SECTION. 1. EXEMPTION FOR ASBESTOS-RELATED SETTLEMENT FUNDS.

    (a) Exemption for Asbestos-Related Settlement Funds.--Subsection 
(b) of section 468B of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new paragraph:
            ``(6) Exemption from tax for asbestos-related settlement 
        funds.--Notwithstanding paragraph (1), no tax shall be imposed 
        under this section or any other provision of this subtitle on 
        any settlement fund to which this section or the regulations 
        thereunder applies that is established for the principal 
        purpose of resolving and satisfying present and future claims 
        relating to asbestos.''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 468B(b) of such Code is 
        amended by striking ``There'' and inserting ``Except as 
        provided in paragraph (6), there''.
            (2) Subsection (g) of section 468B of such Code is amended 
        by inserting ``(other than subsection (b)(6))'' after ``Nothing 
        in any provision of law''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after December 31, 2000.

SEC. 2. MODIFY TREATMENT OF ASBESTOS-RELATED NET OPERATING LOSSES.

    (a) Asbestos-Related Net Operating Losses.--Subsection (f) of 
section 172 of the Internal Revenue Code of 1986 is amended by 
redesignating paragraphs (4), (5), and (6) as paragraphs (5), (6), and 
(7), respectively, and by inserting after paragraph (3) the following 
new paragraph:
            ``(4) Special rules for asbestos liability losses.--
                    ``(A) In general.--At the election of the taxpayer, 
                the portion of any specified liability loss that is 
                attributable to asbestos may, for purposes of 
                subsection (b)(1)(C), be carried back to the taxable 
                year in which the taxpayer, including any predecessor 
                corporation, was first involved in the production or 
                distribution of products containing asbestos and each 
                subsequent taxable year. In determining its specified 
                liability losses attributable to asbestos, the taxpayer 
                may elect to take into account payments of related 
                parties attributable to asbestos-related products 
                produced or distributed by the taxpayer.
                    ``(B) Coordination with credits.--If a deduction is 
                allowable for any taxable year by reason of a carryback 
                described in subparagraph (A)--
                            ``(i) the credits allowable under part IV 
                        (other than subpart C) of subchapter A shall be 
                        determined without regard to such deduction, 
                        and
                            ``(ii) the amount of taxable income taken 
                        into account with respect to the carryback 
                        under subsection (b)(2) for such taxable year 
                        shall be reduced by an amount equal to--
                                    ``(I) the increase in the amount of 
                                such credits allowable for such taxable 
                                year solely by reason of clause (i), 
                                divided by
                                    ``(II) the maximum rate of tax 
                                under section 1 or 11 (whichever is 
                                applicable) for such taxable year.
                    ``(C) Carryforwards taken into account before 
                asbestos-related deductions.--For purposes of this 
                section--
                            ``(i) in determining whether a net 
                        operating loss carryforward may be carried 
                        under subsection (b)(2) to a taxable year, 
                        taxable income for such year shall be 
                        determined without regard to the deductions 
                        referred to in paragraph (1)(A) with respect to 
                        asbestos, and
                            ``(ii) if there is a net operating loss for 
                        such year after taking into account such 
                        carryforwards and deductions, the portion of 
                        such loss attributable to such deductions shall 
                        be treated as a specified liability loss that 
                        is attributable to asbestos.
                    ``(D) Limitation.--The amount of reduction in 
                income tax liability arising from the election 
                described in subparagraph (A) that exceeds the amount 
                of reduction in income tax liability that would have 
                resulted if the taxpayer utilized the 10-year carryback 
                period under subsection (b)(1)(C) shall be devoted by 
                the taxpayer solely to asbestos claimant compensation 
                and related costs, through a settlement fund or 
                otherwise.
                    ``(E) Coordination with other carryback 
                limitations.--The amount of asbestos-related specified 
                liability loss that may be absorbed in a prior taxable 
                year (and the amount of refund attributable to such 
                loss absorption) shall be determined without regard to 
                any limitation under section 381, 382, or 1502 or the 
                regulations thereunder.
                    ``(F) Predecessor corporation.--For purposes of 
                this paragraph, a predecessor corporation shall include 
                a corporation that transferred or distributed assets to 
                the taxpayer in a transaction to which section 381(a) 
                applies or that distributed the stock of the taxpayer 
                in a transaction to which section 355 applies.''.
    (b) Conforming Amendment.--Paragraph (7) of section 172(f) of such 
Code, as redesignated by this section, is amended by striking ``10-
year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after December 31, 2000.
Output: Amends Internal Revenue Code provisions concerning designated settlement funds to exempt from tax any designated settlement fund established for the principal purpose of resolving and satisfying present and future claims relating to asbestos. Sets forth special rules concerning asbestos liability losses.