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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.
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.