[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 876 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                  S. 876

  To amend the Internal Revenue Code of 1986 to provide training and 
 investment incentives and to provide additional revenues for deficit 
                          reduction purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                May 4 (legislative day, April 19), 1993

Mr. Moynihan (by request) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to provide training and 
 investment incentives and to provide additional revenues for deficit 
                          reduction purposes.

    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 ``Revenue 
Reconciliation Act of 1993''.
    (b) Amendment to 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) Section 15 Not To Apply.--Except in the case of the amendments 
made by section 2201 (relating to corporate rate increase), no 
amendment made by this Act shall be treated as a change in a rate of 
tax for purposes of section 15 of the Internal Revenue Code of 1986.
    (d) Waiver of Estimated Tax Penalties.--No addition to tax shall be 
made under section 6654 or 6655 of the Internal Revenue Code of 1986 
for any period before April 16, 1994 (March 16, 1994, in the case of a 
corporation), with respect to any underpayment to the extent such 
underpayment was created or increased by any provision of this Act.
    (e) Table of Contents.--

Sec. 1. Short title; etc.
              TITLE I--TRAINING AND INVESTMENT INCENTIVES

       Subtitle A--Provisions Relating To Education And Training

Sec. 1101. Employer-provided educational assistance.
Sec. 1102. Targeted jobs credit.
                   Subtitle B--Investment Incentives

                     Part I--Investment Tax Credit

Sec. 1201. Permanent investment tax credit for small business.
Sec. 1202. Temporary incremental investment tax credit.
                        Part II--Research Credit

Sec. 1211. Permanent extension of research credit.
Sec. 1212. Modification of fixed base percentage for startup companies.
       Part III--Incentive for Investment in Small Business Stock

Sec. 1221. 50-percent exclusion for gain from certain small business 
                            stock.
        Part IV--Modifications to Minimum Tax Depreciation Rules

Sec. 1231. Modification to minimum tax depreciation rules.
                 Subtitle C--Tax-Exempt Bond Provisions

Sec. 1301. High-speed intercity rail facility bonds exempt from State 
                            volume cap.
Sec. 1302. Permanent extension of qualified small issue bonds.
  Subtitle D--Expansion And Simplification Of Earned Income Tax Credit

Sec. 1401. Expansion and simplification of earned income tax credit.
          Subtitle E--Incentives For Investment In Real Estate

 Part I--Extension of Qualified Mortgage Bonds and Low-income Housing 
                                 Credit

Sec. 1501. Permanent extension of qualified mortgage bonds.
Sec. 1502. Permanent extension of low-income housing credit.
              Part II--Modification of Passive Loss Rules

Sec. 1511. Modification of passive loss rules.
  Part III--Provisions Relating to Real Estate Investments by Pension 
                                 Funds

Sec. 1521. Real estate property acquired by a qualified organization.
Sec. 1522. Repeal of special treatment of publicly treated 
                            partnerships.
Sec. 1523. Title-holding companies permitted to receive small amounts 
                            of unrelated business taxable income.
Sec. 1524. Exclusion from unrelated business tax of gains from certain 
                            property.
Sec. 1525. Exclusion from unrelated business tax of certain fees and 
                            option premiums.
 Part IV--Increase in Recovery Period for Nonresidential Real Property

Sec. 1531. Increase in recovery period for nonresidential real 
                            property.
                       Subtitle F--Other Changes

Sec. 1601. Alternative minimum tax treatment of contributions of 
                            appreciated property.
Sec. 1602. Certain transfers to railroad retirement account made 
                            permanent.
Sec. 1603. Temporary extension of deduction for health insurance costs 
                            of self-employed individuals.
                      TITLE II--REVENUE INCREASES

              Subtitle A--Provisions Affecting Individuals

                         Part I--Rate Increases

Sec. 2101. Increase in top marginal rate under section 1.
Sec. 2102. Surtax on high-income taxpayers.
Sec. 2103. Modifications to alternative minimum tax rates and exemption 
                            amounts.
Sec. 2104. Overall limitation on itemized deductions for high-income 
                            taxpayers made permanent.
Sec. 2105. Phaseout of personal exemption of high-income taxpayers made 
                            permanent.
Sec. 2106. Provisions to prevent conversion of ordinary income to 
                            capital gain.
                       Part II--Other Provisions

Sec. 2111. Repeal of limitation on amount of wages subject to health 
                            insurance employment tax.
Sec. 2112. Top estate and gift tax rates made permanent.
Sec. 2113. Reduction in deductible portion of business meals and 
                            entertainment.
Sec. 2114. Elimination of deduction for club membership fees.
Sec. 2115. Disallowance of deduction for certain employee remuneration 
                            in excess of $1,000,000.
Sec. 2116. Reduction in compensation taken into account in determining 
                            contributions and benefits under qualified 
                            retirement plans.
Sec. 2117. Modification to deduction for certain moving expenses.
              Subtitle B--Provisions Affecting Businesses

Sec. 2201. Increase in top marginal rate under section 11.
Sec. 2202. Denial of deduction for lobbying expenses.
Sec. 2203. Mark to market accounting method for securities dealers.
Sec. 2204. Clarification of treatment of certain FSLIC financial 
                            assistance.
Sec. 2205. Extension of corporate estimated tax rules.
Sec. 2206. Limitation on section 936 credit.
Sec. 2207. Modification to limitation on deduction for certain 
                            interest.
                   Subtitle C--Foreign Tax Provisions

  Part I--Current Taxation of Certain Earnings of Controlled Foreign 
                              Corporations

Sec. 2301. Earnings invested in excess passive assets.
Sec. 2302. Modification to taxation of investment in United States 
                            property.
Sec. 2303. Other modifications to subpart F.
    Part II--Allocation of Research and Experimental Expenditures; 
                     Treatment of Certain Royalties

Sec. 2311. Allocation of research and experimental expenditures.
Sec. 2312. Royalties treated as passive income for purposes of separate 
                            application of foreign tax credit.
                       Part III--Other Provisions

Sec. 2321. Repeal of certain exceptions for working capital.
Sec. 2322. Modifications of accuracy-related penalty.
Sec. 2323. Denial of portfolio interest exemption for contingent 
                            interest.
Sec. 2324. Regulations dealing with conduit arrangements.
                   Subtitle D--Energy Tax Provisions

Sec. 2401. Imposition of energy tax based on Btu content.
Sec. 2402. Extension of motor fuel tax rates; increased deposits into 
                            highway trust fund.
                   Subtitle E--Compliance Provisions

Sec. 2501. Reporting required for certain payments to corporations.
Sec. 2502. Modifications to substantial understatement and return-
                            preparer penalties.
                  Subtitle F--Miscellaneous Provisions

Sec. 2601. Substantiation requirement for deduction of certain 
                            charitable contributions.
Sec. 2602. Disclosure related to quid pro quo contributions.
Sec. 2603. Disallowance of interest on certain overpayments of tax.
Sec. 2604. Denial of deduction relating to travel expenses.
Sec. 2605. Increase in withholding from supplemental wage payments.
        TITLE III--EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

Sec. 3101. Designation and treatment of empowerment zones and 
                            enterprise communities.
Sec. 3102. Expansion of targeted jobs credit.
Sec. 3103. Technical and conforming amendments.
Sec. 3104. Effective date.

              TITLE I--TRAINING AND INVESTMENT INCENTIVES

       Subtitle A--Provisions Relating To Education And Training

SEC. 1101. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.

    (a) Permanent Extension of Exclusion.--
            (1) In general.--Section 127 (relating to educational 
        assistance programs) is amended by striking subsection (d) and 
        by redesignating subsection (e) as subsection (d).
            (2) Conforming amendment.--Paragraph (2) of section 103(a) 
        of the Tax Extension Act of 1991 is hereby repealed.
    (b) Coordination With Section 132.--Paragraph (8) of section 132(i) 
is amended to read as follows:
            ``(8) Application of section to otherwise taxable 
        educational or training benefits.--Amounts paid or expenses 
        incurred by the employer for education or training provided to 
        the employee which are not excludable from gross income under 
        section 127 shall be excluded from gross income under this 
        section if (and only if) such amounts or expenses are a working 
        condition fringe.''
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to taxable years ending after June 30, 1992.
            (2) Subsection (b).--The amendment made by subsection (b) 
        shall apply to taxable years beginning after December 31, 1988.
    (d) Transition Rules.--
            (1) Waiver of interest and penalties.--No interest, 
        penalty, or addition to tax shall be imposed or required to be 
        paid solely by reason of a failure, before the date of the 
        enactment of this Act, to treat educational assistance in a 
        manner consistent with the provisions of section 103(a) of the 
        Tax Extension Act of 1991 (as in effect before the amendments 
        made by subsection (a)).
            (2) Special rules for 1992.--
                    (A) Employment taxes.--If--
                            (i) an employer provided an employee with 
                        educational assistance during the period 
                        beginning on July 1, 1992, and ending on 
                        December 31, 1992,
                            (ii) consistent with the provisions of 
                        section 103(a) of the Tax Extension Act of 1991 
                        (as so in effect), such employer treated such 
                        assistance as taxable for purposes of any 
                        employment tax and as a result of such 
                        treatment there was an increase in taxable 
                        wages for purposes of such tax,
                            (iii) on or after the date of the enactment 
                        of this Act and before January 1, 1994, such 
                        employer pays such employee amounts which are 
                        taxable wages for purposes of such tax and 
                        which equal or exceed the increase referred to 
                        in clause (ii), and
                            (iv) such employee did not treat such 
                        assistance for purposes of such employment tax 
                        (or for purposes of chapter 1 of the Internal 
                        Revenue Code of 1986 in the case of employment 
                        tax imposed by chapter 24 of such Code) in a 
                        manner inconsistent with the employer's 
                        treatment of such assistance,
                the amendments made by subsection (a) shall not apply 
                to such educational assistance for purposes of such 
                employment tax, but, for purposes of applying such 
                employment tax (and for purposes of the reporting 
                requirements imposed by chapter 61 of such Code), the 
                taxable wages of the employee referred to in clause 
                (iii) shall be reduced by the amount of the increase 
                referred to in clause (ii). For purposes of clause 
                (iv), an employer may assume that the employee treated 
                the assistance in a manner consistent with the 
                employer's treatment unless such employer has actual 
                knowledge to the contrary.
                    (B) Reporting requirement.--An employer shall 
                separately report the amounts of any reduction under 
                subparagraph (A) as nontaxable income on any returns or 
                receipts required under chapter 61 of such Code for 
                calendar year 1993.
                    (C) Definitions.--For purposes of this paragraph--
                            (i) Employment tax.--The term ``employment 
                        tax'' means any tax imposed by subtitle C of 
                        such Code.
                            (ii) Taxable wages.--The term ``taxable 
                        wages'' means--
                                    (I) wages (as defined in section 
                                3121(a) of such Code) in the case of 
                                the taxes imposed by chapter 21 of such 
                                Code,
                                    (II) compensation (as defined in 
                                section 3231(e) of such Code) in the 
                                case of the taxes imposed by chapter 22 
                                of such Code,
                                    (III) wages (as defined in section 
                                3306(b) of such Code) in the case of 
                                the taxes imposed by chapter 23 of such 
                                Code, and
                                    (IV) wages (as defined in section 
                                3401(a) of such Code) in the case of 
                                the taxes imposed by chapter 24 of such 
                                Code.
            (3) Income tax treatment.--If--
                    (A) subparagraph (A) of paragraph (2) applies to 
                any educational assistance referred to in such 
                paragraph provided to any employee, and
                    (B) such employee included such assistance in his 
                taxable income for purposes of the tax imposed by 
                chapter 1 of such Code,
        the amendments made by subsection (a) shall not apply to such 
        assistance for purposes of such chapter 1, but the amount 
        included in the gross income of such employee by reason of 
        wages received from the employer referred to in subparagraph 
        (A) of paragraph (2) during 1993 shall be reduced in the manner 
        provided in such subparagraph (A).

SEC. 1102. TARGETED JOBS CREDIT.

    (a) Permanent Extension of Credit.--
            (1) In general.--Subsection (c) of section 51 (relating to 
        amount of targeted jobs credit) is amended by striking 
        paragraph (4).
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to individuals who begin work for the employer 
        after June 30, 1992.
    (b) Credit for Participants in Approved School-To-Work Programs.--
            (1) In general.--Subparagraph (I) of section 51(d)(1) 
        (defining members of targeted group) is amended to read as 
        follows:
                                    ``(I) a qualified participant in an 
                                approved school-to-work program, or''.
            (2) Qualified participant in an approved school-to-work 
        program.--Paragraph (10) of section 51(d) is amended to read as 
        follows:
            ``(10) Qualified participant in an approved school-to-work 
        program defined.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `qualified participant in an 
                approved school-to-work program' means any individual 
                who is certified under an approved school-to-work 
                program as--
                            ``(i) having attained age 16 but not having 
                        attained age 21, and
                            ``(ii) being enrolled in and making 
                        satisfactory progress in completing such 
                        approved school-to-work program.
                    ``(B) Limitation on number of participants.--
                            ``(i) In general.--Any individual who 
                        begins work for the employer during any 
                        calendar year shall not be treated as a 
                        qualified participant in an approved school-to-
                        work program unless the individual is certified 
                        under such program as an eligible participant 
                        with respect to such calendar year.
                            ``(ii) Limitation on certifications.--The 
                        aggregate number of individuals certified under 
                        an approved school-to-work program as eligible 
                        participants with respect to any calendar year 
                        shall not exceed the portion of the national 
                        school-to-work program limitation for such 
                        calendar year allocated under subsection (l) to 
                        such program.
                    ``(C) Approved school-to-work program.--The term 
                `approved school-to-work program' means any program 
                which--
                            ``(i) is a planned program of structured 
                        job training designed to integrate academic 
                        instruction provided by an educational 
                        institution and work-based learning provided by 
                        an employer, and
                            ``(ii) is approved by the Secretaries of 
                        Labor and Education.
                    ``(D) Limitation on amount of wages taken into 
                account.--For purposes of applying this subpart to 
                wages paid or incurred to any qualified participant in 
                an approved school-to-work program, subsection (b)(3) 
                shall be applied by substituting `$3,000' for `$6,000'.
                    ``(E) Wages.--In the case of remuneration 
                attributable to services performed while the individual 
                meets the requirements of subparagraph (A), wages, and 
                unemployment insurance wages, shall be determined 
                without regard to section 3306(c)(10)(C).''
            (3) Overall limitations.--Section 51 is amended by adding 
        at the end thereof the following new subsection:
    ``(l) Overall Limitation on Approved School-To-Work Program 
Participants.--
            ``(1) In general.--For purposes of subsection (d)(10), the 
        national school-to-work program limitation--
                    ``(A) for calendar year 1994 is 125,000,
                    ``(B) for calendar year 1995 is 140,000,
                    ``(C) for calendar year 1996 is 160,000,
                    ``(D) for calendar year 1997 is 180,000, and
                    ``(E) for calendar year 1998 and any subsequent 
                calendar year is 200,000.
            ``(2) Allocation to states.--The national school-to-work 
        program limitation for any calendar year shall be allocated 
        among the States in proportion to the number of their eligible 
        participants that are estimated to be served in approved 
        school-to-work programs for that year. Such estimates shall be 
        published by the Secretaries of Labor and Education before the 
        beginning of the calendar year to which the allocation applies.
            ``(3) Allocation to approved school-to-work programs.--The 
        portion of the national school-to-work program limitation for 
        any calendar year which is allocated to any State shall be 
        allocated among the approved school-to-work programs in such 
        State in such manner as the Secretaries of Labor and Education 
        shall prescribe.''
            (4) Effective date.--The amendments made by this subsection 
        shall apply in the case of individuals who begin work for the 
        employer after December 31, 1993.

                   Subtitle B--Investment Incentives

                     PART I--INVESTMENT TAX CREDIT

SEC. 1201. PERMANENT INVESTMENT TAX CREDIT FOR SMALL BUSINESS.

    (a) Allowance of Credit.--Section 46 (relating to amount of 
investment credit) is amended by redesignating paragraphs (1), (2), and 
(3) as paragraphs (2), (3), and (4) and by inserting before paragraph 
(2) (as so redesignated) the following new paragraph:
            ``(1) in the case of an eligible small business (as defined 
        in section 46A(b)), the small business regular credit,''
    (b) Small Business Regular Credit.--Subpart E of part IV of 
subchapter A of chapter 1 (relating to rules for computing the 
investment credit) is amended by inserting after section 46 the 
following new section:

``SEC. 46A. SMALL BUSINESS REGULAR CREDIT.

    ``(a) Determination of Credit.--For purposes of section 46--
            ``(1) In general.--In the case of an eligible small 
        business, the small business regular credit for any taxable 
        year is an amount equal to 5 percent of the taxpayer's 
        qualified investment in regular credit property.
            ``(2) Special rule for property placed in service before 
        1995.--In the case of regular credit property placed in service 
        before January 1, 1995, paragraph (1) shall be applied by 
        substituting `7 percent' for `5 percent'.
    ``(b) Eligible Small Business.--For purposes of this section--
            ``(1) In general.--The term `eligible small business' 
        means, with respect to any taxable year, a taxpayer the average 
        annual gross receipts of which for the 3-taxable-year period 
        ending with the preceding taxable year does not exceed 
        $5,000,000.
            ``(2) Applicable rules.--
                    ``(A) Aggregation rules.--All persons treated as a 
                single employer under subsection (a) or (b) of section 
                52 shall be treated as 1 person for purposes of 
                paragraph (1).
                    ``(B) Special rules.--The rules of subsections 
                (c)(3) and (d)(8) of section 448 shall apply for 
                purposes of this subsection.
    ``(c) Regular Credit Property.--For purposes of this subpart--
            ``(1) In general.--The term `regular credit property' means 
        any eligible property--
                    ``(A) which is property to which section 168 
                applies,
                    ``(B) which is placed in service after December 3, 
                1992, and
                    ``(C)(i) the construction, reconstruction, or 
                erection of which is completed by the taxpayer, or
                    ``(ii) which is acquired by the taxpayer if the 
                original use of such property commences with the 
                taxpayer.
            ``(2) Eligible property.--For purposes of this subsection--
                    ``(A) In general.--The term `eligible property' 
                means--
                            ``(i) tangible personal property,
                            ``(ii) other tangible property (not 
                        including a building or its structural 
                        components), but only if such property--
                                    ``(I) is used as an integral part 
                                of manufacturing, production, or 
                                extraction, or of furnishing 
                                transportation, communications, 
                                electrical energy, gas, water, or 
                                sewage disposal services,
                                    ``(II) constitutes a research 
                                facility used in connection with any of 
                                the activities referred to in subclause 
                                (I), or
                                    ``(III) constitutes a facility used 
                                in connection with any of the 
                                activities referred to in subclause (I) 
                                for the bulk storage of fungible 
                                commodities (including commodities in a 
                                liquid or gaseous state),
                            ``(iii) an elevator or escalator,
                            ``(iv) a storage facility used in 
                        connection with the distribution of petroleum 
                        or any primary product of petroleum, or
                            ``(v) a single purpose agricultural or 
                        horticultural structure (as defined in section 
                        168(i)(13)).
                    ``(B) Property receiving other credits.--The term 
                `eligible property' shall not include--
                            ``(i) any property to the extent the basis 
                        of such property is attributable to qualified 
                        rehabilitation expenditures (as defined in 
                        section 47(c)(2)),
                            ``(ii) any energy property,
                            ``(iii) any property to the extent the 
                        basis of such property is attributable to 
                        qualified enhanced oil recovery costs (as 
                        defined in section 43(c)(1)), or
                            ``(iv) any qualified electric vehicle (as 
                        defined in section 30(c)).
                    ``(C) Special rules relating to exceptions.--
                            ``(i) Air and heating units.--The term 
                        `eligible property' does not include an air 
                        conditioning or heating unit.
                            ``(ii) Structural components.--For purposes 
                        of subparagraph (A)(ii), the term `structural 
                        component' includes, with respect to any 
                        building, property which--
                                    ``(I) relates (in whole or in part) 
                                to the operation, maintenance, or 
                                appearance of the building, and
                                    ``(II) is attached to the building 
                                (whether or not permanently attached).
                    ``(D) Livestock.--The term `eligible property' 
                shall include livestock acquired by the taxpayer, 
                except--
                            ``(i) such term shall not include horses, 
                        and
                            ``(ii) the qualified investment in such 
                        livestock shall be reduced by the amount 
                        realized on the sale or other disposition 
                        (other than in an involuntary conversion within 
                        the meaning of section 1033) of substantially 
                        identical livestock during the 1-year period 
                        beginning 6 months before such acquisition.
                    ``(E) Property completed abroad where foreign 
                country engaged in discriminatory acts.--The term 
                `eligible property' shall not include property 
                described in section 168(g)(1)(D).
    ``(d) Qualified Investment.--For purposes of this section--
            ``(1) In general.--The term `qualified investment' means 
        the applicable percentage of the basis of each regular credit 
        property placed in service by the taxpayer during the taxable 
        year.
            ``(2) Annual limitation.--
                    ``(A) In general.--The aggregate bases of regular 
                credit property taken into account in computing the 
                qualified investment of a taxpayer for any taxable year 
                shall not exceed $250,000.
                    ``(B) Pro rata allocation where bases exceed 
                limit.--If subparagraph (A) applies to a taxpayer for 
                any taxable year, the bases taken into account in 
                computing qualified investment shall be allocated among 
                regular credit properties placed in service during the 
                taxable year in proportion to their cost.
                    ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all persons treated as 1 person under 
                        subsection (a) or (b) of section 52 shall be 
                        treated as 1 person for purposes of this 
                        paragraph, and
                            ``(ii) in the case of--
                                    ``(I) a taxable year beginning 
                                January 1, 1993, subparagraph (A) shall 
                                be applied by substituting `$270,000' 
                                for `$250,000', and
                                    ``(II) a taxable year which is less 
                                than 12 months or which includes any 
                                period before December 4, 1992, the 
                                $250,000 amount shall be ratably 
                                reduced to reflect the shorter taxable 
                                year or such period.
            ``(3) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be determined under the 
        following table:

          ``In the case of property                      The applicable
            which is:                                    percentage is:
              3-year property.....................           33 percent
              5-year property.....................           67 percent
              7-year property.....................           80 percent
              All other property..................         100 percent.
        For purposes of this paragraph, the terms `3-year property', 
        `5-year property', and `7-year property' have the meanings 
        given such terms by section 168(e).
            ``(4) Reconstruction.--In the case of regular credit 
        property the reconstruction of which is completed by the 
        taxpayer, qualified investment shall only include that portion 
        of the basis which is properly attributable to the 
        reconstruction by the taxpayer.
            ``(5) Special rule for certain vessels.--For purposes of 
        paragraph (1), the basis of any regular credit property shall 
        not include any portion of the basis which is attributable to a 
        qualified withdrawal from any ordinary income or capital gain 
        account (within the meaning of section 7518) of a fund 
        established under section 607 of the Merchant Marine Act, 1936.
    ``(e) Special Rules Relating To Leased Property.--
            ``(1) In general.--Except as provided in this subsection, 
        regular credit property shall not include property subject to a 
        lease.
            ``(2) Exception for qualified short-term leases.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                regular credit property of a lessor subject to a 
                qualified short-term lease.
                    ``(B) Qualified short-term lease.--For purposes of 
                this subsection, the term `qualified short-term lease' 
                means any lease--
                            ``(i) the term of which is less than 1 
                        year, and
                            ``(ii) which is made in connection with the 
                        active conduct by the lessor of a qualified 
                        leasing trade or business.
                    ``(C) Qualified leasing trade or business.--For 
                purposes of this subsection, the term `qualified 
                leasing trade or business' means any trade or business 
                which normally derives at least 80 percent of its gross 
                receipts from leases of tangible personal property with 
                terms of less than 30 days.
                    ``(D) Lease terms.--The rules of section 168(i)(3) 
                shall apply for purposes of this paragraph.
            ``(3) Exception for longer term leases.--
                    ``(A) In general.--If regular credit property is 
                subject to a lease with a term of 3 years or more and 
                the original use of the property begins with the 
                lessee--
                            ``(i) paragraph (1) shall not apply to such 
                        property,
                            ``(ii) the lessee shall be treated for 
                        purposes of this section as having acquired 
                        such property with a basis equal to the fair 
                        market value of the property as of the 
                        beginning of the lease, and
                            ``(iii) if the lease term is shorter than 
                        the applicable recovery period for the property 
                        determined under section 168, the applicable 
                        percentage under subsection (d)(3) shall be 
                        determined as if the recovery period were equal 
                        to the longest such recovery period which does 
                        not exceed the lease term.
                    ``(B) Lease term.--For purposes of this paragraph, 
                in determining any lease term--
                            ``(i) options to renew shall not be taken 
                        into account, and
                            ``(ii) 2 or more successive leases 
                        described in section 168(i)(3)(A)(ii) shall not 
                        be treated as 1 lease.
                    ``(C) Special rule for persons under common 
                control.--For purposes of subparagraph (A)(ii), if any 
                property is leased by a person to another person which 
                is under common control with such person (as determined 
                under subsection (a) or (b) of section 52), the basis 
                of the property shall be substituted for its fair 
                market value.
            ``(4) Recapture rules to apply.--For purposes of section 
        50(a), if a lessee of regular credit property--
                    ``(A) terminates the lease before the expiration of 
                its term (other than by acquiring the property), or
                    ``(B) sublets the property,
        the lessee shall be treated as having disposed of the property 
        on the date of the termination or sublease.
            ``(5) Prior lease rules not to apply.--The provisions of 
        section 50(d)(5) shall not apply for purposes of this section.
    ``(f) Other Special Rules.--For purposes of this section--
            ``(1) Partnerships and s corporations.--
                    ``(A) In general.--In the case of a partnership or 
                S corporation--
                            ``(i) the limitation on the application of 
                        this section to eligible small businesses, and
                            ``(ii) the limitation under subsection 
                        (d)(2),
                shall be applied at both the partnership and S 
                corporation level and at the partner and shareholder 
                level.
                    ``(B) Reporting requirements.--A partnership or S 
                corporation shall include in any return or statement it 
                is otherwise required to provide to a partner or 
                shareholder such information as the Secretary may 
                prescribe as necessary to carry out the provisions of 
                this section.
            ``(2) Certain entities ineligible.--Notwithstanding 
        paragraphs (1) and (6) of section 50(d), no credit shall be 
        determined under this section with respect to regular credit 
        property of--
                    ``(A) an estate or trust, or
                    ``(B) a regulated investment company, real estate 
                investment trust, REMIC, or common trust fund described 
                in section 584.
            ``(3) Normalization rules.--The provisions of section 
        50(d)(2) shall apply, except that--
                    ``(A) no election shall be allowed under the last 
                sentence of section 46(f)(1) or under section 46(f)(3) 
                (as such provisions were in effect on the day before 
                the date of the enactment of the Revenue Reconciliation 
                Act of 1990), and
                    ``(B) the election under section 46(f)(2) (as so in 
                effect) shall be made by including it on the taxpayer's 
                first return to which this section applies.
            ``(4) Transition rules.--
                    ``(A) Pre-1993 property.--In the case of a taxpayer 
                whose taxable year is the calendar year, any property 
                placed in service after December 3, 1992, and before 
                January 1, 1993, shall be treated as placed in service 
                on January 1, 1993.
                    ``(B) Amounts allocable to periods before december 
                4, 1992.--The basis of any property with an actual 
                construction period of more than 2 years shall not 
                include any amount attributable to construction, 
                reconstruction, or erection by or for the taxpayer 
                before December 4, 1992.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section and 
section 50A, including regulations providing for the determination of 
lease terms.''
    (c) Credit May Offset 25 Percent of Minimum Tax.--
            (1) In general.--Section 38(c) (relating to limitation 
        based on amount of tax) is amended by redesignating paragraph 
        (2) as paragraph (3) and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) Regular investment credit may offset 25 percent of 
        minimum tax.--
                    ``(A) In general.--In the case of the regular 
                investment tax credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to such credit, 
                        and
                            ``(ii) for purposes of applying paragraph 
                        (1) to such credit--
                                    ``(I) 75 percent of the tentative 
                                minimum tax shall be substituted for 
                                the tentative minimum tax under 
                                subparagraph (A) thereof, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the regular 
                                investment tax credit).
                    ``(B) Regular investment tax credit.--For purposes 
                of this paragraph, the term `regular investment tax 
                credit' means the portion of the credit under 
                subsection (a) which is attributable to the credit 
                determined under section 46A. In the case of taxable 
                years beginning after December 31, 1992, the regular 
                investment tax credit shall include any credit to which 
                section 38(c)(2) (as in effect on the day before the 
                date of the enactment of the Revenue Reconciliation Act 
                of 1990) applies, and such section shall not apply to 
                such taxable years.''
            (2) Conforming amendment.--Section 38(d) (relating to 
        components of investment credit) is amended by adding at the 
        end the following new paragraph:
            ``(4) Special rule for small business credit.--
        Notwithstanding paragraphs (1) and (2), the small business 
        regular credit described in subsection (b)(1) shall be treated 
        as used last.''
    (d) Application of Other Rules.--
            (1) At-risk rules.--Clause (ii) of section 49(a)(1)(C) 
        (defining credit base) is amended by inserting ``or regular 
        credit property'' after ``energy property''.
            (2) Recapture rules.--Subparagraph (B) of section 50(a)(1) 
        (defining recapture percentage) is amended by adding at the end 
        the following new sentence:
                ``In the case of regular credit property which is 3-
                year property, the recapture percentage under clause 
                (ii) shall be 67 percent, under clause (iii) shall be 
                33 percent, and under clauses (iv) and (v) shall be 
                zero.''
            (3) Automobiles.--
                    (A) In general.--Section 280F(a) is amended by 
                redesignating paragraph (2) as paragraph (3) and by 
                inserting after paragraph (1) the following new 
                paragraph:
            ``(2) Investment tax credit.--The amount of the credit 
        determined under section 46A with respect to any passenger 
        automobile shall not exceed $675.''
                    (B) Conforming amendments.--
                            (i) Section 280F(b)(1) is amended--
                                    (I) by inserting ``and such 
                                property shall not be treated as 
                                regular credit property for purposes of 
                                section 46A for such taxable year'' 
                                before the period, and
                                    (II) by inserting ``or credit'' 
                                after ``depreciation'' in the heading.
                            (ii) Section 280F(c)(1) is amended by 
                        inserting ``(other than subsection (a)(2))'' 
                        after ``section''.
                            (iii) Section 280F(d) is amended--
                                    (I) by inserting ``the amount of 
                                any credit allowable under section 38 
                                to the employee or'' after 
                                ``determining'' in paragraph (3)(A),
                                    (II) by striking ``subsection (a)'' 
                                in paragraph (7)(A) and inserting 
                                ``subsection (a)(1)'', and
                                    (III) by striking ``subsection 
                                (a)(2)'' in paragraphs (8) and (10) and 
                                inserting ``subsection (a)(3)''.
                            (iv)(I) The heading for section 280F is 
                        amended by inserting ``and credit'' after 
                        ``depreciation''.
                            (II) The item relating to section 280F in 
                        the table of contents for part IX of subchapter 
                        B of chapter 1 is amended by inserting ``and 
                        credit'' after ``depreciation''.
    (e) Conforming Amendments.--
            (1) Section 38(d)(3)(B)(i) is amended by striking 
        ``paragraph (1)'' and inserting ``paragraph (2)''.
            (2) Section 39(d) is amended by adding at the end the 
        following new paragraph:
            ``(4) Investment tax credit.--No portion of the unused 
        business credit which is attributable to the credit determined 
        under section 46A (relating to the small business regular 
        investment credit) may be carried to any taxable year ending 
        before January 1, 1993.''
            (3) Section 1033(g)(3)(A) is amended by inserting ``with 
        respect to which the regular credit determined under section 
        46A is or has been claimed or,'' before ``with respect to 
        which''.
            (4) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 is amended by adding after the item 
        relating to section 46 the following new item:

                              ``Sec. 46A. Small business regular 
                                        credit.''
    (f) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to property placed in service after December 3, 1992.
            (2) Transition property.--The amendments made by this 
        section shall not apply to any transition property (as defined 
        in section 49(e) of the Internal Revenue Code of 1986, as in 
        effect on the day before the date of the enactment of the 
        Revenue Reconciliation Act of 1990).

SEC. 1202. TEMPORARY INCREMENTAL INVESTMENT TAX CREDIT.

    (a) In General.--Subpart E of part IV of subchapter A of chapter 1 
(relating to rules for computing investment tax credit) is amended by 
inserting after section 50 the following new section:

``SEC. 50A. TEMPORARY INCREMENTAL INVESTMENT TAX CREDIT.

    ``(a) Determination of Credit.--In the case of any taxable year 
which includes December 31 of calendar year 1993 or 1994, the amount of 
the credit determined under section 46 for such taxable year shall be 
increased by an amount equal to 7 percent of the excess (if any) of--
            ``(1) the taxpayer's qualified net investment for such 
        calendar year, over
            ``(2) the base amount for such calendar year.
    ``(b) Qualified Net Investment.--For purposes of this section--
            ``(1) In general.--The qualified net investment for any 
        calendar year is the excess (if any) of--
                    ``(A) qualified investment, over
                    ``(B) the sum of the amounts determined by 
                multiplying--
                            ``(i) the amount realized from each regular 
                        credit property--
                                    ``(I) the basis of which was taken 
                                into account in computing qualified 
                                investment under this section, and
                                    ``(II) which was disposed of (or 
                                otherwise ceased to be regular credit 
                                property) during the calendar year, and
                            ``(ii) the applicable percentage for the 
                        property.
            ``(2) Qualified investment.--
                    ``(A) In general.--The term `qualified investment' 
                has the meaning given such term by section 46A(d) 
                (without regard to the $250,000 limitation of paragraph 
                (2) thereof and by treating the calendar year as the 
                taxpayer's taxable year).
                    ``(B) Coordination with progress expenditures.--The 
                amount which (but for this subparagraph) would be taken 
                into account with respect to any regular credit 
                property shall be reduced by the excess (if any) of--
                            ``(i) the qualified investment taken into 
                        account under subsection (f)(2) by the taxpayer 
                        or a predecessor of the taxpayer, over
                            ``(ii) any portion of the qualified 
                        investment described in clause (i) taken into 
                        account under paragraph (1)(B).
                    ``(C) Special rule where insufficient net 
                investment in 1993.--If, in calendar year 1993, the 
                taxpayer's base amount exceeds qualified net 
                investment, the taxpayer's qualified net investment for 
                calendar year 1994 shall be reduced by the amount of 
                such excess.
                    ``(D) Automobiles.--The qualified investment taken 
                into account with respect to any passenger automobile 
                (as defined in section 280F(d)(5)) shall not exceed 
                $9,600.
                    ``(E) International intermodal cargo containers.--
                            ``(i) In general.--In the case of any 
                        international intermodal cargo container of a 
                        United States person, section 50(b)(1) shall 
                        not apply and 50 percent of the basis of the 
                        container shall be taken into account in 
                        computing qualified investment.
                            ``(ii) International intermodal cargo 
                        container.--For purposes of clause (i), the 
                        term `international intermodal cargo container' 
                        means any intermodal cargo container which is 
                        leased to, or owned by, a container user that 
                        has one or more trade routes that contact 
                        outside the United States.
                            ``(iii) Trade routes.--For purposes of 
                        clause (ii), a container user shall be treated 
                        as having one or more trade routes that contact 
                        outside the United States if, at any time 
                        during the taxable year, such user--
                                    ``(I) owns, operates, or charters 
                                any vessel that receives or delivers 
                                any intermodal cargo container outside 
                                the United States, or
                                    ``(II) uses any intermodal cargo 
                                container to ship cargo to or from the 
                                United States.
    ``(c) Base Amount.--For purposes of this section--
            ``(1) In general.--The term `base amount' means, with 
        respect to any computation year, an amount equal to 80 percent 
        (70 percent in the case of calendar year 1993) of the average 
        of the indexed base investment for each of the base period 
        years.
            ``(2) Minimum base amount.--In no event shall the base 
        amount for calendar year 1993 or 1994 be less than 50 percent 
        of the qualified net investment for the year.
            ``(3) Indexed base investment.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The indexed base investment for 
                any base period year--
                            ``(i) shall be computed separately with 
                        respect to each computation year, and
                            ``(ii) shall be equal to the product of--
                                    ``(I) the base investment for the 
                                base period year, and
                                    ``(II) the applicable inflation 
                                ratio for that computation year and 
                                that base period year.
                    ``(B) Base investment.--For purposes of this 
                paragraph, the base investment for any base period year 
                is an amount equal to the sum of the amounts determined 
                by applying the applicable percentage to each regular 
                credit property placed in service during such base 
                period year.
                    ``(C) Applicable inflation ratio.--The applicable 
                inflation ratio for any computation year and any base 
                period year is the percentage arrived at by dividing--
                            ``(i) the GDP implicit price deflator for 
                        the calendar year preceding the computation 
                        year, by
                            ``(ii) such deflator for the calendar year 
                        preceding the calendar year in which occurs the 
                        1st day of the base period year.
                For purposes of this subparagraph, the term `GDP 
                implicit price deflator' for each of the years 
                described in clauses (i) and (ii) is the most recent 
                revision of the implicit price deflator for the gross 
                domestic product, as computed and published by the 
                Department of Commerce before March 15 of the 
                computation year.
            ``(4) Base period year.--For purposes of this subsection, 
        the term `base period year' means any taxable year--
                    ``(A) beginning after December 31, 1988, and before 
                January 1, 1992, or
                    ``(B) at the election of the taxpayer, beginning 
                after December 31, 1986, and before January 1, 1992.
            ``(5) Computation year.--The term `computation year' means 
        the calendar year for which the excess described in subsection 
        (a) is being determined.
            ``(6) Special rules.--For purposes of this subsection--
                    ``(A) Regular credit property defined.--The term 
                `regular credit property' has the meaning given such 
                term by section 46A(c), without regard to paragraphs 
                (1) (B) and (C) thereof (relating to requirements for 
                original use and date of placement in service) or 
                paragraph (2)(B) (relating to certain ineligible 
                property).
                    ``(B) Leases.--
                            ``(i) Lessors.--A lessor of any regular 
                        credit property placed in service during any 
                        taxable year in the base period shall take into 
                        account the adjusted basis of such property 
                        unless the property was subject to a lease the 
                        term of which was at least 3 years and the 
                        lessor did not use such property during the 
                        base period other than as a lessor.
                            ``(ii) Lessees.--A lessee shall not take 
                        into account regular credit property the use of 
                        which by the lessee began during the base 
                        period unless the value of the property as of 
                        the beginning of the lease exceeded $1,000,000.
    ``(d) Recapture Rules.--
            ``(1) In general.--If, for calendar year 1994, 1995, 1996, 
        or 1997, the base amount exceeds the qualified net investment 
        of the taxpayer, then the tax under this chapter for the 
        taxable year in which the last day of the calendar year occurs 
        shall be increased by the least of--
                    ``(A) 7 percent of such excess,
                    ``(B) the balance in the credit recapture account 
                as of the close of the taxable year, or
                    ``(C) the aggregate increase in the credits allowed 
                under section 38 by reason of the credit determined 
                under this section (reduced by prior amounts taken into 
                account under this subparagraph).
            ``(2) Special rule for base amount.--For purposes of 
        paragraph (1), if the limitation of subsection (c)(2) applied 
        for 1993 or 1994, the base amount shall be determined as if the 
        base investment for each of the taxable years in the base 
        period were equal to the greater of--
                    ``(A) the amount determined without regard to this 
                paragraph, or
                    ``(B) in the case of a taxpayer for which a base 
                amount was determined under subsection (c)(2)--
                            ``(i) if the taxpayer's base amount for 
                        both calendar years 1993 and 1994 was so 
                        determined, the lesser of such base amounts, or
                            ``(ii) if the taxpayer's base amount for 
                        only one of such calendar years was so 
                        determined, the base amount for that year.
            ``(3) Credit recapture account.--
                    ``(A) Opening balance.--The opening balance of the 
                credit recapture account shall be zero.
                    ``(B) Account increased by credit allowed.--The 
                credit recapture account shall be increased as of the 
                close of any calendar year by the credit determined 
                under this section for the calendar year.
                    ``(C) Vesting of credit.--
                            ``(i) In general.--If the credit recapture 
                        account is increased under subparagraph (B) for 
                        any calendar year, the account shall be 
                        reduced--
                                    ``(I) in the case of the credit 
                                determined for 1993, as of the close of 
                                each of the 4 succeeding calendar years 
                                by an amount equal to 25 percent of 
                                such increase, and
                                    ``(II) in the case of the credit 
                                determined for 1994, as of the close of 
                                each of the 3 succeeding years by an 
                                amount equal to 33\1/3\ percent of such 
                                increase.
                            ``(ii) Credit stops being vested when 
                        recaptured.--If an increase in tax under 
                        paragraph (1) for any calendar year is properly 
                        allocable to any portion of the credit to which 
                        clause (i) applies, no reduction shall be made 
                        under clause (i) with respect to such portion 
                        for any succeeding calendar year. Any such 
                        increase shall be allocated to credits on a 
                        first-in first-out basis.
                    ``(D) Reduction for tax increase.--The credit 
                recapture account as of the beginning of any calendar 
                year shall be equal to the balance as of the close of 
                the preceding calendar year, reduced by any increase in 
                tax for the preceding calendar year under paragraph 
                (1).
            ``(4) Carrybacks and carryovers adjusted.--If subparagraph 
        (C) of paragraph (1) applies for any taxable year, the 
        carrybacks and carryovers under section 39 shall be adjusted by 
        reason of any increase in tax under paragraph (1) which would 
        have occurred but for such subparagraph.
            ``(5) Tax.--Any increase in tax under paragraph (1) shall 
        not be treated as tax imposed by this chapter for purposes of 
        determining the amount of any credit allowable under subpart A, 
        B, D, or G or the amount of the regular tax for purposes of 
        section 55.
    ``(e) Dispositions.--For purposes of this section--
            ``(1) Certain events treated as dispositions.--
                    ``(A) In general.--If, during any calendar year--
                            ``(i) regular credit property ceases to be 
                        regular credit property with respect to the 
                        taxpayer, or
                            ``(ii) any property to which subsection 
                        (f)(2) applied ceases (by reason of sale or 
                        other disposition, cancellation or abandonment 
                        of contract, or otherwise) to be, with respect 
                        to the taxpayer, property which will be regular 
                        credit property when placed in service,
                such property shall be treated as having been disposed 
                of during the calendar year.
                    ``(B) Special rules for leases.--
                            ``(i) Lessor.--A lessor of regular credit 
                        property with respect to which a credit is 
                        determined under this section by reason of 
                        subsection (e)(2) of section 46A shall be 
                        treated as having disposed of regular credit 
                        property if the taxpayer leases such property 
                        in a lease other than a qualified short-term 
                        lease (as defined in subsection (e)(2)(B) of 
                        section 46A).
                            ``(ii) Lessees.--If a credit is allowed to 
                        a lessee with respect to any property by reason 
                        of subsection (e)(3) of section 46A, the rules 
                        of section 46A(e)(4) shall apply in determining 
                        when the lessee disposed of the property.
            ``(2) Amount realized.--The amount realized in the case of 
        any disposition under paragraph (1) shall be equal to--
                    ``(A) in the case described in paragraph (1) (A)(i) 
                or (B)(i), the fair market value of the property as of 
                the time of cessation or lease,
                    ``(B) in the case described in paragraph 
                (1)(A)(ii), the increase in qualified investment with 
                respect to the property for preceding taxable years 
                under subsection (f)(2), or
                    ``(C) in the case described in paragraph 
                (1)(B)(ii), the fair market value of the property as of 
                the time of the disposition.
            ``(3) Exceptions for certain cases.--
                    ``(A) In general.--The following shall not be 
                treated as a disposition:
                            ``(i) A transfer by reason of death.
                            ``(ii) A transaction to which section 
                        381(a) applies.
                            ``(iii) A disposition with respect to which 
                        gain is not recognized under section 1031 or 
                        1033, but only to the extent of an amount which 
                        bears the same ratio to the amount realized as 
                        the gain not recognized bears to the gain 
                        realized.
                            ``(iv) A transfer described in section 
                        1041(a).
                    ``(B) Changes in form of business.--Property shall 
                not be treated as ceasing to be regular credit property 
                with respect to the taxpayer by reason of a mere change 
                in the form of conducting the trade or business so long 
                as the property is retained in such trade or business 
                as regular credit property and the taxpayer retains a 
                substantial interest in such trade or business.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Except as otherwise provided, the terms 
        `applicable percentage' and `regular credit property' have the 
        meanings given such terms by section 46A.
            ``(2) Qualified progress expenditures.--
                    ``(A) In general.--In the case of any progress 
                expenditure property which is regular credit property, 
                qualified progress expenditures shall be taken into 
                account in computing qualified investment but only to 
                the extent attributable to periods after December 3, 
                1992.
                    ``(B) Terms.--For purposes of subparagraph (A), the 
                terms `progress expenditure property' and `qualified 
                progress expenditures' shall be determined under rules 
                similar to the rules of section 47(d), except that--
                            ``(i) paragraph (5) thereof shall not 
                        apply, and
                            ``(ii) in the case of non-self-constructed 
                        property, amounts chargeable to capital account 
                        before December 4, 1992, with respect to the 
                        property shall be treated as qualified progress 
                        expenditures made before such date (whether or 
                        not paid before such date).
            ``(3) Pre-1993 property and expenditures.--Any property 
        placed in service (or any qualified progress expenditures 
        described in paragraph (2) made) during the period beginning 
        December 4, 1992, and ending December 31, 1992, shall be 
        treated as placed in service (or made) on January 1, 1993.
            ``(4) Coordination with section 46a.--
                    ``(A) Leasing rules.--The rules of section 46A(e) 
                shall apply.
                    ``(B) Reporting requirements.--The rules of section 
                46A(f)(1)(B) shall apply.
                    ``(C) Certain entities ineligible.--The rule of 
                section 46A(f)(2) shall apply.
                    ``(D) Normalization rules apply.--The rules of 
                section 46A(f)(3) shall apply.
            ``(5) Research credit rules applicable.--Rules similar to 
        the rules of section 41 (f) and (g) shall apply.
            ``(6) Certain leasing rules not to apply.--Section 50(d)(5) 
        shall not apply.
    ``(g) Credit Elective.--Subsection (a) shall apply to a taxpayer 
for a taxable year only if the taxpayer elects to have subsection (a) 
apply and in the case of an eligible small business (as defined in 
section 46A(b)), elects not to have section 46A apply.''
    (b) Increase in Income To Reflect Credit.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. INCOME INCLUSION RELATING TO TEMPORARY INVESTMENT TAX 
              CREDIT.

    ``(a) General Rule.--The amount of the current year business credit 
under section 38 for any taxable year which is determined under section 
50A shall be included in gross income ratably--
            ``(1) in the case of the credit determined for 1993, over 
        the 4-taxable-year period beginning with the taxable year 
        following the taxable year for which the credit was determined, 
        and
            ``(2) in the case of the credit determined for 1994, over 
        the 3-taxable-year period beginning with the taxable year 
        following the taxable year for which the credit was determined.
    ``(b) Recaptured Amounts.--If any increase in tax under section 
50A(d)(1) is properly allocable (as determined under section 
50A(d)(3)(C)(ii)) to any portion of any credit described in subsection 
(a) for any taxable year, subsection (a) shall cease to apply to such 
portion for the taxable year of recapture and for any succeeding 
taxable year.''
            (2) Conforming amendment.--Paragraph (1) of section 50(c) 
        (relating to basis adjustment) is amended by inserting ``(other 
        than regular credit property to which section 50A applies)'' 
        after ``any property''.
    (c) Credit Allowed Against Minimum Tax.--Subparagraph (B) of 
section 38(c)(2) (relating to regular investment credit may offset 
minimum tax), as added by section 1201(c)(1), is amended by inserting 
``or 50A'' after ``section 46A''.
    (d) Application of Other Rules.--
            (1) At-risk rules.--
                    (A) Clause (ii) of section 49(a)(1)(C) (defining 
                credit base), as amended by section 1201(d)(1), is 
                amended by inserting ``to which section 46A or 50A 
                applies'' after ``regular credit property''.
                    (B) Section 49(b)(1) is amended by adding at the 
                end the following new sentence: ``For purposes of 
                section 50A(b)(1)(B), any increase during any taxable 
                year in nonqualified nonrecourse financing with respect 
                to any regular credit property shall be treated as an 
                amount realized during such taxable year with respect 
                to the disposition of such property.''.
            (2) Recapture rules.--Subparagraph (A) of section 50(a)(5) 
        (defining investment credit property) is amended by adding at 
        the end the following new sentence: ``Such term does not 
        include regular credit property to which section 50A 
        applies.''.
    (e) Conforming Amendments.--
            (1) Section 39(d)(4), as added by section 1201(e)(2), is 
        amended by inserting ``or 50A (relating to incremental 
        investment credit)'' after ``credit)''.
            (2) Section 55(c)(1) is amended by striking ``49(b)'' and 
        inserting ``50A(d), 49(b),''.
            (3) Section 1033(g)(3)(A), as amended by section 
        1201(e)(3), is amended by inserting ``or 50A'' after ``section 
        46A''.
            (4) Section 1371(d)(3) is amended by striking ``49(b)'' and 
        inserting ``50A(d), 49(b),''.
            (5) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 is amended by adding after the item 
        relating to section 50 the following new item:

                              ``Sec. 50A. Temporary incremental 
                                        investment tax credit.''
            (6) The table of sections for part II of subchapter B of 
        chapter 1 is amended by adding at the end the following new 
        item:

                              ``Sec. 91. Income inclusion relating to 
                                        temporary investment tax 
                                        credit.''
    (f) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to property placed in service after December 3, 1992.
            (2) Transition property.--The amendments made by this 
        section shall not apply to any transition property (as defined 
        in section 49(e) of the Internal Revenue Code of 1986, as in 
        effect on the day before the date of the enactment of the 
        Revenue Reconciliation Act of 1990). This paragraph shall not 
        apply for purposes of section 50A(c) of the Internal Revenue 
        Code of 1986.

                        PART II--RESEARCH CREDIT

SEC. 1211. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 (relating to credit for increasing 
research activities) is amended by striking subsection (h).
    (b) Conforming Amendment.--Paragraph (1) of section 28(b) is 
amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after June 30, 1992.

SEC. 1212. MODIFICATION OF FIXED BASE PERCENTAGE FOR STARTUP COMPANIES.

    (a) General Rule.--Clause (ii) of section 41(c)(3)(B) is amended to 
read as follows:
                            ``(ii) Fixed-base percentage.--In a case to 
                        which this subparagraph applies, the fixed-base 
                        percentage is--
                                    ``(I) 3 percent for each of the 
                                taxpayer's 1st 5 taxable years 
                                beginning after December 31, 1993, for 
                                which the taxpayer has qualified 
                                research expenses,
                                    ``(II) in the case of the 
                                taxpayer's 6th such taxable year, \1/6\ 
                                of the percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 4th and 5th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(III) in the case of the 
                                taxpayer's 7th such taxable year, \1/3\ 
                                of the percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th and 6th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(IV) in the case of the 
                                taxpayer's 8th such taxable year, \1/2\ 
                                of the percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th, 6th, and 7th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(V) in the case of the taxpayer's 
                                9th such taxable year, \2/3\ of the 
                                percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th, 6th, 7th, and 8th 
                                such taxable years is of the aggregate 
                                gross receipts of the taxpayer for such 
                                years,
                                    ``(VI) in the case of the 
                                taxpayer's 10th such taxable year, \5/
                                6\ of the percentage which the 
                                aggregate qualified research expenses 
                                of the taxpayer for the 5th, 6th, 7th, 
                                8th, and 9th such taxable years is of 
                                the aggregate gross receipts of the 
                                taxpayer for such years, and
                                    ``(VII) for taxable years 
                                thereafter, the percentage which the 
                                aggregate qualified research expenses 
                                for any 5 taxable years selected by the 
                                taxpayer from among the 5th through the 
                                10th such taxable years is of the 
                                aggregate gross receipts of the 
                                taxpayer for such selected years.''
    (b) Conforming Amendments.--
            (1) Clause (iii) of section 41(c)(3)(B) is amended by 
        striking ``clause (i)'' and inserting ``clauses (i) and (ii)''.
            (2) Subparagraph (D) of section 41(c)(3) is amended by 
        striking ``subparagraph (A)'' and inserting ``subparagraphs (A) 
        and (B)(ii)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

       PART III--INCENTIVE FOR INVESTMENT IN SMALL BUSINESS STOCK

SEC. 1221. 50-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS 
              STOCK.

    (a) General Rule.--Part I of subchapter P of chapter 1 (relating to 
capital gains and losses) is amended by adding at the end thereof the 
following new section:

``SEC. 1202. 50-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS 
              STOCK.

    ``(a) 50-Percent Exclusion.--In the case of a taxpayer other than a 
corporation, gross income shall not include 50 percent of any gain from 
the sale or exchange of qualified small business stock held for more 
than 5 years.
    ``(b) Per-Issuer Limitation on Taxpayer's Eligible Gain.--
            ``(1) In general.--If the taxpayer has eligible gain for 
        the taxable year from 1 or more dispositions of stock issued by 
        any corporation, the aggregate amount of such gain from 
        dispositions of stock issued by such corporation which may be 
        taken into account under subsection (a) for the taxable year 
        shall not exceed the greater of--
                    ``(A) $10,000,000 reduced by the aggregate amount 
                of eligible gain taken into account under subsection 
                (a) for prior taxable years and attributable to 
                dispositions of stock issued by such corporation, or
                    ``(B) 10 times the aggregate adjusted bases of 
                qualified small business stock issued by such 
                corporation and disposed of by the taxpayer during the 
                taxable year.
        For purposes of subparagraph (B), the adjusted basis of any 
        stock shall be determined without regard to any addition to 
        basis after the date on which such stock was originally issued.
            ``(2) Eligible gain.--For purposes of this subsection, the 
        term `eligible gain' means any gain from the sale or exchange 
        of qualified small business stock held for more than 5 years.
            ``(3) Treatment of married individuals.--
                    ``(A) Separate returns.--In the case of a separate 
                return by a married individual, paragraph (1)(A) shall 
                be applied by substituting `$5,000,000' for 
                `$10,000,000'.
                    ``(B) Allocation of exclusion.--In the case of any 
                joint return, the amount of gain taken into account 
                under subsection (a) shall be allocated equally between 
                the spouses for purposes of applying this subsection to 
                subsequent taxable years.
                    ``(C) Marital status.--For purposes of this 
                subsection, marital status shall be determined under 
                section 7703.
    ``(c) Qualified Small Business Stock.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        section, the term `qualified small business stock' means any 
        stock in a C corporation which is originally issued after 
        December 31, 1992, if--
                    ``(A) as of the date of issuance, such corporation 
                is a qualified small business, and
                    ``(B) except as provided in subsections (f) and 
                (h), such stock is acquired by the taxpayer at its 
                original issue (directly or through an underwriter)--
                            ``(i) in exchange for money or other 
                        property (not including stock), or
                            ``(ii) as compensation for services 
                        provided to such corporation (other than 
                        services performed as an underwriter of such 
                        stock).
            ``(2) Active business requirement; etc.--Stock in a 
        corporation shall not be treated as qualified small business 
        stock unless, during substantially all of the taxpayer's 
        holding period for such stock, such corporation meets the 
        active business requirements of subsection (e) and such 
        corporation is a C corporation.
            ``(3) Certain purchases by corporation of its own stock.--
                    ``(A) Redemptions from taxpayer or related 
                person.--Stock acquired by the taxpayer shall not be 
                treated as qualified small business stock if, at any 
                time during the 4-year period beginning on the date 2 
                years before the issuance of such stock, the 
                corporation issuing such stock purchased (directly or 
                indirectly) any of its stock from the taxpayer or from 
                a person related (within the meaning of section 267(b) 
                or 707(b)) to the taxpayer.
                    ``(B) Significant redemptions.--Stock issued by a 
                corporation shall not be treated as qualified business 
                stock if, during the 2-year period beginning on the 
                date 1 year before the issuance of such stock, such 
                corporation made 1 or more purchases of its stock with 
                an aggregate value (as of the time of the respective 
                purchases) exceeding 5 percent of the aggregate value 
                of all of its stock as of the beginning of such 2-year 
                period.
                    ``(C) Acquisitions by related persons.--For 
                purposes of this paragraph, the purchase by any person 
                related (within the meaning of section 267(b) or 
                707(b)) to the issuing corporation of any stock in the 
                issuing corporation shall be treated as a purchase by 
                the issuing corporation.
    ``(d) Qualified Small Business.--For purposes of this section--
            ``(1) In general.--The term `qualified small business' 
        means any domestic corporation which is a C corporation if--
                    ``(A) the aggregate capitalization of such 
                corporation (or any predecessor thereof) at all times 
                on or after January 1, 1993, and before the issuance 
                did not exceed $50,000,000,
                    ``(B) the aggregate capitalization of such 
                corporation immediately after the issuance (determined 
                by taking into account amounts received in the 
                issuance) does not exceed $50,000,000, and
                    ``(C) such corporation agrees to submit such 
                reports to the Secretary and to shareholders as the 
                Secretary may require to carry out the purposes of this 
                section.
            ``(2) Aggregate capitalization.--For purposes of paragraph 
        (1), the term `aggregate capitalization' means the excess of--
                    ``(A) the amount of cash and the aggregate adjusted 
                bases of other property held by the corporation, over
                    ``(B) the aggregate amount of the short-term 
                indebtedness of the corporation.
        For purposes of the preceding sentence, the term `short-term 
        indebtedness' means any indebtedness which, when incurred, did 
        not have a term in excess of 1 year.
            ``(3) Look-thru in case of subsidiaries.--In determining 
        whether a corporation meets the requirements of this 
        subsection--
                    ``(A) stock and debt of any subsidiary (as defined 
                in subsection (e)(5)(C)) held by such corporation shall 
                be disregarded, and
                    ``(B) such corporation shall be treated as holding 
                its ratable share of the assets of such subsidiary and 
                as being liable for its ratable share of the 
                indebtedness of such subsidiary.
    ``(e) Active Business Requirement.--
            ``(1) In general.--For purposes of subsection (c)(2), the 
        requirements of this subsection are met by a corporation for 
        any period if during such period--
                    ``(A) at least 80 percent (by value) of the assets 
                of such corporation are used by such corporation in the 
                active conduct of a qualified trade or business, and
                    ``(B) such corporation is an eligible corporation.
            ``(2) Special rule for certain activities.--For purposes of 
        paragraph (1), if, in connection with any future qualified 
        trade or business, a corporation is engaged in--
                    ``(A) start-up activities described in section 
                195(c)(1)(A),
                    ``(B) activities resulting in the payment or 
                incurring of expenditures which may be treated as 
                research and experimental expenditures under section 
                174, or
                    ``(C) activities with respect to in-house research 
                expenses described in section 41(b)(4),
        assets used in such activities shall be treated as used in the 
        active conduct of a qualified trade or business. Any 
        determination under this paragraph shall be made without regard 
        to whether a corporation has any gross income from such 
        activities at the time of the determination.
            ``(3) Qualified trade or business.--For purposes of this 
        subsection, the term `qualified trade or business' means any 
        trade or business other than--
                    ``(A) any trade or business involving the 
                performance of services in the fields of health, law, 
                engineering, architecture, accounting, actuarial 
                science, performing arts, consulting, athletics, 
                financial services, brokerage services, or any other 
                trade or business where the principal asset of such 
                trade or business is the reputation or skill of 1 or 
                more of its employees,
                    ``(B) any banking, insurance, financing, investing, 
                or similar business,
                    ``(C) any farming business (including the business 
                of raising or harvesting trees),
                    ``(D) any business involving the production or 
                extraction of products of a character with respect to 
                which a deduction is allowable under section 613 or 
                613A, and
                    ``(E) any business of operating a hotel, motel, 
                restaurant, or similar business.
            ``(4) Eligible corporation.--For purposes of this 
        subsection, the term `eligible corporation' means any domestic 
        corporation; except that such term shall not include--
                    ``(A) a DISC or former DISC,
                    ``(B) a corporation with respect to which an 
                election under section 936 is in effect,
                    ``(C) a regulated investment company, real estate 
                investment trust, or REMIC, and
                    ``(D) a cooperative.
            ``(5) Stock in other corporations.--
                    ``(A) Look-thru in case of subsidiaries.--For 
                purposes of this subsection, stock and debt in any 
                subsidiary corporation shall be disregarded and the 
                parent corporation shall be deemed to own its ratable 
                share of the subsidiary's assets, and to conduct its 
                ratable share of the subsidiary's activities.
                    ``(B) Portfolio stock or securities.--A corporation 
                shall be treated as failing to meet the requirements of 
                paragraph (1) for any period during which more than 10 
                percent of the value of its assets (in excess of 
                liabilities) consist of stock or securities in other 
                corporations which are not subsidiaries of such 
                corporation (other than assets described in paragraph 
                (6)).
                    ``(C) Subsidiary.--For purposes of this paragraph, 
                a corporation shall be considered a subsidiary if the 
                parent owns more than 50 percent of the combined voting 
                power of all classes of stock entitled to vote, or more 
                than 50 percent in value of all outstanding stock, of 
                such corporation.
            ``(6) Working capital.--For purposes of paragraph (1)(A), 
        any assets which--
                    ``(A) are held as a part of the reasonably required 
                working capital needs of a qualified trade or business 
                of the corporation, or
                    ``(B) are held for investment and are reasonably 
                expected to be used within 2 years to finance future 
                research and experimentation in a qualified trade or 
                business or increases in working capital needs of a 
                qualified trade or business,
        shall be treated as used in the active conduct of a qualified 
        trade or business. For periods after the corporation has been 
        in existence for at least 2 years, in no event may more than 50 
        percent of the assets of the corporation qualify as used in the 
        active conduct of a qualified trade or business by reason of 
        this paragraph.
            ``(7) Maximum real estate holdings.--A corporation shall 
        not be treated as meeting the requirements of paragraph (1) for 
        any period during which more than 10 percent of the total value 
        of its assets consists of real property which is not used in 
        the active conduct of a qualified trade or business. For 
        purposes of the preceding sentence, the ownership of, dealing 
        in, or renting of real property shall not be treated as the 
        active conduct of a qualified trade or business.
            ``(8) Computer software royalties.--For purposes of 
        paragraph (1), rights to computer software which produces 
        active business computer software royalties (within the meaning 
        of section 543(d)(1)) shall be treated as an asset used in the 
        active conduct of a trade or business.
    ``(f) Stock Acquired on Conversion of Preferred Stock.--If any 
stock in a corporation is acquired solely through the conversion of 
other stock in such corporation which is qualified small business stock 
in the hands of the taxpayer--
            ``(1) the stock so acquired shall be treated as qualified 
        small business stock in the hands of the taxpayer, and
            ``(2) the stock so acquired shall be treated as having been 
        held during the period during which the converted stock was 
        held.
    ``(g) Treatment of Pass-Thru Entities.--
            ``(1) In general.--If any amount included in gross income 
        by reason of holding an interest in a pass-thru entity meets 
        the requirements of paragraph (2)--
                    ``(A) such amount shall be treated as gain 
                described in subsection (a), and
                    ``(B) for purposes of applying subsection (b), such 
                amount shall be treated as gain from a disposition of 
                stock in the corporation issuing the stock disposed of 
                by the pass-thru entity and the taxpayer's 
                proportionate share of the adjusted basis of the pass-
                thru entity in such stock shall be taken into account.
            ``(2) Requirements.--An amount meets the requirements of 
        this paragraph if--
                    ``(A) such amount is attributable to gain on the 
                sale or exchange by the pass-thru entity of stock which 
                is qualified small business stock in the hands of such 
                entity (determined by treating such entity as an 
                individual) and which was held by such entity for more 
                than 5 years, and
                    ``(B) such amount is includible in the gross income 
                of the taxpayer by reason of the holding of an interest 
                in such entity which was held by the taxpayer on the 
                date on which such pass-thru entity acquired such stock 
                and at all times thereafter before the disposition of 
                such stock by such pass-thru entity.
            ``(3) Limitation based on interest originally held by 
        taxpayer.--Paragraph (1) shall not apply to any amount to the 
        extent such amount exceeds the amount to which paragraph (1) 
        would have applied if such amount were determined by reference 
        to the interest the taxpayer held in the pass-thru entity on 
        the date the qualified small business stock was acquired.
            ``(4) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(h) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer described in 
        paragraph (2), the transferee shall be treated as--
                    ``(A) having acquired such stock in the same manner 
                as the transferor, and
                    ``(B) having held such stock during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Description of transfers.--A transfer is described in 
        this subsection if such transfer is--
                    ``(A) by gift,
                    ``(B) at death, or
                    ``(C) from a partnership to a partner of stock with 
                respect to which requirements similar to the 
                requirements of subsection (g) are met at the time of 
                the transfer (without regard to the 5-year holding 
                period requirement).
            ``(3) Certain rules made applicable.--Rules similar to the 
        rules of section 1244(d)(2) shall apply for purposes of this 
        section.
            ``(4) Incorporations and reorganizations involving 
        nonqualified stock.--
                    ``(A) In general.--In the case of a transaction 
                described in section 351 or a reorganization described 
                in section 368, if qualified small business stock is 
                exchanged for other stock which would not qualify as 
                qualified small business stock but for this 
                subparagraph, such other stock shall be treated as 
                qualified small business stock acquired on the date on 
                which the exchanged stock was acquired.
                    ``(B) Limitation.--This section shall apply to gain 
                from the sale or exchange of stock treated as qualified 
                small business stock by reason of subparagraph (A) only 
                to the extent of the gain which would have been 
                recognized at the time of the transfer described in 
                subparagraph (A) if section 351 or 368 had not applied 
                at such time.
                    ``(C) Successive application.--For purposes of this 
                paragraph, stock treated as qualified small business 
                stock under subparagraph (A) shall be so treated for 
                subsequent transactions or reorganizations, except that 
                the limitation of subparagraph (B) shall be applied as 
                of the time of the first transfer to which subparagraph 
                (A) applied.
                    ``(D) Control test.--Except in the case of a 
                transaction described in section 368, this paragraph 
                shall apply only if, immediately after the transaction, 
                the corporation issuing the stock owns directly or 
                indirectly stock representing control (within the 
                meaning of section 368(c)) of the corporation whose 
                stock was exchanged.
    ``(i) Basis Rules.--For purposes of this section--
            ``(1) Stock exchanged for property.--In the case where the 
        taxpayer transfers property (other than money or stock) to a 
        corporation in exchange for stock in such corporation--
                    ``(A) such stock shall be treated as having been 
                acquired by the taxpayer on the date of such exchange, 
                and
                    ``(B) the basis of such stock in the hands of the 
                taxpayer shall in no event be less than the fair market 
                value of the property exchanged.
            ``(2) Treatment of contributions to capital.--If the 
        adjusted basis of any qualified small business stock is 
        adjusted by reason of any contribution to capital after the 
        date on which such stock was originally issued, in determining 
        the amount of the adjustment by reason of such contribution, 
        the basis of the contributed property shall in no event be 
        treated as less than its fair market value on the date of the 
        contribution.
    ``(j) Treatment of Certain Short Positions.--
            ``(1) In general.--If the taxpayer has an offsetting short 
        position with respect to any qualified small business stock, 
        subsection (a) shall not apply to any gain from the sale or 
        exchange of such stock unless--
                    ``(A) such stock was held by the taxpayer for more 
                than 5 years as of the first day on which there was 
                such a short position, and
                    ``(B) the taxpayer elects to recognize gain as if 
                such stock were sold on such first day for its fair 
                market value.
            ``(2) Offsetting short position.--For purposes of paragraph 
        (1), the taxpayer shall be treated as having an offsetting 
        short position with respect to any qualified small business 
        stock if--
                    ``(A) the taxpayer has made a short sale of 
                substantially identical property,
                    ``(B) the taxpayer has acquired an option to sell 
                substantially identical property at a fixed price, or
                    ``(C) to the extent provided in regulations, the 
                taxpayer has entered into any other transaction which 
                substantially reduces the risk of loss from holding 
                such qualified small business stock.
        For purposes of the preceding sentence, any reference to the 
        taxpayer shall be treated as including a reference to any 
        person who is related (within the meaning of section 267(b) or 
        707(b)) to the taxpayer.
    ``(k) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations to prevent the avoidance of the purposes of this 
section through split-ups, shell corporations, partnerships, or 
otherwise.''
    (b) One-Half of Exclusion Treated as Preference for Minimum Tax.--
            (1) In general.--Subsection (a) of section 57 (relating to 
        items of tax preference) is amended by adding at the end 
        thereof the following new paragraph:
            ``(8) Exclusion for gains on sale of certain small business 
        stock.--An amount equal to one-half of the amount excluded from 
        gross income for the taxable year under section 1202.''
            (2) Conforming amendment.--Subclause (II) of section 
        53(d)(1)(B)(ii) is amended by striking ``and (6)'' and 
        inserting ``(6), and (8)''.
    (c) Penalty for Failure To Comply With Reporting Requirements.--
Section 6652 is amended by inserting before the last subsection thereof 
the following new subsection:
    ``(l) Failure To Make Reports Required Under Section 1202.--In the 
case of a failure to make a report required under section 1202(d)(1)(C) 
which contains the information required by such section on the date 
prescribed therefor (determined with regard to any extension of time 
for filing), there shall be paid (on notice and demand by the Secretary 
and in the same manner as tax) by the person failing to make such 
report, an amount equal to $50 for each report with respect to which 
there was such a failure. In the case of any failure due to negligence 
or intentional disregard, the preceding sentence shall be applied by 
substituting `$100' for `$50'. In the case of a report covering periods 
in 2 or more years, the penalty determined under preceding provisions 
of this subsection shall be multiplied by the number of such years.''
    (d) Conforming Amendments.--
            (1)(A) Section 172(d)(2) (relating to modifications with 
        respect to net operating loss deduction) is amended to read as 
        follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includable on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the exclusion provided by section 1202 shall 
                not be allowed.''
            (B) Subparagraph (B) of section 172(d)(4) is amended by 
        inserting ``, (2)(B),'' after ``paragraph (1)''.
            (2) Paragraph (4) of section 642(c) is amended to read as 
        follows:
            ``(4) Adjustments.--To the extent that the amount otherwise 
        allowable as a deduction under this subsection consists of gain 
        described in section 1202(a), proper adjustment shall be made 
        for any exclusion allowable to the estate or trust under 
        section 1202. In the case of a trust, the deduction allowed by 
        this subsection shall be subject to section 681 (relating to 
        unrelated business income).''
            (3) Paragraph (3) of section 643(a) is amended by adding at 
        the end thereof the following new sentence: ``The exclusion 
        under section 1202 shall not be taken into account.''.
            (4) Paragraph (4) of section 691(c) is amended by striking 
        ``1201, and 1211'' and inserting ``1201, 1202, and 1211''.
            (5) The second sentence of paragraph (2) of section 871(a) 
        is amended by inserting ``such gains and losses shall be 
        determined without regard to section 1202 and'' after ``except 
        that''.
            (6) The table of sections for part I of subchapter P of 
        chapter 1 is amended by adding after the item relating to 
        section 1201 the following new item:

                              ``Sec. 1202. 50-percent exclusion for 
                                        gain from certain small 
                                        business stock.''
    (e) Effective Date.--The amendments made by this section shall 
apply to stock issued after December 31, 1992.

        PART IV--MODIFICATIONS TO MINIMUM TAX DEPRECIATION RULES

SEC. 1231. MODIFICATION TO MINIMUM TAX DEPRECIATION RULES.

    (a) General Rule.--Paragraph (1) of section 56(a) (relating to 
depreciation) is amended by redesignating subparagraphs (B), (C), and 
(D) as subparagraphs (C), (D), and (E), respectively, and by inserting 
after subparagraph (A) the following new subparagraph:
                    ``(B) Treatment of certain personal property placed 
                in service after 1993.--
                            ``(i) In general.--In the case of any 
                        property to which this subparagraph applies, 
                        the depreciation deduction allowable under 
                        section 167 shall be determined as provided in 
                        section 168(a), except that the method of 
                        depreciation used shall be--
                                    ``(I) the 120 percent declining 
                                balance method switching to the 
                                straight line method for the 1st 
                                taxable year for which using the 
                                straight line method with respect to 
                                the adjusted basis as of the beginning 
                                of the year will yield a higher 
                                allowance, or
                                    ``(II) the straight line method in 
                                the case of property for which the 
                                applicable depreciation method under 
                                section 168(a) is the straight line 
                                method.
                            ``(ii) Property to which subparagraph 
                        applies.--This subparagraph shall apply to any 
                        tangible property placed in service after 
                        December 31, 1993, except that this 
                        subparagraph shall not apply to--
                                    ``(I) any residential rental 
                                property or nonresidential real 
                                property (within the meaning of section 
                                168(e)), and
                                    ``(II) any other property for which 
                                the depreciation deduction provided by 
                                section 167(a) for purposes of the 
                                regular tax is computed under the 
                                alternative depreciation system of 
                                section 168(g).
                            ``(iii) Coordination with subparagraph 
                        (a).--Subparagraph (A) shall not apply to any 
                        property to which this subparagraph applies.''
    (b) Elimination of ACE Depreciation Adjustment.--Clause (i) of 
section 56(g)(4)(A) (relating to depreciation adjustments for computing 
adjusted current earnings) is amended by adding at the end thereof the 
following new sentence: ``The preceding sentence shall not apply to any 
property to which subsection (a)(1)(B) applies, and the depreciation 
deduction with respect to such property shall be determined under the 
rules of subsection (a)(1)(B).''.
    (c) 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 `120 percent' 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) Subsection (c) of section 168 is amended--
                    (A) by striking paragraph (2), and
                    (B) by striking so much of such subsection as 
                precedes the table contained in paragraph (1) and 
                inserting the following:
    ``(c) Applicable Recovery Period.--For purposes of this section, 
the applicable recovery period shall be determined in accordance with 
the following table:''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property placed 
        in service after December 31, 1993.
            (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 (D)(i) thereof 
        (as redesignated by subsection (a) of this section).

                 Subtitle C--Tax-Exempt Bond Provisions

SEC. 1301. HIGH-SPEED INTERCITY RAIL FACILITY BONDS EXEMPT FROM STATE 
              VOLUME CAP.

    (a) In General.--Paragraph (4) of section 146(g) (relating to 
exemption for certain bonds) is amended by striking ``75 percent of''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to bonds issued after December 31, 1993.

SEC. 1302. PERMANENT EXTENSION OF QUALIFIED SMALL ISSUE BONDS.

    (a) In general.--Subparagraph (B) of section 144(a)(12) is amended 
to read as follows:
                            ``(B) Bonds issued to finance manufacturing 
                        facilities and farm property.--Subparagraph (A) 
                        shall not apply to any bond issued as part of 
                        an issue 95 percent or more of the net proceeds 
                        of which are to be used to provide--
                            ``(i) any manufacturing facility, or
                            ``(ii) any land or property in accordance 
                        with section 147(c)(2).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to bonds issued after June 30, 1992.

  Subtitle D--Expansion And Simplification Of Earned Income Tax Credit

SEC. 1401. EXPANSION AND SIMPLIFICATION OF EARNED INCOME TAX 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 the earned income 
        amount.
            ``(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 the earned income 
                amount, 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 
                the phaseout amount.
    ``(b) Percentages and Amounts.--For purposes of subsection (a)--
            ``(1) Percentages.--The credit percentage and the phaseout 
        percentage shall be determined as follows:
                    ``(A) In general.--In the case of taxable years 
                beginning after 1994:

      

                                                                                                                
                 In the case of an eligible                                                                     
                      individual with:            The credit percentage is:        The phaseout percentage is:  
                                                                                                                
                1 qualifying child..........  34.37...........................                16.16             
                2 or more qualifying                                                                            
                 children...................  39.66...........................                19.83             
                No qualifying children......  7.65............................                7.65              
                                                                                                                

                    ``(B) Transitional percentages.--In the case of a 
                taxable year beginning in 1994:

      

                                                                                                                
                        In the case of an                                                                       
                       eligible individual        The credit percentage is:        The phaseout percentage is:  
                              with:                                                                             
                                                                                                                
                    1 qualifying child......  26.60...........................                16.16             
                    2 or more qualifying                                                                        
                     children...............  31.59...........................                15.79             
                    No qualifying children..  7.65............................                7.65              
                                                                                                                

            ``(2) Amounts.--The earned income amount and the phaseout 
        amount shall be determined as follows:
                    ``(A) In general.--In the case of taxable years 
                beginning after 1994:

      

                                                                                                                
                 In the case of an eligible                                                                     
                      individual with:          The earned income amount is:         The phaseout amount is:    
                                                                                                                
                1 qualifying child..........  $6,000..........................               $11,000            
                2 or more qualifying                                                                            
                 children...................  $8,500..........................               $11,000            
                No qualifying children......  $4,000..........................               $5,000             
                                                                                                                

                    ``(B) Transitional amounts.--In the case of a 
                taxable year beginning in 1994:

      

                                                                                                                
                        In the case of an                                                                       
                       eligible individual      The earned income amount is:         The phaseout amount is:    
                              with:                                                                             
                                                                                                                
                    1 qualifying child......  $7,750..........................              $11,000           
                    2 or more qualifying                                                                        
                     children...............  $8,500..........................              $11,000           
                    No qualifying children..  $4,000..........................              $5,000''.           
                                                                                                                

    (b) Eligible Individual.--Subparagraph (A) of section 32(c)(1) 
(defining eligible individual) is amended to read as follows:
                    ``(A) In general.--The term `eligible individual' 
                means--
                            ``(i) any individual who has a qualifying 
                        child for the taxable year, or
                            ``(ii) any other individual who does not 
                        have a qualifying child for the taxable year, 
                        if--
                                    ``(I) such individual's principal 
                                place of abode is in the United States 
                                for more than one-half of such taxable 
                                year,
                                    ``(II) such individual (or, if the 
                                individual is married, the individual's 
                                spouse) has attained age 22 before the 
                                close of the taxable year, and
                                    ``(III) such individual (or, if the 
                                individual is married, the individual's 
                                spouse) is not a dependent for whom a 
                                deduction is allowable under section 
                                151 to another taxpayer for any taxable 
                                year beginning in the same calendar 
                                year as such taxable year.''
    (c) Inflation Adjustments.--Section 32(i) (relating to inflation 
adjustments) is amended--
            (1) by striking paragraphs (1) and (2) and inserting the 
        following new paragraph:
            ``(1) In general.--In the case of any taxable year 
        beginning after 1994, each dollar amount contained in 
        subsection (b)(2)(A) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3), for the calendar year in which 
                the taxable year begins, by substituting `calendar year 
                1993' for `calendar year 1992'.'', and
            (2) by redesignating paragraph (3) as paragraph (2).
    (d) Conforming Amendments.--
            (1) Subparagraph (D) of section 32(c)(3) is amended--
                    (A) by striking ``clause (i) or (ii)'' in clause 
                (iii) and inserting ``clause (i)'',
                    (B) by striking clause (ii), and
                    (C) by redesignating clause (iii) as clause (ii).
            (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) Subsection (b) of section 3507 is amended by 
        redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
        respectively, and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) certifies that the employee has 1 or more qualifying 
        children (within the meaning of section 32(c)(3)) for such 
        taxable year,''.
            (5) 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 credit 
                        percentage in effect under section 32(b)(1) for 
                        an eligible individual with 1 qualifying child 
                        and with earned income not in excess of the 
                        earned income amount in effect under section 
                        32(b)(2) for such an eligible individual, which
                            ``(ii) phases out at the phaseout 
                        percentage in effect under section 32(b)(1) for 
                        such an eligible individual between the 
                        phaseout amount in effect under section 
                        32(b)(2) for such an eligible individual and 
                        the amount of earned income at which the credit 
                        under section 32(a) phases out for such an 
                        eligible individual, or''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

          Subtitle E--Incentives For Investment In Real Estate

 PART I--EXTENSION OF QUALIFIED MORTGAGE BONDS AND LOW-INCOME HOUSING 
                                 CREDIT

SEC. 1501. PERMANENT EXTENSION OF QUALIFIED MORTGAGE BONDS.

    (a) In General.--Paragraph (1) of section 143(a) (defining 
qualified mortgage bond) is amended to read as follows:
            ``(1) Qualified mortgage bond defined.--For purposes of 
        this title, the term `qualified mortgage bond' means a bond 
        which is issued as part of a qualified mortgage issue.''
    (b) Mortgage Credit Certificates.--Section 25 is amended by 
striking subsection (h) and by redesignating subsections (i) and (j) as 
subsections (h) and (i), respectively.
    (c) Effective Dates.--
            (1) Bonds.--The amendment made by subsection (a) shall 
        apply to bonds issued after June 30, 1992.
            (2) Certificates.--The amendment made by subsection (b) 
        shall apply to elections for periods after June 30, 1992.

SEC. 1502. PERMANENT EXTENSION OF LOW-INCOME HOUSING CREDIT.

    (a) In General.--Section 42 (relating to low-income housing credit) 
is amended by striking subsection (o).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to periods after June 30, 1992.

              PART II--MODIFICATION OF PASSIVE LOSS RULES

SEC. 1511. MODIFICATION OF PASSIVE LOSS RULES.

    (a) General Rule.--Section 469 (relating to passive activity losses 
and credits limited) is amended by redesignating subsections (l) and 
(m) as subsections (m) and (n), respectively, and by inserting after 
subsection (k) the following new subsection:
    ``(l) Special Rules for Real Estate Activities.--
            ``(1) Loss from certain rental real estate activities 
        treated as not passive.--If the taxpayer meets the requirements 
        of paragraph (2) for the taxable year, subsection (a) shall not 
        apply to so much of the passive activity loss for such taxable 
        year as does not exceed the least of--
                    ``(A) the net loss for such taxable year from 
                rental real estate activities in which the taxpayer 
                materially participates,
                    ``(B) the net income of the taxpayer for the 
                taxable year from real property trade or business 
                activities which are not passive activities, or
                    ``(C) the taxable income of the taxpayer for the 
                taxable year determined without regard to this 
                subsection.
        A similar rule shall apply to any passive activity credit.
            ``(2) Requirements.--The taxpayer meets the requirements of 
        this paragraph for any taxable year if more than one-half of 
        the personal services performed in trades or businesses by the 
        taxpayer during such taxable year are performed in real 
        property trades or businesses in which the taxpayer materially 
        participates.
            ``(3) Real property trade or business.--For purposes of 
        this paragraph, the term `real property trade or business' 
        means any real property development, redevelopment, 
        construction, reconstruction, acquisition, conversion, rental, 
        operation, management, leasing, or brokerage trade or business.
            ``(4) Special rules.--
                    ``(A) Personal services as an employee.--For 
                purposes of paragraph (2), personal services performed 
                as an employee shall not be treated as performed in 
                real property trades or businesses. The preceding 
                sentence shall not apply if such employee is a 5-
                percent owner (as defined in section 416(i)(1)(B)) in 
                the employer.
                    ``(B) Closely held c corporations.--This subsection 
                shall not apply to any interests held by a closely held 
                C corporation.
            ``(5) Coordination with subsection (i).--
                    ``(A) In general.--This subsection shall be applied 
                after the application of subsection (i).
                    `'(B) Amounts allowed under subsection (i).--For 
                purposes of this subsection--
                            ``(i) the passive activity loss and passive 
                        activity credit, and
                            ``(ii) the net loss referred to in 
                        paragraph (1)(A),
                shall not include any amount allowed under subsection 
                (i).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

  PART III--PROVISIONS RELATING TO REAL ESTATE INVESTMENTS BY PENSION 
                                 FUNDS

SEC. 1521. REAL ESTATE PROPERTY ACQUIRED BY A QUALIFIED ORGANIZATION.

    (a) Modifications of Exceptions.--Paragraph (9) of section 514(c) 
(relating to real property acquired by a qualified organization) is 
amended by adding at the end thereof the following new subparagraphs:
                    ``(G) Special rules for purposes of the 
                exceptions.--Except as otherwise provided by 
                regulations--
                            ``(i) Small leases disregarded.--For 
                        purposes of clauses (iii) and (iv) of 
                        subparagraph (B), a lease to a person described 
                        in such clause (iii) or (iv) shall be 
                        disregarded if no more than 25 percent of the 
                        leasable floor space in a building (or complex 
                        of buildings) is covered by the lease and if 
                        the lease is on commercially reasonable terms.
                            ``(ii) Commercially reasonable financing.--
                        Clause (v) of subparagraph (B) shall not apply 
                        if the financing is on commercially reasonable 
                        terms.
                    ``(H) Qualifying sales by financial institutions.--
                            ``(i) In general.--In the case of a 
                        qualifying sale by a financial institution, 
                        except as provided in regulations, clauses (i) 
                        and (ii) of subparagraph (B) shall not apply 
                        with respect to financing provided by such 
                        institution for such sale.
                            ``(ii) Qualifying sale.--For purposes of 
                        this clause, there is a qualifying sale by a 
                        financial institution if--
                                    ``(I) a qualified organization 
                                acquires property described in clause 
                                (iii) from a financial institution and 
                                any gain recognized by the financial 
                                institution with respect to the 
                                property is ordinary income,
                                    ``(II) the stated principal amount 
                                of the financing provided by the 
                                financial institution does not exceed 
                                the amount of the outstanding 
                                indebtedness (including accrued but 
                                unpaid interest) of the financial 
                                institution with respect to the 
                                property described in clause (iii) 
                                immediately before the acquisition 
                                referred to in clause (iii) or (v), 
                                whichever is applicable, and
                                    ``(III) the present value 
                                (determined as of the time of the sale 
                                and by using the applicable Federal 
                                rate determined under section 1274(d)) 
                                of the maximum amount payable pursuant 
                                to the financing that is determined by 
                                reference to the revenue, income, or 
                                profits derived from the property 
                                cannot exceed 30 percent of the total 
                                purchase price of the property 
                                (including the contingent payments).
                            ``(iii) Property to which subparagraph 
                        applies.--Property is described in this clause 
                        if such property is foreclosure property, or is 
                        real property which--
                                    ``(I) was acquired by the qualified 
                                organization from a financial 
                                institution which is in conservatorship 
                                or receivership, or from the 
                                conservator or receiver of such an 
                                institution, and
                                    ``(II) was held by the financial 
                                institution at the time it entered into 
                                conservatorship or receivership.
                            ``(iv) Financial institution.--For purposes 
                        of this subparagraph, the term `financial 
                        institution' means--
                                    ``(I) any financial institution 
                                described in section 581 or 591(a),
                                    ``(II) any other corporation which 
                                is a direct or indirect subsidiary of 
                                an institution referred to in subclause 
                                (I) but only if, by virtue of being 
                                affiliated with such institution, such 
                                other corporation is subject to 
                                supervision and examination by a 
                                Federal or State agency which regulates 
                                institutions referred to in subclause 
                                (I), and
                                    ``(III) any person acting as a 
                                conservator or receiver of an entity 
                                referred to in subclause (I) or (II) 
                                (or any government agency or 
                                corporation succeeding to the rights or 
                                interest of such person).
                            ``(v) Foreclosure property.--For purposes 
                        of this subparagraph, the term `foreclosure 
                        property' means any real property acquired by 
                        the financial institution as the result of 
                        having bid on such property at foreclosure, or 
                        by operation of an agreement or process of law, 
                        after there was a default (or a default was 
                        imminent) on indebtedness which such property 
                        secured.''
    (b) Conforming Amendment.--Paragraph (9) of section 514(c) is 
amended--
            (1) by adding the following new sentence at the end of 
        subparagraph (A): ``For purposes of this paragraph, an interest 
        in a mortgage shall in no event be treated as real property.'', 
        and
            (2) by striking the last sentence of subparagraph (B).
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to acquisitions on or after January 1, 1994.
            (2) Small leases.--The provisions of section 
        514(c)(9)(G)(i) of the Internal Revenue Code of 1986 shall, in 
        addition to any leases to which the provisions apply by reason 
        of paragraph (1), apply to leases entered into on or after 
        January 1, 1994.

SEC. 1522. REPEAL OF SPECIAL TREATMENT OF PUBLICLY TREATED 
              PARTNERSHIPS.

    (a) General Rule.--Subsection (c) of section 512 is amended--
            (1) by striking paragraph (2),
            (2) by redesignating paragraph (3) as paragraph (2), and
            (3) by striking ``paragraph (1) or (2)'' in paragraph (2) 
        (as so redesignated) and inserting ``paragraph (1)''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to partnership years beginning on or after January 1, 1994.

SEC. 1523. TITLE-HOLDING COMPANIES PERMITTED TO RECEIVE SMALL AMOUNTS 
              OF UNRELATED BUSINESS TAXABLE INCOME.

    (a) General Rule.--Paragraph (25) of section 501(c) is amended by 
adding at the end thereof the following new subparagraph:
                    ``(G)(i) An organization shall not be treated as 
                failing to be described in this paragraph merely by 
                reason of the receipt of any otherwise disqualifying 
                income which is incidentally derived from the holding 
                of real property.
                    ``(ii) Clause (i) shall not apply if the amount of 
                gross income described in such clause exceeds 10 
                percent of the organization's gross income for the 
                taxable year unless the organization establishes to the 
                satisfaction of the Secretary that the receipt of gross 
                income described in clause (i) in excess of such 
                limitation was inadvertent and reasonable steps are 
                being taken to correct the circumstances giving rise to 
                such income.''
    (b) Conforming Amendment.--Paragraph (2) of section 501(c) is 
amended by adding at the end thereof the following new sentence: 
``Rules similar to the rules of subparagraph (G) of paragraph (25) 
shall apply for purposes of this paragraph.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after January 1, 1994.

SEC. 1524. EXCLUSION FROM UNRELATED BUSINESS TAX OF GAINS FROM CERTAIN 
              PROPERTY.

    (a) General Rule.--Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end thereof the following 
new paragraph:
            ``(16)(A) Notwithstanding paragraph (5)(B), there shall be 
        excluded all gains or losses from the sale, exchange, or other 
        disposition of any real property described in subparagraph (B) 
        if--
                    ``(i) such property was acquired by the 
                organization from--
                            ``(I) a financial institution described in 
                        section 581 or 591(a) which is in 
                        conservatorship or receivership, or
                            ``(II) the conservator or receiver of such 
                        an institution (or any government agency or 
                        corporation succeeding to the rights or 
                        interests of the conservator or receiver),
                    ``(ii) such property is designated by the 
                organization within the 9-month period beginning on the 
                date of its acquisition as property held for sale, 
                except that not more than one-half (by value determined 
                as of such date) of property acquired in a single 
                transaction may be so designated,
                    ``(iii) such sale, exchange, or disposition occurs 
                before the later of--
                            ``(I) the date which is 30 months after the 
                        date of the acquisition of such property, or
                            ``(II) the date specified by the Secretary 
                        in order to assure an orderly disposition of 
                        property held by persons described in 
                        subparagraph (A), and
                    ``(iv) while such property was held by the 
                organization, the aggregate expenditures on 
                improvements and development activities included in the 
                basis of the property are (or were) not in excess of 20 
                percent of the net selling price of such property.
            ``(B) Property is described in this subparagraph if it is 
        real property which--
                    ``(i) was held by the financial institution at the 
                time it entered into conservatorship or receivership, 
                or
                    ``(ii) was foreclosure property (as defined in 
                section 514(c)(9)(H)(v)) which secured indebtedness 
                held by the financial institution at such time.
        For purposes of this subparagraph, real property includes an 
        interest in a mortgage.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property acquired on or after January 1, 1994.

SEC. 1525. EXCLUSION FROM UNRELATED BUSINESS TAX OF CERTAIN FEES AND 
              OPTION PREMIUMS.

    (a) Loan Commitment Fees.--Paragraph (1) of section 512(b) 
(relating to modifications) is amended by inserting ``amounts received 
or accrued as consideration for entering into agreements to make 
loans,'' before ``and annuities''.
    (b) Option Premiums.--The second sentence of section 512(b)(5) is 
amended--
            (1) by striking ``all gains on'' and inserting ``all gains 
        or losses recognized, in connection with the organization's 
        investment activities, from'',
            (2) by striking ``, written by the organization in 
        connection with its investment activities,'' and
            (3) by inserting ``or real property and all gains or losses 
        from the forfeiture of good-faith deposits (that are consistent 
        with established business practice) for the purchase, sale, or 
        lease of real property in connection with the organization's 
        investment activities'' before the period.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received on or after January 1, 1994.

 PART IV--INCREASE IN RECOVERY PERIOD FOR NONRESIDENTIAL REAL PROPERTY

SEC. 1531. INCREASE IN RECOVERY PERIOD FOR NONRESIDENTIAL REAL 
              PROPERTY.

    (a) General Rule.--Paragraph (1) of section 168(c) (relating to 
applicable recovery period) is amended by striking the item relating to 
nonresidential real property and inserting the following:

    ``Nonresidential real property................         37 years.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendment made by subsection (a) shall apply to property placed 
        in service by the taxpayer on or after February 25, 1993.
            (2) Exception.--The amendments made by this section shall 
        not apply to property placed in service by the taxpayer before 
        January 1, 1994, if--
                    (A) the taxpayer or a qualified person entered into 
                a binding written contract to purchase or construct 
                such property before February 25, 1993, or
                    (B) the construction of such property was commenced 
                by or for the taxpayer or a qualified person before 
                February  25, 1993.
        For purposes of this paragraph, the term ``qualified person'' 
        means any person who transfers his rights in such a contract or 
        such property to the taxpayer but only if the property is not 
        placed in service by such person before such rights are 
        transferred to the taxpayer.

                       Subtitle F--Other Changes

SEC. 1601. ALTERNATIVE MINIMUM TAX TREATMENT OF CONTRIBUTIONS OF 
              APPRECIATED PROPERTY.

    (a) Repeal of Tax Preference.--Subsection (a) of section 57 (as 
amended by section 1221) is amended by striking paragraph (6) (relating 
to appreciated property charitable deduction) and by redesignating 
paragraphs (7) and (8) as paragraphs (6) and (7), respectively.
    (b) Effect on Adjusted Current Earnings.--Paragraph (4) of section 
56(g) is amended by adding at the end thereof the following new 
subparagraph:
                    ``(J) Treatment of charitable contributions.--
                Notwithstanding subparagraphs (B) and (C), no 
                adjustment related to the earnings and profits effects 
                of any charitable contribution shall be made in 
                computing adjusted current earnings.''
    (c) Conforming Amendment.--Subclause (II) of section 
53(d)(1)(B)(ii) (as amended by section 1221) is amended by striking 
``(5), (6), and (8)'' and inserting ``(5), and (7)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions made after June 30, 1992, except that in the 
case of any contribution of capital gain property which is not tangible 
personal property, such amendments shall apply only if the contribution 
is made after December 31, 1992.

SEC. 1602. CERTAIN TRANSFERS TO RAILROAD RETIREMENT ACCOUNT MADE 
              PERMANENT.

    Subsection (c)(1)(A) of section 224 of the Railroad Retirement 
Solvency Act of 1983 (relating to section 72(r) revenue increase 
transferred to certain railroad accounts) is amended by striking ``with 
respect to benefits received before October 1, 1992''.

SEC. 1603. TEMPORARY EXTENSION OF DEDUCTION FOR HEALTH INSURANCE COSTS 
              OF SELF-EMPLOYED INDIVIDUALS.

    (a) In General.--
            (1) Extension.--Paragraph (6) of section 162(l) (relating 
        to special rules for health insurance costs of self-employed 
        individuals) is amended by striking ``June 30, 1992'' and 
        inserting ``December 31, 1993''.
            (2) Conforming amendment.--Paragraph (2) of section 110(a) 
        of the Tax Extension Act of 1991 is hereby repealed.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after June 30, 1992.
    (b) Determination of Eligibility for Employer-Sponsored Health 
Plan.--
            (1) In general.--Paragraph (2)(B) of section 162(l) is 
        amended to read as follows:
                    ``(B) Other coverage.--Paragraph (1) shall not 
                apply to any taxpayer for any calendar month for which 
                the taxpayer is eligible to particpate in any 
                subsidized health plan maintained by any employer of 
                the taxpayer or of the spouse of the taxpayer.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1992.

                      TITLE II--REVENUE INCREASES

              Subtitle A--Provisions Affecting Individuals

                         PART I--RATE INCREASES

SEC. 2101. INCREASE IN TOP MARGINAL RATE UNDER SECTION 1.

    (a) General Rule.--Section 1 (relating to tax imposed) is amended 
by striking subsections (a) through (e) and inserting the following:
    ``(a) Married Individuals Filing Joint Returns and Surviving 
Spouses.--There is hereby imposed on the taxable income of--
            ``(1) every married individual (as defined in section 7703) 
        who makes a single return jointly with his spouse under section 
        6013, and
            ``(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:

``If taxable income is:             The tax is:
    Not over $36,900...............
                                        15% of taxable income.
    Over $36,900 but not over 
        $89,150.
                                        $5,535, plus 28% of the excess 
                                                over $36,900.
    Over $89,150 but not over 
        $140,000.
                                        $20,165, plus 31% of the excess 
                                                over $89,150.
    Over $140,000..................
                                        $35,928.50, plus 36% of the 
                                                excess over $140,000.
    ``(b) Heads of Households.--There is hereby imposed on the taxable 
income of every head of a household (as defined in section 2(b)) a tax 
determined in accordance with the following table:

``If taxable income is:             The tax is:
    Not over $29,600...............
                                        15% of taxable income.
    Over $29,600 but not over 
        $76,400.
                                        $4,440, plus 28% of the excess 
                                                over $29,600.
    Over $76,400 but not over 
        $127,500.
                                        $17,544, plus 31% of the excess 
                                                over $76,400.
    Over $127,500..................
                                        $33,385, plus 36% of the excess 
                                                over $127,500.
    ``(c) Unmarried Individuals (Other Than Surviving Spouses and Heads 
of Households).--There is hereby imposed on the taxable income of every 
individual (other than a surviving spouse as defined in section 2(a) or 
the head of a household as defined in section 2(b)) who is not a 
married individual (as defined in section 7703) a tax determined in 
accordance with the following table:

``If taxable income is:             The tax is:
    Not over $22,100...............
                                        15% of taxable income.
    Over $22,100 but not over 
        $53,500.
                                        $3,315, plus 28% of the excess 
                                                over $22,100.
    Over $53,500 but not over 
        $115,000.
                                        $12,107, plus 31% of the excess 
                                                over $53,500.
    Over $115,000..................
                                        $31,172, plus 36% of the excess 
                                                over $115,000.
    ``(d) Married Individuals Filing Separate Returns.--There is hereby 
imposed on the taxable income of every married individual (as defined 
in section 7703) who does not make a single return jointly with his 
spouse under section 6013, a tax determined in accordance with the 
following table:

``If taxable income is:             The tax is:
    Not over $18,450...............
                                        15% of taxable income.
    Over $18,450 but not over 
        $44,575.
                                        $2,767.50, plus 28% of the 
                                                excess over $18,450.
    Over $44,575 but not over 
        $70,000.
                                        $10,082.50, plus 31% of the 
                                                excess over $44,575.
    Over $70,000...................
                                        $17,964.25, plus 36% of the 
                                                excess over $70,000.

    ``(e) Estates and Trusts.--There is hereby imposed on the taxable 
income of--
            ``(1) every estate, and
            ``(2) every trust,
taxable under this subsection a tax determined in accordance with the 
following table:

``If taxable income is:             The tax is:
    Not over $1,500................
                                        15% of taxable income.
    Over $1,500 but not over $3,500
                                        $225, plus 28% of the excess 
                                                over $1,500.
    Over $3,500 but not over $5,500
                                        $785, plus 31% of the excess 
                                                over $3,500.
    Over $5,500....................
                                        $1,405, plus 36% of the excess 
                                                over $5,500.''
    (b) Conforming Amendments.--
            (1) Section 531 is amended by striking ``28 percent'' and 
        inserting ``36 percent''.
            (2) Section 541 is amended by striking ``28 percent'' and 
        inserting ``36 percent''.
            (3)(A) Subsection (f) of section 1 is amended--
                    (i) by striking ``1990'' in paragraph (1) and 
                inserting ``1993'', and
                    (ii) by striking ``1989'' in paragraph (3)(B) and 
                inserting ``1992''.
            (B) Subparagraph (C) of section 41(e)(5) is amended by 
        striking ``1989'' each place it appears and inserting ``1992''.
            (C) Subparagraph (B) of section 63(c)(4) is amended by 
        striking ``1989'' and inserting ``1992''.
            (D) Subparagraph (B) of section 68(b)(2) is amended by 
        striking ``1989'' and inserting ``1992''.
            (E) Subparagraph (B) of section 132(f)(6) is amended by 
        striking ``, determined by substituting'' and all that follows 
        down through the period at the end thereof and inserting a 
        period.
            (F) Subparagraphs (A)(ii) and (B)(ii) of section 151(d)(4) 
        are each amended by striking ``1989'' and inserting ``1992''.
            (G) Clause (ii) of section 513(h)(2)(C) is amended by 
        striking ``1989'' and inserting ``1992''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 2102. SURTAX ON HIGH-INCOME TAXPAYERS.

    (a) General Rule.--
            (1) Subsection (a) of section 1 (as amended by section 
        2101) is amended by striking the last item in the table 
        contained therein and inserting the following:


    Over $140,000 but not over 
        $250,000.
                                        $35,928.50, plus 36% of the 
                                                excess over $140,000.
    Over $250,000..................
                                        $75,528.50, plus 39.6% of the 
                                                excess over $250,000.''
            (2) Subsection (b) of section 1 (as so amended) is amended 
        by striking the last item in the table contained therein and 
        inserting the following:

    Over $127,500 but not over 
        $250,000.
                                        $33,385, plus 36% of the excess 
                                                over $127,500.
    Over $250,000..................
                                        $77,485, plus 39.6% of the 
                                                excess over $250,000.''
            (3) Subsection (c) of section 1 (as so amended) is amended 
        by striking the last item in the table contained therein and 
        inserting the following:

    Over $115,000 but not over 
        $250,000.
                                        $31,172, plus 36% of the excess 
                                                over $115,000.
    Over $250,000..................
                                        $79,772, plus 39.6% of the 
                                                excess over $250,000.''
            (4) Subsection (d) of section 1 (as so amended) is amended 
        by striking the last item in the table contained therein and 
        inserting the following:

    Over $70,000 but not over 
        $125,000.
                                        $17,964.25, plus 36% of the 
                                                excess over $70,000.
    Over $125,000..................
                                        $37,764.25, plus 39.6% of the 
                                                excess over $125,000.''
            (5) Subsection (e) of section 1 (as so amended) is amended 
        by striking the last item in the table contained therein and 
        inserting the following:

    Over $5,500 but not over $7,500
                                        $1,405, plus 36% of the excess 
                                                over $5,500.
    Over $7,500....................
                                        $2,125, plus 39.6% of the 
                                                excess over $7,500.''
    (b) Technical Amendment.--Sections 531 and 541 (as amended by 
section 2101) are each amended by striking ``36 percent'' and inserting 
``39.6 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 2103. MODIFICATIONS TO ALTERNATIVE MINIMUM TAX RATES AND EXEMPTION 
              AMOUNTS.

    (a) Increase in Rate.--Paragraph (1) of section 55(b) (defining 
tentative minimum tax) is amended to read as follows:
            ``(1) Amount of tentative tax.--
                    ``(A) Noncorporate taxpayers.--
                            ``(i) In general.--In the case of a 
                        taxpayer other than a corporation, the 
                        tentative minimum tax for the taxable year is 
                        the sum of--
                                    ``(I) 26 percent of so much of the 
                                taxable excess as does not exceed 
                                $175,000, plus
                                    ``(II) 28 percent of so much of the 
                                taxable excess as exceeds $175,000.
                        The amount determined under the preceding 
                        sentence shall be reduced by the alternative 
                        minimum tax foreign tax credit for the taxable 
                        year.
                            ``(ii) Taxable excess.--For purposes of 
                        clause (i), the term `taxable excess' means so 
                        much of the alternative minimum taxable income 
                        for the taxable year as exceeds the exemption 
                        amount.
                            ``(iii) Married individual filing separate 
                        return.--In the case of a married individual 
                        filing a separate return, clause (i) shall be 
                        applied by substituting `$87,500' for 
                        `$175,000' each place it appears. For purposes 
                        of the preceding sentence, marital status shall 
                        be determined under section 7703.
                    ``(B) Corporations.--In the case of a corporation, 
                the tentative minimum tax for the taxable year is--
                            ``(i) 20 percent of so much of the 
                        alternative minimum taxable income for the 
                        taxable year as exceeds the exemption amount, 
                        reduced by
                            ``(ii) the alternative minimum tax foreign 
                        tax credit for the taxable year.''
    (b) Increase in Exemption Amounts.--Paragraph (1) of section 55(d) 
(defining exemption amount) is amended--
            (1) by striking ``$40,000'' in subparagraph (A) and 
        inserting ``$45,000'',
            (2) by striking ``$30,000'' in subparagraph (B) and 
        inserting ``$33,750'', and
            (3) by striking ``$20,000'' in subparagraph (C) and 
        inserting ``$22,500''.
    (c) Conforming Amendments.--
            (1) The last sentence of section 55(d)(3) is amended by 
        striking ``$155,000 or (ii) $20,000'' and inserting ``$165,000 
        or (ii) $22,500''.
            (2)(A) Subparagraph (A) of section 897(a)(2) is amended by 
        striking ``the amount determined under section 55(b)(1)(A) 
        shall not be less than 21 percent of'' and inserting ``the 
        taxable excess for purposes of section 55(b)(1)(A) shall not be 
        less than''.
            (B) The heading for paragraph (2) of section 897(a) is 
        amended by striking ``21-Percent''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 2104. OVERALL LIMITATION ON ITEMIZED DEDUCTIONS FOR HIGH-INCOME 
              TAXPAYERS MADE PERMANENT.

    Subsection (f) of section 68 (relating to overall limitation on 
itemized deductions) is hereby repealed.

SEC. 2105. PHASEOUT OF PERSONAL EXEMPTION OF HIGH-INCOME TAXPAYERS MADE 
              PERMANENT.

    Section 151(d)(3) (relating to phaseout of personal exemption) is 
amended by striking subparagraph (E).

SEC. 2106. PROVISIONS TO PREVENT CONVERSION OF ORDINARY INCOME TO 
              CAPITAL GAIN.

    (a) Interest Embedded in Financial Transactions.--
            (1) In general.--Part IV of subchapter P of chapter 1 
        (relating to special rules for determining capital gains and 
        losses) is amended by adding at the end thereof the following 
        new section:

``SEC. 1258. RECHARACTERIZATION OF GAIN FROM CERTAIN FINANCIAL 
              TRANSACTIONS.

    ``(a) General Rule.--In the case of any gain--
            ``(1) which (but for this section) would be treated as gain 
        from the sale or exchange of a capital asset, and
            ``(2) which is recognized on the disposition of any 
        property which was held as part of a conversion transaction,
such gain (to the extent such gain does not exceed the applicable 
imputed income amount) shall be treated as ordinary income.
    ``(b) Applicable Imputed Income Amount.--For purposes of subsection 
(a), the term `applicable imputed income amount' means, with respect to 
any disposition referred to in subsection (a), an amount equal to--
            ``(1) the amount of interest which would have accrued on 
        the taxpayer's net investment in the conversion transaction for 
        the period ending on the date of such disposition (or, if 
        earlier, the date on which the requirements of subsection (c) 
        ceased to be satisfied) at a rate equal to 120 percent of the 
        applicable rate, reduced by
            ``(2) the amount treated as ordinary income under 
        subsection (a) with respect to any prior disposition of 
        property which was held as a part of such transaction.
    ``(c) Conversion Transaction.--For purposes of this section, the 
term `conversion transaction' means any of the following where 
substantially all of the taxpayer's expected net return from the 
transaction is attributable to the time value of the taxpayer's net 
investment in such transaction:
            ``(1) The holding of any property (whether or not actively 
        traded), and the entering into a contract to sell such property 
        (or substantially identical property) at a price determined in 
        accordance with such contract, but only if such property was 
        acquired and such contract was entered into on a substantially 
        contemporaneous basis.
            ``(2) Any applicable straddle.
            ``(3) Any other transaction which is marketed or sold as 
        producing capital gains.
            ``(4) Any other transaction specified in regulations 
        prescribed by the Secretary.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable straddle.--The term `applicable straddle' 
        means any straddle (within the meaning of section 1092(c)); 
        except that--
                    ``(A) the term `personal property' shall include 
                stock, and
                    ``(B) paragraph (4) of section 1092(c) shall not 
                apply.
            ``(2) Applicable rate.--The term `applicable Federal rate' 
        means--
                    ``(A) the applicable Federal rate determined under 
                section 1274(d) (compounded semiannually) as if the 
                conversion transaction were a debt instrument, or
                    ``(B) if the term of the conversion transaction is 
                indefinite, the Federal short-term rates in effect 
                under section 6621(b) during the period of the 
                conversion transaction (compounded daily).
            ``(3) Treatment of property with built-in loss.--
                    ``(A) In general.--If any property with a built-in 
                loss becomes part of a conversion transaction--
                            ``(i) for purposes of applying this 
                        subtitle to such property for periods after 
                        such property becomes part of such transaction, 
                        the adjusted basis of such property shall be 
                        its fair market value as of the time it became 
                        part of such transaction, except that
                            ``(ii) upon the disposition of such 
                        property in a transaction in which gain or loss 
                        is recognized, such built-in loss shall be 
                        recognized and shall have a character 
                        determined without regard to this section.
                    ``(B) Built-in loss.--For purposes of subparagraph 
                (A), the term `built-in loss' means the excess (if any) 
                of the adjusted basis of any property over its fair 
                market value.
            ``(4) Property taken into account at fair market value.--In 
        determining the taxpayer's net investment in any conversion 
        transaction, there shall be included the fair market value of 
        any property which becomes part of such transaction (determined 
        as of the date on which such property became part of such 
        transaction).''
            (2) Clerical amendment.--The table of sections for part IV 
        of subchapter P of chapter 1 is amended by adding at the end 
        thereof the following new item:

                              ``Sec. 1258. Recharacterization of gain 
                                        from certain financial 
                                        transactions.''
            (3) Effective date.--The amendments made by this section 
        shall apply to conversion transactions entered into after April 
        30, 1993.
    (b) Repeal of Certain Exceptions To Market Discount Rules.--
            (1) Market discount bonds issued on or before july 18, 
        1984.--The following provisions are hereby repealed:
                    (A) Section 1276(e).
                    (B) Section 1277(d).
            (2) Tax-exempt obligations.--
                    (A) In general.--Paragraph (1) of section 1278(a) 
                (defining market discount bond) is amended--
                            (i) by striking clause (ii) of subparagraph 
                        (B) and redesignating subclauses (iii) and (iv) 
                        of such subparagraph as clauses (ii) and (iii), 
                        respectively,
                            (ii) by redesignating subparagraph (C) as 
                        subparagraph (D), and
                            (iii) by inserting after subparagraph (B) 
                        the following new subparagraph:
                    ``(C) Section 1277 not applicable to tax-exempt 
                obligations.--For purposes of section 1277, the term 
                `market discount bond' shall not include any tax-exempt 
                obligation (as defined in section 1275(a)(3)).''
                    (B) Conforming amendment.--Sections 1276(a)(4) and 
                1278(b)(1) are each amended by striking ``sections 
                871(a)'' and inserting ``sections 103, 871(a),''.
            (3) Effective date.--The amendments made by this section 
        shall apply to obligations purchased (within the meaning of 
        section 1272(d)(1) of the Internal Revenue Code of 1986) after 
        April 30, 1993.
    (c) Treatment of Stripped Preferred Stock.--
            (1) In general.--Section 305 is amended by redesignating 
        subsection (e) as subsection (f) and by inserting after 
        subsection (d) the following new subsection:
    ``(e) Treatment of Purchaser of Stripped Preferred Stock.--
            ``(1) In general.--If any person purchases after April 30, 
        1993 any stripped preferred stock, then such person, while 
        holding such stock, shall include in gross income amounts equal 
        to the amounts which would have been so includible if such 
        stripped preferred stock were a bond issued on the purchase 
        date and having original issue discount equal to the excess, if 
        any, of--
                    ``(A) the redemption price for such stock, over
                    ``(B) the price at which such person purchased such 
                stock.
        The preceding sentence shall also apply in the case of any 
        person whose basis in such stock is determined by reference to 
        the basis in the hands of such purchaser.
            ``(2) Basis adjustments.--Appropriate adjustments to basis 
        shall be made for amounts includible in gross income under 
        paragraph (1).
            ``(3) Tax treatment of person stripping stock.--If any 
        person strips the rights to 1 or more dividends from any stock 
        described in paragraph (5)(B) and after April 30, 1993 disposes 
        of such dividend rights, for purposes of paragraph (1), such 
        person shall be treated as having purchased the stripped 
        preferred stock on the date of such disposition for a purchase 
        price equal to such person's adjusted basis in such stripped 
        preferred stock.
            ``(4) Amounts treated as ordinary income.--Any amount 
        included in gross income under paragraph (1) shall be treated 
        as ordinary income.
            ``(5) Stripped preferred stock.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `stripped preferred 
                stock' means any stock described in subparagraph (B) if 
                there has been a separation in ownership between such 
                stock and any dividend on such stock which has not 
                become payable.
                    ``(B) Description of stock.--Stock is described in 
                this subsection if such stock--
                            ``(i) is limited and preferred as to 
                        dividends and does not participate in corporate 
                        growth to any significant extent, and
                            ``(ii) has a fixed redemption price.
            ``(6) Purchase.--For purposes of this subsection, the term 
        `purchase' means--
                    ``(A) any acquisition of stock, where
                    ``(B) the basis of such stock is not determined in 
                whole or in part by the reference to the adjusted basis 
                of such stock in the hands of the person from whom 
                acquired.''
            (2) Coordination with section 167(e).--Paragraph (2) of 
        section 167(e) is amended to read as follows:
            ``(2) Coordination with other provisions.--
                    ``(A) Section 273.--This subsection shall not apply 
                to any term interest to which section 273 applies.
                    ``(B) Section 305(e).--This subsection shall not 
                apply to the holder of the dividend rights which were 
                separated from any stripped preferred stock to which 
                section 305(e)(1) applies.''
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on April 30, 1993.
    (d) Treatment of Capital Gain Under Limitation on Investment 
Interest.--
            (1) In general.--Subparagraph (B) of section 163(d)(4) 
        (defining investment income) is amended to read as follows:
                    ``(B) Investment income.--The term `investment 
                income' means the sum of--
                            ``(i) gross income from property held for 
                        investment (other than any gain taken into 
                        account under clause (ii)(I)),
                            ``(ii) the excess (if any) of--
                                    ``(I) the net gain attributable to 
                                the disposition of property held for 
                                investment, over
                                    ``(II) the net capital gain 
                                determined by only taking into account 
                                gains and losses from dispositions of 
                                property held for investment, plus
                            ``(iii) so much of the net capital gain 
                        referred to in clause (ii)(II) (or, if lesser, 
                        the net gain referred to in clause (ii)(I)) as 
                        the taxpayer elects to take into account under 
                        this clause.''
            (2) Coordination with special capital gains rate.--
        Subsection (h) of section 1 is amended by adding at the end 
        thereof the following new sentence:
``For purposes of the preceding sentence, the net capital gain for any 
taxable year shall be reduced (but not below zero) by the amount which 
the taxpayer elects to take into account as investment income for the 
taxable year under section 163(d)(4)(B)(iii).''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1992.
    (e) Treatment of Certain Appreciated Inventory.--
            (1) Paragraph (1) of section 751(d) is amended to read as 
        follows:
            ``(1) Substantial appreciation.--
                    ``(A) In general.--Inventory items of the 
                partnership shall be considered to have appreciated 
                substantially in income if their fair market value 
                exceeds 120 percent of the adjusted basis to the 
                partnership of such property.
                    ``(B) Certain property excluded.--For purposes of 
                subparagraph (A), there shall be excluded any inventory 
                property if a principal purpose for acquiring such 
                property was to avoid the provisions of this section 
                relating to inventory items.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to sales, exchanges, and distributions after April 
        30, 1993.

                       PART II--OTHER PROVISIONS

SEC. 2111. REPEAL OF LIMITATION ON AMOUNT OF WAGES SUBJECT TO HEALTH 
              INSURANCE EMPLOYMENT TAX.

    (a) Hospital Insurance Tax.--
            (1) Paragraph (1) of section 3121(a) (defining wages) is 
        amended--
                    (A) by inserting ``in the case of the taxes imposed 
                by sections 3101(a) and 3111(a)'' after ``(1)'',
                    (B) by striking ``applicable contribution base (as 
                determined under subsection (x))'' each place it 
                appears and inserting ``contribution and benefit base 
                (as determined under section 230 of the Social Security 
                Act)'', and
                    (C) by striking ``such applicable contribution 
                base'' and inserting ``such contribution and benefit 
                base''.
            (2) Section 3121 is amended by striking subsection (x).
    (b) Self-Employment Tax.--
            (1) Subsection (b) of section 1402 is amended--
                    (A) by striking ``that part of the net'' in 
                paragraph (1) and inserting ``in the case of the tax 
                imposed by section 1401(a), that part of the net'',
                    (B) by striking ``applicable contribution base (as 
                determined under subsection (k))'' in paragraph (1) and 
                inserting ``contribution and benefit base (as 
                determined under section 230 of the Social Security 
                Act)'',
                    (C) by inserting ``and'' after ``section 
                3121(b),'', and
                    (D) by striking ``and (C) includes'' and all that 
                follows through ``3111(b)''.
            (2) Section 1402 is amended by striking subsection (k).
    (c) Railroad Retirement Tax.--
            (1) Subparagraph (A) of section 3231(e)(2) is amended by 
        adding at the end thereof the following new clause:
                            ``(iii) Hospital insurance taxes.--Clause 
                        (i) shall not apply to--
                                    ``(I) so much of the rate 
                                applicable under section 3201(a) or 
                                3221(a) as does not exceed the rate of 
                                tax in effect under section 3101(b), 
                                and
                                    ``(II) so much of the rate 
                                applicable under section 3211(a)(1) as 
                                does not exceed the rate of tax in 
                                effect under section 1402(b).''
            (2) Clause (i) of section 3231(e)(2)(B) is amended to read 
        as follows:
                            ``(i) Tier 1 taxes.--Except as provided in 
                        clause (ii), the term `applicable base' means 
                        for any calendar year the contribution and 
                        benefit base determined under section 230 of 
                        the Social Security Act for such calendar 
                        year.''
    (d) Technical Amendments.--
            (1) Paragraph (1) of section 6413(c) is amended by striking 
        ``section 3101 or section 3201'' and inserting ``section 
        3101(a) or section 3201(a) (to the extent the rate applicable 
        under section 3201(a) as does not exceed the rate of tax in 
        effect under section 3101(a))''.
            (2) Subparagraphs (B) and (C) of section 6413(c)(2) are 
        each amended by striking ``section 3101'' each place it appears 
        and inserting ``section 3101(a)''.
            (3) Subsection (c) of section 6413 is amended by striking 
        paragraph (3).
            (4) Sections 3122 and 3125 of such Code are each amended by 
        striking ``applicable contribution base limitation'' and 
        inserting ``contribution and benefit base limitation''.
    (e) Effective Date.--The amendments made by this section shall 
apply to 1994 and later calendar years.

SEC. 2112. TOP ESTATE AND GIFT TAX RATES MADE PERMANENT.

    (a) General Rule.--The table contained in paragraph (1) of section 
2001(c) is amended by striking the last item and inserting the 
following new items:

    ``Over $2,500,000 but not over 
        $3,000,000.
                                        $1,025,800, plus 53% of the 
                                                excess over $2,500,000.
    Over $3,000,000................
                                        $1,290,800, plus 55% of the 
                                                excess over 
                                                $3,000,000.''
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 2001 is amended by striking 
        paragraph (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (2) Paragraph (2) of section 2001(c), as redesignated by 
        paragraph (1), is amended by striking ``($18,340,000 in the 
        case of decedents dying, and gifts made, after 1992)''.
            (3) The last sentence of section 2101(b) is amended by 
        striking ``section 2001(c)(3)'' and inserting ``section 
        2001(c)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply in the case of decedents dying, and gifts made, after December 
31, 1992.

SEC. 2113. REDUCTION IN DEDUCTIBLE PORTION OF BUSINESS MEALS AND 
              ENTERTAINMENT.

    (a) General Rule.--Paragraph (1) of section 274(n) (relating to 
only 80 percent of meal and entertainment expenses allowed as 
deduction) is amended by striking ``80 percent'' and inserting ``50 
percent''.
    (b) Conforming Amendment.--The subsection heading for section 
274(n) is amended by striking ``80'' and inserting ``50''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 2114. ELIMINATION OF DEDUCTION FOR CLUB MEMBERSHIP FEES.

    (a) In General.--Subsection (a) of section 274 (relating to 
disallowance of certain entertainment, etc., expenses) is amended by 
adding at the end thereof the following new paragraph:
            ``(3) Denial of deduction for club dues.--Notwithstanding 
        the preceding provisions of this subsection, no deduction shall 
        be allowed under this chapter for amounts paid or incurred for 
        membership in any club organized for business, pleasure, 
        recreation, or other social purpose.
    (b) Exception for Employee Recreational Expenses Not To Apply.--
Paragraph (4) of section 274(e) is amended by adding at the end thereof 
the following: ``This paragraph shall not apply for purposes of 
subsection (a)(3).''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 1993.

SEC. 2115. DISALLOWANCE OF DEDUCTION FOR CERTAIN EMPLOYEE REMUNERATION 
              IN EXCESS OF $1,000,000.

    (a) General Rule.--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) Certain Excessive Employee Remuneration.--
            ``(1) In general.--In the case of any publicly held 
        corporation, no deduction shall be allowed under this chapter 
        for applicable employee remuneration with respect to any 
        covered employee to the extent that the amount of such 
        remuneration for the taxable year with respect to such employee 
        exceeds $1,000,000.
            ``(2) Publicly held corporation.--For purposes of this 
        subsection, the term `publicly held corporation' means any 
        corporation issuing any class of common equity securities 
        required to be registered under section 12 of the Securities 
        Exchange Act of 1934.
            ``(3) Covered employee.--For purposes of this subsection, 
        the term `covered employee' means any employee of the taxpayer 
        if--
                    ``(A) as of the close of the taxable year, such 
                employee is the chief executive officer of the taxpayer 
                or an individual acting in such a capacity, or
                    ``(B) the total compensation for the taxable year 
                of such employee is required to be reported to 
                shareholders under the Securities Exchange Act of 1934 
                by reason of such employee being among the 4 highest 
                compensated officers for the taxable year (other than 
                the chief executive officer).
            ``(4) Applicable employee remuneration.--For purposes of 
        this subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `applicable employee 
                remuneration' means, with respect to any covered 
                employee for any taxable year, the aggregate amount 
                allowable as a deduction under this chapter for such 
                taxable year (determined without regard to this 
                subsection) for remuneration for services performed by 
                such employee (whether or not during the taxable year).
                    ``(B) Exception for remuneration payable on 
                commission basis.--The term `applicable employee 
                remuneration' shall not include any remuneration 
                payable on a commission basis solely on account of 
                income generated directly by the individual performance 
                of the individual to whom such remuneration is payable.
                    ``(C) Other performance-based compensation.--The 
                term `applicable employee remuneration' shall not 
                include any remuneration payable solely on account of 
                the attainment of one or more performance goals but 
                only if--
                            ``(i) the performance goals are determined 
                        by a compensation committee of the board of 
                        directors of the taxpayer which is comprised 
                        solely of 2 or more independent directors,
                            ``(ii) the material terms under which the 
                        remuneration is to be paid, including the 
                        performance goals, are disclosed to 
                        shareholders and approved by a majority of the 
                        vote in a separate shareholder vote before the 
                        payment of such remuneration, and
                            ``(iii) before any payment of such 
                        remuneration, the compensation committee 
                        referred to in clause (i) certifies that the 
                        performance goals and any other material terms 
                        were in fact satisfied.
                    ``(D) Exception for existing binding contracts.--
                The term `applicable employee remuneration' shall not 
                include any remuneration payable under a written 
                binding contract which was in effect on February 17, 
                1993, and which was not modified thereafter in any 
                material respect before such remuneration is paid.
                    ``(E) Remuneration.--For purposes of this 
                paragraph, the term `remuneration' includes any 
                remuneration (including benefits) in any medium other 
                than cash, but shall not include--
                            ``(i) any payment referred to in so much of 
                        section 3121(a)(5) as precedes subparagraph (E) 
                        thereof, and
                            ``(ii) any benefit provided to or on behalf 
                        of an employee if at the time such benefit is 
                        provided it is reasonable to believe that the 
                        employee will be able to exclude such benefit 
                        from gross income under this chapter.
                For purposes of clause (i), section 3121(a)(5) shall be 
                applied without regard to section 3121(v)(1).
                    ``(F) Coordination with disallowed golden parachute 
                payments.--The dollar limitation contained in paragraph 
                (1) shall be reduced (but not below zero) by the amount 
                (if any) which would have been included in the 
                applicable employee remuneration of the covered 
                employee for the taxable year but for being disallowed 
                under section 280G.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts which would otherwise be deductible for taxable years 
beginning on or after January 1, 1994.

SEC. 2116. REDUCTION IN COMPENSATION TAKEN INTO ACCOUNT IN DETERMINING 
              CONTRIBUTIONS AND BENEFITS UNDER QUALIFIED RETIREMENT 
              PLANS.

    (a) In General.--Sections 401(a)(17), 404(l), and 505(b)(7) are 
each amended--
            (1) by striking ``$200,000'' in the first sentence and 
        inserting ``$150,000'', and
            (2) by striking the second sentence and inserting ``In the 
        case of years beginning after 1994, the Secretary shall adjust 
        the $150,000 amount at the same time and in the same manner as 
        under section 415(d), except that the base period for purposes 
        of section 415(d)(1)(A) shall be the calendar quarter beginning 
        October 1, 1994.''
    (b) Simplified Employee Pensions.--
            (1) In general.--Paragraphs (3)(C) and (6)(D)(ii) of 
        section 408(k) are each amended by striking ``$200,000'' and 
        inserting ``$150,000''.
            (2) Cost-of-living.--Paragraph (8) of section 408(k) is 
        amended to read as follows:
            ``(8) Cost-of-living adjustment.--The Secretary shall 
        adjust the $300 amount in paragraph (2)(C) at the same time and 
        in the same manner as under section 415(d) and shall adjust the 
        $150,000 amount in paragraphs (3)(C) and (6)(D)(ii) at the same 
        time and by the same amount as the adjustment to the $150,000 
        amount in section 401(a)(17).''
    (c) Conforming Amendment.--The heading for section 505(b)(7) is 
amended by striking ``$200,000''.
    (d) Effective Date.--The amendments made by this section shall 
apply to benefits accruing in plan years beginning after December 31, 
1993.

SEC. 2117. MODIFICATION TO DEDUCTION FOR CERTAIN MOVING EXPENSES.

    (a) Repeal of Deduction for Qualified Residence Sale, Etc., 
Expenses.--
            (1) In general.--Paragraph (1) of section 217(b) (defining 
        moving expenses) is amended by inserting ``or'' at the end of 
        subparagraph (C), by striking ``, or'' at the end of 
        subparagraph (D) and inserting a period, and by striking 
        subparagraph (E).
            (2) Conforming amendments.--
                    (A) Subsection (b) of section 217 is amended by 
                striking paragraph (2) and redesignating paragraph (3) 
                as paragraph (2).
                    (B) Paragraph (2) of section 217(b) (as 
                redesignated by subparagraph (A)) is amended--
                            (i) by striking the last sentence of 
                        subparagraph (A), and
                            (ii) by striking ``, and by'' in 
                        subparagraph (B) and all that follows down 
                        through the period at the end of subparagraph 
                        (B) and inserting a period.
                    (C) Paragraph (1) of section 217(h) is amended by 
                striking subparagraphs (B) and (C) and inserting the 
                following:
                    ``(B) subsection (b)(2)(A) shall be applied by 
                substituting `$4,500' for `$1,500', and
                    ``(C) subsection (b)(2)(B) shall be applied as if 
                the last sentence of such subsection read as follows: 
                `In the case of a husband and wife filing separate 
                returns, subparagraph (A) shall be applied by 
                substituting ``$2,250'' for ``$4,500''.' ''
                    (D) Section 217 is amended by striking subsection 
                (e).
    (b) Deduction Disallowed for Meal Expenses.--Paragraph (1) of 
section 217(b) is amended--
            (1) by striking ``meals and lodging'' in subparagraphs (B), 
        (C) and (D) and inserting ``lodging'', and
            (2) by adding at the end thereof the following new 
        sentence:
        ``Such term shall not include any expenses for meals.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenses incurred after December 31, 1993.

              Subtitle B--Provisions Affecting Businesses

SEC. 2201. INCREASE IN TOP MARGINAL RATE UNDER SECTION 11.

    (a) General Rule.--Paragraph (1) of section 11(b) (relating to 
amount of tax) is amended--
            (1) by striking ``and'' at the end of subparagraph (B),
            (2) by striking subparagraph (C) and inserting the 
        following:
                    ``(C) 34 percent of so much of the taxable income 
                as exceeds $75,000 but does not exceed $10,000,000, and
                    ``(D) 36 percent of so much of the taxable income 
                as exceeds $10,000,000.'', and
            (3) by adding at the end thereof the following new 
        sentence: ``In the case of a corporation which has taxable 
        income in excess of $15,000,000, the amount of the tax 
        determined under the foregoing provisions of this paragraph 
        shall be increased by an additional amount equal to the lesser 
        of (i) 3 percent of such excess, or (ii) $200,000.''.
    (b) Certain Personal Service Corporations.--Paragraph (2) of 
section 11(b) is amended by striking ``34 percent'' and inserting ``36 
percent''.
    (c) Conforming Amendments.--
            (1) Clause (iii) of section 852(b)(3)(D) is amended by 
        striking ``66 percent'' and inserting ``64 percent''.
            (2) Subsection (a) of section 1201 is amended by striking 
        ``34 percent'' each place it appears and inserting ``36 
        percent''.
            (3) Paragraphs (1) and (2) of section 1445(e) are each 
        amended by striking ``34 percent'' and inserting ``36 
        percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after January 1, 1993; except 
that the amendment made by subsection (c)(3) shall take effect on the 
date of the enactment of this Act.

SEC. 2202. DENIAL OF DEDUCTION FOR LOBBYING EXPENSES.

    (a) Disallowance of Deduction.--Section 162(e) (relating to 
appearances, etc., with respect to legislation) is amended to read as 
follows:
    ``(e) Denial of Deduction for Certain Lobbying and Political 
Expenditures.--
            ``(1) In general.--No deduction shall be allowed under 
        subsection (a) for any amount paid or incurred--
                    ``(A) in connection with influencing legislation,
                    ``(B) for participation in, or intervention in, any 
                political campaign on behalf of (or in opposition to) 
                any candidate for public office, or
                    ``(C) in connection with any attempt to influence 
                the general public, or segments thereof, with respect 
                to elections.
            ``(2) Application to dues.--
                    ``(A) In general.--No deduction shall be allowed 
                under subsection (a) for the portion of dues or other 
                similar amounts (paid by the taxpayer with respect to 
                an organization) which is allocable to the expenditures 
                described in paragraph (1).
                    ``(B) Allocation.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), expenditures described in 
                        paragraph (1) shall be treated as paid out of 
                        dues or other similar amounts.
                            ``(ii) Carryover of lobbying expenditures 
                        in excess of dues.--For purposes of this 
                        paragraph, if expenditures described in 
                        paragraph (1) exceed the dues or other similar 
                        amounts for any calendar year, such excess 
                        shall be treated as expenditures described in 
                        paragraph (1) which are paid or incurred by the 
                        organization during the following calendar 
                        year.
            ``(3) Influencing legislation.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `influencing 
                legislation' means--
                            ``(i) any attempt to influence the general 
                        public, or segments thereof, with respect to 
                        legislation, and
                            ``(ii) any attempt to influence any 
                        legislation through communication with any 
                        member or employee of the legislative body, or 
                        with any government official or employee who 
                        may participate in the formulation of the 
                        legislation.
                    ``(B) Exception for certain technical advice.--The 
                term `influencing legislation' shall not include the 
                providing of technical advice or assistance to a 
                governmental body or to a committee or other 
                subdivision thereof in response to a specific written 
                request by such governmental entity to the taxpayer 
                which specifies the nature of the advice or assistance 
                requested.
                    ``(C) Legislation.--The term `legislation' has the 
                meaning given such term by section 4911(e)(2).
            ``(4) Exception for certain taxpayers.--In the case of any 
        taxpayer engaged in the trade or business of conducting 
        activities described in paragraph (1), paragraph (1) shall not 
        apply to expenditures of the taxpayer in conducting such 
        activities on behalf of another person (but shall apply to 
        payments by such other person to the taxpayer for conducting 
        such activities).
            ``(5) Cross reference.--

                                ``For reporting requirements related to 
this subsection, see section 6050O.''
    (b) Reporting Requirements.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 (relating to information concerning transactions 
        with other persons) is amended by adding at the end the 
        following new section:

``SEC. 6050O. RETURNS RELATING TO LOBBYING EXPENDITURES OF CERTAIN 
              ORGANIZATIONS.

    ``(a) Requirement of Reporting.--Each organization referred to in 
section 162(e)(2) shall make a return, according to the forms or 
regulations prescribed by the Secretary, setting forth the names and 
addresses of persons paying dues to the organization, the amount of the 
dues paid by such person, and the portion of such dues which is 
nondeductible under section 162(e)(2).
    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Furnished.--Any organization required to make a return 
under subsection (a) shall furnish to each person whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the organization, and
            ``(2) the dues paid by the person during the calendar year 
        and the portion of such dues which is nondeductible under 
        section 162(e)(2).
The written statement required under the preceding sentence shall be 
furnished (either in person or in a statement mailing by first-class 
mail which includes adequate notice that the statement is enclosed) to 
the persons on or before January 31 of the year following the calendar 
year for which the return under subsection (a) was made and shall be in 
such form as the Secretary may prescribe by regulations.
    ``(c) Waiver.--The Secretary may waive the reporting requirements 
of this section with respect to any organization or class of 
organizations if the Secretary determines that such reporting is not 
necessary to carry out the purposes of section 162(e).
    ``(d) Dues.--For purposes of this section, the term `dues' includes 
other similar amounts.''
            (2) Penalties.--
                    (A) Returns.--Subparagraph (A) of section 
                6724(d)(1) (defining information return) is amended by 
                striking ``or'' at the end of clause (xi), by striking 
                the period at the end of the clause (xii) relating to 
                section 4101(d) and inserting a comma, by redesignating 
                the clause (xii) relating to section 338(h)(10) as 
                clause (xiii), by striking the period at the end of 
                clause (xiii) (as so redesignated) and inserting ``, 
                or'', and by adding at the end the following new 
                clause:
                            ``(xiv) section 6050O(a) (relating to 
                        information on nondeductible lobbying 
                        expenditures).''
                    (B) Payee statements.--Paragraph (2) of section 
                6724(d) (defining payee statement) is amended by 
                striking ``or'' at the end of subparagraph (R), by 
                striking the period at the end of subparagraph (S) and 
                inserting ``, or'', and by adding at the end the 
                following new subparagraph:
                    ``(T) section 6050O(b) (relating to returns on 
                nondeductible lobbying expenditures).''
                    (C) Excessive underreporting.--Section 6721 
                (relating to failure to file correct information 
                returns) is amended by adding at the end the following 
                new subsection:
    ``(f) Penalty in Case of Excessive Underreporting on Nondeductible 
Dues.--If the aggregate amount of nondeductible dues which is reported 
on the return required to be filed under section 6050O(a) for any 
calendar year is less than 75 percent of the aggregate amount required 
to be so reported--
            ``(1) subsections (b), (c), and (d) shall not apply, and
            ``(2) the penalty imposed under subsection (a) shall be 
        equal to the product of--
                    ``(A) the amount required to be reported which was 
                not so reported, and
                    ``(B) the highest rate of tax imposed by section 11 
                for taxable years beginning in such calendar year.''
            (3) Conforming amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61 is amended 
        by adding at the end the following new item:

                              ``Sec. 6050O. Returns relating to 
                                        lobbying expenditures of 
                                        certain organizations.''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 1993.

SEC. 2203. MARK TO MARKET ACCOUNTING METHOD FOR SECURITIES DEALERS.

    (a) General Rule.--Subpart D of part II of subchapter E of chapter 
1 (relating to inventories) is amended by adding at the end thereof the 
following new section:

``SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES.

    ``(a) General Rule.--Notwithstanding any other provision of this 
subpart, the following rules shall apply to securities held by a dealer 
in securities:
            ``(1) Any security which is inventory in the hands of the 
        dealer shall be included in inventory at its fair market value.
            ``(2) In the case of any security which is not inventory in 
        the hands of the dealer and which is held at the close of any 
        taxable year--
                    ``(A) the dealer shall recognize gain or loss as if 
                such security were sold for its fair market value on 
                the last business day of such taxable year, and
                    ``(B) any 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 paragraph at times 
        other than the times provided in this paragraph.
    ``(b) Exceptions.--
            ``(1) In general.--Subsection (a) shall not apply to--
                    ``(A) any security held for investment,
                    ``(B)(i) any security described in subsection 
                (c)(2)(C) which is acquired (including originated) by 
                the taxpayer in the ordinary course of a trade or 
                business of the taxpayer and which is not held for 
                sale, and (ii) any obligation to acquire a security 
                described in clause (i) if such obligation is entered 
                into in the ordinary course of such trade or business 
                and is not held for sale, and
                    ``(C) any security which is a hedge with respect 
                to--
                            ``(i) a security to which subsection (a) 
                        does not apply, or
                            ``(ii) a position, right to income, or a 
                        liability which is not a security in the hands 
                        of the taxpayer.
        To the extent provided in regulations, subparagraph (C) shall 
        not apply to any security held by a person in its capacity as a 
        dealer in securities.
            ``(2) Identification required.--A security shall not be 
        treated as described in subparagraph (A), (B), or (C) of 
        paragraph (1), as the case may be, unless such security is 
        clearly identified in the dealer's records as being described 
        in such subparagraph before the close of the day on which it 
        was acquired, originated, or entered into (or such other time 
        as the Secretary may by regulations prescribe).
            ``(3) Securities subsequently not exempt.--If a security 
        ceases to be described in paragraph (1) at any time after it 
        was identified as such under paragraph (2), subsection (a) 
        shall apply to any changes in value of the security occurring 
        after the cessation.
            ``(4) Special rule for property held for investment.--To 
        the extent provided in regulations, subparagraph (A) of 
        paragraph (1) shall not apply to any security described in 
        subparagraph (D) or (E) of subsection (c)(2) which is held by a 
        dealer in such securities.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Dealer in securities defined.--The term `dealer in 
        securities' means a taxpayer who--
                    ``(A) regularly purchases securities from or sells 
                securities to customers in the ordinary course of a 
                trade or business; or
                    ``(B) regularly offers to enter into, assume, 
                offset, assign or otherwise terminate positions in 
                securities with customers in the ordinary course of a 
                trade or business.
            ``(2) Security defined.--The term `security' means any--
                    ``(A) share of stock in a corporation;
                    ``(B) partnership or beneficial ownership interest 
                in a widely held or publicly traded partnership or 
                trust;
                    ``(C) note, bond, debenture, or other evidence of 
                indebtedness;
                    ``(D) interest rate, currency, or equity notional 
                principal contract;
                    ``(E) evidence of an interest in, or a derivative 
                financial instrument in, any security described in 
                subparagraph (A), (B), (C), or (D), or any currency, 
                including any option, forward contract, short position, 
                and any similar financial instrument in such a security 
                or currency; and
                    ``(F) position which--
                            ``(i) is not a security described in 
                        subparagraph (A), (B), (C), (D), or (E),
                            ``(ii) is a hedge with respect to such a 
                        security, and
                            ``(iii) is clearly identified in the 
                        dealer's records as being described in this 
                        subparagraph before the close of the day on 
                        which it was acquired or entered into (or such 
                        other time as the Secretary may by regulations 
                        prescribe).
        Subparagraph (E) shall not include any contract to which 
        section 1256(a) applies.
            ``(3) Hedge.--The term `hedge' means any position which 
        reduces the dealer's risk of interest rate or price changes or 
        currency fluctuations, including any position which is 
        reasonably expected to become a hedge within 60 days after the 
        acquisition of the position.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Coordination with certain rules.--The rules of 
        sections 263(g), 263A, and 1256(a) shall not apply to 
        securities to which subsection (a) applies, and section 1091 
        shall not apply (and section 1092 shall apply) to any loss 
        recognized under subsection (a).
            ``(2) Improper identification.--If a taxpayer--
                    ``(A) identifies any security under subsection 
                (b)(2) as being described in subsection (b)(1) and such 
                security is not so described, or
                    ``(B) fails under subsection (c)(2)(F)(iii) to 
                identify any position which is described in subsection 
                (c)(2)(F) (without regard to clause (iii) thereof) at 
                the time such identification is required,
        the provisions of subsection (a) shall apply to such security 
        or position, except that any loss under this section prior to 
        the disposition of the security or position shall be recognized 
        only to the extent of gain previously recognized under this 
        section (and not previously taken into account under this 
        paragraph) with respect to such security or position.
            ``(3) Character of gain or loss.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) or section 1236(b)--
                            ``(i) In general.--Any gain or loss with 
                        respect to a security under subsection (a)(2) 
                        shall be treated as ordinary income or loss.
                            ``(ii) Special rule for dispositions.--If--
                                    ``(I) gain or loss is recognized 
                                with respect to a security before the 
                                close of the taxable year, and
                                    ``(II) subsection (a)(2) would have 
                                applied if the security were held as of 
                                the close of the taxable year,
                        such gain or loss shall be treated as ordinary 
                        income or loss.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to any gain or loss which is allocable to a period 
                during which--
                            ``(i) the security is described in 
                        subsection (b)(1)(C) (without regard to 
                        subsection (b)(2)),
                            ``(ii) the security is held by a person 
                        other than in connection with its activities as 
                        a dealer in securities, or
                            ``(iii) the security is improperly 
                        identified (within the meaning of subparagraph 
                        (A) or (B) of paragraph (2)).
    ``(e) Regulatory Authority.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including rules--
            ``(1) to prevent the use of year-end transfers, related 
        parties, or other arrangements to avoid the provisions of this 
        section, and
            ``(2) to provide for the application of this section to any 
        security which is a hedge which cannot be identified with a 
        specific security, position, right to income, or liability.''
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 988(d) is amended--
                    (A) by striking ``section 1256'' and inserting 
                ``section 475 or 1256'', and
                    (B) by striking ``1092 and 1256'' and inserting 
                ``475, 1092, and 1256''.
            (2) The table of sections for subpart D of part II of 
        subchapter E of chapter 1 is amended by adding at the end 
        thereof the following new item:

                              ``Sec. 475. Mark to market accounting 
                                        method for dealers in 
                                        securities.''

    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to all taxable years ending on or after December 31, 
        1993.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by this section to change its method of 
        accounting for any taxable year--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary, and
                    (C) except as provided in paragraph (3), the net 
                amount of the adjustments required to be taken into 
                account by the taxpayer under section 481 of the 
                Internal Revenue Code of 1986 shall be taken into 
                account ratably over the 5-taxable year period 
                beginning with the first taxable year ending on or 
                after December 31, 1993.
            (3) Special rule for floor specialists and market makers.--
                    (A) In general.--If--
                            (i) a taxpayer used the last-in first-out 
                        (LIFO) method of accounting with respect to any 
                        qualified securities for its last taxable year 
                        ending before December 31, 1993, and
                            (ii) any portion of the net amount 
                        described in paragraph (2)(C) is attributable 
                        to the use of such method of accounting,
                then paragraph (2)(C) shall be applied by taking such 
                portion into account ratably over the 20-taxable year 
                period beginning with the first taxable year ending on 
                or after December 31, 1993 (or, if shorter, the period 
                of taxable years equal to the greater of 5 years or the 
                number of taxable years before such first taxable year 
                for which the taxpayer (or any predecessor) used such 
                method of accounting).
                    (B) Qualified security.--For purposes of this 
                paragraph, the term ``qualified security'' means any 
                security acquired--
                            (i) by a floor specialist (as defined in 
                        section 1236(d)(2) of the Internal Revenue Code 
                        of 1986) in connection with the specialist's 
                        duties as a specialist on an exchange, but only 
                        if the security is one in which the specialist 
                        is registered with the exchange, or
                            (ii) by a taxpayer who is a market maker in 
                        connection with the taxpayer's duties as a 
                        market maker, but only if--
                                    (I) the security is included on the 
                                National Association of Security 
                                Dealers Automated Quotation System,
                                    (II) the taxpayer is registered as 
                                a market maker in such security with 
                                the National Association of Security 
                                Dealers, and
                                    (III) as of the last day of the 
                                taxable year preceding the taxpayer's 
                                first taxable year ending on or after 
                                December 31, 1993, the taxpayer (or any 
                                predecessor) has been actively and 
                                regularly engaged as a market maker in 
                                such security for the 2-year period 
                                ending on such date (or, if shorter, 
                                the period beginning 61 days after the 
                                security was listed in such quotation 
                                system and ending on such date).

SEC. 2204. CLARIFICATION OF TREATMENT OF CERTAIN FSLIC FINANCIAL 
              ASSISTANCE.

    (a) General Rule.--For purposes of chapter 1 of the Internal 
Revenue Code of 1986--
            (1) any FSLIC assistance with respect to any loss of 
        principal, capital, or similar amount upon the disposition of 
        any asset shall be taken into account as compensation for such 
        loss for purposes of section 165 of such Code, and
            (2) any FSLIC assistance with respect to any debt shall be 
        taken into account for purposes of section 166, 585, or 593 of 
        such Code in determining whether such debt is worthless (or the 
        extent to which such debt is worthless) and in determining the 
        amount of any addition to a reserve for bad debts arising from 
        the worthlessness or partial worthlessness of such debts.
    (b) FSLIC Assistance.--For purposes of this section, the term 
``FSLIC assistance'' means any assistance (or right to assistance) with 
respect to a domestic building and loan association (as defined in 
section 7701(a)(19) of such Code without regard to subparagraph (C) 
thereof) under section 406(f) of the National Housing Act or section 
21A of the Federal Home Loan Bank Act (or under any similar provision 
of law).
    (c) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection--
                    (A) The provisions of this section shall apply to 
                taxable years ending on or after March 4, 1991, but 
                only with respect to FSLIC assistance not credited 
                before March 4, 1991.
                    (B) If any FSLIC assistance not credited before 
                March 4, 1991, is with respect to a loss sustained or 
                charge-off in a taxable year ending before March 4, 
                1991, for purposes of determining the amount of any net 
                operating loss carryover to a taxable year ending on or 
                after March 4, 1991, the provisions of this section 
                shall apply to such assistance for purposes of 
                determining the amount of the net operating loss for 
                the taxable year in which such loss was sustained or 
                debt written off. Except as provided in the preceding 
                sentence, this section shall not apply to any FSLIC 
                assistance with respect to a loss sustained or charge-
                off in a taxable year ending before March 4, 1991.
            (2) Exceptions.--The provisions of this section shall not 
        apply to any assistance to which the amendments made by section 
        1401(a)(3) of the Financial Institutions Reform, Recovery, and 
        Enforcement Act of 1989 apply.

SEC. 2205. EXTENSION OF CORPORATE ESTIMATED TAX RULES.

    (a) General Rule.--Clause (i) of section 6655(d)(1)(B) (relating to 
amount of required installment) is amended by striking ``91 percent'' 
each place it appears and inserting ``97 percent''.
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 6655 is amended--
                    (A) by striking paragraph (3), and
                    (B) by striking ``91 percent'' in the paragraph 
                heading of paragraph (2) and inserting ``97 percent''.
            (2) Clause (ii) of section 6655(e)(2)(B) is amended by 
        striking the table contained therein and inserting the 
        following:

``In the case of the following            The applicable percentage is:
        required installments:
    1st...........................................                24.25
    2nd...........................................                48.50
    3rd...........................................                72.75
    4th...........................................              97.  ''
            (3) Clause (i) of section 6655(e)(3)(A) is amended by 
        striking ``91 percent'' and inserting ``97 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 2206. LIMITATION ON SECTION 936 CREDIT.

    (a) General Rule.--Subsection (a) of section 936 (relating to 
Puerto Rico and possession tax credit) is amended--
            (1) by striking ``as provided in paragraph (3)'' in 
        paragraph (1) and inserting ``as otherwise provided in this 
        section'';
            (2) by adding at the end thereof the following new 
        paragraph:
            ``(4) Limitations on credit.--
                    ``(A) Credit for active business income.--The 
                amount of the credit determined under paragraph (1)(A) 
                for any taxable year shall not exceed 60 percent of the 
                aggregate amount of the possession corporation's 
                qualified possession wages for such taxable year.
                    ``(B) Credit for investment income.--
                            ``(i) In general.--If--
                                    ``(I) the QPSII assets of the 
                                possession corporation for any taxable 
                                year, exceed
                                    ``(II) 80 percent of such 
                                possession corporation's qualified 
                                tangible business investment for such 
                                taxable year,
                        the credit determined under paragraph (1)(B) 
                        for such taxable year shall be reduced by the 
                        amount determined under clause (ii).
                            ``(ii) Amount of reduction.--The reduction 
                        determined under this clause for any taxable 
                        year is an amount which bears the same ratio to 
                        the credit determined under paragraph (1)(B) 
                        for such taxable year (determined without 
                        regard to this subparagraph) as--
                                    ``(I) the excess determined under 
                                clause (i), bears to
                                    ``(II) the QPSII assets of the 
                                possession corporation for such taxable 
                                year.
                    ``(C) Cross reference.--

                                ``For definitions and special rules 
applicable to this paragraph, see subsection (i).''
    (b) Definitions and Special Rules.--Section 936 is amended by 
adding at the end thereof the following new subsection:
    ``(i) Definitions and Special Rules Relating to Limitations of 
Subsection (a)(4).--
            ``(1) Qualified possession wages.--For purposes of this 
        section--
                    ``(A) In general.--The term `qualified possession 
                wages' means wages paid or incurred by the possession 
                corporation during the taxable year to any employee for 
                services performed in a possession of the United 
                States, but only if such services are performed while 
                the principal place of employment of such employee is 
                within such possession.
                    ``(B) Limitation on amount of wages taken into 
                account.--
                            ``(i) In general.--The amount of wages 
                        which may be taken into account under 
                        subparagraph (A) with respect to any employee 
                        for any taxable year shall not exceed the 
                        contribution and benefit base determined under 
                        section 230 of the Social Security Act for the 
                        calendar year in which such taxable year 
                        begins.
                            ``(ii) Treatment of part-time employees, 
                        etc.--If--
                                    ``(I) any employee is not employed 
                                by the possession corporation on a 
                                substantially full-time basis at all 
                                times during the taxable year, or
                                    ``(II) the principal place of 
                                employment of any employee with the 
                                possession corporation is not within a 
                                possession at all times during the 
                                taxable year,
                        the limitation applicable under clause (i) with 
                        respect to such employee shall be the 
                        appropriate portion (as determined by the 
                        Secretary) of the limitation which would 
                        otherwise be in effect under clause (i).
                    ``(C) Treatment of certain employees.--The term 
                `qualified possession wages' shall not include any 
                wages paid to employees who are assigned by the 
                employer to perform services for another person, unless 
                the principal trade or business of the employer is to 
                make employees available for temporary periods to other 
                persons in return for compensation. All possession 
                corporations treated as 1 corporation under paragraph 
                (4) shall be treated as 1 employer for purposes of the 
                preceding sentence.
                    ``(D) Wages.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the term `wages' has the meaning 
                        given to such term by subsection (b) of section 
                        3306 (determined without regard to any dollar 
                        limitation contained in such section). For 
                        purposes of the preceding sentence, such 
                        subsection (b) shall be applied as if the term 
                        `United States' included all possessions of the 
                        United States.
                            ``(ii) Special rule for agricultural labor 
                        and railway labor.--In any case to which 
                        subparagraph (A) or (B) of paragraph (1) of 
                        section 51(h) applies, the term `wages' has the 
                        meaning given to such term by section 51(h)(2).
            ``(2) QPSII assets.--For purposes of this section--
                    ``(A) In general.--The QPSII assets of a possession 
                corporation for any taxable year is the average of the 
                amounts of the possession corporation's qualified 
                investment assets as of the close of each quarter of 
                such taxable year.
                    ``(B) Qualified investment assets.--The term 
                `qualified investment assets' means the aggregate 
                adjusted bases of the assets which are held by the 
                possession corporation and the income from which 
                qualifies as qualified possession source investment 
                income. For purposes of the preceding sentence, the 
                adjusted basis of any asset shall be its adjusted basis 
                as determined for purposes of computing earnings and 
                profits.
            ``(3) Qualified tangible business investment.--For purposes 
        of this section--
                    ``(A) In general.--The qualified tangible business 
                investment of any possession corporation for any 
                taxable year is the average of the amounts of the 
                possession corporation's qualified possession 
                investments as of the close of each quarter of such 
                taxable year.
                    ``(B) Qualified possession investments.--The term 
                `qualified possession investments' means the aggregate 
                adjusted bases of tangible property used by the 
                possession corporation in a possession of the United 
                States in the active conduct of a trade or business 
                within such possession. For purposes of the preceding 
                sentence, the adjusted basis of any property shall be 
                its adjusted basis as determined for purposes of 
                computing earnings and profits.
            ``(4) Election to compute credit on consolidated basis.--
                    ``(A) In general.--Any affiliated group may elect 
                to treat all possession corporations which would be 
                members of such group but for section 1504(b)(4) as 1 
                corporation for purposes of this section. The credit 
                determined under this section with respect to such 1 
                corporation shall be allocated among such possession 
                corporations in such manner as the Secretary may 
                prescribe.
                    ``(B) Election.--An election under subparagraph (A) 
                shall apply to the taxable year for which made and all 
                succeeding taxable years unless revoked with the 
                consent of the Secretary.
            ``(5) Treatment of certain taxes.--Notwithstanding 
        subsection (c), if--
                    ``(A) the credit determined under subsection (a)(1) 
                for any taxable year is limited under subsection 
                (a)(4), and
                    ``(B) the possession corporation has paid or 
                accrued any taxes of a possession of the United States 
                for such taxable year which are treated as not being 
                income, war profits, or excess profits taxes paid or 
                accrued to a possession of the United States by reason 
                of subsection (c),
        such possession corporation shall be allowed a deduction for 
        such taxable year equal to the portion of such taxes which are 
        allocable (on a pro rata basis) to taxable income of the 
        possession corporation the tax on which is not offset by reason 
        of the limitations of subsection (a)(4). In determining the 
        credit under subsection (a) and in applying the preceding 
        sentence, taxable income shall be determined without regard to 
        the preceding sentence.
            ``(6) Possession corporation.--The term `possession 
        corporation' means a domestic corporation for which the 
        election provided in subsection (a) is in effect.
            ``(7) Transitional rule.--If any possession corporation 
        elects the benefits of this paragraph for any taxable year 
        beginning in 1994 or 1995--
                    ``(A) subsection (a)(4) shall not apply to such 
                taxable year, and
                    ``(B) the credit determined under subsection (a)(1) 
                for such taxable year shall be the following percentage 
                of the credit which would otherwise have been 
                determined under such subsection:
                            ``(i) 80 percent in the case of a taxable 
                        year beginning in 1994.
                            ``(ii) 60 percent in the case of a taxable 
                        year beginning in 1995.
                A possession corporation which elects the benefits of 
                this paragraph shall be entitled to the benefits of 
                paragraph (5) for taxes allocable to taxable income the 
                tax on which is not offset by reason of this 
                paragraph.''
    (c) Minimum Tax Treatment.--
            (1) In general.--Clause (ii) of section 56(g)(4)(C) 
        (relating to treatment of special rule for certain dividends) 
        is amended by striking ``sections 936 and 921'' and inserting 
        ``sections 936 (including subsection (a)(4) thereof) and 921''.
            (2) Treatment of foreign taxes.--Clause (iii) of section 
        56(g)(4)(C) is amended by adding at the end thereof the 
        following subclauses:
                                    ``(IV) Separate application of 
                                foreign tax credit limitations.--In 
                                determining the alternative minimum 
                                foreign tax credit, section 904(d) 
                                shall be applied as if dividends from a 
                                corporation eligible for the credit 
                                provided by section 936 were a separate 
                                category of income referred to in a 
                                subparagraph of section 904(d)(1).
                                    ``(V) Coordination with limitation 
                                on 936 credit.--Any reference in this 
                                clause to a dividend received from a 
                                corporation eligible for the credit 
                                provided by section 936 shall be 
                                treated as a reference to the portion 
                                of any such dividend for which the 
                                dividends received deduction is 
                                disallowed under clause (i) after the 
                                application of clause (ii)(I).''
    (d) Conforming Amendment.--Paragraph (4) of section 904(b) is 
amended by inserting before the period at the end thereof the 
following: ``(without regard to subsection (a)(4) thereof)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 2207. MODIFICATION TO LIMITATION ON DEDUCTION FOR CERTAIN 
              INTEREST.

    (a) General Rule.--Paragraph (3) of section 163(j) (defining 
disqualified interest) is amended to read as follows:
            ``(3) Disqualified interest.--For purposes of this 
        subsection, the term `disqualified interest' means--
                    ``(A) any interest paid or accrued by the taxpayer 
                (directly or indirectly) to a related person if no tax 
                is imposed by this subtitle with respect to such 
                interest, and
                    ``(B) any interest paid or accrued by the taxpayer 
                with respect to any indebtedness to a person who is not 
                a related person if--
                            ``(i) there is a disqualified guarantee of 
                        such indebtedness, and
                            ``(ii) no gross basis tax is imposed by 
                        this subtitle with respect to such interest.''
    (b) Definitions.--Paragraph (6) of section 163(j) is amended by 
adding at the end thereof the following new subparagraphs:
                    ``(D) Disqualified guarantee.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the term `disqualified guarantee' 
                        means any guarantee by a related person which 
                        is--
                                    ``(I) an organization exempt from 
                                taxation under this subtitle, or
                                    ``(II) a foreign person.
                            ``(ii) Exceptions.--The term `disqualified 
                        guarantee' shall not include a guarantee--
                                    ``(I) in any circumstances 
                                identified by the Secretary by 
                                regulation, where the interest on the 
                                indebtedness would have been subject to 
                                a net basis tax if the interest had 
                                been paid to the guarantor, or
                                    ``(II) if the taxpayer owns a 
                                controlling interest in the guarantor.
                        For purposes of subclause (II), except as 
                        provided in regulations, the term `a 
                        controlling interest' means direct or indirect 
                        ownership of at least 80 percent of the total 
                        voting power and value of all classes of stock 
                        of a corporation, or 80 percent of the profit 
                        and capital interests in any other entity. For 
                        purposes of the preceding sentence, the rules 
                        of paragraphs (1) and (5) of section 267(c) 
                        shall apply; except that such rules shall also 
                        apply to interest in entities other than 
                        corporations.
                            ``(iii) Guarantee.--Except as provided in 
                        regulations, the term `guarantee' includes any 
                        arrangement under which a person (directly or 
                        indirectly through an entity or otherwise) 
                        assures, on a conditional or unconditional 
                        basis, the payment of another person's 
                        obligation under any indebtedness.
                    ``(E) Gross basis and net basis taxation.--
                            ``(i) Gross basis tax.--The term `gross 
                        basis tax' means any tax imposed by this 
                        subtitle which is determined by reference to 
                        the gross amount of any item of income without 
                        any reduction for any deduction allowed by this 
                        subtitle.
                            ``(ii) Net basis tax.--The term `net basis 
                        tax' means any tax imposed by this subtitle 
                        which is a not a gross basis tax.''
    (c) Conforming Amendment.--Subparagraph (B) of section 163(j)(5) is 
amended by striking ``to a related person''.
    (d) Effective Date.--The amendments made by this section shall 
apply to interest paid or accrued in taxable years beginning after 
December 31, 1993.

                   Subtitle C--Foreign Tax Provisions

  PART I--CURRENT TAXATION OF CERTAIN EARNINGS OF CONTROLLED FOREIGN 
                              CORPORATIONS

SEC. 2301. EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.

    (a) General Rule.--Paragraph (1) of section 951(a) (relating to 
amounts included in gross income of United States shareholders) 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 adding at the end thereof the following new subparagraph:
                    ``(C) the amount determined under section 956A with 
                respect to such shareholder for such year (but only to 
                the extent not excluded from gross income under section 
                959(a)(3)).''
    (b) Amount of Inclusion.--Subpart F of part III of subchapter N of 
chapter 1 is amended by inserting after section 956 the following new 
section:

``SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.

    ``(a) General Rule.--In the case of any controlled foreign 
corporation, the amount determined under this section with respect to 
any United States shareholder for any taxable year is the lesser of--
            ``(1) the excess (if any) of--
                    ``(A) such shareholder's pro rata share of the 
                amount of the controlled foreign corporation's excess 
                passive assets for such taxable year, over
                    ``(B) the aggregate amount previously included 
                under section 951(a)(1)(C) (or which would have been 
                included but for section 959(a)(3)) in the gross income 
                of such shareholder (or of any other United States 
                person from whom such shareholder acquired any portion 
                of his interest in the controlled foreign corporation, 
                but only to the extent attributable to the acquired 
                interest and subject to such proof of the identity of 
                such interest as the Secretary may require), or
            ``(2) such shareholder's pro rata share of the applicable 
        earnings of such controlled foreign corporation determined 
        after the application of section 951(a)(1)(B).
    ``(b) Adjustment for Certain Distributions of Previously Taxed 
Income.--The amount determined under subsection (a)(1)(B) shall be 
reduced by the amount of any distribution excluded from gross income 
under section 959 and treated as a distribution out of earnings and 
profits referred to in section 959(c)(1)(B).
    ``(c) Applicable Earnings.--For purposes of this section, the term 
`applicable earnings' means, with respect to any controlled foreign 
corporation, the amounts referred to in sections 316(a)(1) and 
316(a)(2) (but reduced by distributions made during the taxable year), 
reduced by any portion of such amounts which, if distributed, would not 
be treated as a dividend by reason of section 955 and further reduced 
by the earnings and profits described in section 959(c)(1).
    ``(d) Excess Passive Assets.--For purposes of this section--
            ``(1) In general.--The excess passive assets of any 
        controlled foreign corporation for any taxable year is the 
        excess (if any) of--
                    ``(A) the average of the amounts of passive assets 
                held by such corporation as of the close of each 
                quarter of such taxable year, over
                    ``(B) 25 percent of the average of the amounts of 
                total assets held by such corporation as of the close 
                of each quarter of such taxable year.
        For purposes of the preceding sentence, the amount taken into 
        account with respect to any asset shall be its adjusted basis 
        as determined for purposes of computing earnings and profits.
            ``(2) Passive asset.--
                    ``(A) In general.--Except as otherwise provided in 
                this section, the term `passive asset' means any asset 
                held by the controlled foreign corporation which 
                produces passive income (as defined in section 1296(b)) 
                or is held for the production of such income.
                    ``(B) Coordination with section 956.--The term 
                `passive asset' shall not include any United States 
                property (as defined in section 956).
            ``(3) Look-thru rules made applicable.--For purposes of 
        this subsection, the rules of section 1296(c) shall apply.
            ``(4) Leasing rules made applicable.--For purposes of this 
        subsection, the rules of section 1297(d) shall apply.
    ``(e) Special Rule Where Corporation Ceases To Be Controlled 
Foreign Corporation During Taxable Year.--If any foreign corporation 
ceases to be a controlled foreign corporation during any taxable year--
            ``(1) the determination of any United States shareholder's 
        pro rata share shall be made on the basis of stock owned 
        (within the meaning of section 958(a)) by such shareholder on 
        the last day during the taxable year on which the foreign 
        corporation is a controlled foreign corporation, and
            ``(2) the amount of such corporation's excess passive 
        assets for such taxable year shall be determined by only taking 
        into account quarters ending on or before such last day, and
            ``(3) in determining applicable earnings, the amount taken 
        into account by reason of being described in paragraph (2) of 
        section 316(a) shall be the portion of the amount so described 
        which is allocable (on a pro rata basis) to the part of such 
        year during which the corporation is a controlled foreign 
        corporation.
    ``(f) Transition Rule.--In the case of any taxable year of a 
controlled foreign corporation beginning after September 30, 1993, and 
before October 1, 1997, the amount determined under subsection (a) 
shall be the applicable percentage (determined under the following 
table) of the amount which would otherwise be determined under such 
subsection:

``In the case of a taxable year
                                                                       
  beginning during the 1-year
                                                         The applicable
  period beginning on:
                                                         percentage is:
                October 1, 1993......................                20
                October 1, 1994......................                25
                October 1, 1995......................                35
                October 1, 1996......................               50.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section, 
including regulations to prevent the avoidance of the provisions of 
this section through reorganizations or otherwise.''.
    (c) Previously Taxed Income Rules.--
            (1) In general.--Subsection (a) of section 959 (relating to 
        exclusion from gross income of previously taxed earnings and 
        profits) is amended by striking ``or'' at the end of paragraph 
        (1), by adding ``or'' at the end of paragraph (2), and by 
        inserting after paragraph (2) the following new paragraph:
            ``(3) such amounts would, but for this subsection, be 
        included under section 951(a)(1)(C) in the gross income of,''.
            (2) Allocation rules.--
                    (A) Subsection (a) of section 959 is amended by 
                adding at the end thereof the following new sentence: 
                ``The rules of subsection (c) shall apply for purposes 
                of paragraph (1) of this subsection and the rules of 
                subsection (f) shall apply for purposes of paragraphs 
                (2) and (3) of this subsection.''.
                    (B) Section 959 is amended by adding at the end 
                thereof the following new subsection:
    ``(f) Allocation Rules for Certain Inclusions.--For purposes of 
this section, amounts that would be included under subparagraph (B) or 
(C) of section 951(a)(1) (determined without regard to this section) 
shall be treated as attributable first to earnings described in 
subsection (c)(2), and then to earnings described in subsection 
(c)(3).''
                    (C) Paragraph (1) of section 959(c) is amended to 
                read as follows:
            ``(1) first to the aggregate of--
                    ``(A) earnings and profits attributable to amounts 
                included in gross income under section 951(a)(1)(B) (or 
                which would have been included except for subsection 
                (a)(2) of this section), and
                    ``(B) earnings and profits attributable to amounts 
                included in gross income under section 951(a)(1)(C) (or 
                which would have been included except for subsection 
                (a)(3) of this section),
        with any distribution being allocated between earnings and 
        profits described in subparagraph (A) and earnings and profits 
        described in subparagraph (B) proportionately on the basis of 
        the respective amounts of such earnings and profits,''.
            (3) Conforming amendments.--
                    (A) Subsections (a) and (b) of section 959 are each 
                amended by striking ``earnings and profits for a 
                taxable year'' and inserting ``earnings and profits''.
                    (B) Paragraph (2) of section 959(c) is amended to 
                read as follows:
            ``(2) then to earnings and profits attributable to amounts 
        included in gross income under section 951(a)(1)(A) (but 
        reduced by amounts not included under subparagraph (B) or (C) 
        of section 951(a)(1) because of the exclusions in paragraphs 
        (2) and (3) of subsection (a) of this section), and''
    (d) Modifications to Passive Foreign Investment Company Rules.--
            (1) Adjusted basis used in certain determinations.--
        Subsection (a) of section 1296 is amended by striking the 
        material following paragraph (2) and inserting the following:
``In the case of a controlled foreign corporation (or any other foreign 
corporation if such corporation so elects), the determination under 
paragraph (2) shall be based on the adjusted bases (as determined for 
purposes of computing earnings and profits) of its assets in lieu of 
their value. Such an election, once made, may be revoked only with the 
consent of the Secretary.''
            (2) Treatment of certain subpart f inclusions.--Subsection 
        (b) of section 1297 is amended by adding at the end thereof the 
        following new paragraph:
            ``(9) Treatment of certain subpart f inclusions.--The term 
        `distribution' includes any amount included in gross income 
        under subparagraph (B) or (C) of section 951(a)(1).''
            (3) Treatment of certain dealers in securities.--Subsection 
        (b) of section 1296 is amended by adding at the end thereof the 
        following new paragraph:
            ``(3) Treatment of certain dealers in securities.--In the 
        case of any foreign corporation which is a controlled foreign 
        corporation (as defined in section 957(a)), the term `passive 
        income' does not include any income derived in the active 
        conduct of a securities business by such corporation if such 
        corporation is registered as a securities broker or dealer 
        under section 15(a) of the Securities Exchange Act of 1934 or 
        is registered as a Government securities broker or dealer under 
        section 15C(a) of such Act. To the extent provided in 
        regulations, such term shall not include any income derived in 
        the active conduct of a securities business by a controlled 
        foreign corporation which is not so registered. The preceding 
        provisions of this paragraph shall only apply in the case of 
        persons who are United States shareholders (as defined in 
        section 951(b)) in the controlled foreign corporation.''
            (4) Leasing rules.--Section 1297 is amended by 
        redesignating subsection (d) as subsection (e) and by inserting 
        after subsection (c) the following new subsection:
    ``(d) Treatment of Certain Leased Property.--For purposes of this 
part--
            ``(1) In general.--Any tangible personal property with 
        respect to which a 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 adjusted basis.--
                    ``(A) In general.--The adjusted basis of any asset 
                to which paragraph (1) applies shall be 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) 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 
                section 954(d)(3)) with respect to the foreign 
                corporation, or
                    ``(B) a principal purpose of leasing the property 
                was to avoid the provisions of this section.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years of controlled foreign corporations beginning 
after September 30, 1993, and to taxable years of United States 
shareholders in which or with which such taxable years of controlled 
foreign corporations end.

SEC. 2302. MODIFICATION TO TAXATION OF INVESTMENT IN UNITED STATES 
              PROPERTY.

    (a) General Rule.--Section 956 (relating to investment of earnings 
in United States property) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (c) and (d), respectively, and
            (2) by striking subsection (a) and inserting the following:
    ``(a) General Rule.--In the case of any controlled foreign 
corporation, the amount determined under this section with respect to 
any United States shareholder for any taxable year is the lesser of--
            ``(1) the excess (if any) of--
                    ``(A) such shareholder's pro rata share of the 
                average of the amounts of United States property held 
                (directly or indirectly) by the controlled foreign 
                corporation as of the close of each quarter of such 
                taxable year, over
                    ``(B) the aggregate amount previously included 
                under section 951(a)(1)(B) (or which would have been 
                included but for section 959(a)(2)) in the gross income 
                of such shareholder (or of any other United States 
                person from whom such shareholder acquired any portion 
                of his interest in the controlled foreign corporation, 
                but only to the extent attributable to the acquired 
                interest and subject to such proof of the identity of 
                such interest as the Secretary may require), or
            ``(2) such shareholder's pro rata share of the applicable 
        earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect to any 
property shall be its adjusted basis as determined for purposes of 
computing earnings and profits, reduced by any liability to which the 
property is subject.
    ``(b) Adjustments for Certain Distributions; Other Special Rules.--
            ``(1) Adjustment for certain distributions of previously 
        taxed income.--The amount determined under subsection (a)(1)(B) 
        shall be reduced by the amount of any distribution excluded 
        from gross income under section 959 and treated as a 
        distribution out of earnings and profits described in section 
        959(c)(1)(A).
            ``(2) Applicable earnings.--For purposes of this section, 
        the term `applicable earnings' has the meaning given to such 
        term by section 956A(c).
            ``(3) Special rule where corporation ceases to be 
        controlled foreign corporation.--Rules similar to the rules of 
        section 956A(e) shall apply for purposes of this section.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 951(a)(1) is amended to 
        read as follows:
                    ``(B) the amount determined under section 956 with 
                respect to such shareholder for such year (but only to 
                the extent not excluded from gross income under section 
                959(a)(2)); and''
            (2) Subsection (a) of section 951 is amended by striking 
        paragraph (4).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of controlled foreign corporations beginning 
after September 30, 1993, and to taxable years of United States 
shareholders in which or with which such taxable years of controlled 
foreign corporations end.

SEC. 2303. OTHER MODIFICATIONS TO SUBPART F.

    (a) Same Country Exception Not To Apply to Certain Dividends.--
            (1) In general.--Paragraph (3) of section 954(c) (relating 
        to certain income received from related persons) is amended by 
        adding at the end thereof the following new subparagraph:
                    ``(C) Exception for certain dividends.--
                Subparagraph (A)(i) shall not apply to any dividend 
                with respect to any stock which is attributable to 
                earnings and profits of the distributing corporation 
                accumulated during any period during which the person 
                receiving such dividend did not hold such stock.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years of controlled foreign corporations 
        beginning after September 30, 1993, and to taxable years of 
        United States shareholders in which or with which such taxable 
        years of controlled foreign corporations end.
    (b) Simplification of Section 960(b).--
            (1) In general.--Subsection (b) of section 960 is amended--
                    (A) by redesignating paragraphs (3) and (4) as 
                paragraphs (4) and (5), respectively, and
                    (B) by striking paragraphs (1) and (2) and 
                inserting the following new paragraphs:
            ``(1) Increase in section 904 limitation.--In the case of 
        any taxpayer who--
                    ``(A) either (i) chose to have the benefits of 
                subpart A of this part for a taxable year beginning 
                after September 30, 1993, in which he was required 
                under section 951(a) to include any amount in his gross 
                income, or (ii) did not pay or accrue for such taxable 
                year any income, war profits, or excess profits taxes 
                to any foreign country or to any possession of the 
                United States,
                    ``(B) chooses to have the benefits of subpart A of 
                this part for any taxable year in which he receives 1 
                or more distributions or amounts which are excludable 
                from gross income under section 959(a) and which are 
                attributable to amounts included in his gross income 
                for taxable years referred to in subparagraph (A), and
                    ``(C) for the taxable year in which such 
                distributions or amounts are received, pays, or is 
                deemed to have paid, or accrues income, war profits, or 
                excess profits taxes to a foreign country or to any 
                possession of the United States with respect to such 
                distributions or amounts,
        the limitation under section 904 for the taxable year in which 
        such distributions or amounts are received shall be increased 
        by the lesser of the amount of such taxes paid, or deemed paid, 
        or accrued with respect to such distributions or amounts or the 
        amount in the excess limitation account as of the beginning of 
        such taxable year.
            ``(2) Excess limitation account.--
                    ``(A) Establishment of account.--Each taxpayer 
                meeting the requirements of paragraph (1)(A) shall 
                establish an excess limitation account. The opening 
                balance of such account shall be zero.
                    ``(B) Increases in account.--For each taxable year 
                beginning after September 30, 1993, the taxpayer shall 
                increase the amount in the excess limitation account by 
                the excess (if any) of--
                            ``(i) the amount by which the limitation 
                        under section 904(a) for such taxable year was 
                        increased by reason of the total amount of the 
                        inclusions in gross income under section 951(a) 
                        for such taxable year, over
                            ``(ii) the amount of any income, war 
                        profits, and excess profits taxes paid, or 
                        deemed paid, or accrued to any foreign country 
                        or possession of the United States which were 
                        allowable as a credit under section 901 for 
                        such taxable year and which would not have been 
                        allowable but for the inclusions in gross 
                        income described in clause (i).
                Proper reductions in the amount added to the account 
                under the preceding sentence for any taxable year shall 
                be made for any increase in the credit allowable under 
                section 901 for such taxable year by reason of a 
                carryback if such increase would not have been 
                allowable but for the inclusions in gross income 
                described in clause (i).
                    ``(C) Decreases in account.--For each taxable year 
                beginning after September 30, 1993, for which the 
                limitation under section 904 was increased under 
                paragraph (1), the taxpayer shall reduce the amount in 
                the excess limitation account by the amount of such 
                increase.
            ``(3) Distributions of income previously taxed in years 
        beginning before october 1, 1993.--If the taxpayer receives a 
        distribution or amount in a taxable year beginning after 
        September 30, 1993, which is excluded from gross income under 
        section 959(a) and is attributable to any amount included in 
        gross income under section 951(a) for a taxable year beginning 
        before October 1, 1993, the limitation under section 904 for 
        the taxable year in which such amount or distribution is 
        received shall be increased by the amount determined under this 
        subsection as in effect on the day before the date of the 
        enactment of the Revenue Reconcilation Act of 1993.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after September 30, 
        1993.

    PART II--ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES; 
                     TREATMENT OF CERTAIN ROYALTIES

SEC. 2311. ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.

    (a) General Rule.--Paragraph (1) of section 864(f) (relating to 
allocation of research and experimental expenditures) is amended by 
striking subparagraphs (B) and (C) and inserting the following:
                    ``(B) In the case of any qualified research and 
                experimental expenditures (not allocated under 
                subparagraph (A))--
                            ``(i) to the extent such expenditures are 
                        attributable to activities conducted in the 
                        United States, 100 percent of such expenditures 
                        shall be allocated and apportioned to income 
                        from sources within the United States and 
                        deducted from such income in determining the 
                        amount of taxable income from sources within 
                        the United States, and
                            ``(ii) to the extent such expenditures are 
                        attributable to activities conducted outside 
                        the United States, such expenditures shall be 
                        allocated and apportioned on the basis of gross 
                        sales.''
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 864 is amended by striking 
        paragraph (5) and inserting the following:
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out the purposes of 
        this subsection, including regulations relating to the 
        determination of whether any expenses are attributable to 
        activities conducted in the United States or outside the United 
        States and regulations providing such adjustments to the 
        provisions of this subsection as may be appropriate in the case 
        of cost-sharing arrangements and contract research.''
            (2) Subparagraph (D) of section 864(f)(4) is amended by 
        striking ``subparagraph (C)'' and inserting ``subparagraph (B) 
        or (C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 2312. ROYALTIES TREATED AS PASSIVE INCOME FOR PURPOSES OF SEPARATE 
              APPLICATION OF FOREIGN TAX CREDIT.

    (a) General Rule.--Subparagraph (A) of section 904(d)(2) (defining 
passive income) is amended by redesignating clauses (iii) and (iv) as 
clauses (iv) and (v), respectively, and by inserting after clause (ii) 
the following new clause:
                            ``(iii) Inclusion of royalties.--Except as 
                        provided in clause (iv), the term `passive 
                        income' includes--
                                    ``(I) any royalty in respect of any 
                                intangible property described in 
                                section 936(h)(3)(B) (whether or not 
                                the requirements of paragraph (2)(A) or 
                                (3)(A)(ii) of section 954(c) are met), 
                                and
                                    ``(II) any other payment for the 
                                use of, or for the right or privilege 
                                to use, any intangible property so 
                                described and any payment made in 
                                consideration of a sale or other 
                                disposition of any such intangible 
                                property to the extent that such 
                                payment is contingent on the 
                                productivity, use, or disposition of 
                                such property.''
    (b) Determination of Whether Royalties Are High-Taxed Income.--
Subparagraph (F) of section 904(d)(2) is amended by adding at the end 
thereof the following new sentence: ``For purposes of this 
subparagraph, all items of income described in clause (iii) of 
subparagraph (A) shall be treated as 1 item of income.''.
    (c) Look-Thru Rules Not Applicable to Certain Royalties.--Paragraph 
(3) of section 904(d) is amended by adding at the end thereof the 
following new subparagraph:
                    ``(J) Look-thru rules not applicable to certain 
                royalties.--For purposes of this paragraph, the term 
                `royalty' shall not include any royalty in respect of 
                intangible property described in section 
                936(h)(3)(B).''
    (d) Conforming Amendments.--
            (1) Clause (ii) of section 904(d)(2)(A) is amended by 
        striking ``clause (iii)'' and inserting ``clause (iv)''.
            (2) Subclause (II) of section 904(d)(2)(C)(i) is amended by 
        striking ``subparagraph (A)(iii)'' and inserting ``subparagraph 
        (A)(iv)''.
            (3) Subclause (I) of section 904(d)(3)(F)(ii) is amended by 
        striking ``paragraph (2)(A)(iii)'' and inserting ``paragraph 
        (2)(A)(iv)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

                       PART III--OTHER PROVISIONS

SEC. 2321. REPEAL OF CERTAIN EXCEPTIONS FOR WORKING CAPITAL.

    (a) Provisions Relating to Oil and Gas Income.--
            (1) Amendments to section 907.--
                    (A) Paragraph (1) of section 907(c) is amended by 
                adding at the end thereof the following new flush 
                sentence:
``Such term does not include any dividend or interest income which is 
passive income (as defined in section 904(d)(2)(A)).''.
                    (B) Paragraph (2) of section 907(c) is amended by 
                adding at the end thereof the following new flush 
                sentence:
``Such term does not include any dividend or interest income which is 
passive income (as defined in section 904(d)(2)(A)).''.
            (2) Separate application of foreign tax credit.--Clause 
        (iii) of section 904(d)(2)(A) is amended by inserting ``and'' 
        at the end of subclause (II), by striking ``, and'' at the end 
        of subclause (III) and inserting a period, and by striking 
        subclause (IV).
            (3) Treatment under subpart f.--
                    (A) Paragraph (1) of section 954(g) is amended by 
                adding at the end thereof the following new flush 
                sentence:
``Such term shall not include any foreign personal holding company 
income (as defined in subsection (c)).''.
                    (B) Paragraph (8) of section 954(b) is amended by 
                striking ``(1),''.
    (b) Treatment of Shipping Income.--Subsection (f) of section 954 is 
amended by adding at the end thereof the following new sentence: ``Such 
term shall not include any dividend or interest income which is foreign 
personal holding company income (as defined in subsection (c)).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 2322. MODIFICATIONS OF ACCURACY-RELATED PENALTY.

    (a) Threshold Requirement.--Clause (ii) of section 6662(e)(1)(B) 
(relating to substantial valuation misstatement under chapter 1) is 
amended to read as follows:
                            ``(ii) the net section 482 transfer price 
                        adjustment for the taxable year exceeds the 
                        lesser of $5,000,000 or 10 percent of the 
                        taxpayer's gross receipts.''
    (b) Certain Adjustments Excluded in Determining Threshold.--
Subparagraph (B) of section 6662(e)(3) is amended to read as follows:
                    ``(B) Certain adjustments excluded in determining 
                threshold.--For purposes of determining whether the 
                threshold requirements of paragraph (1)(B)(ii) are met, 
                the following shall be excluded:
                            ``(i) Any portion of the net increase in 
                        taxable income referred to in subparagraph (A) 
                        which is attributable to any redetermination of 
                        a price if--
                                    ``(I) it is established that the 
                                taxpayer determined such price in 
                                accordance with a specific pricing 
                                method set forth in the regulations 
                                prescribed under section 482 and that 
                                the taxpayer's use of such method was 
                                reasonable,
                                    ``(II) the taxpayer has 
                                documentation (which was in existence 
                                as of the time of filing the return) 
                                which sets forth the determination of 
                                such price in accordance with such a 
                                method and which establishes that the 
                                use of such method was reasonable, and
                                    ``(III) the taxpayer provides such 
                                documentation to the Secretary within 
                                30 days of a request for such 
                                documentation.
                            ``(ii) Any portion of the net increase in 
                        taxable income referred to in subparagraph (A) 
                        which is attributable to a redetermination of 
                        price where such price was not determined in 
                        accordance with such a specific pricing method 
                        if--
                                    ``(I) the taxpayer establishes that 
                                none of such pricing methods was likely 
                                to result in a price that would clearly 
                                reflect income, the taxpayer used 
                                another pricing method to determine 
                                such price, and such other pricing 
                                method was likely to result in a price 
                                that would clearly reflect income,
                                    ``(II) the taxpayer has 
                                documentation (which was in existence 
                                as of the time of filing the return) 
                                which sets forth the determination of 
                                such price in accordance with such 
                                other method and which establishes that 
                                the requirements of subclause (I) were 
                                satisfied, and
                                    ``(III) the taxpayer provides such 
                                documentation to the Secretary within 
                                30 days of request for such 
                                documentation.
                            ``(iii) Any portion of such net increase 
                        which is attributable to any transaction solely 
                        between foreign corporations unless, in the 
                        case of any such corporations, the treatment of 
                        such transaction affects the determination of 
                        income from sources within the United States or 
                        taxable income effectively connected with the 
                        conduct of a trade or business within the 
                        United States.''
    (b) Coordination With Reasonable Cause Exception.--Paragraph (3) of 
section 6662(e) is amended by adding at the end thereof the following 
new subparagraph:
                    ``(D) Coordination with reasonable cause 
                exception.--For purposes of section 6664(c) the 
                taxpayer shall not be treated as having reasonable 
                cause for any portion of an underpayment attributable 
                to a net section 482 transfer price adjustment unless 
                such taxpayer meets the requirements of clause (i), 
                (ii), or (iii) of subparagraph (B) with respect to such 
                portion.''
    (c) Conforming Amendment.--Clause (iii) of section 6662(h)(2)(A) is 
amended to read as follows:
                            ``(iii) in paragraph (1)(B)(ii)--
                                    ``(I) `$20,000,000' for 
                                `$5,000,000', and
                                    ``(II) `20 percent' for `10 
                                percent'.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 2323. DENIAL OF PORTFOLIO INTEREST EXEMPTION FOR CONTINGENT 
              INTEREST.

    (a) General Rule.--
            (1) Subsection (h) of section 871 (relating to repeal of 
        tax on interest of nonresident alien individuals received from 
        certain portfolio debt investments) is amended by redesignating 
        paragraphs (4), (5), and (6) as paragraphs (5), (6), and (7), 
        respectively, and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) Portfolio interest not to include certain contingent 
        interest.--For purposes of this subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `portfolio interest' shall not 
                include--
                            ``(i) any interest if the amount of such 
                        interest is determined by reference to--
                                    ``(I) any receipts, sales or other 
                                cash flow of the debtor or a related 
                                person,
                                    ``(II) any income or profits of the 
                                debtor or a related person,
                                    ``(III) any change in value of any 
                                property of the debtor or a related 
                                person, or
                                    ``(IV) any dividend, partnership 
                                distributions, or similar payments made 
                                by the debtor or a related person, or
                            ``(ii) any other type of contingent 
                        interest that is identified by the Secretary by 
                        regulation, where a denial of the portfolio 
                        interest exemption is necessary or appropriate 
                        to prevent avoidance of Federal income tax.
                    ``(B) Related person.--The term `related person' 
                means any person who is related to the debtor within 
                the meaning of section 267(b) or 707(b)(1), or who is a 
                party to any arrangement undertaken for a purpose of 
                avoiding the application of this paragraph.
                    ``(C) Exceptions.--Subparagraph (A)(i) shall not 
                apply to--
                            ``(i) any amount of interest solely by 
                        reason of the fact that the timing of any 
                        interest or principal payment is subject to a 
                        contingency,
                            ``(ii) any amount of interest solely by 
                        reason of the fact that the interest is paid 
                        with respect to nonrecourse or limited recourse 
                        indebtedness,
                            ``(iii) any amount of interest all or 
                        substantially all of which is determined by 
                        reference to any other amount of interest not 
                        described in subparagraph (A) (or by reference 
                        to the principal amount of indebtedness on 
                        which such other interest is paid),
                            ``(iv) any amount of interest solely by 
                        reason of the fact that the debtor or a related 
                        person enters into a hedging transaction to 
                        reduce the risk of interest rate or currency 
                        fluctuations with respect to such interest,
                            ``(v) any amount of interest determined by 
                        reference to--
                                    ``(I) changes in the value of 
                                property (including stock) that is 
                                actively traded (within the meaning of 
                                section 1092(d)) other than property 
                                described in section 897(c)(1) or (g),
                                    ``(II) the yield on property 
                                described in subclause (I), other than 
                                a debt instrument that pays interest 
                                described in subparagraph (A), or stock 
                                or other property that represents a 
                                beneficial interest in the debtor or a 
                                related person, or
                                    ``(III) changes in any index of the 
                                value of, or yield on, property 
                                described in subclause (I), and
                            ``(vi) any other type of interest 
                        identified by the Secretary by regulation.
                    ``(D) Exception for certain existing 
                indebtedness.--Subparagraph (A) shall not apply to any 
                interest paid or accrued with respect to any 
                indebtedness with a fixed term--
                            ``(i) which was issued on or before April 
                        7, 1993, or
                            ``(ii) which was issued after such date 
                        pursuant to a written binding contract in 
                        effect on such date and at all times thereafter 
                        before such indebtedness was issued.''
            (2) Subsection (c) of section 881 is amended by 
        redesignating paragraphs (4), (5), and (6) as paragraphs (5), 
        (6), and (7), respectively, and by inserting after paragraph 
        (3) the following new paragraph:
            ``(4) Portfolio interest not to include certain contingent 
        interest.--For purposes of this subsection, the term `portfolio 
        interest' shall not include any interest which is treated as 
        not being portfolio interest under the rules of section 
        871(h)(4).''
    (b) Conforming Amendments.--
            (1) Clause (ii) of section 871(h)(2)(B) is amended by 
        striking ``paragraph (4)'' and inserting ``paragraph (5)''.
            (2) Clause (ii) of section 881(c)(2)(B) is amended by 
        striking ``section 871(h)(4)'' and inserting ``section 
        871(h)(5)''.
            (3) Paragraph (6) of section 881(c) (as redesignated by 
        subsection (a)) is amended by striking ``section 871(h)(5)'' 
        each place it appears and inserting ``section 871(h)(6)''.
            (4) Paragraph (9) of section 1441(c) is amended by striking 
        ``section 871(h)(3)'' and inserting ``section 871(h)(3) or 
        (4)''.
            (5) Subsection (a) of section 1442 is amended--
                    (A) by striking ``871(h)(3)'' and inserting 
                ``871(h)(3) or (4)'', and
                    (B) by striking ``881(c)(3)'' and inserting 
                ``881(c)(3) or (4)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to interest received after December 31, 1993.

SEC. 2324. REGULATIONS DEALING WITH CONDUIT ARRANGEMENTS.

    Section 7701 is amended by redesignating subsection (l) as 
subsection (m) and by inserting after subsection (k) the following new 
subsection:
    ``(l) Regulations Relating to Conduit Arrangements.--The Secretary 
may prescribe regulations recharacterizing any multiple-party financing 
transaction as a transaction directly among any 2 or more of such 
parties where the Secretary determines that such recharacterization is 
appropriate to prevent avoidance of any tax imposed by this title.''

                    Subtitle D--Energy Tax Provision

SEC. 2401. IMPOSITION OF ENERGY TAX BASED ON BTU CONTENT.

    (a) In General.--Chapter 36 (relating to other excise taxes) is 
amended by redesignating subchapters A and B as subchapters B and C, 
respectively, and by inserting before subchapter B (as so redesignated) 
the following new subchapter:

                      ``Subchapter A--Energy Taxes

                              ``Part I. Imposition of taxes.
                              ``Part II. Tax rates; applicable Btu 
                                        factors.
                              ``Part III. Tax-free sales; refunds of 
                                        tax for certain sales and uses.
                              ``Part IV. Use taxes; floor stocks taxes; 
                                        administrative provisions; 
                                        definitions and special rules.

                     ``Part I--Imposition of Taxes

                              ``Sec. 4441. Taxable refined petroleum 
                                        products.
                              ``Sec. 4442. Natural gas.
                              ``Sec. 4443. Coal.
                              ``Sec. 4444. Certain electricity.

``SEC. 4441. TAXABLE REFINED PETROLEUM PRODUCTS.

    ``(a) General Rule.--There is hereby imposed a tax on any taxable 
refined petroleum product--
            ``(1) removed from any United States refinery, or
            ``(2) entered into the United States for consumption, use, 
        or warehousing.
    ``(b) Rate of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on each barrel of any taxable refined petroleum 
        product shall be the sum of--
                    ``(A) the base rate, and
                    ``(B) the supplemental rate,
        multiplied by the applicable Btu factor for such product.
            ``(2) Only base rate applies to liquefied petroleum 
        gases.--In the case of any liquefied petroleum gas, 
        subparagraph (B) of paragraph (1) shall not apply.
    ``(c) Liability for Tax.--
            ``(1) Removal.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), the tax imposed by subsection (a)(1) shall be paid 
                by the operator of the United States refinery.
                    ``(B) Products removed from natural gas processing 
                or fractionation plants.--In the case of a product 
                removed from a natural gas processing or fractionation 
                plant, the tax imposed by subsection (a)(1) shall be 
                paid by the person receiving the product at the time of 
                removal, and the operator of such plant shall collect 
                such tax from such person.
            ``(2) Importation.--The tax imposed by subsection (a)(2) 
        shall be paid by the person entering the product into the 
        United States for consumption, use, or warehousing.
    ``(d) Taxable Refined Petroleum Product.--For purposes of this 
subchapter, the term `taxable refined petroleum product' means--
            ``(1) aviation gasoline,
            ``(2) motor gasoline (including blending components of 
        gasoline),
            ``(3) kerosene-type jet fuel,
            ``(4) naphtha-type jet fuel,
            ``(5) distillate fuel oil,
            ``(6) kerosene,
            ``(7) residual fuel oil,
            ``(8) petroleum coke,
            ``(9) butane,
            ``(10) propane, and
            ``(11) to the extent provided in regulations prescribed by 
        the Secretary, any other petroleum product.
    ``(e) Credit or Refund Where Prior Tax Imposed.--If tax was imposed 
under this section with respect to any taxable refined petroleum 
product and such product is received at any United States refinery 
other than for use as a fuel, credit or refund (without interest) of 
such tax shall be allowed or made to the operator of such refinery.
    ``(f) Other Definitions.--For purposes of this subchapter--
            ``(1) United states refinery.--The term `United States 
        refinery' means any facility in the United States--
                    ``(A) at which crude oil or any petroleum product 
                is refined, or
                    ``(B) which is a natural gas processing or 
                fractionation plant.
            ``(2) Barrel.--The term `barrel' means 42 United States 
        gallons measured at 60 degrees Fahrenheit. In the case of a 
        taxable refined petroleum product which is not a liquid at such 
        temperature, the term `barrel' means a volume determined under 
        regulations prescribed by the Secretary on the basis of an 
        equivalence to a barrel of oil.

``SEC. 4442. NATURAL GAS.

    ``(a) General Rule.--There is hereby imposed a tax on natural gas 
removed in the United States from any pipeline (not part of a local 
distribution system)--
            ``(1) for transmission to ultimate users through a local 
        distribution system, or
            ``(2) for use prior to entry into a local distribution 
        system.
    ``(b) Rate of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on each MCF of natural gas shall be the base 
        rate multiplied by the applicable Btu factor.
            ``(2) Authority to use actual btu content.--To the extent 
        provided in regulations prescribed by the Secretary, the amount 
        of the tax imposed by subsection (a) shall be the base rate for 
        each million Btu's of the actual Btu content of the natural 
        gas.
    ``(c) Liability for, and Collection of, Tax.--
            ``(1) Liability for tax.--
                    ``(A) The tax imposed by subsection (a)(1) shall be 
                paid by the operator of the local distribution system.
                    ``(B) The tax imposed by subsection (a)(2) shall be 
                paid by the person receiving the natural gas at the 
                time of removal.
            ``(2) Collection of tax.--The operator of the pipeline 
        shall collect the tax imposed by subsection (a) from the person 
        liable for payment of such tax.
    ``(d) Definitions.--For purposes of this subchapter--
            ``(1) Natural gas.--The term `natural gas' includes 
        synthetic natural gas produced from coal or from natural gas 
        liquids.
            ``(2) MCF.--The term `MCF' means 1,000 cubic feet of 
        natural gas measured at a pressure of 14.73 pounds per square 
        inch (absolute) and a temperature of 60 degrees Fahrenheit.
    ``(e) Tax on Entry Into Local Distribution System Where No Prior 
Tax.--
            ``(1) In general.--There is hereby imposed a tax (computed 
        as provided in subsection (b)) on the entry of natural gas into 
        any local distribution system in the United States if no tax 
        has been imposed by subsection (a) before such entry.
            ``(2) Liability for tax.--The tax imposed by this 
        subsection shall be paid by the operator of the local 
        distribution system.

``SEC. 4443. COAL.

    ``(a) General Rule.--There is hereby imposed a tax on coal received 
at any facility in the United States for use as a fuel at such 
facility.
    ``(b) Rate of Tax.--The amount of the tax imposed by subsection (a) 
shall be the base rate for each million Btu's of the actual Btu content 
of the coal. For purposes of the preceding sentence, the actual Btu 
content of any coal shall be determined under procedures prescribed by 
the Secretary.
    ``(c) Liability for Tax.--
            ``(1) In general.--Except as provided in this subsection, 
        the tax imposed by subsection (a) shall be paid by the operator 
        of the facility.
            ``(2) Coal received at small facilities.--If the ultimate 
        vendor of coal received at a facility receives a certificate 
        from the operator of such facility (or otherwise determines) 
        that such facility received less than 1,000 tons of coal during 
        the preceding calendar year, the tax imposed by subsection (a) 
        shall be paid by the ultimate vendor.
            ``(3) Residential property.--In the case of coal received 
        at a residential property (as defined in section 
        4448(b)(1)(B)), the tax imposed by subsection (a) shall be paid 
        by the ultimate vendor.
    ``(d) Exception for Coal Used To Produce Synthetic Natural Gas.--
The tax imposed by this section shall not apply to coal received for 
use in the manufacture or production of synthetic natural gas or any 
other synthetic fuel specified in regulations prescribed by the 
Secretary.

``SEC. 4444. CERTAIN ELECTRICITY.

    ``(a) General Rule.--There is hereby imposed a tax on--
            ``(1) the entry of any electricity generated at a 
        hydropower or nuclear power facility in the United States--
                    ``(A) into a transmission system, or
                    ``(B) into a distribution system if not previously 
                entered into a transmission system,
            ``(2) the use of electricity generated in the United States 
        which was not subject to tax under paragraph (1), and
            ``(3) the transmission into the United States of 
        electricity which is generated outside the United States.
    ``(b) Rates of Tax.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        amount of the tax imposed by subsection (a) on each kilowatt 
        hour of electricity shall be the base rate multiplied by the 
        applicable Btu factor for electricity.
            ``(2) Imported electricity.--If the person liable for the 
        tax imposed by subsection (a)(3) establishes to the 
        satisfaction of the Secretary that--
                    ``(A) the electricity was not generated by 
                hydropower or nuclear power, and
                    ``(B) the average Btu content per kilowatt hour of 
                the fuel used to generate the electricity was less than 
                the applicable per unit Btu amount otherwise 
                applicable,
        such lesser amount shall be used for purposes of paragraph (1).
    ``(c) Liability for Tax.--
            ``(1) Entry or use.--The taxes imposed by paragraphs (1) 
        and (2) of subsection (a) shall be paid by the operator of the 
        generating facility.
            ``(2) Importation.--The tax imposed by subsection (a)(3) 
        shall be paid by the contract purchaser of the electricity as 
        of the time of transmission into the United States.
    ``(d) Exceptions.--
            ``(1) Certain imported electricity.--The tax imposed by 
        subsection (a)(3) shall not apply to electricity transmitted 
        into the United States if the person otherwise liable for such 
        tax establishes to the satisfaction of the Secretary that such 
        electricity was not generated using any fossil fuel, 
        hydropower, or nuclear power.
            ``(2) Electricity generated from pumped storage, etc.--The 
        tax imposed by this section shall not apply to electricity 
        generated in the United States from any hydropower source 
        created by electricity.
            ``(3) Use tax exception.--The Secretary may provide by 
        regulations that the tax imposed by subsection (a)(2) shall not 
        apply in cases where the Secretary determines that such an 
        exception is warranted, after taking into account the 
        protection of revenues to the United States from this 
        subchapter and the ease of administration for both taxpayers 
        and the Secretary.
    ``(e) Cross Reference.--

                                ``For special rules relating to 
independent power producers, see section 4454(b).

              ``Part II--Tax Rates; Applicable Btu Factors

                              ``Sec. 4446. Tax rates.
                              ``Sec. 4447. Applicable Btu factors.

``SEC. 4446. TAX RATES.

    ``(a) Base Rate.--For purposes of this subchapter--
            ``(1) Phase-in rates.--Effective during--
                    ``(A) the 1-year period beginning on July 1, 1994, 
                the base rate is 8.6 cents, and
                    ``(B) the 1-year period beginning on July 1, 1995, 
                the base rate is 17.2 cents.
            ``(2) Permanent unindexed rate.--Effective on and after 
        July 1, 1996, the base rate is 25.7 cents.
            ``(3) Indexed rates.--
                    ``(A) In general.--Effective during any calendar 
                year after 1997, the base rate under paragraph (2) 
                shall be increased by an amount equal to--
                            ``(i) 25.7 cents, multiplied by
                            ``(ii) the inflation adjustment for such 
                        calendar year.
                    ``(B) Inflation adjustment.--For purposes of 
                subparagraph (A), the inflation adjustment for any 
                calendar year is the percentage (if any) by which--
                            ``(i) the GDP deflator for the preceding 
                        calendar year, exceeds
                            ``(ii) the GDP deflator for 1996.
                    ``(C) GDP deflator for calendar year.--For purposes 
                of subparagraph (B), the GDP deflator for any calendar 
                year is the GDP deflator for the second calendar 
                quarter of such year.
                    ``(D) GDP deflator.--For purposes of subparagraph 
                (C), the term `GDP deflator' means the most recent 
                revision of the implicit price deflator for the gross 
                domestic product as computed and published by the 
                Department of Commerce before November 15 of the 
                calendar year referred to in subparagraph (B)(i).
    ``(b) Supplemental Rate.--For purposes of this subchapter--
            ``(1) Phase-in rates.--Effective during--
                    ``(A) the 1-year period beginning on July 1, 1994, 
                the supplemental rate is 11.4 cents, and
                    ``(B) the 1-year period beginning on July 1, 1995, 
                the supplemental rate is 22.8 cents.
            ``(2) Permanent unindexed rate.--Effective on and after 
        July 1, 1996, the supplemental rate is 34.2 cents.
            ``(3) Indexed rates.--Effective during any calendar year 
        after 1997, the supplemental rate under paragraph (2) shall be 
        increased by an amount equal to--
                    ``(A) 34.2 cents, multiplied by
                    ``(B) the inflation adjustment for such calendar 
                year determined under subsection (a)(3)(B).
    ``(c) Rounding.--If any increase determined under subsection (a)(3) 
or (b)(3) is not a multiple of 0.1 cent, such increase shall be rounded 
to the nearest multiple of 0.1 cent.

``SEC. 4447. APPLICABLE BTU FACTORS.

    ``(a) In General.--For purposes of this subchapter, the applicable 
Btu factor with respect to any petroleum product, natural gas, or 
electricity is--
            ``(1) the applicable per unit Btu amount determined under 
        subsection (b), divided by
            ``(2) 1,000,000.
    ``(b) Applicable Per Unit Btu Amount.--For purposes of this 
subchapter--
            ``(1) Petroleum products.--
                    ``(A) In general.--

                                                The applicable per unit
                                              Btu amount is the follow-
                  ``In the case of:
                                                 ing amount per barrel:
                          Aviation gasoline..........         5,048,000
                          Motor gasoline (including           5,267,000
                            blending components of 
                            gasoline).
                          Kerosene-type jet fuel.....         5,670,000
                          Naphtha-type jet fuel......         5,355,000
                          Distillate fuel oil........         5,852,000
                          Kerosene...................         5,670,000
                          Residual fuel oil..........         6,486,000
                          Petroleum coke.............         6,024,000
                          Butane.....................         4,326,000
                          Propane....................       3,836,000. 
                    ``(B) Mixtures.--Any mixture which includes a 
                taxable refined petroleum product shall be treated as 
                specified in subparagraph (A) and--
                            ``(i) if more than 1 such product is 
                        included in such mixture, the applicable per 
                        unit Btu amount shall be the weighted average 
                        of the applicable per unit Btu amounts for the 
                        taxable refined petroleum products included in 
                        the mixture, and
                            ``(ii) if any substance is included in the 
                        mixture which is not a taxable refined 
                        petroleum product, the Btu content of such 
                        product shall be disregarded for purposes of 
                        subsection (c) and its volume shall be 
                        disregarded.
            ``(2) Natural gas.--In the case of natural gas, the 
        applicable per unit Btu amount is 1,031,000 per MCF.
            ``(3) Electricity.--In the case of electricity, the 
        applicable Btu amount is 10,335 per kilowatt hour.
    ``(c) Adjustments to Per Unit Btu Amounts.--
            ``(1) Petroleum and natural gas.--
                    ``(A) In general.--If the Secretary determines that 
                the applicable per unit Btu amount then in effect for 
                any petroleum product or natural gas does not properly 
                reflect the Btu content per unit for such substance (in 
                the circumstances where taxable events under this 
                subchapter occur with respect to such substance), the 
                Secretary may modify the applicable per unit Btu amount 
                for such substance. Any such modification shall be 
                effective as of the date prescribed by the Secretary.
                    ``(B) Modification of list of petroleum products.--
                The Secretary may modify, as appropriate, the list of 
                petroleum products for which applicable per unit Btu 
                amounts are separately determined.
            ``(2) Electricity.--If the Secretary determines that the 
        applicable per unit Btu amount then in effect for electricity 
        differs by more than 1 percent from the national average Btu 
        content per kilowatt hour of fossil fuel used to generate 
        electricity, such national average shall be the applicable per 
        unit Btu amount for such electricity effective as of the date 
        prescribed by the Secretary.

``Part III--Tax-Free Exports; Refunds of Tax for Certain Sales and Uses

                              ``Sec. 4448. Tax-free exports; refunds 
                                        for certain sales and uses.

``SEC. 4448. TAX-FREE EXPORTS; REFUNDS FOR CERTAIN SALES AND USES.

    ``(a) Exports.--No tax shall be imposed under part I on any taxable 
energy source which is exported by the person otherwise liable for such 
tax.
    ``(b) Refunds to Ultimate Vendors in Certain Cases.--Under 
regulations prescribed by the Secretary--
            ``(1) Home heating oil.--
                    ``(A) In general.--If tax was imposed under this 
                subchapter with respect to any No. 2 distillate fuel 
                oil and such fuel oil is delivered to any residential 
                property for use in heating such property, the 
                Secretary shall pay to the ultimate vendor of such fuel 
                oil an amount equal to the product of the supplemental 
                rate and the applicable Btu factor per barrel of the 
                fuel oil so delivered.
                    ``(B) Residential property.--For purposes of this 
                paragraph, the term `residential property' means any 
                building which consists primarily of 1 or more dwelling 
                units used for residential purposes other than on a 
                transient basis.
            ``(2) International commercial transportation.--
                    ``(A) In general.--If tax was imposed under this 
                subchapter with respect to any taxable refined 
                petroleum product and such product is sold for use by 
                the purchaser for international commercial 
                transportation, the Secretary shall pay to the ultimate 
                vendor of such product an amount equal to the tax so 
                imposed.
                    ``(B) International commercial transportation.--For 
                purposes of subparagraph (A), the term `international 
                commercial transportation' means transportation in the 
                trade or business of transporting persons or property 
                for hire--
                            ``(i) by any vessel actually engaged in 
                        foreign trade or trade between the United 
                        States and any of its possessions, or
                            ``(ii) by aircraft from a point within the 
                        United States to a point outside the United 
                        States and outside the 225-mile zone (as 
                        defined in section 4262(c)(2)).
            ``(3) Vendor requirements.--A payment may be made under 
        this subsection to a vendor only if the vendor establishes that 
        such vendor--
                    ``(A) has not included the tax in the price of the 
                product, and
                    ``(B) has not collected the tax from the purchaser 
                of such product.
    ``(c) Refunds to Ultimate Users in Certain Cases.--Under 
regulations prescribed by the Secretary--
            ``(1) In general.--If tax was imposed under this subchapter 
        with respect to any taxable energy source and such source is 
        used by any person in an exempt use, the Secretary shall pay to 
        such person an amount equal to the tax so imposed.
            ``(2) Exempt use.--For purposes of this subsection, the 
        term `exempt use' means--
                    ``(A) export,
                    ``(B) in the case of any taxable refined petroleum 
                product or natural gas--
                            ``(i) any qualified nonfuel use, or
                            ``(ii) use (other than as a fuel) in the 
                        manufacture or production of methanol or ether 
                        derivatives of ethanol or methanol,
                    ``(C) the use of natural gas or coal in enhanced 
                heavy oil recovery, and
                    ``(D) the use of any taxable refined petroleum 
                product in the production of synthetic natural gas or 
                other synthetic fuels identified in regulations 
                prescribed by the Secretary.
            ``(3) Special rule for exported electricity.--For purposes 
        of this subsection, in the case of electricity--
                    ``(A) this subsection shall apply to all 
                electricity exported from the United States which was 
                generated using hydropower, nuclear power, or any 
                fossil fuel, and
                    ``(B) the rate of tax taken into account under 
                paragraph (1) shall be the rate applicable under 
                section 4444(b)(1).
            ``(4) Qualified nonfuel use.--For purposes of this 
        subsection, the term `qualified nonfuel use' means any use 
        other than use--
                    ``(A) as a fuel, or
                    ``(B) in the manufacture or production of any fuel.
            ``(5) Enhanced heavy oil recovery.--For purposes of this 
        subsection, natural gas or coal shall be treated as used in 
        enhanced heavy oil recovery if such gas or coal is used in a 
        qualified enhanced oil recovery project (as defined in section 
        43(c)(2) without regard to subparagraph (A)(iii) thereof) for 
        the recovery of oil having a weighted average gravity of 20 
        degrees API or less (corrected to 60 degrees Fahrenheit). In 
        the case of natural gas or coal which is used to produce both 
        steam and electricity subject to tax under section 4444(a)(1), 
        only the portion of the natural gas or coal not allocable to 
        the production of such electricity (determined on the basis of 
        the proportionate Btu content of the electricity and the steam) 
        shall be treated as used in such project.
    ``(d) Methane Recovered From Biomass or Coal Mining.--
            ``(1) In general.--If--
                    ``(A) methane is recovered from biomass or in 
                conjunction with room and pillar or long wall coal 
                mining operations, and
                    ``(B) such methane is entered into any pipeline the 
                removal from which would subject such methane to the 
                tax imposed by section 4442(a),
        the Secretary shall pay to the person so entering such methane 
        an amount equal to the amount of tax which would be imposed 
        under section 4442(a) on such methane if such entry were a 
        taxable event under such section.
            ``(2) Recapture of credit for methane recovered from coal 
        mining in certain cases.--
                    ``(A) In general.--If--
                            ``(i) the Secretary has made a payment 
                        under paragraph (1) with respect to methane 
                        recovered from coal mining operations before 
                        the date the actual mining commences, and
                            ``(ii) the actual mining commences more 
                        than 10 years after the date such methane was 
                        first recovered,
                then the tax under this chapter of the person to whom 
                such payments were made for the taxable year in which 
                such 10th year ends shall be increased by the aggregate 
                of such payments to such person plus interest at the 
                underpayment rate under section 6621 for the periods 
                beginning on the dates such payments were made.
                    ``(B) No further payments until mining commences.--
                If there is an increase in tax under subparagraph (A) 
                with respect to any payments for methane recovered from 
                any site, no further payments shall be made under this 
                subsection with respect to methane recovered from such 
                site until actual mining commences at such site.
                    ``(C) No credits against tax, etc.--Any increase in 
                tax under this paragraph shall not be taken into 
                account in determining the amount of any credit 
                allowable under part IV of subchapter A of chapter 1 or 
                in determining the amount of the tax imposed by section 
                55.
    ``(e) Production of Coke for Steel.--If tax was imposed under this 
subchapter with respect to any coal and such coal is used by any person 
to produce coke for use in the reduction of iron-bearing ores in the 
iron and steel process, the Secretary shall pay to such person an 
amount equal to the base rate for each million Btu's of the actual Btu 
content of the coke produced.
    ``(f) Production of Calcined Coke.--If tax was imposed under this 
subchapter with respect to any petroleum product and such product is 
used by any person to produce calcined coke, the Secretary shall pay to 
such person an amount equal to the base rate for each million Btu's of 
the actual Btu content of the coke produced.

 ``Part IV--Use Taxes; Floor Stocks Taxes; Administrative Provisions; 
                     Definitions and Special Rules

                              ``Sec. 4451. Tax on certain uses.
                              ``Sec. 4452. Floor stocks taxes.
                              ``Sec. 4453. Administrative provisions.
                              ``Sec. 4454. Definitions and special 
                                        rules.

``SEC. 4451. TAX ON CERTAIN USES.

    ``(a) General Rule.--There is hereby imposed a tax on the use of 
any fossil fuel (other than coal)--
            ``(1) in the manufacture or production of a fuel other than 
        at a United States refinery, or
            ``(2) as a fuel.
The preceding sentence shall not apply if tax was imposed under this 
subchapter before such use and such tax is not credited or refunded.
    ``(b) Rate of Tax.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount of tax imposed by subsection (a) shall 
        be the amount which would be imposed under the appropriate 
        section of part I if such use were a taxable event under such 
        section.
            ``(2) Crude oil and other products not taxed on removal or 
        importation.--The amount of the tax imposed by subsection (a) 
        on crude oil or other product not subject to tax under part I 
        shall be the base rate (increased by the supplemental rate in 
        the case of crude oil or any petroleum product other than any 
        liquefied petroleum gas, isopentane, and natural gasoline) for 
        each million Btu's of the Btu content of such oil or product.
            ``(3) Authority to prescribe applicable per unit btu 
        amounts.--In the case of crude oil or any other product for 
        which an applicable per unit Btu amount is not prescribed for 
        purposes of part I, the Secretary may prescribe such an amount, 
        and, if so prescribed, such amount shall apply for purposes of 
        paragraph (2).
    ``(c) Liability for Tax.--The taxes imposed by subsection (a) shall 
be paid by the person using the fuel.
    ``(d) Exceptions.--
            ``(1) In general.--The tax imposed by this section shall 
        not apply to--
                    ``(A) any use to which paragraph (1) or (2) of 
                section 4448(b) applies,
                    ``(B) any exempt use (as defined in section 
                4448(c)),
                    ``(C) any methane for which a payment may be made 
                under section 4448(d),
                    ``(D) any use to which section 4448(e) applies, and
                    ``(E) any use to which section 4448(f) applies.
            ``(2) Use on production premises.--
                    ``(A) In general.--The tax imposed by this section 
                shall not apply to any use of crude oil or natural gas 
                on the premises where produced for producing crude oil 
                or natural gas.
                    ``(B) Crude oil used on premises.--For purposes of 
                subparagraph (A), crude oil shall be treated as used on 
                the premises where produced if it is used before entry 
                at the lease automatic custody transfer point (or its 
                manual equivalent).
                    ``(C) Natural gas used on premises.--For purposes 
                of subparagraph (A), natural gas shall be treated as 
                used on the premises where produced if it is used 
                before entry into a natural gas processing or 
                fractionation plant or into an interstate or intrastate 
                transmission pipeline.
            ``(3) Crude oil used at refinery, etc.--The tax imposed by 
        this section shall not apply to--
                    ``(A) any use of crude oil or any petroleum product 
                (other than natural gas) at a United States refinery, 
                or
                    ``(B) any use of natural gas at a natural gas 
                processing or fractionation plant.
            ``(4) Otherwise taxable event occurring before effective 
        date.--The tax imposed by this section shall not apply to any 
        use if no tax would be imposed by this section on such use were 
        this subchapter in effect for all periods before July 1, 1994.
    ``(e) Treatment of Natural Gas Lost in Transmission.--For purposes 
of this section, natural gas lost in transmission by pipeline shall be 
treated as used as a fuel for such pipeline.

``SEC. 4452. FLOOR STOCKS TAXES.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on any 
taxable fuel which on any tax-increase date is held in the United 
States by any person.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) on any taxable fuel with respect to any tax-increase date shall be 
equal to the excess (if any) of--
            ``(1) the amount of tax which would be imposed under part I 
        if a taxable event with respect to such fuel had occurred on 
        such date, over
            ``(2) the prior tax (if any) imposed by this subchapter on 
        such fuel.
    ``(c) Liability for Tax.--The person holding the taxable fuel on 
any tax-increase date shall pay the tax imposed by subsection (a).
    ``(d) Exceptions.--The tax imposed by subsection (a) shall not 
apply to--
            ``(1) any taxable refined petroleum product--
                    ``(A) held (other than for use as a fuel) within a 
                United States refinery, or
                    ``(B) held for use by the holder in international 
                commercial transportation (as defined in section 
                4448(b)(2)),
            ``(2) any natural gas which has not been removed as 
        described in section 4442(a) and which is not held in any local 
        distribution system, and
            ``(3) any coal held other than at the facility where it is 
        to be used as a fuel.
    ``(e) Credit Against Tax.--
            ``(1) In general.--Each person shall be allowed $200 as a 
        credit against the taxes imposed by subsection (a) with respect 
        to each tax-increase date. Such credit shall not exceed the 
        amount of taxes imposed by subsection (a) for which such person 
        is liable with respect to such date.
            ``(2) Controlled groups.--For purposes of paragraph (1)--
                    ``(A) all persons who are treated as a single 
                employer under subsection (a) or (b) of section 52 
                shall be treated as 1 taxpayer, and
                    ``(B) the $200 amount specified in paragraph (1) 
                shall be apportioned among such persons under 
                regulations prescribed by the Secretary.
    ``(f) Definitions.--For purposes of this section--
            ``(1) Taxable fuel.--The term `taxable fuel' means any 
        taxable refined petroleum product, natural gas, or coal.
            ``(2) Tax-increase date.--The term `tax-increase date' 
        means--
                    ``(A) July 1, 1994,
                    ``(B) July 1, 1995,
                    ``(C) July 1, 1996, and
                    ``(D) January 1 of each calendar year for which 
                there is an increase in a rate of tax by reason of 
                subsection (a)(3) or (b)(3) of section 4446 (relating 
                to inflation adjustment).
    ``(f) Due Date.--The tax imposed by subsection (a) shall be paid on 
or before the close of the 7-month period beginning on the tax-increase 
date.

``SEC. 4453. ADMINISTRATIVE PROVISIONS.

    ``(a) Rules Relating to Refunds for Exempt and Other Uses.--
            ``(1) Period for Filing Claims.--No payment shall be made 
        under section 4448 unless, within 2 years after the date that 
        the event occurs giving rise to a right to such payment, a 
        claim therefor is filed by the person entitled to such payment.
            ``(2) Denial of interest.--Except as provided in paragraph 
        (3), no interest shall be paid on claims for payments under 
        section 4448.
            ``(3) Minimum amounts and periods.--In the case of persons 
        who meet such requirements as the Secretary may prescribe, if--
                    ``(A) a claim for payment is filed under section 
                4448 for any period for which more than $1,000 is 
                payable and which is not less than 1 week, and
                    ``(B) the Secretary has not paid such claim within 
                20 days after the date the claim was filed,
        such claim shall be paid with interest from such date using the 
        overpayment rate and method under section 6621.
            ``(3) Applicable Laws.--
                    ``(A) In general.--All provisions of law, including 
                penalties, applicable in respect of the tax imposed by 
                this subchapter shall, insofar as applicable and not 
                inconsistent with this subsection and section 4448, 
                apply in respect of payments provided for in section 
                4448 to the same extent as if such payments constituted 
                refunds of overpayments of the tax so imposed.
                    ``(B) Examination of books and witnesses.--For the 
                purpose of ascertaining the correctness of any claim 
                made under section 4448, or the correctness of any 
                payment made in respect of 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.
    ``(b) Payment of Tax to Persons Required to Collect Tax.--
            ``(1) In general.--In the case of the taxes imposed by 
        sections 4441 and 4442 which are required to be collected by 
        another person, the person liable for such tax shall remit the 
        tax to such other person within 30 days after the date of the 
        taxable event.
            ``(2) Relief from penalty for certain failures to collect 
        tax.--No penalty shall be imposed under this title on the 
        failure of any person to collect the taxes referred to in 
        paragraph (1) if--
                    ``(A) during the 30-day period referred to in 
                paragraph (1), such person exercises due diligence in 
                attempting to collect such tax, and
                    ``(B) such person notifies the Secretary, within 15 
                days after such 30th day, of the failure to collect 
                such tax and provides such other information as the 
                Secretary may require.
    ``(c) Information Reporting.--The Secretary may require--
            ``(1) information reporting by each remitter of tax imposed 
        by this subchapter, and
            ``(2) information reporting by, and registration of, such 
        other persons as the Secretary deems necessary to carry out 
        this subchapter.

``SEC. 4454. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) Taxable energy source.--The term `taxable energy 
        source' means any taxable refined petroleum product, natural 
        gas, coal, and electricity (within the meaning of such terms 
        under part I).
            ``(2) Fossil fuel.--The term `fossil fuel' means crude oil, 
        any petroleum product, natural gas, any natural gas product, 
        and coal.
            ``(3) Crude oil.--The term `crude oil' includes condensates 
        from crude oil.
            ``(4) Coal.--The term `coal' includes lignite.
            ``(5) United states.--The term `United States' means the 50 
        States, the District of Columbia, and the foreign trade zones 
        of the United States.
            ``(6) Person.--The term `person' includes the United 
        States, any State or political subdivision thereof, the 
        District of Columbia, and any agency or instrumentality of any 
        of the foregoing.
    ``(b) Special Rules for Independent Power Producers Selling 
Electricity Under Fixed-Price Contracts.--
            ``(1) Electricity generated using fossil fuels.--If 
        electricity is generated by an independent power producer using 
        any fossil fuel and is sold pursuant to a qualified fixed-price 
        contract--
                    ``(A) such use of fossil fuel shall be treated for 
                purposes of this subchapter as an exempt use (as 
                defined in section 4448), and
                    ``(B) a tax is hereby imposed on the contract 
                purchaser of such electricity equal to the amount 
                payable under subparagraph (A) on the fossil fuel used 
                to generate such electricity.
            ``(2) Other electricity.--In the case of electricity 
        generated by an independent power producer which is subject to 
        the tax imposed by section 4444 and which is sold pursuant to a 
        qualified fixed-price contract, the tax imposed by section 
        4444(a)(1) shall be paid by the contract purchaser of the 
        electricity.
            ``(3) Independent power producer.--For purposes of this 
        subsection, electricity shall be treated as generated by an 
        independent power producer if such electricity is generated--
                    ``(A) at a facility--
                            ``(i) which is a qualifying small power 
                        production facility or a qualifying 
                        cogeneration facility (as such terms are 
                        defined under section 3(17) of the Federal 
                        Power Act on the date of the enactment of this 
                        section), and
                            ``(ii) which is exempt from the laws 
                        referred to in section 210(e) of the Public 
                        Utility Regulatory Policies Act of 1978 (as so 
                        in effect), or
                    ``(B) by an exempt wholesale generator (as defined 
                in section 32(a)(1) of the Public Utility Holding 
                Company Act of 1935).
            ``(4) Qualified fixed-price contract.--For purposes of this 
        subsection, the term `qualified fixed-price contract' means any 
        contract entered into before the date of the enactment of this 
        section except to the extent the contract purchaser of the 
        electricity establishes to the satisfaction of the Secretary 
        that the price paid for electricity is determined under a 
        formula which directly or indirectly includes the taxes imposed 
        by this subchapter.
            ``(5) Fuel used to produce electricity and steam.--In the 
        case of a facility which produces both steam and electricity, 
        only the portion of the fuel allocable to the production of 
        electricity (determined on the basis of the proportionate Btu 
        content of the electricity and steam) shall be treated as an 
        exempt use under paragraph (1)(A).
    ``(c) Fractional Part of Unit.--In the case of a fraction of a 
unit, the tax imposed by this subchapter shall be the same fraction of 
the amount of such tax imposed on a whole unit.
    ``(d) Special Rules Relating to Puerto Rico and the Virgin 
Islands.--
            ``(1) Like tax on articles brought into the united states 
        from puerto rico or the virgin islands.--For purposes of this 
        subchapter, articles brought into the United States from the 
        Commonwealth of Puerto Rico or the Virgin Islands shall be 
        treated as entered into the United States at the time brought 
        into the United States.
            ``(2) Disposition of revenues.--The provisions of 
        subsections (a)(3) and (b)(3) of section 7652 shall not apply 
        to any tax imposed by this subchapter.
    ``(e) No Exemption From Tax.--No person shall be exempt from any 
tax imposed by this subchapter except to the extent provided in this 
subchapter or in any provision of law enacted after the date of the 
enactment of this subchapter which grants a specific exemption, by 
reference to this subchapter, from a tax imposed by this subchapter.
    ``(f) Normalization of Tax.--For purposes of section 168, a 
taxpayer shall not be treated as using a normalization method of 
accounting unless--
            ``(1) not later than the 1st ratemaking order taking effect 
        after the date of the enactment of this subchapter, the 
        ratemaking body permits the full amount of--
                    ``(A) the taxes imposed by this subchapter on 
                natural gas,
                    ``(B) the taxes imposed by section 4444 and 
                subsection (b) of this section on any electricity, and
                    ``(C) the taxes imposed by this subchapter on fuels 
                used to generate electricity,
        to be added to the otherwise permitted rate for the furnishing 
        or sale of the natural gas or electricity, and
            ``(2) any amount of such tax which was not fully reflected 
        as provided in paragraph (1) by reason of being imposed before 
        the 1st ratemaking order taking effect after the date of the 
        enactment of this subchapter is added to the base to which the 
        taxpayer's rate of return for ratemaking purposes is applied in 
        such 1st order.
In determining for purposes of the preceding sentence whether a 
ratemaking order is the 1st ratemaking order referred to therein, there 
shall be taken into account only ratemaking orders from proceedings in 
which the recovery of tax expense is an issue that may be considered.''
    (b) Technical Amendments.--
            (1)(A) Subsection (a) of section 6675 is amended by 
        inserting ``section 4448 (relating to refunds of Btu tax for 
        certain sales and uses),'' before ``section 6420''.
            (B) Subsection (b) of section 6675 is amended by inserting 
        ``4448,'' before ``6420''.
            (2) Section 6206 is amended--
                    (A) by inserting ``(a) Fuel Taxes.--'' before ``Any 
                portion of'', and
                    (B) by adding at the end thereof the following new 
                subsection:
    ``(b) Btu Taxes.--Any portion of a payment made under section 4448 
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 it were a tax imposed by subchapter A of chapter 36 and 
as if the person who made 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 a 
claim under section 4448.''
            (3)(A) The section heading for section 6206 is amended by 
        striking ``under sections 6420, 6421, and 6427'' and inserting 
        ``for certain fuels tax refunds and energy tax refunds''.
            (B) The item relating to section 6206 in the table of 
        sections for subchapter A of chapter 63 is amended by striking 
        ``under sections 6420, 6421, and 6427'' and inserting ``for 
        certain fuels tax refunds and energy tax refunds''.
            (4) Subparagraph (B) of section 6724(d)(1) is amended--
                    (A) by striking ``or'' at the end of clause (xi),
                    (B) by striking the period at the end of the clause 
                (xii) relating to section 4101(d) and inserting a 
                comma,
                    (C) by redesignating the clause (xii) relating to 
                section 338(h)(10)(C) as clause (xiii) and by striking 
                the period at the end thereof and inserting ``, or'', 
                and
                    (D) by inserting after clause (xiii), as so 
                redesignated, the following new clause:
                            ``(xiv) section 4453(c) (relating to 
                        information reporting with respect to energy 
                        taxes).''
            (5) Sections 7210, section 7603, subsections (b) and (c)(2) 
        of section 7604, section 7605, and 7610(c) are each amended by 
        inserting ``4453(a)(3)(B),'' before ``6420(e)(2)'' each place 
        it appears.
            (6) Subparagraph (A) of section 9505(c)(3) is amended by 
        striking ``subchapter A'' and inserting ``subchapter B''.
            (7) The table of subchapters for chapter 36 is amended by 
        striking the items relating to subchapters A and B and 
        inserting the following:

                              ``Subchapter A. Energy taxes.
                              ``Subchapter B. Harbor maintenance tax.
                              ``Subchapter C. Transportation by 
                                        water.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on July 1, 1994.

SEC. 2402. EXTENSION OF MOTOR FUEL TAX RATES; INCREASED DEPOSITS INTO 
              HIGHWAY TRUST FUND.

    (a) Gasoline and Special Motor Fuels.--
            (1) In general.--Clause (i) of section 4081(a)(2)(B) is 
        amended by striking ``11.5 cents'' and inserting ``14 cents''.
            (2) Conforming amendments.--
                    (A) Subparagraph (A) of section 4081(c)(4) is 
                amended to read as follows:
                    ``(A) In general.--In the case of the Highway Trust 
                Fund financing rate, the term `otherwise applicable 
                rate' means--
                            ``(i) 8.6 cents a gallon for 10 percent 
                        alcohol,
                            ``(ii) 9.842 cents a gallon for 7.7 percent 
                        alcohol,
                            ``(iii) 10.922 cents a gallon for 5.7 
                        percent alcohol.
        In the case of gasohol none of the alcohol in which consists of 
        ethanol, clauses (i), (ii), and (iii) shall be applied by 
        substituting `8.0 cents' for `8.6 cents', `9.38 cents' for 
        `9.842 cents', and `10.58 cents' for `10.922'.''
                    (B) Subparagraph (A) of section 4041(m)(1) is 
                amended to read as follows:
                    ``(A) under subsection (a)(2) the Highway Trust 
                Fund financing shall be 7 cents per gallon, and''.
    (b) Diesel Fuel.--
            (1) In general.--Paragraph (2) of section 4091(a) is 
        amended by striking ``17.5 cents'' and inserting ``20 cents''.
            (2) Fuel used in trains.--Subparagraph (B) of section 
        4093(c)(2) is amended--
                    (A) by striking ``the diesel fuel deficit reduction 
                rate'' and inserting ``2.5 cents per gallon of the 
                Highway Trust Fund financing rate'', and
                    (B) by striking from the subparagraph heading 
                ``Deficit reduction tax on''.
            (3) Conforming amendments.--
                    (A) Subsection (c) of section 4091 is amended--
                            (i) by striking ``12.1 cents'' each place 
                        it appears and inserting ``14.6 cents'', and
                            (ii) by striking ``13.44 cents'' in 
                        paragraph (1)(B) and inserting ``16.22''.
                    (B) Paragraph (4) of section 6427(l) is amended--
                            (i) by striking ``the diesel fuel deficit 
                        reduction rate'' and inserting ``2.5 cents per 
                        gallon of the Highway Trust Fund financing 
                        rate'', and
                            (ii) by striking ``deficit reduction tax'' 
                        and inserting ``portion of tax''.
                    (C) Subsection (b) of section 9503 is amended by 
                adding at the end thereof the following new paragraph:
            ``(6) Retention of certain taxes in general fund.--
                    ``(A) In general.--There shall not be taken into 
                account under paragraphs (1) and (2)--
                            ``(i) the tax imposed by section 4091 on 
                        diesel fuel used in any train, and
                            ``(ii) so much of the following taxes as 
                        are attributable to 2.5 cents of the Highway 
                        Trust fund financing rate:
                                    ``(I) Motorboat fuel taxes (as 
                                defined in subsection (c)(4)(D)).
                                    ``(II) Small-engine fuel taxes (as 
                                defined in subsection (c)(5)(B)).
                                    ``(III) Nonhighway recreational 
                                fuel taxes (as defined in subsection 
                                (c)(6)(D)).
                    ``(B) Transfers from highway trust fund.--For 
                purposes of determining the amount paid from the 
                Highway Trust Fund under paragraphs (4), (5), and (6) 
                of subsection (c), the Highway Trust Fund financing 
                rates shall be treated as being 2.5 cents less than the 
                otherwise applicable rates.''
    (c) Increase in Deposits in Mass Transit Account.--Paragraph (2) of 
section 9503(e) is amended by striking ``1.5 cents'' and inserting ``2 
cents''.
    (d) Repeal of Expired Provisions.--
            (1) Subparagraph (A) of section 4081(a)(2) (relating to 
        rate of tax) is amended--
                    (A) by adding ``and'' at the end of clause (i),
                    (B) by striking ``, and'' at the end of clause (ii) 
                and inserting a period, and
                    (C) by striking clause (iii).
            (2) Subparagraph (B) of section 4081(a)(2) is amended--
                    (A) by adding ``and'' at the end of clause (i),
                    (B) by striking ``, and'' at the end of clause (ii) 
                and inserting a period, and
                    (C) by striking clause (iii).
            (3) Subsection (d) of section 4081 is amended by striking 
        paragraph (3).
            (4) Clause (i) of section 4091(b)(1)(A) is amended by 
        striking ``and the diesel fuel deficit reduction rate''.
            (5) Subsection (b) of section 4091 is amended by striking 
        paragraph (4) and by redesignating paragraphs (5) and (6) as 
        paragraphs (4) and (5), respectively.
            (6) Paragraph (5) of section 4091(b), as redesignated by 
        paragraph (5), is amended by striking subparagraph (D).
            (7) Paragraphs (1) and (2) of section 4041(a), and 
        paragraph (3) of section 4041(c), are each amended by striking 
        ``the sum of the Highway Trust Fund financing rate and the 
        diesel fuel deficit reduction rate'' and by inserting ``the 
        Highway Trust Fund financing rate''.
    (e) Effective Date.--The amendments made by this section shall take 
effect October 1, 1995, but the amendment made by subsection (c) shall 
apply only to amounts attributable to taxes imposed on or after such 
date.

                   Subtitle E--Compliance Provisions

SEC. 2501. REPORTING REQUIRED FOR CERTAIN PAYMENTS TO CORPORATIONS.

    (a) Section 6041.--Section 6041 (relating to information at source) 
is amended by adding at the end thereof the following new subsection:
    ``(f) Special Rules for Payments for Services.--No payment for the 
performance of services shall be exempt from the requirements of this 
section merely because it is a payment to a corporation.''
    (b) Section 6041A(a).--Subsection (a) of section 6041A is amended 
by adding at the end thereof the following new sentence: ``A payment 
shall not be exempt from the requirements of this subsection merely 
because it is a payment to a corporation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments after December 31, 1993.

SEC. 2502. MODIFICATIONS TO SUBSTANTIAL UNDERSTATEMENT AND RETURN-
              PREPARER PENALTIES.

    (a) Reasonable Basis Required.--
            (1) Substantial understatement penalty.--Clause (ii) of 
        section 6662(d)(2)(B) (relating to reduction for understatement 
        due to position of taxpayer or disclosed item) is amended to 
        read as follows:
                            ``(ii) any item if--
                                    ``(I) the relevant facts affecting 
                                the item's tax treatment are adequately 
                                disclosed in the return or in a 
                                statement attached to the return, and
                                    ``(II) there is a reasonable basis 
                                for the tax treatment of such item by 
                                the taxpayer.''
            (2) Return preparer penalty.--Paragraph (3) of section 
        6694(a) (relating to understatement of taxpayer's liability by 
        income tax return preparer) is amended to read as follows:
            ``(3) the requirements of subclauses (I) and (II) of 
        section 6662(d)(2)(B)(ii) are not satisfied with respect to 
        such position,''.
    (b) Special Tax Shelter Rule.--Subclause (II) of section 
6662(d)(2)(C)(i) (relating to special rules for tax shelters) is 
amended by inserting before the period at the end thereof the 
following: ``and the reasonably anticipated after-tax benefits from the 
taxpayer's investment in such shelter do not significantly exceed the 
reasonably anticipated pre-tax economic profit or loss from such 
investment''.
    (c) Reasonable Cause Exception.--Paragraph (1) of section 6664(c) 
is revised by striking ``this part'' and inserting ``section 6662''.
    (d) Effective Date.--The amendments made by this section shall 
apply to returns the due dates for which (determined without regard to 
extensions) are after December 31, 1993.

                  Subtitle F--Miscellaneous Provisions

SEC. 2601. SUBSTANTIATION REQUIREMENT FOR DEDUCTION OF CERTAIN 
              CHARITABLE CONTRIBUTIONS.

    (a) Substantiation Requirement.--Section 170(f) (providing special 
rules relating to the deduction of charitable contributions and gifts) 
is amended by adding at the end the following new paragraph:
            ``(8) Substantiation requirement for certain 
        contributions.--
                    ``(A) General rule.--No deduction shall be allowed 
                under subsection (a) for any contribution of $750 or 
                more unless the taxpayer substantiates the contribution 
                by a contemporaneous written acknowledgment of the 
                contribution by the donee organization that meets the 
                requirements of subparagraph (B).
                    ``(B) Content of acknowledgment.--An acknowledgment 
                meets the requirements of this subparagraph if it 
                provides information sufficient to substantiate the 
                amount of the deductible contribution. If the 
                contribution was made by means of a payment part of 
                which constituted consideration for goods or services 
                provided by the donee organization, the acknowledgment 
                must provide a good faith estimate of the value of such 
                goods or services.
                    ``(C) Contemporaneous.--For purposes of 
                subparagraph (A), an acknowledgment shall be considered 
                to be contemporaneous if the taxpayer obtains the 
                acknowledgment on or before the earlier of--
                            ``(i) the date on which the taxpayer files 
                        a return for the taxable year in which the 
                        contribution was made, or
                            ``(ii) the due date (including extensions) 
                        for filing such return.
                    ``(D) Substantiation not required for contributions 
                reported by the donee organization.--Subparagraph (A) 
                shall not apply to a contribution if the donee 
                organization files a return, on such form and in 
                accordance with such regulations as the Secretary may 
                prescribe, which includes the information described in 
                subparagraph (B) with respect to the contribution.
                    ``(E) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out the purposes of this paragraph, including 
                regulations that may provide that some or all of the 
                requirements of this paragraph do not apply in 
                appropriate cases.''
    (b) Effective Date.--The provisions of this section shall apply to 
contributions made on or after January 1, 1994.

SEC. 2602. DISCLOSURE RELATED TO QUID PRO QUO CONTRIBUTIONS.

    (a) Disclosure Requirement.--Subchapter B of chapter 61 (relating 
to information and returns) is amended by redesignating section 6115 as 
section 6116 and by inserting after section 6114 the following new 
section:

``SEC. 6115. DISCLOSURE RELATED TO QUID PRO QUO CONTRIBUTIONS.

    ``(a) Disclosure Requirement.--If an organization described in 
section 170(c) (other than paragraph (1) thereof) receives a quid pro 
quo contribution, the organization shall, in connection with the 
solicitation or receipt of the contribution--
            ``(1) inform the donor that the amount of the contribution 
        that is deductible for Federal income tax purposes is limited 
        to the excess of the amount of any money and the value of any 
        property other than money contributed by the donor over the 
        value of the goods or services provided by the organization, 
        and
            ``(2) provide the donor with a good faith estimate of the 
        value of such goods or services.
    ``(b) Quid Pro Quo Contribution.--For purposes of this section, the 
term `quid pro quo contribution' means a payment made partly as a 
contribution and partly in consideration for goods or services provided 
to the payor by the donee organization.''
    (b) Penalty for Failure To Disclose.--Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is amended by inserting 
after section 6713 the following new section:

``SEC. 6714. FAILURE TO MEET DISCLOSURE REQUIREMENTS APPLICABLE TO QUID 
              PRO QUO CONTRIBUTIONS.

    ``(a) Imposition of Penalty.--If an organization fails to meet the 
disclosure requirement of section 6115 with respect to a quid pro quo 
contribution, such organization shall pay a penalty of $10 for each 
contribution in respect of which the organization fails to make the 
required disclosure, except that the total penalty imposed by this 
subsection with respect to a particular fundraising event or mailing 
shall not exceed $5,000.
    ``(b) Reasonable Cause Exception.--No penalty shall be imposed 
under this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.''
    (c) Clerical Amendments.--
            (1) The table for subchapter B of chapter 61 is amended by 
        striking the item relating to section 6115 and inserting the 
        following new item:

                              ``Sec. 6115. Disclosure related to quid 
                                        pro quo contributions.
                              ``Sec. 6116. Cross reference.''

            (2) The table for part I of subchapter B of chapter 68 is 
        amended by inserting after the item for section 6713 the 
        following new item:

                              ``Sec. 6714. Failure to meet disclosure 
                                        requirements applicable to quid 
                                        pro quo contributions.''

    (d) Effective Date.--The provisions of this section shall apply to 
quid pro quo contributions made on or after January 1, 1994.

SEC. 2603. DISALLOWANCE OF INTEREST ON CERTAIN OVERPAYMENTS OF TAX.

    (a) General Rule.--Subsection (e) of section 6611 is amended to 
read as follows:
    ``(e) Disallowance of Interest on Certain Overpayments.--
            ``(1) Refunds within 45 days after return is filed.--If any 
        overpayment of tax imposed by this title is refunded within 45 
        days after the last day prescribed for filing the return of 
        such tax (determined without regard to any extension of time 
        for filing the return) or, in the case of a return filed after 
        such last date, is refunded within 45 days after the date the 
        return is filed, no interest shall be allowed under subsection 
        (a) on such overpayment.
            ``(2) Refunds after claim for credit or refund.--If--
                    ``(A) the taxpayer files a claim for a credit or 
                refund for any overpayment of tax imposed by this 
                title, and
                    ``(B) such overpayment is refunded within 45 days 
                after such claim is filed,
        no interest shall be allowed on such overpayment from the date 
        the claim is filed until the day the refund is made.
            ``(3) IRS initiated adjustments.--If an adjustment 
        initiated by the Secretary, results in a refund or credit of an 
        overpayment, interest on such overpayment shall be computed by 
        subtracting 45 days from the number of days interest would 
        otherwise be allowed with respect to such overpayment.''
    (b) Effective Dates.--
            (1) Paragraph (1) of section 6611(e) of the Internal 
        Revenue Code of 1986 (as amended by subsection (a)) shall apply 
        in the case of returns the due date for which (determined 
        without regard to extensions) is on or after January 1, 1994.
            (2) Paragraph (2) of section 6611(e) of such Code (as so 
        amended) shall apply in the case of claims for credit or refund 
        of any overpayment filed on or after January 1, 1995, 
        regardless of the taxable period to which such refund relates.
            (3) Paragraph (3) of section 6611(e) of such Code (as so 
        amended) shall apply in the case of any refund paid on or after 
        January 1, 1995, regardless of the taxable period to which such 
        refund relates.

SEC. 2604. DENIAL OF DEDUCTION RELATING TO TRAVEL EXPENSES.

    (a) In General.--Section 274(m) (relating to additional limitations 
on travel expenses) is amended by adding at the end thereof the 
following new paragraph:
            ``(3) Travel expenses of spouse, dependent, or others.--No 
        deduction shall be allowed under this chapter (other than 
        section 217) for travel expenses paid or incurred with respect 
        to a spouse, dependent, or other individual accompanying the 
        taxpayer (or an officer or employee of the taxpayer) on 
        business travel, unless--
                    ``(A) the spouse, dependent, or other individual is 
                an employee of the taxpayer,
                    ``(B) the travel of the spouse, dependent, or other 
                individual is for a bona fide business purpose, and
                    ``(C) such expenses would otherwise be deductible 
                by the spouse, dependent, or other individual.''
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after December 31, 1993.

SEC. 2605. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS.

    If an employer elects under Treasury Regulation 31.3402 (g)-1 to 
determine the amount to be deducted and withheld from any supplemental 
wage payment by using a flat percentage rate, the rate to be used in 
determining the amount to be so deducted and withheld shall not be less 
than 28 percent. The preceding sentence shall apply to payments made 
after December 31, 1993.

        TITLE III--EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

SEC. 3101. DESIGNATION AND TREATMENT OF EMPOWERMENT ZONES AND 
              ENTERPRISE COMMUNITIES.

    (a) In General.--Chapter 1 (relating to normal taxes and surtaxes) 
is amended by inserting after subchapter T the following new 
subchapter:

  ``Subchapter U--Designation and Treatment of Empowerment Zones and 
                         Enterprise Communities

                              ``Part I. Designation.
                              ``Part II. Incentives for empowerment 
                                        zones and enterprise 
                                        communities.
                              ``Part III. Additional incentives for 
                                        empowerment zones.
                              ``Part IV. Regulations.

                         ``PART I--DESIGNATION

                              ``Sec. 1391. Designation procedure.
                              ``Sec. 1392. Eligibility criteria.
                              ``Sec. 1393. Definitions and special 
                                        rules.

``SEC. 1391. DESIGNATION PROCEDURE.

    ``(a) In General.--From among the areas nominated for designation 
under this section, the appropriate Secretaries may, in consultation 
with the Enterprise Board, designate empowerment zones and enterprise 
communities.
    ``(b) Number of Designations.--
            ``(1) Enterprise communities.--The appropriate Secretaries 
        may designate in the aggregate 100 nominated areas as 
        enterprise communities under this section, subject to the 
        availability of eligible nominated areas. Of that number, not 
        more than 65 may be designated in urban areas, not more than 30 
        may be designated in rural areas, and not more than 5 may be 
        designated by the Secretary of the Interior in Indian 
        reservations.
            ``(2) Empowerment zones.--The appropriate Secretaries may 
        designate in the aggregate 10 nominated areas as empowerment 
        zones under this section, subject to the availability of 
        eligible nominated areas. Of that number, not more than 6 may 
        be designated in urban areas, not more than 3 may be designated 
        in rural areas, and not more than 1 may be designated by the 
        Secretary of the Interior in an Indian reservation. If 6 
        empowerment zones are designated in urban areas, no less than 1 
        shall be designated in an urban area whose most populous city 
        has a population of 500,000 or less. The Secretary of Housing 
        and Urban Development shall designate empowerment zones located 
        in urban areas in such a manner that the aggregate population 
        of all such zones does not exceed 750,000.
    ``(c) Period Designations May Be Made.--A designation may be made 
under this section only after 1993 and before 1996.
    ``(d) Period for Which Designation Is In Effect.--
            ``(1) In general.--Any designation under this section shall 
        remain in effect during the period beginning on the date of the 
        designation and ending on the earliest of--
                    ``(A) the close of the 10th calendar year beginning 
                on or after such date of designation,
                    ``(B) the termination date designated by the State 
                and local governments as provided for in their 
                nomination, or
                    ``(C) the date the appropriate Secretary revokes 
                the designation.
            ``(2) Revocation of designation.--
                    ``(A) In general.--The appropriate Secretary, in 
                consultation with the Enterprise Board, may revoke the 
                designation under this section of an area if such 
                Secretary determines that the local government or the 
                State in which it is located--
                            ``(i) has modified the boundaries of the 
                        area, or
                            ``(ii) is not complying substantially with, 
                        or fails to make progress in achieving the 
                        benchmarks set forth in, the strategic plan 
                        under subsection (f)(2).
                    ``(B) Applicable procedures.--A designation may be 
                revoked by the appropriate Secretary under subparagraph 
                (A) only after a hearing on the record involving 
                officials of the State or local government involved.
    ``(e) Limitations on Designations.--An area may be designated under 
subsection (a) only if--
            ``(1) the area is nominated by 1 or more local governments 
        and the State or States in which it is located for designation 
        under this section,
            ``(2) such State or States and the local governments have 
        the authority--
                    ``(A) to nominate the area for designation under 
                this section, and
                    ``(B) to provide the assurances described in 
                paragraph (3),
            ``(3) such State or States and the local governments 
        provide written assurances satisfactory to the appropriate 
        Secretary that the strategic plan described in the application 
        under subsection (f)(2) for such area will be implemented,
            ``(4) the appropriate Secretary determines that any 
        information furnished is reasonably accurate, and
            ``(5) such State or States and local governments certify 
        that no portion of the area nominated is already included in an 
        empowerment zone or in an enterprise community or in an area 
        otherwise nominated to be designated under this section.
    ``(f) Application.--An application for designation as an 
empowerment zone or as an enterprise community shall--
            ``(1) demonstrate that the nominated area satisfies the 
        eligibility criteria described in section 1392,
            ``(2) include a strategic plan for accomplishing the 
        purposes of this subchapter that--
                    ``(A) describes the coordinated economic, human, 
                community, and physical development plan and related 
                activities proposed for the nominated area,
                    ``(B) describes the process by which the affected 
                community is a full partner in the process of 
                developing and implementing the plan and the extent to 
                which local institutions and organizations have 
                contributed to the planning process,
                    ``(C) identifies the amount of State, local, and 
                private resources that will be available in the 
                nominated area and the private/public partnerships to 
                be used, which may include participation by, and 
                cooperation with, universities, medical centers, and 
                other private and public entities,
                    ``(D) identifies the funding requested under any 
                Federal program in support of the proposed economic, 
                human, community, and physical development and related 
                activities,
                    ``(E) identifies baselines, methods, and benchmarks 
                for measuring the success of carrying out the strategic 
                plan, including the extent to which poor persons and 
                families will be empowered to become economically self-
                sufficient, and
                    ``(F) does not include any action to assist any 
                establishment in relocating from one area outside the 
                nominated area to the nominated area, except that 
                assistance for the expansion of an existing business 
                entity through the establishment of a new branch, 
                affiliate, or subsidiary is permitted if--
                            ``(i) the establishment of the new branch, 
                        affiliate, or subsidiary will not result in a 
                        decrease in employment in the area of original 
                        location or in any other area where the 
                        existing business entity conducts business 
                        operations, and
                            ``(ii) there is no reason to believe that 
                        the new branch, affiliate, or subsidiary is 
                        being established with the intention of closing 
                        down the operations of the existing business 
                        entity in the area of its original location or 
                        in any other area where the existing business 
                        entity conducts business operation, and
            ``(3) include such other information as may be required by 
        the appropriate Secretary or the Enterprise Board.

``SEC. 1392. ELIGIBILITY CRITERIA.

    ``(a) In General.--A nominated area shall be eligible for 
designation under section 1391 only if it meets the following criteria:
            ``(1) Population.--The nominated area has a maximum 
        population of--
                    ``(A) in the case of an urban area, the lesser of--
                            ``(i) 200,000, or
                            ``(ii) the greater of 50,000 or 10 percent 
                        of the population of the most populous city 
                        located within the nominated area, and
                    ``(B) in the case of a rural area, 30,000.
            ``(2) Distress.--The nominated area is one of pervasive 
        poverty, unemployment, and general distress.
            ``(3) Size.--The nominated area--
                    ``(A) does not exceed 20 square miles if an urban 
                area or 1,000 square miles if a rural area or an Indian 
                reservation,
                    ``(B) has a boundary which is continuous, or, 
                except in the case of a rural area located in more than 
                1 State, consists of not more than 3 noncontiguous 
                parcels,
                    ``(C)(i) in the case of an urban area, is located 
                entirely within no more than 2 contiguous States, and
                    ``(ii) in the case of a rural area, is located 
                entirely within no more than 3 contiguous States, and
                    ``(D) does not include any portion of a central 
                business district (as such term is used for purposes of 
                the most recent Census of Retail Trade) unless the 
                poverty rate for each population census tract in such 
                district is not less than 35 percent.
            ``(4) Poverty rate.--The poverty rate--
                    ``(A) for each population census tract within the 
                nominated area is not less than 20 percent,
                    ``(B) for at least 90 percent of the population 
                census tracts within the nominated area is not less 
                than 25 percent, and
                    ``(C) for at least 50 percent of the population 
                census tracts within the nominated area is not less 
                than 35 percent.
    ``(b) Special Rules Relating to Determination of Poverty Rate.--For 
purposes of subsection (a)(4)--
            ``(1) Treatment of census tracts with small populations.--
                    ``(A) Tracts with no population.--In the case of a 
                population census tract with no population--
                            ``(i) such tract shall be treated as having 
                        a poverty rate which meets the requirements of 
                        subparagraphs (A) and (B) of subsection (a)(4), 
                        but
                            ``(ii) such tract shall be treated as 
                        having a zero poverty rate for purposes of 
                        applying subparagraph (C) thereof.
                    ``(B) Tracts with populations of less than 2,000.--
                A population census tract with a population of less 
                than 2,000 shall be treated as having a poverty rate 
                which meets the requirements of subparagraphs (A) and 
                (B) of subsection (a)(4) if more than 75 percent of 
                such tract is zoned for commercial or industrial use.
            ``(2) Discretion to adjust requirements.--Where necessary 
        to carry out the purposes of this subchapter, the appropriate 
        Secretary may reduce by 5 percentage points one of the 
        following thresholds for not more than 10 percent of the 
        population census tracts (or, if fewer, 5 population census 
        tracts) in the nominated area:
                    ``(A) The 20 percent threshold in subsection 
                (a)(4)(A).
                    ``(B) The 25 percent threshold in subsection 
                (a)(4)(B).
                    ``(C) The 35 percent threshold in subsection 
                (a)(4)(C).
            ``(3) Each noncontiguous area must satisfy poverty rate 
        rule.--A nominated area may not include a noncontiguous parcel 
        unless such parcel separately meets (subject to paragraphs (1) 
        and (2)) the criteria set forth in subsection (a)(4).
            ``(4) Areas not within census tracts.--In the case of an 
        area which is not tracted for population census tracts, the 
        equivalent county divisions (as defined by the Bureau of the 
        Census for purposes of defining poverty areas) shall be used 
        for purposes of determining poverty rates.
    ``(c) Factors To Consider.--From among the nominated areas eligible 
for designation under section 1391 by the appropriate Secretary, such 
appropriate Secretary shall make designations of empowerment zones and 
enterprise communities on the basis of--
            ``(1) the effectiveness of the strategic plan submitted 
        pursuant to section 1391(f)(2) and the assurances made pursuant 
        to section 1391(e)(3), and
            ``(2) criteria specified by the Enterprise Board.

``SEC. 1393. DEFINITIONS AND SPECIAL RULES.

    ``(a) In General.--For purposes of this subchapter--
            ``(1) Appropriate secretary.--The term `appropriate 
        Secretary' means--
                    ``(A) the Secretary of Housing and Urban 
                Development in the case of any nominated area which is 
                located in an urban area,
                    ``(B) the Secretary of Agriculture in the case of 
                any nominated area which is located in a rural area, 
                and
                    ``(C) the Secretary of the Interior in the case of 
                any nominated area which is located in an Indian 
                reservation.
            ``(2) Enterprise board.--The term `Enterprise Board' means 
        any board hereafter established and designated for purposes of 
        this subchapter as the `Enterprise Board'.
            ``(3) Rural area.--The term `rural area' means any area 
        which is--
                    ``(A) outside of a metropolitan statistical area 
                (within the meaning of section 143(k)(2)(B)), or
                    ``(B) determined by the Secretary of Agriculture, 
                after consultation with the Secretary of Commerce, to 
                be a rural area.
            ``(4) Urban area.--The term `urban area' means an area 
        which is not a rural area.
            ``(5) Indian reservation.--
                    ``(A) In general.--The term `Indian reservation' 
                means a reservation as defined in--
                            ``(i) section 3(d) of the Indian Financing 
                        Act of 1974 (25 U.S.C. 1452(d)), or
                            ``(ii) section 4(10) of the Indian Child 
                        Welfare Act of 1978 (25 U.S.C. 1903(10).
                    ``(B) Governments.--In the case of an area in an 
                Indian reservation, the reservation governing body (as 
                determined by the Secretary of the Interior) shall be 
                deemed to be both the State and local governments with 
                respect to such area.
            ``(6) Local government.--The term `local government' 
        means--
                    ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State, and
                    ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                appropriate Secretary.
            ``(7) Nominated area.--The term `nominated area' means an 
        area which is nominated by 1 or more local governments and the 
        State or States in which it is located for designation under 
        section 1391.
            ``(8) Governments.--If more than 1 State or local 
        government seeks to nominate an area as a tax enterprise zone, 
        any reference to, or requirement of, this subchapter shall 
        apply to all such governments.
            ``(9) Special rule.--An area shall be treated as nominated 
        by a State and a local government if it is nominated by such 
        other entity as may be specified by the Enterprise Board.
            ``(10) Use of census data.--Population and poverty rate 
        shall be determined by the most recent decennial census data 
        available.
    ``(b) Empowerment Zone; Enterprise Community.--For purposes of this 
title, the terms `empowerment zone' and `enterprise community' mean 
areas designated as such under section 1391.

 ``PART II--INCENTIVES FOR EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

                              ``Sec. 1394. Zone resident empowerment 
                                        savings credit.
                              ``Sec. 1395. Additional benefits.

``SEC. 1394. ZONE RESIDENT EMPOWERMENT SAVINGS CREDIT.

    ``(a) General Rule.--For purposes of section 38, the amount of the 
zone resident empowerment savings credit determined under this section 
with respect to any employer for any taxable year is 50 percent of the 
qualified savings contributions for the taxable year.
    ``(b) Qualified Savings Contributions.--For purposes of this 
section--
            ``(1) In general.--The term `qualified savings 
        contribution' means any contribution by an employer to a 
        defined contribution plan--
                    ``(A) which is made on behalf of an employee in 
                connection with services performed by such employee 
                while such employee is a qualified zone employee, and
                    ``(B) with respect to which the employee has a 
                nonforfeitable right.
            ``(2) Limitation based on compensation.--
                    ``(A) In general.--The qualified savings 
                contributions taken into account with respect to any 
                qualified zone employee for any taxable year shall not 
                exceed an amount equal to 2 percent of so much of the 
                employee's compensation (as defined in section 414(s)) 
                as does not exceed $35,000.
                    ``(B) Zone designation in effect for partial 
                year.--If a designation of an area as an empowerment 
                zone or an enterprise community is in effect for less 
                than the entire taxable year, the $35,000 amount under 
                subparagraph (A) shall be ratably reduced to reflect 
                the portion of the year such designation is not in 
                effect.
            ``(3) Certain contributions excluded.--The term `qualified 
        savings contribution' shall not include any contribution--
                    ``(A) to a plan subject to the funding requirements 
                of section 412,
                    ``(B) to a tax credit employee stock ownership plan 
                (as defined in section 409(a)) or to an employee stock 
                ownership plan (as defined in section 4975(e)(7)),
                    ``(C) to a stock bonus plan, or
                    ``(D) which is an elective deferral (within the 
                meaning of section 402(g)(3)).
            ``(4) Simplified employee pension.--A contribution to an 
        individual savings plan pursuant to a simplified employee 
        pension (as defined in section 408(k)) shall be treated as a 
        contribution to a defined contribution plan.
    ``(c) Employer Requirements.--This section shall apply to an 
employer for any taxable year only if--
            ``(1) the employer elects the application of this section, 
        and
            ``(2) the plan pursuant to which any qualified savings 
        contribution is made provides that any contribution to such 
        plan (whether or not a qualified savings contribution) may be 
        withdrawn by a qualified zone employee for the purposes 
        described in section 72(t)(2) (B) or (D).
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified zone employee.--The term `qualified zone 
        employee' has the meaning given such term by section 1396(d), 
        except that the references to empowerment zones shall be 
        treated as including references to enterprise communities.
            ``(2) Defined contribution plan.--The term `defined 
        contribution plan' means a defined contribution plan (as 
        defined in section 414(i)) which is described in section 401(a) 
        and includes a trust exempt from tax under section 501(a).
    ``(e) Treatment of Plans.--A plan shall not be treated as failing 
to meet any requirement of part I of subchapter D of chapter 1 by 
reason of permitting withdrawals for the purposes described in section 
72(t)(2) (B) or (D).

``SEC. 1395. ADDITIONAL BENEFITS.

    ``(a) Increase in Low Income Housing Credit.--For purposes of 
section 42(d)(5)(C), a building shall be treated as located in a 
qualified census tract if--
            ``(1) such building is located in a census tract having a 
        poverty rate of at least 30 percent (determined in accordance 
        with section 1393(a)(10)), and
            ``(2) such building is located in an empowerment zone or an 
        enterprise community.
    ``(b) Tax Exempt Enterprise Zone Facility Bonds.--
            ``(1) In general.--For purposes of part IV of subchapter B 
        of chapter 1 (relating to tax exemption requirements for State 
        and local bonds), the term `exempt facility bond' includes any 
        bond issued as part of an issue 95 percent or more of the net 
        proceeds (as defined in section 150(a)(3)) of which are to be 
        used to provide any enterprise zone facility.
            ``(2) Enterprise zone facility.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `enterprise zone 
                facility' means any qualified zone property the 
                principal user of which is an enterprise zone business 
                (as defined in section 1399A), and any land which is 
                functionally related and subordinated to such property.
                    ``(B) Qualified zone property.--The term `qualified 
                zone property' has the meaning given such term by 
                section 1398(c); except that--
                            ``(i) section 1398(c)(3) shall not apply, 
                        and
                            ``(ii) the references to empowerment zones 
                        shall be treated as including references to 
                        enterprise communities.
            ``(3) Limitation on amount of bonds.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any issue if the aggregate amount of outstanding 
                enterprise zone facility bonds allocable to any 
                enterprise zone business (taking into account such 
                issue) exceeds--
                            ``(i) $3,000,000 with respect to any 1 
                        empowerment zone or enterprise community, or
                            ``(ii) $20,000,000 with respect to all 
                        empowerment zones and enterprise communities.
                    ``(B) Aggregate enterprise zone facility bond 
                benefit.--For purposes of subparagraph (A), the 
                aggregate amount of outstanding enterprise zone 
                facility bonds allocable to any business shall be 
                determined under rules similar to the rules of section 
                144(a)(10), taking into account only bonds to which 
                paragraph (1) applies.
            ``(4) Acquisition of land and existing property 
        permitted.--The requirements of sections 147(c)(1)(A) and 
        147(d) shall not apply to any bond described in paragraph (1).
            ``(5) Partial exemption from volume cap.--Only for purposes 
        of section 146, the term `private activity bond' shall not 
        include 50 percent of any bond issued as part of an issue 
        described in paragraph (1).
            ``(6) Penalty for ceasing to meet requirements.--
                    ``(A) Failures corrected.--An issue which fails to 
                meet 1 or more of the requirements of paragraphs (1) 
                and (2) shall be treated as meeting such requirements 
                if--
                            ``(i) the issuer and any principal user in 
                        good faith attempted to meet such requirements, 
                        and
                            ``(ii) any failure to meet such 
                        requirements is corrected within a reasonable 
                        period after such failure is first discovered.
                    ``(B) Loss of deductions where facility ceases to 
                be qualified.--No deduction shall be allowed under this 
                chapter for interest on any financing provided from any 
                bond to which paragraph (1) applies with respect to any 
                facility to the extent such interest accrues during the 
                period beginning on the first day of the calendar year 
                which includes the date on which--
                            ``(i) substantially all of the facility 
                        with respect to which the financing was 
                        provided ceases to be used in an empowerment 
                        zone or enterprise community, or
                            ``(ii) the principal user of such facility 
                        ceases to be an enterprise zone business (as 
                        defined in section 1399A, but treating 
                        references to empowerment zones as including 
                        references to enterprise communities).
                    ``(C) Exception if zone ceases.--Subparagraphs (A) 
                and (B) shall not apply solely by reason of the 
                termination or revocation of a designation as an 
                empowerment zone or an enterprise community.
                    ``(D) Exception for bankruptcy.--Subparagraphs (A) 
                and (B) shall not apply to any cessation resulting from 
                bankruptcy.
    ``(c) Enterprise Zone Facility Bonds Not Subject to Interest 
Deduction Limitations on Financial Institutions.--Any tax-exempt bond 
described in paragraph (1)--
            ``(1) shall be treated as acquired before August 8, 1986, 
        for purposes of sections 265(b) and 291(e)(1)(B), and
            ``(2) shall not be taken into account in determining 
        whether any issuer is a qualified small issuer for purposes of 
        section 265(b).

        ``PART III--ADDITIONAL INCENTIVES FOR EMPOWERMENT ZONES

                              ``Subpart A. Empowerment zone employment 
                                        credit.
                              ``Subpart B. Depreciation and other 
                                        incentives.

            ``Subpart A--Empowerment Zone Employment Credit

                              ``Sec. 1396. Empowerment zone employment 
                                        credit.
                              ``Sec. 1397. Other definitions and 
                                        special rules.

``SEC. 1396. EMPOWERMENT ZONE EMPLOYMENT CREDIT.

    ``(a) Amount of Credit.--For purposes of section 38, the amount of 
the empowerment zone employment credit determined under this section 
with respect to any employer for any taxable year is the applicable 
percentage of the qualified zone wages paid or incurred during the 
calendar year which ends with or within such taxable year.
    ``(b) Applicable Percentage.--For purposes of this section, the 
term `applicable percentage' means the percentage determined in 
accordance with the following table:

                  ``In the case of wages paid or
                                                         The applicable
                    incurred during calendar year:
                                                         percentage is:
                          1994 through 2000..........          25      
                          2001.......................          20      
                          2002.......................          15      
                          2003.......................          10      
                          2004.......................           5      
    ``(c) Qualified Zone Wages.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified zone wages' means any wages paid or incurred by an 
        employer for services performed by an employee while such 
        employee is a qualified zone employee.
            ``(2) Only first $20,000 of wages per year taken into 
        account.--With respect to each qualified zone employee, the 
        amount of qualified zone wages which may be taken into account 
        for a calendar year shall not exceed $20,000.
            ``(3) Coordination with targeted jobs credit.--
                    ``(A) In general.--The term `qualified zone wages' 
                shall not include wages attributable to service 
                rendered during the 1-year period beginning with the 
                day the individual begins work for the employer if any 
                portion of such wages is taken into account in 
                determining the credit under section 51.
                    ``(B) Coordination with paragraph (2).--In the case 
                of the calendar year in which the 1-year period 
                referred to in subparagraph (A) ends, the $20,000 
                amount in paragraph (2) shall be reduced by the amount 
                of wages attributable to service rendered during the 
                portion of such 1-year period which is within such 
                calendar year.
    ``(d) Qualified Zone Employee.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified zone employee' means, with 
        respect to any period, any employee of an employer if--
                    ``(A) substantially all of the services performed 
                during such period by such employee for such employer 
                are performed within an empowerment zone in a trade or 
                business of the employer, and
                    ``(B) the principal place of abode of such employee 
                while performing such services is within such 
                empowerment zone.
            ``(2) Certain individuals not eligible.--The term 
        `qualified zone employee' shall not include--
                    ``(A) any individual described in subparagraph (A), 
                (B), or (C) of section 51(i)(1),
                    ``(B) any 5-percent owner (as defined in section 
                416(i)(1)(B)),
                    ``(C) any individual employed by the employer for 
                less than 90 days,
                    ``(D) any individual employed by the employer at 
                any facility described in section 144(c)(6)(B), and
                    ``(E) any individual employed by the employer in a 
                trade or business the principal activity of which is 
                farming (within the meaning of subparagraphs (A) or (B) 
                of section 2032A(e)(5)), but only if, as of the close 
                of the taxable year, the sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the employer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the employer which are used in such a trade 
                        or business (as determined under regulations 
                        prescribed by the Secretary),
                exceeds $500,000.
            ``(3) Special rules related to termination of employment.--
                    ``(A) In general.--Paragraph (2)(C) shall not apply 
                to--
                            ``(i) a termination of employment of an 
                        individual who before the close of the period 
                        referred to in paragraph (2)(C) becomes 
                        disabled to perform the services of such 
                        employment unless such disability is removed 
                        before the close of such period and the 
                        taxpayer fails to offer reemployment to such 
                        individual, or
                            ``(ii) a termination of employment of an 
                        individual if it is determined under the 
                        applicable State unemployment compensation law 
                        that the termination was due to the misconduct 
                        of such individual.
                    ``(B) Changes in form of business.--For purposes of 
                paragraph (2)(C), the employment relationship between 
                the taxpayer and an employee shall not be treated as 
                terminated--
                            ``(i) by a transaction to which section 
                        381(a) applies if the employee continues to be 
                        employed by the acquiring corporation, or
                            ``(ii) by reason of a mere change in the 
                        form of conducting the trade or business of the 
                        taxpayer if the employee continues to be 
                        employed in such trade or business and the 
                        taxpayer retains a substantial interest in such 
                        trade or business.

``SEC. 1397. OTHER DEFINITIONS AND SPECIAL RULES.

    ``(a) Wages.--For purposes of this subpart--
            ``(1) In general.--The term `wages' has the same meaning as 
        when used in section 51.
            ``(2) Certain training and educational benefits.--
                    ``(A) In general.--The following amounts shall be 
                treated as wages paid to an employee:
                            ``(i) Any amount paid or incurred by an 
                        employer which is excludable from the gross 
                        income of an employee under section 127, but 
                        only to the extent paid or incurred to a person 
                        not related to the employer.
                            ``(ii) In the case of an employee who has 
                        not attained the age of 19, any amount paid or 
                        incurred by an employer for any youth training 
                        program operated by such employer in 
                        conjunction with local education officials.
                    ``(B) Related person.--A person is related to any 
                other person if the person bears a relationship to such 
                other person specified in section 267(b) or 707(b)(1), 
                or such person and such other person are engaged in 
                trades or businesses under common control (within the 
                meaning of subsections (a) and (b) of section 52). For 
                purposes of the preceding sentence, in applying section 
                267(b) or 707(b)(1), `10 percent' shall be substituted 
                for `50 percent'.
    ``(b) Controlled Groups.--For purposes of this subpart--
            ``(1) all employers treated as a single employer under 
        subsection (a) or (b) of section 52 shall be treated as a 
        single employer for purposes of this subpart, and
            ``(2) the credit (if any) determined under section 1396 
        with respect to each such employer shall be its proportionate 
        share of the wages giving rise to such credit.
    ``(c) Certain Other Rules Made Applicable.--For purposes of this 
subpart, rules similar to the rules of section 51(k) and subsections 
(c), (d), and (e) of section 52 shall apply.
    ``(d) Notice of Availability of Advance Payment of Earned Income 
Credit.--Each employer shall take reasonable steps to notify all 
qualified zone employees of the availability to eligible individuals of 
receiving advanced payments of the credit under section 32 (relating to 
the earned income credit).

             ``Subpart B--Depreciation and Other Incentives

                              ``Sec. 1398. Depreciation benefits.
                              ``Sec. 1399. Additional exclusion from 
                                        volume cap for certain 
                                        enterprise zone facility bonds.
                              ``Sec. 1399A. Enterprise zone business.

``SEC. 1398. DEPRECIATION BENEFITS.

    ``(a) Increase in Expensing Under Section 179.--
            ``(1) In general.--In the case of an enterprise zone 
        business, for purposes of section 179--
                    ``(A) qualified zone property shall be treated as 
                section 179 property,
                    ``(B) the limitation under section 179(b)(1) shall 
                be increased by the lesser of--
                            ``(i) $65,000, or
                            ``(ii) the cost of qualified zone property 
                        placed in service during the taxable year, and
                    ``(C) section 179(b)(2) shall be applied by 
                substituting `by one-half of the amount by which the 
                cost of qualified zone property (other than real 
                property)' for `by the amount by which the cost of 
                section 179 property'.
    ``(b) Accelerated Depreciation.--
            ``(1) In general.--For purposes of section 168(a), with 
        respect to qualified zone property of an enterprise zone 
        business, the applicable recovery period shall be determined in 
        accordance with the table contained in paragraph (2) in lieu of 
        the table contained in section 168(c).
            ``(2) Applicable recovery period for qualified zone 
        property.--For purposes of paragraph (1)--

                                                         The applicable
``In the case of:                                   recovery period is:
    3-year property...............................              2 years
    5-year property...............................              3 years
    7-year property...............................              4 years
    10-year property..............................              6 years
    15-year property..............................              9 years
    20-year property..............................             12 years
    Nonresidential real property..................            22 years.
            ``(3) Deduction allowed in computing minimum tax.--
        Paragraph (1) shall apply for purposes of determining 
        alternative minimum taxable income under section 55.
            ``(4) Coordination with investment credit.--This subsection 
        shall not apply to any property with respect to which a credit 
        is determined under section 46A or 50A. If the lessee of any 
        property is treated as the owner of such property for purposes 
        of such credit, this subsection shall not apply to such 
        property in the hands of the lessor.
    ``(c) Qualified Zone Property.--For purposes of this section--
            ``(1) In general.--The term `qualified zone property' means 
        any property to which section 168 applies (or would apply but 
        for section 179) if--
                    ``(A) such property was acquired by the taxpayer by 
                purchase (as defined in section 179(d)(2)) after the 
                date on which the designation of the empowerment zone 
                took effect,
                    ``(B) the original use of which in an empowerment 
                zone commences with the taxpayer, and
                    ``(C) substantially all of the use of which is in 
                an empowerment zone and is in the active conduct of a 
                trade or business by the taxpayer in such zone.
            ``(2) Special rule for substantial renovations.--In the 
        case of any property which is substantially renovated by the 
        taxpayer, the requirements of subparagraphs (A) and (B) of 
        paragraph (1) shall be treated as satisfied. For purposes of 
        the preceding sentence, property shall be treated as 
        substantially renovated by the taxpayer if, during any 24-month 
        period beginning after the date on which the designation of the 
        empowerment zone took effect, additions to basis with respect 
        to such property in the hands of the taxpayer exceed the 
        greater of (i) an amount equal to the adjusted basis at the 
        beginning of such 24-month period in the hands of the taxpayer, 
        or (ii) $5,000.
            ``(3) Exception for alternative depreciation property.--The 
        term `qualified zone property' does not include any property to 
        which the alternative depreciation system under section 168(g) 
        applies, determined--
                    ``(A) without regard to section 168(g)(7) (relating 
                to election to use alternative depreciation system), 
                and
                    ``(B) after the application of section 280F(b) 
                (relating to listed property with limited business 
                use).
    ``(d) Special Rules for Sale-Leasebacks.--For purposes of 
subsection (c)(1)(B), if property is sold and leased back by the 
taxpayer within 3 months after the date such property was originally 
placed in service, such property shall be treated as originally placed 
in service not earlier than the date on which such property is used 
under the leaseback.
    ``(e) Recapture.--Rules similar to the rules under section 
179(d)(10) shall apply with respect to any qualified zone property of 
any business which ceases to be an enterprise zone business.

``SEC. 1399. ADDITIONAL EXCLUSION FROM VOLUME CAP FOR CERTAIN 
              ENTERPRISE ZONE FACILITY BONDS.

    ``(a) In General.--Section 1395(b)(5) shall be applied by 
substituting `75 percent' for `50 percent' in the case of any bond 
described in section 1395(b)(1) issued as part of an issue 95 percent 
or more of the net proceeds (as defined in section 150(a)(3)) of which 
are used to provide qualified zone property the principal user of which 
is any enterprise zone business if the ownership requirements of 
subsection (b) are met with respect to such business.
    ``(b) Ownership Requirements.--The ownership requirements of this 
subsection are met with respect to an enterprise zone business if--
            ``(1) in the case of a sole proprietorship, the principal 
        place of abode of the proprietor is in an empowerment zone,
            ``(2) in the case of a corporation, more than 50 percent of 
        the stock (by vote and value) in the corporation is owned by 
        individuals whose principal place of abode is in an empowerment 
        zone, and
            ``(3) in the case of a partnership, more than 50 percent of 
        the capital and profits interests in the partnership is owned 
        by individuals whose principal place of abode is in an 
        empowerment zone.

``SEC. 1399A. ENTERPRISE ZONE BUSINESS DEFINED.

    ``(a) In General.--For purposes of this subpart, the term 
`enterprise zone business' means--
            ``(1) any qualified business entity, and
            ``(2) any qualified proprietorship.
    ``(b) Qualified Business Entity.--For purposes of this section, the 
term `qualified business entity' means, with respect to any taxable 
year, any corporation or partnership if for such year--
            ``(1) every trade or business of such entity is the active 
        conduct of a qualified business within an empowerment zone,
            ``(2) at least 80 percent of the total gross income of such 
        entity is derived from the active conduct of such business,
            ``(3) substantially all of the use of the tangible property 
        of such entity (whether owned or leased) is within an 
        empowerment zone,
            ``(4) substantially all of the intangible property of such 
        entity is used in, and exclusively related to, the active 
        conduct of any such business,
            ``(5) substantially all of the services performed for such 
        entity by its employees are performed in an empowerment zone,
            ``(6) at least 35 percent of its employees are residents of 
        an empowerment zone,
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to collectibles (as defined in section 408(m)(2)) other than 
        collectibles that are held primarily for sale to customers in 
        the ordinary course of such business, and
            ``(8) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to nonqualified financial property.
    ``(c) Qualified Proprietorship.--For purposes of this section, the 
term `qualified proprietorship' means, with respect to any taxable 
year, any qualified business carried on by an individual as a 
proprietorship if for such year--
            ``(1) at least 80 percent of the total gross income of such 
        individual from such business is derived from the active 
        conduct of such business in an empowerment zone,
            ``(2) substantially all of the use of the tangible property 
        of such individual in such business (whether owned or leased) 
        is within an empowerment zone,
            ``(3) substantially all of the intangible property of such 
        business is used in, and exclusively related to, the active 
        conduct of such business,
            ``(4) substantially all of the services performed for such 
        individual in such business by employees of such business are 
        performed in an empowerment zone,
            ``(5) at least 35 percent of such employees are residents 
        of an empowerment zone,
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to collectibles (as 
        defined in section 408(m)(2)) other than collectibles that are 
        held primarily for sale to customers in the ordinary course of 
        such business, and
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to nonqualified financial 
        property.
For purposes of this subsection, the term `employee' includes the 
proprietor.
    ``(d) Qualified Business.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified business' means any trade or 
        business.
            ``(2) Rental of real property.--The rental to others of 
        real property located in an empowerment zone shall be treated 
        as a qualified business if and only if--
                    ``(A) the property is not residential rental 
                property (as defined in section 168(e)(2)), and
                    ``(B) at least 50 percent of the gross rental 
                income from the real property is from enterprise zone 
                businesses.
            ``(3) Rental of tangible personal property.--The rental to 
        others of tangible personal property shall be treated as a 
        qualified business if and only if substantially all of the 
        rental of such property is by enterprise zone businesses or by 
        residents of an empowerment zone.
            ``(4) Treatment of business holding intangibles.--The term 
        `qualified business' shall not include any trade or business 
        consisting predominantly of the development or holding of 
        intangibles for sale or license.
            ``(5) Certain businesses excluded.--The term `qualified 
        business' shall not include--
                    ``(A) any trade or business consisting of the 
                operation of any facility described in section 
                144(c)(6)(B), and
                    ``(B) any trade or business the principal activity 
                of which is farming (within the meaning of 
                subparagraphs (A) or (B) of section 2032A(e)(5)), but 
                only if, as of the close of the preceding taxable year, 
                the sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the taxpayer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the taxpayer which are used in such a trade 
                        or business,
                exceeds $500,000.
        For purposes of subparagraph (B), rules similar to the rules of 
        section 1397(b) shall apply.
    ``(e) Nonqualified Financial Property.--For purposes of this 
section, the term `nonqualified financial property' means debt, stock, 
partnership interests, options, futures contracts, forward contracts, 
warrants, notional principal contracts, annuities, and other similar 
property specified in regulations; except that such term shall not 
include--
            ``(1) reasonable amounts of working capital held in cash, 
        cash equivalents, or debt instruments with a term of 18 months 
        or less, or
            ``(2) debt instruments described in section 1221(4).

                         ``PART IV--REGULATIONS

                              ``Sec. 1399B. Regulations.

``SEC. 1399B. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes of parts II and III, 
including--
            ``(1) regulations limiting the benefit of parts II and III 
        in circumstances where such benefits, in combination with 
        benefits provided under other Federal programs, would result in 
        an activity being 100 percent or more subsidized by the Federal 
        Government,
            ``(2) regulations preventing abuse of the provisions of 
        parts II and III, and
            ``(3) regulations dealing with inadvertent failures of 
        entities to be enterprise zone businesses.''
    (b) Clerical Amendment.--The table of subchapters for chapter 1 is 
amended by inserting after the item relating to subchapter T the 
following new item:

                              ``Subchapter U. Designation and treatment 
                                        of empowerment zones and 
                                        enterprise communities.''

SEC. 3102. EXPANSION OF TARGETED JOBS CREDIT.

    (a) Allowance of Credit for Hiring Empowerment Zone Resident.--
Paragraph (1) of section 51(d) (defining members of targeted groups) is 
amended by striking ``or'' at the end of subparagraph (I), by striking 
the period at the end of subparagraph (J) and inserting ``, or'', and 
by adding at the end the following new subparagraph:
            ``(K) an empowerment zone resident.''
    (b) Empowerment Zone Resident.--Section 51(d) is amended by 
redesignating paragraphs (13) through (16) as paragraphs (14) through 
(17), respectively, and by inserting after paragraph (12) the following 
new paragraph:
            ``(13) Empowerment zone resident.--The term `empowerment 
        zone resident' means an individual whose principal place of 
        abode while performing services for the employer is within an 
        empowerment zone.''
    (c) Conforming Amendment.--Subparagraph (C) of section 51(d)(12) is 
amended by striking ``paragraph (11)'' and inserting ``paragraph 
(12)''.

SEC. 3103. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Certain Credits Part of General Business Credit.--
            (1) Subsection (b) of section 38 (relating to current year 
        business credit) is amended by striking ``plus'' at the end of 
        paragraph (7), by striking the period at the end of paragraph 
        (8) and inserting a comma, and by adding at the end the 
        following new paragraphs:
            ``(9) the zone resident empowerment savings credit 
        determined under section 1394, plus
            ``(10) the empowerment zone employment credit determined 
        under section 1396(a).''
            (2) Subsection (d) of section 39, as amended by section 
        1201(e)(2), is amended by adding at the end the following new 
        paragraph:
            ``(5) Enterprise zone credits.--No portion of the unused 
        business credit which is attributable to the credit determined 
        under section 1394 (relating to zone resident empowerment 
        savings credit) or section 1396 (relating to empowerment zone 
        employment credit) may be carried to any taxable year ending 
        before January 1, 1994.''
    (b) Denial of Deduction for Portion of Wages Equal to Empowerment 
Zone Employment Credit.--
            (1) Subsection (a) of section 280C (relating to rule for 
        targeted jobs credit) is amended--
                    (A) by striking ``the amount of the credit 
                determined for the taxable year under section 51(a)'' 
                and inserting ``the sum of the credits determined for 
                the taxable year under sections 51(a) and 1396(a)'', 
                and
                    (B) by striking ``Targeted Jobs Credit'' in the 
                subsection heading and inserting ``Employment 
                Credits''.
            (2) Subsection (c) of section 196 (relating to deduction 
        for certain unused business credits) 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 the following new paragraph:
            ``(6) the empowerment zone employment credit determined 
        under section 1396(a).''
    (c) Employment and Savings Credits May Offset 25 Percent of Minimum 
Tax.--
            (1) Subparagraph (A) of section 38(c)(2), as added by 
        section 1201(c) of this Act, is amended--
                    (A) by inserting ``and the empowerment zone 
                credits'' after ``the regular investment tax credit'' 
                each place it appears, and
                    (B) by striking ``such credit'' in clause (ii) and 
                inserting ``such credits''.
            (2) Paragraph (2) of section 38(c), as so added, is amended 
        by adding at the end thereof the following new subparagraph:
                    ``(C) Empowerment zone credits.--For purposes of 
                this paragraph, the term `empowerment zone credits' 
                means the portion of the credit under subsection (a) 
                which is attributable to the credits determined under 
                section 1394 (relating to zone resident empowerment 
                savings credit) and section 1396 (relating to 
                empowerment zone employment credit).''
    (d) Changes Relating to Empowerment Zone Resident Empowerment 
Savings Credit.--
            (1) Disallowance of deduction.--Section 404 (relating to 
        deduction for certain employer contributions) is amended by 
        adding at the end the following new subsection:
    ``(m) Coordination With Empowerment Zone Credit.--No deduction 
shall be allowed under this section for any qualified employer 
contribution taken into account in computing the credit determined 
under section 1394.''
            (2) Penalty-free distributions.--
                    (A) In general.--Paragraph (2) of section 72(t) 
                (relating to exceptions to 10-percent additional tax on 
                early distributions from qualified retirement plans) is 
                amended by adding at the end thereof the following new 
                subparagraph:
                    ``(D) Distributions from certain plans for first 
                home purchases or educational expenses.--
                            ``(i) In general.--Distributions to an 
                        individual from a qualified retirement plan--
                                    ``(I) which are qualified first-
                                time homebuyer distributions (as 
                                defined in paragraph (6)),
                                    ``(II) to the extent such 
                                distributions do not exceed the 
                                qualified higher education expenses (as 
                                defined in paragraph (7)) of the 
                                taxpayer for the taxable year, or
                                    ``(III) to the extent such 
                                distributions do not exceed an amount 
                                equal to the aggregate investment made 
                                by the taxpayer during the taxable year 
                                in any enterprise zone business (as 
                                defined in section 1399A) that meets 
                                the ownership requirements of section 
                                1399(b).
                            ``(ii) Limitation.--Clause (i) shall not 
                        apply to the extent that the aggregate amount 
                        of the distributions described in clause (i) 
                        are greater than the excess of--
                                    ``(I) the qualified retirement 
                                contributions (as defined in section 
                                1394(b)) of the taxpayer, and any 
                                earnings thereon, over
                                    ``(II) the aggregate amounts to 
                                which clause (i) and the last sentence 
                                of paragraph (3)(A) applied for 
                                preceding taxable years.''
                    (B) Definitions.--Section 72(t) is amended by 
                adding at the end thereof the following new paragraphs:
            ``(6) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(D)(i)(I)--
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual or the spouse of such individual.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph--
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 3-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (a)(6), (h), or 
                                (k) of section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the distribution is applied pursuant to 
                                subparagraph (A)(ii).
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
                    ``(D) Special rule where delay in acquisition.--If 
                any distribution from any qualified retirement plan 
                fails to meet the requirements of subparagraph (A) 
                solely by reason of a delay or cancellation of the 
                purchase or construction of the residence, the amount 
                of the distribution may be recontributed to the plan 
                from which it was distributed within 120 days after the 
                date of such distribution.
            ``(7) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii)(II)--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition, fees, books, 
                supplies, and equipment required for the enrollment or 
                attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) the taxpayer's child (as defined in 
                        section 151(c)(3)) or grandchild,
                at an eligible educational institution (as defined in 
                section 135(c)(3)).
                    ``(B) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
                excludable from gross income under section 135.''
                    (C) Conforming amendments.--
                            (i) Subparagraph (B) of section 72(t)(2) is 
                        amended by striking ``or (C)'' and inserting 
                        ``, (C), or (D)''.
                            (ii) Section 401(k)(2)(B)(i) is amended by 
                        striking ``or'' at the end of subclause (III), 
                        by striking ``and'' at the end of subclause 
                        (IV) and inserting ``or'', and by inserting 
                        after subclause (IV) the following new 
                        subclause:
                                    ``(V) subject to the limitation of 
                                section 72(t)(2)(D)(ii), the date on 
                                which qualified first-time homebuyer 
                                distributions (as defined in section 
                                72(t)(6)), distributions for qualified 
                                higher education expenses (as defined 
                                in section 72(t)(7)), or distributions 
                                for investments described in section 
                                72(t)(2)(D)(i)(III) are made, and''.
    (e) Amendment of Targeted Jobs Credit.--Subparagraph (A) of section 
51(i)(1) is amended by inserting ``, or, if the taxpayer is an entity 
other than a corporation, to any individual who owns, directly or 
indirectly, more than 50 percent of the capital and profits interests 
in the entity,'' after ``of the corporation''.
    (f) Carryovers.--Subsection (c) of section 381 (relating to 
carryovers in certain corporate acquisitions) is amended by adding at 
the end the following new paragraph:
            ``(26) Enterprise zone provisions.--The acquiring 
        corporation shall take into account (to the extent proper to 
        carry out the purposes of this section and subchapter U, and 
        under such regulations as may be prescribed by the Secretary) 
        the items required to be taken into account for purposes of 
        subchapter U in respect of the distributor or transferor 
        corporation.''

SEC. 3104. EFFECTIVE DATE.

    The amendments made by this title shall take effect on the date of 
the enactment of this Act.
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