[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 13 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                 H. R. 13

  To simplify certain provisions of the Internal Revenue Code of 1986.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 5, 1993

 Mr. Rostenkowski introduced the following bill; which was referred to 
                    the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To simplify certain provisions of the Internal Revenue Code of 1986.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Simplification 
Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title, etc.
              TITLE I--PROVISIONS RELATING TO INDIVIDUALS

         Subtitle A--Provision Relating to Earned Income Credit

Sec. 101. Simplification of earned income credit.
    Subtitle B--Provisions Relating to Rollover of gain on Sale of 
                          Principal Residence

Sec. 111. Multiple sales within rollover period.
Sec. 112. Special rules in case of divorce.
                      Subtitle C--Other Provisions

Sec. 121. Deminimis exception to passive loss rules.
Sec. 122. Payment of tax by credit card.
Sec. 123. Modifications to election to include child's income on 
                            parent's return.
Sec. 124. Simplified foreign tax credit limitation for individuals.
Sec. 125. Treatment of personal transactions by individuals under 
                            foreign currency rules.
Sec. 126. Expanded access to simplified income tax returns.
Sec. 127. Treatment of certain reimbursed expenses of rural mail 
                            carriers.
Sec. 128. Exemption from luxury excise tax for certain equipment 
                            installed on passenger vehicles for use by 
                            disabled individuals.
Sec. 129. Exclusion of combat pay from withholding limited to amount 
                            excludable from gross income.
                    TITLE II--PENSION SIMPLIFICATION

               Subtitle A--Simplified Distribution Rules

Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 202. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 203. Simplified method for taxing annuity distributions under 
                            certain employer plans.
Sec. 204. Required distributions.
             Subtitle B--Increased Access to Pension Plans

Sec. 211. Modifications of simplified employee pensions.
Sec. 212. Tax exempt organizations eligible under section 401(k).
Sec. 213. Duties of sponsors of certain prototype plans.
                Subtitle C--Nondiscrimination Provisions

Sec. 221. Definition of highly compensated employees.
Sec. 222. Modification of additional participation requirements.
Sec. 223. Nondiscrimination rules for qualified cash or deferred 
                            arrangements and matching contributions.
                Subtitle D--Miscellaneous Simplification

Sec. 231. Treatment of leased employees.
Sec. 232. Modifications of cost-of-living adjustments.
Sec. 233. Plans covering self-employed individuals.
Sec. 234. Elimination of special vesting rule for multiemployer plans.
Sec. 235. Full-funding limitation of multiemployer plans.
Sec. 236. Alternative full-funding limitation.
Sec. 237. Distributions under rural cooperative plans.
Sec. 238. Treatment of governmental plans under section 415.
Sec. 239. Uniform retirement age.
Sec. 240. Uniform penalty provisions to apply to certain pension 
                            reporting requirements.
Sec. 241. Contributions on behalf of disabled employees.
Sec. 242. Affiliated employers.
Sec. 243. Special rules for plans covering pilots.
Sec. 244. Treatment of deferred compensation plans of State and local 
                            governments and tax-exempt organizations.
Sec. 245. Treatment of employer reversions required by contract to be 
                            paid to the United States.
Sec. 246. Continuation health coverage for employees of failed 
                            financial institutions.
Sec. 247. Date for adoption of plan amendments.
               TITLE III--TREATMENT OF LARGE PARTNERSHIPS

                     Subtitle A--General Provisions

Sec. 301. Simplified flow-through for large partnerships.
Sec. 302. Simplified audit procedures for large partnerships.
Sec. 303. Due date for furnishing information to partners of large 
                            partnerships.
Sec. 304. Returns may be required on magnetic media.
Sec. 305. Treatment of partnership items of individual retirement 
                            accounts.
Sec. 306. Effective date.
    Subtitle B--Provisions Related to TEFRA Partnership Proceedings

Sec. 311. Treatment of partnership items in deficiency proceedings.
Sec. 312. Partnership return to be determinative of audit procedures to 
                            be followed.
Sec. 313. Provisions relating to statute of limitations.
Sec. 314. Expansion of small partnership exception.
Sec. 315. Exclusion of partial settlements from 1 year limitation on 
                            assessment.
Sec. 316. Extension of time for filing a request for administrative 
                            adjustment.
Sec. 317. Availability of innocent spouse relief in context of 
                            partnership proceedings.
Sec. 318. Determination of penalties at partnership level.
Sec. 319. Provisions relating to court jurisdiction, etc.
Sec. 320. Treatment of premature petitions filed by notice partners or 
                            5-percent groups.
Sec. 321. Bonds in case of appeals from TEFRA proceeding.
Sec. 322. Suspension of interest where delay in computational 
                            adjustment resulting from TEFRA 
                            settlements.
Sec. 323. Special rules for administrative adjustment requests with 
                            respect to bad debts or worthless 
                            securities.
                      TITLE IV--FOREIGN PROVISIONS

Subtitle A--Simplification of Treatment of Passive Foreign Corporations

Sec. 401. Repeal of foreign personal holding company rules and foreign 
                            investment company rules.
Sec. 402. Replacement for passive foreign investment company rules.
Sec. 403. Technical and conforming amendments.
Sec. 404. Effective date.
        Subtitle B--Treatment of Controlled Foreign Corporations

Sec. 411. Gain on certain stock sales by controlled foreign 
                            corporations treated as dividends.
Sec. 412. Authority to prescribe simplified method for applying section 
                            960(b)(2).
Sec. 413. Miscellaneous modifications to subpart F.
Sec. 414. Indirect foreign tax credit allowed for certain lower tier 
                            companies.
Sec. 415. Study on investments by controlled foreign corporation in 
                            United States property.
                      Subtitle C--Other Provisions

Sec. 421. Exchange rate used in translating foreign taxes.
Sec. 422. Election to use simplified section 904 limitation for 
                            alternative minimum tax.
Sec. 423. Modification of section 1491.
Sec. 424. Modification of section 367(b).
                   TITLE V--TREATMENT OF INTANGIBLES

Sec. 501. Amortization of goodwill and certain other intangibles.
Sec. 502. Treatment of certain payments to retired or deceased partner.
                 TITLE VI--OTHER INCOME TAX PROVISIONS

      Subtitle A--Provisions Relating to Subchapter S Corporations

Sec. 601. Authority to validate certain invalid elections.
Sec. 602. Treatment of distributions during loss years.
Sec. 603. Other modifications.
                   Subtitle B--Accounting Provisions

Sec. 611. Modifications to look-back method for long-term contracts.
Sec. 612. Simplified method for capitalizing certain indirect costs.
   Subtitle C--Provisions Relating to Regulated Investment Companies

Sec. 621. Repeal of 30-percent gross income limitation.
Sec. 622. Basis rules for shares in open-end regulated investment 
                            companies.
Sec. 623. Nonrecognition treatment for certain transfers by common 
                            trust funds to regulated investment 
                            companies.
                 Subtitle D--Tax-Exempt Bond Provisions

Sec. 631. Repeal of $100,000 limitation on unspent proceeds under 1-
                            year exception from rebate.
Sec. 632. Exception from rebate for earnings on bona fide debt service 
                            fund under construction bond rules.
Sec. 633. Aggregation of issues rules not to apply to tax or revenue 
                            anticipation bonds.
Sec. 634. Repeal of disproportionate private business use test.
Sec. 635. Expanded exception from rebate for issuers issuing 
                            $10,000,000 or less of bonds.
Sec. 636. Repeal of debt service-based limitation on investment in 
                            certain nonpurpose investments.
Sec. 637. Repeal of expired provisions.
Sec. 638. Clarification of investment-type property.
Sec. 639. Effective dates.
                    Subtitle E--Insurance Provisions

Sec. 641. Treatment of certain insurance contracts on retired lives.
Sec. 642. Treatment of modified guaranteed contracts.
                      Subtitle F--Other Provisions

Sec. 651. Closing of partnership taxable year with respect to deceased 
                            partner, etc.
Sec. 652. Repeal of special treatment of ownership changes in 
                            determining adjusted current earnings.
Sec. 653. Simplification of corporate minimum tax depreciation 
                            preference.
Sec. 654. Modification of credit for producing fuel from a 
                            nonconventional source.
               TITLE VII--ESTATE AND GIFT TAX PROVISIONS

Sec. 701. Clarification of waiver of certain rights of recovery.
Sec. 702. Adjustments for gifts within 3 years of decedent's death.
Sec. 703. Clarification of qualified terminable interest rules.
Sec. 704. Transitional rule under section 2056A.
Sec. 705. Opportunity to correct certain failures under section 2032A.
                 TITLE VIII--EXCISE TAX SIMPLIFICATION

                    Subtitle A--Fuel Tax Provisions

Sec. 801. Repeal of certain retail and use taxes.
Sec. 802. Revision of fuel tax credit and refund procedures.
Sec. 803. Authority to provide exceptions from information reporting 
                            with respect to diesel fuel and aviation 
                            fuel.
Sec. 804. Technical and conforming amendments.
Sec. 805. Effective date.
  Subtitle B--Provisions Related to Distilled Spirits, Wines, and Beer

Sec. 811. Credit or refund for imported bottled distilled spirits 
                            returned to distilled spirits plant.
Sec. 812. Authority to cancel or credit export bonds without submission 
                            of records.
Sec. 813. Repeal of required maintenance of records on premises of 
                            distilled spirits plant.
Sec. 814. Fermented material from any brewery may be received at a 
                            distilled spirits plant.
Sec. 815. Repeal of requirement for wholesale dealers in liquors to 
                            post sign.
Sec. 816. Refund of tax to wine returned to bond not limited to 
                            unmerchantable wine.
Sec. 817. Use of additional ameliorating material in certain wines.
Sec. 818. Domestically-produced beer may be withdrawn free of tax for 
                            use of foreign embassies, legations, etc.
Sec. 819. Beer may be withdrawn free of tax for destruction.
Sec. 820. Authority to allow drawback on exported beer without 
                            submission of records.
Sec. 821. Transfer to brewery of beer imported in bulk without payment 
                            of tax.
                Subtitle C--Other Excise Tax Provisions

Sec. 831. Authority to grant exemptions from registration requirements.
Sec. 832. Repeal of expired provisions.
                  TITLE IX--ADMINISTRATIVE PROVISIONS

                     Subtitle A--General Provisions

Sec. 901. Simplification of employment taxes on domestic services.
Sec. 902. Use of reproductions of returns stored in digital image 
                            format.
Sec. 903. Repeal of authority to disclose whether prospective juror has 
                            been audited.
Sec. 904. Repeal of special audit provisions for subchapter S items.
Sec. 905. Clarification of statute of limitations.
Sec. 906. Certain notices disregarded under provision increasing 
                            interest rate on large corporate 
                            underpayments.
Sec. 907. Special rule for corporate estimated taxes where no liability 
                            for preceding year.
                    Subtitle B--Tax Court Procedures

Sec. 911. Overpayment determinations of tax court.
Sec. 912. Awarding of administrative costs.
Sec. 913. Redetermination of interest pursuant to motion.
Sec. 914. Application of net worth requirement for awards of litigation 
                            costs.
        Subtitle C--Authority for Certain Cooperative Agreements

Sec. 921. Cooperative agreements with State tax authorities.

              TITLE I--PROVISIONS RELATING TO INDIVIDUALS

         Subtitle A--Provision Relating to Earned Income Credit

SEC. 101. SIMPLIFICATION OF EARNED INCOME CREDIT.

    (a) General Rule.--Section 32 (relating to earned income credit) is 
amended by striking subsections (a) and (b) and inserting the 
following:
    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an eligible individual, 
        there shall be allowed as a credit against the tax imposed by 
        this subtitle for the taxable year an amount equal to the 
        credit percentage of so much of the taxpayer's earned income 
        for the taxable year as does not exceed $5,714.
            ``(2) Limitation.--The amount of the credit allowable to a 
        taxpayer under paragraph (1) for any taxable year shall not 
        exceed the excess (if any) of--
                    ``(A) the credit percentage of $5,714, over
                    ``(B) the phaseout percentage of so much of the 
                adjusted gross income (or, if greater, the earned 
                income) of the taxpayer for the taxable year as exceeds 
                $9,000.
    ``(b) Percentages.--For purposes of subsection (a)--
            ``(1) In general.--Except as otherwise provided in this 
        subsection--

      

                                                                                                                
                 In the case of an eligible                                                                     
                      individual with:            The credit percentage is:        The phaseout percentage is:  
                                                                                                                
                1 qualifying child..........  23.0............................                16.43             
                2 or more qualifying                                                                            
                 children...................  28.8............................                20.58             
                                                                                                                

            ``(2) Transitional percentages.--In the case of a taxable 
        year beginning in 1993:

      

                                                                                                                
                        In the case of an                                                                       
                       eligible individual        The credit percentage is:        The phaseout percentage is:  
                              with:                                                                             
                                                                                                                
                    1 qualifying child......  18.5............................               13.21            
                    2 or more qualifying                                                                        
                     children...............  23.3............................               16.64''            
                                                                                                                

    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 32(i)(2) is amended--
                    (A) by striking ``subsection (b)(1)'' in clause (i) 
                and inserting ``subsection (a)'', and
                    (B) by striking ``subsection (b)(1)(B)(ii)'' in 
                clause (ii) and inserting ``subsection (a)(2)''.
            (2) Paragraph (3) of section 162(l) is amended to read as 
        follows:
            ``(3) Coordination with medical deduction.--Any amount paid 
        by a taxpayer for insurance to which paragraph (1) applies 
        shall not be taken into account in computing the amount 
        allowable to the taxpayer as a deduction under section 
        213(a).''
            (3) Section 213 is amended by striking subsection (f).
            (4) Subparagraph (B) of section 3507(c)(2) is amended by 
        striking clauses (i) and (ii) and inserting the following:
                            ``(i) of not more than the percentage (in 
                        effect under section 32(a)(1) for an eligible 
                        individual with 1 qualifying child) of earned 
                        income not in excess of the amount of earned 
                        income taken into account under section 
                        32(a)(1), which
                            ``(ii) phases out between the amount of 
                        earned income at which the phaseout begins 
                        under subsection (a)(2) of section 32 and the 
                        amount of earned income at which the credit 
                        under section 32 is phased out under such 
                        subsection for an individual with 1 qualifying 
                        child, or''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

    Subtitle B--Provisions Relating to Rollover of gain on Sale of 
                          Principal Residence

SEC.  111. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

    (a) General Rule.--
            (1) Section 1034 (relating to rollover of gain on sale of 
        principal residence) is amended by striking subsection (d).
            (2) Paragraph (4) of section 1034(c) is amended to read as 
        follows:
            ``(4) If the taxpayer, during the period described in 
        subsection (a), purchases more than 1 residence which is used 
        by him as his principal residence at some time within 2 years 
        after the date of the sale of the old residence, only the first 
        of such residences so used by him after the date of such sale 
        shall constitute the new residence.''
            (3) Subsections (h)(1) and (k) of section 1034 are each 
        amended by striking ``(other than the 2 years referred to in 
        subsection (c)(4))''.
    (b) Effective Date.--The amendments made by this section shall 
apply to sales of old residences (within the meaning of section 1034 of 
the Internal Revenue Code of 1986) after the date of the enactment of 
this Act.

SEC. 112. SPECIAL RULES IN CASE OF DIVORCE.

    (a) In General.--Subsection (c) of section 1034 is amended by 
adding at the end thereof the following new paragraph:
            ``(5) If--
                    ``(A) a residence is sold by an individual pursuant 
                to a divorce or marital separation, and
                    ``(B) the taxpayer used such residence as his 
                principal residence at any time during the 2-year 
                period ending on the date of such sale,
        for purposes of this section, such residence shall be treated 
        as the taxpayer's principal residence at the time of such 
        sale.''
    (b) Effective Dates.--The amendment made by subsection (a) shall 
apply to sales of old residences (within the meaning of section 1034 of 
the Internal Revenue Code of 1986) after the date of the enactment of 
this Act.

                      Subtitle C--Other Provisions

SEC. 121. DEMINIMIS EXCEPTION TO PASSIVE LOSS RULES.

    (a) General Rule.--Section 469 (relating to passive activity losses 
and credits limited) is amended--
            (1) by striking subsection (m),
            (2) by redesignating subsection (l) as subsection (m), and
            (3) by inserting after subsection (k) the following new 
        subsection:
    ``(l) De Minimis Exception.--
            ``(1) In general.--In the case of a natural person, 
        subsection (a) shall not apply to the passive activity loss for 
        any taxable year if the amount of such loss does not exceed 
        $200.
            ``(2) Exception for items attributable to publicly traded 
        partnerships.--This subsection shall not apply to items treated 
        separately under subsection (k) (and such items shall not be 
        taken into account in determining whether paragraph (1) applies 
        to the taxpayer for the taxable year with respect to other 
        items).
            ``(3) Estates eligible.--For purposes of this subsection, 
        an estate shall be treated as a natural person with respect to 
        any taxable year ending less than 2 years after the death of 
        the decedent.
            ``(4) Married individuals filing separately.--
                    ``(A) In general.--This subsection shall not apply 
                to a taxpayer who--
                            ``(i) is a married individual filing a 
                        separate return for the taxable year, and
                            ``(ii) does not live apart from his spouse 
                        at all times during such taxable year.
                    ``(B) Limitation.--Paragraph (1) shall be applied 
                by substituting `$100' for `$200' in the case of a 
                married individual who files a separate return for the 
                taxable year and to whom this subsection applies after 
                the application of subparagraph (A).''
    (b) Conforming Amendments.--
            (1) Subparagraph (C) of section 56(b)(1) is amended by 
        striking clause (ii) and redesignating the following clauses 
        accordingly.
            (2) Subsection (b) of section 58 is amended by inserting 
        ``and'' at the end of paragraph (1), by striking paragraph (2), 
        and by redesignating paragraph (3) as paragraph (2).
            (3) Paragraph (4) of section 163(d) is amended by striking 
        subparagraph (E).
            (4) Subsection (d) of section 163 is amended by striking 
        paragraph (6).
            (5) Subsection (h) of section 163 is amended by striking 
        paragraph (5).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 122. PAYMENT OF TAX BY CREDIT CARD.

    (a) General Rule.--Section 6311 is amended to read as follows:

``SEC. 6311. PAYMENT BY CHECK, MONEY ORDER, OR OTHER MEANS.

    ``(a) Authority To Receive.--It shall be lawful for the Secretary 
to receive for internal revenue taxes (or in payment for internal 
revenue stamps) checks, money orders, or any other commercially 
acceptable means that the Secretary deems appropriate, including 
payment by use of credit cards or debit cards, to the extent and under 
the conditions provided in regulations prescribed by the Secretary.
    ``(b) Ultimate Liability.--If a check, money order, or other method 
of payment, including payment by credit card or debit card, so received 
is not duly paid, or is paid and subsequently charged back to the 
Secretary, the person by whom such check, or money order, or other 
method of payment has been tendered shall remain liable for the payment 
of the tax or for the stamps, and for all legal penalties and 
additions, to the same extent as if such check, money order, or other 
method of payment had not been tendered.
    ``(c) Liability of Banks and Others.--If any certified, 
treasurer's, or cashier's check (or other guaranteed draft), or any 
money order, or any other means of payment that has been guaranteed by 
a financial institution (such as a credit card or debit card 
transaction which has been guaranteed expressly by a financial 
institution) so received is not duly paid, the United States shall, in 
addition to its right to exact payment from the party originally 
indebted therefor, have a lien for--
            ``(1) the amount of such check (or draft) upon all assets 
        of the financial institution on which drawn,
            ``(2) the amount of such money order upon all the assets of 
        the issuer thereof, or
            ``(3) the guaranteed amount of any other transaction upon 
        all the assets of the institution making such guarantee,
and such amount shall be paid out of such assets in preference to any 
other claims whatsoever against such financial institution, issuer, or 
guaranteeing institution, except the necessary costs and expenses of 
administration and the reimbursement of the United States for the 
amount expended in the redemption of the circulating notes of such 
financial institution.
    ``(d) Payment by Other Means.--
            ``(1) Authority to prescribe regulations.--The Secretary 
        shall prescribe such regulations as the Secretary deems 
        necessary to receive payment by commercially acceptable means, 
        including regulations that--
                    ``(A) specify which methods of payment by 
                commercially acceptable means will be acceptable,
                    ``(B) specify when payment by such means will be 
                considered received,
                    ``(C) identify types of nontax matters related to 
                payment by such means that are to be resolved by 
                persons ultimately liable for payment and financial 
                intermediaries, without the involvement of the 
                Secretary, and
                    ``(D) ensure that tax matters will be resolved by 
                the Secretary, without the involvement of financial 
                intermediaries.
            ``(2) Authority to enter into contracts.--Notwithstanding 
        section 3718(f) of title 31, United States Code, the Secretary 
        is authorized to enter into contracts to obtain services 
        related to receiving payment by other means where cost 
        beneficial to the Government and is further authorized to pay 
        any fees required by such contracts.
            ``(3) Special provisions for use of credit cards.--If use 
        of credit cards is accepted as a method of payment of taxes 
        pursuant to subsection (a)--
                    ``(A) a payment of internal revenue taxes (or a 
                payment for internal revenue stamps) by a person by use 
                of a credit card shall not be subject to section 161 of 
                the Truth-in-Lending Act (15 U.S.C. 1666), or to any 
                similar provisions of State law, if the error alleged 
                by the person is an error relating to the underlying 
                tax liability, rather than an error relating to the 
                credit card account such as a computational error or 
                numerical transposition in the credit card transaction 
                or an issue as to whether the person authorized payment 
                by use of the credit card,
                    ``(B) a payment of internal revenue taxes (or a 
                payment for internal revenue stamps) shall not be 
                subject to section 170 of the Truth-in-Lending Act (15 
                U.S.C. 1666i), or to any similar provisions of State 
                law,
                    ``(C) a payment of internal revenue taxes (or a 
                payment for internal revenue stamps) by a person by use 
                of a debit card shall not be subject to section 908 of 
                the Electronic Fund Transfer Act (15 U.S.C. 1693f), or 
                to any similar provisions of State law, if the error 
                alleged by the person is an error relating to the 
                underlying tax liability, rather than an error relating 
                to the debit card account such as a computational error 
                or numerical transposition in the debit card 
                transaction or an issue as to whether the person 
                authorized payment by use of the debit card,
                    ``(D) the term `creditor' under section 103(f) of 
                the Truth-in-Lending Act (15 U.S.C. 1602(f)) shall not 
                include the Secretary with respect to credit card 
                transactions in payment of internal revenue taxes (or 
                payment for internal revenue stamps), and
                    ``(E) notwithstanding any other provision of law to 
                the contrary, in the case of payment made by credit 
                card or debit card transaction of an amount owed to a 
                person as the result of the correction of an error 
                under section 161 of the Truth-in-Lending Act (15 
                U.S.C. 1666) or section 908 of the Electronic Fund 
                Transfer Act (15 U.S.C. 1693f), the Secretary is 
                authorized to provide such amount to such person as a 
                credit to that person's credit card or debit card 
                account through the applicable credit card or debit 
                card system.
    ``(e) Confidentiality of Information.--
            ``(1) In general.--Except as otherwise authorized by this 
        subsection, no person may use or disclose any information 
        relating to credit or debit card transactions obtained pursuant 
        to section 6103(k)(8) other than for purposes directly related 
        to the processing of such transactions, or the billing or 
        collection of amounts charged or debited pursuant thereto.
            ``(2) Exceptions.--
                    ``(A) Debit or credit card issuers or others acting 
                on behalf of such issuers may also use and disclose 
                such information for purposes directly related to 
                servicing an issuer's accounts.
                    ``(B) Debit or credit card issuers or others 
                directly involved in the processing of credit or debit 
                card transactions or the billing or collection of 
                amounts charged or debited thereto may also use and 
                disclose such information for purposes directly related 
                to--
                            ``(i) statistical risk and profitability 
                        assessment;
                            ``(ii) transferring receivables, accounts, 
                        or interest therein;
                            ``(iii) auditing the account information;
                            ``(iv) complying with Federal, State, or 
                        local law; and
                            ``(v) properly authorized civil, criminal, 
                        or regulatory investigation by Federal, State, 
                        or local authorities.
            ``(3) Procedures.--Use and disclosure of information under 
        this paragraph shall be made only to the extent authorized by 
        written procedures promulgated by the Secretary.
            ``(4) Cross reference.--

                                ``For provision providing for civil 
damages for violation of paragraph (1), see section 7431.''
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 64 is amended by striking the item relating to section 6311 and 
inserting the following:

                              ``Sec. 6311. Payment by check, money 
                                        order, or other means.''
    (c) Amendments to Sections 6103 and 7431 With Respect to Disclosure 
Authorization.--
            (1) Subsection (k) of section 6103 and (relating to 
        confidentiality and disclosure of returns and return 
        information) is amended by adding at the end thereof the 
        following new paragraph:
            ``(8) Disclosure of information to administer section 
        6311.--The Secretary may disclose returns or return information 
        to financial institutions and others to the extent the 
        Secretary deems necessary for the administration of section 
        6311. Disclosures of information for purposes other than to 
        accept payments by checks or money orders shall be made only to 
        the extent authorized by written procedures promulgated by the 
        Secretary.''
            (2) Section 7431 (relating to civil damages for 
        unauthorized disclosure of returns and return information) is 
        amended by adding at the end thereof the following new 
        subsection:
    ``(g) Special Rule for Information Obtained Under Section 
6103(k)(8).--For purposes of this section, any reference to section 
6103 shall be treated as including a reference to section 6311(e).''
            (3) Section 6103(p)(3)(A) is amended by striking ``or (6)'' 
        and inserting in lieu thereof ``(6), or (8),''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the day 9 months after the date of the enactment of this Act.

SEC. 123. MODIFICATIONS TO ELECTION TO INCLUDE CHILD'S INCOME ON 
              PARENT'S RETURN.

    (a) Eligibility for Election.--Clause (ii) of section 1(g)(7)(A) 
(relating to election to include certain unearned income of child on 
parent's return) is amended to read as follows:
                            ``(i) such gross income is more than the 
                        amount described in paragraph (4)(A)(ii)(I) and 
                        less than 10 times the amount so described,''.
    (b) Computation of Tax.--Subparagraph (B) of section 1(g)(7) 
(relating to income included on parent's return) is amended--
            (1) by striking ``$1,000'' in clause (i) and inserting 
        ``twice the amount described in paragraph (4)(A)(ii)(I)'', and
            (2) by amending subclause (II) of clause (ii) to read as 
        follows:
                                    ``(II) for each such child, 15 
                                percent of the lesser of the amount 
                                described in paragraph (4)(A)(ii)(I) or 
                                the excess of the gross income of such 
                                child over the amount so described, 
                                and''.
    (c) Minimum Tax.--Subparagraph (B) of section 59(j)(1) is amended 
by striking ``$1,000'' and inserting ``twice the amount in effect for 
the taxable year under section 63(c)(5)(A)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 124. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION FOR INDIVIDUALS.

    (a) General Rule.--Section 904 (relating to limitations on foreign 
tax credit) is amended by redesignating subsection (j) as subsection 
(k) and by inserting after subsection (i) the following new subsection:
    ``(j) Simplified Limitation for Certain Individuals.--
            ``(1) In general.--In the case of an individual to whom 
        this subsection applies for any taxable year, the limitation of 
        subsection (a) shall be the lesser of--
                    ``(A) 25 percent of such individual's gross income 
                for the taxable year from sources without the United 
                States, or
                    ``(B) the amount of the creditable foreign taxes 
                paid or accrued by the individual during the taxable 
                year (determined without regard to subsection (c)).
        No taxes paid or accrued by the individual during such taxable 
        year may be deemed paid or accrued in any other taxable year 
        under subsection (c).
            ``(2) Individuals to whom subsection applies.--This 
        subsection shall apply to an individual for any taxable year 
        if--
                    ``(A) the entire amount of such individual's gross 
                income for the taxable year from sources without the 
                United States consists of qualified passive income,
                    ``(B) the amount of the creditable foreign taxes 
                paid or accrued by the individual during the taxable 
                year does not exceed $200 ($400 in the case of a joint 
                return), and
                    ``(C) such individual elects to have this 
                subsection apply for the taxable year.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Qualified passive income.--The term 
                `qualified passive income' means any item of gross 
                income if--
                            ``(i) such item of income is passive income 
                        (as defined in subsection (d)(2)(A) without 
                        regard to clause (iii) thereof), and
                            ``(ii) such item of income is shown on a 
                        payee statement furnished to the individual.
                    ``(B) Creditable foreign taxes.--The term 
                `creditable foreign taxes' means any taxes for which a 
                credit is allowable under section 901; except that such 
                term shall not include any tax unless such tax is shown 
                on a payee statement furnished to such individual.
                    ``(C) Payee statement.--The term `payee statement' 
                has the meaning given to such term by section 
                6724(d)(2).
                    ``(D) Estates and trusts not eligible.--This 
                subsection shall not apply to any estate or trust.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1992.

SEC. 125. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER 
              FOREIGN CURRENCY RULES.

    (a) General Rule.--Subsection (e) of section 988 (relating to 
application to individuals) is amended to read as follows:
    ``(e) Application to Individuals.--
            ``(1) In general.--The preceding provisions of this section 
        shall not apply to any section 988 transaction entered into by 
        an individual which is a personal transaction.
            ``(2) Exclusion for certain personal transactions.--If--
                    ``(A) nonfunctional currency is disposed of by an 
                individual in any transaction, and
                    ``(B) such transaction is a personal transaction,
        no gain shall be recognized for purposes of this subtitle by 
        reason of changes in exchange rates after such currency was 
        acquired by such individual and before such disposition. The 
        preceding sentence shall not apply if the gain which would 
        otherwise be recognized exceeds $200.
            ``(3) Personal transactions.--For purposes of this 
        subsection, the term `personal transaction' means any 
        transaction entered into by an individual, except that such 
        term shall not include any transaction to the extent that 
        expenses properly allocable to such transaction meet the 
        requirements of section 162 or 212 (other than that part of 
        section 212 dealing with expenses incurred in connection with 
        taxes).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 126. EXPANDED ACCESS TO SIMPLIFIED INCOME TAX RETURNS.

    (a) General Rule.--The Secretary of the Treasury or his delegate 
shall take such actions as may be appropriate to expand access to 
simplified individual income tax returns and to otherwise simplify the 
individual income tax returns, including--
            (1) (if appropriate) allowing taxpayers who itemize 
        deductions to file their return on Form 1040A, and
            (2) removing or raising the taxable income limitations on 
        taxpayers who may file Form 1040A.
    (b) Report.--Not later than the date 1 year after the date of the 
enactment of this Act, the Secretary of the Treasury or his delegate 
shall submit a report to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate, a report 
on his actions under subsection (a), together with such recommendations 
as he may deem advisable.

SEC. 127. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL 
              CARRIERS.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (m) as subsection (n) 
and by inserting after subsection (l) the following new subsection:
    ``(m) Treatment of Certain Reimbursed Expenses of Rural Mail 
Carriers.--
            ``(1) General rule.--In the case of any employee of the 
        United States Postal Service who performs services involving 
        the collection and delivery of mail on a rural route and who 
        receives qualified reimbursements for the expenses incurred by 
        such employee for the use of a vehicle in performing such 
        services--
                    ``(A) the amount allowable as a deduction under 
                this chapter for the use of a vehicle in performing 
                such services shall be equal to the amount of such 
                qualified reimbursements; and
                    ``(B) such qualified reimbursements shall be 
                treated as paid under a reimbursement or other expense 
                allowance arrangement for purposes of section 
                62(a)(2)(A) (and section 62(c) shall not apply to such 
                qualified reimbursements).
            ``(2) Definition of qualified reimbursements.--For purposes 
        of this subsection, the term `qualified reimbursements' means 
        the amounts paid by the United States Postal Service to 
        employees as an equipment maintenance allowance under the 1991 
        collective bargaining agreement between the United States 
        Postal Service and the National Rural Letter Carriers' 
        Association. Amounts paid as an equipment maintenance allowance 
        by such Postal Service under later collective bargaining 
        agreements that supersede the 1991 agreement shall be 
        considered qualified reimbursements if such amounts do not 
        exceed the amounts that would have been paid under the 1991 
        agreement, adjusted for changes in the Consumer Price Index (as 
        defined in section 1(f)(5)) since 1991.''
    (b) Technical Amendment.--Section 6008 of the Technical and 
Miscellaneous Revenue Act of 1988 is hereby repealed.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 128. EXEMPTION FROM LUXURY EXCISE TAX FOR CERTAIN EQUIPMENT 
              INSTALLED ON PASSENGER VEHICLES FOR USE BY DISABLED 
              INDIVIDUALS.

    (a) In General.--Paragraph (3) of section 4004(b) (relating to 
separate purchase of article and parts and accessories therefor) is 
amended--
            (1) by striking ``or'' at the end of subparagraph (A),
            (2) by redesignating subparagraph (B) as subparagraph (C), 
        and
            (3) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) the part or accessory is installed on a 
                passenger vehicle to enable or assist an individual 
                with a disability to operate the vehicle, or to enter 
                or exit the vehicle, by compensating for the effect of 
                such disability, or''.
    (b) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 11221(a) of the 
Omnibus Budget Reconciliation Act of 1990.

SEC. 129. EXCLUSION OF COMBAT PAY FROM WITHHOLDING LIMITED TO AMOUNT 
              EXCLUDABLE FROM GROSS INCOME.

    (a) In General.--Paragraph (1) of section 3401(a) (defining wages) 
is amended by inserting before the semicolon the following: ``to the 
extent remuneration for such service is excludable from gross income 
under such section''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to remuneration paid after December 31, 1993.

                    TITLE II--PENSION SIMPLIFICATION

               Subtitle A--Simplified Distribution Rules

SEC. 201. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM DISTRIBUTIONS.

    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended to read as 
follows:
    ``(d) Taxability of Beneficiary of Certain Foreign Situs Trusts.--
For purposes of subsections (a), (b), and (c), a stock bonus, pension, 
or profit-sharing trust which would qualify for exemption from tax 
under section 501(a) except for the fact that it is a trust created or 
organized outside the United States shall be treated as if it were a 
trust exempt from tax under section 501(a).''
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 402(e)(4) (relating to 
        other rules applicable to exempt trusts) is amended to read as 
        follows:
                    ``(D) Lump-sum distribution.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `lump sum 
                        distribution' means the distribution or payment 
                        within one taxable year of the recipient of the 
                        balance to the credit of an employee which 
                        becomes payable to the recipient--
                                    ``(I) on account of the employee's 
                                death,
                                    ``(II) after the employee attains 
                                age 59\1/2\,
                                    ``(III) on account of the 
                                employee's separation from service, or
                                    ``(IV) after the employee has 
                                become disabled (within the meaning of 
                                section 72(m)(7)),
                        from a trust which forms a part of a plan 
                        described in section 401(a) and which is exempt 
                        from tax under section 501 or from a plan 
                        described in section 403(a). Subclause (III) of 
                        this clause shall be applied only with respect 
                        to an individual who is an employee without 
                        regard to section 401(c)(1), and subclause (IV) 
                        shall be applied only with respect to an 
                        employee within the meaning of section 
                        401(c)(1). For purposes of this clause, a 
                        distribution to two or more trusts shall be 
                        treated as a distribution to one recipient. For 
                        purposes of this paragraph, the balance to the 
                        credit of the employee does not include the 
                        accumulated deductible employee contributions 
                        under the plan (within the meaning of section 
                        72(o)(5)).
                            ``(ii) Aggregation of certain trusts and 
                        plans.--For purposes of determining the balance 
                        to the credit of an employee under clause (i)--
                                    ``(I) all trusts which are part of 
                                a plan shall be treated as a single 
                                trust, all pension plans maintained by 
                                the employer shall be treated as a 
                                single plan, all profit-sharing plans 
                                maintained by the employer shall be 
                                treated as a single plan, and all stock 
                                bonus plans maintained by the employer 
                                shall be treated as a single plan, and
                                    ``(II) trusts which are not 
                                qualified trusts under section 401(a) 
                                and annuity contracts which do not 
                                satisfy the requirements of section 
                                404(a)(2) shall not be taken into 
                                account.
                            ``(iii) Community property laws.--The 
                        provisions of this paragraph shall be applied 
                        without regard to community property laws.
                            ``(iv) Amounts subject to penalty.--This 
                        paragraph shall not apply to amounts described 
                        in subparagraph (A) of section 72(m)(5) to the 
                        extent that section 72(m)(5) applies to such 
                        amounts.
                            ``(v) Balance to credit of employee not to 
                        include amounts payable under qualified 
                        domestic relations order.--For purposes of this 
                        paragraph, the balance to the credit of an 
                        employee shall not include any amount payable 
                        to an alternate payee under a qualified 
                        domestic relations order (within the meaning of 
                        section 414(p)).
                            ``(vi) Transfers to cost-of-living 
                        arrangement not treated as distribution.--For 
                        purposes of this paragraph, the balance to the 
                        credit of an employee under a defined 
                        contribution plan shall not include any amount 
                        transferred from such defined contribution plan 
                        to a qualified cost-of-living arrangement 
                        (within the meaning of section 415(k)(2)) under 
                        a defined benefit plan.
                            ``(vii) Lump-sum distributions of alternate 
                        payees.--If any distribution or payment of the 
                        balance to the credit of an employee would be 
                        treated as a lump-sum distribution, then, for 
                        purposes of this paragraph, the payment under a 
                        qualified domestic relations order (within the 
                        meaning of section 414(p)) of the balance to 
                        the credit of an alternate payee who is the 
                        spouse or former spouse of the employee shall 
                        be treated as a lump-sum distribution. For 
                        purposes of this clause, the balance to the 
                        credit of the alternate payee shall not include 
                        any amount payable to the employee.''
            (2) Section 402(c) (relating to rules applicable to 
        rollovers from exempt trusts) is amended by striking paragraph 
        (10).
            (3) Paragraph (1) of section 55(c) (defining regular tax) 
        is amended by striking ``shall not include any tax imposed by 
        section 402(d) and''.
            (4) Paragraph (8) of section 62(a) (relating to certain 
        portion of lump-sum distributions from pension plans taxed 
        under section 402(d)) is hereby repealed.
            (5) Section 401(a)(28)(B) (relating to coordination with 
        distribution rules) is amended by striking clause (v).
            (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
        distributions that must be lump-sum distributions) is amended 
        to read as follows:
                    ``(ii) Lump-sum distribution.--For purposes of this 
                subparagraph, the term `lump-sum distribution' means 
                any distribution of the balance to the credit of an 
                employee immediately before the distribution.''
            (7) Section 406(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (8) Section 407(c) (relating to termination of status as 
        deemed employee not to be treated as separation from service 
        for purposes of limitation of tax) is hereby repealed.
            (9) Section 691(c) (relating to deduction for estate tax) 
        is amended by striking paragraph (5).
            (10) Paragraph (1) of section 871(b) (relating to 
        imposition of tax) is amended by striking ``section 1, 55, or 
        402(d)(1)'' and inserting ``section 1 or 55''.
            (11) Subsection (b) of section 877 (relating to alternative 
        tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and 
        inserting ``section 1 or 55''.
            (12) Section 4980A(c)(4) is amended--
                    (A) by striking ``to which an election under 
                section 402(e)(4)(B) applies'' and inserting ``(as 
                defined in section 402(e)(4)(D)) with respect to which 
                the individual elects to have this paragraph apply'',
                    (B) by adding at the end the following new flush 
                sentence:
        ``An individual may elect to have this paragraph apply to only 
        one lump-sum distribution.'', and
                    (C) by striking the heading and inserting:
            ``(4) Special one-time election.--''.
            (13) Section 402(e) is amended by striking paragraph (5).
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1993.
            (2) Retention of certain transition rules.--Notwithstanding 
        any other provision of this section, the amendments made by 
        this section shall not apply to any distribution for which the 
        taxpayer elects the benefits of section 1122 (h)(3) or (h)(5) 
        of the Tax Reform Act of 1986. For purposes of the preceding 
        sentence, the rules of sections 402(c)(10) and 402(d) (as in 
        effect before the amendments made by this Act) shall apply.

SEC. 202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.

    (a) In General.--Subsection (b) of section 101 is hereby repealed.
    (b) Conforming Amendment.--Subsection (c) of section 101 is amended 
by striking ``subsection (a) or (b)'' and inserting ``subsection (a)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER 
              CERTAIN EMPLOYER PLANS.

    (a) General Rule.--Subsection (d) of section 72 (relating to 
annuities; certain proceeds of endowment and life insurance contracts) 
is amended to read as follows:
    ``(d) Special Rules for Qualified Employer Retirement Plans.--
            ``(1) Simplified method of taxing annuity payments.--
                    ``(A) In general.--In the case of any amount 
                received as an annuity under a qualified employer 
                retirement plan--
                            ``(i) subsection (b) shall not apply, and
                            ``(ii) the investment in the contract shall 
                        be recovered as provided in this paragraph.
                    ``(B) Method of recovering investment in 
                contract.--
                            ``(i) In general.--Gross income shall not 
                        include so much of any monthly annuity payment 
                        under a qualified employer retirement plan as 
                        does not exceed the amount obtained by 
                        dividing--
                                    ``(I) the investment in the 
                                contract (as of the annuity starting 
                                date), by
                                    ``(II) the number of anticipated 
                                payments determined under the table 
                                contained in clause (iii) (or, in the 
                                case of a contract to which subsection 
                                (c)(3)(B) applies, the number of 
                                monthly annuity payments under such 
                                contract).
                            ``(ii) Certain rules made applicable.--
                        Rules similar to the rules of paragraphs (2) 
                        and (3) of subsection (b) shall apply for 
                        purposes of this paragraph.
                            ``(iii) Number of anticipated payments.--

                         ``If the age of the
                                                                       
                           primary annuitant on
                                                             The number
                           the annuity starting
                                                         of anticipated
                           date is:
                                                           payments is:
                               Not more than 55......           300    
                               More than 55 but not             260    
                            more than 60.
                               More than 60 but not             240    
                            more than 65.
                               More than 65 but not             170    
                            more than 70.
                               More than 70..........           120    
                    ``(C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, investment 
                in the contract shall be determined under subsection 
                (c)(1) without regard to subsection (c)(2).
                    ``(D) Special rule where lump sum paid in 
                connection with commencement of annuity payments.--If, 
                in connection with the commencement of annuity payments 
                under any qualified employer retirement plan, the 
                taxpayer receives a lump sum payment--
                            ``(i) such payment shall be taxable under 
                        subsection (e) as if received before the 
                        annuity starting date, and
                            ``(ii) the investment in the contract for 
                        purposes of this paragraph shall be determined 
                        as if such payment had been so received.
                    ``(E) Exception.--This paragraph shall not apply in 
                any case where the primary annuitant has attained age 
                75 on the annuity starting date unless there are fewer 
                than 5 years of guaranteed payments under the annuity.
                    ``(F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity payments 
                are not made on a monthly basis, appropriate 
                adjustments in the application of this paragraph shall 
                be made to take into account the period on the basis of 
                which such payments are made.
                    ``(G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term `qualified 
                employer retirement plan' means any plan or contract 
                described in paragraph (1), (2), or (3) of section 
                4974(c).
            ``(2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, employee 
        contributions (and any income allocable thereto) under a 
        defined contribution plan may be treated as a separate 
        contract.''
    (b) Effective Date.--The amendment made by this section shall apply 
in cases where the annuity starting date is after December 31, 1993.

SEC. 204. REQUIRED DISTRIBUTIONS.

    (a) In General.--Section 401(a)(9)(C) (defining required beginning 
date) is amended to read as follows:
                    ``(C) Required beginning date.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term `required 
                        beginning date' means April 1 of the calendar 
                        year following the later of--
                                    ``(I) the calendar year in which 
                                the employee attains age 70\1/2\, or
                                    ``(II) the calendar year in which 
                                the employee retires.
                            ``(ii) Exception.--Subclause (II) of clause 
                        (i) shall not apply--
                                    ``(I) except as provided in section 
                                409(d), in the case of an employee who 
                                is a 5-percent owner (as defined in 
                                section 416) with respect to the plan 
                                year ending in the calendar year in 
                                which the employee attains age 70\1/2\, 
                                or
                                    ``(II) for purposes of section 408 
                                (a)(6) or (b)(3).
                            ``(iii) Actuarial adjustment.--In the case 
                        of an employee to whom clause (i)(II) applies 
                        who retires in a calendar year after the 
                        calendar year in which the employee attains age 
                        70\1/2\, the employee's accrued benefit shall 
                        be actuarially increased to take into account 
                        the period after age 70\1/2\ in which the 
                        employee was not receiving any benefits under 
                        the plan.
                            ``(iv) Exception for governmental and 
                        church plans.--Clauses (ii) and (iii) shall not 
                        apply in the case of a governmental plan or 
                        church plan. For purposes of this clause, the 
                        term `church plan' means a plan maintained by a 
                        church for church employees, and the term 
                        `church' means any church (as defined in 
                        section 3121(w)(3)(A)) or qualified church-
                        controlled organization (as defined in section 
                        3121(w)(3)(B)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1993.

             Subtitle B--Increased Access to Pension Plans

SEC. 211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

    (a) Increase in Number of Allowable Participants for Salary 
Reduction Arrangements.--Section 408(k)(6)(B) is amended by striking 
``25'' each place it appears in the text and heading thereof and 
inserting ``100''.
    (b) Repeal of Participation Requirement.--Section 408(k)(6)(A) is 
amended by striking clause (ii) and by redesignating clauses (iii) and 
(iv) as clauses (ii) and (iii), respectively.
    (c) Conforming Amendments.--Clause (ii) of section 408(k)(6)(C) and 
clause (ii) of section 408(k)(6)(F) are each amended by striking 
``subparagraph (A)(iii)'' and inserting ``subparagraph (A)(ii)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 212. TAX EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

    (a) General Rule.--Subparagraph (B) of section 401(k)(4) is amended 
to read as follows:
                    ``(B) State and local governments not eligible.--A 
                cash or deferred arrangement shall not be treated as a 
                qualified cash or deferred arrangement if it is part of 
                a plan maintained by a State or local government or 
                political subdivision thereof, or any agency or 
                instrumentality thereof. This subparagraph shall not 
                apply to a rural cooperative plan.''
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 1993, but shall not apply to 
any cash or deferred arrangement to which clause (i) of section 
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

SEC. 213. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE PLANS.

    (a) In General.--The Secretary of the Treasury may, as a condition 
of sponsorship, prescribe rules defining the duties and 
responsibilities of sponsors of master and prototype plans, regional 
prototype plans, and other Internal Revenue Service preapproved plans.
    (b) Duties Relating to Plan Amendment, Notification of Adopters, 
and Plan Administration.--The duties and responsibilities referred to 
in subsection (a) may include--
            (1) the maintenance of lists of persons adopting the 
        sponsor's plans, including the updating of such lists not less 
        frequently than annually,
            (2) the furnishing of notices at least annually to such 
        persons and to the Secretary or his delegate, in such form and 
        at such time as the Secretary shall prescribe,
            (3) duties relating to administrative services to such 
        persons in the operation of their plans, and
            (4) other duties that the Secretary considers necessary to 
        ensure that--
                    (A) the master and prototype, regional prototype, 
                and other preapproved plans of adopting employers are 
                timely amended to meet the requirements of the Internal 
                Revenue Code of 1986 or of any rule or regulation of 
                the Secretary, and
                    (B) adopting employers receive timely notification 
                of amendments and other actions taken by sponsors with 
                respect to their plans.

                Subtitle C--Nondiscrimination Provisions

SEC. 221. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (1) of section 414(q) (defining highly 
compensated employee) is amended to read as follows:
            ``(1) In general.--The term `highly compensated employee' 
        means any employee who--
                    ``(A) was a 5-percent owner at any time during the 
                year or the preceding year, or
                    ``(B) had compensation for the preceding year from 
                the employer in excess of $50,000.
        The Secretary shall adjust the $50,000 amount under 
        subparagraph (B) at the same time and in the same manner as 
        under section 415(d).''
    (b) Special Rule Where No Employees Treated as Highly 
Compensated.--Paragraph (2) of section 414(q) is amended to read as 
follows:
            ``(2) Special rule if no employee described in paragraph 
        (1).--If no employee is treated as a highly compensated 
        employee under paragraph (1), the highest paid officer for the 
        year shall be treated as a highly compensated employee.
    (c) Treatment of Family Members.--Paragraph (6) of section 414(q) 
is hereby repealed.
    (d) Conforming Amendments.--
            (1) Paragraphs (4), (5), (8), and (12) of section 414(q) 
        are hereby repealed.
            (2)(A) Section 414(r) is amended by adding at the end 
        thereof the following new paragraph:
            ``(9) Excluded employees.--For purposes of this subsection, 
        the following employees shall be excluded:
                    ``(A) Employees who have not completed 6 months of 
                service.
                    ``(B) Employees who normally work less than 17\1/2\ 
                hours per week.
                    ``(C) Employees who normally work not more than 6 
                months during any year.
                    ``(D) Employees who have not attained the age of 
                21.
                    ``(E) Except to the extent provided in regulations, 
                employees who are included in a unit of employees 
                covered by an agreement which the Secretary of Labor 
                finds to be a collective bargaining agreement between 
                employee representatives and the employer.
        Except as provided by the Secretary, the employer may elect to 
        apply subparagraph (A), (B), (C), or (D) by substituting a 
        shorter period of service, smaller number of hours or months, 
        or lower age for the period of service, number of hours or 
        months, or age (as the case may be) specified in such 
        subparagraph.''
            (B) Subparagraph (A) of section 414(r)(2) is amended by 
        striking ``subsection (q)(8)'' and inserting ``paragraph (9)''.
            (3) Paragraph (17) of section 401(a) is amended by striking 
        the last sentence.
            (4) Subsection (l) of section 404 is amended by striking 
        the last sentence.
            (5) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
        amended by adding at the end the following new sentence: ``Any 
        reference in this paragraph to section 414(q) shall be treated 
        as a reference to such section as in effect before the Revenue 
        Act of 1992.''
    (e) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 222. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) General Rule.--Section 401(a)(26)(A) (relating to additional 
participation requirements) is amended to read as follows:
            ``(A) In general.--In the case of a trust which is a part 
        of a defined benefit plan, such trust shall not constitute a 
        qualified trust under this subsection unless on each day of the 
        plan year such trust benefits at least the lesser of--
                    ``(i) 50 employees of the employer, or
                    ``(ii) the greater of--
                            ``(I) 40 percent of all employees of the 
                        employer, or
                            ``(II) 2 employees (or if there is only 1 
                        employee, such employee).''
    (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
(relating to separate line of business) is amended by striking 
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
    (c) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1993.

SEC. 223. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED 
              ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) Alternative Methods of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements) is amended by adding at the end thereof the following new 
paragraph:
            ``(11) Alternative methods of meeting nondiscrimination 
        requirements.--
                    ``(A) In general.--A cash or deferred arrangement 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C), and
                            ``(ii) meets the notice requirements of 
                        subparagraph (D).
                    ``(B) Matching contributions.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        the employer makes matching contributions on 
                        behalf of each employee who is not a highly 
                        compensated employee in an amount equal to--
                                    ``(I) 100 percent of the elective 
                                contributions of the employee to the 
                                extent such elective contributions do 
                                not exceed 3 percent of the employee's 
                                compensation, and
                                    ``(II) 50 percent of the elective 
                                contributions of the employee to the 
                                extent that such elective contributions 
                                exceed 3 percent but do not exceed 5 
                                percent of the employee's compensation.
                            ``(ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the matching contribution with 
                        respect to any elective contribution of a 
                        highly compensated employee at any level of 
                        compensation is greater than that with respect 
                        to an employee who is not a highly compensated 
                        employee.
                            ``(iii) Alternative plan designs.--If the 
                        matching contribution with respect to any 
                        elective contribution at any specific level of 
                        compensation is not equal to the percentage 
                        required under clause (i), an arrangement shall 
                        not be treated as failing to meet the 
                        requirements of clause (i) if--
                                    ``(I) the level of an employer's 
                                matching contribution does not increase 
                                as an employee's elective contributions 
                                increase, and
                                    ``(II) the aggregate amount of 
                                matching contributions with respect to 
                                elective contributions not in excess of 
                                such level of compensation is at least 
                                equal to the amount of matching 
                                contributions which would be made if 
                                matching contributions were made on the 
                                basis of the percentages described in 
                                clause (i).
                    ``(C) Nonelective contributions.--The requirements 
                of this subparagraph are met if, under the arrangement, 
                the employer is required, without regard to whether the 
                employee makes an elective contribution or employee 
                contribution, to make a contribution to a defined 
                contribution plan on behalf of each employee who is not 
                a highly compensated employee and who is eligible to 
                participate in the arrangement in an amount equal to at 
                least 3 percent of the employee's compensation.
                    ``(D) Notice requirement.--An arrangement meets the 
                requirements of this paragraph if, under the 
                arrangement, each employee eligible to participate is, 
                within a reasonable period before any year, given 
                written notice of the employee's rights and obligations 
                under the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to appraise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee eligible 
                        to participate.
                    ``(E) Other requirements.--
                            ``(i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not be 
                        treated as meeting the requirements of 
                        subparagraph (B) or (C) unless the requirements 
                        of subparagraphs (B) and (C) of paragraph (2) 
                        are met with respect to all employer 
                        contributions (including matching 
                        contributions).
                            ``(ii) Social security and similar 
                        contributions not taken into account.--An 
                        arrangement shall not be treated as meeting the 
                        requirements of subparagraph (B) or (C) unless 
                        such requirements are met without regard to 
                        subsection (l), and, for purposes of subsection 
                        (l), employer contributions under subparagraph 
                        (B) or (C) shall not be taken into account.
                    ``(F) Other plans.--An arrangement shall be treated 
                as meeting the requirements under subparagraph (A)(i) 
                if any other plan maintained by the employer meets such 
                requirements with respect to employees eligible under 
                the arrangement.''
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions) is amended 
by redesignating paragraph (10) as paragraph (11) and by adding after 
paragraph (9) the following new paragraph:
            ``(10) Alternative method of satisfying tests.--
                    ``(A) In general.--A defined contribution plan 
                shall be treated as meeting the requirements of 
                paragraph (2) with respect to matching contributions if 
                the plan--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C) of subsection 
                        (k)(11),
                            ``(ii) meets the notice requirements of 
                        subsection (k)(11)(D), and
                            ``(iii) meets the requirements of 
                        subparagraph (B).
                    ``(B) Limitation on matching contributions.--The 
                requirements of this subparagraph are met if--
                            ``(i) matching contributions on behalf of 
                        any employee may not be made with respect to an 
                        employee's contributions or elective deferrals 
                        in excess of 6 percent of the employee's 
                        compensation,
                            ``(ii) the level of an employer's matching 
                        contribution does not increase as an employee's 
                        contributions or elective deferrals increase, 
                        and
                            ``(iii) the matching contribution with 
                        respect to any highly compensated employee at a 
                        specific level of compensation is not greater 
                        than that with respect to an employee who is 
                        not a highly compensated employee.''
    (c) Year for Computing Nonhighly Compensated Employee Percentage.--
            (1) Cash or deferred arrangements.--Clause (ii) of section 
        401(k)(3)(A) is amended--
                    (A) by striking ``such year'' and inserting ``the 
                plan year'', and
                    (B) by striking ``for such plan year'' and 
                inserting ``the preceding plan year''.
            (2) Matching and employee contributions.--Section 
        401(m)(2)(A) is amended--
                    (A) by inserting ``for such plan year'' after 
                ``highly compensated employee'', and
                    (B) by inserting ``for the preceding plan year'' 
                after ``eligible employees'' each place it appears in 
                clause (i) and clause (ii).
    (d) Special Rule for Determining Average Deferral Percentage for 
First Plan Year, Etc.--
            (1) Paragraph (3) of section 401(k) is amended by adding at 
        the end thereof the following new subparagraph:
                    ``(E) For purposes of this paragraph, in the case 
                of the first plan year of any plan, the amount taken 
                into account as the actual deferral percentage of 
                nonhighly compensated employees for the preceding plan 
                year shall be--
                            ``(i) 3 percent, or
                            ``(ii) if the employer makes an election 
                        under this subclause, the actual deferral 
                        percentage of nonhighly compensated employees 
                        determined for such first plan year.''
            (2) Paragraph (3) of section 401(m) is amended by adding at 
        the end thereof the following: ``Rules similar to the rules of 
        subsection (k)(3)(E) shall apply for purposes of this 
        subsection.''
    (e) Distribution of Excess Contributions.--
            (1) Subparagraph (C) of section 401(k)(8) (relating to 
        arrangement not disqualified if excess contributions 
        distributed) is amended by striking ``on the basis of the 
        respective portions of the excess contributions attributable to 
        each of such employees'' and inserting ``on the basis of the 
        amount of contributions by, or on behalf of, each of such 
        employees''.
            (2) Subparagraph (C) of section 401(m)(6) (relating to 
        method of distributing excess aggregate contributions) is 
        amended by striking ``on the basis of the respective portions 
        of such amounts attributable to each of such employees'' and 
        inserting ``on the basis of the amount of contributions on 
        behalf of, or by, each such employee''.
    (f) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

                Subtitle D--Miscellaneous Simplification

SEC. 231. TREATMENT OF LEASED EMPLOYEES.

    (a) General Rule.--Subparagraph (C) of section 414(n)(2) (defining 
leased employee) is amended to read as follows:
                    ``(C) such services are performed under significant 
                direction or control by the recipient.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1993, but shall not apply 
to any relationship determined under an Internal Revenue Service ruling 
issued before the date of the enactment of this Act pursuant to section 
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the 
day before such date) not to involve a leased employee.

SEC. 232. MODIFICATIONS OF COST-OF-LIVING ADJUSTMENTS.

    (a) In General.--Section 415(d) (relating to cost-of-living 
adjustments) is amended to read as follows:
    ``(d) Cost-Of-Living Adjustments.--
            ``(1) In general.--The Secretary shall adjust annually--
                    ``(A) the $90,000 amount in subsection (b)(1)(A), 
                and
                    ``(B) in the case of a participant who separated 
                from service, the amount taken into account under 
                subsection (b)(1)(B),
        for increases in the cost-of-living in accordance with 
        regulations prescribed by the Secretary.
            ``(2) Method.--
                    ``(A) In general.--The regulations prescribed under 
                paragraph (1) shall provide for adjustment procedures 
                which are similar to the procedures used to adjust 
                benefit amounts under section 215(i)(2)(A) of the 
                Social Security Act.
                    ``(B) Periods for adjustment of dollar amount.--For 
                purposes of paragraph (1)(A)--
                            ``(i) In general.--The adjustment with 
                        respect to any calendar year shall be based on 
                        the increase in the applicable index as of the 
                        close of the calendar quarter ending September 
                        30 of the preceding calendar year over such 
                        index as of the close of the base period.
                            ``(ii) Base period.--For purposes of clause 
                        (i), the base period is the calendar quarter 
                        beginning October 1, 1986.
                    ``(C) Base period for separations.--For purposes of 
                paragraph (1)(B), the base period is the last calendar 
                quarter of the calendar year preceding the calendar 
                year in which the participant separated from service.
            ``(3) Rounding.--Any amount determined under paragraph (1) 
        (or by reference to this subsection) shall be rounded to the 
        nearest $1,000, except that the amounts under sections 
        402(g)(1) and 408(k)(2)(C) shall be rounded to the nearest 
        $100.''
    (b) Effective Date.--The amendments made by this section apply to 
adjustments with respect to calendar years beginning after December 31, 
1993.

SEC. 233. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) Aggregation Rules.--Section 401(d) (relating to additional 
requirements for qualification of trusts and plans benefiting owner-
employees) is amended to read as follows:
    ``(d) Contribution Limit on Owner-Employees.--A trust forming part 
of a pension or profit-sharing plan which provides contributions or 
benefits for employees some or all of whom are owner-employees shall 
constitute a qualified trust under this section only if, in addition to 
meeting the requirements of subsection (a), the plan provides that 
contributions on behalf of any owner-employee may be made only with 
respect to the earned income of such owner-employee which is derived 
from the trade or business with respect to which such plan is 
established.''
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 234. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.

    (a) In General.--Paragraph (2) of section 411(a) (relating to 
minimum vesting standards) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
            (1) the later of--
                    (A) January 1, 1994, or
                    (B) the date on which the last of the collective 
                bargaining agreements pursuant to which the plan is 
                maintained terminates (determined without regard to any 
                extension thereof after the date of the enactment of 
                this Act), or
            (2) January 1, 1996.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.

SEC. 235. FULL-FUNDING LIMITATION OF MULTIEMPLOYER PLANS.

    (a) Full-Funding Limitation.--Section 412(c)(7)(C) (relating to 
full-funding limitation) is amended--
            (1) by inserting ``or in the case of a multiemployer 
        plan,'' after ``paragraph (6)(B),'', and
            (2) by inserting ``and multiemployer plans'' after 
        ``paragraph (6)(b)'' in the heading thereof.
    (b) Valuation.--Section 412(c)(9) is amended--
            (1) by inserting ``(3 years in the case of a multiemployer 
        plan)'' after ``year'', and
            (2) by striking ``Annual valuation'' in the heading and 
        inserting ``Valuation''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 236. ALTERNATIVE FULL-FUNDING LIMITATION.

    (a) In General.--Subsection (c) of section 412 (relating to minimum 
funding standards) is amended by redesignating paragraphs (8) through 
(11) as paragraphs (9) through (12), respectively, and by adding after 
paragraph (7) the following new paragraph:
            ``(8) Alternative full-funding limitation.--
                    ``(A) General rule.--An employer may elect the 
                full-funding limitation under this paragraph with 
                respect to any defined benefit plan of the employer in 
                lieu of the full-funding limitation determined under 
                paragraph (7) if the requirements of subparagraphs (C) 
                and (D) are met.
                    ``(B) Alternative full-funding limitation.--The 
                full-funding limitation under this paragraph is the 
                full-funding limitation determined under paragraph (7) 
                without regard to subparagraph (A)(i)(I) thereof.
                    ``(C) Requirements relating to plan eligibility.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met with respect to a defined 
                        benefit plan if--
                                    ``(I) as of the 1st day of the 
                                election period, the average accrued 
                                liability of participants accruing 
                                benefits under the plan for the 5 
                                immediately preceding plan years is at 
                                least 80 percent of the plan's total 
                                accrued liability,
                                    ``(II) the plan is not a top-heavy 
                                plan (as defined in section 416(g)) for 
                                the 1st plan year of the election 
                                period or either of the 2 preceding 
                                plan years, and
                                    ``(III) each defined benefit plan 
                                of the employer (and each defined 
                                benefit plan of each employer who is a 
                                member of any controlled group which 
                                includes such employer) meets the 
                                requirements of subclauses (I) and 
                                (II).
                            ``(ii) Failure to continue to meet 
                        requirements.--
                                    ``(I) If any plan fails to meet the 
                                requirement of clause (i)(I) for any 
                                plan year during an election period, 
                                the benefits of the election under this 
                                paragraph shall be phased out under 
                                regulations prescribed by the 
                                Secretary.
                                    ``(II) If any plan fails to meet 
                                the requirement of clause (i)(II) for 
                                any plan year during an election 
                                period, such plan shall be treated as 
                                not meeting the requirements of clause 
                                (i) for the remainder of the election 
                                period.
                        If there is a failure described in subclause 
                        (I) or (II) with respect to any plan, such plan 
                        (and each plan described in clause (i)(III) 
                        with respect to such plan) shall be treated as 
                        not meeting the requirements of clause (i) for 
                        any of the 10 plan years beginning after the 
                        election period.
                    ``(D) Requirements relating to election.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met with respect to an 
                        election if--
                                    ``(I) Filing date.--Notice of such 
                                election is filed with the Secretary 
                                (in such form and manner and containing 
                                such information as the Secretary may 
                                provide) by January 1 of any calendar 
                                year, and is effective as of the 1st 
                                day of the election period beginning on 
                                or after January 1 of the following 
                                calendar year.
                                    ``(II) Consistent election.--Such 
                                an election is made for all defined 
                                benefit plans maintained by the 
                                employer or by any member of a 
                                controlled group which includes the 
                                employer.
                            ``(ii) Transition period.--In the case of 
                        any election period beginning on or after July 
                        1, 1993, and before January 1, 1994, the 
                        requirements of clause (i) shall not apply and 
                        the requirements of this subparagraph are met 
                        with respect to such election period if--
                                    ``(I) Filing date.--Notice of 
                                election is filed with the Secretary by 
                                October 1, 1993.
                                    ``(II) Information.--The notice 
                                sets forth the name and tax 
                                identification number of the plan 
                                sponsor, the names and tax 
                                identification numbers of the plans to 
                                which the election applies, the 
                                limitation under paragraph (7) 
                                (determined with and without regard to 
                                this paragraph), and a signed 
                                certification by an officer of the 
                                employer stating that the requirements 
                                of this paragraph have been met.
                            ``(iii) Revenue offset procedures.--The 
                        Secretary shall, by January 1, 1994, notify 
                        defined benefit plans that have not made an 
                        election under this paragraph for the 
                        transition period described in clause (ii) of 
                        the adjustment required by subparagraph (H). 
                        The revenue offset for the transition period 
                        shall apply to plan years beginning on or after 
                        July 1, 1993, and before January 1, 1994.
                            ``(iv) Excess contributions made by non-
                        electing plans.--To the extent a defined 
                        benefit plan sponsor makes a contribution to a 
                        defined benefit plan with respect to the 
                        transition period described in clause (ii) 
                        which exceeds the limitation of paragraph (7), 
                        as adjusted by the Secretary for the transition 
                        period, the sponsor shall offset the excess 
                        contribution against allowable contributions to 
                        the plan in subsequent quarters in the taxable 
                        year of the sponsor. If no subsequent 
                        contributions may be made for the taxable year, 
                        the trustee of the defined benefit plan shall 
                        return the excess contribution to the sponsor 
                        in that taxable year or the following taxable 
                        year. Notwithstanding any other provision of 
                        this title, no deduction shall be allowed for 
                        any contribution made in excess of the 
                        limitation of paragraph (7), as adjusted by the 
                        Secretary for the transition period, and no 
                        penalty shall apply with respect to 
                        contributions made in excess of such limitation 
                        to the extent such excess contributions are 
                        either used to offset subsequent contributions, 
                        or returned to the plan sponsor, as provided in 
                        this clause.
                    ``(E) Term of election.--Any election made under 
                this paragraph shall apply for the election period.
                    ``(F) Other consequences of election.--
                            ``(i) No funding waivers.--In the case of a 
                        plan with respect to which an election is made 
                        under this paragraph, no waiver may be granted 
                        under subsection (d) for any plan year 
                        beginning after the date the election was made 
                        and ending at the close of the election period 
                        with respect thereto.
                            ``(ii) Failure to make successive 
                        elections.--If an election is made under this 
                        paragraph with respect to any plan and such an 
                        election does not apply for each successive 
                        plan year of such plan, such plan shall be 
                        treated as not meeting the requirements of 
                        subparagraph (C) for the period of 10 plan 
                        years beginning after the close of the last 
                        election period for such plan.
                    ``(G) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Election period.--The term `election 
                        period' means the period of 5 consecutive plan 
                        years beginning with the 1st plan year for 
                        which the election is made.
                            ``(ii) Controlled group.--The term 
                        `controlled group' means all persons who are 
                        treated as a single employer under subsection 
                        (b), (c), (m), or (o) of section 414.
                    ``(H) Procedures if alternative funding limitation 
                reduces net federal revenues.--
                            ``(i) In general.--At least once with 
                        respect to each fiscal year, the Secretary 
                        shall estimate whether the application of this 
                        paragraph will result in a net reduction in 
                        Federal revenues for such fiscal year.
                            ``(ii) Adjustment of full-funding 
                        limitation if revenue shortfall.--If the 
                        Secretary estimates that the application of 
                        this paragraph will result in a more than 
                        insubstantial net reduction in Federal revenues 
                        for any fiscal year, the Secretary--
                                    ``(I) shall make the adjustment 
                                described in clause (iii), and
                                    ``(II) to the extent such 
                                adjustment is not sufficient to reduce 
                                such reduction to an insubstantial 
                                amount, shall make the adjustment 
                                described in clause (iv).
                        Such adjustments shall apply only to defined 
                        benefit plans with respect to which an election 
                        under this paragraph is not in effect.
                            ``(iii) Reduction in limitation based on 
                        150 percent of current liability.--The 
                        adjustment described in this clause is an 
                        adjustment which substitutes a percentage (not 
                        lower than 140 percent) for the percentage 
                        described in paragraph (7)(A)(i)(I) determined 
                        by reducing the percentage of current liability 
                        taken into account with respect to participants 
                        who are not accruing benefits under the plan.
                            ``(iv) Reduction in limitation based on 
                        accrued liability.--The adjustment described in 
                        this clause is an adjustment which reduces the 
                        percentage of accrued liability taken into 
                        account under paragraph (7)(A)(i)(II). In no 
                        event may the amount of accrued liability taken 
                        into account under such paragraph after the 
                        adjustment be less than 140 percent of current 
                        liability.''
    (b) Alteration of Discretionary Regulatory Authority.--Subparagraph 
(D) of section 412(c)(7) is amended by striking ``provide--'' and all 
that follows through ``(iii) for'' and inserting ``provide for''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1993.

SEC. 237. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) Distributions After Certain Age.--Section 401(k)(7) is amended 
by adding at the end thereof the following new subparagraph:
            ``(C) Special rule for certain distributions.--A rural 
        cooperative plan which includes a qualified cash or deferred 
        arrangement shall not be treated as violating the requirements 
        of section 401(a) merely by reason of a distribution to a 
        participant after attainment of age 59\1/2\.''
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after the date of the enactment of this Act.

SEC. 238. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) Definition of Compensation.--Subsection (k) of section 415 
(regarding limitations on benefits and contributions under qualified 
plans) is amended by adding immediately after paragraph (2) thereof the 
following new paragraph:
            ``(3) Definition of compensation for governmental plans.--
        For purposes of this section, in the case of a governmental 
        plan (as defined in section 414(d)), the term `compensation' 
        includes, in addition to the amounts described in subsection 
        (c)(3)--
                    ``(A) any elective deferral (as defined in section 
                402(g)(3)), and
                    ``(B) any amount which is contributed by the 
                employer at the election of the employee and which is 
                not includible in the gross income of an employee under 
                section 125 or 457.''
    (b) Compensation Limit.--Subsection (b) of section 415 is amended 
by adding immediately after paragraph (10) the following new paragraph:
            ``(11) Special limitation rule for governmental plans.--In 
        the case of a governmental plan (as defined in section 414(d)), 
        subparagraph (B) of paragraph (1) shall not apply.''
    (c) Treatment of Certain Excess Benefit Plans.--
            (1) In general.--Section 415 is amended by adding at the 
        end thereof the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
            ``(1) Governmental plan not affected.--In determining 
        whether a governmental plan (as defined in section 414(d)) 
        meets the requirements of this section, benefits provided under 
        a qualified governmental excess benefit arrangement shall not 
        be taken into account. Income accruing to a governmental plan 
        (or to a trust that is maintained solely for the purpose of 
        providing benefits under a qualified governmental excess 
        benefit arrangement) in respect of a qualified governmental 
        excess benefit arrangement shall constitute income derived from 
        the exercise of an essential governmental function upon which 
        such governmental plan (or trust) shall be exempt from tax 
        under section 115.
            ``(2) Taxation of participant.--For purposes of this 
        chapter--
                    ``(A) the taxable year or years for which amounts 
                in respect of a qualified governmental excess benefit 
                arrangement are includible in gross income by a 
                participant, and
                    ``(B) the treatment of such amounts when so 
                includible by the participant,
        shall be determined as if such qualified governmental excess 
        benefit arrangement were treated as a plan for the deferral of 
        compensation which is maintained by a corporation not exempt 
        from tax under this chapter and which does not meet the 
        requirements for qualification under section 401.
            ``(3) Qualified governmental excess benefit arrangement.--
        For purposes of this subsection, the term `qualified 
        governmental excess benefit arrangement' means a portion of a 
        governmental plan if--
                    ``(A) such portion is maintained solely for the 
                purpose of providing to participants in the plan that 
                part of the participant's annual benefit otherwise 
                payable under the terms of the plan that exceeds the 
                limitations on benefits imposed by this section,
                    ``(B) under such portion no election is provided at 
                any time to the participant (directly or indirectly) to 
                defer compensation, and
                    ``(C) benefits described in subparagraph (A) are 
                not paid from a trust forming a part of such 
                governmental plan unless such trust is maintained 
                solely for the purpose of providing such benefits.''
            (2) Coordination with section 457.--Subsection (e) of 
        section 457 is amended by adding at the end thereof the 
        following new paragraph:
            ``(15) Treatment of qualified governmental excess benefit 
        arrangements.--Subsections (b)(2) and (c)(1) shall not apply to 
        any qualified governmental excess benefit arrangement (as 
        defined in section 415(m)(3)), and benefits provided under such 
        an arrangement shall not be taken into account in determining 
        whether any other plan is an eligible deferred compensation 
        plan.''
            (3) Conforming amendment.--Paragraph (2) of section 457(f) 
        is amended by striking the word ``and'' at the end of 
        subparagraph (C), by striking the period after subparagraph (D) 
        and inserting the words ``, and'', and by inserting immediately 
        thereafter the following new subparagraph:
                    ``(E) a qualified governmental excess benefit 
                arrangement described in section 415(m).''
    (d) Exemption for Survivor and Disability Benefits.--Paragraph (2) 
of section 415(b) is amended by adding at the end thereof the following 
new subparagraph:
                    ``(I) Exemption for survivor and disability 
                benefits provided under governmental plans.--
                Subparagraph (B) of paragraph (1), subparagraph (C) of 
                this paragraph, and paragraph (5) shall not apply to--
                            ``(i) income received from a governmental 
                        plan (as defined in section 414(d)) as a 
                        pension, annuity, or similar allowance as the 
                        result of the recipient becoming disabled by 
                        reason of personal injuries or sickness, or
                            ``(ii) amounts received from a governmental 
                        plan by the beneficiaries, survivors, or the 
                        estate of an employee as the result of the 
                        death of the employee.''
    (e) Revocation of Grandfather Election.--Subparagraph (C) of 
section 415(b)(10) is amended by adding at the end thereof the 
following new sentence: ``An election made pursuant to the preceding 
sentence to have the provisions of this paragraph applied to the plan 
may be revoked not later than the last day of the 3rd plan year 
beginning after the date of enactment with respect to all plan years as 
to which such election has been applicable and all subsequent plan 
years; provided that any amount paid by the plan in a taxable year 
ending after revocation of such election in respect of benefits 
attributable to a taxable year during which such election was in effect 
shall be includible in income by the recipient in accordance with the 
rules of this chapter in the taxable year in which such amount is 
received (except that such amount shall be treated as received for 
purposes of the limitations imposed by this section in the earlier 
taxable year or years to which such amount is attributable).''
    (f) Effective Date.--
            (1) In general.--The amendments made by subsections (a), 
        (b), (c), and (d) shall apply to taxable years beginning on or 
        after the date of the enactment of this Act. The amendments 
        made by subsection (e) shall apply with respect to election 
        revocations adopted after the date of the enactment of this 
        Act.
            (2) Treatment for years beginning before date of 
        enactment.--In the case of a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986), such plan 
        shall be treated as satisfying the requirements of section 415 
        of such Code for all taxable years beginning before the date of 
        the enactment of this Act.

SEC. 239. UNIFORM RETIREMENT AGE.

    (a) Discrimination Testing.--Paragraph (5) of section 401(a) 
(relating to special rules relating to nondiscrimination requirements) 
is amended by adding at the end thereof the following new subparagraph:
                    ``(F) Social security retirement age.--For purposes 
                of testing for discrimination under paragraph (4)--
                            ``(i) the social security retirement age 
                        (as defined in section 415(b)(8)) shall be 
                        treated as a uniform retirement age, and
                            ``(ii) subsidized early retirement benefits 
                        and joint and survivor annuities shall not be 
                        treated as being unavailable to employees on 
                        the same terms merely because such benefits or 
                        annuities are based in whole or in part on an 
                        employee's social security retirement age (as 
                        so defined).''
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 240. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION 
              REPORTING REQUIREMENTS.

    (a) In General.--
            (1) Paragraph (1) of section 6724(d) is amended by striking 
        ``and'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, and'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) any statement of the amount of payments to 
                another person required to be made to the Secretary 
                under--
                            ``(i) section 408(i) (relating to reports 
                        with respect to individual retirement accounts 
                        or annuities), or
                            ``(ii) section 6047(d) (relating to reports 
                        by employers, plan administrators, etc.).''
            (2) Paragraph (2) of section 6724(d) is amended by striking 
        ``or'' at the end of subparagraph (R), by striking the period 
        at the end of subparagraph (S) and inserting a comma, and by 
        inserting after subparagraph (S) the following new 
        subparagraphs:
                    ``(T) section 408(i) (relating to reports with 
                respect to individual retirement plans) to any person 
                other than the Secretary with respect to the amount of 
                payments made to such person, or
                    ``(U) section 6047(d) (relating to reports by plan 
                administrators) to any person other than the Secretary 
                with respect to the amount of payments made to such 
                person.''
    (b) Modification of Reportable Designated Distributions.--
            (1) Section 408.--Subsection (i) of section 408 (relating 
        to individual retirement account reports) is amended by 
        inserting ``aggregating $10 or more in any calendar year'' 
        after ``distributions''.
            (2) Section 6047.--Paragraph (1) of section 6047(d) 
        (relating to reports by employers, plan administrators, etc.) 
        is amended by adding at the end thereof the following new 
        sentence: ``No return or report may be required under the 
        preceding sentence with respect to distributions to any person 
        during any year unless such distributions aggregate $10 or 
        more.''
    (c) Qualifying Rollover Distributions.--Section 6652(i) is 
amended--
            (1) by striking ``the $10'' and inserting ``$100'', and
            (2) by striking ``$5,000'' and inserting ``$50,000''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 6047(f) is amended to read as 
        follows:
    ``(1) For provisions relating to penalties for failures to file 
returns and reports required under this section, see sections 6652(e), 
6721, and 6722.''

            (2) Subsection (e) of section 6652 is amended by adding at 
        the end thereof the following new sentence: ``This subsection 
        shall not apply to any return or statement which is an 
        information return described in section 6724(d)(1)(C)(ii) or a 
        payee statement described in section 6724(d)(2)(U).''
            (3) Subsection (a) of section 6693 is amended by adding at 
        the end thereof the following new sentence: ``This subsection 
        shall not apply to any report which is an information return 
        described in section 6724(d)(1)(C)(i) or a payee statement 
        described in section 6724(d)(2)(T).''
    (e) Effective Date.--The amendments made by this section shall 
apply to returns, reports, and other statements the due date for which 
(determined without regard to extensions) is after December 31, 1993.

SEC. 241. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) All Disabled Participants Receiving Contributions.--Section 
415(c)(3)(C) is amended by adding at the end thereof the following: 
``If a defined contribution plan provides for the continuation of 
contributions on behalf of all participants described in clause (i) for 
a fixed or determinable period, this subparagraph shall be applied 
without regard to clauses (ii) and (iii).''
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1993.

SEC. 242. AFFILIATED EMPLOYERS.

    (a) In General.--For purposes of Treasury Regulations section 
1.501(c)(9)-2(a)(1), a group of employers shall be deemed to be 
affiliated if they are substantially all section 501(c)(12) 
organizations which perform services (or with respect to which their 
members perform services) which are the same or are directly related to 
each other.
    (b) Section 501(c)(12) Organization.--For purposes of this section, 
the term ``section 501(c)(12) organization'' means--
            (1) any organization described in section 501(c)(12) of the 
        Internal Revenue Code of 1986,
            (2) any organization providing a service which is the same 
        as a service which is (or could be) provided by an organization 
        described in paragraph (1),
            (3) any organization described in paragraph (4) or (6) of 
        section 501(c) of such Code, but only if at least 80 percent of 
        the members of the organization are organizations described in 
        paragraph (1) or (2), and
            (4) any organization which is a national association of 
        organizations described in paragraph (1), (2), or (3).
An organization described in paragraph (2) (but not in paragraph (1)) 
shall not be treated as a section 501(c)(12) organization with respect 
to a voluntary employees' beneficiary association unless a substantial 
number of employers maintaining such association are described in 
paragraph (1).
    (c) Effective Date.--The provisions of this section shall apply to 
years beginning after December 31, 1993.

SEC. 243. SPECIAL RULES FOR PLANS COVERING PILOTS.

    (a) General Rule.--
            (1) Subparagraph (B) of section 410(b)(3) is amended to 
        read as follows:
                    ``(B) in the case of a plan established or 
                maintained by one or more employers to provide 
                contributions or benefits for air pilots employed by 
                one or more common carriers engaged in interstate or 
                foreign commerce or air pilots employed by carriers 
                transporting mail for or under contract with the United 
                States Government, all employees who are not air 
                pilots.''
            (2) Paragraph (3) of section 410(b) is amended by striking 
        the last sentence and inserting the following new sentence: 
        ``Subparagraph (B) shall not apply in the case of a plan which 
        provides contributions or benefits for employees who are not 
        air pilots or for air pilots whose principal duties are not 
        customarily performed aboard aircraft in flight.''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to years beginning after December 31, 1993.

SEC. 244. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
              GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) Special Rules for Plan Distributions.--Paragraph (9) of section 
457(e) (relating to other definitions and special rules) is amended to 
read as follows:
            ``(9) Benefits not treated as made available by reason of 
        certain elections, etc.--
                    ``(A) Total amount payable is $3,500 or less.--The 
                total amount payable to a participant under the plan 
                shall not be treated as made available merely because 
                the participant may elect to receive such amount (or 
                the plan may distribute such amount without the 
                participant's consent) if--
                            ``(i) such amount does not exceed $3,500, 
                        and
                            ``(ii) such amount may be distributed only 
                        if--
                                    ``(I) no amount has been deferred 
                                under the plan with respect to such 
                                participant during the 2-year period 
                                ending on the date of the distribution, 
                                and
                                    ``(II) there has been no prior 
                                distribution under the plan to such 
                                participant to which this subparagraph 
                                applied.
                A plan shall not be treated as failing to meet the 
                distribution requirements of subsection (d) by reason 
                of a distribution to which this subparagraph applies.
                    ``(B) Election to defer commencement of 
                distributions.--The total amount payable to a 
                participant under the plan shall not be treated as made 
                available merely because the participant may elect to 
                defer commencement of distributions under the plan if--
                            ``(i) such election is made after amounts 
                        may be available under the plan in accordance 
                        with subsection (d)(1)(A) and before 
                        commencement of such distributions, and
                            ``(ii) the participant may make only 1 such 
                        election.''
    (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457 is amended by adding at the end thereof 
the following new paragraph:
            ``(14) Cost-of-living adjustment of maximum deferral 
        amount.--The Secretary shall adjust the $7,500 amount specified 
        in subsections (b)(2) and (c)(1) at the same time and in the 
        same manner as under section 415(d), except that the base year 
        in applying such section for purposes of this paragraph shall 
        be 1993.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 245. TREATMENT OF EMPLOYER REVERSIONS REQUIRED BY CONTRACT TO BE 
              PAID TO THE UNITED STATES.

    (a) In General.--Subparagraph (B) of section 4980(c)(2) (defining 
employer reversion) is amended by striking ``or'' at the end of clause 
(i), by striking the period at the end of clause (ii) and inserting ``, 
or'', and by adding at the end thereof the following new clause:
                            ``(iii) any distribution to the employer to 
                        the extent that the distribution is paid within 
                        a reasonable period to the United States in 
                        satisfaction of a Federal claim for an 
                        equitable share of the plan's surplus assets, 
                        as determined pursuant to Federal contracting 
                        regulations.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to reversions on or after the date of the enactment of this Act.

SEC. 246. CONTINUATION HEALTH COVERAGE FOR EMPLOYEES OF FAILED 
              FINANCIAL INSTITUTIONS.

    (a) Enforcement of Continuation of Health Plan Requirements of 
Acquirers of Failed Depository Institutions.--Subsection (f) of section 
4980B (relating to continuation of coverage requirements of group 
health plans) is amended by adding at the end thereof the following new 
paragraph:
            ``(9) Special rules for acquirers of failed depository 
        institutions.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), any acquirer of a failed depository 
                institution--
                            ``(i) shall have the same obligation to 
                        provide a group health plan meeting the 
                        requirements of this subsection with respect to 
                        qualified individuals of such institution as 
                        the failed depository institution would have 
                        had but for its failure, and
                            ``(ii) shall be treated as the employer of 
                        such qualified individuals for purposes of this 
                        section.
                    ``(B) Tax not to apply if fdic or rtc provide 
                continuation coverage.--No person shall be subject to 
                any liability under this section by reason of being an 
                acquirer of a failed depository institution if the 
                Federal Deposit Insurance Corporation or the Resolution 
                Trust Corporation elects to relieve such acquirer from 
                its obligations under subparagraph (A). In any such 
                case, the requirements of subparagraph (A) shall apply 
                to the Federal Deposit Insurance Corporation or the 
                Resolution Trust Corporation, as the case may be.
                    ``(C) Acquirer.--For purposes of this paragraph, an 
                entity is an acquirer of a failed depository 
                institution during any period if--
                            ``(i) such entity holds substantially all 
                        of the assets or liabilities of such 
                        institution, and
                            ``(ii)(I) such entity is a bridge bank, or
                            ``(II) such entity acquired such assets or 
                        liabilities from the Federal Deposit Insurance 
                        Corporation, the Resolution Trust Corporation, 
                        or a bridge bank.
                    ``(D) Failed depository institution.--For purposes 
                of this section, the term `failed depository 
                institution' means any depository institution (as 
                defined in section 3(c) of the Federal Deposit 
                Insurance Act) for which a receiver or conservator has 
                been appointed.
                    ``(E) Qualified individual.--For purposes of this 
                section, the term `qualified individual' means--
                            ``(i) any individual who was, on the day 
                        before the date of the appointment of the 
                        receiver or conservator, provided coverage 
                        under a group health plan of the failed 
                        depository institution by reason of the 
                        performance of services for such institution, 
                        and
                            ``(ii) any individual who was, on such day, 
                        a beneficiary under such plan as the spouse or 
                        dependent child of the individual described in 
                        clause (i).''
    (b) Treatment of Depository Institution Failures as Qualifying 
Events for Retirees of Such Institutions.--
            (1) In general.--Subparagraph (B) of section 4980B(f)(3) is 
        amended--
                    (A) by striking ``The termination'' and inserting 
                ``(i) The termination'',
                    (B) by striking the period at the end and inserting 
                ``, or'', and
                    (C) by inserting after clause (i) the following new 
                clause:
                            ``(ii) the appointment of a receiver or 
                        conservator for a failed depository institution 
                        from whose employment the covered employee 
                        retired at any time.''
            (2) Conforming amendment.--Subclause (I) of section 
        4980B(f)(2)(B)(i) is amended by striking ``and reduced hours'' 
        and inserting ``, reduced hours, and failures of depository 
        institutions''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply as if included in 
        section 451 of the Federal Deposit Insurance Corporation 
        Improvement Act of 1991 as of the date of the enactment of such 
        Act.
            (2) Liability of fdic.--In the case of the Federal Deposit 
        Insurance Corporation or any acquirer from such Corporation, 
        the amendments made by this section shall apply only to failed 
        depository institutions for which the receiver or conservator 
        is appointed after the date of the enactment of this Act.
            (3) Special rule for coverage under fdic plan.--Effective 
        as of the date of the enactment of the Federal Deposit 
        Insurance Corporation Improvement Act of 1991, coverage under 
        the health care continuation plan maintained by the Federal 
        Deposit Insurance Corporation on June 25, 1992, and any other 
        substantially similar plan maintained by such Corporation, 
        shall be deemed to satisfy the obligations of the Federal 
        Deposit Insurance Corporation (and any acquirer from such 
        Corporation) under section 4980B(f) of the Internal Revenue 
        Code of 1986 and section 451 of the Federal Deposit Insurance 
        Corporation Improvement Act of 1991 with respect to qualified 
        individuals of failed depository institutions.

SEC. 247. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this Act requires an amendment to any 
plan, such plan amendment shall not be required to be made before the 
first day of the first plan year beginning on or after January 1, 1995, 
if--
            (1) during the period after such amendment takes effect and 
        before such first plan year, the plan is operated in accordance 
        with the requirements of such amendment, and
            (2) such plan amendment applies retroactively to such 
        period.

               TITLE III--TREATMENT OF LARGE PARTNERSHIPS

                     Subtitle A--General Provisions

SEC. 301. SIMPLIFIED FLOW-THROUGH FOR LARGE PARTNERSHIPS.

    (a) General Rule.--Subchapter K (relating to partners and 
partnerships) is amended by adding at the end thereof the following new 
part:

            ``PART IV--SPECIAL RULES FOR LARGE PARTNERSHIPS

                              ``Sec. 771. Application of subchapter to 
                                        large partnerships.
                              ``Sec. 772. Simplified flow-through.
                              ``Sec. 773. Computations at partnership 
                                        level.
                              ``Sec. 774. Other modifications.
                              ``Sec. 775. Large partnership defined.
                              ``Sec. 776. Special rules for 
                                        partnerships holding oil and 
                                        gas properties.
                              ``Sec. 777. Regulations.

``SEC. 771. APPLICATION OF SUBCHAPTER TO LARGE PARTNERSHIPS.

    ``The preceding provisions of this subchapter to the extent 
inconsistent with the provisions of this part shall not apply to a 
large partnership and its partners.

``SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ``(a) General Rule.--In determining the income tax of a partner of 
a large partnership, such partner shall take into account separately 
such partner's distributive share of the partnership's--
            ``(1) taxable income or loss from passive loss limitation 
        activities,
            ``(2) taxable income or loss from other activities,
            ``(3) net capital gain (or net capital loss)--
                    ``(A) to the extent allocable to passive loss 
                limitation activities, and
                    ``(B) to the extent allocable to other activities,
            ``(4) tax-exempt interest,
            ``(5) applicable net AMT adjustment separately computed 
        for--
                    ``(A) passive loss limitation activities, and
                    ``(B) other activities,
            ``(6) general credits,
            ``(7) low-income housing credit determined under section 
        42,
            ``(8) rehabilitation credit determined under section 47,
            ``(9) foreign income taxes, and
            ``(10) the credit allowable under section 29.
    ``(b) Separate Computations.--In determining the amounts required 
under subsection (a) to be separately taken into account by any 
partner, this section and section 773 shall be applied separately with 
respect to such partner by taking into account such partner's 
distributive share of the items of income, gain, loss, deduction, or 
credit of the partnership.
    ``(c) Treatment at Partner Level.--
            ``(1) In general.--Except as provided in this subsection, 
        rules similar to the rules of section 702(b) shall apply to any 
        partner's distributive share of the amounts referred to in 
        subsection (a).
            ``(2) Income or loss from passive loss limitation 
        activities.--For purposes of this chapter, any partner's 
        distributive share of any income or loss described in 
        subsection (a)(1) shall be treated as an item of income or loss 
        (as the case may be) from the conduct of a trade or business 
        which is a single passive activity (as defined in section 469). 
        A similar rule shall apply to a partner's distributive share of 
        amounts referred to in paragraphs (3)(A) and (5)(A) of 
        subsection (a).
            ``(3) Income or loss from other activities.--
                    ``(A) In general.--For purposes of this chapter, 
                any partner's distributive share of any income or loss 
                described in subsection (a)(2) shall be treated as an 
                item of income or expense (as the case may be) with 
                respect to property held for investment.
                    ``(B) Deductions for loss not subject to section 
                67.--The deduction under section 212 for any loss 
                described in subparagraph (A) shall not be treated as a 
                miscellaneous itemized deduction for purposes of 
                section 67.
            ``(4) Treatment of net capital gain or loss.--For purposes 
        of this chapter, any partner's distributive share of any gain 
        or loss described in subsection (a)(3) shall be treated as a 
        long-term capital gain or loss, as the case may be.
            ``(5) Minimum tax treatment.--In determining the 
        alternative minimum taxable income of any partner, such 
        partner's distributive share of any applicable net AMT 
        adjustment shall be taken into account in lieu of making the 
        separate adjustments provided in sections 56, 57, and 58 with 
        respect to the items of the partnership. Except as provided in 
        regulations, the applicable net AMT adjustment shall be 
        treated, for purposes of section 53, as an adjustment or item 
        of tax preference not specified in section 53(d)(1)(B)(ii).
            ``(6) General credits.--A partner's distributive share of 
        the amount referred to in paragraph (6) of subsection (a) shall 
        be taken into account as a current year business credit.
    ``(d) Operating Rules.--For purposes of this section--
            ``(1) Passive loss limitation activity.--The term `passive 
        loss limitation activity' means--
                    ``(A) any activity which involves the conduct of a 
                trade or business, and
                    ``(B) any rental activity.
        For purposes of the preceding sentence, the term `trade or 
        business' includes any activity treated as a trade or business 
        under paragraph (5) or (6) of section 469(c).
            ``(2) Tax-exempt interest.--The term `tax-exempt interest' 
        means interest excludable from gross income under section 103.
            ``(3) Applicable net amt adjustment.--
                    ``(A) In general.--The applicable net AMT 
                adjustment is--
                            ``(i) with respect to taxpayers other than 
                        corporations, the net adjustment determined by 
                        using the adjustments applicable to 
                        individuals, and
                            ``(ii) with respect to corporations, the 
                        net adjustment determined by using the 
                        adjustments applicable to corporations.
                    ``(B) Net adjustment.--The term `net adjustment' 
                means the net adjustment in the items attributable to 
                passive loss activities or other activities (as the 
                case may be) which would result if such items were 
                determined with the adjustments of sections 56, 57, and 
                58.
            ``(4) Treatment of capital gains and losses.--
                    ``(A) Exclusion for certain purposes.--In 
                determining the amounts referred to in paragraphs (1) 
                and (2) of subsection (a), any net capital gain or net 
                capital loss (as the case may be) shall be excluded.
                    ``(B) Allocation rules.--The net capital gain shall 
                be treated--
                            ``(i) as allocable to passive loss 
                        limitation activities to the extent the net 
                        capital gain does not exceed the net capital 
                        gain determined by only taking into account 
                        gains and losses from sales and exchanges of 
                        property used in connection with such 
                        activities, and
                            ``(ii) as allocable to other activities to 
                        the extent such gain exceeds the amount 
                        allocated under clause (i).
                A similar rule shall apply for purposes of allocating 
                any net capital loss.
                    ``(C) Net capital loss.--The term `net capital 
                loss' means the excess of the losses from sales or 
                exchanges of capital assets over the gains from sales 
                or exchange of capital assets.
            ``(5) General credits.--The term `general credits' means 
        any credit other than the low-income housing credit, the 
        rehabilitation credit, the foreign tax credit, and the credit 
        allowable under section 29.
            ``(6) Foreign income taxes.--The term `foreign income 
        taxes' means taxes described in section 901 which are paid or 
        accrued to foreign countries and to possessions of the United 
        States.
    ``(e) Special Rule for Unrelated Business Tax.--In the case of a 
partner which is an organization subject to tax under section 511, such 
partner's distributive share of any items shall be taken into account 
separately to the extent necessary to comply with the provisions of 
section 512(c)(1).
    ``(f) Special Rules for Applying Passive Loss Limitations.--If any 
person holds an interest in a large partnership other than as a limited 
partner--
            ``(1) paragraph (2) of subsection (c) shall not apply to 
        such partner, and
            ``(2) such partner's distributive share of the partnership 
        items allocable to passive loss limitation activities shall be 
        taken into account separately to the extent necessary to comply 
        with the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an 
interest held as a limited partner.

``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

    ``(a) General Rule.--
            ``(1) Taxable income.--The taxable income of a large 
        partnership shall be computed in the same manner as in the case 
        of an individual except that--
                    ``(A) the items described in section 772(a) shall 
                be separately stated, and
                    ``(B) the modifications of subsection (b) shall 
                apply.
            ``(2) Elections.--All elections affecting the computation 
        of the taxable income of a large partnership or the computation 
        of any credit of a large partnership shall be made by the 
        partnership; except that the election under section 901 shall 
        be made by each partner separately.
            ``(3) Limitations, etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), all limitations and other provisions 
                affecting the computation of the taxable income of a 
                large partnership or the computation of any credit of a 
                large partnership shall be applied at the partnership 
                level (and not at the partner level).
                    ``(B) Certain limitations applied at partner 
                level.--The following provisions shall be applied at 
                the partner level (and not at the partnership level):
                            ``(i) Section 68 (relating to overall 
                        limitation on itemized deductions).
                            ``(ii) Sections 49 and 465 (relating to at 
                        risk limitations).
                            ``(iii) Section 469 (relating to limitation 
                        on passive activity losses and credits).
                            ``(iv) Any other provision specified in 
                        regulations.
            ``(4) Coordination with other provisions.--Paragraphs (2) 
        and (3) shall apply notwithstanding any other provision of this 
        chapter other than this part.
    ``(b) Modifications to Determination of Taxable Income.--In 
determining the taxable income of a large partnership--
            ``(1) Certain deductions not allowed.--The following 
        deductions shall not be allowed:
                    ``(A) The deduction for personal exemptions 
                provided in section 151.
                    ``(B) The net operating loss deduction provided in 
                section 172.
                    ``(C) The additional itemized deductions for 
                individuals provided in part VII of subchapter B (other 
                than section 212 thereof).
            ``(2) Charitable deductions.--In determining the amount 
        allowable under section 170, the limitation of section 
        170(b)(2) shall apply.
            ``(3) Coordination with section 67.--In lieu of applying 
        section 67, 70 percent of the amount of the miscellaneous 
        itemized deductions shall be disallowed.
    ``(c) Special Rules for Income From Discharge of Indebtedness.--If 
a large partnership has income from the discharge of any indebtedness--
            ``(1) such income shall be excluded in determining the 
        amounts referred to in section 772(a), and
            ``(2) in determining the income tax of any partner of such 
        partnership--
                    ``(A) such income shall be treated as an item 
                required to be separately taken into account under 
                section 772(a), and
                    ``(B) the provisions of section 108 shall be 
                applied without regard to this part.

``SEC. 774. OTHER MODIFICATIONS.

    ``(a) Treatment of Certain Optional Adjustments, Etc.--In the case 
of a large partnership--
            ``(1) computations under section 773 shall be made without 
        regard to any adjustment under section 743(b) or 108(b), but
            ``(2) a partner's distributive share of any amount referred 
        to in section 772(a) shall be appropriately adjusted to take 
        into account any adjustment under section 743(b) or 108(b) with 
        respect to such partner.
    ``(b) Deferred Sale Treatment of Contributed Property.--
            ``(1) Treatment of partnership.--In the case of any 
        contribution of property to which this subsection applies--
                    ``(A) the basis of such property to the partnership 
                shall be its fair market value as of the time of such 
                contribution,
                    ``(B) section 704(c) shall not apply to such 
                property, and
                    ``(C) section 737 shall not apply.
            ``(2) Treatment of contributing partner.--
                    ``(A) In general.--In the case of any partner who 
                makes a contribution of property to which this 
                subsection applies--
                            ``(i) such partner shall recognize the 
                        precontribution gain or loss from such property 
                        as provided in this paragraph, and
                            ``(ii) appropriate adjustments to the basis 
                        of such partner's interest in the partnership 
                        shall be made for the amounts recognized under 
                        this paragraph.
                    ``(B) Character.--The character of any gain or loss 
                recognized under this paragraph shall be determined by 
                reference to the character which would have resulted if 
                the property had been sold to the partnership at the 
                time of the contributions; except that any gain or loss 
                recognized under subparagraph (C)(i) shall be treated 
                as ordinary income or loss, as the case may be.
                    ``(C) Transactions at partnership level.--
                            ``(i) Depreciation, etc.--If any 
                        partnership deduction for depreciation, 
                        depletion, or amortization is increased by 
                        reason of an increase in the basis of any 
                        property under paragraph (1), the contributing 
                        partner shall recognize so much of the 
                        precontribution gain with respect to such 
                        property as does not exceed the increase in 
                        such deduction. If there is a precontribution 
                        loss, a similar rule shall apply to any 
                        decrease in such a deduction.
                            ``(ii) Dispositions.--
                                    ``(I) In general.--Except as 
                                otherwise provided in this clause, any 
                                precontribution gain or loss with 
                                respect to any property (to the extent 
                                not previously taken into account under 
                                this paragraph) shall be recognized by 
                                the contributing partner if the 
                                partnership makes any disposition of 
                                the property.
                                    ``(II) Distributions to 
                                contributing partner.--No gain or loss 
                                shall be recognized under subclause (I) 
                                by reason of any distribution of the 
                                contributed property to the 
                                contributing partner (and subparagraph 
                                (D)(ii) shall not apply to any such 
                                distribution). In any such case, no 
                                adjustment shall be made under section 
                                734 on account of such distribution and 
                                the adjusted basis of such property in 
                                the hands of the contributing partner 
                                shall be its adjusted basis immediately 
                                before the contribution properly 
                                adjusted for gain or loss previously 
                                recognized under this paragraph. If the 
                                property distributed consists of an 
                                interest in an entity, this subclause 
                                shall not apply to the extent that the 
                                value of such interest is attributable 
                                to property contributed to such entity 
                                after such interest had been 
                                contributed to the partnership.
                            ``(iii) Year for which amount taken into 
                        account.--Any amount recognized under this 
                        subparagraph shall be taken into account for 
                        the partner's taxable year in which or with 
                        which ends the partnership taxable year of the 
                        deduction or disposition.
                    ``(D) Transactions at partner level.--
                            ``(i) In general.--If the contributing 
                        partner makes a disposition of any portion of 
                        his interest in the partnership, a 
                        corresponding portion of any precontribution 
                        gain or loss which was not previously taken 
                        into account under this paragraph shall be 
                        recognized for the partner's taxable year in 
                        which the disposition occurs. The preceding 
                        sentence shall not apply to a disposition at 
                        death.
                            ``(ii) Treatment of certain 
                        distributions.--If--
                                    ``(I) the amount of cash and the 
                                fair market value of property 
                                distributed to a partner, exceeds
                                    ``(II) the adjusted basis of such 
                                partner's interest in the partnership 
                                immediately before the distribution 
                                (determined without regard to any 
                                adjustment under subparagraph (A)(ii) 
                                resulting from such distribution),
                        the contributing partner shall recognize so 
                        much of any precontribution gain as does not 
                        exceed such excess.
                            ``(iii) Special rule.--Except as provided 
                        in clause (ii)(II), any basis adjustment under 
                        subparagraph (A)(ii) resulting from any gain or 
                        loss recognized under this subparagraph shall 
                        be treated as occurring immediately before the 
                        disposition or distribution involved.
                    ``(E) Section 267 and 707(b) principles to apply.--
                No loss shall be recognized under subparagraph (C)(ii) 
                or (D) by reason of any disposition (directly or 
                indirectly) to a person related (within the meaning of 
                section 267(b) or 707(b)(1)) to the contributing 
                partner.
                    ``(F) Treatment of certain nontaxable exchanges.--
                            ``(i) Section 1031 and 1033 transactions.--
                        If the disposition referred to in subclause (I) 
                        of subparagraph (C)(ii) is an exchange 
                        described in section 1031 or a compulsory or 
                        involuntary conversion within the meaning of 
                        section 1033--
                                    ``(I) the amount of gain or loss 
                                recognized by the contributing partner 
                                under such subclause (I) shall not 
                                exceed the gain or loss recognized by 
                                the partnership on the disposition, and
                                    ``(II) the replacement property 
                                shall be treated as the contributed 
                                property for purposes of this 
                                paragraph.
                        For purposes of the preceding sentence, the 
                        term `replacement property' means the property 
                        the basis of which is determined under section 
                        1031(d) or 1033(b), whichever is applicable.
                            ``(ii) Contributions to controlled 
                        partnership.--If the disposition referred to in 
                        subclause (I) of subparagraph (C)(ii) is a 
                        contribution of the property to another 
                        partnership which is a controlled partnership--
                                    ``(I) the rules of subclause (I) of 
                                clause (i) shall apply, and
                                    ``(II) the partnership shall be 
                                treated as continuing to hold the 
                                contributed property so long as the 
                                other partnership continues to be a 
                                controlled partnership and continues to 
                                hold such property.
                        For purposes of the preceding sentence, the 
                        term `controlled partnership' means any 
                        partnership in which the partnership making the 
                        disposition owns more than 50 percent of the 
                        capital interest or profits interest.
            ``(3) Precontribution gain or loss.--For purposes of this 
        subsection--
                    ``(A) Precontribution gain.--The term 
                `precontribution gain' means the excess (if any) of--
                            ``(i) the fair market value of the 
                        contributed property as of the time of the 
                        contribution, over
                            ``(ii) the adjusted basis of such property 
                        immediately before such contribution.
                    ``(B) Precontribution loss.--The term 
                `precontribution loss' means the excess (if any) of the 
                amount referred to in clause (ii) of subparagraph (A) 
                over the amount referred to in clause (i) of 
                subparagraph (A).
            ``(4) Contributions to which subsection applies.--This 
        subsection shall apply to any contribution of property (other 
        than cash) which is made by any partner to a partnership if--
                    ``(A) as of the time of such contribution, such 
                partnership is a large partnership, or
                    ``(B) such contribution is to a partnership 
                reasonably expected to become a large partnership.
        This subsection shall not apply to any contribution made before 
        the date of the enactment of this part.
    ``(c) Credit Recapture Determined at Partnership Level.--
            ``(1) In general.--In the case of a large partnership--
                    ``(A) any credit recapture shall be taken into 
                account by the partnership, and
                    ``(B) the amount of such recapture shall be 
                determined as if the credit with respect to which the 
                recapture is made had been fully utilized to reduce 
                tax.
            ``(2) Method of taking recapture into account.--A large 
        partnership shall take into account a credit recapture by 
        reducing the amount of the appropriate current year credit to 
        the extent thereof, and if such recapture exceeds the amount of 
        such current year credit, the partnership shall be liable to 
        pay such excess.
            ``(3) Dispositions not to trigger recapture.--No credit 
        recapture shall be required by reason of any transfer of an 
        interest in a large partnership.
            ``(4) Credit recapture.--For purposes of this subsection, 
        the term `credit recapture' means any increase in tax under 
        section 42(j) or 50(a).
    ``(d) Partnership Not Terminated by Reason of Change in 
Ownership.--Subparagraph (B) of section 708(b)(1) shall not apply to a 
large partnership.
    ``(e) Partnership Entitled to Certain Credits.--The following shall 
be allowed to a large partnership and shall not be taken into account 
by the partners of such partnership:
            ``(1) The credit provided by section 34.
            ``(2) Any credit or refund under section 852(b)(3)(D).
    ``(f) Treatment of REMIC Residuals.--For purposes of applying 
section 860E(e)(6) to any large partnership--
            ``(1) all interests in such partnership shall be treated as 
        held by disqualified organizations,
            ``(2) in lieu of applying subparagraph (C) of section 
        860E(e)(6), the amount subject to tax under section 860E(e)(6) 
        shall be excluded from the gross income of such partnership, 
        and
            ``(3) subparagraph (D) of section 860E(e)(6) shall not 
        apply.
    ``(g) Special Rules for Applying Certain Installment Sale Rules.--
In the case of a large partnership--
            ``(1) the provisions of sections 453(l)(3) and 453A shall 
        be applied at the partnership level, and
            ``(2) in determining the amount of interest payable under 
        such sections, such partnership shall be treated as subject to 
        tax under this chapter at the highest rate of tax in effect 
        under section 1 or 11.

``SEC. 775. LARGE PARTNERSHIP.

    ``(a) General Rule.--For purposes of this part--
            ``(1) In general.--Except as otherwise provided in this 
        section or section 776, the term `large partnership' means, 
        with respect to any partnership taxable year, any partnership 
        if the number of persons who were partners in such partnership 
        in such taxable year or any preceding partnership taxable year 
        ending on or after December 31, 1993, equaled or exceeded 250. 
        To the extent provided in regulations, a partnership shall 
        cease to be treated as a large partnership for any partnership 
        taxable year if in such taxable year fewer than 100 persons 
        were partners in such partnership.
            ``(2) Election for partnerships with at least 100 
        partners.--If a partnership makes an election under this 
        paragraph, paragraph (1) shall be applied by substituting `100' 
        for `250'. Such an election shall apply to the taxable year for 
        which made and all subsequent taxable years unless revoked with 
        the consent of the Secretary.
    ``(b) Special Rules for Certain Service Partnerships.--
            ``(1) Certain partners not counted.--For purposes of this 
        section, the term `partner' does not include any individual 
        performing substantial services in connection with the 
        activities of the partnership and holding an interest in such 
        partnership, or an individual who formerly performed 
        substantial services in connection with such activities and who 
        held an interest in such partnership at the time the individual 
        performed such services.
            ``(2) Exclusion.--For purposes of this part, the term 
        `large partnership' does not include any partnership if 
        substantially all the partners of such partnership--
                    ``(A) are individuals performing substantial 
                services in connection with the activities of such 
                partnership or are personal service corporations (as 
                defined in section 269A(b)) the owner-employees (as 
                defined in section 269A(b)) of which perform such 
                substantial services,
                    ``(B) are retired partners who had performed such 
                substantial services, or
                    ``(C) are spouses of partners who are performing 
                (or had previously performed) such substantial 
                services.
            ``(3) Special rule for lower tier partnerships.--For 
        purposes of this subsection, the activities of a partnership 
        shall include the activities of any other partnership in which 
        the partnership owns directly an interest in the capital and 
        profits of at least 80 percent.
    ``(c) Exclusion of Commodity Pools.--For purposes of this part, the 
term `large partnership' does not include any partnership the 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 such commodities.
    ``(d) Secretary May Rely on Treatment on Return.--If, on the 
partnership return of any partnership, such partnership is treated as a 
large partnership, such treatment shall be binding on such partnership 
and all partners of such partnership but not on the Secretary.

``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND GAS 
              PROPERTIES.

    ``(a) Exception for Partnerships Holding Significant Oil and Gas 
Properties.--
            ``(1) In general.--For purposes of this part, the term 
        `large partnership' shall not include any partnership if the 
        average percentage of assets (by value) held by such 
        partnership during the taxable year which are oil or gas 
        properties is at least 25 percent. For purposes of the 
        preceding sentence, any interest held by a partnership in 
        another partnership shall be disregarded, except that the 
        partnership shall be treated as holding its proportionate share 
        of the assets of such other partnership.
            ``(2) Election to waive exception.--Any partnership may 
        elect to have paragraph (1) not apply. Such an election shall 
        apply to the partnership taxable year for which made and all 
        subsequent partnership taxable years unless revoked with the 
        consent of the Secretary.
    ``(b) Special Rules Where Part Applies.--
            ``(1) Computation of percentage depletion.--In the case of 
        a large partnership, except as provided in paragraph (2)--
                    ``(A) the allowance for depletion under section 611 
                with respect to any partnership oil or gas property 
                shall be computed at the partnership level without 
                regard to any provision of section 613A requiring such 
                allowance to be computed separately by each partner,
                    ``(B) such allowance shall be determined without 
                regard to the provisions of section 613A(c) limiting 
                the amount of production for which percentage depletion 
                is allowable and without respect to paragraph (1) of 
                section 613A(d), and
                    ``(C) paragraph (3) of section 705(a) shall not 
                apply.
            ``(2) Treatment of certain partners.--
                    ``(A) In general.--In the case of a disqualified 
                person, the treatment under this chapter of such 
                person's distributive share of any item of income, 
                gain, loss, deduction, or credit attributable to any 
                partnership oil or gas property shall be determined 
                without regard to this part. Such person's distributive 
                share of any such items shall be excluded for purposes 
                of making determinations under sections 772 and 773.
                    ``(B) Disqualified person.--For purposes of 
                subparagraph (A), the term `disqualified person' means, 
                with respect to any partnership taxable year--
                            ``(i) any person referred to in paragraph 
                        (2) or (4) of section 613A(d) for such person's 
                        taxable year in which such partnership taxable 
                        year ends, and
                            ``(ii) any other person if such person's 
                        average daily production of domestic crude oil 
                        and natural gas for such person's taxable year 
                        in which such partnership taxable year ends 
                        exceeds 500 barrels.
                    ``(C) Average daily production.--For purposes of 
                subparagraph (B), a person's average daily production 
                of domestic crude oil and natural gas for any taxable 
                year shall be computed as provided in section 
                613A(c)(2)--
                            ``(i) by taking into account all production 
                        of domestic crude oil and natural gas 
                        (including such person's proportionate share of 
                        any production of a partnership),
                            ``(ii) by treating 6,000 cubic feet of 
                        natural gas as a barrel of crude oil, and
                            ``(iii) by treating as 1 person all persons 
                        treated as 1 taxpayer under section 613A(c)(8) 
                        or among whom allocations are required under 
                        such section.

``SEC. 777. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
appropriate to carry out the purposes of this part.''
    (b) Clerical Amendment.--The table of parts for subchapter K of 
chapter 1 is amended by adding at the end thereof the following new 
item:

                              ``Part IV. Special rules for large 
                                        partnerships.''

SEC. 302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE PARTNERSHIPS.

    (a) General Rule.--Chapter 63 is amended by adding at the end 
thereof the following new subchapter:

            ``SUBCHAPTER D--TREATMENT OF LARGE PARTNERSHIPS

                              ``Part I. Treatment of partnership items 
                                        and adjustments.
                              ``Part II. Partnership level adjustments.
                              ``Part III. Definitions and special 
                                        rules.

        ``PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS

                              ``Sec. 6240. Application of subchapter.
                              ``Sec. 6241. Partner's return must be 
                                        consistent with partnership 
                                        return.
                              ``Sec. 6242. Procedures for taking 
                                        partnership adjustments into 
                                        account.

``SEC. 6240. APPLICATION OF SUBCHAPTER.

    ``(a) General Rule.--This subchapter shall only apply to large 
partnerships and partners in such partnerships.
    ``(b) Coordination With Other Partnership Audit Procedures.--
            ``(1) In general.--Subchapter C of this chapter shall not 
        apply to any large partnership other than in its capacity as a 
        partner in another partnership which is not a large 
        partnership.
            ``(2) Treatment where partner in other partnership.--If a 
        large partnership is a partner in another partnership which is 
        not a large partnership--
                    ``(A) subchapter C of this chapter shall apply to 
                items of such large partnership which are partnership 
                items with respect to such other partnership, but
                    ``(B) any adjustment under such subchapter C shall 
                be taken into account in the manner provided by section 
                6242.

``SEC. 6241. PARTNER'S RETURN MUST BE CONSISTENT WITH PARTNERSHIP 
              RETURN.

    ``(a) General Rule.--A partner of any large partnership shall, on 
the partner's return, treat each partnership item attributable to such 
partnership in a manner which is consistent with the treatment of such 
partnership item on the partnership return.
    ``(b) Underpayment Due to Inconsistent Treatment Assessed as Math 
Error.--Any underpayment of tax by a partner by reason of failing to 
comply with the requirements of subsection (a) shall be assessed and 
collected in the same manner as if such underpayment were on account of 
a mathematical or clerical error appearing on the partner's return. 
Paragraph (2) of section 6213(b) shall not apply to any assessment of 
an underpayment referred to in the preceding sentence.
    ``(c) Adjustments Not To Affect Prior Year of Partners.--
            ``(1) In general.--Except as provided in paragraph (2), 
        subsections (a) and (b) shall apply without regard to any 
        adjustment to the partnership item under part II.
            ``(2) Certain changes in distributive share taken into 
        account by partner.--
                    ``(A) In general.--To the extent that any 
                adjustment under part II involves a change under 
                section 704 in a partner's distributive share of the 
                amount of any partnership item shown on the partnership 
                return, such adjustment shall be taken into account in 
                applying this title to such partner for the partner's 
                taxable year for which such item was required to be 
                taken into account.
                    ``(B) Coordination with deficiency procedures.--
                            ``(i) In general.--Subchapter B shall not 
                        apply to the assessment or collection of any 
                        underpayment of tax attributable to an 
                        adjustment referred to in subparagraph (A).
                            ``(ii) Adjustment not precluded.--
                        Notwithstanding any other law or rule of law, 
                        nothing in subchapter B (or in any proceeding 
                        under subchapter B) shall preclude the 
                        assessment or collection of any underpayment of 
                        tax (or the allowance of any credit or refund 
                        of any overpayment of tax) attributable to an 
                        adjustment referred to in subparagraph (A) and 
                        such assessment or collection or allowance (or 
                        any notice thereof) shall not preclude any 
                        notice, proceeding, or determination under 
                        subchapter B.
                    ``(C) Period of limitations.--The period for--
                            ``(i) assessing any underpayment of tax, or
                            ``(ii) filing a claim for credit or refund 
                        of any overpayment of tax,
                attributable to an adjustment referred to in 
                subparagraph (A) shall not expire before the close of 
                the period prescribed by section 6248 for making 
                adjustments with respect to the partnership taxable 
                year involved.
                    ``(D) Tiered structures.--If the partner referred 
                to in subparagraph (A) is another partnership or an S 
                corporation, the rules of this paragraph shall also 
                apply to persons holding interests in such partnership 
                or S corporation (as the case may be); except that, if 
                such partner is a large partnership, the adjustment 
                referred to in subparagraph (A) shall be taken into 
                account in the manner provided by section 6242.
    ``(d) Addition to Tax for Failure to Comply With Section.--

                                ``For addition to tax in case of 
partner's disregard of requirements of this section, see part II of 
subchapter A of chapter 68.

``SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS INTO 
              ACCOUNT.

    ``(a) Adjustments Flow Through To Partners for Year in Which 
Adjustment Takes Effect.--
            ``(1) In general.--If any partnership adjustment with 
        respect to any partnership item takes effect (within the 
        meaning of subsection (d)(2)) during any partnership taxable 
        year and if an election under paragraph (2) does not apply to 
        such adjustment, such adjustment shall be taken into account in 
        determining the amount of such item for the partnership taxable 
        year in which such adjustment takes effect. In applying this 
        title to any person who is (directly or indirectly) a partner 
        in such partnership during such partnership taxable year, such 
        adjustment shall be treated as an item actually arising during 
        such taxable year.
            ``(2) Partnership liable in certain cases.--If--
                    ``(A) a partnership elects under this paragraph to 
                not take an adjustment into account under paragraph 
                (1),
                    ``(B) a partnership does not make such an election 
                but in filing its return for any partnership taxable 
                year fails to take fully into account any partnership 
                adjustment as required under paragraph (1), or
                    ``(C) any partnership adjustment involves a 
                reduction in a credit which exceeds the amount of such 
                credit determined for the partnership taxable year in 
                which the adjustment takes effect,
        the partnership shall pay to the Secretary an amount determined 
        by applying the rules of subsection (b)(4) to the adjustments 
        not so taken into account and any excess referred to in 
        subparagraph (C).
            ``(3) Offsetting adjustments taken into account.--If a 
        partnership adjustment requires another adjustment in a taxable 
        year after the adjusted year and before the partnership taxable 
        year in which such partnership adjustment takes effect, such 
        other adjustment shall be taken into account under this 
        subsection for the partnership taxable year in which such 
        partnership adjustment takes effect.
            ``(4) Coordination with part ii.--Amounts taken into 
        account under this subsection for any partnership taxable year 
        shall continue to be treated as adjustments for the adjusted 
        year for purposes of determining whether such amounts may be 
        readjusted under part II.
    ``(b) Partnership Liable for Interest and Penalties.--
            ``(1) In general.--If a partnership adjustment takes effect 
        during any partnership taxable year and such adjustment results 
        in an imputed underpayment for the adjusted year, the 
        partnership--
                    ``(A) shall pay to the Secretary interest computed 
                under paragraph (2), and
                    ``(B) shall be liable for any penalty, addition to 
                tax, or additional amount as provided in paragraph (3).
            ``(2) Determination of amount of interest.--The interest 
        computed under this paragraph with respect to any partnership 
        adjustment is the interest which would be determined under 
        chapter 67--
                    ``(A) on the imputed underpayment determined under 
                paragraph (4) with respect to such adjustment, or
                    ``(B) for the period beginning on the day after the 
                return due date for the adjusted year and ending on the 
                return due date for the partnership taxable year in 
                which such adjustment takes effect (or, if earlier, in 
                the case of any adjustment to which subsection (a)(2) 
                applies, the date on which the payment under subsection 
                (a)(2) is made).
        Proper adjustments in the amount determined under the preceding 
        sentence shall be made for adjustments required for partnership 
        taxable years after the adjusted year and before the year in 
        which the partnership adjustment takes effect by reason of such 
        partnership adjustment.
            ``(3) Penalties.--A partnership shall be liable for any 
        penalty, addition to tax, or additional amount for which it 
        would have been liable if such partnership had been an 
        individual subject to tax under chapter 1 for the adjusted year 
        and the imputed underpayment determined under paragraph (4) 
        were an actual underpayment (or understatement) for such year.
            ``(4) Imputed underpayment.--For purposes of this 
        subsection, the imputed underpayment determined under this 
        paragraph with respect to any partnership adjustment is the 
        underpayment (if any) which would result--
                    ``(A) by netting all adjustments to items of 
                income, gain, loss, or deduction and--
                            ``(i) if such netting results in a net 
                        increase in income, by treating such net 
                        increase as an underpayment equal to the amount 
                        of such net increase multiplied by the highest 
                        rate of tax in effect under section 1 or 11 for 
                        the adjusted year, or
                            ``(ii) if such netting results in a net 
                        decrease in income, by treating such net 
                        decrease as an overpayment equal to such net 
                        decrease multiplied by such highest rate, and
                    ``(B) by taking adjustments to credits into account 
                as increases or decreases (whichever is appropriate) in 
                the amount of tax.
        For purposes of the preceding sentence, any net decrease in a 
        loss shall be treated as an increase in income and a similar 
        rule shall apply to a net increase in a loss.
    ``(c) Administrative Provisions.--
            ``(1) In general.--Any payment required by subsection 
        (a)(2) or (b)(1)(A)--
                    ``(A) shall be assessed and collected in the same 
                manner as if it were a tax imposed by subtitle C, and
                    ``(B) shall be paid on or before the return due 
                date for the partnership taxable year in which the 
                partnership adjustment takes effect.
            ``(2) Interest.--For purposes of determining interest, any 
        payment required by subsection (a)(2) or (b)(1)(A) shall be 
        treated as an underpayment of tax.
            ``(3) Penalties.--
                    ``(A) In general.--In the case of any failure by 
                any partnership to pay on the date prescribed therefor 
                any amount required by subsection (a)(2) or (b)(1)(A), 
                there is hereby imposed on such partnership a penalty 
                of 10 percent of the underpayment. For purposes of the 
                preceding sentence, the term `underpayment' means the 
                excess of any payment required under this section over 
                the amount (if any) paid on or before the date 
                prescribed therefor.
                    ``(B) Accuracy-related and fraud penalties made 
                applicable.--For purposes of part II of subchapter A of 
                chapter 68, any payment required by subsection (a)(2) 
                shall be treated as an underpayment of tax.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Partnership adjustment.--The term `partnership 
        adjustment' means any adjustment in the amount of any 
        partnership item of a large partnership.
            ``(2) When adjustment takes effect.--A partnership 
        adjustment takes effect--
                    ``(A) in the case of an adjustment pursuant to the 
                decision of a court in a proceeding brought under part 
                II, when such decision becomes final,
                    ``(B) in the case of an adjustment pursuant to any 
                administrative adjustment request under section 6251, 
                when such adjustment is allowed by the Secretary, or
                    ``(C) in any other case, when such adjustment is 
                made.
            ``(3) Adjusted year.--The term `adjusted year' means the 
        partnership taxable year to which the item being adjusted 
        relates.
            ``(4) Return due date.--The term `return due date' means, 
        with respect to any taxable year, the date prescribed for 
        filing the partnership return for such taxable year (determined 
        without regard to extensions).
            ``(5) Adjustments involving changes in character.--Under 
        regulations, appropriate adjustments in the application of this 
        section shall be made for purposes of taking into account 
        partnership adjustments which involve a change in the character 
        of any item of income, gain, loss, or deduction.
    ``(e) Payments Nondeductible.--No deduction shall be allowed under 
subtitle A for any payment required to be made by a large partnership 
under this section.

                ``PART II--PARTNERSHIP LEVEL ADJUSTMENTS

                              ``Subpart A. Adjustments by Secretary.
                              ``Subpart B. Claims for adjustments by 
                                        partnership.

                 ``Subpart A--Adjustments by Secretary

                              ``Sec. 6245. Secretarial authority.
                              ``Sec. 6246. Restrictions on partnership 
                                        adjustments.
                              ``Sec. 6247. Judicial review of 
                                        partnership adjustment.
                              ``Sec. 6248. Period of limitations for 
                                        making adjustments.

``SEC. 6245. SECRETARIAL AUTHORITY.

    ``(a) General Rule.--The Secretary is authorized and directed to 
make adjustments at the partnership level in any partnership item to 
the extent necessary to have such item be treated in the manner 
required.
    ``(b) Notice of Partnership Adjustment.--
            ``(1) In general.--If the Secretary determines that a 
        partnership adjustment is required, the Secretary is authorized 
        to send notice of such adjustment to the partnership by 
        certified mail or registered mail. Such notice shall be 
        sufficient if mailed to the partnership at its last known 
        address even if the partnership has terminated its existence.
            ``(2) Further notices restricted.--If the Secretary mails a 
        notice of a partnership adjustment to any partnership for any 
        partnership taxable year and the partnership files a petition 
        under section 6247 with respect to such notice, in the absence 
        of a showing of fraud, malfeasance, or misrepresentation of a 
        material fact, the Secretary shall not mail another such notice 
        to such partnership with respect to such taxable year.
            ``(3) Authority to rescind notice with partnership 
        consent.--The Secretary may, with the consent of the 
        partnership, rescind any notice of a partnership adjustment 
        mailed to such partnership. Any notice so rescinded shall not 
        be treated as a notice of a partnership adjustment, for 
        purposes of this section, section 6246, and section 6247, and 
        the taxpayer shall have no right to bring a proceeding under 
        section 6247 with respect to such notice. Nothing in this 
        subsection shall affect any suspension of the running of any 
        period of limitations during any period during which the 
        rescinded notice was outstanding.

``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

    ``(a) General Rule.--Except as otherwise provided in this chapter, 
no adjustment to any partnership item may be made (and no levy or 
proceeding in any court for the collection of any amount resulting from 
such adjustment may be made, begun or prosecuted) before--
            ``(1) the close of the 90th day after the day on which a 
        notice of a partnership adjustment was mailed to the 
        partnership, and
            ``(2) if a petition is filed under section 6247 with 
        respect to such notice, the decision of the court has become 
        final.
    ``(b) Premature Action May Be Enjoined.--Notwithstanding section 
7421(a), any action which violates subsection (a) may be enjoined in 
the proper court, including the Tax Court. The Tax Court shall have no 
jurisdiction to enjoin any action under this subsection unless a timely 
petition has been filed under section 6247 and then only in respect of 
the adjustments that are the subject of such petition.
    ``(c) Exceptions to Restrictions on Adjustments.--
            ``(1) Adjustments arising out of math or clerical errors.--
                    ``(A) In general.--If the partnership is notified 
                that, on account of a mathematical or clerical error 
                appearing on the partnership return, an adjustment to a 
                partnership item is required, rules similar to the 
                rules of paragraphs (1) and (2) of section 6213(b) 
                shall apply to such adjustment.
                    ``(B) Special rule.--If a large partnership is a 
                partner in another large partnership, any adjustment on 
                account of such partnership's failure to comply with 
                the requirements of section 6241(a) with respect to its 
                interest in such other partnership shall be treated as 
                an adjustment referred to in subparagraph (A), except 
                that paragraph (2) of section 6213(b) shall not apply 
                to such adjustment.
            ``(2) Partnership may waive restrictions.--The partnership 
        shall at any time (whether or not a notice of partnership 
        adjustment has been issued) have the right, by a signed notice 
        in writing filed with the Secretary, to waive the restrictions 
        provided in subsection (a) on the making of any partnership 
        adjustment.
    ``(d) Limit Where No Proceeding Begun.--If no proceeding under 
section 6247 is begun with respect to any notice of a partnership 
adjustment during the 90-day period described in subsection (a), the 
amount for which the partnership is liable under section 6242 (and any 
increase in any partner's liability for tax under chapter 1 by reason 
of any adjustment under section 6242(a)) shall not exceed the amount 
determined in accordance with such notice.

``SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.

    ``(a) General Rule.--Within 90 days after the date on which a 
notice of a partnership adjustment is mailed to the partnership with 
respect to any partnership taxable year, the partnership may file a 
petition for a readjustment of the partnership items for such taxable 
year with--
            ``(1) the Tax Court,
            ``(2) the district court of the United States for the 
        district in which the partnership's principal place of business 
        is located, or
            ``(3) the Claims Court.
    ``(b) Jurisdictional Requirement for Bringing Action in District 
Court or Claims Court.--
            ``(1) In general.--A readjustment petition under this 
        section may be filed in a district court of the United States 
        or the Claims Court only if the partnership filing the petition 
        deposits with the Secretary, on or before the date the petition 
        is filed, the amount for which the partnership would be liable 
        under section 6242(b) (as of the date of the filing of the 
        petition) if the partnership items were adjusted as provided by 
        the notice of partnership adjustment. The court may by order 
        provide that the jurisdictional requirements of this paragraph 
        are satisfied where there has been a good faith attempt to 
        satisfy such requirement and any shortfall of the amount 
        required to be deposited is timely corrected.
            ``(2) Interest payable.--Any amount deposited under 
        paragraph (1), while deposited, shall not be treated as a 
        payment of tax for purposes of this title (other than chapter 
        67).
    ``(c) Scope of Judicial Review.--A court with which a petition is 
filed in accordance with this section shall have jurisdiction to 
determine all partnership items of the partnership for the partnership 
taxable year to which the notice of partnership adjustment relates and 
the proper allocation of such items among the partners (and the 
applicability of any penalty, addition to tax, or additional amount for 
which the partnership may be liable under section 6242(b)).
    ``(d) Determination of Court Reviewable.--Any determination by a 
court under this section shall have the force and effect of a decision 
of the Tax Court or a final judgment or decree of the district court or 
the Claims Court, as the case may be, and shall be reviewable as such. 
The date of any such determination shall be treated as being the date 
of the court's order entering the decision.
    ``(e) Effect of Decision Dismissing Action.--If an action brought 
under this section is dismissed other than by reason of a rescission 
under section 6245(b)(3), the decision of the court dismissing the 
action shall be considered as its decision that the notice of 
partnership adjustment is correct, and an appropriate order shall be 
entered in the records of the court.

``SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.

    ``(a) General Rule.--Except as otherwise provided in this section, 
no adjustment under this subpart to any partnership item for any 
partnership taxable year may be made after the date which is 3 years 
after the later of--
            ``(1) the date on which the partnership return for such 
        taxable year was filed, or
            ``(2) the last day for filing such return for such year 
        (determined without regard to extensions).
    ``(b) Extension by Agreement.--The period described in subsection 
(a) (including an extension period under this subsection) may be 
extended by an agreement entered into by the Secretary and the 
partnership before the expiration of such period.
    ``(c) Special Rule in Case of Fraud, Etc.--
            ``(1) False return.--In the case of a false or fraudulent 
        partnership return with intent to evade tax, the adjustment may 
        be made at any time.
            ``(2) Substantial omission of income.--If any partnership 
        omits from gross income an amount properly includible therein 
        which is in excess of 25 percent of the amount of gross income 
        stated in its return, subsection (a) shall be applied by 
        substituting `6 years' for `3 years'.
            ``(3) No return.--In the case of a failure by a partnership 
        to file a return for any taxable year, the adjustment may be 
        made at any time.
            ``(4) Return filed by secretary.--For purposes of this 
        section, a return executed by the Secretary under subsection 
        (b) of section 6020 on behalf of the partnership shall not be 
        treated as a return of the partnership.
    ``(d) Suspension When Secretary Mails Notice of Adjustment.--If 
notice of a partnership adjustment with respect to any taxable year is 
mailed to the partnership, the running of the period specified in 
subsection (a) (as modified by the other provisions of this section) 
shall be suspended--
            ``(1) for the period during which an action may be brought 
        under section 6247 (and, if a petition is filed under section 
        6247 with respect to such notice, until the decision of the 
        court becomes final), and
            ``(2) for 1 year thereafter.

           ``Subpart B--Claims for Adjustments by Partnership

                              ``Sec. 6251. Administrative adjustment 
                                        requests.
                              ``Sec. 6252. Judicial review where 
                                        administrative adjustment 
                                        request is not allowed in full.

``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

    ``(a) General Rule.--A partnership may file a request for an 
administrative adjustment of partnership items for any partnership 
taxable year at any time which is--
            ``(1) within 3 years after the later of--
                    ``(A) the date on which the partnership return for 
                such year is filed, or
                    ``(B) the last day for filing the partnership 
                return for such year (determined without regard to 
                extensions), and
            ``(2) before the mailing to the partnership of a notice of 
        a partnership adjustment with respect to such taxable year.
    ``(b) Secretarial Action.--If a partnership files an administrative 
adjustment request under subsection (a), the Secretary may allow any 
part of the requested adjustments.
    ``(c) Special Rule in Case of Extension Under Section 6248.--If the 
period described in section 6248(a) is extended pursuant to an 
agreement under section 6248(b), the period prescribed by subsection 
(a)(1) shall not expire before the date 6 months after the expiration 
of the extension under section 6248(b).

``SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT REQUEST IS 
              NOT ALLOWED IN FULL.

    ``(a) In General.--If any part of an administrative adjustment 
request filed under section 6251 is not allowed by the Secretary, the 
partnership may file a petition for an adjustment with respect to the 
partnership items to which such part of the request relates with--
            ``(1) the Tax Court,
            ``(2) the district court of the United States for the 
        district in which the principal place of business of the 
        partnership is located, or
            ``(3) the Claims Court.
    ``(b) Period for Filing Petition.--A petition may be filed under 
subsection (a) with respect to partnership items for a partnership 
taxable year only--
            ``(1) after the expiration of 6 months from the date of 
        filing of the request under section 6251, and
            ``(2) before the date which is 2 years after the date of 
        such request.
The 2-year period set forth in paragraph (2) shall be extended for such 
period as may be agreed upon in writing by the partnership and the 
Secretary.
    ``(c) Coordination With Subpart A.--
            ``(1) Notice of partnership adjustment before filing of 
        petition.--No petition may be filed under this section after 
        the Secretary mails to the partnership a notice of a 
        partnership adjustment for the partnership taxable year to 
        which the request under section 6251 relates.
            ``(2) Notice of partnership adjustment after filing but 
        before hearing of petition.--If the Secretary mails to the 
        partnership a notice of a partnership adjustment for the 
        partnership taxable year to which the request under section 
        6251 relates after the filing of a petition under this 
        subsection but before the hearing of such petition, such 
        petition shall be treated as an action brought under section 
        6247 with respect to such notice, except that subsection (b) of 
        section 6247 shall not apply.
            ``(3) Notice must be before expiration of statute of 
        limitations.--A notice of a partnership adjustment for the 
        partnership taxable year shall be taken into account under 
        paragraphs (1) and (2) only if such notice is mailed before the 
        expiration of the period prescribed by section 6248 for making 
        adjustments to partnership items for such taxable year.
    ``(d) Scope of Judicial Review.--Except in the case described in 
paragraph (2) of subsection (c), a court with which a petition is filed 
in accordance with this section shall have jurisdiction to determine 
only those partnership items to which the part of the request under 
section 6251 not allowed by the Secretary relates and those items with 
respect to which the Secretary asserts adjustments as offsets to the 
adjustments requested by the partnership.
    ``(e) Determination of Court Reviewable.--Any determination by a 
court under this subsection shall have the force and effect of a 
decision of the Tax Court or a final judgment or decree of the district 
court or the Claims Court, as the case may be, and shall be reviewable 
as such. The date of any such determination shall be treated as being 
the date of the court's order entering the decision.

               ``PART III--DEFINITIONS AND SPECIAL RULES

                              ``Sec. 6255. Definitions and special 
                                        rules.

``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) Large partnership.--The term `large partnership' has 
        the meaning given to such term by section 775 without regard to 
        section 776(a).
            ``(2) Partnership item.--The term `partnership item' has 
        the meaning given to such term by section 6231(a)(3).
    ``(b) Partners Bound by Actions of Partnership, Etc.--
            ``(1) Designation of partner.--Each large partnership shall 
        designate (in the manner prescribed by the Secretary) a partner 
        (or other person) who shall have the sole authority to act on 
        behalf of such partnership under this subchapter. In any case 
        in which such a designation is not in effect, the Secretary may 
        select any partner as the partner with such authority.
            ``(2) Binding effect.--A large partnership and all partners 
        of such partnership shall be bound--
                    ``(A) by actions taken under this subchapter by the 
                partnership, and
                    ``(B) by any decision in a proceeding brought under 
                this subchapter.
    ``(c) Partnerships Having Principal Place of Business Outside the 
United States.--For purposes of sections 6247 and 6252, a principal 
place of business located outside the United States shall be treated as 
located in the District of Columbia.
    ``(d) Treatment Where Partnership Ceases To Exist.--If a 
partnership ceases to exist before a partnership adjustment under this 
subchapter takes effect, such adjustment shall be taken into account by 
the former partners of such partnership under regulations prescribed by 
the Secretary.
    ``(e) Date Decision Becomes Final.--For purposes of this 
subchapter, the principles of section 7481(a) shall be applied in 
determining the date on which a decision of a district court or the 
Claims Court becomes final.
    ``(f) Partnerships in Cases Under Title 11 of the United States 
Code.--The running of any period of limitations provided in this 
subchapter on making a partnership adjustment (or provided by section 
6501 or 6502 on the assessment or collection of any amount required to 
be paid under section 6242) shall, in a case under title 11 of the 
United States Code, be suspended during the period during which the 
Secretary is prohibited by reason of such case from making the 
adjustment (or assessment or collection) and--
            ``(1) for adjustment or assessment, 60 days thereafter, and
            ``(2) for collection, 6 months thereafter.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this subchapter, 
including regulations--
            ``(1) to prevent abuse through manipulation of the 
        provisions of this subchapter, and
            ``(2) providing that this subchapter shall not apply to any 
        case described in section 6231(c)(1) (or the regulations 
        prescribed thereunder) where the application of this subchapter 
        to such a case would interfere with the effective and efficient 
        enforcement of this title.
In any case to which this subchapter does not apply by reason of 
paragraph (2), rules similar to the rules of sections 6229(f) and 
6255(f) shall apply.''
    (b) Clerical Amendment.--The table of subchapters for chapter 63 is 
amended by adding at the end thereof the following new item:

           ``Subchapter D. Treatment of large partnerships.''

SEC. 303. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF LARGE 
              PARTNERSHIPS.

    (a) General Rule.--Subsection (b) of section 6031 (relating to 
copies to partners) is amended by adding at the end thereof the 
following new sentence: ``In the case of a large partnership (as 
defined in sections 775 and 776(a)), such information shall be 
furnished on or before the first March 15 following the close of such 
taxable year.''
    (b) Treatment as Information Return.--Section 6724 is amended by 
adding at the end thereof the following new subsection:
    ``(e) Special Rule for Certain Partnership Returns.--If any 
partnership return under section 6031(a) is required under section 
6011(e) to be filed on magnetic media or in other machine-readable 
form, for purposes of this part, each schedule required to be included 
with such return with respect to each partner shall be treated as a 
separate information return.''

SEC. 304. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

    Paragraph (2) of section 6011(e) (relating to returns on magnetic 
media) is amended by adding at the end thereof the following new 
sentence:
        ``The preceding sentence shall not apply in the case of the 
        partnership return of a large partnership (as defined in 
        sections 775 and 776(a)) or any other partnership with 250 or 
        more partners.''

SEC. 305. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    Subsection (b) of section 6012 is amended by adding at the end 
thereof the following new paragraph:
            ``(6) IRA share of partnership income.--In the case of a 
        trust which is exempt from taxation under section 408(e), for 
        purposes of this section, the trust's distributive share of 
        items of gross income and gain of any partnership to which 
        subchapter C or D of chapter 63 applies shall be treated as 
        equal to the trust's distributive share of the taxable income 
        of such partnership.''

SEC. 306. EFFECTIVE DATE.

    (a) General Rule.--Except as otherwise provided in this section, 
the amendments made by this subtitle shall apply to partnership taxable 
years ending on or after December 31, 1993.
    (b) Special Rule for Section 304.--In the case of a partnership 
which is not a large partnership (as defined in sections 775 and 776(a) 
of the Internal Revenue Code of 1986, as added by this subtitle), the 
amendment made by section 304 shall only apply to partnership taxable 
years ending on or after December 31, 1998.
    (c) Special Rule for Section 305.--The amendment made by section 
305 shall apply to taxable years beginning after December 31, 1992.

    Subtitle B--Provisions Related to TEFRA Partnership Proceedings

SEC. 311. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.

    (a) In General.--Subchapter C of chapter 63 is amended by adding at 
the end thereof the following new section:

``SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF ITEMS OTHER 
              THAN PARTNERSHIP ITEMS WITH RESPECT TO AN OVERSHELTERED 
              RETURN.

    ``(a) General Rule.--If--
            ``(1) a taxpayer files an oversheltered return for a 
        taxable year,
            ``(2) the Secretary makes a determination with respect to 
        the treatment of items (other than partnership items) of such 
        taxpayer for such taxable year, and
            ``(3) the adjustments resulting from such determination do 
        not give rise to a deficiency (as defined in section 6211) but 
        would give rise to a deficiency if there were no net loss from 
        partnership items,
the Secretary is authorized to send a notice of adjustment reflecting 
such determination to the taxpayer by certified or registered mail.
    ``(b) Oversheltered Return.--For purposes of this section, the term 
`oversheltered return' means an income tax return which--
            ``(1) shows no taxable income for the taxable year, and
            ``(2) shows a net loss from partnership items.
    ``(c) Judicial Review in the Tax Court.--Within 90 days, or 150 
days if the notice is addressed to a person outside the United States, 
after the day on which the notice of adjustment authorized in 
subsection (a) is mailed to the taxpayer, the taxpayer may file a 
petition with the Tax Court for redetermination of the adjustments. 
Upon the filing of such a petition, the Tax Court shall have 
jurisdiction to make a declaration with respect to all items (other 
than partnership items and affected items which require partner level 
determinations as described in section 6230(a)(2)(A)(i)) for the 
taxable year to which the notice of adjustment relates, in accordance 
with the principles of section 6214(a). Any such declaration shall have 
the force and effect of a decision of the Tax Court and shall be 
reviewable as such.
    ``(d) Failure To File Petition.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        the taxpayer does not file a petition with the Tax Court within 
        the time prescribed in subsection (c), the determination of the 
        Secretary set forth in the notice of adjustment that was mailed 
        to the taxpayer shall be deemed to be correct.
            ``(2) Exception.--Paragraph (1) shall not apply after the 
        date that the taxpayer--
                    ``(A) files a petition with the Tax Court within 
                the time prescribed in subsection (c) with respect to a 
                subsequent notice of adjustment relating to the same 
                taxable year, or
                    ``(B) files a claim for refund of an overpayment of 
                tax under section 6511 for the taxable year involved.
        If a claim for refund is filed by the taxpayer, then solely for 
        purposes of determining (for the taxable year involved) the 
        amount of any computational adjustment in connection with a 
        partnership proceeding under this subchapter (other than under 
        this section) or the amount of any deficiency attributable to 
        affected items in a proceeding under section 6230(a)(2), the 
        items that are the subject of the notice of adjustment shall be 
        presumed to have been correctly reported on the taxpayer's 
        return during the pendency of the refund claim (and, if within 
        the time prescribed by section 6532 the taxpayer commences a 
        civil action for refund under section 7422, until the decision 
        in the refund action becomes final).
    ``(e) Limitations Period.--
            ``(1) In general.--Any notice to a taxpayer under 
        subsection (a) shall be mailed before the expiration of the 
        period prescribed by section 6501 (relating to the period of 
        limitations on assessment).
            ``(2) Suspension when secretary mails notice of 
        adjustment.--If the Secretary mails a notice of adjustment to 
        the taxpayer for a taxable year, the period of limitations on 
        the making of assessments shall be suspended for the period 
        during which the Secretary is prohibited from making the 
        assessment (and, in any event, if a proceeding in respect of 
        the notice of adjustment is placed on the docket of the Tax 
        Court, until the decision of the Tax Court becomes final), and 
        for 60 days thereafter.
            ``(3) Restrictions on assessment.--Except as otherwise 
        provided in section 6851, 6852, or 6861, no assessment of a 
        deficiency with respect to any tax imposed by subtitle A 
        attributable to any item (other than a partnership item or any 
        item affected by a partnership item) shall be made--
                    ``(A) until the expiration of the applicable 90-day 
                or 150-day period set forth in subsection (c) for 
                filing a petition with the Tax Court, or
                    ``(B) if a petition has been filed with the Tax 
                Court, until the decision of the Tax Court has become 
                final.
    ``(f) Further Notices of Adjustment Restricted.--If the Secretary 
mails a notice of adjustment to the taxpayer for a taxable year and the 
taxpayer files a petition with the Tax Court within the time prescribed 
in subsection (c), the Secretary may not mail another such notice to 
the taxpayer with respect to the same taxable year in the absence of a 
showing of fraud, malfeasance, or misrepresentation of a material fact.
    ``(g) Coordination With Other Proceedings Under This Subchapter.--
            ``(1) In general.--The treatment of any item that has been 
        determined pursuant to subsection (c) or (d) shall be taken 
        into account in determining the amount of any computational 
        adjustment that is made in connection with a partnership 
        proceeding under this subchapter (other than under this 
        section), or the amount of any deficiency attributable to 
        affected items in a proceeding under section 6230(a)(2), for 
        the taxable year involved. Notwithstanding any other law or 
        rule of law pertaining to the period of limitations on the 
        making of assessments, for purposes of the preceding sentence, 
        any adjustment made in accordance with this section shall be 
        taken into account regardless of whether any assessment has 
        been made with respect to such adjustment.
            ``(2) Special rule in case of computational adjustment.--In 
        the case of a computational adjustment that is made in 
        connection with a partnership proceeding under this subchapter 
        (other than under this section), the provisions of paragraph 
        (1) shall apply only if the computational adjustment is made 
        within the period prescribed by section 6229 for assessing any 
        tax under subtitle A which is attributable to any partnership 
        item or affected item for the taxable year involved.
            ``(3) Conversion to deficiency proceeding.--If--
                    ``(A) after the notice referred to in subsection 
                (a) is mailed to a taxpayer for a taxable year but 
                before the expiration of the period for filing a 
                petition with the Tax Court under subsection (c) (or, 
                if a petition is filed with the Tax Court, before the 
                Tax Court makes a declaration for that taxable year), 
                the treatment of any partnership item for the taxable 
                year is finally determined, or any such item ceases to 
                be a partnership item pursuant to section 6231(b), and
                    ``(B) as a result of that final determination or 
                cessation, a deficiency can be determined with respect 
                to the items that are the subject of the notice of 
                adjustment,
        the notice of adjustment shall be treated as a notice of 
        deficiency under section 6212 and any petition filed in respect 
        of the notice shall be treated as an action brought under 
        section 6213.
            ``(4) Finally determined.--For purposes of this subsection, 
        the treatment of partnership items shall be treated as finally 
        determined if--
                    ``(A) the Secretary enters into a settlement 
                agreement (within the meaning of section 6224) with the 
                taxpayer regarding such items,
                    ``(B) a notice of final partnership administrative 
                adjustment has been issued and--
                            ``(i) no petition has been filed under 
                        section 6226 and the time for doing so has 
                        expired, or
                            ``(ii) a petition has been filed under 
                        section 6226 and the decision of the court has 
                        become final, or
                    ``(C) the period within which any tax attributable 
                to such items may be assessed against the taxpayer has 
                expired.
    ``(h) Special Rules if Secretary Incorrectly Determines Applicable 
Procedure.--
            ``(1) Special rule if secretary erroneously mails notice of 
        adjustment.--If the Secretary erroneously determines that 
        subchapter B does not apply to a taxable year of a taxpayer and 
        consistent with that determination timely mails a notice of 
        adjustment to the taxpayer pursuant to subsection (a) of this 
        section, the notice of adjustment shall be treated as a notice 
        of deficiency under section 6212 and any petition that is filed 
        in respect of the notice shall be treated as an action brought 
        under section 6213.
            ``(2) Special rule if secretary erroneously mails notice of 
        deficiency.--If the Secretary erroneously determines that 
        subchapter B applies to a taxable year of a taxpayer and 
        consistent with that determination timely mails a notice of 
        deficiency to the taxpayer pursuant to section 6212, the notice 
        of deficiency shall be treated as a notice of adjustment under 
        subsection (a) and any petition that is filed in respect of the 
        notice shall be treated as an action brought under subsection 
        (c).''
    (b) Treatment of Partnership Items in Deficiency Proceedings.--
Section 6211 (defining deficiency) is amended by adding at the end 
thereof the following new subsection:
    ``(c) Coordination With Subchapter C.--In determining the amount of 
any deficiency for purposes of this subchapter, adjustments to 
partnership items shall be made only as provided in subchapter C.''
    (c) Clerical Amendment.--The table of sections for subchapter C of 
chapter 63 is amended by adding at the end thereof the following new 
item:

                              ``Sec. 6234. Declaratory judgment 
                                        relating to treatment of items 
                                        other than partnership items 
                                        with respect to an 
                                        oversheltered return.''

    (d) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 312. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES TO 
              BE FOLLOWED.

    (a) In General.--Section 6231 (relating to definitions and special 
rules) is amended by adding at the end thereof the following new 
subsection:
    ``(g) Partnership Return To Be Determinative of Whether Subchapter 
Applies.--
            ``(1) Determination that subchapter applies.--If, on the 
        basis of a partnership return for a taxable year, the Secretary 
        reasonably determines that this subchapter applies to such 
        partnership for such year but such determination is erroneous, 
        then the provisions of this subchapter are hereby extended to 
        such partnership (and its items) for such taxable year and to 
        partners of such partnership.
            ``(2) Determination that subchapter does not apply.--If, on 
        the basis of a partnership return for a taxable year, the 
        Secretary reasonably determines that this subchapter does not 
        apply to such partnership for such year but such determination 
        is erroneous, then the provisions of this subchapter shall not 
        apply to such partnership (and its items) for such taxable year 
        or to partners of such partnership.''
    (b) Effective Date.--The amendment made by this section shall apply 
to partnership taxable years ending after the date of the enactment of 
this Act.

SEC. 313. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

    (a) Suspension of Statute Where Untimely Petition Filed.--Paragraph 
(1) of section 6229(d) (relating to suspension where Secretary makes 
administrative adjustment) is amended by striking all that follows 
``section 6226'' and inserting the following: ``(and, if a petition is 
filed under section 6226 with respect to such administrative 
adjustment, until the decision of the court becomes final), and''.
    (b) Suspension of Statute During Bankruptcy Proceeding.--Section 
6229 is amended by adding at the end thereof the following new 
subsection:
    ``(h) Suspension During Pendency of Bankruptcy Proceeding.--If a 
petition is filed naming a partner as a debtor in a bankruptcy 
proceeding under title 11 of the United States Code, the running of the 
period of limitations provided in this section with respect to such 
partner shall be suspended--
            ``(1) for the period during which the Secretary is 
        prohibited by reason of such bankruptcy proceeding from making 
        an assessment, and
            ``(2) for 60 days thereafter.''
    (c) Tax Matters Partner in Bankruptcy.--Section 6229(b) is amended 
by redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Special rule with respect to debtors in title 11 
        cases.--Notwithstanding any other law or rule of law, if an 
        agreement is entered into under paragraph (1)(B) and the 
        agreement is signed by a person who would be the tax matters 
        partner but for the fact that, at the time that the agreement 
        is executed, the person is a debtor in a bankruptcy proceeding 
        under title 11 of the United States Code, such agreement shall 
        be binding on all partners in the partnership unless the 
        Secretary has been notified of the bankruptcy proceeding in 
        accordance with regulations prescribed by the Secretary.''
    (d) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall apply to partnership taxable 
        years with respect to which the period under section 6229 of 
        the Internal Revenue Code of 1986 for assessing tax has not 
        expired on or before the date of the enactment of this Act.
            (2) Subsection (c).--The amendment made by subsection (c) 
        shall apply to agreements entered into after the date of the 
        enactment of this Act.

SEC. 314. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

    (a) In General.--Clause (i) of section 6231(a)(1)(B) (relating to 
exception for small partnerships) is amended to read as follows:
                            ``(i) In general.--The term `partnership' 
                        shall not include any partnership having 10 or 
                        fewer partners each of whom is an individual 
                        (other than a nonresident alien), a C 
                        corporation, or an estate of a deceased 
                        partner. For purposes of the preceding 
                        sentence, a husband and wife (and their 
                        estates) shall be treated as 1 partner.''
    (b) Effective Date.--The amendment made by this section shall apply 
to partnership taxable years ending after the date of the enactment of 
this Act.

SEC. 315. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1 YEAR LIMITATION ON 
              ASSESSMENT.

    (a) In General.--Subsection (f) of section 6229 (relating to items 
becoming nonpartnership items) is amended--
            (1) by striking ``(f) Items Becoming Nonpartnership 
        Items.--If '' and inserting the following:
    ``(f) Special Rules.--
            ``(1) Items becoming nonpartnership items.--If '',
            (2) by moving the text of such subsection 2 ems to the 
        right, and
            (3) by adding at the end thereof the following new 
        paragraph:
            ``(2) Special rule for partial settlement agreements.--If a 
        partner enters into a settlement agreement with the Secretary 
        with respect to the treatment of some of the partnership items 
        in dispute for a partnership taxable year but other partnership 
        items for such year remain in dispute, the period of 
        limitations for assessing any tax attributable to the settled 
        items shall be determined as if such agreement had not been 
        entered into.''
    (b) Effective Date.--The amendment made by this section shall apply 
to settlements entered into after the date of the enactment of this 
Act.

SEC. 316. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE 
              ADJUSTMENT.

    (a) In General.--Section 6227 (relating to administrative 
adjustment requests) is amended by redesignating subsections (b) and 
(c) as subsections (c) and (d), respectively, and by inserting after 
subsection (a) the following new subsection:
    ``(b) Special Rule in Case of Extension of Period of Limitations 
Under Section 6229.--The period prescribed by subsection (a)(1) for 
filing of a request for an administrative adjustment shall be 
extended--
            ``(1) for the period within which an assessment may be made 
        pursuant to an agreement (or any extension thereof) under 
        section 6229(b), and
            ``(2) for 6 months thereafter.''
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendments made by section 402 of the Tax 
Equity and Fiscal Responsibility Act of 1982.

SEC. 317. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF 
              PARTNERSHIP PROCEEDINGS.

    (a) In General.--Subsection (a) of section 6230 is amended by 
adding at the end thereof the following new paragraph:
            ``(3) Special rule in case of assertion by partner's spouse 
        of innocent spouse relief.--
                    ``(A) Notwithstanding section 6404(b), if the 
                spouse of a partner asserts that section 6013(e) 
                applies with respect to a liability that is 
                attributable to any adjustment to a partnership item, 
                then such spouse may file with the Secretary within 60 
                days after the notice of computational adjustment is 
                mailed to the spouse a request for abatement of the 
                assessment specified in such notice. Upon receipt of 
                such request, the Secretary shall abate the assessment. 
                Any reassessment of the tax with respect to which an 
                abatement is made under this subparagraph shall be 
                subject to the deficiency procedures prescribed by 
                subchapter B. The period for making any such 
                reassessment shall not expire before the expiration of 
                60 days after the date of such abatement.
                    ``(B) If the spouse files a petition with the Tax 
                Court pursuant to section 6213 with respect to the 
                request for abatement described in subparagraph (A), 
                the Tax Court shall only have jurisdiction pursuant to 
                this section to determine whether the requirements of 
                section 6013(e) have been satisfied. For purposes of 
                such determination, the treatment of partnership items 
                under the settlement, the final partnership 
                administrative adjustment, or the decision of the court 
                (whichever is appropriate) that gave rise to the 
                liability in question shall be conclusive.
                    ``(C) Rules similar to the rules contained in 
                subparagraphs (B) and (C) of paragraph (2) shall apply 
                for purposes of this paragraph.''
    (b) Claims for Refund.--Subsection (c) of section 6230 is amended 
by adding at the end thereof the following new paragraph:
            ``(5) Rules for seeking innocent spouse relief.--
                    ``(A) In general.--The spouse of a partner may file 
                a claim for refund on the ground that the Secretary 
                failed to relieve the spouse under section 6013(e) from 
                a liability that is attributable to an adjustment to a 
                partnership item.
                    ``(B) Time for filing claim.--Any claim under 
                subparagraph (A) shall be filed within 6 months after 
                the day on which the Secretary mails to the spouse the 
                notice of computational adjustment referred to in 
                subsection (a)(3)(A).
                    ``(C) Suit if claim not allowed.--If the claim 
                under subparagraph (B) is not allowed, the spouse may 
                bring suit with respect to the claim within the period 
                specified in paragraph (3).
                    ``(D) Prior determinations are binding.--For 
                purposes of any claim or suit under this paragraph, the 
                treatment of partnership items under the settlement, 
                the final partnership administrative adjustment, or the 
                decision of the court (whichever is appropriate) that 
                gave rise to the liability in question shall be 
                conclusive.''
    (c) Technical Amendments.--
            (1) Paragraph (1) of section 6230(a) is amended by striking 
        ``paragraph (2)'' and inserting ``paragraph (2) or (3)''.
            (2) Subsection (a) of section 6503 is amended by striking 
        ``section 6230(a)(2)(A)'' and inserting ``paragraph (2)(A) or 
        (3) of section 6230(a)''.
    (d) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 402 of the Tax 
Equity and Fiscal Responsibility Act of 1982.

SEC. 318. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

    (a) In General.--Section 6221 (relating to tax treatment determined 
at partnership level) is amended by striking ``item'' and inserting 
``item (and the applicability of any penalty, addition to tax, or 
additional amount which relates to an adjustment to a partnership 
item)''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 6226 is amended--
                    (A) by striking ``relates and'' and inserting 
                ``relates,'', and
                    (B) by inserting before the period ``, and the 
                applicability of any penalty, addition to tax, or 
                additional amount which relates to an adjustment to a 
                partnership item''.
            (2) Clause (i) of section 6230(a)(2)(A) is amended to read 
        as follows:
                            ``(i) affected items which require partner 
                        level determinations (other than penalties, 
                        additions to tax, and additional amounts that 
                        relate to adjustments to partnership items), 
                        or''.
            (3)(A) Subparagraph (A) of section 6230(a)(3), as added by 
        section 317, is amended by inserting ``(including any liability 
        for any penalty, addition to tax, or additional amount relating 
        to such adjustment)'' after ``partnership item''.
            (B) Subparagraph (B) of such section is amended by 
        inserting ``(and the applicability of any penalties, additions 
        to tax, or additional amounts)'' after ``partnership items''.
            (C) Subparagraph (A) of section 6230(c)(5), as added by 
        section 317, is amended by inserting before the period 
        ``(including any liability for any penalties, additions to tax, 
        or additional amounts relating to such adjustment)''.
            (D) Subparagraph (D) of section 6230(c)(5), as added by 
        section 317, is amended by inserting ``(and the applicability 
        of any penalties, additions to tax, or additional amounts)'' 
        after ``partnership items''.
            (4) Paragraph (1) of section 6230(c) is amended by striking 
        ``or'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, or'', and by 
        adding at the end thereof the following new subparagraph:
                    ``(C) the Secretary erroneously imposed any 
                penalty, addition to tax, or additional amount which 
                relates to an adjustment to a partnership item.''
            (5) So much of subparagraph (A) of section 6230(c)(2) as 
        precedes ``shall be filed'' is amended to read as follows:
                    ``(A) Under paragraph (1) (a) or (c).--Any claim 
                under subparagraph (A) or (C) of paragraph (1)''.
            (6) Paragraph (4) of section 6230(c) is amended by adding 
        at the end thereof the following: ``In addition, the 
        determination under the final partnership administrative 
        adjustment or under the decision of the court (whichever is 
        appropriate) concerning the applicability of any penalty, 
        addition to tax, or additional amount which relates to an 
        adjustment to a partnership item shall also be conclusive.
        Notwithstanding the preceding sentence, the partner shall be 
        allowed to assert any partner level defenses that may apply or 
        to challenge the amount of the computational adjustment.''
    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 319. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

    (a) Tax Court Jurisdiction To Enjoin Premature Assessments of 
Deficiencies Attributable to Partnership Items.--Subsection (b) of 
section 6225 is amended by striking ``the proper court.'' and inserting 
``the proper court, including the Tax Court. The Tax Court shall have 
no jurisdiction to enjoin any action or proceeding under this 
subsection unless a timely petition for a readjustment of the 
partnership items for the taxable year has been filed and then only in 
respect of the adjustments that are the subject of such petition.''
    (b) Jurisdiction To Consider Statute of Limitations With Respect to 
Partners.--Paragraph (1) of section 6226(d) is amended by adding at the 
end thereof the following new sentence:
        ``Notwithstanding subparagraph (B), any person treated under 
        subsection (c) as a party to an action shall be permitted to 
        participate in such action (or file a readjustment petition 
        under subsection (b) or paragraph (2) of this subsection) 
        solely for the purpose of asserting that the period of 
        limitations for assessing any tax attributable to partnership 
        items has expired with respect to such person, and the court 
        having jurisdiction of such action shall have jurisdiction to 
        consider such assertion.''
    (c) Tax Court Jurisdiction To Determine Overpayments Attributable 
to Affected Items.--
            (1) Paragraph (6) of section 6230(d) is amended by striking 
        ``(or an affected item)''.
            (2) Paragraph (3) of section 6512(b) is amended by adding 
        at the end thereof the following new sentence:
        ``In the case of a credit or refund relating to an affected 
        item (within the meaning of section 6231(a)(5)), the preceding 
        sentence shall be applied by substituting the periods under 
        sections 6229 and 6230(d) for the periods under section 6511(b) 
        (2), (c), and (d).''
    (d) Venue on Appeal.--
            (1) Paragraph (1) of section 7482(b) is amended by striking 
        ``or'' at the end of subparagraph (D), by striking the period 
        at the end of subparagraph (E) and inserting ``, or'', and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) in the case of a petition under section 
                6234(c)--
                            ``(i) the legal residence of the petitioner 
                        if the petitioner is not a corporation, and
                            ``(ii) the place or office applicable under 
                        subparagraph (B) if the petitioner is a 
                        corporation.''
            (2) The last sentence of section 7482(b) is amended by 
        striking ``or 6228(a)'' and inserting ``, 6228(a), or 
        6234(c)''.
    (e) Other Provisions.--
            (1) Subsection (c) of section 7459 is amended by striking 
        ``or section 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
            (2) Subsection (o) of section 6501 is amended by adding at 
        the end thereof the following new paragraph:
            ``(3) For declaratory judgment relating to treatment of 
        items other than partnership items with respect to an 
        oversheltered return, see section 6234.''
    (f) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 320. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR 
              5-PERCENT GROUPS.

    (a) In General.--Subsection (b) of section 6226 (relating to 
judicial review of final partnership administrative adjustments) is 
amended by redesignating paragraph (5) as paragraph (6) and by 
inserting after paragraph (4) the following new paragraph:
            ``(5) Treatment of premature petitions.--If--
                    ``(A) a petition for a readjustment of partnership 
                items for the taxable year involved is filed by a 
                notice partner (or a 5-percent group) during the 90-day 
                period described in subsection (a), and
                    ``(B) no action is brought under paragraph (1) 
                during the 60-day period described therein with respect 
                to such taxable year which is not dismissed,
        such petition shall be treated for purposes of paragraph (1) as 
        filed on the last day of such 60-day period.''
    (b) Effective Date.--The amendment made by this section shall apply 
to petitions filed after the date of the enactment of this Act.

SEC. 321. BONDS IN CASE OF APPEALS FROM TEFRA PROCEEDING.

    (a) In General.--Subsection (b) of section 7485 (relating to bonds 
to stay assessment of collection) is amended--
            (1) by inserting ``penalties,'' after ``any interest,'', 
        and
            (2) by striking ``aggregate of such deficiencies'' and 
        inserting ``aggregate liability of the parties to the action''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendments made by section 402 of the Tax 
Equity and Fiscal Responsibility Act of 1982.

SEC. 322. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL 
              ADJUSTMENT RESULTING FROM TEFRA SETTLEMENTS.

    (a) In General.--Subsection (c) of section 6601 (relating to 
interest on underpayment, nonpayment, or extension of time for payment, 
of tax) is amended by adding at the end thereof the following new 
sentence: ``In the case of a settlement under section 6224(c) which 
results in the conversion of partnership items to nonpartnership items 
pursuant to section 6231(b)(1)(C), the preceding sentence shall apply 
to a computational adjustment resulting from such settlement in the 
same manner as if such adjustment were a deficiency and such settlement 
were a waiver referred to in the preceding sentence.''
    (b) Effective Date.--The amendment made by this section shall apply 
to adjustments with respect to partnership taxable years beginning 
after the date of the enactment of this Act.

SEC. 323. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH 
              RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.

    (a) General Rule.--Section 6227 (relating to administrative 
adjustment requests) is amended by adding at the end thereof the 
following new subsection:
    ``(d) Requests With Respect to Bad Debts or Worthless Securities.--
In the case of that portion of any request for an administrative 
adjustment which relates to the deductibility by the partnership under 
section 166 of a debt as a debt which became worthless, or under 
section 165(g) of a loss from worthlessness of a security, the period 
prescribed in subsection (a)(1) shall be 7 years from the last day for 
filing the partnership return for the year with respect to which such 
request is made (determined without regard to extensions).''
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect as if included in the amendments made by section 
        402 of the Tax Equity and Fiscal Responsibility Act of 1982.
            (2) Treatment of requests filed before date of enactment.--
        In the case of that portion of any request (filed before the 
        date of the enactment of this Act) for an administrative 
        adjustment which relates to the deductibility of a debt as a 
        debt which became worthless or the deductibility of a loss from 
        the worthlessness of a security--
                    (A) paragraph (2) of section 6227(a) of the 
                Internal Revenue Code of 1986 shall not apply,
                    (B) the period for filing a petition under section 
                6228 of the Internal Revenue Code of 1986 with respect 
                to such request shall not expire before the date 6 
                months after the date of the enactment of this Act, and
                    (C) such a petition may be filed without regard to 
                whether there was a notice of the beginning of an 
                administrative proceeding or a final partnership 
                administrative adjustment.

                      TITLE IV--FOREIGN PROVISIONS

Subtitle A--Simplification of Treatment of Passive Foreign Corporations

SEC. 401. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN 
              INVESTMENT COMPANY RULES.

    (a) General Rule.--The following provisions are hereby repealed:
            (1) Part III of subchapter G of chapter 1 (relating to 
        foreign personal holding companies).
            (2) Section 1246 (relating to gain on foreign investment 
        company stock).
            (3) Section 1247 (relating to election by foreign 
        investment companies to distribute income currently).
    (b) Exemption of Foreign Corporations From Accumulated Earnings Tax 
and Personal Holding Company Rules.--
            (1) Accumulated earnings tax.--Subsection (b) of section 
        532 (relating to exceptions) is amended--
                    (A) by striking paragraph (2) and inserting the 
                following:
            ``(2) a foreign corporation, or'',
                    (B) by striking ``, or'' at the end of paragraph 
                (3) and inserting a period, and
                    (C) by striking paragraph (4).
            (2) Personal holding company rules.--Subsection (c) of 
        section 542 (relating to exceptions) is amended--
                    (A) by striking paragraph (5) and inserting the 
                following:
            ``(5) a foreign corporation,'',
                    (B) by striking paragraphs (7) and (10) and by 
                redesignating paragraphs (8) and (9) as paragraphs (7) 
                and (8), respectively,
                    (C) by inserting ``and'' at the end of paragraph 
                (7) (as so redesignated), and
                    (D) by striking ``; and'' at the end of paragraph 
                (8) (as so redesignated) and inserting a period.
    (c) Treatment of Certain Service Contracts Under Subpart F.--
            (1) Paragraph (1) of section 954(c) (defining foreign 
        personal holding company income) is amended by adding at the 
        end thereof the following new subparagraph:
                    ``(F) Personal service contracts.--
                            ``(i) Amounts received under a contract 
                        under which the corporation is to furnish 
                        personal services, if some person other than 
                        the corporation has the right to designate (by 
                        name or by description) the individual who is 
                        to perform the services, or if the individual 
                        who is to perform the services is designated 
                        (by name or by description) in the contract.
                            ``(ii) Amounts received from the sale or 
                        other disposition of such contract.
                This subparagraph shall apply with respect to amounts 
                received for services under a particular contract only 
                if at some time during the taxable year 25 percent or 
                more in value of the outstanding stock of the 
                corporation is owned, directly or indirectly, by or for 
                the individual who has performed, is to perform, or may 
                be designated (by name or by description) as the one to 
                perform, such services. For purposes of the preceding 
                sentence, the attribution rules of section 544 shall 
                apply, determined as if any reference to section 
                543(a)(7) were a reference to this subparagraph.''
            (2) Clause (iii) of section 904(d)(2)(A) is amended by 
        striking ``and'' at the end of subclause (III), by striking the 
        period at the end of subclause (IV) and inserting ``, and'', 
        and by adding at the end thereof the following new subclause:
                    ``(V) any income described in section 954(c)(1)(F) 
                (relating to personal service contracts).''

SEC. 402. REPLACEMENT FOR PASSIVE FOREIGN INVESTMENT COMPANY RULES.

    (a) General Rule.--Part VI of subchapter P of chapter 1 (relating 
to treatment of certain passive foreign investment companies) is 
amended to read as follows:

          ``PART VI--TREATMENT OF PASSIVE FOREIGN CORPORATIONS

``Subpart A. Current taxation rules.
``Subpart B. Interest on holdings to which subpart A does not apply.
``Subpart C. General provisions.

                  ``Subpart A--Current Taxation Rules

``Sec. 1291. Stock in certain passive foreign corporations marked to 
                            market.
``Sec. 1292. Inclusion of income of certain passive foreign 
                            corporations.

``SEC. 1291. STOCK IN CERTAIN PASSIVE FOREIGN CORPORATIONS MARKED TO 
              MARKET.

    ``(a) General Rule.--In the case of marketable stock in a passive 
foreign corporation which is owned (or treated under subsection (g) as 
owned) by a United States person at the close of any taxable year of 
such person--
            ``(1) If the fair market value of such stock as of the 
        close of such taxable year exceeds its adjusted basis, such 
        United States person shall include in gross income for such 
        taxable year an amount equal to the amount of such excess.
            ``(2) If the adjusted basis of such stock exceeds the fair 
        market value of such stock as of the close of such taxable 
        year, such United States person shall be allowed a deduction 
        for such taxable year equal to the lesser of--
                    ``(A) the amount of such excess, or
                    ``(B) the unreversed inclusions with respect to 
                such stock.
    ``(b) Basis Adjustments.--
            ``(1) In general.--The adjusted basis of stock in a passive 
        foreign corporation--
                    ``(A) shall be increased by the amount included in 
                the gross income of the United States person under 
                subsection (a)(1) with respect to such stock, and
                    ``(B) shall be decreased by the amount allowed as a 
                deduction to the United States person under subsection 
                (a)(2) with respect to such stock.
            ``(2) Special rule for stock constructively owned.--In the 
        case of stock in a passive foreign corporation which the United 
        States person is treated as owning under subsection (g)--
                    ``(A) the adjustments under paragraph (1) shall 
                apply to such stock in the hands of the person actually 
                holding such stock but only for purposes of determining 
                the subsequent treatment under this chapter of the 
                United States person with respect to such stock, and
                    ``(B) similar adjustments shall be made to the 
                adjusted basis of the property by reason of which the 
                United States person is treated as owning such stock.
    ``(c) Character and Source Rules.--
            ``(1) Ordinary treatment.--
                    ``(A) Gain.--Any amount included in gross income 
                under subsection (a)(1), and any gain on the sale or 
                other disposition of marketable stock in a passive 
                foreign corporation, shall be treated as ordinary 
                income.
                    ``(B) Loss.--Any--
                            ``(i) amount allowed as a deduction under 
                        subsection (a)(2), and
                            ``(ii) loss on the sale or other 
                        disposition of marketable stock in a passive 
                        foreign corporation to the extent that the 
                        amount of such loss does not exceed the 
                        unreversed inclusions with respect to such 
                        stock,
                shall be treated as an ordinary loss. The amount so 
                treated shall be treated as a deduction allowable in 
                computing adjusted gross income.
            ``(2) Source.--The source of any amount included in gross 
        income under subsection (a)(1) (or allowed as a deduction under 
        subsection (a)(2)) shall be determined in the same manner as if 
        such amount were gain or loss (as the case may be) from the 
        sale of stock in the passive foreign corporation.
    ``(d) Unreversed Inclusions.--For purposes of this section, the 
term `unreversed inclusions' means, with respect to any stock in a 
passive foreign corporation, the excess (if any) of--
            ``(1) the amount included in gross income of the taxpayer 
        under subsection (a)(1) with respect to such stock for prior 
        taxable years, over
            ``(2) the amount allowed as a deduction under subsection 
        (a)(2) with respect to such stock for prior taxable years.
The amount referred to in paragraph (1) shall include any amount which 
would have been included in gross income under subsection (a)(1) with 
respect to such stock for any prior taxable year but for section 1293.
    ``(e) Coordination With Section 1292.--This section shall not apply 
with respect to any stock in a passive foreign corporation--
            ``(1) which is U.S. controlled,
            ``(2) which is a qualified electing fund with respect to 
        the United States person for the taxable year, or
            ``(3) in which the United States person is a 25-percent 
        shareholder.
    ``(f) Treatment of Controlled Foreign Corporations Which are 
Shareholders in Passive Foreign Corporations.--In the case of a foreign 
corporation which is a controlled foreign corporation (or is treated as 
a controlled foreign corporation under section 1292) and which owns (or 
is treated under subsection (g) as owning) stock in a passive foreign 
corporation--
            ``(1) this section (other than subsection (c)(2) thereof) 
        shall apply to such foreign corporation in the same manner as 
        if such corporation were a United States person, and
            ``(2) for purposes of subpart F of part III of subchapter 
        N--
                    ``(A) any amount included in gross income under 
                subsection (a)(1) shall be treated as foreign personal 
                holding company income described in section 
                954(c)(1)(A), and
                    ``(B) any amount allowed as a deduction under 
                subsection (a)(2) shall be treated as a deduction 
                allocable to foreign personal holding company income so 
                described.
    ``(g) Stock Owned Through Certain Foreign Entities.--Except as 
provided in regulations--
            ``(1) In general.--For purposes of this section, stock 
        owned, directly or indirectly, by or for a foreign partnership 
        or foreign trust or foreign estate shall be considered as being 
        owned proportionately by its partners or beneficiaries. Stock 
        considered to be owned by a person by reason of the application 
        of the preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person.
            ``(2) Treatment of certain dispositions.--In any case in 
        which a United States person is treated as owning stock in a 
        passive foreign corporation by reason of paragraph (1)--
                    ``(A) any disposition by the United States person 
                or by any other person which results in the United 
                States person being treated as no longer owning such 
                stock, and
                    ``(B) any disposition by the person owning such 
                stock,
        shall be treated as a disposition by the United States person 
        of the stock in the passive foreign corporation.
    ``(h) Coordination With Section 851(b).--For purposes of paragraphs 
(2) and (3) of section 851(b), any amount included in gross income 
under subsection (a) shall be treated as a dividend.
    ``(i) Transition Rules.--
            ``(1) Individuals becoming subject to united states tax.--
        If any individual becomes a United States person in a taxable 
        year beginning after December 31, 1993, solely for purposes of 
        this section, the adjusted basis (before adjustments under 
        subsection (b)) of any marketable stock in a passive foreign 
        corporation owned (or treated as owned under subsection (g)) by 
        such individual on the first day of such taxable year shall be 
        treated as being the greater of its fair market value on such 
        first day or its adjusted basis on such first day.
            ``(2) Marketable stock held before effective date.--
                    ``(A) In general.--If any marketable stock in a 
                passive foreign corporation is owned (or treated under 
                subsection (g) as owned) by a United States person on 
                the first day of such person's first taxable year, 
                beginning after December 31, 1993--
                            ``(i) paragraph (2) of section 1294(a) 
                        shall apply to such stock as if it became 
                        marketable during such first taxable year; 
                        except that--
                                    ``(I) section 1293 shall not apply 
                                to the amount included in gross income 
                                under subsection (a) to the extent such 
                                amount is attributable to increases in 
                                fair market value during such first 
                                taxable year, and
                                    ``(II) the taxpayer's holding 
                                period shall be treated as having ended 
                                on the last day of the preceding 
                                taxable year for purposes of allocating 
                                amounts under section 1293(a)(1)(A), 
                                and
                            ``(ii) such person may elect to extend the 
                        time for the payment of the applicable section 
                        1293 deferred tax as provided in subparagraph 
                        (B).
                    ``(B) Election to extend time for payment.--
                            ``(i) In general.--At the election of the 
                        taxpayer, the time for the payment of the 
                        applicable section 1293 deferred tax shall be 
                        extended to the extent and subject to the 
                        limitations provided in this subparagraph.
                            ``(ii) Termination of extension.--
                                    ``(I) Distributions.--If any 
                                distribution is received with respect 
                                to any stock to which an extension 
                                under clause (i) relates and such 
                                distribution would be an excess 
                                distribution within the meaning of 
                                section 1293 if such section applied to 
                                such stock, then the extension under 
                                clause (i) for the appropriate portion 
                                (as determined under regulations) of 
                                the applicable section 1293 deferred 
                                tax shall expire on the last day 
                                prescribed by law (determined without 
                                regard to extensions) for filing the 
                                return of tax for the taxable year in 
                                which the distribution is received.
                                    ``(II) Reversal of inclusion.--If 
                                an amount is allowable as a deduction 
                                under subsection (a)(2) with respect to 
                                any stock to which an extension under 
                                clause (i) relates and the amount so 
                                allowable is allocable to the amount 
                                which gave rise to the applicable 
                                section 1293 deferred tax, then the 
                                extension under clause (i) for the 
                                appropriate portion (as determined 
                                under regulations) of the applicable 
                                section 1293 deferred tax shall expire 
                                on the last day prescribed by law 
                                (determined without regard to 
                                extensions) for filing the return of 
                                the tax for the taxable year for which 
                                such deduction is allowed.
                                    ``(III) Dispositions, etc.--If 
                                stock in a passive foreign corporation 
                                is disposed of during the taxable year, 
                                all extensions under clause (i) for 
                                payment of the applicable section 1293 
                                deferred tax attributable to such stock 
                                which have not expired before the date 
                                of such disposition shall expire on the 
                                last date prescribed by law (determined 
                                without regard to extensions) for 
                                filing the return of tax for the 
                                taxable year in which such disposition 
                                occurs. To the extent provided in 
                                regulations, the preceding sentence 
                                shall not apply in the case of a 
                                disposition in a transaction with 
                                respect to which gain or loss is not 
                                recognized (in whole or in part), and 
                                the person acquiring such stock in such 
                                transaction shall succeed to the 
                                treatment under this section of the 
                                person making such disposition.
                            ``(iii) Other rules.--
                                    ``(I) Election.--The election under 
                                clause (i) shall be made not later than 
                                the time prescribed by law (including 
                                extensions) for filing the return of 
                                tax imposed by this chapter for the 
                                first taxable year referred to in 
                                subparagraph (A).
                                    ``(II) Treatment of loans to 
                                shareholder.--For purposes of this 
                                subparagraph, any loan by a passive 
                                foreign corporation (directly or 
                                indirectly) to a shareholder of such 
                                corporation shall be treated as a 
                                distribution to such shareholder.
                    ``(C) Cross reference.--

                                ``For provisions providing for interest 
for the period of the extension under this paragraph, see section 6601.

                    ``(D) Applicable section 1293 deferred tax.--For 
                purposes of this paragraph, the term `applicable 
                section 1293 deferred tax' means the deferred tax 
                amount determined under section 1293 with respect to 
                the amount which, but for section 1293, would have been 
                included in gross income for the first taxable year 
                referred to in subparagraph (A). Such term also 
                includes the tax imposed by this chapter for such first 
                taxable year to the extent attributable to the amounts 
                allocated under section 1293(a)(1)(A) to a period 
                described in section 1293(a)(1)(B)(ii).
            ``(3) Special rules for regulated investment companies.--
                    ``(A) In general.--If any marketable stock in a 
                passive foreign corporation is owned (or treated under 
                subsection (g) as owned) by a regulated investment 
                company on the first day of such company's first 
                taxable year beginning after December 31, 1993--
                            ``(i) section 1293 shall not apply to such 
                        stock with respect to any distribution or 
                        disposition during, or amount included in gross 
                        income under this section for, such first 
                        taxable year, but
                            ``(ii) such company's tax under this 
                        chapter for such first taxable year shall be 
                        increased by the aggregate amount of interest 
                        which would have been determined under section 
                        1293(c)(3) if section 1293 were applied without 
                        regard to this subparagraph.
                    ``(B) Disallowance of deduction.--No deduction 
                shall be allowed to any regulated investment company 
                for the increase in tax under subparagraph (A)(ii).

SEC.  1292. CURRENT INCLUSION OF INCOME OF CERTAIN PASSIVE FOREIGN 
              CORPORATIONS.

    ``(a) Passive Foreign Corporations Which Are United States 
Controlled.--
            ``(1) Treatment under subpart f.--
                    ``(A) In general.--If a passive foreign corporation 
                is United States controlled, then for purposes of 
                subpart F of part III of subchapter N--
                            ``(i) such corporation, if not otherwise a 
                        controlled foreign corporation, shall be 
                        treated as a controlled foreign corporation,
                            ``(ii) the term `United States shareholder' 
                        means, with respect to such corporation, any 
                        United States person who owns (within the 
                        meaning of section 958(a)) any stock in such 
                        corporation,
                            ``(iii) the entire gross income of such 
                        corporation shall, after being reduced under 
                        the principles of paragraph (5) of section 
                        954(b), be treated as foreign base company 
                        income, and
                            ``(iv) sections 970 and 971 shall not 
                        apply.
                Except as provided in regulations, the preceding 
                sentence shall also apply for purposes of section 
                904(d).
                    ``(B) Special rules.--If any taxpayer is treated as 
                being a United States shareholder in a controlled 
                foreign corporation solely by reason of this section--
                            ``(i) section 954(b)(4) (relating to 
                        exception for certain income subject to high 
                        foreign taxes) shall not apply for purposes of 
                        determining the amount included in the gross 
                        income of such taxpayer under section 951 by 
                        reason of being so treated with respect to such 
                        corporation, and
                            ``(ii) the amount so included in the gross 
                        income of such taxpayer under section 951 with 
                        respect to such corporation shall be treated as 
                        long-term capital gain to the extent 
                        attributable to the net capital gain of such 
                        corporation.
            ``(2) U.S. controlled.--For purposes of this subpart, a 
        passive foreign corporation is United States controlled if--
                    ``(A) such corporation is a controlled foreign 
                corporation determined without regard to this 
                subsection, or
                    ``(B) at any time during the taxable year more than 
                50 percent of--
                            ``(i) the total combined voting power of 
                        all classes of stock of such corporation 
                        entitled to vote, or
                            ``(ii) the total value of the stock of such 
                        corporation,
                is owned directly or indirectly by 5 or fewer United 
                States persons.
            ``(3) Constructive ownership rules for purposes of 
        paragraph (2)(b).--For purposes of paragraph (2)(B), the 
        attribution rules provided in section 544 shall apply, 
        determined as if any reference to a personal holding company 
        were a reference to a corporation described in paragraph (2)(B) 
        (and any reference to the stock ownership requirement provided 
        in section 542(a)(2) were a reference to the requirement of 
        paragraph (2)(B)); except that--
                    ``(A) subsection (a)(4) of such section shall be 
                applied by substituting `Paragraphs (1), (2), and (3)' 
                for `Paragraphs (2) and (3)',
                    ``(B) stock owned by a nonresident alien individual 
                shall not be considered by reason of attribution 
                through family membership as owned by a citizen or 
                resident alien individual who is not the spouse of the 
                nonresident alien individual and who does not otherwise 
                own stock in the foreign corporation (determined after 
                the application of such attribution rules other than 
                attribution through family membership), and
                    ``(C) stock of a corporation owned by any foreign 
                person shall not be considered by reason of attribution 
                through partners as owned by a citizen or resident of 
                the United States who does not otherwise own stock in 
                the foreign corporation (determined after the 
                application of such attribution rules and subparagraph 
                (A), other than attribution through partners).
    ``(b) Taxpayers Electing Current Inclusion and 25-Percent 
Shareholders.--
            ``(1) In general.--If a passive foreign corporation which 
        is not United States controlled is a qualified electing fund 
        with respect to any taxpayer or the taxpayer is a 25-percent 
        shareholder in such corporation, then for purposes of subpart F 
        of part III of subchapter N--
                    ``(A) such passive foreign corporation shall be 
                treated as a controlled foreign corporation with 
                respect to such taxpayer,
                    ``(B) such taxpayer shall be treated as a United 
                States shareholder in such corporation, and
                    ``(C) the modifications of clauses (iii) and (iv) 
                of subsection (a)(1)(A) and of subparagraph (B) of 
                subsection (a)(1) shall apply in determining the amount 
                included under such subpart F in the gross income of 
                such taxpayer (and the character of the amount so 
                included).
        For purposes of section 904(d), any amount included in the 
        gross income of the taxpayer under the preceding sentence shall 
        be treated as a dividend from a foreign corporation which is 
        not a controlled foreign corporation.
            ``(2) Qualified electing fund.--For purposes of this 
        subpart, the term `qualified electing fund' means any passive 
        foreign corporation if--
                    ``(A) an election by the taxpayer under paragraph 
                (3) applies to such corporation for the taxable year of 
                the taxpayer, and
                    ``(B) such corporation complies with such 
                requirements as the Secretary may prescribe for 
                purposes of carrying out the purposes of this subpart.
            ``(3) Election.--
                    ``(A) In general.--A taxpayer may make an election 
                under this paragraph with respect to any passive 
                foreign corporation for any taxable year of the 
                taxpayer. Such an election, once made with respect to 
                any corporation, shall apply to all subsequent taxable 
                years of the taxpayer with respect to such corporation 
                unless revoked by the taxpayer with the consent of the 
                Secretary.
                    ``(B) When made.--An election under this subsection 
                may be made for any taxable year of the taxpayer at any 
                time on or before the due date (determined with regard 
                to extensions) for filing the return of the tax imposed 
                by this chapter for such taxable year. To the extent 
                provided in regulations, such an election may be made 
                later than as required in the preceding sentence where 
                the taxpayer fails to make a timely election because 
                the taxpayer reasonably believes that the corporation 
                was not a passive foreign corporation.
            ``(4) 25-percent shareholder.--For purposes of this 
        subpart, the term `25-percent shareholder' means, with respect 
        to any passive foreign corporation, any United States person 
        who owns (within the meaning of section 958(a)), or is 
        considered as owning by applying the rules of section 958(b), 
        25 percent or more (by vote or value) of the stock of such 
        corporation.

  ``Subpart B--Interest on Holdings To Which Subpart A Does Not Apply

``Sec. 1293. Interest on tax deferral.
``Sec. 1294. Definitions and special rules.

``SEC. 1293. INTEREST ON TAX DEFERRAL.

    ``(a) Treatment of Distributions and Stock Dispositions.--
            ``(1) Distributions.--If a United States person receives an 
        excess distribution in respect of stock to which this section 
        applies, then--
                    ``(A) the amount of the excess distribution shall 
                be allocated ratably to each day in the taxpayer's 
                holding period for the stock,
                    ``(B) with respect to such excess distribution, the 
                taxpayer's gross income for the current year shall 
                include (as ordinary income) only the amounts allocated 
                under subparagraph (A) to--
                            ``(i) the current year, or
                            ``(ii) any period in the taxpayer's holding 
                        period before the first day of the first 
                        taxable year of the corporation which begins 
                        after December 31, 1986, and for which it was a 
                        passive foreign corporation, and
                    ``(C) the tax imposed by this chapter for the 
                current year shall be increased by the deferred tax 
                amount (determined under subsection (c)).
            ``(2) Dispositions.--If the taxpayer disposes of stock to 
        which this section applies, then the rules of paragraph (1) 
        shall apply to any gain recognized on such disposition in the 
        same manner as if such gain were an excess distribution.
            ``(3) Definitions.--For purposes of this subpart--
                    ``(A) Holding period.--The taxpayer's holding 
                period shall be determined under section 1223; except 
                that--
                            ``(i) for purposes of applying this section 
                        to an excess distribution, such holding period 
                        shall be treated as ending on the date of such 
                        distribution, and
                            ``(ii) if section 1291 applied to such 
                        stock with respect to the taxpayer for any 
                        prior taxable year, such holding period shall 
                        be treated as beginning on the first day of the 
                        first taxable year beginning after the last 
                        taxable year for which section 1291 so applied.
                    ``(B) Current year.--The term `current year' means 
                the taxable year in which the excess distribution or 
                disposition occurs.
    ``(b) Excess Distribution.--
            ``(1) In general.--For purposes of this section, the term 
        `excess distribution' means any distribution in respect of 
        stock received during any taxable year to the extent such 
        distribution does not exceed its ratable portion of the total 
        excess distribution (if any) for such taxable year.
            ``(2) Total excess distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `total excess 
                distribution' means the excess (if any) of--
                            ``(i) the amount of the distributions in 
                        respect of the stock received by the taxpayer 
                        during the taxable year, over
                            ``(ii) 125 percent of the average amount 
                        received in respect of such stock by the 
                        taxpayer during the 3 preceding taxable years 
                        (or, if shorter, the portion of the taxpayer's 
                        holding period before the taxable year).
                For purposes of clause (ii), any excess distribution 
                received during such 3-year period shall be taken into 
                account only to the extent it was included in gross 
                income under subsection (a)(1)(B).
                    ``(B) No excess for first year.--The total excess 
                distributions with respect to any stock shall be zero 
                for the taxable year in which the taxpayer's holding 
                period in such stock begins.
            ``(3) Adjustments.--Under regulations prescribed by the 
        Secretary--
                    ``(A) determinations under this subsection shall be 
                made on a share-by-share basis, except that shares with 
                the same holding period may be aggregated,
                    ``(B) proper adjustments shall be made for stock 
                splits and stock dividends,
                    ``(C) if the taxpayer does not hold the stock 
                during the entire taxable year, distributions received 
                during such year shall be annualized,
                    ``(D) if the taxpayer's holding period includes 
                periods during which the stock was held by another 
                person, distributions received by such other person 
                shall be taken into account as if received by the 
                taxpayer,
                    ``(E) if the distributions are received in a 
                foreign currency, determinations under this subsection 
                shall be made in such currency and the amount of any 
                excess distribution determined in such currency shall 
                be translated into dollars,
                    ``(F) proper adjustment shall be made for amounts 
                not includible in gross income by reason of section 
                959(a) or for which a deduction is allowable under 
                section 245(c), and
                    ``(G) if a charitable deduction was allowable under 
                section 642(c) to a trust for any distribution of its 
                income, proper adjustments shall be made for the 
                deduction so allowable to the extent allocable to 
                distributions or gain in respect of stock in a passive 
                foreign corporation.
        For purposes of subparagraph (F), any amount not includible in 
        gross income by reason of section 551(d) (as in effect on 
        January 1, 1993) or 1293(c) (as so in effect) shall be treated 
        as an amount not includible in gross income by reason of 
        section 959(a).
    ``(c) Deferred Tax Amount.--For purposes of this section--
            ``(1) In general.--The term `deferred tax amount' means, 
        with respect to any distribution or disposition to which 
        subsection (a) applies, an amount equal to the sum of--
                    ``(A) the aggregate increases in taxes described in 
                paragraph (2), plus
                    ``(B) the aggregate amount of interest (determined 
                in the manner provided under paragraph (3)) on such 
                increases in tax.
        Any increase in the tax imposed by this chapter for the current 
        year under subsection (a) to the extent attributable to the 
        amount referred to in subparagraph (B) shall be treated as 
        interest paid under section 6601 on the due date for the 
        current year.
            ``(2) Aggregate increases in taxes.--For purposes of 
        paragraph (1)(A), the aggregate increases in taxes shall be 
        determined by multiplying each amount allocated under 
        subsection (a)(1)(A) to any taxable year (other than any 
        taxable year referred to in subsection (a)(1)(B)) by the 
        highest rate of tax in effect for such taxable year under 
        section 1 or 11, whichever applies.
            ``(3) Computation of interest.--
                    ``(A) In general.--The amount of interest referred 
                to in paragraph (1)(B) on any increase determined under 
                paragraph (2) for any taxable year shall be determined 
                for the period--
                            ``(i) beginning on the due date for such 
                        taxable year, and
                            ``(ii) ending on the due date for the 
                        taxable year with or within which the 
                        distribution or disposition occurs,
                by using the rates and method applicable under section 
                6621 for underpayments of tax for such period.
                    ``(B) Due date.--For purposes of this subsection, 
                the term `due date' means the date prescribed by law 
                (determined without regard to extensions) for filing 
                the return of the tax imposed by this chapter for the 
                taxable year.
                    ``(C) Special rule.--For purposes of determining 
                the amount of interest referred to in paragraph (1)(B), 
                the amount of any increase in tax determined under 
                paragraph (2) shall be determined without regard to any 
                reduction under section 1294(d) for a tax described in 
                paragraph (2)(A)(ii) thereof.

``SEC. 1294. DEFINITIONS AND SPECIAL RULES.

    ``(a) Stock to Which Section 1293 Applies.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, section 1293 shall apply to any stock in a passive 
        foreign corporation unless--
                    ``(A) such stock is marketable stock as of the time 
                of the distribution or disposition involved, or
                    ``(B)(i) with respect to each of such corporation's 
                taxable years for which such corporation was a passive 
                foreign corporation and which began after December 31, 
                1993, and included any portion of the taxpayer's 
                holding period in such stock--
                            ``(I) such corporation was United States 
                        controlled (within the meaning of section 
                        1292(a)(2)), or
                            ``(II) such corporation was treated as a 
                        controlled foreign corporation under section 
                        1292(b) with respect to the taxpayer, and
                    ``(ii) with respect to each of such corporation's 
                taxable years for which such corporation was a passive 
                foreign corporation and which begin after December 31, 
                1986, and before January 1, 1994, and included any 
                portion of the taxpayer's holding period in such stock, 
                such corporation was treated as a qualified electing 
                fund under this part (as in effect on January 1, 1993) 
                with respect to the taxpayer.
            ``(2) Treatment where stock becomes marketable.--If any 
        stock in a passive foreign corporation becomes marketable stock 
        after the beginning of the taxpayer's holding period in such 
        stock, and if the requirements of paragraph (1)(B) are not 
        satisfied, section 1293 shall apply to--
                    ``(A) any distributions with respect to, or 
                disposition of, such stock in the taxable year of the 
                taxpayer in which it becomes so marketable, and
                    ``(B) any amount which, but for section 1293, would 
                have been included in gross income under section 
                1291(a) with respect to such stock for such taxable 
                year in the same manner as if such amount were gain on 
                the disposition of such stock.
            ``(3) Election to recognize gain where company becomes 
        subject to current inclusions.--
                    ``(A) In general.--If--
                            ``(i) a passive foreign corporation first 
                        meets the requirements of clause (i) of 
                        paragraph (1)(B) with respect to the taxpayer 
                        for a taxable year of such taxpayer which 
                        begins after December 31, 1993,
                            ``(ii) the taxpayer holds stock in such 
                        company on the first day of such taxable year, 
                        and
                            ``(iii) the taxpayer establishes to the 
                        satisfaction of the Secretary the fair market 
                        value of such stock on such first day,
                the taxpayer may elect to recognize gain as if he sold 
                such stock on such first day for such fair market 
                value.
                    ``(B) Additional election for shareholder of 
                controlled foreign corporations.--
                            ``(i) In general.--If--
                                    ``(I) a passive foreign corporation 
                                first meets the requirements of 
                                subclause (I) of paragraph (1)(B)(i) 
                                with respect to the taxpayer for a 
                                taxable year of such taxpayer which 
                                begins after December 31, 1993,
                                    ``(II) the taxpayer holds stock in 
                                such corporation on the first day of 
                                such taxable year, and
                                    ``(III) such corporation is a 
                                controlled foreign corporation without 
                                regard to this part,
                the taxpayer may elect to be treated as receiving a 
                dividend on such first day in an amount equal to the 
                portion of the post-1986 earnings and profits of such 
                corporation attributable (under regulations prescribed 
                by the Secretary) to the stock in such corporation held 
                by the taxpayer on such first day. The amount treated 
                as a dividend under the preceding sentence shall be 
                treated as an excess distribution and shall be 
                allocated under section 1293(a)(1)(A) only to days 
                during periods taken into account in determining the 
                post-1986 earnings and profits so attributable.
                            ``(ii) Post-1986 earnings and profits.--For 
                        purposes of clause (i), the term `post-1986 
                        earnings and profits' means earnings and 
                        profits which were accumulated in taxable years 
                        of the corporation beginning after December 31, 
                        1986, and during the period or periods the 
                        stock was held by the taxpayer while the 
                        corporation was a passive foreign corporation.
                            ``(iii) Coordination with section 959(e).--
                        For purposes of section 959(e), any amount 
                        treated as a dividend under this subparagraph 
                        shall be treated as included in gross income 
                        under section 1248(a).
                    ``(C) Adjustments.--In the case of any stock to 
                which subparagraph (A) or (B) applies--
                            ``(i) the adjusted basis of such stock 
                        shall be increased by the gain recognized under 
                        subparagraph (A) or the amount treated as a 
                        dividend under subparagraph (B), as the case 
                        may be, and
                            ``(ii) the taxpayer's holding period in 
                        such stock shall be treated as beginning on the 
                        first day referred to in such subparagraph.
    ``(b) Rules Relating to Stock Acquired From a Decedent.--
            ``(1) Basis.--In the case of stock of a passive foreign 
        corporation acquired by bequest, devise, or inheritance (or by 
        the decedent's estate), notwithstanding section 1014, the basis 
        of such stock in the hands of the person so acquiring it shall 
        be the adjusted basis of such stock in the hands of the 
        decedent immediately before his death (or, if lesser, the basis 
        which would have been determined under section 1014 without 
        regard to this paragraph).
            ``(2) Deduction for estate tax.--If stock in a passive 
        foreign corporation is acquired from a decedent, the taxpayer 
        shall, under regulations prescribed by the Secretary, be 
        allowed (for the taxable year of the sale or exchange) a 
        deduction from gross income equal to that portion of the 
        decedent's estate tax deemed paid which is attributable to the 
        excess of (A) the value at which such stock was taken into 
        account for purposes of determining the value of the decedent's 
        gross estate, over (B) the basis determined under paragraph 
        (1).
            ``(3) Exceptions.--This subsection shall not apply to any 
        stock in a passive foreign corporation if--
                    ``(A) section 1293 would not have applied to a 
                disposition of such stock by the decedent immediately 
                before his death, or
                    ``(B) the decedent was a nonresident alien at all 
                times during his holding period in such stock.
    ``(c) Recognition of Gain.--Except as otherwise provided in 
regulations, in the case of any transfer of stock in a passive foreign 
company to which section 1293 applies, where (but for this subsection) 
there is not full recognition of gain, the excess (if any) of--
            ``(1) the fair market value of such stock, over
            ``(2) its adjusted basis,
shall be treated as gain from the sale or exchange of such stock and 
shall be recognized notwithstanding any provision of law. Proper 
adjustment shall be made to the basis of property for gain recognized 
under the preceding sentence.
    ``(d) Coordination With Foreign Tax Credit Rules.--
            ``(1) In general.--If there are creditable foreign taxes 
        with respect to any distribution in respect of stock in a 
        passive foreign corporation--
                    ``(A) the amount of such distribution shall be 
                determined for purposes of section 1293 with regard to 
                section 78,
                    ``(B) the excess distribution taxes shall be 
                allocated ratably to each day in the taxpayer's holding 
                period for the stock, and
                    ``(C) to the extent--
                            ``(i) that such excess distribution taxes 
                        are allocated to a taxable year referred to in 
                        section 1293(a)(1)(B), such taxes shall be 
                        taken into account under section 901 for the 
                        current year, and
                            ``(ii) that such excess distribution taxes 
                        are allocated to any other taxable year, such 
                        taxes shall reduce (subject to the principles 
                        of section 904 and not below zero) the increase 
                        in tax determined under section 1293(c)(2) for 
                        such taxable year by reason of such 
                        distribution (but such taxes shall not be taken 
                        into account under section 901).
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Creditable foreign taxes.--The term 
                `creditable foreign taxes' means, with respect to any 
                distribution--
                            ``(i) any foreign taxes deemed paid under 
                        section 902 with respect to such distribution, 
                        and
                            ``(ii) any withholding tax imposed with 
                        respect to such distribution,
                but only if the taxpayer chooses the benefits of 
                section 901 and such taxes are creditable under section 
                901 (determined without regard to paragraph 
                (1)(C)(ii)).
                    ``(B) Excess distribution taxes.--The term `excess 
                distribution taxes' means, with respect to any 
                distribution, the portion of the creditable foreign 
                taxes with respect to such distribution which is 
                attributable (on a pro rata basis) to the portion of 
                such distribution which is an excess distribution.
                    ``(C) Section 1248 gain.--The rules of this 
                subsection also shall apply in the case of any gain 
                which but for this section would be includible in gross 
                income as a dividend under section 1248.
    ``(e) Attribution of Ownership.--For purposes of this subpart--
            ``(1) Attribution to united states persons.--This 
        subsection--
                    ``(A) shall apply to the extent that the effect is 
                to treat stock of a passive foreign corporation as 
                owned by a United States person, and
                    ``(B) except as provided in paragraph (3) or in 
                regulations, shall not apply to treat stock owned (or 
                treated as owned under this subsection) by a United 
                States person as owned by any other person.
            ``(2) Corporations.--
                    ``(A) In general.--If 50 percent or more in value 
                of the stock of a corporation (other than an S 
                corporation) is owned, directly or indirectly, by or 
                for any person, such person shall be considered as 
                owning the stock owned directly or indirectly by or for 
                such corporation in that proportion which the value of 
                the stock which such person so owns bears to the value 
                of all stock in the corporation.
                    ``(B) 50-percent limitation not to apply in certain 
                cases.--For purposes of determining whether a 
                shareholder of a passive foreign corporation (or 
                whether a United States shareholder of a controlled 
                foreign corporation which is not a passive foreign 
                corporation) is treated as owning stock owned directly 
                or indirectly by or for such corporation, subparagraph 
                (A) shall be applied without regard to the 50-percent 
                limitation contained therein.
                    ``(C) Family and partner attribution for 50-percent 
                limitation.--For purposes of determining whether the 
                50-percent limitation of subparagraph (A) is met, the 
                constructive ownership rules of section 544(a)(2) shall 
                apply in addition to the other rules of this 
                subsection.
            ``(3) Partnerships, etc.--Except as provided in 
        regulations, stock owned, directly or indirectly, by or for a 
        partnership, S corporation, estate, or trust shall be 
        considered as being owned proportionately by its partners, 
        shareholders, or beneficiaries (as the case may be).
            ``(4) Options.--To the extent provided in regulations, if 
        any person has an option to acquire stock, such stock shall be 
        considered as owned by such person. For purposes of this 
        paragraph, an option to acquire such an option, and each one of 
        a series of such options, shall be considered as an option to 
        acquire such stock.
            ``(5) Successive application.--Stock considered to be owned 
        by a person by reason of the application of paragraph (2), (3), 
        or (4) shall, for purposes of applying such paragraphs, be 
        considered as actually owned by such person.
    ``(f) Other Special Rules.--For purposes of this subpart--
            ``(1) Time for determination.--Stock held by a taxpayer 
        shall be treated as stock in a passive foreign corporation if, 
        at any time during the holding period of the taxpayer with 
        respect to such stock, such corporation (or any predecessor) 
        was a passive foreign corporation. The preceding sentence shall 
        not apply if the taxpayer elects to recognize gain (as of the 
        last day of the last taxable year for which the company was a 
        passive foreign corporation) under rules similar to the rules 
        of subsection (a)(3)(A).
            ``(2) Application of subpart where stock held by other 
        entity.--Under regulations--
                    ``(A) In general.--In any case in which a United 
                States person is treated as owning stock in a passive 
                foreign corporation by reason of subsection (e)--
                            ``(i) any transaction which results in the 
                        United States person being treated as no longer 
                        owning such stock,
                            ``(ii) any disposition of such stock by the 
                        person owning such stock, and
                            ``(iii) any distribution of property in 
                        respect of such stock to the person holding 
                        such stock,
                shall be treated as a disposition by, or distribution 
                to, the United States person with respect to the stock 
                in the passive foreign corporation.
                    ``(B) Amount treated in same manner as previously 
                taxed income.--Rules similar to the rules of section 
                959(b) shall apply to any amount described in 
                subparagraph (A) in respect of stock which the taxpayer 
                is treated as owning under subsection (e).
                    ``(C) Coordination with section 951.--If, but for 
                this subparagraph, an amount would be taken into 
                account under section 1293 by reason of subparagraph 
                (A) and such amount would also be included in the gross 
                income of the taxpayer under section 951, such amount 
                shall only be taken into account under section 1293.
            ``(3) Dispositions.--Except as provided in regulations, if 
        a taxpayer uses any stock in a passive foreign corporation as 
        security for a loan, the taxpayer shall be treated as having 
        disposed of such stock.

                    ``Subpart C--General Provisions

                              ``Sec. 1296. Passive foreign corporation.
                              ``Sec. 1297. Special rules.

``SEC. 1296. PASSIVE FOREIGN CORPORATION.

    ``(a) In General.--For purposes of this part, except as otherwise 
provided in this subpart, the term `passive foreign corporation' means 
any foreign corporation if--
            ``(1) 60 percent or more of the gross income of such 
        corporation for the taxable year is passive income,
            ``(2) the average percentage of assets (by value) held by 
        such corporation during the taxable year which produce passive 
        income or which are held for the production of passive income 
        is at least 50 percent, or
            ``(3) such corporation is registered under the Investment 
        Company Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), 
        either as a management company or as a unit investment trust.
A foreign corporation may elect to have the determination under 
paragraph (2) based on the adjusted bases of its assets in lieu of 
their value. Such an election, once made, may be revoked only with the 
consent of the Secretary.
    ``(b) Passive Income.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `passive income' means any income which is 
        of a kind which would be foreign personal holding company 
        income as defined in section 954(c) without regard to paragraph 
        (3) thereof.
            ``(2) Exceptions.--Except as provided in regulations, the 
        term `passive income' does not include any income--
                    ``(A) derived in the active conduct of a banking 
                business by an institution licensed to do business as a 
                bank in the United States (or, to the extent provided 
                in regulations, by any other corporation),
                    ``(B) derived in the active conduct of an insurance 
                business by a corporation which is predominantly 
                engaged in an insurance business and which would be 
                subject to tax under subchapter L if it were a domestic 
                corporation,
                    ``(C) which is interest, a dividend, or a rent or 
                royalty, which is received or accrued from a related 
                person (within the meaning of section 954(d)(3)) to the 
                extent such amount is properly allocable (under 
                regulations prescribed by the Secretary) to income of 
                such related person which is not passive income, or
                    ``(D) any foreign trade income of a FSC.
        For purposes of subparagraph (C), the term `related person' has 
        the meaning given such term by section 954(d)(3) determined by 
        substituting `foreign corporation' for `controlled foreign 
        corporation' each place it appears in section 954(d)(3).
            ``(3) Treatment of income from certain assets.--To the 
        extent that any asset is properly treated as not held for the 
        production of passive income for purposes of subsection (a)(2), 
        all income from such asset shall be treated as income which is 
        not passive income.
            ``(4) Treatment of certain matched repurchase 
        transactions.--
                    ``(A) In general.--In the case of any foreign 
                corporation engaged in the active conduct of a trade or 
                business as a dealer in securities--
                            ``(i) an amount properly treated as 
                        interest income by reason of a qualified 
                        matched transaction shall be netted with the 
                        amount properly treated as interest expense by 
                        reason of such transaction, and any net income 
                        resulting from such netting shall be treated as 
                        an item of gross interest income, and
                            ``(ii) the offsetting positions which are 
                        part of such transaction shall be netted and 
                        the net position shall be treated as a single 
                        asset.
                    ``(B) Qualified matched transaction.--For purposes 
                of subparagraph (A) the term `qualified matched 
                transaction' means a sale and repurchase agreement with 
                respect to a security and an offsetting reverse 
                agreement with respect to the same security, entered 
                into by the foreign corporation in the active conduct 
                of its trade or business of being a dealer in 
                securities, and properly treated as offsetting 
                agreements in a matched book.
                    ``(C) Security.--For purposes of this paragraph, 
                the term `security' has the meaning given such term by 
                section 1236(c).
    ``(c) Look-Through in Case of 25-Percent Owned Corporation.--If a 
foreign corporation owns (directly or indirectly) at least 25 percent 
(by value) of the stock of another corporation, for purposes of 
determining whether such foreign corporation is a passive foreign 
corporation, such foreign corporation shall be treated as if it--
            ``(1) held its proportionate share of the assets of such 
        other corporation, and
            ``(2) received directly its proportionate share of the 
        income of such other corporation.

``SEC. 1297. SPECIAL RULES.

    ``(a) United States Person.--For purposes of this part, the term 
`United States person' has the meaning given to such term by section 
7701(a)(30).
    ``(b) Controlled Foreign Corporation.--For purposes of this part, 
the term `controlled foreign corporation' has the meaning given such 
term by section 957(a).
    ``(c) Marketable Stock.--For purposes of this part--
            ``(1) In general.--The term `marketable stock' means--
                    ``(A) any stock which is regularly traded on--
                            ``(i) a national securities exchange which 
                        is registered with the Securities and Exchange 
                        Commission or the national market system 
                        established pursuant to section 11A of the 
                        Securities and Exchange Act of 1934, or
                            ``(ii) any exchange or other market which 
                        the Secretary determines has rules adequate to 
                        carry out the purposes of this part, and
                    ``(B) to the extent provided in regulations, stock 
                in any foreign corporation which is comparable to a 
                regulated investment company and which offers for sale 
                or has outstanding any stock of which it is the issuer 
                and which is redeemable at its net asset value.
            ``(2) Special rule for regulated investment companies.--In 
        the case of any regulated investment company which is offering 
        for sale or has outstanding any stock of which it is the issuer 
        and which is redeemable at its net asset value, all stock in a 
        passive foreign corporation which it owns (or is treated under 
        section 1291(g) as owning) shall be treated as marketable stock 
        for purposes of this part. Except as provided in regulations, a 
        similar rule shall apply in the case of any other regulated 
        investment company.
    ``(d) Other Special Rules.--For purposes of this part--
            ``(1) Certain corporations not treated as passive.--A 
        corporation shall not be treated as a passive foreign 
        corporation for the 1st taxable year such corporation has gross 
        income (hereinafter in this paragraph referred to as the 
        `start-up year') if--
                    ``(A) no predecessor of such corporation was a 
                passive foreign corporation,
                    ``(B) it is established to the satisfaction of the 
                Secretary that such corporation will not be a passive 
                foreign corporation for either of the 1st 2 taxable 
                years following the start-up year, and
                    ``(C) such corporation is not a passive foreign 
                corporation for either of the 1st 2 taxable years 
                following the start-up year.
            ``(2) Certain corporations changing businesses.--A 
        corporation shall not be treated as a passive foreign 
        corporation for any taxable year if--
                    ``(A) neither such corporation (nor any 
                predecessor) was a passive foreign corporation for any 
                prior taxable year,
                    ``(B) it is established to the satisfaction of the 
                Secretary that--
                            ``(i) substantially all of the passive 
                        income of the corporation for the taxable year 
                        is attributable to proceeds from the 
                        disposition of 1 or more active trades or 
                        businesses, and
                            ``(ii) such corporation will not be a 
                        passive foreign corporation for either of the 
                        first 2 taxable years following the taxable 
                        year, and
                    ``(C) such corporation is not a passive foreign 
                corporation for either of such 2 taxable years.
        For purposes of section 1296(c), any passive income referred to 
        in subparagraph (B)(i) shall be treated as income which is not 
        passive income and any assets which produce income so described 
        shall be treated as assets producing income other than passive 
        income.
            ``(3) Treatment of certain foreign corporations owning 
        stock in 25-percent owned domestic corporation.--
                    ``(A) In general.--If a foreign corporation owns at 
                least 25 percent (by value) of the stock of a domestic 
                corporation, for purposes of determining whether such 
                foreign corporation is a passive foreign corporation, 
                any qualified stock held by such domestic corporation 
                shall be treated as an asset which does not produce 
                passive income (and is not held for the production of 
                passive income) and any amount included in gross income 
                with respect to such stock shall not be treated as 
                passive income.
                    ``(B) Qualified stock.--For purposes of 
                subparagraph (A), the term `qualified stock' means any 
                stock in a C corporation which is a domestic 
                corporation and which is not a regulated investment 
                company or real estate investment trust.
            ``(4) Treatment of corporation which was a pfic.--A 
        corporation shall be treated as a passive foreign corporation 
        for any taxable year beginning before January 1, 1994, if and 
        only if such corporation was a passive foreign investment 
        company under this part as in effect for such taxable year.
            ``(5) Separate interests treated as separate 
        corporations.--Under regulations prescribed by the Secretary, 
        where necessary to carry out the purposes of this part, 
        separate classes of stock (or other interests) in a corporation 
        shall be treated as interests in separate corporations.
    ``(e) Treatment of Certain Leased Property.--For purposes of 
section 1296(a)(2)--
            ``(1) In general.--Any tangible personal property with 
        respect to which the foreign corporation is the lessee under a 
        lease with a term of at least 12 months shall be treated as an 
        asset actually held by such corporation.
            ``(2) Determination of value.--
                    ``(A) In general.--The value of any asset to which 
                paragraph (1) applies shall be the lesser of--
                            ``(i) the fair market value of such 
                        property, or
                            ``(ii) the unamortized portion (as 
                        determined under regulations prescribed by the 
                        Secretary) of the present value of the payments 
                        under the lease for the use of such property.
                    ``(B) Present value.--For purposes of subparagraph 
                (A), the present value of payments described in 
                subparagraph (A)(ii) shall be determined in the manner 
                provided in regulations prescribed by the Secretary--
                            ``(i) as of the beginning of the lease 
                        term, and
                            ``(ii) except as provided in such 
                        regulations, by using a discount rate equal to 
                        the applicable Federal rate determined under 
                        section 1274(d)--
                                    ``(I) by substituting the lease 
                                term for the term of the debt 
                                instrument, and
                                    ``(II) without regard to paragraph 
                                (2) or (3) thereof.
            ``(3) Exceptions.--This subsection shall not apply in any 
        case where--
                    ``(A) the lessor is a related person (as defined in 
                the last sentence of section 1296(b)(2)) with respect 
                to the foreign corporation, or
                    ``(B) a principal purpose of leasing the property 
                was to avoid the provisions of this part.
    ``(f) Election by Certain Passive Foreign Corporations To Be 
Treated as a Domestic Corporation.--
            ``(1) In general.--For purposes of this title, if--
                    ``(A) a passive foreign corporation would qualify 
                as a regulated investment company under part I of 
                subchapter M if such passive foreign corporation were a 
                domestic corporation,
                    ``(B) such passive foreign corporation meets such 
                requirements as the Secretary shall prescribe to ensure 
                that the taxes imposed by this title on such passive 
                foreign corporation are paid, and
                    ``(C) such passive foreign corporation makes an 
                election to have this paragraph apply and waives all 
                benefits which are granted by the United States under 
                any treaty and to which such corporation would 
                otherwise be entitled by reason of being a resident of 
                another country,
        such corporation shall be treated as a domestic corporation.
            ``(2) Certain rules made applicable.--Rules similar to the 
        rules of paragraphs (2), (3), (4)(A), and (5) of section 953(d) 
        shall apply with respect to any corporation making an election 
        under paragraph (1).
    ``(g) Special Rules for Certain Taxpayers.--
            ``(1) Tax-exempt organizations.--In the case of any 
        organization exempt from tax under section 501--
                    ``(A) this part shall apply to any stock in a 
                passive foreign corporation owned (or treated as owned 
                under section 1294(e)) by such organization only to the 
                extent that a dividend on such stock would be taken 
                into account in determining the unrelated business 
                taxable income of such organization, and
                    ``(B) to the extent that this part applies to any 
                such stock, this part shall be applied in the same 
                manner as if such organization were not exempt from tax 
                under section 501(a).
            ``(2) Treatment of stock held by pooled income fund.--If 
        stock in a passive foreign corporation is owned (or treated as 
        owned under section 1294(e)) by a pooled income fund (as 
        defined in section 642(c)(5)) and no portion of any gain from a 
        disposition of such stock may be allocated to income under the 
        terms of the governing instrument of such fund--
                    ``(A) section 1293 shall not apply to any gain on a 
                disposition of such stock by such fund if (without 
                regard to section 1293) a deduction would be allowable 
                with respect to such gain under section 642(c)(3),
                    ``(B) subpart A shall not apply with respect to 
                such stock, and
                    ``(C) in determining whether section 1293 applies 
                to any distribution in respect of such stock, such 
                stock shall be treated as failing to qualify for the 
                exceptions under section 1294(a)(1).
    ``(h) Information From Shareholders.--Every United States person 
who owns stock in any passive foreign corporation shall furnish with 
respect to such corporation such information as the Secretary may 
prescribe.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
part, including regulations--
            ``(1) providing that gross income shall be determined 
        without regard to section 1293 for such purposes as may be 
        specified in such regulations, and
            ``(2) to prevent avoidance of the provisions of this part 
        through changes in citizenship or residence status.''
    (b) Installment Sales Treatment Not Available.--Paragraph (2) of 
section 453(k) is amended by striking ``or'' at the end of subparagraph 
(A), by inserting ``or'' at the end of subparagraph (B), and by adding 
at the end thereof the following new subparagraph:
                    ``(C) stock in a passive foreign corporation (as 
                defined in section 1296) if section 1293 applies to 
                such sale,''.
    (c) Treatment of Mark-to-Market Gain Under Section 4982.--
            (1) Subsection (e) of section 4982 is amended by adding at 
        the end thereof the following new paragraph:
            ``(6) Treatment of gain recognized under section 1291.--For 
        purposes of determining a regulated investment company's 
        ordinary income--
                    ``(A) notwithstanding paragraph (1)(C), section 
                1291 shall be applied as if such company's taxable year 
                ended on October 31, and
                    ``(B) any ordinary gain or loss from an actual 
                disposition of stock in a passive foreign corporation 
                during the portion of the calendar year after October 
                31 shall be taken into account in determining such 
                company's ordinary income for the following calendar 
                year.
        In the case of a company making an election under paragraph 
        (4), the preceding sentence shall be applied by substituting 
        the last day of the company's taxable year for October 31.''
            (2) Subsection (b) of section 852 is amended by adding at 
        the end thereof the following new paragraph:
            ``(10) Special rule for certain losses on stock in passive 
        foreign corporations.--To the extent provided in regulations, 
        the taxable income of a regulated investment company (other 
        than a company to which an election under section 4982(e)(4) 
        applies) shall be computed without regard to any net reduction 
        in the value of any stock of a passive foreign corporation to 
        which section 1291 applies occurring after October 31 of the 
        taxable year, and any such reduction shall be treated as 
        occurring on the first day of the following taxable year.''
            (3) Subsection (c) of section 852 is amended by inserting 
        after ``October 31 of such year'' the following: ``, without 
        regard to any net reduction in the value of any stock of a 
        passive foreign corporation to which section 1291 applies 
        occurring after October 31 of such year,''.
    (d) Treatment of Certain Previously Taxed Amounts.--Subsection (e) 
of section 959 is amended--
            (1) by adding at the end thereof the following new 
        sentence: ``A similar rule shall apply in the case of amounts 
        included in gross income under section 1293 (as in effect on 
        January 1, 1993).'', and
            (2) by striking ``Amounts Previously Taxed Under Section 
        1248'' in the subsection heading and inserting ``Certain 
        Previously Taxed Amounts''.

SEC. 403. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) General Rule.--
            (1) Paragraph (2) of section 171(c) is amended--
                    (A) by striking ``, or by a foreign personal 
                holding company, as defined in section 552'', and
                    (B) by striking ``, or a foreign personal holding 
                company''.
            (2) Section 312 is amended by striking subsection (j).
            (3) Subsection (m) of section 312 is amended by striking 
        ``, a foreign investment company (within the meaning of section 
        1246(b)), or a foreign personal holding company (within the 
        meaning of section 552)'' and inserting ``or a passive foreign 
        corporation (as defined in section 1296)''.
            (4) Subsection (e) of section 443 is amended by striking 
        paragraph (3) and by redesignating paragraphs (4) and (5) as 
        paragraphs (3) and (4), respectively.
            (5) Clause (ii) of section 465(c)(7)(B) is amended to read 
        as follows:
                            ``(ii) a passive foreign corporation with 
                        respect to which the stock ownership 
                        requirements of section 1292(a)(2)(B) are met, 
                        or''.
            (6) Subsection (b) of section 535 is amended by striking 
        paragraph (9).
            (7) Subsection (d) of section 535 is hereby repealed.
            (8) Paragraph (1) of section 543(b) is amended by inserting 
        ``and'' at the end of subparagraph (A), by striking ``, and'' 
        at the end of subparagraph (B) and inserting a period, and by 
        striking subparagraph (C).
            (9) Paragraph (1) of section 562(b) is amended by striking 
        ``or a foreign personal holding company described in section 
        552''.
            (10) Section 563 is amended--
                    (A) by striking subsection (c),
                    (B) by redesignating subsection (d) as subsection 
                (c), and
                    (C) by striking ``subsection (a), (b), or (c)'' in 
                subsection (c) (as so redesignated) and inserting 
                ``subsection (a) or (b)''.
            (11) Paragraph (2) of section 751(d) is amended by striking 
        ``subsection (a) of section 1246 (relating to gain on foreign 
        investment company stock)'' and inserting ``section 1291 
        (relating to stock in certain passive foreign corporations 
        marked to market)''.
            (12) Subsection (b) of section 851 is amended by striking 
        the sentence following paragraph (4)(B) which contains a 
        reference to section 1293(a).
            (13) Clause (ii) of section 864(b)(2)(A) is amended by 
        striking ``(other than'' and all that follows down through 
        ``holding company)'' and inserting ``(other than a corporation 
        which would be a personal holding company but for section 
        542(c)(5) and which is not United States controlled (as defined 
        in section 1292(a)(2))''.
            (14) Subsection (d) of section 904 is amended by striking 
        paragraphs (2)(A)(ii), (2)(E)(iii), and (3)(I).
            (15)(A) Subparagraph (A) of section 904(g)(1) is amended to 
        read as follows:
                    ``(A) Any amount included in gross income under 
                section 951(a) (relating to amounts included in gross 
                income of United States shareholders).''
            (B) The paragraph heading of paragraph (2) of section 
        904(g) is amended by striking ``and foreign personal holding or 
        passive foreign investment company''.
            (16) Section 951 is amended by striking subsections (c), 
        (d), and (f), and by redesignating subsection (e) as subsection 
        (c).
            (17) Paragraph (1) of section 986(c) is amended by striking 
        ``or 1293(c)''.
            (18) Paragraph (3) of section 989(b) is amended by striking 
        ``, 551(a), or 1293(a)''.
            (19) Paragraph (5) of section 1014(b) is hereby repealed.
            (20) Subsection (a) of section 1016 is amended by striking 
        paragraph (13) and by redesignating the following paragraphs 
        accordingly.
            (21) Paragraph (3) of section 1212(a) is amended--
                    (A) by striking subparagraph (A),
                    (B) by redesignating subparagraphs (B) and (C) as 
                subparagraphs (A) and (B), respectively, and
                    (C) by amending subparagraph (D) to read as 
                follows:
                    ``(C) for which it is a passive foreign 
                corporation.''
            (22) Section 1223 is amended by striking paragraph (10) and 
        by redesignating the following paragraphs accordingly.
            (23) Subsection (d) of section 1248 is amended by striking 
        paragraphs (5) and (7).
            (24)(A) Subsection (a) of section 6035 is amended by 
        striking ``foreign personal holding company (as defined in 
        section 552)'' and inserting ``passive foreign corporation with 
        respect to which the stock ownership requirements of section 
        1292(a)(2)(B) are met''.
            (B) The section heading for section 6035 is amended by 
        striking ``FOREIGN PERSONAL HOLDING COMPANIES'' and inserting 
        ``CLOSELY HELD PASSIVE FOREIGN CORPORATIONS''.
            (C) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 is amended by striking ``foreign 
        personal holding companies'' in the item relating to section 
        6035 and inserting ``closely-held passive foreign 
        corporations''.
            (25) Subparagraph (D) of section 6103(e)(1) is amended by 
        striking clause (iv) and redesignating clauses (v) and (vi) as 
        clauses (iv) and (v), respectively.
            (26) Subparagraph (B) of section 6501(e)(1) is amended to 
        read as follows:
                    ``(B) Constructive dividends.--If the taxpayer 
                omits from gross income an amount properly includible 
                therein under section 951(a), the tax may be assessed, 
                or a proceeding in court for the collection of such tax 
                may be done without assessing, at any time within 6 
                years after the return was filed.''
            (27) Section 4947 and section 4948(c)(4) are each amended 
        by striking ``556(b)(2),'' each place it appears.
    (b) Clerical Amendments.--
            (1) The table of parts for subchapter G of chapter 1 is 
        amended by striking the item relating to part III.
            (2) The table of sections for part IV of subchapter P of 
        chapter 1 is amended by striking the items relating to sections 
        1246 and 1247.
            (3) The table of parts for subchapter P of chapter 1 is 
        amended by striking the item relating to part VI and inserting 
        the following:

                              ``Part VI. Treatment of passive foreign 
                                        corporations.''

SEC. 404. EFFECTIVE DATE.

    (a) General Rule.--Except as otherwise provided in this section, 
the amendments made by this subtitle shall apply to--
            (1) taxable years of United States persons beginning after 
        December 31, 1993, and
            (2) taxable years of foreign corporations ending with or 
        within such taxable years of United States persons.
    (b) Denial of Installment Sales Treatment.--The amendment made by 
section 402(b) shall apply to dispositions after December 31, 1993.
    (c) Basis Rule.--The amendments made by this subtitle shall not 
affect the determination of the basis of any stock acquired from a 
decedent in a taxable year beginning before January 1, 1994.
    (d) Study.--
            (1) In general.--The Secretary of the Treasury shall 
        conduct a study of the tax treatment for purposes of the rules 
        applicable to passive foreign corporations (as amended by this 
        subtitle) of securities sale and repurchase transactions and 
        securities lending and borrowing transactions.
            (2) Report.--Not later than the day 1 year after the date 
        of the enactment of this Act, the Secretary of the Treasury 
        shall submit to the Committee on Ways and Means of the House of 
        Representatives and the Committee on Finance a report on the 
        study conducted under this subsection, together with such 
        recommendations as he may deem advisable.

        Subtitle B--Treatment of Controlled Foreign Corporations

SEC. 411. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
              CORPORATIONS TREATED AS DIVIDENDS.

    (a) General Rule.--Section 964 (relating to miscellaneous 
provisions) is amended by adding at the end thereof the following new 
subsection:
    ``(f) Gain on Certain Stock Sales by Controlled Foreign 
Corporations Treated as Dividends.--
            ``(1) In general.--If a controlled foreign corporation 
        sells or exchanges stock in any other foreign corporation, gain 
        recognized on such sale or exchange shall be included in the 
        gross income of such controlled foreign corporation as a 
        dividend to the same extent that it would have been so included 
        under section 1248(a) if such controlled foreign corporation 
        were a United States person. For purposes of determining the 
        amount which would have been so includible, the determination 
        of whether such other foreign corporation was a controlled 
        foreign corporation shall be made without regard to the 
        preceding sentence.
            ``(2) Same country exception not applicable.--Clause (i) of 
        section 954(c)(3)(A) shall not apply to any amount treated as a 
        dividend by reason of paragraph (1).
            ``(3) Clarification of deemed sales.--For purposes of this 
        subsection, a controlled foreign corporation shall be treated 
        as having sold or exchanged any stock if, under any provision 
        of this subtitle, such controlled foreign corporation is 
        treated as having gain from the sale or exchange of such 
        stock.''.
    (b) Amendment of Section 904(d).--Clause (i) of section 
904(d)(2)(E) is amended by striking ``and except as provided in 
regulations, the taxpayer was a United States shareholder in such 
corporation''.
    (c) Effective Dates.--
            (1) The amendment made by subsection (a) shall apply to 
        gain recognized on transactions occurring after the date of the 
        enactment of this Act.
            (2) The amendment made by subsection (b) shall apply to 
        distributions after the date of the enactment of this Act.

SEC. 412. AUTHORITY TO PRESCRIBE SIMPLIFIED METHOD FOR APPLYING SECTION 
              960(b)(2).

    (a) General Rule.--Paragraph (2) of section 960(b) is amended by 
adding at the end thereof the following new sentence: ``The Secretary 
may prescribe regulations requiring the use of simplified methods set 
forth in such regulations for determining the amount of the increase 
referred to in the preceding sentence.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 413. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) Section 1248 Gain Taken Into Account in Determining Pro Rata 
Share.--
            (1) In general.--Paragraph (2) of section 951(a) (defining 
        pro rata share of subpart F income) is amended by adding at the 
        end thereof the following new sentence: ``For purposes of 
        subparagraph (B), any gain included in the gross income of any 
        person as a dividend under section 1248 shall be treated as a 
        distribution received by such person with respect to the stock 
        involved.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to dispositions after the date of the enactment of 
        this Act.
    (b) Basis Adjustments in Stock Held by Foreign Corporation.--
            (1) In general.--Section 961 (relating to adjustments to 
        basis of stock in controlled foreign corporations and of other 
        property) is amended by adding at the end thereof the following 
        new subsection:
    ``(c) Basis Adjustments in Stock Held by Foreign Corporation.--
Under regulations prescribed by the Secretary, if a United States 
shareholder is treated under section 958(a)(2) as owning any stock in a 
controlled foreign corporation which is actually owned by another 
controlled foreign corporation, adjustments similar to the adjustments 
provided by subsections (a) and (b) shall be made to the basis of such 
stock in the hands of such other controlled foreign corporation, but 
only for the purposes of determining the amount included under section 
951 in the gross income of such United States shareholder (or any other 
United States shareholder who acquires from any person any portion of 
the interest of such United States shareholder by reason of which such 
shareholder was treated as owning such stock, but only to the extent of 
such portion, and subject to such proof of identity of such interest as 
the Secretary may prescribe by regulations).''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply for purposes of determining inclusions for taxable 
        years of United States shareholders beginning after December 
        31, 1993.
    (c) Determination of Previously Taxed Income in Section 304 
Distributions, Etc.--
            (1) In general.--Section 959 (relating to exclusion from 
        gross income of previously taxed earnings and profits) is 
        amended by adding at the end thereof the following new 
        subsection:
    ``(f) Adjustments for Certain Transactions.--If by reason of--
            ``(1) a transaction to which section 304 applies,
            ``(2) the structure of a United States shareholder's 
        holdings in controlled foreign corporations, or
            ``(3) other circumstances,
there would be a multiple inclusion of any item in income (or an 
inclusion or exclusion without an appropriate basis adjustment) by 
reason of this subpart, the Secretary may prescribe regulations 
providing such modifications in the application of this subpart as may 
be necessary to eliminate such multiple inclusion or provide such basis 
adjustment, as the case may be.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
    (d) Clarification of Treatment of Branch Tax Exemptions or 
Reductions.--
            (1) In general.--Subsection (b) of section 952 is amended 
        by adding at the end thereof the following new sentence: ``For 
        purposes of this subsection, any exemption (or reduction) with 
        respect to the tax imposed by section 884 shall not be taken 
        into account.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.

SEC. 414. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER 
              COMPANIES.

    (a) Section 902 Credit.--
            (1) In general.--Subsection (b) of section 902 (relating to 
        deemed taxes increased in case of certain 2nd and 3rd tier 
        foreign corporations) is amended to read as follows:
    ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
Corporations.--
            ``(1) In general.--If--
                    ``(A) any foreign corporation is a member of a 
                qualified group, and
                    ``(B) such foreign corporation owns 10 percent or 
                more of the voting stock of another member of such 
                group from which it receives dividends in any taxable 
                year,
        such foreign corporation shall be deemed to have paid the same 
        proportion of such other member's post-1986 foreign income 
        taxes as would be determined under subsection (a) if such 
        foreign corporation were a domestic corporation.
            ``(2) Qualified group.--For purposes of paragraph (1), the 
        term `qualified group' means--
                    ``(A) the foreign corporation described in 
                subsection (a), and
                    ``(B) any other foreign corporation if--
                            ``(i) the domestic corporation owns at 
                        least 5 percent of the voting stock of such 
                        other foreign corporation indirectly through a 
                        chain of foreign corporations connected through 
                        stock ownership of at least 10 percent of their 
                        voting stock,
                            ``(ii) the foreign corporation described in 
                        subsection (a) is the first tier corporation in 
                        such chain, and
                            ``(iii) such other corporation is not below 
                        the sixth tier in such chain,
        The term `qualified group' shall not include any foreign 
        corporation below the third tier in the chain referred to in 
        clause (i) unless such foreign corporation is a controlled 
        foreign corporation (as defined in section 957) and the 
        domestic corporation is a United States shareholder (as defined 
        in section 951(b)) in such foreign corporation. Paragraph (1) 
        shall apply to those taxes paid by a member of the qualified 
        group below the third tier only with respect to periods during 
        which it was a controlled foreign corporation.''
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 902(c)(3) is 
                amended by adding ``or'' at the end of clause (i) and 
                by striking clauses (ii) and (iii) and inserting the 
                following new clause:
                            ``(ii) the requirements of subsection 
                        (b)(2) are met with respect to such foreign 
                        corporation.''
                    (B) Subparagraph (B) of section 902(c)(4) is 
                amended by striking ``3rd foreign corporation'' and 
                inserting ``sixth tier foreign corporation''.
                    (C) The heading for paragraph (3) of section 902(c) 
                is amended by striking ``where domestic corporation 
                acquires 10 percent of foreign corporation'' and 
                inserting ``where foreign corporation first 
                qualifies''.
                    (D) Paragraph (3) of section 902(c) is amended by 
                striking ``ownership'' each place it appears.
    (b) Section 960 Credit.--Paragraph (1) of section 960(a) (relating 
to special rules for foreign tax credits) is amended to read as 
follows:
            ``(1) Deemed paid credit.--For purposes of subpart A of 
        this part, if there is included under section 951(a) in the 
        gross income of a domestic corporation any amount attributable 
        to earnings and profits of a foreign corporation which is a 
        member of a qualified group (as defined in section 902(b)) with 
        respect to the domestic corporation, then, except to the extent 
        provided in regulations, section 902 shall be applied as if the 
        amount so included were a dividend paid by such foreign 
        corporation (determined by applying section 902(c) in 
        accordance with section 904(d)(3)(B)).''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes of foreign corporations for taxable years of 
        such corporations beginning after the date of enactment of this 
        Act.
            (2) Special rule.--In the case of any chain of foreign 
        corporations described in clauses (i) and (ii) of section 
        902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended 
        by this section), no liquidation, reorganization, or similar 
        transaction in a taxable year beginning after the date of the 
        enactment of this Act shall have the effect of permitting taxes 
        to be taken into account under section 902 of the Internal 
        Revenue Code of 1986 which could not have been taken into 
        account under such section but for such transaction.

SEC. 415. STUDY ON INVESTMENTS BY CONTROLLED FOREIGN CORPORATION IN 
              UNITED STATES PROPERTY.

    (a) General Rule.--The Secretary of the Treasury shall conduct a 
study on tax treatment of investments by controlled foreign 
corporations in obligations of United States persons other than 
corporations. Such study shall include the Secretary's views as to 
whether the treatment of such investments should be changed, along with 
a discussion of the merits and consequences of any such change.
    (b) Report.--Not later than December 31, 1993, the Secretary of the 
Treasury shall submit to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance a report on the study 
conducted under this subsection, together with such recommendations as 
he may deem advisable.

                      Subtitle C--Other Provisions

SEC. 421. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

    (a) Accrued Taxes Translated by Using Average Rate for Year to 
Which Taxes Relate.--
            (1) In general.--Subsection (a) of section 986 (relating to 
        translation of foreign taxes) is amended to read as follows:
    ``(a) Foreign Income Taxes.--
            ``(1) Translation of accrued taxes.--
                    ``(A) In general.--For purposes of determining the 
                amount of the foreign tax credit, in the case of a 
                taxpayer who takes foreign income taxes into account 
                when accrued, the amount of any foreign income taxes 
                (and any adjustment thereto) shall be translated into 
                dollars by using the average exchange rate for the 
                taxable year to which such taxes relate.
                    ``(B) Exception for taxes not paid within following 
                2 years.--
                            ``(i) Subparagraph (A) shall not apply to 
                        any foreign income taxes paid after the date 2 
                        years after the close of the taxable year to 
                        which such taxes relate.
                            ``(ii) Subparagraph (A) shall not apply to 
                        taxes paid before the beginning of the taxable 
                        year to which such taxes relate.
                    ``(C) Exception for inflationary currencies.--To 
                the extent provided in regulations, subparagraph (A) 
                shall not apply to any foreign income taxes the 
                liability for which is denominated in any currency 
                determined to be an inflationary currency under such 
                regulations.
                    ``(D) Cross reference.--

                                ``For adjustments where tax is not paid 
within 2 years, see section 905(c).

            ``(2) Translation of taxes to which paragraph (1) does not 
        apply.--For purposes of determining the amount of the foreign 
        tax credit, in the case of any foreign income taxes to which 
        subparagraph (A) of paragraph (1) does not apply--
                    ``(A) such taxes shall be translated into dollars 
                using the exchange rates as of the time such taxes were 
                paid to the foreign country or possession of the United 
                States, and
                    ``(B) any adjustment to the amount of such taxes 
                shall be translated into dollars using--
                            ``(i) except as provided in clause (ii), 
                        the exchange rate as of the time when such 
                        adjustment is paid to the foreign country or 
                        possession, or
                            ``(ii) in the case of any refund or credit 
                        of foreign income taxes, using the exchange 
                        rate as of the time of the original payment of 
                        such foreign income taxes.
            ``(3) Foreign income taxes.--For purposes of this 
        subsection, the term `foreign income taxes' means any income, 
        war profits, or excess profits taxes paid or accrued to any 
        foreign country or to any possession of the United States.''
            (2) Adjustment when not paid within 2 years after year to 
        which taxes relate.--Subsection (c) of section 905 is amended 
        to read as follows:
    ``(c) Adjustments to Accrued Taxes.--
            ``(1) In general.--If--
                    ``(A) accrued taxes when paid differ from the 
                amounts claimed as credits by the taxpayer,
                    ``(B) accrued taxes are not paid before the date 2 
                years after the close of the taxable year to which such 
                taxes relate, or
                    ``(C) any tax paid is refunded in whole or in part,
        the taxpayer shall notify the Secretary, who shall redetermine 
        the amount of the tax for the year or years affected.
            ``(2) Special rule for taxes not paid within 2 years.--In 
        making the redetermination under paragraph (1), no credit shall 
        be allowed for accrued taxes not paid before the date referred 
        to in subparagraph (B) of paragraph (1). Any such taxes if 
        subsequently paid shall be taken into account for the taxable 
        year in which paid and no redetermination under this section 
        shall be made on account of such payment.
            ``(3) Adjustments.--The amount of tax due on any 
        redetermination under paragraph (1) (if any) shall be paid by 
        the taxpayer on notice and demand by the Secretary, and the 
        amount of tax overpaid (if any) shall be credited or refunded 
        to the taxpayer in accordance with subchapter B of chapter 66 
        (section 6511 et seq.).
            ``(4) Bond requirements.--In the case of any tax accrued 
        but not paid, the Secretary, as a condition precedent to the 
        allowance of the credit provided in this subpart, may require 
        the taxpayer to give a bond, with sureties satisfactory to and 
        approved by the Secretary, in such sum as the Secretary may 
        require, conditioned on the payment by the taxpayer of any 
        amount of tax found due on any such redetermination. Any such 
        bond shall contain such further conditions as the Secretary may 
        require.
            ``(5) Other special rules.--In any redetermination under 
        paragraph (1) by the Secretary of the amount of tax due from 
        the taxpayer for the year or years affected by a refund, the 
        amount of the taxes refunded for which credit has been allowed 
        under this section shall be reduced by the amount of any tax 
        described in section 901 imposed by the foreign country or 
        possession of the United States with respect to such refund; 
        but no credit under this subpart, or deduction under section 
        164, shall be allowed for any taxable year with respect to any 
        such tax imposed on the refund. No interest shall be assessed 
        or collected on any amount of tax due on any redetermination by 
        the Secretary, resulting from a refund to the taxpayer, for any 
        period before the receipt of such refund, except to the extent 
        interest was paid by the foreign country or possession of the 
        United States on such refund for such period.''
    (b) Authority to Use Average Rates.--
            (1) In general.--Subsection (a) of section 986 (relating to 
        foreign taxes) is amended by adding at the end thereof the 
        following new paragraph:
            ``(3) Authority to permit use of average rates.--To the 
        extent prescribed in regulations, the average exchange rate for 
        the period (specified in such regulations) during which the 
        taxes or adjustment is paid may be used instead of the exchange 
        rate as of the time of such payment.''
            (2) Determination of average rates.--Subsection (c) of 
        section 989 is amended by striking ``and'' at the end of 
        paragraph (4), by striking the period at the end of paragraph 
        (5) and inserting ``, and'', and by adding at the end thereof 
        the following new paragraph:
            ``(6) setting forth procedures for determining the average 
        exchange rate for any period.''
            (3) Conforming amendments.--Subsection (b) of section 989 
        is amended by striking ``weighted'' each place it appears.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsections (a)(1) 
        and (b) shall apply to taxes paid or accrued in taxable years 
        beginning after December 31, 1992.
            (2) Subsection (a)(2).--The amendment made by subsection 
        (a)(2) shall apply to taxes which relate to taxable years 
        beginning after December 31, 1992.

SEC. 422. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR 
              ALTERNATIVE MINIMUM TAX.

    (a) General Rule.--Subsection (a) of section 59 (relating to 
alternative minimum tax foreign tax credit) is amended by adding at the 
end thereof the following new paragraph:
            ``(3) Election to use simplified section 904 limitation.--
                    ``(A) In general.--In determining the alternative 
                minimum tax foreign tax credit for any taxable year to 
                which an election under this paragraph applies--
                            ``(i) subparagraph (B) of paragraph (1) 
                        shall not apply, and
                            ``(ii) the limitation of section 904 shall 
                        be based on the proportion which--
                                    ``(I) the taxpayer's taxable income 
                                (as determined for purposes of the 
                                regular tax) from sources without the 
                                United States (but not in excess of the 
                                taxpayer's entire alternative minimum 
                                taxable income), bears to
                                    ``(II) the taxpayer's entire 
                                alternative minimum taxable income for 
                                the taxable year.
                    ``(B) Election.--
                            ``(i) In general.--An election under this 
                        paragraph may be made only for the taxpayer's 
                        first taxable year which begins after December 
                        31, 1993, and for which the taxpayer claims an 
                        alternative minimum tax foreign tax credit.
                            ``(ii) Election revocable only with 
                        consent.--An election under this paragraph, 
                        once made, shall apply to the taxable year for 
                        which made and all subsequent taxable years 
                        unless revoked with the consent of the 
                        Secretary.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 423. MODIFICATION OF SECTION 1491.

    (a) General Rule.--So much of chapter 5 (relating to tax on 
transfers to avoid income tax) as precedes section 1492 is amended to 
read as follows:

        ``CHAPTER 5--TREATMENT OF TRANSFERS TO AVOID INCOME TAX

                              ``Sec. 1491. Recognition of gain.
                              ``Sec. 1492. Exceptions.

``SEC. 1491. RECOGNITION OF GAIN.

    ``In the case of any transfer of property by a United States person 
to a foreign corporation as paid-in surplus or as a contribution to 
capital, to a foreign estate or trust, or to a foreign partnership, for 
purposes of this subtitle, such transfer shall be treated as a sale or 
exchange for an amount equal to the fair market value of the property 
transferred, and the transferor shall recognize as gain the excess of--
            ``(1) the fair market value of the property so transferred, 
        over
            ``(2) the adjusted basis (for purposes of determining gain) 
        of such property in the hands of the transferor.''
    (b) Conforming Amendments.--
            (1) Section 1057 is hereby repealed.
            (2) Section 1492 is amended to read as follows:

``SEC. 1492. EXCEPTIONS.

    ``The provisions of section 1491 shall not apply--
            ``(1) If the transferee is an organization exempt from 
        income tax under part I of subchapter F of chapter 1 (other 
        than an organization described in section 401(a)),
            ``(2) To a transfer described in section 367, or
            ``(3) To any other transfer, to the extent provided in 
        regulations in accordance with principles similar to the 
        principles of section 367 or otherwise consistent with the 
        purpose of section 1491.''
            (3) Section 1494 is hereby repealed.
            (4) The table of sections for part IV of subchapter O of 
        chapter 1 is amended by striking the item relating to section 
        1057.
            (5) The table of chapters for subtitle A is amended by 
        striking ``Tax on'' in the item relating to chapter 5 and 
        inserting ``Treatment of''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 424. MODIFICATION OF SECTION 367(b).

    (a) General Rule.--Paragraph (1) of section 367(b) is amended to 
read as follows:
            ``(1) In general.--In the case of any transaction described 
        in section 332, 351, 354, 355, 356, or 361 in which the status 
        of a foreign corporation as a corporation is a general 
        condition for nonrecognition by 1 or more of the parties to the 
        transaction, income shall be required to be recognized to the 
        extent provided in regulations prescribed by the Secretary 
        which are necessary or appropriate to prevent the avoidance of 
        Federal income taxes. This subsection shall not apply to a 
        transaction in which the foreign corporation is not treated as 
        a corporation under subsection (a)(1).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after December 31, 1993.

                   TITLE V--TREATMENT OF INTANGIBLES

SEC. 501. AMORTIZATION OF GOODWILL AND CERTAIN OTHER INTANGIBLES.

    (a) General Rule.--Part VI of subchapter B of chapter 1 (relating 
to itemized deductions for individuals and corporations) is amended by 
adding at the end thereof the following new section:

``SEC. 197. AMORTIZATION OF GOODWILL AND CERTAIN OTHER INTANGIBLES.

    ``(a) General Rule.--A taxpayer shall be entitled to an 
amortization deduction with respect to any amortizable section 197 
intangible. The amount of such deduction shall be determined by 
amortizing the adjusted basis (for purposes of determining gain) of 
such intangible ratably over the 14-year period beginning with the 
month in which such intangible was acquired.
    ``(b) No Other Depreciation or Amortization Deduction Allowable.--
Except as provided in subsection (a), no depreciation or amortization 
deduction shall be allowable with respect to any amortizable section 
197 intangible.
    ``(c) Amortizable Section 197 Intangible.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        section, the term `amortizable section 197 intangible' means 
        any section 197 intangible--
                    ``(A) which is acquired by the taxpayer after the 
                date of the enactment of this section, and
                    ``(B) which is held in connection with the conduct 
                of a trade or business or an activity described in 
                section 212.
            ``(2) Exclusion of self-created intangibles, etc.--The term 
        `amortizable section 197 intangible' shall not include any 
        section 197 intangible--
                    ``(A) which is not described in subparagraph (D), 
                (E), or (F) of subsection (d)(1), and
                    ``(B) which is created by the taxpayer.
        This paragraph shall not apply if the intangible is created in 
        connection with a transaction (or series of related 
        transactions) involving the acquisition of assets constituting 
        a trade or business or substantial portion thereof.
            ``(3) Anti-churning rules.--

                                ``For exclusion of intangibles acquired 
in certain transactions, see subsection (f)(9).

    ``(d) Section 197 Intangible.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        section, the term `section 197 intangible' means--
                    ``(A) goodwill,
                    ``(B) going concern value,
                    ``(C) any of the following intangible items:
                            ``(i) workforce in place including its 
                        composition and terms and conditions 
                        (contractual or otherwise) of its employment,
                            ``(ii) business books and records, 
                        operating systems, or any other information 
                        base (including lists or other information with 
                        respect to current or prospective customers),
                            ``(iii) any patent, copyright, formula, 
                        process, design, pattern, knowhow, format, or 
                        other similar item,
                            ``(iv) any customer-based intangible,
                            ``(v) any supplier-based intangible, and
                            ``(vi) any other similar item,
                    ``(D) any license, permit, or other right granted 
                by a governmental unit or an agency or instrumentality 
                thereof,
                    ``(E) any covenant not to compete (or other 
                arrangement to the extent such arrangement has 
                substantially the same effect as a covenant not to 
                compete) entered into in connection with an acquisition 
                (directly or indirectly) of an interest in a trade or 
                business or substantial portion thereof, and
                    ``(F) any franchise, trademark, or trade name.
            ``(2) Customer-based intangible.--
                    ``(A) In general.--The term `customer-based 
                intangible' means--
                            ``(i) composition of market,
                            ``(ii) market share, and
                            ``(iii) any other value resulting from 
                        future provision of goods or services pursuant 
                        to relationships (contractual or otherwise) in 
                        the ordinary course of business with customers.
                    ``(B) Special rule for financial institutions.--In 
                the case of a financial institution, the term 
                `customer-based intangible' includes deposit base and 
                similar items.
            ``(3) Supplier-based intangible.--The term `supplier-based 
        intangible' means any value resulting from future acquisitions 
        of goods or services pursuant to relationships (contractual or 
        otherwise) in the ordinary course of business with suppliers of 
        goods or services to be used or sold by the taxpayer.
    ``(e) Exceptions.--For purposes of this section, the term `section 
197 intangible' shall not include any of the following:
            ``(1) Financial interests.--Any interest--
                    ``(A) in a corporation, partnership, trust, or 
                estate, or
                    ``(B) under an existing futures contract, foreign 
                currency contract, notional principal contract, or 
                other similar financial contract.
            ``(2) Land.--Any interest in land.
            ``(3) Computer software.--
                    ``(A) In general.--Any--
                            ``(i) computer software which is readily 
                        available for purchase by the general public, 
                        is subject to a nonexclusive license, and has 
                        not been substantially modified, and
                            ``(ii) other computer software which is not 
                        acquired in a transaction (or series of related 
                        transactions) involving the acquisition of 
                        assets constituting a trade or business or 
                        substantial portion thereof.
                    ``(B) Computer software defined.--For purposes of 
                subparagraph (A), the term `computer software' means 
                any program designed to cause a computer to perform a 
                desired function. Such term shall not include any data 
                base or similar item unless the data base or item is in 
                the public domain and is incidental to the operation of 
                otherwise qualifying computer software.
            ``(4) Certain interests or rights acquired separately.--Any 
        of the following not acquired in a transaction (or series of 
        related transactions) involving the acquisition of assets 
        constituting a trade business or substantial portion thereof:
                    ``(A) Any interest in a film, sound recording, 
                video tape, book, or similar property.
                    ``(B) Any right to receive tangible property or 
                services under a contract or granted by a governmental 
                unit or agency or instrumentality thereof.
                    ``(C) Any interest in a patent or copyright.
                    ``(D) To the extent provided in regulations, any 
                right under a contract (or granted by a governmental 
                unit or an agency or instrumentality thereof) if such 
                right--
                            ``(i) has a fixed duration of less than 14 
                        years, or
                            ``(ii) is fixed as to amount and, without 
                        regard to this section, would be recoverable 
                        under a method similar to the unit-of-
                        production method.
            ``(5) Interests under leases and debt instruments.--Any 
        interest under--
                    ``(A) an existing lease of tangible property, or
                    ``(B) except as provided in subsection (d)(2)(B), 
                any existing indebtedness.
            ``(6) Treatment of sports franchises.--A franchise to 
        engage in professional football, basketball, baseball, or other 
        professional sport, and any item acquired in connection with 
        such a franchise.
            ``(7) Certain transaction costs.--Any fees for professional 
        services, and any transaction costs, incurred by parties to a 
        transaction with respect to which any portion of the gain or 
        loss is not recognized under part III of subchapter C.
    ``(f) Special Rules.--
            ``(1) Treatment of certain dispositions, etc.--If there is 
        a disposition of any amortizable section 197 intangible 
        acquired in a transaction or series of related transactions (or 
        any such intangible becomes worthless) and one or more other 
        amortizable section 197 intangibles acquired in such 
        transaction or series of related transactions are retained--
                    ``(A) no loss shall be recognized by reason of such 
                disposition (or such worthlessness), and
                    ``(B) appropriate adjustments to the adjusted bases 
                of such retained intangibles shall be made for any loss 
                not recognized under subparagraph (A).
        All persons treated as a single taxpayer under section 41(f)(1) 
        shall be so treated for purposes of the preceding sentence.
            ``(2) Treatment of certain transfers.--
                    ``(A) In general.--In the case of any section 197 
                intangible transferred in a transaction described in 
                subparagraph (B), the transferee shall be treated as 
                the transferor for purposes of applying this section 
                with respect to so much of the adjusted basis in the 
                hands of the transferee as does not exceed the adjusted 
                basis in the hands of the transferor.
                    ``(B) Transactions covered.--The transactions 
                described in this subparagraph are--
                            ``(i) any transaction described in section 
                        332, 351, 361, 721, 731, 1031, or 1033, and
                            ``(ii) any transaction between members of 
                        the same affiliated group during any taxable 
                        year for which a consolidated return is made by 
                        such group.
            ``(3) Treatment of amounts paid pursuant to covenants not 
        to compete, etc.--Any amount paid or incurred pursuant to a 
        covenant or arrangement referred to in subsection (d)(1)(E) 
        shall be treated as an amount chargeable to capital account.
            ``(4) Treatment of franchises, etc.--
                    ``(A) Franchise.--The term `franchise' has the 
                meaning given to such term by section 1253(b)(1).
                    ``(B) Treatment of renewals.--Any renewal of a 
                franchise, trademark, or trade name (or of a license, a 
                permit, or other right referred to in subsection 
                (d)(1)(D)) shall be treated as an acquisition. The 
                preceding sentence shall only apply with respect to 
                costs incurred in connection with such renewal.
                    ``(C) Certain amounts not taken into account.--Any 
                amount to which section 1253(d)(1) applies shall not be 
                taken into account under this section.
            ``(5) Treatment of certain reinsurance transactions.--In 
        the case of any amortizable section 197 intangible resulting 
        from an assumption reinsurance transaction, the amount taken 
        into account as the adjusted basis of such intangible under 
        this section shall be the excess of--
                    ``(A) the amount paid or incurred by the acquirer 
                under the assumption reinsurance transaction, over
                    ``(B) the amount required to be capitalized under 
                section 848 in connection with such transaction.
        Subsection (b) shall not apply to any amount required to be 
        capitalized under section 848.
            ``(6) Treatment of certain subleases.--For purposes of this 
        section, a sublease shall be treated in the same manner as a 
        lease of the underlying property involved.
            ``(7) Treatment as depreciable.--For purposes of this 
        chapter, any amortizable section 197 intangible shall be 
        treated as property which is of a character subject to the 
        allowance for depreciation provided in section 167.
            ``(8) Treatment of certain increments in value.--This 
        section shall not apply to any increment in value if, without 
        regard to this section, such increment is properly taken into 
        account in determining the cost of property which is not a 
        section 197 intangible.
            ``(9) Anti-churning rules.--For purposes of this section--
                    ``(A) In general.--The term `amortizable section 
                197 intangible' shall not include any section 197 
                intangible which is described in subparagraph (A) or 
                (B) of subsection (d)(1) (or for which depreciation or 
                amortization would not have been allowable but for this 
                section) and which is acquired by the taxpayer after 
                the date of the enactment of this section, if--
                            ``(i) the intangible was held or used at 
                        any time on or after July 25, 1991, and on or 
                        before such date of enactment by the taxpayer 
                        or a related person,
                            ``(ii) the intangible was acquired from a 
                        person who held such intangible at any time on 
                        or after July 25, 1991, and on or before such 
                        date of enactment, and, as part of the 
                        transaction, the user of such intangible does 
                        not change, or
                            ``(iii) the taxpayer grants the right to 
                        use such intangible to a person (or a person 
                        related to such person) who held or used such 
                        intangible at any time on or after July 25, 
                        1991, and on or before such date of enactment.
                For purposes of this subparagraph, the determination of 
                whether the user of property changes as part of a 
                transaction shall be determined in accordance with 
                regulations prescribed by the Secretary. For purposes 
                of this subparagraph, deductions allowable under 
                section 1253(d) shall be treated as deductions 
                allowable for amortization.
                    ``(B) Exception where gain recognized.--If--
                            ``(i) subparagraph (A) would not apply to 
                        an intangible acquired by the taxpayer but for 
                        the last sentence of subparagraph (C)(i), and
                            ``(ii) the person from whom the taxpayer 
                        acquired the intangible elects, notwithstanding 
                        any other provision of this title--
                                    ``(I) to recognize gain on the 
                                disposition of the intangible, and
                                    ``(II) to pay a tax on such gain 
                                which, when added to any other income 
                                tax on such gain under this title, 
                                equals such gain multiplied by the 
                                highest rate of income tax applicable 
                                to such person under this title,
                        then subparagraph (A) shall apply to the 
                        intangible only to the extent that the 
                        taxpayer's adjusted basis in the intangible 
                        exceeds the gain recognized under clause 
                        (ii)(I).
                    ``(C) Related person defined.--For purposes of this 
                paragraph--
                            ``(i) Related person.--A person 
                        (hereinafter in this paragraph referred to as 
                        the `related person') is related to any person 
                        if--
                                    ``(I) the related person bears a 
                                relationship to such person specified 
                                in section 267(b) or section 707(b)(1), 
                                or
                                    ``(II) the related person and such 
                                person are engaged in trades or 
                                businesses under common control (within 
                                the meaning of subparagraphs (A) and 
                                (B) of section 41(f)(1)).
                        For purposes of subclause (I), in applying 
                        section 267(b) or 707(b)(1), `20 percent' shall 
                        be substituted for `50 percent'.
                            ``(ii) Time for making determination.--A 
                        person shall be treated as related to another 
                        person if such relationship exists immediately 
                        before or immediately after the acquisition of 
                        the intangible involved.
                    ``(D) Acquisitions by reason of death.--
                Subparagraph (A) shall not apply to the acquisition of 
                any property by the taxpayer if the basis of the 
                property in the hands of the taxpayer is determined 
                under section 1014(a).
                    ``(E) Special rule for partnerships.--With respect 
                to any increase in the basis of partnership property 
                under section 732, 734, or 743, determinations under 
                this paragraph shall be made at the partner level and 
                each partner shall be treated as having owned and used 
                such partner's proportionate share of the partnership 
                assets.
                    ``(F) Anti-abuse rules.--The term `amortizable 
                section 197 intangible' does not include any section 
                197 intangible acquired in a transaction, one of the 
                principal purposes of which is to avoid the requirement 
                of subsection (c)(1) that the intangible be acquired 
                after the date of the enactment of this section or to 
                avoid the provisions of subparagraph (A).
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including such regulations as may be appropriate to prevent avoidance 
of the purposes of this section through related persons or otherwise.''
    (b) Modifications to Depreciation Rules.--
            (1) Treatment of certain property excluded from section 
        197.--Section 167 (relating to depreciation deduction) is 
        amended by redesignating subsection (f) as subsection (g) and 
        by inserting after subsection (e) the following new subsection:
    ``(f) Treatment of Certain Property Excluded From Section 197.--
            ``(1) Computer software.--
                    ``(A) In general.--If a depreciation deduction is 
                allowable under subsection (a) with respect to any 
                computer software, such deduction shall be computed by 
                using the straight line method and a useful life of 36 
                months.
                    ``(B) Computer software.--For purposes of this 
                section, the term `computer software' has the meaning 
                given to such term by section 197(e)(3)(B); except that 
                such term shall not include any such software which is 
                an amortizable section 197 intangible.
            ``(2) Certain interests or rights acquired separately.--If 
        a depreciation deduction is allowable under subsection (a) with 
        respect to any property described in subparagraph (B), (C), or 
        (D) of section 197(e)(4), such deduction shall be computed in 
        accordance with regulations prescribed by the Secretary.''
            (2) Allocation of basis in case of leased property.--
        Subsection (c) of section 167 is amended to read as follows:
    ``(c) Basis for Depreciation.--
            ``(1) In general.--The basis on which exhaustion, wear and 
        tear, and obsolescence are to be allowed in respect of any 
        property shall be the adjusted basis provided in section 1011, 
        for the purpose of determining the gain on the sale or other 
        disposition of such property.
            ``(2) Special rule for property subject to lease.--If any 
        property is acquired subject to a lease--
                    ``(A) no portion of the adjusted basis shall be 
                allocated to the leasehold interest, and
                    ``(B) the entire adjusted basis shall be taken into 
                account in determining the depreciation deduction (if 
                any) with respect to the property subject to the 
                lease.''
    (c) Amendments to Section 1253.--Subsection (d) of section 1253 is 
amended by striking paragraphs (2), (3), (4), and (5) and inserting the 
following:
            ``(2) Other payments.--Any amount paid or incurred on 
        account of a transfer, sale, or other disposition of a 
        franchise, trademark, or trade name to which paragraph (1) does 
        not apply shall be treated as an amount chargeable to capital 
        account.
            ``(3) Renewals, etc.--For purposes of determining the term 
        of a transfer agreement under this section, there shall be 
        taken into account all renewal options (and any other period 
        for which the parties reasonably expect the agreement to be 
        renewed).''
    (d) Amendment to Section 848.--Subsection (g) of section 848 is 
amended by striking ``this section'' and inserting ``this section or 
section 197''.
    (e) Amendments to Section 1060.--
            (1) Paragraph (1) of section 1060(b) is amended by striking 
        ``goodwill or going concern value'' and inserting ``section 197 
        intangibles''.
            (2) Paragraph (1) of section 1060(d) is amended by striking 
        ``goodwill or going concern value (or similar items)'' and 
        inserting ``section 197 intangibles''.
    (f) Technical and Conforming Amendments.--
            (1) Subsection (g) of section 167 (as redesignated by 
        subsection (b)) is amended to read as follows:
    ``(g) Cross References.--

                                ``(1) For additional rule applicable to 
depreciation of improvements in the case of mines, oil and gas wells, 
other natural deposits, and timber, see section 611.
                                ``(2) For amortization of goodwill and 
certain other intangibles, see section 197.''

            (2) Subsection (f) of section 642 is amended by striking 
        ``section 169'' and inserting ``sections 169 and 197''.
            (3) Subsection (a) of section 1016 is amended by striking 
        paragraph (19) and by redesignating the following paragraphs 
        accordingly.
            (4) Subparagraph (C) of section 1245(a)(2) is amended by 
        striking ``193, or 1253(d) (2) or (3)'' and inserting ``or 
        193''.
            (5) Paragraph (3) of section 1245(a) is amended by striking 
        ``section 185 or 1253(d) (2) or (3)''.
            (6) The table of sections for part VI of subchapter B of 
        chapter 1 is amended by adding at the end thereof the following 
        new item:

                              ``Sec. 197. Amortization of goodwill and 
                                        certain other intangibles.''
    (g) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply 
        with respect to property acquired after the date of the 
        enactment of this Act.
            (2) Election to have amendments apply to property acquired 
        after july 25, 1991.--
                    (A) In general.--If an election under this 
                paragraph applies to the taxpayer--
                            (i) the amendments made by this section 
                        shall apply to property acquired by the 
                        taxpayer after July 25, 1991,
                            (ii) subsection (c)(1)(A) of section 197 of 
                        the Internal Revenue Code of 1986 (as added by 
                        this section) (and so much of subsection 
                        (f)(9)(A) of such section 197 as precedes 
                        clause (i) thereof) shall be applied with 
                        respect to the taxpayer by treating July 25, 
                        1991, as the date of the enactment of such 
                        section, and
                            (iii) in applying subsection (f)(9) of such 
                        section, with respect to any property acquired 
                        by the taxpayer on or before the date of the 
                        enactment of this Act, only holding or use on 
                        July 25, 1991, shall be taken into account.
                    (B) Election.--An election under this paragraph 
                shall be made at such time and in such manner as the 
                Secretary of the Treasury or his delegate may 
                prescribe. Such an election by any taxpayer, once 
                made--
                            (i) may be revoked only with the consent of 
                        the Secretary, and
                            (ii) shall apply to the taxpayer making 
                        such election and any other taxpayer under 
                        common control with the taxpayer (within the 
                        meaning of subparagraphs (A) and (B) of section 
                        41(f)(1) of such Code) at any time after 
                        November 22, 1991, and on or before the date on 
                        which such election is made.
            (3) Elective binding contract exception.--
                    (A) In general.--The amendments made by this 
                section shall not apply to any acquisition of property 
                by the taxpayer if--
                            (i) such acquisition is pursuant to a 
                        written binding contract in effect on the date 
                        of the enactment of this Act and at all times 
                        thereafter before such acquisition,
                            (ii) an election under paragraph (2) does 
                        not apply to the taxpayer, and
                            (iii) the taxpayer makes an election under 
                        this paragraph with respect to such contract.
                    (B) Election.--An election under this paragraph 
                shall be made at such time and in such manner as the 
                Secretary of the Treasury or his delegate shall 
                prescribe. Such an election, once made--
                            (i) may be revoked only with the consent of 
                        the Secretary, and
                            (ii) shall apply to all property acquired 
                        pursuant to the contract with respect to which 
                        such election was made.
    (h) Annual Reports.--The Secretary of the Treasury shall submit 
annual reports to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate on the 
implementation and effects of the amendments made by this section, 
including the effects of such amendments on merger and acquisition 
activities. The first such annual report shall be submitted on or 
before December 31, 1994.
    (i) Annual Reports on Outstanding Cases.--The Secretary of the 
Treasury shall submit annual reports to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of the 
Senate regarding the volume of cases still outstanding that involve 
disputes regarding the amortization of intangibles, progress made in 
resolving such cases, efforts made to coordinate settlement 
proceedings, and factors inhibiting the resolution of such cases. The 
report shall also address the impact of the amendments made by this 
section on the volume of disputes regarding the amortization of 
intangibles. The first such annual report shall be submitted on or 
before December 31, 1994.

SEC. 502. TREATMENT OF CERTAIN PAYMENTS TO RETIRED OR DECEASED PARTNER.

    (a) Section 736(b) Not To Apply in Certain Cases.--Subsection (b) 
of section 736 (relating to payments for interest in partnership) is 
amended by adding at the end thereof the following new paragraph:
            ``(3) Limitation on application of paragraph (2).--
        Paragraph (2) shall apply only if--
                    ``(A) capital is not a material income-producing 
                factor for the partnership, and
                    ``(B) the retiring or deceased partner was a 
                general partner in the partnership.''
    (b) Limitation on Definition of Unrealized Receivables.--
            (1) In general.--Subsection (c) of section 751 (defining 
        unrealized receivables) is amended--
                    (A) by striking ``sections 731, 736, and 741'' each 
                place they appear and inserting ``, sections 731 and 
                741 (but not for purposes of section 736)'', and
                    (B) by striking ``section 731, 736, or 741'' each 
                place it appears and inserting ``section 731 or 741''.
            (2) Technical amendments.--
                    (A) Subsection (e) of section 751 is amended by 
                striking ``sections 731, 736, and 741'' and inserting 
                ``sections 731 and 741''.
                    (B) Section 736 is amended by striking subsection 
                (c).
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply in the case of partners retiring or dying on or after 
        January 5, 1993.
            (2) Binding contract exception.--The amendments made by 
        this section shall not apply to any partner retiring on or 
        after January 5, 1993, if a written contract to purchase such 
        partner's interest in the partnership was binding on January 4, 
        1993, and at all times thereafter before such purchase.

                 TITLE VI--OTHER INCOME TAX PROVISIONS

      Subtitle A--Provisions Relating to Subchapter S Corporations

SEC. 601. AUTHORITY TO VALIDATE CERTAIN INVALID ELECTIONS.

    (a) General Rule.--Subsection (f) of section 1362 (relating to 
inadvertent terminations) is amended to read as follows:
    ``(f) Inadvertent Invalid Elections of Terminations.--If--
            ``(1) an election under subsection (a) by any corporation--
                    ``(A) was not effective for the taxable year for 
                which made (determined without regard to subsection 
                (b)(2)) by reason of a failure to meet the requirements 
                of section 1361(b) or to obtain shareholder consents, 
                or
                    ``(B) was terminated under paragraph (2) or (3) of 
                subsection (d),
            ``(2) the Secretary determines that the circumstances 
        resulting in such ineffectiveness or termination were 
        inadvertent,
            ``(3) no later than a reasonable period of time after 
        discovery of the circumstances resulting in such 
        ineffectiveness or termination, steps were taken--
                    ``(A) so that the corporation is a small business 
                corporation, or
                    ``(B) to acquire the required shareholder consents, 
                and
            ``(4) the corporation, and each person who was a 
        shareholder in the corporation at any time during the period 
        specified pursuant to this subsection, agrees to make such 
        adjustments (consistent with the treatment of the corporation 
        as an S corporation) as may be required by the Secretary with 
        respect to such period,
then, notwithstanding the circumstances resulting in such 
ineffectiveness or termination, such corporation shall be treated as an 
S corporation during the period specified by the Secretary.''
    (b) Late Elections.--Subsection (b) of section 1362 is amended by 
adding at the end thereof the following new paragraph:
            ``(5) Authority to treat late elections as timely.--If--
                    ``(A) an election under subsection (a) is made for 
                any taxable year (determined without regard to 
                paragraph (3)) after the date prescribed by this 
                subsection for making such election for such taxable 
                year, and
                    ``(B) the Secretary determines that there was 
                reasonable cause for the failure to timely make such 
                election,
        the Secretary may treat such election as timely made for such 
        taxable year (and paragraph (3) shall not apply).''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to elections for taxable years beginning after 
December 31, 1982.

SEC. 602. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) Adjustments for Distributions Taken Into Account Before 
Losses.--
            (1) Subparagraph (A) of section 1366(d)(1) is amended by 
        striking ``paragraph (1)'' and inserting ``paragraphs (1) and 
        (2)(A)''.
            (2) Subsection (d) of section 1368 is amended by adding at 
        the end thereof the following new sentence:
``In the case of any distribution made during any taxable year, the 
adjusted basis of the stock shall be determined with regard to the 
adjustments provided in paragraph (1) of section 1367(a) for the 
taxable year.''
    (b) Accumulated Adjustments Account.--Paragraph (1) of section 
1368(e) (relating to accumulated adjustments account) is amended by 
adding at the end thereof the following new subparagraph:
            ``(C) Net loss for year disregarded.--
                    ``(i) In general.--In applying this section to 
                distributions made during any taxable year, the amount 
                in the accumulated adjustments account as of the close 
                of such taxable year shall be determined without regard 
                to any net negative adjustment for such taxable year.
                    ``(ii) Net negative adjustment.--For purposes of 
                clause (i), the term `net negative adjustment' means, 
                with respect to any taxable year, the excess (if any) 
                of--
                            ``(I) the reductions in the account for the 
                        taxable year (other than for distributions), 
                        over
                            ``(II) the increases in such account for 
                        such taxable year.''
    (c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1) 
is amended--
            (1) by striking ``as provided in subparagraph (B)'' and 
        inserting ``as otherwise provided in this paragraph'', and
            (2) by striking ``section 1367(b)(2)(A)'' and inserting 
        ``section 1367(a)(2)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions in taxable years beginning after December 31, 
1992.

SEC. 603. OTHER MODIFICATIONS.

    (a) Treatment of S Corporations Under Subchapter C.--Subsection (a) 
of section 1371 (relating to application of subchapter C rules) is 
amended to read as follows:
    ``(a) Application of Subchapter C Rules.--Except as otherwise 
provided in this title, and except to the extent inconsistent with this 
subchapter, subchapter C shall apply to an S corporation and its 
shareholders.''
    (b) S Corporations Permitted To Hold Subsidiaries.--
            (1) In general.--Paragraph (2) of section 1361(b) (defining 
        ineligible corporation) is amended by striking subparagraph (A) 
        and by redesignating subparagraphs (B), (C), (D), and (E) as 
        subparagraphs (A), (B), (C), and (D), respectively.
            (2) Conforming amendments.--
                    (A) Subsection (c) of section 1361 is amended by 
                striking paragraph (6).
                    (B) Subsection (b) of section 1504 (defining 
                includible corporation) is amended by adding at the end 
                thereof the following new paragraph:
            ``(8) An S corporation.''
    (c) Elimination of Pre-1983 Earnings and Profits.--
            (1) In general.--If--
                    (A) a corporation was an electing small business 
                corporation under subchapter S of chapter 1 of the 
                Internal Revenue Code of 1986 for any taxable year 
                beginning before January 1, 1983, and
                    (B) such corporation is an S corporation under 
                subchapter S of chapter 1 of such Code for its first 
                taxable year beginning after December 31, 1992,
        the amount of such corporation's accumulated earnings and 
        profits (as of the beginning of such first taxable year) shall 
        be reduced by an amount equal to the portion (if any) of such 
        accumulated earnings and profits which were accumulated in any 
        taxable year beginning before January 1, 1983, for which such 
        corporation was an electing small business corporation under 
        such subchapter S.
            (2) Conforming amendments.--
                    (A) Paragraph (3) of section 1362(d) is amended--
                            (i) by striking ``subchapter C'' in the 
                        paragraph heading and inserting 
                        ``accumulated'',
                            (ii) by striking ``subchapter C'' in 
                        subparagraph (A)(i)(I) and inserting 
                        ``accumulated'', and
                            (iii) by striking subparagraph (B) and 
                        redesignating the following subparagraphs 
                        accordingly.
                    (B)(i) Subsection (a) of section 1375 is amended by 
                striking ``subchapter C'' in paragraph (1) and 
                inserting ``accumulated''.
                    (ii) Paragraph (3) of section 1375(b) is amended to 
                read as follows:
            ``(3) Passive investment income, etc.--The terms `passive 
        investment income' and `gross receipts' have the same 
        respective meanings as when used in paragraph (3) of section 
        1362(d).''
                    (iii) The section heading for section 1375 is 
                amended by striking ``SUBCHAPTER C'' and inserting 
                ``ACCUMULATED''.
                    (iv) The table of sections for part III of 
                subchapter S of chapter 1 is amended by striking 
                ``subchapter C'' in the item relating to section 1375 
                and inserting ``accumulated''.
                    (C) Clause (i) of section 1042(c)(4)(A) is amended 
                by striking ``section 1362(d)(3)(D)'' and inserting 
                ``section 1362(d)(3)(C)''.
    (d) Adjustments to Basis of Inherited S Stock To Reflect Certain 
Items of Income.--Subsection (b) of section 1367 (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end thereof the following new paragraph:
            ``(4) Adjustments in case of inherited stock.--
                    ``(A) In general.--If any person acquires stock in 
                an S corporation by reason of the death of a decedent 
                or by bequest, devise, or inheritance, section 691 
                shall be applied with respect to any item of income of 
                the S corporation in the same manner as if the decedent 
                had held directly his pro rata share of such item.
                    ``(B) Adjustments to basis.--The basis determined 
                under section 1014 of any stock in an S corporation 
                shall be reduced by the portion of the value of the 
                stock which is attributable to items constituting 
                income in respect of the decedent.''
    (e) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall take effect on the date of the 
        enactment of this Act.
            (2) Subsection (c).--The amendments made by subsection (c) 
        shall apply to taxable years beginning after December 31, 1992.
            (3) Subsection (d).--The amendment made by subsection (d) 
        shall apply in the case of decedents dying after the date of 
        the enactment of this Act.

                   Subtitle B--Accounting Provisions

SEC. 611. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

    (a) Look-Back Method Not To Apply in Certain Cases.--Subsection (b) 
of section 460 (relating to percentage of completion method) is amended 
by adding at the end thereof the following new paragraph:
            ``(6) Election to have look-back method not apply in de 
        minimis cases.--
                    ``(A) Amounts taken into account after completion 
                of contract.--Paragraph (1)(B) shall not apply with 
                respect to any taxable year (beginning after the 
                taxable year in which the contract is completed) if--
                            ``(i) the cumulative taxable income (or 
                        loss) under the contract as of the close of 
                        such taxable year, is within
                            ``(ii) 10 percent of the cumulative look-
                        back taxable income (or loss) under the 
                        contract as of the close of the most recent 
                        taxable year to which paragraph (1)(B) applied 
                        (or would have applied but for subparagraph 
                        (B)).
                    ``(B) De minimis discrepancies.--Paragraph (1)(B) 
                shall not apply in any case to which it would otherwise 
                apply if--
                            ``(i) the cumulative taxable income (or 
                        loss) under the contract as of the close of 
                        each prior contract year, is within
                            ``(ii) 10 percent of the cumulative look-
                        back income (or loss) under the contract as of 
                        the close of such prior contract year.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Contract year.--The term `contract 
                        year' means any taxable year for which income 
                        is taken into account under the contract.
                            ``(ii) Look-back income or loss.--The look-
                        back income (or loss) is the amount which would 
                        be the taxable income (or loss) under the 
                        contract if the allocation method set forth in 
                        paragraph (2)(A) were used in determining 
                        taxable income.
                            ``(iii) Discounting not applicable.--The 
                        amounts taken into account after the completion 
                        of the contract shall be determined without 
                        regard to any discounting under the 2nd 
                        sentence of paragraph (2).
                    ``(D) Contracts to which paragraph applies.--This 
                paragraph shall only apply if the taxpayer makes an 
                election under this subparagraph. Unless revoked with 
                the consent of the Secretary, such an election shall 
                apply to all long-term contracts completed during the 
                taxable year for which election is made or during any 
                subsequent taxable year.''
    (b) Modification of Interest Rate.--
            (1) In general.--Subparagraph (C) of section 460(b)(2) is 
        amended by striking ``the overpayment rate established by 
        section 6621'' and inserting ``the adjusted overpayment rate 
        (as defined in paragraph (7))''.
            (2) Adjusted overpayment rate.--Subsection (b) of section 
        460 is amended by adding at the end thereof the following new 
        paragraph:
            ``(7) Adjusted overpayment rate.--
                    ``(A) In general.--The adjusted overpayment rate 
                for any interest accrual period is the overpayment rate 
                in effect under section 6621 for the calendar quarter 
                in which such interest accrual period begins.
                    ``(B) Interest accrual period.--For purposes of 
                subparagraph (A), the term `interest accrual period' 
                means the period--
                            ``(i) beginning on the day after the return 
                        due date for any taxable year of the taxpayer, 
                        and
                            ``(ii) ending on the return due date for 
                        the following taxable year.
                For purposes of the preceding sentence, the term 
                `return due date' means the date prescribed for filing 
                the return of the tax imposed by this chapter 
                (determined without regard to extensions).''
    (c) Effective Date.--The amendments made by this section shall 
apply to contracts completed in taxable years ending after the date of 
the enactment of this Act.

SEC. 612. SIMPLIFIED METHOD FOR CAPITALIZING CERTAIN INDIRECT COSTS.

    (a) General Rule.--Subsection (i) of section 263A (relating to 
regulations) is amended by striking ``and'' at the end of paragraph 
(1), by striking the period at the end of paragraph (2) and inserting 
``, and'', and by adding at the end thereof the following:
            ``(3) regulations providing that allocations of costs of 
        any administrative, service, or support function or department 
        may be made on the basis of the base period percentage of the 
        current costs of such function or department.
For purposes of paragraph (3), the term `base period percentage' means, 
with respect to any function or department, the percentage of the costs 
of such function or department during a base period specified in 
regulations which were allocable to property to which this section 
applies.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

   Subtitle C--Provisions Relating To Regulated Investment Companies

SEC. 621. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

    (a) General Rule.--Subsection (b) of section 851 (relating to 
limitations) is amended by striking paragraph (3), by adding ``and'' at 
the end of paragraph (2), and by redesignating paragraph (4) as 
paragraph (3).
    (b) Technical Amendments.--
            (1) The material following paragraph (3) of section 851 (as 
        redesignated by subsection (a)) is amended--
                    (A) by striking out ``paragraphs (2) and (3)'' and 
                inserting ``paragraph (2)'', and
                    (B) by striking out the last sentence thereof.
            (2) Subsection (c) of section 851 is amended by striking 
        ``subsection (b)(4)'' each place it appears (including the 
        heading) and inserting ``subsection (b)(3)''.
            (3) Subsection (d) of section 851 is amended by striking 
        ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
            (4) Paragraph (1) of section 851(e) is amended by striking 
        ``subsection (b)(4)'' and inserting ``subsection (b)(3)''.
            (5) Paragraph (4) of section 851(e) is amended by striking 
        ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
            (6) Section 851 is amended by striking subsection (g) and 
        redesignating subsection (h) as subsection (g).
            (7) Subsection (g) of section 851 (as redesignated by 
        paragraph (6)) is amended by striking paragraph (3).
            (8) Section 817(h)(2) is amended--
                    (A) by striking ``851(b)(4)'' in subparagraph (A) 
                and inserting ``851(b)(3)'', and
                    (B) by striking ``851(b)(4)(A)(i)'' in subparagraph 
                (B) and inserting ``851(b)(3)(A)(i)''.
            (9) Section 1092(f)(2) is amended by striking ``Except for 
        purposes of section 851(b)(3), the'' and inserting ``The''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 622. BASIS RULES FOR SHARES IN OPEN-END REGULATED INVESTMENT 
              COMPANIES.

    (a) Additional Reporting Requirement.--Section 6045 (relating to 
returns of brokers) is amended by adding at the end thereof the 
following new subsection:
    ``(f) Additional Information Required With Respect to Open-End 
Regulated Investment Companies.--
            ``(1) In general.--If any person is required under 
        subsection (a) to make a return regarding the gross proceeds 
        from any disposition of stock in an open-end regulated 
        investment company, such return shall include for each such 
        disposition--
                    ``(A) the basis of the stock disposed of 
                (determined by reference to the average basis of all of 
                the stock in the account from which the disposition was 
                made immediately before the disposition), and
                    ``(B) the portion of such gross proceeds 
                attributable to stock held for more than 1 year and the 
                portion not so attributable.
        Determinations under subparagraph (B) shall be made on a first-
        in, first-out, basis and determinations of basis and holding 
        period shall be made in such manner as the Secretary may 
        prescribe.
            ``(2) Open-end regulated investment company.--For purposes 
        of this subsection, the term `open-end regulated investment 
        company' means any regulated investment company which is 
        offering for sale or has outstanding any redeemable security 
        (as defined in section 2(a)(32) of the Investment Company Act 
        of 1940) of which it is the issuer.
            ``(3) Information transfers.--To the extent provided in 
        regulations, there shall be such exchanges of information 
        between brokers as such regulations may require for purposes of 
        enabling brokers to meet the requirements of this subsection.
            ``(4) Application of subsection.--This subsection shall not 
        apply with respect to stock in any account--
                    ``(A) which was established before January 1, 1995, 
                or
                    ``(B) which includes any stock not acquired by 
                purchase.''
    (b) Basis for Income Tax Purposes.--Section 1012 of such Code is 
amended--
            (1) by striking ``The basis'' and inserting ``(a) General 
        Rule.--The basis'', and
            (2) by adding at the end thereof the following new 
        subsection:
    ``(b) Special Rules for Stock in Open-End Regulated Investment 
Companies.--
            ``(1) In general.--In the case of any disposition of stock 
        from a covered account--
                    ``(A) the basis of such stock shall be determined 
                by reference to the average basis of all of the stock 
                in such account immediately before such disposition, 
                and
                    ``(B) the determination of which stock in such 
                account is so disposed of shall be made on a first-in, 
                first-out, basis.
            ``(2) Covered account.--For purposes of this subsection--
                    ``(A) In general.--The term `covered account' means 
                any account of stock in an open-end regulated 
                investment company if section 6045(f) applies to such 
                account.
                    ``(B) Election out.--The term `covered account' 
                shall not include any account if, on the taxpayer's 
                return for his first taxable year in which a 
                disposition from such account occurs, the taxpayer 
                elects to have this subsection not apply to such 
                account.''
    (c) Coordination With Wash Sale Rules.--Section 1091 is amended by 
adding at the end thereof the following new subsection:
    ``(f) Special Rules for Certain Accounts in Open-End Regulated 
Investment Companies.--
            ``(1) In general.--In applying this section to a 
        disposition during December of any calendar year of stock from 
        a covered account, any acquisition of stock after January 15 of 
        the following calendar year shall be disregarded if such 
        acquisition is a result of a dividend reinvestment pursuant to 
        a dividend reinvestment program established at the time such 
        account was opened or, if later, at least 6 months before the 
        date of such disposition.
            ``(2) Covered account.--For purposes of this subsection, 
        the term `covered account' means any account of stock in an 
        open-end regulated investment company if section 6045(f) 
        applies to such account.''
    (d) Modification of Load Basis Deferral Rule for Certain 
Acquisitions Occurring After January 15.--
            (1) Paragraph (1) of section 852(f) is amended by striking 
        ``subparagraph (C)) shall not'' and all that follows and 
        inserting ``subparagraph (C)) shall be recaptured as provided 
        in paragraph (2). To the extent such charge is recaptured under 
        paragraph (2), such charge shall be treated as incurred in 
        connection with the acquisition referred to in subparagraph (C) 
        (including for purposes of reapplying this paragraph).''
            (2) Subsection (f) of section 852 is amended by 
        redesignating paragraph (2) as paragraph (3) and by inserting 
        after paragraph (1) the following new paragraph:
            ``(2) Recapture.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), any load charge required by paragraph 
                (1) to be recaptured shall not be taken into account in 
                determining the amount of gain or loss on the 
                disposition referred to in paragraph (1)(B).
                    ``(B) Subsequent acquisitions occurring after 
                january 15.--If--
                            ``(i) the acquisition referred to in 
                        paragraph (1)(A) occurs in a calendar year, and
                            ``(ii) the subsequent acquisition referred 
                        to in paragraph (1)(C) occurs after January 15 
                        of the following calendar year,
                subparagraph (A) shall not apply and the amount of the 
                load charge required by paragraph (1) to be recaptured 
                shall be included in gross income as short-term capital 
                gain for the taxable year in which the subsequent 
                acquisition referred to in paragraph (1)(C) occurs.''
    (e) Technical Amendment.--Section 6724 of such Code is amended by 
adding at the end thereof the following new subsection:
    ``(e) Special Rule for Certain Reports With Respect to Stock in 
Open End Regulated Investment Companies.--For purposes of sections 
6721(e)(2)(B) and 6722(c)(1)(B), the amount required to be reported 
under section 6045 shall be determined without regard to subsection (f) 
thereof.''
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to returns and 
        statements required for calendar year 1995 and subsequent 
        calendar years.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to dispositions after December 31, 1994.

SEC. 623. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON 
              TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.

    (a) General Rule.--Section 584 (relating to common trust funds) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Nonrecognition Treatment for Certain Transfers to Regulated 
Investment Companies.--
            ``(1) In general.--If--
                    ``(A) a common trust fund transfers substantially 
                all of its assets to a regulated investment company in 
                exchange solely for stock in such company, and
                    ``(B) such stock is distributed by such common 
                trust fund to participants in such common trust fund in 
                exchange solely for their interests in such common 
                trust fund,
        no gain or loss shall be recognized by such common trust fund 
        by reason of such transfer or distribution, and no gain or loss 
        shall be recognized by any participant in such common trust 
        fund by reason of such exchange.
            ``(2) Basis rules.--
                    ``(A) Regulated investment company.--The basis of 
                any asset received by a regulated investment company in 
                a transfer referred to in paragraph (1)(A) shall be the 
                same as it would be in the hands of the common trust 
                fund.
                    ``(B) Participants.--The basis of any stock in a 
                regulated investment company which is received in an 
                exchange referred to in paragraph (1)(B) shall be the 
                same as that of the property exchanged.
            ``(3) Treatment of assumptions of liability.--
                    ``(A) In general.--In determining whether the 
                transfer referred to in paragraph (1)(A) is in exchange 
                solely for stock in the regulated investment company, 
                the assumption by such company of a liability of the 
                common trust fund, and the fact that any property 
                transferred by the common trust fund is subject to a 
                liability, shall be disregarded.
                    ``(B) Special rule where assumed liabilities exceed 
                basis.--
                            ``(i) In general.--If in any transfer 
                        referred to in paragraph (1)(A) the assumed 
                        liabilities exceed the aggregate adjusted bases 
                        (in the hands of the common trust fund) of the 
                        assets transferred to the regulated investment 
                        company--
                                    ``(I) notwithstanding paragraph 
                                (1), gain shall be recognized to the 
                                common trust fund on such transfer in 
                                an amount equal to such excess,
                                    ``(II) the basis of the assets 
                                received by the regulated investment 
                                company in such transfer shall be 
                                increased by the amount so recognized, 
                                and
                                    ``(III) any adjustment to the basis 
                                of a participant's interest in the 
                                common trust fund as a result of the 
                                gain so recognized shall be treated as 
                                occurring immediately before the 
                                exchange referred to in paragraph 
                                (1)(B).
                            ``(ii) Assumed liabilities.--For purposes 
                        of clause (i), the term `assumed liabilities' 
                        means the aggregate of--
                                    ``(I) any liability of the common 
                                trust fund assumed by the regulated 
                                investment company in connection with 
                                the transfer referred to in paragraph 
                                (1)(A), and
                                    ``(II) any liability to which 
                                property so transferred is subject.
            ``(4) Common trust fund must meet diversification rules.--
        This subsection shall not apply to any common trust fund which 
        would not meet the requirements of section 368(a)(2)(F)(ii) if 
        it were a corporation. For purposes of the preceding sentence, 
        Government securities shall not be treated as securities of an 
        issuer in applying the 25-percent and 50-percent test and such 
        securities shall not be excluded for purposes of determining 
        total assets under clause (iv) of section 368(a)(2)(F).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after the date of the enactment of this Act.

                 Subtitle D--Tax-Exempt Bond Provisions

SEC. 631. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
              YEAR EXCEPTION FROM REBATE.

    Subclause (I) of section 148(f)(4)(B)(ii) (relating to additional 
period for certain bonds) is amended by striking ``the lesser of 5 
percent of the proceeds of the issue or $100,000'' and inserting ``5 
percent of the proceeds of the issue''.

SEC. 632. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE 
              FUND UNDER CONSTRUCTION BOND RULES.

    Subparagraph (C) of section 148(f)(4) is amended by adding at the 
end thereof the following new clause:
                            ``(xvii) Treatment of bona fide debt 
                        service funds.--If the spending requirements of 
                        clause (ii) are met with respect to the 
                        available construction proceeds of a 
                        construction issue, then paragraph (2) shall 
                        not apply to earnings on a bona fide debt 
                        service fund for such issue.''

SEC. 633. AGGREGATION OF ISSUES RULES NOT TO APPLY TO TAX OR REVENUE 
              ANTICIPATION BONDS.

    Section 150 (relating to definitions and special rules) is amended 
by adding at the end thereof the following new subsection:
    ``(f) Tax or Revenue Anticipation Bonds Treated As Separate 
Issues.--For purposes of this part, if--
            ``(1) all of the bonds which are part of an issue are 
        qualified 501(c)(3) bonds or bonds which are not private 
        activity bonds, and
            ``(2) any portion of such issue consists of tax or revenue 
        anticipation bonds which are reasonably expected to meet the 
        requirements of section 148(f)(4)(B)(iii),
then such portion shall, subject to appropriate allocations specified 
in regulations prescribed by the Secretary, be treated as a separate 
issue.''

SEC. 634. REPEAL OF DISPROPORTIONATE PRIVATE BUSINESS USE TEST.

    (a) In General.--Subsection (b) of section 141 (relating to private 
business tests) is amended by striking paragraph (3) and by 
redesignating paragraphs (4) through (9) as paragraphs (3) through (8), 
respectively.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 141(d) is amended by striking 
        ``subsection (b)(4)'' and inserting ``subsection (b)(3)''.
            (2) Paragraph (2) of section 142(c) is amended by striking 
        ``section 141(b)(6)'' and inserting ``section 141(b)(5)''.
            (3) Subsections (k)(3) and (m)(1) of section 146 and 
        section 149(f)(4)(B)(i) are each amended by striking ``section 
        141(b)(5)'' and inserting ``section 141(b)(4)''.

SEC. 635. EXPANDED EXCEPTION FROM REBATE FOR ISSUERS ISSUING 
              $10,000,000 OR LESS OF BONDS.

    Subparagraph (D) of section 148(f) (relating to exception for 
governmental units issuing $5,000,000 or less of bonds) is amended by 
striking ``$5,000,000'' each place it appears (including the heading) 
and inserting ``$10,000,000''.

SEC. 636. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN 
              CERTAIN NONPURPOSE INVESTMENTS.

    Subsection (d) of section 148 (relating to special rules for 
reasonably required reserve or replacement fund) is amended by striking 
paragraph (3).

SEC. 637. REPEAL OF EXPIRED PROVISIONS.

    (a) Paragraph (2) of section 148(c) is amended by striking 
subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) 
as subparagraph (B), (C), and (D), respectively.
    (b) Paragraph (4) of section 148(f) is amended by striking 
subparagraph (E).

SEC. 638. CLARIFICATION OF INVESTMENT-TYPE PROPERTY.

    Subparagraph (D) of section 148(b)(2) is amended to read as 
follows:
                    ``(D) any investment-type property, or''.

SEC. 639. EFFECTIVE DATES.

    (a) In General.--Except as otherwise provided in this section, the 
amendments made by this subtitle shall apply to bonds issued after the 
date of the enactment of this Act.
    (b) Small Issuer Expansion.--The amendment made by section 635 
shall apply to bonds issued in calendar years beginning after the date 
of the enactment of this Act.
    (c) Investment-Type Property.--The amendment made by section 638 
shall take effect as if included in the amendments made by section 1301 
of the Tax Reform Act of 1986.

                    Subtitle E--Insurance Provisions

SEC. 641. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.

    (a) General Rule.--
            (1) Paragraph (2) of section 817(d) (defining variable 
        contract) is amended by striking ``or'' at the end of 
        subparagraph (A), by striking ``and'' at the end of 
        subparagraph (B) and inserting ``or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) provides for funding of insurance on retired 
                lives as described in section 807(c)(6), and''.
            (2) Paragraph (3) of section 817(d) is amended by striking 
        ``or'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, or'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) in the case of funds held under a contract 
                described in paragraph (2)(C), the amounts paid in, or 
                the amounts paid out, reflect the investment return and 
                the market value of the segregated asset account.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 642. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

    (a) General Rule.--Subpart E of part I of subchapter L of chapter 1 
(relating to definitions and special rules) is amended by inserting 
after section 817 the following new section:

``SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.

    ``(a) Computation of Reserves.--In the case of a modified 
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not 
apply.
    ``(b) Segregated Assets Under Modified Guaranteed Contracts Marked 
to Market.--
            ``(1) In general.--In the case of any life insurance 
        company, for purposes of this subtitle--
                    ``(A) Any gain or loss with respect to a segregated 
                asset shall be treated as ordinary income or loss, as 
                the case may be.
                    ``(B) If any segregated asset is held by such 
                company as of the close of any taxable year--
                            ``(i) such company shall recognize gain or 
                        loss as if such asset were sold for its fair 
                        market value on the last business day of such 
                        taxable year, and
                            ``(ii) any such gain or loss shall be taken 
                        into account for such taxable year.
                Proper adjustment shall be made in the amount of any 
                gain or loss subsequently realized for gain or loss 
                taken into account under the preceding sentence. The 
                Secretary may provide by regulations for the 
                application of this subparagraph at times other than 
                the times provided in this subparagraph.
            ``(2) Segregated asset.--For purposes of paragraph (1), the 
        term `segregated asset' means any asset held as part of a 
        segregated account referred to in subsection (d)(1) under a 
        modified guaranteed contract.
    ``(c) Special Rule in Computing Life Insurance Reserves.--For 
purposes of applying section 816(b)(1)(A) to any modified guaranteed 
contract, an assumed rate of interest shall include a rate of interest 
determined, from time to time, with reference to a market rate of 
interest.
    ``(d) Modified Guaranteed Contract Defined.--For purposes of this 
section, the term `modified guaranteed contract' means a contract not 
described in section 817--
            ``(1) all or part of the amounts received under which are 
        allocated to an account which, pursuant to State law or 
        regulation, is segregated from the general asset accounts of 
        the company and is valued from time to time with reference to 
        market values,
            ``(2) which--
                    ``(A) provides for the payment of annuities,
                    ``(B) is a life insurance contract, or
                    ``(C) is a pension plan contract which is not a 
                life, accident, or health, property, casualty, or 
                liability contract,
            ``(3) for which reserves are valued at market for annual 
        statement purposes, and
            ``(4) which provides for a net surrender value or a 
        policyholder's fund (as defined in section 807(e)(1)).
    ``(e) Regulations.--The Secretary may prescribe regulations--
            ``(1) to provide for the treatment of market value 
        adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
            ``(2) to determine the interest rates applicable under 
        sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a 
        modified guaranteed contract annually, in a manner appropriate 
        for modified guaranteed contracts and, to the extent 
        appropriate for such a contract, to modify or waive the 
        applicability of section 811(d),
            ``(3) to provide rules to limit ordinary gain or loss 
        treatment to assets constituting reserves for modified 
        guaranteed contracts (and not other assets) of the company,
            ``(4) to provide appropriate treatment of transfers of 
        assets to and from the segregated account, and
            ``(5) as may be necessary or appropriate to carry out the 
        purposes of this section.''
    (b) Clerical Amendment.--The table of sections for subpart E of 
part I of subchapter L of chapter 1 is amended by inserting after the 
item relating to section 817 the following new item:

``Sec. 817A. Special rules for modified guaranteed contracts.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1992.
            (2) Treatment of net adjustments.--In the case of any 
        taxpayer required by the amendments made by this section to 
        change its calculation of reserves to take into account market 
        value adjustments and to mark segregated assets to market for 
        any taxable year--
                    (A) such changes shall be treated as a change in 
                method of accounting initiated by the taxpayer,
                    (B) such changes shall be treated as made with the 
                consent of the Secretary, and
                    (C) the adjustments required by reason of section 
                481 of the Internal Revenue Code of 1986 shall be taken 
                into account as ordinary income or loss by the taxpayer 
                for the taxpayer's first taxable year beginning after 
                December 31, 1992.

                      Subtitle F--Other Provisions

SEC. 651. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED 
              PARTNER, ETC.

    (a) General Rule.--Subparagraph (A) of section 706(c)(2) (relating 
to disposition of entire interest) is amended to read as follows:
                    ``(A) Disposition of entire interest.--The taxable 
                year of a partnership shall close with respect to a 
                partner whose entire interest in the partnership 
                terminates (whether by reason of death, liquidation, or 
                otherwise).''
    (b) Clerical Amendment.--The paragraph heading for paragraph (2) of 
section 706(c) is amended to read as follows:
            ``(2) Treatment of dispositions.--''.
    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years beginning after December 31, 1993.

SEC. 652. REPEAL OF SPECIAL TREATMENT OF OWNERSHIP CHANGES IN 
              DETERMINING ADJUSTED CURRENT EARNINGS.

    (a) General Rule.--Paragraph (4) of section 56(g) (relating to 
adjustments) is amended by striking subparagraph (G) and by 
redesignating the following subparagraph as paragraph (G).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to ownership changes after the date of the enactment of this Act.

SEC. 653. SIMPLIFICATION OF CORPORATE MINIMUM TAX DEPRECIATION 
              PREFERENCE.

    (a) In General.--
            (1) Clause (ii) of section 56(a)(1)(A) is amended--
                    (A) by striking ``150 percent'' in subclause (I) 
                and inserting ``150 percent (120 percent in the case of 
                a corporation to which subsection (g) applies)'', and
                    (B) by striking ``150-Percent declining'' in the 
                clause heading and inserting ``Declining''.
            (2) Clause (i) of section 56(g)(4)(A) is amended to read as 
        follows:
                            ``(i) Property placed in service after 
                        1989.--The depreciation deduction with respect 
                        to any property placed in service in a taxable 
                        year beginning--
                                    ``(I) during 1990, 1991, or 1992 
                                shall be determined under the 
                                alternative system of section 168(g), 
                                or
                                    ``(II) after 1992 shall be 
                                determined under the rules of 
                                subparagraph (A) of subsection 
                                (a)(1).''
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 168(b) is amended to read as 
        follows:
            ``(2) Special rule for declining balance method in certain 
        cases.--
                    ``(A) 150 percent method for certain property.--
                Paragraph (1) shall be applied by substituting `150 
                percent' for `200 percent' in the case of--
                            ``(i) any 15-year or 20-year property, or
                            ``(ii) any property used in a farming 
                        business (within the meaning of section 
                        263A(e)(4)).
                    ``(B) Election to use minimum tax method.--In the 
                case of any property (other than property described in 
                paragraph (3)) with respect to which the taxpayer 
                elects under paragraph (5) to have the provisions of 
                this subparagraph apply, paragraph (1) shall be applied 
                by substituting `150 percent (120 percent in the case 
                of a corporation to which section 56(g) applies)' for 
                `200 percent' (and subparagraph (A) of this paragraph 
                shall not apply).''
            (2) Paragraph (5) of section 168(b) is amended by striking 
        ``paragraph (2)(C)'' and inserting ``paragraph (2)(B)''.
            (3) Paragraph (2) of section 168(c) is amended--
                    (A) by striking ``subsection (b)(2)(C)'' and 
                inserting ``subsection (b)(2)(B)'', and
                    (B) by striking ``150 percent method'' in the 
                paragraph heading and inserting ``minimum tax method''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property placed 
        in service in taxable years beginning after December 31, 1992.
            (2) Coordination with transitional rules.--The amendments 
        made by this section shall not apply to any property to which 
        paragraph (1) of section 56(a) of the Internal Revenue Code of 
        1986 does not apply by reason of subparagraph (C)(i) of such 
        paragraph (1).

SEC. 654. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
              NONCONVENTIONAL SOURCE.

    (a) In General.--Subparagraph (A) of section 29(c)(2) (relating to 
gas from geopressured brine, etc.) is amended by adding at the end the 
following new sentence: ``If the Federal Energy Regulatory Commission 
ceases to make the determinations described in the preceding sentence, 
the Secretary shall make such determinations in accordance with section 
503 of such Act.''
    (b) Conforming Amendment.--Section 29(c)(2)(A) is amended by 
inserting ``(as in effect before its repeal by the Natural Gas Wellhead 
Decontrol Act of 1989)''<plus-minus> after ``Natural Gas Policy Act of 
1978''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1993.

               TITLE VII--ESTATE AND GIFT TAX PROVISIONS

SEC. 701. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

    (a) Amendment to Section 2207A.--Paragraph (2) of section 2207A(a) 
(relating to right of recovery in the case of certain marital deduction 
property) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
        not apply with respect to any property to the extent that the 
        decedent in his will (or a revocable trust) specifically 
        indicates an intent to waive any right of recovery under this 
        subchapter with respect to such property.''
    (b) Amendment to Section 2207B.--Paragraph (2) of section 2207B(a) 
(relating to right of recovery where decedent retained interest) is 
amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
        not apply with respect to any property to the extent that the 
        decedent in his will (or a revocable trust) specifically 
        indicates an intent to waive any right of recovery under this 
        subchapter with respect to such property.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 702. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.

    (a) General Rule.--Section 2035 is amended to read as follows:

``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF 
              DECEDENT'S DEATH.

    ``(a) Inclusion of Certain Property in Gross Estate.--If--
            ``(1) the decedent made a transfer (by trust or otherwise) 
        of an interest in any property, or relinquished a power with 
        respect to any property, during the 3-year period ending on the 
        date of the decedent's death, and
            ``(2) the value of such property (or an interest therein) 
        would have been included in the decedent's gross estate under 
        section 2036, 2037, 2038, or 2042 if such transferred interest 
        or relinquished power had been retained by the decedent on the 
        date of his death,
the value of the gross estate shall include the value of any property 
(or interest therein) which would have been so included.
    ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years Before 
Decedent's Death.--The amount of the gross estate (determined without 
regard to this subsection) shall be increased by the amount of any tax 
paid under chapter 12 by the decedent or his estate on any gift made by 
the decedent or his spouse during the 3-year period ending on the date 
of the decedent's death.
    ``(c) Other Rules Relating to Transfers Within 3 Years of Death.--
            ``(1) In general.--For purposes of--
                    ``(A) section 303(b) (relating to distributions in 
                redemption of stock to pay death taxes),
                    ``(B) section 2032A (relating to special valuation 
                of certain farms, etc., real property), and
                    ``(C) subchapter C of chapter 64 (relating to lien 
                for taxes),
        the value of the gross estate shall include the value of all 
        property to the extent of any interest therein of which the 
        decedent has at any time made a transfer, by trust or 
        otherwise, during the 3-year period ending on the date of the 
        decedent's death.
            ``(2) Coordination with section 6166.--An estate shall be 
        treated as meeting the 35 percent of adjusted gross estate 
        requirement of section 6166(a)(1) only if the estate meets such 
        requirement both with and without the application of paragraph 
        (1).
            ``(3) Small transfers.--Paragraph (1) shall not apply to 
        any transfer (other than a transfer with respect to a life 
        insurance policy) made during a calendar year to any donee if 
        the decedent was not required by section 6019 (other than by 
        reason of section 6019(a)(2)) to file any gift tax return for 
        such year with respect to transfers to such donee.
    ``(d) Exception.--Subsection (a) shall not apply to any bona fide 
sale for an adequate and full consideration in money or money's worth.
    ``(e) Treatment of Certain Transfers From Revocable Trusts.--For 
purposes of this section and section 2038, any transfer from any 
portion of a trust with respect to which the decedent was the grantor 
during any period when the decedent held the power to revest in the 
decedent title to such portion shall be treated as a transfer made 
directly by the decedent.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by striking ``gifts'' in the item 
relating to section 2035 and inserting ``certain gifts''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

SEC. 703. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST RULES.

    (a) General Rule.--
            (1) Estate tax.--Subparagraph (B) of section 2056(b)(7) 
        (defining qualified terminable interest property) is amended by 
        adding at the end thereof the following new clause:
                            ``(v)(i) Treatment of certain income 
                        distributions.--An income interest shall not 
                        fail to qualify as a qualified income interest 
                        for life solely because income for the period 
                        after the last distribution date and on or 
                        before the date of the surviving spouse's death 
                        is not required to be distributed to the 
                        surviving spouse or to the estate of the 
                        surviving spouse.''
            (2) Gift tax.--Paragraph (3) of section 2523(f) is amended 
        by striking ``and (iv)'' and inserting ``, (iv), and (vi)''.
    (b) Clarification of Subsequent Inclusions.--Section 2044 is 
amended by adding at the end thereof the following new subsection:
    ``(d) Clarification of Inclusion of Certain Income.--The amount 
included in the gross estate under subsection (a) shall include the 
amount of any income from the property to which this section applies 
for the period after the last distribution date and on or before the 
date of the decedent's death if such income is not otherwise included 
in the decedent's gross estate.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply with respect to the estates of decedents dying, and gifts 
        made, after the date of the enactment of this Act.
            (2) Application of section 2044 to transfers before date of 
        enactment.--In the case of the estate of any decedent dying 
        after the date of the enactment of this Act, if there was a 
        transfer of property on or before such date--
                    (A) such property shall not be included in the 
                gross estate of the decedent under section 2044 of the 
                Internal Revenue Code of 1986 if no prior marital 
                deduction was allowed with respect to such a transfer 
                of such property to the decedent, but
                    (B) such property shall be so included if such a 
                deduction was allowed.

SEC. 704. TRANSITIONAL RULE UNDER SECTION 2056A.

    (a) General Rule.--In the case of any trust created under an 
instrument executed before the date of the enactment of the Revenue 
Reconciliation Act of 1990, such trust shall be treated as meeting the 
requirements of paragraph (1) of section 2056A(a) of the Internal 
Revenue Code of 1986 if the trust instrument requires that all trustees 
of the trust be individual citizens of the United States or domestic 
corporations.
    (b) Effective Date.--The provisions of subsection (a) shall take 
effect as if included in the provisions of section 11702(g) of the 
Revenue Reconciliation Act of 1990.

SEC. 705. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.

    (a) General Rule.--Paragraph (3) of section 2032A(d) (relating to 
modification of election and agreement to be permitted) is amended to 
read as follows:
            ``(3) Modification of election and agreement to be 
        permitted.--The Secretary shall prescribe procedures which 
        provide that in any case in which the executor makes an 
        election under paragraph (1) (and submits the agreement 
        referred to in paragraph (2)) within the time prescribed 
        therefor, but--
                    ``(A) the notice of election, as filed, does not 
                contain all required information, or
                    ``(B) signatures of 1 or more persons required to 
                enter into the agreement described in paragraph (2) are 
                not included on the agreement as filed, or the 
                agreement does not contain all required information,
        the executor will have a reasonable period of time (not 
        exceeding 90 days) after notification of such failures to 
        provide such information or signatures.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

                 TITLE VIII--EXCISE TAX SIMPLIFICATION

                    Subtitle A--Fuel Tax Provisions

SEC. 801. REPEAL OF CERTAIN RETAIL AND USE TAXES.

    (a) In General.--Section 4041 is amended to read as follows:

``SEC. 4041. SPECIAL MOTOR FUELS AND NONCOMMERCIAL AVIATION GASOLINE.

    ``(a) Special Motor Fuels.--
            ``(1) In general.--There is hereby imposed a tax on benzol, 
        benzene, naphtha, liquefied petroleum gas, casing head and 
        natural gasoline, or any other liquid--
                    ``(A) sold by any person to an owner, lessee, or 
                other operator of a motor vehicle or a motorboat for 
                use as a fuel in such motor vehicle or motorboat, or
                    ``(B) used by any person as a fuel in a motor 
                vehicle or motorboat unless there was a taxable sale of 
                such liquid under subparagraph (A).
            ``(2) Rate of tax.--The rate of the tax imposed by this 
        subsection shall be the aggregate rate of tax in effect under 
        section 4081 at the time of such sale or use.
            ``(3) Certain fuels exempt from tax.--The tax imposed by 
        this subsection shall not apply to gasoline (as defined in 
        section 4082), diesel fuel (as defined in section 4092), 
        kerosene, gas oil, or fuel oil.
            ``(4) Reduced rates of tax on certain fuels.--
                    ``(A) Qualified methanol and ethanol fuel.--
                            ``(i) In general.--In the case of any 
                        qualified methanol or ethanol fuel--
                                    ``(I) the Highway Trust Fund 
                                financing rate applicable under 
                                paragraph (2) shall be 5.4 cents per 
                                gallon less than the otherwise 
                                applicable rate (6 cents per gallon 
                                less in the case of a mixture none of 
                                the alcohol in which consists of 
                                ethanol), and
                                    ``(II) the Leaking Underground 
                                Storage Tank Trust Fund financing rate 
                                applicable under paragraph (2) shall be 
                                0.05 cent per gallon.
                            ``(ii) Qualified methanol or ethanol 
                        fuel.--The term `qualified methanol or ethanol 
                        fuel' means any liquid at least 85 percent of 
                        which consists of methanol, ethanol, or other 
                        alcohol produced from a substance other than 
                        petroleum or natural gas.
                            ``(iii) Termination.--Clause (i) shall not 
                        apply to any sale or use after September 30, 
                        2000.
                    ``(B) Natural gas-derived methanol or ethanol 
                fuel.--
                            ``(i) In general.--In the case of natural 
                        gas-derived methanol or ethanol fuel--
                                    ``(I) the Highway Trust Fund 
                                financing rate applicable under 
                                paragraph (2) shall be 5.75 cents per 
                                gallon, and
                                    ``(II) the deficit reduction rate 
                                applicable under paragraph (2) shall be 
                                1.25 cents per gallon.
                            ``(ii) Natural gas-derived methanol or 
                        ethanol fuel.--The term `natural-gas derived 
                        methanol or ethanol fuel' means any liquid at 
                        least 85 percent of which consists of methanol, 
                        ethanol, or other alcohol produced from natural 
                        gas.
                    ``(C) Other fuels containing alcohol.--
                            ``(i) In general.--Under regulations 
                        prescribed by the Secretary, in the case of any 
                        liquid at least 10 percent of which consists of 
                        alcohol (as defined in section 4081(c)(3)), the 
                        Highway Trust Fund financing rate applicable 
                        under paragraph (2) shall be the comparable 
                        rate under section 4081.
                            ``(ii) Later separation.--If any person 
                        separates the liquid fuel from a mixture of the 
                        liquid fuel and alcohol to which clause (i) 
                        applies, such separation shall be treated as a 
                        sale of the liquid fuel. Any tax imposed on 
                        such sale shall be reduced by the amount (if 
                        any) of the tax imposed on the sale of such 
                        mixture.
                            ``(iii) Termination.--Clause (i) shall not 
                        apply to any sale or use after September 30, 
                        2000.
                    ``(D) Liquefied petroleum gas.--The rate of tax 
                applicable under paragraph (2) to liquefied petroleum 
                gas shall be determined without regard to the Leaking 
                Underground Storage Tank Trust Fund financing rate 
                under section 4081.
            ``(5) Exemption for off-highway business use.--No tax shall 
        be imposed by paragraph (1) on liquids sold for use or used in 
        an off-highway business use (within the meaning of section 
        6420(f)).
    ``(b) Noncommercial Aviation Gasoline.--
            ``(1) In general.--There is hereby imposed a tax on 
        gasoline--
                    ``(A) sold by any person to an owner, lessee, or 
                other operator of an aircraft for use as a fuel in such 
                aircraft in noncommercial aviation, or
                    ``(B) used by any person as a fuel in an aircraft 
                in noncommercial aviation unless there was a taxable 
                sale of such gasoline under subparagraph (A).
        The tax imposed by this paragraph shall be in addition to any 
        tax imposed by section 4081.
            ``(2) Rate of tax.--The rate of the tax imposed by 
        paragraph (1) on any gasoline is the excess of 15 cents a 
        gallon over the sum of the Highway Trust Fund financing rate 
        plus the deficit reduction rate at which tax was imposed on 
        such gasoline under section 4081.
            ``(3) Noncommercial aviation.--For purposes of this 
        subsection, the term `noncommercial aviation' means any use of 
        an aircraft other than use in a business of transporting 
        persons or property for compensation or hire by air. Such term 
        includes any use of an aircraft, in a business described in the 
        preceding sentence, which is properly allocable to any 
        transportation exempt from the taxes imposed by sections 4261 
        and 4271 by reason of section 4281 or 4282.
            ``(4) Exemption for fuels containing alcohol.--No tax shall 
        be imposed by this subsection on any liquid at least 10 percent 
        of which consists of alcohol (as defined in section 
        4081(c)(3)).
            ``(5) Exemption for certain helicopter uses.--No tax shall 
        be imposed by this subsection on gasoline sold for use or used 
        in a helicopter for purposes of providing transportation with 
        respect to which the requirements of subsection (e) or (f) of 
        section 4261 are met.
            ``(6) Registration.--Except as provided in regulations 
        prescribed by the Secretary, if any gasoline is sold by any 
        person for use as a fuel in an aircraft, it shall be presumed 
        for purposes of this subsection that a tax imposed by this 
        subsection applies to the sale of such gasoline unless the 
        purchaser is registered in such manner (and furnished such 
        information in respect of the use of the gasoline) as the 
        Secretary shall by regulations provide.
            ``(7) Gasoline.--For purposes of this subsection, the term 
        `gasoline' has the meaning given such term by section 4082.
            ``(8) Termination.--Paragraph (1) shall not apply to any 
        sale or use after December 31, 1995.
    ``(c) Exemption for Farm Use.--
            ``(1) In general.--Under regulations prescribed by the 
        Secretary, no tax shall be imposed under this section on any 
        liquid sold for use or used on a farm for farming purposes 
        (determined in accordance with paragraphs (1), (2), and (3) of 
        section 6420(e)).
            ``(2) Termination.--Except with respect to so much of the 
        tax imposed by subsection (a) as is determined by reference to 
        the Leaking Underground Storage Tank Trust Fund financing rate 
        under section 4081, paragraph (1) shall not apply after 
        September 30, 1999.
    ``(d) Exemptions for State and Local Governments, Schools, 
Exportation, and Supplies for Vessels and Aircraft.--
            ``(1) In general.--Under regulations prescribed by the 
        Secretary, no tax shall be imposed under this section on any 
        liquid sold for use, or used, in an exempt use described in 
        paragraph (4), (5), (6), or (7) of section 6420(b).
            ``(2) Termination.--Except with respect to so much of the 
        tax imposed by subsection (a) as is determined by reference to 
        the Leaking Underground Storage Tank Trust Fund financing rate 
        under section 4081, after September 30, 1999, paragraph (1) 
        shall not apply to exempt uses described in paragraph (4) and 
        (5) of section 6420(b).
    ``(e) Exemption for Use by Certain Aircraft Museums.--Under 
regulations prescribed by the Secretary, no tax shall be imposed under 
this section on any liquid sold for use or used in an exempt use 
described in section 6420(b)(11).''
    (b) Certain Additional Purchasers of Fuel Treated as Producers.--
            (1) In general.--Subparagraph (C) of section 4092(b)(1) is 
        amended to read as follows:
                    ``(C) Reduced-tax purchasers treated as 
                producers.--Any person to whom any fuel is sold in a 
                sale on which the amount of tax otherwise required to 
                be paid under section 4091 is reduced under section 
                4093 shall be treated as the producer of such fuel. The 
                amount of tax imposed by section 4091 on any sale of 
                such fuel by such person shall be reduced by the amount 
                of tax imposed under section 4091 (and not credited or 
                refunded) on any prior sale of such fuel.''
            (2) Conforming amendment.--Subsection (b) of section 4093 
        is amended by inserting ``(as defined in section 4092(b) 
        without regard to paragraph (1)(C) thereof)'' after 
        ``producer''.

SEC. 802. REVISION OF FUEL TAX CREDIT AND REFUND PROCEDURES.

    (a) Refunds To Certain Sellers of Diesel Fuel and Aviation Fuel.--
            (1) In general.--Paragraph (2) of section 6416(b) is 
        amended by striking ``4091 or 4121'' and inserting ``4121 or 
        4091; except that this paragraph shall apply to a person 
        selling diesel fuel or aviation fuel for a use described in the 
        first sentence if such person meets such requirements as the 
        Secretary may by regulations prescribe''.
            (2) Limitations on Amount of Tax; Only Highway Trust Fund 
        Financing Rate To Be Refundable.--Paragraph (2) of section 
        6416(b) is amended by adding at the end thereof the following 
        new sentence: ``This paragraph shall not apply to the taxes 
        imposed by sections 4081 and 4091 with respect to any use to 
        the same extent that section 6420(a) does not apply to such use 
        by reason of paragraph (1) or (2) of section 6420(c).''
    (b) Consolidation of Refund Provisions; Repeal of Consent 
Requirement for Refund of Fuel Taxes to Cropdusters, Etc.--Section 6420 
(relating to gasoline used on farms) is amended to read as follows:

``SEC. 6420. CERTAIN TAXES ON FUELS USED FOR EXEMPT PURPOSES.

    ``(a) In General.--Except as otherwise provided in this section, if 
any fuel on which tax was imposed under section 4041, 4081, or 4091 is 
used in an exempt use, the Secretary shall pay (without interest) to 
the ultimate purchaser of such fuel the amount equal to the aggregate 
tax imposed on such fuel under such sections.
    ``(b) Exempt Uses.--For purposes of this section, the term `exempt 
use' means--
            ``(1) in the case of diesel fuel, use other than as a fuel 
        in a diesel-powered highway vehicle,
            ``(2) in the case of aviation fuel, use other than as a 
        fuel in an aircraft,
            ``(3) in the case of gasoline or aviation fuel, used in an 
        aircraft other than in noncommercial aviation (as defined in 
        section 4041(b)),
            ``(4) use by any State, any political subdivision of a 
        State, or the District of Columbia,
            ``(5) use by a nonprofit educational organization (as 
        defined in section 4221(d)(5)),
            ``(6) export,
            ``(7) use as supplies for vessels or aircraft (within the 
        meaning of section 4221(d)(3)),
            ``(8) use on a farm for farming purposes (within the 
        meaning of subsection (e)),
            ``(9) use in an off-highway business use (within the 
        meaning of subsection (f)),
            ``(10) use in qualified bus transportation (within the 
        meaning of subsection (g)),
            ``(11) use by an aircraft museum (within the meaning of 
        subsection (h)),
            ``(12) use in a nonpurpose use (within the meaning of 
        subsection (i)),
            ``(13) use in a helicopter for purposes of providing 
        transportation with respect to which the requirements of 
        subsection (e) or (f) of section 4261 are met, and
            ``(14) use in producing a mixture of a fuel if at least 10 
        percent of such mixture consists of alcohol (as defined in 
        section 4081(c)(3)) and if such mixture is sold or used in the 
        trade or business of the person producing such mixture.
Paragraph (14) shall not apply with respect to any mixture sold or used 
after September 30, 2000.
    ``(c) Limitations on Amount of Payment.--
            ``(1) No refund of leaking underground storage tank trust 
        fund taxes in certain cases.--Subsection (a) shall not apply to 
        so much of the taxes imposed by sections 4081 and 4091 as are 
        attributable to a Leaking Underground Storage Tank Trust Fund 
        financing rate in the case of--
                    ``(A) fuel used in a train, and
                    ``(B) fuel used in any aircraft (except as supplies 
                for vessels or aircraft within the meaning of section 
                4221(d)(3)).
            ``(2) No refund of deficit reduction tax on diesel fuel 
        used in trains.--Subsection (a) shall not apply to so much of 
        the tax imposed by section 4091 as is attributable to a deficit 
        reduction rate in the case of diesel fuel used in a diesel-
        powered train unless such fuel was used by a State or any 
        political subdivision thereof.
            ``(3) No refund of portion of tax on diesel fuel used in 
        certain buses.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), the rate of tax taken into 
                account under subsection (a) with respect to diesel 
                fuel used in qualified bus transportation (within the 
                meaning of subsection (g)(1)) shall be 3.1 cents per 
                gallon less than the aggregate rate of tax imposed on 
                such fuel by section 4091.
                    ``(B) Exception for school bus transportation.--
                Subparagraph (A) shall not apply to fuel used in an 
                automobile bus while engaged in transportation 
                described in subsection (g)(1)(B).
                    ``(C) Exception for certain intracity 
                transportation.--Subparagraph (A) shall not apply to 
                fuel used in any automobile bus while engaged in 
                furnishing (for compensation) intracity passenger land 
                transportation--
                            ``(i) which is available to the general 
                        public, and
                            ``(ii) which is scheduled and along regular 
                        routes,
                but only if such bus is a qualified local bus.
                    ``(D) Qualified local bus.--For purposes of this 
                paragraph, the term `qualified local bus' means any 
                local bus--
                            ``(i) which has a seating capacity of at 
                        least 20 adults (not including the driver), and
                            ``(ii) which is under contract with (or is 
                        receiving more than a nominal subsidy from) any 
                        State or local government (as defined in 
                        section 4221(d)) to furnish such 
                        transportation.
            ``(4) Alcohol fuels.--
                    ``(A) In general.--In the case of a fuel used as 
                described in subsection (b)(14) and on which tax was 
                imposed at regular tax rate, the rate of tax taken into 
                account under subsection (a) with respect to the fuel 
                so used shall equal the excess of the regular tax rate 
                over the incentive tax rate.
                    ``(B) Regular tax rate.--The term `regular tax 
                rate' means--
                            ``(i) in the case of gasoline, the 
                        aggregate rate of tax imposed by section 4081 
                        determined without regard to subsection (c) 
                        thereof,
                            ``(ii) in the case of diesel fuel, the 
                        aggregate rate of tax imposed by section 4091 
                        on such fuel determined without regard to 
                        subsection (c) thereof, and
                            ``(iii) in the case of aviation fuel, the 
                        aggregate rate of tax imposed by section 4091 
                        on such fuel determined without regard to 
                        subsection (d) thereof.
                    ``(C) Incentive tax rate.--The term `incentive tax 
                rate' means--
                            ``(i) in the case of gasoline, the 
                        aggregate rate of tax imposed by section 4081 
                        with respect to fuel described in subsection 
                        (c)(1) thereof,
                            ``(ii) in the case of diesel fuel, the 
                        aggregate rate of tax imposed by section 4091 
                        with respect to fuel described in subsection 
                        (c)(1)(B) thereof, and
                            ``(iii) in the case of aviation fuel, the 
                        aggregate rate of tax imposed by section 4091 
                        with respect to fuel described in subsection 
                        (d)(1)(B) thereof.
            ``(5) Gasohol used in noncommercial aviation.--If--
                    ``(A) tax is imposed by section 4081 at the rate 
                determined under subsection (c) thereof on gasohol (as 
                defined in such subsection), and
                    ``(B) such gasohol is used as a fuel in any 
                aircraft in noncommercial aviation (as defined in 
                section 4041(b)),
        the payment under subsection (a) shall be equal to 1.4 cents (2 
        cents in the case of gasohol none of the alcohol in which 
        consists of ethanol) per gallon of gasohol so used.
    ``(d) Time for Filing Claims; Period Covered.--
            ``(1) General rule.--Except as provided in paragraphs (2) 
        and (3), not more than one claim may be filed under this 
        section by any person with respect to fuel used (or a qualified 
        diesel powered highway vehicle purchased) during his taxable 
        year; and no claim shall be allowed under this paragraph with 
        respect to fuel used (or a qualified diesel powered highway 
        vehicle purchased) during any taxable year unless filed by the 
        purchaser not later than the time prescribed by law for filing 
        a claim for credit or refund of overpayment of income tax for 
        such taxable year. For purposes of this subsection, a person's 
        taxable year shall be his taxable year for purposes of subtitle 
        A.
            ``(2) Exceptions.--
                    ``(A) In general.--If as of the close of any 
                quarter of a person's taxable year, $750 or more is 
                payable under this section to such person with respect 
                to fuel used (or a qualified diesel powered highway 
                vehicle purchased) during such quarter or any prior 
                quarter of such taxable year (and for which no other 
                claim has been filed), a claim may be filed under this 
                section with respect to fuel so used (or qualified 
                diesel powered highway vehicles so purchased).
                    ``(B) Time for filing claim.--No claim filed under 
                this paragraph shall be allowed unless filed during the 
                first quarter following the last quarter included in 
                the claim.
            ``(3) Special rule for gasohol credit.--
                    ``(A) In general.--A claim may be filed for 
                gasoline used to produce gasohol (as defined in section 
                4081(c)(1)) for any period--
                            ``(i) for which $200 or more is payable by 
                        reason of subsection (b)(14), and
                            ``(ii) which is not less than 1 week.
                    ``(B) Payment of claim.--Notwithstanding subsection 
                (a), if the Secretary has not paid a claim filed 
                pursuant to subparagraph (A) within 20 days of the date 
                of the filing of such claim, the claim shall be paid 
                with interest from such date determined by using the 
                overpayment rate and method under section 6621.
    ``(e) Use on a Farm for Farming.--For purposes of subsection 
(b)(8)--
            ``(1) In general.--Fuel shall be treated as used on a farm 
        for farming purposes only if used--
                    ``(A) in carrying on a trade or business,
                    ``(B) on a farm situated in the United States, and
                    ``(C) for farming purposes.
            ``(2) Farm.--The term `farm' includes stock, dairy, 
        poultry, fruit, fur-bearing animal, and truck farms, 
        plantations, ranches, nurseries, ranges, greenhouses or other 
        similar structures used primarily for the raising of 
        agricultural or horticultural commodities, and orchards.
            ``(3) Farming purposes.--Fuel shall be treated as used for 
        farming purposes only if used--
                    ``(A) by the owner, tenant, or operator of a farm, 
                in connection with cultivating the soil, or in 
                connection with raising or harvesting any agricultural 
                or horticultural commodity, including the raising, 
                shearing, feeding, caring for, training, and management 
                of livestock, bees, poultry, and fur-bearing animals 
                and wildlife, on a farm of which he is the owner, 
                tenant, or operator;
                    ``(B) by the owner, tenant, or operator of a farm, 
                in handling, drying, packing, grading, or storing any 
                agricultural or horticultural commodity in its 
                unmanufactured state; but only if such owner, tenant, 
                or operator produced more than one-half of the 
                commodity which he so treated during the period with 
                respect to which claim is filed;
                    ``(C) by the owner, tenant, or operator of a farm, 
                in connection with--
                            ``(i) the planting, cultivating, caring 
                        for, or cutting of trees, or
                            ``(ii) the preparation (other than milling) 
                        of trees for market, incidental to farming 
                        operations; or
                    ``(D) by the owner, tenant, or operator of a farm, 
                in connection with the operation, management, 
                conservation, improvement, or maintenance of such farm 
                and its tools and equipment.
            ``(4) Certain farming use other than by owner, etc.--In 
        applying paragraph (3)(A) to a use on a farm for any purpose 
        described in paragraph (3)(A) by any person other than the 
        owner, tenant, or operator of such farm--
                    ``(A) the owner, tenant, or operator of such farm 
                shall be treated as the user and ultimate purchaser of 
                the fuel, except that
                    ``(B) if the person so using the fuel is an aerial 
                or other applicator of fertilizers or other substances 
                and is the ultimate purchaser of the fuel, then 
                subparagraph (A) of this paragraph shall not apply and 
                the aerial or other applicator shall be treated as 
                having used such fuel on a farm for farming purposes.
    ``(f) Off-Highway Business Use.--For purposes of subsection 
(b)(9)--
            ``(1) In general.--The term `off-highway business use' 
        means any use by a person in a trade or business of such person 
        or in an activity of such person described in section 212 
        (relating to production of income) other than as a fuel in a 
        highway vehicle--
                    ``(A) which (at the time of such use) is 
                registered, or is required to be registered, for 
                highway use under the laws of any State or foreign 
                country, or
                    ``(B) which, in the case of a highway vehicle owned 
                by the United States, is used on the highway.
            ``(2) Uses in motorboats.--The term `off-highway business 
        use' does not include any use in a motorboat. The preceding 
        sentence shall not apply to use in a vessel employed in the 
        fisheries or in the whaling business.
    ``(g) Qualified Bus Transportation.--For purposes of subsection 
(b)(10)--
            ``(1) In general.--Fuel is used in qualified bus 
        transportation if it is used in an automobile bus while engaged 
        in--
                    ``(A) furnishing (for compensation) passenger land 
                transportation available to the general public, or
                    ``(B) the transportation of students and employees 
                of schools (as defined in the last sentence of section 
                4221(d)(7)(C)).
            ``(2) Limitation in the case of nonscheduled intercity or 
        local buses.--Paragraph (1)(A) shall not apply in respect of 
        fuel used in any automobile bus while engaged in furnishing 
        transportation which is not along regular routes unless the 
        seating capacity of such bus is at least 20 adults (not 
        including the driver).
    ``(h) Use by an Aircraft Museum.--For purposes of subsection 
(b)(11)--
            ``(1) In general.--Fuel is used by an aircraft museum if it 
        is used in an aircraft or vehicle owned by such museum and used 
        exclusively for purposes set forth in paragraph (2)(C).
            ``(2) Aircraft museum.--For purposes of this subsection, 
        the term `aircraft museum' means an organization--
                    ``(A) described in section 501(c)(3) which is 
                exempt from income tax under section 501(a),
                    ``(B) operated as a museum under charter by a State 
                or the District of Columbia, and
                    ``(C) operated exclusively for the procurement, 
                care, and exhibition of aircraft of the type used for 
                combat or transport in World War II.
    ``(i) Use in a Nonpurpose Use.--For purposes of subsection (b)(12), 
fuel is used in a nonpurpose use if--
            ``(1) tax was imposed by section 4041 on the sale thereof 
        and the purchaser--
                    ``(A) uses such fuel other than for the use for 
                which it is sold, or
                    ``(B) resells such fuel, or
            ``(2) tax was imposed by section 4081 on any gasoline blend 
        stock or product commonly used as an additive in gasoline and 
        the purchaser establishes that the ultimate use of such blend 
        stock or product is not to produce gasoline.
    ``(j) Advance Repayment of Increased Diesel Fuel Tax to Original 
Purchasers of Diesel-Powered Automobiles and Light Trucks.--
            ``(1) In general.--Except as provided in subsection (d), 
        the Secretary shall pay (without interest) to the original 
        purchaser of any qualified diesel-powered highway vehicle an 
        amount equal to the diesel fuel differential amount.
            ``(2) Qualified diesel-powered highway vehicle.--For 
        purposes of this subsection, the term `qualified diesel-powered 
        highway vehicle' means any diesel-powered highway vehicle 
        which--
                    ``(A) has at least 4 wheels,
                    ``(B) has a gross vehicle weight rating of 10,000 
                pounds or less, and
                    ``(C) is registered for highway use in the United 
                States under the laws of any State.
            ``(3) Diesel fuel differential amount.--For purposes of 
        this subsection, the term `diesel fuel differential amount' 
        means--
                    ``(A) except as provided in subparagraph (B), $102, 
                or
                    ``(B) in the case of a truck or van, $198.
            ``(4) Original purchaser.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `original purchaser' means 
                the first person to purchase the qualified diesel-
                powered vehicle for use other than resale.
                    ``(B) Exception for certain persons not subject to 
                fuels tax.--The term `original purchaser' shall not 
                include any State or local government (as defined in 
                section 4221(d)(4)) or any nonprofit educational 
                organization (as defined in section 4221(d)(5)).
                    ``(C) Treatment of demonstration use by dealer.--
                For purposes of subparagraph (A), use as a demonstrator 
                by a dealer shall not be taken into account.
            ``(5) Vehicles to which subsection applies.--This 
        subsection shall only apply to qualified diesel-powered highway 
        vehicles originally purchased after January 1, 1985, and before 
        January 1, 1995.
            ``(6) Basis reduction.--For the purposes of subtitle A, the 
        basis of any qualified diesel-powered highway vehicle shall be 
        reduced by the amount payable under this subsection with 
        respect to such vehicle.
    ``(k) Income Tax Credit In Lieu of Payment; Other Special Rules.--
            ``(1) Income tax credit in lieu of payment.--
                    ``(A) Persons not subject to income tax.--Payment 
                shall be made under this section only to--
                            ``(i) the United States or an agency or 
                        instrumentality thereof, a State, a political 
                        subdivision of a State, or any agency or 
                        instrumentality of one or more States or 
                        political subdivisions, or
                            ``(ii) an organization exempt from tax 
                        under section 501(a) (other than an 
                        organization required to make a return of the 
                        tax imposed under subtitle A for its taxable 
                        year).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a payment of a claim filed under paragraph (2) or 
                (3) of subsection (d).
                    ``(C) Allowance of credit against income tax.--

                                ``For allowances of credit against the 
income tax imposed by subtitle A for fuel used by the purchaser in an 
exempt use, see section 34.
            ``(2) Applicable laws.--
                    ``(A) In general.--All provisions of law, including 
                penalties, applicable in respect of the tax with 
                respect to which a payment is claimed under this 
                section shall, insofar as applicable and not 
                inconsistent with this section, apply in respect of 
                such payment to the same extent as if such payment 
                constituted a refund of overpayments of such tax.
                    ``(B) Examination of books and witnesses.--For the 
                purpose of ascertaining the correctness of any claim 
                made under this section, or the correctness of any 
                payment made in respect of any such claim, the 
                Secretary shall have the authority granted by 
                paragraphs (1), (2), and (3) of section 7602(a) 
                (relating to examination of books and witnesses) as if 
                the claimant were the person liable for tax.
            ``(3) Coordination with section 6416, etc.--No amount shall 
        be payable under this section to any person with respect to any 
        fuel if the Secretary determines that the amount of tax for 
        which such payment is sought was not included in the price paid 
        by such person for such fuel. The amount which would (but for 
        this sentence) be payable under this section with respect to 
        any fuel shall be reduced by any other amount which the 
        Secretary determines is payable under this section, or is 
        refundable under any other provision of this title, to any 
        person with respect to such fuel.
            ``(4) Regulations.--The Secretary may by regulations 
        prescribe the conditions, not inconsistent with the provisions 
        of this section, under which payments may be made under this 
        section.
    ``(l) Fuels.--For purposes of this section, the terms `gasoline', 
`diesel fuel', and `aviation fuel' have the respective meanings given 
such terms by sections 4082 and 4092.
    ``(m) Termination.--Except as otherwise provided in this section, 
this section shall not apply to any liquid purchased after September 
30, 1999. The preceding sentence shall not apply to taxes attributable 
to any Leaking Underground Storage Tank Trust Fund financing rate.''

SEC. 803. AUTHORITY TO PROVIDE EXCEPTIONS FROM INFORMATION REPORTING 
              WITH RESPECT TO DIESEL FUEL AND AVIATION FUEL.

    (a) Returns by Producers and Importers.--Subparagraph (A) of 
section 4093(c)(4) (relating to returns by producers and importers) is 
amended by striking ``Each producer'' and inserting ``Except as 
provided by the Secretary by regulations, each producer''.
    (b) Returns by Purchasers.--Subparagraph (C) of section 4093(c)(4) 
(relating to returns by purchasers) is amended by striking ``Each 
person'' and inserting ``Except as provided by the Secretary by 
regulations, each person''.

SEC. 804. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) Sections 6421 and 6427 are hereby repealed.
            (2) Section 34 is amended to read as follows:

``SEC. 34. EXCISE TAXES ON FUEL USED FOR EXEMPT PURPOSES.

    ``There shall be allowed as a credit against the tax imposed by 
this subtitle for the taxable year an amount equal to the excess of--
            ``(1) the aggregate amount payable to the taxpayer under 
        section 6420 (determined without regard to section 6420(k)(1)) 
        with respect to--
                    ``(A) exempt uses (as defined in section 6420(b)) 
                during such taxable year, and
                    ``(B) qualified diesel-powered highway vehicles 
                purchased during such taxable year, over
            ``(2) the portion of such amount for which a claim payable 
        under section 6420(d) is timely filed.''
            (3) Subsection (c) of section 40 is amended by striking 
        ``subsection (b)(2), (k), or (m)'' and inserting ``subsection 
        (a)(4) or (b)(4)''.
            (4) Paragraph (2) of section 451(e) is amended by striking 
        ``section 6420(c)(3)'' and inserting ``section 6420(e)(3)''.
            (5) Clause (i) of section 1274(c)(3)(A) is amended by 
        striking ``section 6420(c)(2)'' and inserting ``section 
        6420(e)(2)''.
            (6) Sections 874(a) and 1366(f)(1) are each amended by 
        striking ``gasoline and special'' and inserting ``taxable''.
            (7) Paragraph (2) of section 882(c) is amended by striking 
        ``gasoline'' and inserting ``taxable fuels''.
            (8) Subsection (b) of section 4042 is amended by striking 
        paragraph (3) and by redesignating paragraph (4) as paragraph 
        (3).
            (9) Subsection (b) of section 4082 is amended by striking 
        ``special fuels referred to in section 4041'' and inserting 
        ``special motor fuels referred to in section 4041(a)''.
            (10) Section 4083 is amended to read as follows:

``SEC. 4083. CROSS REFERENCE.

    ``For provision allowing a credit or refund for gasoline used for 
exempt purposes, see section 6420.''
            (11) Subsections (c)(2) and (d)(2) of section 4091 are each 
        amended by striking ``section 6427(f)(1)'' and inserting 
        ``section 6420(b)(14)''.
            (12) Paragraph (1) of section 4093(c) is amended by 
        striking ``by the purchaser'' and all that follows and 
        inserting ``by the purchaser in an exempt use (as defined in 
        section 6420(b) other than paragraph (14) thereof).''
            (13) Subparagraph (C) of section 4093(c)(2) is amended by 
        striking ``section 6427(b)(2)(A)'' and inserting ``section 
        6420(c)(3)(A)''.
            (14) Clause (i) of section 4093(c)(4)(C) is amended to read 
        as follows:
                            ``(i) whether such use was an exempt use 
                        (as defined in section 6420(b)) and the amount 
                        of fuel so used,''.
            (15) Section 4093 is amended by redesignating subsection 
        (e) as subsection (f) and by inserting after subsection (d) the 
        following new subsection:
    ``(e) Use By Producer or Importer.--If any producer or importer 
uses any taxable fuel, then such producer or importer shall be liable 
for tax under section 4091 in the same manner as if such fuel were sold 
by him for such use.''
            (16) Subsection (f) of section 4093, as redesignated by 
        paragraph (15), is amended to read as follows:
    ``(e) Cross Reference.--
            ``For provision allowing a credit or refund for fuel used 
        for exempt purposes, see section 6420.''
            (17) Section 6206 is amended to read as follows:

``SEC. 6206. SPECIAL RULES APPLICABLE TO EXCESSIVE FUEL TAX REFUND 
              CLAIMS.

    ``Any portion of a payment made under section 6420 which 
constitutes an excessive amount (as defined in section 6675(b)), and 
any civil penalty provided by section 6675, may be assessed and 
collected as if--
            ``(1) it were a tax imposed by the section to which the 
        claim relates, and
            ``(2) the person making the claim were liable for such tax.
The period for assessing any such portion, and for assessing any such 
penalty, shall be 3 years from the last day prescribed for filing the 
claim under section 6420.''
            (18) Subparagraph (A) of section 6416(a)(2) is amended by 
        striking ``(relating to tax on special fuels)'' and inserting 
        ``(relating to special motor fuels and noncommercial aviation 
        gasoline)''.
            (19) Paragraph (2) of section 6416(b) is amended--
                    (A) in the matter preceding subparagraph (A) by 
                striking ``subsection (a) or (d) of section 4041'' and 
                inserting ``section 4041(a)'', and
                    (B) in subparagraph (F) by striking ``special fuels 
                referred to in section 4041'' and inserting ``special 
                motor fuels referred to in section 4041(a)''.
            (20) Paragraph (9) of section 6504 is amended to read as 
        follows:
            ``(9) Assessments to recover excessive amounts paid under 
        section 6420 (relating to certain taxes on fuels used for 
        exempt purposes) and assessments of civil penalties under 
        section 6675 for excessive claims under section 6420, see 
        section 6206.''
            (21) Subsection (h) of section 6511 is amended by striking 
        paragraphs (5) and (6), by redesignating paragraph (7) as 
        paragraph (6), and by inserting after paragraph (4) the 
        following new paragraph:
            ``(5) For limitations in the case of payments under section 
        6420 (relating to certain taxes on fuels used for exempt 
        purposes), see section 6420(d).''
            (22) Subsection (c) of section 6612 is amended by striking 
        ``6420 (relating to payments in the case of gasoline used on 
        the farm for farming purposes) and 6421 (relating to payments 
        in the case of gasoline used for certain nonhighway purposes or 
        by local transit systems)'' and inserting ``and 6420 (relating 
        to certain taxes on fuels used for exempt purposes)''.
            (23) Subsection (a) of section 6675 is amended by striking 
        ``section 6420 (relating to gasoline used on farms), 6421 
        (relating to gasoline used for certain nonhighway purposes or 
        by local transit systems), or 6427 (relating to fuels not used 
        for taxable purposes)'' and inserting ``section 6420 (relating 
        to certain taxes on fuels used for exempt purposes)''.
            (24) Paragraph (1) of section 6675(b) is amended by 
        striking ``, 6421, or 6427, as the case may be,''.
            (25) Section 7210 is amended by striking ``sections 
        6420(e)(2), 6421(g)(2), 6427(j)(2)'' and inserting ``sections 
        6420(k)(3)(B)''.
            (26) Section 7603, subsections (b) and (c)(2) of section 
        7604, section 7605, and 7610(c) are each amended by striking 
        ``section 6420(e)(2), 6421(g)(2), 6427(j)(2),'' each place it 
        appears and inserting ``section 6420(k)(2)(B)''.
            (27) Sections 7605 and 7609(c)(1) are each amended by 
        striking ``section 6420(e)(2), 6421(g)(2), or 6427(j)(2)'' and 
        inserting ``section 6420(k)(2)(B)''.
            (28) Paragraph (1) of section 9502(b) is amended by 
        striking ``subsections (c) and (e) of section 4041 (taxes on 
        aviation fuel)'' and inserting ``section 4041(b) (relating to 
        taxes on noncommercial aviation gasoline)''.
            (29) Paragraph (2) of section 9502(d) is amended by 
        striking ``fuel used in aircraft'' and all that follows and 
        inserting ``fuel used in aircraft, under section 6420 (relating 
        to certain taxes on fuels used for exempt purposes).''
            (30) Paragraph (1) of section 9502(e) is amended by 
        striking ``4041(c)(1) and''.
            (31) Subparagraph (A) of section 9503(b)(1) is amended to 
        read as follows:
                            ``(A) section 4041 (relating to special 
                        motor fuels and noncommercial aviation 
                        gasoline),''.
            (32) 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), the taxes 
        imposed by sections 4041, 4081, and 4091 shall be taken into 
        account only to the extent attributable to the Highway Trust 
        Fund financing rates under such sections.''
            (33)(A) Clause (i) of section 9503(c)(2)(A) is amended to 
        read as follows:
                            ``(i) the amounts paid before July 1, 1996, 
                        under section 6420 (relating to certain taxes 
                        on fuels used for exempt purposes) on the basis 
                        of claims filed for periods ending before 
                        October 1, 1995, and''.
            (B) For purposes of section 9503(c)(2)(A)(i) of the 
        Internal Revenue Code of 1986, the reference to section 6420 
        shall be treated as including a reference to sections 6420, 
        6421, and 6427 of such Code as in effect before the enactment 
        of this Act.
            (34) Clause (ii) of section 9503(c)(2)(A) is amended by 
        striking ``gasoline, special fuels, and lubricating oil'' each 
        place it appears and inserting ``taxable fuels''.
            (35) Subparagraph (D) of section 9503(c)(4) is amended by 
        striking ``section 4041(a)(2)'' and inserting ``section 
        4041(a)''.
            (36) Subparagraph (A) of section 9503(e)(5) is amended by 
        striking ``section 6427(g)'' and inserting ``section 6420(j)''.
            (37) Paragraph (1) of section 9508(b) is amended to read as 
        follows:
            ``(1) taxes received in the Treasury under section 4041 
        (relating to special motor fuels and noncommercial aviation 
        gasoline) to the extent attributable to the Leaking Underground 
        Storage Tank Trust Fund financing rates applicable under such 
        section,''.
            (38) Subparagraph (A) of section 9508(c)(2) is amended by 
        striking ``equivalent to--'' and all that follows and inserting 
        the following: ``equivalent to--
                            ``(i) amounts paid under section 6420 
                        (relating to certain taxes on fuels used for 
                        exempt purposes), and
                            ``(ii) credits allowed under section 34,
                with respect to so much of the taxes imposed by 
                sections 4041, 4081, and 4091 as are attributable to 
                the Leaking Underground Storage Tank Trust Fund 
                financing rates applicable under such sections.''
            (39) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 is amended by striking the item 
        relating to section 34 and inserting the following:

                              ``Sec. 34. Excise taxes on fuels used for 
                                        exempt purposes.''
            (40) The table of sections for subchapter B of chapter 31 
        is amended by striking the item relating to section 4041 and 
        inserting the following:

                              ``Sec. 4041. Special motor fuels and 
                                        noncommercial aviation 
                                        gasoline.''
            (41) The table of sections for subpart A of part III of 
        subchapter A of chapter 32 is amended by striking the item 
        relating to section 4083 and inserting the following:

                              ``Sec. 4083. Cross reference.''
            (42) The table of sections for subchapter B of chapter 65 
        is amended by striking the items relating to sections 6421 and 
        6427 and by striking the item relating to section 6420 and 
        inserting the following new item:

                              ``Sec. 6420. Certain taxes on fuels used 
                                        for exempt purposes.''
            (43) The table of sections for subchapter A of chapter 63 
        is amended by striking the item relating to section 6206 and 
        inserting the following new item:

                              ``Sec. 6206. Special rules applicable to 
                                        excessive fuel tax refund 
                                        claims.''

SEC. 805. EFFECTIVE DATE.

    The amendments made by this subtitle shall take effect on January 
1, 1994.

  Subtitle B--Provisions Related to Distilled Spirits, Wines, and Beer

SEC. 811. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS 
              RETURNED TO DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (1) of section 5008(c) (relating to 
distilled spirits returned to bonded premises) is amended by striking 
``withdrawn from bonded premises on payment or determination of tax'' 
and inserting ``on which tax has been determined or paid''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 812. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT SUBMISSION 
              OF RECORDS.

    (a) In General.--Subsection (c) of section 5175 (relating to export 
bonds) is amended by striking ``on the submission of'' and all that 
follows and inserting ``if there is such proof of exportation as the 
Secretary may by regulations require.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 813. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF 
              DISTILLED SPIRITS PLANT.

    (a) In General.--Subsection (c) of section 5207 (relating to 
records and reports) is amended by striking ``shall be kept on the 
premises where the operations covered by the record are carried on 
and''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 814. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A 
              DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (2) of section 5222(b) (relating to 
production, receipt, removal, and use of distilling materials) is 
amended to read as follows:
            ``(2) beer conveyed without payment of tax from brewery 
        premises, beer which has been lawfully removed from brewery 
        premises upon determination of tax, or''.
    (b) Clarification of Authority To Permit Removal of Beer Without 
Payment of Tax for Use as Distilling Material.--Section 5053 (relating 
to exemptions) is amended by redesignating subsection (f) as subsection 
(i) and by inserting after subsection (e) the following new subsection:
    ``(f) Removal for Use as Distilling Material.--Subject to such 
regulations as the Secretary may prescribe, beer may be removed from a 
brewery without payment of tax to any distilled spirits plant for use 
as distilling material.''
    (c) Clarification of Refund and Credit of Tax.--Section 5056 
(relating to refund and credit of tax, or relief from liability) is 
amended--
            (1) by redesignating subsection (c) as subsection (d) and 
        by inserting after subsection (b) the following new subsection:
    ``(c) Beer Received at a Distilled Spirits Plant.--Any tax paid by 
any brewer on beer produced in the United States may be refunded or 
credited to the brewer, without interest, or if the tax has not been 
paid, the brewer may be relieved of liability therefor, under 
regulations as the Secretary may prescribe, if such beer is received on 
the bonded premises of a distilled spirits plant pursuant to the 
provisions of section 5222(b)(2), for use in the production of 
distilled spirits.'', and
            (2) by striking ``or rendering unmerchantable'' in 
        subsection (d) (as so redesignated) and inserting ``rendering 
        unmerchantable, or receipt on the bonded premises of a 
        distilled spirits plant''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the 180th day after the date of the enactment of this Act.

SEC. 815. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO 
              POST SIGN.

    (a) In General.--Section 5115 (relating to sign required on 
premises) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 5681 is amended by striking 
        ``, and every wholesale dealer in liquors,'' and by striking 
        ``section 5115(a) or''.
            (2) Subsection (c) of section 5681 is amended--
                    (A) by striking ``or wholesale liquor 
                establishment, on which no sign required by section 
                5115(a) or'' and inserting ``on which no sign required 
                by'', and
                    (B) by striking ``or wholesale liquor 
                establishment, or who'' and inserting ``or who''.
            (3) The table of sections for subpart D of part II of 
        subchapter A of chapter 51 is amended by striking the item 
        relating to section 5115.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 816. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO 
              UNMERCHANTABLE WINE.

    (a) In General.--Subsection (a) of section 5044 (relating to refund 
of tax on unmerchantable wine) is amended by striking ``as 
unmerchantable''.
    (b) Conforming Amendments.--
            (1) Section 5361 is amended by striking ``unmerchantable''.
            (2) The section heading for section 5044 is amended by 
        striking ``UNMERCHANTABLE''.
            (3) The item relating to section 5044 in the table of 
        sections for subpart C of part I of subchapter A of chapter 51 
        is amended by striking ``unmerchantable''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the 180th day after the date of the enactment of this Act.

SEC. 817. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.

    (a) In General.--Subparagraph (D) of section 5384(b)(2) (relating 
to ameliorated fruit and berry wines) is amended by striking 
``loganberries, currants, or gooseberries,'' and inserting ``any fruit 
or berry with a natural fixed acid of 20 parts per thousand or more 
(before any correction of such fruit or berry)''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the 180th day after the date of the enactment of this Act.

SEC. 818. DOMESTICALLY-PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR 
              USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.

    (a) In General.--Section 5053 (relating to exemptions) is amended 
by inserting after subsection (f) the following new subsection:
    ``(g) Removals for Use of Foreign Embassies, Legations, Etc.--
            ``(1) In general.--Subject to such regulations as the 
        Secretary may prescribe--
                    ``(A) beer may be withdrawn from the brewery 
                without payment of tax for transfer to any customs 
                bonded warehouse for entry pending withdrawal therefrom 
                as provided in subparagraph (B), and
                    ``(B) beer entered into any customs bonded 
                warehouse under subparagraph (A) may be withdrawn for 
                consumption in the United States by, and for the 
                official and family use of, such foreign governments, 
                organizations, and individuals as are entitled to 
                withdraw imported beer from such warehouses free of 
                tax.
        Beer transferred to any customs bonded warehouse under 
        subparagraph (A) shall be entered, stored, and accounted for in 
        such warehouse under such regulations and bonds as the 
        Secretary may prescribe, and may be withdrawn therefrom by such 
        governments, organizations, and individuals free of tax under 
        the same conditions and procedures as imported beer.
            ``(2) Other rules to apply.--Rules similar to the rules of 
        paragraphs (2) and (3) of section 5362(e) of such section shall 
        apply for purposes of this subsection.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 819. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) In General.--Section 5053 is amended by inserting after 
subsection (g) the following new subsection:
    ``(h) Removals for Destruction.--Subject to such regulations as the 
Secretary may prescribe, beer may be removed from the brewery without 
payment of tax for destruction.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 820. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT 
              SUBMISSION OF RECORDS.

    (a) In General.--The first sentence of section 5055 (relating to 
drawback of tax on beer) is amended by striking ``found to have been 
paid'' and all that follows and inserting ``paid on such beer if there 
is such proof of exportation as the Secretary may by regulations 
require.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 180th day after the date of the enactment of this 
Act.

SEC. 821. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT 
              OF TAX.

    (a) In General.--Part II of subchapter G of chapter 51 is amended 
by adding at the end thereof the following new section:

``SEC. 5418. BEER IMPORTED IN BULK.

    ``Beer imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may prescribe, 
be withdrawn from customs custody and transferred in such bulk 
containers to the premises of a brewery without payment of the internal 
revenue tax imposed on such beer. The proprietor of a brewery to which 
such beer is transferred shall become liable for the tax on the beer 
withdrawn from customs custody under this section upon release of the 
beer from customs custody, and the importer, or the person bringing 
such beer into the United States, shall thereupon be relieved of the 
liability for such tax.''
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end thereof the following new item:

                              ``Sec. 5418. Beer imported in bulk.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the 180th day after the date of the enactment of this Act.

                Subtitle C--Other Excise Tax Provisions

SEC. 831. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION REQUIREMENTS.

    (a) In General.--The first sentence of section 4222 (relating to 
registration) is amended to read as follows: ``Except as provided in 
subsection (b), section 4221 shall not apply with respect to the sale 
of any article by or to any person who is required by the Secretary to 
be registered under this section and who is not so registered.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales after the 180th day after the date of the enactment of 
this Act.

SEC. 832. REPEAL OF EXPIRED PROVISIONS.

    (a) Piggy-Back Trailers.--Section 4051 is amended by striking 
subsection (d) and by redesignating subsection (e) as subsection (d).
    (b) Deep Seabed Mining.--
            (1) Subchapter F of chapter 36 (relating to tax on removal 
        of hard mineral resources from deep seabed) is hereby repealed.
            (2) The table of subchapters for chapter 36 is amended by 
        striking the item relating to subchapter F.

                  TITLE IX--ADMINISTRATIVE PROVISIONS

                     Subtitle A--General Provisions

SEC. 901. SIMPLIFICATION OF EMPLOYMENT TAXES ON DOMESTIC SERVICES.

    (a) Threshold Requirement for Social Security Taxes.--
            (1) Subparagraph (B) of section 3121(a)(7) (defining wages) 
        is amended to read as follows:
                    ``(B) cash remuneration paid by an employer in any 
                calendar year to an employee for domestic service in a 
                private home of the employer, if the cash remuneration 
                paid in such year by the employer to the employee for 
                such service is less than $300. As used in this 
                subparagraph, the term `domestic service in a private 
                home of the employer' does not include service 
                described in subsection (g)(5);''
            (2) Subparagraph (B) of section 209(a)(6) of the Social 
        Security Act is amended to read as follows:
                    ``(B) Cash remuneration paid by an employer in any 
                calendar year to an employee for domestic service in a 
                private home of the employer, if the cash remuneration 
                paid in such year by the employer to the employee for 
                such service is less than $300. As used in this 
                subparagraph, the term `domestic service in a private 
                home of the employer' does not include service 
                described in section 210(f)(5).''
            (3) The second sentence of section 3102(a) is amended--
                    (A) by striking ``calendar quarter'' each place it 
                appears and inserting ``calendar year'', and
                    (B) by striking ``$50'' and inserting ``$300''.
    (b) Coordination of Collection of Domestic Service Employment With 
Collection of Income Taxes.--
            (1) In general.--Chapter 25 (relating to general provisions 
        relating to employment taxes) is amended by adding at the end 
        thereof the following new section:

``SEC. 3510. COORDINATION OF COLLECTION OF DOMESTIC SERVICE EMPLOYMENT 
              TAXES WITH COLLECTION OF INCOME TAXES.

    ``(a) General Rule.--Except as otherwise provided in this section--
            ``(1) returns with respect to domestic service employment 
        taxes shall be made on a calendar year basis,
            ``(2) any such return for any calendar year shall be filed 
        on or before the 15th day of the fourth month following the 
        close of the employer's taxable year which begins in such 
        calendar year, and
            ``(3) no requirement to make deposits (or to pay 
        installments under section 6157) shall apply with respect to 
        such taxes.
    ``(b) Domestic Service Employment Taxes Subject to Estimated Tax 
Provisions.--
            ``(1) In general.--Solely for purposes of section 6654, 
        domestic service employment taxes imposed with respect to any 
        calendar year shall be treated as a tax imposed by chapter 2 
        for the taxable year of the employer which begins in such 
        calendar year.
            ``(2) Annualization.--Under regulations prescribed by the 
        Secretary, appropriate adjustments shall be made in the 
        application of section 6654(d)(2) in respect of the amount 
        treated as tax under paragraph (1).
            ``(3) Transitional rule.--For purposes of applying section 
        6654 to a taxable year beginning in 1992, the amount referred 
        to in clause (ii) of section 6654(d)(1)(B) shall be increased 
        by 90 percent of the amount treated as tax under paragraph (1) 
        for such taxable year.
    ``(c) Domestic Service Employment Taxes.--For purposes of this 
section, the term `domestic service employment taxes' means--
            ``(1) any taxes imposed by chapter 21 or 23 on remuneration 
        paid for domestic service in a private home of the employer, 
        and
            ``(2) any amount withheld from such remuneration pursuant 
        to an agreement under section 3402(p).
For purposes of this subsection, the term `domestic service in a 
private home of the employer' does not include service described in 
section 3121(g)(5).
    ``(d) Exception Where Employer Liable for Other Employment Taxes.--
To the extent provided in regulations prescribed by the Secretary, this 
section shall not apply to any employer for any calendar year if such 
employer is liable for any tax under this subtitle with respect to 
remuneration for services other than domestic service in a private home 
of the employer.
    ``(e) General Regulatory Authority.--The Secretary shall prescribe 
such regulations as may be necessary or appropriate to carry out the 
purposes of this section. Such regulations may treat domestic service 
employment taxes as taxes imposed by chapter 1 for purposes of 
coordinating the assessment and collection of such employment taxes 
with the assessment and collection of domestic employers' income taxes.
    ``(f) Authority To Enter Into Agreements To Collect State 
Unemployment Taxes.--
            ``(1) In general.--The Secretary is hereby authorized to 
        enter into an agreement with any State to collect, as the agent 
        of such State, such State's unemployment taxes imposed on 
        remuneration paid for domestic service in a private home of the 
        employer. Any taxes to be collected by the Secretary pursuant 
        to such an agreement shall be treated as domestic service 
        employment taxes for purposes of this section.
            ``(2) Transfers to state account.--Any amount collected 
        under an agreement referred to in paragraph (1) shall be 
        transferred by the Secretary to the account of the State in the 
        Unemployment Trust Fund.
            ``(3) Subtitle f made applicable.--For purposes of subtitle 
        F, any amount required to be collected under an agreement under 
        paragraph (1) shall be treated as a tax imposed by chapter 23.
            ``(4) State.--For purposes of this subsection, the term 
        `State' has the meaning given such term by section 
        3306(j)(1).''
            (2) Clerical amendment.--The table of sections for chapter 
        25 is amended by adding at the end thereof the following:

                              ``Sec. 3510. Coordination of collection 
                                        of domestic service employment 
                                        taxes with collection of income 
                                        taxes.''
    (c) Effective Date.--The amendments made by this section shall 
apply to remuneration paid in calendar years after 1993.

SEC. 902. USE OF REPRODUCTIONS OF RETURNS STORED IN DIGITAL IMAGE 
              FORMAT.

    (a) In General.--Paragraph (2) of section 6103(p) (relating to 
procedure and recordkeeping) is amended by adding at the end thereof 
the following new subparagraph:
                    ``(D) Reproduction from digital images.--For 
                purposes of this paragraph, the term `reproduction' 
                includes a reproduction from digital images.''
    (b) Study.--The Comptroller General of the United States shall 
conduct a study of available digital image technology for the purpose 
of determining the extent to which reproductions of documents stored 
using that technology accurately reflect the data on the original 
document and the appropriate period for retaining the original 
document. Not later than 1 year after the date of the enactment of this 
Act, a report on the results of such study shall be submitted to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate.

SEC. 903. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR HAS 
              BEEN AUDITED.

    (a) In General.--Subsection (h) of section 6103 (relating to 
disclosure to certain Federal officers and employees for purposes of 
tax administration, etc.) is amended by striking paragraph (5) and by 
redesignating paragraph (6) as paragraph (5).
    (b) Conforming Amendment.--Paragraph (4) of section 6103(p) is 
amended by striking ``(h)(6)'' each place it appears and inserting 
``(h)(5)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to judicial proceedings pending on, or commenced after, the date 
of the enactment of this Act.

SEC. 904. REPEAL OF SPECIAL AUDIT PROVISIONS FOR SUBCHAPTER S ITEMS.

    (a) General Rule.--Subchapter D of chapter 63 (relating to tax 
treatment of subchapter S items) is hereby repealed.
    (b) Consistent Treatment Required.--Section 6037 (relating to 
return of S corporation) is amended by adding at the end thereof the 
following new subsection:
    ``(c) Shareholder's Return Must Be Consistent With Corporate Return 
or Secretary Notified of Inconsistency.--
            ``(1) In general.--A shareholder of an S corporation shall, 
        on such shareholder's return, treat a subchapter S item in a 
        manner which is consistent with the treatment of such item on 
        the corporate return.
            ``(2) Notification of inconsistent treatment.--
                    ``(A) In general.--In the case of any subchapter S 
                item, if--
                            ``(i)(I) the corporation has filed a return 
                        but the shareholder's treatment on his return 
                        is (or may be) inconsistent with the treatment 
                        of the item on the corporate return, or
                            ``(II) the corporation has not filed a 
                        return, and
                            ``(ii) the shareholder files with the 
                        Secretary a statement identifying the 
                        inconsistency,
                paragraph (1) shall not apply to such item.
                    ``(B) Shareholder receiving incorrect 
                information.--A shareholder shall be treated as having 
                complied with clause (ii) of subparagraph (A) with 
                respect to a subchapter S item if the shareholder--
                            ``(i) demonstrates to the satisfaction of 
                        the Secretary that the treatment of the 
                        subchapter S item on the shareholder's return 
                        is consistent with the treatment of the item on 
                        the schedule furnished to the shareholder by 
                        the corporation, and
                            ``(ii) elects to have this paragraph apply 
                        with respect to that item.
            ``(3) Effect of failure to notify.--In any case--
                    ``(A) described in subparagraph (A)(i)(I) of 
                paragraph (2), and
                    ``(B) in which the shareholder does not comply with 
                subparagraph (A)(ii) of paragraph (2),
        any adjustment required to make the treatment of the items by 
        such shareholder consistent with the treatment of the items on 
        the corporate return shall be treated as arising out of 
        mathematical or clerical errors and assessed according to 
        section 6213(b)(1). Paragraph (2) of section 6213(b) shall not 
        apply to any assessment referred to in the preceding sentence.
            ``(4) Subchapter s item.--For purposes of this subsection, 
        the term `subchapter S item' means any item of an S corporation 
        to the extent that regulations prescribed by the Secretary 
        provide that, for purposes of this subtitle, such item is more 
        appropriately determined at the corporation level than at the 
        shareholder level.
            ``(5) Addition to tax for failure to comply with section.--

                                ``For addition to tax in the case of a 
shareholder's negligence in connection with, or disregard of, the 
requirements of this section, see part II of subchapter A of chapter 
68.''
    (c) Conforming Amendments.--
            (1) Section 1366 is amended by striking subsection (g).
            (2) Subsection (b) of section 6233 is amended to read as 
        follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership return is 
filed for any taxable year but it is determined that there is no entity 
for such taxable year, to the extent provided in regulations, rules 
similar to the rules of subsection (a) shall apply.''
            (3) The table of subchapters for chapter 63 is amended by 
        striking the item relating to subchapter D.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 905. CLARIFICATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Subsection (a) of section 6501 (relating to 
limitations on assessment and collection) is amended by adding at the 
end thereof the following new sentence: ``For purposes of this chapter, 
the term `return' means the return required to be filed by the taxpayer 
(and does not include a return of any person from whom the taxpayer has 
received an item of income, gain, loss, deduction, or credit).''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 906. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING 
              INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) General Rule.--Subparagraph (B) of section 6621(c)(2) (defining 
applicable date) is amended by adding at the end thereof the following 
new clause:
                            ``(iii) Exception for letters or notices 
                        involving small amounts.--For purposes of this 
                        paragraph, any letter or notice shall be 
                        disregarded if the amount of the deficiency or 
                        proposed deficiency (or the assessment or 
                        proposed assessment) set forth in such letter 
                        or notice is not greater than $100,000 
                        (determined by not taking into account any 
                        interest, penalties, or additions to tax).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply for purposes of determining interest for periods after December 
31, 1990.

SEC. 907. SPECIAL RULE FOR CORPORATE ESTIMATED TAXES WHERE NO LIABILITY 
              FOR PRECEDING YEAR.

    (a) General Rules.--Paragraph (1) of section 6655(d) (relating to 
amount of required installments) is amended--
            (1) by striking the last sentence of subparagraph (B), and
            (2) by adding at the end thereof the following new 
        subparagraph:
                    ``(C) Special rules.--
                            ``(i) Clause (ii) of subparagraph (B) shall 
                        apply only if the preceding taxable year was a 
                        taxable year of 12 months and the corporation 
                        filed a return for such preceding taxable year.
                            ``(ii) If--
                                    ``(I) the requirements of clause 
                                (i) are met with respect to the 
                                preceding taxable year,
                                    ``(II) the return for such 
                                preceding taxable year does not show a 
                                liability for tax, and
                                    ``(III) the requirements of clause 
                                (i) are met with respect to the second 
                                preceding taxable year,
                        clause (ii) of subparagraph (B) shall be 
                        applied by substituting `second preceding' for 
                        `preceding' and, if the return for the second 
                        preceding taxable year does not show a 
                        liability for tax, no addition to tax shall be 
                        imposed under subsection (a) for the taxable 
                        year.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                    Subtitle B--Tax Court Procedures

SEC. 911. OVERPAYMENT DETERMINATIONS OF TAX COURT.

    (a) Appeal of Order.--Paragraph (2) of section 6512(b) (relating to 
jurisdiction to enforce) is amended by adding at the end the following 
new sentence: ``An order of the Tax Court disposing of a motion under 
this paragraph shall be reviewable in the same manner as a decision of 
the Tax Court, but only with respect to the matters determined in such 
order.''
    (b) Denial of Jurisdiction Regarding Certain Credits and 
Reductions.--Subsection (b) of section 6512 (relating to overpayment 
determined by Tax Court) is amended by adding at the end the following 
new paragraph:
            ``(4) Denial of jurisdiction regarding certain credits and 
        reductions.--The Tax Court shall have no jurisdiction under 
        this subsection to restrain or review any credit or reduction 
        made by the Secretary under section 6402.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 912. AWARDING OF ADMINISTRATIVE COSTS.

    (a) Right to Appeal Tax Court Decision.--Subsection (f) of section 
7430 (relating to right of appeal) is amended by adding at the end the 
following new paragraph:
            ``(3) Appeal of tax court decision.--An order of the Tax 
        Court disposing of a petition under paragraph (2) shall be 
        reviewable in the same manner as a decision of the Tax Court, 
        but only with respect to the matters determined in such 
        order.''
    (b) Period for Applying to IRS for Costs.--Subsection (b) of 
section 7430 (relating to limitations) is amended by adding at the end 
the following new paragraph:
            ``(5) Period for applying to irs for administrative 
        costs.--An award may be made under subsection (a) by the 
        Internal Revenue Service for reasonable administrative costs 
        only if the prevailing party files an application with the 
        Internal Revenue Service for such costs before the 91st day 
        after the date on which the final decision of the Internal 
        Revenue Service as to the determination of the tax, interest, 
        or penalty is mailed to such party.''
    (c) Period for Petitioning of Tax Court for Review of Denial of 
Costs.--Paragraph (2) of section 7430(f) (relating to right of appeal) 
is amended--
            (1) by striking ``appeal to'' and inserting ``the filing of 
        a petition for review with'', and
            (2) by adding at the end the following new sentence: ``If 
        the Secretary sends by certified or registered mail a notice of 
        such decision to the petitioner, no proceeding in the Tax Court 
        may be initiated under this paragraph unless such petition is 
        filed before the 91st day after the date of such mailing.''
    (d) Effective Date.--The amendments made by this section shall 
apply to civil actions or proceedings commenced after the date of the 
enactment of this Act.

SEC. 913. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

    (a) In General.--Paragraph (3) of section 7481(c) (relating to 
jurisdiction over interest determinations) is amended by striking 
``petition'' and inserting ``motion''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 914. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF LITIGATION 
              COSTS.

    (a) In General.--Paragraph (4) of section 7430(c) (defining 
prevailing party) is amended by adding at the end thereof the following 
new subparagraph:
                    ``(C) Special rules for applying net worth 
                requirement.--In applying the requirements of section 
                2412(d)(2)(B) of title 28, United States Code, for 
                purposes of subparagraph (A)(iii) of this paragraph--
                            ``(i) the net worth limitation in clause 
                        (i) of such section shall apply to--
                                    ``(I) an estate but shall be 
                                determined as of the date of the 
                                decedent's death, and
                                    ``(II) a trust but shall be 
                                determined as of the last day of the 
                                taxable year involved in the 
                                proceeding, and
                            ``(ii) individuals filing a joint return 
                        shall be treated as 1 individual for purposes 
                        of clause (i) of such section, except in the 
                        case of a spouse relieved of liability under 
                        section 6013(e).''
    (b) Effective Date.--The amendment made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

        Subtitle C--Authority for Certain Cooperative Agreements

SEC. 921. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

    (a) General Rule.--Chapter 77 (relating to miscellaneous 
provisions) is amended by adding at the end thereof the following new 
section:

``SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

    ``(a) Authorization of Agreements.--The Secretary is hereby 
authorized to enter into cooperative agreements with State tax 
authorities for purposes of enhancing joint tax administration. Such 
agreements may provide for--
            ``(1) joint filing of Federal and State income tax returns,
            ``(2) single processing of such returns,
            ``(3) joint collection of taxes (other than Federal income 
        taxes), and
            ``(4) such other provisions as may enhance joint tax 
        administration.
    ``(b) Services on Reimbursable Basis.--Any agreement under 
subsection (a) may require reimbursement for services provided by 
either party to the agreement.
    ``(c) Availability of Funds.--Any funds appropriated for purposes 
of the administration of this title shall be available for purposes of 
carrying out the Secretary's responsibility under an agreement entered 
into under subsection (a). Any reimbursement received pursuant to such 
an agreement shall be credited to the amount so appropriated.
    ``(d) State Tax Authority.--For purposes of this section, the term 
`State tax authority' means agency, body, or commission referred to in 
section 6103(d)(1).''
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end thereof the following new item:

                              ``Sec. 7524. Cooperative agreements with 
                                        State tax authorities.''

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