
pears and inserting in lieu thereof "subsection (e)(1)". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 447 note. 
apply to taxable years beginning after December 31,1987. 
SEC. 10206. ENTITIES MAY ELECT TAXABLE YEARS OTHER THAN RE-
QUIRED TAXABLE YEAR. 
(a) ELECTION OF DIFFERENT YEAR.— 
(1) IN GENERAL.—Part I of subchapter E of chapter 1 (relating 
, 
to accounting periods) is amended by adding at the end thereof 
J,, the following new section: * °^ 
•SEC. 
4
4
4
. 
ELECTION OF TAXABLE YEAR OTHER THAN REQUIRED TAX- 2
6 
USC 
4
4
4
. 
ABLE 
YEAR. 
"(a) GENERAL RULE.—Except as provided in subsections (b) and (c), 
a partnership, S corporation, or personal service corporation may 
elect to have a taxable year other than the required taxable year. 
"(b) LIMITATIONS ON TAXABLE YEARS WHICH MAY BE ELECTED.— 
"(1) IN GENERAL.—Except as provided in paragraphs (2) and 
' 
(3), an election may be made under subsection (a) only if the 
deferral period of the taxable year elected is not longer than 3 
'^i months. 
"(2) CHANGES IN TAXABLE YEAR.—Except as provided in para-
<
• graph (3), in the case of an entity changing a taxable year, an 
election may be made under subsection (a) only if the deferral 
A period of the taxable year elected is not longer than the shorter 
iii- of— 
"(A) 3 months, or 
"" Copy read "section.". 
101 STAT. 1330-398 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(B) the deferral period of the taxable year which is being 
changed. 
»'' 
"(3) SPECIAL RULE FOR ENTITIES RETAINING 1986 TAXABLE 
"*['- YEARS.—In the case of an entity's 1st taxable year beginning 
• after December 31, 1986, an entity may elect a taxable year 
* under subsection (a) which is the same as the entity's last 
taxable year beginning in 1986. 
'J 
"(4) DEFERRAL PERIOD.—For purposes of this subsection, the 
;
^ term 'deferral period' means, with respect to any taxable year of 
/^ the entity, the months between— 
"(A) the beginning of such year, and 
"(B) the close of the 1st required taxable year ending 
within such year. 
"(c) EFFECT OF ELECTION.—If an entity makes an election under 
subsection (a), then— 
"(1) in the case of a partnership or S corporation, such entity 
shall make the payments required by section 7519, and 
"(2) in the case of a personal service corporation, such cor-
« poration shall be subject to the deduction limitations of section 
280H. 
"(d) ELECTIONS.— 
—••-- 
/
^ • 
, . , 
vj 
"(1) PERSON MAKING ELECTION.—An election under subsection 
•;. (a) shall be made by the partnership, S corporation, or personal 
service corporation. 
; 
tj-i 
"(2) PERIOD OF ELECTION.— 
"(A) IN GENERAL.—Any election under subsection (a) shall 
.i 
remain in effect until the partnership, S corporation, or 
personal service corporation changes its taxable year. Any 
jif 
r^ au '* I V 
change to a required taxable year may be made without the 
consent of the Secretary. 
3>l V 
"(^^ No FURTHER ELECTION.—If an election is terminated 
under subparagraph (A), the partnership, S corporation, or 
personal service corporation may not make another elec-
tion under subsection (a). 
•y. 
"(3) TIERED STRUCTURES, ETC.—No election may be made under 
subsection (a) with respect to an entity which is part of a tiered 
structure other than a tiered structure comprised of 1 or more 
4
^
^
! ;*?.! )' 
partnerships or S corporations all of which have the same 
taxable year. 
"(e) REQUIRED TAXABLE YEAR.—For purposes of this section, the 
term 'required taxable year' means the taxable year determined 
under section 706(b), 1378, or 441(i) without taking into account any 
taxable year which is allowable by reason of business purposes. 
Solely for purposes of the preceding sentence, sections 706(b), 1378, 
and 441(i) shall be treated as in effect for taxable years beginning 
before January 1, 1987. 
"(f) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section, 
including regulations to prevent the avoidance of subsection (bX2XB) 
or (d)(2XB) through the change in form of an entity." 
(2) CONFORMING AMENDMENT.—The table of sections for part I 
of subchapter E of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 444. Election of taxable year other than required taxable year." 
(b) REQUIRED PAYMENTS.— 
-» 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-399 
(1) IN GENERAL.—Chapter 77 is amended by adding at the end 
thereof the following new section: 
"SEC. 7519. REQUIRED PAYMENTS FOR ENTITIES ELECTING NOT TO HAVE 
26 USC 7519. 
REQUIRED TAXABLE YEAR. 
"(a) GENERAL RULE.—This section applies to a partnership or S 
corporation for any taxable year, if^ 
"(1) an election under section 444 is in effect for the taxable 
r 
year, and 
"(2) the required payment determined under subsection (b) for 
such taxable year (or any preceding taxable year) exceeds $500. 
"(b) REQUIRED PAYMENT.—For purposes of this section, the term 
'required payment' means, with respect to any applicable election 
year of a partnership or S corporation, an amount equal to— 
"(1) the excess of the product of— 
"(A) the applicable percentage of the adjusted highest 
section 1 rate, multiplied by 
"(B) the net base year income of the entity, over 
.1, „-,« "(2) the amount of the required payment for the preceding 
applicable election year. 
For purposes of paragraph (IXA), the term 'adjusted highest section 
1 rate' means the highest rate of tax in effect under section 1 as of 
the end of the base year plus 1 percentage point (or, in the case of 
applicable election years beginning in 1987, 36 percent). 
"(c) REFUND OF PAYMENTS.—If the amount determined under 
subsection (b)(2) exceeds the amount determined under subsection 
(b)(1), then the entity shall be entitled to a refund of such excess. 
"(d) NET BASE YEAR INCOME.—For purposes of this section— 
"(1) IN GENERAL.—An entity's net base year income shall be 
equal to the sum of^ 
"(A) the deferral ratio multiplied by the entity's net 
income for the base year, plus 
"(B) the excess (if any) of— 
"(i) the deferral ratio multiplied by the aggregate 
amount of applicable payments made by the entity 
Vf 
*
• 
during the base year, over 
"(ii) the aggregate amount of such applicable pay-
ments made during the deferral period of the base year. 
• For purposes of this paragraph, the term 'deferral ratio' means 
« the ratio which the number of months in the deferral period of 
•=>. 
the base year bears to the number of months in the partner-
ship's or S corporation's taxable year. 
"(2) NET INCOME,—Net income is determined by taking into 
< account the aggregate amount of the following items— 
; 
"(A) PARTNERSHIPS.—In the case of a partnership, net 
income shall be the amount (not below zero) determined by 
X 
taking into account the aggregate amount of the partner-
> 
ship's items described in section 702(a) (other than credits). 
t 
' (B) S CORPORATIONS.—In the case of an S corporation, 
f 
net income shall be the amount (not below zero) determined 
H . 
by taking into account the aggregate amount of the S 
corporation's items described in section 1366(a) (other than 
credits). If the S corporation was a C corporation for the 
base year, its taxable income for such year shall be treated 
V . 
as its net income for such year. 
"(C) CERTAIN UMITATIONS DISREGARDED.—For purposes of 
subparagraph (A) or (B), any limitation on the amount of 
101 STAT. 1330-400 
PUBLIC LAW 100-203—DEC. 22, 1987 
i •,* «jr any item described in either such paragraph which may be 
taken into account for purposes of computing the taxable 
,^ , 
income of a partner or shareholder shall be disregarded. 
» . i M i.:: 
J« 
"(3) APPLICABLE PAYMENTS.— 
"(A) IN GENERAL.—The term 'applicable payment' means 
8 fo C
f amounts paid or incurred by a partnership or S corporation 
which are includible in gross income of a partner or share-
&
( :<; a holder. 
"(B) EXCEPTIONS.—The term 'applicable payment' shall 
Gl '.# 
not include any— 
M'':'"' 
"(i) gain from the sale or exchange of property be-
ixf 
tween the partner or shareholder and the partnership 
r>Q- 
or S corporation, and 
"(ii) dividend paid by the S corporation. 
"(4) APPLICABLE PERCENTAGE.—The applicable percentage is 
-' the percentage determined in accordance with the following 
table: 
• > 
"If the applicable election year 
/'' 
»f- of the partnership or S 
• i 
.,' 
' 
^ 
The applicable 
corporation begins during: 
percentage is: 
m 
1987 
25 
%r, 
1988 
50 
•' 
1989 
75 
^
"
^ 
1990 or thereafter"!!!"!'"!!!!!!"!!!!!!!!!!!!!!!!!!!!!!!!!!"!!!"!"!^ 
loo. 
"(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
,;,: 
"(1) DEFERRAL PERIOD.—The term 'deferral period' has the 
meaning given to such term by section 444(b)(4). 
ac 
"(2) YEARS.— 
"(A) BASE YEAR.—The term 'base year' means, with re-
iso a spect to any applicable election year, the taxable year of the 
partnership or S corporation preceding such applicable 
election year. 
If 
"(B) APPLICABLE ELECTION YEAR.—The term 'applicable 
/t. 
election year' means any taxable year of a partnership or S 
corporation with respect to which an election is in effect 
•V; 
under section 444. 
3 
"(3) REQUIREMENT OF REPORTING.—Each partnership or S cor-
: 
poration which makes an election under section 444 shall in-
ia elude on any required return or statement such information as 
•' the Secretary shall prescribe as is necessary to carry out the 
provisions of this section. 
:, 
"(f) ADMINISTRATIVE PROVISIONS.— 
Regulations. 
"(1) IN GENERAL.—Except as Otherwise provided in this 
fe subsection or in regulations prescribed by the Secretary, any 
v; payment required by this section shall be assessed and collected 
1 in the same manner as if it were a tax imposed by subtitle C, 
M 
"(2) DUE DATE.—The amount of any payment required by this 
»
) section shall be paid on or before April 15 of the calendar year 
b' following the calendar year in which the applicable election 
'C year begins (or such later date as may be prescribed by the 
;!/ Secretary). 
in 
"(3) INTEREST.—For purposes of determining interest, any 
h- payment required by this section shall be treated as a tax; 
except that no interest shall be allowed with respect to any 
refund of a payment made under this section. 
c 
"(4) PENALTIES.— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-401 
' d> A; 
"(A) IN GENERAL.—In the case of any failure by any 
person to pay on the date prescribed therefor any amount 
required by this section, there shall be imposed on such 
"''^"' 
person a penalty of 10 percent of the underpayment. For 
' 
purposes 
of 
the 
preceding 
sentence, 
the 
term 
'underpayment' means the excess of the amount of the 
"> •>' i payment required under this section over the amount (if 
any) of such payment paid on or before the date prescribed 
*
-
>
• ' "
N therefor. 
"(B) 
NEGUGENCE 
AND 
FRAUD 
PENALTIES 
MADE 
AP-
pla.r, 
PUCABLE.—For purposes of section 6653, any payment re-
• ypivo-i quired by this section shall be treated as a tax. 
"(C) WILLFUL **° FAILURE.—If any partnership or S cor-
^ 
poration willfully fails to comply with the requirements of 
this section, section 444 shall cease to apply with respect to 
such partnership or S corporation. 
"(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the provisions 
of this section and section 280H, including regulations for 
annualizing the income and applicable payments of an entity if the 
base year is a taxable year of less than 12 months." 
(2) CONFORMING AMENDMENT.—The table of sections for chap-
I 
ter 77 is amended by adding at the end thereof the following 
new item: 
.|j 
"Sec. 7519. Required payments for entities electing not to have required 
taxable year." 
(c) DEDUCTION LIMITATIONS.— 
(1) IN GENERAL.—Part IX of subchapter B of chapter 1 (relat-
ing to items not deductible) is amended by adding at the end 
thereof the following new section: 
"SEC. 280H. LIMITATION ON CERTAIN AMOUNTS PAID TO EMPLOYEE- 26 USC 280H. 
OWNERS BY PERSONAL SERVICE CORPORATIONS ELECTING 
ALTERNATIVE TAXABLE YEARS. 
,^ ^ 
"(a) GENERAL RULE.—If^ 
"(1) an election by a personal service corporation under sec-
, tion 444 is in effect for a taxable year, and 
^' 
"(2) such corporation does not meet the minimum distribution 
requirements of subsection (c) for such taxable year, 
then the deduction otherwise allowed under this chapter for ap-
plicable amounts paid or incurred by such corporation to employee-
owners shall not exceed the maximum deductible amount. The 
preceding sentence shall not apply for purposes of subchapter G 
(relating to personal holding companies). 
"(b) CARRYOVER OF NONDEDUCTIBLE AMOUNTS.—If any amount is 
not allowed as a deduction for a taxable year under subsection (a), 
such amount shall be treated as paid or incurred in the succeeding 
taxable year. 
"(c) MINIMUM DISTRIBUTION REQUIREMENT.—For purposes of this 
section— 
"(1) IN GENERAL.—A personal service corporation meets the 
minimum distribution requirements of this subsection if the 
applicable amounts paid or incurred during the deferral period 
' Copy read "WILLFULL" 
101 STAT. 1330-402 
PUBLIC LAW 100-203—DEC. 22, 1987 
, of the taxable year (determined without regard to subsection (b)) 
^ equal or exceed the lesser of— 
' . 
"(A) the product of— 
"(i) the applicable amounts paid or incurred during 
'} 
the preceding taxable year, divided by the number of 
r* 
" 
months in such taxable year, multiplied by 
"(ii) the number of months in the deferral period of 
\9n.- 
the preceding taxable year, or 
"(B) the applicable percentage of the adjusted taxable 
income for the deferral period of the taxable year. 
"(2) 
APPLICABLE PERCENTAGE.—**°*The term 
'applicable 
percentage' means the percentage (not in excess of 95 percent) 
-^ determined by dividing— 
ir, 
"(A) the applicable amounts paid or incurred during the 3 
6t }•:-,- taxable years immediately preceding the taxable year, by 
"(B) the adjusted taxable income of such corporation for 
such 3 taxable years. 
"(d) MAXIMUM DEDUCTIBLE AMOUNT.—For purposes of this sec-
tion, the term 'maximum deductible amount' means the sum o
f
— 
"(1) the applicable amounts paid or incurred during the defer-
ral period, plus 
, , . "(2) an amount equal to the product of^ 
.-. 
"(A) the amount determined under paragraph (1), divided 
by the number of months in the deferral period, multiplied 
by 
"(B) the number of months in the nondeferral period. 
"(e) DISALLOWANCE OF NET OPERATING LOSS CARRYBACKS.—No net 
operating loss carryback shall be allowed to (or from) any taxable 
year of a personal service corporation to which an election under 
section 444 applies. 
"(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
' 
"(1) APPUCABLE AMOUNT.—The term 'applicable amount' 
" 
means any amount paid to an employee-owner which is includ-
ible in the gross income of such employee, other than— 
"(A) any gain from the sale or exchange of property 
<. 
between the owner-employee and the corporation, or 
"(B) any dividend paid by the corporation. 
is 
"(2) EMPLOYEE-OWNER.—The term 'employee-owner' has the 
meaning given such term by section 296A(bX2). 
"(3) NONDEFERRAL AND DEFERRAL PERIODS.— 
^- 
"(A) DEFERRAL PERIOD.—The term 'deferral period' has 
, 
the meaning given to such term by section 444(b)(4). 
^"'I 
"(B) 
NONDEFERRAL 
PERIOD.—The 
term 
'nondeferral 
period' means the portion of the taxable year of the per-
„; ;..-. sonal service corporation which occurs after the portion of 
/ 
such year constituting the deferral period. * ^ * 
; 
"(4) ADJUSTED TAXABLE INCOME.—The term 'adjusted taxable 
* income' means taxable income increased by any amount paid or 
^
^ incurred to an employee-owner which was includible in the 
' 
gross income of such employee-owner." 
(2) CLERICAL AMENDMENT.—The table of sections for part IX of 
^ 
subchapter B of chapter 1 is cunended by adding at the end 
^ 
thereof the following item: 
'""•Copy read "PERCENTAGE.—". 
' ' ' Copy read "period." ". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-403 
. 
r 
, "Sec. 280H. Limitation on certain amounts paid to owner-employees by per-
sonal service corporations electing alternative taxable years." 
(d) EFFECTIVE DATES.— 
26 use 444 note. 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to taxable years 
beginning after December 31,1986. 
(2) REQUIRED PAYMENTS.—The amendments made by subsec-
tion (b) shall apply to applicable election years beginning after 
December 31,1986. 
p;- 
(3) ELECTIONS.—Any election under section 444 of the Internal 
Revenue Code of 1986 (as added by subsection (a)) for an entity's 
1st taxable year beginning after December 31,1986, shall not be 
3j 
required to be made before the 90th day after the date of the 
enactment of this Act. 
(4) SPECIAL RULE FOR EXISTING ENTITIES ELECTING S CORPORA-
TION STATUS.—If a C corporation (within the meaning of section 
1361(a)(2) "2 of the Internal Revenue Code of 1986) with a 
;. 
taxable year other than the calendar year— 
(A) made an election after September 18, 1986, and before 
.J,. »,, 
January 1, 1988, under section 1362 of such Code to be 
^, 
treated as an S corporation, and 
(B) elected to have the calendar year as the taxable year 
of the S corporation, 
then section 444(bX2XB) of such Code shall be applied by taking 
into account the deferral period of the last taxable year of the C 
f
^
, corporation rather than the deferral period of the taxable year 
being changed. 
PART II—PARTNERSHIP PROVISIONS 
SEC. 10211. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS 
CORPORATIONS. 
(a) GENERAL RULE.—Chapter 79 (relating to definitions) is 
amended by adding at the end thereoif the following new section: 
"SEC. 7704. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS 26 USC 7704. 
CORPORATIONS. 
"(a) GENERAL RULE.—For purposes of this title, except as provided 
in subsection (c), a publicly traded partnership shall be treated as a 
corporation. 
"(b) PuBUCLY TRADED PARTNERSHIP.—For purposes of this section, 
the term 'publicly traded partnership' means any partnership i
f
— 
"(1) interests in such partnership are traded on an established 
securities market, or 
"(2) interests in such partnership are readily tradable on a 
secondary market (or the substantial equivalent thereof). 
"(c) EXCEPTION FOR PARTNERSHIPS WITH PASSIVE-TYPE INCOME.— 
"(1) IN GENERAL.—Subsection (a) shall not apply to any pub-
.
V
I licly traded partnership for any taxable year if such partnership 
f 
met the gross income requirements of paragraph (2) for such 
taxable year and each preceding taxable year beginning after 
December 31, 1987, during which the partnership (or any prede-
cessor) was in existence. 
,.. 
"(2) GROSS INCOME REQUIREMENTS.—A partnership meets the 
gross income requirements of this paragraph for any taxable 
" * Copy read "1361(aX2))". 
101 STAT. 1330-404 
PUBLIC LAW 100-203—DEC. 22, 1987 
year if 90 percent or more of the gross income of such partner-
ship for such taxable year consists of quahfying income. 
.^ 
' :t 
' i d
S
; 
"(3) EXCEPTION NOT TO APPLY TO CERTAIN PARTNERSHIPS WHICH 
• :! C
O
U
L
D QUALIFY AS REGULATED INVESTMENT COMPANIES.—This 
PJ 
subsection shall not apply to any partnership which would be 
described in section 851(a) if such partnership were a domestic 
-^ 
corporation. To the extent provided in regulations, the preced-
i^ 
ing sentence shall not apply to any partnership a principal 
activity of which is the buying and selling of commodities (not 
described in section 1221(1)), or options, futures, or forwards 
with respect to commodities. 
"(d) QUALIFYING INCOME.—For purposes of this section— 
"Ai 
"(1) IN GENERAL.—Except as otherwise provided in this 
subsection, the term 'qualifying income' means— 
"(A) interest, 
- 
^^ 
K 
"(B) dividends, 
1, r'.- 
"(C) real property rents, 
"(D) gain from the sale or other disposition of real prop-
>io*%u 
ertv (including property described in section 1221(1)), 
xl *
^
j 
' (E) income and gains derived from the exploration, 
development, mining or production, processing, refining, 
" ^
V -' transportation (including pipelines transporting gas, oil, or 
products thereof), or the marketing of any mineral or natu-
i- ^' 
ral resource (including fertilizer, geothermal energy, and 
'-'-"•" 
timber), 
s * - 
tt^Y) any gain from the sale or disposition of a capital 
asset (or property described in section 1231(b)) held for the 
production of income described in any of the foregoing 
subparagraphs of this paragraph, and 
"(G) in the case of a partnership described in the second 
^
* 
sentence of subsection (cX3), income and gains from 
commodities (not described in section 1221(1)) or futures, 
ir 
forwards, and options with respect to commodities. 
J 
"(2) CERTAIN INTEREST NOT QUAUFIED.—Interest shall not be 
.,. 
,
.
>
T • (i 
'.f 
treated as qualifying income if— 
"(A) such interest is derived in the conduct of a financial 
or insurance business, or 
'. L .1. 
"(B) such interest would be excluded from the term 
« 
'interest* under section 856(f). 
"(3) REAL PROPERTY RENT.—The term 'real property rent' 
' 
means amounts which would qualify as rent from real property 
- 
under section 856(d) if such section were applied without regard 
•' 
to paragraph (2)(C) thereof (relating to independent contractor 
requirements). 
B 
"(4) CERTAIN INCOME QUAUFYING UNDER REGULATED INVEST-
MENT COMPANY OR REAL ESTATE TRUST PROVISIONS.—The term 
~ 
'qualifying income' also includes any income which would qual-
« 
ify under section 851(bX2) or 856(cX2). 
•|i 
"(5) SPECIAL RULE FOR DETERMINING GROSS INCOME FROM CER-
^•' TAIN REAL PROPERTY SALES.—In the case of the sale or other 
"' disposition of real property described in section 1221(1), gross 
income shall not be reduced by inventory costs. 
"(e) INADVERTENT TERMINATIONS.—If^ 
"(1) a partnership fails to meet the gross income requirements 
»i of subsection (cX2), 
"(2) the Secretary 
determines that 
such 
failure 
was 
inadvertent, 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-405 
^ 
"(3) no later than a reasonable time after the discovery of 
such failure, steps are taken so that such partnership once more 
' 
meets such gross income requirements, and 
"(4) such partnership agrees to make such adjustments 
(including adjustments with respect to the partners) as may be 
required by the Secretary with respect to such period, 
then, notwithstanding such failure, such entity shall be treated as 
continuing to meet such gross income requirements for such period. 
"(f) EFFECT OF BECOMING CORPORATION.—As of the 1st day that a 
partnership is treated as a corporation under this section, for pur-
poses of this title, such partnership shall be treated as— 
"(1) transferring all of its assets (subject to its liabilities) to a 
newly formed corporation in exchange for the stock of the 
corporation, and 
"(2) distributing such stock to its partners in liquidation of 
their interests in the partnership." 
i (b) CLERICAL AMENDMENT.—The table of sections for chapter 79 is 
amended by adding at the end thereof the following new item: 
"Sec. 7704. Certain publicly traded partnerships treated as corporations." 
(c) EFFECTIVE DATE.— 
26 use 7704 
f 
(1) IN GENERAL.—The amendments made by this section shall 
note, 
apply— 
(A) except as provided in subparagraph (B), to taxable 
,- ^
, 
years beginning after December 31, 1987, or 
(B) in the case of an existing partnership, to taxable years 
beginning after December 31, 1997. 
- - . • (2) EXISTING PARTNERSHIP.—For purposes of this subsection— 
(A) IN GENERAL.—The term "existing partnership" means 
any partnership i
f
— 
" • '• • 
(i) such partnership was a publicly traded partner-
^'' 
ship on December 17,1987, 
(ii) a registration statement indicating that such 
partnership was to be a publicly traded partnership 
was filed with the Securities and Exchange Commis-
sion with respect to such partnership on or before such 
date, or 
(iii) with respect to such partnership, an application 
''• 
was filed with a State regulatory commission on or 
before such date seeking permission to restructure a 
portion of a corporation as a publicly traded partner-
(B) SPECIAL RULE WHERE SUBSTANTIAL NEW UNE OF BUSI-
NESS ADDED AFTER D
E
C
E
M
B
E
R 17, 1987.—A partnership 
which, but for this subparagraph, would be treated as an 
•
^ '^•; 
existing partnership shall cease to be treated as an existing 
-'^ •' 
partnership as of the 1st day after December 17, 1987, on 
which there has been an addition of a substantial new line 
of business with respect to such partnership. 
SEC. 10212. TREATMENT OF PUBLICLY TRADED PARTNERSHIPS UNDER 
SECTION 469. 
' (a) GENERAL RULE.—Section 469 (relating to passive activity losses 
and credits limited) is amended by redesignating subsections (k) and 
(1) as subsections (1) and (m), respectively, and by inserting after 
subsection (j) the following new subsection: 
101 STAT. 1330-406 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(k) SEPARATE APPLICATION OF SECTION IN CASE OF PUBLICLY 
TRADED PARTNERSHIPS.— 
"(1) IN GENERAL.—This section shall be applied separately 
with respect to items attributable to each publicly traded part-
'^"\ 
nership (and subsection (i) shall not apply with respect to items 
attributable to any such partnership). The preceding sentence 
shall not apply to any credit determined under section 42, or 
any rehabilitation investment credit (within the meaning of 
section 48(o)), attributable to a publicly traded partnership to 
" 
the extent the amount of any such credits exceeds the regular 
'" tax liability attributable to income from such partnership. 
^ 
"(2) PUBLICLY TRADED PARTNERSHIP.—For purposes of this sec-
'^ tion, the term 'publicly traded partnership' means any partner-
"•* 
ship i
f
— 
"(A) interests in such partnership are traded on an estab-
* 
lished securities market, or 
"(B) interests in such partnership are readily tradable on 
a secondary market (or the substantial equivalent thereof)." 
(b) CONFORMING AMENDMENTS.—Paragraph (3) of section 58(b) and 
subparagraph (E) of section 163(d)(4) are each amended by striking 
out "469(1)" and inserting in lieu thereof "469(m)". 
26 use 58 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
take effect as if included in the amendments made by section 501 of 
the Tax Reform Act of 1986. 
SEC. 10213. TREATMENT OF PUBLICLY TRADED PARTNERSHIPS FOR 
UNRELATED BUSINESS TAX. 
(a) GENERAL RULE.—Subsection (c) of section 512 (relating to 
special rules for partnerships) is amended to read as follows: 
"(c) SPECIAL RULES FOR PARTNERSHIPS.— 
"(1) IN GENERAL.—If a trade or business regularly carried on 
by a partnership of which an organization is a member is an 
jA^,. unrelated trade or business with respect to such organization, 
such organization in computing its unrelated business taxable 
income shall, subject to the exceptions, additions, and limita-
tions contained in subsection (b), include its share (whether or 
not distributed) of the gross income of the partnership from 
such unrelated trade or business and its share of the partner-
ship deductions directly connected with such gross income. 
'^ ,^ 
"(2) SPECIAL RULE FOR PUBLICLY TRADED PARTNERSHIPS.—Not-
, withstanding any other provision of this section— 
"(A) any organization's share (whether or not distributed) 
of the gross income of a publicly traded partnership (as 
defined in section 469(k)(2)) shall be treated as gross income 
derived from an unrelated trade or business, and 
"(B) such organization's share of the partnership deduc-
tions shall be allowed in computing unrelated business 
taxable income. 
"(3) SPECIAL RULE WHERE PARTNERSHIP YEAR IS DIFFERENT 
FROM ORGANIZATION'S YEAR.—If the taxable year of the organiza-
• '. tion is different from that of the partnership, the amounts to be 
included or deducted in computing the unrelated business tax-
able income under paragraph (1) or (2) shall be based upon the 
income and deductions of the partnership for any taxable year 
\ of the partnership ending within or with the taxable year of the 
organization." 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-407 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 512 note, 
shall apply to partnership interests acquired after December 17, 
1987. 
SEC. 10214. TREATMENT OF CERTAIN PARTNERSHIP ALLOCATIONS. 
" 
(a) GENERAL RULE.—Clause (vi) of section 514(c)(9)(B) is amended 
to read as follows: 
"(vi) the real property is held by a partnership unless 
the partnership meets the requirements of clauses (i) 
.* 
. : 
through (v) and unless— 
"(I) all of the partners of the partnership are 
qualified organizations, 
"(II) each allocation to a partner of the partner-
s fc j;i)no ik 
ship which is a qualified organization is a qualified 
allocation (within the meaning of section 168(h)(6)), 
*•.', -^fcrLVi 
o r 
"(III) such partnership meets the requirements 
of subparagraph (E)." 
(b) CERTAIN ALLOCATIONS PERMITTED.—Paragraph (9) of section 
514(c) is amended by adding at the end thereof the following new 
subparagraph: 
(E) CERTAIN ALLOCATIONS PERMITTED.— 
"(i) IN GENERAL.—A partnership meets the require-
' -' ^; 
ments of this subparagraph i
f
— 
"(I) the allocation of items to any partner other 
than a qualified organization cannot result in such 
partner having a share of the overall partnership 
loss for any taxable year greater than such part-
f
*
. ;i .• 
ner's share of the overall partnership income for 
the taxable year for which such partner's income 
share will be the smallest, 
"(II) the allocation of items to any partner which 
IS a qualified organization cannot result in such 
* *
^ *
* • 
partner having a share of the overall partnership 
*' 
income for any taxable year greater than such 
H^..i 
partner's share of the overall partnership loss for 
the taxable year for which such partner's loss 
share will be the smallest, and 
'- \ 
"(III) each allocation with respect to the partner-
ship has substantial economic effect within the 
. ,) 
meaning of section 704(bX2). 
For purposes of this clause, items allocated under sec-
1 t A-tt 
tion 704(c) shall not be taken into account, 
"(ii) SPECIAL RULES.— 
;, 
"(I) CHARGEBACKS.—Except as provided in regu-
.5,. . ., 
lations, a partnership may without violating the 
requirements of this subparagraph provide for 
y: 
FT:J :'-:>. 
chargebacks with respect to disproportionate losses 
previously allocated to qualified organizations and 
_ A : rs 
disproportionate income previously allocated to 
other partners. Any chargeback rererred to in the 
preceding sentence shall not be at a ratio in excess 
of the ratio under which the loss or income (as the 
/. . 
case may be) was allocated. 
"(II) PREFERRED RATES OF RETURN, ETC.—To the 
extent provided in regulations, a partnership may 
without violating the requirements of this subpara-
101 STAT. 1330-408 
PUBLIC LAW 100-203—DEC. 22, 1987 
>>m::;ir :r' 
{B]^ 
i 
graph provide for reasonable preferred returns or 
reasonable guaranteed payments." 
26 use 514 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to— 
(1) property acquired by the partnership after October 13, 
1987, and 
(2) partnership interests acquired after October 13,1987, 
except that such amendments shall not apply in the C£ise of any 
property (or partnership interest) acquired pursuant to a written 
binding contract in effect on October 13, 1987, and at all times 
thereafter before such property (or interest) is acquired. 
SEC. 10215. STUDY. 
The Secretary of the Treasury or his delegate shall conduct a 
study of— 
(1) the issue of treating publicly traded limited partnerships 
(and other partnerships which significantly resemble corpora-
tions) as corporations for Federal income tax purposes, includ-
ing the issues of disincorporation and opportunities for avoid-
vvt^; ance of the corporate tax, and 
(2) the administrative and compliance issues related to 
the tax treatment of publicly traded partnerships and other 
large partnerships. 
Reports. 
Not later than January 1, 1989, the Secretary of the Treasury or his 
delegate shall submit a report on such study to the Committee on 
Ways and Means of the House of Representatives and the Commit-
tee on Finance of the Senate, together with such recommendations 
as he may deem appropriate. Not later than May 1,1988, an interim 
report with respect to the issues referred to in paragraph (2) shall be 
submitted to such Committees. 
) PART III—CORPORATE PROVISIONS 
SEC. 10221. REDUCTION IN DIVIDENDS RECEIVED DEDUCTION FOR DIVI-
DENDS FROM CORPORATIONS NOT 20-PERCENT OWNED. 
(a) GENERAL RULE.—The following provisions are each amended 
by striking out "80 percent" and inserting in lieu thereof "70 
percent": 
(1) Section 243(aXl) (relating to dividends received by corpora-
tions). 
(2) Subsections (aX3) and 0)X2) of section 244 (relating to 
^^ dividends received on certain preferred stock). 
(b) RETENTION OF 80-PERCENT DIVIDENDS RECEIVED DEDUCTION FOR 
DIVIDENDS FROM 20-PERCENT OWNED CORPORATIONS.—Section 243 is 
amended by redesignating subsections (c) and (d) as subsections (d) 
and (e), respectively, and by inserting after subsection 0)) the follow-
ing new subsection: 
(c) RETENTION OF 80-PERCENT DIVIDENDS RECEIVED DEDUCTION 
F
O
R DIVIDENDS FROM 20-PERCENT OWNED CORPORATIONS.— 
"(1) IN GENERAL.—In the c€ise of any dividend received from a 
20-percent owned corporation— 
"(A) subsection (aXD of this section, and 
^^-- 
"(B) subsections (aX3) and m2) of section 244, 
shall be applied by substituting '80 percent' for '70 percent'. 
• i 
"(2) 20-PERCENT OWNED CORPORATION.—For purposes of this 
"' section, the term '20-percent owned corporation means any 
• corporation if 20 percent or more of the stock of such corpora-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-409 
tion (by vote and value) is owned by the taxpayer. For purposes 
of the preceding sentence, stock described in section 1504(aX4) 
shall not be taken into account." 
(c) MODIFICATIONS TO TAXABLE YEAR LIMITATIONS.— 
(1) Subsection (b) of section 246 (relating to limitation on 
aggregate amount of deductions) is amended— 
^ 
(A) by striking out "80 percent" in paragraph (1) and 
inserting in lieu thereof "the percentage determined under 
paragraph (3)", and 
(B) by adding at the end thereof the following new para-
graph: 
"(3) SPECIAL RULES.—The provisions of paragraph (1) shall be 
applied— 
"(A) first separately with respect to dividends from 20-
percent owned corporations (as defined in section 243(cX2)) 
and the percentage determined under this paragraph shall 
be 80 percent, and 
"(B) then separately with respect to dividends not from 
20-percent owned corporations and the percentage deter-
mined under this paragraph shall be 70 percent and the 
taxable income shall be reduced by the 
aggregate 
amount of dividends from 20-percent owned corporations 
(as so defined)." 
(2) Subparagraph (B) of section 805(aX4) is amended by strik-
ing out "shall be 80 percent of the life insurance company 
taxable income" and inserting in lieu thereof "shall be the 
percentage determined under section 246(bX3) of the life insur-
ance company taxable income (and such limitation shall be 
" applied as provided in section 2460)X3))". 
(d) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of section 245(cXl) is amended by strik-
ing out "85 percent" and inserting in lieu thereof "70 percent 
(80 percent in the case of dividends from a 20-percent owned 
corporation as defined in section 243(cX2))". 
(2) Paragraph (1) of section 246A(a) is amended by striking out 
"80 percent" and inserting in lieu thereof "70 percent (80 
percent in the case of any dividend from a 20-percent owned 
, ,^ , 
corporation as defined in section 243(cX2))". 
' 
'' V,,: 
(3) Subparagraph (A) of section 8540t)Xl) is amended by insert-
ing before the period at the end thereof the following: "and such 
dividend shall be treated as received from a corporation which 
is not a 20-percent owned corporation". 
(4) Paragraph (2) of section 861(a) is amended— 
(A) by striking out "100/85th" and inserting in lieu 
;i,, , 
thereof "100/70th", and 
r; 
(B) by adding at the end thereof the following new 
sentence: 
"In the case of any dividend from a 20-p)ercent owned corpora-
tion (£is defined in section 243(cX2)), subparagraph (B) shall be 
applied by substituting '100/80th' for *100/70th'." 
(e) EFFECTIVE DATES.— 
26 use 243 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to dividends 
received or accrued after December 31, 1987, in taxable years 
ending after such date. 
101 STAT. 1330-410 
PUBLIC LAW 100-203—DEC. 22, 1987 
(2) AMENDMENTS RELATING TO LIMITATIONS.—The amendments 
' 
made by subsection (b) shall apply to taxable years beginning 
after December 31,1987. 
SEC. 10222. CERTAIN EARNINGS AND PROFITS ADJUSTMENTS NOT TO 
APPLY FOR CERTAIN PURPOSES. 
(a) SPECIAL RULE FOR DETERMINING ADJUSTED BASIS OF STOCK OF 
, MEMBERS OF AFFILIATED GROUP.— 
(1) IN GENERAL.—Section 1503 (relating to computation and 
payment of tax by affiliated group) is amended by adding at the 
end thereof the following new subsection: 
"(e) SPECIAL RULE FOR DETERMINING ADJUSTMENTS TO BASIS.— 
"(1) IN GENERAL.—Solely for purposes of determining gain or 
loss on the disposition of intragroup stock, in determining the 
aciyustments to the basis of such intragroup stock on account of 
I j ; 
the earnings and profits of any member of an affiliated group 
icBui; fQj. g^jjy consolidated year— 
"(A) such earnings and profits shall be determined as if 
ermn : >
; section 312 were applied for such taxable year (and all 
"
^ 
preceding consolidated years of the member with respect to 
- 
such group) without regard to subsections (k) and (n) 
thereof, and 
e 
"(B) earnings and profits shall not include any amount 
excluded from gross income under section 108 to the extent 
-''"'S "•' the amount so excluded was not applied to reduce tax 
attributes (other than basis in property). 
» 
t 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) INTRAGROUP STOCK.—The term 'intragroup stock' 
-
f
^
. 
means any stock which— 
"(i) is in a corporation which is or was a member of 
an affiliated group of corporations, and 
,... > ^_-i 
"(ii) is held by another member of such group. 
^f«, /-,> '^ ' Such term includes any other property the basis of which is 
.,. /. 
determined (in whole or in part) by reference to the basis of 
stock described in the preceding sentence. 
J, , ,,,-j 
"(B) CONSOUDATED YEAR.—The term 'consolidated year' 
means any taxable year for which the affiliated group 
makes a consolidated return." 
26 use 1503 
(2) EFFECTIVE DATE.— 
"°te- 
^. 
(A) IN GENERAL.—Except as provided in Subparagraph (B), 
the amendment made by paragraph (1) shall apply to any 
* 
intragroup stock disposed of after December 15, 1987. For 
purposes of determining the adjustments to the basis of 
such stock, such amendment shall be deemed to have been 
in effect ^ ^ ^ for all periods whether before, on, or after 
-^-" - 
December 15,1987. 
(B) EXCEPTION.—The amendment made by paragraph (1) 
Y'aii r^^' shall not apply to any intragroup stock disposed of after 
December 15, 1987, and before January 1, 1989, if such 
-;^io0^:': disposition is pursuant to a written binding contract, 
id lift'.a 
governmental order, letter of intent or preliminary agree-
ment, or stock acquisition agreement, in effect on or before 
5
*
>
o
i
. m. O
K
U K 
December 15,1987. 
(b) DISTRIBUTIONS RECEIVED BY 20-PERCENT CORPORATE SHARE-
'• HOLDERS.— 
" Copy read "been effect". 
Ji;K<. 
•J as. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-411 
(1) IN GENERAL.—Paragraph (1) of section 301(f) (relating to 
special rule for certain distributions received by 20-percent 
corporate shareholders) is amended by striking out "subsection 
(n) thereof and inserting in lieu thereof "subsections (k) and (n) 
* ' thereof. 
(2) EFFECTIVE DATES.— 
26 use 30i note. 
(A) IN GENERAL.—The amendment made by paragraph (1) 
^ 
shall apply to distributions after December 15, 1987. For 
purposes of applying such amendment to any such 
distribution— 
. ^ 
(i) for purposes of determining earnings and profits, 
' ' ' - 
such amendment shall be deemed to be in effect for all 
periods whether before, on, or after December 15, 1987, 
Q ' ' ' ^ 
but 
(ii) such amendment shall not affect the determina-
tion of whether any distribution on or before December 
15, 1987, is a dividend and the amount of any reduction 
in accumulated earnings and profits on account of any 
>
-
^
b .
H
.
t 
such distribution. 
^
"
- 
(B) EXCEPTION.—The amendment made by paragraph (1) 
shall not apply for purposes of determining gain or loss on 
any disposition described in subsection (aX2XB) of this 
section. 
SEC. 10223. TREATMENT OF MIRROR SUBSIDIARY TRANSACTIONS. 
(a) CONSOUDATED RETURN REGULATIONS NOT T o APPLY FOR*^* 
PURPOSES OF NONRECOGNITION UNDER SECTION 337.—Subsection (c) 
of section 337 (defining 80-percent distributee) is amended by adding 
at the end thereof the following new sentence: "For purposes of this 
section, the determination of whether any corporation is an 80-
percent distributee shall be made without regard to any consoli-
dated return regulation." 
(b) AMENDMENT TO SECTION 355.—Subparagraph (D) of section 
3550t)X2) (relating to requirements as to active business) is 
amended— 
(1) by amending clause (i) to read as follows: 
"(i) was not acquired by any distributee corporation 
*« . » 
directly (or through 1 or more corporations, whether 
through the distributing corporation or otherwise) 
within the period described in subparagraph (B), or", 
(2) by striking out "by another corporation" in clause (ii) and 
, 
inserting in lieu thereof "such distributee corporation", and 
(3) by adding at the end thereof the following new sentence: 
"For purposes of subparagraph (D), all distributee corporations 
which are members of the same affiliated group (as defined in 
section 1504(a) without regard to section 15040t))) shall be 
treated as 1 distributee corporation." 
(c) AMENDMENT TO SECTION 304.—Subsection (b) of section 304 
(relating to redemption through use of related corporations) is 
amended by adding at the end thereof the following new paragraph: 
"(4) TREATMENT OF CERTAIN INTRAGROUP TRANSACTIONS.— 
"(A) IN GENERAL.—In the case of any transfer described 
in subsection (a) of stock of 1 member of an affiliated group 
^ 
.^^ to another member of such group, proper adjustments shall 
be made to— 
'• Copy read "TO APPLY FOR PURPOSBB". 
101 STAT. 1330-412 
PUBLIC LAW 100-203—DEC. 22, 1987 
^ 
"(i) the adjusted basis of any intragroup stock, and 
"(ii) the earnings and profits of any member of such 
I''" I' 
group, 
'"' ' 
to the extent necessary to carry out the purposes of this 
At-.n ;;">ni?,5 ^
4
v 
section. 
'"^ " 
' ' 
"(B) DEFINITIONS.—For purposes of this paragraph— 
I' 
"(i) AFFILIATED GROUP.—The term 'affiliated group' 
^;^ 
has the meaning given such term by section 1504(a). 
"^' * 
"(ii) INTRAGROUP STOCK.—The term 'intragroup stock' 
means any stock which— 
t 
"(I) is in a corporation which is a member of an 
affiliated group, and 
"(II) is held by another member of such group." 
26 u s e 304 note. 
(d) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to distributions or transfers after December 15, 1987. 
(2) EXCEPTIONS.— 
*' 
(A) DISTRIBUTIONS.—The amendments made by this sec-
, (, ' 
tion shall not apply to any distribution after December 15, 
1987, and before January 1,1993, if— 
/ 
(i) 80 percent or more of the stock of the distributing 
corporation was acquired by the distributee before 
December 15, 1987, or 
Contracts. 
"
^ 
(ii) 80 percent or more of the stock of the distributing 
'^^ 
corporation was acquired by the distributee before 
• 
January 1,1989, pursuant to a binding written contract 
or tender offer in effect on December 15,1987. 
For purposes of the preceding sentence, stock described in 
-h 
section 1504(aX4) of the Internal Revenue Code of 1986 shall 
\ ^'-i" 
not be taken into account. 
(B) SECTION 304 TRANSFERS.—The amendment made by 
. oi" • 
subsection (c) shall not apply to any transfer after Decem-
' 
i 
ber 15, 1987, and before January 1, 1993, if such transfer 
is— 
(i) between corporations which are members of the 
:ir:/sf-JO , 
game affiliated group on December 15,1987, or 
Contracts. 
"
^ 
(ii) between corporations which become members of 
^ 
the same affiliated group before January 1, 1989, 
pursuant to a binding written contract or tender offer 
~ 
in effect on December 15,1987. 
•iJt. 
(C) DISTRIBUTIONS COVERED BY PRIOR TRANSITION RULE.— 
'^ " 
The amendments made by this section shall not apply to 
any distribution to which the amendments made by subtitle 
D of title VI of the Tax Reform Act of 1986 do not apply. 
SEC. 10224. BENEFITS OF GRADUATED CORPORATE RATES NOT ALLOWED 
r 
TO PERSONAL SERVICE CORPORATIONS. 
(a) GENERAL RULE.—Subsection (b) of section 11 (relating to cor-
porate tax rates) is amended to read as follows: 
"(b) AMOUNT OF TAX.— 
^ 
"(1) IN GENERAL.—The amount of the tax imposed by subsec-
;' 
tion (a) shall be the sum of— 
"(A) 15 percent of so much of the taxable income as does 
not exceed $50,000, 
"(B) 25 percent of so much of the taxable income as 
exceeds $50,000 but does not exceed $75,000, and ^ 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-413 
"(C) 34 percent of so much of the taxable income as 
exceeds $75,000. 
In the case of a corporation which h£is taxable income in excess 
of $100,000 for any taxable year, the amount of tax determined 
under the preceding sentence for such taxable year shall be 
increased by the lesser of (i) 5 percent of such excess, or (ii) 
$11,750. 
. - 
,-•;•, 
"(2) CERTAIN PERSONAL SERVICE CORPORATIONS NOT EUGIBLE 
FOR GRADUATED RATES.—Notwithstanding paragraph (1), the 
amount of the tax imposed by subsection (a) on the taxable 
income of a qualified personal service corporation (as defined in 
section 448(d)(2)) shall be equal to 34 percent of the taxable 
income." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use ii note, 
shall apply to taxable years beginning after December 31, 1987. 
SEC. 10225. AMENDMENTS TO SECTION 382. 
(a) TREATMENT OF WORTHLESS STOCK.—Paragraph (4) of section 
382(g) (defining ownership change) is amended by adding at the end 
thereof the following new subparagraph: 
"(D) TREATMENT OF WORTHLESS STOCK.—If any stock held 
by a 50-percent shareholder is treated by such shareholder 
jQ r 
as becoming worthless during any taxable year of such 
^
^ . 
shareholder and such stock is held by such shareholder as 
of the close of such taxable year, for purposes of determin-
^^ ,^; 
ing whether an ownership change occurs after the close of 
such taxable year, such shareholder— 
"(i) shall be treated as having acquired such stock on 
the 1st day of his 1st succeeding taxable year, and 
"(ii) shall not be treated as having owned such stock 
during any prior period. 
For purposes of the preceding sentence, the term '50-per-
cent shareholder' means any person owning 50 percent or 
more of the stock of the corporation at any time during the 
3-year period ending on the last day of the taxable year 
with respect to which the stock was so treated." 
O
b
) TREATMENT OF DEPRECIATION UNDER BUILT-IN Loss RULES.— 
Subparagraph (B) of section 382(h)(2) (defining recognized built-in 
loss) is amended by adding at the end thereof the following new 
sentence: 
"Such term includes any amount allowable as depreciation, 
, ji. 
amortization, or depletion for any period within the rec-
ognition period except to the extent the new loss corpora-
tion establishes that the amount so allowable is not attrib-
utable to the excess described in clause (ii)." 
(c) EFFECTIVE DATES.— 
26 use 382 note. 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
shall apply in the case of stock treated as becoming worthless in 
taxable years beginning after December 31,1987. 
(2) SUBSECTION (b).—The amendment made by subsection (b) Contracts. 
shall apply in the case of ownership changes (as defined in 
section 382 of the Internal Revenue Code of 1986 as amended by 
subsection (a)) after December 15,1987; except that such amend-
ment shall not apply in the case of any ownership change 
pursuant to a binding written contract which was in effect on 
December 15, 1987, and at all times thereafter before such 
ownership change. 
101 STAT. 1330-414 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 10226. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET 
BUILT-IN GAINS. 
(a) GENERAL RULE.—Part V of subchapter C of chapter 1 (relating 
to carryovers) is amended by adding at tne end thereof the following 
new section: 
26 u s e 384. 
"SEC. 384. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET 
BUILT-IN GAINS. 
"(a) GENERAL RULE.— 
"(1) STOCK ACQUISITIONS, ETC.—If— 
"(A) a corporation (hereinafter in this section referred to 
* 
as the 'gain corporation') becomes a member of an affiliated 
*
~ ''^ 
"(B) such corporation has a net unrealized built-in gain, 
the income of such corporation for any recognition period tax-
able year (to the extent attributable to recognized built-in gains) 
shall not be offset by any preacquisition loss of any other 
member of such group. 
"(2) ASSET ACQUISITIONS.—If— 
"(A) the £issets of a corporation (hereinafter in this sec-
tion referred to as the 'gain corporation') are acquired by 
another corporation— 
"(i) in a liquidation to which section 332 applies, or 
"(ii) in a reorganization described in subparagraph 
(A), (C), or (D) of section 368(aXl), and 
"(B) the gain corporation has a net unrealized built-in 
gain, 
the income of the acquiring corporation for any recognition 
period taxable year (to the extent attributable to recognized 
built-in gains of the gain corporation) shall not be offset by any 
preacquisition loss of any corporation (other than the gain 
corporation). 
"(b) EXCEPTION WHERE 50 PERCENT OF GAIN CORPORATION HELD.— 
Subsection (a) shall not apply if more than 50 percent of the stock 
(by vote and value) of the gain corporation was held throughout the 
5-year period ending on the acquisition date— 
(1) in any case described in subsection (aXD, by members of 
the affiliated group referred to in subsection (a)(1), or 
"(2) in any case described in subsection (aX2), by the acquiring 
corporation or members of such acquiring corporation's affili-
ated group. 
For purposes of the preceding sentence, stock described in section 
1504(aX4) shall not be taken into account. 
"(c) DEFINITIONS.—For purposes of this section— 
,, 
, 
"(1)RECOGNIZED BUILT-IN GAIN.— 
.
f
t
j
o
i
T 
' ' 
u^^^ jj^ GENERAL.—The term 'recognized built-in gain' 
*: 
means any gain recognized during the recognition period on 
the disposition of any asset except to the extent the gain 
corporation (or, in an^ case described in subsection (aX2), 
the acquiring corporation) establishes that— 
(i) such asset was not held by the gain corporation 
on the acquisition date, or 
"(ii) sucn gain exceeds the excess (if any) of— 
"(I) the fair market value of such asset on the 
acquisition date, over 
'(II) the adjusted basis of such asset on such 
date. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-415 
"(B) TREATMENT OF CERTAIN INCOME ITEMS.—Any item of 
income which is properly taken into account for any rec- 
... 
.
«
,
• 
ognition period taxable year but which is attributable to 
periods before the acquisition date shall be treated as a 
recognized built-in gain for the taxable year in which it is 
properly taken into account and shall be taken into account 
I'mir: in determining the amount of the net unrealized built-in 
gain. 
i i « 
"(C) LIMITATION.—The amount of the recognized built-in 
gains for any recognition period taxable year shall not 
.^.„ „ _ exceed— 
*' 
"(i) the net unrealized built-in gain, reduced by 
"(ii) the recognized built-in gains for prior years 
ending in the recognition period which (but for this 
section) would have been offset by preacquisition losses. 
"(2) ACQUISITION DATE.—The term 'acquisition date' means 
the date on which the gain corporation becomes a member of 
the affiliated group or, in any case described in subsection (a)(2), 
the date of the distribution or transfer in the liquidation or 
reorganization. 
"(3) PREACQUISITION LOSS.— 
Cfli 
"(A) IN GENERAL.—The 
term 
'preacquisition 
loss' 
means— 
8«- 
"(i) any net operating loss carryforward to the tax-
able year in which the acquisition date occurs, and 
"(ii) any net operating loss for the taxable year in 
.• 
which the acquisition date occurs to the extent such 
loss is allocable to the period in such year on or before 
the acquisition date. 
t*-' \ 
Except as provided in regulations, the net operating loss 
Hi *! 
shall, for purposes of clause (ii), be allocated ratably to each 
day in the year. 
* 
! 
"(B) TREATMENT OF RECOGNIZED BUILT-IN LOSS.—In the 
C£ise of a corporation with a net unrealized built-in loss, the 
term 'preacquisition loss' includes any recognized built-in 
"(4) OTHER DEFINITIONS.—Except as provided in regulations, 
the terms 'net unrealized built-in gain', 'net unrealized built-in 
loss', 'recognized built-in loss', 'recognition period', and 'recogni-
tion period taxable year', have the same respective meanings as 
when used in section 382(h), except that the acquisition date 
shall be taken into account in lieu of the change date. 
"(d) LIMITATION ALSO TO APPLY TO EXCESS CREDITS OR NET CAPITAL 
LOSSES.—Rules similar to the rules of subsection (a) shall also apply 
in the csise of any excess credit (as defined in section 383(aX2)) or net 
capital loss. 
(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section, 
including regulations to ensure that the purposes of this section may 
not be circumvented through— 
"(1) the use of any provision of law or regulations (including 
subchapter K of this chapter), or 
"(2) contributions of property to the gain corporation." 
(b) CLERICAL AMENDMENT.—The table of sections for part V of 
subchapter C of chapter 1 is amended by adding at the end thereof 
the following new item: 
101 STAT. 1330-416 
PUBLIC LAW 100-203—DEC. 22, 1987 
"Sec. 384. Limitation on use of preacquisition losses to offset built-in gains." 
26 use 384 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply in cases where the acquisition date (as defined in section 
384(cX2) of the Internal Revenue Code of 1986 as added by this 
section) is after December 15, 1987; except that such amendments 
shall not apply in the case of any transaction pursuant to— 
(Da binding written contract in effect on or before December 
15,1987, or 
(2) a letter of intent or agreement of merger signed on or 
before December 15, 1987. 
SEC. 10227. RECAPTURE OF LIFO AMOUNT IN THE CASE OF ELECTIONS BY 
S CORPORATIONS. 
(a) GENERAL RULE.—Section 1363 (relating to effect of election on 
corporations) is amended by adding at the end thereof the following 
new subsection: 
"(d) RECAPTURE OF LIFO BENEFITS.— % -; dofi^ n.> ^-^mb 5*i' 
"(1) IN GENERAL.—If^ 
'to 
"(A) an S corporation was a C corporation for the last 
taxable year before the first taxable year for which the 
election under section 1362(a) was effective, and 
«' 
"(B) the corporation inventoried goods under the LIFO 
method for such last taxable year, 
the LIFO recapture amount shall be included in the gross 
income of the corporation for such last taxable year (and appro-
priate adjustments to the basis of inventory shall be made to 
take into account the amount included in gross income under 
this paragraph). 
"(2) ADDITIONAL TAX PAYABLE IN INSTALLMENTS.— 
"(A) IN GENERAL.—Any increase in the tax imposed by 
this chapter by reason of this subsection shall be payable in 
4 equal installments. 
* 
"(B) DATE FOR PAYMENT OF INSTALLMENTS.—The first 
installment under subparagraph (A) shall be paid on or 
before the due date (determined without regard to exten-
sions) for the return of the tax imposed by this chapter for 
'"' 
the last taxable year for which the corporation was a C 
corporation and the 3 succeeding installments shall be paid 
on or before the due date (as so determined) for the corpora-
tion's return for the 3 succeeding taxable years. 
S' 
"(C) No INTEREST FOR PERIOD OF EXTENSION.—Notwith-
standing section 6601(b), for purposes of section 6601, the 
date prescribed for the payment of each installment under 
this paragraph shall be determined under this paragraph. 
"(3) LIFO RECAPTURE AMOUNT.—For purposes of this subsec-
tion, the term 'LIFO recapture amount' means the amount (if 
any) by which— 
"(A) the inventory amount of the inventory asset under 
tap 
the first-in, first-out method authorized by section 471, 
exceeds 
gfi i 
"(B) the inventory amount of such assets under the LIFO 
method. 
For purp>oses of the preceding sentence, inventory amounts 
shall be determined as of the close of the last taxable year 
referred to in paragraph (1). 
"(4) OTHER DEFINITIONS.—For purposes of this subsection— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-417 
*k i" 
"(A) LIFO METHOD.—The term'LIFO method'means the 
method authorized by section 472. 
ion -; 
«(g) INVENTORY ASSETS.—The term 'inventory assets' 
means stock in trade of the corporation, or other property 
of a kind which would properly be included in the inventory 
* 
of the corporation if on hand at the close of the taxable 
year. 
.,, 
"(C) METHOD OF DETERMINING INVENTORY AMOUNT.—The 
;" * 
inventory amount of assets under a method authorized by 
section 471 shall be determined— 
"(i) if the corporation uses the retail method of valu-
*' 
• 
ing inventories under section 472, by using such 
method, or 
^ 
"(ii) if clause (i) does not apply, by using cost or 
market, whichever is lower." 
(h) EFFECTIVE DATES.— 
26 use 1363 
(1) IN GENERAL.—Except as provided in paragraph (2) the ^°^-
amendment made by subsection (a) shall apply in the case of 
elections made after December 17,1987. 
* 
(2) EXCEPTION.—The amendment made by subsection (a) shall 
not apply in the case of any election made by a corporation after 
g 
December 17, 1987, and before January 1, 1989, if, on or before 
;. 
December 17,1987— 
(A) there was a resolution adopted by the board of direc-
tors of such corporation to make an election under sub-
JuTie: chapter S of chapter 1 of the Internal Revenue Code of 1986, 
J' 
or 
f' 
(B) there W£is a ruling request with respect to the business 
j^ 
filed 
with the Internal Revenue Service expressing an 
intent to make such an election. 
SEC. 10228. EXCISE TAX ON RECEIPT OF GREENMAIL. 
(a) IN GENERAL.—Subtitle E is amended by adding at the end 
thereof the following new chapter: 
"CHAPTER 54—GREENMAIL 
"Sec. 5881. Greenmail. 
"SEC. 5881. GREENMAIL. 
"(a) IMPOSITION OF TAX.—There is hereby imposed on any person 
who receives greenmail a tax equal to 50 percent of gain realized by 
such person on such receipt. 
"(b) 
GREENMAIL.—For purposes of this section, the term 
'greenmail' means any consideration transferred by a corporation to 
directly or indirectly acquire its stock from any shareholder if— 
"(1) such shareholder held such stock (as determined under 
i 
section 1223) for less than 2 years before entering into the 
^t 
agreement to make the transfer, 
"(2) at some time during the 2-year period ending on the date 
of such acquisition— 
"(A) such shareholder, 
"(B) any person acting in concert with such shareholder, 
• 
or 
"(C) any person who is related to such shareholder or 
person described in subparagraph (B), 
101 STAT. 1330-418 
PUBLIC LAW 100-203—DEC. 22, 1987 
0i> made or threatened to make a public tender offer for stock of 
such corporation, and 
"(3) such acquisition is pursuant to an offer which was not 
made on the same terms to all shareholders. 
For purposes of the preceding sentence, payments made in connec-
tion with, or in transactions related to, an acquisition shall be 
treated as paid in such acquisition. 
"(c) OTHER DEFINITIONS.—For purposes of this section— 
"(1) PuBUC TENDER OFFER.—The term 'public tender offer' 
means any offer to purchase or otherwise acquire stock or assets 
I
f in a corporation if such offer waa or would be required to be 
-5; filed or registered with any Federal or State agency regulating 
securities. 
.fg 
"(2) RELATED PERSON.—A person is related to another person 
if the relationship between such persons would result in the 
v
.
1
^ 
disallowance of losses under section 267 or 707(b). 
• v 
"(d) TAX APPUES WHETHER OR NOT GAIN RECOGNIZED.—The tax 
imposed by this section shall apply whether or not the gain referred 
to in subsection (a) is recognized." 
(b) DENIAL OF INCOME TAX DEDUCTION FOR GREENMAIL TAX.— 
Paragraph (6) of section 275(a) is amended by striking out "and 46" 
and inserting in lieu thereof "46, and 54". 
(c) CLERICAL AMENDMENT.—The table of chapters for subtitle E is 
amended by adding at the end thereof the following new item: 
"CHAPTER 54. GREENMAIL." 
26 use 5881 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
"°^- 
apply to consideration received after the date of the enactment of 
this Act in taxable years ending after such date; except that such 
amendments shall not apply in the case of any acquisition pursuant 
to a written binding contract in effect on December 15, 1987, and at 
all times thereafter before the acquisition. 
PART IV—FOREIGN TAX PROVISIONS 
SEC. 10231. DENIAL OF FOREIGN TAX CREDIT FOR TAXES PAID OR 
ACCRUED TO SOUTH AFRICA. 
(a) GENERAL RULE.—Paragraph (2) of section 901(j) (relating to 
denial of foreign tax credit, etc., with respect to certain foreign 
countries) is amended by adding at the end thereof the following 
new subparagraph: 
"(C) SPECIAL RULE FOR SOUTH AFRICA.— 
"(i) IN GENERAL.—In addition to any period during 
which this subsection would otherwise apply to South 
Africa, this subsection shall apply to South Africa 
'\' 
during the period— 
Effective date. 
"(I) beginning on January 1,1988, and 
Termination 
"(H) ending on the date the Secretary of State 
^^' 
•'• •' •' - 
certifies to the Secretary of the Treasury that 
South Africa meets the requirements of section 
' • 
' i\.- ^r: 311(a) of the Comprehensive Anti-Apartheid Act of 
1986 (as in effect on the date of the enactment of 
this subparagraph). 
^i>:^^-'^i''---~ •• ,^ 
"(ii) SOUTH AFRICA DEFINED.—For purposes of clause 
(i), the term 'South Africa' has the meaning given to 
ii •«•?' 
•
• such term by paragraph (6) of section 3 of tihe C!om-
prehensive Anti-Apartheid Act of 1986 (as so in effect)." 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-419 
(b) TECHNICAL AMENDMENTS.—Paragraph (1) of section 901(j) is 
amended— 
(1) by striking out "to which" in subparagraph (A) and insert-
ing in lieu thereof "during which", and 
(2) by striking out "any country so identified" and inserting in 
lieu thereof "such country". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 901 note, 
apply to taxable years beginning after December 31,1987. 
PART V—INSURANCE PROVISIONS 
SEC. 10241. INTEREST RATE USED IN COMPUTING TAX RESERVES FOR 
LIFE INSURANCE COMPANIES MAY NOT BE LESS THAN AP-
'^^- 
PLICABLE FEDERAL RATE. 
i / f oc 
(a) IN GENERAL.—Subparagraph (B) of section 807(dX2) (relating to 
method of computing reserves for purposes of determining income) 
is amended to read as follows: 
"(B) the greater of— 
^
, 
"(i) the applicable Federal interest rate, or 
"(ii) the prevailing State assumed interest rate, and". 
(b) APPLICABLE FEDERAL INTEREST RATE.— 
(1) IN GENERAL.—Paragraph (4) of section 807(d) (defining 
State assumed interest rate) is amended to read as follows: 
"(4) APPLICABLE FEDERAL INTEREST RATE; PREVAILING STATE 
ASSUMED INTEREST RATE.—For purposes of this subsection— 
"(A) APPUCABLE FEDERAL INTEREST RATE.— 
"(i) I N GENERAL.—Except as provided in clause (ii), 
I, 
the term 'applicable Federal interest rate' means the 
annual rate determined by the Secretary under section 
846(cX2) for the calendar year in which the contract 
was issued. 
"(ii) ELECTION TO RECOMPUTE FEDERAL INTEREST RATE 
^n 
'Y-'y^ 
EVERY 5 YEARS.— 
"(I) IN GENERAL.—In computing the amount of 
the reserve with respect to any contract to which 
an election under this clause applies for periods 
during any recomputation period, the applicable 
\ 
Federal interest rate shall be the annual rate 
ysr/., '; 
je,,.j..- 
determined by the Secretary under section 846(cX2) 
for the 1st year of such period. No change in the 
applicable Federal interest rate shall be made 
under the preceding sentence unless such change 
B- 
would equal or exceed V2 of 1 percentage point. 
' 
"(II) RECOMPUTATION PERIOD.—For purposes of 
subclause (I), the term 'recomputation 
period' 
r, 
, , 
'>?v: 
means, with respect to any contract, the 5 calendar 
year period beginning with the 5th calendar year 
' 
beginning after the calendar year in which the 
contract was issued (and each subsequent 5 cal-
; 
endar year period). 
"(Ill) ELECTION.—An election under this clause 
Contracts. 
shall apply to all contracts issued during the cal-
i 
endar year for which the election was made or 
# 
during any subsequent calendar year unless such 
a 
election is revoked with the consent of the Sec-
retary. 
101 STAT. 1330-420 
PUBLIC LAW 100-203—DEC. 22, 1987 
iBiin CiOLi 
btiB 
,.,, 
"(IV) 
SPREAD NOT AVAILABLE.—Subsection (f) 
shall not apply to any adjustment required under 
this clause. 
(B) PREVAILING STATE ASSUMED INTEREST RATE.— 
"(i) IN GENERAL.—The term 'prevailing State as-
sumed interest rate' means, with respect to any con-
tract, the highest assumed interest rate permitted to be 
used in computing life insurance reserves for insurance 
contracts or annuity contracts (as the case may be) 
under the insurance laws of at least 26 States. For 
purposes of the preceding sentence, the effect of 
nonforfeiture laws of a State on interest rates for 
reserves shall not be taken into account. 
Contracts. 
' " 
"(ii) WHEN RATE DETERMINED.—The prevailing State 
assumed interest rate with respect to any contract 
shall be determined as of the beginning of the calendar 
year in which the contract was issued.' 
(2) TECHNICAL AMENDMENTS.— 
(A) The third to the last sentence of section 807(c) is 
amended by striking out "the higher of and all that fol-
lows and inserting in lieu thereof "whichever of the follow-
ing rates is the highest as of the time such obligation first 
s 
.J 
did not involve life, accident, or health contingencies: the 
>// M
U applicable Federal interest rate under subsection (d)(2)(B)(i), 
T^. the prevailing State assumed interest rate under subsection 
(dX2)(BXii), or the rate of interest assumed by the company 
in determining the guaranteed benefit." 
, i 
'', 
(B) Paragraph (2) of section 812(b) is amended— 
T 
(i) by striking out "at the prevailing State assumed 
" ..^.'^ 
rate or, where such rate is not used, another appro-
'-• 
priate rate" and inserting in lieu thereof "at the 
greater of the prevailing State assumed rate or the 
• - 1' '•" 
applicable Federal interest rate", and 
(ii) by adding at the end thereof the following new 
"t'f 
sentence: 
f
! "In any case where the prevailing State assumed rate is not 
used, another appropriate rate shall be treated £is the prevailing 
State assumed rate for purposes of subparagraph (A)." 
26 use 807 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to contracts issued in taxable years beginning after December 
31,1987. 
SEC. 10242. TREATMENT OF FOREIGN INSURANCE COMPANIES. 
(a) IN GENERAL.—Section 842 (relating to foreign corporations 
carrying on insurance business) is amended to read as follows: 
26 use 842. 
"SEC. 842. FOREIGN COMPANIES CARRYING ON INSURANCE BUSINESS. 
"(a) TAXATION UNDER THIS SUBCHAPTER.—If a foreign company 
carrying on an insurance business within the United States would 
qualify under part I or II of this subchapter for the taxable year if 
(without regard to income not effectively connected with the conduct 
.
• •. r, 
of any trade or business within the United States) it were a domestic 
corporation, such company shall be taxable under such part on its 
income effectively connected with its conduct of any trade or busi-
ness within the United States. With respect to the remainder of its 
income which is from sources within the United States, such a 
foreign company shall be taxable as provided in section 881. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-421 
"(b) 
MINIMUM 
EFFECTIVELY 
CONNECTED 
NET 
INVESTMENT 
INCOME.— 
"(1) IN GENERAL.—In the case of a foreign company taxable 
under part I or II of this subchapter for the taxable year, its net 
investment income for such year which is effectively connected 
with the conduct of an insurance business within the United 
States shall be not less than the product o
f
— 
"(A) the required United States *** assets of such com-
pany, and 
"(B) the domestic investment yield applicable to such 
company for such year. 
. . 
"(2) REQUIRED U.S. ASSETS.— 
M Lc- 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
required United States"^ assets of any foreign company 
for any taxable year is an amount equal to the product o
f
— 
"(i) the mean of such foreign company's total insur-
ance liabilities on United States business, and 
"(ii) the domestic asset/liability percentage ap-
> :i --i & 
plicable to such foreign company for such year. 
"(B) TOTAL INSURANCE UABIUTIES.—For purposes of this 
^) i' 
paragraph— 
"(i) COMPANIES TAXABLE UNDER PART I •'*.—In the 
case of a company taxable under part I, the term 'total 
insurance liabilities' means the sum of the total re-
serves (as defined in section 816(c)) plus (to the extent 
• * •' *
- 
not included in total reserves) the items referred to in 
^•'ii 
paragraphs (3), (4), (5), and (6) of section 807(c). 
"(ii) COMPANIES TAXABLE UNDER PART **' ii.—In the 
case of a company taxable under part II, the term 'total 
^ ' 
insurance liabilities' means the sum of unearned pre-
miums and unpaid losses. 
'^ -
^ 
"(C) DOMESTIC ASSET/LIABILITY PERCENTAGE.—The domes-
tic asset/liability percentage applicable for purposes of 
v^xj'j 
subparagraph (AXii) to any foreign company for any taxable 
'""^^ 
year is a percentage determined by the Secretary on the 
basis of a ratio— 
'^'^ 
"(i) the numerator of which is the mean of the assets 
of domestic insurance companies taxable under the 
same part of this subchapter as such foreign company, 
and 
"(ii) the denominator of which is the mean of the 
total insurance liabilities of the same companies. 
"(3) DOMESTIC INVESTMENT YIELD.—The domestic investment 
yield applicable for purposes of paragraph (IXB) to any foreign 
company for any taxable year is the percentage determined by 
the Secretary on the basis of a ratio— 
"(A) the numerator of which is the net investment 
income of domestic insurance companies taxable under the 
' 
same part of this subchapter as such foreign company, and 
, , 
"(B) the denominator of which is the mean of the assets of 
the same companies held for the production of such income. 
"(4) ELECTION TO USE WORLDWIDE YIELD.— 
"*Copy read "U.S.". 
' '• Copy read "PART I.—". 
.-.-^„ 
" ' Copy read "PART II.—". 
',B r ^nj,, vtaO 
101 STAT. 1330-422 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) IN GENERAL.—If the foreign company makes an elec-
tion under this paragraph, such company's worldwide cur-
rent investment yield shall be taken into account in lieu of 
the domestic investment yield for purposes of paragraph 
- - N - 
(IXB). 
>-; 
"(B) WORLDWIDE CURRENT INVESTMENT YIELD.—For pur-
poses of subparagraph (A), the term 'worldwide current 
,;-.* .: 
investment yield' means the percentage obtained by 
dividing— 
"(i) the net investment income of the company from 
all sources, by 
"(ii) the mean of all assets of the company (whether 
••.•> ,\, • 
or not held in the United States) held for the produc-
. . 
tion of investment income. 
}' 
"(C) ELECTION.—An election under this paragraph shall 
- i; '. apply to the taxable year for which made and all subse-
quent taxable years unless revoked with the consent of the 
Secretary. 
"(5) NET INVESTMENT INCOME.—For purposes of this subsec-
i, 
tion, the term 'net investment income' means— 
"(A) gross investment income (within the meaning of 
:r„i J 
section 834(b)), reduced by 
"(B) expenses allocable to such income. 
"(c) SPECIAL RULES FOR PURPOSES OF SUBSECTION (b).— 
"(1) 
COORDINATION WITH SMALL LIFE INSURANCE COMPANY 
DEDUCTION.—In the case of a foreign company taxable under 
part I, subsection (b) shall be applied before computing the 
small life insurance company deduction. 
^^ , 
"(2) REDUCTION IN SECTION 881 TAXES.— 
.J,, 
"(A) IN GENERAL.—The tax under section 881 (determined 
without regard to this paragraph) shall be reduced (but not 
...,, 
below zero) by an amount which bears the same ratio to 
-' 
such tax as— 
. J 
"(i) the amount of the increase in effectively con-
.,.^V ,, 
nected income of the company resulting from subsec-
tion (b), bears to 
y^^ 
, 
"(ii) the amount which would be subject to tax under 
I ' 
section 881 if the amount taxable under such section 
. 
' 
were determined without regard to sections 103 and 
894. 
"(B) LIMITATION ON REDUCTION.—The reduction under 
subparagraph (A) shall not exceed the increase in taxes 
under part I or II (as the case may be) by reason of the 
increase in effectively connected income of the company 
resulting from subsection (b). 
"(3) ADJUSTMENT TO UMITATION ON DEDUCTION FOR POUCY-
H
O
L
D
E
R DIVIDENDS IN THE CASE OF FOREIGN MUTUAL LIFE INSUR-
ANCE COMPANIES.—For purposes of section 809, the equity base 
of any foreign mutual life insurance company as of the close of 
any taxable year shall be increased by the excess of— 
"(A) the required United States ^ ** assets of the company 
(determined under subsection (b)(2)), over 
"(B) the mean of the sissets held in the United States 
during the taxable year. 
Jfi 
"•Copy read "U.S.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-423 
"(4) DATA USED IN DETERMINING DOMESTIC ASSET/UABILITY 
PERCENTAGES AND DOMESTIC INVESTMENT YEILDS.—Each domCStic 
asset/liability percentage, and each domestic investment yield, 
*
?
' 
for any taxable year shall be based on such representative data 
with respect to domestic insurance companies for the second 
preceding taxable year as the Secretary considers appropriate. 
"(d) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section, including regulations— 
"(1) providing for the proper treatment of segregated asset 
? 
; ' 
accounts, 
"(2) providing for proper adjustments in succeeding taxable 
years where the company's actual net investment income for 
any taxable year which is effectively connected with the con-
duct of an insurance business within the United States exceeds 
the amount required under subsection (bXD, and 
"(3) providing for the proper treatment of investments in 
domestic subsidiaries." 
(b) PART II COMPANIES SUBJECT TO SAME EFFECTIVELY CONNECTED 
INCOME RULE AS PART I COMPANIES.—Subparagraph (C) of section 
864(c)(4) (relating to income from sources without the United States) 
is amended by inserting "or part 11" after "part I". 
(c) REPEAL OF SECTION * *^ 813.— 
(1) Section 813 (relating to foreign life insurance companies) is 
hereby repealed. 
f 
(2) Subsection (h) of section 816 is amended by striking out 
¥ "section 813(aX4)(B)" and inserting in lieu thereof "section 
842(c)(lXA)". 
(3) Paragraph (2) of section 4371 is amended by striking out 
"section 813" and inserting in lieu thereof "section 842(b)". 
(4) The table of sections for part I of subchapter L of chapter 1 
is amended by striking out the item relating to section 813. 
(d) EFFECTIVE DATE,—The amendments made by this section shall 
26 use 816 note. 
apply to taxable years beginning after December 31,1987. 
SEC. 10243. TREATMENT OF MUTUAL LIFE INSURANCE COMPANY POLICY-
HOLDER DIVIDENDS FOR PURPOSES OF BOOK PREF-
ERENCE. 
(a) GENERAL RULE.—Paragraph (2) of section 56(f) (defining ad-
justed net book income) is amended by redesignating subparagraph 
(H) as subparagraph (I) and by inserting after subparagraph (G) the 
following new subparagraph: 
"(H) SPECIAL RULES FOR UFE INSURANCE COMPANIES.— 
"(i) 
POUCYHOLDER DIVIDENDS OF MUTUAL COMPA-
L c. *
, 
NIES.—In determining the adjusted net book income of 
any mutual life insurance company, a reduction shall 
y\ % il-j 
be allowed for policyholder dividends with respect to 
any taxable year only to the extent such dividends 
^ 
}:i:- 
exceed the differential earnings amount determined for 
such taxable year under section 809. 
"(ii) OTHER ADJUSTMENTS.—To the extent provided by 
the Secretary, such additional adjustments shall be 
; 
, 
made as may be necessary to make the calculation of 
adjusted net book income in the case of any life insur-
'"• Copy read "SECTION 813—". 
91-194 O - 90 - 39 : QL.3 Part 2 
101 STAT. 1330-424 
PUBLIC LAW 100-203—DEC. 22, 1987 
I 
ance company consistent with the calculation of ad-
'•' 
justed net book income generally." 
26 use 56 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1987. 
SEC. 10244. CERTAIN INSURANCE SYNDICATES. 
'! 
(a) STUDY.—The Secretary of the Treasury (or his delegate) shall 
conduct a study of the proper Federal income tax treatment of 
income earned by members of insurance or reinsurance syndicates. 
Reports. 
Not later than April 1, 1988, the Secretary shall submit a report to 
the Committee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate on the results of the 
study conducted under this subsection, together with such rec-
ommendations as he may deem advisable. 
(b) RENEGOTIATION OF CLOSING AGREEMENT.—Not later than Janu-
ary 1, 1990, the Secretary of the Treasury (or his delegate) shall 
renegotiate the closing agreement with the underwriters participat-
ing in certain insurance or reinsurance syndicates which was signed 
by the Internal Revenue Service on April 1, 1980, to implement the 
conclusions reached in the study conducted under subsection (a). 
Subtitle C—Estimated Tax Provisions 
^ 
SEC. 10301. REVISION OF CORPORATE ESTIMATED TAX PROVISIONS. 
(a) GENERAL RULE.—Section 6655 (relating to failure by corpora-
tion to pay estimated income tax) is amended to read as follows: 
26 use 6655. 
"SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX. 
"(a) ADDITION TO TAX.—Except as otherwise provided in this 
section, in the case of any underpayment of estimated tsix by a 
corporation, there shall be added to the tax under chapter 1 for the 
-•:K'" alii "ibU r 
taxable year an amount determined by applying— 
"(1) the underpayment rate established under section 6621, 
V .? I "(2) to the amount of the underpayment, 
,, 
. . ,,^g 
' ' 
"(3) for the period of the underpayment. 
' 
' " ' 
"(b) AMOUNT OF UNDERPAYMENT; PERIOD OF UNDERPAYMENT.—For 
purposes of subsection (a)— 
"(1) AMOUNT.—The amount of the underpayment shall be the 
excess of— 
* 
' '(A) the required installment, over 
"(B) the amount (if any) of the installment paid on or 
- .a:s 
before the due date for the installment. 
"(2) 
PERIOD 
OF 
UNDERPAYMENT.—The 
period 
of 
the 
"
i 
underpayment shall run from the due date for the installment 
I 
to whichever of the following dates is the earlier— 
{ 
"(A) the 15th day of the 3rd month following the close of 
K 
the taxable year, or 
t'- 
"(B) with respect to any portion of the underpayment, the 
date on which such portion is paid. 
v^ i- "(3) ORDER OP CREDITING PAYMENTS.—For purposes of para-
f 
graph (2XB), a payment of estimated tax shall be credited 
'i 
against unpaid required installments in the order in which such 
installments are required to be paid. 
"(c) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For pur-
poses of this section— 
-Fs. ,:, 
M
v i
*
?
i ? • 
oo 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-425 
« 
"(1) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 required 
installments for each taxable year. 
"(2) T I M E FOR PAYMENT OF INSTALLMENTS.— 
"In the case of the following 
required installments: 
The due date is: 
1st 
April 15 
if> 
2nd 
June 15 
3rd 
September 15 
4th 
December 15. 
"(d) AMOUNT OF REQUIRED INSTALLMENTS.—For purposes of this 
section— 
.: 
"(1) AMOUNT.— 
"(A) IN GENERAL.—Except as otherwise provided in this 
r.i ,;^t 
section, the amount of any required installment shall be 25 
percent of the required annual payment. 
;. jg, 
"(B) REQUIRED ANNUAL PAYMENT.—Except as otherwise 
o ' 
provided in this subsection, the term 'required annual pay-
ment' means the lesser of— 
g 
"(i) 90 percent of the tax shown on the return for the 
^ 
taxable year (or, if no return is filed, 90 percent of the 
tax for such year), or 
• r 
-. 
"(ii) 100 percent of the tax shown on the return of the 
^ 
corporation for the preceding taxable year. 
Clause (ii) shall not apply if the preceding taxable year was not 
. 
a taxable year of 12 months, or the corporation did not file a 
* 
return for such preceding taxable year showing a liability for 
tax. 
"(2) LARGE CORPORATIONS REQUIRED TO PAY 90 PERCENT OF 
CURRENT YEAR TAX.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
* 
(B), clause (ii) of paragraph (IXB) shall not apply in the case 
of a large corporation. 
"(B) MAY USE LAST YEAR'S TAX FOR 1ST INSTALLMENT.— 
Subparagraph (A) shall not apply for purposes of determin-
s- 
ing the amount of the 1st required installment for any 
taxable year. Any reduction in such 1st installment by 
reason of the preceding sentence shall be recaptured by 
increasing the amount of the next required installment 
determined under paragraph (1) by the amount of such 
reduction. 
"(e) LOWER REQUIRED INSTALLMENT WHERE ANNUAUZED INCOME 
INSTALLMENT OR ADJUSTED SEASONAL INSTALLMENT Is LESS THAN 
AMOUNT DETERMINED UNDER SUBSECTION (d).— 
"(1) IN GENERAL.—In the case of any required installment, if 
the corporation establishes that the annualized income install-
ment or the adjusted seasonal installment is less than the 
amount determined under section (dXD (as modified by sub-
section (dX2))— 
"(A) the amount of such required installment shall be the 
annualized income installment (or, if lesser, the adjusted 
<
>
j v
* seasonal installment), and 
"(B) any reduction in a required installment resulting 
from the application of this paragraph shall be recaptured 
by increasing the amount of the next required installment 
It. - 
determined under subsection (dXD (as so modified) by the 
amount of such reduction (and by increasing subsequent 
101 STAT. 1330-426 
PUBLIC LAW 100-203—DEC. 22, 1987 
, ^,, ^ required installments to the extent that the reduction has 
not previously been recaptured under this subparagraph). 
A reduction shall be treated as recaptured for purposes of 
subparagraph (B) if 90 percent of the reduction is recaptured. 
"(2) DETERMINATION OF ANNUAUZED INCOME INSTALLMENT.— 
"(A) IN GENERAL.—In the case of any required install-
ment, the annualized income installment is the excess (if 
any) of— 
"(i) an amount equal to the applicable percentage of 
the tax for the taxable year computed by placing on an 
annualized basis the taxable income, alternative mini-
mum taxable income, and modified alternative mini-
r ' 
mum taxable income— 
^ ' ' 
"(I) for the first 3 months of the taxable year, in 
the case of the 1st required installment, 
"(II) for the first 3 months or for the first 5 
months of the taxable year, in the case of the 2nd 
required installment, 
=^^{ ' 
"(III) for the first 6 months or for the first 8 
-. 
;
< .' r:-. '-• • ^ months of the taxable year in the case of the 3rd 
required installment, and 
' ' "•'••' 
"(IV) for the first 9 months or for the first 11 
months of the taxable year, in the case of the 4th 
required installment, over 
"(ii) the aggregate amount of any prior required 
installments for the taxable year. 
"(B) SPECIAL RULES.—For purposes of this paragraph— 
"^ " 
"(i) ANNUAUZATION.—The taxable income, alter-
native minimum taxable income, and modified alter-
l "
^
" 
^ 
native minimum taxable income shall be placed on an 
•i^Ko -'•• 
annualized basis under regulations prescribed by the 
Secretary, 
"(ii) APPUCABLE PERCENTAGE.— 
"In the case of the following 
The applicable 
required installments: 
percentage is: 
1st 
22.5 
2nd 
45 
3rd 
67.5 
ily 
i- 
4th 
90 
"(iii) 
MODIFIED 
ALTERNATIVE 
MINIMUM 
TAXABLE 
/ ' ' 
INCOME.—The term 'modified alternative minimum 
taxable income' has the meaning given to such term by 
section 59A(b). 
"(3) DETERMINATION OF ADJUSTED SEASONAL INSTALLMENT.— 
"(A) IN GENERAL.—In the case of any required install-
ment, the amount of the adjusted seasonal installment is 
the excess (if any) of— 
.i 
"(i) 90 percent of the amount determined under 
C7..;>, 
subparagraph (C), over 
* ' 
"(ii) the aggregate amount of all prior required 
installments for the taxable year. 
"(B) 
LIMITATION ON APPUCATION OF PARAGRAPH.—This 
paragraph shall apply only if the base period percentage for 
any 6 consecutive months of the taxable year equals or 
^
.
-
r 
exceeds70percent. 
, r,.^. -^i,' 
i «: 's- isn; •:%.. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-427 
"(C) DETERMINATION OF AMOUNT.—The amount deter-
mined under this subparagraph for any installment shall be 
determined in the following manner— 
"(i) take the taxable income for all months during 
the taxable year preceding the filing month, 
"(ii) divide *^° such amount by the base period 
percentage for all months during the taxable year 
preceding the filing month, 
"(iii) determine the tax on the amount determined 
under clause (ii), and 
"(iv) multiply the tax computed under clause (iii) by 
the base period percentage for the filing month and all 
months during the taxable year preceding the filing 
month. 
"(D) DEFINITIONS AND SPECIAL RULES.—For purposes of 
this paragraph— 
"(i) BASE 
PERIOD PERCENTAGE.—The base period 
percentage for any period of months shall be the aver-
age percent which the taxable income for the cor-
responding months in each of the 3 preceding taxable 
years bears to the taxable income for the 3 preceding 
taxable years. 
: 
"(ii) FILING MONTH.—The term 'filing month' means 
the month in which the installment is required to be 
paid. 
"(iii) REORGANIZATION, ETC.—The Secretary may by Regulations. 
regulations provide for the determination of the base 
t' 
period percentage in the case of reorganizations, new 
corporations, and other similar circumstances. 
"(f) EXCEPTION WHERE TAX IS ^^i SMALL AMOUNT.—No addition to 
tax shall be imposed under subsection (a) for any taxable year if the 
tax shown on the return for such taxable year (or, if no return is 
filed, the t£ix) is less than $500. 
"(g) DEFINITIONS AND SPECIAL RULES.— 
"(1) TAX.—For purposes of this section, the term 'tax' means 
the excess o
f
— 
"(A) the sum of^ 
"(i) the tax imposed by section 11 or 1201(a), or 
subchapter L of chapter 1, whichever applies, 
"(ii) the tax imposed by section 55, 
"(iii) the tax imposed by section 59A, plus 
"(iv) the tax imposed by section 887, over 
"(B) the sum of— 
"(i) the credits against tax provided by part IV of 
subchapter A of chapter 1, plus 
"(ii) to the extent allowed under regulations pre-
scribed by the Secretary, any overpayment of the tax 
imposed by section 4986 (determined without regard to 
section 4995(a)(4)(B)). 
For purposes of the preceding sentence, in the case of a foreign 
corporation subject to taxation under section 11 or 1201(a), or 
under subchapter L of chapter 1, the tax imposed by section 881 
shall be treated as a tax imposed by section 11. 
"(2) LARGE CORPORATION.— 
'2° Copy read "divided". 
' * • Copy read "is". 
101 STAT. 1330-428 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(A) IN GENERAL.—For purposes of this section, the term 
,•,[. 
'large corporation' means any corporation if such corpora-
tion (or any predecessor corporation) had taxable income of 
^^,j, 
$1,000,000 or more for any taxable year during the testing 
period. 
i,Qi 
"(B) RULES FOR APPLYING SUBPARAGRAPH (A) .— 
,^».j . 
"(i) TESTING PERIOD.—For purposes of subparagraph 
(A), the term 'testing period' means the 3 taxable years 
htif/iiz t 
immediately preceding the taxable year involved. 
"(ii) MEMBERS OF CONTROLLED GROUP.—For purposes 
^/, 
of applying subparagraph (A) to any taxable year in the 
.ij ;:.} i- 
testing period with respect to corporations which are 
^Hfj'" ' 
component members of a controlled group of corpora-
tions for such taxable year, the $1,000,000 amount 
^o ,i3r; 
specified in subparagraph (A) shall be divided among 
such members under rules similar to the rules of sec-
borvm 
tion 1561. 
"(iii) CERTAIN CARRYBACKS AND CARRYOVERS NOT 
TAKEN INTO ACCOUNT.—For purposes of subparagraph 
s 
, 
(A), taxable income shall be determined without regard 
g*if.b 
to any amount carried to the taxable year under 
section 172 or 1212(a). 
i
"
-
f
* "(3) CERTAIN TAX-EXEMPT ORGANIZATIONS.—For purposes of 
this section— 
"(A) Any organization subject to the tax imposed by 
. L'ftl-!s>Ji 
section 511, and any private foundation, shall be treated as 
a corporation subject to tax under section 11. 
¥J. 
"(B) Any tax imposed by section 511, and any tax imposed 
by section 1 or 4940 on a private foundation, shall be 
treated as a tax imposed by section 11. 
"(C) Any reference to taxable income shall be treated as 
^i ' 
including a reference to unrelated business taxable income 
or net investment income (as the case may be). 
In the case of any organization described in subparagraph (A), 
subsection (bX2)(A) shall be applied by substituting '5th month' 
for '3rd month'. 
"(h) EXCESSIVE ADJUSTMENT UNDER SECTION 6425.— 
"(1) ADDITION TO TAX.—If the amount of an adjustment under 
section 6425 made before the 15th day of the 3rd month follow-
ing the close of the taxable year is excessive, there shall be 
added to the tax under chapter 1 for the taxable year an 
amount determined at the underpayment rate established 
under section 6621 upon the excessive amount from the date on 
which the credit is allowed or the refund is paid to such 15th 
day. 
"(2) EXCESSIVE AMOUNT.—For purposes of paragraph (1), the 
excessive amount is equal to the amount of the adjustment or (if 
smaller) the amount by which— 
^ 
"(A) the income tax liability (as defined in section 6425(c)) 
for the taxable year as shown on the return for the taxable 
year, exceeds 
"(B) the estimated income tax paid during the taxable 
year, reduced by the amount of the adjustment, 
"(i) FISCAL YEARS AND SHORT YEARS.— 
"(1) FISCAL YEARS.—In applying this section to a taxable year 
beginning on any date other than January 1, there shall be 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-429 
substituted, for the months specified in this section, the months 
which correspond thereto. 
, „,,; . 
"(2) SHORT TAXABLE YEAR.—This section shall be applied to 
taxable years of less than 12 months in accordance with regula-
tions prescribed by the Secretary, 
"(j) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section." 
(b) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 6154 of such Code is hereby repealed. 
(2) Subparagraph (C) of section 585(cX3) of such Code is 
. ij^,; , 
amended by striking out "section 6655(d)(3)" and inserting in 
->? > 
lieu thereof "section 6655(e)(2XAXi)". 
ry 
(3) Paragraph (1) of section 6201(b) of such Code is amended by 
Z 
striking out section 6154 or 6654" and inserting in lieu thereof 
: 
"section 6654 or 6655". 
(4) Subsection (c) of section 6425 of such Code is amended by 
striking out "section 6655(g)" and inserting in lieu thereof 
"section 6655(h)". 
(5) Subsection (h) of section 6601 of such Code is amended by 
striking out "section 6154 or 6654" and inserting in lieu thereof 
"section 6654 or 6655". 
I- 
(6) Subsection (e) of section 6651 of such Code is amended by 
striking out "section 6154 or 6654" and inserting in lieu thereof 
"section 6654 or 6655". 
(7) The table of sections for subchapter A of chapter 62 of such 
Code is amended by striking out the item relating to section 
6154. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 585 note. 
apply to taxable years beginning after December 31, 1987. 
SEC. 10302. REVISED WITHHOLDING CERTIFICATES REQUIRED TO BE PUT 
INTO EFFECT MORE PROMPTLY. 
(a) GENERAL RULE.—Subparagraph (B) of section 3402(fK3) (relat-
ing to when certificate takes effect) is amended to read as follows: 
"(B) FURNISHED TO TAKE PLACE OF EXISTING CERTIFICATE.— 
"(i) IN GENERAL.—Except as provided in clauses (ii) 
and (iii), a withholding exemption certificate furnished 
'"" '• ' 
to the employer in cases in which a previous such 
certificate is in effect shall take effect as of the begin-
>,- 5; 
ning of the 1st payroll period ending (or the 1st pay-
.j 
ment of wages made without regard to a payroll period) 
on or after the 30th day after the day on which such 
rjr-..V?^ 
certificate is so furnished. 
"(ii) EMPLOYER MAY ELECT EARUER EFFECTIVE DATE.— 
M
^ 
At the election of the employer, a certificate described 
;, 
in clause (i) may be made effective beginning with any 
payment of wages made on or after the day on which 
'ji 
as; 
the certificate is so furnished and before the 30th day 
referred to in clause (i). 
"(iii) CHANGE OF STATUS WHICH AFFECTS NEXT YEAR.— 
T:K.-S?;'IJ 
Any certificate furnished pursuant to paragraph (2XC) 
shall not take effect, and may not be made effective. 
Yd t'Sf 
with respect to any payment of wages made in the 
calendar year in which the certificate is furnished." 
01)) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use 3402 
shall apply to certificates furnished after the day 30 days after the 
note. 
date of the enactment of this Act. 
note. 
101 STAT. 1330-430 
PUBLIC LAW 100-203—DEC. 22, 1987 
SEC. 10303. ESTIMATED TAX PENALTIES FOR 1987. 
26 u s e 6654 
(a) DELAY OF INCREASE IN CURRENT Y E A R 
L I A B I U T Y 
T E S T FOR 
"o*^e. 
INDIVIDUALS.—Notwithstanding section 1541(c) of the Tax Reform 
Act of 1986, the amendments made by section 1541 of such Act shall 
apply only to taxable years beginning after December 31, 1987. 
(b) CORPORATE PROVISIONS.— 
(1) RATIFICATION OF SECRETARIAL WAIVER.—The Congress 
hereby ratifies the safe harbor provided by paragraph (b) of the 
Treasury Temporary Regulation 1.6655-2T. 
26 u s e 6655 
(2) CORPORATIONS ALSO MAY USE 1986 TAX TO DETERMINE 
-^ AMOUNT OF CERTAIN ESTIMATED TAX INSTALLMENTS DUE ON OR 
BEFORE JUNE 15, 1987.— 
(A) IN GENERAL.—In the case of a large corporation, no 
addition to tax shall be imposed by section 6655 of the 
Internal Revenue Code of 1986 with respect to any 
underpayment of an estimated tax installment to which 
this subsection applies if no addition would be imposed with 
respect to such underpayment by reason of section 
6655(d)(1) of such Code if such corporation were not a large 
corporation. The preceding sentence shall apply only to the 
extent the underpayment is paid on or before the last date 
^.'\^ 
prescribed for payment of the most recent installment of 
^''''^- estimated tax due on or before September 15,1987. 
(B) INSTALLMENT TO WHICH SUBSECTION APPLIES.—This 
subsection applies to any installment of estimated tax for a 
taxable year beginning after December 31, 1986, which is 
due on or before June 15,1987. 
' 
' 
''>-•••'' 
(C) LARGE CORPORATION.—For purposes of this subsection, 
the term "large corporation" has the meaning given such 
•.r ^ 
term by section 6655(i)(2) of such Code (as in effect on the 
day before the date of the enactment of this Act). 
Subtitle D—Estate and Gift Tax Provisions 
PART I—GENERAL PROVISIONS 
SEC. 10401. 5-YEAR EXTENSION OF EXISTING RATES; PHASEOUT OF BENE-
FITS OF EXISTING RATES AND UNIFIED CREDIT. 
(a) 5-YEAR EXTENSION OF GRADUATED RATES.—Paragraph (2) of 
section 2001(c) (relating to phasein of 50 percent maximum rate) is 
amended— 
(1) by striking out "1988" in subparagraph (A) and inserting 
in lieu thereof '1993", 
(2) by striking out "in 1984, 1985, 1986, or 1987" in the text of 
subparagraph (D) and inserting in lieu thereof "after 1983 and 
before 1993^', and 
(3) by amending the heading of subparagraph (D) to read as 
follows: 
"(D) AFTER 1983 AND BEFORE 1993.—". 
(b) PHASEOUT OF BENEFITS OF GRADUATED RATES AND UNIFIED 
CREDIT.— 
(1) IN GENERAL.—Subsection (c) of section 2001 is amended by 
adding at the end thereof the following new paragraph: 
5 ^- 
"(3) PHASEOUT OF GRADUATED RATES AND UNIFIED CREDIT.—The 
'-^^ tentative tax determined under paragraph (1) shall be increased 
by an amount equal to 5 percent of so much of the amount (with 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-431 
respect to which the tentative tax is to be computed) as exceeds 
$10,000,000 but does not exceed $21,040,000 ($18,340,000 in the 
case of decedents dying, and gifts made, after 1992)." 
(2) TECHNICAL AMENDMENTS.— 
(A) Subsection (b) of section 2001 is amended— 
(i) by striking out "in accordance with the rate sched-
ule set forth in subsection (c)" in paragraph (1) and 
inserting in lieu thereof "under subsection (c)", and 
(ii) by striking out "the rate schedule set forth in 
subsection (c) (as in effect at the decedent's death)" in 
paragraph (2) and inserting in lieu thereof "the provi-
sions of subsection (c) (as in effect at the decedent's 
,.. ,, 
death)". 
(B) Subsection (a) of section 2502 is amended— 
(i) by striking out "in accordance with the rate sched-
ule set forth in section 2001(c)" in paragraph (1) and 
inserting in lieu thereof "under section 2001(c)", and 
. 
(ii) by striking out "in accordance with such rate 
schedule" in paragraph (2) and inserting in lieu thereof 
"under such section". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 2001 
apply in the C£ise of decedents dying, and gifts made, after 
note. 
December 31,1987. 
SEC. 10402. INCLUSION RELATED TO VALUATION FREEZES. 
(a) IN GENERAL.—Section 2036 (relating to transfers with retained 
life estate) is amended by redesignating subsection (c) as subsection 
(d) and by inserting after subsection (b) the following new sub-
section: 
"(c) INCLUSION RELATED TO VALUATION FREEZES.— 
"(1) IN GENERAL.—For purposes of subsection (a), i
f
— 
"(A) any person holds a substantial interest in an enter-
prise, and 
"(B) such person in effect transfers after December 17, 
1987, property having a disproportionately large share of 
the potential appreciation in such person's interest in the 
s 
enterprise while retaining a disproportionately large share 
in the income of, or rights in, the enterprise, 
then the retention of the retained interest shall be considered to 
be a retention of the enjoyment of the transferred property. 
"(2) SPECIAL RULE FOR SALES TO FAMILY MEMBERS.—The excep-
tion contained in subsection (a) for a bona fide sale shall not 
', 
apply to a transfer described in paragraph (1) if such transfer is 
to a member of the transferor's family. 
;^. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) SUBSTANTIAL INTEREST.—A person holds a substan-
tial interest in an enterprise if such person owns (directly 
or indirectly) 10 percent or more of the voting power or 
income stream, or both, in such enterprise. For purposes of 
the preceding sentence, an individual shall be treated as 
owning any interest in an enterprise which is owned (di-
rectly or indirectly) by any member of such individual's 
family. 
"(B) FAMILY.—The term 'family' means, with respect to 
any individual, such individual's spouse, any lineal descend-
ant of such individual or of such individual's spouse, any 
parent or grandparent of such individual, and any spouse of 
101 STAT. 1330-432 
PUBLIC LAW 100-203—DEC. 22, 1987 
• •>•' : 
any of the foregoing. For purposes of the preceding sen-
•
"
'
^
'
-
^ • 
tence, a relationship by legal adoption shall be treated £is a 
relationship by blood. 
"(C) TREATMENT OF SPOUSE.—An individual and such 
individual's spouse shall be treated £is 1 person. 
-
f
e 
"(4) COORDINATION WITH SECTION 2035.—For purposes of apply-
^ 
ing section 2035, any transfer of the retained interest referred 
* to in paragraph (1) shall be treated as a transfer of an interest 
^ 
in the transferred property referred to in paragraph (1). 
' ' 
"(5) COORDINATION WITH SECTION 2043.—In lieu of applying 
V section 2043, appropriate adjustments shall be made for the 
value of the retained interest." ^^^ 
26 use 2036 
flj) 
EFFECTIVE DATE.—The amendment made by subsection (a) 
"°*® 
shall apply with respect to estates of decedents dying after Decem-
ber 31, 1987, but only in the case of property transferred after 
December 17,1987. 
PART II—ESTATE TAX PROVISIONS RELATING 
TO EMPLOYEE STOCK OWNERSHIP PLANS 
«>i 
gg(, JP4J, CONGRESSIONAL CLARIFICATION OF ESTATE TAX DEDUC-
TION FOR SALES OF EMPLOYER SECURITIES. 
(a) INTENT OF CONGRESS IN ENACTING SECTION 2057 OF THE IN-
TERNAL REVENUE CODE OF 1986.—Section 2057 (relating to sales of 
employer securities to employee stock ownership plans or worker-
owned cooperatives) is amended by redesignating subsections (d), (e), 
and (f) as subsections (e), (f), and (g), respectively, and by inserting 
after subsection (c) the following new subsection: 
"(d) QUALIFIED PROCEEDS FROM QUAUFIED SALES.— 
"(1) IN GENERAL.—For purposes of this section, the proceeds of 
a sale of employer securities by an executor to an employee 
'
» 
stock ownership plan or an eligible worker-owned cooperative 
shall not be treated as qualified proceeds from a qualified sale 
unless— 
"(A) the decedent directly owned the securities imme-
diately before death, and 
"(B) after the sale, the employer securities— 
" 
"(i) are allocated to participants, or 
'^ 
"(ii) are held for future allocation in connection 
with— 
^
- 
- 
"(I) an exempt loan under the rules of section 
4975, or 
"(II) a transfer of assets under the rules of 
' * ' • ' ' 
section 4980(cX3). 
;, 
"(2) No SUBSTITUTION PERMITTED.—For purposes of paragraph 
i. 
(IXB), except in the case of a bona fide business transaction (e.g., 
a substitution of employer securities in connection with a 
merger of employers), employer securities shall not be treated 
as allocated or held for future allocation to the extent that such 
securities are allocated or held for future allocation in substi-
tution of other employer securities that had been allocated or 
held for future allocation." 
> 
' 
' 
•
'
•
;
.
- 
f
i 
'** Copy read "interest." 
,.^ 
.. 
. 
, 
. 
' ' > ' ' ' • 
, ^«i 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-433 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 2057 
shall take effect as if included in the amendments made by section ^°^^-
1172 of the Tax Reform Act of 1986. 
SEC. 10412. MODIFICATIONS OF ESTATE TAX DEDUCTION FOR SALE OF 
EMPLOYER SECURITIES. 
(a) IN GENERAL.—Section 2057 (relating to estate tax deduction for 
sales of employer securities to employee stock ownership plans or 
worker-owned cooperatives) is amended to read as follows: 
"SEC. 2057. SALES OF EMPLOYER SECURITIES TO EMPLOYEE STOCK 
OWNERSHIP PLANS OR WORKER-OWNED COOPERATIVES. 
"(a) GENERAL RULE.—For purposes of the tax imposed by section 
2001, the value of the taxable estate shall be determined by deduct-
ing from the value of the gross estate an amount equal to 50 percent 
of the proceeds of any sale of any qualified employer securities to— 
'(1) an employee stock ownership plan, or 
"(2) an eligible worker-owned cooperative. 
"(b) LIMITATIONS.— 
"(1) MAXIMUM REDUCTION IN TAX LIABILITY.—The amount 
allowable £is a deduction under subsection (a) shall not exceed 
the amount which would result in an aggregate reduction in the 
tax imposed by section 2001 (determined without regard to any 
u • credit allowable against such tax) equal to $750,000. 
"(2) DEDUCTION SHALL NOT EXCEED 50 PERCENT OF TAXABLE 
ESTATE.—The amount of the deduction allowable under subsec-
tion (a) shall not exceed 50 percent of the taxable estate (deter-
mined without regard to this section). 
"(c) LIMITATIONS ON PROCEEDS WHICH MAY BE TAKEN INTO AC-
COUNT.— 
"(1) DISPOSITIONS BY PLAN OR COOPERATIVE WITHIN i YEAR OF 
SALE.— 
"(A) IN GENERAL.—Proceeds from a sale which are taken 
,,^. 
into account under subsection (a) shall be reduced (but not 
-••r i^. below zero) by the net sale amount. 
"(B) NET SALE AMOUNT.—For purposes of subparagraph 
s 
(A), the term 'net sale amount' means the excess (if any) 
of— 
"(i) the proceeds of the plan or cooperative from the 
fr: ' . •• 
disposition of employer securities during the 1-year 
period immediately preceding such sale, over 
"(ii) the cost of employer securities purchased by 
such plan or cooperative during such 1-year period. 
"(C) EXCEPTIONS.—For purposes of subparagraph (BXi), 
J., 
there shall not be taken into account any proceeds of a plan 
or cooperative from a disposition described in section 
,bf£i 
4978A(e). 
,y 
"(D) AGGREGATION RULES.—For purposes of this para-
graph, all employee stock ownership plans maintained by 
,i; 
an employer shall be treated as 1 plan. 
"(2) SECURITIES MUST BE ACQUIRED BY PLAN FROM ASSETS WHICH 
ARE NOT TRANSFERRED ASSETS.— 
"(A) IN GENERAL.—Proceeds from a sale shall not be 
taken into account under subsection (a) to the extent that 
j 
such proceeds (as reduced under paragraph (1)) are attrib-
I f 
utable to transferred sissets. For purposes of the preceding 
sentence, all assets of a plan or cooperative (other than 
101 STAT. 1330-434 
PUBLIC LAW 100-203—DEC. 22, 1987 
qualified employer securities) shall be treated as first ac-
quired out of transferred assets. 
"(B) TRANSFERRED ASSETS.—For purposes of subparagraph 
; 
( A ) -
"(i) IN GENERAL.—The term 'transferred assets' 
^ 
means assets of an employee stock ownership plan 
which— 
"(I) are attributable to assets held by a plan 
exempt from tax under section 501(a) and meeting 
,. V 
the requirements of section 401(a) (other than an 
•
4 
employee stock ownership plan of the employer), or 
' (II) were held by the plan when it was not an 
* 
employee stock ownership plan. 
"(ii) EXCEPTION FOR ASSETS HELD ON FEBRUARY 26, 
1987.—The term 'transferred assets' shall not include 
any asset held by the employee stock ownership plan 
on February 26,1987. 
"(iii) SECRETARIAL AUTHORITY TO WAIVE TREATMENT AS 
TRANSFERRED ASSET.—The Secretary may provide that 
;"• 
assets or a class of assets shall not be treated as trans-
* 
ferred assets if the Secretary finds such treatment is 
not necessary to carry out the purposes of this para-
graph. 
"(3) OTHER PROCEEDS.—The following proceeds shall not be 
taken into account under subsection (a): 
"(A) PROCEEDS FROM SALE AFTER DUE DATE FOR RETURN.— 
Any proceeds from a sale which occurs after the date on 
which the return of the tax imposed by section 2001 is 
-*^ 
required to be filed (determined by taking into account any 
extension of time for filing). 
« ; ji, 
u^gj PROCEEDS FROM SALE OF CERTAIN SECURITIES.—Any 
proceeds from a sale of employer securities which were 
': ' 
received by the decedent— 
'^* 
"(i) in a distribution from a plan exempt from tax 
under section 501(a) and meeting the requirements of 
section 401(a), or 
"(ii) as a transfer pursuant to an option or other right 
to acquire stock to which section 83, 422, 422A, 423, or 
424 applies. 
•'*'' 
Any employer security the basis of which is determined by 
reference to any employer security described in the preced-
ing sentence shall be treated as an employer security to 
which this subparagraph applies. 
"(d) QUAUFIED EMPLOYER SECURITIES.— 
"(1) IN GENERAL.—The term 'qualified employer securities' 
means employer securities— 
"(A) which are issued by a domestic corporation which 
has no stock outstanding which is readily tradable on an 
established securities market, 
"(B) which are includible in the gross estate of the 
decedent, 
"(C) which would have been includible in the gross estate 
of the decedent if the decedent had died at any time during 
the shorter of— 
"(i) the 5-year period ending on the date of death, or 
"(ii) the period beginning on October 22, 1986, and 
ending on the date of death, and 
' 
*
-
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-435 
"(D) with respect to which the executor elects the applica-
tion of this section. 
Subparagraph (C) shall not apply if the decedent died on or 
before October 22,1986. 
"(2) CERTAIN ASSETS HELD BY SPOUSE.—For purposes of para-
graph (1)(C), any employer security which would have been 
includible in the gross estate of the spouse of a decedent during 
any period if the spouse had died during such period shall be 
treated as includible in the gross estate of the decedent during 
such period. 
"(3) PERIODS DURING WHICH DECEDENT NOT AT RISK.—For pur-
poses of paragraph (IXC), employer securities shall not be 
treated as includible in the gross estate of the decedent during 
any period described in section 246(c)(4). 
"(e) WRITTEN STATEMENT REQUIRED.— 
"(1) IN GENERAL.—No deduction shall be allowed under 
subsection (a) unless the executor of the estate of the decedent 
files with the Secretary the statement described in paragraph 
(2). 
"(2) STATEMENT.—A statement is described in this paragraph 
if it is a verified written statement— 
"(A) which is made by— 
"(i) the employer whose employees are covered by the 
*'' 
employee stock ownership plan, or 
"(ii) any authorized officer of the eligible worker-
owned cooperative, and 
\.j^^.i 
"(B) which— 
,,. 
"(i) acknowledges that the sale of employer securities 
to the plan or cooperative is a sale to which sections 
4978A and 4979A apply, and 
?::'r.^ 
"(ii) certifies— 
"(I) the net sale amount for purposes of subsec-
tion (cXD, and 
"(II) the amount of assets which are not trans-
ferred assets for purposes of subsection (cX2). 
"(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) EMPLOYER SECURITIES.—The term 'employer securities' 
has the meaning given such term by section 409(1). 
"(2) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'employee 
stock ownership plan' means— 
"(A) a tax credit employee stock ownership plan (within 
the meaning of section 409(a)), or 
"(B) a plan described in section 4975(eX7). 
"(3) EuGiBLE WORKER-OWNED COOPERATIVE.—The term 'eli-
gible worker-owned cooperative' has the meaning given such 
term by section 1042(c). 
"(4) EMPLOYER.—Except to the extent provided in regulations, 
the term 'employer' includes any person treated as an employer 
under subsections (b), (c), (m), and (o) of section 414. 
"(g) TERMINATION.—This section shall not apply to any sale after 
December 31,1991." 
(b) EFFECTIVE DATES.— 
26 use 2057 
(1) IN GENERAL.—Except as provided in this subsection, the 
note. 
amendments made by this section shall apply to sales after 
February 26,1987. 
101 STAT. 1330-436 
PUBLIC LAW 100-203—DEC. 22, 1987 
(2) PROVISIONS TAKING EFFECT AS IF INCLUDED IN THE TAX 
REFORM A
C
T OF 1986.—The following provisions shall take effect 
as if included in the amendments made by section 1172 of the 
Tax Reform Act of 1986: 
(A) Section 2057(f)(2) of the Internal Revenue Code of 
1986, as added by this section. 
(B) The repeal of the requirement that a sale be made by 
the executor of an estate to qualify for purposes of section 
2057 of such Code. 
(3) DIRECT OWNERSHIP REQUIREMENT.—If the requirements of 
section 2057(d)(1)(B) of such Code (as modified by section 
2057(d)(2) of such Code), as in effect after the amendments made 
by this section, are met with respect to any employer securities 
sold after October 22, 1986, and before February 27, 1987, such 
securities shall be treated as having been directly owned by the 
decedent for purposes of section 2057 of such Code, as in effect 
before such amendments. 
(4) REDUCTION FOR SALES ON OR BEFORE FEBRUARY 26, 1987.—In 
applying the limitations of subsection (b) of section 2057 of such 
Code to sales after February 26, 1987, there shall be taken into 
account sales on or before February 26, 1987, to which section 
2057 of such Code applied. 
SEC. 10413. EXCISE TAX ON PLANS OR COOPERATIVES DISPOSING OF 
.iOi.. r 
EMPLOYER SECURITIES FOR WHICH ESTATE TAX DEDUC-
TION WAS ALLOWED. 
(a) IN GENERAL.—Chapter 43 (relating to excise taxes on qualified 
pension, etc., plans) is amended by inserting after section 4978 the 
following new section: 
"SEC. 4978A. TAX ON CERTAIN DISPOSITIONS OF EMPLOYER SECURITIES 
TO WHICH SECTION 2057 APPLIED. 
"(a) IMPOSITION OF TAX.—In the case of a taxable event involving 
qualified employer securities held by an employee stock ownership 
plan or eligible worker-owned cooperative, there is hereby imposed a 
tax equal to the amount determined under subsection (b). 
"(b) AMOUNT OF TAX.— 
"(1) IN GENERAL.—The amount of the tax imposed by subsec-
tion (a) shall be equal to 30 percent o
f
— 
"(A) the amount realized on the disposition in the case of 
a taxable event described in paragraph (1) or (2) of sub-
"^'^" section (c), or 
Loans. 
"(B) the amount repaid on the loan in the case of a 
• 
taxable event described in paragraph (3) of subsection (c). 
"(2) DISPOSITIONS OTHER THAN SALES OR EXCHANGES.—For pur-
poses of paragraph (1), in the case of a disposition of employer 
securities which is not a sale or exchange, the amount realized 
on such disposition shall be the fair market value of such 
employer securities at the time of disposition. 
"(c) TAXABLE EVENT.—For purposes of this section, the term'tax-
able event' means the following: 
/I 
?r«s Dsrj 
"^^^ DISPOSITION WITHIN 3 YEARS OF ACQUISITION.—Any disposi-
^0. 
tion of employer securities by an employee stock ownership plan 
or eligible worker-owned cooperative within 3 years after such 
plan or cooperative acquired qualified employer securities. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-437 
"(2) STOCKS DISPOSED OF BEFORE ALLOCATION.—Any disposition 
of qualified employer securities to which paragraph (1) does not 
apply if— 
V a. 
"(A) such disposition occurs before such securities are 
allocated to accounts of participants or their beneficiaries, 
vd »•• 
and 
"(B) the proceeds from such disposition are not so 
allocated. 
"(3) USE OF ASSETS TO REPAY ACQUISITION LOANS.—The pay-
ment by an employee stock ownership plan of any portion of 
any loan used to acquire employer securities from transferred 
assets (within the meaning of section 2057(cX2XB)). 
"(d) ORDERING RULES.—For purposes of this section and section 
4978, any disposition of employer securities shall be treated as 
having been made in the following order: 
"(1) First, from qualified employer securities acquired during 
the 3-year period ending on the date of such disposition, begin-
ning with the securities first so acquired. 
"(2) Second, from qualified employer securities acquired 
before such 3-year period unless such securities (or the proceeds 
from such disposition) have been allocated to accounts of partici-
pants or their beneficiaries. 
"(3) Third, from qualified securities (within the meaning of 
section 4978(eX2)) to which section 1042 applied acquired during 
the 3-year period ending on the date of such disposition, begin-
ning with the securities first so acquired. 
"(4) Finally, from any other employer securities. In the case of 
a disposition to which section 4978(d) or subsection (e) applies, 
the disposition of employer securities shall be treated as having 
been made in the opposite order of the preceding sentence. 
"(e) SECTION NOT TO APPLY TO CERTAIN DISPOSITIONS.— 
"(1) IN GENERAL.—This section shall not apply to any disposi-
, 
tion described in paragraph (Dor (3) of section 4978(d). 
"(2) CERTAIN REORGANIZATIONS.—For purposes of this section, 
any exchange of qualified employer securities for employer 
securities of another corporation in any reorganization de-
scribed in section 368(aXl) shall not be treated as a disposition, 
but the employer securities which were received shall be 
treated— 
"(A) as qualified employer securities of the plan or co-
operative, and 
?.; 
"(B) as having been held by the plan or cooperative 
during the period the qualified employer securities were 
held. 
"(3) DISPOSITION TO MEET DIVERSIFICATION REQUIREMENTS.— 
Any disposition which is made to meet the requirements of 
section 401(aX28) shall not be treated as a disposition. 
"(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
. 
,
^ . 
"(1) TERMS USED IN SECTION 2057.—Any term used in this 
' '^' ^ " 
section which is used in section 2057 shall have the meaning 
, given such term by section 2057. 
"(2) QuAUFiED EMPLOYER SECURITIES.—The term 'qualified em-
ployer securities' has the meaning given such term by section 
101 STAT. 1330-438 
PUBLIC LAW 100-203—DEC. 22, 1987 
2057, except that such term shall include employer securities 
sold before February 27, 1987, for which a deduction was 
allowed under section 2057. 
"(8) 
DISPOSITION.—The 
term 
'disposition' 
includes 
any 
distribution. 
"(4) LIABILITY FOR PAYMENT OF TAXES.—The tax imposed by 
this section shall be paid by— 
"(A) the employer, or 
"(B) the eligible worker-owned cooperative, 
which made the written statement described in section 2057(e)." 
(b) CONFORMING AMENDMENTS.— 
(1) Section 4978(b)(2) is amended by striking out the par-
enthetical and inserting in lieu thereof "(determined as if such 
securities were disposed of in the order described in section 
4978A(e))". 
(2) The table of sections for chapter 43 is amended by insert-
ing after the item relating to section 4978 the following new 
item: 
"Sec. 4978A. Tax on certain dispositions of employer securities to which sec-
tion 2057 applied." 
26 use 4978 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable events (within the meaning of section 4978A(c) of 
the Internal Revenue Code of 1986) occurring after February 26, 
1987. 
Subtitle E—Provisions Relating to Excise 
Taxes and User Fees 
PART I—EXCISE TAXES 
SEC. 10501. EXTENSION OF TELEPHONE EXCISE TAX. 
Paragraph (2) of section 4251(b) (relating to applicable percentage) 
is amended to read as follows: 
"(2) APPLICABLE PERCENTAGE.—The term 'applicable percent-
age' means 3 percent; except that, with respect to amounts paid 
pursuant to bills first rendered after 1990, the applicable 
percentage shall be zero." 
SEC. 10502. DIESEL FUEL AND AVIATION FUEL TAXES IMPOSED AT 
WHOLESALE LEVEL. 
(a) IN GENERAL.—Part III of subchapter A of chapter 32 is 
amended by inserting after subpart A the following new subpart: 
"Subpart B—Diesel Fuel and Aviation Fuel 
"Sec. 4091. Imposition of tax. 
"Sec. 4092. Definitions. 
. 
, 
. 
r 
*
- 
"Sec. 4093. Exemptions; special rule. 
''"' 
. 
- . 
"
^ 
26 u s e 4091. 
"SEC. 4091. IMPOSITION OF TAX. 
"(a) IN GENERAL.—There is hereby imposed a tax on the sale of 
any taxable fuel by the producer or the importer thereof or by any 
producer of a taxable fuel. 
"(b) RATE OF TAX.— 
"(1) IN GENERAL.—The rate of the tax imposed by subsection 
(a) shall be the sum of— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-439 
"(AKi) the Highway Trust Fund financing rate in the C£ise 
of dieselfuel, and 
"(ii) the Airport and Airway Trust Fund financing rate in 
the case of aviation fuel, and 
"(B) the Leaking Underground Storage Tank Trust Fund 
financing rate in the case of any taxable fuel. 
"(2) HIGHWAY TRUST FUND FINANCING RATE.—For purposes of 
paragraph (1), except as provided in subsection (c), the Highway 
Trust Fund financing rate is 15 cents per gallon. 
"(3) AIRPORT AND AIRWAY TRUST FUND FINANCING RATE.—For 
purposes of paragraph (1), the Airport and Airway Trust Fund 
. -. 
financing rate is 14 cents per gallon. 
"(4) 
LEAKING 
UNDERGROUND STORAGE TANK TRUST FUND 
FINANCING RATE.—For purposes of paragraph (1), the Leaking 
Underground Storage Tank Trust Fund financing rate is 0.1 
cent per gallon. 
"(5) TERMINATION OF RATES.— 
"(A) The Highway Trust Fund financing rate shall not 
apply on and after October 1,1993. 
(B) The Airport and Airway Trust Fund financing rate 
shall not apply on and after January 1,1988. 
"(C) The Leaking Underground Storage Tank Trust Fund 
financing rate shall not apply during any period during 
which the Leaking Underground Storage Tank Trust Fund 
financing rate under section 4081 does not apply. 
"(c) REDUCED RATE OF TAX FOR DIESEL FUEL IN ALCOHOL MIXTURE, 
ETC.—Under regulations prescribed by the Secretary— 
"(1) IN GENERAL.—The Highway Trust Fund financing rate 
shall be— 
"(A) 9 cents per gallon in the case of the sale of any 
mixture of diesel fuel if— 
,.^ 
"(i) at least 10 percent of such mixture consists of 
alcohol (as defined in section 4081(cX3)), and 
, 
"(ii) the diesel fuel in such mixture was not taxed 
under subparagraph (B), and 
"(B) 10 cents per gallon in the case of the sale of diesel 
fuel for use (at the time of such sale) in producing a mixture 
described in subparagraph (A). 
"(2) LATER SEPARATION.—If any person separates the diesel 
fuel from a mixture of the diesel fuel and alcohol on which tax 
was imposed under subsection (a) at a Highway Trust Fund 
financing rate equivalent to 9 cents a gallon by reason of this 
subsection (or with respect to which a credit or payment was 
allowed or made by reason of section 6427(fKl)), such person 
shall be treated as the producer of such diesel fuel. The amount 
of tax imposed on any sale of such diesel fuel by such person 
^ j . , , 3,, 
shall be 5 cents per gallon. 
"(3) TERMINATION.—Paragraph (1) shall not apply to any sale 
after September 30,1993. 
"(d) EXEMPTION FROM TAX FOR AVIATION FUEL IN ALCOHOL MIX-
TURE, ETC.— 
- J 
,,: 
"(1) IN GENERAL.—The Airport and Airway Trust Fund 
financing rate shall not apply to the sale of— 
"(A) any mixture of aviation fuel at least 10 percent of 
, , >
{ 
which consists of alcohol (as defined in section 4081(c)(3)), or 
"(B) any aviation fuel for use (at the time of such sale) in 
producing a mixture described in subparagraph (A). 
101 STAT. 1330-440 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(2) LATER SEPARATION.—If any person separates the aviation 
fuel from a mixture of the aviation fuel and alcohol on which 
the Airport and Airway Trust Fund financing rate did not apply 
by reeison of this subsection (or with respect to which a credit or 
payment was allowed or made by reason of section 6427(f)(2)), 
such person shall be treated as the producer of such aviation 
fuel. 
"(3) TERMINATION.—Paragraph (1) shall not apply to any sale 
after September 30,1993. 
26 u s e 4092. 
"SEC. 4092. DEFINITIONS. 
?') 
"(a) TAXABLE FUEL.—For purposes of this subpart^ 
"(1) IN GENERAL.—The term'taxable fuel'means— 
. 
( 
"(A) diesel fuel, and 
\ J 
"(B) aviation fuel. 
"(2) DIESEL FUEL.—The term 'diesel fuel' means any liquid 
(other than any product taxable under section 4081) which is 
suitable for use as a fuel in a diesel-powered highway vehicle or 
a diesel-powered train. 
"(3) AVIATION FUEL.—The term 'aviation fuel' means any 
liquid (other than any product taxable under section 4081) 
which is suitable for use sis a fuel in an aircraft. 
"(b) PRODUCER.—For purposes of this subpart— 
"(1) CERTAIN PERSONS TREATED AS PRODUCERS.— 
"(A) IN GENERAL.—The term 'producer' includes any 
person described in subparagraph (B) who elects to register 
under section 4101 with respect to the tax imposed by 
section 4091. 
"(B) PERSONS DESCRIBED.—A person is described in this 
subparagraph if such person is— 
"(i) a refiner, compounder, blender, or wholesale 
distributor of a taxable fuel, or 
"(ii) a dealer selling any taxable fuel exclusively to 
producers of such taxable fuel. 
"(C) TAX-FREE PURCHASERS TREATED AS PRODUCERS.—Any 
person to whom any taxable fuel is sold tax-free under this 
subpart shall be treated as the producer of such fuel. 
"(2) WHOLESALE DISTRIBUTOR.—For purposes of parsigraph (1), 
the term 'wholesale distributor' includes any person who sells a 
taxable fuel to producers, retailers, or to users who purchase in 
bulk quantities and deliver into bulk storage tanks. Such term 
does not include any person who (excluding the term 'wholesale 
distributor' from paragraph (1)) is a producer or importer. 
26 use 4093. 
"SEC. 4093. EXEMPTIONS; SPECIAL RULE. 
"(a) HEATING OIL.—The tax imposed by section 4091 shall not 
apply in the case of sales of any taxable fuel which the Secretary 
determines is destined for use as heating oil. 
Regulations. 
"0)) SALES T
O PRODUCER.—Under regulations prescribed by the 
Secretary, the tax imposed by section 4091 shall not apply in the 
case of sales of a taxable fuel to a producer of such fuel. 
Regulations. 
"(c) AUTHORITY TO EXEMPT CERTAIN OTHER USES.—Subject to SUCh 
terms and conditions as the Secretary may provide (including the 
application of section 4101), the Secretary may by regulation provide 
that-
,%y::j 
ff.m 
ic 
.
:
*
^
;
;
" 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-441 
"(1) the Highway Trust Fund financing rate under section 
4091 shall not apply to diesel fuel sold for use by any purchaser 
as a fuel in a diesel-powered train, 
"(2) the Airport and Airway Trust Fund financing rate under 
section 4091 shall not apply to aviation fuel sold for use by any 
purchaser as a fuel in an aircraft not in noncommercial aviation 
: (as defined in section 4041(c)(4)), 
•:'r "(3) the tax imposed by section 4091 shall not apply to taxable 
fuel sold for use by any purchaser other than as a motor fuel, 
and 
"(4) the tax imposed by section 4091 shall not apply to taxable 
fuel sold for the exclusive use of any State, any political subdivi-
sion of a State, or the District of Columbia. 
"(d) 
SPECIAL 
ADMINISTRATIVE 
RULES.—The 
Secretary 
may 
Reports, 
require— 
"(1) information reporting by each remitter of the tax im-
^ posed by section 4091, and 
"(2) information reporting by, and registration of, such other 
persons as the Secretary deems necessary to carry out this 
subpart. 
"(e) CROSS REFERENCES.— 
"(1) For imposition of tax where certain uses of diesel fuel or 
aviation fuel occur before imposition of tax by section 4091, see 
. r 
subsections (a)(1) and (c)(1) of section 4041. 
"(2) For provisions allowing a credit or refund for fuel not 
used for certain taxable purposes, see section 6427." 
O
t
)
) RETAIL DIESEL FUEL AND AVIATION FUEL TAXES TO BE RESIDUAL 
TAXES.— 
(1) Paragraph (1) of section 4041(a) is amended— 
(A) by striking out "DIESEL FUEL" in the heading and 
inserting in lieu thereof "TAX ON DIESEL FUEL WHERE NO 
T
A
X IMPOSED O
N FUEL UNDER SECTION 4091", and 
(B) by adding at the end thereof the following new 
sentence: 
"No tax shall be imposed by this paragraph on the sale or use of 
any liquid if there was a taxable sale of such liquid under 
section 4091." 
(2) Paragraph (1) of section 4041(c) is amended— 
no 
(^) ]r,y striking out "IN GENERAL" in the heading and 
inserting in lieu thereof "TAX ON NONGASOLINE FUELS 
WHERE NO TAX IMPOSED ON FUEL UNDER SECTION 4091", and 
(B) by adding at the end thereof the following new 
sentence: 
'• "No tax shall be imposed by this paragraph on the sale or use of 
any liquid if there was a taxable sale of such liquid under 
section 4091." 
(3) Subsection (d) of section 4041 is amended by redesignating 
paragraph (3) as paragraph (4) and by striking out paragraphs 
(1) and (2) and inserting in lieu thereof the following: 
"(1) TAX ON SALES AND USES SUBJECT TO TAX UNDER SUBSECTION 
(a).—In addition to the taxes imposed by subsection (a), there is 
hereby imposed a tax of 0.1 cent a gallon on the sale or use of 
any liquid (other than liquefied petroleum gas) if tax is imposed 
by subsection (a) on such sale or use. 
i- 
"(2) TAX ON DIESEL FUEL USED IN TRAINS.—There is hereby 
imposed a tax of 0.1 cent a gallon on any liquid (other than a 
.
r
i
V product taxable under section 4081)— 
101 STAT. 1330-442 
PUBLIC LAW 100-203—DEC. 22, 1987 
, 
"(A) sold by any person to an owner, lessee, or other 
operator of a diesel-powered train for use as a fuel in such 
train, or 
"(B) used by any person as a fuel in a diesel-powered train 
unless there was a taxable sale of such liquid under 
f 
subparagraph (A). 
No tax shall be imposed by this paragraph on the sale or use of 
e 
any liquid if there was a taxable sale of such liquid under 
section 4091. 
"(3) LIQUIDS USED IN AVIATION.—In addition to the taxes 
imposed by subsection (c), there is hereby imposed a tax of 0.1 
cent a gallon on any liquid (other than any product taxable 
under section 4081)— 
ai5..xi3>l '
< 
"(A) sold by any person to an owner, lessee, or other 
operator of an aircraft for use as a fuel in such aircraft, or 
0ti i 
"(B) used by any person as a fuel in an aircraft unless 
there was a taxable sale of such liquid under subpara-
graph (A). 
« 
No tax shall be imposed by this paragraph on the sale or use of 
any liquid if there was a taxable sale of such liquid under 
section 4091." 
(4) Subsection (n) of section 4041 is hereby repealed, 
(c) AMENDMENTS RELATING T
O CREDITS A
N
D REFUNDS.— 
(1) Section 6427 is amended by redesignating subsections (1) 
' 
through (p) as subsections (m) through (q), respectively, and by 
inserting after subsection (k) the following new subsection: 
"(1) NONTAXABLE USES OF DIESEL FUEL AND AVIATION FUEL TAXED 
UNDER SECTION 4091.— 
"(1) IN GENERAL.—Except £is provided in subsection (k) and in 
paragraph (3) of this subsection, if any fuel on which tax has 
been imposed by section 4091 is used by any person in a 
nontaxable use, the Secretary shall pay (without interest) to the 
'
*
' ultimate purchaser of such fuel an amount equal to the aggre-
gate amount of tax imposed on such fuel under section 4091. 
"(2) NONTAXABLE USE.—For purposes of this subsection, the 
term 'nontaxable use' means, with respect to any fuel, any use 
of such fuel if such use is exempt from the taxes imposed by 
subsections (aXD and (cXD of section 4041 (other than by reason 
of the imposition of tax on any sale thereof). 
"(3) No REFUND OF LEAKING UNDERGROUND STORAGE TANK 
T
R
U
S
T F
U
N
D FINANCING TAX.—Paragraph (1) shall not apply to so 
much of the tax imposed by section 4091 as is attributable to the 
Leaking Underground Storage Tank Trust Fund financing rate 
imposed by such section in the case o
f
— 
"(A) fuel used in a diesel-powered train, and 
"(B) fuel used in any aircraft." 
(2) Paragraph (1) of section 6427(b) is amended— 
(A) by striking out "subsection (a) of section 4041" the 
first place it appears and inserting in lieu thereof "section 
4041(a) or 409r, and 
(B) by striking out "subsection (a) of section 4041" the 
I 
second place it appears and inserting in lieu thereof "sec-
tion 4041(a) or 4091, as the case may be". 
(3) Subparagraph (B) of section 6427(eXl) is amended by 
; 
inserting ^'or 409r'after "section 4041". 
(4) Subsection (f) of section 6427 is amended to read as follows: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-443 
"(f) GASOUNE, DIESEL FUEL, AND AVIATION FUEL USED TO''^' 
PRODUCE CERTAIN ALCOHOL FUELS.—Except as provided in subsection 
( k ) -
"(1) GASOUNE AND DIESEL FUELS.— 
"(A) IN GENERAL.—If any gasoline or diesel fuel on which 
tax was imposed by section 4081 or 4091 at the regular 
Highway Trust Fund financing rate is used by any person 
in producing a mixture described in section 4081(c) or in 
section 4091(cXlKA) (as the case may be) which is sold or 
• ' 
used in such person's trade or business, the Secretary shall 
pay (without interest) to such person an amount equal to 
the excess of the regular Highway Trust Fund financing 
rate over the incentive Highway Trust Fund Financing rate 
with respect to such fuel. 
*i 
"(B) DEFINITIONS.—For purposes of subparagraph (A)— 
"(i) 
REGULAR 
HIGHWAY TRUST 
FUND FINANCING 
RATE.—The term 'regular Highway Trust Fund financ-
ing rate' means— 
"(I) 9 cents per gallon in the case of gasoline, and 
"(II) 15 cents per gallon in the case of diesel fuel. 
"(ii) 
INCENTIVE HIGHWAY TRUST FUND FINANCING 
-a*-. 
RATE.—The term 'incentive Highway Trust Fund 
Financing rate' means— 
"(I) SVs cents per gallon in the case of gasoline, 
r. 
and 
"(II) 10 cents per gallon in the case of diesel fuel. 
"(C) COORDINATION WITH OTHER REPAYMENT PROVISIONS.— 
No amount shall be payable under subparagraph (A) with 
respect to any gasoline or diesel fuel with respect to which 
I 
an amount is payable under subsection (d), (e), or (1) of this 
section or under section 6420 or 6421. 
"(2) AVIATION FUEL.—If any aviation fuel on which tax was 
imposed by section 4091 is used by any person in producing a 
mixture at least 10 percent of which is alcohol (as defined in 
section 4081(c)(3)) which is sold or used in such person's trade or 
business, the Secretary shall pay (without interest) to such 
person an amount equal to the aggregate amount of tax (attrib-
utable to the Airport and Airway Trust Fund financing rate) 
imposed on such fuel under section 4091. 
"(3) TERMINATION.—Paragraphs (1) and (2) shall not apply 
with respect to any mixture sold or used after September 30, 
1993." 
(5XA) Paragraph (1) of section 6427(i) is amended by striking 
out "or (h)" and inserting in lieu thereof "(h), or (1)". 
(B) Clause (i) of section 6427(iX2KA) is amended by striking out 
"and (h)" and inserting in lieu thereof "(h), and (1)". 
(6) Subsection (o) of section 6427 (as redesignated by para-
graph (D) is amended to read as follows: 
"(o) TERMINATION OF CERTAIN PROVISIONS.—Except with respect to 
taxes imposed by section 4041(d) and sections 4081 and 4091 at the 
Leaking Underground Storage Tank Trust Fund financing rate, 
subsections (a), 0)), (c), (d), (g), (h), and (1) shall only apply with 
respect to fuels purchased before October 1,1993." 
(d) OTHER CONFORMING AMENDMENTS.— 
'"Copy read "TO". 
101 STAT. 1330-444 
PUBLIC LAW 100-203—DEC. 22, 1987 
(1) Subsection (c) of section 40 is amended by striking out "or 
' 
section 4081(c)" and inserting in lieu thereof ", section 4081(c), 
or section 4091(c)". 
(2) Subparagraph (B) of section 4081(eX2), as amended by 
section 1703 of the Tax Reform Act of 1986, is amended by 
striking out "net revenues" and all that follows and inserting in 
1 lieu thereof the following: 
"net revenues are at 
least 
, 
$500,000,000 from taxes imposed by section 4041(d) and taxes 
attributable to Leaking Underground Storage Tank Trust Fund 
financing rate imposed under this section and sections 4042 and 
J 4091." 
(3) Subsection (a) of section 4101, as amended by section 1703 
of the Tax Reform Act of 1986, is amended by inserting "or 
4091" after "section 4081". 
(4) Subsection (a) of section 4221 is amended by striking out 
"(other than" and all that follows through "sale by the manu-
- facturer" and inserting in lieu thereof "(other than under sec-
tion 4121, 4081, or 4091) on the sale by the manufacturer". 
(5) Section 6206 is amended by striking out "or 4041" and 
inserting in lieu thereof "or 4041 or 4091". 
(6) Paragraph (2) of section 6416(b) is amended— 
IK 
(A) by striking out "(other than coal teixable under sec-
tion 4121)", and 
jfiilr 
(B) by adding at the end thereof the following new sen-
tence: "This paragraph shall not apply in the case of any 
tax paid under section 4091 or 4121." 
(7) Subparagraph (A) of section 64160t)X3) is amended by 
1 inserting "and other than any fuel taxable under section 4091" 
r after "section 4081". 
(8) Subparagraph (B) of section 64160t>X3) is amended by strik-
ing out ", such gasoline" and inserting in lieu thereof "or any 
fuel taxable under section 4091, such gasoline or fuel". 
J 
(9) Subparagraph (C) of section 6421(eX2) is hereby repealed. 
(10) The subsection (j) of section 6421 relating to cross ref-
erences is amended by striking out paragraph (1) and by re-
i designating paragraphs (2), (3), and (4), as paragraphs (1), (2), 
- and (3), respectively. 
( 
(11) Section 6652 is amended by striking out the subsection (j) 
added by section 17020)) of the Tax Reform Act of 1986 and by 
redesignating subsections (1) and (m) as subsections (k) and (1), 
, respectively. 
(12) Subsection (b) of section 9502 is amended by striking out 
I "and" at the end of paragraph (2), by redesignating paragraph 
(3) as paragraph (4), and by inserting after paragraph (2) the 
following new paragraph: 
"(3) amounts determined by the Secretary to be equivalent to 
the taxes received in the Treasury before January 1, 1988, 
under section 4091 (to the extent attributable to the Airport and 
• Airway Trust Fund financing rate), and". 
(13) Paragraph (1) of section 9503(b) is amended by striking 
out subparagraph (F) and inserting in lieu thereof the following: 
"(F) section 4091 (relating to tax on diesel fuel), and". 
(14) Paragraph (4) of section 9503(b) is amended to read as 
follows: 
"(4) CERTAIN ADDITIONAL TAXES NOT TRANSFERRED TO HIGHWAY 
TRUST FUND.—For purposes of paragraphs (1) and (2)— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-445 
,„, 
"(A) there shall not be taken into account the taxes 
imposed by sections 4041(d), and 
"(B) there shall be taken into account the taxes imposed 
by sections 4081 and 4091 only to the extent attributable to 
the Highway Trust Fund financing rates under such 
i^ 
sections." 
(15) Paragraph (2) of section 9503(e) is amended— 
(A) by striking out "sections 4041 and 4081" and inserting 
:" 
in lieu thereof "sections 4041, 4081, and 4091", and 
(B) by striking out "section 4041 or 4081" and inserting in 
^;^ 
lieu thereof "section 4041, 4081, or 4091". 
(16) Subsection (b) of section 9508 is amended by redesignating 
paragraphs (3) and (4) as paragraphs (4) and (5), respectively, 
and by inserting after paragraph (2) the following new para-
graph: 
"(3) taxes received in the Treasury under section 4091 (relat-
ing to tax on diesel fuel and aviation fuel) to the extent attrib-
utable to the Leaking Underground Storage Trust Fund financ-
ing rate under such section,". 
(17) Subparagraph (A) of section 9508(c)(2) is amended by 
striking out clause (ii) and all that follows and inserting in lieu 
thereof the following: 
"(ii) credits allowed under section 34, 
with respect to the taxes imposed by section 4041(d) or by 
c 
sections 4081 and 4091 (to the extent attributable to the 
j.:j 
Leaking Underground Storage Trust Fund financing rate 
under such sections)." 
(18) The table of subparts for part III of subchapter A of 
chapter 32 is amended by inserting after the item relating to 
• f':^, 
subpart A the following new item: 
\^''l 
"Subpart B. Diesel fuel and aviation fuel." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 40 note. 
apply to sales after March 31,1988. 
(f) FLOOR STOCKS TAX.— 
26 use 4091 
(1) IMPOSITION OF TAX.—On any taxable fuel which on April 1, note. 
1988, is held by a taxable person, there is hereby imposed a floor 
stocks tax at the rate of tax which would be imposed if such fuel 
were sold on such date in a sale subject to tax under section 
4091 of the Internal Revenue Code of 1986 (as added by this 
section). 
(2) OVERPAYMENT OF FLOOR STOCKS TAXES, ETC.—Sections 6416 
and 6427 of such Code shall apply in respect of the floor stocks 
taxes imposed by this subsection so as to entitle, subject to all 
s 
provisions of such sections, any person paying such floor stocks 
' 
taxes to a credit or refund thereof for any reason specified in 
such sections. All provisions of law, including penalties, ap-
plicable with respect to the taxes imposed by section 4091 of 
such Code (as so added) shall apply to the floor stocks taxes 
imposed by this subsection. 
(3) DUE DATE OF TAX.—The taxes imposed by this subsection 
shall be paid before June 16,1988. 
(4) DEFINITIONS.—For purposes of this subsection— 
(A) TAXABLE FUEL.— 
(i) IN GENERAL.—The term "taxable fuel" means any 
tsixable fuel (as defined in section 4092 of such Code, as 
101 STAT. 1330-446 
PUBLIC LAW 100-203—DEC. 22, 1987 
added by this section) on which no tax bas been im-
posed under section 4041 of such Code. 
(ii) 
EXCEPTION FOR FUEL HELD FOR NONTAXABLE 
USES.—The term "taxable fuel""'' shall not include 
fuel held exclusively for any use which is a nontaxable 
use (as defined in section 6427(1) of such Code, as added 
by this section). 
(B) TAXABLE PERSON.—The term "taxable person" means 
any person other than a producer (as defined in section 
4092 of such Code, as so added) or importer of taxable fuel. 
(C) HELD BY A TAXABLE PERSON.—An article shall be 
treated as held by a person if title thereto has passed to 
such person (whether or not delivery to such person has 
been made). 
(5) SPECIAL RULE FOR FUEL HELD FOR USE IN TRAINS AND 
COMMERCIAL AIRCRAFT.—Only the Leaking Underground Stor-
age Tank Trust Fund financing rate under section 4091 of such 
Code shall apply for purposes of this subsection with respect 
to— 
(A) diesel fuel held exclusively for use as a fuel in a 
X1 
diesel-powered train, and 
(B) aviation fuel held exclusively for use as a fuel in an 
aircraft not in noncommercial aviation (as defined in sec-
tion 4041(cX4) of such Code). 
(6) TRANSFER OF FLOOR STOCK REVENUES TO TRUST FUNDS.—For 
purposes of determining the amount transferred to any trust 
fund, the tax imposed by this subsection shall be treated as 
imposed by section 4091 of such Code (as so added). 
Effective date. 
(g) COORDINATION WiTH AlRPORT AND AlRWAY SAFETY AND CAPAC-
26 use 4091 
i-pY EXPANSION ACT OF 1987.—If the Airport and Airway Safety and 
"'^ ®
" 
Capacity Expansion Act of 1987 is enacted, effective on December 
31, 1987, sections 4091(bX5XB) and 9502(bX3) of such Code (as added 
by this section) are each amended by striking out "January 1, 1988" 
and inserting in lieu thereof "January 1, 1991".'^^ 
SEC. 10503. EXTENSION OF TEMPORARY INCREASE IN AMOUNT OF TAX 
IMPOSED ON COAL PRODUCERS. 
Subparagraph (A) of section 4121(eX2) (relating to temporary in-
crease termination date) is amended by striking out "January 1, 
1996" and inserting in lieu thereof "January 1, 2014". 
I 
PART II—TAX-RELATED USER FEES 
26 u s e 7801 
SEC. 10511. FEES FOR REQUESTS FOR RULING, DETERMINATION, AND 
note. 
SIMILAR LETTERS. 
(a) GENERAL RULE.—The Secretary of the Treasury or his delegate 
(hereinafter in this section referred to as the "Secretary") shall 
establish a program requiring the payment of user fees for requests 
to the Internal Revenue Service for ruling letters, opinion letters, 
and determination letters and for similar requests. 
(b) PROGRAM CRITERIA.— 
(1) IN GENERAL.—The fees charged under the program re-
quired by subsection (a)— 
"*Copy read " 'taxable fuel' ". 
'"Copy read "1991", and.". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-447 
(A) shall vary according to categories (or subcategories) 
established by the Secretary, 
(B) shall be determined after taking into account the 
average time for (and difficulty of) complying with requests 
in each category (and subcategory), and 
(C) shall be payable in advance. 
(2) EXEMPTIONS, ETC.—The Secretary shall provide for such 
exemptions (and reduced fees) under such program as he deter-
mines to be appropriate. 
(3) AVERAGE FEE REQUIREMENT.—The average fee charged 
under the program required by subsection (a) shall not be less 
than the amount determined under the following table: 
Category 
Average Fee 
Employee plan ruling and opinion 
$250 
Exempt organization ruling 
$350 
Employee plan determination 
$300 
Exempt organization determination 
$275 
Chief counsel ruling 
$200. 
(c) APPLICATION OF SECTION.—Subsection (a) shall apply with re- Effective date. 
spect to requests made on or after the 1st day of the second calendar 
month beginning after the date of the enactment of this Act and 
before September 30,1990. 
;, 
SEC. 10512. OCCUPATIONAL TAXES RELATING TO ALCOHOL, TOBACCO, 
AND FIREARMS. 
(a) OCCUPATIONAL TAXES ON DISTILLED SPIRITS PLANTS, BONDED 
WINE CELLARS, BREWERIES, ETC.— 
(1) DISTILLED SPIRITS PLANTS, BONDED WINE CELLARS, ETC.— 
(A) IN GENERAL.—Part II of subchapter A of chapter 51 
Y
~ ' 
(relating to distilled spirits, wines, and beer) is amended by 
inserting before subpart B the following new subpart: 
"Subpart A—Proprietors of Distilled Spirits Plants, 
Bonded Wine Cellars, Etc. 
"Sec. 5081. Imposition and rate of tax. 
"SEC. 5081. IMPOSITION AND RATE OF TAX. 
26 USC 5081. 
"(a) GENERAL RULE.—Every proprietor of— 
"(1) a distilled spirits plant, 
"(2) a bonded wine cellar, 
"(3) a bonded wine warehouse, or 
"(4) a taxpaid wine bottling house, 
shall pay a tax of $1,000 per year in respect of each such premises. 
"(b) REDUCED RATES FOR SMALL PROPRIETORS.— 
"(1) IN GENERAL.—Subsection (a) shall be applied by substitut-
ing '$500' for '$1,000' with respect to any taxpayer the gross 
receipts of which (for the most recent taxable year ending 
before the 1st day of the taxable period to which the tax 
imposed by subsection (a) relates) are less than $500,000. 
(2) (DoNTROLLED GROUP RULES.—All persons treated as 1 tax-
payer under section 5061(eX3) shall be treated as 1 taxpayer for 
purposes of paragraph (1). 
"(3) CERTAIN RULES TO APPLY.—For purposes of paragraph (1), 
rules similar to the rules of subparagraphs (B) and (C) of section 
448(cX3) shall apply." 
(B) TECHNICAL AMENDMENTS.— 
101 STAT. 1330-448 
PUBLIC LAW 100-203—DEC. 22, 1987 
^•:.i.K~ # 
(
^
^ Subsection (a) of section 5691 is amended by strik-
ing out "the business of a brewer, wholesale dealer in 
«
5
,
f
N 
/^ 
liquors, retail dealer in liquors, wholesale dealer in 
' ;=i;p-s 
beer, retail dealer in beer, or limited retail dealer," and 
inserting in lieu thereof "a business subject to a special 
tax imposed by part II of subchapter A or section 5276 
<lr..u 
'c* 
(relating to occupational taxes)" 
-"'.:. 
'.J 
(ii) The section heading of section 5691 is amended by 
striking out "RELATING TO LIQUORS". 
LM7; :f r. 
(iii) The table of sections for part V of subchapter J of 
.'»&' :o 
chapter 51 is amended by striking out "relating to 
liquors" in the item relating to section 5691. 
•/' < 
(C) CLERICAL AMENDMENT.—The table of subparts for part 
II of subchapter A of chapter 51 is amended by inserting 
before the item relating to subpart B the following new 
item: 
"Subpart A. Proprietors of distilled spirits plants, bonded wine cellars, etc." 
'^* 
" ' ' 
(2) BREWERIES.—Section 5091 (relating to imposition and rate 
of tax on brewers) is amended to read as follows: 
26 use 5091. 
"SEC. 5091. IMPOSITION AND RATE OF TAX. 
"(a) GENERAL RULE.—Every brewer shall pay a tax of $1,000 per 
year in respect of each brewery. 
"Ot)) REDUCED RATES FOR SMALL BREWERS.—Rules similar to the 
rules of section 5O810t)) shall apply for purposes of subsection (a)." 
(b) WHOLESALE DEALERS IN LIQUORS AND BEER.— 
(1) LIQUORS.—Subsection (a) of section 5111 (relating to im-
position and rate of tax on wholesale dealers) is amended by 
striking out "$255" and inserting in lieu thereof "$500". 
(2) BEER.—Subsection (b) of section 5111 is amended by strik-
ing out "$123" and inserting in lieu thereof "$500". 
(c) RETAIL DEALERS IN LIQUORS AND BEER.— 
(1) LIQUORS.—Subsection (a) of section 5121 (relating to im-
position and rate of tax on retail dealers) is amended by striking 
out "$54" and inserting in lieu thereof "$250". 
•> ;.?.: 
(2) BEER.—Subsection (b) of section 5121 is amended by strik-
ing out "$24" and inserting in lieu thereof "$250". 
(3) REPEAL OF TAX ON LIMITED RETAIL DEALERS.—Subsection (c) 
of section 5121 is hereby repealed. 
(d) TAX ON NONBEVERAGE DOMESTIC DRAWBACK.—Subsection (b) of 
section 5131 (relating to eligibility and rate of tax) is amended to 
read as follows: 
"0)) RATE OF TAX.—The special tax imposed by subsection (a) shall 
be $500 per year." 
(e) TAX ON INDUSTRIAL USE OF DISTILLED SPIRITS.— 
(1) IN GENERAL.—Subchapter D of chapter 51 (relating to 
industrial use of distilled spirits) is amended by adding at the 
end thereof the following new section: 
26 use 5276. 
"SEC. 5276. OCCUPATIONAL TAX. 
. 
"(a) GENERAL RULE.—A permit issued under section 5271 shall not 
be valid with respect to acts conducted at any place unless the 
person holding such permit pays a special tax of $250 with respect to 
such place. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-449 
"(b) CERTAIN OCCUPATIONAL TAX RULES TO APPLY.—Rules similar 
. „ 
to the rules of subpart G of part II of subchapter A shall apply for 
purposes of this section." 
(2) CLERICAL AMENDMENT.—The table of sections for such 
subchapter is amended by adding at the end thereof the follow-
ing new item: 
"Sec. 5276. Occupational tax." 
- l' 
(f) TOBACCO.— 
(1) IN GENERAL.—Chapter 52 (relating to cigars, cigarettes, 
smokeless tobacco and cigarette papers and tubes) is amended 
by redesignating subchapters D, E, and F as subchapters E, F, 
^ 
and G, respectively, and by inserting after subchapter C the 
* 
following new subchapter: 
"Subchapter D—Occupational Tax 
"Sec. 5731. Imposition and rate of tax. 
"SEC. 5731. IMPOSITION AND RATE OF TAX. 
26 USC 5731. 
"(a) GENERAL RULE.—Every person engaged in business as— 
"(1) a manufacturer of tobacco products, 
* 
"(2) a manufacturer of cigarette papers and tubes, or 
"(3) an export warehouse proprietor, 
shall pay a tax of $1,000 per year in respect of each premises at 
which such business is carried on. 
"(b) REDUCED RATES FOR SMALL PROPRIETORS.— 
"(1) IN GENERAL.—Subsection (a) shall be applied by substitut- 
,<..,- y^r, ; 
f 
ing '$500' for '$1,000' with respect to any taxpayer the gross 
^ 
receipts of which (for the most recent taxable year ending 
before the 1st day of the taxable period to which the tax 
imposed by subsection (a) relates) are less than $500,000. 
"(2) CONTROLLED GROUP RULES.—All persons treated as 1 tax-
payer under section 5061(eX3) shall be treated as 1 taxpayer for 
purposes of paragraph (1). 
"(3) CERTAIN RULES TO APPLY.—For purposes of paragraph (1), 
I 
rules similar to the rules of subparagraphs (B) and (C) of section 
:; 
448(cX3) shall apply. 
"(c) CERTAIN OCCUPATIONAL TAX RULES TO APPLY.—Rules similar 
to the rules of subpart G of part II of subchapter A of chapter 51 
shall apply for purposes of this section. 
"(d) PENALTY FOR FAILURE TO REGISTER.—Any person engaged in a 
business referred to in subsection (a) who willfully fails to pay the 
tax imposed by subsection (a) shall be fined not more than $5,000, or 
imprisoned not more than 2 years, or both, for each such offense." 
(2) CLERICAL AMENDMENT.—"The table of subchapters for chap-
ter 52 is amended by redesignating the items relating to sub-
chapters D, E, and F as items relating to subchapters E, F, and 
G, respectively, and by inserting after the item relating to 
subchapter C the following new item: 
"SUBCHAPTER D. Occupational tax." 
(g) FIREARMS.— 
I 
(1) IN GENERAL.—Section 5801 (relating to occupational taxes) 
is amended to read as follows: 
101 STAT. 1330-450 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 use 5801. 
"SEC. 5801. IMPOSITION OF TAX. 
"(a) GENERAL RULE.—On 1st engaging in business and thereafter 
on or before July 1 of each year, every importer, manufacturer, and 
dealer in firearms shall pay a special (occupational) tax for each 
place of business at the following rates: 
"(1) Importers and manufacturers: $1,000 a year or fraction 
thereof. 
"(2) Dealers: $500 a year or fraction thereof. 
"(b) REDUCED RATES OF TAX FOR SMALL IMPORTERS AND MANUFAC-
TURERS.— 
"(1) IN GENERAL.—Paragraph (1) of subsection (a) shall be 
applied by substituting '$500' for '$1,000' with respect to any 
taxpayer the gross receipts of which (for the most recent taxable 
year ending before the 1st day of the taxable period to which the 
tax imposed by subsection (a) relates) are less than $500,000. 
"(2) CONTROLLED GROUP RULES.—All persons treated as 1 tax-
payer under section 5061(eX3) shall be treated as 1 taxpayer for 
purposes of paragraph (1). 
' 
"(3) CERTAIN RULES TO APPLY.—For purposes of paragraph (1), 
rules similar to the rules of subparagraphs (B) and (C) of section 
448(cX3) shall apply." 
(2) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter A of chapter 53 is amended by striking out the item 
relating to section 5801 and inserting in lieu thereof the follow-
ing new item: 
"Sec. 5801. Imposition of tax." 
26 u s e 5081 
(li) EFFECTIVE DATE.— 
note. 
(1) Iff GENERAL.—The amendments made by this section shall 
take effect on January 1,1988. 
(2) ALL TAXPAYERS TREATED AS COMMENCING IN BUSINESS ON 
JANUARY 1, 1988.— 
(A) IN GENERAL.—Any person engaged on January 1, 
1988, in any trade or business which is subject to an occupa-
tional tax shall be treated for purposes of such tax as 
having 1st engaged in such trade or business on such date. 
(B) LIMITATION ON AMOUNT OF TAX.—In the case of a 
taxpayer who paid an occupational tax in respect of any 
premises for any taxable period which began before Janu-
ary 1, 1988, and includes such date, the amount of the 
occupational tax imposed by reason of subparagraph (A) in 
respect of such premises shall not exceed an amount equal 
to V2 the excess (if any) of— 
(i) the rate of such tax as in effect on January 1,1988, 
over 
(ii) the rate of such tax as in effect on December 31, 
1987. 
(C) OCCUPATIONAL TAX.—For purposes of this paragraph, 
the term "occupational tax" means any tax imposed under 
part II of subchapter A of chapter 51, section 5276, section 
5731, or section 5801 of the Internal Revenue (Dode of 1986 
(as amended by this section). 
(D) DUE DATE OF TAX.—The amount of any tax required to 
be paid by reason of this paragraph shall be due on April 1, 
1988. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-451 
Subtitle F—Other Revenue Provisions 
PART I—TARGETED JOBS CREDIT 
SEC. 10601. DENIAL OF TARGETED JOBS CREDIT FOR WAGES PAID 
^o.0s; Kl^ 
DURING PERIOD OF LABOR DISPUTE. 
(a) GENERAL RULE.—Subsection (c) of section 51 (defining wages) is 
amended by redesignating paragraph (3) as paragraph (4) and by 
inserting after paragraph (2) the following new paragraph: 
"(3) PAYMENTS FOR SERVICES DURING LABOR DISPUTES.—If— 
"(A) the principal place of employment of an individual 
with the employer is at a plant or facility, and 
,
^ 
"(B) there is a strike or lockout involving employees at 
such plant or facility, 
the term 'wages' shall not include any amount paid or incurred 
by the employer to such individual for services which are the 
.
-
;
,
= 
same as, or substantially similar to, those services performed by 
employees participating in, or affected by, the strike or lockout 
during the period of such strike or lockout." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use 51 note. 
shall apply to amounts paid or incurred on or after January 1,1987, 
for services rendered on or after such date. 
- 
PART II—TREATMENT OF CERTAIN ILLEGAL 
. 
IRRIGATION SUBSIDIES 
SEC. 10611. TREATMENT OF CERTAIN ILLEGAL IRRIGATION SUBSIDIES. 
(a) GENERAL RULE.—Part II of subchapter B of chapter 1 (relating 
to items specifically included in gross income) is amended by adding 
at the end thereof the following new section: 
"SEC. 90. ILLEGAL FEDERAL IRRIGATION SUBSIDIES. 
26 USC 90. 
"(a) GENERAL RULE.—Gross income shall include an amount equal 
to any illegal Federal irrigation subsidy received by the taxpayer 
during the taxable year. 
"(b) ILLEGAL FEDERAL IRRIGATION SUBSIDY.—For purposes of this 
section— 
"(1) IN GENERAL.—The term 'illegal Federal "* irrigation 
subsidy' means the excess (if any) of— 
"(A) the amount required to be paid for any Federal 
gjii / 
irrigation water delivered to the taxpayer during the tax-
payer year, over 
"(B) the amount paid for such water. 
"(2) FEDERAL IRRIGATION WATER.—The term 'Federal irriga-
tion water' means any water made available for agricultural 
purposes from the operation of any reclamation or irrigation 
project referred to in paragraph (8) of section 202 of the Rec-
lamation Reform Act of 1982. 
"(c) DENIAL OF DEDUCTION.—No deduction shall be allowed under 
this subtitle by reason of any inclusion in gross income under 
subsection (a)." 
'Copy read "federal". 
101 STAT. 1330-452 
PUBLIC LAW 100-203—DEC. 22, 1987 
(b) CLERICAL AMENDMENT.—The table of sections for part II of 
subchapter B of chapter 1 is amended by adding at the end thereof 
the following new item: 
^, 
, ., 
^ , 
"Sec. 90. Federal irrigation subsidies." 
26 use 90 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to water delivered to the taxpayer in months beginning after 
the date of the enactment of this Act. 
\%i Utiii 
PART III—COMPLIANCE 
Men K; 
081) 
gg 
SEC. 
10621. 
STATE ESCHEAT LAWS NOT TO APPLY TO REFUNDS OF 
FEDERAL 
TAX. 
(a) GENERAL RULE.—Subchapter A of chapter 65 (relating to proce-
dure in general for abatements, credits, and refunds) is amended by 
adding at the end thereof the following new section: 
26 use 6408. 
"SEC. 6408. STATE ESCHEAT LAWS NOT TO APPLY. 
7.1 
"No overpayment of any tax imposed by this title shall be re-
funded (and no interest with respect to any such overpayment shall 
be paid) if the amount of such refund (or interest) would escheat to a 
State or would otherwise become the property of a State under any 
law relating to the disposition of unclaimed or abandoned property. 
No refund (or payment of interest) shall be made to the estate of any 
decedent unless it is affirmatively shown that such amount will not 
escheat to a State or otherwise become the property of a State under 
such a law," 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter A 
of chapter 65 is amended by adding at the end thereof the following 
new item: 
"Sec. 6408. State escheat laws not to apply." 
**'* • '- " 
" 
••'*' 
26 use 6408 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on the date of the enactment of this Act. 
26 use 7803 
SEC. 10622. SENSE OF CONGRESS AS TO INCREASED INTERNAL REVENUE 
note. 
SERVICE FUNDING FOR TAXPAYER ASSISTANCE AND 
ENFORCEMENT. 
(a) FINDINGS.—The (Dongress hereby finds that— 
(1) the Internal Revenue Service estimates that the amount of 
taxes owed for 1986 will exceed the amount of taxes collected for 
ao* such year by $100 billion; 
/ 
(2) the current taxpayer compliance rate stands at 81.5 per-
5.«tr cent; 
'<a 
(3) the tax gap can be significantly reduced by enhancing 
taxpayer assistance services and enforcement; and 
(4) the Appropriations Committee of the House of Representa-
tives, in its fiscal year 1988 Internal Revenue Service appropria-
tion, took a step in the direction of providing additional funding 
for taxpayer assistance and enforcement efforts. 
(b) It is the sense of the (Dongress that: 
(1) The Congress increase outlays for the Internal Revenue 
•50li Service in fiscal year 1989 and fiscal year 1990 in the areas of 
f
A
f
c taxpayer assistance and enforcement by $.7 billion in fiscal year 
1989 for a revenue total of $3.2 billion and by $.8 billion in fiscal 
year 1990 for a revenue total of $4.4 billion. The net revenue 
increase would be $2.5 billion in fiscal year 1989 and $3.6 billion 
in fiscal year 1990, or a net revenue increase over the House 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-453 
Appropriations Committee recommendations of $.4 billion in 
fiscal year 1989 and $1.3 billion in fiscal year 1990. 
(2) The Internal Revenue Service offer improved taxpayer 
assistance and enforcement efforts by using the aforementioned 
outlays in areas recommended by, or consistent with the rec-
ommendations of, the "Dorgan Task Force Report". Taxpayer 
assistance efforts would include providing expanded taxpayer 
education programs, instituting pilot programs of taxmobiles in 
rural areas, and upgrading the quality of telephone assistance. 
Taxpayer enforcement efforts would include raising the audit 
rate from 1.1 percent toward 2.5 percent, restoring resources to 
criminal investigations, and the collection of delinquent 
accounts. 
(3) The Congress should undertake an experimental multiyear 
authorization and 2-year appropriation for the Internal Reve-
nue Service consistent with the recommendations in Public Law 
100-119, section*^' 201 (Increasing the Statutory Limit on the 
Public Debt). 
(4) Increased funding should be provided for compilation and 
analysis of statistics of income and research. 
The Internal Revenue Service must issue a report on the extent of Reports. 
the tax gap and che measures that could be undertaken to decrease 
the tax gap. The report must utilize more current data than has 
been utilized recently. The report must be issued by April 15, 1989. 
The Internal Revenue Service must also report annually on the 
improvements being made in the audit rate, taxpayer assistance, 
and enforcement efforts. 
PART IV—TAX-EXEMPT BOND PROVISIONS 
SEC. 10631. ISSUES USED TO ACQUIRE NONGOVERNMENTAL OUTPUT 
PROPERTY. 
(a) IN GENERAL.—Section 141 is amended by redesignating subsec-
tion (d) as subsection (e) and by inserting after subsection (c) the 
following new subsection: 
"(d) 
CERTAIN ISSUES USED TO ACQUIRE NONGOVERNMENTAL 
OUTPUT PROPERTY TREATED AS PRIVATE ACTIVITY BONDS.— 
"(1) IN GENERAL.—For purposes of this title, the term 'private 
activity bond' includes any bond issued as part of an issue if the 
amount of the proceeds of the issue which are to be used 
(directly or indirectly) for the acquisition by a governmental 
unit of nongovernmental output property exceeds the lesser 
of— 
"(A) 5 percent of such proceeds, or 
"(B) $5,000,000. 
"(2) NONGOVERNMENTAL OUTPUT PROPERTY.—Except as other-
wise provided in this subsection, for purposes of paragraph (1), 
the term 'nongovernmental output property' means any prop-
erty (or interest therein) which before such acquisition was used 
(or held for use) by a person other than a governmental unit in 
connection with an output facility (within the meaning of 
subsection (bX4)) (other than a facility for the furnishing of 
water). For purposes of the preceding sentence, use (or the 
holding for use) before October 14, 1987, shall not be taken into 
account. 
101 STAT. 1330-454 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(3) EXCEPTION FOR PROPERTY ACQUIRED TO PROVIDE OUTPUT TO 
CERTAIN AREAS.—For purposes of paragraph (1)— 
"(A) IN GENERAL.—The term 'nongovernmental output 
property' shall not include any property which is to be used 
in connection with an output facility 95 percent or more of 
the output of which will be consumed in— 
"(i) a qualified service area of the governmental unit 
acquiring the property, or 
"(ii) a qualiHed annexed area of such unit. 
"(B) DEFINITIONS.—For purposes of subparagraph (A)— 
"(i) QuAUFiED SERVICE AREA.—The term 'qualified 
service area' means, with respect to the governmental 
unit acquiring the property, any area throughout 
which such unit provided (at all times during the 10-
year period ending on the date such property is ac-
quired by such unit) output of the same type as the 
output to be provided by such property. For purposes of 
the preceding sentence, the period before October 14, 
.
F
T
^
i n . 
1987, shall not be taken into account. 
"(ii) QuAUFiED ANNEXED AREA.—The term 'qualified 
r. , •: 
annexed area' means, with respect to the governmental 
unit acquiring the property, any area i
f
— 
(I) such area is contiguous to, and annexed for 
general governmental purposes into, a qualified 
service area of such unit, 
"(II) output from such property is made available 
to all members of the general public in the an-
nexed area, and 
* 
"(III) the annexed area is not greater than 10 
percent of such qualified service area. 
iv; j 
"(C) LIMITATION ON SIZE OF ANNEXED AREA NOT TO APPLY 
WHERE OUTPUT CAPACITY DOES NOT INCREASE BY MORE THAN 
10 PERCENT.—Subclause (III) of subparagraph (BXii) shall 
'^ 
not apply to an annexation of an area by a governmental 
• • 
unit if the output capacity of the property acquired in 
connection with the annexation, when added to the output 
^ "^ 
capacity of all other property which is not treated as non-
governmental output property by reason of subparagraph 
(AXii) with respect to such annexed area, does not exceed 10 
percent of the output capacity of the property providing 
output of the same type to the qualified service area into 
which it is annexed. 
.,.> 
u^jy^ RULES FOR DETERMINING RELATIVE SIZE, ETC.—For 
purposes of subparagraphs (BXii) and (C)— 
"(i) The size of any qualified service area and the 
output capacity of property serving such area shall be 
">i 
determined as the close of the calendar year preceding 
the calendar year in which the acquisition of non-
governmental output property or the 
annexation 
occurs. 
"(ii) A qualified annexed area shall be treated as part 
of the qualified service area into which it is annexed for 
purposes of determining whether any other area an 
nexed in a later year is a qualified annexed area. 
"(4) 
EXCEPTION FOR PROPERTY CONVERTED TO NONOUTPUT 
USE.—For purposes of paragraph (1)— 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-455 
"(A) IN GENERAL.—The term 'nongovernmental output 
> 
property' shall not include any property which is to be 
converted to a use not in connection with an output facility. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply to 
i 
any property which is part of the output function of a 
' ( 
nuclear power facility. 
"(5) SPECIAL RULES.—In the case of a bond which is a private 
< activity bond solely by reason of this subsection— 
"(A) subsections (c) and (d) of section 147 (relating to 
limitations on acquisition of land and existing property) 
( 
shall not apply, and 
si 
"(B) paragraph (8) of section 142(a) shall be applied as if it 
did not contain 'local'. 
'•c 
"(6) TREATMENT OF JOINT ACTION AGENCIES.—With respect to 
nongovernmental output property acquired by a joint action 
f 
agency the members of which are governmental units, this 
subsection shall be applied at the member level by treating each 
member as acquiring its proportionate share of such property." 
(b) TECHNICAL AMENDMENT.—Subparagraph (A) of section 146(fX5) 
is amended to read as follows: 
"(A) the purpose of issuing exempt facility bonds de-
scribed in 1 of the paragraphs of section 142(a),'. 
(c) EFFECTIVE DATE.— 
26 use 141 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to bonds 
issued after October 13, 1987 (other than bonds issued to refund 
bonds issued on or before such date). 
(2) BINDING AGREEMENTS.—The amendments made by this 
section shall not apply to bonds (other than advance refunding 
bonds) with respect to a facility acquired after October 13, 1987, 
pursuant to a binding contract entered into on or before such 
date. 
(3) TRANSITIONAL RULE.—The amendments made by this sec-
tion shall not apply to bonds issued— 
^: 
(A) after October 13, 1987, by an authority created by a 
statute— 
(i) approved by the State Governor on July 24, 1986 
and 
(ii) sections 1 through 10 of which became effective on 
January 15,1987, and 
(B) to provide facilities serving the area specified in such 
statute on the date of its enactment, 
SEC. 10632. BONDS ISSUED BY INDIAN TRIBAL GOVERNMENTS. 
(a) IN GENERAL.—Section 7871 is amended by adding at the end 
thereof the following new subsection: 
"(e) ESSENTIAL GOVERNMENTAL FUNCTION.—For purposes of this 
section, the term 'essential governmental function' shall not include 
any function which is not customarily performed by State and local 
governments with general taxing powers." 
(b) EXCEPTION FOR CERTAIN PRIVATE ACTIVITY BONDS.— 
(1) IN GENERAL.—Subsection (c) of section 7871 (relating to 
additional requirements for tax-exempt bonds) is amended by 
adding at the end thereof the following new paragraph: 
"(3) EXCEPTION FOR CERTAIN PRIVATE ACTIVITY BONDS.— 
"(A) IN GENERAL.—In the case of an obligation to which 
this paragraph applies— 
91-194 O - 90 - 40 : QL.3 Part 2 
101 STAT. 1330-456 
PUBLIC LAW 100-203—DEC. 22, 1987 
Ji;qi> o Icf' 
"(i) paragraph (2) shall not apply, 
9(i "•' 
"(ii) such obligation shall be treated for purposes of 
'<i < 
this title as a qualified small issue bond, and 
oi 
"(iii) section 146 shall not apply. 
fc 
"(B) 
OBUGATIONS TO WHICH PARAGRAPH APPUES.—This 
paragraph shall apply to any obligation issued as part of an 
o: . i 
issue if— 
"(i) 95 percent or more of the net proceeds of the 
Oi )5r .^ 
issue are to be used for the acquisition, construction, 
> V !%'fiq, -{; 
reconstruction, or improvement of property which is of 
a character subject to the allowance for depreciation 
n'H rx ': ;: 
and which is part of a manufacturing facility (as de-
fined in section 144(aX12XC)), 
oi 
"(ii) such issue is issued by an Indian tribal govern-
iioi. 
ment or a subdivision thereof, 
aidj o it 
"(iii) 95 percent or more of the net proceeds of the 
001- 
issue are to be used to finance property which— 
" \ 
"(I) is to be located on land which, throughout 
the 5-year period ending on the date of issuance of 
such issue, is part of the qualified Indian lands of 
•^jh zi>ii(m 
the issuer, and 
"(II) is to be owned and operated by such issuer, 
ctr; ; ^: O
B
U f
f
2 
"(iv) such obligation would not be a private activity 
-sasHi.:;i 
bond without regard to subparagraph (C), 
^br 
"(v) it is reasonably expected (at the time of issuance 
bf* 
of the issue) that the employment requirement of 
subparagraph (DXi) will be met with respect to the 
»;/? f /cf >
L facility to be financed by the net proceeds of the issue, 
and 
"(vi) no principal user of such facility will be a person 
.ti, 
^ 
(or group of persons) described in section 144(a)(6XB). 
For purposes of clause (iii), section 150(aX5) shall apply. 
19?- »i 
"(C) PRIVATE ACTIVITY BOND RULES TO APPLY.—An obliga-
tion to which this paragraph applies (other than an obliga-
B '{d i: tion described in paragraph (D) shall be treated for pur-
poses of this title as a private activity bond. 
dWJ 
"(D) EMPLOYMENT REQUIREMENTS.— 
"(i) IN GENERAL.—The employment requirements of 
no BVQ'-•:.,'• this subparagraph are met with respect to a facility 
financed by the net proceeds of an issue if, as of the 
rfiog "• 5s 
close of each calendar year in the testing period, the 
aggregate face amount of all outstanding tax-exempt 
private activity bonds issued to provide financing for 
the establishment which includes such facility is not 
j..»T'# ' j ; ; >;. more than 20 times greater than the aggregate wages 
(as defined by section 3121(a)) paid during the preced-
i'ls : 
ing calendar year to individuals (who are enrolled 
M
-
. 
members of the Indian tribe of the issuer or the spouse 
of any such member) for services rendered at such 
establishment, 
"(ii) FAILURE TO MEET REQUIREMENTS.— 
o* 
"(I) IN GENERAL.—If, as of the close of any cal-
vj 
endar year in the testing period, the requirements 
of this subparagraph are not met with respect to 
an establishment, section 103 shall cease to apply 
>
> -civ oJ ivi,., 
to interest received or accrued (on all private activ-
ity bonds issued to provide financing for the 
.: Ct - (:<:' 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-457 
?f^'- ^ ' ' ' 
establishment) after the close of such calendar 
a- J. .f1--^ 'ic: 
year. 
"(II) EXCEPTION.—Subclause (I) shall not apply if 
the requirements of this subparagraph would be 
met if the aggregate face amount of all tax-exempt 
. 
private activity bonds issued to provide financing 
'^"^ '' ^ 
for the establishment and outstanding at the close 
, , 
of the 90th day after the close of the calender year 
^,' ' 
were substituted in clause (i) for such bonds 
outstanding at the close of such calendar year. 
" ^
^ 
"(iii) TESTING PERIOD.—For purposes of this subpara-
" *
^ 
graph, the term 'testing period' means, with respect to 
an issue, each calendar year which begins more than 2 
years after the date of issuance of the issue (or, in the 
case of a refunding obligation, the date of issuance of 
!, , 
the original issue). 
"(E) DEFINITIONS.—For purposes of this paragraph— 
"(i) QUALIFIED INDIAN LANDS.—The term 'qualified 
Indian lands' means land which is held in trust by the 
United States for the benefit of an Indian tribe. 
J 
"(ii) INDIAN TRIBE.—The term 'Indian tribe' means 
any Indian tribe, band, nation, or other organized 
J • 
group or community which is recognized as eligible for 
the special programs and services provided by the 
f 
United States to Indians because of their status as 
Indians. 
x; 
"(iii) NET PROCEEDS.—The term 'net proceeds' has the 
meaning given such term by section 150(a)(3)." 
-<- 
(2) TECHNICAL AMENDMENT.—Paragraph (2) of section 7871(c) 
is amended by striking out "Subsection (a)" and inserting in lieu 
thereof "Except as provided in paragraph (3), subsection (a)", 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 7871 
apply to obligations issued after October 13,1987, 
^°^-
Subtitle G—Lobbying and Political Activities 
; 
of Tax-Exempt Organizations 
i ' 
• 
" 
PART I—DISCLOSURE REQUIREMENTS 
SEC. 10701. REQUIRED DISCLOSURE OF NONDEDUCTIBILITY OF CON-
TRIBUTIONS. 
(a) GENERAL RULE.—Subchapter B of chapter 61 (relating to mis-
cellaneous provisions) is amended by redesignating section 6113 as 
section 6114 and by inserting after section 6112 the following new 
section: 
.Gim 
"SEC. 6113. DISCLOSURE OF NONDEDUCTIBILITY OF CONTRIBUTIONS. 
26 USC 6113. 
"(a) GENERAL RULE.—Each fundraising solicitation by (or on 
behalf of) an organization to which this section applies shall contain 
an express statement (in a conspicuous and easily recognizable 
format) that contributions or gifts to such organization are not 
deductible as charitable contributions for Federal income tax 
purposes. 
"(b) ORGANIZATIONS TO WHICH SECTION APPLIES.— 
101 STAT. 1330-458 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(1) IN GENERAL.—Except £is otherwise provided in this 
subsection, this section shall apply to any organization which is 
not described in section 170(c) and which— 
"(A) is described in subsection (c) (other than paragraph 
(1) thereof) or (d) of section 501 and exempt from taxation 
,'. 
under section 501(a), 
"(B) is a political organization (as defined in section 
527(e)), or 
"(C) was an organization described in subparagraph (A) or 
(B) at any time during the 5-year period ending on the date 
of the fundraising solicitation or is a successor to an 
organization so described at any time during such 5-year 
period. 
"(2) EXCEPTION FOR SMALL ORGANIZATIONS.— 
"(A) ANNUAL GROSS RECEIPTS DO NOT EXCEED $100,000.— 
This section shall not apply to any organization the gross 
receipts of which in each taxable year are normally not 
more than $100,000. 
- " 
"(B) MULTIPLE ORGANIZATION RULE.—The Secretary may 
•
5 
treat any group of 2 or more organizations as 1 organization 
for purposes of subparagraph (A) where necessary or appro-
priate to prevent the avoidance of this section through the 
use of multiple organizations. 
"(3) SPECIAL RULE FOR CERTAIN FRATERNAL ORGANIZATIONS.— 
For purposes of paragraph (1), an organization described in 
section 170(c)(4) shall be treated as described in section 170(c) 
only with respect to solicitations for contributions or gifts which 
" 
are to be used exclusively for purposes referred to in section 
170(c)(4). 
"(c) FUNDRAISING SOLICITATION.—For purposes of this section— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
term 'fundraising solicitation' means any solicitation of con-
. u 
tributions or gifts which is made— 
•>'w 
"(A) in written or printed form, 
:^ r 
;• ; 
"(B) by television or radio, or 
"(C) by telephone. 
-' 
"(2) EXCEPTION FOR CERTAIN LETTERS OR CALLS.—The term 
'fundraising solicitation' shall not include any letter or tele-
phone call if such letter or call is not part of a coordinated 
fundraising campaign soliciting more than 10 persons during 
the calendar year." 
(b) PENALTY.—Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
26 u s e 6710. 
"SEC. 6710. FAILURE TO DISCLOSE THAT CONTRIBUTIONS ARE NON-
DEDUCTIBLE. 
"(a) IMPOSITION OF PENALTY.—If there is a failure to meet the 
requirement of section 6113 with respect to a fundraising solicita-
^' 
-
^ 
tion by (or on behalf of) an organization to which section 6113 
applies, such organization shall pay a penalty of $1,000 for each day 
on which such a failure occurred. The maximum penalty imposed 
under this subsection on failures by any organization during any 
calendar year shall not exceed $10,000. 
"(b) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed 
under this section with respect to any failure if it is shown that such 
failure is due to reasonable cause. 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-459 
"(c) $10,000 LIMITATION NOT TO APPLY WHERE INTENTIONAL DIS-
REGARD.—If any failure to which subsection (a) applies is due to 
intentional disregard of the requirement of section 6113— 
"(1) the penalty under subsection (a) for the day on which 
such failure occurred shall be the greater of— 
"(A) $1,000, or 
"(B) 50 percent of the aggregate cost of the solicitations 
which occurred on such day and with respect to which there 
' 
was such a failure, 
"(2) the $10,000 limitation of subsection (a) shall not apply to 
any penalty under subsection (a) for the day on which such 
failure occurred, and 
"(3) such penalty shall not be taken into account in applying 
such limitation to other penalties under subsection (a). 
"(d) DAY ON WHICH FAILURE OCCURS.—For purposes of this sec-
tion, any failure to meet the requirement of section 6113 with 
respect to a solicitation— 
"(1) by television or radio, shall be treated as occurring when 
the solicitation was telecast or broadcast, 
"(2) by mail, shall be treated as occurring when the solicita-
tion was mailed, 
"(3) not by mail but in written or printed form, shall be 
t 
• 
. 
treated as occurring when the solicitation was distributed, or 
"(4) by telephone, shall be treated as occurring when the 
solicitation was made." 
(c) CLERICAL AMENDMENTS.— 
(1) The table of sections for subchapter B of chapter 61 is 
amended by striking out the item relating to section 6113 and 
inserting in lieu thereof the following: 
"Sec. 6113. Disclosure of nondeductibility of contributions. 
"Sec. 6114. Cross reference." 
(2) The table of sections for part I of subchapter B of chapter 
68 is amended by adding at the end thereof the following new 
item: 
"Sec. 6710. Failure to disclose that contributions are nondeductible." 
• 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 6113 
apply to solicitations after January 31,1988. 
note. 
SEC. 10702. PUBLIC INSPECTION OF ANNUAL RETURNS AND APPLICA-
TIONS FOR TAX-EXEMPT STATUS. 
(a) GENERAL RULE.—Section 6104 (relating to publicity of informa-
tion required from certain tax-exempt organizations and certain 
trusts) is amended by adding at the end thereof the following new 
subsection: 
"(e) PuBUC INSPECTION OF CERTAIN ANNUAL RETURNS AND AP-
PUCATIONS FOR EXEMPTION.— 
"(1) A N N U A L RETURNS.— 
"(A) IN GENERAL.—During the 3-year period beginning on 
Public 
the filing date, a copy of the annual return filed under 
information. 
section 6033 (relating to returns by exempt organizations) 
by any organization to which this paragraph applies shall 
be made available by such organization for inspection 
during regular business hours by any individual at the 
principal office of the organization and, if such organization 
regularly maintains 1 or more regional or district offices 
101 STAT. 1330-460 
PUBLIC LAW 100-203—DEC. 22, 1987 
-i>S 
Public 
information. 
26 u s e 6104 
note. 
iJb.5i->a 
having 3 or more employees, at each such regional or 
district office. 
"(B) ORGANIZATIONS TO WHICH PARAGRAPH APPLIES.—This 
paragraph shall apply to any organization which— 
"(i) is described in subsection (c) or (d) of section 501 
and exempt from taxation under section 501(a), and 
"(ii) is not a private foundation (within the meaning 
of section 509(a)). 
"(C) 
NONDISCLOSURE OF CONTRIBUTORS.—Subparagraph 
(A) shall not require the disclosure of the name or address 
of any contributor to the organization. 
"(D) FiUNG DATE.—For purposes of subparagraph (A), the 
term 'filing date' means the last day prescribed for filing 
the return under section 6033 (determined with regard to 
any extension of time for filing). 
'(2) APPUCATION FOR EXEMPTION.— 
"(A) IN GENERAL.—If^ 
"(i) an organization described in subsection (c) or (d) 
of section 501 is exempt from taxation under section 
501(a), and 
"(ii) such organization filed an application for rec-
ognition of exemption under section 501, 
a copy of such application (together with a copy of any 
papers submitted in support of such application and any 
letter or other document issued by the Internal Revenue 
Service with respect to such application) shall be made 
available by the organization for inspection during regular 
business hours by any individual at the principal office of 
the organization and, if the organization regularly main-
tains 1 or more regional or district offices having 3 or more 
employees, at each such regional or district office. 
"(B) NONDISCLOSURE OF CERTAIN INFORMATION.—Subpara-
graph (A) shall not require the disclosure of any informa-
'^ ' 
tion if the Secretary withheld such information from public 
inspection under subsection (aXlXD)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply— 
(1) to returns for years beginning after December 31, 1986, 
and 
(2) on and after the 30th day after the date of the enactment 
of this Act in the case of applications submitted to the Internal 
Revenue Service— 
(A) after July 15,1987, or 
(B) on or before July 15, 1987, if the organization has a 
copy of the application on July 15,1987. 
SEC. 10703. ADDITIONAL INFORMATION REQUIRED ON ANNUAL RETURNS 
OF SECTION 501(c)(3) ORGANIZATIONS. 
(a) GENERAL RULE.—Subsection (b) of section 6033 (relating to 
certain organizations described in section 501(cX3)) *^^ is amended 
by striking out "and" at the end of paragraph (7), by striking out the 
period at the end of paragraph (8) and inserting in lieu thereof a 
comma, and by inserting after paragraph (8) the following new 
paragraphs: 
•SfJJ 
'>.9it: 
>»« Copy read "503(cX3))". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-461 
"(9) such other information with respect to direct or indirect 
f
. 
transfers to, and other direct or indirect transactions and rela-
, 
tionships with, other organizations described in section 501(c) 
(other than paragraph (3) thereof) or section 527 as the Sec-
retary may require to prevent— 
^ 
"(A) diversion of funds from the organization's exempt 
purpose, or 
1 
"(B) misallocation of revenues or expenses, and 
* 
"(10) such other information for purposes of carrying out the 
internal revenue laws as the Secretary may require." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
26 USC 6033 
shall apply to returns for years beginning after December 31, 1987. note. 
SEC. 10704. PENALTIES. 
(a) GENERAL RULE.—Subsection (c) of section 6652 (relating to 
returns by exempt organizations and by certain trusts) is amended 
to read as follows: 
"(c) 
RETURNS 
BY EXEMPT 
ORGANIZATIONS AND BY CERTAIN 
TRUSTS.— 
"(1) ANNUAL RETURNS UNDER SECTION 6033.— 
' 
"(A) PENALTY ON ORGANIZATION.—In the case of— 
<. 
"(i) a failure to file a return required under section 
Its , 
6033 (relating to returns by exempt organizations) on 
the date and in the manner prescribed therefor (deter-
fif}'"- 
mined with regard to any extension of time for filing), 
t' 
or 
5- 
"(ii) a failure to include any of the information re-
,,;i 
quired to be shown on a return filed under section 6033 
-
5 
or to show the correct information, 
there shall be paid by the exempt organization $10 for each 
« 
day during which such failure continues. The maximum 
penalty under this subparagraph on failures with respect to 
? 
any 1 return shall not exceed the lesser of $5,000 or 5 
J 
percent of the gross receipts of the organization for the 
year. 
^, : .^ 
"(B) MANAGERS.— 
^ ' *i 
"(i) IN GENERAL.—The Secretary may make a written 
''-'' ' 
demand on any organization subject to penalty under 
subparagraph (A) specifying therein a reasonable 
future date by which the return shall be filed (or the 
information furnished) for purposes of this subpara-
' "'^ ' 
graph. 
"(ii) 
FAILURE TO COMPLY WITH DEMAND.—If 
any 
•*>. • a. 
person fails to comply with any demand under clause (i) 
on or before the date specified in such demand, there 
shall be paid by the person failing to so comply $10 for 
each day after the expiration of the time specified in 
flns^ 
~ 
such demand during which such failure continues. The 
' n .: 
maximum penalty imposed under this subparagraph on 
' ? ••n; 
all persons for failures with respect to any 1 return 
shall not exceed $5,000. 
"(C) PuBUC INSPECTION OF ANNUAL RETURNS.—In the case 
V 
of a failure to comply with the requirements of subsection 
£A:.> 
(d) or (eXD of section 6104 (relating to public inspection of 
annual returns) on the date and in the manner prescribed 
therefor (determined with regard to any extension of time 
for filing), there shall be paid by the person failing to meet 
101 STAT. 1330-462 
PUBLIC LAW 100-203—DEC. 22, 1987 
such requirements $10 for each day during which such 
failure continues. The maximum penalty imposed under 
this subparagraph on all persons for failures with respect to 
>
" 
any 1 return shall not exceed $5,000. 
"(D) 
PUBLIC INSPECTION OF APPLICATIONS FOR EXEMP-
' TiON.—In the case of a failure to comply with the require-
ments of section 6104(e)(2) (relating to public inspection of 
applications for exemption) on the date and in the manner 
. I.? prescribed therefor, there shall be paid by the person fail-
ing to meet such requirements $10 for each day during 
' 
; , ^ 
which such failure continues. 
"(2) RETURNS UNDER SECTION 6034 OR 6043 (b) .— 
"(A) PENALTY ON ORGANIZATION OR TRUST.—In the case of 
a failure to file a return required under section 6034 (relat-
ing to returns by certain trusts) or section 6043(b) (relating 
to terminations, etc., of exempt organizations), on the date 
r
>
s
;
'
5 ^^^ ^^ ^^® manner prescribed therefor (determined with 
regard to any extension of time for filing), there shall be 
paid by the exempt organization or trust failing so to file 
$10 for each day during which such failure continues, but 
the total amount imposed under this subparagraph on any 
organization or trust for failure to file any 1 return shall 
not exceed $5,000. 
"(B) MANAGERS.—The Secretary may make written 
demand on an organization or trust failing to file under 
subparagraph (A) specifying therein a reasonable future 
hK- . 
date by which such filing shall be made for purposes of this 
subparagraph. If such filing is not made on or before such 
date, there shall be paid by the person failing so to file $10 
for each day after the expiration of the time specified in the 
written demand during which such failure continues, but 
the total amount imposed under this subparagraph on all 
persons for failure to file any 1 return shall not exceed 
$5,000. 
"(3) REASONABLE CAUSE EXCEPTION.—No penalty shall be im-
posed under this subsection with respect to any failure if it is 
shown that such failure is due to reasonable cause. 
"(4) OTHER SPECIAL RULES.— 
"(A) TREATMENT AS TAX.—Any penalty imposed under 
this subsection shall be paid on notice and demand of the 
f. 
Secretary and in the same manner as tax. 
"(B) JOINT AND SEVERAL UABILITY.—If more than 1 person 
is liable under this subsection for any penalty with respect 
to any failure, all such persons shall be jointly and sever-
ally liable with respect to such failure. 
"(C) PERSON.—For purposes of this subsection, the term 
'person' means any officer, director, trustee, employee, or 
other individual who is under a duty to perform the act in 
respect of which the violation occurs." 
(b) WILLFUL FAILURE TO PERMIT PUBLIC INSPECTION.— 
(1) IN GENERAL.—Section 6685 (relating to assessable penalty 
with respect to private foundation annual returns) is amended 
to read as follows: 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-463 
"SEC. 6685. ASSESSABLE PENALTY WITH RESPECT TO PUBLIC INSPEC- 
26 USC 6685. 
TION 
REQUIREMENTS 
FOR 
CERTAIN 
TAX-EXEMPT 
ORGANIZATIONS. 
"In addition to the penalty imposed by section 7207 (relating to 
fraudulent returns, statements, or other documents), any person 
who is required to comply with the requirements of subsection (d) or 
(e) of section 6104 and who fails to so comply with respect to any 
return or application, if such failure is willful, shall pay a penalty of 
$1,000 with respect to each such return or application.' 
(2) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter B of chapter 68 is amended by striking out the 
f 
item relating to section 6685 and inserting in lieu thereof the 
following: 
"Sec. 6685. Assessable penalty with respect to public inspection require-
ments for certain tax-exempt organizations." 
(c) FURNISHING FRAUDULENT INFORMATION.—Section 7207 (relat-
ing to fraudulent returns, statements, or other documents) is 
amended by striking out "subsection (d) of section 6104" and insert-
ing in lieu thereof "subsection (d) or (e) of section 6104". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6652 
apply— 
note. 
(1) to returns for years beginning after December 31, 1986, 
and 
(2) on and after the date of the enactment of this Act in 
the case of applications submitted to the Internal Revenue 
Service— 
(A) after July 15,1987, or 
(B) on or before July 15, 1987, if the organization has a 
copy of the application on July 15,1987. 
SEC. 10705. REQUIRED DISCLOSURE THAT CERTAIN INFORMATION OR 
SERVICE AVAILABLE FROM FEDERAL GOVERNMENT. 
(a) GENERAL RULE.—Part I of subchapter B of chapter 68 (relating 
to assessable penalties) is amended by adding at the end thereof the 
following new section: 
"SEC. 6711. FAILURE BY TAX-EXEMPT ORGANIZATION TO DISCLOSE THAT 
26 USC 6711. 
CERTAIN INFORMATION OR SERVICE AVAILABLE FROM 
FEDERAL GOVERNMENT. 
"(a) IMPOSITION OF PENALTY.—If— 
"(1) a tax-exempt organization offers to sell (or solicits money 
for) specific information or a routine service for any individual 
which could be readily obtained by such individual free of 
charge (or for a nominal charge) from an agency of the Federal 
Government, 
"(2) the tax-exempt organization, when making such offer or 
solicitation, fails to make an express statement (in a conspicu-
ous and easily recognizable format) that the information or 
service can be so obtained, and 
"(3) such failure is due to intentional disregard of the require-
ments of this subsection, 
such organization shall pay a penalty determined under subsection 
(b) for each day on which such a failure occurred. 
"(h) AMOUNT OF PENALTY.—The penalty under subsection (a) for 
any day on which a failure referred to in such subsection occurred 
shall be the greater of— 
"(1) $1,000, or 
101 STAT. 1330-464 
PUBLIC LAW 100-203—DEC. 22, 1987 
. ; :
« JS . >
i i:* "(2) 50 percent of the aggregate cost of the offers and solicita-
T
*
l tions referred to in subsection (aXD which occurred on such day 
and with respect to which there was such a failure. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) 
TAX-EXEMPT 
ORGANIZATION.—The 
term 
'tax-exempt 
organization' means any organization which— 
"(A) is described in subsection (c) or (d) of section 501 and 
exempt from taxation under section 501(a), or 
"(B) is a political organization (as defined in section 
*- 5 -
^ 527(e)). 
"(2) DAY ON WHICH FAILURE OCCURS.—The day on which any 
failure referred to in subsection (a) occurs shall be determined 
under rules similar to the rules of section 6710(d)." 
(b) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter B of chapter 68 is amended by adding at the end thereof 
the following new item: 
"Sec. 6711. Failure by tax-exempt organization to disclose that certain in-
formation or service available from Federal Grovernment." 
26 use 6711 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^- 
apply to offers and solicitations after January 31,1988. 
vkiCT£ 
PART II—POLITICAL ACTIVITIES 
1^ 
SEC. 10711. CLARIFICATION OF PROHIBITED POLITICAL ACTIVITIES. 
(a) GENERAL RULE.—The following provisions are each amended 
by striking out "on behalf of any candidate" and inserting in lieu 
thereof "on behalf of (or in opposition to) any candidate": 
(1) Section 170(cX2XD). 
(2) Section 501(cX3). 
.« 
. 
(3) Paragraphs (2) and (3) of section 2055(a). 
(4) Clauses (ii) and (iii) of section 2106(aX2XA). 
•" 
(5) Section 2522(aX2). 
' 
-
(6) Paragraphs (2) and (3) of section 25220)). 
(b) 
STATUS 
AFTER 
DISQUAUFICATION 
BECAUSE 
OF POLITICAL 
f jra Oc 
ACTIVITIES.— 
(1) I N GENERAL.—Paragraph (2) of section 504(a) (relating to 
status after organization ceases to qualify for exemption under 
section 501(cX3) because of substantial lobbying) is amended to 
read as follows: 
,„ 
"(2) is not an organization described in section 501(cX3)— 
•i^ 
"(A) by reason of carrying on propaganda, or otherwise 
1^. 
attempting, to influence legislation, or 
"(B) by reason of participating in, or intervening in, any 
.,,, 
political campaign on behalf of (or in opposition to) any 
^y, 
candidate for public office,". 
jf^ (2) CLERICAL AMENDMENTS.— 
(A) The section heading for section 504 is amended by 
..^ 
striking out "SUBSTANTIAL LOBBYING" and inserting 
in lieu thereof "SUBSTANTIAL LOBBYING OR BE-
CAUSE O F POLITICAL ACTIVITIES". 
(B) The table of sections for part I of subchapter F of 
to 
chapter 1 is amended by striking out "substantial lobbjdng" 
be 
in the item relating to section 504 £md inserting in lieu 
thereof 
"substantial 
lobbying or because 
of 
political 
activities". 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-465 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 170 note. 
apply with respect to activities after the date of the enactment of 
this Act. 
SEC. 10712. EXCISE TAXES O
N POLITICAL EXPENDITURES BY SECTION 
501(c)(3) ORGANIZATIONS. 
(a) GENERAL RULE.—Chapter 42 (relating to excise taxes on pri-
vate foundations and black lung benefit trusts) is amended by 
redesignating subchapter C as subchapter D and by inserting after 
subchapter B the following new subchapter: 
... "Subchapter C—Political Expenditures of Section 501(c)(3) 
Organizations 
"Sec. 4955. Taxes on political expenditures of section 501(cX3) organizations. 
"SEC. 4955. TAXES ON POLITICAL EXPENDITURES OF SECTION 501(c)(3) 
26 USC 4955. 
ORGANIZATIONS. 
"(a) INITIAL TAXES.— 
a 
"(1) ON THE ORGANIZATION.—There is hereby imposed on each 
political expenditure by a section 501(cX3) organization a tax 
i 
equal to 10 percent of the amount thereof. The tax imposed by 
• this paragraph shall be paid by the organization. 
"(2) ON THE MANAGEMENT.—There is hereby imposed on the 
agreement of any organization manager to the making of any 
expenditure, knowing that it is a political expenditure, a tax 
equal to 2y2 percent of the amount thereof, unless such agree-
ment is not willful and is due to reasonable cause. The tax 
imposed by this paragraph shall be paid by any organization 
manager who agreed to the making of the expenditure. 
"(b) ADDITIONAL TAXES.— 
"(1) ON THE ORGANIZATION.—In any case in which an initial 
tax is imposed by subsection (aXD on a political expenditure and 
such expenditure is not corrected within the taxable period, 
there is hereby imposed a tax equal to 100 percent of the 
^
^ amount of the expenditure. The tax imposed by this paragraph 
' shall be paid by the organization. 
"(2) ON THE MANAGEMENT.—In any case in which an addi-
tional tax is imposed by paragraph (1), if an organization man-
^' ager refused to agree to part or all of the correction, there is 
hereby imposed a tax equal to 50 percent of the amount of the 
political expenditure. The tax imposed by this paragraph shall 
be paid by any organization manager who refused to agree to 
part or all of the correction. 
"(c) SPECIAL RULES.—For purposes of subsections (a) and 0))— 
"(1) JOINT AND SEVERAL UABIUTY.—If more than 1 person is 
liable under subsection (aX2) or (bX2) with respect to the making 
of a political expenditure, all such persons shall be jointly and 
severally liable under such subsection with respect to such 
. 
expenditure. 
"(2) LIMIT FOR MANAGEMENT.—With respect to any 1 political 
5 expenditure, the maximum amount of the tax imposed by 
;: subsection (aX2) shall not exceed $5,000, and the maximum 
amount of the tax imposed by subsection (bX2) shall not exceed 
$10,000. 
"(d) POUTICAL EXPENDITURE.—For purposes of this section— 
101 STAT. 1330-466 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(1) IN GENERAL.—The term 'political expenditure' means any 
^
* amount paid or incurred by a section 501(c)(3) organization in 
any participation in, or intervention in (including the publica-
^
4
, tion or distribution of statements), any political campaign on 
behalf of (or in opposition to) any candidate for public office. 
"(2) CERTAIN OTHER EXPENDITURES INCLUDED.—In the case of 
'••• • an organization which is formed primarily for purposes of 
• promoting the candidacy (or prospective candidacy) of an 
' individual for public office (or which is effectively controlled by 
a candidate or prospective candidate and which is availed of 
primarily for such purposes), the term 'political expenditure' 
includes any of the following amounts paid or incurred by the 
organization: 
"(A) Amounts paid or incurred to such individual for 
s 
•'-: speeches or other services. 
i 
^
^
T
K
, 
^ , 
"(B) Travel expenses of such individual. 
« f
^ /J > 
.» * ; 
ii^Q^ Expenses of conducting polls, surveys, or other 
studies, or preparing papers or other materials, for use by 
such individual. 
"(D) Expenses of advertising, publicity, and fundraising 
for such individual. 
,--: "
^ 
"(E) Any other expense which has the primary effect of 
promoting public recognition, or otherwise primarily accru-
ing to the benefit, of such individual. 
"(e) COORDINATION W I T H SECTION 4945.—If tax is imposed under 
this section with respect to any political expenditure, such expendi-
ture shall not be treated as a taxable expenditure for purposes of 
section 4945. 
"(f) OTHER DEFINITIONS.—For purposes of this section— 
"(1) 
SECTION 
501(CH3) 
ORGANIZATION.—The 
term 
'section 
501(cX3) organization' means any organization which (without 
regard to any political expenditure) would be described in sec-
tion 501(cX3) and exempt from taxation under section 501(a). 
"(2) ORGANIZATION MANAGER.—The term 'organization man-
ager' means— 
.-: 
"(A) any officer, director, or trustee of the organization 
(or individual having powers or responsibilities similar to 
those of officers, directors, or trustees of the organization), 
"(B) with respect to any expenditure, any employee of the 
organization having authority or responsibility with respect 
to such expenditure. 
"(3) CORRECTION.—The terms 'correction' and 'correct' mean, 
with respect to any political expenditure, recovering part or all 
of the expenditure to the extent recovery is possible, establish-
ment of safeguards to prevent future political expenditures, and 
where full recovery is not possible, such additional corrective 
action as is prescribed by the Secretary by regulations. 
"(4) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any political expenditure, the period beginning with 
the date on which the political expenditure occurs and ending 
on the earlier of— 
"(A) the date of mailing a notice of deficiency under 
section 6212 with respect to the tax imposed by subsection 
' 
(aXl), or 
"(B) the date on which tax imposed by subsection (aXD is 
assessed." 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-467 
(b) ABATEMENT OF FIRST TIER TAX IN CERTAIN CASES.— 
(1) Section 4962 (relating to abatement of private foundation 
first tier taxes in certain cases) is amended by striking out 
., 
. ... 
subsection (b) and inserting in lieu thereof the following new 
.;. T 
subsections: 
"(b) QUALIFIED FIRST TIER TAX.—For purposes of this section, the 
term 'qualified first tier tax' means any first tier tax imposed by 
subchapter A or C of this chapter, except that such term shall not 
include the tax imposed by section 4941(a) (relating to initial tax on 
self-dealing). 
"(c) SPECIAL RULE FOR TAX ON POLITICAL EXPENDITURES OF SEC-
TION 501(c)(3) ORGANIZATIONS.—In the case of the tax imposed by 
section 4955(a), subsection (aXD shall be applied by substituting 'not 
willful and flagrant' for 'due to reasonable cause and not to willful 
neglect'." 
> '.-. ?ji. 
(2) Subsection (a) of section 4962 is amended by striking out 
"any private foundation first tier tax" and inserting in lieu 
thereof "any qualified first tier tax". 
' 
(3) Subsections (a), (b), and (c) of section 4963 are each 
amended by striking out "4952," and inserting in lieu thereof 
"4952, 4955,". 
(4) The section heading for section 4962 is amended by strik-
ing out "PRIVATE FOUNDATION". 
(5) The table of sections for subchapter D of chapter 42 (as 
redesignated by this section) is amended by striking out "pri-
vate foundation" in the item relating to section 4962, 
(c) TECHNICAL AMENDMENTS.— 
(1) Subsection (e) of section 6213 is amended by striking out 
"4971" and inserting in lieu thereof "4955 (relating to taxes on 
political expenditures), 4971". 
(2) Paragraph (1) of section 6501(1) is amended by striking out 
"plan, or trust" and inserting in lieu thereof "plan, trust, or 
-
V 
other organization". 
(3) Subsection (g) of section 6503 is amended by striking out 
"4951, 4952,". 
(4) Section 6684 is amended by striking out "private founda-
tions" and inserting in lieu thereof "private foundations and 
certain other tax-exempt organizations'. 
ft 
(5) Paragraphs (2) and (3) of section 7422(g) are each amended 
by striking out "4952," and inserting in lieu thereof "4952, 
, 
4955,". 
(6) Subsection (b) of section 7454 is amended by striking out 
"the burden of proof and inserting in lieu thereof "or whether 
an organization manager (as defined in section 4955(e)(2)) has 
'knowingly' agreed to the making of a political expenditure 
(within the meaning of section 4955), the burden of proof. 
(7) The chapter heading for chapter 42 is amended by 
striking out 
"BLACK LUNG BENEFIT TRUSTS" and 
inserting in lieu thereof "AND CERTAIN OTHER TAX-
EXEMPT ORGANIZATIONS". 
(8) The table of chapters for subtitle D of such Code is 
amended by striking out "black lung benefit trusts" in the item 
relating to chapter 42 and inserting in lieu thereof "and certain 
: 
other tax-exempt organizations". 
(9) The table of subchapters for chapter 42 is amended by 
striking out the item relating to subchapter C and inserting in 
lieu thereof the following: 
101 STAT. 1330-468 
PUBLIC LAW 100-203—DEC. 22, 1987 
"SUBCHAPTER C. Political expenditures of section 501(cX3) organizations. 
"SUBCHAPTER D. Abatement of first and second-tier taxes in certain cases." 
26 use 4955 
(d) EFFECTIVE DATES.—The amendments made by this section shall 
note. 
apply to taxable years beginning after the date of the enactment of 
this Act. 
SEC. 10713. ADDITIONAL ENFORCEMENT AUTHORITY IN THE CASE OF 
FLAGRANT POLITICAL EXPENDITURES. 
(a) AUTHORITY TO ENJOIN FLAGRANT POLITICAL EXPENDITURES.— 
(1) IN GENERAL.—Subchapter A of chapter 76 (relating to civil 
-'' 
actions by the United States) is amended by redesignating 
section 7409 as section 7410 and by inserting after section 7408 
the following new section: 
26 use 7409. 
"SEC. 7409. ACTION TO ENJOIN FLAGRANT POLITICAL EXPENDITURES OF 
SECTION 501(c)(3) ORGANIZATIONS. 
"(a) AUTHORITY To SEEK INJUNCTION.— 
^j^ 
"(1) IN GENERAL.—If the requirements of paragraph (2) are 
^^ 
met, a civil action in the name of the United States may be 
commenced at the request of the Secretary to enjoin any section 
.{ 
501(c)(3) organization from further making political expendi-
tures and for such other relief as may be appropriate to ensure 
>
5
> that the assets of such organization are preserved for charitable 
.
J or other purposes specified in section 501(cX3). Any action under 
this section shall be brought in the district court of the United 
States for the district in which such organization has its prin-
•£5, cipal place of business or for any district in which it has made 
'(jfT^ political expenditures. The court may exercise its jurisdiction 
over such action (as provided in section 7402(a)) separate and 
ty. apart from any other action brought by the United States 
tc 
against such organization. 
"(2) REQUIREMENTS.—An action may be brought under subsec-
j0 
tion (a) only if— 
"(A) the Internal Revenue Service has notified the 
i;f«ivC 
organization of its intention to seek an injunction under 
bfis f this section if the making of political expenditures does not 
immediately cease, and 
"(B) the C!ommissioner of Internal Revenue has person-
ally determined that— 
"(i) such organization has flagrantly participated in, 
liif •;' 
or intervened in (including the publication or distribu-
tion of statements), any political campaign on behalf of 
aB 
(or in opposition to) any candidate for public office, and 
31 
"(ii) injunctive relief is appropriate to prevent future 
political expenditures. 
"(b) ADJUDICATION AND DECREE.—In any action under subsection 
(a), if the court finds on the basis of clear and convincing evidence 
that— 
"(1) such organization has flagrantly participated in, or inter-
K 
vened in (including the publication or distribution of state-
'• 
ments), any political campaign on behalf of (or in opposition to) 
^ 
any candidate for public office, and 
"(2) injunctive relief is appropriate to prevent future political 
^ - expenditures, 
the court may enjoin such organization from making political 
expenditures and may grant such other relief as may be appropriate 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-469 
to ensure that the assets of such organization are preserved for 
charitable or other purposes specified in section 501(cX3). 
"(c) DEFINITIONS.—For purposes of this section, the terms 'section 
501(cX3) organization' and 'political expenditures' have the respec-
tive meanings given to such terms by section 4955." 
(2) CLERICAL AMENDMENT.—The table of sections for sub-
" 
chapter A of chapter 76 is amended by striking the item 
relating to section 7409 and inserting in lieu thereof the 
1
^
. 
following: 
"Sec. 7409. Action to enjoin flagrant political expenditures of section 
501(cX3) organizations. 
"Sec. 7410. Cross references." 
., 
(h) AUTHORITY TO MAKE IMMEDIATE ASSESSMENTS.— 
['^ 
(1) IN GENERAL.—Part I of subchapter A of chapter 70 (relat-
ing to termination of taxable year) is amended by adding at the 
end thereof the following new section: 
"SEC. 6852. TERMINATION ASSESSMENTS IN CASE OF FLAGRANT POLITI- 
26 USC 6852. 
CAL EXPENDITURES OF SECTION 501(c)(3) ORGANIZATIONS. 
^ 
"(a) AUTHORITY TO MAKE.— 
" 
"(1) IN GENERAL.—If the Secretary finds that— 
„• 
"(A) a section 501(cX3) organization has made political 
^,' [;: 
expenditures, and 
(B) such expenditures constitute a flagrant violation of 
the prohibition against making political expenditures, 
the Secretary shall immediately make a determination of any 
income tax payable by such organization for the current or 
immediately preceding teixable year, or both, and shall imme-
diately make a determination of any tax payable under section 
4955 by such organization or any maneiger thereof with respect 
,. 
to political expenditures during the current or preceding tax-
able year, or both. Notwithstanding any other provision of law, 
any such tax shall become immediately due and payable. The 
Secretary shall immediately assess the amount of tax so deter-
I 
mined (together with all interest, additional amounts, and addi-
' 
tions to the tax provided by law) for the current year or the 
preceding taxable year, or both, and shall cause notice of such 
^ 
determination and assessment to be given to the organization or 
*
: 
any manager thereof, as the case may be, together with a 
. 
demand for immediate payment of such tax. 
^ 
"(2) COMPUTATION OF TAX.—In the case of a current taxable 
. 
year, the Secretary shall determine the taxes for the period 
' 
beginning on the 1st day of such current taxable year and 
ending on the date of the determination under paragraph (1) as 
though such period were a taxable year of the organization, and 
shall take into account any prior determination made under 
this subsection with respect to such current taxable year. 
• 
"(3) TREATMENT OF AMOUNTS COLLECTED.—Any amounts col-
lected as a result of any £issessments under this subsection shall, 
to the extent thereof, be treated as a pajrment of income tax for 
such taxable year, or tax under section 4955 with respect to the 
expenditure, as the case may be. 
(4) SECTION INAPPUCABLE TO ASSESSMENTS AFTER DUE DATE.— 
This section shall not authorize any assessment of tax for the 
preceding taxable year which is made after the due date of the 
organization's return for such taxable year (determined with 
'^. 
regard to any extensions). 
*>0J> .i^TT d l 
;i j^y 
,'i 
••? 
101 STAT. 1330-470 
PUBLIC LAW 100-203—DEC. 22, 1987 
"(b) DEFINITIONS AND SPECIAL RULES.— 
"(1) DEFINITIONS.—For purposes of this section, the terms 
'section 501(cX3) organization', 'political expenditure', and 
'organization manager' have the respective meanings given to 
such terms by section 4955. 
"(2) CERTAIN RULES MADE APPUCABLE.—The provisions of sec-
tions 6851(b), 6861(f), and 6861(g) shall apply with respect to any 
assessment made under subsection (a), except that determina-
tions under section 6861(g) shall be made on the basis of 
'Wiik- whether the requirements of subsection (aXlXB) of this section 
are met in lieu of whether jeopardy exists." 
(2) TECHNICAL AND CONFORMING AMENDMENTS.— 
(A) Clause (v) of section 6091(bXlXB) is amended by strik-
ing out "section 6851(a)" and inserting in lieu thereof "sec-
tion 6851(a) or 6852(a)". 
(B) Paragraph (1) of section 6211(b) is amended bv strik-
,, 
ing out "section 6851" and inserting in lieu thereof 'section 
6851 or 6852". 
(C) Paragraph (1) of section 6212(c) is amended by striking 
out "section 6851" and inserting in lieu thereof "section 
6851 or 6852". 
13; f • 
(D) Subsection (a) of section 6213 is amended by striking 
out "section 6851 or section 6861" and inserting in lieu 
thereof "section 6851, 6852, or 6861". 
(E) Section 6863 is amended— 
(i) by striking out "6851" in subsection (a) and insert-
ing in lieu thereof "6851, 6852,", 
(ii) by striking out "6851 or 6861" in subsection 
(bX3XA) and inserting in lieu thereof "6851, 6852, or 
6861", and 
(iii) by striking out "6851(a) or 6861(a)" and inserting 
in lieu thereof "6851(a), 6852(a), or 6861(a)". 
(F) Section 7429 is amended— 
(i) by striking out "6851(a)," each place it appears 
and inserting in lieu thereof "6851(a), 6852(a),', and 
(ii) by striking out "6851," each place it appears and 
inserting in lieu thereof "6851, 6852,". 
(G) Paragraph (3) of section 761 l(i) is amended by striking 
•- 
out "or section 6861" and inserting in lieu thereof "section 
6852 relating to termination assessments in case of political 
expenditures of section 501(cX3), or 6861". 
(H) The table of sections for part I of subchapter 70 is 
amended by adding at the end thereof the following new 
item: 
"Sec. 6852. Termination assessments in case of flagrant political expendi-
tures of section 501(cX3) organizations." 
26 use 6091 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on the date of the enactment of this Act. 
SEC. 10714. TAX ON DISQUALIFYING LOBBYING EXPENDITURES. 
(a) GENERAL RULE.—Chapter 41 (relating to public charities) is 
amended by adding at the end thereof the following new section: 
26 use 4912. 
"SEC. 4912. TAX ON DISQUALIFYING LOBBYING EXPENDITURES OF CER-
TAIN ORGANIZATIONS. 
"(a) TAX ON ORGANIZATION.—If an organization to which this 
section applies is not described in section 501(cX3) for any taxable 
PUBLIC LAW 100-203—DEC. 22, 1987 
101 STAT. 1330-471 
year by reason of making lobbying expenditures, there is hereby 
imposed a tax on the lobbying expenditures of such organization for 
such taxable year equal to 5 percent of the amount of such expendi-
tures. The tax imposed by this subsection shall be paid by the 
organization. 
"(b) ON MANAGEMENT.—If tax is imposed under subsection (a) on 
the lobbying expenditures of any organization, there is hereby 
imposed on the agreement of any organization manager to the 
making of any such expenditures, knowing that such expenditures 
are likely to result in the organization not being described in section 
501(c)(3), a tax equal to 5 percent of the amount of such expendi-
tures, unless such agreement is not willful and is due to reasonable 
cause. The tax imposed by this subsection shall be paid by any 
manager who agreed to the making of the expenditures. 
"(c) ORGANIZATIONS TO WHICH SECTION APPLIES.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), this 
section shall apply to any organization which was exempt (or 
was determined by the Secretary to be exempt) from taxation 
under section 501(a) by reason of being an organization de-
scribed in section 501(c)(3). 
"(2) EXCEPTIONS.—This section shall not apply to any 
organization— 
"(A) to which an election under section 501(h) applies, 
"(B) which is a disqualified organization (within the 
meaning of section 501(hX5)), or 
"(C) which is a private foundation. 
"(d) DEFINITIONS.— 
"(1) LOBBYING EXPENDITURES.—The term 'lobbying expendi-
ture' means any amount paid or incurred by the organization in 
carrying on propaganda, or otherwise attempting to influence 
legislation. 
"(2) ORGANIZATION MANAGER.—The term 'organization man-
ager' has the meaning given to such term by section 4955(fK2). 
"(3) JOINT AND SEVERAL UABILITY.—If more than 1 person is 
liable under subsection (b), all such persons shall be jointly and 
severally liable under such subsection." 
(b) BURDEN OF PROOF.—Subsection (b) of section 7454 (as amended 
by this Act) is amended by striking out "the burden of proof and 
inserting in lieu thereof ", or whether an organization manager (as 
defined in section 4912(d)(2)) has 'knowingly' agreed to the making 
of disqualifying lobbying expenditures within the meaning of section 
49120)), the burden of proof'. 
(c) TECHNICAL AMENDMENT.—Paragraph (1) of section 6501(1) is 
amended by striking out "by chapter 42 (other than section 4940)" 
and inserting in lieu thereof "by section 4912, by chapter 42 (other 
than section 4940),". 
(d) CLERICAL AMENDMENT.—The table of sections for chapter 41 is 
amended by adding at the end thereof the following new item: 
"Sec. 4912. Tax on disqualifying lobbying expenditures of certain organiza-
tions." 
101 STAT. 1330-472 
PUBLIC LAW 100-203—DEC. 22, 1987 
26 use 4912 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
^°^- 
apply to taxable years beginning after the date of the enactment of 
this Act. 
'^ 
Approved December 22, 1987. 
'•(j^l^-* 
«"* 
• 
Certified April 20, 1988. 
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Editorial note: This printed version of the original hand enrollment is published 
pursuant to section 8004(c) of this law. The following memorandum for the Archivist 
of the United States was signed by the President on January 28,1988, and w£is printed 
in the Federal Register on February 1, 1988: 
By the authority vested in me as President by the Constitution and laws of the 
United States, including Section 301 of Title 3 of the United States Code, I hereby 
authorize you to ascertain whether the printed enrollments of H.J. Res. 395, Joint 
, Resolution making further continuing appropriations for the fiscal year 1988 (Public 
Law 100-202), and H.R. 3545, the Omnibus Budget Reconciliation Act of 1987 (Public 
Law 100-203), are correct printings of the hand enrollments, which were approved on 
December 22, 1987, and if so to make on my behalf the certifications required by 
Section 101(nX4) of H.J. Res. 395 and Section 8004(c) of H.R. 3545. 
Attached are the printed enrollments of H.J. Res. 395 and H.R. 3545, which were 
; received at the White House on January 27, 1988. 
This memorandum shall be published in the Federal Register. 
The Archivist on April 20, 1988, certified this to be a correct printing of the hand 
enrollment of Public Law 100-203. 
'i'ij.'.ij'.!' 
^ , i - 
«;vj i:.-!' 
. ; > > ; , ^ ; / 
LEGISLATIVE HISTORY—H.R. 3545 (S. 1920): 
HOUSE REPORTS: No. 100-391 (Comm. on the Budget) and No. 100-495 (Comm. of 
Conference). 
CONGRESSIONAL RECORD, Vol. 133 (1987): 
Oct. 29, considered and passed House. 
Dec. 9, S. 1920 considered in Senate. 
Dec. 10, H.R. 3545 considered and passed Senate, amended, in lieu of S. 1920. 
Dec. 21, House and Senate agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 23 (1987): 
Dec. 22, Presidential remarks.