[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3448 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
July 9, 1996.
Resolved, That the bill from the House of Representatives (H.R.
3448) entitled ``An Act to provide tax relief for small businesses, to
protect jobs, to create opportunities, to increase the take home pay of
workers, to amend the Portal-to-Portal Act of 1947 relating to the
payment of wages to employees who use employer owned vehicles, and to
amend the Fair Labor Standards Act of 1938 to increase the minimum wage
rate and to prevent job loss by providing flexibility to employers in
complying with minimum wage and overtime requirements under that
Act.'', do pass with the following
AMENDMENTS:
(1)Page 2, strike out all after line 5, over to and including line 9 on
page 236 and insert:
(b) Table of Contents.--
Sec. 1. Short title; table of contents.
TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS
Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.
Subtitle A--Expensing; Etc.
Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of dues paid to agricultural or horticultural
organizations.
Sec. 1114. Clarification of employment tax status of certain fishermen.
Sec. 1115. Modifications of tax-exempt bond rules for first-time
farmers.
Sec. 1116. Newspaper distributors treated as direct sellers.
Sec. 1117. Application of involuntary conversion rules to
presidentially declared disasters.
Sec. 1118. Class life for gas station convenience stores and similar
structures.
Sec. 1119. Treatment of abandonment of lessor improvements at
termination of lease.
Sec. 1120. Deductibility of business meal expenses for certain seafood
processing facilities.
Sec. 1121. Clarification of tax treatment of hard cider.
Sec. 1122. Special rules relating to determination whether individuals
are employees for purposes of employment
taxes.
Sec. 1123. Treatment of housing provided to employees by academic
health centers.
Subtitle B--Extension of Certain Expiring Provisions
Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. Research credit.
Sec. 1204. Orphan drug tax credit.
Sec. 1205. Contributions of stock to private foundations.
Sec. 1206. Extension of binding contract date for biomass and coal
facilities.
Sec. 1207. Moratorium for excise tax on diesel fuel sold for use or
used in diesel-powered motorboats.
Sec. 1208. Extension of transition rule for certain publicly traded
partnerships.
Subtitle C--Provisions Relating to S Corporations
Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid
elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk
rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain
items of income.
Sec. 1314. S corporations eligible for rules applicable to real
property subdivided for sale by
noncorporate taxpayers.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.
Subtitle D--Pension Simplification
Chapter 1--Simplified Distribution Rules
Sec. 1401. Repeal of 5-year income averaging for lump-sum
distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under
certain employer plans.
Sec. 1404. Required distributions.
Chapter 2--Increased Access to Retirement Plans
subchapter a--simple savings plans
Sec. 1421. Establishment of savings incentive match plans for employees
of small employers.
Sec. 1422. Extension subchapter b--other provisionsgements.
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
Sec. 1427. Homemakers eligible for full IRA deduction.
Chapter 3--Nondiscrimination Provisions
Sec. 1431. Definition of highly compensated employees; repeal of family
aggregation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred
arrangements and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.
Chapter 4--Miscellaneous Provisions
Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local
governments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State
and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section
415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Missing participants.
Sec. 1452. Repeal of limitation in case of defined benefit plan and
defined contribution plan for same
employee; excess distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension
reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net
earnings from self-employment.
Sec. 1457. Model forms for spousal consent and qualified domestic
relations forms.
Sec. 1458. Treatment of length of service awards to volunteers
performing fire fighting or prevention
services, emergency medical services, or
ambulance services.
Sec. 1459. Alternative nondiscrimination rules for certain plans that
provide for early participation.
Sec. 1460. Modifications of joint and survivor annuity requirements.
Sec. 1461. Clarification of application of ERISA to insurance company
general accounts.
Sec. 1462. Special rules for chaplains and self-employed ministers.
Sec. 1463. Definition of highly compensated employee for pre-ERISA
church plans.
Sec. 1464. Rule relating to investment in contract not to apply to
foreign missionaries.
Sec. 1465. Increase in guaranteed amount of multi-employer plan
benefits.
Sec. 1466. Waiver of excise tax on failure to pay liquidity shortfall.
Sec. 1467. Treatment of multiemployer plans under section 415.
Sec. 1468. Payment of lump-sum credit for former spouses of Federal
employees.
Sec. 1469. Date for adoption of plan amendments.
Subtitle E--Revenue Offsets
Part I--General Provisions
Sec. 1601. Modifications of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire
employer securities.
Sec. 1603. Repeal of exclusion for punitive damages.
Sec. 1604. Extension and phasedown of luxury passenger automobile tax.
Sec. 1605. Termination of future tax-exempt bond financing for local
furnishers of electricity and gas.
Sec. 1606. Repeal of financial institution transition rule to interest
allocation rules.
Sec. 1607. Extension of airport and airway trust fund excise taxes.
Sec. 1608. Basis adjustment to property held by corporation where stock
in corporation is replacement property
under involuntary conversion rules.
Sec. 1609. Extension of withholding to certain gambling winnings.
Sec. 1610. Treatment of certain insurance contracts on retired lives.
Sec. 1611. Treatment of contributions in aid of construction.
Sec. 1612. Election to cease status as qualified scholarship funding
corporation.
Sec. 1613. Certain tax benefits denied to individuals failing to
provide taxpayer identification numbers.
Part II--Financial Asset Securitization Investments
Sec. 1621. Financial asset securitization investment trusts.
Part III--Treatment of Individuals Who Expatriate
Sec. 1631. Revision of tax rules on expatriation.
Sec. 1632. Information on individuals expatriating.
Sec. 1633. Report on tax compliance by United States citizens and
residents living abroad.
Subtitle F--Technical Corrections
Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.
Subtitle G--Other Provisions
Sec. 1801. Exemption from diesel fuel dyeing requirements with respect
to certain States.
Sec. 1802. Treatment of certain university accounts.
Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.
Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration
facility.
Sec. 1805. Nonrecognition treatment for certain transfers by common
trust funds to regulated investment
companies.
Sec. 1806. Qualified State tuition programs.
TITLE II--PAYMENT OF WAGES
Sec. 2101. Short title.
Sec. 2102. Proper compensation for use of employer vehicles.
Sec. 2103. Effective date.
Sec. 2104. Minimum wage increase.
Sec. 2105. Fair Labor Standards Act Amendments.
TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS
SEC. 1101. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title 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.
SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.
No addition to the tax shall be made under section 6654 or 6655 of
the Internal Revenue Code of 1986 (relating to failure to pay estimated
tax) with respect to any underpayment of an installment required to be
paid before the date of the enactment of this Act to the extent such
underpayment was created or increased by any provision of this title.
Subtitle A--Expensing; Etc.
SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
(a) General Rule.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be
taken into account under subsection (a) for any taxable year
shall not exceed the following applicable amount:
``If the taxable year
The applicable
begins in:
amount is:
1997............................... 18,000
1998............................... 18,500
1999............................... 19,000
2000............................... 20,000
2001............................... 24,000
2002............................... 24,000
2003 or thereafter................. 25,000.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1996.
SEC. 1112. TREATMENT OF EMPLOYEE TIPS.
(a) Employee Cash Tips.--
(1) Reporting requirement not considered.--Subparagraph (A)
of section 45B(b)(1) (relating to excess employer social
security tax) is amended by inserting ``(without regard to
whether such tips are reported under section 6053)'' after
``section 3121(q)''.
(2) Taxes paid.--Subsection (d) of section 13443 of the
Revenue Reconciliation Act of 1993 is amended by inserting ``,
with respect to services performed before, on, or after such
date'' after ``1993''.
(3) Effective date.--The amendments made by this subsection
shall take effect as if included in the amendments made by, and
the provisions of, section 13443 of the Revenue Reconciliation
Act of 1993.
(b) Tips for Employees Delivering Food or Beverages.--
(1) In general.--Paragraph (2) of section 45B(b) is amended
to read as follows:
``(2) Only tips received for food or beverages taken into
account.--In applying paragraph (1), there shall be taken into
account only tips received from customers in connection with
the delivering or serving of food or beverages for consumption
if the tipping of employees delivering or serving food or
beverages by customers is customary.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to tips received for services performed after
December 31, 1996.
SEC. 1113. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL
ORGANIZATIONS.
(a) General Rule.--Section 512 (defining unrelated business taxable
income) is amended by adding at the end the following new subsection:
``(d) Treatment of Dues of Agricultural or Horticultural
Organizations.--
``(1) In general.--If--
``(A) an agricultural or horticultural organization
described in section 501(c)(5) requires annual dues to
be paid in order to be a member of such organization,
and
``(B) the amount of such required annual dues does
not exceed $100,
in no event shall any portion of such dues be treated as
derived by such organization from an unrelated trade or
business by reason of any benefits or privileges to which
members of such organization are entitled.
``(2) Indexation of $100 amount.--In the case of any
taxable year beginning in a calendar year after 1995, the $100
amount in paragraph (1) shall be increased by an amount equal
to--
``(A) $100, 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
1994' for `calendar year 1992' in subparagraph (B)
thereof.
``(3) Dues.--For purposes of this subsection, the term
`dues' means any payment (whether or not designated as dues)
which is required to be made in order to be recognized by the
organization as a member of the organization.''.
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to taxable years beginning after December 31, 1986.
(2) Transitional rule.--If--
(A) for purposes of applying part III of subchapter
F of chapter 1 of the Internal Revenue Code of 1986 to
any taxable year beginning before January 1, 1987, an
agricultural or horticultural organization did not
treat any portion of membership dues received by it as
income derived in an unrelated trade or business, and
(B) such organization had a reasonable basis for
not treating such dues as income derived in an
unrelated trade or business,
then, for purposes of applying such part III to any such
taxable year, in no event shall any portion of such dues be
treated as derived in an unrelated trade or business.
(3) Reasonable basis.--For purposes of paragraph (2), an
organization shall be treated as having a reasonable basis for
not treating membership dues as income derived in an unrelated
trade or business if the taxpayer's treatment of such dues was
in reasonable reliance on any of the following:
(A) Judicial precedent, published rulings,
technical advice with respect to the organization, or a
letter ruling to the organization.
(B) A past Internal Revenue Service audit of the
organization in which there was no assessment
attributable to the reclassification of membership dues
for purposes of the tax on unrelated business income.
(C) Long-standing recognized practice of
agricultural or horticultural organizations.
SEC. 1114. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN FISHERMEN.
(a) Clarification of Employment Tax Status.--
(1) Amendments of internal revenue code of 1986.--
(A) Determination of size of crew.--Subsection (b)
of section 3121 (defining employment) is amended by
adding at the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4
calendar quarters consisted of fewer than 10 individuals.''.
(B) Certain cash remuneration permitted.--
Subparagraph (A) of section 3121(b)(20) is amended to
read as follows:
``(A) such individual does not receive any cash
remuneration other than as provided in subparagraph (B)
and other than cash remuneration--
``(i) which does not exceed $100 per trip;
``(ii) which is contingent on a minimum
catch; and
``(iii) which is paid solely for additional
duties (such as mate, engineer, or cook) for
which additional cash remuneration is
traditional in the industry,''.
(C) Conforming amendment.--Section 6050A(a) is
amended by striking ``and'' at the end of paragraph
(3), by striking the period at the end of paragraph (4)
and inserting ``; and'', and by adding at the end the
following new paragraph:
``(5) any cash remuneration described in section
3121(b)(20)(A).''.
(2) Amendment of social security act.--
(A) Determination of size of crew.--Subsection (a)
of section 210 of the Social Security Act is amended by
adding at the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4
calendar quarters consisted of fewer than 10 individuals.''.
(B) Certain cash remuneration permitted.--
Subparagraph (A) of section 210(a)(20) of such Act is
amended to read as follows:
``(A) such individual does not receive any
additional compensation other than as provided in
subparagraph (B) and other than cash remuneration--
``(i) which does not exceed $100 per trip;
``(ii) which is contingent on a minimum
catch; and
``(iii) which is paid solely for additional
duties (such as mate, engineer, or cook) for
which additional cash remuneration is
traditional in the industry,''.
(b) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to remuneration paid--
(A) after December 31, 1994, and
(B) after December 31, 1984, and before January 1,
1995, unless the payor treated such remuneration (when
paid) as being subject to tax under chapter 21 of the
Internal Revenue Code of 1986.
(2) Reporting requirement.--The amendment made by
subsection (a)(1)(C) shall apply to remuneration paid after
December 31, 1996.
SEC. 1115. MODIFICATIONS OF TAX-EXEMPT BOND RULES FOR FIRST-TIME
FARMERS.
(a) Acquisition From Related Person Allowed.--Section 147(c)(2)
(relating to exception for first-time farmers) is amended by adding at
the end the following new subparagraph:
``(G) Acquisition from related person.--For
purposes of this paragraph and section 144(a), the
acquisition by a first-time farmer of land or personal
property from a related person (within the meaning of
section 144(a)(3)) shall not be treated as an
acquisition from a related person, if--
``(i) the acquisition price is for the fair
market value of such land or property, and
``(ii) subsequent to such acquisition, the
related person does not have a financial
interest in the farming operation with respect
to which the bond proceeds are to be used.''.
(b) Substantial Farmland Amount Doubled.--Clause (i) of section
147(c)(2)(E) (defining substantial farmland) is amended by striking
``15 percent'' and inserting ``30 percent''.
(c) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.
SEC. 1116. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.
(a) In General.--Section 3508(b)(2)(A) is amended by striking
``or'' at the end of clause (i), by inserting ``or'' at the end of
clause (ii), and by inserting after clause (ii) the following new
clause:
``(iii) is engaged in the trade or business
of the delivering or distribution of newspapers
or shopping news (including any services
directly related to such trade or business),''.
(b) Effective Date.--The amendments made by this section shall
apply to services performed after December 31, 1995.
SEC. 1117. APPLICATION OF INVOLUNTARY CONVERSION RULES TO
PRESIDENTIALLY DECLARED DISASTERS.
(a) In General.--Section 1033(h) is amended by redesignating
paragraphs (2) and (3) as paragraphs (3) and (4) and by inserting after
paragraph (1) the following new paragraph:
``(2) Trade or business and investment property.--If a
taxpayer's property held for productive use in a trade or
business or for investment is compulsorily or involuntarily
converted as a result of a Presidentially declared disaster,
tangible property of a type held for productive use in a trade
or business shall be treated for purposes of subsection (a) as
property similar or related in service or use to the property
so converted.''.
(b) Conforming Amendments.--Section 1033(h) is amended--
(1) by striking ``residence'' in paragraph (3) (as
redesignated by subsection (a)) and inserting ``property'',
(2) by striking ``Principal Residences'' in the heading and
inserting ``Property'', and
(3) by striking ``(1) In general.--'' and inserting ``(1)
Principal residences.--''.
(c) Effective Date.--The amendments made by this section shall
apply to disasters declared after December 31, 1994, in taxable years
ending after such date.
SEC. 1118. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND SIMILAR
STRUCTURES.
(a) In General.--Section 168(e)(3)(E) (classifying certain property
as 15-year property) is amended by striking ``and'' at the end of
clause (i), by striking the period at the end of clause (ii) and
inserting ``, and'', and by adding at the end the following new clause:
``(iii) any section 1250 property which is
a retail motor fuels outlet (whether or not
food or other convenience items are sold at the
outlet).''.
(b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) is
amended by inserting after the item relating to subparagraph (E)(ii) in
the table contained therein the following new item:
``(E)(iii)................. 20''.
(c) Effective Date.--The amendments made by this section shall
apply to property which is placed in service on or after the date of
the enactment of this Act and to which section 168 of the Internal
Revenue Code of 1986 applies after the amendment made by section 201 of
the Tax Reform Act of 1986. A taxpayer may elect (in such form and
manner as the Secretary of the Treasury may prescribe) to have such
amendments apply with respect to any property placed in service before
such date and to which such section so applies.
SEC. 1119. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT
TERMINATION OF LEASE.
(a) In General.--Paragraph (8) of section 168(i) is amended to read
as follows:
``(8) Treatment of leasehold improvements.--
``(A) In general.--In the case of any building
erected (or improvements made) on leased property, if
such building or improvement is property to which this
section applies, the depreciation deduction shall be
determined under the provisions of this section.
``(B) Treatment of lessor improvements which are
abandoned at termination of lease.--An improvement--
``(i) which is made by the lessor of leased
property for the lessee of such property, and
``(ii) which is irrevocably disposed of or
abandoned by the lessor at the termination of
the lease by such lessee,
shall be treated for purposes of determining gain or
loss under this title as disposed of by the lessor when
so disposed of or abandoned.''.
(b) Effective Date.--Subparagraph (B) of section 168(i)(8) of the
Internal Revenue Code of 1986, as added by the amendment made by
subsection (a), shall apply to improvements disposed of or abandoned
after June 12, 1996.
SEC. 1120. DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR CERTAIN SEAFOOD
PROCESSING FACILITIES.
(a) In General.--Subparagraph (E) of section 274(n)(2) is amended
by striking ``or'' at the end of clause (iii), by striking the period
at the end of clause (iv) and inserting ``, or'', and by inserting
after clause (iv) the following new clause:
``(v) provided at a remote seafood
processing facility located in the United
States north of 53 degrees north latitude.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
SEC. 1121. CLARIFICATION OF TAX TREATMENT OF HARD CIDER.
(a) Hard Cider Containing Not More Than 7 Percent Alcohol Taxed as
Wine.--Subsection (b) of section 5041 (relating to imposition and rate
of tax) 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) On hard cider derived primarily from apples or apple
concentrate and water, containing no other fruit product, and
containing at least one-half of 1 percent and not more than 7
percent of alcohol by volume, 22.6 cents per wine gallon.''.
(b) Exclusion From Small Producer Credit.--Paragraph (1) of section
5041(c) (relating to credit for small domestic producers) is amended by
striking ``subsection (b)(4)'' and inserting ``paragraphs (4) and (6)
of subsection (b)''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 1997.
SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS
ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.
(a) In General.--Section 530 of the Revenue Act of 1978 is amended
by adding at the end the following new subsection:
``(e) Special Rules for Application of Section.--
``(1) Notice requirements.--
``(A) Written agreement required between taxpayer
and individual.--The provisions of subsection (a)(1)
shall not apply with respect to a taxpayer and any
individual unless such taxpayer and individual sign a
statement (at such time and in such form as the
Secretary may prescribe) which provides that such
individual will not be treated as an employee of the
taxpayer for purposes of employment taxes.
``(B) Notice of availability of section.--An
officer or employee of the Internal Revenue Service
shall, before or at the commencement of any audit
relating to the employment status of one or more
individuals who perform services for the taxpayer,
provide the taxpayer with a written notice of the
provisions of this section.
``(2) Rules relating to statutory standards.--For purposes
of subsection (a)(2)--
``(A) a taxpayer may not rely on an audit commenced
after December 31, 1996, for purposes of subparagraph
(B) thereof unless such audit included an examination
for employment tax purposes of whether the individual
involved (or any individual holding a position
substantially similar to the position held by the
individual involved) should be treated as an employee
of the taxpayer,
``(B) in no event shall the significant segment
requirement of subparagraph (C) thereof be construed to
require a reasonable showing of the practice of more
than 25 percent of the industry (determined by not
taking into account the taxpayer), and
``(C) in applying the long-standing recognized
practice requirement of subparagraph (C) thereof--
``(i) such requirement shall not be
construed as requiring the practice to have
continued for more than 10 years, and
``(ii) a practice shall not fail to be
treated as long-standing merely because such
practice began after 1978.
``(3) Availability of safe harbors.--Nothing in this
section shall be construed to provide that subsection (a) only
applies where the individual involved is otherwise an employee
of the taxpayer.
``(4) Burden of proof.--
``(A) In general.--If--
``(i) a taxpayer establishes a prima facie
case that it was reasonable not to treat an
individual as an employee for purposes of this
section, and
``(ii) the taxpayer has fully cooperated
with reasonable requests from the Secretary of
the Treasury or his delegate,
then the burden of proof with respect to such treatment
shall be on the Secretary.
``(B) Exception for other reasonable basis.--In the
case of any issue involving whether the taxpayer had a
reasonable basis not to treat an individual as an
employee for purposes of this section, subparagraph (A)
shall only apply for purposes of determining whether
the taxpayer meets the requirements of subparagraph
(A), (B), or (C) of subsection (a)(2).
``(5) Preservation of prior period safe harbor.--If--
``(A) an individual would (but for the treatment
referred to in subparagraph (B)) be deemed not to be an
employee of the taxpayer under subsection (a) for any
prior period, and
``(B) such individual is treated by the taxpayer as
an employee for employment tax purposes for any
subsequent period,
then, for purposes of applying such taxes for such prior period
with respect to the taxpayer, the individual shall be deemed
not to be an employee.
``(6) Substantially similar position.--For purposes of this
section, the determination as to whether an individual holds a
position substantially similar to a position held by another
individual shall include consideration of the relationship
between the taxpayer and such individuals.''.
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to periods after December 31, 1996.
(2) Notice requirements.--
(A) Written agreement.--In the case of individuals
who first perform services for a taxpayer before
January 1, 1997, the requirements of section
530(e)(1)(A) of the Revenue Act of 1978 (as added by
subsection (a)) shall not apply before January 1, 1998,
unless the taxpayer elects to apply such requirements
before such date.
(B) Notice by internal revenue service.--Section
530(e)(1)(B) of the Revenue Act of 1978 (as added by
subsection (a)) shall apply to audits which commence
after December 31, 1996.
(3) Burden of proof.--
(A) In general.--Section 530(e)(4) of the Revenue
Act of 1978 (as added by subsection (a)) shall apply to
disputes involving periods after December 31, 1996.
(B) No inference.--Nothing in the amendments made
by this section shall be construed to infer the proper
treatment of the burden of proof with respect to
disputes involving periods before January 1, 1997.
SEC. 1123. TREATMENT OF HOUSING PROVIDED TO EMPLOYEES BY ACADEMIC
HEALTH CENTERS.
(a) In General.--Paragraph (4) of section 119(d) (relating to
lodging furnished by certain educational institutions to employees) is
amended to read as follows:
``(4) Educational institution.--For purposes of this
subsection--
``(A) In general.--The term `educational
institution' means--
``(i) an institution described in section
170(b)(1)(A)(ii), or
``(ii) an academic health center.
``(B) Academic health center.--For purposes of
subparagraph (A), the term `academic health center'
means an entity--
``(i) which is described in section
170(b)(1)(A)(iii),
``(ii) which receives (during the calendar
year in which the taxable year of the taxpayer
begins) payments under subsection (d)(5)(B) or
(h) of section 1886 of the Social Security Act
(relating to graduate medical education), and
``(iii) which has as one of its principal
purposes or functions the providing and
teaching of basic and clinical medical science
and research with the entity's own faculty.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1995.
Subtitle B--Extension of Certain Expiring Provisions
SEC. 1201. WORK OPPORTUNITY TAX CREDIT.
(a) Amount of Credit.--Subsection (a) of section 51 (relating to
amount of credit) is amended by striking ``40 percent'' and inserting
``35 percent''.
(b) Members of Targeted Groups.--Subsection (d) of section 51 is
amended to read as follows:
``(d) Members of Targeted Groups.--For purposes of this subpart--
``(1) In general.--An individual is a member of a targeted
group if such individual is--
``(A) a qualified IV-A recipient,
``(B) a qualified veteran,
``(C) a qualified ex-felon,
``(D) a high-risk youth,
``(E) a vocational rehabilitation referral,
``(F) a qualified summer youth employee, or
``(G) a qualified food stamp recipient.
``(2) Qualified iv-a recipient.--
``(A) In general.--The term `qualified IV-A
recipient' means any individual who is certified by the
designated local agency as being a member of a family
receiving assistance under a IV-A program for at least
a 9-month period ending during the 9-month period
ending on the hiring date.
``(B) IV-A program.--For purposes of this
paragraph, the term `IV-A program' means any program
providing assistance under a State plan approved under
part A of title IV of the Social Security Act (relating
to assistance for needy families with minor children)
and any successor of such program.
``(3) Qualified veteran.--
``(A) In general.--The term `qualified veteran'
means any veteran who is certified by the designated
local agency as being--
``(i) a member of a family receiving
assistance under a IV-A program (as defined in
paragraph (2)(B)) for at least a 9-month period
ending during the 12-month period ending on the
hiring date, or
``(ii) a member of a family receiving
assistance under a food stamp program under the
Food Stamp Act of 1977 for at least a 3-month
period ending during the 12-month period ending
on the hiring date.
``(B) Veteran.--For purposes of subparagraph (A),
the term `veteran' means any individual who is
certified by the designated local agency as--
``(i)(I) having served on active duty
(other than active duty for training) in the
Armed Forces of the United States for a period
of more than 180 days, or
``(II) having been discharged or released
from active duty in the Armed Forces of the
United States for a service-connected
disability, and
``(ii) not having any day during the 60-day
period ending on the hiring date which was a
day of extended active duty in the Armed Forces
of the United States.
For purposes of clause (ii), the term `extended active
duty' means a period of more than 90 days during which
the individual was on active duty (other than active
duty for training).
``(4) Qualified ex-felon.--The term `qualified ex-felon'
means any individual who is certified by the designated local
agency--
``(A) as having been convicted of a felony under
any statute of the United States or any State,
``(B) as having a hiring date which is not more
than 1 year after the last date on which such
individual was so convicted or was released from
prison, and
``(C) as being a member of a family which had an
income during the 6 months immediately preceding the
earlier of the month in which such income determination
occurs or the month in which the hiring date occurs,
which, on an annual basis, would be 70 percent or less
of the Bureau of Labor Statistics lower living
standard.
Any determination under subparagraph (C) shall be valid for the
45-day period beginning on the date such determination is made.
``(5) High-risk youth.--
``(A) In general.--The term `high-risk youth' means
any individual who is certified by the designated local
agency--
``(i) as having attained age 18 but not age
25 on the hiring date, and
``(ii) as having his principal place of
abode within an empowerment zone or enterprise
community.
``(B) Youth must continue to reside in zone.--In
the case of a high-risk youth, the term `qualified
wages' shall not include wages paid or incurred for
services performed while such youth's principal place
of abode is outside an empowerment zone or enterprise
community.
``(6) Vocational rehabilitation referral.--The term
`vocational rehabilitation referral' means any individual who
is certified by the designated local agency as--
``(A) having a physical or mental disability which,
for such individual, constitutes or results in a
substantial handicap to employment, and
``(B) having been referred to the employer upon
completion of (or while receiving) rehabilitative
services pursuant to--
``(i) an individualized written
rehabilitation plan under a State plan for
vocational rehabilitation services approved
under the Rehabilitation Act of 1973, or
``(ii) a program of vocational
rehabilitation carried out under chapter 31 of
title 38, United States Code.
``(7) Qualified summer youth employee.--
``(A) In general.--The term `qualified summer youth
employee' means any individual--
``(i) who performs services for the
employer between May 1 and September 15,
``(ii) who is certified by the designated
local agency as having attained age 16 but not
18 on the hiring date (or if later, on May 1 of
the calendar year involved),
``(iii) who has not been an employee of the
employer during any period prior to the 90-day
period described in subparagraph (B)(i), and
``(iv) who is certified by the designated
local agency as having his principal place of
abode within an empowerment zone or enterprise
community.
``(B) Special rules for determining amount of
credit.--For purposes of applying this subpart to wages
paid or incurred to any qualified summer youth
employee--
``(i) subsection (b)(2) shall be applied by
substituting `any 90-day period between May 1
and September 15' for `the 1-year period
beginning with the day the individual begins
work for the employer', and
``(ii) subsection (b)(3) shall be applied
by substituting `$3,000' for `$6,000'.
The preceding sentence shall not apply to an individual
who, with respect to the same employer, is certified as
a member of another targeted group after such
individual has been a qualified summer youth employee.
``(C) Youth must continue to reside in zone.--
Paragraph (5)(B) shall apply for purposes of
subparagraph (A)(iv).
``(8) Qualified food stamp recipient.--
``(A) In general.--The term `qualified food stamp
recipient' means any individual who is certified by the
designated local agency--
``(i) as having attained age 18 but not age
25 on the hiring date, and
``(ii) as being a member of a family
receiving assistance under a food stamp program
under the Food Stamp Act of 1977 for the 3-
month period ending on the hiring date.
``(B) Participation information.--Notwithstanding
any other provision of law, the Secretary of the
Treasury and the Secretary of Agriculture shall enter
into an agreement to provide information to designated
local agencies with respect to participation in the
food stamp program.
``(9) Hiring date.--The term `hiring date' means the day
the individual is hired by the employer.
``(10) Designated local agency.--The term `designated local
agency' means a State employment security agency established in
accordance with the Act of June 6, 1933, as amended (29 U.S.C.
49-49n).
``(11) Special rules for certifications.--
``(A) In general.--An individual shall not be
treated as a member of a targeted group unless--
``(i) on or before the day on which such
individual begins work for the employer, the
employer has received a certification from a
designated local agency that such individual is
a member of a targeted group, or
``(ii)(I) on or before the day the
individual is offered employment with the
employer, a pre-screening notice is completed
by the employer with respect to such
individual, and
``(II) not later than the 21st day after
the individual begins work for the employer,
the employer submits such notice, signed by the
employer and the individual under penalties of
perjury, to the designated local agency as part
of a written request for such a certification
from such agency.
For purposes of this paragraph, the term `pre-screening
notice' means a document (in such form as the Secretary
shall prescribe) which contains information provided by
the individual on the basis of which the employer
believes that the individual is a member of a targeted
group.
``(B) Incorrect certifications.--If--
``(i) an individual has been certified by a
designated local agency as a member of a
targeted group, and
``(ii) such certification is incorrect
because it was based on false information
provided by such individual,
the certification shall be revoked and wages paid by
the employer after the date on which notice of
revocation is received by the employer shall not be
treated as qualified wages.
``(C) Explanation of denial of request.--If a
designated local agency denies a request for
certification of membership in a targeted group, such
agency shall provide to the person making such request
a written explanation of the reasons for such
denial.''.
(c) Minimum Employment Period.--Paragraph (3) of section 51(i)
(relating to certain individuals ineligible) is amended to read as
follows:
``(3) Individuals not meeting minimum employment period.--
No wages shall be taken into account under subsection (a) with
respect to any individual unless such individual either--
``(A) is employed by the employer at least 180 days
(20 days in the case of a qualified summer youth
employee), or
``(B) has completed at least 375 hours (120 hours
in the case of a qualified summer youth employee) of
services performed for the employer.''.
(d) Termination.--Paragraph (4) of section 51(c) (relating to wages
defined) is amended to read as follows:
``(4) Termination.--The term `wages' shall not include any
amount paid or incurred to an individual who begins work for
the employer--
``(A) after December 31, 1994, and before October
1, 1996, or
``(B) after September 30, 1997.''.
(e) Redesignation of Credit.--
(1) Sections 38(b)(2) and 51(a) are each amended by
striking ``targeted jobs credit'' and inserting ``work
opportunity credit''.
(2) The subpart heading for subpart F of part IV of
subchapter A of chapter 1 is amended by striking ``Targeted
Jobs Credit'' and inserting ``Work Opportunity Credit''.
(3) The table of subparts for such part IV is amended by
striking ``targeted jobs credit'' and inserting ``work
opportunity credit''.
(4) The heading for paragraph (3) of section 1396(c) is
amended by striking ``targeted jobs credit'' and inserting
``work opportunity credit''.
(f) Technical Amendment.--Paragraph (1) of section 51(c) is amended
by striking ``, subsection (d)(8)(D),''.
(g) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after September
30, 1996.
SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.
(a) Extension.--Subsection (d) of section 127 (relating to
educational assistance programs) is amended by striking ``December 31,
1994'' and inserting ``December 31, 1997''.
(b) Effective Dates.--
(1) Extension.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1994.
(2) Expedited procedures.--The Secretary of the Treasury
shall establish expedited procedures for the refund of any
overpayment of taxes imposed by the Internal Revenue Code of
1986 which is attributable to amounts excluded from gross
income during 1995 or 1996 under section 127 of such Code,
including procedures waiving the requirement that an employer
obtain an employee's signature where the employer demonstrates
to the satisfaction of the Secretary that any refund collected
by the employer on behalf of the employee will be paid to the
employee.
SEC. 1203. RESEARCH CREDIT.
(a) In General.--Subsection (h) of section 41 (relating to credit
for research activities) is amended to read as follows:
``(h) Termination.--
``(1) In general.--This section shall not apply to any
amount paid or incurred--
``(A) after June 30, 1995, and before July 1, 1996,
or
``(B) after December 31, 1997.
Notwithstanding the preceding sentence, in the case of a
taxpayer making an election under subsection (c)(4) for its
first taxable year beginning after June 30, 1996, and before
July 1, 1997, this section shall apply to amounts paid or
incurred during such first taxable year and the first 6 months
of the succeeding taxable year.''
``(2) Computation of base amount.--In the case of any
taxable year with respect to which this section applies to a
number of days which is less than the total number of days in
such taxable year, the base amount with respect to such taxable
year shall be the amount which bears the same ratio to the base
amount for such year (determined without regard to this
paragraph) as the number of days in such taxable year to which
this section applies bears to the total number of days in such
taxable year.''.
(b) Base Amount for Start-Up Companies.--Clause (i) of section
41(c)(3)(B) (relating to start-up companies) is amended to read as
follows:
``(i) Taxpayers to which subparagraph
applies.--The fixed-base percentage shall be
determined under this subparagraph if--
``(I) the first taxable year in
which a taxpayer had both gross
receipts and qualified research
expenses begins after December 31,
1983, or
``(II) there are fewer than 3
taxable years beginning after December
31, 1983, and before January 1, 1989,
in which the taxpayer had both gross
receipts and qualified research
expenses.''.
(c) Election of Alternative Incremental Credit.--Subsection (c) of
section 41 is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6), respectively, and by inserting after paragraph
(3) the following new paragraph:
``(4) Election of alternative incremental credit.--
``(A) In general.--At the election of the taxpayer,
the credit determined under subsection (a)(1) shall be
equal to the sum of--
``(i) 1.65 percent of so much of the
qualified research expenses for the taxable
year as exceeds 1 percent of the average
described in subsection (c)(1)(B) but does not
exceed 1.5 percent of such average,
``(ii) 2.2 percent of so much of such
expenses as exceeds 1.5 percent of such average
but does not exceed 2 percent of such average,
and
``(iii) 2.75 percent of so much of such
expenses as exceeds 2 percent of such average.
``(B) Election.--An election under this paragraph
may be made only for the first taxable year of the
taxpayer beginning after June 30, 1996. Such an
election shall apply to the taxable year for which made
and all succeeding taxable years unless revoked with
the consent of the Secretary.''.
(d) Increased Credit for Contract Research Expenses With Respect to
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended
by adding at the end the following new subparagraph:
``(C) Amounts paid to certain research consortia.--
``(i) In general.--Subparagraph (A) shall
be applied by substituting `75 percent' for `65
percent' with respect to amounts paid or
incurred by the taxpayer to a qualified
research consortium for qualified research on
behalf of the taxpayer and 1 or more unrelated
taxpayers. For purposes of the preceding
sentence, all persons treated as a single
employer under subsection (a) or (b) of section
52 shall be treated as related taxpayers.
``(ii) Qualified research consortium.--The
term `qualified research consortium' means any
organization which--
``(I) is described in section
501(c)(3) or 501(c)(6) and is exempt
from tax under section 501(a),
``(II) is organized and operated
primarily to conduct scientific
research, and
``(III) is not a private
foundation.''.
(e) Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is
amended by inserting ``, and before July 1, 1996, and periods after
December 31, 1997'' after ``June 30, 1995''.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after June 30, 1996.
(2) Subsections (c) and (d).--The amendments made by
subsections (c) and (d) shall apply to taxable years beginning
after June 30, 1996.
(3) Estimated tax.--The amendments made by this section
shall not be taken into account under section 6654 or 6655 of
the Internal Revenue Code of 1986 (relating to failure to pay
estimated tax) in determining the amount of any installment
required to be paid before October 1, 1996.
SEC. 1204. ORPHAN DRUG TAX CREDIT.
(a) Recategorized as a Business Credit.--
(1) In general.--Section 28 (relating to clinical testing
expenses for certain drugs for rare diseases or conditions) is
transferred to subpart D of part IV of subchapter A of chapter
1, inserted after section 45B, and redesignated as section 45C.
(2) Conforming amendment.--Subsection (b) of section 38
(relating to general business credit) is amended by striking
``plus'' at the end of paragraph (10), by striking the period
at the end of paragraph (11) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(12) the orphan drug credit determined under section
45C(a).''.
(3) Clerical amendments.--
(A) The table of sections for subpart B of such
part IV is amended by striking the item relating to
section 28.
(B) The table of sections for subpart D of such
part IV is amended by adding at the end the following
new item:
``Sec. 45C. Clinical testing expenses for certain drugs for
rare diseases or conditions.''.
(b) Credit Termination.--Subsection (e) of section 45C, as
redesignated by subsection (a)(1), is amended to read as follows:
``(e) Termination.--This section shall not apply to any amount paid
or incurred--
``(A) after December 31, 1994, and before July 1,
1996, or
``(B) after December 31, 1997.''.
(c) No Pre-July 1, 1996 Carrybacks.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits) is amended
by adding at the end the following new paragraph:
``(7) No carryback of section 45c credit before july 1,
1996.--No portion of the unused business credit for any taxable
year which is attributable to the orphan drug credit determined
under section 45C may be carried back to a taxable year ending
before July 1, 1996.''.
(d) Additional Conforming Amendments.--
(1) Section 45C(a), as redesignated by subsection (a)(1),
is amended by striking ``There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year''
and inserting ``For purposes of section 38, the credit
determined under this section for the taxable year is''.
(2) Section 45C(d), as so redesignated, is amended by
striking paragraph (2) and by redesignating paragraphs (3),
(4), and (5) as paragraphs (2), (3), and (4).
(3) Section 29(b)(6)(A) is amended by striking ``sections
27 and 28'' and inserting ``section 27''.
(4) Section 30(b)(3)(A) is amended by striking ``sections
27, 28, and 29'' and inserting ``sections 27 and 29''.
(5) Section 53(d)(1)(B) is amended--
(A) by striking ``or not allowed under section 28
solely by reason of the application of section
28(d)(2)(B),'' in clause (iii), and
(B) by striking ``or not allowed under section 28
solely by reason of the application of section
28(d)(2)(B)'' in clause (iv)(II).
(6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
(7) Section 280C(b) is amended--
(A) by striking ``section 28(b)'' in paragraph (1)
and inserting ``section 45C(b)'',
(B) by striking ``section 28'' in paragraphs (1)
and (2)(A) and inserting ``section 45C(b)'', and
(C) by striking ``subsection (d)(2) thereof'' in
paragraphs (1) and (2)(A) and inserting ``section
38(c)''.
(e) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years ending after June
30, 1996.
SEC. 1205. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) In General.--Subparagraph (D) of section 170(e)(5) (relating to
special rule for contributions of stock for which market quotations are
readily available) is amended to read as follows:
``(D) Termination.--This paragraph shall not apply
to contributions made--
``(A) after December 31, 1994, and before July 1,
1996, or
``(B) after December 31, 1997.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after June 30, 1996.
SEC. 1206. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND COAL
FACILITIES.
(a) In General.--Subparagraph (A) of section 29(g)(1) (relating to
extension of certain facilities) is amended by striking ``January 1,
1997'' and inserting ``January 1, 1999'' and by striking ``January 1,
1996'' and inserting ``the date which is 6 months after the date of the
enactment of the Small Business Job Protection Act of 1996''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 1207. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR USE OR
USED IN DIESEL-POWERED MOTORBOATS.
Subparagraph (D) of section 4041(a)(1) (relating to the imposition
of tax on diesel fuel and special motor fuels) is amended by
redesignating clauses (i) and (ii) as clauses (ii) and (iii),
respectively, and by inserting before clause (ii) (as redesignated) the
following new clause:
``(i) no tax shall be imposed by subsection
(a) or (d)(1) during the period beginning on
the date which is 7 days after the date of the
enactment of the Small Business Job Protection
Act of 1996 and ending on December 31, 1997.''.
SEC. 1208. EXTENSION OF TRANSITION RULE FOR CERTAIN PUBLICLY TRADED
PARTNERSHIPS.
(a) In General.--Subparagraph (B) of section 10211(c)(1) of the
Revenue Act of 1987 (Public Law 100-203) is amended by striking
``December 31, 1997'' and inserting ``December 31, 1999''.
(b) Conforming Amendment.--Subparagraph (C)(i) of section
10211(c)(2) of the Revenue Act of 1987, as added by section 2004(f)(2)
of the Technical and Miscellaneous Revenue Act of 1988, is amended by
striking ``December 31, 1997'' and inserting ``December 31, 1999''.
(c) Effective Date.--The amendments made by this section shall take
effect as if included in the provisions of section 10211 of the Revenue
Act of 1987.
Subtitle C--Provisions Relating to S Corporations
SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining small business
corporation) is amended by striking ``35 shareholders'' and inserting
``75 shareholders''.
SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.
(a) General Rule.--Subparagraph (A) of section 1361(c)(2) (relating
to certain trusts permitted as shareholders) is amended by inserting
after clause (iv) the following new clause:
``(v) An electing small business trust.''.
(b) Current Beneficiaries Treated as Shareholders.--Subparagraph
(B) of section 1361(c)(2) is amended by adding at the end the following
new clause:
``(v) In the case of a trust described in
clause (v) of subparagraph (A), each potential
current beneficiary of such trust shall be
treated as a shareholder; except that, if for
any period there is no potential current
beneficiary of such trust, such trust shall be
treated as the shareholder during such
period.''.
(c) Electing Small Business Trust Defined.--Section 1361 (defining
S corporation) is amended by adding at the end the following new
subsection:
``(e) Electing Small Business Trust Defined.--
``(1) Electing small business trust.--For purposes of this
section--
``(A) In general.--Except as provided in
subparagraph (B), the term `electing small business
trust' means any trust if--
``(i) such trust does not have as a
beneficiary any person other than (I) an
individual, (II) an estate, or (III) an
organization described in paragraph (2), (3),
(4), or (5) of section 170(c) which holds a
contingent interest and is not a potential
current beneficiary,
``(ii) no interest in such trust was
acquired by purchase, and
``(iii) an election under this subsection
applies to such trust.
``(B) Certain trusts not eligible.--The term
`electing small business trust' shall not include--
``(i) any qualified subchapter S trust (as
defined in subsection (d)(3)) if an election
under subsection (d)(2) applies to any
corporation the stock of which is held by such
trust, and
``(ii) any trust exempt from tax under this
subtitle.
``(C) Purchase.--For purposes of subparagraph (A),
the term `purchase' means any acquisition if the basis
of the property acquired is determined under section
1012.
``(2) Potential current beneficiary.--For purposes of this
section, the term `potential current beneficiary' means, with
respect to any period, any person who at any time during such
period is entitled to, or at the discretion of any person may
receive, a distribution from the principal or income of the
trust. If a trust disposes of all of the stock which it holds
in an S corporation, then, with respect to such corporation,
the term `potential current beneficiary' does not include any
person who first met the requirements of the preceding sentence
during the 60-day period ending on the date of such
disposition.
``(3) Election.--An election under this subsection shall be
made by the trustee. Any such election shall apply to the
taxable year of the trust for which made and all subsequent
taxable years of such trust unless revoked with the consent of
the Secretary.
``(4) Cross reference.--
``For special treatment of electing
small business trusts, see section 641(d).''.
(d) Taxation of Electing Small Business Trusts.--Section 641
(relating to imposition of tax on trusts) is amended by adding at the
end the following new subsection:
``(d) Special Rules for Taxation of Electing Small Business
Trusts.--
``(1) In general.--For purposes of this chapter--
``(A) the portion of any electing small business
trust which consists of stock in 1 or more S
corporations shall be treated as a separate trust, and
``(B) the amount of the tax imposed by this chapter
on such separate trust shall be determined with the
modifications of paragraph (2).
``(2) Modifications.--For purposes of paragraph (1), the
modifications of this paragraph are the following:
``(A) Except as provided in section 1(h), the
amount of the tax imposed by section 1(e) shall be
determined by using the highest rate of tax set forth
in section 1(e).
``(B) The exemption amount under section 55(d)
shall be zero.
``(C) The only items of income, loss, deduction, or
credit to be taken into account are the following:
``(i) The items required to be taken into
account under section 1366.
``(ii) Any gain or loss from the
disposition of stock in an S corporation.
``(iii) To the extent provided in
regulations, State or local income taxes or
administrative expenses to the extent allocable
to items described in clauses (i) and (ii).
No deduction or credit shall be allowed for any amount
not described in this paragraph, and no item described
in this paragraph shall be apportioned to any
beneficiary.
``(D) No amount shall be allowed under paragraph
(1) or (2) of section 1211(b).
``(3) Treatment of remainder of trust and distributions.--
For purposes of determining--
``(A) the amount of the tax imposed by this chapter
on the portion of any electing small business trust not
treated as a separate trust under paragraph (1), and
``(B) the distributable net income of the entire
trust,
the items referred to in paragraph (2)(C) shall be excluded.
Except as provided in the preceding sentence, this subsection
shall not affect the taxation of any distribution from the
trust.
``(4) Treatment of unused deductions where termination of
separate trust.--If a portion of an electing small business
trust ceases to be treated as a separate trust under paragraph
(1), any carryover or excess deduction of the separate trust
which is referred to in section 642(h) shall be taken into
account by the entire trust.
``(5) Electing small business trust.--For purposes of this
subsection, the term `electing small business trust' has the
meaning given such term by section 1361(e)(1).''.
(e) Technical Amendment.--Paragraph (1) of section 1366(a) is
amended by inserting ``, or of a trust or estate which terminates,''
after ``who dies''.
SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.
Subparagraph (A) of section 1361(c)(2) (relating to certain trusts
permitted as shareholders) is amended--
(1) by striking ``60-day period'' each place it appears in
clauses (ii) and (iii) and inserting ``2-year period'', and
(2) by striking the last sentence in clause (ii).
SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.
Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is
amended by striking ``or a trust described in paragraph (2)'' and
inserting ``a trust described in paragraph (2), or a person which is
actively and regularly engaged in the business of lending money''.
SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID
ELECTIONS.
(a) General Rule.--Subsection (f) of section 1362 (relating to
inadvertent terminations) is amended to read as follows:
``(f) Inadvertent Invalid Elections or Terminations.--If--
``(1) an election under subsection (a) by any corporation--
``(A) was not effective for the taxable year for
which made (determined without regard to subsection
(b)(2)) by reason of a failure to meet the requirements
of section 1361(b) or to obtain shareholder consents,
or
``(B) was terminated under paragraph (2) or (3) of
subsection (d),
``(2) the Secretary determines that the circumstances
resulting in such ineffectiveness or termination were
inadvertent,
``(3) no later than a reasonable period of time after
discovery of the circumstances resulting in such
ineffectiveness or termination, steps were taken--
``(A) so that the corporation is a small business
corporation, or
``(B) to acquire the required shareholder consents,
and
``(4) the corporation, and each person who was a
shareholder in the corporation at any time during the period
specified pursuant to this subsection, agrees to make such
adjustments (consistent with the treatment of the corporation
as an S corporation) as may be required by the Secretary with
respect to such period,
then, notwithstanding the circumstances resulting in such
ineffectiveness or termination, such corporation shall be treated as an
S corporation during the period specified by the Secretary.''.
(b) Late Elections, Etc.--Subsection (b) of section 1362 is amended
by adding at the end the following new paragraph:
``(5) Authority to treat late elections, etc., as timely.--
If--
``(A) an election under subsection (a) is made for
any taxable year (determined without regard to
paragraph (3)) after the date prescribed by this
subsection for making such election for such taxable
year or no such election is made for any taxable year,
and
``(B) the Secretary determines that there was
reasonable cause for the failure to timely make such
election,
the Secretary may treat such an election as timely made for
such taxable year (and paragraph (3) shall not apply).''.
(c) Effective Date.--The amendments made by subsection (a) and (b)
shall apply with respect to elections for taxable years beginning after
December 31, 1982.
SEC. 1306. AGREEMENT TO TERMINATE YEAR.
Paragraph (2) of section 1377(a) (relating to pro rata share) is
amended to read as follows:
``(2) Election to terminate year.--
``(A) In general.--Under regulations prescribed by
the Secretary, if any shareholder terminates the
shareholder's interest in the corporation during the
taxable year and all affected shareholders and the
corporation agree to the application of this paragraph,
paragraph (1) shall be applied to the affected
shareholders as if the taxable year consisted of 2
taxable years the first of which ends on the date of
the termination.
``(B) Affected shareholders.--For purposes of
subparagraph (A), the term `affected shareholders'
means the shareholder whose interest is terminated and
all shareholders to whom such shareholder has
transferred shares during the taxable year. If such
shareholder has transferred shares to the corporation,
the term `affected shareholders' shall include all
persons who are shareholders during the taxable
year.''.
SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.
(a) In General.--Paragraph (1) of section 1377(b) (relating to
post-termination transition period) is amended by striking ``and'' at
the end of subparagraph (A), by redesignating subparagraph (B) as
subparagraph (C), and by inserting after subparagraph (A) the following
new subparagraph:
``(B) the 120-day period beginning on the date of
any determination pursuant to an audit of the taxpayer
which follows the termination of the corporation's
election and which adjusts a subchapter S item of
income, loss, or deduction of the corporation arising
during the S period (as defined in section 1368(e)(2)),
and''.
(b) Determination Defined.--Paragraph (2) of section 1377(b) is
amended by striking subparagraphs (A) and (B), by redesignating
subparagraph (C) as subparagraph (B), and by inserting before
subparagraph (B) (as so redesignated) the following new subparagraph:
``(A) a determination as defined in section
1313(a), or''.
(c) Repeal of Special Audit Provisions for Subchapter S Items.--
(1) General rule.--Subchapter D of chapter 63 (relating to
tax treatment of subchapter S items) is hereby repealed.
(2) Consistent treatment required.--Section 6037 (relating
to return of S corporation) is amended by adding at the end the
following new subsection:
``(c) Shareholder's Return Must Be Consistent With Corporate Return
or Secretary Notified of Inconsistency.--
``(1) In general.--A shareholder of an S corporation shall,
on such shareholder's return, treat a subchapter S item in a
manner which is consistent with the treatment of such item on
the corporate return.
``(2) Notification of inconsistent treatment.--
``(A) In general.--In the case of any subchapter S
item, if--
``(i)(I) the corporation has filed a return
but the shareholder's treatment on his return
is (or may be) inconsistent with the treatment
of the item on the corporate return, or
``(II) the corporation has not filed a
return, and
``(ii) the shareholder files with the
Secretary a statement identifying the
inconsistency,
paragraph (1) shall not apply to such item.
``(B) Shareholder receiving incorrect
information.--A shareholder shall be treated as having
complied with clause (ii) of subparagraph (A) with
respect to a subchapter S item if the shareholder--
``(i) demonstrates to the satisfaction of
the Secretary that the treatment of the
subchapter S item on the shareholder's return
is consistent with the treatment of the item on
the schedule furnished to the shareholder by
the corporation, and
``(ii) elects to have this paragraph apply
with respect to that item.
``(3) Effect of failure to notify.--In any case--
``(A) described in subparagraph (A)(i)(I) of
paragraph (2), and
``(B) in which the shareholder does not comply with
subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the items by
such shareholder consistent with the treatment of the items on
the corporate return shall be treated as arising out of
mathematical or clerical errors and assessed according to
section 6213(b)(1). Paragraph (2) of section 6213(b) shall not
apply to any assessment referred to in the preceding sentence.
``(4) Subchapter s item.--For purposes of this subsection,
the term `subchapter S item' means any item of an S corporation
to the extent that regulations prescribed by the Secretary
provide that, for purposes of this subtitle, such item is more
appropriately determined at the corporation level than at the
shareholder level.
``(5) Addition to tax for failure to comply with section.--
``For addition to tax in the case of a
shareholder's negligence in connection with, or disregard of, the
requirements of this section, see part II of subchapter A of chapter
68.''.
(3) Conforming amendments.--
(A) Section 1366 is amended by striking subsection
(g).
(B) Subsection (b) of section 6233 is amended to
read as follows:
``(b) Similar Rules in Certain Cases.--If a partnership return is
filed for any taxable year but it is determined that there is no entity
for such taxable year, to the extent provided in regulations, rules
similar to the rules of subsection (a) shall apply.''.
(C) The table of subchapters for chapter 63 is
amended by striking the item relating to subchapter D.
SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.
(a) In General.--Paragraph (2) of section 1361(b) (defining
ineligible corporation) is amended by striking subparagraph (A) and by
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs
(A), (B), (C), and (D), respectively.
(b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by
adding at the end the following new paragraph:
``(3) Treatment of certain wholly owned subsidiaries.--
``(A) In general.--For purposes of this title--
``(i) a corporation which is a qualified
subchapter S subsidiary shall not be treated as
a separate corporation, and
``(ii) all assets, liabilities, and items
of income, deduction, and credit of a qualified
subchapter S subsidiary shall be treated as
assets, liabilities, and such items (as the
case may be) of the S corporation.
``(B) Qualified subchapter s subsidiary.--For
purposes of this paragraph, the term `qualified
subchapter S subsidiary' means any domestic corporation
which is not an ineligible corporation (as defined in
paragraph (2)), if--
``(i) 100 percent of the stock of such
corporation is held by the S corporation, and
``(ii) the S corporation elects to treat
such corporation as a qualified subchapter S
subsidiary.
``(C) Treatment of terminations of qualified
subchapter s subsidiary status.--For purposes of this
title, if any corporation which was a qualified
subchapter S subsidiary ceases to meet the requirements
of subparagraph (B), such corporation shall be treated
as a new corporation acquiring all of its assets (and
assuming all of its liabilities) immediately before
such cessation from the S corporation in exchange for
its stock.
``(D) Election after termination.--If a
corporation's status as a qualified subchapter S
subsidiary terminates, such corporation (and any
successor corporation) shall not be eligible to make--
``(i) an election under subparagraph
(B)(ii) to be treated as a qualified subchapter
S subsidiary, or
``(ii) an election under section 1362(a) to
be treated as an S corporation,
before its 5th taxable year which begins after the 1st
taxable year for which such termination was effective,
unless the Secretary consents to such election.''.
(c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the
following new subparagraph:
``(F) Treatment of certain dividends.--If an S
corporation holds stock in a C corporation meeting the
requirements of section 1504(a)(2), the term `passive
investment income' shall not include dividends from
such C corporation to the extent such dividends are
attributable to the earnings and profits of such C
corporation derived from the active conduct of a trade
or business.''.
(d) Conforming Amendments.--
(1) Subsection (c) of section 1361 is amended by striking
paragraph (6).
(2) Subsection (b) of section 1504 (defining includible
corporation) is amended by adding at the end the following new
paragraph:
``(8) An S corporation.''.
SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.
(a) Adjustments for Distributions Taken Into Account Before
Losses.--
(1) Subparagraph (A) of section 1366(d)(1) (relating to
losses and deductions cannot exceed shareholder's basis in
stock and debt) is amended by striking ``paragraph (1)'' and
inserting ``paragraphs (1) and (2)(A)''.
(2) Subsection (d) of section 1368 (relating to certain
adjustments taken into account) is amended by adding at the end
the following new sentence:
``In the case of any distribution made during any taxable year, the
adjusted basis of the stock shall be determined with regard to the
adjustments provided in paragraph (1) of section 1367(a) for the
taxable year.''.
(b) Accumulated Adjustments Account.--Paragraph (1) of section
1368(e) (relating to accumulated adjustments account) is amended by
adding at the end the following new subparagraph:
``(C) Net loss for year disregarded.--
``(i) In general.--In applying this section to
distributions made during any taxable year, the amount
in the accumulated adjustments account as of the close
of such taxable year shall be determined without regard
to any net negative adjustment for such taxable year.
``(ii) Net negative adjustment.--For purposes of
clause (i), the term `net negative adjustment' means,
with respect to any taxable year, the excess (if any)
of--
``(I) the reductions in the account for the
taxable year (other than for distributions),
over
``(II) the increases in such account for
such taxable year.''.
(c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1)
is amended--
(1) by striking ``as provided in subparagraph (B)'' and
inserting ``as otherwise provided in this paragraph'', and
(2) by striking ``section 1367(b)(2)(A)'' and inserting
``section 1367(a)(2)''.
SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.
Subsection (a) of section 1371 (relating to application of
subchapter C rules) is amended to read as follows:
``(a) Application of Subchapter C Rules.--Except as otherwise
provided in this title, and except to the extent inconsistent with this
subchapter, subchapter C shall apply to an S corporation and its
shareholders.''.
SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.
(a) In General.--If--
(1) a corporation was an electing small business
corporation under subchapter S of chapter 1 of the Internal
Revenue Code of 1986 for any taxable year beginning before
January 1, 1983, and
(2) such corporation is an S corporation under subchapter S
of chapter 1 of such Code for its first taxable year beginning
after December 31, 1996,
the amount of such corporation's accumulated earnings and profits (as
of the beginning of such first taxable year) shall be reduced by an
amount equal to the portion (if any) of such accumulated earnings and
profits which were accumulated in any taxable year beginning before
January 1, 1983, for which such corporation was an electing small
business corporation under such subchapter S.
(b) Conforming Amendments.--
(1) Paragraph (3) of section 1362(d), as amended by section
1308, is amended--
(A) by striking ``subchapter c'' in the paragraph
heading and inserting ``accumulated'',
(B) by striking ``subchapter C'' in subparagraph
(A)(i)(I) and inserting ``accumulated'', and
(C) by striking subparagraph (B) and redesignating
the following subparagraphs accordingly.
(2)(A) Subsection (a) of section 1375 is amended by
striking ``subchapter C'' in paragraph (1) and inserting
``accumulated''.
(B) Paragraph (3) of section 1375(b) is amended to read as
follows:
``(3) Passive investment income, etc.--The terms `passive
investment income' and `gross receipts' have the same
respective meanings as when used in paragraph (3) of section
1362(d).''.
(C) The section heading for section 1375 is amended by
striking ``subchapter c'' and inserting ``accumulated''.
(D) The table of sections for part III of subchapter S of
chapter 1 is amended by striking ``subchapter C'' in the item
relating to section 1375 and inserting ``accumulated''.
(3) Clause (i) of section 1042(c)(4)(A) is amended by
striking ``section 1362(d)(3)(D)'' and inserting ``section
1362(d)(3)(C)''.
SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK
RULES ALLOWED.
Paragraph (3) of section 1366(d) (relating to carryover of
disallowed losses and deductions to post-termination transition period)
is amended by adding at the end the following new subparagraph:
``(D) At-risk limitations.--To the extent that any
increase in adjusted basis described in subparagraph
(B) would have increased the shareholder's amount at
risk under section 465 if such increase had occurred on
the day preceding the commencement of the post-
termination transition period, rules similar to the
rules described in subparagraphs (A) through (C) shall
apply to any losses disallowed by reason of section
465(a).''.
SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN
ITEMS OF INCOME.
(a) In General.--Subsection (b) of section 1367 (relating to
adjustments to basis of stock of shareholders, etc.) is amended by
adding at the end the following new paragraph:
``(4) Adjustments in case of inherited stock.--
``(A) In general.--If any person acquires stock in
an S corporation by reason of the death of a decedent
or by bequest, devise, or inheritance, section 691
shall be applied with respect to any item of income of
the S corporation in the same manner as if the decedent
had held directly his pro rata share of such item.
``(B) Adjustments to basis.--The basis determined
under section 1014 of any stock in an S corporation
shall be reduced by the portion of the value of the
stock which is attributable to items constituting
income in respect of the decedent.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply in the case of decedents dying after the date of the enactment of
this Act.
SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL
PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.
(a) In General.--Subsection (a) of section 1237 (relating to real
property subdivided for sale) is amended by striking ``other than a
corporation'' in the material preceding paragraph (1) and inserting
``other than a C corporation''.
(b) Conforming Amendment.--Subparagraph (A) of section 1237(a)(2)
is amended by inserting ``an S corporation which included the taxpayer
as a shareholder,'' after ``controlled by the taxpayer,''.
SEC. 1315. FINANCIAL INSTITUTIONS.
Subparagraph (A) of section 1361(b)(2) (defining ineligible
corporation), as redesignated by section 1308(a), is amended to read as
follows:
``(A) a financial institution which uses the
reserve method of accounting for bad debts described in
section 585 or 593,''.
SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE SHAREHOLDERS.
(a) Eligibility To Be Shareholders.--
(1) In general.--Subparagraph (B) of section 1361(b)(1)
(defining small business corporation) is amended to read as
follows:
``(B) have as a shareholder a person (other than an
estate, a trust described in subsection (c)(2), or an
organization described in subsection (c)(7)) who is not
an individual,''.
(2) Eligible exempt organizations.--Section 1361(c)
(relating to special rules for applying subsection (b)) is
amended by adding at the end the following new paragraph:
``(7) Certain exempt organizations permitted as
shareholders.--For purposes of subsection (b)(1)(B), an
organization which is--
``(A) described in section 401(a) or 501(c)(3), and
``(B) exempt from taxation under section 501(a),
may be a shareholder in an S corporation.''.
(b) Contributions of S Corporation Stock.--Section 170(e)(1)
(relating to certain contributions of ordinary income and capital gain
property) is amended by adding at the end the following new sentence:
``For purposes of applying this paragraph in the case of a charitable
contribution of stock in an S corporation, rules similar to the rules
of section 751 shall apply in determining whether gain on such stock
would have been long-term capital gain if such stock were sold by the
taxpayer.''
(c) Treatment of Income.--Section 512 (relating to unrelated
business taxable income), as amended by section 1113, is amended by
adding at the end the following new subsection:
``(e) Special Rules Applicable to S Corporations.--If an
organization described in section 1361(c)(7) holds stock in an S
corporation--
``(1) such interest shall be treated as an interest in an
unrelated trade or business; and
``(2) notwithstanding any other provision of this part, all
items of income, loss, deduction, or credit taken into account
under section 1366(a) and any gain or loss on the disposition
of the stock in the S corporation shall be taken into account
in computing the unrelated business taxable income of such
organization.''.
(d) Certain Benefits not Applicable to S Corporations.--
(1) Contribution to esops.--Paragraph (9) of section 404(a)
(relating to certain contributions to employee ownership plans)
is amended by inserting at the end the following new
subparagraph:
``(C) S corporations.--This paragraph shall not
apply to an S corporation.''.
(2) Dividends on employer securities.--Paragraph (1) of
section 404(k) (relating to deduction for dividends on certain
employer securities) is amended by striking ``a corporation''
and inserting ``a C corporation''.
(3) Exchange treatment.--Subparagraph (A) of section
1042(c)(1) (defining qualified securities) is amended by
striking ``domestic corporation'' and inserting ``domestic C
corporation''.
(e) Conforming Amendment.--Clause (i) of section 1361(e)(1)(A), as
added by section 1302, is amended by striking ``which holds a
contingent interest and is not a potential current beneficiary''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SEC. 1317. EFFECTIVE DATE.
(a) In General.--Except as otherwise provided in this subtitle, the
amendments made by this subtitle shall apply to taxable years beginning
after December 31, 1996.
(b) Treatment of Certain Elections Under Prior Law.--For purposes
of section 1362(g) of the Internal Revenue Code of 1986 (relating to
election after termination), any termination under section 1362(d) of
such Code in a taxable year beginning before January 1, 1997, shall not
be taken into account.
Subtitle D--Pension Simplification
CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES
SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM
DISTRIBUTIONS.
(a) In General.--Subsection (d) of section 402 (relating to
taxability of beneficiary of employees' trust) is amended to read as
follows:
``(d) Taxability of Beneficiary of Certain Foreign Situs Trusts.--
For purposes of subsections (a), (b), and (c), a stock bonus, pension,
or profit-sharing trust which would qualify for exemption from tax
under section 501(a) except for the fact that it is a trust created or
organized outside the United States shall be treated as if it were a
trust exempt from tax under section 501(a).''.
(b) Conforming Amendments.--
(1) Subparagraph (D) of section 402(e)(4) (relating to
other rules applicable to exempt trusts) is amended to read as
follows:
``(D) Lump-sum distribution.--For purposes of this
paragraph--
``(i) In general.--The term `lump sum
distribution' means the distribution or payment
within one taxable year of the recipient of the
balance to the credit of an employee which
becomes payable to the recipient--
``(I) on account of the employee's
death,
``(II) after the employee attains
age 59\1/2\,
``(III) on account of the
employee's separation from service, or
``(IV) after the employee has
become disabled (within the meaning of
section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is exempt
from tax under section 501 or from a plan
described in section 403(a). Subclause (III) of
this clause shall be applied only with respect
to an individual who is an employee without
regard to section 401(c)(1), and subclause (IV)
shall be applied only with respect to an
employee within the meaning of section
401(c)(1). For purposes of this clause, a
distribution to two or more trusts shall be
treated as a distribution to one recipient. For
purposes of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contributions
under the plan (within the meaning of section
72(o)(5)).
``(ii) Aggregation of certain trusts and
plans.--For purposes of determining the balance
to the credit of an employee under clause (i)--
``(I) all trusts which are part of
a plan shall be treated as a single
trust, all pension plans maintained by
the employer shall be treated as a
single plan, all profit-sharing plans
maintained by the employer shall be
treated as a single plan, and all stock
bonus plans maintained by the employer
shall be treated as a single plan, and
``(II) trusts which are not
qualified trusts under section 401(a)
and annuity contracts which do not
satisfy the requirements of section
404(a)(2) shall not be taken into
account.
``(iii) Community property laws.--The
provisions of this paragraph shall be applied
without regard to community property laws.
``(iv) Amounts subject to penalty.--This
paragraph shall not apply to amounts described
in subparagraph (A) of section 72(m)(5) to the
extent that section 72(m)(5) applies to such
amounts.
``(v) Balance to credit of employee not to
include amounts payable under qualified
domestic relations order.--For purposes of this
paragraph, the balance to the credit of an
employee shall not include any amount payable
to an alternate payee under a qualified
domestic relations order (within the meaning of
section 414(p)).
``(vi) Transfers to cost-of-living
arrangement not treated as distribution.--For
purposes of this paragraph, the balance to the
credit of an employee under a defined
contribution plan shall not include any amount
transferred from such defined contribution plan
to a qualified cost-of-living arrangement
(within the meaning of section 415(k)(2)) under
a defined benefit plan.
``(vii) Lump-sum distributions of alternate
payees.--If any distribution or payment of the
balance to the credit of an employee would be
treated as a lump-sum distribution, then, for
purposes of this paragraph, the payment under a
qualified domestic relations order (within the
meaning of section 414(p)) of the balance to
the credit of an alternate payee who is the
spouse or former spouse of the employee shall
be treated as a lump-sum distribution. For
purposes of this clause, the balance to the
credit of the alternate payee shall not include
any amount payable to the employee.''.
(2) Section 402(c) (relating to rules applicable to
rollovers from exempt trusts) is amended by striking paragraph
(10).
(3) Paragraph (1) of section 55(c) (defining regular tax)
is amended by striking ``shall not include any tax imposed by
section 402(d) and''.
(4) Paragraph (8) of section 62(a) (relating to certain
portion of lump-sum distributions from pension plans taxed
under section 402(d)) is hereby repealed.
(5) Section 401(a)(28)(B) (relating to coordination with
distribution rules) is amended by striking clause (v).
(6) Subparagraph (B)(ii) of section 401(k)(10) (relating to
distributions that must be lump-sum distributions) is amended
to read as follows:
``(ii) Lump-sum distribution.--For purposes
of this subparagraph, the term `lump-sum
distribution' has the meaning given such term
by section 402(e)(4)(D) (without regard to
subclauses (I), (II), (III), and (IV) of clause
(i) thereof).''.
(7) Section 406(c) (relating to termination of status as
deemed employee not to be treated as separation from service
for purposes of limitation of tax) is hereby repealed.
(8) Section 407(c) (relating to termination of status as
deemed employee not to be treated as separation from service
for purposes of limitation of tax) is hereby repealed.
(9) Section 691(c) (relating to deduction for estate tax)
is amended by striking paragraph (5).
(10) Paragraph (1) of section 871(b) (relating to
imposition of tax) is amended by striking ``section 1, 55, or
402(d)(1)'' and inserting ``section 1 or 55''.
(11) Subsection (b) of section 877 (relating to alternative
tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and
inserting ``section 1 or 55''.
(12) Section 4980A(c)(4) is amended--
(A) by striking ``to which an election under
section 402(d)(4)(B) applies'' and inserting ``(as
defined in section 402(e)(4)(D)) with respect to which
the individual elects to have this paragraph apply'',
(B) by adding at the end the following new flush
sentence:
``An individual may elect to have this paragraph apply to only
one lump-sum distribution.'', and
(C) by striking the heading and inserting:
``(4) Special one-time election.--''.
(13) Section 402(e) is amended by striking paragraph (5).
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1999.
(2) Retention of certain transition rules.--The amendments
made by this section shall not apply to any distribution for
which the taxpayer is eligible to elect the benefits of section
1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986.
Notwithstanding the preceding sentence, individuals who elect
such benefits after December 31, 1999, shall not be eligible
for 5-year averaging under section 402(d) of the Internal
Revenue Code of 1986 (as in effect immediately before such
amendments).
SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.
(a) In General.--Subsection (b) of section 101 is hereby repealed.
(b) Conforming Amendments.--
(1) Subsection (c) of section 101 is amended by striking
``subsection (a) or (b)'' and inserting ``subsection (a)''.
(2) Sections 406(e) and 407(e) are each amended by striking
paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(3) Section 7701(a)(20) is amended by striking ``, for the
purpose of applying the provisions of section 101(b) with
respect to employees' death benefits''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to decedents dying after the date of the enactment
of this Act.
SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER
CERTAIN EMPLOYER PLANS.
(a) General Rule.--Subsection (d) of section 72 (relating to
annuities; certain proceeds of endowment and life insurance contracts)
is amended to read as follows:
``(d) Special Rules for Qualified Employer Retirement Plans.--
``(1) Simplified method of taxing annuity payments.--
``(A) In general.--In the case of any amount
received as an annuity under a qualified employer
retirement plan--
``(i) subsection (b) shall not apply, and
``(ii) the investment in the contract shall
be recovered as provided in this paragraph.
``(B) Method of recovering investment in
contract.--
``(i) In general.--Gross income shall not
include so much of any monthly annuity payment
under a qualified employer retirement plan as
does not exceed the amount obtained by
dividing--
``(I) the investment in the
contract (as of the annuity starting
date), by
``(II) the number of anticipated
payments determined under the table
contained in clause (iii) (or, in the
case of a contract to which subsection
(c)(3)(B) applies, the number of
monthly annuity payments under such
contract).
``(ii) Certain rules made applicable.--
Rules similar to the rules of paragraphs (2)
and (3) of subsection (b) shall apply for
purposes of this paragraph.
``(iii) Number of anticipated payments.--
``If the age of the
primary annuitant on
The number
the annuity starting
of anticipated
date is:
payments is:
Not more than 55...... 360
More than 55 but not 310
more than 60.
More than 60 but not 260
more than 65.
More than 65 but not 210
more than 70.
More than 70.......... 160.
``(C) Adjustment for refund feature not
applicable.--For purposes of this paragraph, investment
in the contract shall be determined under subsection
(c)(1) without regard to subsection (c)(2).
``(D) Special rule where lump sum paid in
connection with commencement of annuity payments.--If,
in connection with the commencement of annuity payments
under any qualified employer retirement plan, the
taxpayer receives a lump sum payment--
``(i) such payment shall be taxable under
subsection (e) as if received before the
annuity starting date, and
``(ii) the investment in the contract for
purposes of this paragraph shall be determined
as if such payment had been so received.
``(E) Exception.--This paragraph shall not apply in
any case where the primary annuitant has attained age
75 on the annuity starting date unless there are fewer
than 5 years of guaranteed payments under the annuity.
``(F) Adjustment where annuity payments not on
monthly basis.--In any case where the annuity payments
are not made on a monthly basis, appropriate
adjustments in the application of this paragraph shall
be made to take into account the period on the basis of
which such payments are made.
``(G) Qualified employer retirement plan.--For
purposes of this paragraph, the term `qualified
employer retirement plan' means any plan or contract
described in paragraph (1), (2), or (3) of section
4974(c).
``(2) Treatment of employee contributions under defined
contribution plans.--For purposes of this section, employee
contributions (and any income allocable thereto) under a
defined contribution plan may be treated as a separate
contract.''.
(b) Effective Date.--The amendment made by this section shall apply
in cases where the annuity starting date is after the 90th day after
the date of the enactment of this Act.
SEC. 1404. REQUIRED DISTRIBUTIONS.
(a) In General.--Section 401(a)(9)(C) (defining required beginning
date) is amended to read as follows:
``(C) Required beginning date.--For purposes of
this paragraph--
``(i) In general.--The term `required
beginning date' means April 1 of the calendar
year following the later of--
``(I) the calendar year in which
the employee attains age 70\1/2\, or
``(II) the calendar year in which
the employee retires.
``(ii) Exception.--Subclause (II) of clause
(i) shall not apply--
``(I) except as provided in section
409(d), in the case of an employee who
is a 5-percent owner (as defined in
section 416) with respect to the plan
year ending in the calendar year in
which the employee attains age 70\1/2\,
or
``(II) for purposes of section 408
(a)(6) or (b)(3).
``(iii) Actuarial adjustment.--In the case
of an employee to whom clause (i)(II) applies
who retires in a calendar year after the
calendar year in which the employee attains age
70\1/2\, the employee's accrued benefit shall
be actuarially increased to take into account
the period after age 70\1/2\ in which the
employee was not receiving any benefits under
the plan.
``(iv) Exception for governmental and
church plans.--Clauses (ii) and (iii) shall not
apply in the case of a governmental plan or
church plan. For purposes of this clause, the
term `church plan' means a plan maintained by a
church for church employees, and the term
`church' means any church (as defined in
section 3121(w)(3)(A)) or qualified church-
controlled organization (as defined in section
3121(w)(3)(B)).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to years beginning after December 31, 1996.
CHAPTER 2--INCREASED ACCESS TO RETIREMENT PLANS
Subchapter A--Simple Savings Plans
SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES
OF SMALL EMPLOYERS.
(a) In General.--Section 408 (relating to individual retirement
accounts) is amended by redesignating subsection (p) as subsection (q)
and by inserting after subsection (o) the following new subsection:
``(p) Simple Retirement Accounts.--
``(1) In general.--For purposes of this title, the term
`simple retirement account' means an individual retirement plan
(as defined in section 7701(a)(37))--
``(A) with respect to which the requirements of
paragraphs (3), (4), and (5) are met; and
``(B) with respect to which the only contributions
allowed are contributions under a qualified salary
reduction arrangement.
``(2) Qualified salary reduction arrangement.--
``(A) In general.--For purposes of this subsection,
the term `qualified salary reduction arrangement' means
a written arrangement of an eligible employer under
which--
``(i) an employee eligible to participate
in the arrangement may elect to have the
employer make payments--
``(I) as elective employer
contributions to a simple retirement
account on behalf of the employee, or
``(II) to the employee directly in
cash,
``(ii) the amount which an employee may
elect under clause (i) for any year is required
to be expressed as a percentage of compensation
and may not exceed a total of $6,000 for any
year,
``(iii) the employer is required to make a
matching contribution to the simple retirement
account for any year in an amount equal to so
much of the amount the employee elects under
clause (i)(I) as does not exceed the applicable
percentage of compensation for the year, and
``(iv) no contributions may be made other
than contributions described in clause (i) or
(iii).
``(B) Employer may elect 2-percent nonelective
contribution.--
``(i) In general.--An employer shall be
treated as meeting the requirements of
subparagraph (A)(iii) for any year if, in lieu
of the contributions described in such clause,
the employer elects to make nonelective
contributions of 2 percent of compensation for
each employee who is eligible to participate in
the arrangement and who has at least $5,000 of
compensation from the employer for the year. If
an employer makes an election under this
subparagraph for any year, the employer shall
notify employees of such election within a
reasonable period of time before the 60-day
period for such year under paragraph (5)(C).
``(ii) Compensation limitation.--The
compensation taken into account under clause
(i) for any year shall not exceed the
limitation in effect for such year under
section 401(a)(17).
``(C) Definitions.--For purposes of this
subsection--
``(i) Eligible employer.--
``(I) In general.--The term
`eligible employer' means, with respect
to any year, an employer which had no
more than 100 employees who received at
least $5,000 of compensation from the
employer for the preceding year.
``(II) 2-year grace period.--An
eligible employer who establishes and
maintains a plan under this subsection
for 1 or more years and who fails to be
an eligible employer for any subsequent
year shall be treated as an eligible
employer for the 2 years following the
last year the employer was an eligible
employer. If such failure is due to any
acquisition, disposition, or similar
transaction involving an eligible
employer, the preceding sentence shall
apply only in accordance with rules
similar to the rules of section
410(b)(6)(C)(i).
``(ii) Applicable percentage.--
``(I) In general.--The term
`applicable percentage' means 3
percent.
``(II) Election of lower
percentage.--An employer may elect to
apply a lower percentage (not less than
1 percent) for any year for all
employees eligible to participate in
the plan for such year if the employer
notifies the employees of such lower
percentage within a reasonable period
of time before the 60-day election
period for such year under paragraph
(5)(C). An employer may not elect a
lower percentage under this subclause
for any year if that election would
result in the applicable percentage
being lower than 3 percent in more than
2 of the years in the 5-year period
ending with such year.
``(III) Special rule for years
arrangement not in effect.--If any year
in the 5-year period described in
subclause (II) is a year prior to the
first year for which any qualified
salary reduction arrangement is in
effect with respect to the employer (or
any predecessor), the employer shall be
treated as if the level of the employer
matching contribution was at 3 percent
of compensation for such prior year.
``(D) Arrangement may be only plan of employer.--
``(i) In general.--An arrangement shall not
be treated as a qualified salary reduction
arrangement for any year if the employer (or
any predecessor employer) maintained a
qualified plan with respect to which
contributions were made, or benefits were
accrued, for service in any year in the period
beginning with the year such arrangement became
effective and ending with the year for which
the determination is being made.
``(ii) Qualified plan.--For purposes of
this subparagraph, the term `qualified plan'
means a plan, contract, pension, or trust
described in subparagraph (A) or (B) of section
219(g)(5).
``(E) Cost-of-living adjustment.--The Secretary
shall adjust the $6,000 amount under subparagraph
(A)(ii) at the same time and in the same manner as
under section 415(d), except that the base period taken
into account shall be the calendar quarter ending
September 30, 1996, and any increase under this
subparagraph which is not a multiple of $500 shall be
rounded to the next lower multiple of $500.
``(3) Vesting requirements.--The requirements of this
paragraph are met with respect to a simple retirement account
if the employee's rights to any contribution to the simple
retirement account are nonforfeitable. For purposes of this
paragraph, rules similar to the rules of subsection (k)(4)
shall apply.
``(4) Participation requirements.--
``(A) In general.--The requirements of this
paragraph are met with respect to any simple retirement
account for a year only if, under the qualified salary
reduction arrangement, all employees of the employer
who--
``(i) received at least $5,000 in
compensation from the employer during any 2
preceding years, and
``(ii) are reasonably expected to receive
at least $5,000 in compensation during the
year,
are eligible to make the election under paragraph
(2)(A)(i) or receive the nonelective contribution
described in paragraph (2)(B).
``(B) Excludable employees.--An employer may elect
to exclude from the requirement under subparagraph (A)
employees described in section 410(b)(3).
``(5) Administrative requirements.--The requirements of
this paragraph are met with respect to any simplified
retirement account if, under the qualified salary reduction
arrangement--
``(A) an employer must--
``(i) make the elective employer
contributions under paragraph (2)(A)(i) not
later than the close of the 30-day period
following the last day of the month with
respect to which the contributions are to be
made, and
``(ii) make the matching contributions
under paragraph (2)(A)(iii) or the nonelective
contributions under paragraph (2)(B) not later
than the date described in section
404(m)(2)(B),
``(B) an employee may elect to terminate
participation in such arrangement at any time during
the year, except that if an employee so terminates, the
arrangement may provide that the employee may not elect
to resume participation until the beginning of the next
year, and
``(C) each employee eligible to participate may
elect, during the 60-day period before the beginning of
any year (and the 60-day period before the first day
such employee is eligible to participate), to
participate in the arrangement, or to modify the
amounts subject to such arrangement, for such year.
``(6) Definitions.--For purposes of this subsection--
``(A) Compensation.--
``(i) In general.--The term `compensation'
means amounts described in paragraphs (3) and
(8) of section 6051(a).
``(ii) Self-employed.--In the case of an
employee described in subparagraph (B), the
term `compensation' means net earnings from
self-employment determined under section
1402(a) without regard to any contribution
under this subsection.
``(B) Employee.--The term `employee' includes an
employee as defined in section 401(c)(1).
``(C) Year.--The term `year' means the calendar
year.
``(7) Use of designated financial institution.--A plan
shall not be treated as failing to satisfy the requirements of
this subsection or any other provision of this title merely
because the employer makes all contributions to the individual
retirement accounts or annuities of a designated trustee or
issuer. The preceding sentence shall not apply unless each plan
participant is notified in writing (either separately or as
part of the notice under subsection (l)(2)(C)) that the
participant's balance may be transferred without cost or
penalty to another individual account or annuity in accordance
with section 408(d)(3)(G).''.
(b) Tax Treatment of Simple Retirement Accounts.--
(1) Deductibility of contributions by employees.--
(A) Section 219(b) (relating to maximum amount of
deduction) is amended by adding at the end the
following new paragraph:
``(4) Special rule for simple retirement accounts.--This
section shall not apply with respect to any amount contributed
to a simple retirement account established under section
408(p).''.
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ``or'' at the end
of clause (iv) and by adding at the end the following
new clause:
``(vi) any simple retirement account
(within the meaning of section 408(p)), or''.
(2) Deductibility of employer contributions.--Section 404
(relating to deductions for contributions of an employer to
pension, etc. plans) is amended by adding at the end the
following new subsection:
``(m) Special Rules for Simple Retirement Accounts.--
``(1) In general.--Employer contributions to a simple
retirement account shall be treated as if they are made to a
plan subject to the requirements of this section.
``(2) Timing.--
``(A) Deduction.--Contributions described in
paragraph (1) shall be deductible in the taxable year
of the employer with or within which the calendar year
for which the contributions were made ends.
``(B) Contributions after end of year.--For
purposes of this subsection, contributions shall be
treated as made for a taxable year if they are made on
account of the taxable year and are made not later than
the time prescribed by law for filing the return for
the taxable year (including extensions thereof).''.
(3) Contributions and distributions.--
(A) Section 402 (relating to taxability of
beneficiary of employees' trust) is amended by adding
at the end the following new subsection:
``(k) Treatment of Simple Retirement Accounts.--Rules similar to
the rules of paragraphs (1) and (3) of subsection (h) shall apply to
contributions and distributions with respect to a simple retirement
account under section 408(p).''.
(B) Section 408(d)(3) is amended by adding at the
end the following new subparagraph:
``(G) Simple retirement accounts.--This paragraph
shall not apply to any amount paid or distributed out
of a simple retirement account (as defined in section
408(p)) unless--
``(i) it is paid into another simple
retirement account, or
``(ii) in the case of any payment or
distribution to which section 72(t)(6) does not
apply, it is paid into an individual retirement
plan.''.
(C) Clause (i) of section 457(c)(2)(B) is amended
by striking ``section 402(h)(1)(B)'' and inserting
``section 402(h)(1)(B) or (k)''.
(4) Penalties.--
(A) Early withdrawals.--Section 72(t) (relating to
additional tax in early distributions) is amended by
adding at the end the following new paragraph:
``(6) Special rules for simple retirement accounts.--In the
case of any amount received from a simple retirement account
(within the meaning of section 408(p)) during the 2-year period
beginning on the date such individual first participated in any
qualified salary reduction arrangement maintained by the
individual's employer under section 408(p)(2), paragraph (1)
shall be applied by substituting `25 percent' for `10
percent'.''.
(B) Failure to report.--Section 6693 is amended by
redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new
subsection:
``(c) Penalties Relating to Simple Retirement Accounts.--
``(1) Employer penalties.--An employer who fails to provide
1 or more notices required by section 408(l)(2)(C) shall pay a
penalty of $50 for each day on which such failures continue.
``(2) Trustee penalties.--A trustee who fails--
``(A) to provide 1 or more statements required by
the last sentence of section 408(i) shall pay a penalty
of $50 for each day on which such failures continue, or
``(B) to provide 1 or more summary descriptions
required by section 408(l)(2)(B) shall pay a penalty of
$50 for each day on which such failures continue.
``(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection with respect to any failure which
the taxpayer shows was due to reasonable cause.''.
(5) Reporting requirements.--
(A) Section 408(l) is amended by adding at the end
the following new paragraph:
``(2) Simple retirement accounts.--
``(A) No employer reports.--Except as provided in
this paragraph, no report shall be required under this
section by an employer maintaining a qualified salary
reduction arrangement under subsection (p).
``(B) Summary description.--The trustee of any
simple retirement account established pursuant to a
qualified salary reduction arrangement under subsection
(p) shall provide to the employer maintaining the
arrangement, each year a description containing the
following information:
``(i) The name and address of the employer
and the trustee.
``(ii) The requirements for eligibility for
participation.
``(iii) The benefits provided with respect
to the arrangement.
``(iv) The time and method of making
elections with respect to the arrangement.
``(v) The procedures for, and effects of,
withdrawals (including rollovers) from the
arrangement.
``(C) Employee notification.--The employer shall
notify each employee immediately before the period for
which an election described in subsection (p)(5)(C) may
be made of the employee's opportunity to make such
election. Such notice shall include a copy of the
description described in subparagraph (B).''.
(B) Section 408(l) is amended by striking ``An
employer'' and inserting the following:
``(1) In general.--An employer''.
(6) Reporting requirements.--Section 408(i) is amended by
adding at the end the following new flush sentence:
``In the case of a simple retirement account under subsection (p), only
one report under this subsection shall be required to be submitted each
calendar year to the Secretary (at the time provided under paragraph
(2)) but, in addition to the report under this subsection, there shall
be furnished, within 30 days after each calendar year, to the
individual on whose behalf the account is maintained a statement with
respect to the account balance as of the close of, and the account
activity during, such calendar year.''.
(7) Exemption from top-heavy plan rules.--Section 416(g)(4)
(relating to special rules for top-heavy plans) is amended by
adding at the end the following new subparagraph:
``(G) Simple retirement accounts.--The term `top-
heavy plan' shall not include a simple retirement
account under section 408(p).''.
(8) Employment taxes.--
(A) Paragraph (5) of section 3121(a) is amended by
striking ``or'' at the end of subparagraph (F), by
inserting ``or'' at the end of subparagraph (G), and by
adding at the end the following new subparagraph:
``(H) under an arrangement to which section 408(p)
applies, other than any elective contributions under
paragraph (2)(A)(i) thereof,''.
(B) Section 209(a)(4) of the Social Security Act is
amended by inserting ``; or (J) under an arrangement to
which section 408(p) of such Code applies, other than
any elective contributions under paragraph (2)(A)(i)
thereof'' before the semicolon at the end thereof.
(C) Paragraph (5) of section 3306(b) is amended by
striking ``or'' at the end of subparagraph (F), by
inserting ``or'' at the end of subparagraph (G), and by
adding at the end the following new subparagraph:
``(H) under an arrangement to which section 408(p)
applies, other than any elective contributions under
paragraph (2)(A)(i) thereof,''.
(D) Paragraph (12) of section 3401(a) is amended by
adding the following new subparagraph:
``(D) under an arrangement to which section 408(p)
applies; or''.
(9) Conforming amendments.--
(A) Section 280G(b)(6) is amended by striking
``or'' at the end of subparagraph (B), by striking the
period at the end of subparagraph (C) and inserting ``,
or'' and by adding after subparagraph (C) the following
new subparagraph:
``(D) a simple retirement account described in
section 408(p).''.
(B) Section 402(g)(3) is amended by striking
``and'' at the end of subparagraph (B), by striking the
period at the end of subparagraph (C) and inserting ``,
and'', and by adding after subparagraph (C) the
following new subparagraph:
``(D) any elective employer contribution under
section 408(p)(2)(A)(i).''.
(C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B)
of section 414 are each amended by inserting
``408(p),'' after ``408(k),''.
(D) Section 4972(d)(1)(A) is amended by striking
``and'' at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting ``,
and'', and by adding after clause (iii) the following
new clause:
``(iv) any simple retirement account
(within the meaning of section 408(p)).''.
(c) Repeal of Salary Reduction Simplified Employee Pensions.--
Section 408(k)(6) is amended by adding at the end the following new
subparagraph:
``(H) Termination.--This paragraph shall not apply
to years beginning after December 31, 1996. The
preceding sentence shall not apply to a simplified
employee pension if the terms of such pension, as in
effect on December 31, 1996, provide that an employee
may make the election described in subparagraph (A).''.
(d) Modifications of ERISA.--
(1) Reporting requirements.--Section 101 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1021) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
``(g) Simple Retirement Accounts.--
``(1) No employer reports.--Except as provided in this
subsection, no report shall be required under this section by
an employer maintaining a qualified salary reduction
arrangement under section 408(p) of the Internal Revenue Code
of 1986.
``(2) Summary description.--The trustee of any simple
retirement account established pursuant to a qualified salary
reduction arrangement under section 408(p) of such Code shall
provide to the employer maintaining the arrangement each year a
description containing the following information:
``(A) The name and address of the employer and the
trustee.
``(B) The requirements for eligibility for
participation.
``(C) The benefits provided with respect to the
arrangement.
``(D) The time and method of making elections with
respect to the arrangement.
``(E) The procedures for, and effects of,
withdrawals (including rollovers) from the arrangement.
``(3) Employee notification.--The employer shall notify
each employee immediately before the period for which an
election described in section 408(p)(5)(C) of such Code may be
made of the employee's opportunity to make such election. Such
notice shall include a copy of the description described in
paragraph (2).''
(2) Fiduciary duties.--Section 404(c) of such Act (29
U.S.C. 1104(c)) is amended by inserting ``(1)'' after ``(c)'',
by redesignating paragraphs (1) and (2) as subparagraphs (A)
and (B), respectively, and by adding at the end the following
new paragraph:
``(2) In the case of a simple retirement account
established pursuant to a qualified salary reduction
arrangement under section 408(p) of the Internal Revenue Code
of 1986, a participant or beneficiary shall, for purposes of
paragraph (1), be treated as exercising control over the assets
in the account upon the earliest of--
``(A) an affirmative election with respect to the
initial investment of any contribution,
``(B) a rollover to any other simple retirement
account or individual retirement plan, or
``(C) one year after the simple retirement account
is established.
No reports, other than those required under section 101(g),
shall be required with respect to a simple retirement account
established pursuant to such a qualified salary reduction
arrangement.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.
(a) Alternative Method of Satisfying Section 401(k)
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred
arrangements) is amended by adding at the end the following new
paragraph:
``(11) Adoption of simple plan to meet nondiscrimination
tests.--
``(A) In general.--A cash or deferred arrangement
maintained by an eligible employer shall be treated as
meeting the requirements of paragraph (3)(A)(ii) if
such arrangement meets--
``(i) the contribution requirements of
subparagraph (B),
``(ii) the exclusive plan requirements of
subparagraph (C), and
``(iii) the vesting requirements of section
408(p)(3).
``(B) Contribution requirements.--
``(i) In general.--The requirements of this
subparagraph are met if, under the
arrangement--
``(I) an employee may elect to have
the employer make elective
contributions for the year on behalf of
the employee to a trust under the plan
in an amount which is expressed as a
percentage of compensation of the
employee but which in no event exceeds
$6,000,
``(II) the employer is required to
make a matching contribution to the
trust for the year in an amount equal
to so much of the amount the employee
elects under subclause (I) as does not
exceed 3 percent of compensation for
the year, and
``(III) no other contributions may
be made other than contributions
described in subclause (I) or (II).
``(ii) Employer may elect 2-percent
nonelective contribution.--An employer shall be
treated as meeting the requirements of clause
(i)(II) for any year if, in lieu of the
contributions described in such clause, the
employer elects (pursuant to the terms of the
arrangement) to make nonelective contributions
of 2 percent of compensation for each employee
who is eligible to participate in the
arrangement and who has at least $5,000 of
compensation from the employer for the year. If
an employer makes an election under this
subparagraph for any year, the employer shall
notify employees of such election within a
reasonable period of time before the 60th day
before the beginning of such year.
``(C) Exclusive plan requirement.--The requirements
of this subparagraph are met for any year to which this
paragraph applies if no contributions were made, or
benefits were accrued, for services during such year
under any qualified plan of the employer on behalf of
any employee eligible to participate in the cash or
deferred arrangement, other than contributions
described in subparagraph (B).
``(D) Definitions and special rule.--
``(i) Definitions.--For purposes of this
paragraph, any term used in this paragraph
which is also used in section 408(p) shall have
the meaning given such term by such section.
``(ii) Coordination with top-heavy rules.--
A plan meeting the requirements of this
paragraph for any year shall not be treated as
a top-heavy plan under section 416 for such
year.''.
(b) Alternative Methods of Satisfying Section 401(m)
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination
test for matching contributions and employee contributions) is amended
by redesignating paragraph (10) as paragraph (11) and by adding after
paragraph (9) the following new paragraph:
``(10) Alternative method of satisfying tests.--A defined
contribution plan shall be treated as meeting the requirements
of paragraph (2) with respect to matching contributions if the
plan--
``(A) meets the contribution requirements of
subparagraph (B) of subsection (k)(11),
``(B) meets the exclusive plan requirements of
subsection (k)(11)(C), and
``(C) meets the vesting requirements of section
408(p)(3).''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 1996.
Subchapter B--Other Provisions
SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).
(a) In General.--Subparagraph (B) of section 401(k)(4) is amended
to read as follows:
``(B) Eligibility of state and local governments
and tax-exempt organizations.--
``(i) Tax-exempts eligible.--Except as
provided in clause (ii), any organization
exempt from tax under this subtitle may include
a qualified cash or deferred arrangement as
part of a plan maintained by it.
``(ii) Governments ineligible.--A cash or
deferred arrangement shall not be treated as a
qualified cash or deferred arrangement if it is
part of a plan maintained by a State or local
government or political subdivision thereof, or
any agency or instrumentality thereof. This
clause shall not apply to a rural cooperative
plan or to a plan of an employer described in
clause (iii).
``(iii) Treatment of indian tribal
governments.--An employer which is an Indian
tribal government (as defined in section
7701(a)(40)), a subdivision of an Indian tribal
government (determined in accordance with
section 7871(d)), an agency or instrumentality
of an Indian tribal government or subdivision
thereof, or a corporation chartered under
Federal, State, or tribal law which is owned in
whole or in part by any of the foregoing may
include a qualified cash or deferred
arrangement as part of a plan maintained by the
employer.''.
(b) Effective Date.--The amendment made by this section shall apply
to plan years beginning after December 31, 1996, but shall not apply to
any cash or deferred arrangement to which clause (i) of section
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.
SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.
(a) Spousal IRA Computed on Basis of Compensation of Both
Spouses.--Subsection (c) of section 219 (relating to special rules for
certain married individuals) is amended to read as follows:
``(c) Special Rules for Certain Married Individuals.--
``(1) In general.--In the case of an individual to whom
this paragraph applies for the taxable year, the limitation of
paragraph (1) of subsection (b) shall be equal to the lesser
of--
``(A) the dollar amount in effect under subsection
(b)(1)(A) for the taxable year, or
``(B) the sum of--
``(i) the compensation includible in such
individual's gross income for the taxable year,
plus
``(ii) the compensation includible in the
gross income of such individual's spouse for
the taxable year reduced by the amount allowed
as a deduction under subsection (a) to such
spouse for such taxable year.
``(2) Individuals to whom paragraph (1) applies.--Paragraph
(1) shall apply to any individual if--
``(A) such individual files a joint return for the
taxable year, and
``(B) the amount of compensation (if any)
includible in such individual's gross income for the
taxable year is less than the compensation includible
in the gross income of such individual's spouse for the
taxable year.''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 219(f) (relating to other
definitions and special rules) is amended by striking
``subsections (b) and (c)'' and inserting ``subsection (b)''.
(2) Section 219(g)(1) is amended by striking ``(c)(2)'' and
inserting ``(c)(1)(A)''.
(3) Section 408(d)(5) is amended by striking ``$2,250'' and
inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
CHAPTER 3--NONDISCRIMINATION PROVISIONS
SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY
AGGREGATION.
(a) In General.--Paragraph (1) of section 414(q) (defining highly
compensated employee) is amended to read as follows:
``(1) In general.--The term `highly compensated employee'
means any employee who--
``(A) was a 5-percent owner at any time during the
year or the preceding year, or
``(B) for the preceding year had compensation from
the employer in excess of $80,000.
The Secretary shall adjust the $80,000 amount under
subparagraph (B) at the same time and in the same manner as
under section 415(d), except that the base period shall be the
calendar quarter ending September 30, 1996.''.
(b) Repeal of Family Aggregation Rules.--
(1) In general.--Paragraph (6) of section 414(q) is hereby
repealed.
(2) Compensation limit.--Paragraph (17)(A) of section
401(a) is amended by striking the last sentence.
(3) Deduction.--Subsection (l) of section 404 is amended by
striking the last sentence.
(c) Conforming Amendments.--
(1)(A) Subsection (q) of section 414 is amended by striking
paragraphs (2), (4), (5), (8), and (12) and by redesignating
paragraphs (3), (7), (9), (10), and (11) as paragraphs (2)
through (6), respectively.
(B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C),
and 416(i)(1)(D) are each amended by striking ``section
414(q)(7)'' and inserting ``section 414(q)(3)''.
(C) Section 416(i)(1)(A) is amended by striking ``section
414(q)(8)'' and inserting ``section 414(r)(9)''.
(2)(A) Section 414(r) is amended by adding at the end the
following new paragraph:
``(9) Excluded employees.--For purposes of paragraph
(2)(A), the following employees shall be excluded:
``(A) Employees who have not completed 6 months of
service.
``(B) Employees who normally work less than 17\1/2\
hours per week.
``(C) Employees who normally work not more than 6
months during any year.
``(D) Employees who have not attained the age of
21.
``(E) Except to the extent provided in regulations,
employees who are included in a unit of employees
covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between
employee representatives and the employer.
Except as provided by the Secretary, the employer may elect to
apply subparagraph (A), (B), (C), or (D) by substituting a
shorter period of service, smaller number of hours or months,
or lower age for the period of service, number of hours or
months, or age (as the case may be) specified in such
subparagraph.''.
(B) Subparagraph (A) of section 414(r)(2) is amended by
striking ``subsection (q)(8)'' and inserting ``paragraph (9)''.
(3) Section 1114(c)(4) of the Tax Reform Act of 1986 is
amended by adding at the end the following new sentence: ``Any
reference in this paragraph to section 414(q) shall be treated
as a reference to such section as in effect on the day before
the date of the enactment of the Small Business Job Protection
Act of 1996.''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to years beginning after December 31, 1996, except that
in determining whether an employee is a highly compensated
employee for years beginning in 1997, such amendments shall be
treated as having been in effect for years beginning in 1996.
(2) Family aggregation.--The amendments made by subsection
(b) shall apply to years beginning after December 31, 1996.
SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.
(a) General Rule.--Section 401(a)(26)(A) (relating to additional
participation requirements) is amended to read as follows:
``(A) In general.--In the case of a trust which is
a part of a defined benefit plan, such trust shall not
constitute a qualified trust under this subsection
unless on each day of the plan year such trust benefits
at least the lesser of--
``(i) 50 employees of the employer, or
``(ii) the greater of--
``(I) 40 percent of all employees
of the employer, or
``(II) 2 employees (or if there is
only 1 employee, such employee).''.
(b) Separate Line of Business Test.--Section 401(a)(26)(G)
(relating to separate line of business) is amended by striking
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 1996.
SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED
ARRANGEMENTS AND MATCHING CONTRIBUTIONS.
(a) Alternative Methods of Satisfying Section 401(k)
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred
arrangements), as amended by section 1422, is amended by adding at the
end the following new paragraph:
``(12) Alternative methods of meeting nondiscrimination
requirements.--
``(A) In general.--A cash or deferred arrangement
shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if such arrangement--
``(i) meets the contribution requirements
of subparagraph (B) or (C), and
``(ii) meets the notice requirements of
subparagraph (D).
``(B) Matching contributions.--
``(i) In general.--The requirements of this
subparagraph are met if, under the arrangement,
the employer makes matching contributions on
behalf of each employee who is not a highly
compensated employee in an amount equal to--
``(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee's
compensation, and
``(II) 50 percent of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee's compensation.
``(ii) Rate for highly compensated
employees.--The requirements of this
subparagraph are not met if, under the
arrangement, the rate of matching contribution
with respect to any elective contribution of a
highly compensated employee at any rate of
elective contribution is greater than that with
respect to an employee who is not a highly
compensated employee.
``(iii) Alternative plan designs.--If the
rate of any matching contribution with respect
to any rate of elective contribution is not
equal to the percentage required under clause
(i), an arrangement shall not be treated as
failing to meet the requirements of clause (i)
if--
``(I) the rate of an employer's
matching contribution does not increase
as an employee's rate of elective
contributions increase, and
``(II) the aggregate amount of
matching contributions at such rate of
elective contribution is at least equal
to the aggregate amount of matching
contributions which would be made if
matching contributions were made on the
basis of the percentages described in
clause (i).
``(C) Nonelective contributions.--The requirements
of this subparagraph are met if, under the arrangement,
the employer is required, without regard to whether the
employee makes an elective contribution or employee
contribution, to make a contribution to a defined
contribution plan on behalf of each employee who is not
a highly compensated employee and who is eligible to
participate in the arrangement in an amount equal to at
least 3 percent of the employee's compensation.
``(D) Notice requirement.--An arrangement meets the
requirements of this paragraph if, under the
arrangement, each employee eligible to participate is,
within a reasonable period before any year, given
written notice of the employee's rights and obligations
under the arrangement which--
``(i) is sufficiently accurate and
comprehensive to appraise the employee of such
rights and obligations, and
``(ii) is written in a manner calculated to
be understood by the average employee eligible
to participate.
``(E) Other requirements.--
``(i) Withdrawal and vesting
restrictions.--An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) of this paragraph
unless the requirements of subparagraphs (B)
and (C) of paragraph (2) are met with respect
to all employer contributions (including
matching contributions) taken into account in
determining whether the requirements of
subparagraphs (B) and (C) of this paragraph are
met.
``(ii) Social security and similar
contributions not taken into account.--An
arrangement shall not be treated as meeting the
requirements of subparagraph (B) or (C) unless
such requirements are met without regard to
subsection (l), and, for purposes of subsection
(l), employer contributions under subparagraph
(B) or (C) shall not be taken into account.
``(F) Other plans.--An arrangement shall be treated
as meeting the requirements under subparagraph (A)(i)
if any other plan maintained by the employer meets such
requirements with respect to employees eligible under
the arrangement.''.
(b) Alternative Methods of Satisfying Section 401(m)
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination
test for matching contributions and employee contributions), as amended
by this section 1422(b), is amended by redesignating paragraph (11) as
paragraph (12) and by adding after paragraph (10) the following new
paragraph:
``(11) Alternative method of satisfying tests.--
``(A) In general.--A defined contribution plan
shall be treated as meeting the requirements of
paragraph (2) with respect to matching contributions if
the plan--
``(i) meets the contribution requirements
of subparagraph (B) or (C) of subsection
(k)(12),
``(ii) meets the notice requirements of
subsection (k)(12)(D), and
``(iii) meets the requirements of
subparagraph (B).
``(B) Limitation on matching contributions.--The
requirements of this subparagraph are met if--
``(i) matching contributions on behalf of
any employee may not be made with respect to an
employee's contributions or elective deferrals
in excess of 6 percent of the employee's
compensation,
``(ii) the rate of an employer's matching
contribution does not increase as the rate of
an employee's contributions or elective
deferrals increase, and
``(iii) the matching contribution with
respect to any highly compensated employee at
any rate of an employee contribution or rate of
elective deferral is not greater than that with
respect to an employee who is not a highly
compensated employee.''.
(c) Year for Computing Nonhighly Compensated Employee Percentage.--
(1) Cash or deferred arrangements.--Section 401(k)(3)(A) is
amended--
(A) by striking ``such year'' in clause (ii) and
inserting ``the plan year'',
(B) by striking ``for such plan year'' in clause
(ii) and inserting ``for the preceding plan year'', and
(C) by adding at the end the following new
sentence: ``An arrangement may apply clause (ii) by
using the plan year rather than the preceding plan year
if the employer so elects, except that if such an
election is made, it may not be changed except as
provided by the Secretary.''.
(2) Matching and employee contributions.--Section
401(m)(2)(A) is amended--
(A) by inserting ``for such plan year'' after
``highly compensated employees'',
(B) by inserting ``for the preceding plan year''
after ``eligible employees'' each place it appears in
clause (i) and clause (ii), and
(C) by adding at the end the following flush
sentence:
``This subparagraph may be applied by using the plan
year rather than the preceding plan year if the
employer so elects, except that if such an election is
made, it may not be changed except as provided the
Secretary.''.
(d) Special Rule for Determining Average Deferral Percentage for
First Plan Year, Etc.--
(1) Paragraph (3) of section 401(k) is amended by adding at
the end the following new subparagraph:
``(E) For purposes of this paragraph, in the case
of the first plan year of any plan (other than a
successor plan), the amount taken into account as the
actual deferral percentage of nonhighly compensated
employees for the preceding plan year shall be--
``(i) 3 percent, or
``(ii) if the employer makes an election
under this subclause, the actual deferral
percentage of nonhighly compensated employees
determined for such first plan year.''.
(2) Paragraph (3) of section 401(m) is amended by adding at
the end the following: ``Rules similar to the rules of
subsection (k)(3)(E) shall apply for purposes of this
subsection.''.
(e) Distribution of Excess Contributions and Excess Aggregate
Contributions.--
(1) Subparagraph (C) of section 401(k)(8) (relating to
arrangement not disqualified if excess contributions
distributed) is amended by striking ``on the basis of the
respective portions of the excess contributions attributable to
each of such employees'' and inserting ``on the basis of the
amount of contributions by, or on behalf of, each of such
employees''.
(2) Subparagraph (C) of section 401(m)(6) (relating to
method of distributing excess aggregate contributions) is
amended by striking ``on the basis of the respective portions
of such amounts attributable to each of such employees'' and
inserting ``on the basis of the amount of contributions on
behalf of, or by, each such employee''.
(f) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to years beginning after December 31, 1998.
(2) Exceptions.--The amendments made by subsections (c),
(d), and (e) shall apply to years beginning after December 31,
1996.
SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.
(a) General Rule.--Section 415(c)(3) (defining participant's
compensation) is amended by adding at the end the following new
subparagraph:
``(D) Certain deferrals included.--The term
`participant's compensation' shall include--
``(i) any elective deferral (as defined in
section 402(g)(3)), and
``(ii) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the
gross income of the employee by reason of
section 125 or 457.''.
(b) Conforming Amendments.--
(1) Section 414(q)(3), as redesignated by section 1431, is
amended to read as follows:
``(4) Compensation.--For purposes of this subsection, the
term `compensation' has the meaning given such term by section
415(c)(3).''.
(2) Section 414(s)(2) is amended by inserting ``not'' after
``elect'' in the text and heading thereof.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 1997.
CHAPTER 4--MISCELLANEOUS PROVISIONS
SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.
(a) Aggregation Rules.--Section 401(d) (relating to additional
requirements for qualification of trusts and plans benefiting owner-
employees) is amended to read as follows:
``(d) Contribution Limit on Owner-Employees.--A trust forming part
of a pension or profit-sharing plan which provides contributions or
benefits for employees some or all of whom are owner-employees shall
constitute a qualified trust under this section only if, in addition to
meeting the requirements of subsection (a), the plan provides that
contributions on behalf of any owner-employee may be made only with
respect to the earned income of such owner-employee which is derived
from the trade or business with respect to which such plan is
established.''.
(b) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 1996.
SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.
(a) Amendments to 1986 Code.--Paragraph (2) of section 411(a)
(relating to minimum vesting standards) is amended--
(1) by striking ``subparagraph (A), (B), or (C)'' and
inserting ``subparagraph (A) or (B)''; and
(2) by striking subparagraph (C).
(b) Amendments to ERISA.--Paragraph (2) of section 203(a) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is
amended--
(1) by striking ``subparagraph (A), (B), or (C)'' and
inserting ``subparagraph (A) or (B)''; and
(2) by striking subparagraph (C).
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning on or after the earlier of--
(1) the later of--
(A) January 1, 1997, or
(B) the date on which the last of the collective
bargaining agreements pursuant to which the plan is
maintained terminates (determined without regard to any
extension thereof after the date of the enactment of
this Act), or
(2) January 1, 1999.
Such amendments shall not apply to any individual who does not have
more than 1 hour of service under the plan on or after the 1st day of
the 1st plan year to which such amendments apply.
SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.
(a) Distributions for Hardship or After a Certain Age.--Section
401(k)(7) is amended by adding at the end the following new
subparagraph:
``(C) Special rule for certain distributions.--A
rural cooperative plan which includes a qualified cash
or deferred arrangement shall not be treated as
violating the requirements of section 401(a) or of
paragraph (2) merely by reason of a hardship
distribution or a distribution to a participant after
attainment of age 59\1/2\. For purposes of this
section, the term `hardship distribution' means a
distribution described in paragraph (2)(B)(i)(IV)
(without regard to the limitation of its application to
profit-sharing or stock bonus plans).''.
(b) Public Utility Districts.--Clause (i) of section 401(k)(7)(B)
(defining rural cooperative) is amended to read as follows:
``(i) any organization which--
``(I) is engaged primarily in
providing electric service on a mutual
or cooperative basis, or
``(II) is engaged primarily in
providing electric service to the
public in its area of service and which
is exempt from tax under this subtitle
or which is a State or local government
(or an agency or instrumentality
thereof), other than a municipality (or
an agency or instrumentality
thereof),''.
(c) Effective Dates.--
(1) Distributions.--The amendments made by subsection (a)
shall apply to distributions after the date of the enactment of
this Act.
(2) Public utility districts.--The amendments made by
subsection (b) shall apply to plan years beginning after
December 31, 1996.
SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.
(a) Compensation Limit.--Subsection (b) of section 415 is amended
by adding immediately after paragraph (10) the following new paragraph:
``(11) Special limitation rule for governmental plans.--In
the case of a governmental plan (as defined in section 414(d)),
subparagraph (B) of paragraph (1) shall not apply.''.
(b) Treatment of Certain Excess Benefit Plans.--
(1) In general.--Section 415 is amended by adding at the
end the following new subsection:
``(m) Treatment of Qualified Governmental Excess Benefit
Arrangements.--
``(1) Governmental plan not affected.--In determining
whether a governmental plan (as defined in section 414(d))
meets the requirements of this section, benefits provided under
a qualified governmental excess benefit arrangement shall not
be taken into account. Income accruing to a governmental plan
(or to a trust that is maintained solely for the purpose of
providing benefits under a qualified governmental excess
benefit arrangement) in respect of a qualified governmental
excess benefit arrangement shall constitute income derived from
the exercise of an essential governmental function upon which
such governmental plan (or trust) shall be exempt from tax
under section 115.
``(2) Taxation of participant.--For purposes of this
chapter--
``(A) the taxable year or years for which amounts
in respect of a qualified governmental excess benefit
arrangement are includible in gross income by a
participant, and
``(B) the treatment of such amounts when so
includible by the participant,
shall be determined as if such qualified governmental excess
benefit arrangement were treated as a plan for the deferral of
compensation which is maintained by a corporation not exempt
from tax under this chapter and which does not meet the
requirements for qualification under section 401.
``(3) Qualified governmental excess benefit arrangement.--
For purposes of this subsection, the term `qualified
governmental excess benefit arrangement' means a portion of a
governmental plan if--
``(A) such portion is maintained solely for the
purpose of providing to participants in the plan that
part of the participant's annual benefit otherwise
payable under the terms of the plan that exceeds the
limitations on benefits imposed by this section,
``(B) under such portion no election is provided at
any time to the participant (directly or indirectly) to
defer compensation, and
``(C) benefits described in subparagraph (A) are
not paid from a trust forming a part of such
governmental plan unless such trust is maintained
solely for the purpose of providing such benefits.''.
(2) Coordination with section 457.--Subsection (e) of
section 457 is amended by adding at the end the following new
paragraph:
``(14) Treatment of qualified governmental excess benefit
arrangements.--Subsections (b)(2) and (c)(1) shall not apply to
any qualified governmental excess benefit arrangement (as
defined in section 415(m)(3)), and benefits provided under such
an arrangement shall not be taken into account in determining
whether any other plan is an eligible deferred compensation
plan.''.
(3) Conforming amendment.--Paragraph (2) of section 457(f)
is amended by striking ``and'' at the end of subparagraph (C),
by striking the period at the end of subparagraph (D) and
inserting ``, and'', and by inserting immediately thereafter
the following new subparagraph:
``(E) a qualified governmental excess benefit
arrangement described in section 415(m).''.
(c) Exemption for Survivor and Disability Benefits.--Paragraph (2)
of section 415(b) is amended by adding at the end the following new
subparagraph:
``(I) Exemption for survivor and disability
benefits provided under governmental plans.--
Subparagraph (C) of this paragraph and paragraph (5)
shall not apply to--
``(i) income received from a governmental
plan (as defined in section 414(d)) as a
pension, annuity, or similar allowance as the
result of the recipient becoming disabled by
reason of personal injuries or sickness, or
``(ii) amounts received from a governmental
plan by the beneficiaries, survivors, or the
estate of an employee as the result of the
death of the employee.''.
(d) Revocation of Grandfather Election.--
(1) In general.--Subparagraph (C) of section 415(b)(10) is
amended by adding at the end the following new clause:
``(ii) Revocation of election.--An election
under clause (i) may be revoked not later than
the last day of the third plan year beginning
after the date of the enactment of this clause.
The revocation shall apply to all plan years to
which the election applied and to all
subsequent plan years. Any amount paid by a
plan in a taxable year ending after the
revocation shall be includible in income in
such taxable year under the rules of this
chapter in effect for such taxable year, except
that, for purposes of applying the limitations
imposed by this section, any portion of such
amount which is attributable to any taxable
year during which the election was in effect
shall be treated as received in such taxable
year.''.
(2) Conforming amendment.--Subparagraph (C) of section
415(b)(10) is amended by striking ``This'' and inserting:
``(i) In general.--This''.
(e) Effective Date.--
(1) In general.--The amendments made by subsections (a),
(b), and (c) shall apply to years beginning after December 31,
1994. The amendments made by subsection (d) shall apply with
respect to revocations adopted after the date of the enactment
of this Act.
(2) Treatment for years beginning before january 1, 1995.--
Nothing in the amendments made by this section shall be
construed to imply that a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of 1986) fails to
satisfy the requirements of section 415 of such Code for any
taxable year beginning before January 1, 1995.
SEC. 1445. UNIFORM RETIREMENT AGE.
(a) Discrimination Testing.--Paragraph (5) of section 401(a)
(relating to special rules relating to nondiscrimination requirements)
is amended by adding at the end the following new subparagraph:
``(F) Social security retirement age.--For purposes
of testing for discrimination under paragraph (4)--
``(i) the social security retirement age
(as defined in section 415(b)(8)) shall be
treated as a uniform retirement age, and
``(ii) subsidized early retirement benefits
and joint and survivor annuities shall not be
treated as being unavailable to employees on
the same terms merely because such benefits or
annuities are based in whole or in part on an
employee's social security retirement age (as
so defined).''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 1996.
SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.
(a) All Disabled Participants Receiving Contributions.--Section
415(c)(3)(C) is amended by adding at the end the following: ``If a
defined contribution plan provides for the continuation of
contributions on behalf of all participants described in clause (i) for
a fixed or determinable period, this subparagraph shall be applied
without regard to clauses (ii) and (iii).''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 1996.
SEC. 1447. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.
(a) Special Rules for Plan Distributions.--Paragraph (9) of section
457(e) (relating to other definitions and special rules) is amended to
read as follows:
``(9) Benefits not treated as made available by reason of
certain elections, etc.--
``(A) Total amount payable is $3,500 or less.--The
total amount payable to a participant under the plan
shall not be treated as made available merely because
the participant may elect to receive such amount (or
the plan may distribute such amount without the
participant's consent) if--
``(i) such amount does not exceed $3,500,
and
``(ii) such amount may be distributed only
if--
``(I) no amount has been deferred
under the plan with respect to such
participant during the 2-year period
ending on the date of the distribution,
and
``(II) there has been no prior
distribution under the plan to such
participant to which this subparagraph
applied.
A plan shall not be treated as failing to meet the
distribution requirements of subsection (d) by reason
of a distribution to which this subparagraph applies.
``(B) Election to defer commencement of
distributions.--The total amount payable to a
participant under the plan shall not be treated as made
available merely because the participant may elect to
defer commencement of distributions under the plan if--
``(i) such election is made after amounts
may be available under the plan in accordance
with subsection (d)(1)(A) and before
commencement of such distributions, and
``(ii) the participant may make only 1 such
election.''.
(b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457, as amended by section 1444(b)(2)
(relating to governmental plans), is amended by adding at the end the
following new paragraph:
``(15) Cost-of-living adjustment of maximum deferral
amount.--The Secretary shall adjust the $7,500 amount specified
in subsections (b)(2) and (c)(1) at the same time and in the
same manner as under section 415(d), except that the base
period shall be the calendar quarter ending September 30, 1994,
and any increase under this paragraph which is not a multiple
of $500 shall be rounded to the next lowest multiple of
$500.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE
AND LOCAL GOVERNMENTS.
(a) In General.--Section 457 is amended by adding at the end the
following new subsection:
``(g) Governmental Plans Must Maintain Set-Asides for Exclusive
Benefit of Participants.--
``(1) In general.--A plan maintained by an eligible
employer described in subsection (e)(1)(A) shall not be treated
as an eligible deferred compensation plan unless all assets and
income of the plan described in subsection (b)(6) are held in
trust for the exclusive benefit of participants and their
beneficiaries.
``(2) Taxability of trusts and participants.--For purposes
of this title--
``(A) a trust described in paragraph (1) shall be
treated as an organization exempt from taxation under
section 501(a), and
``(B) notwithstanding any other provision of this
title, amounts in the trust shall be includible in the
gross income of participants and beneficiaries only to
the extent, and at the time, provided in this section.
``(3) Custodial accounts and contracts.--For purposes of
this subsection, custodial accounts and contracts described in
section 401(f) shall be treated as trusts under rules similar
to the rules under section 401(f).''.
(b) Conforming Amendment.--Paragraph (6) of section 457(b) is
amended by inserting ``except as provided in subsection (g),'' before
``which provides that''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to assets and
income described in section 457(b)(6) of the Internal Revenue
Code of 1986 held by a plan on and after the date of the
enactment of this Act.
(2) Transition rule.--In the case of a plan in existence on
the date of the enactment of this Act, a trust need not be
established by reason of the amendments made by this section
before January 1, 1999.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER SECTION
415 LIMITATIONS.
(a) In General.--Subparagraph (A) of section 767(d)(3) of the
Uruguay Round Agreements Act is amended to read as follows:
``(A) Exception.--A plan that was adopted and in
effect before December 8, 1994, shall not be required
to apply the amendments made by subsection (b) with
respect to benefits accrued before the earlier of--
``(i) the later of the date a plan
amendment applying the amendments made by
subsection (b) is adopted or made effective, or
``(ii) the first day of the first
limitation year beginning after December 31,
1999.
Determinations under section 415(b)(2)(E) of the
Internal Revenue Code of 1986 before such earlier date
shall be made with respect to such benefits on the
basis of such section as in effect on December 7, 1994
(except that the modification made by section 1449(b)
of the Small Business Job Protection Act of 1996 shall
be taken into account), and the provisions of the plan
as in effect on December 7, 1994, but only if such
provisions of the plan meet the requirements of such
section (as so in effect).''.
(b) Modification of Certain Assumptions for Adjusting Benefits of
Defined Benefit Plans for Early Retirees.--Subparagraph (E) of section
415(b)(2) (relating to limitation on certain assumptions) is amended--
(1) by striking ``Except as provided in clause (ii), for
purposes of adjusting any benefit or limitation under
subparagraph (B) or (C),'' in clause (i) and inserting ``For
purposes of adjusting any limitation under subparagraph (C)
and, except as provided in clause (ii), for purposes of
adjusting any benefit under subparagraph (B),'', and
(2) by striking ``For purposes of adjusting the benefit or
limitation of any form of benefit subject to section
417(e)(3),'' in clause (ii) and inserting ``For purposes of
adjusting any benefit under subparagraph (B) for any form of
benefit subject to section 417(e)(3),''.
(c) Effective Date.--The amendments made by this section shall take
effect as if included in the provisions of section 767 of the Uruguay
Round Agreements Act.
(d) Transitional Rule.--In the case of a plan that was adopted and
in effect before December 8, 1994, if--
(1) a plan amendment was adopted or made effective on or
before the date of the enactment of this Act applying the
amendments made by section 767 of the Uruguay Round Agreements
Act, and
(2) within 1 year after the date of the enactment of this
Act, a plan amendment is adopted which repeals the amendment
referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into
account in applying section 767(d)(3)(A) of the Uruguay Round
Agreements Act, as amended by subsection (a).
SEC. 1450. MODIFICATIONS OF SECTION 403(b).
(a) Multiple Salary Reduction Agreements Permitted.--
(1) General rule.--For purposes of section 403(b) of the
Internal Revenue Code of 1986, the frequency that an employee
is permitted to enter into a salary reduction agreement, the
salary to which such an agreement may apply, and the ability to
revoke such an agreement shall be determined under the rules
applicable to cash or deferred elections under section 401(k)
of such Code.
(2) Constructive receipt.--Section 402(e)(3) is amended by
inserting ``or which is part of a salary reduction agreement
under section 403(b)'' after ``section 401(k)(2))''.
(3) Effective date.--This subsection shall apply to taxable
years beginning after December 31, 1995.
(b) Treatment of Indian Tribal Governments.--
(1) In general.--Subparagraph (A) of section 403(b)(1)
(relating to taxability of beneficiary under annuity purchased
by section 501(c)(3) organization or public school) is amended
by striking ``or'' at the end of clause (i), by inserting
``or'' at the end of clause (ii), and by adding at the end the
following new clause:
``(iii) for an employee by an employer
which is an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision
of an Indian tribal government (determined in
accordance with section 7871(d)), an agency or
instrumentality of an Indian tribal government
or subdivision thereof, or a corporation
chartered under Federal, State, or tribal law
which is owned in whole or part by any of the
foregoing,''.
(2) Conforming amendment.--The heading for section 403(b)
is amended by striking ``or Public School'' and inserting ``,
Public School, or Indian Tribe''.
(3) Effective dates.--
(A) In general.--The amendments made by this
section shall apply to plan years beginning after
December 31, 1996.
(B) Transition rules.--
(i) In general.--In the case of any
contract purchased in a plan year beginning
before January 1, 1997, section 403(b) of the
Internal Revenue Code of 1986 shall be applied
as if any reference to an employer described in
section 501(c)(3) of the Internal Revenue Code
of 1986 which is exempt from tax under section
501 of such Code included a reference to an
employer which is an Indian tribal government
(as defined by section 7701(a)(40) of such
Code), a subdivision of an Indian tribal
government (determined in accordance with
section 7871(d) of such Code), an agency or
instrumentality of an Indian tribal government
or subdivision thereof, or a corporation
chartered under Federal, State, or tribal law
which is owned in whole or in part by any of
the foregoing.
(ii) Rollovers.--Solely for purposes of
applying section 403(b)(8) of such Code to a
contract to which clause (i) applies, a
qualified cash or deferred arrangement under
section 401(k) of such Code shall be treated as
if it were a plan or contract described in
clause (ii) of section 403(b)(8)(A) of such
Code.
(c) Elective Deferrals.--
(1) In general.--Subparagraph (E) of section 403(b)(1) is
amended to read as follows:
``(E) in the case of a contract purchased under a
salary reduction agreement, the contract meets the
requirements of section 401(a)(30),''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 1995, except
a contract shall not be required to meet any change in any
requirement by reason of such amendment before the 90th day
after the date of the enactment of this Act.
SEC. 1451. MISSING PARTICIPANTS.
(a) In General.--Section 4050 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating
subsection (c) as subsection (e) and by inserting after subsection (b)
the following new subsections:
``(c) Multiemployer Plans.--The corporation shall prescribe rules
similar to the rules in subsection (a) for multiemployer plans covered
by this title that terminate under section 4041A.
``(d) Plans Not Otherwise Subject to Title.--
``(1) Transfer to corporation.--The plan administrator of a
plan described in paragraph (4) may elect to transfer a missing
participant's benefits to the corporation upon termination of
the plan.
``(2) Information to the corporation.--To the extent
provided in regulations, the plan administrator of a plan that
makes the election described in paragraph (1) shall, upon
termination of the plan, provide the corporation information
with respect to benefits of a missing participant.
``(3) Payment by the corporation.--If benefits of a missing
participant were transferred to the corporation under paragraph
(1), the corporation shall, upon location of the participant or
beneficiary, pay to the participant or beneficiary the amount
transferred (or the appropriate survivor benefit) either--
``(A) in a single sum (plus interest), or
``(B) in such other form as is specified in
regulations of the corporation.
``(4) Plans described.--A plan is described in this
paragraph if--
``(A) the plan is a pension plan (within the
meaning of section 3(2))--
``(i) to which the provisions of this
section do not apply (without regard to this
subsection), and
``(ii) which is not a plan described in
paragraphs (2) through (11) of section 4021(b),
and
``(B) at the time the assets are to be distributed
upon termination, the plan--
``(i) has missing participants, and
``(ii) has not provided for the transfer of
assets to pay the benefits of all missing
participants to another pension plan (within
the meaning of section 3(2)).
``(5) Certain provisions not to apply.--Subsections (a)(1)
and (a)(3) shall not apply to a plan described in paragraph
(4).''.
(b) Conforming Amendments.--
(1) Section 206(f) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1056(f)) is amended--
(A) by striking ``title IV'' and inserting
``section 4050'', and
(B) by striking ``the plan shall provide that''.
(2) Section 401(a)(34) (relating to benefits of missing
participants on plan termination) is amended by striking
``title IV'' and inserting ``section 4050''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions made after final regulations implementing
subsections (c) and (d) of section 4050 of the Employee Retirement
Income Security Act of 1974 (as added by subsection (a)), respectively,
are prescribed.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND
DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS
DISTRIBUTIONS.
(a) In General.--Section 415(e) is repealed.
(b) Excess Distributions.--Section 4980A is amended by adding at
the end the following new subsection:
``(g) Limitation on Application.--This section shall not apply to
distributions during years beginning after December 31, 1996, and
before January 1, 2000, and such distributions shall be treated as made
first from amounts not described in subsection (f).''.
(c) Conforming Amendments.--
(1) Paragraph (1) of section 415(a) is amended--
(A) by adding ``or'' at the end of subparagraph
(A),
(B) by striking ``, or'' at the end of subparagraph
(B) and inserting a period, and
(C) by striking subparagraph (C).
(2) Subparagraph (B) of section 415(b)(5) is amended by
striking ``and subsection (e)''.
(3) Paragraph (1) of section 415(f) is amended by striking
``subsections (b), (c), and (e)'' and inserting ``subsections
(b) and (c)''.
(4) Subsection (g) of section 415 is amended by striking
``subsections (e) and (f)'' in the last sentence and inserting
``subsection (f)''.
(5) Clause (i) of section 415(k)(2)(A) is amended to read
as follows:
``(i) any contribution made directly by an
employee under such an arrangement shall not be
treated as an annual addition for purposes of
subsection (c), and''.
(6) Clause (ii) of section 415(k)(2)(A) is amended by
striking ``subsections (c) and (e)'' and inserting ``subsection
(c)''.
(7) Section 416 is amended by striking subsection (h).
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to limitation years
beginning after December 31, 1999.
(2) Excess distributions.--The amendment made by subsection
(b) shall apply to years beginning after December 31, 1996.
SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.
(a) In General.--Section 4975(a) is amended by striking ``5
percent'' and inserting ``10 percent''.
(b) Effective Date.--The amendment made by this section shall apply
to prohibited transactions occurring after the date of the enactment of
this Act.
SEC. 1454. TREATMENT OF LEASED EMPLOYEES.
(a) General Rule.--Subparagraph (C) of section 414(n)(2) (defining
leased employee) is amended to read as follows:
``(C) such services are performed under primary
direction or control by the recipient.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to years beginning after December 31, 1996, but shall not apply
to any relationship determined under an Internal Revenue Service ruling
issued before the date of the enactment of this Act pursuant to section
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the
day before such date) not to involve a leased employee.
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION
REPORTING REQUIREMENTS.
(a) Penalties.--
(1) Statements.--Paragraph (1) of section 6724(d) is
amended by striking ``and'' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and
inserting ``, and'', and by inserting after subparagraph (B)
the following new subparagraph:
``(C) any statement of the amount of payments to
another person required to be made to the Secretary
under--
``(i) section 408(i) (relating to reports
with respect to individual retirement accounts
or annuities), or
``(ii) section 6047(d) (relating to reports
by employers, plan administrators, etc.).''.
(2) Reports.--Paragraph (2) of section 6724(d) is amended
by striking ``or'' at the end of subparagraph (S), by striking
the period at the end of subparagraph (T) and inserting a
comma, and by inserting after subparagraph (T) the following
new subparagraphs:
``(U) section 408(i) (relating to reports with
respect to individual retirement plans) to any person
other than the Secretary with respect to the amount of
payments made to such person, or
``(V) section 6047(d) (relating to reports by plan
administrators) to any person other than the Secretary
with respect to the amount of payments made to such
person.''.
(b) Modification of Reportable Designated Distributions.--
(1) Section 408.--Subsection (i) of section 408 (relating
to individual retirement account reports) is amended by
inserting ``aggregating $10 or more in any calendar year''
after ``distributions''.
(2) Section 6047.--Paragraph (1) of section 6047(d)
(relating to reports by employers, plan administrators, etc.)
is amended by adding at the end the following new sentence:
``No return or report may be required under the preceding
sentence with respect to distributions to any person during any
year unless such distributions aggregate $10 or more.''.
(c) Qualifying Rollover Distributions.--Section 6652(i) is
amended--
(1) by striking ``the $10'' and inserting ``$100'', and
(2) by striking ``$5,000'' and inserting ``$50,000''.
(d) Conforming Amendments.--
(1) Paragraph (1) of section 6047(f) is amended to read as
follows:
``(1) For provisions relating to
penalties for failures to file returns and reports required under this
section, see sections 6652(e), 6721, and 6722.''.
(2) Subsection (e) of section 6652 is amended by adding at
the end the following new sentence: ``This subsection shall not
apply to any return or statement which is an information return
described in section 6724(d)(1)(C)(ii) or a payee statement
described in section 6724(d)(2)(V).''.
(3) Subsection (a) of section 6693 is amended by adding at
the end the following new sentence: ``This subsection shall not
apply to any report which is an information return described in
section 6724(d)(1)(C)(i) or a payee statement described in
section 6724(d)(2)(U).''.
(e) Effective Date.--The amendments made by this section shall
apply to returns, reports, and other statements the due date for which
(determined without regard to extensions) is after December 31, 1996.
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO TAX ON NET
EARNINGS FROM SELF-EMPLOYMENT.
(a) In General.--Section 1402(a)(8) (defining net earning from
self-employment) is amended by inserting ``, but shall not include in
such net earnings from self-employment the rental value of any
parsonage or any parsonage allowance (whether or not excludable under
section 107) provided after the individual retires, or any other
retirement benefit received by such individual from a church plan (as
defined in section 414(e)) after the individual retires'' before the
semicolon at the end.
(b) Effective Date.--The amendments made by this section shall
apply to years beginning before, on, or after December 31, 1994.
SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND QUALIFIED DOMESTIC
RELATIONS FORMS.
(a) Development of Forms.--Not later than January 1, 1997, the
Secretary of the Treasury shall develop--
(1) a model form for the spousal consent required under
section 417(a)(2) of the Internal Revenue Code of 1986 and
section 205(c)(2) of the Employee Retirement Income Security
Act of 1974 which--
(A) is written in a manner calculated to be
understood by the average person, and
(B) discloses in plain form--
(i) whether the waiver to which the spouse
consents is irrevocable, and
(ii) whether such waiver may be revoked by
a qualified domestic relations order, and
(2) a model form for a qualified domestic relations order
described in section 414(p)(1)(A) of such Code and section
206(d)(3)(B)(i) of such Act which--
(A) meets the requirements contained in such
sections, and
(B) the provisions of which focus attention on the
need to consider the treatment of any lump sum payment,
qualified joint and survivor annuity, or qualified
preretirement survivor annuity.
(b) Publicity.--The Secretary of the Treasury shall include
publicity for the model forms developed under subsection (a) in the
pension outreach efforts undertaken by the Secretary.
SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS TO VOLUNTEERS
PERFORMING FIRE FIGHTING OR PREVENTION SERVICES,
EMERGENCY MEDICAL SERVICES, OR AMBULANCE SERVICES.
(a) In General.--Paragraph (11) of section 457(e) (relating to
deferred compensation plans of State and local governments and tax-
exempt organizations) is amended to read as follows:
``(11) Certain plans excluded.--
``(A) In general.--The following plans shall be
treated as not providing for the deferral of
compensation:
``(i) Any bona fide vacation leave, sick
leave, compensatory time, severance pay,
disability pay, or death benefit plan.
``(ii) Any plan paying solely length of
service awards to bona fide volunteers (or
their beneficiaries) on account of qualified
services performed by such volunteers.
``(B) Special rules applicable to length of service
award plans.--
``(i) Bona fide volunteer.--An individual
shall be treated as a bona fide volunteer for
purposes of subparagraph (A)(ii) if the only
compensation received by such individual for
performing qualified services is in the form
of--
``(I) reimbursement for (or a
reasonable allowance for) reasonable
expenses incurred in the performance of
such services, or
``(II) reasonable benefits
(including length of service awards),
and nominal fees for such services,
customarily paid by eligible employers
in connection with the performance of
such services by volunteers.
``(ii) Limitation on accruals.--A plan
shall not be treated as described in
subparagraph (A)(ii) if the aggregate amount of
length of service awards accruing with respect
to any year of service for any bona fide
volunteer exceeds $3,000.
``(C) Qualified services.--For purposes of this
paragraph, the term `qualified services' means fire
fighting and prevention services, emergency medical
services, and ambulance services.''.
(b) Exemption From Social Security Taxes.--
(1) Subsection (a)(5) of section 3121, as amended by
section 1421, is amended by striking ``(or)'' at the end of
subparagraph (G), by inserting ``or'' at the end of
subparagraph (H), and by adding at the end the following new
subparagraph:
``(I) under a plan described in section
457(e)(11)(A)(ii) and maintained by an eligible
employer (as defined in section 457(e)(1)).''.
(2) Section 209(a)(4) of the Social Security Act is amended
by inserting ``; or (K) under a plan described in section
457(e)(11)(A)(ii) of the Internal Revenue Code of 1986 and
maintained by an eligible employer (as defined in section
457(e)(1) of such Code)'' before the semicolon at the end
thereof.
(c) Effective Date.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to accruals of length of service awards after
December 31, 1996.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to remuneration paid after December 31, 1996.
SEC. 1459. ALTERNATIVE NONDISCRIMINATION RULES FOR CERTAIN PLANS THAT
PROVIDE FOR EARLY PARTICIPATION.
(a) Cash or Deferred Arrangements.--Paragraph (3) of section 401(k)
(relating to application of participation and discrimination
standards), as amended by section 1433(d)(1) of this Act, is amended by
adding at the end the following new subparagraph:
``(F) Special rule for early participation.--If an
employer elects to apply section 410(b)(4)(B) in
determining whether a cash or deferred arrangement
meets the requirements of subparagraph (A)(i), the
employer may, in determining whether the arrangement
meets the requirements of subparagraph (A)(ii), exclude
from consideration all eligible employees (other than
highly compensated employees) who have not met the
minimum age and service requirements of section
410(a)(1)(A).''.
(b) Matching Contributions.--Paragraph (5) of section 401(m)
(relating to employees taken into consideration) is amended by adding
at the end the following new subparagraph:
``(C) Special rule for early participation.--If an
employer elects to apply section 410(b)(4)(B) in
determining whether a plan meets the requirements of
section 410(b), the employer may, in determining
whether the plan meets the requirements of paragraph
(2), exclude from consideration all eligible employees
(other than highly compensated employees) who have not
met the minimum age and service requirements of section
410(a)(1)(A).''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 1998.
SEC. 1460. MODIFICATIONS OF JOINT AND SURVIVOR ANNUITY REQUIREMENTS.
(a) Amendments to Internal Revenue Code.--Section 417(b) is
amended--
(1) by striking ``For'' and inserting:
``(1) In general.--'',
(2) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively, and
(3) by adding at the end the following new paragraph:
``(2) Election of 66\2/3\ percent survivor annuity.--
``(A) In general.--In the case of any plan with
respect to which the survivor annuity under a qualified
joint and survivor annuity is not equal to 66\2/3\
percent of the amount of the annuity which is payable
during the joint lives of the participant and the
spouse, such plan shall not be treated as meeting the
requirements of section 401(a)(11) unless the
participant may elect a qualified joint and survivor
annuity with a survivor annuity which is equal to 66\2/
3\ percent of such amount.
``(B) Treatment of annuity.--If a participant
elects a survivor annuity under subparagraph (A), such
annuity shall be treated as a qualified joint and
survivor annuity for purposes of this title (other than
subsection (c)(1)(A)).''.
(b) Amendments to ERISA.--Subsection (d) of section 205 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1055) is
amended--
(1) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively,
(2) by inserting ``(1)'' after ``(d)'', and
(3) by adding at the end the following new paragraph:
``(2)(A) In the case of any plan with respect to which the
survivor annuity under a qualified joint and survivor annuity
is not equal to 66\2/3\ percent of the amount of the annuity
which is payable during the joint lives of the participant and
the spouse, such plan shall not be treated as meeting the
requirements of subsection (a) unless the participant may elect
a qualified joint and survivor annuity with a survivor annuity
which is equal to 66\2/3\ percent of such amount.
``(B) If a participant elects a survivor annuity under
subparagraph (A), such annuity shall be treated as a qualified
joint and survivor annuity for purposes of this title (other
than subsection (e)(1)(A)).''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 1996.
(2) Special rule for existing plans.--In the case of a plan
in existence on the date of the enactment of this Act, the
amendments made by this section shall apply to any plan year
following the first plan year with respect to which the first
plan amendment adopted after such date of enactment takes
effect.
SEC. 1461. CLARIFICATION OF APPLICATION OF ERISA TO INSURANCE COMPANY
GENERAL ACCOUNTS.
(a) In General.--Section 401 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1101) is amended by adding at the end
the following new subsection:
``(c)(1)(A) Not later than December 31, 1996, the Secretary shall
issue proposed regulations to provide guidance for the purpose of
determining, in cases where an insurer issues 1 or more policies to or
for the benefit of an employee benefit plan (and such policies are
supported by the assets of such insurer's general account), which
assets of the insurer (other than plan assets held in its separate
accounts) constitute assets of the plan for purposes of this part and
section 4975 of the Internal Revenue Code of 1986.
``(B) The proposed regulations under subparagraph (A) shall be
subject to public notice and comment until March 31, 1997.
``(C) The Secretary shall issue final regulations providing the
guidance described in subparagraph (A) not later than June 30, 1997.
``(2) In issuing regulations under paragraph (1), the Secretary--
``(A) subject to subparagraph (C), may exclude any assets
of the insurer with respect to its operations, products, or
services from treatment as plan assets,
``(B) shall provide that assets not treated as plan assets
under subsection (b)(2) shall not be treated as plan assets
under paragraph (1), and
``(C) shall ensure that the regulations--
``(i) are administratively feasible, and
``(ii) are designed to protect the
interests and rights of the plan and of its
participants and beneficiaries.
``(3)(A) Subject to subparagraph (B), any regulations issued under
paragraph (1) shall not take effect before the date on which such
regulations become final.
``(B) No person shall be subject to liability under this part or
section 4975 of the Internal Revenue Code of 1986 for conduct which
occurred before the date which is 18 months following the date
described in subparagraph (A) on the basis of a claim that the assets
of an insurer (other than plan assets held in a separate account)
constitute assets of the plan, except--
``(i) as otherwise provided by the Secretary in regulations
intended to prevent avoidance of the regulations issued under
paragraph (1), or
``(ii) as provided in an action brought by the Secretary
pursuant to subsection (a) (2) or (5) of section 502 for a
breach of fiduciary responsibilities which would also
constitute a violation of Federal criminal law or constitute a
felony under applicable State law.
``(4) Nothing in this subsection shall preclude the application of
any Federal criminal law.
``(5) For purposes of this subsection, the term `policy' includes a
contract.''.
(b) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall take effect on January 1,
1975.
(2) Civil actions.--The amendment made by this section
shall not apply to any civil action commenced before November
7, 1995.
SEC. 1462. SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED MINISTERS.
(a) In General.--Section 414(e) (defining church plan) is amended
by adding at the end the following new paragraph:
``(5) Special rules for chaplains and self-employed
ministers.--
``(A) Certain ministers may participate.--For
purposes of this part--
``(i) In general.--An employee of a church
or a convention or association of churches
shall include a duly ordained, commissioned, or
licensed minister of a church who, in
connection with the exercise of his or her
ministry--
``(I) is a self-employed individual
(within the meaning of section
401(c)(1)(B)), or
``(II) is employed by an
organization other than an organization
described in section 501(c)(3).
``(ii) Treatment as employer and
employee.--
``(I) Self-employed.--A minister
described in clause (i)(I) shall be
treated as his or her own employer
which is an organization described in
section 501(c)(3) and which is exempt
from tax under section 501(a).
``(II) Others.--A minister
described in clause (i)(II) shall be
treated as employed by an organization
described in section 501(c)(3) and
exempt from tax under section 501(a).
``(B) Special rules for applying section 403(b) to
self-employed ministers.--In the case of a minister
described in subparagraph (A)(i)(I)--
``(i) the minister's includible
compensation under section 403(b)(3) shall be
determined by reference to the minister's
earned income (within the meaning of section
401(c)(2)) from such ministry rather than the
amount of compensation which is received from
an employer, and
``(ii) the years (and portions of years) in
which such minister was a self-employed
individual (within the meaning of section
401(c)(1)(B)) with respect to such ministry
shall be included for purposes of section
403(b)(4).
``(C) Effect on non-denominational plans.--If a
duly ordained, commissioned, or licensed minister of a
church in the exercise of his or her ministry
participates in a church plan (within the meaning of
this section) and is employed by an employer not
eligible to participate in such church plan, then such
minister shall not be treated as an employee of such
employer for purposes of applying sections 401(a)(3),
401(a)(4), and 401(a)(5), as in effect on September 1,
1974, and sections 401(a)(4), 401(a)(5), 401(a)(26),
401(k)(3), 401(m), 403(b)(1)(D) (including section
403(b)(12)), and 410 to any stock bonus, pension,
profit-sharing, or annuity plan (including an annuity
described in section 403(b) or a retirement income
account described in section 403(b)(9)).''.
(b) Contributions by Certain Ministers to Retirement Income
Accounts.--Section 404(a) (relating to deduction for contributions of
an employer to an employees' trust or annuity plan and compensation
under a deferred-payment plan) is amended by adding at the end the
following new paragraph:
``(10) Contributions by certain ministers to retirement
income accounts.--In the case of contributions made by a
minister described in section 414(e)(5) to a retirement income
account described in section 403(b)(9) and not by a person
other than such minister, such contributions--
``(A) shall be treated as made to a trust which is
exempt from tax under section 501(a) and which is part
of a plan which is described in section 401(a), and
``(B) shall be deductible under this subsection to
the extent such contributions do not exceed the limit
on elective deferrals under section 402(g), the
exclusion allowance under section 403(b)(2), or the
limit on annual additions under section 415.
For purposes of this paragraph, all plans in which the minister
is a participant shall be treated as one plan.''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 1996.
SEC. 1463. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE FOR PRE-ERISA
CHURCH PLANS.
(a) In General.--Section 414(q) (defining highly compensated
employee), as amended by section 1431(c)1(A) of this Act, is amended by
adding at the end the following new paragraph:
``(7) Certain employees not considered highly compensated
and excluded employees under pre-erisa church plans.--In the
case of a church plan (as defined in subsection (e)), no
employee shall be considered an officer, a person whose
principal duties consist in supervising the work of other
employees, or a highly compensated employee for any year unless
such employee is a highly compensated employee under paragraph
(1) for such year.''.
(b) Safeharbor Authority.--The Secretary of the Treasury may design
nondiscrimination and coverage safe harbors for church plans.
(c) Effective Date.--The amendments made by subsection (a) shall
apply to years beginning after December 31, 1996.
SEC. 1464. RULE RELATING TO INVESTMENT IN CONTRACT NOT TO APPLY TO
FOREIGN MISSIONARIES.
(a) In General.--The last sentence of section 72(f) is amended by
inserting ``, or to the extent such credits are attributable to
services performed as a foreign missionary (within the meaning of
section 403(b)(2)(D)(iii))'' before the end period.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1996.
SEC. 1465. INCREASE IN GUARANTEED AMOUNT OF MULTIEMPLOYER PLAN
BENEFITS.
(a) In General.--Section 4022A(c) of the Employee Retirement Income
Security Act of 1974 is amended by adding at the end the following new
paragraph:
``(7)(A) In the case of a multiemployer plan which first
receives financial assistance (within the meaning of section
4261) during the applicable period--
``(i) paragraph (1) shall be applied with respect
to the guarantee of benefits under such plan by
substituting `$11' for `$5' each place it appears and
by substituting `$33' for `$15', and
``(ii) paragraphs (2), (5), and (6) shall not apply
with respect to such plan.
``(B) For purposes of subparagraph (A), the applicable
period is the period--
``(i) beginning on the date of the enactment of
this paragraph, and
``(ii) ending on the last day of the first fiscal
year for which the surplus in the corporation's
multiemployer insurance program is less than 50 percent
of such surplus for the fiscal year ending September
30, 1995.
``(C) For purposes of subparagraph (B), the surplus for any
fiscal year shall be the surplus reflected in the Statement of
Financial Condition for the fiscal year contained in the
corporation's annual report, except that the assumptions used
in computing such surplus shall be the same as those used for
the fiscal year ending September 30, 1995.''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 1466. WAIVER OF EXCISE TAX ON FAILURE TO PAY LIQUIDITY SHORTFALL.
(a) In General.--Section 4971(f) (relating to failure to pay
liquidity shortfall) is amended by adding at the end the following new
paragraph:
``(4) Waiver by secretary.--If the taxpayer establishes to
the satisfaction of the Secretary that--
``(A) the liquidity shortfall described in
paragraph (1) was due to reasonable cause and not
willful neglect, and
``(B) reasonable steps have been taken to remedy
such liquidity shortfall,
the Secretary may waive all or part of the tax imposed by this
subsection.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the amendment made by clause (ii) of section
751(a)(9)(B) of the Retirement Protection Act of 1994 (108 Stat. 5020).
SEC. 1467. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(a) Compensation Limit.--Paragraph (11) of section 415(b), as added
by section 1444(a), is amended--
(1) by inserting ``or a multiemployer plan (as defined in
section 414(f))'' after ``section 414(d))'', and
(2) by inserting ``and multiemployer'' after
``governmental'' in the heading thereof.
(b) Exemption for Survivor and Disability Benefits.--Subparagraph
(I) of section 415(b)(2), as added by section 1444(c), is amended--
(1) by inserting ``or a multiemployer plan (as defined in
section 414(f))'' after ``section 414(d))'' in clause (i)
thereof,
(2) by inserting ``or multiemployer'' after
``governmental'' in clause (ii) thereof, and
(3) by inserting ``and multiemployer'' after
``governmental'' in the heading thereof.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 1996.
SEC. 1468. PAYMENT OF LUMP-SUM CREDIT FOR FORMER SPOUSES OF FEDERAL
EMPLOYEES.
(a) In General.--Title 5, United States Code, is amended--
(1) in section 8342(c) by striking ``Lump-sum'' and
inserting ``Except as provided in section 8345(j), lump-sum'';
(2) in section 8345(j)--
(A) in paragraph (1) by inserting after ``that
individual'' the following: ``, or be made under
section 8342(d) through (f) to an individual entitled
under section 8342(c),''; and
(B) by adding at the end the following:
``(4) Any payment under this subsection to a person bars recovery
by any other person.'';
(3) in section 8424(d) by striking ``Lump-sum'' and
inserting ``Except as provided in section 8467(a), lump-sum'';
and
(4) in section 8467--
(A) in subsection (a) by inserting after ``that
individual'' the following: ``, or be made under
section 8424 (e) through (g) to an individual entitled
under section 8424(d),''; and
(B) by adding at the end the following:
``(d) Any payment under this section to a person bars recovery by
any other person.''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to any death occurring after the 90th day after the
date of the enactment of this Act.
SEC. 1469. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an amendment to any
plan or annuity contract, such amendment shall not be required to be
made before the first day of the first plan year beginning on or after
January 1, 1997, if--
(1) during the period after such amendment takes effect and
before such first plan year, the plan or contract is operated
in accordance with the requirements of such amendment, and
(2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of the
Internal Revenue Code of 1986), this section shall be applied by
substituting ``1999'' for ``1997''.
Subtitle E--Revenue Offsets
PART I--GENERAL PROVISIONS
SEC. 1601. MODIFICATIONS OF PUERTO RICO AND POSSESSION TAX CREDIT.
(a) In General.--Section 936 is amended by adding at the end the
following new subsection:
``(j) Termination of QPSII and Reduced Credit; Reduction in
Economic Activity Credit.--
``(1) In general.--Except as otherwise provided in this
subsection, this section shall not apply to any taxable year
beginning after December 31, 1995.
``(2) Special rules for active business income credit.--
Except as provided in paragraph (3)--
``(A) Economic activity credit.--In the case of an
existing credit claimant--
``(i) with respect to a possession other
than Puerto Rico, and
``(ii) to which subsection (a)(4)(B) does
not apply,
the credit determined under subsection (a)(1)(A) shall
be allowed for taxable years beginning after December
31, 1995, except that in the case of taxable years
beginning after December 31, 2005, subsection
(a)(4)(A)(i) shall be applied by substituting `40
percent' for `60 percent'.
``(B) Reduced credit.--
``(i) In general.--In the case of an
existing credit claimant to which subsection
(a)(4)(B) applies, the credit determined under
subsection (a)(1)(A) shall be allowed for
taxable years beginning after December 31,
1995, and before January 1, 2006.
``(ii) Election irrevocable after 1997.--An
election under subsection (a)(4)(B)(iii) which
is in effect for the taxpayer's last taxable
year beginning before 1997 may not be revoked
unless it is revoked for the taxpayer's first
taxable year beginning in 1997 and all
subsequent taxable years.
``(C) Economic activity credit for puerto rico.--
``For economic activity credit for
Puerto Rico, see section 30A.
``(3) Additional restriction on credit.--
``(A) In general.--In the case of an existing
credit claimant, the aggregate amount of taxable income
taken into account under subsection (a)(1)(A) shall not
exceed the adjusted base period income of such
claimant--
``(i) in the case of the credit described
in paragraph (2)(A), for any taxable year
beginning after December 31, 2001, and
``(ii) in the case of the credit described
in paragraph (2)(B), for any taxable year
beginning after December 31, 1997.
``(B) Coordination with subsection (a)(4).--The
amount of income described in subsection (a)(1)(A)
which is taken into account in applying subsection
(a)(4) shall be such income as reduced under this
paragraph.
``(4) Adjusted base period income.--For purposes of
paragraph (3)--
``(A) In general.--The term `adjusted base period
income' means the average of the inflation-adjusted
possession incomes of the corporation for each base
period year.
``(B) Inflation-adjusted possession income.--For
purposes of subparagraph (A), the inflation-adjusted
possession income of any corporation for any base
period year shall be an amount equal to the sum of--
``(i) the possession income of such
corporation for such base period year, plus
``(ii) such possession income multiplied by
the inflation adjustment percentage for such
base period year.
``(C) Inflation adjustment percentage.--For
purposes of subparagraph (B), the inflation adjustment
percentage for any base period year means the
percentage (if any) by which--
``(i) the CPI for 1995, exceeds
``(ii) the CPI for the calendar year in
which the base period year for which the
determination is being made ends.
For purposes of the preceding sentence, the CPI for any
calendar year is the CPI (as defined in section
1(f)(5)) for such year under section 1(f)(4).
``(D) Increase in inflation adjustment percentage
for growth during base years.--The inflation adjustment
percentage (determined under subparagraph (C) without
regard to this subparagraph) for each of the 5 taxable
years referred to in paragraph (5)(A) shall be
increased by--
``(i) 5 percentage points in the case of a
taxable year ending during the 1-year period
ending on October 13, 1995;
``(ii) 10.25 percentage points in the case
of a taxable year ending during the 1-year
period ending on October 13, 1994;
``(iii) 15.76 percentage points in the case
of a taxable year ending during the 1-year
period ending on October 13, 1993;
``(iv) 21.55 percentage points in the case
of a taxable year ending during the 1-year
period ending on October 13, 1992; and
``(v) 27.63 percentage points in the case
of a taxable year ending during the 1-year
period ending on October 13, 1991.
``(5) Base period year.--For purposes of this subsection--
``(A) In general.--The term `base period year'
means each of 3 taxable years which are among the 5
most recent taxable years of the corporation ending
before October 14, 1995, determined by disregarding--
``(i) one taxable year for which the
corporation had the largest inflation-adjusted
possession income, and
``(ii) one taxable year for which the
corporation had the smallest inflation-adjusted
possession income.
``(B) Corporations not having significant
possession income throughout 5-year period.--
``(i) In general.--If a corporation does
not have significant possession income for each
of the most recent 5 taxable years ending
before October 14, 1995, then, in lieu of
applying subparagraph (A), the term `base
period year' means only those taxable years (of
such 5 taxable years) for which the corporation
has significant possession income; except that,
if such corporation has significant possession
income for 4 of such 5 taxable years, the rule
of subparagraph (A)(ii) shall apply.
``(ii) Special rule.--If there is no year
(of such 5 taxable years) for which a
corporation has significant possession income--
``(I) the term `base period year'
means the first taxable year ending on
or after October 14, 1995, but
``(II) the amount of possession
income for such year which is taken
into account under paragraph (4) shall
be the amount which would be determined
if such year were a short taxable year
ending on September 30, 1995.
``(iii) Significant possession income.--For
purposes of this subparagraph, the term
`significant possession income' means
possession income which exceeds 2 percent of
the possession income of the taxpayer for the
taxable year (of the period of 6 taxable years
ending with the first taxable year ending on or
after October 14, 1995) having the greatest
possession income.
``(C) Election to use one base period year.--
``(i) In general.--At the election of the
taxpayer, the term `base period year' means--
``(I) only the last taxable year of
the corporation ending in calendar year
1992, or
``(II) a deemed taxable year which
includes the first ten months of
calendar year 1995.
``(ii) Base period income for 1995.--In
determining the adjusted base period income of
the corporation for the deemed taxable year
under clause (i)(II), the possession income
shall be annualized and shall be determined
without regard to any extraordinary item.
``(iii) Election.--An election under this
subparagraph by any possession corporation may
be made only for the corporation's first
taxable year beginning after December 31, 1995,
for which it is a possession corporation. The
rules of subclauses (II) and (III) of
subsection (a)(4)(B)(iii) shall apply to the
election under this subparagraph.
``(D) Acquisitions and dispositions.--Rules similar
to the rules of subparagraphs (A) and (B) of section
41(f)(3) shall apply for purposes of this subsection.
``(6) Possession income.--For purposes of this subsection,
the term `possession income' means, with respect to any
possession, the income referred to in subsection (a)(1)(A)
determined with respect to that possession. In no event shall
possession income be treated as being less than zero.
``(7) Short years.--If the current year or a base period
year is a short taxable year, the application of this
subsection shall be made with such annualizations as the
Secretary shall prescribe.
``(8) Special rules for certain possessions.--
``(A) In general.--In the case of an existing
credit claimant with respect to an applicable
possession--
``(i) this section (other than the
preceding paragraphs of this subsection) shall
apply to such claimant with respect to such
applicable possession for taxable years
beginning after December 31, 1995, and before
January 1, 2006, and
``(ii) this section (including the
preceding paragraphs of this subsection) shall
apply to such claimant with respect to such
applicable possession for taxable years
beginning after December 31, 2005.
``(B) Applicable possession.--For purposes of this
paragraph, the term `applicable possession' means Guam,
American Samoa, and the Commonwealth of the Northern
Mariana Islands.
``(9) Existing credit claimant.--For purposes of this
subsection--
``(A) In general.--The term `existing credit
claimant' means a corporation--
``(i) which was actively conducting a trade
or business in a possession on October 13,
1995, and
``(ii) with respect to which an election
under this section is in effect for the
corporation's taxable year which includes
October 13, 1995.
``(B) New lines of business prohibited.--If, after
October 13, 1995, a corporation which would (but for
this subparagraph) be an existing credit claimant adds
a substantial new line of business, such corporation
shall cease to be treated as an existing credit
claimant as of the close of the taxable year ending
before the date of such addition.
``(C) Binding contract exception.--If, on October
13, 1995, and at all times thereafter, there is in
effect with respect to a corporation a binding contract
for the acquisition of assets to be used in, or for the
sale of assets to be produced from, a trade or
business, the corporation shall be treated for purposes
of this paragraph as actively conducting such trade or
business on October 13, 1995. The preceding sentence
shall not apply if such trade or business is not
actively conducted before January 1, 1996.
``(10) Separate application to each possession.--For
purposes of determining--
``(A) whether a taxpayer is an existing credit
claimant, and
``(B) the amount of the credit allowed under this
section,
this subsection (and so much of this section as relates to this
subsection) shall be applied separately with respect to each
possession.''.
(b) Economic Activity Credit for Puerto Rico.--
(1) In general.--Subpart B of part IV of subchapter A of
chapter 1 is amended by adding at the end the following new
section:
``SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--Except as otherwise provided in this
section, if the conditions of both paragraph (1) and paragraph
(2) of subsection (b) are satisfied with respect to a qualified
domestic corporation, there shall be allowed as a credit
against the tax imposed by this chapter an amount equal to the
portion of the tax which is attributable to the taxable income,
from sources without the United States, from--
``(A) the active conduct of a trade or business
within Puerto Rico, or
``(B) the sale or exchange of substantially all of
the assets used by the taxpayer in the active conduct
of such trade or business.
In the case of any taxable year beginning after December 31,
2001, the aggregate amount of taxable income taken into account
under the preceding sentence (and in applying subsection (d))
shall not exceed the adjusted base period income of such
corporation, as determined in the same manner as under section
936(j).
``(2) Qualified domestic corporation.--For purposes of
paragraph (1), the term `qualified domestic corporation' means
a domestic corporation--
``(A) which is an existing credit claimant with
respect to Puerto Rico, and
``(B) with respect to which section 936(a)(4)(B)
does not apply for the taxable year.
``(3) Separate application.--For purposes of determining--
``(A) whether a taxpayer is an existing credit
claimant with respect to Puerto Rico, and
``(B) the amount of the credit allowed under this
section,
this section (and so much of section 936 as relates to this
section) shall be applied separately with respect to Puerto
Rico.
``(b) Conditions Which Must Be Satisfied.--The conditions referred
to in subsection (a) are--
``(1) 3-year period.--If 80 percent or more of the gross
income of the qualified domestic corporation for the 3-year
period immediately preceding the close of the taxable year (or
for such part of such period immediately preceding the close of
such taxable year as may be applicable) was derived from
sources within a possession of the United States (determined
without regard to section 904(f)).
``(2) Trade or business.--If 75 percent or more of the
gross income of the qualified domestic corporation for such
period or such part thereof was derived from the active conduct
of a trade or business within a possession of the United
States.
``(c) Credit Not Allowed Against Certain Taxes.--The credit
provided by subsection (a) shall not be allowed against the tax imposed
by--
``(1) section 59A (relating to environmental tax),
``(2) section 531 (relating to the tax on accumulated
earnings),
``(3) section 541 (relating to personal holding company
tax), or
``(4) section 1351 (relating to recoveries of foreign
expropriation losses).
``(d) Limitations on Credit.--The amount of the credit determined
under subsection (a) for any taxable year shall not exceed the sum of
the following amounts:
``(1) 60 percent (40 percent in the case of taxable years
beginning after December 31, 2005) of the sum of--
``(A) the aggregate amount of the qualified
domestic corporation's qualified possession wages for
such taxable year, plus
``(B) the allocable employee fringe benefit
expenses of the qualified domestic corporation for such
taxable year.
``(2) The sum of--
``(A) 15 percent of the depreciation allowances for
the taxable year with respect to short-life qualified
tangible property,
``(B) 40 percent of the depreciation allowances for
the taxable year with respect to medium-life qualified
tangible property, and
``(C) 65 percent of the depreciation allowances for
the taxable year with respect to long-life qualified
tangible property.
``(3) If the qualified domestic corporation does not have
an election to use the method described in section
936(h)(5)(C)(ii) (relating to profit split) in effect for the
taxable year, the amount of the qualified possession income
taxes for the taxable year allocable to nonsheltered income.
``(e) Administrative Provisions.--For purposes of this title (other
than section 27)--
``(1) the provisions of section 936 (including any
applicable election thereunder) shall apply in the same manner
as if the credit under this section were a credit under section
936(a)(1)(A) for a domestic corporation to which section
936(a)(4)(A) applies,
``(2) the credit under this section shall be treated in the
same manner as the credit under section 936, and
``(3) a corporation to which this section applies shall be
treated in the same manner as if it were a corporation electing
the application of section 936.
``(f) Definitions.--For purposes of this section, any term used in
this section which is also used in section 936 shall have the same
meaning given such term by section 936.
``(g) Application of Section.--This section shall apply to taxable
years beginning after December 31, 1995.''.
(2) Conforming amendments.--
(A) Paragraph (1) of section 55(c) is amended by
striking ``and the section 936 credit allowable under
section 27(b)'' and inserting ``, the section 936
credit allowable under section 27(b), and the Puerto
Rican economic activity credit under section 30A''.
(B) Subclause (I) of section 56(g)(4)(C)(ii) is
amended--
(i) by inserting ``30A,'' before ``936'',
and
(ii) by striking ``and (i)'' and inserting
``, (i), and (j)''.
(C) Clause (iii) of section 56(g)(4)(C) is amended
by adding at the end the following new subclause:
``(VI) Application to section 30a
corporations.--References in this
clause to section 936 shall be treated
as including references to section
30A.''.
(D)(i) Subsection (b) of section 59 is amended by
striking ``section 936,'' and all that follows and
inserting ``section 30A or 936, alternative minimum
taxable income shall not include any income with
respect to which a credit is determined under section
30A or 936.''.
(ii) The heading for section 59(b) is amended by
inserting ``30A or'' before ``936''.
(E) The table of sections for subpart B of part IV
of subchapter A of chapter 1 is amended by adding at
the end the following new item:
``Sec. 30A. Puerto Rican economic activity credit.''.
(F)(i) The heading for subpart B of part IV of
subchapter A of chapter 1 is amended to read as
follows:
``Subpart B--Other Credits''.
(ii) The table of subparts for part IV of
subchapter A of chapter 1 is amended by striking the
item relating to subpart B and inserting the following
new item:
``Subpart B. Other credits.''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
(2) Special rule for qualified possession source investment
income.--The amendments made by this section shall not apply to
qualified possession source investment income received or
accrued before July 1, 1996, without regard to the taxable year
in which received or accrued.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO ACQUIRE
EMPLOYER SECURITIES.
(a) In General.--Section 133 (relating to interest on certain loans
used to acquire employer securities) is hereby repealed.
(b) Conforming Amendments.--
(1) Subparagraph (B) of section 291(e)(1) is amended by
striking clause (iv) and by redesignating clause (v) as clause
(iv).
(2) Section 812 is amended by striking subsection (g).
(3) Paragraph (5) of section 852(b) is amended by striking
subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended by striking
subparagraph (A) and all that follows and inserting the
following:
``(A) first from qualified securities to which
section 1042 applied acquired during the 3-year period
ending on the date of the disposition, beginning with
the securities first so acquired, and
``(B) then from any other employer securities.
If subsection (d) applies to a disposition, the disposition
shall be treated as made from employer securities in the
opposite order of the preceding sentence.''.
(5)(A) Section 4978B (relating to tax on disposition of
employer securities to which section 133 applied) is hereby
repealed.
(B) The table of sections for chapter 43 is amended by
striking the item relating to section 4978B.
(6) Subsection (e) of section 6047 is amended by striking
paragraphs (1), (2), and (3) and inserting the following new
paragraphs:
``(1) any employer maintaining, or the plan administrator
(within the meaning of section 414(g)) of, an employee stock
ownership plan which holds stock with respect to which section
404(k) applies to dividends paid on such stock, or
``(2) both such employer or plan administrator,''.
(7) Subsection (f) of section 7872 is amended by striking
paragraph (12).
(8) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
133.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to loans made after the date of the enactment of this
Act.
(2) Refinancings.--The amendments made by this section
shall not apply to loans made after the date of the enactment
of this Act to refinance securities acquisition loans
(determined without regard to section 133(b)(1)(B) of the
Internal Revenue Code of 1986, as in effect on the day before
the date of the enactment of this Act) made on or before such
date or to refinance loans described in this paragraph if--
(A) the refinancing loans meet the requirements of
section 133 of such Code (as so in effect),
(B) immediately after the refinancing the principal
amount of the loan resulting from the refinancing does
not exceed the principal amount of the refinanced loan
(immediately before the refinancing), and
(C) the term of such refinancing loan does not
extend beyond the last day of the term of the original
securities acquisition loan.
For purposes of this paragraph, the term ``securities
acquisition loan'' includes a loan from a corporation to an
employee stock ownership plan described in section 133(b)(3) of
such Code (as so in effect).
(3) Exception.--Any loan made pursuant to a binding written
contract in effect before June 10, 1996, and at all times
thereafter before such loan is made, shall be treated for
purposes of paragraphs (1) and (2) as a loan made on or before
the date of the enactment of this Act.
SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.
(a) In General.--Paragraph (2) of section 104(a) (relating to
compensation for injuries or sickness) is amended to read as follows:
``(2) the amount of any damages (other than punitive
damages) received (whether by suit or agreement and whether as
lump sums or as periodic payments) on account of personal
injuries or sickness;''.
(b) Application of Prior Law for States in Which Only Punitive
Damages May Be Awarded in Wrongful Death Actions.--Section 104 is
amended by redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
``(c) Application of Prior Law in Certain Cases.--Notwithstanding
subsection (a)(2), gross income shall not include punitive damages
awarded in a civil action--
``(1) which is a wrongful death action, and
``(2) with respect to which applicable State law (as in
effect on September 13, 1995 and without regard to any
modification after such date) provides, or has been construed
to provide by a court of competent jurisdiction pursuant to a
decision issued on or before September 13, 1995, that only
punitive damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed on or
after the first date on which the applicable State law ceases to
provide (or is no longer construed to provide) the treatment described
in paragraph (2).''.
(c) Conforming Amendment.--Section 104(a) is amended by striking
the last sentence.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to amounts received
after June 30, 1996, in taxable years ending after such date.
(2) Exception.--The amendments made by this section shall
not apply to any amount received under a written binding
agreement, court decree, or mediation award in effect on (or
issued on or before) September 13, 1995.
SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE TAX.
(a) Extension.--Subsection (f) of section 4001 is amended by
striking ``1999'' and inserting ``2002''.
(b) Phasedown.--Section 4001 is amended by redesignating subsection
(f) (as amended by subsection (a) of this section) as subsection (g)
and by inserting after subsection (e) the following new subsection:
``(f) Phasedown.--For sales occurring in calendar years after 1995
and before 2003, subsection (a) shall be applied by substituting for
`10 percent' the percentage determined in accordance with the following
table:
``If the calendar year is:
The percentage is:
1996............................................... 9 percent
1997............................................... 8 percent
1998............................................... 7 percent
1999............................................... 6 percent
2000............................................... 5 percent
2001............................................... 4 percent
2002............................................... 3 percent.''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to sales occurring after the date which is 7 days
after the date of the enactment of this Act.
SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING FOR LOCAL
FURNISHERS OF ELECTRICITY AND GAS.
Section 142(f) (relating to local furnishing of electric energy or
gas) is amended by adding at the end the following new paragraphs:
``(3) Termination of future financing.--For purposes of
this section, no bond may be issued as part of an issue
described in subsection (a)(8) with respect to a facility for
the local furnishing of electric energy or gas on or after the
date of the enactment of this paragraph unless--
``(A) the facility will--
``(i) be used by a person who is engaged in
the local furnishing of that energy source on
such date, and
``(ii) be used to provide service within
the area served by such person on such date, or
``(B) the facility will be used by a successor in
interest to such person for the same use and within the
same service area as described in subparagraph (A).
``(4) Election to terminate tax-exempt bond financing by
certain furnishers.--
``(A) In general.--In the case of a facility
financed with bonds issued before the date of the
enactment of this paragraph which would cease to be
tax-exempt by reason of the failure to meet the local
furnishing requirement of subsection (a)(8) as a result
of a service area expansion, such bonds shall not cease
to be tax-exempt bonds (and section 150(b)(4) shall not
apply) if the person engaged in such local furnishing
by such facility makes an election described in
subparagraph (B).
``(B) Election.--An election is described in this
subparagraph if it is an election made in such manner
as the Secretary prescribes, and such person (or its
predecessor in interest) agrees that--
``(i) such election is made with respect to
all facilities for the local furnishing of
electric energy or gas, or both, by such
person,
``(ii) no bond exempt from tax under
section 103 and described in subsection (a)(8)
may be issued on or after the date of the
enactment of this paragraph with respect to all
such facilities of such person,
``(iii) any expansion of the service area--
``(I) is not financed with the
proceeds of any exempt facility bond
described in subsection (a)(8), and
``(II) is not treated as a
nonqualifying use under the rules of
paragraph (2), and
``(iv) all outstanding bonds used to
finance the facilities for such person are
redeemed not later than 6 months after the
later of--
``(I) the earliest date on which
such bonds may be redeemed, or
``(II) the date of the election.
``(C) Related persons.--For purposes of this
paragraph, the term `person' includes a group of
related persons (within the meaning of section
144(a)(3)) which includes such person.''.
SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO INTEREST
ALLOCATION RULES.
(a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform
Act of 1986 (Public Law 99-514, 100 Stat. 2548) is hereby repealed.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.
(a) Fuel Tax.--
(1) Subparagraph (A) of section 4091(b)(3) is amended to
read as follows:
``(A) The rate of tax specified in paragraph (1)
shall be 4.3 cents per gallon--
``(i) after December 31, 1995, and before
the date which is 7 days after the date of the
enactment of the Small Business Job Protection
Act of 1996, and
``(ii) after April 15, 1997.''.
(2) Section 4081(d) is amended--
(A) by adding at the end the following new
paragraph:
``(3) Aviation gasoline.--After April 15, 1997, the rate of
tax specified in subsection (a)(2)(A)(i) on aviation gasoline
shall be 4.3 cents per gallon.'', and
(B) by inserting ``(other than the tax on aviation
gasoline)'' after ``subsection (a)(2)(A)''.
(3) Section 4041(c)(5) is amended by inserting ``, and
during the period beginning on the date which is 7 days after
the date of the enactment of the Small Business Job Protection
Act of 1996 and ending on April 15, 1997'' after ``December 31,
1995''.
(b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each amended by
striking ``January 1, 1996'' and inserting ``January 1, 1996, and to
transportation beginning on or after the date which is 7 days after the
date of the enactment of the Small Business Job Protection Act of 1996
and before April 16, 1997''.
(c) Transfers to Airport and Airway Trust Fund.--
(1) Subsection (b) of section 9502 is amended by striking
``January 1, 1996'' each place it appears and inserting ``April
16, 1997''.
(2) Paragraph (3) of section 9502(f) is amended to read as
follows:
``(3) Termination.--Notwithstanding the preceding
provisions of this subsection, the Airport and Airway Trust
Fund financing rate shall be zero with respect to--
``(A) taxes imposed after December 31, 1995, and
before the date which is 7 days after the date of the
enactment of the Small Business Job Protection Act of
1996, and
``(B) taxes imposed after April 15, 1997.''.
(3) Subsection (d) of section 9502 is amended by adding at
the end the following new paragraph:
``(5) Transfers from airport and airway trust fund on
account of refunds of taxes on transportation by air.--The
Secretary of the Treasury shall pay from time to time from the
Airport and Airway Trust Fund into the general fund of the
Treasury amounts equivalent to the amounts paid after December
31, 1995, under section 6402 (relating to authority to make
credits or refunds) or section 6415 (relating to credits or
refunds to persons who collected certain taxes) in respect of
taxes under sections 4261 and 4271.''.
(d) Excise Tax Exemption for Certain Emergency Medical
Transportation by Air Ambulance.--Subsection (f) of section 4261
(relating to imposition of tax on transportation by air) is amended to
read as follows:
``(f) Exemption for Air Ambulances Providing Certain Emergency
Medical Transportation.--No tax shall be imposed under this section or
section 4271 on any air transportation for the purpose of providing
emergency medical services--
``(1) by helicopter, or
``(2) by a fixed-wing aircraft equipped for and exclusively
dedicated to acute care emergency medical services.''.
(e) Exemption for Certain Helicopter Uses.--Subsection (e) of
section 4261 is amended by adding at the end the following new
sentence: ``In the case of helicopter transportation described in
paragraph (1), this subsection shall be applied by treating each flight
segment as a distinct flight.''.
(f) Floor Stocks Taxes on Aviation Fuel.--
(1) Imposition of tax.--In the case of aviation fuel on
which tax was imposed under section 4091 of the Internal
Revenue Code of 1986 before the tax-increase date described in
paragraph (3)(A)(i) and which is held on such date by any
person, there is hereby imposed a floor stocks tax of 17.5
cents per gallon.
(2) Liability for tax and method of payment.--
(A) Liability for tax.--A person holding aviation
fuel on a tax-increase date to which the tax imposed by
paragraph (1) applies shall be liable for such tax.
(B) Method of payment.--The tax imposed by
paragraph (1) shall be paid in such manner as the
Secretary shall prescribe.
(C) Time for payment.--The tax imposed by paragraph
(1) with respect to any tax-increase date shall be paid
on or before the first day of the 7th month beginning
after such tax-increase date.
(3) Definitions.--For purposes of this subsection--
(A) Tax increase date.--The term ``tax-increase
date'' means the date which is 7 days after the date of
the enactment of this Act.
(B) Aviation fuel.--The term ``aviation fuel'' has
the meaning given such term by section 4093 of such
Code.
(C) Held by a person.--Aviation fuel shall be
considered as ``held by a person'' if title thereto has
passed to such person (whether or not delivery to the
person has been made).
(D) Secretary.--The term ``Secretary'' means the
Secretary of the Treasury or his delegate.
(4) Exception for exempt uses.--The tax imposed by
paragraph (1) shall not apply to aviation fuel held by any
person on any tax-increase date exclusively for any use for
which a credit or refund of the entire tax imposed by section
4091 of such Code is allowable for aviation fuel purchased on
or after such tax-increase date for such use.
(5) Exception for certain amounts of fuel.--
(A) In general.--No tax shall be imposed by
paragraph (1) on aviation fuel held on any tax-increase
date by any person if the aggregate amount of aviation
fuel held by such person on such date does not exceed
2,000 gallons. The preceding sentence shall apply only
if such person submits to the Secretary (at the time
and in the manner required by the Secretary) such
information as the Secretary shall require for purposes
of this paragraph.
(B) Exempt fuel.--For purposes of subparagraph (A),
there shall not be taken into account fuel held by any
person which is exempt from the tax imposed by
paragraph (1) by reason of paragraph (4).
(C) Controlled groups.--For purposes of this
paragraph--
(i) Corporations.--
(I) In general.--All persons
treated as a controlled group shall be
treated as 1 person.
(II) Controlled group.--The term
``controlled group'' has the meaning
given to such term by subsection (a) of
section 1563 of such Code; except that
for such purposes the phrase ``more
than 50 percent'' shall be substituted
for the phrase ``at least 80 percent''
each place it appears in such
subsection.
(ii) Nonincorporated persons under common
control.--Under regulations prescribed by the
Secretary, principles similar to the principles
of clause (i) shall apply to a group of persons
under common control where 1 or more of such
persons is not a corporation.
(6) Other law applicable.--All provisions of law, including
penalties, applicable with respect to the taxes imposed by
section 4091 of such Code shall, insofar as applicable and not
inconsistent with the provisions of this subsection, apply with
respect to the floor stock taxes imposed by paragraph (1) to
the same extent as if such taxes were imposed by such section
4091.
(g) Effective Date.--The amendments made by this section shall take
effect 7 days after the date of the enactment of this Act, except that
the amendments made by subsection (b) shall not apply to any amount
paid on or before such date.
SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE STOCK
IN CORPORATION IS REPLACEMENT PROPERTY UNDER INVOLUNTARY
CONVERSION RULES.
(a) In General.--Subsection (b) of section 1033 is amended to read
as follows:
``(b) Basis of Property Acquired Through Involuntary Conversion.--
``(1) Conversions described in subsection (a)(1).--If the
property was acquired as the result of a compulsory or
involuntary conversion described in subsection (a)(1), the
basis shall be the same as in the case of the property so
converted--
``(A) decreased in the amount of any money received
by the taxpayer which was not expended in accordance
with the provisions of law (applicable to the year in
which such conversion was made) determining the taxable
status of the gain or loss upon such conversion, and
``(B) increased in the amount of gain or decreased
in the amount of loss to the taxpayer recognized upon
such conversion under the law applicable to the year in
which such conversion was made.
``(2) Conversions described in subsection (a)(2).--In the
case of property purchased by the taxpayer in a transaction
described in subsection (a)(2) which resulted in the
nonrecognition of any part of the gain realized as the result
of a compulsory or involuntary conversion, the basis shall be
the cost of such property decreased in the amount of the gain
not so recognized; and if the property purchased consists of
more than 1 piece of property, the basis determined under this
sentence shall be allocated to the purchased properties in
proportion to their respective costs.
``(3) Property held by corporation the stock of which is
replacement property.--
``(A) In general.--If the basis of stock in a
corporation is decreased under paragraph (2), an amount
equal to such decrease shall also be applied to reduce
the basis of property held by the corporation at the
time the taxpayer acquired control (as defined in
subsection (a)(2)(E)) of such corporation.
``(B) Limitation.--Subparagraph (A) shall not apply
to the extent that it would (but for this subparagraph)
require a reduction in the aggregate adjusted bases of
the property of the corporation below the taxpayer's
adjusted basis of the stock in the corporation
(determined immediately after such basis is decreased
under paragraph (2)).
``(C) Allocation of basis reduction.--The decrease
required under subparagraph (A) shall be allocated--
``(i) first to property which is similar or
related in service or use to the converted
property,
``(ii) second to depreciable property (as
defined in section 1017(b)(3)(B)) not described
in clause (i), and
``(iii) then to other property.
``(D) Special rules.--
``(i) Reduction not to exceed adjusted
basis of property.--No reduction in the basis
of any property under this paragraph shall
exceed the adjusted basis of such property
(determined without regard to such reduction).
``(ii) Allocation of reduction among
properties.--If more than 1 property is
described in a clause of subparagraph (C), the
reduction under this paragraph shall be
allocated among such property in proportion to
the adjusted bases of such property (as so
determined).''.
(b) Effective Date.--The amendment made by this section shall apply
to involuntary conversions occurring after the date of the enactment of
this Act.
SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING WINNINGS.
(a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) of
section 3402(q) is amended to read as follows:
``(5) Exemption for slot machines.--The tax imposed under
paragraph (1) shall not apply to winnings from a slot
machine.''.
(b) Threshold Amount.--Paragraph (3) of section 3402(q) is
amended--
(1) by striking ``(B) and (C)'' in subparagraph (A) and
inserting ``(B), (C), and (D)'', and
(2) by adding at the end the following new subparagraph:
``(D) Bingo and keno.--Proceeds of more than $5,000
from a wager placed in a bingo or keno game.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the 30th day after the date of the enactment of this Act.
SEC. 1610. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.
(a) General Rule.--
(1) Paragraph (2) of section 817(d) (defining variable
contract) is amended by striking ``or'' at the end of
subparagraph (A), by striking ``and'' at the end of
subparagraph (B) and inserting ``or'', and by inserting after
subparagraph (B) the following new subparagraph:
``(C) provides for funding of insurance on retired
lives as described in section 807(c)(6), and''.
(2) Paragraph (3) of section 817(d) is amended by striking
``or'' at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, or'', and by
inserting after subparagraph (B) the following new
subparagraph:
``(C) in the case of funds held under a contract
described in paragraph (2)(C), the amounts paid in, or
the amounts paid out, reflect the investment return and
the market value of the segregated asset account.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.
(a) Treatment of Contributions in Aid of Construction.--
(1) In general.--Section 118 (relating to contributions to
the capital of a corporation) is amended--
(A) by redesignating subsection (c) as subsection
(e), and
(B) by inserting after subsection (b) the following
new subsections:
``(c) Special Rules for Water and Sewerage Disposal Utilities.--
``(1) General rule.--For purposes of this section, the term
`contribution to the capital of the taxpayer' includes any
amount of money or other property received from any person
(whether or not a shareholder) by a regulated public utility
which provides water or sewerage disposal services if--
``(A) such amount is a contribution in aid of
construction,
``(B) in the case of contribution of property other
than water or sewerage disposal facilities, such amount
meets the requirements of the expenditure rule of
paragraph (2), and
``(C) such amount (or any property acquired or
constructed with such amount) is not included in the
taxpayer's rate base for ratemaking purposes.
``(2) Expenditure rule.--An amount meets the requirements
of this paragraph if--
``(A) an amount equal to such amount is expended
for the acquisition or construction of tangible
property described in section 1231(b)--
``(i) which is the property for which the
contribution was made or is of the same type as
such property, and
``(ii) which is used predominantly in the
trade or business of furnishing water or
sewerage disposal services,
``(B) the expenditure referred to in subparagraph
(A) occurs before the end of the second taxable year
after the year in which such amount was received, and
``(C) accurate records are kept of the amounts
contributed and expenditures made, the expenditures to
which contributions are allocated, and the year in
which the contributions and expenditures are received
and made.
``(3) Definitions.--For purposes of this subsection--
``(A) Contribution in aid of construction.--The
term `contribution in aid of construction' shall be
defined by regulations prescribed by the Secretary,
except that such term shall not include amounts paid as
service charges for starting or stopping services.
``(B) Predominantly.--The term `predominantly'
means 80 percent or more.
``(C) Regulated public utility.--The term
`regulated public utility' has the meaning given such
term by section 7701(a)(33), except that such term
shall not include any utility which is not required to
provide water or sewerage disposal services to members
of the general public in its service area.
``(4) Disallowance of deductions and credits; adjusted
basis.--Notwithstanding any other provision of this subtitle,
no deduction or credit shall be allowed for, or by reason of,
any expenditure which constitutes a contribution in aid of
construction to which this subsection applies. The adjusted
basis of any property acquired with contributions in aid of
construction to which this subsection applies shall be zero.
``(d) Statute of Limitations.--If the taxpayer for any taxable year
treats an amount as a contribution to the capital of the taxpayer
described in subsection (c), then--
``(1) the statutory period for the assessment of any
deficiency attributable to any part of such amount shall not
expire before the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in such manner as the
Secretary may prescribe) of--
``(A) the amount of the expenditure referred to in
subparagraph (A) of subsection (c)(2),
``(B) the taxpayer's intention not to make the
expenditures referred to in such subparagraph, or
``(C) a failure to make such expenditure within the
period described in subparagraph (B) of subsection
(c)(2), and
``(2) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any
other law or rule of law which would otherwise prevent such
assessment.''.
(2) Conforming amendment.--Section 118(b) is amended by
inserting ``except as provided in subsection (c),'' before
``the term''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts received after June 12, 1996.
(b) Recovery Method and Period for Water Utility Property.--
(1) Requirement to use straight line method.--Section
168(b)(3) is amended by adding at the end the following new
subparagraph:
``(F) Water utility property described in
subsection (e)(5).''.
(2) 25-year recovery period.--The table contained in
section 168(c)(1) is amended by inserting the following item
after the item relating to 20-year property:
``Water utility property...................... 25 years''.
(3) Water utility property.--
(A) In general.--Section 168(e) is amended by
adding at the end the following new paragraph:
``(5) Water utility property.--The term `water utility
property' means property--
``(A) which is an integral part of the gathering,
treatment, or commercial distribution of water, and
which, without regard to this paragraph, would be 20-
year property, and
``(B) any municipal sewer.''.
(B) Conforming amendments.--Section 168 is
amended--
(i) by striking subparagraph (F) of
subsection (e)(3), and
(ii) by striking the item relating to
subparagraph (F) in the table in subsection
(g)(3).
(4) Alternative system.--Clause (iv) of section
168(g)(2)(C) is amended by inserting ``or water utility
property'' after ``tunnel bore''.
(5) Effective date.--The amendments made by this subsection
shall apply to property placed in service after June 12, 1996,
other than property placed in service pursuant to a binding
contract in effect before June 10, 1996, and at all times
thereafter before the property is placed in service.
SEC. 1612. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING
CORPORATION.
(a) In General.--Subsection (d) of section 150 (relating to
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(3) Election to cease status as qualified scholarship
funding corporation.--
``(A) In general.--Any qualified scholarship
funding bond, and qualified student loan bond,
outstanding on the date of the issuer's election under
this paragraph (and any bond (or series of bonds)
issued to refund such a bond) shall not fail to be a
tax-exempt bond solely because the issuer ceases to be
described in subparagraphs (A) and (B) of paragraph (2)
if the issuer meets the requirements of subparagraphs
(B) and (C) of this paragraph.
``(B) Assets and liabilities of issuer transferred
to taxable subsidiary.--The requirements of this
subparagraph are met by an issuer if--
``(i) all of the student loan notes of the
issuer and other assets pledged to secure the
repayment of qualified scholarship funding bond
indebtedness of the issuer are transferred to
another corporation within a reasonable period
after the election is made under this
paragraph;
``(ii) such transferee corporation assumes
or otherwise provides for the payment of all of
the qualified scholarship funding bond
indebtedness of the issuer within a reasonable
period after the election is made under this
paragraph;
``(iii) to the extent permitted by law,
such transferee corporation assumes all of the
responsibilities, and succeeds to all of the
rights, of the issuer under the issuer's
agreements with the Secretary of Education in
respect of student loans;
``(iv) immediately after such transfer, the
issuer, together with any other issuer which
has made an election under this paragraph in
respect of such transferee, hold all of the
senior stock in such transferee corporation;
and
``(v) such transferee corporation is not
exempt from tax under this chapter.
``(C) Issuer to operate as independent organization
described in section 501(c)(3).--The requirements of
this subparagraph are met by an issuer if, within a
reasonable period after the transfer referred to in
subparagraph (B)--
``(i) the issuer is described in section
501(c)(3) and exempt from tax under section
501(a);
``(ii) the issuer no longer is described in
subparagraphs (A) and (B) of paragraph (2); and
``(iii) at least 80 percent of the members
of the board of directors of the issuer are
independent members.
``(D) Senior stock.--For purposes of this
paragraph, the term `senior stock' means stock--
``(i) which participates pro rata and fully
in the equity value of the corporation with all
other common stock of the corporation but which
has the right to payment of liquidation
proceeds prior to payment of liquidation
proceeds in respect of other common stock of
the corporation;
``(ii) which has a fixed right upon
liquidation and upon redemption to an amount
equal to the greater of--
``(I) the fair market value of such
stock on the date of liquidation or
redemption (whichever is applicable);
or
``(II) the fair market value of all
assets transferred in exchange for such
stock and reduced by the amount of all
liabilities of the corporation which
has made an election under this
paragraph assumed by the transferee
corporation in such transfer;
``(iii) the holder of which has the right
to require the transferee corporation to redeem
on a date that is not later than 10 years after
the date on which an election under this
paragraph was made and pursuant to such
election such stock was issued; and
``(iv) in respect of which, during the time
such stock is outstanding, there is not
outstanding any equity interest in the
corporation having any liquidation, redemption
or dividend rights in the corporation which are
superior to those of such stock.
``(E) Independent member.--The term `independent
member' means a member of the board of directors of the
issuer who (except for services as a member of such
board) receives no compensation directly or
indirectly--
``(i) for services performed in connection
with such transferee corporation, or
``(ii) for services as a member of the
board of directors or as an officer of such
transferee corporation.
For purposes of clause (ii), the term `officer'
includes any individual having powers or
responsibilities similar to those of officers.
``(F) Coordination with certain private foundation
taxes.--For purposes of sections 4942 (relating to the
excise tax on a failure to distribute income) and 4943
(relating to the excise tax on excess business
holdings), the transferee corporation referred to in
subparagraph (B) shall be treated as a functionally
related business (within the meaning of section
4942(j)(4)) with respect to the issuer during the
period commencing with the date on which an election is
made under this paragraph and ending on the date that
is the earlier of--
``(i) the last day of the last taxable year
for which more than 50 percent of the gross
income of such transferee corporation is
derived from, or more than 50 percent of the
assets (by value) of such transferee
corporation consists of, student loan notes
incurred under the Higher Education Act of
1965; or
``(ii) the last day of the taxable year of
the issuer during which occurs the date which
is 10 years after the date on which the
election under this paragraph is made.
``(G) Election.--An election under this paragraph
may be revoked only with the consent of the
Secretary.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 1613. CERTAIN TAX BENEFITS DENIED TO INDIVIDUALS FAILING TO
PROVIDE TAXPAYER IDENTIFICATION NUMBERS.
(a) Personal Exemption.--
(1) In general.--Section 151 (relating to allowance of
deductions for personal exemptions) is amended by adding at the
end the following new subsection:
``(e) Identifying Information Required.--No exemption shall be
allowed under this section with respect to any individual unless the
TIN of such individual is included on the return claiming the
exemption.''.
(2) Conforming amendments.--
(A) Subsection (e) of section 6109 is repealed.
(B) Section 6724(d)(3) is amended by adding ``and''
at the end of subparagraph (C), by striking
subparagraph (D), and by redesignating subparagraph (E)
as subparagraph (D).
(b) Dependent Care Credit.--Subsection (e) of section 21 (relating
to expenses for household and dependent care services necessary for
gainful employment) is amended by adding at the end the following new
paragraph:
``(10) Identifying information required with respect to
qualifying individuals.--No credit shall be allowed under this
section with respect to any qualifying individual unless the
TIN of such individual is included on the return claiming the
credit.''.
(c) Extension of Procedures Applicable to Mathematical or Clerical
Errors.--Section 6213(g)(2) (relating to the definition of mathematical
or clerical errors) is amended by striking ``and' at the end of
subparagraph (D), by striking the period at the end of subparagraph (E)
and inserting ``, and'', and by inserting at the end the following new
subparagraph:
``(F) an omission of a correct TIN required under
section 21 (relating to expenses for household and
dependent care services necessary for gainful
employment) or section 151 (relating to allowance of
deductions for personal exemptions).''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply with respect to returns the due date for which (without
regard to extensions) is on or after the 30th day after the
date of the enactment of this Act.
(2) Special rule for 1995 and 1996.--In the case of returns
for taxable years beginning in 1995 or 1996, a taxpayer shall
not be required by the amendments made by this section to
provide a taxpayer identification number for a child who is
born after October 31, 1995, in the case of a taxable year
beginning in 1995 or November 30, 1996, in the case of a
taxable year beginning in 1996.
PART II--FINANCIAL ASSET SECURITIZATION INVESTMENTS
SEC. 1621. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.
(a) In General.--Subchapter M of chapter 1 is amended by adding at
the end the following new part:
``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
``Sec. 860H. Taxation of a FASIT; other
general rules.
``Sec. 860I. Gain recognition on
contributions to and
distributions from a FASIT and
in other cases.
``Sec. 860J. Non-FASIT losses not to
offset certain FASIT
inclusions.
``Sec. 860K. Treatment of transfers of
high-yield interests to
disqualified holders.
``Sec. 860L. Definitions and other
special rules.
``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.
``(a) Taxation of FASIT.--A FASIT as such shall not be subject to
taxation under this subtitle (and shall not be treated as a trust,
partnership, corporation, or taxable mortgage pool).
``(b) Taxation of Holder of Ownership Interest.--In determining the
taxable income of the holder of the ownership interest in a FASIT--
``(1) all assets, liabilities, and items of income, gain,
deduction, loss, and credit of a FASIT shall be treated as
assets, liabilities, and such items (as the case may be) of
such holder,
``(2) the constant yield method (including the rules of
section 1272(a)(6)) shall be applied under an accrual method of
accounting in determining all interest, acquisition discount,
original issue discount, and market discount and all premium
deductions or adjustments with respect to all debt instruments
of the FASIT,
``(3) there shall not be taken into account any item of
income, gain, or deduction allocable to a prohibited
transaction, and
``(4) interest accrued by the FASIT which is exempt from
tax imposed by this subtitle shall, when taken into account by
such holder, be treated as ordinary income.
For purposes of this subtitle, securities treated as held by such
holder under paragraph (1) shall be treated as held for investment.
``(c) Treatment of Regular Interests.--For purposes of this title--
``(1) a regular interest in a FASIT, if not otherwise a
debt instrument, shall be treated as a debt instrument,
``(2) section 163(e)(5) shall not apply to such an
interest, and
``(3) amounts includible in gross income with respect to
such an interest shall be determined under an accrual method of
accounting.
``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO AND DISTRIBUTIONS
FROM A FASIT AND IN OTHER CASES.
``(a) Treatment of Property Acquired by FASIT.--
``(1) Property acquired from holder of ownership interest
or related person.--If property is sold or contributed to a
FASIT by the holder of the ownership interest in such FASIT (or
by a related person) gain (if any) shall be recognized to such
holder (or person) in an amount equal to the excess (if any) of
such property's value under subsection (d) on the date of such
sale or contribution over its adjusted basis on such date.
``(2) Property acquired other than from holder of ownership
interest or related person.--Property which is acquired by a
FASIT other than in a transaction to which paragraph (1)
applies shall be treated--
``(A) as having been acquired by the holder of the
ownership interest in the FASIT for an amount equal to
the FASIT's adjusted basis in such property as of the
date such property is acquired by the FASIT, and
``(B) as having been sold by such holder to the
FASIT at its value under subsection (d) on such date.
``(b) Gain Recognition on Property Outside FASIT Which Supports
Regular Interests.--If property held by the holder of the ownership
interest in a FASIT (or by any person related to such holder) supports
any regular interest in such FASIT--
``(1) gain shall be recognized to such holder in the same
manner as if such holder had sold such property at its value
under subsection (d) on the earliest date such property
supports such an interest, and
``(2) such property shall be treated as held by such FASIT
for purposes of this part.
``(c) Deferral of Gain Recognition.--The Secretary may prescribe
regulations which--
``(1) provide that gain otherwise recognized under
subsection (a) or (b) shall not be recognized before the
earliest date on which such property supports any regular
interest in such FASIT or any indebtedness of the holder of the
ownership interest (or of any person related to such holder),
and
``(2) provide such adjustments to the other provisions of
this part to the extent appropriate in the context of the
treatment provided under paragraph (1).
``(d) Valuation.--For purposes of this section--
``(1) In general.--The value of any property under this
subsection shall be--
``(A) in the case of a debt instrument which is not
traded on an established securities market, the sum of
the present values of the reasonably expected payments
under such instrument determined (in the manner
provided by regulations prescribed by the Secretary)--
``(i) as of the date of the event resulting
in the gain recognition under this section, and
``(ii) by using a discount rate equal to
120 percent of the applicable Federal rate (as
defined in section 1274(d)), or such other
discount rate specified in such regulations,
compounded semiannually, and
``(B) in the case of any other property, its fair
market value.
``(2) Special rule for revolving loan accounts.--For
purposes of paragraph (1)--
``(A) each extension of credit (other than the
accrual of interest) on a revolving loan account shall
be treated as a separate debt instrument, and
``(B) payments on such extensions of credit having
substantially the same terms shall be applied to such
extensions beginning with the earliest such extension.
``(e) Special Rules.--
``(1) Nonrecognition rules not to apply.--Gain required to
be recognized under this section shall be recognized
notwithstanding any other provision of this subtitle.
``(2) Basis adjustments.--The basis of any property on
which gain is recognized under this section shall be increased
by the amount of gain so recognized.
``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT INCLUSIONS.
``(a) In General.--The taxable income of the holder of the
ownership interest or any high-yield interest in a FASIT for any
taxable year shall in no event be less than such holder's taxable
income determined solely with respect to such interests.
``(b) Coordination With Section 172.--Any increase in the taxable
income of any holder of the ownership interest or a high-yield interest
in a FASIT for any taxable year by reason of subsection (a) shall be
disregarded--
``(1) in determining under section 172 the amount of any
net operating loss for such taxable year, and
``(2) in determining taxable income for such taxable year
for purposes of the 2nd sentence of section 172(b)(2).
``(c) Coordination With Minimum Tax.--For purposes of part VI of
subchapter A of this chapter--
``(1) the reference in section 55(b)(2) to taxable income
shall be treated as a reference to taxable income determined
without regard to this section,
``(2) the alternative minimum taxable income of any holder
of the ownership interest or a high-yield interest in a FASIT
for any taxable year shall in no event be less than such
holder's taxable income determined solely with respect to such
interests, and
``(3) any increase in taxable income under this section
shall be disregarded for purposes of computing the alternative
tax net operating loss deduction.
``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS TO
DISQUALIFIED HOLDERS.
``(a) General Rule.--In the case of any high-yield interest which
is held by a disqualified holder--
``(1) the gross income of such holder shall not include any
income (other than gain) attributable to such interest, and
``(2) amounts not includible in the gross income of such
holder by reason of paragraph (1) shall be included (at the
time otherwise includible under paragraph (1)) in the gross
income of the most recent holder of such interest which is not
a disqualified holder.
``(b) Exceptions.--Rules similar to the rules of paragraphs (4) and
(7) of section 860E(e) shall apply to the tax imposed by reason of
subsection (a).
``(c) Disqualified Holder.--For purposes of this section, the term
`disqualified holder' means any holder other than--
``(1) an eligible corporation (as defined in section
860L(a)(2)), or
``(2) a FASIT.
``(d) Treatment of Interests Held By Securities Dealers.--
``(1) In general.--Subsection (a) shall not apply to any
high-yield interest held by a disqualified holder if such
holder is a dealer in securities who acquired such interest
exclusively for sale to customers in the ordinary course of
business (and not for investment).
``(2) Change in dealer status.--
``(A) In general.--In the case of a dealer in
securities which is not an eligible corporation (as
defined in section 860L(a)(2)), if--
``(i) such dealer ceases to be a dealer in
securities, or
``(ii) such dealer commences holding the
high-yield interest for investment,
there is hereby imposed (in addition to other taxes) an
excise tax equal to the product of the highest rate of
tax specified in section 11(b)(1) and the income of
such dealer attributable to such interest for periods
after the date of such cessation or commencement.
``(B) Holding for 31 days or less.--For purposes of
subparagraph (A)(ii), a dealer shall not be treated as
holding an interest for investment before the 32d day
after the date such dealer acquired such interest
unless such interest is so held as part of a plan to
avoid the purposes of this paragraph.
``(C) Administrative provisions.--The deficiency
procedures of subtitle F shall apply to the tax imposed
by this paragraph.
``(e) Treatment of High-Yield Interests in Pass-Thru Entities.--
``(1) In general.--If a pass-thru entity (as defined in
section 860E(e)(6)) issues a debt or equity interest--
``(A) which is supported by any regular interest in
a FASIT, and
``(B) which has an original yield to maturity which
is greater than each of--
``(i) the sum determined under clauses (i)
and (ii) of section 163(i)(1)(B) with respect
to such debt or equity interest, and
``(ii) the yield to maturity to such entity
on such regular interest (determined as of the
date such entity acquired such interest),
there is hereby imposed on the pass-thru entity a tax (in
addition to other taxes) equal to the product of the highest
rate of tax specified in section 11(b)(1) and the income of the
holder of such debt or equity interest which is properly
attributable to such regular interest. For purposes of the
preceding sentence, the yield to maturity of any equity
interest shall be determined under regulations prescribed by
the Secretary.
``(2) Exception.--The Secretary may provide that paragraph
(1) shall not apply to arrangements not having as a principal
purpose the avoidance of the purposes of this subsection.
``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.
``(a) FASIT.--
``(1) In general.--For purposes of this title, the terms
`financial asset securitization investment trust' and `FASIT'
mean any entity--
``(A) for which an election to be treated as a
FASIT applies for the taxable year,
``(B) all of the interests in which are regular
interests or the ownership interest,
``(C) which has only 1 ownership interest and such
ownership interest is held directly by an eligible
corporation,
``(D) as of the close of the 3rd month beginning
after the day of its formation and at all times
thereafter, substantially all of the assets of which
(including assets treated as held by the entity under
section 860I(c)(2)) consist of permitted assets, and
``(E) which is not described in section 851(a).
A rule similar to the rule of the last sentence of section
860D(a) shall apply for purposes of this paragraph.
``(2) Eligible corporation.--For purposes of paragraph
(1)(C), the term `eligible corporation' means any domestic C
corporation other than--
``(A) a corporation which is exempt from, or is not
subject to, tax under this chapter,
``(B) an entity described in section 851(a) or
856(a),
``(C) a REMIC, and
``(D) an organization to which part I of subchapter
T applies.
``(3) Election.--An entity (otherwise meeting the
requirements of paragraph (1)) may elect to be treated as a
FASIT. Except as provided in paragraph (5), such an election
shall apply to the taxable year for which made and all
subsequent taxable years unless revoked with the consent of the
Secretary.
``(4) Termination.--If any entity ceases to be a FASIT at
any time during the taxable year, such entity shall not be
treated as a FASIT for such taxable year or any succeeding
taxable year.
``(5) Inadvertent terminations, etc.--Rules similar to the
rules of section 860D(b)(2)(B) shall apply to inadvertent
failures to qualify or remain qualified as a FASIT.
``(b) Interests in FASIT.--For purposes of this part--
``(1) Regular interest.--
``(A) In general.--The term `regular interest'
means any interest which is issued by a FASIT after the
startup date with fixed terms and which is designated
as a regular interest if--
``(i) such interest unconditionally
entitles the holder to receive a specified
principal amount (or other similar amount),
``(ii) except as otherwise provided by the
Secretary--
``(I) in the case of a FASIT which
would be treated as a REMIC if an
election under section 860D(b) had been
made, interest payments (or other
similar amounts), if any, with respect
to such interest at or before maturity
meet the requirements applicable under
clause (i) or (ii) of section
860G(a)(1)(B), or
``(II) in the case of any other
FASIT, interest payments (or other
similar amounts), if any, with respect
to such interest are determined based
on a fixed rate, a current rate which
is reasonably expected to measure
contemporaneous variations in the cost
of newly borrowed funds in the currency
in which the regular interest is
denominated, or any combination of such
rates,
``(iii) such interest does not have a
stated maturity (including options to renew)
greater than 30 years (or such longer period as
may be permitted by regulations),
``(iv) the issue price of such interest
does not exceed 125 percent of its stated
principal amount, and
``(v) the yield to maturity on such
interest is less than the sum determined under
section 163(i)(1)(B) with respect to such
interest.
An interest shall not fail to meet the requirements of
clause (i) merely because the timing (but not the
amount) of the principal payments (or other similar
amounts) may be contingent on the extent that payments
on debt instruments held by the FASIT are made in
advance of anticipated payments and on the amount of
income from permitted assets.
``(B) High-yield interests.--
``(i) In general.--The term `regular
interest' includes any high-yield interest.
``(ii) High-yield interest.--The term
`high-yield interest' means any interest which
would be described in subparagraph (A) but for
failing to meet the requirements of one or more
of clauses (i), (iv), or (v) thereof.
``(2) Ownership interest.--The term `ownership interest'
means the interest issued by a FASIT after the startup day
which is designated as an ownership interest and which is not a
regular interest.
``(c) Permitted Assets.--For purposes of this part--
``(1) In general.--The term `permitted asset' means--
``(A) cash or cash equivalents,
``(B) any debt instrument (as defined in section
1275(a)(1)) under which interest payments (or other
similar amounts), if any, at or before maturity meet
the requirements applicable under clause (i) or (ii) of
section 860G(a)(1)(B),
``(C) foreclosure property,
``(D) any asset--
``(i) which is an interest rate or foreign
currency notional principal contract, letter of
credit, insurance, guarantee against payment
defaults, or other similar instrument permitted
by the Secretary, and
``(ii) which is reasonably required to
guarantee or hedge against the FASIT's risks
associated with being the obligor on interests
issued by the FASIT,
``(E) contract rights to acquire debt instruments
described in subparagraph (B) or assets described in
subparagraph (D), and
``(F) any regular interest in another FASIT.
``(2) Debt issued by holder of ownership interest not
permitted asset.--The term `permitted asset' shall not include
any debt instrument issued by the holder of the ownership
interest in the FASIT or by any person related to such holder
or any direct or indirect interest in such a debt instrument.
The preceding sentence shall not apply to cash equivalents and
to any other investment specified in regulations prescribed by
the Secretary.
``(3) Foreclosure property.--The term `foreclosure
property' means property--
``(A) which would be foreclosure property under
section 856(e) (determined without regard to paragraph
(5) thereof) if acquired by a real estate investment
trust, and
``(B) which is acquired in connection with the
default or imminent default of a debt instrument held
by the FASIT unless the security interest in such
property was created for the principal purpose of
permitting the FASIT to invest in such property.
Solely for purposes of subsection (a)(1), the determination of
whether any property is foreclosure property shall be made
without regard to section 856(e)(4).
``(d) Startup Day.--For purposes of this part--
``(1) In general.--The term `startup day' means the date
designated in the election under subsection (a)(3) as the
startup day of the FASIT. Such day shall be the beginning of
the first taxable year of the FASIT.
``(2) Treatment of property held on startup day.--All
property held (or treated as held under section 860I(c)(2)) by
an entity as of the startup day shall be treated as contributed
to such entity on such day by the holder of the ownership
interest in such entity.
``(e) Tax on Prohibited Transactions.--
``(1) In general.--There is hereby imposed for each taxable
year of a FASIT a tax equal to 100 percent of the net income
derived from prohibited transactions. Such tax shall be paid by
the holder of the ownership interest in the FASIT.
``(2) Prohibited transactions.--For purposes of this part,
the term `prohibited transaction' means--
``(A) the receipt of any income derived from any
asset that is not a permitted asset,
``(B) except as provided in paragraph (3), the
disposition of any permitted asset,
``(C) the receipt of any income derived from any
loan originated by the FASIT, and
``(D) the receipt of any income representing a fee
or other compensation for services (other than any fee
received as compensation for a waiver, amendment, or
consent under permitted assets (other than foreclosure
property) held by the FASIT).
``(3) Exception for income from certain dispositions.--
``(A) In general.--Paragraph (2)(B) shall not apply
to a disposition which would not be a prohibited
transaction (as defined in section 860F(a)(2)) by
reason of--
``(i) clause (ii), (iii), or (iv) of
section 860F(a)(2)(A), or
``(ii) section 860F(a)(5),
if the FASIT were treated as a REMIC and debt
instruments described in subsection (c)(1)(B) were
treated as qualified mortgages.
``(B) Substitution of debt instruments; reduction
of over-collateralization.--Paragraph (2)(B) shall not
apply to--
``(i) the substitution of a debt instrument
described in subsection (c)(1)(B) for another
debt instrument which is a permitted asset, or
``(ii) the distribution of a debt
instrument contributed by the holder of the
ownership interest to such holder in order to
reduce over-collateralization of the FASIT,
but only if a principal purpose of acquiring the debt
instrument which is disposed of was not the recognition
of gain (or the reduction of a loss) as a result of an
increase in the market value of the debt instrument
after its acquisition by the FASIT.
``(C) Liquidation of class of regular interests.--
Paragraph (2)(B) shall not apply to the complete
liquidation of any class of regular interests.
``(4) Net income.--For purposes of this subsection, net
income shall be determined in accordance with section
860F(a)(3).
``(f) Coordination With Wash Sales Rules.--Rules similar to the
rules of section 860F(d) shall apply to the ownership interest in a
FASIT.
``(g) Related Person.--For purposes of this part, a person
(hereinafter in this subsection referred to as the `related person') is
related to any person if--
``(1) the related person bears a relationship to such
person specified in section 267(b) or section 707(b)(1), or
``(2) the related person and such person are engaged in
trades or businesses under common control (within the meaning
of subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or 707(b)(1),
`20 percent' shall be substituted for `50 percent'.
``(h) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
part, including regulations to prevent the abuse of the purposes of
this part through transactions which are not primarily related to
securitization of debt instruments by a FASIT.''.
(b) Technical Amendments.--
(1) Paragraph (2) of section 26(b) is amended by striking
``and'' at the end of subparagraph (M), by striking the period
at the end of subparagraph (N) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(O) section 860K (relating to treatment of
transfers of high-yield interests to disqualified
holders).''.
(2) Paragraph (6) of section 56(g) is amended by striking
``or REMIC'' and inserting ``REMIC, or FASIT''.
(3) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``or a REMIC to which part IV of subchapter M
applies'' and inserting ``a REMIC to which part IV of
subchapter M applies, or a FASIT to which part V of subchapter
M applies''.
(4) Paragraph (1) of section 582(c) is amended by inserting
``, and any regular or ownership interest in a FASIT,'' after
``REMIC''.
(5) Subparagraph (E) of section 856(c)(6) is amended by
adding at the end the following new sentence: ``The principles
of the preceding provisions of this subparagraph shall apply to
regular and ownership interests in a FASIT.''.
(6) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``or REMIC'' and inserting ``REMIC, or FASIT''.
(7) Clause (xi) of section 7701(a)(19)(C) is amended to
read as follows:
``(xi) any regular or residual interest in
a REMIC, and any regular or ownership interest
in a FASIT, but only in the proportion which
the assets of such REMIC or FASIT consist of
property described in any of the preceding
clauses of this subparagraph; except that if 95
percent or more of the assets of such REMIC or
FASIT are assets described in clauses (i)
through (x), the entire interest in the REMIC
or FASIT shall qualify.''.
(8) Subparagraph (A) of section 7701(i)(2) is amended by
inserting ``or a FASIT'' after ``a REMIC''.
(c) Clerical Amendment.--The table of parts for subchapter M of
chapter 1 is amended by adding at the end the following new item:
``Part V. Financial asset securitization
investment trusts.''.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
(e) Treatment of Existing Securitization Entities.--
(1) In general.--In the case of the holder of the ownership
interest in a pre-effective date FASIT--
(A) gain shall not be recognized under section
860L(d)(2) of the Internal Revenue Code of 1986 on
property deemed contributed to the FASIT, and
(B) gain shall not be recognized under section 860I
of such Code on property contributed to such FASIT,
until such property (or portion thereof) ceases to be properly
allocable to a pre-FASIT interest.
(2) Allocation of property to pre-fasit interest.--For
purposes of paragraph (1), property shall be allocated to a
pre-FASIT interest in such manner as the Secretary of the
Treasury may prescribe, except that all property in a FASIT
shall be treated as properly allocable to pre-FASIT interests
if the fair market value of all such property does not exceed
107 percent of the aggregate principal amount of all
outstanding pre-FASIT interests.
(3) Definitions.--For purposes of this subsection--
(A) Pre-effective date fasit.--The term ``pre-
effective date FASIT'' means any FASIT if the entity
(with respect to which the election under section
860L(a)(3) of such Code was made) was in existence on
June 10, 1996.
(B) Pre-fasit interest.--The term ``pre-FASIT
interest'' means any interest in the entity referred to
in subparagraph (A) which was issued before the startup
day (other than any interest held by the holder of the
ownership interest in the FASIT).
PART III--TREATMENT OF INDIVIDUALS WHO EXPATRIATE
SEC. 1631. REVISION OF TAX RULES ON EXPATRIATION.
(a) In General.--Subpart A of part II of subchapter N of chapter 1
is amended by inserting after section 877 the following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsection
(f), all property of a covered expatriate to which this section
applies shall be treated as sold on the expatriation date for
its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this
title, any gain arising from such sale shall be taken
into account for the taxable year of the sale unless
such gain is excluded from gross income under part III
of subchapter B, and
``(B) any loss arising from such sale shall be
taken into account for the taxable year of the sale to
the extent otherwise provided by this title, except
that section 1091 shall not apply (and section 1092
shall apply) to any such loss.
``(3) Exclusion for certain gain.--The amount which would
(but for this paragraph) be includible in the gross income of
any individual by reason of this section shall be reduced (but
not below zero) by $600,000. For purposes of this paragraph,
allocable expatriation gain taken into account under subsection
(f)(2) shall be treated in the same manner as an amount
required to be includible in gross income.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If an expatriate elects the
application of this paragraph--
``(i) this section (other than this
paragraph) shall not apply to the expatriate,
but
``(ii) the expatriate shall be subject to
tax under this title, with respect to property
to which this section would apply but for such
election, in the same manner as if the
individual were a United States citizen.
``(B) Limitation on amount of estate, gift, and
generation-skipping transfer taxes.--The aggregate
amount of taxes imposed under subtitle B with respect
to any transfer of property by reason of an election
under subparagraph (A) shall not exceed the amount of
income tax which would be due if the property were sold
for its fair market value immediately before the time
of the transfer or death (taking into account the rules
of paragraph (2)).
``(C) Requirements.--Subparagraph (A) shall not
apply to an individual unless the individual--
``(i) provides security for payment of tax
in such form and manner, and in such amount, as
the Secretary may require,
``(ii) consents to the waiver of any right
of the individual under any treaty of the
United States which would preclude assessment
or collection of any tax which may be imposed
by reason of this paragraph, and
``(iii) complies with such other
requirements as the Secretary may prescribe.
``(D) Election.--An election under subparagraph (A)
shall apply to all property to which this section would
apply but for the election and, once made, shall be
irrevocable. Such election shall also apply to property
the basis of which is determined in whole or in part by
reference to the property with respect to which the
election was made.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application
of this subsection with respect to any property--
``(A) no amount shall be required to be included in
gross income under subsection (a)(1) with respect to
the gain from such property for the taxable year of the
sale, but
``(B) the taxpayer's tax for the taxable year in
which such property is disposed of shall be increased
by the deferred tax amount with respect to the
property.
Except to the extent provided in regulations, subparagraph (B)
shall apply to a disposition whether or not gain or loss is
recognized in whole or in part on the disposition.
``(2) Deferred tax amount.--
``(A) In general.--For purposes of paragraph (1),
the term `deferred tax amount' means, with respect to
any property, an amount equal to the sum of--
``(i) the difference between the amount of
tax paid for the taxable year described in
paragraph (1)(A) and the amount which would
have been paid for such taxable year if the
election under paragraph (1) had not applied to
such property, plus
``(ii) an amount of interest on the amount
described in clause (i) determined for the
period--
``(I) beginning on the 91st day
after the expatriation date, and
``(II) ending on the due date for
the taxable year described in paragraph
(1)(B),
by using the rates and method applicable under
section 6621 for underpayments of tax for such
period.
For purposes of clause (ii), the due date is the date
prescribed by law (determined without regard to
extension) for filing the return of the tax imposed by
this chapter for the taxable year.
``(B) Allocation of losses.--For purposes of
subparagraph (A), any losses described in subsection
(a)(2)(B) shall be allocated ratably among the gains
described in subsection (a)(2)(A).
``(3) Security.--
``(A) In general.--No election may be made under
paragraph (1) with respect to any property unless
adequate security is provided with respect to such
property.
``(B) Adequate security.--For purposes of
subparagraph (A), security with respect to any property
shall be treated as adequate security if--
``(i) it is a bond in an amount equal to
the deferred tax amount under paragraph (2)(A)
for the property, or
``(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
``(4) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer consents to the waiver
of any right under any treaty of the United States which would
preclude assessment or collection of any tax imposed by reason
of this section.
``(5) Dispositions.--For purposes of this subsection, a
taxpayer making an election under this subsection with respect
to any property shall be treated as having disposed of such
property--
``(A) immediately before death if such property is
held at such time, and
``(B) at any time the security provided with
respect to the property fails to meet the requirements
of paragraph (3) and the taxpayer does not correct such
failure within the time specified by the Secretary.
``(6) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable. An election may be under paragraph (1)
with respect to an interest in a trust with respect to which
gain is required to be recognized under subsection (f)(1).
``(c) Covered Expatriate.--For purposes of this section--
``(1) In general.--The term `covered expatriate' means an
expatriate--
``(A) whose average annual net income tax (as
defined in section 38(c)(1)) for the period of 5
taxable years ending before the expatriation date is
greater than $100,000, or
``(B) whose net worth as of such date is $500,000
or more.
If the expatriation date is after 1996, such $100,000 and
$500,000 amounts shall be increased by an amount equal to such
dollar amount multiplied by the cost-of-living adjustment
determined under section 1(f)(3) for such calendar year by
substituting `1995' for `1992' in subparagraph (B) thereof. Any
increase under the preceding sentence shall be rounded to the
nearest multiple of $1,000.
``(2) Exceptions.--An individual shall not be treated as a
covered expatriate if--
``(A) the individual--
``(i) became at birth a citizen of the
United States and a citizen of another country
and, as of the expatriation date, continues to
be a citizen of, and is taxed as a resident of,
such other country, and
``(ii) has been a resident of the United
States (as defined in section
7701(b)(1)(A)(ii)) for not more than 8 taxable
years during the 15-taxable year period ending
with the taxable year during which the
expatriation date occurs, or
``(B)(i) the individual's relinquishment of United
States citizenship occurs before such individual
attains age 18\1/2\, and
``(ii) the individual has been a resident of the
United States (as so defined) for not more than 5
taxable years before the date of relinquishment.
``(d) Property to Which Section Applies.--For purposes of this
section--
``(1) In general.--Except as otherwise provided by the
Secretary, this section shall apply to--
``(A) any interest in property held by a covered
expatriate on the expatriation date the gain from which
would be includible in the gross income of the
expatriate if such interest had been sold for its fair
market value on such date in a transaction in which
gain is recognized in whole or in part, and
``(B) any other interest in a trust to which
subsection (f) applies.
``(2) Exceptions.--This section shall not apply to the
following property:
``(A) United states real property interests.--Any
United States real property interest (as defined in
section 897(c)(1)), other than stock of a United States
real property holding corporation which does not, on
the expatriation date, meet the requirements of section
897(c)(2).
``(B) Interest in certain retirement plans.--
``(i) In general.--Any interest in a
qualified retirement plan (as defined in
section 4974(c)), other than any interest
attributable to contributions which are in
excess of any limitation or which violate any
condition for tax-favored treatment.
``(ii) Foreign pension plans.--
``(I) In general.--Under
regulations prescribed by the
Secretary, interests in foreign pension
plans or similar retirement
arrangements or programs.
``(II) Limitation.--The value of
property which is treated as not sold
by reason of this subparagraph shall
not exceed $500,000.
``(e) Definitions.--For purposes of this section--
``(1) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes
his citizenship, or
``(B) any long-term resident of the United States
who--
``(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
``(ii) commences to be treated as a
resident of a foreign country under the
provisions of a tax treaty between the United
States and the foreign country and who does not
waive the benefits of such treaty applicable to
residents of the foreign country.
``(2) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United
States citizenship, or
``(B) in the case of a long-term resident of the
United States, the date of the event described in
clause (i) or (ii) of paragraph (1)(B).
``(3) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing his United States citizenship on the
earliest of--
``(A) the date the individual renounces his United
States nationality before a diplomatic or consular
officer of the United States pursuant to paragraph (5)
of section 349(a) of the Immigration and Nationality
Act (8 U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the
United States Department of State a signed statement of
voluntary relinquishment of United States nationality
confirming the performance of an act of expatriation
specified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)-(4)),
``(C) the date the United States Department of
State issues to the individual a certificate of loss of
nationality, or
``(D) the date a court of the United States cancels
a naturalized citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual
unless the renunciation or voluntary relinquishment is
subsequently approved by the issuance to the individual of a
certificate of loss of nationality by the United States
Department of State.
``(4) Long-term resident.--
``(A) In general.--The term `long-term resident'
means any individual (other than a citizen of the
United States) who is a lawful permanent resident of
the United States in at least 8 taxable years during
the period of 15 taxable years ending with the taxable
year during which the expatriation date occurs. For
purposes of the preceding sentence, an individual shall
not be treated as a lawful permanent resident for any
taxable year if such individual is treated as a
resident of a foreign country for the taxable year
under the provisions of a tax treaty between the United
States and the foreign country and does not waive the
benefits of such treaty applicable to residents of the
foreign country.
``(B) Special rule.--For purposes of subparagraph
(A), there shall not be taken into account--
``(i) any taxable year during which any
prior sale is treated under subsection (a)(1)
as occurring, or
``(ii) any taxable year prior to the
taxable year referred to in clause (i).
``(f) Special Rules Applicable to Beneficiaries' Interests in
Trust.--
``(1) In general.--Except as provided in paragraph (2), if
an individual is determined under paragraph (3) to hold an
interest in a trust--
``(A) the individual shall not be treated as having
sold such interest,
``(B) such interest shall be treated as a separate
share in the trust, and
``(C)(i) such separate share shall be treated as a
separate trust consisting of the assets allocable to
such share,
``(ii) the separate trust shall be treated as
having sold its assets immediately before the
expatriation date for their fair market value and as
having distributed all of its assets to the individual
as of such time, and
``(iii) the individual shall be treated as having
recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or loss of
the individual arising from a distribution described in
subparagraph (C)(ii).
``(2) Special rules for interests in qualified trusts.--
``(A) In general.--If the trust interest described
in paragraph (1) is an interest in a qualified trust--
``(i) paragraph (1) and subsection (a)
shall not apply, and
``(ii) in addition to any other tax imposed
by this title, there is hereby imposed on each
distribution with respect to such interest a
tax in the amount determined under subparagraph
(B).
``(B) Amount of tax.--The amount of tax under
subparagraph (A)(ii) shall be equal to the lesser of--
``(i) the highest rate of tax imposed by
section 1(e) for the taxable year in which the
expatriation date occurs, multiplied by the
amount of the distribution, or
``(ii) the balance in the deferred tax
account immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th day
preceding the distribution.
``(C) Deferred tax account.--For purposes of
subparagraph (B)(ii)--
``(i) Opening balance.--The opening balance
in a deferred tax account with respect to any
trust interest is an amount equal to the tax
which would have been imposed on the allocable
expatriation gain with respect to the trust
interest if such gain had been included in
gross income under subsection (a).
``(ii) Increase for interest.--The balance
in the deferred tax account shall be increased
by the amount of interest determined (on the
balance in the account at the time the interest
accrues), for periods after the 90th day after
the expatriation date, by using the rates and
method applicable under section 6621 for
underpayments of tax for such periods.
``(iii) Decrease for taxes previously
paid.--The balance in the tax deferred account
shall be reduced--
``(I) by the amount of taxes
imposed by subparagraph (A) on any
distribution to the person holding the
trust interest, and
``(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subparagraph
(A) on distributions from the trust
with respect to nonvested interests not
held by such person.
``(D) Allocable expatriation gain.--For purposes of
this paragraph, the allocable expatriation gain with
respect to any beneficiary's interest in a trust is the
amount of gain which would be allocable to such
beneficiary's vested and nonvested interests in the
trust if the beneficiary held directly all assets
allocable to such interests.
``(E) Tax deducted and withheld.--
``(i) In general.--The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribution
to which it relates.
``(ii) Exception where failure to waive
treaty rights.--If an amount may not be
deducted and withheld under clause (i) by
reason of the distributee failing to waive any
treaty right with respect to such
distribution--
``(I) the tax imposed by
subparagraph (A)(ii) shall be imposed
on the trust and each trustee shall be
personally liable for the amount of
such tax, and
``(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
``(F) Disposition.--If a trust ceases to be a
qualified trust at any time, a covered expatriate
disposes of an interest in a qualified trust, or a
covered expatriate holding an interest in a qualified
trust dies, then, in lieu of the tax imposed by
subparagraph (A)(ii), there is hereby imposed a tax
equal to the lesser of--
``(i) the tax determined under paragraph
(1) as if the expatriation date were the date
of such cessation, disposition, or death,
whichever is applicable, or
``(ii) the balance in the tax deferred
account immediately before such date.
Such tax shall be imposed on the trust and each trustee
shall be personally liable for the amount of such tax
and any other beneficiary of the trust shall be
entitled to recover from the covered expatriate or the
estate the amount of such tax imposed on the other
beneficiary.
``(G) Definitions and special rule.--For purposes
of this paragraph--
``(i) Qualified trust.--The term `qualified
trust' means a trust--
``(I) which is organized under, and
governed by, the laws of the United
States or a State, and
``(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a
domestic corporation.
``(ii) Vested interest.--The term `vested
interest' means any interest which, as of the
expatriation date, is vested in the
beneficiary.
``(iii) Nonvested interest.--The term
`nonvested interest' means, with respect to any
beneficiary, any interest in a trust which is
not a vested interest. Such interest shall be
determined by assuming the maximum exercise of
discretion in favor of the beneficiary and the
occurrence of all contingencies in favor of the
beneficiary.
``(iv) Adjustments.--The Secretary may
provide for such adjustments to the bases of
assets in a trust or a deferred tax account,
and the timing of such adjustments, in order to
ensure that gain is taxed only once.
``(3) Determination of beneficiaries' interest in trust.--
``(A) Determinations under paragraph (1).--For
purposes of paragraph (1), a beneficiary's interest in
a trust shall be based upon all relevant facts and
circumstances, including the terms of the trust
instrument and any letter of wishes or similar
document, historical patterns of trust distributions,
and the existence of and functions performed by a trust
protector or any similar advisor.
``(B) Other determinations.--For purposes of this
section--
``(i) Constructive ownership.--If a
beneficiary of a trust is a corporation,
partnership, trust, or estate, the
shareholders, partners, or beneficiaries shall
be deemed to be the trust beneficiaries for
purposes of this section.
``(ii) Taxpayer return position.--A
taxpayer shall clearly indicate on its income
tax return--
``(I) the methodology used to
determine that taxpayer's trust
interest under this section, and
``(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a
different methodology to determine such
beneficiary's trust interest under this
section.
``(g) Termination of Deferrals, Etc.--On the date any property held
by an individual is treated as sold under subsection (a),
notwithstanding any other provision of this title--
``(1) any period during which recognition of income or gain
is deferred shall terminate, and
``(2) any extension of time for payment of tax shall cease
to apply and the unpaid portion of such tax shall be due and
payable at the time and in the manner prescribed by the
Secretary.
``(h) Imposition of Tentative Tax.--
``(1) In general.--If an individual is required to include
any amount in gross income under subsection (a) for any taxable
year, there is hereby imposed, immediately before the
expatriation date, a tax in an amount equal to the amount of
tax which would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
``(2) Due date.--The due date for any tax imposed by
paragraph (1) shall be the 90th day after the expatriation
date.
``(3) Treatment of tax.--Any tax paid under paragraph (1)
shall be treated as a payment of the tax imposed by this
chapter for the taxable year to which subsection (a) applies.
``(4) Deferral of tax.--The provisions of subsection (b)
shall apply to the tax imposed by this subsection to the extent
attributable to gain includible in gross income by reason of
this section.
``(i) Coordination With Estate and Gift Taxes.--If subsection (a)
applies to property held by an individual for any taxable year and--
``(1) such property is includible in the gross estate of
such individual solely by reason of section 2107, or
``(2) section 2501 applies to a transfer of such property
by such individual solely by reason of section 2501(a)(3),
then there shall be allowed as a credit against the additional tax
imposed by section 2101 or 2501, whichever is applicable, solely by
reason of section 2107 or 2501(a)(3) an amount equal to the increase in
the tax imposed by this chapter for such taxable year by reason of this
section.
``(j) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) to prevent double taxation by ensuring that--
``(A) appropriate adjustments are made to basis to
reflect gain recognized by reason of subsection (a) and
the exclusion provided by subsection (a)(3), and
``(B) any gain by reason of a deemed sale under
subsection (a) of an interest in a corporation,
partnership, trust, or estate is reduced to reflect
that portion of such gain which is attributable to an
interest in a trust which a shareholder, partner, or
beneficiary is treated as holding directly under
subsection (f)(3)(B)(i), and
``(2) which provide for the proper allocation of the
exclusion under subsection (a)(3) to property to which this
section applies.
``(k) Cross Reference.--
``For income tax treatment of
individuals who terminate United States citizenship, see section
7701(a)(47).''.
(b) Inclusion in Income of Gifts and Inheritances From Covered
Expatriates.--Section 102 (relating to gifts, etc. not included in
gross income) is amended by adding at the end the following new
subsection:
``(d) Gifts and Inheritances From Covered Expatriates.--Subsection
(a) shall not exclude from gross income the value of any property
acquired by gift, bequest, devise, or inheritance from a covered
expatriate after the expatriation date. For purposes of this
subsection, any term used in this subsection which is also used in
section 877A shall have the same meaning as when used in section
877A.''.
(c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new
paragraph:
``(47) Termination of united states citizenship.--An
individual shall not cease to be treated as a United States
citizen before the date on which the individual's citizenship
is treated as relinquished under section 877A(e)(3).''.
(d) Comparable Estate and Gift Tax Treatment.--
(1) Estate tax.--
(A) In general.--Subsection (a) of section 2107 is
amended to read as follows:
``(a) Treatment of Expatriates.--
``(1) Rate of tax.--A tax computed in accordance with the
table contained in section 2001 is hereby imposed on the
transfer of the taxable estate, determined as provided in
section 2106, of every decedent nonresident who is an
expatriate if the expatriation date of the decedent is within
the 10-year period ending with the date of death, unless such
expatriation did not have for 1 of its principal purposes the
avoidance of taxes under this subtitle or subtitle A.
``(2) Certain individuals treated as having tax avoidance
purpose.--For purposes of paragraph (1), an individual shall be
treated as having a principal purpose to avoid such taxes if
such individual is a covered expatriate.
``(3) Definitions.--For purposes of this subsection, the
terms `expatriate', `expatriation date', and `covered
expatriate' have the meanings given such terms by section
877A.''.
(B) Credit for foreign death taxes.--Subsection (c)
of section 2107 is amended by redesignating paragraph
(2) as paragraph (3) and by inserting after paragraph
(1) the following new paragraph:
``(2) Credit for foreign death taxes.--
``(A) In general.--The tax imposed by subsection
(a) shall be credited with the amount of any estate,
inheritance, legacy, or succession taxes actually paid
to any foreign country in respect of any property which
is included in the gross estate solely by reason of
subsection (b).
``(B) Limitations on credit.--The credit allowed by
subparagraph (A) for such taxes paid to a foreign
country shall not exceed the lesser of--
``(i) the amount which bears the same ratio
to the amount of such taxes actually paid to
such foreign country in respect of property
included in the gross estate as the value of
the property included in the gross estate
solely by reason of subsection (b) bears to the
value of all property subjected to such taxes
by such foreign country, or
``(ii) such property's proportionate share
of the excess of--
``(I) the tax imposed by subsection
(a), over
``(II) the tax which would be
imposed by section 2101 but for this
section.
The amount applicable under clause (i) or (ii) shall be
reduced by the amount of any credit allowed under
section 877A(i).
``(C) Proportionate share.--For purposes of
subparagraph (B), a property's proportionate share is
the percentage of the value of the property which is
included in the gross estate solely by reason of
subsection (b) bears to the total value of the gross
estate.''.
(C) Expansion of inclusion in gross estate of stock
of foreign corporations.--Paragraph (2) of section
2107(b) is amended by striking ``more than 50 percent
of'' and all that follows and inserting ``more than 50
percent of--
``(A) the total combined voting power of all
classes of stock entitled to vote of such corporation,
or
``(B) the total value of the stock of such
corporation,''.
(2) Gift tax.--
(A) In general.--Paragraph (3) of section 2501(a)
is amended to read as follows:
``(3) Exception.--
``(A) Certain individuals.--Paragraph (2) shall not
apply in the case of a donor who is an expatriate if
the expatriation date of the donor is within the 10-
year period ending with the date of transfer, unless
such expatriation did not have for 1 of its principal
purposes the avoidance of taxes under this subtitle or
subtitle A.
``(B) Certain individuals treated as having tax
avoidance purpose.--For purposes of subparagraph (A),
an individual shall be treated as having a principal
purpose to avoid such taxes if such individual is a
covered expatriate.
``(C) Credit for foreign gift taxes.--The tax
imposed by this section solely by reason of this
paragraph shall be credited with the amount of any gift
tax actually paid to any foreign country in respect of
any gift which is taxable under this section solely by
reason of this paragraph. The amount of such credit
shall be reduced by the amount of the credit allowed
under section 877A(i).
``(D) Definitions.--For purposes of this paragraph,
the term `expatriate', `expatriation date', and
`covered expatriate' have the meanings given such terms
by section 877A.''.
(e) Conforming Amendments.--
(1) Section 877 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any individual
who relinquishes (within the meaning of section 877A(e)(3)) United
States citizenship on or after February 6, 1995.''.
(2) Section 2107(c) is amended by adding at the end the
following new paragraph:
``(3) Cross reference.--For credit against the tax imposed
by subsection (a) for expatriation tax, see section 877A(i).''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new flush sentence:
``For credit against the tax imposed under this section by
reason of this paragraph, see section 877A(i).''.
(4) Paragraph (10) of section 7701(b) is amended by adding
at the end the following new sentence: ``This paragraph shall
not apply to any long-term resident of the United States who is
an expatriate (as defined in section 877A(e)(1)).''.
(f) Clerical Amendment.--The table of sections for subpart A of
part II of subchapter N of chapter 1 is amended by inserting after the
item relating to section 877 the following new item:
``Sec. 877A. Tax responsibilities of expatriation.''.
(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal Revenue
Code of 1986, as added by this section) whose expatriation date
(as so defined) occurs on or after February 6, 1995.
(2) Gifts and bequests.--Section 102(d) of the Internal
Revenue Code of 1986 (as added by subsection (b)) shall apply
to amounts received from expatriates (as so defined) whose
expatriation date (as so defined) occurs on and after February
6, 1995.
(3) Special rules relating to certain acts occurring before
february 6, 1995.--In the case of an individual who took an act
of expatriation specified in paragraph (1), (2), (3), or (4) of
section 349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a) (1)-(4)) before February 6, 1995, but whose
expatriation date (as so defined) occurs after February 6,
1995--
(A) the amendment made by subsection (c) shall not
apply,
(B) the amendment made by subsection (e)(1) shall
not apply for any period prior to the expatriation
date, and
(C) the other amendments made by this section shall
apply as of the expatriation date.
(4) Due date for tentative tax.--The due date under section
877A(h)(2) of such Code shall in no event occur before the 90th
day after the date of the enactment of this Act.
SEC. 1632. INFORMATION ON INDIVIDUALS EXPATRIATING.
(a) In General.--Subpart A of part III of subchapter A of chapter
61 is amended by inserting after section 6039E the following new
section:
``SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.
``(a) Requirement.--
``(1) In general.--Notwithstanding any other provision of
law, any expatriate (within the meaning of section 877A(e)(1))
shall provide a statement which includes the information
described in subsection (b).
``(2) Timing.--
``(A) Citizens.--In the case of an expatriate
described in section 877(e)(1)(A), such statement shall
be--
``(i) provided not later than the
expatriation date (within the meaning of
section 877A(e)(2)), and
``(ii) provided to the person or court
referred to in section 877A(e)(3).
``(B) Noncitizens.--In the case of an expatriate
described in section 877A(e)(1)(B), such statement
shall be provided to the Secretary with the return of
tax imposed by chapter 1 for the taxable year during
which the event described in such section occurs.
``(b) Information To Be Provided.--Information required under
subsection (a) shall include--
``(1) the taxpayer's TIN,
``(2) the mailing address of such individual's principal
foreign residence,
``(3) the foreign country in which such individual is
residing,
``(4) the foreign country of which such individual is a
citizen,
``(5) in the case of an individual having a net worth of at
least the dollar amount applicable under section 877A(c)(1)(B),
information detailing the assets and liabilities of such
individual, and
``(6) such other information as the Secretary may
prescribe.
``(c) Penalty.--Any individual failing to provide a statement
required under subsection (a) shall be subject to a penalty for each
year during any portion of which such failure continues in an amount
equal to the greater of--
``(1) 5 percent of the additional tax required to be paid
under section 877A for such year, or
``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not
to willful neglect.
``(d) Information To Be Provided to Secretary.--Notwithstanding any
other provision of law--
``(1) any Federal agency or court which collects (or is
required to collect) the statement under subsection (a) shall
provide to the Secretary--
``(A) a copy of any such statement, and
``(B) the name (and any other identifying
information) of any individual refusing to comply with
the provisions of subsection (a),
``(2) the Secretary of State shall provide to the Secretary
a copy of each certificate as to the loss of American
nationality under section 358 of the Immigration and
Nationality Act which is approved by the Secretary of State,
and
``(3) the Federal agency primarily responsible for
administering the immigration laws shall provide to the
Secretary the name of each lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)) whose
status as such has been revoked or has been administratively or
judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days
after the close of each calendar quarter, the Secretary shall publish
in the Federal Register the name of each individual relinquishing
United States citizenship (within the meaning of section 877A(e)(3))
with respect to whom the Secretary receives information under the
preceding sentence during such quarter.
``(e) Exemption.--The Secretary may by regulations exempt any class
of individuals from the requirements of this section if the Secretary
determines that applying this section to such individuals is not
necessary to carry out the purposes of this section.''.
(b) Clerical Amendment.--The table of sections for such subpart A
is amended by inserting after the item relating to section 6039E the
following new item:
``Sec. 6039F. Information on individuals expatriating.''.
(c) Effective Date.--The amendments made by this section shall
apply to individuals to whom section 877A of the Internal Revenue Code
of 1986 applies and whose expatriation date (as defined in section
877A(e)(2)) occurs on or after February 6, 1995, except that no
statement shall be required by such amendments before the 90th day
after the date of the enactment of this Act.
SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND
RESIDENTS LIVING ABROAD.
Not later than 90 days after the date of the enactment of this Act,
the Secretary of the Treasury shall prepare and submit to the Committee
on Ways and Means of the House of Representatives and the Committee on
Finance of the Senate a report--
(1) describing the compliance with subtitle A of the
Internal Revenue Code of 1986 by citizens and lawful permanent
residents of the United States (within the meaning of section
7701(b)(6) of such Code) residing outside the United States,
and
(2) recommending measures to improve such compliance
(including improved coordination between executive branch
agencies).
Subtitle F--Technical Corrections
SEC. 1701. COORDINATION WITH OTHER SUBTITLES.
For purposes of applying the amendments made by any subtitle of
this title other than this subtitle, the provisions of this subtitle
shall be treated as having been enacted immediately before the
provisions of such other subtitles.
SEC. 1702. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1990.
(a) Amendments Related to Subtitle A.--
(1) Subparagraph (B) of section 59(j)(3) is amended by
striking ``section 1(i)(3)(B)'' and inserting ``section
1(g)(3)(B)''.
(2) Clause (i) of section 151(d)(3)(C) is amended by
striking ``joint of a return'' and inserting ``joint return''.
(b) Amendments Related to Subtitle B.--
(1) Paragraph (1) of section 11212(e) of the Revenue
Reconciliation Act of 1990 is amended by striking ``Paragraph
(1) of section 6724(d)'' and inserting ``Subparagraph (B) of
section 6724(d)(1)''.
(2)(A) Subparagraph (B) of section 4093(c)(2), as in effect
before the amendments made by the Revenue Reconciliation Act of
1993, is amended by inserting before the period ``unless such
fuel is sold for exclusive use by a State or any political
subdivision thereof''.
(B) Paragraph (4) of section 6427(l), as in effect before
the amendments made by the Revenue Reconciliation Act of 1993,
is amended by inserting before the period ``unless such fuel
was used by a State or any political subdivision thereof''.
(3) Paragraph (1) of section 6416(b) is amended by striking
``chapter 32 or by section 4051'' and inserting ``chapter 31 or
32''.
(4) Section 7012 is amended--
(A) by striking ``production or importation of
gasoline'' in paragraph (3) and inserting ``taxes on
gasoline and diesel fuel'', and
(B) by striking paragraph (4) and redesignating
paragraphs (5) and (6) as paragraphs (4) and (5),
respectively.
(5) Subsection (c) of section 5041 is amended by striking
paragraph (6) and by inserting the following new paragraphs:
``(6) Credit for transferee in bond.--If--
``(A) wine produced by any person would be eligible
for any credit under paragraph (1) if removed by such
person during the calendar year,
``(B) wine produced by such person is removed
during such calendar year by any other person
(hereafter in this paragraph referred to as the
`transferee') to whom such wine was transferred in bond
and who is liable for the tax imposed by this section
with respect to such wine, and
``(C) such producer holds title to such wine at the
time of its removal and provides to the transferee such
information as is necessary to properly determine the
transferee's credit under this paragraph,
then, the transferee (and not the producer) shall be allowed
the credit under paragraph (1) which would be allowed to the
producer if the wine removed by the transferee had been removed
by the producer on that date.
``(7) Regulations.--The Secretary may prescribe such
regulations as may be necessary to carry out the purposes of
this subsection, including regulations--
``(A) to prevent the credit provided in this
subsection from benefiting any person who produces more
than 250,000 wine gallons of wine during a calendar
year, and
``(B) to assure proper reduction of such credit for
persons producing more than 150,000 wine gallons of
wine during a calendar year.''.
(6) Paragraph (3) of section 5061(b) is amended to read as
follows:
``(3) section 5041(f),''.
(7) Section 5354 is amended by inserting ``(taking into
account the appropriate amount of credit with respect to such
wine under section 5041(c))'' after ``any one time''.
(c) Amendments Related to Subtitle C.--
(1) Paragraph (4) of section 56(g) is amended by
redesignating subparagraphs (I) and (J) as subparagraphs (H)
and (I), respectively.
(2) Subparagraph (B) of section 6724(d)(1) is amended--
(A) by striking ``or'' at the end of clause (xii),
and
(B) by striking the period at the end of clause
(xiii) and inserting ``, or''.
(3) Subsection (g) of section 6302 is amended by inserting
``, 22,'' after ``chapters 21''.
(4) The earnings and profits of any insurance company to
which section 11305(c)(3) of the Revenue Reconciliation Act of
1990 applies shall be determined without regard to any
deduction allowed under such section; except that, for purposes
of applying sections 56 and 902, and subpart F of part III of
subchapter N of chapter 1 of the Internal Revenue Code of 1986,
such deduction shall be taken into account.
(5) Subparagraph (D) of section 6038A(e)(4) is amended--
(A) by striking ``any transaction to which the
summons relates'' and inserting ``any affected taxable
year'', and
(B) by adding at the end thereof the following new
sentence: ``For purposes of this subparagraph, the term
`affected taxable year' means any taxable year if the
determination of the amount of tax imposed for such
taxable year is affected by the treatment of the
transaction to which the summons relates.''.
(6) Subparagraph (A) of section 6621(c)(2) is amended by
adding at the end thereof the following new flush sentence:
``The preceding sentence shall be applied without
regard to any such letter or notice which is withdrawn
by the Secretary.''.
(7) Clause (i) of section 6621(c)(2)(B) is amended by
striking ``this subtitle'' and inserting ``this title''.
(d) Amendments Related to Subtitle D.--
(1) Notwithstanding section 11402(c) of the Revenue
Reconciliation Act of 1990, the amendment made by section
11402(b)(1) of such Act shall apply to taxable years ending
after December 31, 1989.
(2) Clause (ii) of section 143(m)(4)(C) is amended--
(A) by striking ``any month of the 10-year period''
and inserting ``any year of the 4-year period'',
(B) by striking ``succeeding months'' and inserting
``succeeding years'', and
(C) by striking ``over the remainder of such period
(or, if lesser, 5 years)'' and inserting ``to zero over
the succeeding 5 years''.
(e) Amendments Related to Subtitle E.--
(1)(A) Clause (ii) of section 56(d)(1)(B) is amended to
read as follows:
``(ii) appropriate adjustments in the
application of section 172(b)(2) shall be made
to take into account the limitation of
subparagraph (A).''.
(B) For purposes of applying sections 56(g)(1) and 56(g)(3)
of the Internal Revenue Code of 1986 with respect to taxable
years beginning in 1991 and 1992, the reference in such
sections to the alternative tax net operating loss deduction
shall be treated as including a reference to the deduction
under section 56(h) of such Code as in effect before the
amendments made by section 1915 of the Energy Policy Act of
1992.
(2) Clause (i) of section 613A(c)(3)(A) is amended by
striking ``the table contained in''.
(3) Section 6501 is amended--
(A) by striking subsection (m) (relating to
deficiency attributable to election under section 44B)
and by redesignating subsections (n) and (o) as
subsections (m) and (n), respectively, and
(B) by striking ``section 40(f) or 51(j)'' in
subsection (m) (as redesignated by subparagraph (A))
and inserting ``section 40(f), 43, or 51(j)''.
(4) Subparagraph (C) of section 38(c)(2) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990) is amended by inserting before the
period at the end of the first sentence the following: ``and
without regard to the deduction under section 56(h)''.
(5) The amendment made by section 1913(b)(2)(C)(i) of the
Energy Policy Act of 1992 shall apply to taxable years
beginning after December 31, 1990.
(f) Amendments Related to Subtitle F.--
(1)(A) Section 2701(a)(3) is amended by adding at the end
thereof the following new subparagraph:
``(C) Valuation of qualified payments where no
liquidation, etc. rights.--In the case of an applicable
retained interest which is described in subparagraph
(B)(i) but not subparagraph (B)(ii), the value of the
distribution right shall be determined without regard
to this section.''.
(B) Section 2701(a)(3)(B) is amended by inserting
``certain'' before ``qualified'' in the heading thereof.
(C) Sections 2701 (d)(1) and (d)(4) are each amended by
striking ``subsection (a)(3)(B)'' and inserting ``subsection
(a)(3) (B) or (C)''.
(2) Clause (i) of section 2701(a)(4)(B) is amended by
inserting ``(or, to the extent provided in regulations, the
rights as to either income or capital)'' after ``income and
capital''.
(3) Clause (i) of section 2701(c)(1)(B) is amended to read
as follows:
``(i) a right to distributions with respect
to any interest which is junior to the rights
of the transferred interest,''.
(4)(A) Clause (i) of section 2701(c)(3)(C) is amended to
read as follows:
``(i) In general.--Payments under any
interest held by a transferor which (without
regard to this subparagraph) are qualified
payments shall be treated as qualified payments
unless the transferor elects not to treat such
payments as qualified payments. Payments
described in the preceding sentence which are
held by an applicable family member shall be
treated as qualified payments only if such
member elects to treat such payments as
qualified payments.''.
(B) The first sentence of section 2701(c)(3)(C)(ii) is
amended to read as follows: ``A transferor or applicable family
member holding any distribution right which (without regard to
this subparagraph) is not a qualified payment may elect to
treat such right as a qualified payment, to be paid in the
amounts and at the times specified in such election.''.
(C) The time for making an election under the second
sentence of section 2701(c)(3)(C)(i) of the Internal Revenue
Code of 1986 (as amended by subparagraph (A)) shall not expire
before the due date (including extensions) for filing the
transferor's return of the tax imposed by section 2501 of such
Code for the first calendar year ending after the date of
enactment.
(5) Section 2701(d)(3)(A)(iii) is amended by striking ``the
period ending on the date of''.
(6) Subclause (I) of section 2701(d)(3)(B)(ii) is amended
by inserting ``or the exclusion under section 2503(b),'' after
``section 2523,''.
(7) Section 2701(e)(5) is amended--
(A) by striking ``such contribution to capital or
such redemption, recapitalization, or other change'' in
subparagraph (A) and inserting ``such transaction'',
and
(B) by striking ``the transfer'' in subparagraph
(B) and inserting ``such transaction''.
(8) Section 2701(d)(4) is amended by adding at the end
thereof the following new subparagraph:
``(C) Transfer to transferors.--In the case of a
taxable event described in paragraph (3)(A)(ii)
involving a transfer of an applicable retained interest
from an applicable family member to a transferor, this
subsection shall continue to apply to the transferor
during any period the transferor holds such
interest.''.
(9) Section 2701(e)(6) is amended by inserting ``or to
reflect the application of subsection (d)'' before the period
at the end thereof.
(10)(A) Section 2702(a)(3)(A) is amended--
(i) by striking ``to the extent'' and inserting
``if'' in clause (i),
(ii) by striking ``or'' at the end of clause (i),
(iii) by striking the period at the end of clause
(ii) and inserting ``, or'', and
(iv) by adding at the end thereof the following new
clause:
``(iii) to the extent that regulations
provide that such transfer is not inconsistent
with the purposes of this section.''.
(B)(i) Section 2702(a)(3) is amended by striking
``incomplete transfer'' each place it appears and inserting
``incomplete gift''.
(ii) The heading for section 2702(a)(3)(B) is amended by
striking ``Incomplete transfer'' and inserting ``Incomplete
gift''.
(g) Amendments Related to Subtitle G.--
(1)(A) Subsection (a) of section 1248 is amended--
(i) by striking ``, or if a United States person
receives a distribution from a foreign corporation
which, under section 302 or 331, is treated as an
exchange of stock'' in paragraph (1), and
(ii) by adding at the end thereof the following new
sentence: ``For purposes of this section, a United
States person shall be treated as having sold or
exchanged any stock if, under any provision of this
subtitle, such person is treated as realizing gain from
the sale or exchange of such stock.''.
(B) Paragraph (1) of section 1248(e) is amended by striking
``, or receives a distribution from a domestic corporation
which, under section 302 or 331, is treated as an exchange of
stock''.
(C) Subparagraph (B) of section 1248(f)(1) is amended by
striking ``or 361(c)(1)'' and inserting ``355(c)(1), or
361(c)(1)''.
(D) Paragraph (1) of section 1248(i) is amended to read as
follows:
``(1) In general.--If any shareholder of a 10-percent
corporate shareholder of a foreign corporation exchanges stock
of the 10-percent corporate shareholder for stock of the
foreign corporation, such 10-percent corporate shareholder
shall recognize gain in the same manner as if the stock of the
foreign corporation received in such exchange had been--
``(A) issued to the 10-percent corporate
shareholder, and
``(B) then distributed by the 10-percent corporate
shareholder to such shareholder in redemption or
liquidation (whichever is appropriate).
The amount of gain recognized by such 10-percent corporate
shareholder under the preceding sentence shall not exceed the
amount treated as a dividend under this section.''.
(2) Section 897 is amended by striking subsection (f).
(3) Paragraph (13) of section 4975(d) is amended by
striking ``section 408(b)'' and inserting ``section
408(b)(12)''.
(4) Clause (iii) of section 56(g)(4)(D) is amended by
inserting ``, but only with respect to taxable years beginning
after December 31, 1989'' before the period at the end thereof.
(5)(A) Paragraph (11) of section 11701(a) of the Revenue
Reconciliation Act of 1990 (and the amendment made by such
paragraph) are hereby repealed, and section 7108(r)(2) of the
Revenue Reconciliation Act of 1989 shall be applied as if such
paragraph (and amendment) had never been enacted.
(B) Subparagraph (A) shall not apply to any building if the
owner of such building establishes to the satisfaction of the
Secretary of the Treasury or his delegate that such owner
reasonably relied on the amendment made by such paragraph (11).
(h) Amendments Related to Subtitle H.--
(1)(A) Clause (vi) of section 168(e)(3)(B) is amended by
striking ``or'' at the end of subclause (I), by striking the
period at the end of subclause (II) and inserting ``, or'', and
by adding at the end thereof the following new subclause:
``(III) is described in section
48(l)(3)(A)(ix) (as in effect on the
day before the date of the enactment of
the Revenue Reconciliation Act of
1990).''.
(B) Subparagraph (B) of section 168(e)(3) (relating to 5-
year property) is amended by adding at the end the following
flush sentence:
``Nothing in any provision of law shall be construed to
treat property as not being described in clause (vi)(I)
(or the corresponding provisions of prior law) by
reason of being public utility property (within the
meaning of section 48(a)(3)).''.
(C) Subparagraph (K) of section 168(g)(4) is amended by
striking ``section 48(a)(3)(A)(iii)'' and inserting ``section
48(l)(3)(A)(ix) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990)''.
(2) Clause (ii) of section 172(b)(1)(E) is amended by
striking ``subsection (m)'' and inserting ``subsection (h)''.
(3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and
832(b)(5)(D)(ii)(II) are each amended by striking ``243(b)(5)''
and inserting ``243(b)(2)''.
(4) Subparagraph (A) of section 243(b)(3) is amended by
inserting ``of'' after ``In the case''.
(5) The subsection heading for subsection (a) of section
280F is amended by striking ``Investment Tax Credit and''.
(6) Clause (i) of section 1504(c)(2)(B) is amended by
inserting ``section'' before ``243(b)(2)''.
(7) Paragraph (3) of section 341(f) is amended by striking
``351, 361, 371(a), or 374(a)'' and inserting ``351, or 361''.
(8) Paragraph (2) of section 243(b) is amended to read as
follows:
``(2) Affiliated group.--For purposes of this subsection:
``(A) In general.--The term `affiliated group' has
the meaning given such term by section 1504(a), except
that for such purposes sections 1504(b)(2), 1504(b)(4),
and 1504(c) shall not apply.
``(B) Group must be consistent in foreign tax
treatment.--The requirements of paragraph (1)(A) shall
not be treated as being met with respect to any
dividend received by a corporation if, for any taxable
year which includes the day on which such dividend is
received--
``(i) 1 or more members of the affiliated
group referred to in paragraph (1)(A) choose to
any extent to take the benefits of section 901,
and
``(ii) 1 or more other members of such
group claim to any extent a deduction for taxes
otherwise creditable under section 901.''.
(9) The amendment made by section 11813(b)(17) of the
Revenue Reconciliation Act of 1990 shall be applied as if the
material stricken by such amendment included the closing
parenthesis after ``section 48(a)(5)''.
(10) Paragraph (1) of section 179(d) is amended by striking
``in a trade or business'' and inserting ``a trade or
business''.
(11) Subparagraph (E) of section 50(a)(2) is amended by
striking ``section 48(a)(5)(A)'' and inserting ``section
48(a)(5)''.
(12) The amendment made by section 11801(c)(9)(G)(ii) of
the Revenue Reconciliation Act of 1990 shall be applied as if
it struck ``Section 422A(c)(2)'' and inserted ``Section
422(c)(2)''.
(13) Subparagraph (B) of section 424(c)(3) is amended by
striking ``a qualified stock option, an incentive stock option,
an option granted under an employee stock purchase plan, or a
restricted stock option'' and inserting ``an incentive stock
option or an option granted under an employee stock purchase
plan''.
(14) Subparagraph (E) of section 1367(a)(2) is amended by
striking ``section 613A(c)(13)(B)'' and inserting ``section
613A(c)(11)(B)''.
(15) Subparagraph (B) of section 460(e)(6) is amended by
striking ``section 167(k)'' and inserting ``section
168(e)(2)(A)(ii)''.
(16) Subparagraph (C) of section 172(h)(4) is amended by
striking ``subsection (b)(1)(M)'' and inserting ``subsection
(b)(1)(E)''.
(17) Section 6503 is amended--
(A) by redesignating the subsection relating to
extension in case of certain summonses as subsection
(j), and
(B) by redesignating the subsection relating to
cross references as subsection (k).
(18) Paragraph (4) of section 1250(e) is hereby repealed.
(19) Paragraph (1) of section 179(d) is amended by adding
at the end the following new sentence: ``Such term shall not
include any property described in section 50(b) and shall not
include air conditioning or heating units.''.
``(i) Effective Date.--Except as otherwise expressly provided, any
amendment made by this section shall take effect as if included in the
provision of the Revenue Reconciliation Act of 1990 to which such
amendment relates.''.
SEC. 1703. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1993.
(a) Amendment Related to Section 13114.--Paragraph (2) of section
1044(c) is amended to read as follows:
``(2) Purchase.--The taxpayer shall be considered to have
purchased any property if, but for subsection (d), the
unadjusted basis of such property would be its cost within the
meaning of section 1012.''.
(b) Amendments Related to Section 13142.--
(1) Subparagraph (B) of section 13142(b)(6) of the Revenue
Reconciliation Act of 1993 is amended to read as follows:
``(B) Full-time students, waiver authority, and
prohibited discrimination.--The amendments made by
paragraphs (2), (3), and (4) shall take effect on the
date of the enactment of this Act.''.
(2) Subparagraph (C) of section 13142(b)(6) of such Act is
amended by striking ``paragraph (2)'' and inserting ``paragraph
(5)''.
(c) Amendment Related to Section 13161.--
(1) In general.--Subsection (e) of section 4001 (relating
to inflation adjustment) is amended to read as follows:
``(e) Inflation Adjustment.--
``(1) In general.--The $30,000 amount in subsection (a) and
section 4003(a) shall be increased by an amount equal to--
``(A) $30,000, multiplied by
``(B) the cost-of-living adjustment under section
1(f)(3) for the calendar year in which the vehicle is
sold, determined by substituting `calendar year 1990'
for `calendar year 1992' in subparagraph (B) thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $2,000, such amount shall be rounded
to the next lowest multiple of $2,000.''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect on the date of the enactment of this Act.
(d) Amendment Related to Section 13201.--Clause (ii) of section
135(b)(2)(B) is amended by inserting before the period at the end
thereof the following: ``, determined by substituting `calendar year
1989' for `calendar year 1992' in subparagraph (B) thereof''.
(e) Amendments Related to Section 13203.--Subsection (a) of section
59 is amended--
(1) by striking ``the amount determined under section
55(b)(1)(A)'' in paragraph (1)(A) and (2)(A)(i) and inserting
``the pre-credit tentative minimum tax'',
(2) by striking ``specified in section 55(b)(1)(A)'' in
paragraph (1)(C) and inserting ``specified in subparagraph
(A)(i) or (B)(i) of section 55(b)(1) (whichever applies)'',
(3) by striking ``which would be determined under section
55(b)(1)(A)'' in paragraph (2)(A)(ii) and inserting ``which
would be the pre-credit tentative minimum tax'', and
(4) by adding at the end thereof the following new
paragraph:
``(3) Pre-credit tentative minimum tax.--For purposes of
this subsection, the term `pre-credit tentative minimum tax'
means--
``(A) in the case of a taxpayer other than a
corporation, the amount determined under the first
sentence of section 55(b)(1)(A)(i), or
``(B) in the case of a corporation, the amount
determined under section 55(b)(1)(B)(i).''.
(f) Amendment Related to Section 13221.--Sections 1201(a) and
1561(a) are each amended by striking ``last sentence'' each place it
appears and inserting ``last 2 sentences''.
(g) Amendments Related to Section 13222.--
(1) Subparagraph (B) of section 6033(e)(1) is amended by
adding at the end thereof the following new clause:
``(iii) Coordination with section 527(f).--
This subsection shall not apply to any amount
on which tax is imposed by reason of section
527(f).''.
(2) Clause (i) of section 6033(e)(1)(B) is amended by
striking ``this subtitle'' and inserting ``section 501''.
(h) Amendment Related to Section 13225.--Paragraph (3) of section
6655(g) is amended by striking all that follows ```3rd month''' in the
sentence following subparagraph (C) and inserting ``, subsection
(e)(2)(A) shall be applied by substituting `2 months' for `3 months' in
clause (i)(I), the election under clause (i) of subsection (e)(2)(C)
may be made separately for each installment, and clause (ii) of
subsection (e)(2)(C) shall not apply.''.
(i) Amendments Related to Section 13231.--
(1) Subparagraph (G) of section 904(d)(3) is amended by
striking ``section 951(a)(1)(B)'' and inserting ``subparagraph
(B) or (C) of section 951(a)(1)''.
(2) Paragraph (1) of section 956A(b) is amended to read as
follows:
``(1) the amount (not including a deficit) referred to in
section 316(a)(1) to the extent such amount was accumulated in
prior taxable years beginning after September 30, 1993, and''.
(3) Subsection (f) of section 956A is amended by inserting
before the period at the end thereof: ``and regulations
coordinating the provisions of subsections (c)(3)(A) and (d)''.
(4) Subsection (b) of section 958 is amended by striking
``956(b)(2)'' each place it appears and inserting
``956(c)(2)''.
(5)(A) Subparagraph (A) of section 1297(d)(2) is amended by
striking ``The adjusted basis of any asset'' and inserting
``The amount taken into account under section 1296(a)(2) with
respect to any asset''.
(B) The paragraph heading of paragraph (2) of section
1297(d) is amended to read as follows:
``(2) Amount taken into account.--''.
(6) Subsection (e) of section 1297 is amended by inserting
``For purposes of this part--'' after the subsection heading.
(j) Amendment Related to Section 13241.--Subparagraph (B) of
section 40(e)(1) is amended to read as follows:
``(B) for any period before January 1, 2001, during
which the rates of tax under section 4081(a)(2)(A) are
4.3 cents per gallon.''.
(k) Amendment Related to Section 13242.--Paragraph (4) of section
6427(f) is amended by striking ``1995'' and inserting ``1999''.
(l) Amendment Related to Section 13261.--Clause (iii) of section
13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by
striking ``by the taxpayer'' and inserting ``by the taxpayer or a
related person''.
(m) Amendment Related to Section 13301.--Subparagraph (B) of
section 1397B(d)(5) is amended by striking ``preceding''.
(n) Clerical Amendments.--
(1) Subsection (d) of section 39 is amended--
(A) by striking ``45'' in the heading of paragraph
(5) and inserting ``45A'', and
(B) by striking ``45'' in the heading of paragraph
(6) and inserting ``45B''.
(2) Subparagraph (A) of section 108(d)(9) is amended by
striking ``paragraph (3)(B)'' and inserting ``paragraph
(3)(C)''.
(3) Subparagraph (C) of section 143(d)(2) is amended by
striking the period at the end thereof and inserting a comma.
(4) Clause (ii) of section 163(j)(6)(E) is amended by
striking ``which is a'' and inserting ``which is''.
(5) Subparagraph (A) of section 1017(b)(4) is amended by
striking ``subsection (b)(2)(D)'' and inserting ``subsection
(b)(2)(E)''.
(6) So much of section 1245(a)(3) as precedes subparagraph
(A) thereof is amended to read as follows:
``(3) Section 1245 property.--For purposes of this section,
the term `section 1245 property' means any property which is or
has been property of a character subject to the allowance for
depreciation provided in section 167 and is either--''.
(7) Paragraph (2) of section 1394(e) is amended--
(A) by striking ``(i)'' and inserting ``(A)'', and
(B) by striking ``(ii)'' and inserting ``(B)''.
(8) Subsection (m) of section 6501 (as redesignated by
section 1602) is amended by striking ``or 51(j)'' and inserting
``45B, or 51(j)''.
(9)(A) The section 6714 added by section 13242(b)(1) of the
Revenue Reconciliation Act of 1993 is hereby redesignated as
section 6715.
(B) The table of sections for part I of subchapter B of
chapter 68 is amended by striking ``6714'' in the item added by
such section 13242(b)(2) of such Act and inserting ``6715''.
(10) Paragraph (2) of section 9502(b) is amended by
inserting ``and before'' after ``1982,''.
(11) Subsection (a)(3) of section 13206 of the Revenue
Reconciliation Act of 1993 is amended by striking ``this
section'' and inserting ``this subsection''.
(12) Paragraph (1) of section 13215(c) of the Revenue
Reconciliation Act of 1993 is amended by striking ``Public Law
92-21'' and inserting ``Public Law 98-21''.
(13) Paragraph (2) of section 13311(e) of the Revenue
Reconciliation Act of 1993 is amended by striking ``section
1393(a)(3)'' and inserting ``section 1393(a)(2)''.
(14) Subparagraph (B) of section 117(d)(2) is amended by
striking ``section 132(f)'' and inserting ``section 132(h)''.
(o) Effective Date.--Any amendment made by this section shall take
effect as if included in the provision of the Revenue Reconciliation
Act of 1993 to which such amendment relates.
SEC. 1704. MISCELLANEOUS PROVISIONS.
(a) Application of Amendments Made by Title XII of Omnibus Budget
Reconciliation Act of 1990.--Except as otherwise expressly provided,
whenever in title XII of the Omnibus Budget Reconciliation Act of 1990
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.
(b) Treatment of Certain Amounts Under Hedge Bond Rules.--
(1) In general.--Clause (iii) of section 149(g)(3)(B) is
amended to read as follows:
``(iii) Amounts held pending reinvestment
or redemption.--Amounts held for not more than
30 days pending reinvestment or bond redemption
shall be treated as invested in bonds described
in clause (i).''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 7651 of the Omnibus Budget Reconciliation Act of 1989.
(c) Treatment of Certain Distributions Under Section 1445.--
(1) In general.--Paragraph (3) of section 1445(e) is
amended by adding at the end thereof the following new
sentence: ``Rules similar to the rules of the preceding
provisions of this paragraph shall apply in the case of any
distribution to which section 301 applies and which is not made
out of the earnings and profits of such a domestic
corporation.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to distributions after the date of the enactment of
this Act.
(d) Treatment of Certain Credits Under Section 469.--
(1) In general.--Subparagraph (B) of section 469(c)(3) is
amended by adding at the end thereof the following new
sentence: ``If the preceding sentence applies to the net income
from any property for any taxable year, any credits allowable
under subpart B (other than section 27(a)) or D of part IV of
subchapter A for such taxable year which are attributable to
such property shall be treated as credits not from a passive
activity to the extent the amount of such credits does not
exceed the regular tax liability of the taxpayer for the
taxable year which is allocable to such net income.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to taxable years beginning after December 31, 1986.
(e) Treatment of Dispositions Under Passive Loss Rules.--
(1) In general.--Subparagraph (A) of section 469(g)(1) is
amended to read as follows:
``(A) In general.--If all gain or loss realized on
such disposition is recognized, the excess of--
``(i) any loss from such activity for such
taxable year (determined after the application
of subsection (b)), over
``(ii) any net income or gain for such
taxable year from all other passive activities
(determined after the application of subsection
(b)),
shall be treated as a loss which is not from a passive
activity.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to taxable years beginning after December 31, 1986.
(f) Miscellaneous Amendments to Foreign Provisions.--
(1) Coordination of unified estate tax credit with
treaties.--Subparagraph (A) of section 2102(c)(3) is amended by
adding at the end thereof the following new sentence: ``For
purposes of the preceding sentence, property shall not be
treated as situated in the United States if such property is
exempt from the tax imposed by this subchapter under any treaty
obligation of the United States.''.
(2) Treatment of certain interest paid to related person.--
(A) Subparagraph (B) of section 163(j)(1) is
amended by inserting before the period at the end
thereof the following: ``(and clause (ii) of paragraph
(2)(A) shall not apply for purposes of applying this
subsection to the amount so treated)''.
(B) Subsection (j) of section 163 is amended by
redesignating paragraph (7) as paragraph (8) and by
inserting after paragraph (6) the following new
paragraph:
``(7) Coordination with passive loss rules, etc.--This
subsection shall be applied before sections 465 and 469.''.
(C) The amendments made by this paragraph shall
apply as if included in the amendments made by section
7210(a) of the Revenue Reconciliation Act of 1989.
(3) Treatment of interest allocable to effectively
connected income.--
(A) In general.--
(i) Subparagraph (B) of section 884(f)(1)
is amended by striking ``to the extent'' and
all that follows down through ``subparagraph
(A)'' and inserting ``to the extent that the
allocable interest exceeds the interest
described in subparagraph (A)''.
(ii) The second sentence of section
884(f)(1) is amended by striking ``reasonably
expected'' and all that follows down through
the period at the end thereof and inserting
``reasonably expected to be allocable
interest.''.
(iii) Paragraph (2) of section 884(f) is
amended to read as follows:
``(2) Allocable interest.--For purposes of this subsection,
the term `allocable interest' means any interest which is
allocable to income which is effectively connected (or treated
as effectively connected) with the conduct of a trade or
business in the United States.''.
(B) Effective date.--The amendments made by
subparagraph (A) shall take effect as if included in
the amendments made by section 1241(a) of the Tax
Reform Act of 1986.
(4) Clarification of source rule.--
(A) In general.--Paragraph (2) of section 865(b) is
amended by striking ``863(b)'' and inserting ``863''.
(B) Effective date.--The amendment made by
subparagraph (A) shall take effect as if included in
the amendments made by section 1211 of the Tax Reform
Act of 1986.
(5) Repeal of obsolete provisions.--
(A) Paragraph (1) of section 6038(a) is amended by
striking ``, and'' at the end of subparagraph (E) and
inserting a period, and by striking subparagraph (F).
(B) Subsection (b) of section 6038A is amended by
adding ``and'' at the end of paragraph (2), by striking
``, and'' at the end of paragraph (3) and inserting a
period, and by striking paragraph (4).
(g) Treatment of Assignment of Interest in Certain Bond-Financed
Facilities.--
(1) In general.--Subparagraph (A) of section 1317(3) of the
Tax Reform Act of 1986 is amended by adding at the end thereof
the following new sentence: ``A facility shall not fail to be
treated as described in this subparagraph by reason of an
assignment (or an agreement to an assignment) by the
governmental unit on whose behalf the bonds are issued of any
part of its interest in the property financed by such bonds to
another governmental unit.''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in such section 1317 on the
date of the enactment of the Tax Reform Act of 1986.
(h) Clarification of Treatment of Medicare Entitlement Under COBRA
Provisions.--
(1) In general.--
(A) Subclause (V) of section 4980B(f)(2)(B)(i) is
amended to read as follows:
``(V) Medicare entitlement followed
by qualifying event.--In the case of a
qualifying event described in paragraph
(3)(B) that occurs less than 18 months
after the date the covered employee
became entitled to benefits under title
XVIII of the Social Security Act, the
period of coverage for qualified
beneficiaries other than the covered
employee shall not terminate under this
clause before the close of the 36-month
period beginning on the date the
covered employee became so entitled.''.
(B) Clause (v) of section 602(2)(A) of the Employee
Retirement Income Security Act of 1974 is amended to
read as follows:
``(v) Medicare entitlement followed by
qualifying event.--In the case of a qualifying
event described in section 603(2) that occurs
less than 18 months after the date the covered
employee became entitled to benefits under
title XVIII of the Social Security Act, the
period of coverage for qualified beneficiaries
other than the covered employee shall not
terminate under this subparagraph before the
close of the 36-month period beginning on the
date the covered employee became so
entitled.''.
(C) Clause (iv) of section 2202(2)(A) of the Public
Health Service Act is amended to read as follows:
``(iv) Medicare entitlement followed by
qualifying event.--In the case of a qualifying
event described in section 2203(2) that occurs
less than 18 months after the date the covered
employee became entitled to benefits under
title XVIII of the Social Security Act, the
period of coverage for qualified beneficiaries
other than the covered employee shall not
terminate under this subparagraph before the
close of the 36-month period beginning on the
date the covered employee became so
entitled.''.
(2) Effective date.--The amendments made by this subsection
shall apply to plan years beginning after December 31, 1989.
(i) Treatment of Certain REMIC Inclusions.--
(1) In general.--Subsection (a) of section 860E is amended
by adding at the end thereof the following new paragraph:
``(6) Coordination with minimum tax.--For purposes of part
VI of subchapter A of this chapter--
``(A) the reference in section 55(b)(2) to taxable
income shall be treated as a reference to taxable
income determined without regard to this subsection,
``(B) the alternative minimum taxable income of any
holder of a residual interest in a REMIC for any
taxable year shall in no event be less than the excess
inclusion for such taxable year, and
``(C) any excess inclusion shall be disregarded for
purposes of computing the alternative tax net operating
loss deduction.
The preceding sentence shall not apply to any organization to
which section 593 applies, except to the extent provided in
regulations prescribed by the Secretary under paragraph (2).''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 671 of the Tax Reform Act of 1986 unless the taxpayer
elects to apply such amendment only to taxable years beginning
after the date of the enactment of this Act.
(j) Exemption From Harbor Maintenance Tax for Certain Passengers.--
(1) In general.--Subparagraph (D) of section 4462(b)(1)
(relating to special rule for Alaska, Hawaii, and possessions)
is amended by inserting before the period the following: ``, or
passengers transported on United States flag vessels operating
solely within the State waters of Alaska or Hawaii and adjacent
international waters''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 1402(a) of the Harbor Maintenance Revenue Act of 1986.
(k) Amendments Related to Revenue Provisions of Energy Policy Act
of 1992.--
(1) Effective with respect to taxable years beginning after
December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is
amended to read as follows:
``(II) the adjusted net minimum tax
for any taxable year is the amount of
the net minimum tax for such year
increased in the manner provided in
clause (iii).''.
(2) Subsection (g) of section 179A is redesignated as
subsection (f).
(3) Subparagraph (E) of section 6724(d)(3) is amended by
striking ``section 6109(f)'' and inserting ``section 6109(h)''.
(4)(A) Subsection (d) of section 30 is amended--
(i) by inserting ``(determined without regard to
subsection (b)(3))'' before the period at the end of
paragraph (1) thereof, and
(ii) by adding at the end thereof the following new
paragraph:
``(4) Election to not take credit.--No credit shall be
allowed under subsection (a) for any vehicle if the taxpayer
elects to not have this section apply to such vehicle.''.
(B) Subsection (m) of section 6501 (as redesignated by
section 1602) is amended by striking ``section 40(f)'' and
inserting ``section 30(d)(4), 40(f)''.
(5) Subclause (III) of section 501(c)(21)(D)(ii) is amended
by striking ``section 101(6)'' and inserting ``section 101(7)''
and by striking ``1752(6)'' and inserting ``1752(7)''.
(6) Paragraph (1) of section 1917(b) of the Energy Policy
Act of 1992 shall be applied as if ``at a rate'' appeared
instead of ``at the rate'' in the material proposed to be
stricken.
(7) Paragraph (2) of section 1921(b) of the Energy Policy
Act of 1992 shall be applied as if a comma appeared after
``(2)'' in the material proposed to be stricken.
(8) Subsection (a) of section 1937 of the Energy Policy Act
of 1992 shall be applied as if ``Subpart B'' appeared instead
of ``Subpart C''.
(l) Treatment of Qualified Football Coaches Plan.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, a qualified football coaches plan--
(A) shall be treated as a multiemployer
collectively bargained plan, and
(B) notwithstanding section 401(k)(4)(B) of such
Code, may include a qualified cash and deferred
arrangement under section 401(k) of such Code.
(2) Qualified football coaches plan.--For purposes of this
subsection, the term ``qualified football coaches plan'' means
any defined contribution plan which is established and
maintained by an organization--
(A) which is described in section 501(c) of such
Code,
(B) the membership of which consists entirely of
individuals who primarily coach football as full-time
employees of 4-year colleges or universities described
in section 170(b)(1)(A)(ii) of such Code, and
(C) which was in existence on September 18, 1986.
(3) Effective date.--This subsection shall apply to years
beginning after December 22, 1987.
(m) Determination of Unrecovered Investment in Annuity Contract.--
(1) In general.--Subparagraph (A) of section 72(b)(4) is
amended by inserting ``(determined without regard to subsection
(c)(2))'' after ``contract''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 1122(c) of the Tax Reform Act of 1986.
(n) Modifications to Election To Include Child's Income on Parent's
Return.--
(1) Eligibility for election.--Clause (ii) of section
1(g)(7)(A) (relating to election to include certain unearned
income of child on parent's return) is amended to read as
follows:
``(ii) such gross income is more than the
amount described in paragraph (4)(A)(ii)(I) and
less than 10 times the amount so described,''.
(2) Computation of tax.--Subparagraph (B) of section
1(g)(7) (relating to income included on parent's return) is
amended--
(A) by striking ``$1,000'' in clause (i) and
inserting ``twice the amount described in paragraph
(4)(A)(ii)(I)'', and
(B) by amending subclause (II) of clause (ii) to
read as follows:
``(II) for each such child, 15
percent of the lesser of the amount
described in paragraph (4)(A)(ii)(I) or
the excess of the gross income of such
child over the amount so described,
and''.
(3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is
amended by striking ``$1,000'' and inserting ``twice the amount
in effect for the taxable year under section 63(c)(5)(A)''.
(4) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 1995.
(o) Treatment of Certain Veterans' Reemployment Rights.--
(1) In general.--Section 414 is amended by adding at the
end the following new subsection:
``(u) Special Rules Relating to Veterans' Reemployment Rights Under
USERRA.--
``(1) Treatment of certain contributions made pursuant to
veterans' reemployment rights.--If any contribution is made by
an employer or an employee under an individual account plan
with respect to an employee, or by an employee to a defined
benefit plan that provides for employee contributions, and such
contribution is required by reason of such employee's rights
under chapter 43 of title 38, United States Code, resulting
from qualified military service, then--
``(A) such contribution shall not be subject to any
otherwise applicable limitation contained in section
402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or
457, and shall not be taken into account in applying
such limitations to other contributions or benefits
under such plan or any other plan, with respect to the
year in which the contribution is made,
``(B) such contribution shall be subject to the
limitations referred to in subparagraph (A) with
respect to the year to which the contribution relates
(in accordance with rules prescribed by the Secretary),
and
``(C) such plan shall not be treated as failing to
meet the requirements of section 401(a)(4), 401(a)(26),
401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12),
408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason
of the making of (or the right to make) such
contribution.
For purposes of the preceding sentence, any elective deferral
or employee contribution made under paragraph (2) shall be
treated as required by reason of the employee's rights under
such chapter 43.
``(2) Reemployment rights under userra with respect to
elective deferrals.--
``(A) In general.--For purposes of this subchapter
and section 457, if an employee is entitled to the
benefits of chapter 43 of title 38, United States Code,
with respect to any plan which provides for elective
deferrals, the employer sponsoring the plan shall be
treated as meeting the requirements of such chapter 43
with respect to such elective deferrals only if such
employer--
``(i) permits such employee to make
additional elective deferrals under such plan
(in the amount determined under subparagraph
(B) or such lesser amount as is elected by the
employee) during the period which begins on the
date of the reemployment of such employee with
such employer and has the same length as the
lesser of--
``(I) the product of 3 and the
period of qualified military service
which resulted in such rights, and
``(II) 5 years, and
``(ii) makes a matching contribution with
respect to any additional elective deferral
made pursuant to clause (i) which would have
been required had such deferral actually been
made during the period of such qualified
military service.
``(B) Amount of makeup required.--The amount
determined under this subparagraph with respect to any
plan is the maximum amount of the elective deferrals
that the individual would have been permitted to make
under the plan in accordance with the limitations
referred to in paragraph (1)(A) during the period of
qualified military service if the individual had
continued to be employed by the employer during such
period and received compensation as determined under
paragraph (7). Proper adjustment shall be made to the
amount determined under the preceding sentence for any
elective deferrals actually made during the period of
such qualified military service.
``(C) Elective deferral.--For purposes of this
paragraph, the term `elective deferral' has the meaning
given such term by section 402(g)(3); except that such
term shall include any deferral of compensation under
an eligible deferred compensation plan (as defined in
section 457(b)).
``(D) After-tax employee contributions.--References
in subparagraphs (A) and (B) to elective deferrals
shall be treated as including references to employee
contributions.
``(3) Certain retroactive adjustments not required.--For
purposes of this subchapter and subchapter E, no provision of
chapter 43 of title 38, United States Code, shall be construed
as requiring--
``(A) any crediting of earnings to an employee with
respect to any contribution before such contribution is
actually made, or
``(B) any allocation of any forfeiture with respect
to the period of qualified military service.
``(4) Loan repayment suspensions permitted.--If any plan
suspends the obligation to repay any loan made to an employee
from such plan for any part of any period during which such
employee is performing service in the uniformed services (as
defined in chapter 43 of title 38, United States Code), whether
or not qualified military service, such suspension shall not be
taken into account for purposes of section 72(p), 401(a), or
4975(d)(1).
``(5) Qualified military service.--For purposes of this
subsection, the term `qualified military service' means any
service in the uniformed services (as defined in chapter 43 of
title 38, United States Code) by any individual if such
individual is entitled to reemployment rights under such
chapter with respect to such service.
``(6) Individual account plan.--For purposes of this
subsection, the term `individual account plan' means any
defined contribution plan (including any tax-sheltered annuity
plan under section 403(b), any simplified employee pension
under section 408(k), any qualified salary reduction
arrangement under section 408(p), and any eligible deferred
compensation plan (as defined in section 457(b)).
``(7) Compensation.--For purposes of sections 403(b)(3),
415(c)(3), and 457(e)(5), an employee who is in qualified
military service shall be treated as receiving compensation
from the employer during such period of qualified military
service equal to--
``(A) the compensation the employee would have
received during such period if the employee were not in
qualified military service, determined based on the
rate of pay the employee would have received from the
employer but for absence during the period of qualified
military service, or
``(B) if the compensation the employee would have
received during such period was not reasonably certain,
the employee's average compensation from the employer
during the 12-month period immediately preceding the
qualified military service (or, if shorter, the period
of employment immediately preceding the qualified
military service).
``(8) USERRA requirements for qualified retirement plans.--
For purposes of this subchapter and section 457, an employer
sponsoring a retirement plan shall be treated as meeting the
requirements of chapter 43 of title 38, United States Code,
only if each of the following requirements is met:
``(A) An individual reemployed under such chapter
is treated with respect to such plan as not having
incurred a break in service with the employer
maintaining the plan by reason of such individual's
period of qualified military service.
``(B) Each period of qualified military service
served by an individual is, upon reemployment under
such chapter, deemed with respect to such plan to
constitute service with the employer maintaining the
plan for the purpose of determining the
nonforfeitability of the individual's accrued benefits
under such plan and for the purpose of determining the
accrual of benefits under such plan.
``(C) An individual reemployed under such chapter
is entitled to accrued benefits that are contingent on
the making of, or derived from, employee contributions
or elective deferrals only to the extent the individual
makes payment to the plan with respect to such
contributions or deferrals. No such payment may exceed
the amount the individual would have been permitted or
required to contribute had the individual remained
continuously employed by the employer throughout the
period of qualified military service. Any payment to
such plan shall be made during the period beginning
with the date of reemployment and whose duration is 3
times the period of the qualified military service (but
not greater than 5 years).
``(9) Plans not subject to title 38.--This subsection shall
not apply to any retirement plan to which chapter 43 of title
38, United States Code, does not apply.
``(10) References.--For purposes of this section, any
reference to chapter 43 of title 38, United States Code, shall
be treated as a reference to such chapter as in effect on
December 12, 1994 (without regard to any subsequent
amendment).''.
(2) Effective date.--The amendment made by this subsection
shall be effective as of December 12, 1994.
(p) Reporting of Real Estate Transactions.--
(1) In general.--Paragraph (3) of section 6045(e) (relating
to prohibition of separate charge for filing return) is amended
by adding at the end the following new sentence: ``Nothing in
this paragraph shall be construed to prohibit the real estate
reporting person from taking into account its cost of complying
with such requirement in establishing its charge (other than a
separate charge for complying with such requirement) to any
customer for performing services in the case of a real estate
transaction.''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in section 1015(e)(2)(A) of
the Technical and Miscellaneous Revenue Act of 1988.
(q) Clarification of Denial of Deduction for Stock Redemption
Expenses.
(1) In general.--Paragraph (1) of section 162(k) is amended
by striking ``the redemption of its stock'' and inserting ``the
reacquisition of its stock or of the stock of any related
person (as defined in section 465(b)(3)(C))''.
(2) Certain deductions permitted.--Subparagraph (A) of
section 162(k)(2) is amended by striking ``or'' at the end of
clause (i), by redesignating clause (ii) as clause (iii), and
by inserting after clause (i) the following new clause:
``(ii) deduction for amounts which are
properly allocable to indebtedness and
amortized over the term of such indebtedness,
or''.
(3) Clerical amendment.--The subsection heading for
subsection (k) of section 162 is amended by striking
``Redemption'' and inserting ``Reacquisition''.
(4) Effective date.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by this subsection shall apply
to amounts paid or incurred after September 13, 1995,
in taxable years ending after such date.
(B) Paragraph (2).--The amendment made by paragraph
(2) shall take effect as if included in the amendment
made by section 613 of the Tax Reform Act of 1986.
(r) Clerical Amendment to Section 404.--
(1) In general.--Paragraph (1) of section 404(j) is amended
by striking ``(10)'' and inserting ``(9)''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 713(d)(4)(A) of the Deficit Reduction Act of 1984.
(s) Passive Income Not To Include FSC Income, Etc.--
(1) In general.--Paragraph (2) of section 1296(b) is
amended by striking ``or'' at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and
inserting ``, or'', and by inserting after subparagraph (C) the
following new subparagraph:
``(D) which is foreign trade income of a FSC or
export trade income of an export trade corporation (as
defined in section 971).''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect as if included in the amendments made by
section 1235 of the Tax Reform Act of 1986.
(t) Miscellaneous Clerical Amendments.--
(1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by
striking ``of the subclause'' and inserting ``of subclause''.
(2) Paragraph (2) of section 72(m) is amended by inserting
``and'' at the end of subparagraph (A), by striking
subparagraph (B), and by redesignating subparagraph (C) as
subparagraph (B).
(3) Paragraph (2) of section 86(b) is amended by striking
``adusted'' and inserting ``adjusted''.
(4)(A) The heading for section 112 is amended by striking
``combat pay'' and inserting ``combat zone compensation''.
(B) The item relating to section 112 in the table of
sections for part III of subchapter B of chapter 1 is amended
by striking ``combat pay'' and inserting ``combat zone
compensation''.
(C) Paragraph (1) of section 3401(a) is amended by striking
``combat pay'' and inserting ``combat zone compensation''.
(5) Clause (i) of section 172(h)(3)(B) is amended by
striking the comma at the end thereof and inserting a period.
(6) Clause (ii) of section 543(a)(2)(B) is amended by
striking ``section 563(c)'' and inserting ``section 563(d)''.
(7) Paragraph (1) of section 958(a) is amended by striking
``sections 955(b)(1) (A) and (B), 955(c)(2)(A)(ii), and
960(a)(1)'' and inserting ``section 960(a)(1)''.
(8) Subsection (g) of section 642 is amended by striking
``under 2621(a)(2)'' and inserting ``under section
2621(a)(2)''.
(9) Section 1463 is amended by striking ``this subsection''
and inserting ``this section''.
(10) Subsection (k) of section 3306 is amended by inserting
a period at the end thereof.
(11) The item relating to section 4472 in the table of
sections for subchapter B of chapter 36 is amended by striking
``and special rules''.
(12) Paragraph (3) of section 5134(c) is amended by
striking ``section 6662(a)'' and inserting ``section 6665(a)''.
(13) Paragraph (2) of section 5206(f) is amended by
striking ``section 5(e)'' and inserting ``section 105(e)''.
(14) Paragraph (1) of section 6050B(c) is amended by
striking ``section 85(c)'' and inserting ``section 85(b)''.
(15) Subsection (k) of section 6166 is amended by striking
paragraph (6).
(16) Subsection (e) of section 6214 is amended to read as
follows:
``(e) Cross Reference.--
``For provision giving Tax Court
jurisdiction to order a refund of an overpayment and to award
sanctions, see section 6512(b)(2).''.
(17) The section heading for section 6043 is amended by
striking the semicolon and inserting a comma.
(18) The item relating to section 6043 in the table of
sections for subpart B of part III of subchapter A of chapter
61 is amended by striking the semicolon and inserting a comma.
(19) The table of sections for part I of subchapter A of
chapter 68 is amended by striking the item relating to section
6662.
(20)(A) Section 7232 is amended--
(i) by striking ``lubricating oil,'' in the
heading, and
(ii) by striking ``lubricating oil,'' in the text.
(B) The table of sections for part II of subchapter A of
chapter 75 is amended by striking ``lubricating oil,'' in the
item relating to section 7232.
(21) Paragraph (1) of section 6701(a) of the Omnibus Budget
Reconciliation Act of 1989 is amended by striking ``subclause
(IV)'' and inserting ``subclause (V)''.
(22) Clause (ii) of section 7304(a)(2)(D) of such Act is
amended by striking ``subsection (c)(2)'' and inserting
``subsection (c)''.
(23) Paragraph (1) of section 7646(b) of such Act is
amended by striking ``section 6050H(b)(1)'' and inserting
``section 6050H(b)(2)''.
(24) Paragraph (10) of section 7721(c) of such Act is
amended by striking ``section 6662(b)(2)(C)(ii)'' and inserting
``section 6661(b)(2)(C)(ii)''.
(25) Subparagraph (A) of section 7811(i)(3) of such Act is
amended by inserting ``the first place it appears'' before ``in
clause (i)''.
(26) Paragraph (10) of section 7841(d) of such Act is
amended by striking ``section 381(a)'' and inserting ``section
381(c)''.
(27) Paragraph (2) of section 7861(c) of such Act is
amended by inserting ``the second place it appears'' before
``and inserting''.
(28) Paragraph (1) of section 460(b) is amended by striking
``the look-back method of paragraph (3)'' and inserting ``the
look-back method of paragraph (2)''.
(29) Subparagraph (C) of section 50(a)(2) is amended by
striking ``subsection (c)(4)'' and inserting ``subsection
(d)(5)''.
(30) Subparagraph (B) of section 172(h)(4) is amended by
striking the material following the heading and preceding
clause (i) and inserting ``For purposes of subsection (b)(2)--
''.
(31) Subparagraph (A) of section 355(d)(7) is amended by
inserting ``section'' before ``267(b)''.
(32) Subparagraph (C) of section 420(e)(1) is amended by
striking ``mean'' and inserting ``means''.
(33) Paragraph (4) of section 537(b) is amended by striking
``section 172(i)'' and inserting ``section 172(f)''.
(34) Subparagraph (B) of section 613(e)(1) is amended by
striking the comma at the end thereof and inserting a period.
(35) Paragraph (4) of section 856(a) is amended by striking
``section 582(c)(5)'' and inserting ``section 582(c)(2)''.
(36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are
each amended by inserting ``(as in effect on the day before the
date of the enactment of the Revenue Reconciliation Act of
1990)'' after ``section 172(h)''.
(37) Subsection (b) of section 936 is amended by striking
``subparagraphs (D)(ii)(I)'' and inserting ``subparagraphs
(D)(ii)''.
(38) Subsection (c) of section 2104 is amended by striking
``subparagraph (A), (C), or (D) of section 861(a)(1)'' and
inserting ``section 861(a)(1)(A)''.
(39) Subparagraph (A) of section 280A(c)(1) is amended to
read as follows:
``(A) as the principal place of business for any
trade or business of the taxpayer,''.
(40) Section 6038 is amended by redesignating the
subsection relating to cross references as subsection (f).
(41) Clause (iv) of section 6103(e)(1)(A) is amended by
striking all that follows ``provisions of'' and inserting
``section 1(g) or 59(j);''.
(42) The subsection (f) of section 6109 of the Internal
Revenue Code of 1986 which was added by section 2201(d) of
Public Law 101-624 is redesignated as subsection (g).
(43) Subsection (b) of section 7454 is amended by striking
``section 4955(e)(2)'' and inserting ``section 4955(f)(2)''.
(44) Subsection (d) of section 11231 of the Revenue
Reconciliation Act of 1990 shall be applied as if ``comma''
appeared instead of ``period'' and as if the paragraph (9)
proposed to be added ended with a comma.
(45) Paragraph (1) of section 11303(b) of the Revenue
Reconciliation Act of 1990 shall be applied as if ``paragraph''
appeared instead of ``subparagraph'' in the material proposed
to be stricken.
(46) Subsection (f) of section 11701 of the Revenue
Reconciliation Act of 1990 is amended by inserting ``(relating
to definitions)'' after ``section 6038(e)''.
(47) Subsection (i) of section 11701 of the Revenue
Reconciliation Act of 1990 shall be applied as if
``subsection'' appeared instead of ``section'' in the material
proposed to be stricken.
(48) Subparagraph (B) of section 11801(c)(2) of the Revenue
Reconciliation Act of 1990 shall be applied as if ``section
56(g)'' appeared instead of ``section 59(g)''.
(49) Subparagraph (C) of section 11801(c)(8) of the Revenue
Reconciliation Act of 1990 shall be applied as if
``reorganizations'' appeared instead of ``reorganization'' in
the material proposed to be stricken.
(50) Subparagraph (H) of section 11801(c)(9) of the Revenue
Reconciliation Act of 1990 shall be applied as if ``section
1042(c)(1)(B)'' appeared instead of ``section 1042(c)(2)(B)''.
(51) Subparagraph (F) of section 11801(c)(12) of the
Revenue Reconciliation Act of 1990 shall be applied as if ``and
(3)'' appeared instead of ``and (E)''.
(52) Subparagraph (A) of section 11801(c)(22) of the
Revenue Reconciliation Act of 1990 shall be applied as if
``chapters 21'' appeared instead of ``chapter 21'' in the
material proposed to be stricken.
(53) Paragraph (3) of section 11812(b) of the Revenue
Reconciliation Act of 1990 shall be applied by not executing
the amendment therein to the heading of section 42(d)(5)(B).
(54) Clause (i) of section 11813(b)(9)(A) of the Revenue
Reconciliation Act of 1990 shall be applied as if a comma
appeared after ``(3)(A)(ix)'' in the material proposed to be
stricken.
(55) Subparagraph (F) of section 11813(b)(13) of the
Revenue Reconciliation Act of 1990 shall be applied as if
``tax'' appeared after ``investment'' in the material proposed
to be stricken.
(56) Paragraph (19) of section 11813(b) of the Revenue
Reconciliation Act of 1990 shall be applied as if ``Paragraph
(20) of section 1016(a), as redesignated by section 11801,''
appeared instead of ``Paragraph (21) of section 1016(a)''.
(57) Paragraph (5) section 8002(a) of the Surface
Transportation Revenue Act of 1991 shall be applied as if
``4481(e)'' appeared instead of ``4481(c)''.
(58) Section 7872 is amended--
(A) by striking ``foregone'' each place it appears
in subsections (a) and (e)(2) and inserting
``forgone'', and
(B) by striking ``Foregone'' in the heading for
subsection (e) and the heading for paragraph (2) of
subsection (e) and inserting ``Forgone''.
(59) Paragraph (7) of section 7611(h) is amended by
striking ``approporiate'' and inserting ``appropriate''.
(60) The heading of paragraph (3) of section 419A(c) is
amended by striking ``severence'' and inserting ``severance''.
(61) Clause (ii) of section 807(d)(3)(B) is amended by
striking ``Commissoners' '' and inserting ``Commissioners' ''.
(62) Subparagraph (B) of section 1274A(c)(1) is amended by
striking ``instument'' and inserting ``instrument''.
(63) Subparagraph (B) of section 724(d)(3) by striking
``Subparagaph'' and inserting ``Subparagraph''.
(64) The last sentence of paragraph (2) of section 42(c) is
amended by striking ``of 1988''.
(65) Paragraph (1) of section 9707(d) is amended by
striking ``diligence,'' and inserting ``diligence''.
(66) Subsection (c) of section 4977 is amended by striking
``section 132(i)(2)'' and inserting ``section 132(h)''.
(67) The last sentence of section 401(a)(20) is amended by
striking ``section 211'' and inserting ``section 521''.
(68) Subparagraph (A) of section 402(g)(3) is amended by
striking ``subsection (a)(8)'' and inserting ``subsection
(e)(3)''.
(69) The last sentence of section 403(b)(10) is amended by
striking ``an direct'' and inserting ``a direct''.
(70) Subparagraph (A) of section 4973(b)(1) is amended by
striking ``sections 402(c)'' and inserting ``section 402(c)''.
(71) Paragraph (12) of section 3405(e) is amended by
striking ``(b)(3)'' and inserting ``(b)(2)''.
(72) Paragraph (41) of section 521(b) of the Unemployment
Compensation Amendments of 1992 shall be applied as if
``section'' appeared instead of ``sections'' in the material
proposed to be stricken.
(73) Paragraph (27) of section 521(b) of the Unemployment
Compensation Amendments of 1992 shall be applied as if
``Section 691(c)(5)'' appeared instead of ``Section 691(c)''.
(74) Paragraph (5) of section 860F(a) is amended by
striking ``paragraph (1)'' and inserting ``paragraph (2)''.
(75) Paragraph (1) of section 415(k) is amended by adding
``or'' at the end of subparagraph (C), by striking
subparagraphs (D) and (E), and by redesignating subparagraph
(F) as subparagraph (D).
(76) Paragraph (2) of section 404(a) is amended by striking
``(18),''.
(77) Clause (ii) of section 72(p)(4)(A) is amended to read
as follows:
``(ii) Special rule.--The term `qualified
employer plan' shall include any plan which was
(or was determined to be) a qualified employer
plan or a government plan.''.
(78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each
amended by striking ``section 6662(d)(2)(C)(ii)'' and inserting
``section 6662(d)(2)(C)(iii)''.
(79) Subsection (a) of section 164 is amended by striking
the paragraphs relating to the generation-skipping tax and the
environmental tax imposed by section 59A and by inserting after
paragraph (3) the following new paragraphs:
``(4) The GST tax imposed on income distributions.
``(5) The environmental tax imposed by section 59A.''.
(80) Subclause (I) of section 936(a)(4)(A)(ii) is amended
by striking ``deprecation'' and inserting ``depreciation''.
Subtitle G--Other Provisions
SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT
TO CERTAIN STATES.
(a) In General.--Section 4082 (relating to exemptions for diesel
fuel) is amended by redesignating subsections (c) and (d) as
subsections (d) and (e), respectively, and by inserting after
subsection (b) the following new subsection:
``(c) Exception to Dyeing Requirements.--Paragraph (2) of
subsection (a) shall not apply with respect to any diesel fuel--
``(1) removed, entered, or sold in a State for ultimate
sale or use in an area of such State during the period such
area is exempted from the fuel dyeing requirements under
subsection (i) of section 211 of the Clean Air Act (as in
effect on the date of the enactment of this subsection) by the
Administrator of the Environmental Protection Agency under
paragraph (4) of such subsection (i) (as so in effect), and
``(2) the use of which is certified pursuant to regulations
issued by the Secretary.''
(b) Effective Date.--The amendments made by this section shall
apply with respect to fuel removed, entered, or sold on or after the
first day of the first calendar quarter beginning after the date of the
enactment of this Act.
SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY ACCOUNTS.
(a) In General.--For purposes of subsection (s) of section 3121 of
the Internal Revenue Code of 1986 (relating to concurrent employment by
2 or more employers)--
(1) the following entities shall be deemed to be related
corporations that concurrently employ the same individual:
(A) a State university which employs health
professionals as faculty members at a medical school,
and
(B) an agency account of a State university which
is described in subparagraph (A) and from which there
is distributed to such faculty members payments forming
a part of the compensation that the State, or such
State university, as the case may be, agrees to pay to
such faculty members, but only if--
(i) such agency account is authorized by
State law and receives the funds for such
payments from a faculty practice plan described
in section 501(c)(3) of such Code and exempt
from tax under section 501(a) of such Code,
(ii) such payments are distributed by such
agency account to such faculty members who
render patient care at such medical school, and
(iii) such faculty members comprise at
least 30 percent of the membership of such
faculty practice plan, and
(2) remuneration which is disbursed by such agency account
to any such faculty member of the medical school described in
paragraph (1)(A) shall be deemed to have been actually
disbursed by the State, or such State university, as the case
may be, as a common paymaster and not to have been actually
disbursed by such agency account.
(b) Effective Date.--The provisions of subsection (a) shall apply
to remuneration paid after December 31, 1996.
SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING CHEMICALS.
(a) Recycled Halon.--
(1) In general.--Section 4682(d)(1) (relating to recycling)
is amended by inserting ``, or on any recycled halon imported
from any country which is a signatory to the Montreal Protocol
on Substances that Deplete the Ozone Layer'' before the period
at the end.
(2) Certification system.--The Secretary of the Treasury,
after consultation with the Administrator of the Environmental
Protection Agency, shall develop a certification system to
ensure compliance with the recycling requirement for imported
halon under section 4682(d)(1) of the Internal Revenue Code of
1986, as amended by paragraph (1).
(b) Chemicals Used as Propellants in Metered-Dose Inhalers Tax-
Exempt.--Paragraph (4) of section 4682(g) (relating to phase-in of tax
on certain substances) is amended to read as follows:
``(4) Chemicals used as propellants in metered-dose
inhalers.--
``(A) Tax-exempt.--
``(i) In general.--No tax shall be imposed
by section 4681 on--
``(I) any use of any substance as a
propellant in metered-dose inhalers, or
``(II) any qualified sale by the
manufacturer, producer, or importer of
any substance.
``(ii) Qualified sale.--For purposes of
clause (i), the term `qualified sale' means any
sale by the manufacturer, producer, or importer
of any substance--
``(I) for use by the purchaser as a
propellant in metered-dose inhalers, or
``(II) for resale by the purchaser
to a 2d purchaser for such use by the
2d purchaser.
The preceding sentence shall apply only if the
manufacturer, producer, and importer, and the
1st and 2d purchasers (if any) meet such
registration requirements as may be prescribed
by the Secretary.
``(B) Overpayments.--If any substance on which tax
was paid under this subchapter is used by any person as
a propellant in metered-dose inhalers, credit or refund
without interest shall be allowed to such person in an
amount equal to the excess of--
``(i) the tax paid under this subchapter on
such substance, over
``(ii) the tax (if any) which would be
imposed by section 4681 if such substance were
used for such use by the manufacturer,
producer, or importer thereof on the date of
its use by such person.
Amounts payable under the preceding sentence
with respect to uses during the taxable year
shall be treated as described in section 34(a)
for such year unless claim thereof has been
timely filed under this subparagraph.''
(c) Effective Dates.--
(1) Recycled halon.--The amendment made by subsection
(a)(1) shall take effect on January 1, 1997.
(2) Metered-dose inhalers.--The amendment made by
subsection (b) shall take effect on the 7th day after the date
of the enactment of this Act.
SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER ADMINISTRATION
FACILITY.
Sections 142(f)(3) (as added by section 1605) and 147(d) of the
Internal Revenue Code of 1986 shall not apply in determining whether
any private activity bond issued after the date of the enactment of
this Act and used to finance the acquisition of the Snettisham
hydroelectric project from the Alaska Power Administration is a
qualified bond for purposes of such Code.
SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON
TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.
(a) General Rule.--Section 584 (relating to common trust funds) is
amended by redesignating subsection (h) as subsection (i) and by
inserting after subsection (g) the following new subsection:
``(h) Nonrecognition Treatment for Certain Transfers to Regulated
Investment Companies.--
``(1) In general.--If--
``(A) a common trust fund transfers substantially
all of its assets to one or more regulated investment
companies in exchange solely for stock in the company
or companies to which such assets are so transferred,
and
``(B) such stock is distributed by such common
trust fund to participants in such common trust fund in
exchange solely for their interests in such common
trust fund,
no gain or loss shall be recognized by such common trust fund
by reason of such transfer or distribution, and no gain or loss
shall be recognized by any participant in such common trust
fund by reason of such exchange.
``(2) Basis rules.--
``(A) Regulated investment company.--The basis of
any asset received by a regulated investment company in
a transfer referred to in paragraph (1)(A) shall be the
same as it would be in the hands of the common trust
fund.
``(B) Participants.--The basis of the stock which
is received in an exchange referred to in paragraph
(1)(B) shall be the same as that of the property
exchanged. If stock in more than one regulated
investment company is received in such exchange, the
basis determined under the preceding sentence shall be
allocated among the stock in each such company on the
basis of respective fair market values.
``(3) Treatment of assumptions of liability.--
``(A) In general.--In determining whether the
transfer referred to in paragraph (1)(A) is in exchange
solely for stock in one or more regulated investment
companies, the assumption by any such company of a
liability of the common trust fund, and the fact that
any property transferred by the common trust fund is
subject to a liability, shall be disregarded.
``(B) Special rule where assumed liabilities exceed
basis.--
``(i) In general.--If, in any transfer
referred to in paragraph (1)(A), the assumed
liabilities exceed the aggregate adjusted bases
(in the hands of the common trust fund) of the
assets transferred to the regulated investment
company or companies--
``(I) notwithstanding paragraph
(1), gain shall be recognized to the
common trust fund on such transfer in
an amount equal to such excess,
``(II) the basis of the assets
received by the regulated investment
company or companies in such transfer
shall be increased by the amount so
recognized, and
``(III) any adjustment to the basis
of a participant's interest in the
common trust fund as a result of the
gain so recognized shall be treated as
occurring immediately before the
exchange referred to in paragraph
(1)(B).
If the transfer referred to in paragraph (1)(A)
is to two or more regulated investment
companies, the basis increase under subclause
(II) shall be allocated among such companies on
the basis of the respective fair market values
of the assets received by each of such
companies.
``(ii) Assumed liabilities.--For purposes
of clause (i), the term `assumed liabilities'
means the aggregate of--
``(I) any liability of the common
trust fund assumed by any regulated
investment company in connection with
the transfer referred to in paragraph
(1)(A), and
``(II) any liability to which
property so transferred is subject.
``(4) Common trust fund must meet diversification rules.--
This subsection shall not apply to any common trust fund which
would not meet the requirements of section 368(a)(2)(F)(ii) if
it were a corporation. For purposes of the preceding sentence,
Government securities shall not be treated as securities of an
issuer in applying the 25-percent and 50-percent test and such
securities shall not be excluded for purposes of determining
total assets under clause (iv) of section 368(a)(2)(F).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to transfers after December 31, 1995.
SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.
(a) In General.--Subchapter F of chapter 1 (relating to exempt
organizations) is amended by adding at the end the following new part:
``PART VIII--QUALIFIED STATE TUITION PROGRAMS
``Sec. 529. Qualified State tuition
programs.
``SEC. 529. QUALIFIED STATE TUITION PROGRAMS.
``(a) General Rule.--A qualified State tuition program shall be
exempt from taxation under this subtitle. Notwithstanding the preceding
sentence, such program shall be subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated business income of
charitable organizations).
``(b) Qualified State Tuition Program.--For purposes of this
section--
``(1) In general.--The term `qualified State tuition
program' means a program established and maintained by a State
or agency or instrumentality thereof--
``(A) under which a person--
``(i) may purchase tuition credits or
certificates on behalf of a designated
beneficiary which entitle the beneficiary to
the waiver or payment of qualified higher
education expenses of the beneficiary, or
``(ii) may make contributions to an account
which is established for the sole purpose of
meeting the qualified higher education expenses
of the designated beneficiary of the account,
and
``(B) which meets the other requirements of this
subsection.
``(2) Cash contributions.--A program shall not be treated
as a qualified State tuition program unless it provides that
purchases or contributions may only be made in cash.
``(3) Refunds.--A program shall not be treated as a
qualified State tuition program unless it imposes a more than
de minimis penalty on any refund of earnings from the account
which are not--
``(A) used for qualified higher education expenses
of the designated beneficiary,
``(B) made on account of the death or disability of
the designated beneficiary, or
``(C) made on account of a scholarship received by
the designated beneficiary to the extent the amount of
the refund does not exceed the amount of the
scholarship used for qualified higher education
expenses.
``(4) Separate accounting.--A program shall not be treated
as a qualified State tuition program unless it provides
separate accounting for each designated beneficiary.
``(5) No investment direction.--A program shall not be
treated as a qualified State tuition program unless it provides
that any contributor to, or designated beneficiary under, such
program may not direct the investment of any contributions to
the program (or any earnings thereon).
``(6) No pledging of interest as security.--A program shall
not be treated as a qualified State tuition program if it
allows any interest in the program or any portion thereof to be
used as security for a loan.
``(c) Tax Treatment of Designated Beneficiaries and Contributors.--
``(1) In general.--Except as otherwise provided in this
subsection, no amount shall be includible in gross income of--
``(A) a designated beneficiary under a qualified
State tuition program, or
``(B) a contributor to such program on behalf of a
designated beneficiary,
with respect to any distribution from, or earnings under, such
program.
``(2) Distributions.--
``(A) In general.--Any distribution under a
qualified State tuition program shall be includible in
the gross income of the distributee in the same manner
as provided under section 72 to the extent not excluded
from gross income under any other provision of this
chapter.
``(B) In-kind distributions.--The furnishing of
education to a designated beneficiary under a qualified
State tuition program shall be treated as a
distribution to the beneficiary.
``(C) Change in beneficiaries.--
``(i) Rollovers.--Subparagraph (A) shall
not apply to that portion of any distribution
which, within 60 days of such distribution, is
transferred to the credit of another designated
beneficiary under a qualified State tuition
program who is a member of the same family as
the designated beneficiary with respect to
which the distribution was made.
``(ii) Change in designated
beneficiaries.--Any change in the designated
beneficiary of an interest in a qualified State
tuition program shall not be treated as a
distribution for purposes of subparagraph (A)
if the new beneficiary is a member of the same
family as the old beneficiary.
``(D) Operating rules.--For purposes of applying
section 72--
``(i) all qualified State tuition programs
of which an individual is a designated
beneficiary shall be treated as one program,
``(ii) all distributions during a taxable
year shall be treated as one distribution, and
``(iii) the value of the contract, income
on the contract, and investment in the contract
shall be computed as of the close of the
calendar year in which the taxable year begins.
``(3) Gift tax treatment.--Any contribution on behalf of a
designated beneficiary to a qualified State tuition program
shall be treated as a qualified transfer for purposes of
section 2503(e).
``(d) Reporting Requirements.--
``(1) In general.--If--
``(A) a designated beneficiary is furnished
education under a qualified State tuition program
during any calendar year, or
``(B) there is a distribution to any individual
with respect to an interest in such program during any
calendar year,
each officer or employee having control of the qualified State
tuition program or their designee shall make such reports as
the Secretary may require regarding such education or
distribution to the Secretary and to the designated beneficiary
or the individual to whom the distribution was made. Any such
report shall include such information as the Secretary may
prescribe.
``(2) Timing of reports.--Any report required by this
subsection--
``(A) shall be filed at such time and in such
matter as the Secretary prescribes, and
``(B) shall be furnished to individuals not later
than January 31 of the calendar year following the
calendar year to which such report relates.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Designated beneficiary.--The term `designated
beneficiary' means--
``(A) the individual designated at the commencement
of participation in the qualified State tuition program
as the beneficiary of amounts paid (or to be paid) to
the program,
``(B) in the case of a change in beneficiaries
described in subsection (c)(2)(C)(ii), the individual
who is the new beneficiary, and
``(C) in the case of an interest in a qualified
State tuition program purchased by a State or local
government or an organization described in section
501(c)(3) and exempt from taxation under section 501(a)
as part of a scholarship program operated by such
government or organization, the individual receiving
such interest as a scholarship.
``(2) Member of family.--The term `member of family' has
the same meaning given such term as section 2032A(e)(2).
``(3) Qualified higher education expenses.--The term
`qualified higher education expenses' means tuition, fees,
books, supplies, and equipment required for the enrollment or
attendance of a designated beneficiary at an eligible education
institution (as defined in section 135(c)(3)).
``(4) Application of section 514.--An interest in a
qualified State tuition program shall not be treated as debt
for purposes of section 514.''.
(b) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Transition rule.--If--
(A) a State or agency or instrumentality thereof
maintains, on the date of the enactment of this Act, a
program under which persons may purchase tuition
credits or certificates on behalf of, or make
contributions for education expenses of, a designated
beneficiary, and
(B) such program meets the requirements of a
qualified State tuition program before the later of--
(i) the date which is 1 year after such
date of enactment, or
(ii) the first day of the first calendar
quarter after the close of the first regular
session of the State legislature that begins
after such date of enactment,
the amendments made by this section shall apply to
contributions (and earnings allocable thereto) made
before the later of such dates without regard to
whether any requirements of such amendments are met
with respect to such contributions and earnings. For
purposes of subparagraph (B)(ii), if a State has a 2-
year legislative session, each year of such session
shall be deemed to be a separate regular session of the
State legislature.
(2)Page 236, line 11, strike out [section 1] and insert: sec. 2101
(3)Page 236, line 14, strike out [sec. 2] and insert: sec. 2102
(4)Page 237, line 3, strike out [sec. 3] and insert: sec. 2103
(5)Page 237, line 10, strike out [sec. 4] and insert: sec. 2104
(6)Page 237, line 22, strike out [sec. 5] and insert: sec. 2105
Attest:
Secretary.
104th CONGRESS
2d Session
H. R. 3448
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AMENDMENTS
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