[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2014 Enrolled Bill (ENR)]


      Note this is a hand enrollment pursuant to Public Law 105-32.     


        H.R.2014

                       One Hundred Fifth Congress

                                 of the

                        United States of America


                          AT THE FIRST SESSION

          Begun and held at the City of Washington on Tuesday,
 the seventh day of January, one thousand nine hundred and ninety-seven


                                 An Act


 
To provide for reconciliation pursuant to subsections (b)(2) and (d) of 
 section 105 of the concurrent resolution on the budget for fiscal year 
                                  1998.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer Relief 
Act of 1997''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.
    (d) Waiver of Estimated Tax Penalties.--No addition to tax shall be 
made under section 6654 or 6655 of the Internal Revenue Code of 1986 
for any period before January 1, 1998, for any payment the due date of 
which is before January 16, 1998, with respect to any underpayment 
attributable to such period to the extent such underpayment was created 
or increased by any provision of this Act.
    (e) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

                        TITLE I--CHILD TAX CREDIT

Sec. 101. Child tax credit.

                     TITLE II--EDUCATION INCENTIVES

         Subtitle A--Tax Benefits Relating to Education Expenses

Sec. 201. Hope and lifetime learning credits.
Sec. 202. Deduction for interest on education loans.
Sec. 203. Penalty-free withdrawals from individual retirement plans for 
          higher education expenses.

     Subtitle B--Expanded Education Investment Savings Opportunities

                   Part I--Qualified Tuition Programs

Sec. 211. Modifications of qualified State tuition programs.

            Part II--Education Individual Retirement Accounts

Sec. 213. Education individual retirement accounts.

                 Subtitle C--Other Education Initiatives

Sec. 221. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 222. Repeal of limitation on qualified 501(c)(3) bonds other than 
          hospital bonds.
Sec. 223. Increase in arbitrage rebate exception for governmental bonds 
          used to finance education facilities.
Sec. 224. Contributions of computer technology and equipment for 
          elementary or secondary school purposes.
Sec. 225. Treatment of cancellation of certain student loans.
Sec. 226. Incentives for education zones.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

Sec. 301. Restoration of IRA deduction for certain taxpayers.
Sec. 302. Establishment of nondeductible tax-free individual retirement 
          accounts.
Sec. 303. Distributions from certain plans may be used without penalty 
          to purchase first homes.
Sec. 304. Certain bullion not treated as collectibles.

                        Subtitle B--Capital Gains

Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Exemption from tax for gain on sale of principal residence.
Sec. 313. Rollover of gain from sale of qualified stock.
Sec. 314. Amount of net capital gain taken into account in computing 
          alternative tax on capital gains for corporations not to 
          exceed taxable income of the corporation.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

Sec. 401. Exemption from alternative minimum tax for small corporations.
Sec. 402. Repeal of separate depreciation lives for minimum tax 
          purposes.
Sec. 403. Minimum tax not to apply to farmers' installment sales.

      TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

               Subtitle A--Estate and Gift Tax Provisions

Sec. 501. Cost-of-living adjustments relating to estate and gift tax 
          provisions.
Sec. 502. Family-owned business exclusion.
Sec. 503. Modifications to rate of interest on portion of estate tax 
          extended under section 6166.
Sec. 504. Extension of treatment of certain rents under section 2032A to 
          lineal descendants.
Sec. 505. Clarification of judicial review of eligibility for extension 
          of time for payment of estate tax.
Sec. 506. Gifts may not be revalued for estate tax purposes after 
          expiration of statute of limitations.
Sec. 507. Repeal of throwback rules applicable to certain domestic 
          trusts.
Sec. 508. Treatment of land subject to a qualified conservation 
          easement.

              Subtitle B--Generation-Skipping Tax Provision

Sec. 511. Expansion of exception from generation-skipping transfer tax 
          for transfers to individuals with deceased parents.

                          TITLE VI--EXTENSIONS

Sec. 601. Research tax credit.
Sec. 602. Contributions of stock to private foundations.
Sec. 603. Work opportunity tax credit.
Sec. 604. Orphan drug tax credit.

  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

Sec. 701. Tax incentives for revitalization of the District of Columbia.

                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

Sec. 801. Incentives for employing long-term family assistance 
          recipients.

                   TITLE IX--MISCELLANEOUS PROVISIONS

             Subtitle A--Provisions Relating to Excise Taxes

Sec. 901. General revenue portion of highway motor fuels taxes deposited 
          into Highway Trust Fund.
Sec. 902. Repeal of tax on diesel fuel used in recreational boats.
Sec. 903. Continued application of tax on imported recycled Halon-1211.
Sec. 904. Uniform rate of tax on vaccines.
Sec. 905. Operators of multiple gasoline retail outlets treated as 
          wholesale distributor for refund purposes.
Sec. 906. Exemption of electric and other clean-fuel motor vehicles from 
          luxury automobile classification.
Sec. 907. Rate of tax on certain special fuels determined on basis of 
          BTU equivalency with gasoline.
Sec. 908. Modification of tax treatment of hard cider.
Sec. 909. Study of feasibility of moving collection point for distilled 
          spirits excise tax.
Sec. 910. Clarification of authority to use semi-generic designations on 
          wine labels.

               Subtitle B--Revisions Relating to Disasters

Sec. 911. Authority to postpone certain tax-related deadlines by reason 
          of presidentially declared disaster.
Sec. 912. Use of certain appraisals to establish amount of disaster 
          loss.
Sec. 913. Treatment of livestock sold on account of weather-related 
          conditions.
Sec. 914. Mortgage financing for residences located in disaster areas.
Sec. 915. Abatement of interest on underpayments by taxpayers in 
          presidentially declared disaster areas.

           Subtitle C--Provisions Relating to Employment Taxes

Sec. 921. Clarification of standard to be used in determining employment 
          tax status of securities brokers.
Sec. 922. Clarification of exemption from self-employment tax for 
          certain termination payments received by former insurance 
          salesmen.

           Subtitle D--Provisions Relating to Small Businesses

Sec. 931. Waiver of penalty through June 30, 1998, on small businesses 
          failing to make electronic fund transfers of taxes.
Sec. 932. Clarification of treatment of home office use for 
          administrative and management activities.
Sec. 933. Averaging of farm income over 3 years.
Sec. 934. Increase in deduction for health insurance costs of self-
          employed individuals.
Sec. 935. Moratorium on certain regulations.

                         Subtitle E--Brownfields

Sec. 941. Expensing of environmental remediation costs.

Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and 
              Community Development Financial Institutions

                 Chapter 1--Additional Empowerment Zones

Sec. 951. Additional empowerment zones.

                    Chapter 2--New Empowerment Zones

Sec. 952. Designation of new empowerment zones.
Sec. 953. Volume cap not to apply to enterprise zone facility bonds with 
          respect to new empowerment zones.
Sec. 954. Modification to eligibility criteria for designation of future 
          enterprise zones in Alaska or Hawaii.

  Chapter 3--Treatment Of Empowerment Zones and Enterprise Communities

Sec. 955. Modifications to enterprise zone facility bond rules for all 
          empowerment zones and enterprise communities.
Sec. 956. Modifications to enterprise zone business definition for all 
          empowerment zones and enterprise communities.

                      Subtitle G--Other Provisions

Sec. 961. Use of estimates of shrinkage for inventory accounting.
Sec. 962. Assignment of workmen's compensation liability eligible for 
          exclusion relating to personal injury liability assignments.
Sec. 963. Tax-exempt status for certain State worker's compensation act 
          companies.
Sec. 964. Election for 1987 partnerships to continue exception from 
          treatment of publicly traded partnerships as corporations.
Sec. 965. Exclusion from unrelated business taxable income for certain 
          sponsorship payments.
Sec. 966. Associations of holders of timeshare interests to be taxed 
          like other homeowners associations.
Sec. 967. Additional advance refunding of certain Virgin Island bonds.
Sec. 968. Nonrecognition of gain on sale of stock to certain farmers' 
          cooperatives.
Sec. 969. Increased deductibility of business meal expenses for 
          individuals subject to Federal hours of service.
Sec. 970. Clarification of de minimis fringe benefit rules to no-charge 
          employee meals.
Sec. 971. Exemption of the incremental cost of a clean fuel vehicle from 
          the limits on depreciation for vehicles.
Sec. 972. Temporary suspension of taxable income limit on percentage 
          depletion for marginal production.
Sec. 973. Increase in standard mileage rate expense deduction for 
          charitable use of passenger automobile.
Sec. 974. Clarification of treatment of certain receivables purchased by 
          cooperative hospital service organizations.
Sec. 975. Deduction in computing adjusted gross income for expenses in 
          connection with service performed by certain officials.
Sec. 976. Combined employment tax reporting demonstration project.
Sec. 977. Elective carryback of existing carryovers of National Railroad 
          Passenger Corporation.

Subtitle H--Extension of Duty-Free Treatment Under Generalized System of 
                               Preferences

Sec. 981. Generalized System of Preferences.

                            TITLE X--REVENUES

                     Subtitle A--Financial Products

Sec. 1001. Constructive sales treatment for appreciated financial 
          positions.
Sec. 1002. Limitation on exception for investment companies under 
          section 351.
Sec. 1003. Gains and losses from certain terminations with respect to 
          property.
Sec. 1004. Determination of original issue discount where pooled debt 
          obligations subject to acceleration.
Sec. 1005. Denial of interest deductions on certain debt instruments.

         Subtitle B--Corporate Organizations and Reorganizations

Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions in connection 
          with acquisitions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Certain preferred stock treated as boot.
Sec. 1015. Modification of holding period applicable to dividends 
          received deduction.

                  Subtitle C--Administrative Provisions

Sec. 1021. Reporting of certain payments made to attorneys.
Sec. 1022. Decrease of threshold for reporting payments to corporations 
          performing services for Federal agencies.
Sec. 1023. Disclosure of return information for administration of 
          certain veterans programs.
Sec. 1024. Continuous levy on certain payments.
Sec. 1025. Modification of levy exemption.
Sec. 1026. Confidentiality and disclosure of returns and return 
          information.
Sec. 1027. Returns of beneficiaries of estates and trusts required to 
          file returns consistent with estate or trust return or to 
          notify Secretary of inconsistency.
Sec. 1028. Registration and other provisions relating to confidential 
          corporate tax shelters.

            Subtitle D--Excise and Employment Tax Provisions

Sec. 1031. Extension and modification of taxes funding Airport and 
          Airway Trust Fund; increased deposits into such Fund.
Sec. 1032. Kerosene taxed as diesel fuel.
Sec. 1033. Restoration of Leaking Underground Storage Tank Trust Fund 
          taxes.
Sec. 1034. Application of communications tax to prepaid telephone cards.
Sec. 1035. Extension of temporary unemployment tax.

         Subtitle E--Provisions Relating to Tax-Exempt Entities

Sec. 1041. Expansion of look-thru rule for interest, annuities, 
          royalties, and rents derived by subsidiaries of tax-exempt 
          organizations.
Sec. 1042. Termination of certain exceptions from rules relating to 
          exempt organizations which provide commercial-type insurance.

                     Subtitle F--Foreign Provisions

Sec. 1051. Definition of foreign personal holding company income.
Sec. 1052. Personal property used predominantly in the United States 
          treated as not property of a like kind with respect to 
          property used predominantly outside the United States.
Sec. 1053. Holding period requirement for certain foreign taxes.
Sec. 1054. Denial of treaty benefits for certain payments through hybrid 
          entities.
Sec. 1055. Interest on underpayments not reduced by foreign tax credit 
          carrybacks.
Sec. 1056. Clarification of period of limitations on claim for credit or 
          refund attributable to foreign tax credit carryforward.
Sec. 1057. Repeal of exception to alternative minimum foreign tax credit 
          limit.

                   Subtitle G--Partnership Provisions

Sec. 1061. Allocation of basis among properties distributed by 
          partnership.
Sec. 1062. Repeal of requirement that inventory be substantially 
          appreciated with respect to sale or exchange of partnership 
          interest.
Sec. 1063. Extension of time for taxing precontribution gain.

                     Subtitle H--Pension Provisions

Sec. 1071. Pension accrued benefit distributable without consent 
          increased to $5,000.
Sec. 1072. Election to receive taxable cash compensation in lieu of 
          nontaxable parking benefits.
Sec. 1073. Repeal of excess distribution and excess retirement 
          accumulation tax.
Sec. 1074. Increase in tax on prohibited transactions.
Sec. 1075. Basis recovery rules for annuities over more than one life.

                  Subtitle I--Other Revenue Provisions

Sec. 1081. Termination of suspense accounts for family corporations 
          required to use accrual method of accounting.
Sec. 1082. Modification of taxable years to which net operating losses 
          may be carried.
Sec. 1083. Modifications to taxable years to which unused credits may be 
          carried.
Sec. 1084. Expansion of denial of deduction for certain amounts paid in 
          connection with insurance.
Sec. 1085. Improved enforcement of the application of the earned income 
          credit.
Sec. 1086. Limitation on property for which income forecast method may 
          be used.
Sec. 1087. Expansion of requirement that involuntarily converted 
          property be replaced with property acquired from an unrelated 
          person.
Sec. 1088. Treatment of exception from installment sales rules for sales 
          of property by a manufacturer to a dealer.
Sec. 1089. Limitations on charitable remainder trust eligibility for 
          certain trusts.
Sec. 1090. Expanded SSA records for tax enforcement.
Sec. 1091. Modification of estimated tax safe harbors.

      TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

Sec. 1101. Certain individuals exempt from foreign tax credit 
          limitation.
Sec. 1102. Exchange rate used in translating foreign taxes.
Sec. 1103. Election to use simplified section 904 limitation for 
          alternative minimum tax.
Sec. 1104. Treatment of personal transactions by individuals under 
          foreign currency rules.
Sec. 1105. Foreign tax credit treatment of dividends from noncontrolled 
          section 902 corporations.

        Subtitle B--Treatment of Controlled Foreign Corporations

Sec. 1111. Gain on certain stock sales by controlled foreign 
          corporations treated as dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier 
          companies.

      Subtitle C--Treatment of Passive Foreign Investment Companies

Sec. 1121. United States shareholders of controlled foreign corporations 
          not subject to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive 
          foreign investment company.
Sec. 1123. Valuation of assets for passive foreign investment company 
          determination.
Sec. 1124. Effective date.

    Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

Sec. 1131. Repeal of excise tax on transfers to foreign entities; 
          recognition of gain on certain transfers to foreign trusts and 
          estates.

                    Subtitle E--Information Reporting

Sec. 1141. Clarification of application of return requirement to foreign 
          partnerships.
Sec. 1142. Controlled foreign partnerships subject to information 
          reporting comparable to information reporting for controlled 
          foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by 
          reason of changes in ownership interests in foreign 
          partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to 
          information reporting comparable to information reporting for 
          such transfers to foreign corporations.
Sec. 1145. Extension of statute of limitations for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization 
          of foreign corporations and acquisitions of stock in such 
          corporations.

 Subtitle F--Determination of Foreign or Domestic Status of Partnerships

Sec. 1151. Determination of foreign or domestic status of partnerships.

               Subtitle G--Other Simplification Provisions

Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that 
          principal office be outside the United States.
Sec. 1163. Miscellaneous clarifications.

                      Subtitle H--Other Provisions

Sec. 1171. Treatment of computer software as FSC export property.
Sec. 1172. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1173. United States property not to include certain assets acquired 
          by dealers in ordinary course of trade or business.
Sec. 1174. Treatment of nonresident aliens engaged in international 
          transportation services.
Sec. 1175. Exemption for active financing income.

    TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES

             Subtitle A--Provisions Relating to Individuals

Sec. 1201. Basic standard deduction and minimum tax exemption amount for 
          certain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax 
          requirements.
Sec. 1203. Treatment of certain reimbursed expenses of rural mail 
          carriers.
Sec. 1204. Treatment of traveling expenses of certain Federal employees 
          engaged in criminal investigations.
Sec. 1205. Payment of tax by commercially acceptable means.

         Subtitle B--Provisions Relating to Businesses Generally

Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty 
          insurance companies.
Sec. 1213. Qualified lessee construction allowances for short-term 
          leases.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       Part I--General Provisions

Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing 
          large partnerships.
Sec. 1224. Returns required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement 
          accounts.
Sec. 1226. Effective date.

      Part II--Provisions Related to TEFRA Partnership Proceedings

Sec. 1231. Treatment of partnership items in deficiency proceedings.
Sec. 1232. Partnership return to be determinative of audit procedures to 
          be followed.
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on 
          assessment.
Sec. 1236. Extension of time for filing a request for administrative 
          adjustment.
Sec. 1237. Availability of innocent spouse relief in context of 
          partnership proceedings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or 
          5-percent groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational 
          adjustment resulting from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with 
          respect to bad debts or worthless securities.

Part III--Provision Relating to Closing of Partnership Taxable Year With 
                    Respect to Deceased Partner, Etc.

Sec. 1246. Closing of partnership taxable year with respect to deceased 
          partner, etc.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

Sec. 1251. Clarification of limitation on maximum number of 
          shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to stock ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining 
          whether REIT has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.

    Subtitle E--Provisions Relating to Regulated Investment Companies

Sec. 1271. Repeal of 30-percent gross income limitation.

                    Subtitle F--Taxpayer Protections

Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror has 
          been audited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.

 TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

Sec. 1301. Gifts to charities exempt from gift tax filing requirements.
Sec. 1302. Clarification of waiver of certain rights of recovery.
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Treatment for estate tax purposes of short-term obligations 
          held by nonresident aliens.
Sec. 1305. Certain revocable trusts treated as part of estate.
Sec. 1306. Distributions during first 65 days of taxable year of estate.
Sec. 1307. Separate share rules available to estates.
Sec. 1308. Executor of estate and beneficiaries treated as related 
          persons for disallowance of losses, etc.
Sec. 1309. Treatment of funeral trusts.
Sec. 1310. Adjustments for gifts within 3 years of decedent's death.
Sec. 1311. Clarification of treatment of survivor annuities under 
          qualified terminable interest rules.
Sec. 1312. Treatment under qualified domestic trust rules of forms of 
          ownership which are not trusts.
Sec. 1313. Opportunity to correct certain failures under section 2032A.
Sec. 1314. Authority to waive requirement of United States trustee for 
          qualified domestic trusts.

   TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                     EXEMPT BONDS, AND OTHER MATTERS

                  Subtitle A--Excise Tax Simplification

          Part I--Excise Taxes on Heavy Trucks and Luxury Cars

Sec. 1401. Increase in de minimis limit for after-market alterations for 
          heavy trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in 
          computing price.

    Part II--Provisions Related to Distilled Spirits, Wines, and Beer

Sec. 1411. Credit or refund for imported bottled distilled spirits 
          returned to distilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without submission 
          of records.
Sec. 1413. Repeal of required maintenance of records on premises of 
          distilled spirits plant.
Sec. 1414. Fermented material from any brewery may be received at a 
          distilled spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to 
          post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to 
          unmerchantable wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for 
          use of foreign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without 
          submission of records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment 
          of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk 
          without payment of tax.

                  Part III--Other Excise Tax Provisions

Sec. 1431. Authority to grant exemptions from registration requirements.
Sec. 1432. Repeal of expired provisions.
Sec. 1433. Simplification of imposition of excise tax on arrows.
Sec. 1434. Modifications to retail tax on heavy trucks.
Sec. 1435. Skydiving flights exempt from tax on transportation of 
          persons by air.
Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel 
          purchased by registered producer of aviation fuel.

                 Subtitle B--Tax-Exempt Bond Provisions

Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-
          year exception from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service 
          fund under construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in 
          certain nonpurpose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.

                    Subtitle C--Tax Court Procedures

Sec. 1451. Overpayment determinations of Tax Court.
Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of litigation 
          costs.
Sec. 1454. Proceedings for determination of employment status.

                      Subtitle D--Other Provisions

Sec. 1461. Extension of due date of first quarter estimated tax payment 
          by private foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income 
          taxes from salaries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing 
          interest rate on large corporate underpayments.

                TITLE XV--PENSIONS AND EMPLOYEE BENEFITS

                       Subtitle A--Simplification

Sec. 1501. Matching contributions of self-employed individuals not 
          treated as elective employer contributions.
Sec. 1502. Modification of prohibition of assignment or alienation.
Sec. 1503. Elimination of paperwork burdens on plans.
Sec. 1504. Modification of 403(b) exclusion allowance to conform to 415 
          modifications.
Sec. 1505. Extension of moratorium on application of certain 
          nondiscrimination rules to State and local governments.
Sec. 1506. Clarification of certain rules relating to employee stock 
          ownership plans of S corporations.
Sec. 1507. Modification of 10-percent tax for nondeductible 
          contributions.
Sec. 1508. Modification of funding requirements for certain plans.
Sec. 1509. Clarification of disqualification rules relating to 
          acceptance of rollover contributions.
Sec. 1510. New technologies in retirement plans.

 Subtitle B--Other Provisions Relating to Pensions and Employee Benefits

Sec. 1521. Increase in current liability funding limit.
Sec. 1522. Special rules for church plans.
Sec. 1523. Repeal of application of unrelated business income tax to 
          ESOPs.
Sec. 1524. Diversification of section 401(k) plan investments.
Sec. 1525. Section 401(k) plans for certain irrigation and drainage 
          entities.
Sec. 1526. Portability of permissive service credit under governmental 
          pension plans.
Sec. 1527. Removal of dollar limitation on benefit payments from a 
          defined benefit plan maintained for certain police and fire 
          employees.
Sec. 1528. Survivor benefits for public safety officers killed in the 
          line of duty.
Sec. 1529. Treatment of certain disability benefits received by former 
          police officers or firefighters.
Sec. 1530. Gratuitous transfers for the benefit of employees.

         Subtitle C--Provisions Relating to Certain Health Acts

Sec. 1531. Amendments to the Internal Revenue Code of 1986 to implement 
          the Newborns' and Mothers' Health Protection Act of 1996 and 
          the Mental Health Parity Act of 1996.
Sec. 1532. Special rules relating to church plans.

           Subtitle D--Provisions Relating to Plan Amendments

Sec. 1541. Provisions relating to plan amendments.

TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                    ACT OF 1996 AND OTHER LEGISLATION

Sec. 1600. Coordination with other titles.
Sec. 1601. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 1602. Amendments related to Health Insurance Portability and 
          Accountability Act of 1996.
Sec. 1603. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1604. Miscellaneous provisions.

TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
                                  VETO

Sec. 1701. Identification of limited tax benefits subject to line item 
          veto.

                       TITLE I--CHILD TAX CREDIT

SEC. 101. CHILD TAX CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 23 the following new section:

``SEC. 24. CHILD TAX CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year with 
respect to each qualifying child of the taxpayer an amount equal to 
$500 ($400 in the case of taxable years beginning in 1998).
    ``(b) Limitation Based on Adjusted Gross Income.--
        ``(1) In general.--The amount of the credit allowable under 
    subsection (a) shall be reduced (but not below zero) by $50 for 
    each $1,000 (or fraction thereof) by which the taxpayer's modified 
    adjusted gross income exceeds the threshold amount. For purposes of 
    the preceding sentence, the term `modified adjusted gross income' 
    means adjusted gross income increased by any amount excluded from 
    gross income under section 911, 931, or 933.
        ``(2) Threshold amount.--For purposes of paragraph (1), the 
    term `threshold amount' means--
            ``(A) $110,000 in the case of a joint return,
            ``(B) $75,000 in the case of an individual who is not 
        married, and
            ``(C) $55,000 in the case of a married individual filing a 
        separate return.
    For purposes of this paragraph, marital status shall be determined 
    under section 7703.
    ``(c) Qualifying Child.--For purposes of this section--
        ``(1) In general.--The term `qualifying child' means any 
    individual if--
            ``(A) the taxpayer is allowed a deduction under section 151 
        with respect to such individual for the taxable year,
            ``(B) such individual has not attained the age of 17 as of 
        the close of the calendar year in which the taxable year of the 
        taxpayer begins, and
            ``(C) such individual bears a relationship to the taxpayer 
        described in section 32(c)(3)(B).
        ``(2) Exception for certain noncitizens.--The term `qualifying 
    child' shall not include any individual who would not be a 
    dependent if the first sentence of section 152(b)(3) were applied 
    without regard to all that follows `resident of the United States'.
    ``(d) Additional Credit for Families With 3 or More Children.--
        ``(1) In general.--In the case of a taxpayer with 3 or more 
    qualifying children for any taxable year, the amount of the credit 
    allowed under this section shall be equal to the greater of--
            ``(A) the amount of the credit allowed under this section 
        (without regard to this subsection and after application of the 
        limitation under section 26), or
            ``(B) the alternative credit amount determined under 
        paragraph (2).
        ``(2) Alternative credit amount.--For purposes of this 
    subsection, the alternative credit amount is the amount of the 
    credit which would be allowed under this section if the limitation 
    under paragraph (3) were applied in lieu of the limitation under 
    section 26.
        ``(3) Limitation.--The limitation under this paragraph for any 
    taxable year is the limitation under section 26 (without regard to 
    this subsection)--
            ``(A) increased by the taxpayer's social security taxes for 
        such taxable year, and
            ``(B) reduced by the sum of--
                ``(i) the credits allowed under this part other than 
            under subpart C or this section, and
                ``(ii) the credit allowed under section 32 without 
            regard to subsection (m) thereof.
        ``(4) Unused credit to be refundable.--If the amount of the 
    credit under paragraph (1)(B) exceeds the amount of the credit 
    under paragraph (1)(A), such excess shall be treated as a credit to 
    which subpart C applies. The rule of section 32(h) shall apply to 
    such excess.
        ``(5) Social security taxes.--For purposes of paragraph (3)--
            ``(A) In general.--The term `social security taxes' means, 
        with respect to any taxpayer for any taxable year--
                ``(i) the amount of the taxes imposed by sections 3101 
            and 3201(a) on amounts received by the taxpayer during the 
            calendar year in which the taxable year begins,
                ``(ii) 50 percent of the taxes imposed by section 1401 
            on the self-employment income of the taxpayer for the 
            taxable year, and
                ``(iii) 50 percent of the taxes imposed by section 
            3211(a)(1) on amounts received by the taxpayer during the 
            calendar year in which the taxable year begins.
            ``(B) Coordination with special refund of social security 
        taxes.--The term `social security taxes' shall not include any 
        taxes to the extent the taxpayer is entitled to a special 
        refund of such taxes under section 6413(c).
            ``(C) Special rule.--Any amounts paid pursuant to an 
        agreement under section 3121(l) (relating to agreements entered 
        into by American employers with respect to foreign affiliates) 
        which are equivalent to the taxes referred to in subparagraph 
        (A)(i) shall be treated as taxes referred to in such 
        subparagraph.
    ``(e) Identification Requirement.--No credit shall be allowed under 
this section to a taxpayer with respect to any qualifying child unless 
the taxpayer includes the name and taxpayer identification number of 
such qualifying child on the return of tax for the taxable year.
    ``(f) Taxable Year Must Be Full Taxable Year.--Except in the case 
of a taxable year closed by reason of the death of the taxpayer, no 
credit shall be allowable under this section in the case of a taxable 
year covering a period of less than 12 months.''.
    (b) Supplemental Credit.--Section 32 is amended by adding at the 
end the following new subsection:
    ``(m) Supplemental Child Credit.--
        ``(1) In general.--In the case of a taxpayer with respect to 
    whom a credit is allowed under section 24 for the taxable year, 
    there shall be allowed as a credit under this section an amount 
    equal to the supplemental child credit (if any) determined for such 
    taxpayer for such taxable year under paragraph (2). Such credit 
    shall be in addition to the credit allowed under subsection (a).
        ``(2) Supplemental child credit.--For purposes of this 
    subsection, the supplemental child credit is an amount equal to the 
    excess (if any) of--
            ``(A) the amount determined under section 24(d)(1)(A), over
            ``(B) the amount determined under section 24(d)(1)(B).
    The amounts referred to in subparagraphs (A) and (B) shall be 
    determined as if section 24(d) applied to all taxpayers.
        ``(3) Coordination with section 24.--The amount of the credit 
    under section 24 shall be reduced by the amount of the credit 
    allowed under this subsection.''.
    (c) High Risk Pools Permitted To Cover Spouses and Dependents of 
High Risk Individuals.--Paragraph (26) of section 501(c) is amended by 
adding at the end the following flush sentence:
    ``A spouse and any qualifying child (as defined in section 24(c)) 
    of an individual described in subparagraph (B) (without regard to 
    this sentence) shall be treated as described in subparagraph 
    (B).''.
    (d) Conforming Amendments.--
        (1) Section 1324(b)(2) of title 31, United States Code, is 
    amended by inserting before the period at the end ``, or enacted by 
    the Taxpayer Relief Act of 1997''.
        (2) Paragraph (2) of section 6213(g) (relating to the 
    definition of mathematical or clerical errors) is amended by 
    striking ``and'' at the end of subparagraph (G), by striking the 
    period at the end of subparagraph (H) and inserting ``, and'', and 
    by inserting after subparagraph (H) the following new subparagraph:
            ``(I) an omission of a correct TIN required under section 
        24(e) (relating to child tax credit) to be included on a 
        return.''.
        (3) The table of sections for subpart A of part IV of 
    subchapter A of chapter 1 is amended by inserting after the item 
    relating to section 23 the following new item:
        ``Sec. 24. Child tax credit.''.

    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

                     TITLE II--EDUCATION INCENTIVES
        Subtitle A--Tax Benefits Relating to Education Expenses

SEC. 201. HOPE AND LIFETIME LEARNING CREDITS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25 the following new section:

``SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year the amount equal to the sum of--
        ``(1) the Hope Scholarship Credit, plus
        ``(2) the Lifetime Learning Credit.
    ``(b) Hope Scholarship Credit.--
        ``(1) Per student credit.--In the case of any eligible student 
    for whom an election is in effect under this section for any 
    taxable year, the Hope Scholarship Credit is an amount equal to the 
    sum of--
            ``(A) 100 percent of so much of the qualified tuition and 
        related expenses paid by the taxpayer during the taxable year 
        (for education furnished to the eligible student during any 
        academic period beginning in such taxable year) as does not 
        exceed $1,000, plus
            ``(B) 50 percent of such expenses so paid as exceeds $1,000 
        but does not exceed the applicable limit.
        ``(2) Limitations applicable to hope scholarship credit.--
            ``(A) Credit allowed only for 2 taxable years.--An election 
        to have this section apply with respect to any eligible student 
        for purposes of the Hope Scholarship Credit under subsection 
        (a)(1) may not be made for any taxable year if such an election 
        (by the taxpayer or any other individual) is in effect with 
        respect to such student for any 2 prior taxable years.
            ``(B) Credit allowed for year only if individual is at 
        least \1/2\ time student for portion of year.--The Hope 
        Scholarship Credit under subsection (a)(1) shall not be allowed 
        for a taxable year with respect to the qualified tuition and 
        related expenses of an individual unless such individual is an 
        eligible student for at least one academic period which begins 
        during such year.
            ``(C) Credit allowed only for first 2 years of 
        postsecondary education.--The Hope Scholarship Credit under 
        subsection (a)(1) shall not be allowed for a taxable year with 
        respect to the qualified tuition and related expenses of an 
        eligible student if the student has completed (before the 
        beginning of such taxable year) the first 2 years of 
        postsecondary education at an eligible educational institution.
            ``(D) Denial of credit if student convicted of a felony 
        drug offense.--The Hope Scholarship Credit under subsection 
        (a)(1) shall not be allowed for qualified tuition and related 
        expenses for the enrollment or attendance of a student for any 
        academic period if such student has been convicted of a Federal 
        or State felony offense consisting of the possession or 
        distribution of a controlled substance before the end of the 
        taxable year with or within which such period ends.
        ``(3) Eligible student.--For purposes of this subsection, the 
    term `eligible student' means, with respect to any academic period, 
    a student who--
            ``(A) meets the requirements of section 484(a)(1) of the 
        Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in 
        effect on the date of the enactment of this section, and
            ``(B) is carrying at least \1/2\ the normal full-time work 
        load for the course of study the student is pursuing.
        ``(4) Applicable limit.--For purposes of paragraph (1)(B), the 
    applicable limit for any taxable year is an amount equal to 2 times 
    the dollar amount in effect under paragraph (1)(A) for such taxable 
    year.
    ``(c) Lifetime Learning Credit.--
        ``(1) Per taxpayer credit.--The Lifetime Learning Credit for 
    any taxpayer for any taxable year is an amount equal to 20 percent 
    of so much of the qualified tuition and related expenses paid by 
    the taxpayer during the taxable year (for education furnished 
    during any academic period beginning in such taxable year) as does 
    not exceed $10,000 ($5,000 in the case of taxable years beginning 
    before January 1, 2003).
        ``(2) Special rules for determining expenses.--
            ``(A) Coordination with hope scholarship.--The qualified 
        tuition and related expenses with respect to an individual who 
        is an eligible student for whom a Hope Scholarship Credit under 
        subsection (a)(1) is allowed for the taxable year shall not be 
        taken into account under this subsection.
            ``(B) Expenses eligible for lifetime learning credit.--For 
        purposes of paragraph (1), qualified tuition and related 
        expenses shall include expenses described in subsection (f)(1) 
        with respect to any course of instruction at an eligible 
        educational institution to acquire or improve job skills of the 
        individual.
    ``(d) Limitation Based on Modified Adjusted Gross Income.--
        ``(1) In general.--The amount which would (but for this 
    subsection) be taken into account under subsection (a) for the 
    taxable year shall be reduced (but not below zero) by the amount 
    determined under paragraph (2).
        ``(2) Amount of reduction.--The amount determined under this 
    paragraph is the amount which bears the same ratio to the amount 
    which would be so taken into account as--
            ``(A) the excess of--
                ``(i) the taxpayer's modified adjusted gross income for 
            such taxable year, over
                ``(ii) $40,000 ($80,000 in the case of a joint return), 
            bears to
            ``(B) $10,000 ($20,000 in the case of a joint return).
        ``(3) Modified adjusted gross income.--The term `modified 
    adjusted gross income' means the adjusted gross income of the 
    taxpayer for the taxable year increased by any amount excluded from 
    gross income under section 911, 931, or 933.
    ``(e) Election To Have Section Apply.--
        ``(1) In general.--No credit shall be allowed under subsection 
    (a) for a taxable year with respect to the qualified tuition and 
    related expenses of an individual unless the taxpayer elects to 
    have this section apply with respect to such individual for such 
    year.
        ``(2) Coordination with exclusions.--An election under this 
    subsection shall not take effect with respect to an individual for 
    any taxable year if any portion of any distribution during such 
    taxable year from an education individual retirement account is 
    excluded from gross income under section 530(d)(2).
    ``(f) Definitions.--For purposes of this section--
        ``(1) Qualified tuition and related expenses.--
            ``(A) In general.--The term `qualified tuition and related 
        expenses' means tuition and fees required for the enrollment or 
        attendance of--
                ``(i) the taxpayer,
                ``(ii) the taxpayer's spouse, or
                ``(iii) any dependent of the taxpayer with respect to 
            whom the taxpayer is allowed a deduction under section 151,
        at an eligible educational institution for courses of 
        instruction of such individual at such institution.
            ``(B) Exception for education involving sports, etc.--Such 
        term does not include expenses with respect to any course or 
        other education involving sports, games, or hobbies, unless 
        such course or other education is part of the individual's 
        degree program.
            ``(C) Exception for nonacademic fees.--Such term does not 
        include student activity fees, athletic fees, insurance 
        expenses, or other expenses unrelated to an individual's 
        academic course of instruction.
        ``(2) Eligible educational institution.--The term `eligible 
    educational institution' means an institution--
            ``(A) which is described in section 481 of the Higher 
        Education Act of 1965 (20 U.S.C. 1088), as in effect on the 
        date of the enactment of this section, and
            ``(B) which is eligible to participate in a program under 
        title IV of such Act.
    ``(g) Special Rules.--
        ``(1) Identification requirement.--No credit shall be allowed 
    under subsection (a) to a taxpayer with respect to the qualified 
    tuition and related expenses of an individual unless the taxpayer 
    includes the name and taxpayer identification number of such 
    individual on the return of tax for the taxable year.
        ``(2) Adjustment for certain scholarships, etc.--The amount of 
    qualified tuition and related expenses otherwise taken into account 
    under subsection (a) with respect to an individual for an academic 
    period shall be reduced (before the application of subsections (b), 
    (c), and (d)) by the sum of any amounts paid for the benefit of 
    such individual which are allocable to such period as--
            ``(A) a qualified scholarship which is excludable from 
        gross income under section 117,
            ``(B) an educational assistance allowance under chapter 30, 
        31, 32, 34, or 35 of title 38, United States Code, or under 
        chapter 1606 of title 10, United States Code, and
            ``(C) a payment (other than a gift, bequest, devise, or 
        inheritance within the meaning of section 102(a)) for such 
        individual's educational expenses, or attributable to such 
        individual's enrollment at an eligible educational institution, 
        which is excludable from gross income under any law of the 
        United States.
        ``(3) Treatment of expenses paid by dependent.--If a deduction 
    under section 151 with respect to an individual is allowed to 
    another taxpayer for a taxable year beginning in the calendar year 
    in which such individual's taxable year begins--
            ``(A) no credit shall be allowed under subsection (a) to 
        such individual for such individual's taxable year, and
            ``(B) qualified tuition and related expenses paid by such 
        individual during such individual's taxable year shall be 
        treated for purposes of this section as paid by such other 
        taxpayer.
        ``(4) Treatment of certain prepayments.--If qualified tuition 
    and related expenses are paid by the taxpayer during a taxable year 
    for an academic period which begins during the first 3 months 
    following such taxable year, such academic period shall be treated 
    for purposes of this section as beginning during such taxable year.
        ``(5) Denial of double benefit.--No credit shall be allowed 
    under this section for any expense for which a deduction is allowed 
    under any other provision of this chapter.
        ``(6) No credit for married individuals filing separate 
    returns.--If the taxpayer is a married individual (within the 
    meaning of section 7703), this section shall apply only if the 
    taxpayer and the taxpayer's spouse file a joint return for the 
    taxable year.
        ``(7) Nonresident aliens.--If the taxpayer is a nonresident 
    alien individual for any portion of the taxable year, this section 
    shall apply only if such individual is treated as a resident alien 
    of the United States for purposes of this chapter by reason of an 
    election under subsection (g) or (h) of section 6013.
    ``(h) Inflation Adjustments.--
        ``(1) Dollar limitation on amount of credit.--
            ``(A) In general.--In the case of a taxable year beginning 
        after 2001, each of the $1,000 amounts under subsection (b)(1) 
        shall be increased by an amount equal to--
                ``(i) such dollar amount, multiplied by
                ``(ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for the calendar year in which the taxable 
            year begins, determined by substituting `calendar year 
            2000' for `calendar year 1992' in subparagraph (B) thereof.
            ``(B) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $100, such amount shall 
        be rounded to the next lowest multiple of $100.
        ``(2) Income limits.--
            ``(A) In general.--In the case of a taxable year beginning 
        after 2001, the $40,000 and $80,000 amounts in subsection 
        (d)(2) shall each be increased by an amount equal to--
                ``(i) such dollar amount, multiplied by
                ``(ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for the calendar year in which the taxable 
            year begins, determined by substituting `calendar year 
            2000' for `calendar year 1992' in subparagraph (B) thereof.
            ``(B) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $1,000, such amount shall 
        be rounded to the next lowest multiple of $1,000.
    ``(i) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a recapture of the credit allowed under this 
section in cases where there is a refund in a subsequent taxable year 
of any amount which was taken into account in determining the amount of 
such credit.''.
    (b) Extension of Procedures Applicable to Mathematical or Clerical 
Errors.--Paragraph (2) of section 6213(g) (relating to the definition 
of mathematical or clerical errors), as amended by section 101, is 
amended by striking ``and'' at the end of subparagraph (H), by striking 
the period at the end of subparagraph (I) and inserting ``, and'', and 
by inserting after subparagraph (I) the following new subparagraph:
            ``(J) an omission of a correct TIN required under section 
        25A(g)(1) (relating to higher education tuition and related 
        expenses) to be included on a return.''.
    (c) Returns Relating to Tuition and Related Expenses.--
        (1) In general.--Subpart B of part III of subchapter A of 
    chapter 61 (relating to information concerning transactions with 
    other persons) is amended by inserting after section 6050R the 
    following new section:

``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED 
              EXPENSES.

    ``(a) In General.--Any person--
        ``(1) which is an eligible educational institution which 
    receives payments for qualified tuition and related expenses with 
    respect to any individual for any calendar year, or
        ``(2) which is engaged in a trade or business and which, in the 
    course of such trade or business, makes payments during any 
    calendar year to any individual which constitute reimbursements or 
    refunds (or similar amounts) of qualified tuition and related 
    expenses of such individual,
shall make the return described in subsection (b) with respect to the 
individual at such time as the Secretary may by regulations prescribe.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
        ``(1) is in such form as the Secretary may prescribe,
        ``(2) contains--
            ``(A) the name, address, and TIN of the individual with 
        respect to whom payments described in subsection (a) were 
        received from (or were paid to),
            ``(B) the name, address, and TIN of any individual 
        certified by the individual described in subparagraph (A) as 
        the taxpayer who will claim the individual as a dependent for 
        purposes of the deduction allowable under section 151 for any 
        taxable year ending with or within the calendar year, and
            ``(C) the--
                ``(i) aggregate amount of payments for qualified 
            tuition and related expenses received with respect to the 
            individual described in subparagraph (A) during the 
            calendar year, and
                ``(ii) aggregate amount of reimbursements or refunds 
            (or similar amounts) paid to such individual during the 
            calendar year, and
            ``(D) such other information as the Secretary may 
        prescribe.
    ``(c) Application to Governmental Units.--For purposes of this 
section--
        ``(1) a governmental unit or any agency or instrumentality 
    thereof shall be treated as a person, and
        ``(2) any return required under subsection (a) by such 
    governmental entity shall be made by the officer or employee 
    appropriately designated for the purpose of making such return.
    ``(d) Statements To Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return under subparagraph (A) or (B) 
of subsection (b)(2) a written statement showing--
        ``(1) the name, address, and phone number of the information 
    contact of the person required to make such return, and
        ``(2) the aggregate amounts described in subparagraph (C) of 
    subsection (b)(2).
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) was required to be made.
    ``(e) Definitions.--For purposes of this section, the terms 
`eligible educational institution' and `qualified tuition and related 
expenses' have the meanings given such terms by section 25A.
    ``(f) Returns Which Would Be Required To Be Made by 2 or More 
Persons.--Except to the extent provided in regulations prescribed by 
the Secretary, in the case of any amount received by any person on 
behalf of another person, only the person first receiving such amount 
shall be required to make the return under subsection (a).
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section. No 
penalties shall be imposed under part II of subchapter B of chapter 68 
with respect to any return or statement required under this section 
until such time as such regulations are issued.''.
        (2) Assessable penalties.--
            (A) Subparagraph (B) of section 6724(d)(1) (relating to 
        definitions) is amended by redesignating clauses (ix) through 
        (xiv) as clauses (x) through (xv), respectively, and by 
        inserting after clause (viii) the following new clause:
                ``(ix) section 6050S (relating to returns relating to 
            payments for qualified tuition and related expenses),''.
            (B) Paragraph (2) of section 6724(d) is amended by striking 
        ``or'' at the end of the next to last subparagraph, by striking 
        the period at the end of the last subparagraph and inserting 
        ``, or'', and by adding at the end the following new 
        subparagraph:
            ``(Z) section 6050S(d) (relating to returns relating to 
        qualified tuition and related expenses).''.
        (3) Clerical amendment.--The table of sections for subpart B of 
    part III of subchapter A of chapter 61 is amended by inserting 
    after the item relating to section 6050R the following new item:
        ``Sec. 6050S. Returns relating to higher education tuition and 
                  related expenses.''.

    (d) Coordination With Section 135.--Subsection (d) of section 135 
is amended by redesignating paragraphs (2) and (3) as paragraphs (3) 
and (4), respectively, and by inserting after paragraph (1) the 
following new paragraph:
        ``(2) Coordination with higher education credit.--The amount of 
    the qualified higher education expenses otherwise taken into 
    account under subsection (a) with respect to the education of an 
    individual shall be reduced (before the application of subsection 
    (b)) by the amount of such expenses which are taken into account in 
    determining the credit allowable to the taxpayer or any other 
    person under section 25A with respect to such expenses.''.
    (e) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 25 the following new item:
        ``Sec. 25A. Higher education tuition and related expenses.''.

    (f) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to expenses paid after December 31, 1997 (in taxable years 
    ending after such date), for education furnished in academic 
    periods beginning after such date.
        (2) Lifetime learning credit.--Section 25A(a)(2) of the 
    Internal Revenue Code of 1986 shall apply to expenses paid after 
    June 30, 1998 (in taxable years ending after such date), for 
    education furnished in academic periods beginning after such dates.

SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions for individuals) is amended by 
redesignating section 221 as section 222 and by inserting after section 
220 the following new section:

``SEC. 221. INTEREST ON EDUCATION LOANS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the interest paid by the taxpayer during the taxable year on any 
qualified education loan.
    ``(b) Maximum Deduction.--
        ``(1) In general.--Except as provided in paragraph (2), the 
    deduction allowed by subsection (a) for the taxable year shall not 
    exceed the amount determined in accordance with the following 
    table:

    ``In the case of taxable years
                                                              The dollar
      beginning in:
                                                              amount is:
          1998..........................................
                                                                 $1,000 
          1999..........................................
                                                                 $1,500 
          2000..........................................
                                                                 $2,000 
          2001 or thereafter............................
                                                                 $2,500.

        ``(2) Limitation based on modified adjusted gross income.--
            ``(A) In general.--The amount which would (but for this 
        paragraph) be allowable as a deduction under this section shall 
        be reduced (but not below zero) by the amount determined under 
        subparagraph (B).
            ``(B) Amount of reduction.--The amount determined under 
        this subparagraph is the amount which bears the same ratio to 
        the amount which would be so taken into account as--
                ``(i) the excess of--

                    ``(I) the taxpayer's modified adjusted gross income 
                for such taxable year, over
                    ``(II) $40,000 ($60,000 in the case of a joint 
                return), bears to

                ``(ii) $15,000.
            ``(C) Modified adjusted gross income.--The term `modified 
        adjusted gross income' means adjusted gross income determined--
                ``(i) without regard to this section and sections 135, 
            137, 911, 931, and 933, and
                ``(ii) after application of sections 86, 219, and 469.
        For purposes of sections 86, 135, 137, 219, and 469, adjusted 
        gross income shall be determined without regard to the 
        deduction allowed under this section.
    ``(c) Dependents Not Eligible for Deduction.--No deduction shall be 
allowed by this section to an individual for the taxable year if a 
deduction under section 151 with respect to such individual is allowed 
to another taxpayer for the taxable year beginning in the calendar year 
in which such individual's taxable year begins.
    ``(d) Limit on Period Deduction Allowed.--A deduction shall be 
allowed under this section only with respect to interest paid on any 
qualified education loan during the first 60 months (whether or not 
consecutive) in which interest payments are required. For purposes of 
this paragraph, any loan and all refinancings of such loan shall be 
treated as 1 loan.
    ``(e) Definitions.--For purposes of this section--
        ``(1) Qualified education loan.--The term `qualified education 
    loan' means any indebtedness incurred to pay qualified higher 
    education expenses--
            ``(A) which are incurred on behalf of the taxpayer, the 
        taxpayer's spouse, or any dependent of the taxpayer as of the 
        time the indebtedness was incurred,
            ``(B) which are paid or incurred within a reasonable period 
        of time before or after the indebtedness is incurred, and
            ``(C) which are attributable to education furnished during 
        a period during which the recipient was an eligible student.
    Such term includes indebtedness used to refinance indebtedness 
    which qualifies as a qualified education loan. The term `qualified 
    education loan' shall not include any indebtedness owed to a person 
    who is related (within the meaning of section 267(b) or 707(b)(1)) 
    to the taxpayer.
        ``(2) Qualified higher education expenses.--The term `qualified 
    higher education expenses' means the cost of attendance (as defined 
    in section 472 of the Higher Education Act of 1965, 20 U.S.C. 
    1087ll, as in effect on the day before the date of the enactment of 
    this Act) at an eligible educational institution, reduced by the 
    sum of--
            ``(A) the amount excluded from gross income under section 
        127, 135, or 530 by reason of such expenses, and
            ``(B) the amount of any scholarship, allowance, or payment 
        described in section 25A(g)(2).
    For purposes of the preceding sentence, the term `eligible 
    educational institution' has the same meaning given such term by 
    section 25A(f)(2), except that such term shall also include an 
    institution conducting an internship or residency program leading 
    to a degree or certificate awarded by an institution of higher 
    education, a hospital, or a health care facility which offers 
    postgraduate training.
        ``(3) Eligible student.--The term `eligible student' has the 
    meaning given such term by section 25A(b)(3).
        ``(4) Dependent.--The term `dependent' has the meaning given 
    such term by section 152.
    ``(f) Special Rules.--
        ``(1) Denial of double benefit.--No deduction shall be allowed 
    under this section for any amount for which a deduction is 
    allowable under any other provision of this chapter.
        ``(2) Married couples must file joint return.--If the taxpayer 
    is married at the close of the taxable year, the deduction shall be 
    allowed under subsection (a) only if the taxpayer and the 
    taxpayer's spouse file a joint return for the taxable year.
        ``(3) Marital status.--Marital status shall be determined in 
    accordance with section 7703.
    ``(g) Inflation Adjustments.--
        ``(1) In general.--In the case of a taxable year beginning 
    after 2002, the $40,000 and $60,000 amounts in subsection (b)(2) 
    shall each be increased by an amount equal to--
            ``(A) such dollar amount, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `calendar year 2001' for 
        `calendar year 1992' in subparagraph (B) thereof.
        ``(2) Rounding.--If any amount as adjusted under paragraph (1) 
    is not a multiple of $5,000, such amount shall be rounded to the 
    next lowest multiple of $5,000.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 is amended by inserting after 
paragraph (16) the following new paragraph:
        ``(17) Interest on education loans.--The deduction allowed by 
    section 221.''.
    (c) Reporting Requirement.--
        (1) In general.--Section 6050S(a)(2) (relating to returns 
    relating to higher education tuition and related expenses) is 
    amended to read as follows:
        ``(2) which is engaged in a trade or business and which, in the 
    course of such trade or business--
            ``(A) makes payments during any calendar year to any 
        individual which constitutes reimbursements or refunds (or 
        similar amounts) of qualified tuition and related expenses of 
        such individual, or
            ``(B) except as provided in regulations, receives from any 
        individual interest aggregating $600 or more for any calendar 
        year on 1 or more qualified education loans,''.
        (2) Information.--Section 6050S(b)(2) is amended--
            (A) by inserting ``or interest'' after ``payments'' in 
        subparagraph (A), and
            (B) in subparagraph (C), by striking ``and'' at the end of 
        clause (i), by inserting ``and'' at the end of clause (ii), and 
        by inserting after clause (ii) the following:
                ``(iii) aggregate amount of interest received for the 
            calendar year from such individual,''.
        (3) Definition.--Section 6050S(e) is amended by inserting ``, 
    and except as provided in regulations, the term `qualified 
    education loan' has the meaning given such term by section 
    221(e)(1)'' after ``section 25A''.
    (d) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following new items:
        ``Sec. 221. Interest on education loans.
        ``Sec. 222. Cross reference.''.

    (e) Effective Date.--The amendments made by this section shall 
apply to any qualified education loan (as defined in section 221(e)(1) 
of the Internal Revenue Code of 1986, as added by this section) 
incurred on, before, or after the date of the enactment of this Act, 
but only with respect to--
        (1) any loan interest payment due and paid after December 31, 
    1997, and
        (2) the portion of the 60-month period referred to in section 
    221(d) of the Internal Revenue Code of 1986 (as added by this 
    section) after December 31, 1997.

SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR 
              HIGHER EDUCATION EXPENSES.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end the 
following new subparagraph:
            ``(E) Distributions from individual retirement plans for 
        higher education expenses.--Distributions to an individual from 
        an individual retirement plan to the extent such distributions 
        do not exceed the qualified higher education expenses (as 
        defined in paragraph (7)) of the taxpayer for the taxable year. 
        Distributions shall not be taken into account under the 
        preceding sentence if such distributions are described in 
        subparagraph (A), (C), or (D) or to the extent paragraph (1) 
        does not apply to such distributions by reason of subparagraph 
        (B).''.
    (b) Definition.--Section 72(t) is amended by adding at the end the 
following new paragraph:
        ``(7) Qualified higher education expenses.--For purposes of 
    paragraph (2)(E)--
            ``(A) In general.--The term `qualified higher education 
        expenses' means qualified higher education expenses (as defined 
        in section 529(e)(3)) for education furnished to--
                ``(i) the taxpayer,
                ``(ii) the taxpayer's spouse, or
                ``(iii) any child (as defined in section 151(c)(3)) or 
            grandchild of the taxpayer or the taxpayer's spouse,
        at an eligible educational institution (as defined in section 
        529(e)(5)).
            ``(B) Coordination with other benefits.--The amount of 
        qualified higher education expenses for any taxable year shall 
        be reduced as provided in section 25A(g)(2).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 1997, with respect to 
expenses paid after such date (in taxable years ending after such 
date), for education furnished in academic periods beginning after such 
date.

    Subtitle B--Expanded Education Investment Savings Opportunities

                   PART I--QUALIFIED TUITION PROGRAMS

SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS.

    (a) Qualified Higher Education Expenses To Include Room and 
Board.--Paragraph (3) of section 529(e) (defining qualified higher 
education expenses) is amended to read as follows:
        ``(3) Qualified higher education expenses.--
            ``(A) In general.--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 educational institution.
            ``(B) Room and board included for students under guaranteed 
        plans who are at least half-time.--
                ``(i) In general.--In the case of an individual who is 
            an eligible student (as defined in section 25A(b)(3)) for 
            any academic period, such term shall also include 
            reasonable costs for such period (as determined under the 
            qualified State tuition program) incurred by the designated 
            beneficiary for room and board while attending such 
            institution. For purposes of subsection (b)(7), a 
            designated beneficiary shall be treated as meeting the 
            requirements of this clause.
                ``(ii) Limitation.--The amount treated as qualified 
            higher education expenses by reason of the preceding 
            sentence shall not exceed the minimum amount (applicable to 
            the student) included for room and board for such period in 
            the cost of attendance (as defined in section 472 of the 
            Higher Education Act of 1965, 20 U.S.C. 1087ll, as in 
            effect on the date of the enactment of this paragraph) for 
            the eligible educational institution for such period.''.
    (b) Additional Modifications.--
        (1) Member of family.--Paragraph (2) of section 529(e) 
    (relating to other definitions and special rules) is amended to 
    read as follows:
        ``(2) Member of family.--The term `member of the family' 
    means--
            ``(A) an individual who bears a relationship to another 
        individual which is a relationship described in paragraphs (1) 
        through (8) of section 152(a), and
            ``(B) the spouse of any individual described in 
        subparagraph (A).''.
        (2) Eligible educational institution.--Section 529(e) is 
    amended by adding at the end the following:
        ``(5) Eligible educational institution.--The term `eligible 
    educational institution' means an institution--
            ``(A) which is described in section 481 of the Higher 
        Education Act of 1965 (20 U.S.C. 1088), as in effect on the 
        date of the enactment of this paragraph, and
            ``(B) which is eligible to participate in a program under 
        title IV of such Act.''.
        (3) Estate and gift tax treatment.--
            (A) Gift tax treatment.--
                (i) Paragraph (2) of section 529(c) is amended to read 
            as follows:
        ``(2) Gift tax treatment of contributions.--For purposes of 
    chapters 12 and 13--
            ``(A) In general.--Any contribution to a qualified tuition 
        program on behalf of any designated beneficiary--
                ``(i) shall be treated as a completed gift to such 
            beneficiary which is not a future interest in property, and
                ``(ii) shall not be treated as a qualified transfer 
            under section 2503(e).
            ``(B) Treatment of excess contributions.--If the aggregate 
        amount of contributions described in subparagraph (A) during 
        the calendar year by a donor exceeds the limitation for such 
        year under section 2503(b), such aggregate amount shall, at the 
        election of the donor, be taken into account for purposes of 
        such section ratably over the 5-year period beginning with such 
        calendar year.''.
                (ii) Paragraph (5) of section 529(c) is amended to read 
            as follows:
        ``(5) Other gift tax rules.--For purposes of chapters 12 and 
    13--
            ``(A) Treatment of distributions.--Except as provided in 
        subparagraph (B), in no event shall a distribution from a 
        qualified tuition program be treated as a taxable gift.
            ``(B) Treatment of designation of new beneficiary.--The 
        taxes imposed by chapters 12 and 13 shall apply to a transfer 
        by reason of a change in the designated beneficiary under the 
        program (or a rollover to the account of a new beneficiary) 
        only if the new beneficiary is a generation below the 
        generation of the old beneficiary (determined in accordance 
        with section 2651).''.
            (B) Estate tax treatment.--Paragraph (4) of section 529(c) 
        is amended to read as follows:
        ``(4) Estate tax treatment.--
            ``(A) In general.--No amount shall be includible in the 
        gross estate of any individual for purposes of chapter 11 by 
        reason of an interest in a qualified tuition program.
            ``(B) Amounts includible in estate of designated 
        beneficiary in certain cases.--Subparagraph (A) shall not apply 
        to amounts distributed on account of the death of a 
        beneficiary.
            ``(C) Amounts includible in estate of donor making excess 
        contributions.--In the case of a donor who makes the election 
        described in paragraph (2)(B) and who dies before the close of 
        the 5-year period referred to in such paragraph, 
        notwithstanding subparagraph (A), the gross estate of the donor 
        shall include the portion of such contributions properly 
        allocable to periods after the date of death of the donor.''.
        (4) Prohibition against investment direction.--Section 
    529(b)(5) is amended by inserting ``directly or indirectly'' after 
    ``may not''.
    (c) Coordination With Education Savings Bond.--Section 135(c)(2) 
(defining qualified higher education expenses) is amended by adding at 
the end the following:
            ``(C) Contributions to qualified state tuition program.--
        Such term shall include any contribution to a qualified State 
        tuition program (as defined in section 529) on behalf of a 
        designated beneficiary (as defined in such section) who is an 
        individual described in subparagraph (A); but there shall be no 
        increase in the investment in the contract for purposes of 
        applying section 529(c)(3)(A) by reason of any portion of such 
        contribution which is not includible in gross income by reason 
        of this subparagraph.''.
    (d) Clarification of Taxation of Distributions.--Subparagraph (A) 
of section 529(c)(3) is amended by striking ``section 72'' and 
inserting ``section 72(b)''.
    (e) Technical Amendments.--
        (1)(A) The heading for part VIII of subchapter F of chapter 1 
    is amended to read as follows:

           ``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.

        (B) The table of parts for subchapter F of chapter 1 is amended 
    by striking the item relating to part VIII and inserting:
        ``Part VIII. Higher education savings entities.''.

        (2)(A) Section 529(d) is amended to read as follows:
    ``(d) Reports.--Each officer or employee having control of the 
qualified State tuition program or their designee shall make such 
reports regarding such program to the Secretary and to designated 
beneficiaries with respect to contributions, distributions, and such 
other matters as the Secretary may require. The reports required by 
this subsection shall be filed at such time and in such manner and 
furnished to such individuals at such time and in such manner as may be 
required by the Secretary.''.
        (B) Paragraph (2) of section 6693(a) (relating to failure to 
    provide reports on individual retirement accounts or annuities) is 
    amended by striking ``and'' at the end of subparagraph (A), by 
    striking the period at the end of subparagraph (B) and inserting 
    ``, and'', and by adding at the end the following new subparagraph:
            ``(C) Section 529(d) (relating to qualified State tuition 
        programs).''.
        (C) The section heading for section 6693 is amended by striking 
    ``individual retirement'' and inserting ``certain tax-favored''.
        (D) The item relating to section 6693 in the table of sections 
    for part I of subchapter B of chapter 68 is amended by striking 
    ``individual retirement'' and inserting ``certain tax-favored''.
    (f) Effective Dates.--
        (1) In general.--Except as otherwise provided in this 
    subsection, the amendments made by this section shall take effect 
    on January 1, 1998.
        (2) Expenses to include room and board.--The amendment made by 
    subsection (a) shall take effect as if included in the amendments 
    made by section 1806 of the Small Business Job Protection Act of 
    1996.
        (3) Eligible educational institution.--The amendment made by 
    subsection (b)(2) shall apply to distributions after December 31, 
    1997, with respect to expenses paid after such date (in taxable 
    years ending after such date), for education furnished in academic 
    periods beginning after such date.
        (4) Coordination with education savings bonds.--The amendment 
    made by subsection (c) shall apply to taxable years beginning after 
    December 31, 1997.
        (5) Estate and gift tax changes.--
            (A) Gift tax changes.--Paragraphs (2) and (5) of section 
        529(c) of the Internal Revenue Code of 1986, as amended by this 
        section, shall apply to transfers (including designations of 
        new beneficiaries) made after the date of the enactment of this 
        Act.
            (B) Estate tax changes.--Paragraph (4) of such section 
        529(c) shall apply to estates of decedents dying after June 8, 
        1997.
        (6) Transition rule for pre-august 20, 1996 contracts.--In the 
    case of any contract issued prior to August 20, 1996, section 
    529(c)(3)(C) of the Internal Revenue Code of 1986 shall be applied 
    for taxable years ending after August 20, 1996, without regard to 
    the requirement that a distribution be transferred to a member of 
    the family or the requirement that a change in beneficiaries may be 
    made only to a member of the family.

           PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 213. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) In General.--Part VIII of subchapter F of chapter 1 (relating 
to qualified State tuition programs) is amended by adding at the end 
the following new section:

``SEC. 530. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--An education individual retirement account 
shall be exempt from taxation under this subtitle. Notwithstanding the 
preceding sentence, the education individual retirement account shall 
be subject to the taxes imposed by section 511 (relating to imposition 
of tax on unrelated business income of charitable organizations).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Education individual retirement account.--The term 
    `education individual retirement account' means a trust created or 
    organized in the United States exclusively for the purpose of 
    paying the qualified higher education expenses of the designated 
    beneficiary of the trust (and designated as an education individual 
    retirement account at the time created or organized), but only if 
    the written governing instrument creating the trust meets the 
    following requirements:
            ``(A) No contribution will be accepted--
                ``(i) unless it is in cash,
                ``(ii) after the date on which such beneficiary attains 
            age 18, or
                ``(iii) except in the case of rollover contributions, 
            if such contribution would result in aggregate 
            contributions for the taxable year exceeding $500.
            ``(B) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section or who has so demonstrated with respect to any 
        individual retirement plan.
            ``(C) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(D) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(E) Upon the death of the designated beneficiary, any 
        balance to the credit of the beneficiary shall be distributed 
        within 30 days after the date of death to the estate of such 
        beneficiary.
        ``(2) Qualified higher education expenses.--
            ``(A) In general.--The term `qualified higher education 
        expenses' has the meaning given such term by section 529(e)(3), 
        reduced as provided in section 25A(g)(2).
            ``(B) Qualified state tuition programs.--Such term shall 
        include amounts paid or incurred to purchase tuition credits or 
        certificates, or to make contributions to an account, under a 
        qualified State tuition program (as defined in section 529(b)) 
        for the benefit of the beneficiary of the account.
        ``(3) Eligible educational institution.--The term `eligible 
    educational institution' has the meaning given such term by section 
    529(e)(5).
    ``(c) Reduction in Permitted Contributions Based on Adjusted Gross 
Income.--
        ``(1) In general.--The maximum amount which a contributor could 
    otherwise make to an account under this section shall be reduced by 
    an amount which bears the same ratio to such maximum amount as--
            ``(A) the excess of--
                ``(i) the contributor's modified adjusted gross income 
            for such taxable year, over
                ``(ii) $95,000 ($150,000 in the case of a joint 
            return), bears to
            ``(B) $15,000 ($10,000 in the case of a joint return).
        ``(2) Modified adjusted gross income.--For purposes of 
    paragraph (1), the term `modified adjusted gross income' means the 
    adjusted gross income of the taxpayer for the taxable year 
    increased by any amount excluded from gross income under section 
    911, 931, or 933.
    ``(d) Tax Treatment of Distributions.--
        ``(1) In general.--Any distribution shall be includible in the 
    gross income of the distributee in the manner as provided in 
    section 72(b).
        ``(2) Distributions for qualified higher education expenses.--
            ``(A) In general.--No amount shall be includible in gross 
        income under paragraph (1) if the qualified higher education 
        expenses of the designated beneficiary during the taxable year 
        are not less than the aggregate distributions during the 
        taxable year.
            ``(B) Distributions in excess of expenses.--If such 
        aggregate distributions exceed such expenses during the taxable 
        year, the amount otherwise includible in gross income under 
        paragraph (1) shall be reduced by the amount which bears the 
        same ratio to the amount which would be includible in gross 
        income under paragraph (1) (without regard to this 
        subparagraph) as the qualified higher education expenses bear 
        to such aggregate distributions.
            ``(C) Election to waive exclusion.--A taxpayer may elect to 
        waive the application of this paragraph for any taxable year.
        ``(3) Special rules for applying estate and gift taxes with 
    respect to account.--Rules similar to the rules of paragraphs (2), 
    (4), and (5) of section 529(c) shall apply for purposes of this 
    section.
        ``(4) Additional tax for distributions not used for educational 
    expenses.--
            ``(A) In general.--The tax imposed by this chapter for any 
        taxable year on any taxpayer who receives a payment or 
        distribution from an education individual retirement account 
        which is includible in gross income shall be increased by 10 
        percent of the amount which is so includible.
            ``(B) Exceptions.--Subparagraph (A) shall not apply if the 
        payment or distribution is--
                ``(i) made to a beneficiary (or to the estate of the 
            designated beneficiary) on or after the death of the 
            designated beneficiary,
                ``(ii) attributable to the designated beneficiary's 
            being disabled (within the meaning of section 72(m)(7)), or
                ``(iii) made on account of a scholarship, allowance, or 
            payment described in section 25A(g)(2) received by the 
            account holder to the extent the amount of the payment or 
            distribution does not exceed the amount of the scholarship, 
            allowance, or payment.
            ``(C) Excess contributions returned before due date of 
        return.--Subparagraph (A) shall not apply to the distribution 
        of any contribution made during a taxable year on behalf of a 
        designated beneficiary to the extent that such contribution 
        exceeds $500 if--
                ``(i) such distribution is received on or before the 
            day prescribed by law (including extensions of time) for 
            filing such contributor's return for such taxable year, and
                ``(ii) such distribution is accompanied by the amount 
            of net income attributable to such excess contribution.
        Any net income described in clause (ii) shall be included in 
        gross income for the taxable year in which such excess 
        contribution was made.
        ``(5) Rollover contributions.--Paragraph (1) shall not apply to 
    any amount paid or distributed from an education individual 
    retirement account to the extent that the amount received is paid 
    into another education individual retirement account for the 
    benefit of the same beneficiary or a member of the family (within 
    the meaning of section 529(e)(2)) of such beneficiary not later 
    than the 60th day after the date of such payment or distribution. 
    The preceding sentence shall not apply to any payment or 
    distribution if it applied to any prior payment or distribution 
    during the 12-month period ending on the date of the payment or 
    distribution.
        ``(6) Change in beneficiary.--Any change in the beneficiary of 
    an education individual retirement account shall not be treated as 
    a distribution for purposes of paragraph (1) if the new beneficiary 
    is a member of the family (as so defined) of the old beneficiary.
        ``(7) Special rules for death and divorce.--Rules similar to 
    the rules of paragraphs (7) and (8) of section 220(f) shall apply.
    ``(e) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any education 
individual retirement account.
    ``(f) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(g) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of such 
account are held by a bank (as defined in section 408(n)) or another 
person who demonstrates, to the satisfaction of the Secretary, that the 
manner in which he will administer the account will be consistent with 
the requirements of this section, and if the custodial account would, 
except for the fact that it is not a trust, constitute an account 
described in subsection (b)(1). For purposes of this title, in the case 
of a custodial account treated as a trust by reason of the preceding 
sentence, the custodian of such account shall be treated as the trustee 
thereof.
    ``(h) Reports.--The trustee of an education individual retirement 
account shall make such reports regarding such account to the Secretary 
and to the beneficiary of the account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Prohibited Transactions.--
        (1) In general.--Paragraph (1) of section 4975(e) (relating to 
    prohibited transactions) is amended by striking ``or'' at the end 
    of subparagraph (D), by redesignating subparagraph (E) as 
    subparagraph (F), and by inserting after subparagraph (D) the 
    following new subparagraph:
            ``(E) an education individual retirement account described 
        in section 530, or''.
        (2) Special rule.--Subsection (c) of section 4975 is amended by 
    adding at the end of subsection (c) the following new paragraph:
        ``(5) Special rule for education individual retirement 
    accounts.--An individual for whose benefit an education individual 
    retirement account is established and any contributor to such 
    account shall be exempt from the tax imposed by this section with 
    respect to any transaction concerning such account (which would 
    otherwise be taxable under this section) if section 530(d) applies 
    with respect to such transaction.''.
    (c) Failure To Provide Reports on Education Individual Retirement 
Accounts.--Paragraph (2) of section 6693(a) (relating to failure to 
provide reports on individual retirement accounts or annuities) 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 at the end the following new subparagraph:
            ``(D) Section 530(h) (relating to education individual 
        retirement accounts).''.
    (d) Tax on Excess Contributions.--
        (1) In general.--Subsection (a) of section 4973 is amended by 
    striking ``or'' at the end of paragraph (2), by adding ``or'' at 
    the end of paragraph (3), and by inserting after paragraph (3) the 
    following new paragraph:
        ``(4) an education individual retirement account (as defined in 
    section 530),''.
        (2) Excess contributions defined.--Section 4973 is amended by 
    adding at the end the following new subsection:
    ``(e) Excess Contributions to Education Individual Retirement 
Accounts.--For purposes of this section--
        ``(1) In general.--In the case of education individual 
    retirement accounts maintained for the benefit of any 1 
    beneficiary, the term `excess contributions' means--
            ``(A) the amount by which the amount contributed for the 
        taxable year to such accounts exceeds $500, and
            ``(B) any amount contributed to such accounts for any 
        taxable year if any amount is contributed during such year to a 
        qualified State tuition program for the benefit of such 
        beneficiary.
        ``(2) Special rules.--For purposes of paragraph (1), the 
    following contributions shall not be taken into account:
            ``(A) Any contribution which is distributed out of the 
        education individual retirement account in a distribution to 
        which section 530(d)(4)(C) applies.
            ``(B) Any contribution described in section 530(b)(2)(B) to 
        a qualified State tuition program.
            ``(C) Any rollover contribution.''.
    (e) Technical Amendments.--
        (1) Section 26(b)(2) is amended by redesignating subparagraphs 
    (E) through (P) as subparagraphs (F) through (Q), respectively, and 
    by inserting after subparagraph (D) the following new subparagraph:
            ``(E) section 530(d)(3) (relating to additional tax on 
        certain distributions from education individual retirement 
        accounts),''.
        (2) Subparagraph (C) of section 135(c)(2), as added by the 
    preceding section, is amended by inserting ``, or to an education 
    individual retirement account (as defined in section 530) on behalf 
    of an account beneficiary,'' after ``(as defined in such 
    section)''.
        (3) The table of sections for part VIII of subchapter F of 
    chapter 1 is amended by adding at the end the following new item:
        ``Sec. 530. Education individual retirement accounts.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

                Subtitle C--Other Education Initiatives

SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    (a) In General.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended to read as follows:
    ``(d) Termination.--This section shall not apply to expenses paid 
with respect to courses beginning after May 31, 2000.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1996.

SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(C)(3) BONDS OTHER THAN 
              HOSPITAL BONDS.

    Section 145(b) (relating to qualified 501(c)(3) bond) is amended by 
adding at the end the following new paragraph:
        ``(5) Termination of limitation.--This subsection shall not 
    apply with respect to bonds issued after the date of the enactment 
    of this paragraph as part of an issue 95 percent or more of the net 
    proceeds of which are to be used to finance capital expenditures 
    incurred after such date.''.

SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS 
              USED TO FINANCE EDUCATION FACILITIES.

    (a) In General.--Section 148(f)(4)(D) (relating to exception for 
governmental units issuing $5,000,000 or less of bonds) is amended by 
adding at the end the following new clause:
                ``(vii) Increase in exception for bonds financing 
            public school capital expenditures.--Each of the $5,000,000 
            amounts in the preceding provisions of this subparagraph 
            shall be increased by the lesser of $5,000,000 or so much 
            of the aggregate face amount of the bonds as are 
            attributable to financing the construction (within the 
            meaning of subparagraph (C)(iv)) of public school 
            facilities.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 1997.

SEC. 224. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR 
              ELEMENTARY OR SECONDARY SCHOOL PURPOSES.

    (a) Contributions of Computer Technology and Equipment for 
Elementary or Secondary School Purposes.--Subsection (e) of section 170 
is amended by adding at the end the following new paragraph:
        ``(6) Special rule for contributions of computer technology and 
    equipment for elementary or secondary school purposes.--
            ``(A) Limit on reduction.--In the case of a qualified 
        elementary or secondary educational contribution, the reduction 
        under paragraph (1)(A) shall be no greater than the amount 
        determined under paragraph (3)(B).
            ``(B) Qualified elementary or secondary educational 
        contribution.--For purposes of this paragraph, the term 
        `qualified elementary or secondary educational contribution' 
        means a charitable contribution by a corporation of any 
        computer technology or equipment, but only if--
                ``(i) the contribution is to--

                    ``(I) an educational organization described in 
                subsection (b)(1)(A)(ii), or
                    ``(II) an entity described in section 501(c)(3) and 
                exempt from tax under section 501(a) (other than an 
                entity described in subclause (I)) that is organized 
                primarily for purposes of supporting elementary and 
                secondary education,

                ``(ii) the contribution is made not later than 2 years 
            after the date the taxpayer acquired the property (or in 
            the case of property constructed by the taxpayer, the date 
            the construction of the property is substantially 
            completed),
                ``(iii) the original use of the property is by the 
            donor or the donee,
                ``(iv) substantially all of the use of the property by 
            the donee is for use within the United States for 
            educational purposes in any of the grades K-12 that are 
            related to the purpose or function of the organization or 
            entity,
                ``(v) the property is not transferred by the donee in 
            exchange for money, other property, or services, except for 
            shipping, installation and transfer costs,
                ``(vi) the property will fit productively into the 
            entity's education plan, and
                ``(vii) the entity's use and disposition of the 
            property will be in accordance with the provisions of 
            clauses (iv) and (v).
            ``(C) Contribution to private foundation.--A contribution 
        by a corporation of any computer technology or equipment to a 
        private foundation (as defined in section 509) shall be treated 
        as a qualified elementary or secondary educational contribution 
        for purposes of this paragraph if--
                ``(i) the contribution to the private foundation 
            satisfies the requirements of clauses (ii) and (v) of 
            subparagraph (B), and
                ``(ii) within 30 days after such contribution, the 
            private foundation--

                    ``(I) contributes the property to an entity 
                described in clause (i) of subparagraph (B) that 
                satisfies the requirements of clauses (iv) through 
                (vii) of subparagraph (B), and
                    ``(II) notifies the donor of such contribution.

            ``(D) Special rule relating to construction of property.--
        For the purposes of this paragraph, the rules of paragraph 
        (4)(C) shall apply.
            ``(E) Definitions.--For the purposes of this paragraph--
                ``(i) Computer technology or equipment.--The term 
            `computer technology or equipment' means computer software 
            (as defined by section 197(e)(3)(B)), computer or 
            peripheral equipment (as defined by section 168(i)(2)(B)), 
            and fiber optic cable related to computer use.
                ``(ii) Corporation.--The term `corporation' has the 
            meaning given to such term by paragraph (4)(D).
            ``(F) Termination.--This paragraph shall not apply to any 
        contribution made during any taxable year beginning after 
        December 31, 1999.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.

    (a) Certain Loans by Exempt Organizations.--
        (1) In general.--Paragraph (2) of section 108(f) (defining 
    student loan) is amended by striking ``or'' at the end of 
    subparagraph (B) and by striking subparagraph (D) and inserting the 
    following:
            ``(D) any educational organization described in section 
        170(b)(1)(A)(ii) if such loan is made--
                ``(i) pursuant to an agreement with any entity 
            described in subparagraph (A), (B), or (C) under which the 
            funds from which the loan was made were provided to such 
            educational organization, or
                ``(ii) pursuant to a program of such educational 
            organization which is designed to encourage its students to 
            serve in occupations with unmet needs or in areas with 
            unmet needs and under which the services provided by the 
            students (or former students) are for or under the 
            direction of a governmental unit or an organization 
            described in section 501(c)(3) and exempt from tax under 
            section 501(a).
    The term `student loan' includes any loan made by an educational 
    organization so described or by an organization exempt from tax 
    under section 501(a) to refinance a loan meeting the requirements 
    of the preceding sentence.''.
        (2) Exception for discharges on account of services performed 
    for certain lenders.--Subsection (f) of section 108 is amended by 
    adding at the end the following new paragraph:
        ``(3) Exception for discharges on account of services performed 
    for certain lenders.--Paragraph (1) shall not apply to the 
    discharge of a loan made by an organization described in paragraph 
    (2)(D) (or by an organization described in paragraph (2)(E) from 
    funds provided by an organization described in paragraph (2)(D)) if 
    the discharge is on account of services performed for either such 
    organization.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to discharges of indebtedness after the date of the enactment of 
this Act.

SEC. 226. INCENTIVES FOR EDUCATION ZONES.

    (a) In General.--Subchapter U of chapter 1 (relating to additional 
incentives for empowerment zones) is amended by redesignating part IV 
as part V, by redesignating section 1397E as section 1397F, and by 
inserting after part III the following new part:

               ``PART IV--INCENTIVES FOR EDUCATION ZONES

        ``Sec. 1397E. Credit to holders of qualified zone academy 
                  bonds.''.

``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Allowance of Credit.--In the case of an eligible taxpayer who 
holds a qualified zone academy bond on the credit allowance date of 
such bond which occurs during the taxable year, there shall be allowed 
as a credit against the tax imposed by this chapter for such taxable 
year the amount determined under subsection (b).
    ``(b) Amount of Credit.--
        ``(1) In general.--The amount of the credit determined under 
    this subsection with respect to any qualified zone academy bond is 
    the amount equal to the product of--
            ``(A) the credit rate determined by the Secretary under 
        paragraph (2) for the month in which such bond was issued, 
        multiplied by
            ``(B) the face amount of the bond held by the taxpayer on 
        the credit allowance date.
        ``(2) Determination.--During each calendar month, the Secretary 
    shall determine a credit rate which shall apply to bonds issued 
    during the following calendar month. The credit rate for any month 
    is the percentage which the Secretary estimates will permit the 
    issuance of qualified zone academy bonds without discount and 
    without interest cost to the issuer.
    ``(c) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess of--
        ``(1) the sum of the regular tax liability (as defined in 
    section 26(b)) plus the tax imposed by section 55, over
        ``(2) the sum of the credits allowable under part IV of 
    subchapter A (other than subpart C thereof, relating to refundable 
    credits).
    ``(d) Qualified Zone Academy Bond.--For purposes of this section--
        ``(1) In general.--The term `qualified zone academy bond' means 
    any bond issued as part of an issue if--
            ``(A) 95 percent or more of the proceeds of such issue are 
        to be used for a qualified purpose with respect to a qualified 
        zone academy established by an eligible local education agency,
            ``(B) the bond is issued by a State or local government 
        within the jurisdiction of which such academy is located,
            ``(C) the issuer--
                ``(i) designates such bond for purposes of this 
            section,
                ``(ii) certifies that it has written assurances that 
            the private business contribution requirement of paragraph 
            (2) will be met with respect to such academy, and
                ``(iii) certifies that it has the written approval of 
            the eligible local education agency for such bond issuance, 
            and
            ``(D) the term of each bond which is part of such issue 
        does not exceed the maximum term permitted under paragraph (3).
        ``(2) Private business contribution requirement.--
            ``(A) In general.--For purposes of paragraph (1), the 
        private business contribution requirement of this paragraph is 
        met with respect to any issue if the eligible local education 
        agency that established the qualified zone academy has written 
        commitments from private entities to make qualified 
        contributions having a present value (as of the date of 
        issuance of the issue) of not less than 10 percent of the 
        proceeds of the issue.
            ``(B) Qualified contributions.--For purposes of 
        subparagraph (A), the term `qualified contribution' means any 
        contribution (of a type and quality acceptable to the eligible 
        local education agency) of--
                ``(i) equipment for use in the qualified zone academy 
            (including state-of-the-art technology and vocational 
            equipment),
                ``(ii) technical assistance in developing curriculum or 
            in training teachers in order to promote appropriate market 
            driven technology in the classroom,
                ``(iii) services of employees as volunteer mentors,
                ``(iv) internships, field trips, or other educational 
            opportunities outside the academy for students, or
                ``(v) any other property or service specified by the 
            eligible local education agency.
        ``(3) Term requirement.--During each calendar month, the 
    Secretary shall determine the maximum term permitted under this 
    paragraph for bonds issued during the following calendar month. 
    Such maximum term shall be the term which the Secretary estimates 
    will result in the present value of the obligation to repay the 
    principal on the bond being equal to 50 percent of the face amount 
    of the bond. Such present value shall be determined using as a 
    discount rate the average annual interest rate of tax-exempt 
    obligations having a term of 10 years or more which are issued 
    during the month. If the term as so determined is not a multiple of 
    a whole year, such term shall be rounded to the next highest whole 
    year.
        ``(4) Qualified zone academy.--
            ``(A) In general.--The term `qualified zone academy' means 
        any public school (or academic program within a public school) 
        which is established by and operated under the supervision of 
        an eligible local education agency to provide education or 
        training below the postsecondary level if--
                ``(i) such public school or program (as the case may 
            be) is designed in cooperation with business to enhance the 
            academic curriculum, increase graduation and employment 
            rates, and better prepare students for the rigors of 
            college and the increasingly complex workforce,
                ``(ii) students in such public school or program (as 
            the case may be) will be subject to the same academic 
            standards and assessments as other students educated by the 
            eligible local education agency,
                ``(iii) the comprehensive education plan of such public 
            school or program is approved by the eligible local 
            education agency, and
                ``(iv)(I) such public school is located in an 
            empowerment zone or enterprise community (including any 
            such zone or community designated after the date of the 
            enactment of this section), or
                ``(II) there is a reasonable expectation (as of the 
            date of issuance of the bonds) that at least 35 percent of 
            the students attending such school or participating in such 
            program (as the case may be) will be eligible for free or 
            reduced-cost lunches under the school lunch program 
            established under the National School Lunch Act.
            ``(B) Eligible local education agency.--The term `eligible 
        local education agency' means any local education agency as 
        defined in section 14101 of the Elementary and Secondary 
        Education Act of 1965.
        ``(5) Qualified purpose.--The term `qualified purpose' means, 
    with respect to any qualified zone academy--
            ``(A) rehabilitating or repairing the public school 
        facility in which the academy is established,
            ``(B) providing equipment for use at such academy,
            ``(C) developing course materials for education to be 
        provided at such academy, and
            ``(D) training teachers and other school personnel in such 
        academy.
        ``(6) Eligible taxpayer.--The term `eligible taxpayer' means--
            ``(A) a bank (within the meaning of section 581),
            ``(B) an insurance company to which subchapter L applies, 
        and
            ``(C) a corporation actively engaged in the business of 
        lending money.
    ``(e) Limitation on Amount of Bonds Designated.--
        ``(1) National limitation.--There is a national zone academy 
    bond limitation for each calendar year. Such limitation is 
    $400,000,000 for 1998 and 1999, and, except as provided in 
    paragraph (4), zero thereafter.
        ``(2) Allocation of limitation.--The national zone academy bond 
    limitation for a calendar year shall be allocated by the Secretary 
    among the States on the basis of their respective populations of 
    individuals below the poverty line (as defined by the Office of 
    Management and Budget). The limitation amount allocated to a State 
    under the preceding sentence shall be allocated by the State 
    education agency to qualified zone academies within such State.
        ``(3) Designation subject to limitation amount.--The maximum 
    aggregate face amount of bonds issued during any calendar year 
    which may be designated under subsection (d)(1) with respect to any 
    qualified zone academy shall not exceed the limitation amount 
    allocated to such academy under paragraph (2) for such calendar 
    year.
        ``(4) Carryover of unused limitation.--If for any calendar 
    year--
            ``(A) the limitation amount for any State, exceeds
            ``(B) the amount of bonds issued during such year which are 
        designated under subsection (d)(1) with respect to qualified 
        zone academies within such State,
    the limitation amount for such State for the following calendar 
    year shall be increased by the amount of such excess.
    ``(f) Other Definitions.--For purposes of this section--
        ``(1) Credit allowance date.--The term `credit allowance date' 
    means, with respect to any issue, the last day of the 1-year period 
    beginning on the date of issuance of such issue and the last day of 
    each successive 1-year period thereafter.
        ``(2) Bond.--The term `bond' includes any obligation.
        ``(3) State.--The term `State' includes the District of 
    Columbia and any possession of the United States.
    ``(g) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section.''.
    (b) Conforming Amendments.--
        (1) The table of parts for subchapter U of chapter 1 is amended 
    by striking the last item and inserting the following:
        ``Part IV. Incentives for education zones.
        ``Part V. Regulations.''.

        (2) The table of sections for part V, as so redesignated, is 
    amended to read as follows:
        ``Sec. 1397F. Regulations.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 1997.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES
                     Subtitle A--Retirement Savings

SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAXPAYERS.

    (a) Increase in Income Limits Applicable to Active Participants.--
        (1) In general.--Subparagraph (B) of section 219(g)(3) 
    (relating to applicable dollar amount) is amended to read as 
    follows:
            ``(B) Applicable dollar amount.--The term `applicable 
        dollar amount' means the following:
                ``(i) In the case of a taxpayer filing a joint return:

                                                          The applicable
``For taxable years beginning in:
                                                       dollar amount is:
    1998......................................................


                                                                $50,000 

    1999......................................................


                                                                $51,000 

    2000......................................................


                                                                $52,000 

    2001......................................................


                                                                $53,000 

    2002......................................................


                                                                $54,000 

    2003......................................................


                                                                $60,000 

    2004......................................................


                                                                $65,000 

    2005......................................................


                                                                $70,000 

    2006......................................................


                                                                $75,000 

    2007 and thereafter.......................................


                                                                $80,000.

                ``(ii) In the case of any other taxpayer (other than a 
            married individual filing a separate return):

                                                          The applicable
``For taxable years beginning in:
                                                       dollar amount is:
    1998......................................................


                                                                $30,000 

    1999......................................................


                                                                $31,000 

    2000......................................................


                                                                $32,000 

    2001......................................................


                                                                $33,000 

    2002......................................................


                                                                $34,000 

    2003......................................................


                                                                $40,000 

    2004......................................................


                                                                $45,000 

    2005 and thereafter.......................................


                                                                $50,000.

                ``(iii) In the case of a married individual filing a 
            separate return, zero.''.
        (2) Increase in phase-out range for joint returns.--Clause (ii) 
    of section 219(g)(2)(A) is amended by inserting ``($20,000 in the 
    case of a joint return for a taxable year beginning after December 
    31, 2006)''.
    (b) Limitations for Active Participation Not Based on Spouse's 
Participation.--Section 219(g) (relating to limitation on deduction for 
active participants in certain pension plans) is amended--
        (1) by striking ``or the individual's spouse'' in paragraph 
    (1), and
        (2) by adding at the end the following new paragraph:
        ``(7) Special rule for certain spouses.--In the case of an 
    individual who is an active participant at no time during any plan 
    year ending with or within the taxable year but whose spouse is an 
    active participant for any part of any such plan year--
            ``(A) the applicable dollar amount under paragraph 
        (3)(B)(i) with respect to the taxpayer shall be $150,000, and
            ``(B) the amount applicable under paragraph (2)(A)(ii) 
        shall be $10,000.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408 the following new section:

``SEC. 408A. ROTH IRAS.

    ``(a) General Rule.--Except as provided in this section, a Roth IRA 
shall be treated for purposes of this title in the same manner as an 
individual retirement plan.
    ``(b) Roth IRA.--For purposes of this title, the term `Roth IRA' 
means an individual retirement plan (as defined in section 7701(a)(37)) 
which is designated (in such manner as the Secretary may prescribe) at 
the time of establishment of the plan as a Roth IRA. Such designation 
shall be made in such manner as the Secretary may prescribe.
    ``(c) Treatment of Contributions.--
        ``(1) No deduction allowed.--No deduction shall be allowed 
    under section 219 for a contribution to a Roth IRA.
        ``(2) Contribution limit.--The aggregate amount of 
    contributions for any taxable year to all Roth IRAs maintained for 
    the benefit of an individual shall not exceed the excess (if any) 
    of--
            ``(A) the maximum amount allowable as a deduction under 
        section 219 with respect to such individual for such taxable 
        year (computed without regard to subsection (d)(1) or (g) of 
        such section), over
            ``(B) the aggregate amount of contributions for such 
        taxable year to all other individual retirement plans (other 
        than Roth IRAs) maintained for the benefit of the individual.
        ``(3) Limits based on modified adjusted gross income.--
            ``(A) Dollar limit.--The amount determined under paragraph 
        (2) for any taxable year shall be reduced (but not below zero) 
        by the amount which bears the same ratio to such amount as--
                ``(i) the excess of--

                    ``(I) the taxpayer's adjusted gross income for such 
                taxable year, over
                    ``(II) the applicable dollar amount, bears to

                ``(ii) $15,000 ($10,000 in the case of a joint return).
        The rules of subparagraphs (B) and (C) of section 219(g)(2) 
        shall apply to any reduction under this subparagraph.
            ``(B) Rollover from ira.--A taxpayer shall not be allowed 
        to make a qualified rollover contribution to a Roth IRA from an 
        individual retirement plan other than a Roth IRA during any 
        taxable year if--
                ``(i) the taxpayer's adjusted gross income for such 
            taxable year exceeds $100,000, or
                ``(ii) the taxpayer is a married individual filing a 
            separate return.
            ``(C) Definitions.--For purposes of this paragraph--
                ``(i) adjusted gross income shall be determined in the 
            same manner as under section 219(g)(3), except that any 
            amount included in gross income under subsection (d)(3) 
            shall not be taken into account and the deduction under 
            section 219 shall be taken into account, and
                ``(ii) the applicable dollar amount is--

                    ``(I) in the case of a taxpayer filing a joint 
                return, $150,000,
                    ``(II) in the case of any other taxpayer (other 
                than a married individual filing a separate return), 
                $95,000, and
                    ``(III) in the case of a married individual filing 
                a separate return, zero.

            ``(D) Marital status.--Section 219(g)(4) shall apply for 
        purposes of this paragraph.
        ``(4) Contributions permitted after age 70\1/2\.--Contributions 
    to a Roth IRA may be made even after the individual for whom the 
    account is maintained has attained age 70\1/2\.
        ``(5) Mandatory distribution rules not to apply before death.--
    Notwithstanding subsections (a)(6) and (b)(3) of section 408 
    (relating to required distributions), the following provisions 
    shall not apply to any Roth IRA:
            ``(A) Section 401(a)(9)(A).
            ``(B) The incidental death benefit requirements of section 
        401(a).
        ``(6) Rollover contributions.--
            ``(A) In general.--No rollover contribution may be made to 
        a Roth IRA unless it is a qualified rollover contribution.
            ``(B) Coordination with limit.--A qualified rollover 
        contribution shall not be taken into account for purposes of 
        paragraph (2).
        ``(7) Time when contributions made.--For purposes of this 
    section, the rule of section 219(f)(3) shall apply.
    ``(d) Distribution Rules.--For purposes of this title--
        ``(1) General rules.--
            ``(A) Exclusions from gross income.--Any qualified 
        distribution from a Roth IRA shall not be includible in gross 
        income.
            ``(B) Nonqualified distributions.--In applying section 72 
        to any distribution from a Roth IRA which is not a qualified 
        distribution, such distribution shall be treated as made from 
        contributions to the Roth IRA to the extent that such 
        distribution, when added to all previous distributions from the 
        Roth IRA, does not exceed the aggregate amount of contributions 
        to the Roth IRA.
        ``(2) Qualified distribution.--For purposes of this 
    subsection--
            ``(A) In general.--The term `qualified distribution' means 
        any payment or distribution--
                ``(i) made on or after the date on which the individual 
            attains age 59\1/2\,
                ``(ii) made to a beneficiary (or to the estate of the 
            individual) on or after the death of the individual,
                ``(iii) attributable to the individual's being disabled 
            (within the meaning of section 72(m)(7)), or
                ``(iv) which is a qualified special purpose 
            distribution.
            ``(B) Certain distributions within 5 years.--A payment or 
        distribution shall not be treated as a qualified distribution 
        under subparagraph (A) if--
                ``(i) it is made within the 5-taxable year period 
            beginning with the 1st taxable year for which the 
            individual made a contribution to a Roth IRA (or such 
            individual's spouse made a contribution to a Roth IRA) 
            established for such individual, or
                ``(ii) in the case of a payment or distribution 
            properly allocable (as determined in the manner prescribed 
            by the Secretary) to a qualified rollover contribution from 
            an individual retirement plan other than a Roth IRA (or 
            income allocable thereto), it is made within the 5-taxable 
            year period beginning with the taxable year in which the 
            rollover contribution was made.
        ``(3) Rollovers from an ira other than a Roth IRA.--
            ``(A) In general.--Notwithstanding section 408(d)(3), in 
        the case of any distribution to which this paragraph applies--
                ``(i) there shall be included in gross income any 
            amount which would be includible were it not part of a 
            qualified rollover contribution,
                ``(ii) section 72(t) shall not apply, and
                ``(iii) in the case of a distribution before January 1, 
            1999, any amount required to be included in gross income by 
            reason of this paragraph shall be so included ratably over 
            the 4-taxable year period beginning with the taxable year 
            in which the payment or distribution is made.
            ``(B) Distributions to which paragraph applies.--This 
        paragraph shall apply to a distribution from an individual 
        retirement plan (other than a Roth IRA) maintained for the 
        benefit of an individual which is contributed to a Roth IRA 
        maintained for the benefit of such individual in a qualified 
        rollover contribution.
            ``(C) Conversions.--The conversion of an individual 
        retirement plan (other than a Roth IRA) to a Roth IRA shall be 
        treated for purposes of this paragraph as a distribution to 
        which this paragraph applies.
            ``(D) Conversion of excess contributions.--If, no later 
        than the due date for filing the return of tax for any taxable 
        year (without regard to extensions), an individual transfers, 
        from an individual retirement plan (other than a Roth IRA), 
        contributions for such taxable year (and any earnings allocable 
        thereto) to a Roth IRA, no such amount shall be includible in 
        gross income to the extent no deduction was allowed with 
        respect to such amount.
            ``(E) Additional reporting requirements.--Trustees of Roth 
        IRAs, trustees of individual retirement plans, or both, 
        whichever is appropriate, shall include such additional 
        information in reports required under section 408(i) as the 
        Secretary may require to ensure that amounts required to be 
        included in gross income under subparagraph (A) are so 
        included.
        ``(4) Coordination with individual retirement accounts.--
    Section 408(d)(2) shall be applied separately with respect to Roth 
    IRAs and other individual retirement plans.
        ``(5) Qualified special purpose distribution.--For purposes of 
    this section, the term `qualified special purpose distribution' 
    means any distribution to which subparagraph (F) of section 
    72(t)(2) applies.
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a rollover 
contribution to a Roth IRA from another such account, or from an 
individual retirement plan, but only if such rollover contribution 
meets the requirements of section 408(d)(3). For purposes of section 
408(d)(3)(B), there shall be disregarded any qualified rollover 
contribution from an individual retirement plan (other than a Roth IRA) 
to a Roth IRA.''.
    (b) Excess Contributions.--Section 4973(b), as amended by title II, 
is amended by adding at the end the following new subsection:
    ``(f) Excess Contributions to Roth IRAs.--For purposes of this 
section, in the case of contributions to a Roth IRA (within the meaning 
of section 408A(b)), the term `excess contributions' means the sum of--
        ``(1) the excess (if any) of--
            ``(A) the amount contributed for the taxable year to such 
        accounts (other than a qualified rollover contribution 
        described in section 408A(e)), over
            ``(B) the amount allowable as a contribution under sections 
        408A (c)(2) and (c)(3), and
        ``(2) the amount determined under this subsection for the 
    preceding taxable year, reduced by the sum of--
            ``(A) the distributions out of the accounts for the taxable 
        year, and
            ``(B) the excess (if any) of the maximum amount allowable 
        as a contribution under sections 408A (c)(2) and (c)(3) for the 
        taxable year over the amount contributed to the accounts for 
        the taxable year.
For purposes of this subsection, any contribution which is distributed 
from a Roth IRA in a distribution described in section 408(d)(4) shall 
be treated as an amount not contributed.''.
    (c) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is amended to 
read as follows:
                ``(ii) the compensation includible in the gross income 
            of such individual's spouse for the taxable year reduced 
            by--

                    ``(I) the amount allowed as a deduction under 
                subsection (a) to such spouse for such taxable year, 
                and
                    ``(II) the amount of any contribution on behalf of 
                such spouse to a Roth IRA under section 408A for such 
                taxable year.''.

    (d) Authority To Prescribe Necessary Reporting.--Section 408(i) is 
amended--
        (1) by striking ``under regulations'', and
        (2) by striking ``in such regulations'' each place it appears.
    (e) Conforming Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 is amended by inserting after the 
item relating to section 408 the following new item:
        ``Sec. 408A. Roth IRAs.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PURCHASE FIRST HOMES.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans), as amended by section 203, is amended by 
adding at the end the following new subparagraph:
            ``(F) Distributions from certain plans for first home 
        purchases.--Distributions to an individual from an individual 
        retirement plan which are qualified first-time homebuyer 
        distributions (as defined in paragraph (8)). Distributions 
        shall not be taken into account under the preceding sentence if 
        such distributions are described in subparagraph (A), (C), (D), 
        or (E) or to the extent paragraph (1) does not apply to such 
        distributions by reason of subparagraph (B).''.
    (b) Definitions.--Section 72(t), as amended by section 203, is 
amended by adding at the end the following new paragraphs:
        ``(8) Qualified first-time homebuyer distributions.--For 
    purposes of paragraph (2)(F)--
            ``(A) In general.--The term `qualified first-time homebuyer 
        distribution' means any payment or distribution received by an 
        individual to the extent such payment or distribution is used 
        by the individual before the close of the 120th day after the 
        day on which such payment or distribution is received to pay 
        qualified acquisition costs with respect to a principal 
        residence of a first-time homebuyer who is such individual, the 
        spouse of such individual, or any child, grandchild, or 
        ancestor of such individual or the individual's spouse.
            ``(B) Lifetime dollar limitation.--The aggregate amount of 
        payments or distributions received by an individual which may 
        be treated as qualified first-time homebuyer distributions for 
        any taxable year shall not exceed the excess (if any) of--
                ``(i) $10,000, over
                ``(ii) the aggregate amounts treated as qualified 
            first-time homebuyer distributions with respect to such 
            individual for all prior taxable years.
            ``(C) Qualified acquisition costs.--For purposes of this 
        paragraph, the term `qualified acquisition costs' means the 
        costs of acquiring, constructing, or reconstructing a 
        residence. Such term includes any usual or reasonable 
        settlement, financing, or other closing costs.
            ``(D) First-time homebuyer; other definitions.--For 
        purposes of this paragraph--
                ``(i) First-time homebuyer.--The term `first-time 
            homebuyer' means any individual if--

                    ``(I) such individual (and if married, such 
                individual's spouse) had no present ownership interest 
                in a principal residence during the 2-year period 
                ending on the date of acquisition of the principal 
                residence to which this paragraph applies, and
                    ``(II) subsection (h) or (k) of section 1034 (as in 
                effect on the day before the date of the enactment of 
                this paragraph) did not suspend the running of any 
                period of time specified in section 1034 (as so in 
                effect) with respect to such individual on the day 
                before the date the distribution is applied pursuant to 
                subparagraph (A).

                ``(ii) Principal residence.--The term `principal 
            residence' has the same meaning as when used in section 
            121.
                ``(iii) Date of acquisition.--The term `date of 
            acquisition' means the date--

                    ``(I) on which a binding contract to acquire the 
                principal residence to which subparagraph (A) applies 
                is entered into, or
                    ``(II) on which construction or reconstruction of 
                such a principal residence is commenced.

            ``(E) Special rule where delay in acquisition.--If any 
        distribution from any individual retirement plan fails to meet 
        the requirements of subparagraph (A) solely by reason of a 
        delay or cancellation of the purchase or construction of the 
        residence, the amount of the distribution may be contributed to 
        an individual retirement plan as provided in section 
        408(d)(3)(A)(i) (determined by substituting `120 days' for `60 
        days' in such section), except that--
                ``(i) section 408(d)(3)(B) shall not be applied to such 
            contribution, and
                ``(ii) such amount shall not be taken into account in 
            determining whether section 408(d)(3)(B) applies to any 
            other amount.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments and distributions in taxable years beginning after 
December 31, 1997.

SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.

    (a) In General.--Paragraph (3) of section 408(m) (relating to 
exception for certain coins) is amended to read as follows:
        ``(3) Exception for certain coins and bullion.--For purposes of 
    this subsection, the term `collectible' shall not include--
            ``(A) any coin which is--
                ``(i) a gold coin described in paragraph (7), (8), (9), 
            or (10) of section 5112(a) of title 31, United States Code,
                ``(ii) a silver coin described in section 5112(e) of 
            title 31, United States Code,
                ``(iii) a platinum coin described in section 5112(k) of 
            title 31, United States Code, or
                ``(iv) a coin issued under the laws of any State, or
            ``(B) any gold, silver, platinum, or palladium bullion of a 
        fineness equal to or exceeding the minimum fineness that a 
        contract market (as described in section 7 of the Commodity 
        Exchange Act, 7 U.S.C. 7) requires for metals which may be 
        delivered in satisfaction of a regulated futures contract,
    if such bullion is in the physical possession of a trustee 
    described under subsection (a) of this section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

                       Subtitle B--Capital Gains

SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.

    (a) In General.--Subsection (h) of section 1 (relating to maximum 
capital gains rate) is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
        ``(1) In general.--If a taxpayer has a net capital gain for any 
    taxable year, the tax imposed by this section for such taxable year 
    shall not exceed the sum of--
            ``(A) a tax computed at the rates and in the same manner as 
        if this subsection had not been enacted on the greater of--
                ``(i) taxable income reduced by the net capital gain, 
            or
                ``(ii) the lesser of--

                    ``(I) the amount of taxable income taxed at a rate 
                below 28 percent, or
                    ``(II) taxable income reduced by the adjusted net 
                capital gain, plus

            ``(B) 25 percent of the excess (if any) of--
                ``(i) the unrecaptured section 1250 gain (or, if less, 
            the net capital gain), over
                ``(ii) the excess (if any) of--

                    ``(I) the sum of the amount on which tax is 
                determined under subparagraph (A) plus the net capital 
                gain, over
                    ``(II) taxable income, plus

            ``(C) 28 percent of the amount of taxable income in excess 
        of the sum of--
                ``(i) the adjusted net capital gain, plus
                ``(ii) the sum of the amounts on which tax is 
            determined under subparagraphs (A) and (B), plus
            ``(D) 10 percent of so much of the taxpayer's adjusted net 
        capital gain (or, if less, taxable income) as does not exceed 
        the excess (if any) of--
                ``(i) the amount of taxable income which would (without 
            regard to this paragraph) be taxed at a rate below 28 
            percent, over
                ``(ii) the taxable income reduced by the adjusted net 
            capital gain, plus
            ``(E) 20 percent of the taxpayer's adjusted net capital 
        gain (or, if less, taxable income) in excess of the amount on 
        which a tax is determined under subparagraph (D).
        ``(2) Reduced capital gain rates for qualified 5-year gain.--
            ``(A) Reduction in 10-percent rate.--In the case of any 
        taxable year beginning after December 31, 2000, the rate under 
        paragraph (1)(D) shall be 8 percent with respect to so much of 
        the amount to which the 10-percent rate would otherwise apply 
        as does not exceed qualified 5-year gain, and 10 percent with 
        respect to the remainder of such amount.
            ``(B) Reduction in 20-percent rate.--The rate under 
        paragraph (1)(E) shall be 18 percent with respect to so much of 
        the amount to which the 20-percent rate would otherwise apply 
        as does not exceed the lesser of--
                ``(i) the excess of qualified 5-year gain over the 
            amount of such gain taken into account under subparagraph 
            (A) of this paragraph, or
                ``(ii) the amount of qualified 5-year gain (determined 
            by taking into account only property the holding period for 
            which begins after December 31, 2000),
        and 20 percent with respect to the remainder of such amount. 
        For purposes of determining under the preceding sentence 
        whether the holding period of property begins after December 
        31, 2000, the holding period of property acquired pursuant to 
        the exercise of an option (or other right or obligation to 
        acquire property) shall include the period such option (or 
        other right or obligation) was held.
        ``(3) Net capital gain taken into account as investment 
    income.--For purposes of this subsection, the net capital gain for 
    any taxable year shall be reduced (but not below zero) by the 
    amount which the taxpayer takes into account as investment income 
    under section 163(d)(4)(B)(iii).
        ``(4) Adjusted net capital gain.--For purposes of this 
    subsection, the term `adjusted net capital gain' means net capital 
    gain determined without regard to--
            ``(A) collectibles gain,
            ``(B) unrecaptured section 1250 gain,
            ``(C) section 1202 gain, and
            ``(D) mid-term gain.
        ``(5) Collectibles gain.--For purposes of this subsection--
            ``(A) In general.--The term `collectibles gain' means gain 
        from the sale or exchange of a collectible (as defined in 
        section 408(m) without regard to paragraph (3) thereof) which 
        is a capital asset held for more than 1 year but only to the 
        extent such gain is taken into account in computing gross 
        income.
            ``(B) Partnerships, etc.--For purposes of subparagraph (A), 
        any gain from the sale of an interest in a partnership, S 
        corporation, or trust which is attributable to unrealized 
        appreciation in the value of collectibles shall be treated as 
        gain from the sale or exchange of a collectible. Rules similar 
        to the rules of section 751 shall apply for purposes of the 
        preceding sentence.
        ``(6) Unrecaptured section 1250 gain.--For purposes of this 
    subsection--
            ``(A) In general.--The term `unrecaptured section 1250 
        gain' means the amount of long-term capital gain which would be 
        treated as ordinary income if--
                ``(i) section 1250(b)(1) included all depreciation and 
            the applicable percentage under section 1250(a) were 100 
            percent, and
                ``(ii) in the case of gain properly taken into account 
            after July 28, 1997, only gain from section 1250 property 
            held for more than 18 months were taken into account.
            ``(B) Limitation with respect to section 1231 property.--
        The amount of unrecaptured section 1250 gain from sales, 
        exchanges, and conversions described in section 1231(a)(3)(A) 
        for any taxable year shall not exceed the excess of the net 
        section 1231 gain (as defined in section 1231(c)(3)) for such 
        year over the amount treated as ordinary income under section 
        1231(c)(1) for such year.
            ``(C) Pre-may 7, 1997, gain.--In the case of a taxable year 
        which includes May 7, 1997, subparagraph (A) shall be applied 
        by taking into account only the gain properly taken into 
        account for the portion of the taxable year after May 6, 1997.
        ``(7) Section 1202 gain.--For purposes of this subsection, the 
    term `section 1202 gain' means an amount equal to the gain excluded 
    from gross income under section 1202(a).
        ``(8) Mid-term gain.--For purposes of this subsection, the term 
    `mid-term gain' means the amount which would be adjusted net 
    capital gain for the taxable year if--
            ``(A) adjusted net capital gain were determined by taking 
        into account only the gain or loss properly taken into account 
        after July 28, 1997, from property held for more than 1 year 
        but not more than 18 months, and
            ``(B) paragraph (3) and section 1212 did not apply.
        ``(9) Qualified 5-year gain.--For purposes of this subsection, 
    the term `qualified 5-year gain' means the amount of long-term 
    capital gain which would be computed for the taxable year if only 
    gains from the sale or exchange of property held by the taxpayer 
    for more than 5 years were taken into account. The determination 
    under the preceding sentence shall be made without regard to 
    collectibles gain, unrecaptured section 1250 gain (determined 
    without regard to subparagraph (B) of paragraph (6)), section 1202 
    gain, or mid-term gain.
        ``(10) Pre-effective date gain.--
            ``(A) In general.--In the case of a taxable year which 
        includes May 7, 1997, gains and losses properly taken into 
        account for the portion of the taxable year before May 7, 1997, 
        shall be taken into account in determining mid-term gain as if 
        such gains and losses were described in paragraph (8)(A).
            ``(B) Special rules for pass-thru entities.--In applying 
        subparagraph (A) with respect to any pass-thru entity, the 
        determination of when gains and loss are properly taken into 
        account shall be made at the entity level.
            ``(C) Pass-thru entity defined.--For purposes of 
        subparagraph (B), the term `pass-thru entity' means--
                ``(i) a regulated investment company,
                ``(ii) a real estate investment trust,
                ``(iii) an S corporation,
                ``(iv) a partnership,
                ``(v) an estate or trust, and
                ``(vi) a common trust fund.
        ``(11) Treatment of pass-thru entities.--The Secretary may 
    prescribe such regulations as are appropriate (including 
    regulations requiring reporting) to apply this subsection in the 
    case of sales and exchanges by pass-thru entities (as defined in 
    paragraph (10)(C)) and of interests in such entities.''.
    (b) Minimum Tax.--
        (1) In general.--Subsection (b) of section 55 is amended by 
    adding at the end the following new paragraph:
        ``(3) Maximum rate of tax on net capital gain of noncorporate 
    taxpayers.--The amount determined under the first sentence of 
    paragraph (1)(A)(i) shall not exceed the sum of--
            ``(A) the amount determined under such first sentence 
        computed at the rates and in the same manner as if this 
        paragraph had not been enacted on the taxable excess reduced by 
        the lesser of--
                ``(i) the net capital gain, or
                ``(ii) the sum of--

                    ``(I) the adjusted net capital gain, plus
                    ``(II) the unrecaptured section 1250 gain, plus

            ``(B) 25 percent of the lesser of--
                ``(i) the unrecaptured section 1250 gain, or
                ``(ii) the amount of taxable excess in excess of the 
            sum of--

                    ``(I) the adjusted net capital gain, plus
                    ``(II) the amount on which a tax is determined 
                under subparagraph (A), plus

            ``(C) 10 percent of so much of the taxpayer's adjusted net 
        capital gain (or, if less, taxable excess) as does not exceed 
        the amount on which a tax is determined under section 
        1(h)(1)(D), plus
            ``(D) 20 percent of the taxpayer's adjusted net capital 
        gain (or, if less, taxable excess) in excess of the amount on 
        which tax is determined under subparagraph (C).
    In the case of taxable years beginning after December 31, 2000, 
    rules similar to the rules of section 1(h)(2) shall apply for 
    purposes of subparagraphs (C) and (D). Terms used in this paragraph 
    which are also used in section 1(h) shall have the respective 
    meanings given such terms by section 1(h).''.
        (2) Conforming amendments.--
            (A) Clause (ii) of section 55(b)(1)(A) is amended by 
        striking ``clause (i)'' and inserting ``this subsection''.
            (B) Paragraph (7) of section 57(a) is amended by striking 
        ``one-half'' and inserting ``42 percent''.
    (c) Other Conforming Amendments.--
        (1) Paragraph (1) of section 1445(e) is amended by striking 
    ``28 percent'' and inserting ``20 percent''.
        (2) The second sentence of section 7518(g)(6)(A), and the 
    second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 
    1936, are each amended by striking ``28 percent'' and inserting 
    ``20 percent''.
        (3) Paragraph (2) of section 904(b) is amended by adding at the 
    end the following new subparagraph:
            ``(C) Coordination with capital gains rates.--The Secretary 
        may by regulations modify the application of this paragraph and 
        paragraph (3) to the extent necessary to properly reflect any 
        capital gain rate differential under section 1(h) or 1201(a) 
        and the computation of net capital gain.''.
    (d) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years ending 
    after May 6, 1997.
        (2) Withholding.--The amendment made by subsection (c)(1) shall 
    apply only to amounts paid after the date of the enactment of this 
    Act.
    (e) Election To Recognize Gain on Assets Held on January 1, 2001.--
For purposes of the Internal Revenue Code of 1986--
        (1) In general.--A taxpayer other than a corporation may elect 
    to treat--
            (A) any readily tradable stock (which is a capital asset) 
        held by such taxpayer on January 1, 2001, and not sold before 
        the next business day after such date, as having been sold on 
        such next business day for an amount equal to its closing 
        market price on such next business day (and as having been 
        reacquired on such next business day for an amount equal to 
        such closing market price), and
            (B) any other capital asset or property used in the trade 
        or business (as defined in section 1231(b) of the Internal 
        Revenue Code of 1986) held by the taxpayer on January 1, 2001, 
        as having been sold on such date for an amount equal to its 
        fair market value on such date (and as having been reacquired 
        on such date for an amount equal to such fair market value).
        (2) Treatment of gain or loss.--
            (A) Any gain resulting from an election under paragraph (1) 
        shall be treated as received or accrued on the date the asset 
        is treated as sold under paragraph (1) and shall be recognized 
        notwithstanding any provision of the Internal Revenue Code of 
        1986.
            (B) Any loss resulting from an election under paragraph (1) 
        shall not be allowed for any taxable year.
        (3) Election.--An election under paragraph (1) shall be made in 
    such manner as the Secretary of the Treasury or his delegate may 
    prescribe and shall specify the assets for which such election is 
    made. Such an election, once made with respect to any asset, shall 
    be irrevocable.
        (4) Readily tradable stock.--For purposes of this subsection, 
    the term ``readily tradable stock'' means any stock which, as of 
    January 1, 2001, is readily tradable on an established securities 
    market or otherwise.

SEC. 312. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.

    (a) In General.--Section 121 (relating to one-time exclusion of 
gain from sale of principal residence by individual who has attained 
age 55) is amended to read as follows:

``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    ``(a) Exclusion.--Gross income shall not include gain from the sale 
or exchange of property if, during the 5-year period ending on the date 
of the sale or exchange, such property has been owned and used by the 
taxpayer as the taxpayer's principal residence for periods aggregating 
2 years or more.
    ``(b) Limitations.--
        ``(1) In general.--The amount of gain excluded from gross 
    income under subsection (a) with respect to any sale or exchange 
    shall not exceed $250,000.
        ``(2) $500,000 limitation for certain joint returns.--Paragraph 
    (1) shall be applied by substituting `$500,000' for `$250,000' if--
            ``(A) a husband and wife make a joint return for the 
        taxable year of the sale or exchange of the property,
            ``(B) either spouse meets the ownership requirements of 
        subsection (a) with respect to such property,
            ``(C) both spouses meet the use requirements of subsection 
        (a) with respect to such property, and
            ``(D) neither spouse is ineligible for the benefits of 
        subsection (a) with respect to such property by reason of 
        paragraph (3).
        ``(3) Application to only 1 sale or exchange every 2 years.--
            ``(A) In general.--Subsection (a) shall not apply to any 
        sale or exchange by the taxpayer if, during the 2-year period 
        ending on the date of such sale or exchange, there was any 
        other sale or exchange by the taxpayer to which subsection (a) 
        applied.
            ``(B) Pre-may 7, 1997, sales not taken into account.--
        Subparagraph (A) shall be applied without regard to any sale or 
        exchange before May 7, 1997.
    ``(c) Exclusion for Taxpayers Failing To Meet Certain 
Requirements.--
        ``(1) In general.--In the case of a sale or exchange to which 
    this subsection applies, the ownership and use requirements of 
    subsection (a) shall not apply and subsection (b)(3) shall not 
    apply; but the amount of gain excluded from gross income under 
    subsection (a) with respect to such sale or exchange shall not 
    exceed--
            ``(A) the amount which bears the same ratio to the amount 
        which would be so excluded under this section if such 
        requirements had been met, as
            ``(B) the shorter of--
                ``(i) the aggregate periods, during the 5-year period 
            ending on the date of such sale or exchange, such property 
            has been owned and used by the taxpayer as the taxpayer's 
            principal residence, or
                ``(ii) the period after the date of the most recent 
            prior sale or exchange by the taxpayer to which subsection 
            (a) applied and before the date of such sale or exchange,
        bears to 2 years.
        ``(2) Sales and exchanges to which subsection applies.--This 
    subsection shall apply to any sale or exchange if--
            ``(A) subsection (a) would not (but for this subsection) 
        apply to such sale or exchange by reason of--
                ``(i) a failure to meet the ownership and use 
            requirements of subsection (a), or
                ``(ii) subsection (b)(3), and
            ``(B) such sale or exchange is by reason of a change in 
        place of employment, health, or, to the extent provided in 
        regulations, unforeseen circumstances.
    ``(d) Special Rules.--
        ``(1) Joint returns.--If a husband and wife make a joint return 
    for the taxable year of the sale or exchange of the property, 
    subsections (a) and (c) shall apply if either spouse meets the 
    ownership and use requirements of subsection (a) with respect to 
    such property.
        ``(2) Property of deceased spouse.--For purposes of this 
    section, in the case of an unmarried individual whose spouse is 
    deceased on the date of the sale or exchange of property, the 
    period such unmarried individual owned and used such property shall 
    include the period such deceased spouse owned and used such 
    property before death.
        ``(3) Property owned by spouse or former spouse.--For purposes 
    of this section--
            ``(A) Property transferred to individual from spouse or 
        former spouse.--In the case of an individual holding property 
        transferred to such individual in a transaction described in 
        section 1041(a), the period such individual owns such property 
        shall include the period the transferor owned the property.
            ``(B) Property used by former spouse pursuant to divorce 
        decree, etc.--Solely for purposes of this section, an 
        individual shall be treated as using property as such 
        individual's principal residence during any period of ownership 
        while such individual's spouse or former spouse is granted use 
        of the property under a divorce or separation instrument (as 
        defined in section 71(b)(2)).
        ``(4) Tenant-stockholder in cooperative housing corporation.--
    For purposes of this section, if the taxpayer holds stock as a 
    tenant-stockholder (as defined in section 216) in a cooperative 
    housing corporation (as defined in such section), then--
            ``(A) the holding requirements of subsection (a) shall be 
        applied to the holding of such stock, and
            ``(B) the use requirements of subsection (a) shall be 
        applied to the house or apartment which the taxpayer was 
        entitled to occupy as such stockholder.
        ``(5) Involuntary conversions.--
            ``(A) In general.--For purposes of this section, the 
        destruction, theft, seizure, requisition, or condemnation of 
        property shall be treated as the sale of such property.
            ``(B) Application of section 1033.--In applying section 
        1033 (relating to involuntary conversions), the amount realized 
        from the sale or exchange of property shall be treated as being 
        the amount determined without regard to this section, reduced 
        by the amount of gain not included in gross income pursuant to 
        this section.
            ``(C) Property acquired after involuntary conversion.--If 
        the basis of the property sold or exchanged is determined (in 
        whole or in part) under section 1033(b) (relating to basis of 
        property acquired through involuntary conversion), then the 
        holding and use by the taxpayer of the converted property shall 
        be treated as holding and use by the taxpayer of the property 
        sold or exchanged.
        ``(6) Recognition of gain attributable to depreciation.--
    Subsection (a) shall not apply to so much of the gain from the sale 
    of any property as does not exceed the portion of the depreciation 
    adjustments (as defined in section 1250(b)(3)) attributable to 
    periods after May 6, 1997, in respect of such property.
        ``(7) Determination of use during periods of out-of-residence 
    care.--In the case of a taxpayer who--
            ``(A) becomes physically or mentally incapable of self-
        care, and
            ``(B) owns property and uses such property as the 
        taxpayer's principal residence during the 5-year period 
        described in subsection (a) for periods aggregating at least 1 
        year,
    then the taxpayer shall be treated as using such property as the 
    taxpayer's principal residence during any time during such 5-year 
    period in which the taxpayer owns the property and resides in any 
    facility (including a nursing home) licensed by a State or 
    political subdivision to care for an individual in the taxpayer's 
    condition.
        ``(8) Sales of remainder interests.--For purposes of this 
    section--
            ``(A) In general.--At the election of the taxpayer, this 
        section shall not fail to apply to the sale or exchange of an 
        interest in a principal residence by reason of such interest 
        being a remainder interest in such residence, but this section 
        shall not apply to any other interest in such residence which 
        is sold or exchanged separately.
            ``(B) Exception for sales to related parties.--Subparagraph 
        (A) shall not apply to any sale to, or exchange with, any 
        person who bears a relationship to the taxpayer which is 
        described in section 267(b) or 707(b).
    ``(e) Denial of Exclusion for Expatriates.--This section shall not 
apply to any sale or exchange by an individual if the treatment 
provided by section 877(a)(1) applies to such individual.
    ``(f) Election To Have Section Not Apply.--This section shall not 
apply to any sale or exchange with respect to which the taxpayer elects 
not to have this section apply.
    ``(g) Residences Acquired in Rollovers Under Section 1034.--For 
purposes of this section, in the case of property the acquisition of 
which by the taxpayer resulted under section 1034 (as in effect on the 
day before the date of the enactment of this section) in the 
nonrecognition of any part of the gain realized on the sale or exchange 
of another residence, in determining the period for which the taxpayer 
has owned and used such property as the taxpayer's principal residence, 
there shall be included the aggregate periods for which such other 
residence (and each prior residence taken into account under section 
1223(7) in determining the holding period of such property) had been so 
owned and used.''.
    (b) Repeal of Nonrecognition of Gain on Rollover of Principal 
Residence.--Section 1034 (relating to rollover of gain on sale of 
principal residence) is hereby repealed.
    (c) Exception From Reporting.--Subsection (e) of section 6045 
(relating to return required in the case of real estate transactions) 
is amended by adding at the end the following new paragraph:
        ``(5) Exception for sales or exchanges of certain principal 
    residences.--
            ``(A) In general.--Paragraph (1) shall not apply to any 
        sale or exchange of a residence for $250,000 or less if the 
        person referred to in paragraph (2) receives written assurance 
        in a form acceptable to the Secretary from the seller that--
                ``(i) such residence is the principal residence (within 
            the meaning of section 121) of the seller,
                ``(ii) if the Secretary requires the inclusion on the 
            return under subsection (a) of information as to whether 
            there is federally subsidized mortgage financing assistance 
            with respect to the mortgage on residences, that there is 
            no such assistance with respect to the mortgage on such 
            residence, and
                ``(iii) the full amount of the gain on such sale or 
            exchange is excludable from gross income under section 121.
        If such assurance includes an assurance that the seller is 
        married, the preceding sentence shall be applied by 
        substituting `$500,000' for `$250,000'.
    The Secretary may by regulation increase the dollar amounts under 
    this subparagraph if the Secretary determines that such an increase 
    will not materially reduce revenues to the Treasury.
            ``(B) Seller.--For purposes of this paragraph, the term 
        `seller' includes the person relinquishing the residence in an 
        exchange.''.
    (d) Conforming Amendments.--
        (1) The following provisions of the Internal Revenue Code of 
    1986 are each amended by striking ``section 1034'' and inserting 
    ``section 121'': sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i), 
    143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 
    464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and 
    7872(f)(11)(A).
        (2) Paragraph (4) of section 32(c) is amended by striking ``(as 
    defined in section 1034(h)(3))'' and by adding at the end the 
    following new sentence: ``For purposes of the preceding sentence, 
    the term `extended active duty' means any period of active duty 
    pursuant to a call or order to such duty for a period in excess of 
    90 days or for an indefinite period.''.
        (3) Subparagraph (A) of 143(m)(6) is amended by inserting ``(as 
    in effect on the day before the date of the enactment of the 
    Taxpayer Relief Act of 1997)'' after ``1034(e)''.
        (4) Subsection (e) of section 216 is amended by striking ``such 
    exchange qualifies for nonrecognition of gain under section 
    1034(f)'' and inserting ``such dwelling unit is used as his 
    principal residence (within the meaning of section 121)''.
        (5) Section 512(a)(3)(D) is amended by inserting ``(as in 
    effect on the day before the date of the enactment of the Taxpayer 
    Relief Act of 1997)'' after ``1034''.
        (6) Paragraph (7) of section 1016(a) is amended by inserting 
    ``(as in effect on the day before the date of the enactment of the 
    Taxpayer Relief Act of 1997)'' after ``1034'' and by inserting 
    ``(as so in effect)'' after ``1034(e)''.
        (7) Paragraph (3) of section 1033(k) is amended to read as 
    follows:
        ``(3) For exclusion from gross income of gain from involuntary 
    conversion of principal residence, see section 121.''.
        (8) Subsection (e) of section 1038 is amended to read as 
    follows:
    ``(e) Principal Residences.--If--
        ``(1) subsection (a) applies to a reacquisition of real 
    property with respect to the sale of which gain was not recognized 
    under section 121 (relating to gain on sale of principal 
    residence); and
        ``(2) within 1 year after the date of the reacquisition of such 
    property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections (b), 
(c), and (d) of this section shall not apply to the reacquisition of 
such property and, for purposes of applying section 121, the resale of 
such property shall be treated as a part of the transaction 
constituting the original sale of such property.''.
        (9) Paragraph (7) of section 1223 is amended by inserting ``(as 
    in effect on the day before the date of the enactment of the 
    Taxpayer Relief Act of 1997)'' after ``1034''.
        (10)(A) Subsection (d) of section 1250 is amended by striking 
    paragraph (7) and by redesignating paragraphs (9) and (10) as 
    paragraphs (7) and (8), respectively.
        (B) Subsection (e) of section 1250 is amended by striking 
    paragraph (3).
        (11) Subsection (c) of section 6012 is amended by striking 
    ``(relating to one-time exclusion of gain from sale of principal 
    residence by individual who has attained age 55)'' and inserting 
    ``(relating to gain from sale of principal residence)''.
        (12) Paragraph (2) of section 6212(c) is amended by striking 
    subparagraph (C) and by redesignating the succeeding subparagraphs 
    accordingly.
        (13) Section 6504 is amended by striking paragraph (4) and by 
    redesignating the succeeding paragraphs accordingly.
        (14) The item relating to section 121 in the table of sections 
    for part III of subchapter B of chapter 1 is amended to read as 
    follows:
        ``Sec. 121. Exclusion of gain from sale of principal 
                  residence.''.

        (15) The table of sections for part III of subchapter O of 
    chapter 1 is amended by striking the item relating to section 1034.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to sales and exchanges after May 6, 1997.
        (2) Sales before date of enactment.--At the election of the 
    taxpayer, the amendments made by this section shall not apply to 
    any sale or exchange before the date of the enactment of this Act.
        (3) Certain sales within 2 years after date of enactment.--
    Section 121 of the Internal Revenue Code of 1986 (as amended by 
    this section) shall be applied without regard to subsection 
    (c)(2)(B) thereof in the case of any sale or exchange of property 
    during the 2-year period beginning on the date of the enactment of 
    this Act if the taxpayer held such property on the date of the 
    enactment of this Act and fails to meet the ownership and use 
    requirements of subsection (a) thereof with respect to such 
    property.
        (4) Binding contracts.--At the election of the taxpayer, the 
    amendments made by this section shall not apply to a sale or 
    exchange after the date of the enactment of this Act, if--
            (A) such sale or exchange is pursuant to a contract which 
        was binding on such date, or
            (B) without regard to such amendments, gain would not be 
        recognized under section 1034 of the Internal Revenue Code of 
        1986 (as in effect on the day before the date of the enactment 
        of this Act) on such sale or exchange by reason of a new 
        residence acquired on or before such date or with respect to 
        the acquisition of which by the taxpayer a binding contract was 
        in effect on such date.
    This paragraph shall not apply to any sale or exchange by an 
    individual if the treatment provided by section 877(a)(1) of the 
    Internal Revenue Code of 1986 applies to such individual.

SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.

    (a) In General.--Part III of subchapter O of chapter 1 is amended 
by adding at the end the following new section:

``SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS STOCK TO 
              ANOTHER QUALIFIED SMALL BUSINESS STOCK.

    ``(a) Nonrecognition of Gain.--In the case of any sale of qualified 
small business stock held by an individual for more than 6 months and 
with respect to which such individual elects the application of this 
section, gain from such sale shall be recognized only to the extent 
that the amount realized on such sale exceeds--
        ``(1) the cost of any qualified small business stock purchased 
    by the taxpayer during the 60-day period beginning on the date of 
    such sale, reduced by
        ``(2) any portion of such cost previously taken into account 
    under this section.
This section shall not apply to any gain which is treated as ordinary 
income for purposes of this title.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Qualified small business stock.--The term `qualified 
    small business stock' has the meaning given such term by section 
    1202(c).
        ``(2) Purchase.--A taxpayer shall be treated as having 
    purchased any property if, but for paragraph (3), the unadjusted 
    basis of such property in the hands of the taxpayer would be its 
    cost (within the meaning of section 1012).
        ``(3) Basis adjustments.--If gain from any sale is not 
    recognized by reason of subsection (a), such gain shall be applied 
    to reduce (in the order acquired) the basis for determining gain or 
    loss of any qualified small business stock which is purchased by 
    the taxpayer during the 60-day period described in subsection (a).
        ``(4) Holding period.--For purposes of determining whether the 
    nonrecognition of gain under subsection (a) applies to stock which 
    is sold--
            ``(A) the taxpayer's holding period for such stock and the 
        stock referred to in subsection (a)(1) shall be determined 
        without regard to section 1223, and
            ``(B) only the first 6 months of the taxpayer's holding 
        period for the stock referred to in subsection (a)(1) shall be 
        taken into account for purposes of applying section 
        1202(c)(2).''.
    (b) Conforming Amendments.--
        (1) Section 1016(a)(23) is amended--
            (A) by striking ``or 1044'' and inserting ``, 1044, or 
        1045'', and
            (B) by striking ``or 1044(d)'' and inserting ``, 1044(d), 
        or 1045(b)(4)''.
        (2) Section 1223 is amended by redesignating paragraph (15) as 
    paragraph (16) and by inserting after paragraph (14) the following 
    new paragraph:
        ``(15) In determining the period for which the taxpayer has 
    held property the acquisition of which resulted under section 1045 
    in the nonrecognition of any part of the gain realized on the sale 
    of other property, there shall be included the period for which 
    such other property has been held as of the date of such sale.''.
        (3) The table of sections for part III of subchapter O of 
    chapter 1 is amended by adding at the end the following new item:
        ``Sec. 1045. Rollover of gain from qualified small business 
                  stock to another qualified small business stock.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to sales after the date of enactment of this Act.

SEC. 314. AMOUNT OF NET CAPITAL GAIN TAKEN INTO ACCOUNT IN COMPUTING 
              ALTERNATIVE TAX ON CAPITAL GAINS FOR CORPORATIONS NOT TO 
              EXCEED TAXABLE INCOME OF THE CORPORATION.

    (a) In General.--Paragraph (2) of section 1201(a) is amended by 
inserting before the period ``(or, if less, taxable income)''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 1997.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL 
              CORPORATIONS.

    (a) In General.--Section 55 (relating to alternative minimum tax 
imposed) is amended by adding at the end the following new subsection:
    ``(e) Exemption for Small Corporations.--
        ``(1) In general.--The tentative minimum tax of a corporation 
    shall be zero for any taxable year if--
            ``(A) such corporation met the $5,000,000 gross receipts 
        test of section 448(c) for its first taxable year beginning 
        after December 31, 1996, and
            ``(B) such corporation would meet such test for the taxable 
        year and all prior taxable years beginning after such first 
        taxable year if such test were applied by substituting 
        `$7,500,000' for `$5,000,000'.
        ``(2) Prospective application of minimum tax if small 
    corporation ceases to be small.--In the case of a corporation whose 
    tentative minimum tax is zero for any prior taxable year by reason 
    of paragraph (1), the application of this part for taxable years 
    beginning with the first taxable year such corporation ceases to be 
    described in paragraph (1) shall be determined with the following 
    modifications:
            ``(A) Section 56(a)(1) (relating to depreciation) and 
        section 56(a)(5) (relating to pollution control facilities) 
        shall apply only to property placed in service on or after the 
        change date.
            ``(B) Section 56(a)(2) (relating to mining exploration and 
        development costs) shall apply only to costs paid or incurred 
        on or after the change date.
            ``(C) Section 56(a)(3) (relating to treatment of long-term 
        contracts) shall apply only to contracts entered into on or 
        after the change date.
            ``(D) Section 56(a)(4) (relating to alternative net 
        operating loss deduction) shall apply in the same manner as if, 
        in section 56(d)(2), the change date were substituted for 
        `January 1, 1987' and the day before the change date were 
        substituted for `December 31, 1986' each place it appears.
            ``(E) Section 56(g)(2)(B) (relating to limitation on 
        allowance of negative adjustments based on adjusted current 
        earnings) shall apply only to prior taxable years beginning on 
        or after the change date.
            ``(F) Section 56(g)(4)(A) (relating to adjustment for 
        depreciation to adjusted current earnings) shall not apply.
            ``(G) Subparagraphs (D) and (F) of section 56(g)(4) 
        (relating to other earnings and profits adjustments and 
        depletion) shall apply in the same manner as if the day before 
        the change date were substituted for `December 31, 1989' each 
        place it appears therein.
        ``(3) Exception.--The modifications in paragraph (2) shall not 
    apply to--
            ``(A) any item acquired by the corporation in a transaction 
        to which section 381 applies, and
            ``(B) any property the basis of which in the hands of the 
        corporation is determined by reference to the basis of the 
        property in the hands of the transferor,
    if such item or property was subject to any provision referred to 
    in paragraph (2) while held by the transferor.
        ``(4) Change date.--For purposes of paragraph (2), the change 
    date is the first day of the first taxable year for which the 
    taxpayer ceases to be described in paragraph (1).
        ``(5) Limitation on use of credit for prior year minimum tax 
    liability.--In the case of a taxpayer whose tentative minimum tax 
    for any taxable year is zero by reason of paragraph (1), section 
    53(c) shall be applied for such year by reducing the amount 
    otherwise taken into account under section 53(c)(1) by 25 percent 
    of so much of such amount as exceeds $25,000. Rules similar to the 
    rules of section 38(c)(3)(B) shall apply for purposes of the 
    preceding sentence.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 402. REPEAL OF SEPARATE DEPRECIATION LIVES FOR MINIMUM TAX 
              PURPOSES.

    (a) In General.--Clause (i) of section 56(a)(1)(A) is amended by 
adding at the end the following new sentence: ``In the case of property 
placed in service after December 31, 1998, the preceding sentence shall 
not apply but clause (ii) shall continue to apply.''.
    (b) Pollution Control Facilities.--Paragraph (5) of section 56(a) 
is amended by adding at the end the following new sentence: ``In the 
case of such a facility placed in service after December 31, 1998, such 
deduction shall be determined under section 168 using the straight line 
method.''.

SEC. 403. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.

    (a) In General.--Subsection (a) of section 56 is amended by 
striking paragraph (6) (relating to treatment of installment sales) and 
by redesignating paragraphs (7) and (8) as paragraphs (6) and (7), 
respectively.
    (b) Effective Dates.--
        (1) In general.--The amendment made by this section shall apply 
    to dispositions in taxable years beginning after December 31, 1987.
        (2) Special rule for 1987.--In the case of taxable years 
    beginning in 1987, the last sentence of section 56(a)(6) of the 
    Internal Revenue Code of 1986 (as in effect for such taxable years) 
    shall be applied by inserting ``or in the case of a taxpayer using 
    the cash receipts and disbursements method of accounting, any 
    disposition described in section 453C(e)(1)(B)(ii)'' after 
    ``section 453C(e)(4)''.

     TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
               Subtitle A--Estate and Gift Tax Provisions

SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT TAX 
              PROVISIONS.

    (a) Increase in Unified Estate and Gift Tax Credit.--
        (1) Estate tax credit.--
            (A) In general.--Subsection (a) of section 2010 (relating 
        to unified credit against estate tax) is amended by striking 
        ``$192,800'' and inserting ``the applicable credit amount''.
            (B) Applicable credit amount.--Section 2010 is amended by 
        redesignating subsection (c) as subsection (d) and by inserting 
        after subsection (b) the following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this section, the 
applicable credit amount is the amount of the tentative tax which would 
be determined under the rate schedule set forth in section 2001(c) if 
the amount with respect to which such tentative tax is to be computed 
were the applicable exclusion amount determined in accordance with the 
following table:

    ``In the case of estates of decedents
                                                          The applicable
      dying, and gifts made, during:
                                                    exclusion amount is:
          1998..........................................
                                                              $ 625,000 
          1999..........................................
                                                              $ 650,000 
          2000 and 2001.................................
                                                              $ 675,000 
          2002 and 2003.................................
                                                              $ 700,000 
          2004..........................................
                                                              $ 850,000 
          2005..........................................
                                                              $ 950,000 
          2006 or thereafter............................
                                                          $1,000,000.''.

            (C) Estate tax returns.--Paragraph (1) of section 6018(a) 
        is amended by striking ``$600,000'' and inserting ``the 
        applicable exclusion amount in effect under section 2010(c) for 
        the calendar year which includes the date of death''.
            (D) Phaseout of graduated rates and unified credit.--
        Paragraph (2) of section 2001(c) is amended by striking 
        ``$21,040,000'' and inserting ``the amount at which the average 
        tax rate under this section is 55 percent''.
            (E) Estates of nonresidents not citizens.--Subparagraph (A) 
        of section 2102(c)(3) is amended by striking ``$192,800'' and 
        inserting ``the applicable credit amount in effect under 
        section 2010(c) for the calendar year which includes the date 
        of death''.
        (2) Unified gift tax credit.--Paragraph (1) of section 2505(a) 
    is amended by striking ``$192,800'' and inserting ``the applicable 
    credit amount in effect under section 2010(c) for such calendar 
    year''.
    (b) Alternate Valuation of Certain Farm, Etc., Real Property.--
Subsection (a) of section 2032A is amended by adding at the end the 
following new paragraph:
        ``(3) Inflation adjustment.--In the case of estates of 
    decedents dying in a calendar year after 1998, the $750,000 amount 
    contained in paragraph (2) shall be increased by an amount equal 
    to--
            ``(A) $750,000, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting 
        `calendar year 1997' for `calendar year 1992' in subparagraph 
        (B) thereof.
    If any amount as adjusted under the preceding sentence is not a 
    multiple of $10,000, such amount shall be rounded to the next 
    lowest multiple of $10,000.''.
    (c) Annual Gift Tax Exclusion.--Subsection (b) of section 2503 is 
amended--
        (1) by striking the subsection heading and inserting the 
    following:
    ``(b) Exclusions From Gifts.--
        ``(1) In general.--'',
        (2) by moving the text 2 ems to the right, and
        (3) by adding at the end the following new paragraph:
        ``(2) Inflation adjustment.--In the case of gifts made in a 
    calendar year after 1998, the $10,000 amount contained in paragraph 
    (1) shall be increased by an amount equal to--
            ``(A) $10,000, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting 
        `calendar year 1997' for `calendar year 1992' in subparagraph 
        (B) thereof.
    If any amount as adjusted under the preceding sentence is not a 
    multiple of $1,000, such amount shall be rounded to the next lowest 
    multiple of $1,000.''.
    (d) Exemption From Generation-Skipping Tax.--Section 2631 (relating 
to GST exemption) is amended by adding at the end the following new 
subsection:
    ``(c) Inflation Adjustment.--In the case of an individual who dies 
in any calendar year after 1998, the $1,000,000 amount contained in 
subsection (a) shall be increased by an amount equal to--
        ``(1) $1,000,000, multiplied by
        ``(2) the cost-of-living adjustment determined under section 
    1(f)(3) for such calendar year by substituting `calendar year 1997' 
    for `calendar year 1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $10,000, such amount shall be rounded to the next lowest 
multiple of $10,000.''.
    (e) Amount Subject to Reduced Rate Where Extension of Time for 
Payment of Estate Tax on Closely Held Business.--Subsection (j) of 
section 6601 is amended by redesignating paragraph (3) as paragraph (4) 
and by inserting after paragraph (2) the following new paragraph:
        ``(3) Inflation adjustment.--In the case of estates of 
    decedents dying in a calendar year after 1998, the $1,000,000 
    amount contained in paragraph (2)(A) shall be increased by an 
    amount equal to--
            ``(A) $1,000,000, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting 
        `calendar year 1997' for `calendar year 1992' in subparagraph 
        (B) thereof.
    If any amount as adjusted under the preceding sentence is not a 
    multiple of $10,000, such amount shall be rounded to the next 
    lowest multiple of $10,000.''.
    (f) Effective date.--The amendments made by this section shall 
apply to the estates of decedents dying, and gifts made, after December 
31, 1997.

SEC. 502. FAMILY-OWNED BUSINESS EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 (relating 
to gross estate) is amended by inserting after section 2033 the 
following new section:

``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

    ``(a) In General.--In the case of an estate of a decedent to which 
this section applies, the value of the gross estate shall not include 
the lesser of--
        ``(1) the adjusted value of the qualified family-owned business 
    interests of the decedent otherwise includible in the estate, or
        ``(2) the excess of $1,300,000 over the applicable exclusion 
    amount under section 2010(c) with respect to such estate.
    ``(b) Estates to Which Section Applies.--
        ``(1) In general.--This section shall apply to an estate if--
            ``(A) the decedent was (at the date of the decedent's 
        death) a citizen or resident of the United States,
            ``(B) the executor elects the application of this section 
        and files the agreement referred to in subsection (h),
            ``(C) the sum of--
                ``(i) the adjusted value of the qualified family-owned 
            business interests described in paragraph (2), plus
                ``(ii) the amount of the gifts of such interests 
            determined under paragraph (3),
        exceeds 50 percent of the adjusted gross estate, and
            ``(D) during the 8-year period ending on the date of the 
        decedent's death there have been periods aggregating 5 years or 
        more during which--
                ``(i) such interests were owned by the decedent or a 
            member of the decedent's family, and
                ``(ii) there was material participation (within the 
            meaning of section 2032A(e)(6)) by the decedent or a member 
            of the decedent's family in the operation of the business 
            to which such interests relate.
        ``(2) Includible qualified family-owned business interests.--
    The qualified family-owned business interests described in this 
    paragraph are the interests which--
            ``(A) are included in determining the value of the gross 
        estate (without regard to this section), and
            ``(B) are acquired by any qualified heir from, or passed to 
        any qualified heir from, the decedent (within the meaning of 
        section 2032A(e)(9)).
        ``(3) Includible gifts of interests.--The amount of the gifts 
    of qualified family-owned business interests determined under this 
    paragraph is the excess of--
            ``(A) the sum of--
                ``(i) the amount of such gifts from the decedent to 
            members of the decedent's family taken into account under 
            subsection 2001(b)(1)(B), plus
                ``(ii) the amount of such gifts otherwise excluded 
            under section 2503(b),
        to the extent such interests are continuously held by members 
        of such family (other than the decedent's spouse) between the 
        date of the gift and the date of the decedent's death, over
            ``(B) the amount of such gifts from the decedent to members 
        of the decedent's family otherwise included in the gross 
        estate.
    ``(c) Adjusted Gross Estate.--For purposes of this section, the 
term `adjusted gross estate' means the value of the gross estate 
(determined without regard to this section)--
        ``(1) reduced by any amount deductible under paragraph (3) or 
    (4) of section 2053(a), and
        ``(2) increased by the excess of--
            ``(A) the sum of--
                ``(i) the amount of gifts determined under subsection 
            (b)(3), plus
                ``(ii) the amount (if more than de minimis) of other 
            transfers from the decedent to the decedent's spouse (at 
            the time of the transfer) within 10 years of the date of 
            the decedent's death, plus
                ``(iii) the amount of other gifts (not included under 
            clause (i) or (ii)) from the decedent within 3 years of 
            such date, other than gifts to members of the decedent's 
            family otherwise excluded under section 2503(b), over
            ``(B) the sum of the amounts described in clauses (i), 
        (ii), and (iii) of subparagraph (A) which are otherwise 
        includible in the gross estate.
For purposes of the preceding sentence, the Secretary may provide that 
de minimis gifts to persons other than members of the decedent's family 
shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Business 
Interests.--For purposes of this section, the adjusted value of any 
qualified family-owned business interest is the value of such interest 
for purposes of this chapter (determined without regard to this 
section), reduced by the excess of--
        ``(1) any amount deductible under paragraph (3) or (4) of 
    section 2053(a), over
        ``(2) the sum of--
            ``(A) any indebtedness on any qualified residence of the 
        decedent the interest on which is deductible under section 
        163(h)(3), plus
            ``(B) any indebtedness to the extent the taxpayer 
        establishes that the proceeds of such indebtedness were used 
        for the payment of educational and medical expenses of the 
        decedent, the decedent's spouse, or the decedent's dependents 
        (within the meaning of section 152), plus
            ``(C) any indebtedness not described in subparagraph (A) or 
        (B), to the extent such indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Business Interest.--
        ``(1) In general.--For purposes of this section, the term 
    `qualified family-owned business interest' means--
            ``(A) an interest as a proprietor in a trade or business 
        carried on as a proprietorship, or
            ``(B) an interest in an entity carrying on a trade or 
        business, if--
                ``(i) at least--

                    ``(I) 50 percent of such entity is owned (directly 
                or indirectly) by the decedent and members of the 
                decedent's family,
                    ``(II) 70 percent of such entity is so owned by 
                members of 2 families, or
                    ``(III) 90 percent of such entity is so owned by 
                members of 3 families, and

                ``(ii) for purposes of subclause (II) or (III) of 
            clause (i), at least 30 percent of such entity is so owned 
            by the decedent and members of the decedent's family.
        ``(2) Limitation.--Such term shall not include--
            ``(A) any interest in a trade or business the principal 
        place of business of which is not located in the United States,
            ``(B) any interest in an entity, if the stock or debt of 
        such entity or a controlled group (as defined in section 
        267(f)(1)) of which such entity was a member was readily 
        tradable on an established securities market or secondary 
        market (as defined by the Secretary) at any time within 3 years 
        of the date of the decedent's death,
            ``(C) any interest in a trade or business not described in 
        section 542(c)(2), if more than 35 percent of the adjusted 
        ordinary gross income of such trade or business for the taxable 
        year which includes the date of the decedent's death would 
        qualify as personal holding company income (as defined in 
        section 543(a)),
            ``(D) that portion of an interest in a trade or business 
        that is attributable to--
                ``(i) cash or marketable securities, or both, in excess 
            of the reasonably expected day-to-day working capital needs 
            of such trade or business, and
                ``(ii) any other assets of the trade or business (other 
            than assets used in the active conduct of a trade or 
            business described in section 542(c)(2)), which produce, or 
            are held for the production of, income of which is 
            described in section 543(a) or in section 954(c)(1) 
            (determined without regard to subparagraph (A) thereof and 
            by substituting `trade or business' for `controlled foreign 
            corporation').
        ``(3) Rules regarding ownership.--
            ``(A) Ownership of entities.--For purposes of paragraph 
        (1)(B)--
                ``(i) Corporations.--Ownership of a corporation shall 
            be determined by the holding of stock possessing the 
            appropriate percentage of the total combined voting power 
            of all classes of stock entitled to vote and the 
            appropriate percentage of the total value of shares of all 
            classes of stock.
                ``(ii) Partnerships.--Ownership of a partnership shall 
            be determined by the owning of the appropriate percentage 
            of the capital interest in such partnership.
            ``(B) Ownership of tiered entities.--For purposes of this 
        section, if by reason of holding an interest in a trade or 
        business, a decedent, any member of the decedent's family, any 
        qualified heir, or any member of any qualified heir's family is 
        treated as holding an interest in any other trade or business--
                ``(i) such ownership interest in the other trade or 
            business shall be disregarded in determining if the 
            ownership interest in the first trade or business is a 
            qualified family-owned business interest, and
                ``(ii) this section shall be applied separately in 
            determining if such interest in any other trade or business 
            is a qualified family-owned business interest.
            ``(C) Individual ownership rules.--For purposes of this 
        section, an interest owned, directly or indirectly, by or for 
        an entity described in paragraph (1)(B) shall be considered as 
        being owned proportionately by or for the entity's 
        shareholders, partners, or beneficiaries. A person shall be 
        treated as a beneficiary of any trust only if such person has a 
        present interest in such trust.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
        ``(1) In general.--There is imposed an additional estate tax 
    if, within 10 years after the date of the decedent's death and 
    before the date of the qualified heir's death--
            ``(A) the material participation requirements described in 
        section 2032A(c)(6)(B) are not met with respect to the 
        qualified family-owned business interest which was acquired (or 
        passed) from the decedent,
            ``(B) the qualified heir disposes of any portion of a 
        qualified family-owned business interest (other than by a 
        disposition to a member of the qualified heir's family or 
        through a qualified conservation contribution under section 
        170(h)),
            ``(C) the qualified heir loses United States citizenship 
        (within the meaning of section 877) or with respect to whom an 
        event described in subparagraph (A) or (B) of section 877(e)(1) 
        occurs, and such heir does not comply with the requirements of 
        subsection (g), or
            ``(D) the principal place of business of a trade or 
        business of the qualified family-owned business interest ceases 
        to be located in the United States.
        ``(2) Additional estate tax.--
            ``(A) In general.--The amount of the additional estate tax 
        imposed by paragraph (1) shall be equal to--
                ``(i) the applicable percentage of the adjusted tax 
            difference attributable to the qualified family-owned 
            business interest (as determined under rules similar to the 
            rules of section 2032A(c)(2)(B)), plus
                ``(ii) interest on the amount determined under clause 
            (i) at the underpayment rate established under section 6621 
            for the period beginning on the date the estate tax 
            liability was due under this chapter and ending on the date 
            such additional estate tax is due.
            ``(B) Applicable percentage.--For purposes of this 
        paragraph, the applicable percentage shall be determined under 
        the following table:

    ``If the event described in

      paragraph (1) occurs in

      the following year of
                                                          The applicable
      material participation:
                                                          percentage is:
    1 through 6...............................................


                                                                    100 

    7.........................................................


                                                                     80 

    8.........................................................


                                                                     60 

    9.........................................................


                                                                     40 

    10........................................................


                                                                     20.

    ``(g) Security Requirements for Noncitizen Qualified Heirs.--
        ``(1) In general.--Except upon the application of subparagraph 
    (F) or (M) of subsection (i)(3), if a qualified heir is not a 
    citizen of the United States, any interest under this section 
    passing to or acquired by such heir (including any interest held by 
    such heir at a time described in subsection (f)(1)(C)) shall be 
    treated as a qualified family-owned business interest only if the 
    interest passes or is acquired (or is held) in a qualified trust.
        ``(2) Qualified trust.--The term `qualified trust' means a 
    trust--
            ``(A) which is organized under, and governed by, the laws 
        of the United States or a State, and
            ``(B) except as otherwise provided in regulations, 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.
    ``(h) Agreement.--The agreement referred to in this subsection is a 
written agreement signed by each person in being who has an interest 
(whether or not in possession) in any property designated in such 
agreement consenting to the application of subsection (f) with respect 
to such property.
    ``(i) Other Definitions and Applicable Rules.--For purposes of this 
section--
        ``(1) Qualified heir.--The term `qualified heir'--
            ``(A) has the meaning given to such term by section 
        2032A(e)(1), and
            ``(B) includes any active employee of the trade or business 
        to which the qualified family-owned business interest relates 
        if such employee has been employed by such trade or business 
        for a period of at least 10 years before the date of the 
        decedent's death.
        ``(2) Member of the family.--The term `member of the family' 
    has the meaning given to such term by section 2032A(e)(2).
        ``(3) Applicable rules.--Rules similar to the following rules 
    shall apply:
            ``(A) Section 2032A(b)(4) (relating to decedents who are 
        retired or disabled).
            ``(B) Section 2032A(b)(5) (relating to special rules for 
        surviving spouses).
            ``(C) Section 2032A(c)(2)(D) (relating to partial 
        dispositions).
            ``(D) Section 2032A(c)(3) (relating to only 1 additional 
        tax imposed with respect to any 1 portion).
            ``(E) Section 2032A(c)(4) (relating to due date).
            ``(F) Section 2032A(c)(5) (relating to liability for tax; 
        furnishing of bond).
            ``(G) Section 2032A(c)(7) (relating to no tax if use begins 
        within 2 years; active management by eligible qualified heir 
        treated as material participation).
            ``(H) Paragraphs (1) and (3) of section 2032A(d) (relating 
        to election; agreement).
            ``(I) Section 2032A(e)(10) (relating to community 
        property).
            ``(J) Section 2032A(e)(14) (relating to treatment of 
        replacement property acquired in section 1031 or 1033 
        transactions).
            ``(K) Section 2032A(f) (relating to statute of 
        limitations).
            ``(L) Section 6166(b)(3) (relating to farmhouses and 
        certain other structures taken into account).
            ``(M) Subparagraphs (B), (C), and (D) of section 6166(g)(1) 
        (relating to acceleration of payment).
            ``(N) Section 6324B (relating to special lien for 
        additional estate tax).''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by inserting after the item 
relating to section 2033 the following new item:
        ``Sec. 2033A. Family-owned business exclusion.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1997.

SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF ESTATE TAX 
              EXTENDED UNDER SECTION 6166.

    (a) In General.--Paragraphs (1) and (2) of section 6601(j) 
(relating to 4-percent rate on certain portion of estate tax extended 
under section 6166) are amended to read as follows:
        ``(1) In general.--If the time for payment of an amount of tax 
    imposed by chapter 11 is extended as provided in section 6166, then 
    in lieu of the annual rate provided by subsection (a)--
            ``(A) interest on the 2-percent portion of such amount 
        shall be paid at the rate of 2 percent, and
            ``(B) interest on so much of such amount as exceeds the 2-
        percent portion shall be paid at a rate equal to 45 percent of 
        the annual rate provided by subsection (a).
    For purposes of this subsection, the amount of any deficiency which 
    is prorated to installments payable under section 6166 shall be 
    treated as an amount of tax payable in installments under such 
    section.
        ``(2) 2-percent portion.--For purposes of this subsection, the 
    term `2-percent portion' means the lesser of--
            ``(A)(i) the amount of the tentative tax which would be 
        determined under the rate schedule set forth in section 2001(c) 
        if the amount with respect to which such tentative tax is to be 
        computed were the sum of $1,000,000 and the applicable 
        exclusion amount in effect under section 2010(c), reduced by
            ``(ii) the applicable credit amount in effect under section 
        2010(c), or
            ``(B) the amount of the tax imposed by chapter 11 which is 
        extended as provided in section 6166.''.
    (b) Disallowance of Interest Deduction.--
        (1) Estate tax.--Paragraph (1) of section 2053(c) is amended by 
    adding at the end the following new subparagraph:
            ``(D) Section 6166 interest.--No deduction shall be allowed 
        under this section for any interest payable under section 6601 
        on any unpaid portion of the tax imposed by section 2001 for 
        the period during which an extension of time for payment of 
        such tax is in effect under section 6166.''.
        (2) Income tax.--
            (A) Section 163 is amended by redesignating subsection (k) 
        as subsection (l) and by inserting after subsection (j) the 
        following new subsection:
    ``(k) Section 6166 Interest.--No deduction shall be allowed under 
this section for any interest payable under section 6601 on any unpaid 
portion of the tax imposed by section 2001 for the period during which 
an extension of time for payment of such tax is in effect under section 
6166.''.
            (B) Subparagraph (E) of section 163(h)(2) is amended by 
        striking ``or 6166'' and all that follows and inserting a 
        period.
    (c) Conforming Amendments.--
        (1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of section 6166(b) 
    are amended by striking ``4-percent'' each place it appears 
    (including the heading) and inserting ``2-percent''.
        (2) Paragraph (4) of section 6601(j), as redesignated by 
    section 501(e), is amended by striking ``4-percent'' each place it 
    appears and inserting ``2-percent''.
        (3) The subsection heading for section 6601(j) is amended by 
    striking ``4-Percent'' and inserting ``2-Percent''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to estates of decedents dying after December 31, 1997.
        (2) Election.--In the case of the estate of any decedent dying 
    before January 1, 1998, with respect to which there is an election 
    under section 6166 of the Internal Revenue Code of 1986, the 
    executor of the estate may elect to have the amendments made by 
    this section apply with respect to installments due after the 
    effective date of the election; except that the 2-percent portion 
    of such installments shall be equal to the amount which would be 
    the 4-percent portion of such installments without regard to such 
    election. Such an election shall be made before January 1, 1999 in 
    the manner prescribed by the Secretary of the Treasury and, once 
    made, is irrevocable.

SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A 
              TO LINEAL DESCENDANTS.

    (a) General Rule.--Paragraph (7) of section 2032A(c) (relating to 
special rules for tax treatment of dispositions and failures to use for 
qualified use) is amended by adding at the end the following new 
subparagraph:
            ``(E) Certain rents treated as qualified use.--For purposes 
        of this subsection, a surviving spouse or lineal descendant of 
        the decedent shall not be treated as failing to use qualified 
        real property in a qualified use solely because such spouse or 
        descendant rents such property to a member of the family of 
        such spouse or descendant on a net cash basis. For purposes of 
        the preceding sentence, a legally adopted child of an 
        individual shall be treated as the child of such individual by 
        blood.''.
    (b) Conforming Amendment.--Section 2032A(b)(5)(A) is amended by 
striking the last sentence.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to leases entered into after December 31, 1976.

SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR EXTENSION 
              OF TIME FOR PAYMENT OF ESTATE TAX.

    (a) In General.--Part IV of subchapter C of chapter 76 of the 
Internal Revenue Code of 1986 (relating to declaratory judgments) is 
amended by adding at the end the following new section:

``SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE 
              WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION 6166.

    ``(a) Creation of remedy.--In a case of actual controversy 
involving a determination by the Secretary of (or a failure by the 
Secretary to make a determination with respect to)--
        ``(1) whether an election may be made under section 6166 
    (relating to extension of time for payment of estate tax where 
    estate consists largely of interest in closely held business) with 
    respect to an estate, or
        ``(2) whether the extension of time for payment of tax provided 
    in section 6166(a) has ceased to apply with respect to an estate,
upon the filing of an appropriate pleading, the Tax Court may make a 
declaration with respect to whether such election may be made or 
whether such extension has ceased to apply. Any such declaration shall 
have the force and effect of a decision of the Tax Court and shall be 
reviewable as such.
    ``(b) Limitations.--
        ``(1) Petitioner.--A pleading may be filed under this section, 
    with respect to any estate, only--
            ``(A) by the executor of such estate, or
            ``(B) by any person who has assumed an obligation to make 
        payments under section 6166 with respect to such estate (but 
        only if each other such person is joined as a party).
        ``(2) Exhaustion of administrative remedies.--The court shall 
    not issue a declaratory judgment or decree under this section in 
    any proceeding unless it determines that the petitioner has 
    exhausted all available administrative remedies within the Internal 
    Revenue Service. A petitioner shall be deemed to have exhausted its 
    administrative remedies with respect to a failure of the Secretary 
    to make a determination at the expiration of 180 days after the 
    date on which the request for such determination was made if the 
    petitioner has taken, in a timely manner, all reasonable steps to 
    secure such determination.
        ``(3) Time for bringing action.--If the Secretary sends by 
    certified or registered mail notice of his determination as 
    described in subsection (a) to the petitioner, no proceeding may be 
    initiated under this section unless the pleading is filed before 
    the 91st day after the date of such mailing.''.
    (b) Clerical Amendment.--The table of sections for part IV of 
subchapter C of chapter 76 of such Code is amended by adding at the end 
the following new item:
        ``Sec. 7479. Declaratory judgments relating to eligibility of 
                  estate with respect to installment payments under 
                  section 6166.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER 
              EXPIRATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Section 2001 (relating to imposition and rate of 
estate tax) is amended by adding at the end the following new 
subsection:
    ``(f) Valuation of Gifts.--If--
        ``(1) the time has expired within which a tax may be assessed 
    under chapter 12 (or under corresponding provisions of prior laws) 
    on the transfer of property by gift made during a preceding 
    calendar period (as defined in section 2502(b)), and
        ``(2) the value of such gift is shown on the return for such 
    preceding calendar period or is disclosed in such return, or in a 
    statement attached to the return, in a manner adequate to apprise 
    the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax under 
this chapter, be the value of such gift as finally determined for 
purposes of chapter 12.''.
    (b) Modification of Application of Statute of Limitations.--
Paragraph (9) of section 6501(c) is amended to read as follows:
        ``(9) Gift tax on certain gifts not shown on return.--If any 
    gift of property the value of which (or any increase in taxable 
    gifts required under section 2701(d) which) is required to be shown 
    on a return of tax imposed by chapter 12 (without regard to section 
    2503(b)), and is not shown on such return, any tax imposed by 
    chapter 12 on such gift may be assessed, or a proceeding in court 
    for the collection of such tax may be begun without assessment, at 
    any time. The preceding sentence shall not apply to any item which 
    is disclosed in such return, or in a statement attached to the 
    return, in a manner adequate to apprise the Secretary of the nature 
    of such item. The value of any item which is so disclosed may not 
    be redetermined by the Secretary after the expiration of the period 
    under subsection (a).''.
    (c) Declaratory Judgment Procedure for Determining Value of Gift.--
        (1) In general.--Part IV of subchapter C of chapter 76 is 
    amended by inserting after section 7476 the following new section:

``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.

    ``(a) Creation of Remedy.--In a case of an actual controversy 
involving a determination by the Secretary of the value of any gift 
shown on the return of tax imposed by chapter 12 or disclosed on such 
return or in any statement attached to such return, upon the filing of 
an appropriate pleading, the Tax Court may make a declaration of the 
value of such gift. Any such declaration shall have the force and 
effect of a decision of the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
        ``(1) Petitioner.--A pleading may be filed under this section 
    only by the donor.
        ``(2) Exhaustion of administrative remedies.--The court shall 
    not issue a declaratory judgment or decree under this section in 
    any proceeding unless it determines that the petitioner has 
    exhausted all available administrative remedies within the Internal 
    Revenue Service.
        ``(3) Time for bringing action.--If the Secretary sends by 
    certified or registered mail notice of his determination as 
    described in subsection (a) to the petitioner, no proceeding may be 
    initiated under this section unless the pleading is filed before 
    the 91st day after the date of such mailing.''.
        (2) Clerical amendment.--The table of sections for such part IV 
    is amended by inserting after the item relating to section 7476 the 
    following new item:
        ``Sec. 7477. Declaratory judgments relating to value of certain 
                  gifts.''.

    (d) Conforming Amendment.--Subsection (c) of section 2504 is 
amended by striking ``, and if a tax under this chapter or under 
corresponding provisions of prior laws has been assessed or paid for 
such preceding calendar period''.
    (e) Effective Dates.--
        (1) In general.--The amendments made by subsections (a) and (c) 
    shall apply to gifts made after the date of the enactment of this 
    Act.
        (2) Subsection (b)--The amendment made by subsection (b) shall 
    apply to gifts made in calendar years ending after the date of the 
    enactment of this Act.

SEC. 507. REPEAL OF THROWBACK RULES APPLICABLE TO CERTAIN DOMESTIC 
              TRUSTS.

    (a) Accumulation Distributions.--
        (1) In general.--Section 665 is amended by inserting after 
    subsection (b) the following new subsection:
    ``(c) Exception for Accumulation Distributions From Certain 
Domestic Trusts.--For purposes of this subpart--
        ``(1) In general.--In the case of a qualified trust, any 
    distribution in any taxable year beginning after the date of the 
    enactment of this subsection shall be computed without regard to 
    any undistributed net income.
        ``(2) Qualified trust.--For purposes of this subsection, the 
    term `qualified trust' means any trust other than--
            ``(A) a foreign trust (or, except as provided in 
        regulations, a domestic trust which at any time was a foreign 
        trust), or
            ``(B) a trust created before March 1, 1984, unless it is 
        established that the trust would not be aggregated with other 
        trusts under section 643(f) if such section applied to such 
        trust.''.
        (2) Conforming amendments.--Subsection (b) of section 665 is 
    amended by inserting ``except as provided in subsection (c),'' 
    after ``subpart,''.
    (b) Repeal of Tax on Transfers to Trusts at Less Than Fair Market 
Value.--
        (1) Subpart A of part I of subchapter J of chapter 1 is amended 
    by striking section 644 and by redesignating section 645 as section 
    644.
        (2) Paragraph (5) of section 706(b) is amended by striking 
    ``section 645'' and inserting ``section 644''.
        (3) The table of sections for such subpart is amended by 
    striking the last 2 items and inserting the following new item:
        ``Sec. 644. Taxable year of trusts.''.

    (c) Effective Dates.--
        (1) Accumulation distributions.--The amendments made by 
    subsection (a) shall apply to distributions in taxable years 
    beginning after the date of the enactment of this Act.
        (2) Transferred property.--The amendments made by subsection 
    (b) shall apply to sales or exchanges after the date of the 
    enactment of this Act.

SEC. 508. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION 
              EASEMENT.

    (a) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2031 (relating to the definition of 
gross estate) is amended by redesignating subsection (c) as subsection 
(d) and by inserting after subsection (b) the following new subsection:
    ``(c) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--
        ``(1) In general.--If the executor makes the election described 
    in paragraph (6), then, except as otherwise provided in this 
    subsection, there shall be excluded from the gross estate the 
    lesser of--
            ``(A) the applicable percentage of the value of land 
        subject to a qualified conservation easement, reduced by the 
        amount of any deduction under section 2055(f) with respect to 
        such land, or
            ``(B) the exclusion limitation.
        ``(2) Applicable percentage.--For purposes of paragraph (1), 
    the term `applicable percentage' means 40 percent reduced (but not 
    below zero) by 2 percentage points for each percentage point (or 
    fraction thereof) by which the value of the qualified conservation 
    easement is less than 30 percent of the value of the land 
    (determined without regard to the value of such easement and 
    reduced by the value of any retained development right (as defined 
    in paragraph (5)).
        ``(3) Exclusion limitation.--For purposes of paragraph (1), the 
    exclusion limitation is the limitation determined in accordance 
    with the following table:

    ``In the case of estates of
                                                           The exclusion
      decedents dying during:
                                                          limitation is:
          1998..........................................
                                                               $100,000 
          1999..........................................
                                                               $200,000 
          2000..........................................
                                                               $300,000 
          2001..........................................
                                                               $400,000 
          2002 or thereafter............................
                                                               $500,000.

        ``(4) Treatment of certain indebtedness.--
            ``(A) In general.--The exclusion provided in paragraph (1) 
        shall not apply to the extent that the land is debt-financed 
        property.
            ``(B) Definitions.--For purposes of this paragraph--
                ``(i) Debt-financed property.--The term `debt-financed 
            property' means any property with respect to which there is 
            an acquisition indebtedness (as defined in clause (ii)) on 
            the date of the decedent's death.
                ``(ii) Acquisition indebtedness.--The term `acquisition 
            indebtedness' means, with respect to debt-financed 
            property, the unpaid amount of--

                    ``(I) the indebtedness incurred by the donor in 
                acquiring such property,
                    ``(II) the indebtedness incurred before the 
                acquisition of such property if such indebtedness would 
                not have been incurred but for such acquisition,
                    ``(III) the indebtedness incurred after the 
                acquisition of such property if such indebtedness would 
                not have been incurred but for such acquisition and the 
                incurrence of such indebtedness was reasonably 
                foreseeable at the time of such acquisition, and
                    ``(IV) the extension, renewal, or refinancing of an 
                acquisition indebtedness.

        ``(5) Treatment of retained development right.--
            ``(A) In general.--Paragraph (1) shall not apply to the 
        value of any development right retained by the donor in the 
        conveyance of a qualified conservation easement.
            ``(B) Termination of retained development right.--If every 
        person in being who has an interest (whether or not in 
        possession) in the land executes an agreement to extinguish 
        permanently some or all of any development rights (as defined 
        in subparagraph (D)) retained by the donor on or before the 
        date for filing the return of the tax imposed by section 2001, 
        then any tax imposed by section 2001 shall be reduced 
        accordingly. Such agreement shall be filed with the return of 
        the tax imposed by section 2001. The agreement shall be in such 
        form as the Secretary shall prescribe.
            ``(C) Additional tax.--Any failure to implement the 
        agreement described in subparagraph (B) not later than the 
        earlier of--
                ``(i) the date which is 2 years after the date of the 
            decedent's death, or
                ``(ii) the date of the sale of such land subject to the 
            qualified conservation easement,
        shall result in the imposition of an additional tax in the 
        amount of the tax which would have been due on the retained 
        development rights subject to such agreement. Such additional 
        tax shall be due and payable on the last day of the 6th month 
        following such date.
            ``(D) Development right defined.--For purposes of this 
        paragraph, the term `development right' means any right to use 
        the land subject to the qualified conservation easement in 
        which such right is retained for any commercial purpose which 
        is not subordinate to and directly supportive of the use of 
        such land as a farm for farming purposes (within the meaning of 
        section 2032A(e)(5)).
        ``(6) Election.--The election under this subsection shall be 
    made on the return of the tax imposed by section 2001. Such an 
    election, once made, shall be irrevocable.
        ``(7) Calculation of estate tax due.--An executor making the 
    election described in paragraph (6) shall, for purposes of 
    calculating the amount of tax imposed by section 2001, include the 
    value of any development right (as defined in paragraph (5)) 
    retained by the donor in the conveyance of such qualified 
    conservation easement. The computation of tax on any retained 
    development right prescribed in this paragraph shall be done in 
    such manner and on such forms as the Secretary shall prescribe.
        ``(8) Definitions.--For purposes of this subsection--
            ``(A) Land subject to a qualified conservation easement.--
        The term `land subject to a qualified conservation easement' 
        means land--
                ``(i) which is located--

                    ``(I) in or within 25 miles of an area which, on 
                the date of the decedent's death, is a metropolitan 
                area (as defined by the Office of Management and 
                Budget),
                    ``(II) in or within 25 miles of an area which, on 
                the date of the decedent's death, is a national park or 
                wilderness area designated as part of the National 
                Wilderness Preservation System (unless it is determined 
                by the Secretary that land in or within 25 miles of 
                such a park or wilderness area is not under significant 
                development pressure), or
                    ``(III) in or within 10 miles of an area which, on 
                the date of the decedent's death, is an Urban National 
                Forest (as designated by the Forest Service),

                ``(ii) which was owned by the decedent or a member of 
            the decedent's family at all times during the 3-year period 
            ending on the date of the decedent's death, and
                ``(iii) with respect to which a qualified conservation 
            easement has been made by an individual described in 
            subparagraph (C), as of the date of the election described 
            in paragraph (6).
            ``(B) Qualified conservation easement.--The term `qualified 
        conservation easement' means a qualified conservation 
        contribution (as defined in section 170(h)(1)) of a qualified 
        real property interest (as defined in section 170(h)(2)(C)), 
        except that clause (iv) of section 170(h)(4)(A) shall not 
        apply, and the restriction on the use of such interest 
        described in section 170(h)(2)(C) shall include a prohibition 
        on more than a de minimis use for a commercial recreational 
        activity.
            ``(C) Individual described.--An individual is described in 
        this subparagraph if such individual is--
                ``(i) the decedent,
                ``(ii) a member of the decedent's family,
                ``(iii) the executor of the decedent's estate, or
                ``(iv) the trustee of a trust the corpus of which 
            includes the land to be subject to the qualified 
            conservation easement.
            ``(D) Member of family.--The term `member of the decedent's 
        family' means any member of the family (as defined in section 
        2032A(e)(2)) of the decedent.
        ``(9) Application of this section to interests in partnerships, 
    corporations, and trusts.--This section shall apply to an interest 
    in a partnership, corporation, or trust if at least 30 percent of 
    the entity is owned (directly or indirectly) by the decedent, as 
    determined under the rules described in section 2033A(e)(3).''.
    (b) Carryover Basis.--Section 1014(a) (relating to basis of 
property acquired from a decedent) is amended by striking ``or'' at the 
end of paragraphs (1) and (2), by striking the period at the end of 
paragraph (3) and inserting ``, or'' and by adding at the end the 
following new paragraph:
        ``(4) to the extent of the applicability of the exclusion 
    described in section 2031(c), the basis in the hands of the 
    decedent.''.
    (c) Qualified Conservation Contribution Is Not a Disposition.--
Subsection (c) of section 2032A (relating to alternative valuation 
method) is amended by adding at the end the following new paragraph:
        ``(8) Qualified conservation contribution is not a 
    disposition.--A qualified conservation contribution (as defined in 
    section 170(h)) by gift or otherwise shall not be deemed a 
    disposition under subsection (c)(1)(A).''.
    (d) Qualified Conservation Contribution Where Surface and Mineral 
Rights are Separated.--Section 170(h)(5)(B)(ii) (relating to special 
rule) is amended to read as follows:
        ``(ii) Special rule.--With respect to any contribution of 
    property in which the ownership of the surface estate and mineral 
    interests has been and remains separated, subparagraph (A) shall be 
    treated as met if the probability of surface mining occurring on 
    such property is so remote as to be negligible.''.
    (e) Effective Dates.--
        (1) Exclusion.--The amendments made by subsections (a) and (b) 
    shall apply to estates of decedents dying after December 31, 1997.
        (2) Easements.--The amendments made by subsections (c) and (d) 
    shall apply to easements granted after December 31, 1997.

             Subtitle B--Generation-Skipping Tax Provision

SEC. 511. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER TAX 
              FOR TRANSFERS TO INDIVIDUALS WITH DECEASED PARENTS.

    (a) In General.--Section 2651 (relating to generation assignment) 
is amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection:
    ``(e) Special Rule for Persons With a Deceased Parent.--
        ``(1) In general.--For purposes of determining whether any 
    transfer is a generation-skipping transfer, if--
            ``(A) an individual is a descendant of a parent of the 
        transferor (or the transferor's spouse or former spouse), and
            ``(B) such individual's parent who is a lineal descendant 
        of the parent of the transferor (or the transferor's spouse or 
        former spouse) is dead at the time the transfer (from which an 
        interest of such individual is established or derived) is 
        subject to a tax imposed by chapter 11 or 12 upon the 
        transferor (and if there shall be more than 1 such time, then 
        at the earliest such time),
    such individual shall be treated as if such individual were a 
    member of the generation which is 1 generation below the lower of 
    the transferor's generation or the generation assignment of the 
    youngest living ancestor of such individual who is also a 
    descendant of the parent of the transferor (or the transferor's 
    spouse or former spouse), and the generation assignment of any 
    descendant of such individual shall be adjusted accordingly.
        ``(2) Limited application of subsection to collateral heirs.--
    This subsection shall not apply with respect to a transfer to any 
    individual who is not a lineal descendant of the transferor (or the 
    transferor's spouse or former spouse) if, at the time of the 
    transfer, such transferor has any living lineal descendant.''.
    (b) Conforming Amendments.--
        (1) Section 2612(c) (defining direct skip) is amended by 
    striking paragraph (2) and by redesignating paragraph (3) as 
    paragraph (2).
        (2) Section 2612(c)(2) (as so redesignated) is amended by 
    striking ``section 2651(e)(2)'' and inserting ``section 
    2651(f)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to terminations, distributions, and transfers occurring after 
December 31, 1997.

                          TITLE VI--EXTENSIONS

SEC. 601. RESEARCH TAX CREDIT.

    (a) In General.--Paragraph (1) of section 41(h) (relating to 
termination) is amended--
        (1) by striking ``May 31, 1997'' and inserting ``June 30, 
    1998'', and
        (2) by striking in the last sentence ``during the first 11 
    months of such taxable year.'' and inserting ``during the 24-month 
    period beginning with the first month of such year. The 24 months 
    referred to in the preceding sentence shall be reduced by the 
    number of full months after June 1996 (and before the first month 
    of such first taxable year) during which the taxpayer paid or 
    incurred any amount which is taken into account in determining the 
    credit under this section.''.
    (b) Technical Amendments.--
        (1) Subparagraph (B) of section 41(c)(4) is amended to read as 
    follows:
            ``(B) Election.--An election under this paragraph shall 
        apply to the taxable year for which made and all succeeding 
        taxable years unless revoked with the consent of the 
        Secretary.''.
        (2) Paragraph (1) of section 45C(b) is amended by striking 
    ``May 31, 1997'' and inserting ``June 30, 1998''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after May 31, 1997.

SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Clause (ii) of section 170(e)(5)(D) (relating to 
termination) is amended by striking ``May 31, 1997'' and inserting 
``June 30, 1998''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contributions made after May 31, 1997.

SEC. 603. WORK OPPORTUNITY TAX CREDIT.

    (a) Extension.--Subparagraph (B) of section 51(c)(4) (relating to 
termination) is amended by striking ``September 30, 1997'' and 
inserting ``June 30, 1998''.
    (b) Modification of Eligibility Requirement Based on Period on 
Welfare.--
        (1) In general.--Subparagraph (A) of section 51(d)(2) (defining 
    qualified IV-A recipient) is amended by striking all that follows 
    ``a IV-A program'' and inserting ``for any 9 months during the 18-
    month period ending on the hiring date.''.
        (2) Conforming amendment.--Subparagraph (A) of section 51(d)(3) 
    is amended to read as follows:
            ``(A) In general.--The term `qualified veteran' means any 
        veteran who is certified by the designated local agency as 
        being 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.''.
    (c) Qualified SSI Recipients Treated as Members of Targeted 
Groups.--
        (1) In general.--Section 51(d)(1) (relating to members of 
    targeted groups) is amended by striking ``or'' at the end of 
    subparagraph (F), by striking the period at the end of subparagraph 
    (G) and inserting ``, or'', and by adding at the end the following 
    new subparagraph:
            ``(H) a qualified SSI recipient.''.
        (2) Qualified ssi recipients.--Section 51(d) is amended by 
    redesignating paragraphs (9), (10), and (11) as paragraphs (10), 
    (11), and (12), respectively, and by inserting after paragraph (8) 
    the following new paragraph:
        ``(9) Qualified ssi recipient.--The term `qualified SSI 
    recipient' means any individual who is certified by the designated 
    local agency as receiving supplemental security income benefits 
    under title XVI of the Social Security Act (including supplemental 
    security income benefits of the type described in section 1616 of 
    such Act or section 212 of Public Law 93-66) for any month ending 
    within the 60-day period ending on the hiring date.''.
    (d) Percentage of Wages Allowed as Credit.--
        (1) In general.--Subsection (a) of section 51 (relating to 
    determination of amount) is amended by striking ``35 percent'' and 
    inserting ``40 percent''.
        (2) Application of credit for individuals performing fewer than 
    400 hours of services.--Paragraph (3) of section 51(i) is amended 
    to read as follows:
        ``(3) Individuals not meeting minimum employment periods.--
            ``(A) Reduction of credit for individuals performing fewer 
        than 400 hours of service.--In the case of an individual who 
        has performed at least 120 hours, but less than 400 hours, of 
        service for the employer, subsection (a) shall be applied by 
        substituting `25 percent' for `40 percent'.
            ``(B) Denial of credit for individuals performing fewer 
        than 120 hours of service.--No wages shall be taken into 
        account under subsection (a) with respect to any individual 
        unless such individual has performed at least 120 hours of 
        service for the employer.''.
    (e) Effective date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after September 
30, 1997.

SEC. 604. ORPHAN DRUG TAX CREDIT.

    (a) In General.--Section 45C (relating to clinical testing expenses 
for certain drugs for rare diseases or conditions) is amended by 
striking subsection (e).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts paid or incurred after May 31, 1997.

  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

SEC. 701. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF 
              COLUMBIA.

    (a) In General.--Chapter 1 is amended by adding at the end the 
following new subchapter:

          ``Subchapter W--District of Columbia Enterprise Zone

        ``Sec. 1400.  Establishment of DC Zone.
        ``Sec. 1400A. Tax-exempt economic development bonds.
        ``Sec. 1400B. Zero percent capital gains rate.
        ``Sec. 1400C. First-time homebuyer credit for District of 
                  Columbia.

``SEC. 1400. ESTABLISHMENT OF DC ZONE.

    ``(a) In General.--For purposes of this title--
        ``(1) the applicable DC area is hereby designated as the 
    District of Columbia Enterprise Zone, and
        ``(2) except as otherwise provided in this subchapter, the 
    District of Columbia Enterprise Zone shall be treated as an 
    empowerment zone designated under subchapter U.
    ``(b) Applicable DC Area.--For purposes of subsection (a), the term 
`applicable DC area' means the area consisting of--
        ``(1) the census tracts located in the District of Columbia 
    which are part of an enterprise community designated under 
    subchapter U before the date of the enactment of this subchapter, 
    and
        ``(2) all other census tracts--
            ``(A) which are located in the District of Columbia, and
            ``(B) for which the poverty rate is not less than than 20 
        percent.
    ``(c) District of Columbia Enterprise Zone.--For purposes of this 
subchapter, the terms `District of Columbia Enterprise Zone' and `DC 
Zone' mean the District of Columbia Enterprise Zone designated by 
subsection (a).
    ``(d) Special Rules for Application of Employment Credit.--
        ``(1) Employees whose principal place of abode is in district 
    of columbia.--With respect to the DC Zone, section 1396(d)(1)(B) 
    (relating to empowerment zone employment credit) shall be applied 
    by substituting `the District of Columbia' for `such empowerment 
    zone'.
        ``(2) No decrease of percentage in 2002.--In the case of the DC 
    Zone, section 1396 (relating to empowerment zone employment credit) 
    shall be applied by substituting ``20'' for ``15'' in the table 
    contained in section 1396(b). The preceding sentence shall apply 
    only with respect to qualified zone employees, as defined in 
    section 1396(d), determined by treating no area other than the DC 
    Zone as an empowerment zone or enterprise community.
    ``(e) Special Rule for Application of Enterprise Zone Business 
Definition.--For purposes of this subchapter and for purposes of 
applying subchapter U with respect to the DC Zone, section 1397B shall 
be applied without regard to subsections (b)(6) and (c)(5) thereof.
    ``(f) Time For Which Designation Applicable.--
        ``(1) In general.--The designation made by subsection (a) shall 
    apply for the period beginning on January 1, 1998, and ending on 
    December 31, 2002.
        ``(2) Coordination with dc enterprise community designated 
    under subchapter u.--The designation under subchapter U of the 
    census tracts referred to in subsection (b)(1) as an enterprise 
    community shall terminate on December 31, 2002.

``SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.

    ``(a) In General.--In the case of the District of Columbia 
Enterprise Zone, subparagraph (A) of section 1394(c)(1) (relating to 
limitation on amount of bonds) shall be applied by substituting 
`$15,000,000' for `$3,000,000'.
    ``(b) Period of Applicability.--This section shall apply to bonds 
issued during the period beginning on January 1, 1998, and ending on 
December 31, 2002.

``SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.

      ``(a) Exclusion.--Gross income shall not include qualified 
capital gain from the sale or exchange of any DC Zone asset held for 
more than 5 years.
    ``(b) DC Zone Asset.--For purposes of this section--
        ``(1) In general.--The term `DC Zone asset' means--
            ``(A) any DC Zone business stock,
            ``(B) any DC Zone partnership interest, and
            ``(C) any DC Zone business property.
        ``(2) DC zone business stock.--
            ``(A) In general.--The term `DC Zone business stock' means 
        any stock in a domestic corporation which is originally issued 
        after December 31, 1997, if--
                ``(i) such stock is acquired by the taxpayer, before 
            January 1, 2003, at its original issue (directly or through 
            an underwriter) solely in exchange for cash,
                ``(ii) as of the time such stock was issued, such 
            corporation was a DC Zone business (or, in the case of a 
            new corporation, such corporation was being organized for 
            purposes of being a DC Zone business), and
                ``(iii) during substantially all of the taxpayer's 
            holding period for such stock, such corporation qualified 
            as a DC Zone business.
            ``(B) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this paragraph.
        ``(3) DC zone partnership interest.--The term `DC Zone 
    partnership interest' means any capital or profits interest in a 
    domestic partnership which is originally issued after December 31, 
    1997, if--
            ``(A) such interest is acquired by the taxpayer, before 
        January 1, 2003, from the partnership solely in exchange for 
        cash,
            ``(B) as of the time such interest was acquired, such 
        partnership was a DC Zone business (or, in the case of a new 
        partnership, such partnership was being organized for purposes 
        of being a DC Zone business), and
            ``(C) during substantially all of the taxpayer's holding 
        period for such interest, such partnership qualified as a DC 
        Zone business.
    A rule similar to the rule of paragraph (2)(B) shall apply for 
    purposes of this paragraph.
        ``(4) DC zone business property.--
            ``(A) In general.--The term `DC Zone business property' 
        means tangible property if--
                ``(i) such property was acquired by the taxpayer by 
            purchase (as defined in section 179(d)(2)) after December 
            31, 1997, and before January 1, 2003,
                ``(ii) the original use of such property in the DC Zone 
            commences with the taxpayer, and
                ``(iii) during substantially all of the taxpayer's 
            holding period for such property, substantially all of the 
            use of such property was in a DC Zone business of the 
            taxpayer.
            ``(B) Special rule for buildings which are substantially 
        improved.--
                ``(i) In general.--The requirements of clauses (i) and 
            (ii) of subparagraph (A) shall be treated as met with 
            respect to--

                    ``(I) property which is substantially improved by 
                the taxpayer before January 1, 2003, and
                    ``(II) any land on which such property is located.

                ``(ii) Substantial improvement.--For purposes of clause 
            (i), property shall be treated as substantially improved by 
            the taxpayer only if, during any 24-month period beginning 
            after December 31, 1997, additions to basis with respect to 
            such property in the hands of the taxpayer exceed the 
            greater of--

                    ``(I) an amount equal to the adjusted basis of such 
                property at the beginning of such 24-month period in 
                the hands of the taxpayer, or
                    ``(II) $5,000.

        ``(6) Treatment of subsequent purchasers, etc.--The term `DC 
    Zone asset' includes any property which would be a DC Zone asset 
    but for paragraph (2)(A)(i), (3)(A), or (4)(A)(ii) in the hands of 
    the taxpayer if such property was a DC Zone asset in the hands of a 
    prior holder.
        ``(7) 5-year safe harbor.--If any property ceases to be a DC 
    Zone asset by reason of paragraph (2)(A)(iii), (3)(C), or 
    (4)(A)(iii) after the 5-year period beginning on the date the 
    taxpayer acquired such property, such property shall continue to be 
    treated as meeting the requirements of such paragraph; except that 
    the amount of gain to which subsection (a) applies on any sale or 
    exchange of such property shall not exceed the amount which would 
    be qualified capital gain had such property been sold on the date 
    of such cessation.
    ``(c) DC Zone Business.--For purposes of this section, the term `DC 
Zone business' means any entity which is an enterprise zone business 
(as defined in section 1397B), determined--
        ``(1) after the application of section 1400(e),
        ``(2) by substituting ``80 percent'' for ``50 percent'' in 
    subsections (b)(2) and (c)(1) of section 1397B, and
        ``(3) by treating no area other than the DC Zone as an 
    empowerment zone or enterprise community.
    ``(d) Treatment of Zone as Including Census Tracts With 10 Percent 
Poverty Rate.--For purposes of applying this section (and for purposes 
of applying this subchapter and subchapter U with respect to this 
section), the DC Zone shall be treated as including all census tracts--
        ``(1) which are located in the District of Columbia, and
        ``(2) for which the poverty rate is not less than 10 percent.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Qualified capital gain.--Except as otherwise provided in 
    this subsection, the term `qualified capital gain' means any gain 
    recognized on the sale or exchange of--
            ``(A) a capital asset, or
            ``(B) property used in the trade or business (as defined in 
        section 1231(b)).
        ``(2) Gain before 1998 or after 2007 not qualified.--The term 
    `qualified capital gain' shall not include any gain attributable to 
    periods before January 1, 1998, or after December 31, 2007.
        ``(3) Certain gain not qualified.--The term `qualified capital 
    gain' shall not include any gain which would be treated as ordinary 
    income under section 1245 or under section 1250 if section 1250 
    applied to all depreciation rather than the additional 
    depreciation.
        ``(4) Intangibles and land not integral part of dc zone 
    business.--The term `qualified capital gain' shall not include any 
    gain which is attributable to real property, or an intangible 
    asset, which is not an integral part of a DC Zone business.
        ``(5) Related party transactions.--The term `qualified capital 
    gain' shall not include any gain attributable, directly or 
    indirectly, in whole or in part, to a transaction with a related 
    person. For purposes of this paragraph, persons are related to each 
    other if such persons are described in section 267(b) or 707(b)(1).
    ``(f) Certain Other Rules To Apply.--Rules similar to the rules of 
subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for 
purposes of this section.
    ``(g) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are DC Zone Businesses.--In the case of the sale or 
exchange of an interest in a partnership, or of stock in an S 
corporation, which was a DC Zone business during substantially all of 
the period the taxpayer held such interest or stock, the amount of 
qualified capital gain shall be determined without regard to--
        ``(1) any gain which is attributable to real property, or an 
    intangible asset, which is not an integral part of a DC Zone 
    business, and
        ``(2) any gain attributable to periods before January 1, 1998, 
    or after December 31, 2007.

``SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

    ``(a) Allowance of Credit.--In the case of an individual who is a 
first-time homebuyer of a principal residence in the District of 
Columbia during any taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to so much of the purchase price of the residence as does not 
exceed $5,000.
    ``(b) Limitation Based on Modified Adjusted Gross Income.--
        ``(1) In general.--The amount allowable as a credit under 
    subsection (a) (determined without regard to this subsection) for 
    the taxable year shall be reduced (but not below zero) by the 
    amount which bears the same ratio to the credit so allowable as--
            ``(A) the excess (if any) of--
                ``(i) the taxpayer's modified adjusted gross income for 
            such taxable year, over
                ``(ii) $70,000 ($110,000 in the case of a joint 
            return), bears to
            ``(B) $20,000.
        ``(2) Modified adjusted gross income.--For purposes of 
    paragraph (1), the term `modified adjusted gross income' means the 
    adjusted gross income of the taxpayer for the taxable year 
    increased by any amount excluded from gross income under section 
    911, 931, or 933.
    ``(c) First-Time Homebuyer.--For purposes of this section--
        ``(1) In general.--The term `first-time homebuyer' has the same 
    meaning as when used in section 72(t)(8)(D)(i), except that 
    `principal residence in the District of Columbia during the 1-year 
    period' shall be substituted for `principal residence during the 2-
    year period' in subclause (I) thereof.
        ``(2) One-time only.--If an individual is treated as a first-
    time homebuyer with respect to any principal residence, such 
    individual may not be treated as a first-time homebuyer with 
    respect to any other principal residence.
        ``(3) Principal residence.--The term `principal residence' has 
    the same meaning as when used in section 121.
    ``(d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under subpart 
A of part IV of subchapter A (other than this section), such excess 
shall be carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such taxable year.
    ``(e) Special Rules.--For purposes of this section--
        ``(1) Allocation of dollar limitation.--
            ``(A) Married individuals filing separately.--In the case 
        of a married individual filing a separate return, subsection 
        (a) shall be applied by substituting `$2,500' for `$5,000'.
            ``(B) Other taxpayers.--If 2 or more individuals who are 
        not married purchase a principal residence, the amount of the 
        credit allowed under subsection (a) shall be allocated among 
        such individuals in such manner as the Secretary may prescribe, 
        except that the total amount of the credits allowed to all such 
        individuals shall not exceed $5,000.
        ``(2) Purchase.--
            ``(A) In general.--The term `purchase' means any 
        acquisition, but only if--
                ``(i) the property is not acquired from a person whose 
            relationship to the person acquiring it would result in the 
            disallowance of losses under section 267 or 707(b) (but, in 
            applying section 267 (b) and (c) for purposes of this 
            section, paragraph (4) of section 267(c) shall be treated 
            as providing that the family of an individual shall include 
            only his spouse, ancestors, and lineal descendants), and
                ``(ii) the basis of the property in the hands of the 
            person acquiring it is not determined--

                    ``(I) in whole or in part by reference to the 
                adjusted basis of such property in the hands of the 
                person from whom acquired, or
                    ``(II) under section 1014(a) (relating to property 
                acquired from a decedent).

            ``(B) Construction.--A residence which is constructed by 
        the taxpayer shall be treated as purchased by the taxpayer.
        ``(3) Purchase price.--The term `purchase price' means the 
    adjusted basis of the principal residence on the date of 
    acquisition (within the meaning of section 72(t)(8)(D)(iii)).
    ``(f) Reporting.--If the Secretary requires information reporting 
under section 6045 by a person described in subsection (e)(2) thereof 
to verify the eligibility of taxpayers for the credit allowable by this 
section, the exception provided by section 6045(e)(5) shall not apply.
    ``(g) Credit Treated as Nonrefundable Personal Credit.--For 
purposes of this title, the credit allowed by this section shall be 
treated as a credit allowable under subpart A of part IV of subchapter 
A of this chapter.
    ``(h) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section with respect to the purchase of any 
residence, the basis of such residence shall be reduced by the amount 
of the credit so allowed.
    ``(i) Termination.--This section shall not apply to any property 
purchased after December 31, 2000.''.
    (b) Conforming Amendments.--
        (1) Subsection (d) of section 39 is amended by adding at the 
    end the following new paragraph:
        ``(8) No carryback of dc zone credits before effective date.--
    No portion of the unused business credit for any taxable year which 
    is attributable to the credits allowable under subchapter U by 
    reason of section 1400 may be carried back to a taxable year ending 
    before the date of the enactment of section 1400.''.
        (2) Subsection (a) of section 1016 is amended by striking 
    ``and'' at the end of paragraph (25), by striking the period at the 
    end of paragraph (26) and inserting ``, and'', and by adding at the 
    end thereof the following new paragraph:
        ``(27) in the case of a residence with respect to which a 
    credit was allowed under section 1400C, to the extent provided in 
    section 1400C(h).''.
    (c) Clerical Amendment.--The table of subchapters for chapter 1 is 
amended by adding at the end the following new item:
        ``Subchapter W. District of Columbia Enterprise Zone.''.

    (d) Effective Date.--Except as provided in subsection (c), the 
amendments made by this section shall take effect on the date of the 
enactment of this Act.

                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

SEC. 801. INCENTIVES FOR EMPLOYING LONG-TERM FAMILY ASSISTANCE 
              RECIPIENTS.

    (a) In General.--Subpart F of part IV of subchapter A of chapter 1 
is amended by inserting after section 51 the following new section:

``SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY 
              ASSISTANCE RECIPIENTS.

    ``(a) Determination of Amount.--For purposes of section 38, the 
amount of the welfare-to-work credit determined under this section for 
the taxable year shall be equal to--
        ``(1) 35 percent of the qualified first-year wages for such 
    year, and
        ``(2) 50 percent of the qualified second-year wages for such 
    year.
    ``(b) Qualified Wages Defined.--For purposes of this section--
        ``(1) In general.--The term `qualified wages' means the wages 
    paid or incurred by the employer during the taxable year to 
    individuals who are long-term family assistance recipients.
        ``(2) Qualified first-year wages.--The term `qualified first-
    year wages' means, with respect to any individual, qualified wages 
    attributable to service rendered during the 1-year period beginning 
    with the day the individual begins work for the employer.
        ``(3) Qualified second-year wages.--The term `qualified second-
    year wages' means, with respect to any individual, qualified wages 
    attributable to service rendered during the 1-year period beginning 
    on the day after the last day of the 1-year period with respect to 
    such individual determined under paragraph (2).
        ``(4) Only first $10,000 of wages per year taken into 
    account.--The amount of the qualified first-year wages, and the 
    amount of qualified second-year wages, which may be taken into 
    account with respect to any individual shall not exceed $10,000 per 
    year.
        ``(5) Wages.--
            ``(A) In general.--The term `wages' has the meaning given 
        such term by section 51(c), without regard to paragraph (4) 
        thereof.
            ``(B) Certain amounts treated as wages.--The term `wages' 
        includes amounts paid or incurred by the employer which are 
        excludable from such recipient's gross income under--
                ``(i) section 105 (relating to amounts received under 
            accident and health plans),
                ``(ii) section 106 (relating to contributions by 
            employer to accident and health plans),
                ``(iii) section 127 (relating to educational assistance 
            programs) or would be so excludable but for section 127(d), 
            but only to the extent paid or incurred to a person not 
            related to the employer, or
                ``(iv) section 129 (relating to dependent care 
            assistance programs).
        The amount treated as wages by clause (i) or (ii) for any 
        period shall be based on the reasonable cost of coverage for 
        the period, but shall not exceed the applicable premium for the 
        period under section 4980B(f)(4).
            ``(C) Special rules for agricultural and railway labor.--If 
        such recipient is an employee to whom subparagraph (A) or (B) 
        of section 51(h)(1) applies, rules similar to the rules of such 
        subparagraphs shall apply except that--
                ``(i) such subparagraph (A) shall be applied by 
            substituting `$10,000' for `$6,000', and
                ``(ii) such subparagraph (B) shall be applied by 
            substituting `$833.33' for `$500'.
    ``(c) Long-Term Family Assistance Recipients.--For purposes of this 
section--
        ``(1) In general.--The term `long-term family assistance 
    recipient' means any individual who is certified by the designated 
    local agency (as defined in section 51(d)(10))--
            ``(A) as being a member of a family receiving assistance 
        under a IV-A program (as defined in section 51(d)(2)(B)) for at 
        least the 18-month period ending on the hiring date,
            ``(B)(i) as being a member of a family receiving such 
        assistance for 18 months beginning after the date of the 
        enactment of this section, and
            ``(ii) as having a hiring date which is not more than 2 
        years after the end of the earliest such 18-month period, or
            ``(C)(i) as being a member of a family which ceased to be 
        eligible after the date of the enactment of this section for 
        such assistance by reason of any limitation imposed by Federal 
        or State law on the maximum period such assistance is payable 
        to a family, and
            ``(ii) as having a hiring date which is not more than 2 
        years after the date of such cessation.
        ``(2) Hiring date.--The term `hiring date' has the meaning 
    given such term by section 51(d).
    ``(d) Certain Rules To Apply.--
        ``(1) In general.--Rules similar to the rules of section 52, 
    and subsections (d)(11), (f), (g), (i) (as in effect on the day 
    before the date of the enactment of the Taxpayer Relief Act of 
    1997), (j), and (k) of section 51, shall apply for purposes of this 
    section.
        ``(2) Credit to be part of general business credit, etc.--
    References to section 51 in section 38(b), 280C(a), and 1396(c)(3) 
    shall be treated as including references to this section.
    ``(e) Coordination With Work Opportunity Credit.--If a credit is 
allowed under this section to an employer with respect to an individual 
for any taxable year, then for purposes of applying section 51 to such 
employer, such individual shall not be treated as a member of a 
targeted group for such taxable year.
    ``(f) Termination.--This section shall not apply to individuals who 
begin work for the employer after April 30, 1999.''.
    (b) Clerical Amendment.--The table of sections for subpart F of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 51 the following new item:
        ``Sec. 51A. Temporary incentives for employing long-term family 
                  assistance recipients.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after December 31, 
1997.

                   TITLE IX--MISCELLANEOUS PROVISIONS
            Subtitle A--Provisions Relating to Excise Taxes

SEC. 901. GENERAL REVENUE PORTION OF HIGHWAY MOTOR FUELS TAXES 
              DEPOSITED INTO HIGHWAY TRUST FUND.

    (a) In General.--Paragraph (4) of section 9503(b) (relating to 
certain additional taxes not transferred to Highway Trust Fund) is 
amended to read as follows:
        ``(4) Certain taxes not transferred to highway trust fund.--For 
    purposes of paragraphs (1) and (2), there shall not be taken into 
    account the taxes imposed by--
            ``(A) section 4041(d),
            ``(B) section 4081 to the extent attributable to the rate 
        specified in section 4081(a)(2)(B),
            ``(C) section 4041 or 4081 to the extent attributable to 
        fuel used in a train,
            ``(D) in the case of fuels used as described in paragraph 
        (4)(D), (5)(B), or (6)(D) of subsection (c), section 4041 or 
        4081--
                ``(i) with respect to so much of the rate of tax on 
            gasoline or special motor fuels as exceeds 11.5 cents per 
            gallon, and
                ``(ii) with respect to so much of the rate of tax on 
            diesel fuel or kerosene as exceeds 17.5 cents per gallon,
            ``(E) in the case of fuels described in section 
        4041(b)(2)(A), 4041(k), or 4081(c), section 4041 or 4081 before 
        October 1, 1999, with respect to a rate equal to 2.5 cents per 
        gallon, or
            ``(F) in the case of fuels described in section 4081(c)(2), 
        such section before October 1, 1999, with respect to a rate 
        equal to 2.8 cents per gallon.''.
    (b) Mass Transit Portion.--Section 9503(e)(2) (relating to 
transfers to Mass Transit Account) is amended by striking ``2 cents'' 
and inserting ``2.85 cents''.
    (c) Limitation on Expenditures.--Subsection (c) of section 9503 is 
amended by adding at the end the following new paragraph:
        ``(7) Limitation on expenditures.--Notwithstanding any other 
    provision of law, in calculating amounts under section 157(a) of 
    title 23, United States Code, and sections 1013(c), 1015(a), and 
    1015(b) of the Intermodal Surface Transportation Efficiency Act of 
    1991 (Public Law 102-240; 105 Stat. 1914), deposits in the Highway 
    Trust Fund resulting from the amendments made by the Taxpayer 
    Relief Act of 1997 shall not be taken into account.''.
    (d) Technical Amendments.--
        (1) Section 9503 is amended by striking subsection (f).
        (2) The last sentence of subparagraph (A) of section 9503(c)(2) 
    is amended by striking ``by taking into account only the Highway 
    Trust Fund financing rate applicable to any fuel'' and inserting 
    ``by taking into account only the portion of the taxes which are 
    deposited into the Highway Trust Fund''.
        (3) Paragraphs (4)(D), (5)(B), and (6)(D) of section 9503(c) 
    are each amended by striking ``attributable to the Highway Trust 
    Fund financing rate'' and inserting ``deposited into the Highway 
    Trust Fund''.
    (e) Delayed Deposits of Highway Motor Fuel Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of 1986, in 
the case of deposits of taxes imposed by sections 4041 and 4081 (other 
than subsection (a)(2)(A)(ii)) of the Internal Revenue Code of 1986, 
the due date for any deposit which would (but for this subsection) be 
required to be made after July 31, 1998, and before October 1, 1998, 
shall be October 5, 1998.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxes received in the Treasury after September 30, 1997.

SEC. 902. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL BOATS.

    (a) In General.--Subparagraph (B) of section 6421(e)(2) (defining 
off-highway business use) is amended by striking clauses (iii) and 
(iv).
    (b) Conforming Amendments.--
        (1) Subparagraph (A) of section 4041(a)(1) is amended--
            (A) by striking ``, a diesel-powered train, or a diesel-
        powered boat'' each place it appears and inserting ``or a 
        diesel-powered train'', and
            (B) by striking ``vehicle, train, or boat'' and inserting 
        ``vehicle or train''.
        (2) Paragraph (1) of section 4041(a) is amended by striking 
    subparagraph (D).
        (3) Paragraph (3) of section 4083(a) is amended by striking ``, 
    a diesel-powered train, or a diesel-powered boat'' and inserting 
    ``or a diesel-powered train''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

SEC. 903. CONTINUED APPLICATION OF TAX ON IMPORTED RECYCLED HALON-1211.

    (a) In General.--Paragraph (1) of section 4682(d) is amended by 
striking ``recycled halon'' and inserting ``recycled Halon-1301 or 
recycled Halon-2402''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 904. UNIFORM RATE OF TAX ON VACCINES.

    (a) In General.--Subsection (b) of section 4131 is amended to read 
as follows:
    ``(b) Amount of Tax.--
        ``(1) In general.--The amount of the tax imposed by subsection 
    (a) shall be 75 cents per dose of any taxable vaccine.
        ``(2) Combinations of vaccines.--If any taxable vaccine is 
    described in more than 1 subparagraph of section 4132(a)(1), the 
    amount of the tax imposed by subsection (a) on such vaccine shall 
    be the sum of the amounts for the vaccines which are so 
    included.''.
    (b) Taxable Vaccines.--Paragraph (1) of section 4132(a) is amended 
to read as follows:
        ``(1) Taxable vaccine.--The term `taxable vaccine' means any of 
    the following vaccines which are manufactured or produced in the 
    United States or entered into the United States for consumption, 
    use, or warehousing:
            ``(A) Any vaccine containing diphtheria toxoid.
            ``(B) Any vaccine containing tetanus toxoid.
            ``(C) Any vaccine containing pertussis bacteria, extracted 
        or partial cell bacteria, or specific pertussis antigens.
            ``(D) Any vaccine against measles.
            ``(E) Any vaccine against mumps.
            ``(F) Any vaccine against rubella.
            ``(G) Any vaccine containing polio virus.
            ``(H) Any HIB vaccine.
            ``(I) Any vaccine against hepatitis B.
            ``(J) Any vaccine against chicken pox.''.
    (c) Conforming Amendment.--Subsection (a) of section 4132 is 
amended by striking paragraphs (2), (3), (4), and (5) and by 
redesignating paragraphs (6) through (8) as paragraphs (2) through (4), 
respectively.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the day after the date of the enactment of this Act.
    (e) Limitation on Certain Credits or Refunds.--For purposes of 
applying section 4132(b) of the Internal Revenue Code of 1986 with 
respect to any claim for credit or refund filed before January 1, 1999, 
the amount of tax taken into account shall not exceed the tax computed 
under the rate in effect on the day after the date of the enactment of 
this Act.

SEC. 905. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS 
              WHOLESALE DISTRIBUTOR FOR REFUND PURPOSES.

    (a) In General.--Subparagraph (B) of section 6416(a)(4) (defining 
wholesale distributor) is amended by adding at the end the following 
new sentence: ``Such term includes any person who makes retail sales of 
gasoline at 10 or more retail motor fuel outlets.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales after the date of the enactment of this Act.

SEC. 906. EXEMPTION OF ELECTRIC AND OTHER CLEAN-FUEL MOTOR VEHICLES 
              FROM LUXURY AUTOMOBILE CLASSIFICATION.

    (a) In General.--Subsection (a) of section 4001 (relating to 
imposition of tax) is amended to read as follows:
    ``(a) Imposition of Tax.--
        ``(1) In general.--There is hereby imposed on the 1st retail 
    sale of any passenger vehicle a tax equal to 10 percent of the 
    price for which so sold to the extent such price exceeds the 
    applicable amount.
        ``(2) Applicable amount.--
            ``(A) In general.--Except as provided in subparagraphs (B) 
        and (C), the applicable amount is $30,000.
            ``(B) Qualified clean-fuel vehicle property.--In the case 
        of a passenger vehicle which is propelled by a fuel which is 
        not a clean-burning fuel and to which is installed qualified 
        clean-fuel vehicle property (as defined in section 
        179A(c)(1)(A)) for purposes of permitting such vehicle to be 
        propelled by a clean-burning fuel, the applicable amount is 
        equal to the sum of--
                ``(i) the dollar amount in effect under subparagraph 
            (A), plus
                ``(ii) the increase in the price for which the 
            passenger vehicle was sold (within the meaning of section 
            4002) due to the installation of such property.
            ``(C) Purpose built passenger vehicle.--
                ``(i) In general.--In the case of a purpose built 
            passenger vehicle, the applicable amount is equal to 150 
            percent of the dollar amount in effect under subparagraph 
            (A).
                ``(ii) Purpose built passenger vehicle.--For purposes 
            of clause (i), the term `purpose built passenger vehicle' 
            means a passenger vehicle produced by an original equipment 
            manufacturer and designed so that the vehicle may be 
            propelled primarily by electricity.''.
    (b) Conforming Amendments.--
        (1) Subsection (e) of section 4001 (relating to inflation 
    adjustment) is amended by striking ``and section 4003(a)''.
        (2) Subsection (f) of section 4001 (relating to phasedown) is 
    amended by striking ``subsection (a)'' and inserting ``subsection 
    (a)(1)''.
        (3) Subparagraph (A) of section 4003(a)(1) is amended by 
    inserting ``(other than property described in section 
    4001(a)(2)(B))'' after ``part or accessory''.
        (4) Subparagraph (B) of section 4003(a)(2) is amended to read 
    as follows:
            ``(B) the appropriate applicable amount as determined under 
        section 4001(a)(2).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and installations occurring after the date of the 
enactment of this Act.

SEC. 907. RATE OF TAX ON CERTAIN SPECIAL FUELS DETERMINED ON BASIS OF 
              BTU EQUIVALENCY WITH GASOLINE.

    (a) Special Motor Fuels.--
        (1) In general.--Paragraph (2) of section 4041(a) (relating to 
    special motor fuels) is amended to read as follows:
        ``(2) Special motor fuels.--
            ``(A) In general.--There is hereby imposed a tax on any 
        liquid (other than kerosene, gas oil, fuel oil, or any product 
        taxable under section 4081)--
                ``(i) sold by any person to an owner, lessee, or other 
            operator of a motor vehicle or motorboat for use as a fuel 
            in such motor vehicle or motorboat, or
                ``(ii) used by any person as a fuel in a motor vehicle 
            or motorboat unless there was a taxable sale of such liquid 
            under clause (i).
            ``(B) Rate of tax.--The rate of the tax imposed by this 
        paragraph shall be--
                ``(i) except as otherwise provided in this 
            subparagraph, the rate of tax specified in section 
            4081(a)(2)(A)(i) which is in effect at the time of such 
            sale or use,
                ``(ii) 13.6 cents per gallon in the case of liquefied 
            petroleum gas, and
                ``(iii) 11.9 cents per gallon in the case of liquefied 
            natural gas.
        In the case of any sale or use after September 30, 1999, clause 
        (ii) shall be applied by substituting `3.2 cents' for `13.6 
        cents', and clause (iii) shall be applied by substituting `2.8 
        cents' for `11.9 cents'.''.
        (2) Conforming amendment.--Paragraph (1) of section 4041(d) is 
    amended by inserting ``and other than liquefied natural gas'' after 
    ``liquefied petroleum gas''.
    (b) Methanol Fuel Produced From Natural Gas.--Subparagraph (A) of 
section 4041(m)(1) is amended to read as follows:
            ``(A) the rate of the tax imposed by subsection (a)(2) 
        shall be--
                ``(i) after September 30, 1997, and before October 1, 
            1999--

                    ``(I) in the case of fuel none of the alcohol in 
                which consists of ethanol, 9.15 cents per gallon, and
                    ``(II) in any other case, 11.3 cents per gallon, 
                and

                ``(ii) after September 30, 1999--

                    ``(I) in the case of fuel none of the alcohol in 
                which consists of ethanol, 2.15 cents per gallon, and
                    ``(II) in any other case, 4.3 cents per gallon, 
                and''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 1997.

SEC. 908. MODIFICATION OF TAX TREATMENT OF HARD CIDER.

    (a) Hard Cider Containing Less 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 less than 7 percent 
    alcohol by volume, 22.6 cents per wine gallon.''.
    (b) Application of Small Producer Credit.--Paragraph (1) of section 
5041(c) (relating to credit for small domestic producers) is amended by 
adding at the end the following new sentence: ``In the case of wine 
described in subsection (b)(6), the preceding sentence shall be applied 
by substituting `5.6 cents' for `90 cents'.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 1997.

SEC. 909. STUDY OF FEASIBILITY OF MOVING COLLECTION POINT FOR DISTILLED 
              SPIRITS EXCISE TAX.

    (a) In General.--The Secretary of the Treasury or his delegate 
shall conduct a study of options for changing the event on which the 
tax imposed by section 5001 of the Internal Revenue Code of 1986 is 
determined. One such option which shall be studied is determining such 
tax on removal from registered wholesale warehouses. In studying each 
such option, such Secretary shall focus on administrative issues 
including--
        (1) tax compliance,
        (2) the number of taxpayers required to pay the tax,
        (3) the types of financial responsibility requirements that 
    might be required, and
        (4) special requirements regarding segregation of non-tax-paid 
    distilled spirits from other products.
Such study shall review the effects of each such option on the 
Department of the Treasury (including staffing and other demands on 
budgetary resources) and the change in the period between the time such 
tax is currently paid and the time such tax would be paid under each 
such option.
    (b) Report.--The report of such study shall be submitted to the 
Committee on Finance of the Senate and the Committee on Ways and Means 
of the House of Representatives not later than March 31, 1998.

SEC. 910. CLARIFICATION OF AUTHORITY TO USE SEMI-GENERIC DESIGNATIONS 
              ON WINE LABELS.

    (a) In General.--Section 5388 (relating to designation of wines) is 
amended by adding at the end the following new subsection:
    ``(c) Use of Semi-Generic Designations.--
        ``(1) In general.--Semi-generic designations may be used to 
    designate wines of an origin other than that indicated by such name 
    only if--
            ``(A) there appears in direct conjunction therewith an 
        appropriate appellation of origin disclosing the true place of 
        origin of the wine, and
            ``(B) the wine so designated conforms to the standard of 
        identity, if any, for such wine contained in the regulations 
        under this section or, if there is no such standard, to the 
        trade understanding of such class or type.
        ``(2) Determination of whether name is semi-generic.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        a name of geographic significance, which is also the 
        designation of a class or type of wine, shall be deemed to have 
        become semi-generic only if so found by the Secretary.
            ``(B) Certain names treated as semi-generic.--The following 
        names shall be treated as semi-generic: Angelica, Burgundy, 
        Claret, Chablis, Champagne, Chianti, Malaga, Marsala, Madeira, 
        Moselle, Port, Rhine Wine or Hock, Sauterne, Haut Sauterne, 
        Sherry, Tokay.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

              Subtitle B--Revisions Relating to Disasters

SEC. 911. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON 
              OF PRESIDENTIALLY DECLARED DISASTER.

    (a) In General.--Chapter 77 is amended by inserting after section 
7508 the following new section:

``SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY 
              REASON OF PRESIDENTIALLY DECLARED DISASTER.

    ``(a) In General.--In the case of a taxpayer determined by the 
Secretary to be affected by a Presidentially declared disaster (as 
defined by section 1033(h)(3)), the Secretary may prescribe regulations 
under which a period of up to 90 days may be disregarded in 
determining, under the internal revenue laws, in respect of any tax 
liability (including any penalty, additional amount, or addition to the 
tax) of such taxpayer--
        ``(1) whether any of the acts described in paragraph (1) of 
    section 7508(a) were performed within the time prescribed therefor, 
    and
        ``(2) the amount of any credit or refund.
    ``(b) Interest on Overpayments and Underpayments.--Subsection (a) 
shall not apply for the purpose of determining interest on any 
overpayment or underpayment.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by inserting after the item relating to section 7508 the 
following new item:
        ``Sec. 7508A. Authority to postpone certain tax-related 
                  deadlines by reason of presidentially declared 
                  disaster.''.

    (c) Effective Date.--The amendments made by this section shall 
apply with respect to any period for performing an act that has not 
expired before the date of the enactment of this Act.

SEC. 912. USE OF CERTAIN APPRAISALS TO ESTABLISH AMOUNT OF DISASTER 
              LOSS.

    (a) In General.--Subsection (i) of section 165 is amended by adding 
at the end the following new paragraph:
        ``(4) Use of disaster loan appraisals to establish amount of 
    loss.--Nothing in this title shall be construed to prohibit the 
    Secretary from prescribing regulations or other guidance under 
    which an appraisal for the purpose of obtaining a loan of Federal 
    funds or a loan guarantee from the Federal Government as a result 
    of a Presidentially declared disaster (as defined by section 
    1033(h)(3)) may be used to establish the amount of any loss 
    described in paragraph (1) or (2).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 913. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT OF WEATHER-RELATED 
              CONDITIONS.

    (a) Deferral of Income Inclusion.--Subsection (e) of section 451 
(relating to special rules for proceeds from livestock sold on account 
of drought) is amended--
        (1) by striking ``drought conditions, and that these drought 
    conditions'' in paragraph (1) and inserting ``drought, flood, or 
    other weather-related conditions, and that such conditions''; and
        (2) by inserting ``, Flood, or Other Weather-Related 
    Conditions'' after ``Drought'' in the subsection heading.
    (b) Involuntary Conversions.--Subsection (e) of section 1033 
(relating to livestock sold on account of drought) is amended--
        (1) by inserting ``, flood, or other weather-related 
    conditions'' before the period at the end thereof; and
        (2) by inserting ``, Flood, or Other Weather-Related 
    Conditions'' after ``Drought'' in the subsection heading.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges after December 31, 1996.

SEC. 914. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN DISASTER AREAS.

    Subsection (k) of section 143 (relating to mortgage revenue bonds; 
qualified mortgage bond and qualified veteran's mortgage bond) is 
amended by adding at the end the following new paragraph:
        ``(11) Special rules for residences located in disaster 
    areas.--In the case of a residence located in an area determined by 
    the President to warrant assistance from the Federal Government 
    under the Robert T. Stafford Disaster Relief and Emergency 
    Assistance Act (as in effect on the date of the enactment of the 
    Taxpayer Relief Act of 1997), this section shall be applied with 
    the following modifications to financing provided with respect to 
    such residence within 2 years after the date of the disaster 
    declaration:
            ``(A) Subsection (d) (relating to 3-year requirement) shall 
        not apply.
            ``(B) Subsections (e) and (f) (relating to purchase price 
        requirement and income requirement) shall be applied as if such 
        residence were a targeted area residence.
    The preceding sentence shall apply only with respect to bonds 
    issued after December 31, 1996, and before January 1, 1999.''.

SEC. 915. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS IN 
              PRESIDENTIALLY DECLARED DISASTER AREAS.

    (a) In General.--If the Secretary of the Treasury extends for any 
period the time for filing income tax returns under section 6081 of the 
Internal Revenue Code of 1986 and the time for paying income tax with 
respect to such returns under section 6161 of such Code (and waives any 
penalties relating to the failure to so file or so pay) for any 
individual located in a Presidentially declared disaster area, the 
Secretary shall, notwithstanding section 7508A(b) of such Code, abate 
for such period the assessment of any interest prescribed under section 
6601 of such Code on such income tax.
    (b) Presidentially Declared Disaster Area.--For purposes of 
subsection (a), the term ``Presidentially declared disaster area'' 
means, with respect to any individual, any area which the President has 
determined during 1997 warrants assistance by the Federal Government 
under the Robert T. Stafford Disaster Relief and Emergency Assistance 
Act.
    (c) Individual.--For purposes of this section, the term 
``individual'' shall not include any estate or trust.
    (d) Effective Date.--This section shall apply to disasters declared 
after December 31, 1996.

          Subtitle C--Provisions Relating to Employment Taxes

SEC. 921. CLARIFICATION OF STANDARD TO BE USED IN DETERMINING 
              EMPLOYMENT TAX STATUS OF SECURITIES BROKERS.

    (a) In General.--In determining for purposes of the Internal 
Revenue Code of 1986 whether a registered representative of a 
securities broker-dealer is an employee (as defined in section 3121(d) 
of the Internal Revenue Code of 1986), no weight shall be given to 
instructions from the service recipient which are imposed only in 
compliance with investor protection standards imposed by the Federal 
Government, any State government, or a governing body pursuant to a 
delegation by a Federal or State agency.
    (b) Effective Date.--Subsection (a) shall apply to services 
performed after December 31, 1997.

SEC. 922. CLARIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX FOR 
              CERTAIN TERMINATION PAYMENTS RECEIVED BY FORMER INSURANCE 
              SALESMEN.

    (a) Internal Revenue Code.--Section 1402 (relating to definitions) 
is amended by adding at the end the following new subsection:
    ``(k) Codification of Treatment of Certain Termination Payments 
Received by Former Insurance Salesmen.--Nothing in subsection (a) shall 
be construed as including in the net earnings from self-employment of 
an individual any amount received during the taxable year from an 
insurance company on account of services performed by such individual 
as an insurance salesman for such company if--
        ``(1) such amount is received after termination of such 
    individual's agreement to perform such services for such company,
        ``(2) such individual performs no services for such company 
    after such termination and before the close of such taxable year,
        ``(3) such individual enters into a covenant not to compete 
    against such company which applies to at least the 1-year period 
    beginning on the date of such termination, and
        ``(4) the amount of such payment--
            ``(A) depends primarily on policies sold by or credited to 
        the account of such individual during the last year of such 
        agreement or the extent to which such policies remain in force 
        for some period after such termination, or both, and
            ``(B) does not depend to any extent on length of service or 
        overall earnings from services performed for such company 
        (without regard to whether eligibility for payment depends on 
        length of service).''.
    (b) Social Security Act.--Section 211 of the Social Security Act is 
amended by adding at the end the following new subsection:

``Codification of Treatment of Certain Termination Payments Received by 
                       Former Insurance Salesmen

    ``(j) Nothing in subsection (a) shall be construed as including in 
the net earnings from self-employment of an individual any amount 
received during the taxable year from an insurance company on account 
of services performed by such individual as an insurance salesman for 
such company if--
        ``(1) such amount is received after termination of such 
    individual's agreement to perform such services for such company,
        ``(2) such individual performs no services for such company 
    after such termination and before the close of such taxable year,
        ``(3) such individual enters into a covenant not to compete 
    against such company which applies to at least the 1-year period 
    beginning on the date of such termination, and
        ``(4) the amount of such payment--
            ``(A) depends primarily on policies sold by or credited to 
        the account of such individual during the last year of such 
        agreement or the extent to which such policies remain in force 
        for some period after such termination, or both, and
            ``(B) does not depend to any extent on length of service or 
        overall earnings from services performed for such company 
        (without regard to whether eligibility for payment depends on 
        length of service).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments after December 31, 1997.

          Subtitle D--Provisions Relating to Small Businesses

SEC. 931. WAIVER OF PENALTY THROUGH JUNE 30, 1998, ON SMALL BUSINESSES 
              FAILING TO MAKE ELECTRONIC FUND TRANSFERS OF TAXES.

    No penalty shall be imposed under the Internal Revenue Code of 1986 
solely by reason of a failure by a person to use the electronic fund 
transfer system established under section 6302(h) of such Code if--
        (1) such person is a member of a class of taxpayers first 
    required to use such system on or after July 1, 1997, and
        (2) such failure occurs before July 1, 1998.

SEC. 932. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR 
              ADMINISTRATIVE AND MANAGEMENT ACTIVITIES.

    (a) In General.--Paragraph (1) of section 280A(c) is amended by 
adding at the end the following new sentence: ``For purposes of 
subparagraph (A), the term `principal place of business' includes a 
place of business which is used by the taxpayer for the administrative 
or management activities of any trade or business of the taxpayer if 
there is no other fixed location of such trade or business where the 
taxpayer conducts substantial administrative or management activities 
of such trade or business.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1998.

SEC. 933. AVERAGING OF FARM INCOME OVER 3 YEARS.

    (a) In General.--Subchapter Q of chapter 1 (relating to 
readjustment of tax between years and special limitations) is amended 
by adding the following new part:

                       ``PART I--INCOME AVERAGING

        ``Sec. 1301. Averaging of farm income.

``SEC. 1301. AVERAGING OF FARM INCOME.

    ``(a) In General.--At the election of an individual engaged in a 
farming business, the tax imposed by section 1 for such taxable year 
shall be equal to the sum of--
        ``(1) a tax computed under such section on taxable income 
    reduced by elected farm income, plus
        ``(2) the increase in tax imposed by section 1 which would 
    result if taxable income for each of the 3 prior taxable years were 
    increased by an amount equal to one-third of the elected farm 
    income.
Any adjustment under this section for any taxable year shall be taken 
into account in applying this section for any subsequent taxable year.
    ``(b) Definitions.--In this section--
        ``(1) Elected farm income.--
            ``(A) In general.--The term `elected farm income' means so 
        much of the taxable income for the taxable year--
                ``(i) which is attributable to any farming business; 
            and
                ``(ii) which is specified in the election under 
            subsection (a).
            ``(B) Treatment of gains.--For purposes of subparagraph 
        (A), gain from the sale or other disposition of property (other 
        than land) regularly used by the taxpayer in such a farming 
        business for a substantial period shall be treated as 
        attributable to such a farming business.
        ``(2) Individual.--The term `individual' shall not include any 
    estate or trust.
        ``(3) Farming business.--The term `farming business' has the 
    meaning given such term by section 263A(e)(4).
    ``(c) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations regarding--
        ``(1) the order and manner in which items of income, gain, 
    deduction, or loss, or limitations on tax, shall be taken into 
    account in computing the tax imposed by this chapter on the income 
    of any taxpayer to whom this section applies for any taxable year, 
    and
        ``(2) the treatment of any short taxable year.''.
    (b) Clerical Amendment.--The table of parts for such subchapter Q 
is amended by inserting before the item relating to part II the 
following new item:
        ``Part I. Income averaging.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997, and before 
January 1, 2001.

SEC. 934. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
              EMPLOYED INDIVIDUALS.

    (a) In General.--The table contained in section 162(l)(1)(B) is 
amended to read as follows:
``For taxable years beginning in calendar year--
The applicable percentage is--
    1997......................................................


                                                                     40 

    1998 and 1999.............................................


                                                                     45 

    2000 and 2001.............................................


                                                                     50 

    2002......................................................


                                                                     60 

    2003 through 2005.........................................


                                                                     80 

    2006......................................................


                                                                     90 

    2007 and thereafter.......................................


                                                                 100.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

SEC. 935. MORATORIUM ON CERTAIN REGULATIONS.

    No temporary or final regulation with respect to the definition of 
a limited partner under section 1402(a)(13) of the Internal Revenue 
Code of 1986 may be issued or made effective before July 1, 1998.

                        Subtitle E--Brownfields

SEC. 941. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) In General.--Part VI of subchapter B of chapter 1 is amended by 
adding at the end the following new section:

``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    ``(a) In General.--A taxpayer may elect to treat any qualified 
environmental remediation expenditure which is paid or incurred by the 
taxpayer as an expense which is not chargeable to capital account. Any 
expenditure which is so treated shall be allowed as a deduction for the 
taxable year in which it is paid or incurred.
    ``(b) Qualified Environmental Remediation Expenditure.--For 
purposes of this section--
        ``(1) In general.--The term `qualified environmental 
    remediation expenditure' means any expenditure--
            ``(A) which is otherwise chargeable to capital account, and
            ``(B) which is paid or incurred in connection with the 
        abatement or control of hazardous substances at a qualified 
        contaminated site.
        ``(2) Special rule for expenditures for depreciable property.--
    Such term shall not include any expenditure for the acquisition of 
    property of a character subject to the allowance for depreciation 
    which is used in connection with the abatement or control of 
    hazardous substances at a qualified contaminated site; except that 
    the portion of the allowance under section 167 for such property 
    which is otherwise allocated to such site shall be treated as a 
    qualified environmental remediation expenditure.
    ``(c) Qualified Contaminated Site.--For purposes of this section--
        ``(1) Qualified contaminated site.--
            ``(A) In general.--The term `qualified contaminated site' 
        means any area--
                ``(i) which is held by the taxpayer for use in a trade 
            or business or for the production of income, or which is 
            property described in section 1221(1) in the hands of the 
            taxpayer,
                ``(ii) which is within a targeted area, and
                ``(iii) at or on which there has been a release (or 
            threat of release) or disposal of any hazardous substance.
            ``(B) Taxpayer must receive statement from state 
        environmental agency.--An area shall be treated as a qualified 
        contaminated site with respect to expenditures paid or incurred 
        during any taxable year only if the taxpayer receives a 
        statement from the appropriate agency of the State in which 
        such area is located that such area meets the requirements of 
        clauses (ii) and (iii) of subparagraph (A).
            ``(C) Appropriate state agency.--For purposes of 
        subparagraph (B), the chief executive officer of each State 
        may, in consultation with the Administrator of the 
        Environmental Protection Agency, designate the appropriate 
        State environmental agency within 60 days of the date of the 
        enactment of this section. If the chief executive officer of a 
        State has not designated an appropriate State environmental 
        agency within such 60-day period, the appropriate environmental 
        agency for such State shall be designated by the Administrator 
        of the Environmental Protection Agency.
        ``(2) Targeted area.--
            ``(A) In general.--The term `targeted area' means--
                ``(i) any population census tract with a poverty rate 
            of not less than 20 percent,
                ``(ii) a population census tract with a population of 
            less than 2,000 if--

                    ``(I) more than 75 percent of such tract is zoned 
                for commercial or industrial use, and
                    ``(II) such tract is contiguous to 1 or more other 
                population census tracts which meet the requirement of 
                clause (i) without regard to this clause,

                ``(iii) any empowerment zone or enterprise community 
            (and any supplemental zone designated on December 21, 
            1994), and
                ``(iv) any site announced before February 1, 1997, as 
            being included as a brownfields pilot project of the 
            Environmental Protection Agency.
            ``(B) National priorities listed sites not included.--Such 
        term shall not include any site which is on, or proposed for, 
        the national priorities list under section 105(a)(8)(B) of the 
        Comprehensive Environmental Response, Compensation, and 
        Liability Act of 1980 (as in effect on the date of the 
        enactment of this section).
            ``(C) Certain rules to apply.--For purposes of this 
        paragraph the rules of sections 1392(b)(4) and 1393(a)(9) shall 
        apply.
    ``(d) Hazardous Substance.--For purposes of this section--
        ``(1) In general.--The term `hazardous substance' means--
            ``(A) any substance which is a hazardous substance as 
        defined in section 101(14) of the Comprehensive Environmental 
        Response, Compensation, and Liability Act of 1980, and
            ``(B) any substance which is designated as a hazardous 
        substance under section 102 of such Act.
        ``(2) Exception.--Such term shall not include any substance 
    with respect to which a removal or remedial action is not permitted 
    under section 104 of such Act by reason of subsection (a)(3) 
    thereof.
    ``(e) Deduction Recaptured as Ordinary Income on Sale, Etc.--Solely 
for purposes of section 1245, in the case of property to which a 
qualified environmental remediation expenditure would have been 
capitalized but for this section--
        ``(1) the deduction allowed by this section for such 
    expenditure shall be treated as a deduction for depreciation, and
        ``(2) such property (if not otherwise section 1245 property) 
    shall be treated as section 1245 property solely for purposes of 
    applying section 1245 to such deduction.
    ``(f) Coordination With Other Provisions.--Sections 280B and 468 
shall not apply to amounts which are treated as expenses under this 
section.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.
    ``(h) Termination.--This section shall not apply to expenditures 
paid or incurred after December 31, 2000.''.
    (b) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:
        ``Sec. 198. Expensing of environmental remediation costs.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred after the date of the enactment 
of this Act, in taxable years ending after such date.

Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and 
              Community Development Financial Institutions

                CHAPTER 1--ADDITIONAL EMPOWERMENT ZONES

SEC. 951. ADDITIONAL EMPOWERMENT ZONES.

    (a) In General.--Paragraph (2) of section 1391(b) (relating to 
designations of empowerment zones and enterprise communities) is 
amended--
        (1) by striking ``9'' and inserting ``11'',
        (2) by striking ``6'' and inserting ``8'', and
        (3) by striking ``750,000'' and inserting ``1,000,000''.
    (b) Special Rules for Application of Employment Credit.--Subsection 
(b) of section 1396 (relating to empowerment zone employment credit) is 
amended--
        (1) by striking so much of the subsection as precedes the table 
    and inserting the following:
    ``(b) Applicable Percentage.--For purposes of this section--
        ``(1) In general.--Except as provided in paragraph (2), the 
    term `applicable percentage' means the percentage determined in 
    accordance with the following table:'', and
        (2) by adding at the end the following new paragraph:
        ``(2) Special Rule.--With respect to each empowerment zone 
    designated pursuant to the amendments made by the Taxpayer Relief 
    Act of 1997 to section 1391(b)(2), the following table shall apply 
    in lieu of the table in paragraph (1):

``In the case of wages paid or
                                                          The applicable
  incurred during calendar year--
                                                         percentage is--
    2000 through 2004.........................................


                                                                     20 

    2005......................................................


                                                                     15 

    2006......................................................


                                                                     10 

    2007......................................................


                                                                   5.''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act, except that 
designations of new empowerment zones made pursuant to such amendments 
shall be made during the 180-day period beginning on the date of the 
enactment of this Act. No designation pursuant to such amendments shall 
take effect before January 1, 2000.

                    CHAPTER 2--NEW EMPOWERMENT ZONES

SEC. 952. DESIGNATION OF NEW EMPOWERMENT ZONES.

    (a) In General.--Section 1391 (relating to designation procedure 
for empowerment zones and enterprise communities) is amended by adding 
at the end the following new subsection:
    ``(g) Additional Designations Permitted.--
        ``(1) In general.--In addition to the areas designated under 
    subsection (a), the appropriate Secretaries may designate in the 
    aggregate an additional 20 nominated areas as empowerment zones 
    under this section, subject to the availability of eligible 
    nominated areas. Of that number, not more than 15 may be designated 
    in urban areas and not more than 5 may be designated in rural 
    areas.
        ``(2) Period designations may be made and take effect.--A 
    designation may be made under this subsection after the date of the 
    enactment of this subsection and before January 1, 1999.
        ``(3) Modifications to eligibility criteria, etc.--
            ``(A) Poverty rate requirement.--
                ``(i) In general.--A nominated area shall be eligible 
            for designation under this subsection only if the poverty 
            rate for each population census tract within the nominated 
            area is not less than 20 percent and the poverty rate for 
            at least 90 percent of the population census tracts within 
            the nominated area is not less than 25 percent.
                ``(ii) Treatment of census tracts with small 
            populations.--A population census tract with a population 
            of less than 2,000 shall be treated as having a poverty 
            rate of not less than 25 percent if--

                    ``(I) more than 75 percent of such tract is zoned 
                for commercial or industrial use, and
                    ``(II) such tract is contiguous to 1 or more other 
                population census tracts which have a poverty rate of 
                not less than 25 percent (determined without regard to 
                this clause).

                ``(iii) Exception for developable sites.--Clause (i) 
            shall not apply to up to 3 noncontiguous parcels in a 
            nominated area which may be developed for commercial or 
            industrial purposes. The aggregate area of noncontiguous 
            parcels to which the preceding sentence applies with 
            respect to any nominated area shall not exceed 2,000 acres.
                ``(iv) Certain provisions not to apply.--Section 
            1392(a)(4) (and so much of paragraphs (1) and (2) of 
            section 1392(b) as relate to section 1392(a)(4)) shall not 
            apply to an area nominated for designation under this 
            subsection.
                ``(v) Special rule for rural empowerment zone.--The 
            Secretary of Agriculture may designate not more than 1 
            empowerment zone in a rural area without regard to clause 
            (i) if such area satisfies emigration criteria specified by 
            the Secretary of Agriculture.
            ``(B) Size limitation.--
                ``(i) In general.--The parcels described in 
            subparagraph (A)(iii) shall not be taken into account in 
            determining whether the requirement of subparagraph (A) or 
            (B) of section 1392(a)(3) is met.
                ``(ii) Special rule for rural areas.--If a population 
            census tract (or equivalent division under section 
            1392(b)(4)) in a rural area exceeds 1,000 square miles or 
            includes a substantial amount of land owned by the Federal, 
            State, or local government, the nominated area may exclude 
            such excess square mileage or governmentally owned land and 
            the exclusion of that area will not be treated as violating 
            the continuous boundary requirement of section 
            1392(a)(3)(B).
            ``(C) Aggregate population limitation.--The aggregate 
        population limitation under the last sentence of subsection 
        (b)(2) shall not apply to a designation under paragraph (1)(B).
            ``(D) Previously designated enterprise communities may be 
        included.--Subsection (e)(5) shall not apply to any enterprise 
        community designated under subsection (a) that is also 
        nominated for designation under this subsection.
            ``(E) Indian reservations may be nominated.--
                ``(i) In general.--Section 1393(a)(4) shall not apply 
            to an area nominated for designation under this subsection.
                ``(ii) Special rule.--An area in an Indian reservation 
            shall be treated as nominated by a State and a local 
            government if it is nominated by the reservation governing 
            body (as determined by the Secretary of Interior).''.
    (b) Employment Credit Not To Apply to New Empowerment Zones.--
Section 1396 (relating to empowerment zone employment credit) is 
amended by adding at the end the following new subsection:
    ``(e) Credit Not To Apply to Empowerment Zones Designated Under 
Section 1391(g).--This section shall be applied without regard to any 
empowerment zone designated under section 1391(g).''.
    (c) Increased Expensing Under Section 179 Not To Apply in 
Developable Sites.--Section 1397A (relating to increase in expensing 
under section 179) is amended by adding at the end the following new 
subsection:
    ``(c) Limitation.--For purposes of this section, qualified zone 
property shall not include any property substantially all of the use of 
which is in any parcel described in section 1391(g)(3)(A)(iii).''.
    (d) Conforming Amendments.--
        (1) Subsections (e) and (f) of section 1391 are each amended by 
    striking ``subsection (a)'' and inserting ``this section''.
        (2) Section 1391(c) is amended by striking ``this section'' and 
    inserting ``subsection (a)''.

SEC. 953. VOLUME CAP NOT TO APPLY TO ENTERPRISE ZONE FACILITY BONDS 
              WITH RESPECT TO NEW EMPOWERMENT ZONES.

    (a) In General.--Section 1394 (relating to tax-exempt enterprise 
zone facility bonds) is amended by adding at the end the following new 
subsection:
    ``(f) Bonds for Empowerment Zones Designated Under Section 
1391(g).--
        ``(1) In general.--In the case of a new empowerment zone 
    facility bond--
            ``(A) such bond shall not be treated as a private activity 
        bond for purposes of section 146, and
            ``(B) subsection (c) of this section shall not apply.
        ``(2) Limitation on amount of bonds.--
            ``(A) In general.--Paragraph (1) shall apply to a new 
        empowerment zone facility bond only if such bond is designated 
        for purposes of this subsection by the local government which 
        nominated the area to which such bond relates.
            ``(B) Limitation on bonds designated.--The aggregate face 
        amount of bonds which may be designated under subparagraph (A) 
        with respect to any empowerment zone shall not exceed--
                ``(i) $60,000,000 if such zone is in a rural area,
                ``(ii) $130,000,000 if such zone is in an urban area 
            and the zone has a population of less than 100,000, and
                ``(iii) $230,000,000 if such zone is in an urban area 
            and the zone has a population of at least 100,000.
            ``(C) Special rules.--
                ``(i) Coordination with limitation in subsection (c).--
            Bonds to which paragraph (1) applies shall not be taken 
            into account in applying the limitation of subsection (c) 
            to other bonds.
                ``(ii) Current refunding not taken into account.--In 
            the case of a refunding (or series of refundings) of a bond 
            designated under this paragraph, the refunding obligation 
            shall be treated as designated under this paragraph (and 
            shall not be taken into account in applying subparagraph 
            (B)) if--

                    ``(I) the amount of the refunding bond does not 
                exceed the outstanding amount of the refunded bond, and
                    ``(II) the refunded bond is redeemed not later than 
                90 days after the date of issuance of the refunding 
                bond.

        ``(3) New empowerment zone facility bond.--For purposes of this 
    subsection, the term `new empowerment zone facility bond' means any 
    bond which would be described in subsection (a) if only empowerment 
    zones designated under section 1391(g) were taken into account 
    under sections 1397B and 1397C.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 954. MODIFICATION TO ELIGIBILITY CRITERIA FOR DESIGNATION OF 
              FUTURE ENTERPRISE ZONES IN ALASKA OR HAWAII.

    Section 1392 (relating to eligibility criteria) is amended by 
adding at the end the following new subsection:
    ``(d) Special Eligibility for Nominated Areas Located in Alaska or 
Hawaii.--A nominated area in Alaska or Hawaii shall be treated as 
meeting the requirements of paragraphs (2), (3), and (4) of subsection 
(a) if for each census tract or block group within such area 20 percent 
or more of the families have income which is 50 percent or less of the 
statewide median family income (as determined under section 143).''.

  CHAPTER 3--TREATMENT OF EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

SEC. 955. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND RULES FOR ALL 
              EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.

    (a) Modifications Relating to Enterprise Zone Business.--Paragraph 
(3) of section 1394(b) (defining enterprise zone business) is amended 
to read as follows:
        ``(3) Enterprise zone business.--
            ``(A) In general.--Except as modified in this paragraph, 
        the term `enterprise zone business' has the meaning given such 
        term by section 1397B.
            ``(B) Modifications.--In applying section 1397B for 
        purposes of this section--
                ``(i) Businesses in enterprise communities eligible.--
            References in section 1397B to empowerment zones shall be 
            treated as including references to enterprise communities.
                ``(ii) Waiver of requirements during startup period.--A 
            business shall not fail to be treated as an enterprise zone 
            business during the startup period if--

                    ``(I) as of the beginning of the startup period, it 
                is reasonably expected that such business will be an 
                enterprise zone business (as defined in section 1397B 
                as modified by this paragraph) at the end of such 
                period, and
                    ``(II) such business makes bona fide efforts to be 
                such a business.

                ``(iii) Reduced requirements after testing period.--A 
            business shall not fail to be treated as an enterprise zone 
            business for any taxable year beginning after the testing 
            period by reason of failing to meet any requirement of 
            subsection (b) or (c) of section 1397B if at least 35 
            percent of the employees of such business for such year are 
            residents of an empowerment zone or an enterprise 
            community. The preceding sentence shall not apply to any 
            business which is not a qualified business by reason of 
            paragraph (1), (4), or (5) of section 1397B(d).
            ``(C) Definitions relating to subparagraph (b).--For 
        purposes of subparagraph (B)--
                ``(i) Startup period.--The term `startup period' means, 
            with respect to any property being provided for any 
            business, the period before the first taxable year 
            beginning more than 2 years after the later of--

                    ``(I) the date of issuance of the issue providing 
                such property, or
                    ``(II) the date such property is first placed in 
                service after such issuance (or, if earlier, the date 
                which is 3 years after the date described in subclause 
                (I)).

                ``(ii) Testing period.--The term `testing period' means 
            the first 3 taxable years beginning after the startup 
            period.
            ``(D) Portions of business may be enterprise zone 
        business.--The term `enterprise zone business' includes any 
        trades or businesses which would qualify as an enterprise zone 
        business (determined after the modifications of subparagraph 
        (B)) if such trades or businesses were separately 
        incorporated.''.
    (b) Modifications Relating to Qualified Zone Property.--Paragraph 
(2) of section 1394(b) (defining qualified zone property) is amended to 
read as follows:
        ``(2) Qualified zone property.--The term `qualified zone 
    property' has the meaning given such term by section 1397C; except 
    that--
            ``(A) the references to empowerment zones shall be treated 
        as including references to enterprise communities, and
            ``(B) section 1397C(a)(2) shall be applied by substituting 
        `an amount equal to 15 percent of the adjusted basis' for `an 
        amount equal to the adjusted basis'.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.

SEC. 956. MODIFICATIONS TO ENTERPRISE ZONE BUSINESS DEFINITION FOR ALL 
              EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.

    (a) In General.--Section 1397B (defining enterprise zone business) 
is amended--
        (1) by striking ``80 percent'' in subsections (b)(2) and (c)(1) 
    and inserting ``50 percent'',
        (2) by striking ``substantially all'' each place it appears in 
    subsections (b) and (c) and inserting ``a substantial portion'',
        (3) by striking ``, and exclusively related to,'' in 
    subsections (b)(4) and (c)(3),
        (4) by adding at the end of subsection (d)(2) the following new 
    flush sentence:
    ``For purposes of subparagraph (B), the lessor of the property may 
    rely on a lessee's certification that such lessee is an enterprise 
    zone business.'',
        (5) by striking ``substantially all'' in subsection (d)(3) and 
    inserting ``at least 50 percent'', and
        (6) by adding at the end the following new subsection:
    ``(f) Treatment of Businesses Straddling Census Tract Lines.--For 
purposes of this section, if--
        ``(1) a business entity or proprietorship uses real property 
    located within an empowerment zone,
        ``(2) the business entity or proprietorship also uses real 
    property located outside the empowerment zone,
        ``(3) the amount of real property described in paragraph (1) is 
    substantial compared to the amount of real property described in 
    paragraph (2), and
        ``(4) the real property described in paragraph (2) is 
    contiguous to part or all of the real property described in 
    paragraph (1),
then all the services performed by employees, all business activities, 
all tangible property, and all intangible property of the business 
entity or proprietorship that occur in or is located on the real 
property described in paragraphs (1) and (2) shall be treated as 
occurring or situated in an empowerment zone.''.
    (b) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning on or after the date of the 
    enactment of this Act.
        (2) Special rule for enterprise zone facility bonds.--For 
    purposes of section 1394(b) of the Internal Revenue Code of 1986, 
    the amendments made by this section shall apply to obligations 
    issued after the date of the enactment of this Act.

                      Subtitle G--Other Provisions

SEC. 961. USE OF ESTIMATES OF SHRINKAGE FOR INVENTORY ACCOUNTING.

    (a) In General.--Section 471 (relating to general rule for 
inventories) is amended by redesignating subsection (b) as subsection 
(c) and by inserting after subsection (a) the following new subsection:
    ``(b) Estimates of Inventory Shrinkage Permitted.--A method of 
determining inventories shall not be treated as failing to clearly 
reflect income solely because it utilizes estimates of inventory 
shrinkage that are confirmed by a physical count only after the last 
day of the taxable year if--
        ``(1) the taxpayer normally does a physical count of 
    inventories at each location on a regular and consistent basis, and
        ``(2) the taxpayer makes proper adjustments to such inventories 
    and to its estimating methods to the extent such estimates are 
    greater than or less than the actual shrinkage.''.
    (b) Effective Date.--
        (1) In general.--The amendment made by this section shall apply 
    to taxable years ending after the date of the enactment of this 
    Act.
        (2) Coordination with section 481.--In the case of any taxpayer 
    permitted by this section to change its method of accounting to a 
    permissible method for any taxable year--
            (A) such changes shall be treated as initiated by the 
        taxpayer,
            (B) such changes shall be treated as made with the consent 
        of the Secretary of the Treasury, and
            (C) the period for taking into account the adjustments 
        under section 481 by reason of such change shall be 4 years.

SEC. 962. ASSIGNMENT OF WORKMEN'S COMPENSATION LIABILITY ELIGIBLE FOR 
              EXCLUSION RELATING TO PERSONAL INJURY LIABILITY 
              ASSIGNMENTS.

    (a) In General.--Subsection (c) of section 130 (relating to certain 
personal injury liability assignments) is amended--
        (1) by inserting ``, or as compensation under any workmen's 
    compensation act,'' after ``(whether by suit or agreement)'' in the 
    material preceding paragraph (1),
        (2) by inserting ``or the workmen's compensation claim,'' after 
    ``agreement,'' in paragraph (1), and
        (3) by striking ``section 104(a)(2)'' in paragraph (2)(D) and 
    inserting ``paragraph (1) or (2) of section 104(a)''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to claims under workmen's compensation acts filed after the date 
of the enactment of this Act.

SEC. 963. TAX-EXEMPT STATUS FOR CERTAIN STATE WORKER'S COMPENSATION ACT 
              COMPANIES.

    (a) In General.--Section 501(c)(27) (relating to membership 
organizations under workmen's compensation acts) is amended by adding 
at the end the following:
        ``(B) Any organization (including a mutual insurance company) 
    if--
            ``(i) such organization is created by State law and is 
        organized and operated under State law exclusively to--
                ``(I) provide workmen's compensation insurance which is 
            required by State law or with respect to which State law 
            provides significant disincentives if such insurance is not 
            purchased by an employer, and
                ``(II) provide related coverage which is incidental to 
            workmen's compensation insurance,
            ``(ii) such organization must provide workmen's 
        compensation insurance to any employer in the State (for 
        employees in the State or temporarily assigned out-of-State) 
        which seeks such insurance and meets other reasonable 
        requirements relating thereto,
            ``(iii)(I) the State makes a financial commitment with 
        respect to such organization either by extending the full faith 
        and credit of the State to the initial debt of such 
        organization or by providing the initial operating capital of 
        such organization, and (II) in the case of periods after the 
        date of enactment of this subparagraph, the assets of such 
        organization revert to the State upon dissolution or State law 
        does not permit the dissolution of such organization, and
            ``(iv) the majority of the board of directors or oversight 
        body of such organization are appointed by the chief executive 
        officer or other executive branch official of the State, by the 
        State legislature, or by both.''.
    (b) Conforming Amendments.--Section 501(c)(27) is amended by 
inserting ``(A)'' after ``(27)'', by redesignating subparagraphs (A), 
(B), and (C) as clauses (i), (ii), and (iii), respectively, and by 
redesignating clauses (i) and (ii) of subparagraphs (B) and (C) (before 
redesignation) as subclauses (I) and (II), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 964. ELECTION FOR 1987 PARTNERSHIPS TO CONTINUE EXCEPTION FROM 
              TREATMENT OF PUBLICLY TRADED PARTNERSHIPS AS 
              CORPORATIONS.

    (a) In General.--Section 7704 is amended by adding at the end the 
following new subsection:
    ``(g) Exception for Electing 1987 Partnerships.--
        ``(1) In general.--Subsection (a) shall not apply to an 
    electing 1987 partnership.
        ``(2) Electing 1987 partnership.--For purposes of this 
    subsection, the term `electing 1987 partnership' means any publicly 
    traded partnership if--
            ``(A) such partnership is an existing partnership (as 
        defined in section 10211(c)(2) of the Revenue Reconciliation 
        Act of 1987),
            ``(B) subsection (a) has not applied (and without regard to 
        subsection (c)(1) would not have applied) to such partnership 
        for all prior taxable years beginning after December 31, 1987, 
        and before January 1, 1998, and
            ``(C) such partnership elects the application of this 
        subsection, and consents to the application of the tax imposed 
        by paragraph (3), for its first taxable year beginning after 
        December 31, 1997.
    A partnership which, but for this sentence, would be treated as an 
    electing 1987 partnership shall cease to be so treated (and the 
    election under subparagraph (C) shall cease to be in effect) as of 
    the 1st day after December 31, 1997, on which there has been an 
    addition of a substantial new line of business with respect to such 
    partnership.
        ``(3) Additional tax on electing partnerships.--
            ``(A) Imposition of tax.--There is hereby imposed for each 
        taxable year on the income of each electing 1987 partnership a 
        tax equal to 3.5 percent of such partnership's gross income for 
        the taxable year from the active conduct of trades and 
        businesses by the partnership.
            ``(B) Adjustments in the case of tiered partnerships.--For 
        purposes of this paragraph, in the case of a partnership which 
        is a partner in another partnership, the gross income referred 
        to in subparagraph (A) shall include the partnership's 
        distributive share of the gross income of such other 
        partnership from the active conduct of trades and businesses of 
        such other partnership. A similar rule shall apply in the case 
        of lower-tiered partnerships.
            ``(C) Treatment of tax.--For purposes of this title, the 
        tax imposed by this paragraph shall be treated as imposed by 
        chapter 1 other than for purposes of determining the amount of 
        any credit allowable under chapter 1.
        ``(4) Election.--An election and consent under this subsection 
    shall apply to the taxable year for which made and all subsequent 
    taxable years unless revoked by the partnership. Such revocation 
    may be made without the consent of the Secretary, but, once so 
    revoked, may not be reinstated.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 965. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME FOR CERTAIN 
              SPONSORSHIP PAYMENTS.

    (a) In General.--Section 513 (relating to unrelated trade or 
business income) is amended by adding at the end the following new 
subsection:
    ``(i) Treatment of Certain Sponsorship Payments.--
        ``(1) In general.--The term `unrelated trade or business' does 
    not include the activity of soliciting and receiving qualified 
    sponsorship payments.
        ``(2) Qualified sponsorship payments.--For purposes of this 
    subsection--
            ``(A) In general.--The term `qualified sponsorship payment' 
        means any payment made by any person engaged in a trade or 
        business with respect to which there is no arrangement or 
        expectation that such person will receive any substantial 
        return benefit other than the use or acknowledgement of the 
        name or logo (or product lines) of such person's trade or 
        business in connection with the activities of the organization 
        that receives such payment. Such a use or acknowledgement does 
        not include advertising such person's products or services 
        (including messages containing qualitative or comparative 
        language, price information, or other indications of savings or 
        value, an endorsement, or an inducement to purchase, sell, or 
        use such products or services).
            ``(B) Limitations.--
                ``(i) Contingent payments.--The term `qualified 
            sponsorship payment' does not include any payment if the 
            amount of such payment is contingent upon the level of 
            attendance at one or more events, broadcast ratings, or 
            other factors indicating the degree of public exposure to 
            one or more events.
                ``(ii) Safe harbor does not apply to periodicals and 
            qualified convention and trade show activities.--The term 
            `qualified sponsorship payment' does not include--

                    ``(I) any payment which entitles the payor to the 
                use or acknowledgement of the name or logo (or product 
                lines) of the payor's trade or business in regularly 
                scheduled and printed material published by or on 
                behalf of the payee organization that is not related to 
                and primarily distributed in connection with a specific 
                event conducted by the payee organization, or
                    ``(II) any payment made in connection with any 
                qualified convention or trade show activity (as defined 
                in subsection (d)(3)(B)).

        ``(3) Allocation of portions of single payment.--For purposes 
    of this subsection, to the extent that a portion of a payment would 
    (if made as a separate payment) be a qualified sponsorship payment, 
    such portion of such payment and the other portion of such payment 
    shall be treated as separate payments.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments solicited or received after December 31, 1997.

SEC. 966. ASSOCIATIONS OF HOLDERS OF TIMESHARE INTERESTS TO BE TAXED 
              LIKE OTHER HOMEOWNERS ASSOCIATIONS.

    (a) Timeshare Associations Included as Homeowner Associations.--
        (1) In general.--Paragraph (1) of section 528(c) (defining 
    homeowners association) is amended--
            (A) by striking ``or a residential real estate management 
        association'' and inserting ``, a residential real estate 
        management association, or a timeshare association'' in the 
        material preceding subparagraph (A),
            (B) by striking ``or'' at the end of clause (i) of 
        subparagraph (B), by striking the period at the end of clause 
        (ii) of subparagraph (B) and inserting ``, or'', and by adding 
        at the end of subparagraph (B) the following new clause:
                ``(iii) owners of timeshare rights to use, or timeshare 
            ownership interests in, association property in the case of 
            a timeshare association,'', and
            (C) by inserting ``and, in the case of a timeshare 
        association, for activities provided to or on behalf of members 
        of the association'' before the comma at the end of 
        subparagraph (C).
        (2) Timeshare association defined.--Subsection (c) of section 
    528 is amended by redesignating paragraph (4) as paragraph (5) and 
    by inserting after paragraph (3) the following new paragraph:
        ``(4) Timeshare association.--The term `timeshare association' 
    means any organization (other than a condominium management 
    association) meeting the requirement of subparagraph (A) of 
    paragraph (1) if any member thereof holds a timeshare right to use, 
    or a timeshare ownership interest in, real property constituting 
    association property.''.
    (b) Exempt Function Income.--Paragraph (3) of section 528(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 adding at the end the following new subparagraph:
            ``(C) owners of timeshare rights to use, or timeshare 
        ownership interests in, real property in the case of a 
        timeshare association.''.
    (c) Association Property.--Paragraph (5) of section 528(c), as 
redesignated by subsection (a)(2), is amended by adding at the end the 
following new flush sentence:
    ``In the case of a timeshare association, such term includes 
    property in which the timeshare association, or members of the 
    association, have rights arising out of recorded easements, 
    covenants, or other recorded instruments to use property related to 
    the timeshare project.''.
    (d) Rate of Tax.--Subsection (b) of section 528 (relating to 
certain homeowners associations) is amended by inserting before the 
period ``(32 percent of such income in the case of a timeshare 
association)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 967. ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN ISLAND BONDS.

    Subclause (I) of section 149(d)(3)(A)(i) of the Internal Revenue 
Code of 1986 shall not apply to the second advance refunding of any 
issue of the Virgin Islands which was first advance refunded before 
June 9, 1997, if the debt provisions of the refunding bonds are changed 
to repeal the priority first lien requirement of the refunded bonds.

SEC. 968. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN FARMERS' 
              COOPERATIVES.

    (a) In General.--Section 1042 (relating to sales of stock to 
employee stock ownership plans or certain cooperatives) is amended by 
adding at the end the following new subsection:
    ``(g) Application of Section to Sales of Stock in Agricultural 
Refiners and Processors to Eligible Farm Cooperatives.--
        ``(1) In general.--This section shall apply to the sale of 
    stock of a qualified refiner or processor to an eligible farmers' 
    cooperative.
        ``(2) Qualified refiner or processor.--For purposes of this 
    subsection, the term `qualified refiner or processor' means a 
    domestic corporation--
            ``(A) substantially all of the activities of which consist 
        of the active conduct of the trade or business of refining or 
        processing agricultural or horticultural products, and
            ``(B) which, during the 1-year period ending on the date of 
        the sale, purchases more than one-half of such products to be 
        refined or processed from--
                ``(i) farmers who make up the eligible farmers' 
            cooperative which is purchasing stock in the corporation in 
            a transaction to which this subsection is to apply, or
                ``(ii) such cooperative.
        ``(3) Eligible farmers' cooperative.--For purposes of this 
    section, the term `eligible farmers' cooperative' means an 
    organization to which part I of subchapter T applies and which is 
    engaged in the marketing of agricultural or horticultural products.
        ``(4) Special rules.--In applying this section to a sale to 
    which paragraph (1) applies--
            ``(A) the eligible farmers' cooperative shall be treated in 
        the same manner as a cooperative described in subsection 
        (b)(1)(B),
            ``(B) subsection (b)(2) shall be applied by substituting 
        `100 percent' for `30 percent' each place it appears,
            ``(C) the determination as to whether any stock in the 
        domestic corporation is a qualified security shall be made 
        without regard to whether the stock is an employer security or 
        to subsection (c)(1)(A), and
            ``(D) paragraphs (2)(D) and (7) of subsection (c) shall not 
        apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales after December 31, 1997.

SEC. 969. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
              INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE.

    (a) In General.--Section 274(n) (relating to only 50 percent of 
meal and entertainment expenses allowed as deduction) is amended by 
adding at the end the following new paragraph:
        ``(3) Special rule for individuals subject to federal hours of 
    service.--
            ``(A) In general.--In the case of any expenses for food or 
        beverages consumed while away from home (within the meaning of 
        section 162(a)(2)) by an individual during, or incident to, the 
        period of duty subject to the hours of service limitations of 
        the Department of Transportation, paragraph (1) shall be 
        applied by substituting `the applicable percentage' for `50 
        percent'.
            ``(B) Applicable percentage.--For purposes of this 
        paragraph, the term `applicable percentage' means the 
        percentage determined under the following table:

``For taxable years beginning
                                                          The applicable
  in calendar year--
                                                         percentage is--
    1998 or 1999..............................................


                                                                     55 

    2000 or 2001..............................................


                                                                     60 

    2002 or 2003..............................................


                                                                     65 

    2004 or 2005..............................................


                                                                     70 

    2006 or 2007..............................................


                                                                     75 

    2008 or thereafter........................................


                                                                  80.''.

    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 970. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT RULES TO NO-CHARGE 
              EMPLOYEE MEALS.

    (a) In General.--Paragraph (2) of section 132(e) (defining de 
minimis fringe) is amended by adding at the end the following new 
sentence: ``For purposes of subparagraph (B), an employee entitled 
under section 119 to exclude the value of a meal provided at such 
facility shall be treated as having paid an amount for such meal equal 
to the direct operating costs of the facility attributable to such 
meal.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 971. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL VEHICLE 
              FROM THE LIMITS ON DEPRECIATION FOR VEHICLES.

    (a) In General.--Section 280F(a)(1) (relating to limiting 
depreciation on luxury automobiles) is amended by adding at the end the 
following new subparagraph:
            ``(C) Special rule for certain clean-fuel passenger 
        automobiles.--
                ``(i) Modified automobiles.--In the case of a passenger 
            automobile which is propelled by a fuel which is not a 
            clean-burning fuel and to which is installed qualified 
            clean-fuel vehicle property (as defined in section 
            179A(c)(1)(A)) for purposes of permitting such vehicle to 
            be propelled by a clean burning fuel (as defined in section 
            179A(e)(1)), subparagraph (A) shall not apply to the cost 
            of the installed qualified clean burning vehicle property.
                ``(ii) Purpose built passenger vehicles.--In the case 
            of a purpose built passenger vehicle (as defined in section 
            4001(a)(2)(C)(ii)), each of the annual limitations 
            specified in subparagraph (A) shall be tripled.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of enactment of this 
Act and before January 1, 2005.

SEC. 972. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON PERCENTAGE 
              DEPLETION FOR MARGINAL PRODUCTION.

    (a) In General.--Paragraph (6) of section 613A(c) is amended by 
adding at the end the following new subparagraph:
            ``(H) Temporary suspension of taxable income limit with 
        respect to marginal production.--The second sentence of 
        subsection (a) of section 613 shall not apply to so much of the 
        allowance for depletion as is determined under subparagraph (A) 
        for any taxable year beginning after December 31, 1997, and 
        before January 1, 2000.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 973. INCREASE IN STANDARD MILEAGE RATE EXPENSE DEDUCTION FOR 
              CHARITABLE USE OF PASSENGER AUTOMOBILE.

    (a) In General.--Section 170(i) (relating to standard mileage rate 
for use of passenger automobile) is amended to read as follows:
    ``(i) Standard Mileage Rate for Use of Passenger Automobile.--For 
purposes of computing the deduction under this section for use of a 
passenger automobile, the standard mileage rate shall be 14 cents per 
mile.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 974. CLARIFICATION OF TREATMENT OF CERTAIN RECEIVABLES PURCHASED 
              BY COOPERATIVE HOSPITAL SERVICE ORGANIZATIONS.

    (a) In General.--Subparagraph (A) of section 501(e)(1) is amended 
by inserting ``(including the purchase of patron accounts receivable on 
a recourse basis)'' after ``billing and collection''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1996.

SEC. 975. DEDUCTION IN COMPUTING ADJUSTED GROSS INCOME FOR EXPENSES IN 
              CONNECTION WITH SERVICE PERFORMED BY CERTAIN OFFICIALS.

    (a) In General.--Paragraph (2) of section 62(a) (defining adjusted 
gross income) is amended by adding at the end the following new 
subparagraph:
            ``(C) Certain expenses of officials.--The deductions 
        allowed by section 162 which consist of expenses paid or 
        incurred with respect to services performed by an official as 
        an employee of a State or a political subdivision thereof in a 
        position compensated in whole or in part on a fee basis.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred in taxable years beginning after December 
31, 1986.

SEC. 976. COMBINED EMPLOYMENT TAX REPORTING DEMONSTRATION PROJECT.

    (a) In General.--The Secretary of the Treasury shall provide for a 
demonstration project to assess the feasibility and desirability of 
expanding combined Federal and State tax reporting.
    (b) Description of Demonstration Project.--The demonstration 
project under subsection (a) shall be--
        (1) carried out between the Internal Revenue Service and the 
    State of Montana for a period ending with the date which is 5 years 
    after the date of the enactment of this Act,
        (2) limited to the reporting of employment taxes, and
        (3) limited to the disclosure of the taxpayer identity (as 
    defined in section 6103(b)(6) of such Code) and the signature of 
    the taxpayer.
    (c) Conforming Amendment.--Section 6103(d) is amended by adding at 
the end the following new paragraph:
        ``(5) Disclosure for certain combined reporting project.--The 
    Secretary shall disclose taxpayer identities and signatures for 
    purposes of the demonstration project described in section 967 of 
    the Taxpayer Relief Act of 1997.''.

SEC. 977. ELECTIVE CARRYBACK OF EXISTING CARRYOVERS OF NATIONAL 
              RAILROAD PASSENGER CORPORATION.

    (a) Elective Carryback.--
        (1) In general.--If the National Railroad Passenger Corporation 
    (in this section referred to as the ``Corporation'')--
            (A) makes an election under this section for its first 
        taxable year ending after September 30, 1997, and
            (B) agrees to the conditions specified in paragraph (2),
    then the Corporation shall be treated as having made a payment of 
    the tax imposed by chapter 1 of the Internal Revenue Code of 1986 
    for such first taxable year and the succeeding taxable year in an 
    amount (for each such taxable year) equal to 50 percent of the 
    amount determined under paragraph (3). Each such payment shall be 
    treated as having been made by the Corporation on the last day 
    prescribed by law (without regard to extensions) for filing its 
    return of tax under chapter 1 of such Code for the taxable year to 
    which such payment relates.
        (2) Conditions.--
            (A) In general.--This section shall only apply to the 
        Corporation if it agrees (in such manner as the Secretary of 
        the Treasury or his delegate may prescribe) to--
                (i) except as provided in clause (ii), use any refund 
            of the payment described in paragraph (1) (and any interest 
            thereon) solely to finance qualified expenses of the 
            Corporation, and
                (ii) make the payments to non-Amtrak States as 
            described in subsection (c).
            (B) Repayment.--
                (i) In general.--The Corporation shall repay to the 
            United States any amount not used in accordance with this 
            paragraph and any amount remaining unused as of January 1, 
            2010.
                (ii) Special rules.--For purposes of clause (i)--

                    (I) no amount shall be treated as remaining unused 
                as of January 1, 2010, if it is obligated as of such 
                date for a qualified expense, and
                    (II) the Corporation shall not be treated as 
                failing to meet the requirements of clause (i) by 
                reason of investing any amount for a temporary period.

        (3) Amount.--For purposes of paragraph (1)--
            (A) In general.--The amount determined under this paragraph 
        shall be the lesser of--
                (i) 35 percent of the Corporation's existing qualified 
            carryovers, or
                (ii) the Corporation's net tax liability for the 
            carryback period.
            (B) Dollar limit.--Such amount shall not exceed 
        $2,323,000,000.
    (b) Existing Qualified Carryovers; Net Tax Liability.--For purposes 
of this section--
        (1) Existing qualified carryovers.--The term ``existing 
    qualified carryovers'' means the aggregate of the amounts which are 
    net operating loss carryovers under section 172(b) of the Internal 
    Revenue Code of 1986 to the Corporation's first taxable year ending 
    after September 30, 1997.
        (2) Net tax liability for carryback period.--
            (A) In general.--The Corporation's net tax liability for 
        the carryback period is the aggregate of the net tax liability 
        of the Corporation's railroad predecessors for taxable years in 
        the carryback period.
            (B) Net tax liability.--The term ``net tax liability'' 
        means, with respect to any taxable year, the amount of the tax 
        imposed by chapter 1 of the Internal Revenue Code of 1986 (or 
        any corresponding provision of prior law) for such taxable 
        year, reduced by the sum of the credits allowable against such 
        tax under such Code (or any corresponding provision of prior 
        law).
            (C) Carryback period.--The term ``carryback period'' means 
        the period--
                (i) which begins with the first taxable year of any 
            railroad predecessor beginning before January 1, 1971, for 
            which there is a net tax liability, and
                (ii) which ends with the last taxable year of any 
            railroad predecessor beginning before January 1, 1971.
        (3) Railroad predecessor.--
            (A) In general.--The term ``railroad predecessor'' means--
                (i) any railroad which entered into a contract under 
            section 401 or 404(a) of the Rail Passenger Service Act of 
            1970 relieving the railroad of its entire responsibility 
            for the provision of intercity rail passenger service, and
                (ii) any predecessor thereof.
            (B) Consolidated returns.--If any railroad described in 
        subparagraph (A) was a member of an affiliated group which 
        filed a consolidated return for any taxable year in the 
        carryback period, each member of such group shall be treated as 
        a railroad predecessor for such year.
    (c) Payments to Non-Amtrak States.--
        (1) In general.--Within 30 days after receipt of any refund of 
    any payment described in subsection (a)(1), the Corporation shall 
    pay to each non-Amtrak State an amount equal to 1 percent of the 
    amount of such refund.
        (2) Use of payment.--Each non-Amtrak State shall use the 
    payment described in paragraph (1) (and any interest thereon) 
    solely to finance qualified expenses of the State.
        (3) Repayment.--A non-Amtrak State shall pay to the United 
    States--
            (A) any portion of the payment received by the State under 
        paragraph (1) (and any interest thereon) which is used for a 
        purpose other than to finance qualified expenses of the State 
        or which remains unused as of January 1, 2010, or
            (B) if such State ceases to be a non-Amtrak State, the 
        portion of such payment (and any interest thereon) remaining as 
        of the date of the cessation.
    Rules similar to the rules of subsection (a)(2)(B) shall apply for 
    purposes of this paragraph.
    (d) Tax Consequences.--
        (1) Reduction in carryovers.--If the Corporation elects the 
    application of this section, the Corporation's existing qualified 
    carryovers shall be reduced by an amount equal to the amount 
    determined under subsection (a)(3) divided by 0.35.
        (2) Reduction in tax paid by railroad predecessors.--
            (A) In general.--The Secretary of the Treasury or his 
        delegate shall appropriately adjust the tax account of each 
        railroad predecessor to reduce the net tax liability of such 
        predecessor for taxable years beginning in the carryback period 
        which is offset by reason of the application of this section.
            (B) FIFO ordering rule.--The Secretary shall make the 
        adjustments under subparagraph (A) first for the earliest year 
        in the carryback period and then for each subsequent year in 
        such period.
            (C) No effect on other taxpayers.--In no event shall any 
        taxpayer other than the Corporation be allowed a refund or 
        credit by reason of this section.
            (D) Waiver of limitations.--If the adjustment under 
        subparagraph (A) is barred by the operation of any law or rule 
        of law, such law or rule of law shall be waived solely for 
        purposes of making such adjustment.
        (3) Tax treatment of expenditures.--With respect to any payment 
    by the Corporation of qualified expenses described in subsection 
    (e)(1)(A) during any taxable year from the amount of any refund of 
    the payment described in subsection (a)(1)--
            (A) no deduction shall be allowed to the Corporation with 
        respect to any amount paid or incurred which is attributable to 
        such amount, and
            (B) the basis of any property shall be reduced by the 
        portion of the cost of such property which is attributable to 
        such amount.
        (4) Payments to a non-amtrak state.--No deduction shall be 
    allowed to the Corporation under chapter 1 of the Internal Revenue 
    Code of 1986 for any payment to a non-Amtrak State required under 
    subsection (a)(2)(A)(ii).
    (e) Definitions.--For purposes of this section--
        (1) Qualified expenses.--The term ``qualified expenses'' means 
    expenses incurred for--
            (A) in the case of the Corporation--
                (i) the acquisition of equipment, rolling stock, and 
            other capital improvements, the upgrading of maintenance 
            facilities, and the maintenance of existing equipment, in 
            intercity passenger rail service, and
                (ii) the payment of interest and principal on 
            obligations incurred for such acquisition, upgrading, and 
            maintenance, and
            (B) in the case of a non-Amtrak State--
                (i) the acquisition of equipment, rolling stock, and 
            other capital improvements, the upgrading of maintenance 
            facilities, and the maintenance of existing equipment, in 
            intercity passenger rail service,
                (ii) the acquisition of equipment, rolling stock, and 
            other capital improvements, the upgrading of maintenance 
            facilities, and the maintenance of existing equipment, in 
            intercity bus service,
                (iii) the purchase of intercity passenger rail services 
            from the Corporation, and
                (iv) the payment of interest and principal on 
            obligations incurred for such acquisition, upgrading, 
            maintenance, and purchase.
    In the case of a non-Amtrak State which provides its own intercity 
    passenger rail service on the date of the enactment of this 
    paragraph, subparagraph (B) shall be applied by only taking into 
    account clauses (i) and (iv).
        (2) Non-amtrak state.--The term ``non-Amtrak State'' means, 
    with respect to any payment, any State which does not receive 
    intercity passenger rail service from the Corporation at any time 
    during the period beginning on the date of the enactment of this 
    Act and ending on the date of the payment.
    (f) Authorizing Reform Required.--
        (1) In general.--The Secretary of the Treasury shall not make 
    payment of any refund of any payment described in subsection (a)(1) 
    earlier than the date of the enactment of Federal legislation, 
    other than legislation included in this section, which is enacted 
    after July 29, 1997, and which authorizes reforms of the National 
    Railroad Passenger Corporation.
        (2) No interest.--Notwithstanding any other provision of law, 
    if the payment of any refund is delayed by reason of paragraph (1), 
    no interest shall accrue with respect to such payment prior to the 
    45th day following the date of the enactment of Federal legislation 
    described in paragraph (1).
        (3) Estimate of revenue.--For purposes of estimating revenues 
    under budget reconciliation, the impact of this section on Federal 
    revenues shall be determined without regard to this subsection.

 Subtitle H--Extension of Duty-Free Treatment Under Generalized System 
                             of Preferences

SEC. 981. GENERALIZED SYSTEM OF PREFERENCES.

    (a) Extension of Duty-Free Treatment Under System.--Section 505 of 
the Trade Act of 1974 (19 U.S.C. 2465) is amended by striking ``May 31, 
1997'' and inserting ``June 30, 1998''.
    (b) Retroactive Application for Certain Liquidations and 
Reliquidations.--
        (1) In general.--Notwithstanding section 514 of the Tariff Act 
    of 1930 or any other provision of law and subject to paragraph (2), 
    the entry--
            (A) of any article to which duty-free treatment under title 
        V of the Trade Act of 1974 would have applied if the entry had 
        been made on May 31, 1997, and
            (B) that was made after May 31, 1997, and before the date 
        of the enactment of this Act,
    shall be liquidated or reliquidated as free of duty, and the 
    Secretary of the Treasury shall refund any duty paid with respect 
    to such entry. As used in this subsection, the term ``entry'' 
    includes a withdrawal from warehouse for consumption.
        (2) Requests.--Liquidation or reliquidation may be made under 
    paragraph (1) with respect to an entry only if a request therefor 
    is filed with the Customs Service, within 180 days after the date 
    of the enactment of this Act, that contains sufficient information 
    to enable the Customs Service--
            (A) to locate the entry; or
            (B) to reconstruct the entry if it cannot be located.

                           TITLE X--REVENUES
                     Subtitle A--Financial Products

SEC. 1001. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL 
              POSITIONS.

    (a) In General.--Part IV of subchapter P of chapter 1 is amended by 
adding at the end the following new section:

``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL 
              POSITIONS.

    ``(a) In General.--If there is a constructive sale of an 
appreciated financial position--
        ``(1) the taxpayer shall recognize gain as if such position 
    were sold, assigned, or otherwise terminated at its fair market 
    value on the date of such constructive sale (and any gain shall be 
    taken into account for the taxable year which includes such date), 
    and
        ``(2) for purposes of applying this title for periods after the 
    constructive sale--
            ``(A) proper adjustment shall be made in the amount of any 
        gain or loss subsequently realized with respect to such 
        position for any gain taken into account by reason of paragraph 
        (1), and
            ``(B) the holding period of such position shall be 
        determined as if such position were originally acquired on the 
        date of such constructive sale.
    ``(b) Appreciated Financial Position.--For purposes of this 
section--
        ``(1) In general.--Except as provided in paragraph (2), the 
    term `appreciated financial position' means any position with 
    respect to any stock, debt instrument, or partnership interest if 
    there would be gain were such position sold, assigned, or otherwise 
    terminated at its fair market value.
        ``(2) Exceptions.--The term `appreciated financial position' 
    shall not include--
            ``(A) any position with respect to debt if--
                ``(i) the debt unconditionally entitles the holder to 
            receive a specified principal amount,
                ``(ii) the interest payments (or other similar amounts) 
            with respect to such debt meet the requirements of clause 
            (i) of section 860G(a)(1)(B), and
                ``(iii) such debt is not convertible (directly or 
            indirectly) into stock of the issuer or any related person, 
            and
            ``(B) any position which is marked to market under any 
        provision of this title or the regulations thereunder.
        ``(3) Position.--The term `position' means an interest, 
    including a futures or forward contract, short sale, or option.
    ``(c) Constructive Sale.--For purposes of this section--
        ``(1) In general.--A taxpayer shall be treated as having made a 
    constructive sale of an appreciated financial position if the 
    taxpayer (or a related person)--
            ``(A) enters into a short sale of the same or substantially 
        identical property,
            ``(B) enters into an offsetting notional principal contract 
        with respect to the same or substantially identical property,
            ``(C) enters into a futures or forward contract to deliver 
        the same or substantially identical property,
            ``(D) in the case of an appreciated financial position that 
        is a short sale or a contract described in subparagraph (B) or 
        (C) with respect to any property, acquires the same or 
        substantially identical property, or
            ``(E) to the extent prescribed by the Secretary in 
        regulations, enters into 1 or more other transactions (or 
        acquires 1 or more positions) that have substantially the same 
        effect as a transaction described in any of the preceding 
        subparagraphs.
        ``(2) Exception for sales of nonpublicly traded property.--The 
    term `constructive sale' shall not include any contract for sale of 
    any stock, debt instrument, or partnership interest which is not a 
    marketable security (as defined in section 453(f)) if the contract 
    settles within 1 year after the date such contract is entered into.
        ``(3) Exception for certain closed transactions.--
            ``(A) In general.--In applying this section, there shall be 
        disregarded any transaction (which would otherwise be treated 
        as a constructive sale) during the taxable year if--
                ``(i) such transaction is closed before the end of the 
            30th day after the close of such taxable year,
                ``(ii) the taxpayer holds the appreciated financial 
            position throughout the 60-day period beginning on the date 
            such transaction is closed, and
                ``(iii) at no time during such 60-day period is the 
            taxpayer's risk of loss with respect to such position 
            reduced by reason of a circumstance which would be 
            described in section 246(c)(4) if references to stock 
            included references to such position.
            ``(B) Treatment of positions which are reestablished.--If--
                ``(i) a transaction, which would otherwise be treated 
            as a constructive sale of an appreciated financial 
            position, is closed during the taxable year or during the 
            30 days thereafter, and
                ``(ii) another substantially similar transaction is 
            entered into during the 60-day period beginning on the date 
            the transaction referred to in clause (i) is closed--

                    ``(I) which also would otherwise be treated as a 
                constructive sale of such position,
                    ``(II) which is closed before the 30th day after 
                the close of the taxable year in which the transaction 
                referred to in clause (i) occurs, and
                    ``(III) which meets the requirements of clauses 
                (ii) and (iii) of subparagraph (A),

        the transaction referred to in clause (ii) shall be disregarded 
        for purposes of determining whether the requirements of 
        subparagraph (A)(iii) are met with respect to the transaction 
        described in clause (i).
        ``(4) Related person.--A person is related to another person 
    with respect to a transaction if--
            ``(A) the relationship is described in section 267(b) or 
        707(b), and
            ``(B) such transaction is entered into with a view toward 
        avoiding the purposes of this section.
    ``(d) Other Definitions.--For purposes of this section--
        ``(1) Forward contract.--The term `forward contract' means a 
    contract to deliver a substantially fixed amount of property for a 
    substantially fixed price.
        ``(2) Offsetting notional principal contract.--The term 
    `offsetting notional principal contract' means, with respect to any 
    property, an agreement which includes--
            ``(A) a requirement to pay (or provide credit for) all or 
        substantially all of the investment yield (including 
        appreciation) on such property for a specified period, and
            ``(B) a right to be reimbursed for (or receive credit for) 
        all or substantially all of any decline in the value of such 
        property.
    ``(e) Special Rules.--
        ``(1) Treatment of subsequent sale of position which was deemed 
    sold.--If--
            ``(A) there is a constructive sale of any appreciated 
        financial position,
            ``(B) such position is subsequently disposed of, and
            ``(C) at the time of such disposition, the transaction 
        resulting in the constructive sale of such position is open 
        with respect to the taxpayer or any related person,
    solely for purposes of determining whether the taxpayer has entered 
    into a constructive sale of any other appreciated financial 
    position held by the taxpayer, the taxpayer shall be treated as 
    entering into such transaction immediately after such disposition. 
    For purposes of the preceding sentence, an assignment or other 
    termination shall be treated as a disposition.
        ``(2) Certain trust instruments treated as stock.--For purposes 
    of this section, an interest in a trust which is actively traded 
    (within the meaning of section 1092(d)(1)) shall be treated as 
    stock unless substantially all (by value) of the property held by 
    the trust is debt described in subsection (b)(2)(A).
        ``(3) Multiple positions in property.--If a taxpayer holds 
    multiple positions in property, the determination of whether a 
    specific transaction is a constructive sale and, if so, which 
    appreciated financial position is deemed sold shall be made in the 
    same manner as actual sales.
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Election of Mark to Market for Dealers in Commodities and for 
Traders in Securities or Commodities.--Section 475 (relating to mark to 
market accounting method for dealers in securities) is amended by 
redesignating subsection (e) as subsection (g) and by inserting after 
subsection (d) the following new subsections:
    ``(e) Election of Mark to Market For Dealers in Commodities.--
        ``(1) In general.--In the case of a dealer in commodities who 
    elects the application of this subsection, this section shall apply 
    to commodities held by such dealer in the same manner as this 
    section applies to securities held by a dealer in securities.
        ``(2) Commodity.--For purposes of this subsection and 
    subsection (f), the term `commodity' means--
            ``(A) any commodity which is actively traded (within the 
        meaning of section 1092(d)(1));
            ``(B) any notional principal contract with respect to any 
        commodity described in subparagraph (A);
            ``(C) any evidence of an interest in, or a derivative 
        instrument in, any commodity described in subparagraph (A) or 
        (B), including any option, forward contract, futures contract, 
        short position, and any similar instrument in such a commodity; 
        and
            ``(D) any position which--
                ``(i) is not a commodity described in subparagraph (A), 
            (B), or (C),
                ``(ii) is a hedge with respect to such a commodity, and
                ``(iii) is clearly identified in the taxpayer's records 
            as being described in this subparagraph before the close of 
            the day on which it was acquired or entered into (or such 
            other time as the Secretary may by regulations prescribe).
        ``(3) Election.--An election under this subsection may be made 
    without the consent of the Secretary. Such an election, once made, 
    shall apply to the taxable year for which made and all subsequent 
    taxable years unless revoked with the consent of the Secretary.
    ``(f) Election of Mark to Market For Traders in Securities or 
Commodities.--
        ``(1) Traders in securities.--
            ``(A) In general.--In the case of a person who is engaged 
        in a trade or business as a trader in securities and who elects 
        to have this paragraph apply to such trade or business--
                ``(i) such person shall recognize gain or loss on any 
            security held in connection with such trade or business at 
            the close of any taxable year as if such security were sold 
            for its fair market value on the last business day of such 
            taxable year, and
                ``(ii) any gain or loss shall be taken into account for 
            such taxable year.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence. The Secretary may provide by 
        regulations for the application of this subparagraph at times 
        other than the times provided in this subparagraph.
            ``(B) Exception.--Subparagraph (A) shall not apply to any 
        security--
                ``(i) which is established to the satisfaction of the 
            Secretary as having no connection to the activities of such 
            person as a trader, and
                ``(ii) which is clearly identified in such person's 
            records as being described in clause (i) before the close 
            of the day on which it was acquired, originated, or entered 
            into (or such other time as the Secretary may by 
            regulations prescribe).
        If a security ceases to be described in clause (i) at any time 
        after it was identified as such under clause (ii), subparagraph 
        (A) shall apply to any changes in value of the security 
        occurring after the cessation.
            ``(C) Coordination with section 1259.--Any security to 
        which subparagraph (A) applies and which was acquired in the 
        normal course of the taxpayer's activities as a trader in 
        securities shall not be taken into account in applying section 
        1259 to any position to which subparagraph (A) does not apply.
            ``(D) Other rules to apply.--Rules similar to the rules of 
        subsections (b)(4) and (d) shall apply to securities held by a 
        person in any trade or business with respect to which an 
        election under this paragraph is in effect.
        ``(2) Traders in commodities.--In the case of a person who is 
    engaged in a trade or business as a trader in commodities and who 
    elects to have this paragraph apply to such trade or business, 
    paragraph (1) shall apply to commodities held by such trader in 
    connection with such trade or business in the same manner as 
    paragraph (1) applies to securities held by a trader in securities.
        ``(3) Election.--The elections under paragraphs (1) and (2) may 
    be made separately for each trade or business and without the 
    consent of the Secretary. Such an election, once made, shall apply 
    to the taxable year for which made and all subsequent taxable years 
    unless revoked with the consent of the Secretary.''.
    (c) Clerical Amendment.--The table of sections for part IV of 
subchapter P of chapter 1 is amended by adding at the end the following 
new item:
        ``Sec. 1259. Constructive sales treatment for appreciated 
                  financial positions.''.

    (d) Effective Dates.--
        (1) In general.--Except as otherwise provided in this 
    subsection, the amendments made by this section shall apply to any 
    constructive sale after June 8, 1997.
        (2) Exception for sales of positions, etc. held before june 9, 
    1997.--If--
            (A) before June 9, 1997, the taxpayer entered into any 
        transaction which is a constructive sale of any appreciated 
        financial position, and
            (B) before the close of the 30-day period beginning on the 
        date of the enactment of this Act or before such later date as 
        may be specified by the Secretary of the Treasury, such 
        transaction and position are clearly identified in the 
        taxpayer's records as offsetting,
    such transaction and position shall not be taken into account in 
    determining whether any other constructive sale after June 8, 1997, 
    has occurred. The preceding sentence shall cease to apply as of the 
    date such transaction is closed or the taxpayer ceases to hold such 
    position.
        (3) Special rule.--In the case of a decedent dying after June 
    8, 1997, if--
            (A) there was a constructive sale on or before such date of 
        any appreciated financial position,
            (B) the transaction resulting in such constructive sale of 
        such position remains open (with respect to the decedent or any 
        related person)--
                (i) for not less than 2 years after the date of such 
            transaction (whether such period is before or after June 8, 
            1997), and
                (ii) at any time during the 3-year period ending on the 
            date of the decedent's death, and
            (C) such transaction is not closed within the 30-day period 
        beginning on the date of the enactment of this Act,
    then, for purposes of such Code, such position (and the transaction 
    resulting in such constructive sale) shall be treated as property 
    constituting rights to receive an item of income in respect of a 
    decedent under section 691 of such Code. Section 1014(c) of such 
    Code shall not apply to so much of such position's or property's 
    value (as included in the decedent's estate for purposes of chapter 
    11 of such Code) as exceeds its fair market value as of the date 
    such transaction is closed.
        (4) Election of mark to market by securities traders and 
    traders and dealers in commodities.--
            (A) In general.--The amendments made by subsection (b) 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.
            (B) 4-year spread of adjustments.--In the case of a 
        taxpayer who elects under subsection (e) or (f) of section 475 
        of the Internal Revenue Code of 1986 (as added by this section) 
        to change its method of accounting for the taxable year which 
        includes the date of the enactment of this Act--
                (i) any identification required under such subsection 
            with respect to securities and commodities held on the date 
            of the enactment of this Act shall be treated as timely 
            made if made on or before the 30th day after such date of 
            enactment, and
                (ii) the net amount of the adjustments required to be 
            taken into account by the taxpayer under section 481 of 
            such Code shall be taken into account ratably over the 4-
            taxable year period beginning with such first taxable year.

SEC. 1002. LIMITATION ON EXCEPTION FOR INVESTMENT COMPANIES UNDER 
              SECTION 351.

    (a) In General.--Paragraph (1) of section 351(e) (relating to 
exceptions) is amended by adding at the end the following: ``For 
purposes of the preceding sentence, the determination of whether a 
company is an investment company shall be made--
            ``(A) by taking into account all stock and securities held 
        by the company, and
            ``(B) by treating as stock and securities--
                ``(i) money,
                ``(ii) stocks and other equity interests in a 
            corporation, evidences of indebtedness, options, forward or 
            futures contracts, notional principal contracts and 
            derivatives,
                ``(iii) any foreign currency,
                ``(iv) any interest in a real estate investment trust, 
            a common trust fund, a regulated investment company, a 
            publicly-traded partnership (as defined in section 7704(b)) 
            or any other equity interest (other than in a corporation) 
            which pursuant to its terms or any other arrangement is 
            readily convertible into, or exchangeable for, any asset 
            described in any preceding clause, this clause or clause 
            (v) or (viii),
                ``(v) except to the extent provided in regulations 
            prescribed by the Secretary, any interest in a precious 
            metal, unless such metal is used or held in the active 
            conduct of a trade or business after the contribution,
                ``(vi) except as otherwise provided in regulations 
            prescribed by the Secretary, interests in any entity if 
            substantially all of the assets of such entity consist 
            (directly or indirectly) of any assets described in any 
            preceding clause or clause (viii),
                ``(vii) to the extent provided in regulations 
            prescribed by the Secretary, any interest in any entity not 
            described in clause (vi), but only to the extent of the 
            value of such interest that is attributable to assets 
            listed in clauses (i) through (v) or clause (viii), or
                ``(viii) any other asset specified in regulations 
            prescribed by the Secretary.
    The Secretary may prescribe regulations that, under appropriate 
    circumstances, treat any asset described in clauses (i) through (v) 
    as not so listed.''.
    (b) Effective Date.--
        (1) In general.--The amendment made by subsection (a) shall 
    apply to transfers after June 8, 1997, in taxable years ending 
    after such date.
        (2) Binding contracts.--The amendment made by subsection (a) 
    shall not apply to any transfer pursuant to a written binding 
    contract in effect on June 8, 1997, and at all times thereafter 
    before such transfer if such contract provides for the transfer of 
    a fixed amount of property.

SEC. 1003. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH RESPECT TO 
              PROPERTY.

    (a) Application of Capital Treatment to Property Other Than 
Personal Property.--
        (1) In general.--Paragraph (1) of section 1234A (relating to 
    gains and losses from certain terminations) is amended by striking 
    ``personal property (as defined in section 1092(d)(1))'' and 
    inserting ``property''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to terminations more than 30 days after the date of the 
    enactment of this Act.
    (b) Treatment of Short Sales of Property Which Becomes 
Substantially Worthless.--
        (1) In general.--Section 1233 is amended by adding at the end 
    the following new subsection:
    ``(h) Short Sales of Property Which Becomes Substantially 
Worthless.--
        ``(1) In general.--If--
            ``(A) the taxpayer enters into a short sale of property, 
        and
            ``(B) such property becomes substantially worthless,
    the taxpayer shall recognize gain in the same manner as if the 
    short sale were closed when the property becomes substantially 
    worthless. To the extent provided in regulations prescribed by the 
    Secretary, the preceding sentence also shall apply with respect to 
    any option with respect to property, any offsetting notional 
    principal contract with respect to property, any futures or forward 
    contract to deliver any property, and any other similar 
    transaction.
        ``(2) Statute of limitations.--If property becomes 
    substantially worthless during a taxable year and any short sale of 
    such property remains open at the time such property becomes 
    substantially worthless, then--
            ``(A) the statutory period for the assessment of any 
        deficiency attributable to any part of the gain on such 
        transaction shall not expire before the earlier of--
                ``(i) the date which is 3 years after the date the 
            Secretary is notified by the taxpayer (in such manner as 
            the Secretary may by regulations prescribe) of the 
            substantial worthlessness of such property, or
                ``(ii) the date which is 6 years after the date the 
            return for such taxable year is filed, and
            ``(B) such deficiency may be assessed before the date 
        applicable under subparagraph (A) notwithstanding the 
        provisions of any other law or rule of law which would 
        otherwise prevent such assessment.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to property which becomes substantially worthless after the 
    date of the enactment of this Act.
    (c) Application of Capital Treatment, Etc. to Obligations Issued by 
Natural Persons.--
        (1) In general.--Section 1271(b) is amended to read as follows:
    ``(b) Exception for Certain Obligations.--
        ``(1) In general.--This section shall not apply to--
            ``(A) any obligation issued by a natural person before June 
        9, 1997, and
            ``(B) any obligation issued before July 2, 1982, by an 
        issuer which is not a corporation and is not a government or 
        political subdivision thereof.
        ``(2) Termination.--Paragraph (1) shall not apply to any 
    obligation purchased (within the meaning of section 1272(d)(1)) 
    after June 8, 1997.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to sales, exchanges, and retirements after the date of 
    enactment of this Act.

SEC. 1004. DETERMINATION OF ORIGINAL ISSUE DISCOUNT WHERE POOLED DEBT 
              OBLIGATIONS SUBJECT TO ACCELERATION.

    (a) In General.--Subparagraph (C) of section 1272(a)(6) (relating 
to debt instruments to which the paragraph applies) is amended by 
striking ``or'' at the end of clause (i), by striking the period at the 
end of clause (ii) and inserting ``, or'', and by inserting after 
clause (ii) the following:
                ``(iii) any pool of debt instruments the yield on which 
            may be affected by reason of prepayments (or to the extent 
            provided in regulations, by reason of other events).
        To the extent provided in regulations prescribed by the 
        Secretary, in the case of a small business engaged in the trade 
        or business of selling tangible personal property at retail, 
        clause (iii) shall not apply to debt instruments incurred in 
        the ordinary course of such trade or business while held by 
        such business.''.
    (b) Effective Dates.--
        (1) In general.--The amendment made by this section shall apply 
    to taxable years beginning after the date of the enactment of this 
    Act.
        (2) Change in method of accounting.--In the case of any 
    taxpayer required by this section to change its method of 
    accounting for its first taxable year beginning after the date of 
    the enactment of this Act--
            (A) such change shall be treated as initiated by the 
        taxpayer,
            (B) such change shall be treated as made with the consent 
        of the Secretary of the Treasury, and
            (C) the net amount of the adjustments required to be taken 
        into account by the taxpayer under section 481 of the Internal 
        Revenue Code of 1986 shall be taken into account ratably over 
        the 4-taxable year period beginning with such first taxable 
        year.

SEC. 1005. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT INSTRUMENTS.

    (a) In General.--Section 163 (relating to deduction for interest), 
as amended by title V, is amended by redesignating subsection (l) as 
subsection (m) and by inserting after subsection (k) the following new 
subsection:
    ``(l) Disallowance of Deduction on Certain Debt Instruments of 
Corporations.--
        ``(1) In general.--No deduction shall be allowed under this 
    chapter for any interest paid or accrued on a disqualified debt 
    instrument.
        ``(2) Disqualified debt instrument.--For purposes of this 
    subsection, the term `disqualified debt instrument' means any 
    indebtedness of a corporation which is payable in equity of the 
    issuer or a related party.
        ``(3) Special rules for amounts payable in equity.--For 
    purposes of paragraph (2), indebtedness shall be treated as payable 
    in equity of the issuer or a related party only if--
            ``(A) a substantial amount of the principal or interest is 
        required to be paid or converted, or at the option of the 
        issuer or a related party is payable in, or convertible into, 
        such equity,
            ``(B) a substantial amount of the principal or interest is 
        required to be determined, or at the option of the issuer or a 
        related party is determined, by reference to the value of such 
        equity, or
            ``(C) the indebtedness is part of an arrangement which is 
        reasonably expected to result in a transaction described in 
        subparagraph (A) or (B).
    For purposes of this paragraph, principal or interest shall be 
    treated as required to be so paid, converted, or determined if it 
    may be required at the option of the holder or a related party and 
    there is a substantial certainty the option will be exercised.
        ``(4) Related party.--For purposes of this subsection, a person 
    is a related party with respect to another person if such person 
    bears a relationship to such other person described in section 
    267(b) or 707(b).
        ``(5) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary or appropriate to carry out the 
    purposes of this subsection, including regulations preventing 
    avoidance of this subsection through the use of an issuer other 
    than a corporation.''.
    (b) Effective Date.--
        (1) In general.--The amendment made by this section shall apply 
    to disqualified debt instruments issued after June 8, 1997.
        (2) Transition rule.--The amendment made by this section shall 
    not apply to any instrument issued after June 8, 1997, if such 
    instrument is--
            (A) issued pursuant to a written agreement which was 
        binding on such date and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described on or before such date in a public 
        announcement or in a filing with the Securities and Exchange 
        Commission required solely by reason of the issuance.

        Subtitle B--Corporate Organizations and Reorganizations

SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

    (a) Treatment of Extraordinary Dividends in Excess of Basis.--
Paragraph (2) of section 1059(a) (relating to corporate shareholder's 
recognition of gain attributable to nontaxed portion of extraordinary 
dividends) is amended to read as follows:
        ``(2) Amounts in excess of basis.--If the nontaxed portion of 
    such dividends exceeds such basis, such excess shall be treated as 
    gain from the sale or exchange of such stock for the taxable year 
    in which the extraordinary dividend is received.''.
    (b) Treatment of Redemptions Where Options Involved.--Paragraph (1) 
of section 1059(e) (relating to treatment of partial liquidations and 
non-pro rata redemptions) is amended to read as follows:
        ``(1) Treatment of partial liquidations and certain 
    redemptions.--Except as otherwise provided in regulations--
            ``(A) Redemptions.--In the case of any redemption of 
        stock--
                ``(i) which is part of a partial liquidation (within 
            the meaning of section 302(e)) of the redeeming 
            corporation,
                ``(ii) which is not pro rata as to all shareholders, or
                ``(iii) which would not have been treated (in whole or 
            in part) as a dividend if any options had not been taken 
            into account under section 318(a)(4),
        any amount treated as a dividend with respect to such 
        redemption shall be treated as an extraordinary dividend to 
        which paragraphs (1) and (2) of subsection (a) apply without 
        regard to the period the taxpayer held such stock. In the case 
        of a redemption described in clause (iii), only the basis in 
        the stock redeemed shall be taken into account under subsection 
        (a).
            ``(B) Reorganizations, etc.--An exchange described in 
        section 356 which is treated as a dividend shall be treated as 
        a redemption of stock for purposes of applying subparagraph 
        (A).''.
    (c) Time for Reduction.--Paragraph (1) of section 1059(d) is 
amended to read as follows:
        ``(1) Time for reduction.--Any reduction in basis under 
    subsection (a)(1) shall be treated as occurring at the beginning of 
    the ex-dividend date of the extraordinary dividend to which the 
    reduction relates.''.
    (d) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to distributions after May 3, 1995.
        (2) Transition rule.--The amendments made by this section shall 
    not apply to any distribution made pursuant to the terms of--
            (A) a written binding contract in effect on May 3, 1995, 
        and at all times thereafter before such distribution, or
            (B) a tender offer outstanding on May 3, 1995.
        (3) Certain dividends not pursuant to certain redemptions.--In 
    determining whether the amendment made by subsection (a) applies to 
    any extraordinary dividend other than a dividend treated as an 
    extraordinary dividend under section 1059(e)(1) of the Internal 
    Revenue Code of 1986 (as amended by this Act), paragraphs (1) and 
    (2) shall be applied by substituting ``September 13, 1995'' for 
    ``May 3, 1995''.

SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION 
              WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.

    (a) Distributions In Connection With Acquisitions.--Section 355 
(relating to distributions of stock and securities of a controlled 
corporation) is amended by adding at the end the following new 
subsection:
    ``(e) Recognition of Gain on Certain Distributions of Stock or 
Securities In Connection With Acquisitions.--
        ``(1) General rule.--If there is a distribution to which this 
    subsection applies, any stock or securities in the controlled 
    corporation shall not be treated as qualified property for purposes 
    of subsection (c)(2) of this section or section 361(c)(2).
        ``(2) Distributions to which subsection applies.--
            ``(A) In general.--This subsection shall apply to any 
        distribution--
                ``(i) to which this section (or so much of section 356 
            as relates to this section) applies, and
                ``(ii) which is part of a plan (or series of related 
            transactions) pursuant to which 1 or more persons acquire 
            directly or indirectly stock representing a 50-percent or 
            greater interest in the distributing corporation or any 
            controlled corporation.
            ``(B) Plan presumed to exist in certain cases.--If 1 or 
        more persons acquire directly or indirectly stock representing 
        a 50-percent or greater interest in the distributing 
        corporation or any controlled corporation during the 4-year 
        period beginning on the date which is 2 years before the date 
        of the distribution, such acquisition shall be treated as 
        pursuant to a plan described in subparagraph (A)(ii) unless it 
        is established that the distribution and the acquisition are 
        not pursuant to a plan or series of related transactions.
            ``(C) Certain plans disregarded.--A plan (or series of 
        related transactions) shall not be treated as described in 
        subparagraph (A)(ii) if, immediately after the completion of 
        such plan or transactions, the distributing corporation and all 
        controlled corporations are members of a single affiliated 
        group (as defined in section 1504 without regard to subsection 
        (b) thereof).
            ``(D) Coordination with subsection (d).--This subsection 
        shall not apply to any distribution to which subsection (d) 
        applies.
        ``(3) Special rules relating to acquisitions.--
            ``(A) Certain acquisitions not taken into account.--Except 
        as provided in regulations, the following acquisitions shall 
        not be treated as described in paragraph (2)(A)(ii):
                ``(i) The acquisition of stock in any controlled 
            corporation by the distributing corporation.
                ``(ii) The acquisition by a person of stock in any 
            controlled corporation by reason of holding stock or 
            securities in the distributing corporation.
                ``(iii) The acquisition by a person of stock in any 
            successor corporation of the distributing corporation or 
            any controlled corporation by reason of holding stock or 
            securities in such distributing or controlled corporation.
                ``(iv) The acquisition of stock in a corporation if 
            shareholders owning directly or indirectly stock 
            possessing--

                    ``(I) more than 50 percent of the total combined 
                voting power of all classes of stock entitled to vote, 
                and
                    ``(II) more than 50 percent of the total value of 
                shares of all classes of stock,

            in the distributing corporation or any controlled 
            corporation before such acquisition own directly or 
            indirectly stock possessing such vote and value in such 
            distributing or controlled corporation after such 
            acquisition.
        This subparagraph shall not apply to any acquisition if the 
        stock held before the acquisition was acquired pursuant to a 
        plan (or series of related transactions) described in paragraph 
        (2)(A)(ii).
            ``(B) Asset acquisitions.--Except as provided in 
        regulations, for purposes of this subsection, if the assets of 
        the distributing corporation or any controlled corporation are 
        acquired by a successor corporation in a transaction described 
        in subparagraph (A), (C), or (D) of section 368(a)(1) or any 
        other transaction specified in regulations by the Secretary, 
        the shareholders (immediately before the acquisition) of the 
        corporation acquiring such assets shall be treated as acquiring 
        stock in the corporation from which the assets were acquired.
        ``(4) Definition and special rules.--For purposes of this 
    subsection--
            ``(A) 50-percent or greater interest.--The term `50-percent 
        or greater interest' has the meaning given such term by 
        subsection (d)(4).
            ``(B) Distributions in title 11 or similar case.--Paragraph 
        (1) shall not apply to any distribution made in a title 11 or 
        similar case (as defined in section 368(a)(3)).
            ``(C) Aggregation and attribution rules.--
                ``(i) Aggregation.--The rules of paragraph (7)(A) of 
            subsection (d) shall apply.
                ``(ii) Attribution.--Section 318(a)(2) shall apply in 
            determining whether a person holds stock or securities in 
            any corporation. Except as provided in regulations, section 
            318(a)(2)(C) shall be applied without regard to the phrase 
            `50 percent or more in value' for purposes of the preceding 
            sentence.
            ``(D) Successors and predecessors.--For purposes of this 
        subsection, any reference to a controlled corporation or a 
        distributing corporation shall include a reference to any 
        predecessor or successor of such corporation.
            ``(E) Statute of limitations.--If there is a distribution 
        to which paragraph (1) applies--
                ``(i) the statutory period for the assessment of any 
            deficiency attributable to any part of the gain recognized 
            under this subsection by reason of such distribution 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 by regulations prescribe) that such 
            distribution occurred, and
                ``(ii) 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.
        ``(5) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection, including regulations--
            ``(A) providing for the application of this subsection 
        where there is more than 1 controlled corporation,
            ``(B) treating 2 or more distributions as 1 distribution 
        where necessary to prevent the avoidance of such purposes, and
            ``(C) providing for the application of rules similar to the 
        rules of subsection (d)(6) where appropriate for purposes of 
        paragraph (2)(B).''.
    (b) Special Rules for Certain Intragroup Transactions.--
        (1) Section 355 not to apply.--Section 355, as amended by 
    subsection (a), is amended by adding at the end the following new 
    subsection:
    ``(f) Section Not To Apply to Certain Intragroup Distributions.--
Except as provided in regulations, this section (or so much of section 
356 as relates to this section) shall not apply to the distribution of 
stock from 1 member of an affiliated group (as defined in section 
1504(a)) to another member of such group if such distribution is part 
of a plan (or series of related transactions) described in subsection 
(e)(2)(A)(ii) (determined after the application of subsection (e)).''.
        (2) Adjustments to basis.--Section 358 (relating to basis to 
    distributees) is amended by adding at the end the following new 
    subsection:
    ``(g) Adjustments in Intragroup Transactions Involving Section 
355.--In the case of a distribution to which section 355 (or so much of 
section 356 as relates to section 355) applies and which involves the 
distribution of stock from 1 member of an affiliated group (as defined 
in section 1504(a) without regard to subsection (b) thereof) to another 
member of such group, the Secretary may, notwithstanding any other 
provision of this section, provide adjustments to the adjusted basis of 
any stock which--
        ``(1) is in a corporation which is a member of such group, and
        ``(2) is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.''.
    (c) Determination of Control in Certain Divisive Transactions.--
        (1) Section 351 transactions.--Section 351(c) (relating to 
    special rule) is amended to read as follows:
    ``(c) Special Rules Where Distribution to Shareholders.--In 
determining control for purposes of this section--
        ``(1) the fact that any corporate transferor distributes part 
    or all of the stock in the corporation which it receives in the 
    exchange to its shareholders shall not be taken into account, and
        ``(2) if the requirements of section 355 are met with respect 
    to such distribution, the shareholders shall be treated as in 
    control of such corporation immediately after the exchange if the 
    shareholders own (immediately after the distribution) stock 
    possessing--
            ``(A) more than 50 percent of the total combined voting 
        power of all classes of stock of such corporation entitled to 
        vote, and
            ``(B) more than 50 percent of the total value of shares of 
        all classes of stock of such corporation.''.
        (2) D reorganizations.--Section 368(a)(2)(H) (relating to 
    special rule for determining whether certain transactions are 
    qualified under paragraph (1)(D)) is amended to read as follows:
            ``(H) Special rules for determining whether certain 
        transactions are qualified under paragraph (1)(d).--For 
        purposes of determining whether a transaction qualifies under 
        paragraph (1)(D)--
                ``(i) in the case of a transaction with respect to 
            which the requirements of subparagraphs (A) and (B) of 
            section 354(b)(1) are met, the term `control' has the 
            meaning given such term by section 304(c), and
                ``(ii) in the case of a transaction with respect to 
            which the requirements of section 355 are met, the 
            shareholders described in paragraph (1)(D) shall be treated 
            as having control of the corporation to which the assets 
            are transferred if such shareholders own (immediately after 
            the distribution) stock possessing--

                    ``(I) more than 50 percent of the total combined 
                voting power of all classes of stock of such 
                corporation entitled to vote, and
                    ``(II) more than 50 percent of the total value of 
                shares of all classes of stock of such corporation.''.

    (d) Effective Dates.--
        (1) Section 355 rules.--The amendments made by subsections (a) 
    and (b) shall apply to distributions after April 16, 1997, pursuant 
    to a plan (or series of related transactions) which involves an 
    acquisition described in section 355(e)(2)(A)(ii) of the Internal 
    Revenue Code of 1986 occurring after such date.
        (2) Divisive transactions.--The amendments made by subsection 
    (c) shall apply to transfers after the date of the enactment of 
    this Act.
        (3) Transition rule.--The amendments made by this section shall 
    not apply to any distribution pursuant to a plan (or series of 
    related transactions) which involves an acquisition described in 
    section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 (or, 
    in the case of the amendments made by subsection (c), any transfer) 
    occurring after April 16, 1997, if such acquisition or transfer 
    is--
            (A) made pursuant to an agreement which was binding on such 
        date and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described on or before such date in a public 
        announcement or in a filing with the Securities and Exchange 
        Commission required solely by reason of the acquisition or 
        transfer.
    This paragraph shall not apply to any agreement, ruling request, or 
    public announcement or filing unless it identifies the acquirer of 
    the distributing corporation or any controlled corporation, or the 
    transferee, whichever is applicable.

SEC. 1013. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED CORPORATIONS.

    (a) Stock Purchases by Related Corporations.--The last sentence of 
section 304(a)(1) (relating to acquisition by related corporation other 
than subsidiary) is amended to read as follows: ``To the extent that 
such distribution is treated as a distribution to which section 301 
applies, the transferor and the acquiring corporation shall be treated 
in the same manner as if the transferor had transferred the stock so 
acquired to the acquiring corporation in exchange for stock of the 
acquiring corporation in a transaction to which section 351(a) applies, 
and then the acquiring corporation had redeemed the stock it was 
treated as issuing in such transaction.''.
    (b) Coordination With Section 1059.--Clause (iii) of section 
1059(e)(1)(A), as amended by this title, is amended to read as follows:
                ``(iii) which would not have been treated (in whole or 
            in part) as a dividend if--

                    ``(I) any options had not been taken into account 
                under section 318(a)(4), or
                    ``(II) section 304(a) had not applied,''.

    (c) Special Rule for Acquisitions by Foreign Corporations.--Section 
304(b) (relating to special rules for application of subsection (a)) is 
amended by adding at the end the following new paragraph:
        ``(5) Acquisitions by foreign corporations.--
            ``(A) In general.--In the case of any acquisition to which 
        subsection (a) applies in which the acquiring corporation is a 
        foreign corporation, the only earnings and profits taken into 
        account under paragraph (2)(A) shall be those earnings and 
        profits--
                ``(i) which are attributable (under regulations 
            prescribed by the Secretary) to stock of the acquiring 
            corporation owned (within the meaning of section 958(a)) by 
            a corporation or individual which is--

                    ``(I) a United States shareholder (within the 
                meaning of section 951(b)) of the acquiring 
                corporation, and
                    ``(II) the transferor or a person who bears a 
                relationship to the transferor described in section 
                267(b) or 707(b), and

                ``(ii) which were accumulated during the period or 
            periods such stock was owned by such person while the 
            acquiring corporation was a controlled foreign corporation.
            ``(B) Application of section 1248.--For purposes of 
        subparagraph (A), the rules of section 1248(d) shall apply 
        except to the extent otherwise provided by the Secretary.
            ``(C) Regulations.--The Secretary shall prescribe such 
        regulations as are appropriate to carry out the purposes of 
        this paragraph.''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to distributions and acquisitions after June 8, 1997.
        (2) Transition rule.--The amendments made by this section shall 
    not apply to any distribution or acquisition after June 8, 1997, if 
    such distribution or acquisition is--
            (A) made pursuant to a written agreement which was binding 
        on such date and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described in a public announcement or filing with the 
        Securities and Exchange Commission on or before such date.

SEC. 1014. CERTAIN PREFERRED STOCK TREATED AS BOOT.

    (a) Section 351.--Section 351 (relating to transfer to corporation 
controlled by transferor) is amended by redesignating subsection (g) as 
subsection (h) and by inserting after subsection (f) the following new 
subsection:
    ``(g) Nonqualified Preferred Stock Not Treated as Stock.--
        ``(1) In general.--In the case of a person who transfers 
    property to a corporation and receives nonqualified preferred 
    stock--
            ``(A) subsection (a) shall not apply to such transferor,
            ``(B) subsection (b) shall apply to such transferor, and
            ``(C) such nonqualified preferred stock shall be treated as 
        other property for purposes of applying subsection (b).
        ``(2) Nonqualified preferred stock.--For purposes of paragraph 
    (1)--
            ``(A) In general.--The term `nonqualified preferred stock' 
        means preferred stock if--
                ``(i) the holder of such stock has the right to require 
            the issuer or a related person to redeem or purchase the 
            stock,
                ``(ii) the issuer or a related person is required to 
            redeem or purchase such stock,
                ``(iii) the issuer or a related person has the right to 
            redeem or purchase the stock and, as of the issue date, it 
            is more likely than not that such right will be exercised, 
            or
                ``(iv) the dividend rate on such stock varies in whole 
            or in part (directly or indirectly) with reference to 
            interest rates, commodity prices, or other similar indices.
            ``(B) Limitations.--Clauses (i), (ii), and (iii) of 
        subparagraph (A) shall apply only if the right or obligation 
        referred to therein may be exercised within the 20-year period 
        beginning on the issue date of such stock and such right or 
        obligation is not subject to a contingency which, as of the 
        issue date, makes remote the likelihood of the redemption or 
        purchase.
            ``(C) Exceptions for certain rights or obligations.--
                ``(i) In general.--A right or obligation shall not be 
            treated as described in clause (i), (ii), or (iii) of 
            subparagraph (A) if--

                    ``(I) it may be exercised only upon the death, 
                disability, or mental incompetency of the holder, or
                    ``(II) in the case of a right or obligation to 
                redeem or purchase stock transferred in connection with 
                the performance of services for the issuer or a related 
                person (and which represents reasonable compensation), 
                it may be exercised only upon the holder's separation 
                from service from the issuer or a related person.

                ``(ii) Exception.--Clause (i)(I) shall not apply if the 
            stock relinquished in the exchange, or the stock acquired 
            in the exchange is in--

                    ``(I) a corporation if any class of stock in such 
                corporation or a related party is readily tradable on 
                an established securities market or otherwise, or
                    ``(II) any other corporation if such exchange is 
                part of a transaction or series of transactions in 
                which such corporation is to become a corporation 
                described in subclause (I).

        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Preferred stock.--The term `preferred stock' means 
        stock which is limited and preferred as to dividends and does 
        not participate in corporate growth to any significant extent.
            ``(B) Related person.--A person shall be treated as related 
        to another person if they bear a relationship to such other 
        person described in section 267(b) or 707(b).
        ``(4) Regulations.--The Secretary may prescribe such 
    regulations as may be necessary or appropriate to carry out the 
    purposes of this subsection and sections 354(a)(2)(C), 
    355(a)(3)(D), and 356(e). The Secretary may also prescribe 
    regulations, consistent with the treatment under this subsection 
    and such sections, for the treatment of nonqualified preferred 
    stock under other provisions of this title.''.
    (b) Section 354.--Paragraph (2) of section 354(a) (relating to 
exchanges of stock and securities in certain reorganizations) is 
amended by adding at the end the following new subparagraph:
            ``(C) Nonqualified preferred stock.--
                ``(i) In general.--Nonqualified preferred stock (as 
            defined in section 351(g)(2)) received in exchange for 
            stock other than nonqualified preferred stock (as so 
            defined) shall not be treated as stock or securities.
                ``(ii) Recapitalizations of family-owned 
            corporations.--

                    ``(I) In general.--Clause (i) shall not apply in 
                the case of a recapitalization under section 
                368(a)(1)(E) of a family-owned corporation.
                    ``(II) Family-owned corporation.--For purposes of 
                this clause, except as provided in regulations, the 
                term `family-owned corporation' means any corporation 
                which is described in clause (i) of section 
                447(d)(2)(C) throughout the 8-year period beginning on 
                the date which is 5 years before the date of the 
                recapitalization. For purposes of the preceding 
                sentence, stock shall not be treated as owned by a 
                family member during any period described in section 
                355(d)(6)(B).''.

    (c) Section 355.--Paragraph (3) of section 355(a) is amended by 
adding at the end the following new subparagraph:
            ``(D) Nonqualified preferred stock.--Nonqualified preferred 
        stock (as defined in section 351(g)(2)) received in a 
        distribution with respect to stock other than nonqualified 
        preferred stock (as so defined) shall not be treated as stock 
        or securities.''.
    (d) Section 356.--Section 356 is amended by redesignating 
subsections (e) and (f) as subsections (f) and (g), respectively, and 
by inserting after subsection (d) the following new subsection:
    ``(e) Nonqualified Preferred Stock Treated as Other Property.--For 
purposes of this section--
        ``(1) In general.--Except as provided in paragraph (2), the 
    term `other property' includes nonqualified preferred stock (as 
    defined in section 351(g)(2)).
        ``(2) Exception.--The term `other property' does not include 
    nonqualified preferred stock (as so defined) to the extent that, 
    under section 354 or 355, such preferred stock would be permitted 
    to be received without the recognition of gain.''.
    (e) Conforming Amendments.--
        (1) Subparagraph (B) of section 354(a)(2) and subparagraph (C) 
    of section 355(a)(3)(C) are each amended by inserting ``(including 
    nonqualified preferred stock, as defined in section 351(g)(2))'' 
    after ``stock''.
        (2) Subparagraph (A) of section 354(a)(3) and subparagraph (A) 
    of section 355(a)(4) are each amended by inserting ``nonqualified 
    preferred stock and'' after ``including''.
        (3) Section 1036 is amended by redesignating subsection (b) as 
    subsection (c) and by inserting after subsection (a) the following 
    new subsection:
    ``(b) Nonqualified Preferred Stock Not Treated as Stock.--For 
purposes of this section, nonqualified preferred stock (as defined in 
section 351(g)(2)) shall be treated as property other than stock.''.
    (f) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to transactions after June 8, 1997.
        (2) Transition rule.--The amendments made by this section shall 
    not apply to any transaction after June 8, 1997, if such 
    transaction is--
            (A) made pursuant to a written agreement which was binding 
        on such date and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described on or before such date in a public 
        announcement or in a filing with the Securities and Exchange 
        Commission required solely by reason of the transaction.

SEC. 1015. MODIFICATION OF HOLDING PERIOD APPLICABLE TO DIVIDENDS 
              RECEIVED DEDUCTION.

    (a) In General.--Subparagraph (A) of section 246(c)(1) is amended 
to read as follows:
            ``(A) which is held by the taxpayer for 45 days or less 
        during the 90-day period beginning on the date which is 45 days 
        before the date on which such share becomes ex-dividend with 
        respect to such dividend, or''.
    (b) Conforming Amendments.--
        (1) Paragraph (2) of section 246(c) is amended to read as 
    follows:
        ``(2) 90-day rule in the case of certain preference 
    dividends.--In the case of stock having preference in dividends, if 
    the taxpayer receives dividends with respect to such stock which 
    are attributable to a period or periods aggregating in excess of 
    366 days, paragraph (1)(A) shall be applied--
            ``(A) by substituting `90 days' for `45 days' each place it 
        appears, and
            ``(B) by substituting `180-day period' for `90-day 
        period'.''.
        (2) Paragraph (3) of section 246(c) is amended by adding 
    ``and'' at the end of subparagraph (A), by striking subparagraph 
    (B), and by redesignating subparagraph (C) as subparagraph (B).
    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to dividends received or accrued after the 30th day after the 
    date of the enactment of this Act.
        (2) Transitional rule.--The amendments made by this section 
    shall not apply to dividends received or accrued during the 2-year 
    period beginning on the date of the enactment of this Act if--
            (A) the dividend is paid with respect to stock held by the 
        taxpayer on June 8, 1997, and all times thereafter until the 
        dividend is received,
            (B) such stock is continuously subject to a position 
        described in section 246(c)(4) of the Internal Revenue Code of 
        1986 on June 8, 1997, and all times thereafter until the 
        dividend is received, and
            (C) such stock and position are clearly identified in the 
        taxpayer's records within 30 days after the date of the 
        enactment of this Act.
    Stock shall not be treated as meeting the requirement of 
    subparagraph (B) if the position is sold, closed, or otherwise 
    terminated and reestablished.

                 Subtitle C--Administrative Provisions

SEC. 1021. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

    (a) In General.--Section 6045 (relating to returns of brokers) is 
amended by adding at the end the following new subsection:
    ``(f) Return Required in the Case of Payments to Attorneys.--
        ``(1) In general.--Any person engaged in a trade or business 
    and making a payment (in the course of such trade or business) to 
    which this subsection applies shall file a return under subsection 
    (a) and a statement under subsection (b) with respect to such 
    payment.
        ``(2) Application of subsection.--
            ``(A) In general.--This subsection shall apply to any 
        payment to an attorney in connection with legal services 
        (whether or not such services are performed for the payor).
            ``(B) Exception.--This subsection shall not apply to the 
        portion of any payment which is required to be reported under 
        section 6041(a) (or would be so required but for the dollar 
        limitation contained therein) or section 6051.''.
    (b) Reporting of Attorneys' Fees Payable to Corporations.--The 
regulations providing an exception under section 6041 of the Internal 
Revenue Code of 1986 for payments made to corporations shall not apply 
to payments of attorneys' fees.
    (c) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 1997.

SEC. 1022. DECREASE OF THRESHOLD FOR REPORTING PAYMENTS TO CORPORATIONS 
              PERFORMING SERVICES FOR FEDERAL AGENCIES.

    (a) In General.--Subsection (d) of section 6041A (relating to 
returns regarding payments of remuneration for services and direct 
sales) is amended by adding at the end the following new paragraph:
        ``(3) Payments to corporations by federal executive agencies.--
            ``(A) In general.--Notwithstanding any regulation 
        prescribed by the Secretary before the date of the enactment of 
        this paragraph, subsection (a) shall apply to remuneration paid 
        to a corporation by any Federal executive agency (as defined in 
        section 6050M(b)).
            ``(B) Exception.--Subparagraph (A) shall not apply to--
                ``(i) services under contracts described in section 
            6050M(e)(3) with respect to which the requirements of 
            section 6050M(e)(2) are met, and
                ``(ii) such other services as the Secretary may specify 
            in regulations prescribed after the date of the enactment 
            of this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns the due date for which (determined without regard to any 
extension) is more than 90 days after the date of the enactment of this 
Act.

SEC. 1023. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
              CERTAIN VETERANS PROGRAMS.

    (a) General Rule.--Clause (viii) of section 6103(l)(7)(D) (relating 
to disclosure of return information to Federal, State, and local 
agencies administering certain programs) is amended by striking 
``1998'' and inserting ``2003''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 1024. CONTINUOUS LEVY ON CERTAIN PAYMENTS.

    (a) In General.--Section 6331 (relating to levy and distraint) is 
amended--
        (1) by redesignating subsection (h) as subsection (i), and
        (2) by inserting after subsection (g) the following new 
    subsection:
    ``(h) Continuing Levy on Certain Payments.--
        ``(1) In general.--The effect of a levy on specified payments 
    to or received by a taxpayer shall be continuous from the date such 
    levy is first made until such levy is released. Notwithstanding 
    section 6334, such continuous levy shall attach to up to 15 percent 
    of any specified payment due to the taxpayer.
        ``(2) Specified payment.--For the purposes of paragraph (1), 
    the term `specified payment' means--
            ``(A) any Federal payment other than a payment for which 
        eligibility is based on the income or assets (or both) of a 
        payee,
            ``(B) any payment described in paragraph (4), (7), (9), or 
        (11) of section 6334(a), and
            ``(C) any annuity or pension payment under the Railroad 
        Retirement Act or benefit under the Railroad Unemployment 
        Insurance Act.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to levies issued after the date of the enactment of this Act.

SEC. 1025. MODIFICATION OF LEVY EXEMPTION.

    (a) In General.--Section 6334 (relating to property exempt from 
levy) is amended by redesignating subsection (f) as subsection (g) and 
by inserting after subsection (e) the following new subsection:
    ``(f) Levy Allowed on Certain Specified Payments.--Any payment 
described in subparagraph (B) or (C) of section 6331(h)(2) shall not be 
exempt from levy if the Secretary approves the levy thereon under 
section 6331(h).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to levies issued after the date of the enactment of this Act.

SEC. 1026. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
              INFORMATION.

    (a) In General.--Subsection (k) of section 6103 is amended by 
adding at the end the following new paragraph:
        ``(8) Levies on certain government payments.--
            ``(A) Disclosure of return information in levies on 
        financial management service.--In serving a notice of levy, or 
        release of such levy, with respect to any applicable government 
        payment, the Secretary may disclose to officers and employees 
        of the Financial Management Service--
                ``(i) return information, including taxpayer identity 
            information,
                ``(ii) the amount of any unpaid liability under this 
            title (including penalties and interest), and
                ``(iii) the type of tax and tax period to which such 
            unpaid liability relates.
            ``(B) Restriction on use of disclosed information.--Return 
        information disclosed under subparagraph (A) may be used by 
        officers and employees of the Financial Management Service only 
        for the purpose of, and to the extent necessary in, 
        transferring levied funds in satisfaction of the levy, 
        maintaining appropriate agency records in regard to such levy 
        or the release thereof, notifying the taxpayer and the agency 
        certifying such payment that the levy has been honored, or in 
        the defense of any litigation ensuing from the honor of such 
        levy.
            ``(C) Applicable government payment.--For purposes of this 
        paragraph, the term `applicable government payment' means--
                ``(i) any Federal payment (other than a payment for 
            which eligibility is based on the income or assets (or 
            both) of a payee) certified to the Financial Management 
            Service for disbursement, and
                ``(ii) any other payment which is certified to the 
            Financial Management Service for disbursement and which the 
            Secretary designates by published notice.''.
    (b) Conforming Amendments.--
        (1) Section 6103(p) is amended--
            (A) in paragraph (3)(A), by striking ``(2), or (6)'' and 
        inserting ``(2), (6), or (8)'', and
            (B) in paragraph (4), by inserting ``(k)(8),'' after ``(j) 
        (1) or (2),'' each place it appears.
        (2) Section 552a(a)(8)(B) of title 5, United States Code, is 
    amended by striking ``or'' at the end of clause (v), by adding 
    ``or'' at the end of clause (vi), and by adding at the end the 
    following new clause:
                ``(vii) matches performed incident to a levy described 
            in section 6103(k)(8) of the Internal Revenue Code of 
            1986;''.
    (c) Effective Date.--The amendments made by this section shall 
apply to levies issued after the date of the enactment of this Act.

SEC. 1027. RETURNS OF BENEFICIARIES OF ESTATES AND TRUSTS REQUIRED TO 
              FILE RETURNS CONSISTENT WITH ESTATE OR TRUST RETURN OR TO 
              NOTIFY SECRETARY OF INCONSISTENCY.

    (a) Domestic Estates and Trusts.--Section 6034A (relating to 
information to beneficiaries of estates and trusts) is amended by 
adding at the end the following new subsection:
    ``(c) Beneficiary's Return Must be Consistent with Estate or Trust 
Return or Secretary Notified of Inconsistency.--
        ``(1) In general.--A beneficiary of any estate or trust to 
    which subsection (a) applies shall, on such beneficiary's return, 
    treat any reported item in a manner which is consistent with the 
    treatment of such item on the applicable entity's return.
        ``(2) Notification of inconsistent treatment.--
            ``(A) In general.--In the case of any reported item, if--
                ``(i)(I) the applicable entity has filed a return but 
            the beneficiary's treatment on such beneficiary's return is 
            (or may be) inconsistent with the treatment of the item on 
            the applicable entity's return, or
                ``(II) the applicable entity has not filed a return, 
            and
                ``(ii) the beneficiary files with the Secretary a 
            statement identifying the inconsistency,
        paragraph (1) shall not apply to such item.
            ``(B) Beneficiary receiving incorrect information.--A 
        beneficiary shall be treated as having complied with clause 
        (ii) of subparagraph (A) with respect to a reported item if the 
        beneficiary--
                ``(i) demonstrates to the satisfaction of the Secretary 
            that the treatment of the reported item on the 
            beneficiary's return is consistent with the treatment of 
            the item on the statement furnished under subsection (a) to 
            the beneficiary by the applicable entity, 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 beneficiary does not comply with 
        subparagraph (A)(ii) of paragraph (2),
    any adjustment required to make the treatment of the items by such 
    beneficiary consistent with the treatment of the items on the 
    applicable entity's 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) Definitions.--For purposes of this subsection--
            ``(A) Reported item.--The term `reported item' means any 
        item for which information is required to be furnished under 
        subsection (a).
            ``(B) Applicable entity.--The term `applicable entity' 
        means the estate or trust of which the taxpayer is the 
        beneficiary.
        ``(5) Addition to tax for failure to comply with section.--For 
    addition to tax in the case of a beneficiary's negligence in 
    connection with, or disregard of, the requirements of this section, 
    see part II of subchapter A of chapter 68.''.
    (b) Foreign Trusts.--Subsection (d) of section 6048 (relating to 
information with respect to certain foreign trusts) is amended by 
adding at the end the following new paragraph:
        ``(5) United states person's return must be consistent with 
    trust return or secretary notified of inconsistency.--Rules similar 
    to the rules of section 6034A(c) shall apply to items reported by a 
    trust under subsection (b)(1)(B) and to United States persons 
    referred to in such subsection.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns of beneficiaries and owners filed after the date of 
the enactment of this Act.

SEC. 1028. REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL 
              CORPORATE TAX SHELTERS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended by redesignating subsections (d) and (e) as 
subsections (e) and (f), respectively, and by inserting after 
subsection (c) the following new subsection:
    ``(d) Certain Confidential Arrangements Treated as Tax Shelters.--
        ``(1) In general.--For purposes of this section, the term `tax 
    shelter' includes any entity, plan, arrangement, or transaction--
            ``(A) a significant purpose of the structure of which is 
        the avoidance or evasion of Federal income tax for a direct or 
        indirect participant which is a corporation,
            ``(B) which is offered to any potential participant under 
        conditions of confidentiality, and
            ``(C) for which the tax shelter promoters may receive fees 
        in excess of $100,000 in the aggregate.
        ``(2) Conditions of confidentiality.--For purposes of paragraph 
    (1)(B), an offer is under conditions of confidentiality if--
            ``(A) the potential participant to whom the offer is made 
        (or any other person acting on behalf of such participant) has 
        an understanding or agreement with or for the benefit of any 
        promoter of the tax shelter that such participant (or such 
        other person) will limit disclosure of the tax shelter or any 
        significant tax features of the tax shelter, or
            ``(B) any promoter of the tax shelter--
                ``(i) claims, knows, or has reason to know,
                ``(ii) knows or has reason to know that any other 
            person (other than the potential participant) claims, or
                ``(iii) causes another person to claim,
        that the tax shelter (or any aspect thereof) is proprietary to 
        any person other than the potential participant or is otherwise 
        protected from disclosure to or use by others.
    For purposes of this subsection, the term `promoter' means any 
    person or any related person (within the meaning of section 267 or 
    707) who participates in the organization, management, or sale of 
    the tax shelter.
        ``(3) Persons other than promoter required to register in 
    certain cases.--
            ``(A) In general.--If--
                ``(i) the requirements of subsection (a) are not met 
            with respect to any tax shelter (as defined in paragraph 
            (1)) by any tax shelter promoter, and
                ``(ii) no tax shelter promoter is a United States 
            person,
        then each United States person who discussed participation in 
        such shelter shall register such shelter under subsection (a).
            ``(B) Exception.--Subparagraph (A) shall not apply to a 
        United States person who discussed participation in a tax 
        shelter if--
                ``(i) such person notified the promoter in writing (not 
            later than the close of the 90th day after the day on which 
            such discussions began) that such person would not 
            participate in such shelter, and
                ``(ii) such person does not participate in such 
            shelter.
        ``(4) Offer to participate treated as offer for sale.--For 
    purposes of subsections (a) and (b), an offer to participate in a 
    tax shelter (as defined in paragraph (1)) shall be treated as an 
    offer for sale.''.
    (b) Penalty.--Subsection (a) of section 6707 (relating to failure 
to furnish information regarding tax shelters) is amended by adding at 
the end the following new paragraph:
        ``(3) Confidential arrangements.--
            ``(A) In general.--In the case of a tax shelter (as defined 
        in section 6111(d)), the penalty imposed under paragraph (1) 
        shall be an amount equal to the greater of--
                ``(i) 50 percent of the fees paid to all promoters of 
            the tax shelter with respect to offerings made before the 
            date such shelter is registered under section 6111, or
                ``(ii) $10,000.
        Clause (i) shall be applied by substituting `75 percent' for 
        `50 percent' in the case of an intentional failure or act 
        described in paragraph (1).
            ``(B) Special rule for participants required to register 
        shelter.--In the case of a person required to register such a 
        tax shelter by reason of section 6111(d)(3)--
                ``(i) such person shall be required to pay the penalty 
            under paragraph (1) only if such person actually 
            participated in such shelter,
                ``(ii) the amount of such penalty shall be determined 
            by taking into account under subparagraph (A)(i) only the 
            fees paid by such person, and
                ``(iii) such penalty shall be in addition to the 
            penalty imposed on any other person for failing to register 
            such shelter.''.
    (c) Modifications to Substantial Understatement Penalty.--
        (1) Restriction on reasonable basis for corporate 
    understatement of income tax.--Subparagraph (B) of section 
    6662(d)(2) is amended by adding at the end the following new flush 
    sentence:
        ``For purposes of clause (ii)(II), in no event shall a 
        corporation be treated as having a reasonable basis for its tax 
        treatment of an item attributable to a multiple-party financing 
        transaction if such treatment does not clearly reflect the 
        income of the corporation.''.
        (2) Modification to definition of tax shelter.--Clause (iii) of 
    section 6662(d)(2)(C) is amended by striking ``the principal 
    purpose'' and inserting ``a significant purpose''.
    (d) Conforming Amendments.--
        (1) Paragraph (2) of section 6707(a) is amended by striking 
    ``The penalty'' and inserting ``Except as provided in paragraph 
    (3), the penalty''.
        (2) Subparagraph (A) of section 6707(a)(1) is amended by 
    striking ``paragraph (2)'' and inserting ``paragraph (2) or (3), as 
    the case may be''.
    (e) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to any tax shelter (as 
    defined in section 6111(d) of the Internal Revenue Code of 1986, as 
    amended by this section) interests in which are offered to 
    potential participants after the Secretary of the Treasury 
    prescribes guidance with respect to meeting requirements added by 
    such amendments.
        (2) Modifications to substantial understatement penalty.--The 
    amendments made by subsection (c) shall apply to items with respect 
    to transactions entered into after the date of the enactment of 
    this Act.

            Subtitle D--Excise and Employment Tax Provisions

SEC. 1031. EXTENSION AND MODIFICATION OF TAXES FUNDING AIRPORT AND 
              AIRWAY TRUST FUND; INCREASED DEPOSITS INTO SUCH FUND.

    (a) Fuel Taxes.--
        (1) Aviation fuel.--Clause (ii) of section 4091(b)(3)(A) is 
    amended by striking ``September 30, 1997'' and inserting 
    ``September 30, 2007''.
        (2) Aviation gasoline.--Subparagraph (B) of section 4081(d)(2) 
    is amended by striking ``September 30, 1997'' and inserting 
    ``September 30, 2007''.
        (3) Noncommercial aviation.--Subparagraph (B) of section 
    4041(c)(3) is amended by striking ``September 30, 1997'' and 
    inserting ``September 30, 2007''.
    (b) Ticket Taxes.--
        (1) Persons.--Clause (ii) of section 4261(g)(1)(A) is amended 
    by striking ``September 30, 1997'' and inserting ``September 30, 
    2007''.
        (2) Property.--Clause (ii) of section 4271(d)(1)(A) is amended 
    by striking ``September 30, 1997'' and inserting ``September 30, 
    2007''.
    (c) Modifications to Tax on Transportation of Persons by Air.--
        (1) In general.--Section 4261 (relating to imposition of tax) 
    is amended by striking subsections (a), (b), and (c) and inserting 
    the following new subsections:
    ``(a) In General.--There is hereby imposed on the amount paid for 
taxable transportation of any person a tax equal to 7.5 percent of the 
amount so paid.
    ``(b) Domestic Segments of Taxable Transportation.--
        ``(1) In general.--There is hereby imposed on the amount paid 
    for each domestic segment of taxable transportation by air a tax in 
    the amount determined in accordance with the following table for 
    the period in which the segment begins:

In the case of segments
  beginning:
                                                             The tax is:

    After September 30, 1997, and before October 1, 1998......
                                                                  $1.00 
    After September 30, 1998, and before October 1, 1999......
                                                                  $2.00 
    After September 30, 1999, and before January 1, 2000......
                                                                  $2.25 
    During 2000...............................................
                                                                  $2.50 
    During 2001...............................................
                                                                  $2.75 
    During 2002 or thereafter.................................
                                                                  $3.00.

        ``(2) Domestic segment.--For purposes of this section, the term 
    `domestic segment' means any segment consisting of 1 takeoff and 1 
    landing and which is taxable transportation described in section 
    4262(a)(1).
        ``(3) Changes in segments by reason of rerouting.--If--
            ``(A) transportation is purchased between 2 locations on 
        specified flights, and
            ``(B) there is a change in the route taken between such 2 
        locations which changes the number of domestic segments, but 
        there is no change in the amount charged for such 
        transportation,
    the tax imposed by paragraph (1) shall be determined without regard 
    to such change in route.
    ``(c) Use of International Travel Facilities.--
        ``(1) In general.--There is hereby imposed a tax of $12.00 on 
    any amount paid (whether within or without the United States) for 
    any transportation of any person by air, if such transportation 
    begins or ends in the United States.
        ``(2) Exception for transportation entirely taxable under 
    subsection (a).--This subsection shall not apply to any 
    transportation all of which is taxable under subsection (a) 
    (determined without regard to sections 4281 and 4282).
        ``(3) Special rule for alaska and hawaii.--In any case in which 
    the tax imposed by paragraph (1) applies to a domestic segment 
    beginning or ending in Alaska or Hawaii, such tax shall apply only 
    to departures and shall be at the rate of $6.''.
        (2) Special rules.--Section 4261 is amended by redesignating 
    subsections (e), (f), and (g) as subsections (f), (g), and (h), 
    respectively, and by inserting after subsection (d) the following 
    new subsection:
    ``(e) Special Rules.--
        ``(1) Segments to and from rural airports.--
            ``(A) Exception from segment tax.--The tax imposed by 
        subsection (b)(1) shall not apply to any domestic segment 
        beginning or ending at an airport which is a rural airport for 
        the calendar year in which such segment begins or ends (as the 
        case may be).
            ``(B) Rural airport.--For purposes of this paragraph, the 
        term `rural airport' means, with respect to any calendar year, 
        any airport if--
                ``(i) there were fewer than 100,000 commercial 
            passengers departing by air during the second preceding 
            calendar year from such airport, and
                ``(ii) such airport--

                    ``(I) is not located within 75 miles of another 
                airport which is not described in clause (i), or
                    ``(II) is receiving essential air service subsidies 
                as of the date of the enactment of this paragraph.

            ``(C) No phasein of reduced ticket tax.--In the case of 
        transportation beginning before October 1, 1999--
                ``(i) In general.--Paragraph (5) shall not apply to any 
            domestic segment beginning or ending at an airport which is 
            a rural airport for the calendar year in which such segment 
            begins or ends (as the case may be).
                ``(ii) Transportation involving multiple segments.--In 
            the case of transportation involving more than 1 domestic 
            segment at least 1 of which does not begin or end at a 
            rural airport, the 7.5 percent rate applicable by reason of 
            clause (i) shall be applied by taking into account only an 
            amount which bears the same ratio to the amount paid for 
            such transportation as the number of specified miles in 
            domestic segments which begin or end at a rural airport 
            bears to the total number of specified miles in such 
            transportation.
        ``(2) Amounts paid outside the united states.--In the case of 
    amounts paid outside the United States for taxable transportation, 
    the taxes imposed by subsections (a) and (b) shall apply only if 
    such transportation begins and ends in the United States.
        ``(3) Amounts paid for right to award free or reduced rate air 
    transportation.--
            ``(A) In general.--Any amount paid (and the value of any 
        other benefit provided) to an air carrier (or any related 
        person) for the right to provide mileage awards for (or other 
        reductions in the cost of) any transportation of persons by air 
        shall be treated for purposes of subsection (a) as an amount 
        paid for taxable transportation, and such amount shall be 
        taxable under subsection (a) without regard to any other 
        provision of this subchapter.
            ``(B) Controlled group.--For purposes of subparagraph (A), 
        a corporation and all wholly owned subsidiaries of such 
        corporation shall be treated as 1 corporation.
            ``(C) Regulations.--The Secretary shall prescribe rules 
        which reallocate items of income, deduction, credit, exclusion, 
        or other allowance to the extent necessary to prevent the 
        avoidance of tax imposed by reason of this paragraph. The 
        Secretary may prescribe rules which exclude from the tax 
        imposed by subsection (a) amounts attributable to mileage 
        awards which are used other than for transportation of persons 
        by air.
        ``(4) Inflation adjustment of dollar rates of tax.--
            ``(A) In general.--In the case of taxable events in a 
        calendar year after the last nonindexed year, the $3.00 amount 
        contained in subsection (b) and each dollar amount contained in 
        subsection (c) shall be increased by an amount equal to--
                ``(i) such dollar amount, multiplied by
                ``(ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for such calendar year by substituting the 
            year before the last nonindexed year for `calendar year 
            1992' in subparagraph (B) thereof.
        If any increase determined under the preceding sentence is not 
        a multiple of 10 cents, such increase shall be rounded to the 
        nearest multiple of 10 cents.
            ``(B) Last nonindexed year.--For purposes of subparagraph 
        (A), the last nonindexed year is--
                ``(i) 2002 in the case of the $3.00 amount contained in 
            subsection (b), and
                ``(ii) 1998 in the case of the dollar amounts contained 
            in subsection (c).
            ``(C) Taxable event.--For purposes of subparagraph (A), in 
        the case of the tax imposed subsection (b), the beginning of 
        the domestic segment shall be treated as the taxable event.
        ``(5) Rates of ticket tax for transportation beginning before 
    october 1, 1999.--Subsection (a) shall be applied by substituting 
    for `7.5 percent'--
            ``(A) `9 percent' in the case of transportation beginning 
        after September 30, 1997, and before October 1, 1998, and
            ``(B) `8 percent' in the case of transportation beginning 
        after September 30, 1998, and before October 1, 1999.''.
        (3) Secondary liability of carrier for unpaid tax.--Subsection 
    (c) of section 4263 is amended by striking ``subchapter--'' and all 
    that follows and inserting ``subchapter, such tax shall be paid by 
    the carrier providing the initial segment of such transportation 
    which begins or ends in the United States.''.
    (d) Increased Airport and Airway Trust Fund Deposits.--
        (1) Paragraph (1) of section 9502(b) is amended--
            (A) by striking ``(to the extent that the rate of the tax 
        on such gasoline exceeds 4.3 cents per gallon)'' in 
        subparagraph (C),
            (B) by striking ``to the extent attributable to the Airport 
        and Airway Trust Fund financing rate'' in subparagraph (D), and
            (C) by adding at the end the following flush sentence:
``There shall not be taken into account under paragraph (1) so much of 
the taxes imposed by sections 4081 and 4091 as are determined at the 
rates specified in section 4081(a)(2)(B) or 4091(b)(2).''.
        (2) Section 9502 is amended by striking subsection (f).
    (e) Effective Dates.--
        (1) Fuel taxes.--The amendments made by subsection (a) shall 
    apply take effect on October 1, 1997.
        (2) Ticket taxes.--
            (A) In general.--Except as otherwise provided in this 
        paragraph, the amendments made by subsections (b) and (c) shall 
        apply to transportation beginning on or after October 1, 1997.
            (B) Treatment of amounts paid for tickets purchased before 
        october 1, 1997.--The amendments made by subsection (c) shall 
        not apply to amounts paid before October 1, 1997; except that--
                (i) the amendment made to section 4261(c) of the 
            Internal Revenue Code of 1986 shall apply to amounts paid 
            more than 7 days after the date of the enactment of this 
            Act for transportation beginning on or after October 1, 
            1997, and
                (ii) the amendment made to section 4263(c) of such Code 
            shall apply to the extent related to taxes imposed under 
            the amendment made to such section 4261(c) on the amounts 
            described in clause (i).
            (C) Amounts paid for right to award mileage awards.--
                (i) In general.--Paragraph (3) of section 4261(e) of 
            the Internal Revenue Code of 1986 (as added by the 
            amendment made by subsection (c)) shall apply to amounts 
            paid (and other benefits provided) after September 30, 
            1997.
                (ii) Payments within controlled group.--For purposes of 
            clause (i), any amount paid after June 11, 1997, and before 
            October 1, 1997, by 1 member of a controlled group for a 
            right which is described in such section 4261(e)(3) and is 
            furnished by another member of such group after September 
            30, 1997, shall be treated as paid after September 30, 
            1997. For purposes of the preceding sentence, all persons 
            treated as a single employer under subsection (a) or (b) of 
            section 52 of such Code shall be treated as members of a 
            controlled group.
        (3) Increased deposits into airport and airway trust fund.--The 
    amendments made by subsection (d) shall apply with respect to taxes 
    received in the Treasury on and after October 1, 1997.
    (g) Delayed Deposits of Airport Trust Fund Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of 1986--
        (1) in the case of deposits of taxes imposed by section 4261 of 
    such Code, the due date for any such deposit which would (but for 
    this subsection) be required to be made after August 14, 1997, and 
    before October 1, 1997, shall be October 10, 1997,
        (2) in the case of deposits of taxes imposed by section 4261 of 
    such Code, the due date for any such deposit which would (but for 
    this subsection) be required to be made after August 14, 1998, and 
    before October 1, 1998, shall be October 5, 1998, and
        (3) in the case of deposits of taxes imposed by sections 
    4081(a)(2)(A)(ii), 4091, and 4271 of such Code, the due date for 
    any such deposit which would (but for this subsection) be required 
    to be made after July 31, 1998, and before October 1, 1998, shall 
    be October 5, 1998.

SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.

    (a) In General.--Subsection (a) of section 4083 (defining taxable 
fuel) is amended by striking ``and'' at the end of subparagraph (A), by 
striking the period at the end of subparagraph (B) and inserting ``, 
and'', and by adding at the end the following new subparagraph:
            ``(C) kerosene.''.
    (b) Rate of Tax.--Clause (iii) of section 4081(a)(2)(A) is amended 
by inserting ``or kerosene'' after ``diesel fuel''.
    (c) Exemptions From Tax; Refunds to Vendors.--
        (1) In general.--Section 4082 (relating to exemptions for 
    diesel fuel) is amended by striking ``diesel fuel'' each place it 
    appears in subsections (a), (c), and (d) and inserting ``diesel 
    fuel and kerosene''.
        (2) Certain kerosene exempt from dyeing requirement.--Section 
    4082 is amended by redesignating subsections (d) and (e) as 
    subsections (e) and (f), respectively, and by inserting after 
    subsection (c) the following new subsection:
    ``(d) Additional Exceptions to Dyeing Requirements for Kerosene.--
        ``(1) Aviation-grade kerosene.--Subsection (a)(2) shall not 
    apply to a removal, entry, or sale of aviation-grade kerosene (as 
    determined under regulations prescribed by the Secretary) if the 
    person receiving the kerosene is registered under section 4101 with 
    respect to the tax imposed by section 4091.
        ``(2) Use for non-fuel feedstock purposes.--Subsection (a)(2) 
    shall not apply to kerosene--
            ``(A) received by pipeline or vessel for use by the person 
        receiving the kerosene in the manufacture or production of any 
        substance (other than gasoline, diesel fuel, or special fuels 
        referred to in section 4041), or
            ``(B) to the extent provided in regulations, removed or 
        entered--
                ``(i) for such a use by the person removing or entering 
            the kerosene, or
                ``(ii) for resale by such person for such a use by the 
            purchaser,
    but only if the person receiving, removing, or entering the 
    kerosene and such purchaser (if any) are registered under section 
    4101 with respect to the tax imposed by section 4081.
        ``(3) Wholesale distributors.--To the extent provided in 
    regulations, subsection (a)(2) shall not apply to a removal, entry, 
    or sale of kerosene to a wholesale distributor of kerosene if such 
    distributor--
            ``(A) is registered under section 4101 with respect to the 
        tax imposed by section 4081 on kerosene, and
            ``(B) sells kerosene exclusively to ultimate vendors 
        described in section 6427(l)(5)(B) with respect to kerosene.''.
        (3) Refunds.--
            (A) Subsection (l) of section 6427 is amended by inserting 
        ``or kerosene'' after ``diesel fuel'' each place it appears in 
        paragraphs (1), (2), and (5) (including the heading for 
        paragraph (5)).
            (B) Paragraph (5) of section 6427(l) is amended by 
        redesignating subparagraph (B) as subparagraph (C) and by 
        inserting after subparagraph (A) the following new 
        subparagraph:
            ``(B) Sales of kerosene not for use in motor fuel.--
        Paragraph (1)(A) shall not apply to kerosene sold by a vendor--
                ``(i) for any use if such sale is from a pump which (as 
            determined under regulations prescribed by the Secretary) 
            is not suitable for use in fueling any diesel-powered 
            highway vehicle or train, or
                ``(ii) to the extent provided by the Secretary, for 
            blending with heating oil to be used during periods of 
            extreme or unseasonable cold.''.
            (C) Subparagraph (C) of section 6427(l)(5), as redesignated 
        by subparagraph (B) of this paragraph, is amended by striking 
        ``subparagraph (A)'' and inserting ``subparagraph (A) or (B)''.
            (D) The heading for subsection (l) of section 6427 is 
        amended by inserting ``, Kerosene,'' after ``Diesel Fuel''.
            (E) Clause (i) of section 6427(i)(5)(A) is amended by 
        inserting ``($100 or more in the case of kerosene)'' after 
        ``$200 or more''.
    (d) Certain Approved Terminals of Registered Persons Required To 
Offer Dyed Diesel Fuel and Kerosene for Nontaxable Purposes.--Section 
4101 is amended by adding at the end the following new subsection:
    ``(e) Certain Approved Terminals of Registered Persons Required To 
Offer Dyed Diesel Fuel and Kerosene for Nontaxable Purposes.--
        ``(1) In general.--A terminal for kerosene or diesel fuel may 
    not be an approved facility for storage of non-tax-paid diesel fuel 
    or kerosene under this section unless the operator of such terminal 
    offers dyed diesel fuel and kerosene for removal for nontaxable use 
    in accordance with section 4082(a).
        ``(2) Exception.--Paragraph (1) shall not apply to any terminal 
    exclusively providing aviation-grade kerosene by pipeline to an 
    airport.''.
    (e) Conforming Amendments.--
        (1) Paragraph (2) of section 4041(a), as amended by title IX, 
    is amended by striking ``kerosene,''.
        (2) Paragraph (1) of section 4041(c) is amended by striking 
    ``any liquid'' and inserting ``kerosene and any other liquid''.
        (3)(A) The heading for section 4082 is amended by inserting 
    ``and kerosene'' after ``diesel fuel''.
        (B) The table of sections for subpart A of part III of 
    subchapter A of chapter 32 is amended by inserting ``and kerosene'' 
    after ``diesel fuel'' in the item relating to section 4082.
        (4) Subsection (b) of section 4083 is amended by striking 
    ``gasoline, diesel fuel,'' and inserting ``taxable fuels''.
        (5) Subsection (a) of section 4093 is amended by striking ``any 
    liquid'' and inserting ``kerosene and any other liquid''.
        (6) The material following subparagraph (F) of section 
    6416(b)(2) is amended by inserting ``or kerosene'' after ``diesel 
    fuel''.
        (7) Paragraphs (1) and (3) of section 6427(f), and the heading 
    for section 6427(f), are each amended by inserting ``kerosene,'' 
    after ``diesel fuel,''.
        (8) Paragraph (2) of section 6427(f) is amended by striking 
    ``or diesel fuel'' each place it appears and inserting ``, diesel 
    fuel, or kerosene''.
        (9) Subparagraph (A) of section 6427(i)(3) is amended by 
    striking ``or diesel fuel'' and inserting ``, diesel fuel, or 
    kerosene''.
        (10) The heading for paragraph (4) of section 6427(i) is 
    amended to read as follows:
        ``(4) Special rule for refunds under subsection (l).--''.
        (11) Paragraph (1) of section 6715(c) is amended by inserting 
    ``or kerosene'' after ``diesel fuel''.
        (12)(A) The text of section 7232 is amended by striking 
    ``gasoline, lubricating oil, diesel fuel'' and inserting ``any 
    taxable fuel (as defined in section 4083)''.
        (B) The section heading for section 7232 is amended to read as 
    follows:

``SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE 
              REPRESENTATIONS OF REGISTRATION STATUS, ETC.''.

        (C) The table of sections for part II of subchapter A of 
    chapter 75 is amended by striking the item relating to section 7232 
    and inserting the following:
        ``Sec. 7232. Failure to register under section 4101, false 
                  representations of registration status, etc.''.

        (13) Sections 9503(b)(1)(E) and 9508(b)(2) are each amended by 
    striking ``and diesel fuel'' and inserting ``, diesel fuel, and 
    kerosene''.
        (14) Subparagraph (B) of section 9503(b)(5) is amended by 
    striking ``or diesel fuel'' and inserting ``, diesel fuel, or 
    kerosene''.
    (f) Effective Date.--The amendments made by this section shall take 
effect on July 1, 1998.
    (g) Floor Stock Taxes.--
        (1) Imposition of tax.--In the case of kerosene which is held 
    on July 1, 1998, by any person, there is hereby imposed a floor 
    stocks tax of 24.4 cents per gallon.
        (2) Liability for tax and method of payment.--
            (A) Liability for tax.--A person holding kerosene on July 
        1, 1998, 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) 
        shall be paid on or before August 31, 1998.
        (3) Definitions.--For purposes of this subsection--
            (A) Held by a person.--Kerosene 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).
            (B) 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 kerosene held by any person exclusively for 
    any use to the extent a credit or refund of the tax imposed by 
    section 4081 of the Internal Revenue Code of 1986 is allowable for 
    such use.
        (5) Exception for fuel held in vehicle tank.--No tax shall be 
    imposed by paragraph (1) on kerosene held in the tank of a motor 
    vehicle or motorboat.
        (6) Exception for certain amounts of fuel.--
            (A) In general.--No tax shall be imposed by paragraph (1) 
        on kerosene held on July 1, 1998, by any person if the 
        aggregate amount of kerosene 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) or (5).
            (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.
        (7) Coordination with section 4081.--No tax shall be imposed by 
    paragraph (1) on kerosene to the extent that tax has been (or will 
    be) imposed on such kerosene under section 4081 or 4091 of such 
    Code.
        (8) Other laws applicable.--All provisions of law, including 
    penalties, applicable with respect to the taxes imposed by section 
    4081 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 4081.

SEC. 1033. RESTORATION OF LEAKING UNDERGROUND STORAGE TANK TRUST FUND 
              TAXES.

    Paragraph (3) of section 4081(d) is amended by striking ``shall not 
apply after December 31, 1995'' and inserting ``shall apply after 
September 30, 1997, and before April 1, 2005''.

SEC. 1034. APPLICATION OF COMMUNICATIONS TAX TO PREPAID TELEPHONE 
              CARDS.

    (a) In General.--Section 4251 is amended by adding at the end the 
following new subsection:
    ``(d) Treatment of Prepaid Telephone Cards.--
        ``(1) In general.--For purposes of this subchapter, in the case 
    of communications services acquired by means of a prepaid telephone 
    card--
            ``(A) the face amount of such card shall be treated as the 
        amount paid for such communications services, and
            ``(B) that amount shall be treated as paid when the card is 
        transferred by any telecommunications carrier to any person who 
        is not such a carrier.
        ``(2) Determination of face amount in absence of specified 
    dollar amount.--In the case of any prepaid telephone card which 
    entitles the user other than to a specified dollar amount of use, 
    the face amount shall be determined under regulations prescribed by 
    the Secretary.
        ``(3) Prepaid telephone card.--For purposes of this subsection, 
    the term `prepaid telephone card' means any card or other similar 
    arrangement which permits its holder to obtain communications 
    services and pay for such services in advance.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts paid in calendar months beginning more than 60 days 
after the date of the enactment of this Act.

SEC. 1035. EXTENSION OF TEMPORARY UNEMPLOYMENT TAX.

    Section 3301 (relating to rate of unemployment tax) is amended--
        (1) by striking ``1998'' in paragraph (1) and inserting 
    ``2007'', and
        (2) by striking ``1999'' in paragraph (2) and inserting 
    ``2008''.

         Subtitle E--Provisions Relating to Tax-Exempt Entities

SEC. 1041. EXPANSION OF LOOK-THRU RULE FOR INTEREST, ANNUITIES, 
              ROYALTIES, AND RENTS DERIVED BY SUBSIDIARIES OF TAX-
              EXEMPT ORGANIZATIONS.

    (a) In General.--Paragraph (13) of section 512(b) is amended to 
read as follows:
        ``(13) Special rules for certain amounts received from 
    controlled entities.--
            ``(A) In general.--If an organization (in this paragraph 
        referred to as the `controlling organization') receives 
        (directly or indirectly) a specified payment from another 
        entity which it controls (in this paragraph referred to as the 
        `controlled entity'), notwithstanding paragraphs (1), (2), and 
        (3), the controlling organization shall include such payment as 
        an item of gross income derived from an unrelated trade or 
        business to the extent such payment reduces the net unrelated 
        income of the controlled entity (or increases any net unrelated 
        loss of the controlled entity). There shall be allowed all 
        deductions of the controlling organization directly connected 
        with amounts treated as derived from an unrelated trade or 
        business under the preceding sentence.
            ``(B) Net unrelated income or loss.--For purposes of this 
        paragraph--
                ``(i) Net unrelated income.--The term `net unrelated 
            income' means--

                    ``(I) in the case of a controlled entity which is 
                not exempt from tax under section 501(a), the portion 
                of such entity's taxable income which would be 
                unrelated business taxable income if such entity were 
                exempt from tax under section 501(a) and had the same 
                exempt purposes (as defined in section 513A(a)(5)(A)) 
                as the controlling organization, or
                    ``(II) in the case of a controlled entity which is 
                exempt from tax under section 501(a), the amount of the 
                unrelated business taxable income of the controlled 
                entity.

                ``(ii) Net unrelated loss.--The term `net unrelated 
            loss' means the net operating loss adjusted under rules 
            similar to the rules of clause (i).
            ``(C) Specified payment.--For purposes of this paragraph, 
        the term `specified payment' means any interest, annuity, 
        royalty, or rent.
            ``(D) Definition of control.--For purposes of this 
        paragraph--
                ``(i) Control.--The term `control' means--

                    ``(I) in the case of a corporation, ownership (by 
                vote or value) of more than 50 percent of the stock in 
                such corporation,
                    ``(II) in the case of a partnership, ownership of 
                more than 50 percent of the profits interests or 
                capital interests in such partnership, or
                    ``(III) in any other case, ownership of more than 
                50 percent of the beneficial interests in the entity.

                ``(ii) Constructive ownership.--Section 318 (relating 
            to constructive ownership of stock) shall apply for 
            purposes of determining ownership of stock in a 
            corporation. Similar principles shall apply for purposes of 
            determining ownership of interests in any other entity.
            ``(E) Related persons.--The Secretary shall prescribe such 
        rules as may be necessary or appropriate to prevent avoidance 
        of the purposes of this paragraph through the use of related 
        persons.''.
    (b) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after the date of the enactment of this Act.
        (2) Binding contracts.--The amendments made by this section 
    shall not apply to any payment made during the first 2 taxable 
    years beginning on or after the date of the enactment of this Act 
    if such payment is made pursuant to a written binding contract in 
    effect on June 8, 1997, and at all times thereafter before such 
    payment.

SEC. 1042. TERMINATION OF CERTAIN EXCEPTIONS FROM RULES RELATING TO 
              EXEMPT ORGANIZATIONS WHICH PROVIDE COMMERCIAL-TYPE 
              INSURANCE.

    (a) In General.--Subparagraphs (A) and (B) of section 1012(c)(4) of 
the Tax Reform Act of 1986 shall not apply to any taxable year 
beginning after December 31, 1997.
    (b) Special Rules.--In the case of an organization to which section 
501(m) of the Internal Revenue Code of 1986 applies solely by reason of 
the amendment made by subsection (a)--
        (1) no adjustment shall be made under section 481 (or any other 
    provision) of such Code on account of a change in its method of 
    accounting for its first taxable year beginning after December 31, 
    1997, and
        (2) for purposes of determining gain or loss, the adjusted 
    basis of any asset held on the 1st day of such taxable year shall 
    be treated as equal to its fair market value as of such day.
    (c) Reserve Weakening After June 8, 1997.--Any reserve weakening 
after June 8, 1997, by an organization described in subsection (b) 
shall be treated as occurring in such organization's 1st taxable year 
beginning after December 31, 1997.
    (d) Regulations.--The Secretary of the Treasury or his delegate may 
prescribe rules for providing proper adjustments for organizations 
described in subsection (b) with respect to short taxable years which 
begin during 1998 by reason of section 843 of the Internal Revenue Code 
of 1986.

                     Subtitle F--Foreign Provisions

SEC. 1051. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME.

    (a) Income From Notional Principal Contracts and Payments in Lieu 
of Dividends.--
        (1) In general.--Paragraph (1) of section 954(c) (defining 
    foreign personal holding company income) is amended by adding at 
    the end the following new subparagraphs:
            ``(F) Income from notional principal contracts.--Net income 
        from notional principal contracts. Any item of income, gain, 
        deduction, or loss from a notional principal contract entered 
        into for purposes of hedging any item described in any 
        preceding subparagraph shall not be taken into account for 
        purposes of this subparagraph but shall be taken into account 
        under such other subparagraph.
            ``(G) Payments in lieu of dividends.--Payments in lieu of 
        dividends which are made pursuant to an agreement to which 
        section 1058 applies.''.
        (2) Conforming amendment.--Subparagraph (B) of section 
    954(c)(1) is amended--
            (A) by striking the second sentence, and
            (B) by striking ``also'' in the last sentence.
    (b) Exception for Dealers.--Paragraph (2) of section 954(c) is 
amended by adding at the end the following new subparagraph:
            ``(C) Exception for dealers.--Except as provided in 
        subparagraph (A), (E), or (G) of paragraph (1) or by 
        regulations, in the case of a regular dealer in property 
        (within the meaning of paragraph (1)(B)), forward contracts, 
        option contracts, or similar financial instruments (including 
        notional principal contracts and all instruments referenced to 
        commodities), there shall not be taken into account in 
        computing foreign personal holding income any item of income, 
        gain, deduction, or loss from any transaction (including 
        hedging transactions) entered into in the ordinary course of 
        such dealer's trade or business as such a dealer.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1052. PERSONAL PROPERTY USED PREDOMINANTLY IN THE UNITED STATES 
              TREATED AS NOT PROPERTY OF A LIKE KIND WITH RESPECT TO 
              PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED STATES.

    (a) In General.--Subsection (h) of section 1031 (relating to 
exchange of property held for productive use or investment) is amended 
to read as follows:
    ``(h) Special Rules for Foreign Real and Personal Property.--For 
purposes of this section--
        ``(1) Real property.--Real property located in the United 
    States and real property located outside the United States are not 
    property of a like kind.
        ``(2) Personal property.--
            ``(A) In general.--Personal property used predominantly 
        within the United States and personal property used 
        predominantly outside the United States are not property of a 
        like kind.
            ``(B) Predominant use.--Except as provided in subparagraph 
        (C) and (D), the predominant use of any property shall be 
        determined based on--
                ``(i) in the case of the property relinquished in the 
            exchange, the 2-year period ending on the date of such 
            relinquishment, and
                ``(ii) in the case of the property acquired in the 
            exchange, the 2-year period beginning on the date of such 
            acquisition.
            ``(C) Property held for less than 2 years.--Except in the 
        case of an exchange which is part of a transaction (or series 
        of transactions) structured to avoid the purposes of this 
        subsection--
                ``(i) only the periods the property was held by the 
            person relinquishing the property (or any related person) 
            shall be taken into account under subparagraph (B)(i), and
                ``(ii) only the periods the property was held by the 
            person acquiring the property (or any related person) shall 
            be taken into account under subparagraph (B)(ii).
            ``(D) Special rule for certain property.--Property 
        described in any subparagraph of section 168(g)(4) shall be 
        treated as used predominantly in the United States.''.
    (b) Effective Date.--
        (1) In general.--The amendment made by this section shall apply 
    to transfers after June 8, 1997, in taxable years ending after such 
    date.
        (2) Binding contracts.--The amendment made by this section 
    shall not apply to any transfer pursuant to a written binding 
    contract in effect on June 8, 1997, and at all times thereafter 
    before the disposition of property. A contract shall not fail to 
    meet the requirements of the preceding sentence solely because--
            (A) it provides for a sale in lieu of an exchange, or
            (B) the property to be acquired as replacement property was 
        not identified under such contract before June 9, 1997.

SEC. 1053. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN TAXES.

    (a) In General.--Section 901 is amended by redesignating subsection 
(k) as subsection (l) and by inserting after subsection (j) the 
following new subsection:
    ``(k) Minimum Holding Period for Certain Taxes.--
        ``(1) Withholding taxes.--
            ``(A) In general.--In no event shall a credit be allowed 
        under subsection (a) for any withholding tax on a dividend with 
        respect to stock in a corporation if--
                ``(i) such stock is held by the recipient of the 
            dividend for 15 days or less during the 30-day period 
            beginning on the date which is 15 days before the date on 
            which such share becomes ex-dividend with respect to such 
            dividend, or
                ``(ii) to the extent that the recipient of the dividend 
            is under an obligation (whether pursuant to a short sale or 
            otherwise) to make related payments with respect to 
            positions in substantially similar or related property.
            ``(B) Withholding tax.--For purposes of this paragraph, the 
        term `withholding tax' includes any tax determined on a gross 
        basis; but does not include any tax which is in the nature of a 
        prepayment of a tax imposed on a net basis.
        ``(2) Deemed paid taxes.--In the case of income, war profits, 
    or excess profits taxes deemed paid under section 853, 902, or 960 
    through a chain of ownership of stock in 1 or more corporations, no 
    credit shall be allowed under subsection (a) for such taxes if--
            ``(A) any stock of any corporation in such chain (the 
        ownership of which is required to obtain credit under 
        subsection (a) for such taxes) is held for less than the period 
        described in paragraph (1)(A)(i), or
            ``(B) the corporation holding the stock is under an 
        obligation referred to in paragraph (1)(A)(ii).
        ``(3) 45-day rule in the case of certain preference 
    dividends.--In the case of stock having preference in dividends and 
    dividends with respect to such stock which are attributable to a 
    period or periods aggregating in excess of 366 days, paragraph 
    (1)(A)(i) shall be applied--
            ``(A) by substituting `45 days' for `15 days' each place it 
        appears, and
            ``(B) by substituting `90-day period' for `30-day period'.
        ``(4) Exception for certain taxes paid by securities dealers.--
            ``(A) In general.--Paragraphs (1) and (2) shall not apply 
        to any qualified tax with respect to any security held in the 
        active conduct in a foreign country of a securities business of 
        any person--
                ``(i) who is registered as a securities broker or 
            dealer under section 15(a) of the Securities Exchange Act 
            of 1934,
                ``(ii) who is registered as a Government securities 
            broker or dealer under section 15C(a) of such Act, or
                ``(iii) who is licensed or authorized in such foreign 
            country to conduct securities activities in such country 
            and is subject to bona fide regulation by a securities 
            regulating authority of such country.
            ``(B) Qualified tax.--For purposes of subparagraph (A), the 
        term `qualified tax' means a tax paid to a foreign country 
        (other than the foreign country referred to in subparagraph 
        (A)) if--
                ``(i) the dividend to which such tax is attributable is 
            subject to taxation on a net basis by the country referred 
            to in subparagraph (A), and
                ``(ii) such country allows a credit against its net 
            basis tax for the full amount of the tax paid to such other 
            foreign country.
            ``(C) Regulations.--The Secretary may prescribe such 
        regulations as may be appropriate to carry out this paragraph, 
        including regulations to prevent the abuse of the exception 
        provided by this paragraph and to treat other taxes as 
        qualified taxes.
        ``(5) Certain rules to apply.--For purposes of this subsection, 
    the rules of paragraphs (3) and (4) of section 246(c) shall apply.
        ``(6) Treatment of bona fide sales.--If a person's holding 
    period is reduced by reason of the application of the rules of 
    section 246(c)(4) to any contract for the bona fide sale of stock, 
    the determination of whether such person's holding period meets the 
    requirements of paragraph (2) with respect to taxes deemed paid 
    under section 902 or 960 shall be made as of the date such contract 
    is entered into.
        ``(7) Taxes allowed as deduction, etc.--Sections 275 and 78 
    shall not apply to any tax which is not allowable as a credit under 
    subsection (a) by reason of this subsection.''.
    (b) Notice of Withholding Taxes Paid by Regulated Investment 
Company.--Subsection (c) of section 853 (relating to foreign tax credit 
allowed to shareholders) is amended by adding at the end the following 
new sentence: ``Such notice shall also include the amount of such taxes 
which (without regard to the election under this section) would not be 
allowable as a credit under section 901(a) to the regulated investment 
company by reason of section 901(k).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dividends paid or accrued more than 30 days after the date of 
the enactment of this Act.

SEC. 1054. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH 
              HYBRID ENTITIES.

    (a) In General.--Section 894 (relating to income affected by 
treaty) is amended by inserting after subsection (b) the following new 
subsection:
    ``(c) Denial of Treaty Benefits for Certain Payments Through Hybrid 
Entities.--
        ``(1) Application to certain payments.--A foreign person shall 
    not be entitled under any income tax treaty of the United States 
    with a foreign country to any reduced rate of any withholding tax 
    imposed by this title on an item of income derived through an 
    entity which is treated as a partnership (or is otherwise treated 
    as fiscally transparent) for purposes of this title if--
            ``(A) such item is not treated for purposes of the taxation 
        laws of such foreign country as an item of income of such 
        person,
            ``(B) the treaty does not contain a provision addressing 
        the applicability of the treaty in the case of an item of 
        income derived through a partnership, and
            ``(C) the foreign country does not impose tax on a 
        distribution of such item of income from such entity to such 
        person.
        ``(2) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary or appropriate to determine the 
    extent to which a taxpayer to which paragraph (1) does not apply 
    shall not be entitled to benefits under any income tax treaty of 
    the United States with respect to any payment received by, or 
    income attributable to any activities of, an entity organized in 
    any jurisdiction (including the United States) that is treated as a 
    partnership or is otherwise treated as fiscally transparent for 
    purposes of this title (including a common investment trust under 
    section 584, a grantor trust, or an entity that is disregarded for 
    purposes of this title) and is treated as fiscally nontransparent 
    for purposes of the tax laws of the jurisdiction of residence of 
    the taxpayer.''.
    (b) Effective Date.--The amendments made by this section shall 
apply upon the date of enactment of this Act.

SEC. 1055. INTEREST ON UNDERPAYMENTS NOT REDUCED BY FOREIGN TAX CREDIT 
              CARRYBACKS.

    (a) In General.--Subsection (d) of section 6601 is amended by 
redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
respectively, and by inserting after paragraph (1) the following new 
paragraph:
        ``(2) Foreign tax credit carrybacks.--If any credit allowed for 
    any taxable year is increased by reason of a carryback of tax paid 
    or accrued to foreign countries or possessions of the United 
    States, such increase shall not affect the computation of interest 
    under this section for the period ending with the filing date for 
    the taxable year in which such taxes were in fact paid or accrued, 
    or, with respect to any portion of such credit carryback from a 
    taxable year attributable to a net operating loss carryback or a 
    capital loss carryback from a subsequent taxable year, such 
    increase shall not affect the computation of interest under this 
    section for the period ending with the filing date for such 
    subsequent taxable year.''.
    (b) Conforming Amendment to Refunds Attributable to Foreign Tax 
Credit Carrybacks.--
        (1) In general.--Subsection (f) of section 6611 is amended by 
    redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
    respectively, and by inserting after paragraph (1) the following 
    new paragraph:
        ``(2) Foreign tax credit carrybacks.--For purposes of 
    subsection (a), if any overpayment of tax imposed by subtitle A 
    results from a carryback of tax paid or accrued to foreign 
    countries or possessions of the United States, such overpayment 
    shall be deemed not to have been made before the filing date for 
    the taxable year in which such taxes were in fact paid or accrued, 
    or, with respect to any portion of such credit carryback from a 
    taxable year attributable to a net operating loss carryback or a 
    capital loss carryback from a subsequent taxable year, such 
    overpayment shall be deemed not to have been made before the filing 
    date for such subsequent taxable year.''.
        (2) Conforming amendments.--
            (A) Paragraph (4) of section 6611(f) (as so redesignated) 
        is amended--
                (i) by striking ``paragraphs (1) and (2)'' and 
            inserting ``paragraphs (1), (2), and (3)'', and
                (ii) by striking ``paragraph (1) or (2)'' each place it 
            appears and inserting ``paragraph (1), (2), or (3)''.
            (B) Clause (ii) of section 6611(f)(4)(B) (as so 
        redesignated) is amended by striking ``and'' at the end of 
        subclause (I), by redesignating subclause (II) as subclause 
        (III), and by inserting after subclause (I) the following new 
        subclause:

                    ``(II) in the case of a carryback of taxes paid or 
                accrued to foreign countries or possessions of the 
                United States, the taxable year in which such taxes 
                were in fact paid or accrued (or, with respect to any 
                portion of such carryback from a taxable year 
                attributable to a net operating loss carryback or a 
                capital loss carryback from a subsequent taxable year, 
                such subsequent taxable year), and''.

            (C) Subclause (III) of section 6611(f)(4)(B)(ii) (as so 
        redesignated) is amended by inserting ``(as defined in 
        paragraph (3)(B))'' after ``credit carryback'' the first place 
        it appears.
            (D) Section 6611 is amended by striking subsection (g) and 
        by redesignating subsections (h) and (i) as subsections (g) and 
        (h), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to foreign tax credit carrybacks arising in taxable years 
beginning after the date of the enactment of this Act.

SEC. 1056. CLARIFICATION OF PERIOD OF LIMITATIONS ON CLAIM FOR CREDIT 
              OR REFUND ATTRIBUTABLE TO FOREIGN TAX CREDIT 
              CARRYFORWARD.

    (a) In General.--Subparagraph (A) of section 6511(d)(3) is amended 
by striking ``for the year with respect to which the claim is made'' 
and inserting ``for the year in which such taxes were actually paid or 
accrued''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxes paid or accrued in taxable years beginning after the 
date of the enactment of this Act.

SEC. 1057. REPEAL OF EXCEPTION TO ALTERNATIVE MINIMUM FOREIGN TAX 
              CREDIT LIMIT.

    (a) In General.--Section 59(a)(2) (relating to limitation to 90 
percent of tax) is amended by striking subparagraph (C).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

                   Subtitle G--Partnership Provisions

SEC. 1061. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY 
              PARTNERSHIP.

    (a) In General.--Subsection (c) of section 732 is amended to read 
as follows:
    ``(c) Allocation of Basis.--
        ``(1) In general.--The basis of distributed properties to which 
    subsection (a)(2) or (b) is applicable shall be allocated--
            ``(A)(i) first to any unrealized receivables (as defined in 
        section 751(c)) and inventory items (as defined in section 
        751(d)(2)) in an amount equal to the adjusted basis of each 
        such property to the partnership, and
            ``(ii) if the basis to be allocated is less than the sum of 
        the adjusted bases of such properties to the partnership, then, 
        to the extent any decrease is required in order to have the 
        adjusted bases of such properties equal the basis to be 
        allocated, in the manner provided in paragraph (3), and
            ``(B) to the extent of any basis remaining after the 
        allocation under subparagraph (A), to other distributed 
        properties--
                ``(i) first by assigning to each such other property 
            such other property's adjusted basis to the partnership, 
            and
                ``(ii) then, to the extent any increase or decrease in 
            basis is required in order to have the adjusted bases of 
            such other distributed properties equal such remaining 
            basis, in the manner provided in paragraph (2) or (3), 
            whichever is appropriate.
        ``(2) Method of allocating increase.--Any increase required 
    under paragraph (1)(B) shall be allocated among the properties--
            ``(A) first to properties with unrealized appreciation in 
        proportion to their respective amounts of unrealized 
        appreciation before such increase (but only to the extent of 
        each property's unrealized appreciation), and
            ``(B) then, to the extent such increase is not allocated 
        under subparagraph (A), in proportion to their respective fair 
        market values.
        ``(3) Method of allocating decrease.--Any decrease required 
    under paragraph (1)(A) or (1)(B) shall be allocated--
            ``(A) first to properties with unrealized depreciation in 
        proportion to their respective amounts of unrealized 
        depreciation before such decrease (but only to the extent of 
        each property's unrealized depreciation), and
            ``(B) then, to the extent such decrease is not allocated 
        under subparagraph (A), in proportion to their respective 
        adjusted bases (as adjusted under subparagraph (A)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after the date of the enactment of this Act.

SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY 
              APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF 
              PARTNERSHIP INTEREST.

    (a) In General.--Paragraph (2) of section 751(a) is amended to read 
as follows:
        ``(2) inventory items of the partnership,''.
    (b) Conforming Amendments.--
        (1)(A) Paragraph (1) of section 751(b) is amended by striking 
    subparagraphs (A) and (B) and inserting the following new 
    subparagraphs:
            ``(A) partnership property which is--
                ``(i) unrealized receivables, or
                ``(ii) inventory items which have appreciated 
            substantially in value,
        in exchange for all or a part of his interest in other 
        partnership property (including money), or
            ``(B) partnership property (including money) other than 
        property described in subparagraph (A)(i) or (ii) in exchange 
        for all or a part of his interest in partnership property 
        described in subparagraph (A)(i) or (ii),''.
        (B) Subsection (b) of section 751 is amended by adding at the 
    end the following new paragraph:
        ``(3) Substantial appreciation.--For purposes of paragraph 
    (1)--
            ``(A) In general.--Inventory items of the partnership shall 
        be considered to have appreciated substantially in value if 
        their fair market value exceeds 120 percent of the adjusted 
        basis to the partnership of such property.
            ``(B) Certain property excluded.--For purposes of 
        subparagraph (A), there shall be excluded any inventory 
        property if a principal purpose for acquiring such property was 
        to avoid the provisions of this subsection relating to 
        inventory items.''.
        (2) Subsection (d) of section 751 is amended to read as 
    follows:
    ``(d) Inventory Items.--For purposes of this subchapter, the term 
`inventory items' means--
        ``(1) property of the partnership of the kind described in 
    section 1221(1),
        ``(2) any other property of the partnership which, on sale or 
    exchange by the partnership, would be considered property other 
    than a capital asset and other than property described in section 
    1231,
        ``(3) any other property of the partnership which, if sold or 
    exchanged by the partnership, would result in a gain taxable under 
    subsection (a) of section 1246 (relating to gain on foreign 
    investment company stock), and
        ``(4) any other property held by the partnership which, if held 
    by the selling or distributee partner, would be considered property 
    of the type described in paragraph (1), (2), or (3).''.
        (3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 732(c)(1)(A) 
    (as amended by the preceding section), 735(a)(2), and 735(c)(1) are 
    each amended by striking ``section 751(d)(2)'' and inserting 
    ``section 751(d)''.
    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to sales, exchanges, and distributions after the date of the 
    enactment of this Act.
        (2) Binding contracts.--The amendments made by this section 
    shall not apply to any sale or exchange pursuant to a written 
    binding contract in effect on June 8, 1997, and at all times 
    thereafter before such sale or exchange.

SEC. 1063. EXTENSION OF TIME FOR TAXING PRECONTRIBUTION GAIN.

    (a) In General.--Sections 704(c)(1)(B) and 737(b)(1) are each 
amended by striking ``5 years'' and inserting ``7 years''.
    (b) Effective Date.--
        (1) In general.--The amendment made by subsection (a) shall 
    apply to property contributed to a partnership after June 8, 1997.
        (2) Binding contracts.--The amendment made by subsection (a) 
    shall not apply to any property contributed pursuant to a written 
    binding contract in effect on June 8, 1997, and at all times 
    thereafter before such contribution if such contract provides for 
    the contribution of a fixed amount of property.

                     Subtitle H--Pension Provisions

SEC. 1071. PENSION ACCRUED BENEFIT DISTRIBUTABLE WITHOUT CONSENT 
              INCREASED TO $5,000.

    (a) Amendment to 1986 Code.--
        (1) In general.--Subparagraph (A) of section 411(a)(11) 
    (relating to restrictions on certain mandatory distributions) is 
    amended by striking ``$3,500'' and inserting ``$5,000''.
        (2) Conforming amendments.--
            (A) Section 411(a)(7)(B), paragraphs (1) and (2) of section 
        417(e), and section 457(e)(9) are each amended by striking 
        ``$3,500'' each place it appears (other than the headings) and 
        inserting ``the dollar limit under section 411(a)(11)(A)''.
            (B) The headings for paragraphs (1) and (2) of section 
        417(e) and subparagraph (A) of section 457(e)(9) are each 
        amended by striking ``$3,500'' and inserting ``dollar limit''.
    (b) Amendments to ERISA.--
        (1) In general.--Section 203(e)(1) of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1053(e)(1)) is amended by 
    striking ``$3,500'' and inserting ``$5,000''.
        (2) Conforming amendments.--Sections 204(d)(1) and 205(g) (1) 
    and (2) (29 U.S.C. 1054(d)(1) and 1055(g) (1) and (2)) are each 
    amended by striking ``$3,500'' and inserting ``the dollar limit 
    under section 203(e)(1)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after the date of the enactment of this 
Act.

SEC. 1072. ELECTION TO RECEIVE TAXABLE CASH COMPENSATION IN LIEU OF 
              NONTAXABLE PARKING BENEFITS.

    (a) In General.--Section 132(f)(4) (relating to benefits not in 
lieu of compensation) is amended by adding at the end the following new 
sentence: ``This paragraph shall not apply to any qualified parking 
provided in lieu of compensation which otherwise would have been 
includible in gross income of the employee, and no amount shall be 
included in the gross income of the employee solely because the 
employee may choose between the qualified parking and compensation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 1073. REPEAL OF EXCESS DISTRIBUTION AND EXCESS RETIREMENT 
              ACCUMULATION TAX.

    (a) Repeal of Excess Distribution and Excess Retirement 
Accumulation Tax.--Section 4980A (relating to excess distributions from 
qualified retirement plans) is repealed.
    (b) Conforming Amendments.--
        (1) Section 691(c)(1) is amended by striking subparagraph (C).
        (2) Section 2013 is amended by striking subsection (g).
        (3) Section 2053(c)(1)(B) is amended by striking the last 
    sentence.
        (4) Section 6018(a) is amended by striking paragraph (4).
    (c) Effective Dates.--
        (1) Excess distribution tax repeal.--Except as provided in 
    paragraph (2), the repeal made by subsection (a) shall apply to 
    excess distributions received after December 31, 1996.
        (2) Excess retirement accumulation tax repeal.--The repeal made 
    by subsection (a) with respect to section 4980A(d) of the Internal 
    Revenue Code of 1986 and the amendments made by subsection (b) 
    shall apply to estates of decedents dying after December 31, 1996.

SEC. 1074. INCREASE IN TAX ON PROHIBITED TRANSACTIONS.

    (a) In General.--Section 4975(a) is amended by striking ``10 
percent'' and inserting ``15 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. 1075. BASIS RECOVERY RULES FOR ANNUITIES OVER MORE THAN ONE LIFE.

    (a) In General.--Section 72(d)(1)(B) is amended by adding at the 
end the following new clause:
                ``(iv) Number of anticipated payments where more than 
            one life.--If the annuity is payable over the lives of more 
            than 1 individual, the number of anticipated payments shall 
            be determined as follows:
``If the combined ages of annuitants are:
            The number is:
    Not more than 110.........................................


                                                                    410 

    More than 110 but not more than 120.......................


                                                                    360 

    More than 120 but not more than 130.......................


                                                                    310 

    More than 130 but not more than 140.......................


                                                                    260 

    More than 140.............................................


                                                                 210.''.

    (b) Conforming Amendment.--Section 72(d)(1)(B)(iii) is amended--
        (1) by inserting ``If the annuity is payable over the life of a 
    single individual, the number of anticipated payments shall be 
    determined as follows:'' after the heading and before the table, 
    and
        (2) by striking ``primary'' in the table.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to annuity starting dates beginning after December 
31, 1997.

                  Subtitle I--Other Revenue Provisions

SEC. 1081. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS 
              REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

    (a) In General.--Subsection (i) of section 447 (relating to method 
of accounting for corporations engaged in farming) is amended by 
striking paragraphs (3) and (4), by redesignating paragraphs (5) and 
(6) as paragraphs (3) and (4), respectively, and by adding at the end 
the following new paragraph:
        ``(5) Termination.--
            ``(A) In general.--No suspense account may be established 
        under this subsection by any corporation required by this 
        section to change its method of accounting for any taxable year 
        ending after June 8, 1997.
            ``(B) Phaseout of existing suspense accounts.--
                ``(i) In general.--Each suspense account under this 
            subsection shall be reduced (but not below zero) for each 
            taxable year beginning after June 8, 1997, by an amount 
            equal to the lesser of--

                    ``(I) the applicable portion of such account, or
                    ``(II) 50 percent of the taxable income of the 
                corporation for the taxable year, or, if the 
                corporation has no taxable income for such year, the 
                amount of any net operating loss (as defined in section 
                172(c)) for such taxable year.

            For purposes of the preceding sentence, the amount of 
            taxable income and net operating loss shall be determined 
            without regard to this paragraph.
                ``(ii) Coordination with other reductions.--The amount 
            of the applicable portion for any taxable year shall be 
            reduced (but not below zero) by the amount of any reduction 
            required for such taxable year under any other provision of 
            this subsection.
                ``(iv) Inclusion in income.--Any reduction in a 
            suspense account under this paragraph shall be included in 
            gross income for the taxable year of the reduction.
            ``(C) Applicable portion.--For purposes of subparagraph 
        (B), the term `applicable portion' means, for any taxable year, 
        the amount which would ratably reduce the amount in the account 
        (after taking into account prior reductions) to zero over the 
        period consisting of such taxable year and the remaining 
        taxable years in such first 20 taxable years.
            ``(D) Amounts after 20th year.--Any amount in the account 
        as of the close of the 20th year referred to in subparagraph 
        (C) shall be treated as the applicable portion for each 
        succeeding year thereafter to the extent not reduced under this 
        paragraph for any prior taxable year after such 20th year.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after June 8, 1997.

SEC. 1082. MODIFICATION OF TAXABLE YEARS TO WHICH NET OPERATING LOSSES 
              MAY BE CARRIED.

    (a) In General.--Subparagraph (A) of section 172(b)(1) (relating to 
years to which loss may be carried) is amended--
        (1) by striking ``3'' in clause (i) and inserting ``2'', and
        (2) by striking ``15'' in clause (ii) and inserting ``20''.
    (b) Retention of 3-Year Carryback for Certain Losses.--Paragraph 
(1) of section 172(b) is amended by adding at the end the following new 
subparagraph:
            ``(F) Retention of 3-year carryback in certain cases.--
                ``(i) In general.--Subparagraph (A)(i) shall be applied 
            by substituting `3 years' for `2 years' with respect to the 
            portion of the net operating loss for the taxable year 
            which is an eligible loss with respect to the taxpayer.
                ``(ii) Eligible loss.--For purposes of clause (i), the 
            term `eligible loss' means--

                    ``(I) in the case of an individual, losses of 
                property arising from fire, storm, shipwreck, or other 
                casualty, or from theft,
                    ``(II) in the case of a taxpayer which is a small 
                business, net operating losses attributable to 
                Presidentially declared disasters (as defined in 
                section 1033(h)(3)), and
                    ``(III) in the case of a taxpayer engaged in the 
                trade or business of farming (as defined in section 
                263A(e)(4)), net operating losses attributable to such 
                Presidentially declared disasters.

                ``(iii) Small business.--For purposes of this 
            subparagraph, the term `small business' means a corporation 
            or partnership which meets the gross receipts test of 
            section 448(c) for the taxable year in which the loss arose 
            (or, in the case of a sole proprietorship, which would meet 
            such test if such proprietorship were a corporation).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to net operating losses for taxable years beginning after the 
date of the enactment of this Act.

SEC. 1083. MODIFICATIONS TO TAXABLE YEARS TO WHICH UNUSED CREDITS MAY 
              BE CARRIED.

    (a) In General.--Section 39(a) (relating to unused credits) is 
amended--
        (1) in paragraph (1), by striking ``3'' each place it appears 
    and inserting ``1'' and by striking ``15'' each place it appears 
    and inserting ``20''; and
        (2) in paragraph (2), by striking ``18'' each place it appears 
    and inserting ``22'' and by striking ``17'' each place it appears 
    and inserting ``21''.
    (b) Effective Date.--The amendments made by this section shall 
apply to credits arising in taxable years beginning after December 31, 
1997.

SEC. 1084. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN AMOUNTS PAID IN 
              CONNECTION WITH INSURANCE.

    (a) Denial of Deduction for Premiums.--
        (1) In general.--Paragraph (1) of section 264(a) is amended to 
    read as follows:
        ``(1) Premiums on any life insurance policy, or endowment or 
    annuity contract, if the taxpayer is directly or indirectly a 
    beneficiary under the policy or contract.''.
        (2) Exceptions.--Section 264 is amended by redesignating 
    subsections (b), (c), and (d) as subsections (c), (d), and (e), 
    respectively, and by inserting after subsection (a) the following 
    new subsection:
    ``(b) Exceptions to Subsection (a)(1).--Subsection (a)(1) shall not 
apply to--
        ``(1) any annuity contract described in section 72(s)(5), and
        ``(2) any annuity contract to which section 72(u) applies.''.
    (b) Interest on Policy Loans.--
        (1) In general.--Paragraph (4) of section 264(a) is amended by 
    striking ``individual, who'' and all that follows and inserting 
    ``individual.''.
        (2) Coordination with transfers for value.--Paragraph (2) of 
    section 101(a) is amended by adding at the end the following new 
    flush sentence:
    ``The term `other amounts' in the first sentence of this paragraph 
    includes interest paid or accrued by the transferee on indebtedness 
    with respect to such contract or any interest therein if such 
    interest paid or accrued is not allowable as a deduction by reason 
    of section 264(a)(4).''.
    (c) Pro Rata Allocation of Interest Expense to Policy Cash 
Values.--Section 264 is amended by adding at the end the following new 
subsection:
    ``(f) Pro Rata Allocation of Interest Expense to Policy Cash 
Values.--
        ``(1) In general.--No deduction shall be allowed for that 
    portion of the taxpayer's interest expense which is allocable to 
    unborrowed policy cash values.
        ``(2)  Allocation.--For purposes of paragraph (1), the portion 
    of the taxpayer's interest expense which is allocable to unborrowed 
    policy cash values is an amount which bears the same ratio to such 
    interest expense as--
            ``(A) the taxpayer's average unborrowed policy cash values 
        of life insurance policies, and annuity and endowment 
        contracts, issued after June 8, 1997, bears to
            ``(B) the sum of--
                ``(i) in the case of assets of the taxpayer which are 
            life insurance policies or annuity or endowment contracts, 
            the average unborrowed policy cash values of such policies 
            and contracts, and
                ``(ii) in the case of assets of the taxpayer not 
            described in clause (i), the average adjusted bases (within 
            the meaning of section 1016) of such assets.
        ``(3) Unborrowed policy cash value.--For purposes of this 
    subsection, the term `unborrowed policy cash value' means, with 
    respect to any life insurance policy or annuity or endowment 
    contract, the excess of--
            ``(A) the cash surrender value of such policy or contract 
        determined without regard to any surrender charge, over
            ``(B) the amount of any loan with respect to such policy or 
        contract.
        ``(4) Exception for certain policies and contracts.--
            ``(A) Policies and contracts covering 20-percent owners, 
        officers, directors, and employees.--Paragraph (1) shall not 
        apply to any policy or contract owned by an entity engaged in a 
        trade or business if such policy or contract covers only 1 
        individual and if such individual is (at the time first covered 
        by the policy or contract)--
                ``(i) a 20-percent owner of such entity, or
                ``(ii) an individual (not described in clause (i)) who 
            is an officer, director, or employee of such trade or 
            business.
        A policy or contract covering a 20-percent owner of such entity 
        shall not be treated as failing to meet the requirements of the 
        preceding sentence by reason of covering the joint lives of 
        such owner and such owner's spouse.
            ``(B) Contracts subject to current income inclusion.--
        Paragraph (1) shall not apply to any annuity contract to which 
        section 72(u) applies.
            ``(C) Coordination with paragraph (2).--Any policy or 
        contract to which paragraph (1) does not apply by reason of 
        this paragraph shall not be taken into account under paragraph 
        (2).
            ``(D) 20-percent owner.--For purposes of subparagraph (A), 
        the term `20-percent owner' has the meaning given such term by 
        subsection (e)(4).
        ``(5) Exception for policies and contracts held by natural 
    persons; treatment of partnerships and s corporations.--
            ``(A) Policies and contracts held by natural persons.--
                ``(i) In general.--This subsection shall not apply to 
            any policy or contract held by a natural person.
                ``(ii) Exception where business is beneficiary.--If a 
            trade or business is directly or indirectly the beneficiary 
            under any policy or contract, such policy or contract shall 
            be treated as held by such trade or business and not by a 
            natural person.
                ``(iii) Special rules.--

                    ``(I) Certain trades or businesses not taken into 
                account.--Clause (ii) shall not apply to any trade or 
                business carried on as a sole proprietorship and to any 
                trade or business performing services as an employee.
                    ``(II) Limitation on unborrowed cash value.--The 
                amount of the unborrowed cash value of any policy or 
                contract which is taken into account by reason of 
                clause (ii) shall not exceed the benefit to which the 
                trade or business is directly or indirectly entitled 
                under the policy or contract.

                ``(iv) Reporting.--The Secretary shall require such 
            reporting from policyholders and issuers as is necessary to 
            carry out clause (ii). Any report required under the 
            preceding sentence shall be treated as a statement referred 
            to in section 6724(d)(1).
            ``(B) Treatment of partnerships and s corporations.--In the 
        case of a partnership or S corporation, this subsection shall 
        be applied at the partnership and corporate levels.
        ``(6) Special rules.--
            ``(A) Coordination with subsection (a) and section 265.--If 
        interest on any indebtedness is disallowed under subsection (a) 
        or section 265--
                ``(i) such disallowed interest shall not be taken into 
            account for purposes of applying this subsection, and
                ``(ii) the amount otherwise taken into account under 
            paragraph (2)(B) shall be reduced (but not below zero) by 
            the amount of such indebtedness.
            ``(B) Coordination with section 263a.--This subsection 
        shall be applied before the application of section 263A 
        (relating to capitalization of certain expenses where taxpayer 
        produces property).
        ``(7) Interest expense.--The term `interest expense' means the 
    aggregate amount allowable to the taxpayer as a deduction for 
    interest (within the meaning of section 265(b)(4)) for the taxable 
    year (determined without regard to this subsection, section 265(b), 
    and section 291).
        ``(8) Aggregation rules.--
            ``(A) In general.--All members of a controlled group 
        (within the meaning of subsection (d)(5)(B)) shall be treated 
        as 1 taxpayer for purposes of this subsection.
            ``(B) Treatment of insurance companies.--This subsection 
        shall not apply to an insurance company subject to tax under 
        subchapter L, and subparagraph (A) shall be applied without 
        regard to any member of an affiliated group which is an 
        insurance company.''.
    (b) Treatment of Insurance Companies.--
        (1)(A) Clause (ii) of section 805(a)(4)(C) is amended by 
    inserting ``, or out of the increase for the taxable year in policy 
    cash values (within the meaning of subparagraph (F)) of life 
    insurance policies and annuity and endowment contracts to which 
    section 264(f) applies,'' after ``tax-exempt interest''.
        (B) Clause (iii) of section 805(a)(4)(D) is amended by striking 
    ``and'' and inserting ``, the increase for the taxable year in 
    policy cash values (within the meaning of subparagraph (F)) of life 
    insurance policies and annuity and endowment contracts to which 
    section 264(f) applies, and''.
        (C) Paragraph (4) of section 805(a) is amended by adding at the 
    end the following new subparagraph:
            ``(F) Increase in policy cash values.--For purposes of 
        subparagraphs (C) and (D)--
                ``(i) In general.--The increase in the policy cash 
            value for any taxable year with respect to policy or 
            contract is the amount of the increase in the adjusted cash 
            value during such taxable year determined without regard 
            to--

                    ``(I) gross premiums paid during such taxable year, 
                and
                    ``(II) distributions (other than amounts includible 
                in the policyholder's gross income) during such taxable 
                year to which section 72(e) applies.

                ``(ii) Adjusted cash value.--For purposes of clause 
            (i), the term `adjusted cash value' means the cash 
            surrender value of the policy or contract increased by the 
            sum of--

                    ``(I) commissions payable with respect to such 
                policy or contract for the taxable year, and
                    ``(II) asset management fees, surrender charges, 
                mortality and expense charges, and any other fees or 
                charges specified in regulations prescribed by the 
                Secretary which are imposed (or which would be imposed 
                were the policy or contract canceled) with respect to 
                such policy or contract for the taxable year.''.

        (2)(A) Subparagraph (B) of section 807(a)(2) is amended by 
    striking ``interest,'' and inserting ``interest and the amount of 
    the policyholder's share of the increase for the taxable year in 
    policy cash values (within the meaning of section 805(a)(4)(F)) of 
    life insurance policies and annuity and endowment contracts to 
    which section 264(f) applies,''.
        (B) Subparagraph (B) of section 807(b)(1) is amended by 
    striking ``interest,'' and inserting ``interest and the amount of 
    the policyholder's share of the increase for the taxable year in 
    policy cash values (within the meaning of section 805(a)(4)(F)) of 
    life insurance policies and annuity and endowment contracts to 
    which section 264(f) applies,''.
        (3) Paragraph (1) of section 812(d) 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 
    at the end the following new subparagraph:
            ``(D) the increase for any taxable year in the policy cash 
        values (within the meaning of section 805(a)(4)(F)) of life 
        insurance policies and annuity and endowment contracts to which 
        section 264(f) applies.''.
        (4) Subparagraph (B) of section 832(b)(5) 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) the increase for the taxable year in policy 
            cash values (within the meaning of section 805(a)(4)(F)) of 
            life insurance policies and annuity and endowment contracts 
            to which section 264(f) applies.''.
    (c) Conforming Amendment.--Subparagraph (A) of section 265(b)(4) is 
amended by inserting ``, section 264,'' before ``and section 291''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contracts issued after June 8, 1997, in taxable years ending 
after such date. For purposes of the preceding sentence, any material 
increase in the death benefit or other material change in the contract 
shall be treated as a new contract but the addition of covered lives 
shall be treated as a new contract only with respect to such additional 
covered lives. For purposes of this subsection, an increase in the 
death benefit under a policy or contract issued in connection with a 
lapse described in section 501(d)(2) of the Health Insurance 
Portability and Accountability Act of 1996 shall not be treated as a 
new contract.

SEC. 1085. IMPROVED ENFORCEMENT OF THE APPLICATION OF THE EARNED INCOME 
              CREDIT.

    (a) Restrictions on Availability of Earned Income Credit for 
Taxpayers who Improperly Claimed Credit in Prior Year.--
        (1) In general.--Section 32 is amended by redesignating 
    subsections (k) and (l) as subsections (l) and (m), respectively, 
    and by inserting after subsection (j) the following new subsection:
    ``(k) Restrictions on Taxpayers Who Improperly Claimed Credit in 
Prior Year.--
        ``(1) Taxpayers making prior fraudulent or reckless claims.--
            ``(A) In general.--No credit shall be allowed under this 
        section for any taxable year in the disallowance period.
            ``(B) Disallowance period.--For purposes of paragraph (1), 
        the disallowance period is--
                ``(i) the period of 10 taxable years after the most 
            recent taxable year for which there was a final 
            determination that the taxpayer's claim of credit under 
            this section was due to fraud, and
                ``(ii) the period of 2 taxable years after the most 
            recent taxable year for which there was a final 
            determination that the taxpayer's claim of credit under 
            this section was due to reckless or intentional disregard 
            of rules and regulations (but not due to fraud).
        ``(2) Taxpayers making improper prior claims.--In the case of a 
    taxpayer who is denied credit under this section for any taxable 
    year as a result of the deficiency procedures under subchapter B of 
    chapter 63, no credit shall be allowed under this section for any 
    subsequent taxable year unless the taxpayer provides such 
    information as the Secretary may require to demonstrate eligibility 
    for such credit.''.
        (2) Due diligence requirement on income tax return preparers.--
    Section 6695 is amended by adding at the end the following new 
    subsection:
    ``(g) Failure To Be Diligent in Determining Eligibility for Earned 
Income Credit.--Any person who is an income tax return preparer with 
respect to any return or claim for refund who fails to comply with due 
diligence requirements imposed by the Secretary by regulations with 
respect to determining eligibility for, or the amount of, the credit 
allowable by section 32 shall pay a penalty of $100 for each such 
failure.''.
        (3) Extension procedures applicable to mathematical or clerical 
    errors.--Paragraph (2) of section 6213(g) (relating to the 
    definition of mathematical or clerical errors) is amended by 
    striking ``and'' at the end of subparagraph (H), by striking the 
    period at the end of subparagraph (I) and inserting ``, and'', and 
    by inserting after subparagraph (I) the following new subparagraph:
            ``(J) an omission of information required by section 
        32(k)(2) (relating to taxpayers making improper prior claims of 
        earned income credit).''.
    (b) Increase in Net Loss Disregarded for Modified Adjusted gross 
Income.--Section 32(c)(5)(B)(iv) is amended by striking ``50 percent'' 
and inserting ``75 percent''.
    (c) Workfare Payments Not Included in Earned Income.--Section 
32(c)(2)(B) is amended by striking ``and'' at the end of clause (iii), 
by striking the period at the end of clause (iv) and inserting ``, 
and'', and by adding at the end the following new clause:
                ``(v) no amount described in subparagraph (A) received 
            for service performed in work activities as defined in 
            paragraph (4) or (7) of section 407(d) of the Social 
            Security Act to which the taxpayer is assigned under any 
            State program under part A of title IV of such Act, but 
            only to the extent such amount is subsidized under such 
            State program.''.
    (d) Certain Nontaxable Income Included in Modified Adjusted Gross 
Income.--Section 32(c)(5)(B) is amended--
        (1) by striking ``and'' at the end of clause (iii),
        (2) by striking the period at the end of clause (iv)(III),
        (3) by inserting after clause (iv)(III) the following new 
    clauses:
                ``(v) interest received or accrued during the taxable 
            year which is exempt from tax imposed by this chapter, and
                ``(vi) amounts received as a pension or annuity, and 
            any distributions or payments received from an individual 
            retirement plan, by the taxpayer during the taxable year to 
            the extent not included in gross income.'', and
        (4) by adding at the end the following new sentence: ``Clause 
    (vi) shall not include any amount which is not includible in gross 
    income by reason of section 402(c), 403(a)(4), 403(b), 408(d) (3), 
    (4), or (5), or 457(e)(10).''.
    (e) Effective Dates.--
        (1) The amendments made by subsection (a) shall apply to 
    taxable years beginning after December 31, 1996.
        (2) The amendments made by subsections (b), (c), and (d) shall 
    apply to taxable years beginning after December 31, 1997.

SEC. 1086. LIMITATION ON PROPERTY FOR WHICH INCOME FORECAST METHOD MAY 
              BE USED.

    (a) Limitation.--Subsection (g) of section 167 is amended by adding 
at the end the following new paragraph:
        ``(6) Limitation on property for which income forecast method 
    may be used.--The depreciation deduction allowable under this 
    section may be determined under the income forecast method or any 
    similar method only with respect to--
            ``(A) property described in paragraph (3) or (4) of section 
        168(f),
            ``(B) copyrights,
            ``(C) books,
            ``(D) patents, and
            ``(E) other property specified in regulations.
    Such methods may not be used with respect to any amortizable 
    section 197 intangible (as defined in section 197(c)).''.
    (b) Depreciation Period for Rent-To-own Property.--
        (1) In general.--Subparagraph (A) of section 168(e)(3) 
    (relating to 3-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 qualified rent-to-own property.''.
        (2) 4-year class life.--The table contained in section 
    168(g)(3)(B) is amended by inserting before the first item the 
    following new item:

  ``(A)(iii)............................................
                                                             4 ''.      

        (3) Definition of qualified rent-to-own property.--Subsection 
    (i) of section 168 is amended by adding at the end the following 
    new paragraph:
        ``(14) Qualified rent-to-own property.--
            ``(A) In general.--The term `qualified rent-to-own 
        property' means property held by a rent-to-own dealer for 
        purposes of being subject to a rent-to-own contract.
            ``(B) Rent-to-own dealer.--The term `rent-to-own dealer' 
        means a person that, in the ordinary course of business, 
        regularly enters into rent-to-own contracts with customers for 
        the use of consumer property, if a substantial portion of those 
        contracts terminate and the property is returned to such person 
        before the receipt of all payments required to transfer 
        ownership of the property from such person to the customer.
            ``(C) Consumer property.--The term `consumer property' 
        means tangible personal property of a type generally used 
        within the home for personal use.
            ``(D) Rent-to-own contract.--The term `rent-to-own 
        contract' means any lease for the use of consumer property 
        between a rent-to-own dealer and a customer who is an 
        individual which--
                ``(i) is titled `Rent-to-Own Agreement' or `Lease 
            Agreement with Ownership Option,' or uses other similar 
            language,
                ``(ii) provides for level (or decreasing where no 
            payment is less than 40 percent of the largest payment), 
            regular periodic payments (for a payment period which is a 
            week or month),
                ``(iii) provides that legal title to such property 
            remains with the rent-to-own dealer until the customer 
            makes all the payments described in clause (ii) or early 
            purchase payments required under the contract to acquire 
            legal title to the item of property,
                ``(iv) provides a beginning date and a maximum period 
            of time for which the contract may be in effect that does 
            not exceed 156 weeks or 36 months from such beginning date 
            (including renewals or options to extend),
                ``(v) provides for payments within the 156-week or 36-
            month period that, in the aggregate, generally exceed the 
            normal retail price of the consumer property plus interest,
                ``(vi) provides for payments under the contract that, 
            in the aggregate, do not exceed $10,000 per item of 
            consumer property,
                ``(vii) provides that the customer does not have any 
            legal obligation to make all the payments referred to in 
            clause (ii) set forth under the contract, and that at the 
            end of each payment period the customer may either continue 
            to use the consumer property by making the payment for the 
            next payment period or return such property to the rent-to-
            own dealer in good working order, in which case the 
            customer does not incur any further obligations under the 
            contract and is not entitled to a return of any payments 
            previously made under the contract, and
                ``(viii) provides that the customer has no right to 
            sell, sublease, mortgage, pawn, pledge, encumber, or 
            otherwise dispose of the consumer property until all the 
            payments stated in the contract have been made.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act.

SEC. 1087. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED 
              PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN 
              UNRELATED PERSON.

    (a) In General.--Subsection (i) of section 1033 is amended to read 
as follows:
    ``(i) Replacement Property Must Be Acquired From Unrelated Person 
in Certain Cases.--
        ``(1) In general.--If the property which is involuntarily 
    converted is held by a taxpayer to which this subsection applies, 
    subsection (a) shall not apply if the replacement property or stock 
    is acquired from a related person. The preceding sentence shall not 
    apply to the extent that the related person acquired the 
    replacement property or stock from an unrelated person during the 
    period applicable under subsection (a)(2)(B).
        ``(2) Taxpayers to which subsection applies.--This subsection 
    shall apply to--
            ``(A) a C corporation,
            ``(B) a partnership in which 1 or more C corporations own, 
        directly or indirectly (determined in accordance with section 
        707(b)(3)), more than 50 percent of the capital interest, or 
        profits interest, in such partnership at the time of the 
        involuntary conversion, and
            ``(C) any other taxpayer if, with respect to property which 
        is involuntarily converted during the taxable year, the 
        aggregate of the amount of realized gain on such property on 
        which there is realized gain exceeds $100,000.
    In the case of a partnership, subparagraph (C) shall apply with 
    respect to the partnership and with respect to each partner. A 
    similar rule shall apply in the case of an S corporation and its 
    shareholders.
        ``(3) Related person.--For purposes of this subsection, a 
    person is related to another person if the person bears a 
    relationship to the other person described in section 267(b) or 
    707(b)(1).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to involuntary conversions occurring after June 8, 1997.

SEC. 1088. TREATMENT OF EXCEPTION FROM INSTALLMENT SALES RULES FOR 
              SALES OF PROPERTY BY A MANUFACTURER TO A DEALER.

    (a) In General.--Paragraph (2) of section 811(c) of the Tax Reform 
Act of 1986 is hereby repealed.
    (b) Effective Date.--
        (1) In general.--The amendment made by this section shall apply 
    to taxable years beginning more than 1 year after the date of the 
    enactment of this Act.
        (2) Coordination with section 481.--In the case of any taxpayer 
    required by this section to change its method of accounting for any 
    taxable year--
            (A) such changes shall be treated as initiated by the 
        taxpayer,
            (B) such changes shall be treated as made with the consent 
        of the Secretary of the Treasury, and
            (C) the net amount of the adjustments required to be taken 
        into account under section 481(a) of the Internal Revenue Code 
        of 1986 shall be taken into account ratably over the 4 taxable 
        year period beginning with the first taxable year beginning 
        after the date of the enactment of this Act.

SEC. 1089. LIMITATIONS ON CHARITABLE REMAINDER TRUST ELIGIBILITY FOR 
              CERTAIN TRUSTS.

    (a) Limitation on Noncharitable Distributions.--
        (1) In general.--Paragraphs (1)(A) and (2)(A) of section 664(d) 
    (relating to charitable remainder trusts) are each amended by 
    inserting ``nor more than 50 percent'' after ``not less than 5 
    percent''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to transfers in trust after June 18, 1997.
    (b) Minimum Charitable Benefit.--
        (1) Charitable remainder annuity trusts.--Paragraph (1) of 
    section 664(d) is amended by striking ``and'' at the end of 
    subparagraph (B), by striking the period at the end of subparagraph 
    (C), and by adding at the end the following new subparagraph:
            ``(D) the value (determined under section 7520) of such 
        remainder interest is at least 10 percent of the initial net 
        fair market value of all property placed in the trust.''
        (2) Charitable remainder unitrusts.--Paragraph (2) of section 
    664(d) is amended by striking ``and'' at the end of subparagraph 
    (B), by striking the period at the end of subparagraph (C), and by 
    adding at the end the following new subparagraph:
            ``(D) with respect to each contribution of property to the 
        trust, the value (determined under section 7520) of such 
        remainder interest in such property is at least 10 percent of 
        the net fair market value of such property as of the date such 
        property is contributed to the trust.''.
        (3) Void or reformed trust.--Paragraph (3) of section 2055(e) 
    is amended by adding at the end the following new subparagraph:
            ``(J) Void or reformed trust in cases of insufficient 
        remainder interests.--In the case of a trust that would qualify 
        (or could be reformed to qualify pursuant to subparagraph (B)) 
        but for failure to satisfy the requirement of paragraph (1)(D) 
        or (2)(D) of section 664(d), such trust may be--
                ``(i) declared null and void ab initio, or
                ``(ii) changed by reformation, amendment, or otherwise 
            to meet such requirement by reducing the payout rate or the 
            duration (or both) of any noncharitable beneficiary's 
            interest to the extent necessary to satisfy such 
            requirement,
        pursuant to a proceeding that is commenced within the period 
        required in subparagraph (C)(iii). In a case described in 
        clause (i), no deduction shall be allowed under this title for 
        any transfer to the trust and any transactions entered into by 
        the trust prior to being declared void shall be treated as 
        entered into by the transferor.''.
            (4) Severance of certain additional contributions.--
        Subsection (d) of section 664 is amended by adding at the end 
        the following new paragraph:
        ``(4) Severance of certain additional contributions.--If--
            ``(A) any contribution is made to a trust which before the 
        contribution is a charitable remainder unitrust, and
            ``(B) such contribution would (but for this paragraph) 
        result in such trust ceasing to be a charitable unitrust by 
        reason of paragraph (2)(D),
    such contribution shall be treated as a transfer to a separate 
    trust under regulations prescribed by the Secretary.''.
        (5) Conforming amendment.--Section 2055(e)(3)(G) is amended by 
    inserting ``(or other proceeding pursuant to subparagraph (J)'' 
    after ``reformation''.
        (6) Effective dates.--
            (A) In general.--Except as otherwise provided in this 
        paragraph, the amendments made by this subsection shall apply 
        to transfers in trust after July 28, 1997.
            (B) Special rule for certain decedents.--The amendments 
        made by this subsection shall not apply to transfers in trust 
        under the terms of a will (or other testamentary instrument) 
        executed on or before July 28, 1997, if the decedent--
                (i) dies before January 1, 1999, without having 
            republished the will (or amended such instrument) by 
            codicil or otherwise, or
                (ii) was on July 28, 1997, under a mental disability to 
            change the disposition of his property and did not regain 
            his competence to dispose of such property before the date 
            of his death.

SEC. 1090. EXPANDED SSA RECORDS FOR TAX ENFORCEMENT.

    (a) Expansion of Coordinated Enforcement Efforts of IRS and HHS 
Office of Child Support Enforcement.--
        (1) State reporting of ssn of child.--Section 454A(e)(4)(D) of 
    the Social Security Act (42 U.S.C. 654a(e)(4)(D)) is amended by 
    striking ``the birth date of any child'' and inserting ``the birth 
    date and, beginning not later than October 1, 1999, the social 
    security number, of any child''.
        (2) Federal case registry of child support orders.--Section 
    453(h) of such Act (42 U.S.C. 653(h)) is amended--
            (A) in paragraph (2), by adding at the end the following: 
        ``Beginning not later than October 1, 1999, the information 
        referred to in paragraph (1) shall include the names and social 
        security numbers of the children of such individuals.''; and
            (B) by adding at the end the following:
        ``(3) Administration of federal tax laws.--The Secretary of the 
    Treasury shall have access to the information described in 
    paragraph (2) for the purpose of administering those sections of 
    the Internal Revenue Code of 1986 which grant tax benefits based on 
    support or residence of children.''.
        (3) Coordination between secretaries.--The Secretary of the 
    Treasury and the Secretary of Health and Human Services shall 
    consult regarding the implementation issues resulting from the 
    amendments made by this subsection, including interim deadlines for 
    States that may be able before October 1, 1999, to provide the data 
    required by such amendments. The Secretaries shall report to 
    Congress on the results of such consultation.
        (4) Effective date.--The amendments made by this subsection 
    shall take effect on October 1, 1998.
    (b) Required Submission of SSN's on Applications.--
        (1) In general.--Section 205(c)(2) of the Social Security Act 
    (42 U.S.C. 405(c)(2)) is amended--
            (A) in subparagraph (B)(ii), by adding at the end the 
        following new sentence: ``With respect to an application for a 
        social security account number for an individual who has not 
        attained the age of 18 before such application, such evidence 
        shall include the information described in subparagraph 
        (C)(ii).'',
            (B) in the second sentence of subparagraph (C)(ii), insert 
        ``the Commissioner of Social Security and'' after ``available 
        to'', and
            (C) by adding at the end the following new subparagraph:
    ``(H) The Commissioner of Social Security shall share with the 
Secretary of the Treasury the information obtained by the Commissioner 
pursuant to the second sentence of subparagraph (B)(ii) and to 
subparagraph (C)(ii) for the purpose of administering those sections of 
the Internal Revenue Code of 1986 which grant tax benefits based on 
support or residence of children.''.
        (2) Effective dates.--
            (A) The amendment made by paragraph (1)(A) shall apply to 
        applications made after the date which is 180 days after the 
        date of the enactment of this Act.
            (B) The amendments made by subparagraphs (B) and (C) of 
        paragraph (1) shall apply to information obtained on, before, 
        or after the date of the enactment of this Act.

SEC. 1091. MODIFICATION OF ESTIMATED TAX SAFE HARBORS.

    (a) In General.--Clause (i) of section 6654(d)(1)(C) (relating to 
limitation on use of preceding year's tax) is amended to read as 
follows:
                ``(i) In general.--If the adjusted gross income shown 
            on the return of the individual for the preceding taxable 
            year beginning in any calendar year exceeds $150,000, 
            clause (ii) of subparagraph (B) shall be applied by 
            substituting the applicable percentage for `100 percent'. 
            For purposes of the preceding sentence, the applicable 
            percentage shall be determined in accordance with the 
            following table:
                                                          The applicable
``If the preceding taxable year begins in:
                                                          percentage is:
    1998, 1999, or 2000.......................................


                                                                    105 

    2001......................................................


                                                                    112 

    2002 or thereafter........................................


                                                                    110.

            This clause shall not apply in the case of a preceding 
            taxable year beginning in calendar year 1997.''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to any installment payment for taxable years beginning 
after December 31, 1997.

     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
                     Subtitle A--General Provisions

SEC. 1101. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN TAX CREDIT 
              LIMITATION.

    (a) General Rule.--Section 904 (relating to limitations on foreign 
tax credit) is amended by redesignating subsection (j) as subsection 
(k) and by inserting after subsection (i) the following new subsection:
    ``(j) Certain Individuals Exempt.--
        ``(1) In general.--In the case of an individual to whom this 
    subsection applies for any taxable year--
            ``(A) the limitation of subsection (a) shall not apply,
            ``(B) no taxes paid or accrued by the individual during 
        such taxable year may be deemed paid or accrued under 
        subsection (c) in any other taxable year, and
            ``(C) no taxes paid or accrued by the individual during any 
        other taxable year may be deemed paid or accrued under 
        subsection (c) in such taxable year.
        ``(2) Individuals to whom subsection applies.--This subsection 
    shall apply to an individual for any taxable year if--
            ``(A) the entire amount of such individual's gross income 
        for the taxable year from sources without the United States 
        consists of qualified passive income,
            ``(B) the amount of the creditable foreign taxes paid or 
        accrued by the individual during the taxable year does not 
        exceed $300 ($600 in the case of a joint return), and
            ``(C) such individual elects to have this subsection apply 
        for the taxable year.
        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Qualified passive income.--The term `qualified 
        passive income' means any item of gross income if--
                ``(i) such item of income is passive income (as defined 
            in subsection (d)(2)(A) without regard to clause (iii) 
            thereof), and
                ``(ii) such item of income is shown on a payee 
            statement furnished to the individual.
            ``(B) Creditable foreign taxes.--The term `creditable 
        foreign taxes' means any taxes for which a credit is allowable 
        under section 901; except that such term shall not include any 
        tax unless such tax is shown on a payee statement furnished to 
        such individual.
            ``(C) Payee statement.--The term `payee statement' has the 
        meaning given to such term by section 6724(d)(2).
            ``(D) Estates and trusts not eligible.--This subsection 
        shall not apply to any estate or trust.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1102. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

    (a) Accrued Taxes Translated by Using Average Rate for Year to 
Which Taxes Relate.--
        (1) In general.--Subsection (a) of section 986 (relating to 
    translation of foreign taxes) is amended to read as follows:
    ``(a) Foreign Income Taxes.--
        ``(1) Translation of accrued taxes.--
            ``(A) In general.--For purposes of determining the amount 
        of the foreign tax credit, in the case of a taxpayer who takes 
        foreign income taxes into account when accrued, the amount of 
        any foreign income taxes (and any adjustment thereto) shall be 
        translated into dollars by using the average exchange rate for 
        the taxable year to which such taxes relate.
            ``(B) Exception for certain taxes.--Subparagraph (A) shall 
        not apply to any foreign income taxes--
                ``(i) paid after the date 2 years after the close of 
            the taxable year to which such taxes relate, or
                ``(ii) paid before the beginning of the taxable year to 
            which such taxes relate.
            ``(C) Exception for inflationary currencies.--Subparagraph 
        (A) shall not apply to any foreign income taxes the liability 
        for which is denominated in any inflationary currency (as 
        determined under regulations).
            ``(D) Cross reference.--
          ``For adjustments where tax is not paid within 2 years, see 
        section 905(c).

        ``(2) Translation of taxes to which paragraph (1) does not 
    apply.--For purposes of determining the amount of the foreign tax 
    credit, in the case of any foreign income taxes to which 
    subparagraph (A) of paragraph (1) does not apply--
            ``(A) such taxes shall be translated into dollars using the 
        exchange rates as of the time such taxes were paid to the 
        foreign country or possession of the United States, and
            ``(B) any adjustment to the amount of such taxes shall be 
        translated into dollars using--
                ``(i) except as provided in clause (ii), the exchange 
            rate as of the time when such adjustment is paid to the 
            foreign country or possession, or
                ``(ii) in the case of any refund or credit of foreign 
            income taxes, using the exchange rate as of the time of the 
            original payment of such foreign income taxes.
        ``(3) Foreign income taxes.--For purposes of this subsection, 
    the term `foreign income taxes' means any income, war profits, or 
    excess profits taxes paid or accrued to any foreign country or to 
    any possession of the United States.''.
        (2) Adjustment when not paid within 2 years after year to which 
    taxes relate.--Subsection (c) of section 905 is amended to read as 
    follows:
    ``(c) Adjustments to Accrued Taxes.--
        ``(1) In general.--If--
            ``(A) accrued taxes when paid differ from the amounts 
        claimed as credits by the taxpayer,
            ``(B) accrued taxes are not paid before the date 2 years 
        after the close of the taxable year to which such taxes relate, 
        or
            ``(C) any tax paid is refunded in whole or in part,
    the taxpayer shall notify the Secretary, who shall redetermine the 
    amount of the tax for the year or years affected. The Secretary may 
    prescribe adjustments to the pools of post-1986 foreign income 
    taxes and the pools of post-1986 undistributed earnings under 
    sections 902 and 960 in lieu of the redetermination under the 
    preceding sentence.
        ``(2) Special rule for taxes not paid within 2 years.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        in making the redetermination under paragraph (1), no credit 
        shall be allowed for accrued taxes not paid before the date 
        referred to in subparagraph (B) of paragraph (1).
            ``(B) Taxes subsequently paid.--Any such taxes if 
        subsequently paid--
                ``(i) shall be taken into account--

                    ``(I) in the case of taxes deemed paid under 
                section 902 or section 960, for the taxable year in 
                which paid (and no redetermination shall be made under 
                this section by reason of such payment), and
                    ``(II) in any other case, for the taxable year to 
                which such taxes relate, and

                ``(ii) shall be translated as provided in section 
            986(a)(2)(A).
        ``(3) Adjustments.--The amount of tax (if any) due on any 
    redetermination under paragraph (1) shall be paid by the taxpayer 
    on notice and demand by the Secretary, and the amount of tax 
    overpaid (if any) shall be credited or refunded to the taxpayer in 
    accordance with subchapter B of chapter 66 (section 6511 et seq.).
        ``(4) Bond requirements.--In the case of any tax accrued but 
    not paid, the Secretary, as a condition precedent to the allowance 
    of the credit provided in this subpart, may require the taxpayer to 
    give a bond, with sureties satisfactory to and approved by the 
    Secretary, in such sum as the Secretary may require, conditioned on 
    the payment by the taxpayer of any amount of tax found due on any 
    such redetermination. Any such bond shall contain such further 
    conditions as the Secretary may require.
        ``(5) Other special rules.--In any redetermination under 
    paragraph (1) by the Secretary of the amount of tax due from the 
    taxpayer for the year or years affected by a refund, the amount of 
    the taxes refunded for which credit has been allowed under this 
    section shall be reduced by the amount of any tax described in 
    section 901 imposed by the foreign country or possession of the 
    United States with respect to such refund; but no credit under this 
    subpart, or deduction under section 164, shall be allowed for any 
    taxable year with respect to any such tax imposed on the refund. No 
    interest shall be assessed or collected on any amount of tax due on 
    any redetermination by the Secretary, resulting from a refund to 
    the taxpayer, for any period before the receipt of such refund, 
    except to the extent interest was paid by the foreign country or 
    possession of the United States on such refund for such period.''.
    (b) Authority To Use Average Rates.--
        (1) In general.--Subsection (a) of section 986 (as amended by 
    subsection (a)) is amended by redesignating paragraph (3) as 
    paragraph (4) and inserting after paragraph (2) the following new 
    paragraph:
        ``(3) Authority to permit use of average rates.--To the extent 
    prescribed in regulations, the average exchange rate for the period 
    (specified in such regulations) during which the taxes or 
    adjustment is paid may be used instead of the exchange rate as of 
    the time of such payment.''.
        (2) Determination of average rates.--Subsection (c) of section 
    989 is amended by striking ``and'' at the end of paragraph (4), by 
    striking the period at the end of paragraph (5) and inserting ``, 
    and'', and by adding at the end thereof the following new 
    paragraph:
        ``(6) setting forth procedures for determining the average 
    exchange rate for any period.''.
        (3) Conforming amendments.--Subsection (b) of section 989 is 
    amended by striking ``weighted'' each place it appears.
    (c) Effective Dates.--
        (1) In general.--The amendments made by subsections (a)(1) and 
    (b) shall apply to taxes paid or accrued in taxable years beginning 
    after December 31, 1997.
        (2) Subsection (a)(2).--The amendment made by subsection (a)(2) 
    shall apply to taxes which relate to taxable years beginning after 
    December 31, 1997.

SEC. 1103. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR 
              ALTERNATIVE MINIMUM TAX.

    (a) General Rule.--Subsection (a) of section 59 (relating to 
alternative minimum tax foreign tax credit) is amended by adding at the 
end thereof the following new paragraph:
        ``(3) Election to use simplified section 904 limitation.--
            ``(A) In general.--In determining the alternative minimum 
        tax foreign tax credit for any taxable year to which an 
        election under this paragraph applies--
                ``(i) subparagraph (B) of paragraph (1) shall not 
            apply, and
                ``(ii) the limitation of section 904 shall be based on 
            the proportion which--

                    ``(I) the taxpayer's taxable income (as determined 
                for purposes of the regular tax) from sources without 
                the United States (but not in excess of the taxpayer's 
                entire alternative minimum taxable income), bears to
                    ``(II) the taxpayer's entire alternative minimum 
                taxable income for the taxable year.

            ``(B) Election.--
                ``(i) In general.--An election under this paragraph may 
            be made only for the taxpayer's first taxable year which 
            begins after December 31, 1997, and for which the taxpayer 
            claims an alternative minimum tax foreign tax credit.
                ``(ii) Election revocable only with consent.--An 
            election under this paragraph, once made, shall apply to 
            the taxable year for which made and all subsequent taxable 
            years unless revoked with the consent of the Secretary.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 1104. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER 
              FOREIGN CURRENCY RULES.

    (a) General Rule.--Subsection (e) of section 988 (relating to 
application to individuals) is amended to read as follows:
    ``(e) Application to Individuals.--
        ``(1) In general.--The preceding provisions of this section 
    shall not apply to any section 988 transaction entered into by an 
    individual which is a personal transaction.
        ``(2) Exclusion for certain personal transactions.--If--
            ``(A) nonfunctional currency is disposed of by an 
        individual in any transaction, and
            ``(B) such transaction is a personal transaction,
    no gain shall be recognized for purposes of this subtitle by reason 
    of changes in exchange rates after such currency was acquired by 
    such individual and before such disposition. The preceding sentence 
    shall not apply if the gain which would otherwise be recognized on 
    the transaction exceeds $200.
        ``(3) Personal transactions.--For purposes of this subsection, 
    the term `personal transaction' means any transaction entered into 
    by an individual, except that such term shall not include any 
    transaction to the extent that expenses properly allocable to such 
    transaction meet the requirements of--
            ``(A) section 162 (other than traveling expenses described 
        in subsection (a)(2) thereof), or
            ``(B) section 212 (other than that part of section 212 
        dealing with expenses incurred in connection with taxes).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1105. FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) Separate Basket Only To Apply to Pre-2003 Earnings.--
        (1) In general.--Subparagraph (E) of section 904(d)(1) is 
    amended to read as follows:
            ``(E) in the case of a corporation, dividends from 
        noncontrolled section 902 corporations out of earnings and 
        profits accumulated in taxable years beginning before January 
        1, 2003,''.
        (2) Aggregation of non-pfics.--Subparagraph (E) of section 
    904(d)(2) (relating to noncontrolled section 902 corporations) is 
    amended by adding at the end the following new clause:
                ``(iv) All non-pfics treated as one.--All noncontrolled 
            section 902 corporations which are not passive foreign 
            investment companies (as defined in section 1297) shall be 
            treated as one noncontrolled section 902 corporation for 
            purposes of paragraph (1).''.
        (3) Conforming amendments.--Subparagraphs (C)(iii)(II) and (D) 
    of section 904(d)(2) are each amended by inserting ``out of 
    earnings and profits accumulated in taxable years beginning before 
    January 1, 2003'' after ``corporation''.
    (b) Application of Look-Thru Rules to Dividends of Noncontrolled 
Section 902 Corporations Attributable to Post-2002 Earnings.--Section 
904(d) 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) Look-thru applies to dividends from noncontrolled section 
    902 corporations.--
            ``(A) In general.--For purposes of this subsection, any 
        applicable dividend shall be treated as income in a separate 
        category in proportion to the ratio of--
                ``(i) the portion of the earnings and profits described 
            in subparagraph (B)(ii) attributable to income in such 
            category, to
                ``(ii) the total amount of such earnings and profits.
            ``(B) Applicable dividend.--For purposes of subparagraph 
        (A), the term `applicable dividend' means any dividend--
                ``(i) from a noncontrolled section 902 corporation with 
            respect to the taxpayer, and
                ``(ii) paid out of earnings and profits accumulated in 
            taxable years beginning after December 31, 2002.
            ``(C) Special rules.--
                ``(i) In general.--Rules similar to the rules of 
            paragraph (3)(F) shall apply for purposes of this 
            paragraph.
                ``(ii) Earnings and profits.--For purposes of this 
            paragraph and paragraph (1)(E)--

                    ``(I) In general.--The rules of section 316 shall 
                apply.
                    ``(II) Regulations.--The Secretary may prescribe 
                regulations regarding the treatment of distributions 
                out of earnings and profits for periods prior to the 
                taxpayer's acquisition of such stock.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

        Subtitle B--Treatment of Controlled Foreign Corporations

SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
              CORPORATIONS TREATED AS DIVIDENDS.

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

SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) Section 1248 Gain Taken Into Account in Determining Pro Rata 
Share.--
        (1) In general.--Paragraph (2) of section 951(a) (defining pro 
    rata share of subpart F income) is amended by adding at the end 
    thereof the following new sentence: ``For purposes of subparagraph 
    (B), any gain included in the gross income of any person as a 
    dividend under section 1248 shall be treated as a distribution 
    received by such person with respect to the stock involved.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to dispositions after the date of the enactment of this Act.
    (b) Basis Adjustments in Stock Held by Foreign Corporation.--
        (1) In general.--Section 961 (relating to adjustments to basis 
    of stock in controlled foreign corporations and of other property) 
    is amended by adding at the end thereof the following new 
    subsection:
    ``(c) Basis Adjustments in Stock Held by Foreign Corporation.--
Under regulations prescribed by the Secretary, if a United States 
shareholder is treated under section 958(a)(2) as owning any stock in a 
controlled foreign corporation which is actually owned by another 
controlled foreign corporation, adjustments similar to the adjustments 
provided by subsections (a) and (b) shall be made to the basis of such 
stock in the hands of such other controlled foreign corporation, but 
only for the purposes of determining the amount included under section 
951 in the gross income of such United States shareholder (or any other 
United States shareholder who acquires from any person any portion of 
the interest of such United States shareholder by reason of which such 
shareholder was treated as owning such stock, but only to the extent of 
such portion, and subject to such proof of identity of such interest as 
the Secretary may prescribe by regulations).''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply for purposes of determining inclusions for taxable years of 
    United States shareholders beginning after December 31, 1997.
    (c) Clarification of Treatment of Branch Tax Exemptions or 
Reductions.--
        (1) In general.--Subsection (b) of section 952 is amended by 
    adding at the end thereof the following new sentence: ``For 
    purposes of this subsection, any exemption (or reduction) with 
    respect to the tax imposed by section 884 shall not be taken into 
    account.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to taxable years beginning after December 31, 1986.

SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER 
              COMPANIES.

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

     Subtitle C--Treatment of Passive Foreign Investment Companies

SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
              CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

    Section 1296 is amended by adding at the end the following new 
subsection:
    ``(e) Exception for United States Shareholders of Controlled 
Foreign Corporations.--
        ``(1) In general.--For purposes of this part, a corporation 
    shall not be treated with respect to a shareholder as a passive 
    foreign investment company during the qualified portion of such 
    shareholder's holding period with respect to stock in such 
    corporation.
        ``(2) Qualified portion.--For purposes of this subsection, the 
    term `qualified portion' means the portion of the shareholder's 
    holding period--
            ``(A) which is after December 31, 1997, and
            ``(B) during which the shareholder is a United States 
        shareholder (as defined in section 951(b)) of the corporation 
        and the corporation is a controlled foreign corporation.
        ``(3) New holding period if qualified portion ends.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        if the qualified portion of a shareholder's holding period with 
        respect to any stock ends after December 31, 1997, solely for 
        purposes of this part, the shareholder's holding period with 
        respect to such stock shall be treated as beginning as of the 
        first day following such period.
            ``(B) Exception.--Subparagraph (A) shall not apply if such 
        stock was, with respect to such shareholder, stock in a passive 
        foreign investment company at any time before the qualified 
        portion of the shareholder's holding period with respect to 
        such stock and no election under section 1298(b)(1) is made.''.

SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE 
              FOREIGN INVESTMENT COMPANY.

    (a) In General.--Part VI of subchapter P of chapter 1 is amended by 
redesignating subpart C as subpart D, by redesignating sections 1296 
and 1297 as sections 1297 and 1298, respectively, and by inserting 
after subpart B the following new subpart:

      ``Subpart C--Election of Mark to Market For Marketable Stock

        ``Sec. 1296. Election of mark to market for marketable stock.

``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.

    ``(a) General Rule.--In the case of marketable stock in a passive 
foreign investment company which is owned (or treated under subsection 
(g) as owned) by a United States person at the close of any taxable 
year of such person, at the election of such person--
        ``(1) If the fair market value of such stock as of the close of 
    such taxable year exceeds its adjusted basis, such United States 
    person shall include in gross income for such taxable year an 
    amount equal to the amount of such excess.
        ``(2) If the adjusted basis of such stock exceeds the fair 
    market value of such stock as of the close of such taxable year, 
    such United States person shall be allowed a deduction for such 
    taxable year equal to the lesser of--
            ``(A) the amount of such excess, or
            ``(B) the unreversed inclusions with respect to such stock.
    ``(b) Basis Adjustments.--
        ``(1) In general.--The adjusted basis of stock in a passive 
    foreign investment company--
            ``(A) shall be increased by the amount included in the 
        gross income of the United States person under subsection 
        (a)(1) with respect to such stock, and
            ``(B) shall be decreased by the amount allowed as a 
        deduction to the United States person under subsection (a)(2) 
        with respect to such stock.
        ``(2) Special rule for stock constructively owned.--In the case 
    of stock in a passive foreign investment company which the United 
    States person is treated as owning under subsection (g)--
            ``(A) the adjustments under paragraph (1) shall apply to 
        such stock in the hands of the person actually holding such 
        stock but only for purposes of determining the subsequent 
        treatment under this chapter of the United States person with 
        respect to such stock, and
            ``(B) similar adjustments shall be made to the adjusted 
        basis of the property by reason of which the United States 
        person is treated as owning such stock.
    ``(c) Character and Source Rules.--
        ``(1) Ordinary treatment.--
            ``(A) Gain.--Any amount included in gross income under 
        subsection (a)(1), and any gain on the sale or other 
        disposition of marketable stock in a passive foreign investment 
        company (with respect to which an election under this section 
        is in effect), shall be treated as ordinary income.
            ``(B) Loss.--Any--
                ``(i) amount allowed as a deduction under subsection 
            (a)(2), and
                ``(ii) loss on the sale or other disposition of 
            marketable stock in a passive foreign investment company 
            (with respect to which an election under this section is in 
            effect) to the extent that the amount of such loss does not 
            exceed the unreversed inclusions with respect to such 
            stock,
        shall be treated as an ordinary loss. The amount so treated 
        shall be treated as a deduction allowable in computing adjusted 
        gross income.
        ``(2) Source.--The source of any amount included in gross 
    income under subsection (a)(1) (or allowed as a deduction under 
    subsection (a)(2)) shall be determined in the same manner as if 
    such amount were gain or loss (as the case may be) from the sale of 
    stock in the passive foreign investment company.
    ``(d) Unreversed Inclusions.--For purposes of this section, the 
term `unreversed inclusions' means, with respect to any stock in a 
passive foreign investment company, the excess (if any) of--
        ``(1) the amount included in gross income of the taxpayer under 
    subsection (a)(1) with respect to such stock for prior taxable 
    years, over
        ``(2) the amount allowed as a deduction under subsection (a)(2) 
    with respect to such stock for prior taxable years.
The amount referred to in paragraph (1) shall include any amount which 
would have been included in gross income under subsection (a)(1) with 
respect to such stock for any prior taxable year but for section 1291.
    ``(e) Marketable Stock.--For purposes of this section--
        ``(1) In general.--The term `marketable stock' means--
            ``(A) any stock which is regularly traded on--
                ``(i) a national securities exchange which is 
            registered with the Securities and Exchange Commission or 
            the national market system established pursuant to section 
            11A of the Securities and Exchange Act of 1934, or
                ``(ii) any exchange or other market which the Secretary 
            determines has rules adequate to carry out the purposes of 
            this part,
            ``(B) to the extent provided in regulations, stock in any 
        foreign corporation which is comparable to a regulated 
        investment company and which offers for sale or has outstanding 
        any stock of which it is the issuer and which is redeemable at 
        its net asset value, and
            ``(C) to the extent provided in regulations, any option on 
        stock described in subparagraph (A) or (B).
        ``(2) Special rule for regulated investment companies.--In the 
    case of any regulated investment company which is offering for sale 
    or has outstanding any stock of which it is the issuer and which is 
    redeemable at its net asset value, all stock in a passive foreign 
    investment company which it owns directly or indirectly shall be 
    treated as marketable stock for purposes of this section. Except as 
    provided in regulations, similar treatment as marketable stock 
    shall apply in the case of any other regulated investment company 
    which publishes net asset valuations at least annually.
    ``(f) Treatment of Controlled Foreign Corporations Which are 
Shareholders in Passive Foreign Investment Companies.--In the case of a 
foreign corporation which is a controlled foreign corporation and which 
owns (or is treated under subsection (g) as owning) stock in a passive 
foreign investment company--
        ``(1) this section (other than subsection (c)(2)) shall apply 
    to such foreign corporation in the same manner as if such 
    corporation were a United States person, and
        ``(2) for purposes of subpart F of part III of subchapter N--
            ``(A) any amount included in gross income under subsection 
        (a)(1) shall be treated as foreign personal holding company 
        income described in section 954(c)(1)(A), and
            ``(B) any amount allowed as a deduction under subsection 
        (a)(2) shall be treated as a deduction allocable to foreign 
        personal holding company income so described.
    ``(g) Stock Owned Through Certain Foreign Entities.--Except as 
provided in regulations--
        ``(1) In general.--For purposes of this section, stock owned, 
    directly or indirectly, by or for a foreign partnership or foreign 
    trust or foreign estate shall be considered as being owned 
    proportionately by its partners or beneficiaries. Stock considered 
    to be owned by a person by reason of the application of the 
    preceding sentence shall, for purposes of applying such sentence, 
    be treated as actually owned by such person.
        ``(2) Treatment of certain dispositions.--In any case in which 
    a United States person is treated as owning stock in a passive 
    foreign investment company by reason of paragraph (1)--
            ``(A) any disposition by the United States person or by any 
        other person which results in the United States person being 
        treated as no longer owning such stock, and
            ``(B) any disposition by the person owning such stock,
    shall be treated as a disposition by the United States person of 
    the stock in the passive foreign investment company.
    ``(h) Coordination With Section 851(b).--For purposes of paragraphs 
(2) and (3) of section 851(b), any amount included in gross income 
under subsection (a) shall be treated as a dividend.
    ``(i) Stock Acquired From a Decedent.--In the case of stock of a 
passive foreign investment company which is acquired by bequest, 
devise, or inheritance (or by the decedent's estate) and with respect 
to which an election under this section was in effect as of the date of 
the decedent's death, notwithstanding section 1014, the basis of such 
stock in the hands of the person so acquiring it shall be the adjusted 
basis of such stock in the hands of the decedent immediately before his 
death (or, if lesser, the basis which would have been determined under 
section 1014 without regard to this subsection).
    ``(j) Coordination With Section 1291 for First Year of Election.--
        ``(1) Taxpayers other than regulated investment companies.--
            ``(A) In general.--If the taxpayer elects the application 
        of this section with respect to any marketable stock in a 
        corporation after the beginning of the taxpayer's holding 
        period in such stock, and if the requirements of subparagraph 
        (B) are not satisfied, section 1291 shall apply to--
                ``(i) any distributions with respect to, or disposition 
            of, such stock in the first taxable year of the taxpayer 
            for which such election is made, and
                ``(ii) any amount which, but for section 1291, would 
            have been included in gross income under subsection (a) 
            with respect to such stock for such taxable year in the 
            same manner as if such amount were gain on the disposition 
            of such stock.
            ``(B) Requirements.--The requirements of this subparagraph 
        are met if, with respect to each of such corporation's taxable 
        years for which such corporation was a passive foreign 
        investment company and which begin after December 31, 1986, and 
        included any portion of the taxpayer's holding period in such 
        stock, such corporation was treated as a qualified electing 
        fund under this part with respect to the taxpayer.
        ``(2) Special rules for regulated investment companies.--
            ``(A) In general.--If a regulated investment company elects 
        the application of this section with respect to any marketable 
        stock in a corporation after the beginning of the taxpayer's 
        holding period in such stock, then, with respect to such 
        company's first taxable year for which such company elects the 
        application of this section with respect to such stock--
                ``(i) section 1291 shall not apply to such stock with 
            respect to any distribution or disposition during, or 
            amount included in gross income under this section for, 
            such first taxable year, but
                ``(ii) such regulated investment company's tax under 
            this chapter for such first taxable year shall be increased 
            by the aggregate amount of interest which would have been 
            determined under section 1291(c)(3) if section 1291 were 
            applied without regard to this subparagraph.
        Clause (ii) shall not apply if for the preceding taxable year 
        the company elected to mark to market the stock held by such 
        company as of the last day of such preceding taxable year.
            ``(B) Disallowance of deduction.--No deduction shall be 
        allowed to any regulated investment company for the increase in 
        tax under subparagraph (A)(ii).
    ``(k) Election.--This section shall apply to marketable stock in a 
passive foreign investment company which is held by a United States 
person only if such person elects to apply this section with respect to 
such stock. Such an election shall apply to the taxable year for which 
made and all subsequent taxable years unless--
        ``(1) such stock ceases to be marketable stock, or
        ``(2) the Secretary consents to the revocation of such 
    election.
    ``(l) Transition Rule for Individuals Becoming Subject to United 
States Tax.--If any individual becomes a United States person in a 
taxable year beginning after December 31, 1997, solely for purposes of 
this section, the adjusted basis (before adjustments under subsection 
(b)) of any marketable stock in a passive foreign investment company 
owned by such individual on the first day of such taxable year shall be 
treated as being the greater of its fair market value on such first day 
or its adjusted basis on such first day.''.
    (b) Coordination With Interest Charge, Etc.--
        (1) Paragraph (1) of section 1291(d) is amended by adding at 
    the end the following new flush sentence:
    ``Except as provided in section 1296(j), this section also shall 
    not apply if an election under section 1296(k) is in effect for the 
    taxpayer's taxable year.''.
        (2) The subsection heading for subsection (d) of section 1291 
    is amended by striking ``Subpart B'' and inserting ``Subparts B and 
    C''.
        (3) Subparagraph (A) of section 1291(a)(3) is amended to read 
    as follows:
            ``(A) Holding period.--The taxpayer's holding period shall 
        be determined under section 1223; except that--
                ``(i) for purposes of applying this section to an 
            excess distribution, such holding period shall be treated 
            as ending on the date of such distribution, and
                ``(ii) if section 1296 applied to such stock with 
            respect to the taxpayer for any prior taxable year, such 
            holding period shall be treated as beginning on the first 
            day of the first taxable year beginning after the last 
            taxable year for which section 1296 so applied.''.
    (c) Treatment of Mark-to-Market Gain Under Section 4982.--
        (1) Subsection (e) of section 4982 is amended by adding at the 
    end thereof the following new paragraph:
        ``(6) Treatment of gain recognized under section 1296.--For 
    purposes of determining a regulated investment company's ordinary 
    income--
            ``(A) notwithstanding paragraph (1)(C), section 1296 shall 
        be applied as if such company's taxable year ended on October 
        31, and
            ``(B) any ordinary gain or loss from an actual disposition 
        of stock in a passive foreign investment company during the 
        portion of the calendar year after October 31 shall be taken 
        into account in determining such regulated investment company's 
        ordinary income for the following calendar year.
    In the case of a company making an election under paragraph (4), 
    the preceding sentence shall be applied by substituting the last 
    day of the company's taxable year for October 31.''.
        (2) Subsection (b) of section 852 is amended by adding at the 
    end thereof the following new paragraph:
        ``(10) Special rule for certain losses on stock in passive 
    foreign investment company.--To the extent provided in regulations, 
    the taxable income of a regulated investment company (other than a 
    company to which an election under section 4982(e)(4) applies) 
    shall be computed without regard to any net reduction in the value 
    of any stock of a passive foreign investment company with respect 
    to which an election under section 1296(k) is in effect occurring 
    after October 31 of the taxable year, and any such reduction shall 
    be treated as occurring on the first day of the following taxable 
    year.''.
        (3) Subsection (c) of section 852 is amended by inserting after 
    ``October 31 of such year'' the following: ``, without regard to 
    any net reduction in the value of any stock of a passive foreign 
    investment company with respect to which an election under section 
    1296(k) is in effect occurring after October 31 of such year,''.
    (d) Conforming Amendments.--
        (1) Sections 532(b)(4) and 542(c)(10) are each amended by 
    striking ``section 1296'' and inserting ``section 1297''.
        (2) Subsection (f) of section 551 is amended by striking 
    ``section 1297(b)(5)'' and inserting ``section 1298(b)(5)''.
        (3) Subsections (a)(1) and (d) of section 1293 are each amended 
    by striking ``section 1297(a)'' and inserting ``section 1298(a)''.
        (4) Paragraph (3) of section 1297(b), as redesignated by 
    subsection (a), is hereby repealed.
        (5) The table of sections for subpart D of part VI of 
    subchapter P of chapter 1, as redesignated by subsection (a), is 
    amended to read as follows:
        ``Sec. 1297. Passive foreign investment company.
        ``Sec. 1298. Special rules.''.

        (6) The table of subparts for part VI of subchapter P of 
    chapter 1 is amended by striking the last item and inserting the 
    following new items:
        ``Subpart C. Election of mark to market for marketable stock.
        ``Subpart D. General provisions.''.

    (e) Clarification of Gain Recognition Election.--The last sentence 
of section 1298(b)(1), as so redesignated, is amended by inserting 
``(determined without regard to the preceding sentence)'' after 
``investment company''.

SEC. 1123. VALUATION OF ASSETS FOR PASSIVE FOREIGN INVESTMENT COMPANY 
              DETERMINATION.

    (a) In General.--Section 1297, as redesignated by section 1122, is 
amended by adding at the end the following new subsection:
    ``(e) Methods for Measuring Assets.--
        ``(1) Determination using value.--The determination under 
    subsection (a)(2) shall be made on the basis of the value of the 
    assets of a foreign corporation if--
            ``(A) such corporation is a publicly traded corporation for 
        the taxable year, or
            ``(B) paragraph (2) does not apply to such corporation for 
        the taxable year.
        ``(2) Determination using adjusted bases.--The determination 
    under subsection (a)(2) shall be based on the adjusted bases (as 
    determined for the purposes of computing earnings and profits) of 
    the assets of a foreign corporation if such corporation is not 
    described in paragraph (1)(A) and such corporation--
            ``(A) is a controlled foreign corporation, or
            ``(B) elects the application of this paragraph.
    An election under subparagraph (B), once made, may be revoked only 
    with the consent of the Secretary.
        ``(3) Publicly traded corporation.--For purposes of this 
    subsection, a foreign corporation shall be treated as a publicly 
    traded corporation if the stock in the corporation is regularly 
    traded on--
            ``(A) a national securities exchange which is registered 
        with the Securities and Exchange Commission or the national 
        market system established pursuant to section 11A of the 
        Securities and Exchange Act of 1934, or
            ``(B) any exchange or other market which the Secretary 
        determines has rules adequate to carry out the purposes of this 
        subsection.''.
    (b) Conforming Amendments.--Section 1297(a), as redesignated by 
section 1122, is amended--
        (1) by striking ``(by value)'' and inserting ``(as determined 
    in accordance with subsection (e))'', and
        (2) by striking the last two sentences.

SEC. 1124. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to--
        (1) taxable years of United States persons beginning after 
    December 31, 1997, and
        (2) taxable years of foreign corporations ending with or within 
    such taxable years of United States persons.

   Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES; 
              RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN 
              TRUSTS AND ESTATES.

    (a) Repeal of Excise Tax.--Chapter 5 (relating to transfers to 
avoid income tax) is hereby repealed.
    (b) Recognition of Gain on Certain Transfers to Foreign Trusts and 
Estates.--Subpart F of part I of subchapter J of chapter 1 is amended 
by adding at the end the following new section:

``SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CERTAIN FOREIGN 
              TRUSTS AND ESTATES.

    ``(a) In General.--Except as provided in regulations, in the case 
of any transfer of property by a United States person to a foreign 
estate or trust, for purposes of this subtitle, such transfer shall be 
treated as a sale or exchange for an amount equal to the fair market 
value of the property transferred, and the transferor shall recognize 
as gain the excess of--
        ``(1) the fair market value of the property so transferred, 
    over
        ``(2) the adjusted basis (for purposes of determining gain) of 
    such property in the hands of the transferor.
    ``(b) Exception.--Subsection (a) shall not apply to a transfer to a 
trust by a United States person to the extent that any person is 
treated as the owner of such trust under section 671.
    ``(c) Treatment of Trusts Which Become Foreign Trusts.--If a trust 
which is not a foreign trust becomes a foreign trust, such trust shall 
be treated for purposes of this section as having transferred, 
immediately before becoming a foreign trust, all of its assets to a 
foreign trust.''.
    (b) Other Anti-Avoidance Provisions Replacing Repealed Excise 
Tax.--
        (1) Gain recognition on exchanges involving foreign persons.--
    Section 1035 is amended by redesignating subsection (c) as 
    subsection (d) and by inserting after subsection (b) the following 
    new subsection:
    ``(c) Exchanges Involving Foreign Persons.--To the extent provided 
in regulations, subsection (a) shall not apply to any exchange having 
the effect of transferring property to any person other than a United 
States person.''.
        (2) Transfers to foreign corporations.--Section 367 is amended 
    by adding at the end the following new subsection:
    ``(f) Other Transfers.--To the extent provided in regulations, if a 
United States person transfers property to a foreign corporation as 
paid-in surplus or as a contribution to capital (in a transaction not 
otherwise described in this section), such transfer shall be treated as 
a sale or exchange for an amount equal to the fair market value of the 
property transferred, and the transferor shall recognize as gain the 
excess of--
        ``(1) the fair market value of the property so transferred, 
    over
        ``(2) the adjusted basis (for purposes of determining gain) of 
    such property in the hands of the transferor.''.
        (3) Certain transfers to partnerships.--Section 721 is amended 
    by adding at the end the following new subsection:
    ``(c) Regulations Relating to Certain Transfers to Partnerships.--
The Secretary may provide by regulations that subsection (a) shall not 
apply to gain realized on the transfer of property to a partnership if 
such gain, when recognized, will be includible in the gross income of a 
person other than a United States person.''.
        (4) Repeal of u.s. source treatment of deemed royalties.--
    Subparagraph (C) of section 367(d)(2) is amended to read as 
    follows:
            ``(C) Amounts received treated as ordinary income.--For 
        purposes of this chapter, any amount included in gross income 
        by reason of this subsection shall be treated as ordinary 
        income.''.
        (5) Transfers of intangibles to partnerships.--
            (A) Subsection (d) of section 367 is amended by adding at 
        the end the following new paragraph:
        ``(3) Regulations relating to transfers of intangibles to 
    partnerships.--The Secretary may provide by regulations that the 
    rules of paragraph (2) also apply to the transfer of intangible 
    property by a United States person to a partnership in 
    circumstances consistent with the purposes of this subsection.''.
            (B) Section 721 is amended by adding at the end the 
        following new subsection:
    ``(d) Transfers of Intangibles.--
          ``For regulatory authority to treat intangibles transferred to 
        a partnership as sold, see section 367(d)(3).''.

    (c) Technical and Conforming Amendments.--
        (1) Subsection (h) of section 814 is amended by striking ``or 
    1491''.
        (2) Section 1057 (relating to election to treat transfer to 
    foreign trust, etc., as taxable exchange) is hereby repealed.
        (3) Section 6422 is amended by striking paragraph (5) and by 
    redesignating paragraphs (6) through (13) as paragraphs (5) through 
    (12), respectively.
        (4) The table of chapters for subtitle A is amended by striking 
    the item relating to chapter 5.
        (5) The table of sections for part IV of subchapter O of 
    chapter 1 is amended by striking the item relating to section 1057.
        (6) The table of sections for subpart F of part I of subchapter 
    J of chapter 1 is amended by adding at the end the following new 
    item:
        ``Sec. 684. Recognition of gain on certain transfers to certain 
                  foreign trusts and estates.''.

    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                   Subtitle E--Information Reporting

SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN REQUIREMENT TO 
              FOREIGN PARTNERSHIPS.

    (a) In General.--Section 6031 (relating to return of partnership 
income) is amended by adding at the end the following new subsection:
    ``(e) Foreign Partnerships.--
        ``(1) Exception for foreign partnership.--Except as provided in 
    paragraph (2), the preceding provisions of this section shall not 
    apply to a foreign partnership.
        ``(2) Certain foreign partnerships required to file return.--
    Except as provided in regulations prescribed by the Secretary, this 
    section shall apply to a foreign partnership for any taxable year 
    if for such year, such partnership has--
            ``(A) gross income derived from sources within the United 
        States, or
            ``(B) gross income which is effectively connected with the 
        conduct of a trade or business within the United States.
    The Secretary may provide simplified filing procedures for foreign 
    partnerships to which this section applies.''.
    (b) Sanction for Failure by Foreign Partnership To Comply With 
Section 6031 To Include Denial of Deductions.--Subsection (f) of 
section 6231 is amended--
        (1) by striking ``Losses and'' in the heading and inserting 
    ``Deductions, Losses, and'', and
        (2) by striking ``loss or'' each place it appears and inserting 
    ``deduction, loss, or''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT TO INFORMATION 
              REPORTING COMPARABLE TO INFORMATION REPORTING FOR 
              CONTROLLED FOREIGN CORPORATIONS.

    (a) In General.--So much of section 6038 (relating to information 
with respect to certain foreign corporations) as precedes paragraph (2) 
of subsection (a) is amended to read as follows:

``SEC. 6038. INFORMATION REPORTING WITH RESPECT TO CERTAIN FOREIGN 
              CORPORATIONS AND PARTNERSHIPS.

    ``(a) Requirement.--
        ``(1) In general.--Every United States person shall furnish, 
    with respect to any foreign business entity which such person 
    controls, such information as the Secretary may prescribe relating 
    to--
            ``(A) the name, the principal place of business, and the 
        nature of business of such entity, and the country under whose 
        laws such entity is incorporated (or organized in the case of a 
        partnership);
            ``(B) in the case of a foreign corporation, its post-1986 
        undistributed earnings (as defined in section 902(c));
            ``(C) a balance sheet for such entity listing assets, 
        liabilities, and capital;
            ``(D) transactions between such entity and--
                ``(i) such person,
                ``(ii) any corporation or partnership which such person 
            controls, and
                ``(iii) any United States person owning, at the time 
            the transaction takes place--

                    ``(I) in the case of a foreign corporation, 10 
                percent or more of the value of any class of stock 
                outstanding of such corporation, and
                    ``(II) in the case of a foreign partnership, at 
                least a 10-percent interest in such partnership; and

            ``(E)(i) in the case of a foreign corporation, a 
        description of the various classes of stock outstanding, and a 
        list showing the name and address of, and number of shares held 
        by, each United States person who is a shareholder of record 
        owning at any time during the annual accounting period 5 
        percent or more in value of any class of stock outstanding of 
        such foreign corporation, and
            ``(ii) information comparable to the information described 
        in clause (i) in the case of a foreign partnership.
    The Secretary may also require the furnishing of any other 
    information which is similar or related in nature to that specified 
    in the preceding sentence or which the Secretary determines to be 
    appropriate to carry out the provisions of this title.''.
    (b) Definitions.--
        (1) In general.--Subsection (e) of section 6038 (relating to 
    definitions) is amended--
            (A) by redesignating paragraphs (1) and (2) as paragraphs 
        (2) and (4), respectively,
            (B) by inserting before paragraph (2) (as so redesignated) 
        the following new paragraph:
        ``(1) Foreign business entity.--The term `foreign business 
    entity' means a foreign corporation and a foreign partnership.'', 
    and
            (C) by inserting after paragraph (2) (as so redesignated) 
        the following new paragraph:
        ``(3) Partnership-related definitions.--
            ``(A) Control.--A person is in control of a partnership if 
        such person owns directly or indirectly more than a 50 percent 
        interest in such partnership.
            ``(B) 50-percent interest.--For purposes of subparagraph 
        (A), a 50-percent interest in a partnership is--
                ``(i) an interest equal to 50 percent of the capital 
            interest, or 50 percent of the profits interest, in such 
            partnership, or
                ``(ii) to the extent provided in regulations, an 
            interest to which 50 percent of the deductions or losses of 
            such partnership are allocated.
        For purposes of the preceding sentence, rules similar to the 
        rules of section 267(c) (other than paragraph (3)) shall apply.
            ``(C) 10-percent interest.--A 10-percent interest in a 
        partnership is an interest which would be described in 
        subparagraph (B) if `10 percent' were substituted for `50 
        percent' each place it appears.''.
        (2) Clerical amendment.--The paragraph heading for paragraph 
    (2) of section 6038(e) (as so redesignated) is amended by inserting 
    ``of corporation'' after ``Control''.
    (c) Modification of Sanctions on Partnerships and Corporations for 
Failure To Furnish Information.--
        (1) In general.--Subsection (b) of section 6038 is amended--
            (A) by striking ``$1,000'' each place it appears and 
        inserting ``$10,000'', and
            (B) by striking ``$24,000'' in paragraph (2) and inserting 
        ``$50,000''.
    (d) Reporting by 10-Percent Partners.--Subsection (a) of section 
6038 is amended by adding at the end the following new paragraph:
        ``(5) Information required from 10-percent partner of 
    controlled foreign partnership.--In the case of a foreign 
    partnership which is controlled by United States persons holding at 
    least 10-percent interests (but not by any one United States 
    person), the Secretary may require each United States person who 
    holds a 10-percent interest in such partnership to furnish 
    information relating to such partnership, including information 
    relating to such partner's ownership interests in the partnership 
    and allocations to such partner of partnership items.''.
    (e) Technical Amendments.--
        (1) The following provisions of section 6038 are each amended 
    by striking ``foreign corporation'' each place it appears and 
    inserting ``foreign business entity'':
            (A) Paragraphs (2) and (3) of subsection (a).
            (B) Subsection (b).
            (C) Subsection (c) other than paragraph (1)(B) thereof.
            (D) Subsection (d).
            (E) Subsection (e)(4) (as redesignated by subsection (b)).
        (2) Subparagraph (B) of section 6038(c)(1) is amended by 
    inserting ``in the case of a foreign business entity which is a 
    foreign corporation,'' after ``(B)''.
        (3) Paragraph (8) of section 318(b) is amended by striking 
    ``6038(d)(1)'' and inserting ``6038(d)(2)''.
        (4) Paragraph (4) of section 901(k) is amended by striking 
    ``foreign corporation'' and inserting ``foreign corporation or 
    partnership''.
        (5) The table of sections for subpart A of part III of 
    subchapter A of chapter 61 is amended by striking the item relating 
    to section 6038 and inserting the following new item:
        ``Sec. 6038. Information reporting with respect to certain 
                  foreign corporations and partnerships.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to annual accounting periods beginning after the date of the 
enactment of this Act.

SEC. 1143. MODIFICATIONS RELATING TO RETURNS REQUIRED TO BE FILED BY 
              REASON OF CHANGES IN OWNERSHIP INTERESTS IN FOREIGN 
              PARTNERSHIP.

    (a) No Return Required Unless Changes Involve 10-Percent Interest 
in Partnership.--
        (1) In general.--Subsection (a) of section 6046A (relating to 
    returns as to interests in foreign partnerships) is amended by 
    adding at the end the following new sentence: ``Paragraphs (1) and 
    (2) shall apply to any acquisition or disposition only if the 
    United States person directly or indirectly holds at least a 10-
    percent interest in such partnership either before or after such 
    acquisition or disposition, and paragraph (3) shall apply to any 
    change only if the change is equivalent to at least a 10-percent 
    interest in such partnership.''.
        (2) 10-percent interest.--Section 6046A is amended by 
    redesignating subsection (d) as subsection (e) and by inserting 
    after subsection (c) the following new subsection:
    ``(d) 10-Percent Interest.--For purposes of subsection (a), a 10-
percent interest in a partnership is an interest described in section 
6038(e)(3)(C).''.
    (b) Modification of Penalty on Failure to Report Changes in 
Ownership Interests in Foreign Corporations and Partnerships.--
Subsection (a) of section 6679 (relating to failure to file returns, 
etc., with respect to foreign corporations or foreign partnerships) is 
amended to read as follows:
    ``(a) Civil Penalty.--
        ``(1) In general.--In addition to any criminal penalty provided 
    by law, any person required to file a return under section 6035, 
    6046, or 6046A who fails to file such return at the time provided 
    in such section, or who files a return which does not show the 
    information required pursuant to such section, shall pay a penalty 
    of $10,000, unless it is shown that such failure is due to 
    reasonable cause.
        ``(2) Increase in penalty where failure continues after 
    notification.--If any failure described in paragraph (1) continues 
    for more than 90 days after the day on which the Secretary mails 
    notice of such failure to the United States person, such person 
    shall pay a penalty (in addition to the amount required under 
    paragraph (1)) of $10,000 for each 30-day period (or fraction 
    thereof) during which such failure continues after the expiration 
    of such 90-day period. The increase in any penalty under this 
    paragraph shall not exceed $50,000.
        ``(3) Reduced penalty for returns relating to foreign personal 
    holding companies.--In the case of a return required under section 
    6035, paragraph (1) shall be applied by substituting `$1,000' for 
    `$10,000', and paragraph (2) shall not apply.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers and changes after the date of the enactment of this 
Act.

SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PARTNERSHIPS SUBJECT TO 
              INFORMATION REPORTING COMPARABLE TO INFORMATION REPORTING 
              FOR SUCH TRANSFERS TO FOREIGN CORPORATIONS.

    (a) In General.--Paragraph (1) of section 6038B(a) (relating to 
notice of certain transfers to foreign corporations) is amended to read 
as follows:
        ``(1) transfers property to--
            ``(A) a foreign corporation in an exchange described in 
        section 332, 351, 354, 355, 356, or 361, or
            ``(B) a foreign partnership in a contribution described in 
        section 721 or in any other contribution described in 
        regulations prescribed by the Secretary,''.
    (b) Exceptions.--Section 6038B is amended by redesignating 
subsection (b) as subsection (c) and by inserting after subsection (a) 
the following new subsection:
    ``(b) Exceptions for Certain Transfers to Foreign Partnerships; 
Special Rule.--
        ``(1) Exceptions.--Subsection (a)(1)(B) shall apply to a 
    transfer by a United States person to a foreign partnership only 
    if--
            ``(A) the United States person holds (immediately after the 
        transfer) directly or indirectly at least a 10-percent interest 
        (as defined in section 6046A(d)) in the partnership, or
            ``(B) the value of the property transferred (when added to 
        the value of the property transferred by such person or any 
        related person to such partnership or a related partnership 
        during the 12-month period ending on the date of the transfer) 
        exceeds $100,000.
    For purposes of the preceding sentence, the value of any 
    transferred property is its fair market value at the time of its 
    transfer.
        ``(2) Special rule.--If by reason of an adjustment under 
    section 482 or otherwise, a contribution described in subsection 
    (a)(1) is deemed to have been made, such contribution shall be 
    treated for purposes of this section as having been made not 
    earlier than the date specified by the Secretary.''.
     (c) Modification of Penalty Applicable to Foreign Corporations and 
Partnerships.--
        (1) In general.--Paragraph (1) of section 6038B(b) is amended 
    by striking ``equal to'' and all that follows and inserting ``equal 
    to 10 percent of the fair market value of the property at the time 
    of the exchange (and, in the case of a contribution described in 
    subsection (a)(1)(B), such person shall recognize gain as if the 
    contributed property had been sold for such value at the time of 
    such contribution).''.
        (2) Limit on penalty.--Section 6038B(b) is amended by adding at 
    the end the following new paragraph:
        ``(3) Limit on penalty.--The penalty under paragraph (1) with 
    respect to any exchange shall not exceed $100,000 unless the 
    failure with respect to such exchange was due to intentional 
    disregard.''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to transfers made after the date of the enactment of this 
    Act.
        (2) Election of retroactive effect.--Section 1494(c) of the 
    Internal Revenue Code of 1986 shall not apply to any transfer after 
    August 20, 1996, if all applicable reporting requirements under 
    section 6038B of such Code (as amended by this section) are 
    satisfied. The Secretary of the Treasury or his delegate may 
    prescribe simplified reporting requirements under the preceding 
    sentence.

SEC. 1145. EXTENSION OF STATUTE OF LIMITATIONS FOR FOREIGN TRANSFERS.

    (a) In General.--Paragraph (8) of section 6501(c) (relating to 
failure to notify Secretary under section 6038B) is amended to read as 
follows:
        ``(8) Failure to notify secretary of certain foreign 
    transfers.--In the case of any information which is required to be 
    reported to the Secretary under section 6038, 6038A, 6038B, 6046, 
    6046A, or 6048, the time for assessment of any tax imposed by this 
    title with respect to any event or period to which such information 
    relates shall not expire before the date which is 3 years after the 
    date on which the Secretary is furnished the information required 
    to be reported under such section.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to information the due date for the reporting of which is after 
the date of the enactment of this Act.

SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO ORGANIZATION 
              OF FOREIGN CORPORATIONS AND ACQUISITIONS OF STOCK IN SUCH 
              CORPORATIONS.

    (a) In General.--Subsection (a) of section 6046 (relating to 
returns as to organization or reorganization of foreign corporations 
and as to acquisitions of their stock) is amended to read as follows:
    ``(a) Requirement of return.--
        ``(1) In general.--A return complying with the requirements of 
    subsection (b) shall be made by--
            ``(A) each United States citizen or resident who becomes an 
        officer or director of a foreign corporation if a United States 
        person (as defined in section 7701(a)(30)) meets the stock 
        ownership requirements of paragraph (2) with respect to such 
        corporation,
            ``(B) each United States person--
                ``(i) who acquires stock which, when added to any stock 
            owned on the date of such acquisition, meets the stock 
            ownership requirements of paragraph (2) with respect to a 
            foreign corporation, or
                ``(ii) who acquires stock which, without regard to 
            stock owned on the date of such acquisition, meets the 
            stock ownership requirements of paragraph (2) with respect 
            to a foreign corporation,
            ``(C) each person (not described in subparagraph (B)) who 
        is treated as a United States shareholder under section 953(c) 
        with respect to a foreign corporation, and
            ``(D) each person who becomes a United States person while 
        meeting the stock ownership requirements of paragraph (2) with 
        respect to stock of a foreign corporation.
    In the case of a foreign corporation with respect to which any 
    person is treated as a United States shareholder under section 
    953(c), subparagraph (A) shall be treated as including a reference 
    to each United States person who is an officer or director of such 
    corporation.
        ``(2) Stock ownership requirements.--A person meets the stock 
    ownership requirements of this paragraph with respect to any 
    corporation if such person owns 10 percent or more of--
            ``(A) the total combined voting power of all classes of 
        stock of such corporation entitled to vote, or
            ``(B) the total value of the stock of such corporation.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 1998.

Subtitle F--Determination of Foreign or Domestic Status of Partnerships

SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC STATUS OF PARTNERSHIPS.

    (a) In General.--Paragraph (4) of section 7701(a) is amended by 
inserting before the period ``unless, in the case of a partnership, the 
Secretary provides otherwise by regulations''.
    (b) Effective Date.--Any regulations issued with respect to the 
amendment made by subsection (a) shall apply to partnerships created or 
organized after the date determined under section 7805(b) of the 
Internal Revenue Code of 1986 (without regard to paragraph (2) thereof) 
with respect to such regulations.

              Subtitle G--Other Simplification Provisions

SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.

    (a) In General.--Paragraph (3) of section 1907(a) of the Small 
Business Job Protection Act of 1996 is amended by adding at the end the 
following flush sentence:
    ``To the extent prescribed in regulations by the Secretary of the 
    Treasury or his delegate, a trust which was in existence on August 
    20, 1996 (other than a trust treated as owned by the grantor under 
    subpart E of part I of subchapter J of chapter 1 of the Internal 
    Revenue Code of 1986), and which was treated as a United States 
    person on the day before the date of the enactment of this Act may 
    elect to continue to be treated as a United States person 
    notwithstanding section 7701(a)(30)(E) of such Code.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 1907(a) of 
the Small Business Job Protection Act of 1996.

SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HARBOR REQUIREMENT THAT 
              PRINCIPAL OFFICE BE OUTSIDE THE UNITED STATES.

    (a) In General.--The last sentence of clause (ii) of section 
864(b)(2)(A) (relating to stock or securities) is amended by striking 
``, or in the case of a corporation'' and all that follows and 
inserting a period.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1163. MISCELLANEOUS CLARIFICATIONS.

    (a) Attribution of Deemed Paid Foreign Taxes to Prior 
Distributions.--Subparagraph (B) of section 902(c)(2) is amended by 
striking ``deemed paid with respect to'' and inserting ``attributable 
to''.
    (b) Financial Services Income Determined Without Regard to High-
Taxed Income.--Subclause (II) of section 904(d)(2)(C)(i) is amended by 
striking ``subclause (I)'' and inserting ``subclauses (I) and (III)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                      Subtitle H--Other Provisions

SEC. 1171. TREATMENT OF COMPUTER SOFTWARE AS FSC EXPORT PROPERTY.

    (a) In General.--Subparagraph (B) of section 927(a)(2) (relating to 
property excluded from eligibility as FSC export property) is amended 
by inserting ``, and other than computer software (whether or not 
patented)'' before ``, for commercial or home use''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to gross receipts attributable to periods after December 31, 
1997, in taxable years ending after such date.

SEC. 1172. ADJUSTMENT OF DOLLAR LIMITATION ON SECTION 911 EXCLUSION.

    (a) General Rule.--Paragraph (2) of section 911(b) is amended by--
        (1) by striking ``of $70,000'' in subparagraph (A) and 
    inserting ``equal to the exclusion amount for the calendar year in 
    which such taxable year begins'', and
        (2) by adding at the end the following new subparagraph:
            ``(D) Exclusion amount.--
                ``(i) In general.--The exclusion amount for any 
            calendar year is the exclusion amount determined in 
            accordance with the following table (as adjusted by clause 
            (ii)):

``For calendar year--
                                               The exclusion amount is--
    1998......................................................


                                                                $72,000 

    1999......................................................


                                                                 74,000 

    2000......................................................


                                                                 76,000 

    2001......................................................


                                                                 78,000 

    2002 and thereafter.......................................


                                                                 80,000.

                ``(ii) Inflation adjustment.--In the case of any 
            taxable year beginning in a calendar year after 2007, the 
            $80,000 amount in clause (i) shall be increased by an 
            amount equal to the product of--

                    ``(I) such dollar amount, and
                    ``(II) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `2006' for `1992' in subparagraph (B) thereof.

            If any increase determined under the preceding sentence is 
            not a multiple of $100, such increase shall be rounded to 
            the next lowest multiple of $100.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 1173. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS 
              ACQUIRED BY DEALERS IN ORDINARY COURSE OF TRADE OR 
              BUSINESS.

    (a) In General.--Section 956(c)(2) is amended by striking ``and'' 
at the end of subparagraph (H), by striking the period at the end of 
subparagraph (I) and inserting a semicolon, and by adding at the end 
the following new subparagraphs:
            ``(J) deposits of cash or securities made or received on 
        commercial terms in the ordinary course of a United States or 
        foreign person's business as a dealer in securities or in 
        commodities, but only to the extent such deposits are made or 
        received as collateral or margin for (i) a securities loan, 
        notional principal contract, options contract, forward 
        contract, or futures contract, or (ii) any other financial 
        transaction in which the Secretary determines that it is 
        customary to post collateral or margin; and
            ``(K) an obligation of a United States person to the extent 
        the principal amount of the obligation does not exceed the fair 
        market value of readily marketable securities sold or purchased 
        pursuant to a sale and repurchase agreement or otherwise posted 
        or received as collateral for the obligation in the ordinary 
        course of its business by a United States or foreign person 
        which is a dealer in securities or commodities.
    For purposes of subparagraphs (J) and (K), the term `dealer in 
    securities' has the meaning given such term by section 475(c)(1), 
    and the term `dealer in commodities' has the meaning given such 
    term by section 475(e), except that such term shall include a 
    futures commission merchant.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 1997, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 1174. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL 
              TRANSPORTATION SERVICES.

    (a) Sourcing Rules.--
        (1) In general.--Section 861(a)(3) is amended by adding at the 
    end the following new flush sentence:
    ``In addition, except for purposes of sections 79 and 105 and 
    subchapter D, compensation for labor or services performed in the 
    United States shall not be deemed to be income from sources within 
    the United States if the labor or services are performed by a 
    nonresident alien individual in connection with the individual's 
    temporary presence in the United States as a regular member of the 
    crew of a foreign vessel engaged in transportation between the 
    United States and a foreign country or a possession of the United 
    States.''.
        (2) Transportation income.--Subparagraph (B) of section 
    863(c)(2) is amended by adding at the end the following flush 
    sentence:
        ``In the case of transportation income derived from, or in 
        connection with, a vessel, this subparagraph shall only apply 
        if the taxpayer is a citizen or resident alien.''.
    (b) Presence in United States.--
        (1) In general.--Paragraph (7) of section 7701(b) is amended by 
    adding at the end the following new subparagraph:
            ``(D) Crew members temporarily present.--An individual who 
        is temporarily present in the United States on any day as a 
        regular member of the crew of a foreign vessel engaged in 
        transportation between the United States and a foreign country 
        or a possession of the United States shall not be treated as 
        present in the United States on such day unless such individual 
        otherwise engages in any trade or business in the United States 
        on such day.''.
        (2) Conforming amendment.--Subparagraph (A) of section 
    7701(b)(7) is amended by striking ``or (C)'' and inserting ``, (C), 
    or (D)''.
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to remuneration for services performed in taxable years 
    beginning after December 31, 1997.
        (2) Presence.--The amendment made by subsection (b) shall apply 
    to taxable years beginning after December 31, 1997.

SEC. 1175. EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) Exemption From Foreign Personal Holding Company Income.--
Section 954 is amended by adding at the end the following new 
subsection:
    ``(h) Special Rule for Income Derived in the Active Conduct of 
Banking, Financing, or Similar Businesses.--
        ``(1) In general.--For purposes of subsection (c)(1), foreign 
    personal holding company income shall not include income which is--
            ``(A) derived in the active conduct by a controlled foreign 
        corporation of a banking, financing, or similar business, but 
        only if the corporation is predominantly engaged in the active 
        conduct of such business,
            ``(B) received from a person other than a related person 
        (within the meaning of subsection (d)(3)) and derived from the 
        investments made by a qualifying insurance company of its 
        reserves or of 80 percent of its unearned premiums (as both are 
        determined in the manner prescribed under paragraph (4)), or
            ``(C) received from a person other than a related person 
        (within the meaning of subsection (d)(3)) and derived from 
        investments made by a qualifying insurance company of an amount 
        of its assets equal to--
                ``(i) in the case of contracts regulated in the country 
            in which sold as property, casualty, or health insurance 
            contracts, one-third of its premiums earned on such 
            insurance contracts during the taxable year (as defined in 
            section 832(b)(4)), and
                ``(ii) in the case of contracts regulated in the 
            country in which sold as life insurance or annuity 
            contracts, the greater of--

                    ``(I) 10 percent of the reserves described in 
                subparagraph (B) for such contracts, or
                    ``(II) in the case of a qualifying insurance 
                company which is a start-up company, $10,000,000.

        ``(2) Principles for determining applicable income.--
            ``(A) Banking and financing income.--The determination as 
        to whether income is described in paragraph (1)(A) shall be 
        made--
                ``(i) except as provided in clause (ii), in accordance 
            with the applicable principles of section 904(d)(2)(C)(ii), 
            except that such income shall include income from all 
            leases entered into in the ordinary course of the active 
            conduct of a banking, financing, or similar business, and
                ``(ii) in the case of a corporation described in 
            paragraph (3)(B), in accordance with the applicable 
            principles of section 1296(b) (as in effect on the day 
            before the enactment of the Taxpayer Relief Act of 1997) 
            for determining what is not passive income.
            ``(B) Insurance income.--Under rules prescribed by the 
        Secretary, for purposes of paragraphs (1) (B) and (C)--
                ``(i) in the case of contracts which are separate 
            account-type contracts (including variable contracts not 
            meeting the requirements of section 817), only income 
            specifically allocable to such contracts shall be taken 
            into account, and
                ``(ii) in the case of other contracts, income not 
            allocable under clause (i) shall be allocated ratably among 
            such contracts.
            ``(C) Look-thru rules.--The Secretary shall prescribe 
        regulations consistent with the principles of section 904(d)(3) 
        which provide that dividends, interest, income equivalent to 
        interest, rents, or royalties received or accrued from a 
        related person (within the meaning of subsection (d)(3)) shall 
        be subject to look-thru treatment for purposes of this 
        subsection.
        ``(3) Predominantly engaged.--For purposes of paragraph (1)(A), 
    a corporation shall be deemed predominantly engaged in the active 
    conduct of a banking, financing, or similar business only if--
            ``(A) more than 70 percent of its gross income is derived 
        from such business from transactions with persons which are not 
        related persons (as defined in subsection (d)(3)) and which are 
        located within the country under the laws of which the 
        controlled foreign corporation is created or organized, or
            ``(B) the corporation is--
                ``(i) engaged in the active conduct of a banking or 
            securities business (within the meaning of section 1296(b), 
            as in effect before the enactment of the Taxpayer Relief 
            Act of 1997), or
                ``(ii) a qualified bank affiliate or a qualified 
            securities affiliate (within the meaning of the proposed 
            regulations under such section 1296(b)).
        ``(4) Methods for determining unearned premiums and reserves.--
    For purposes of paragraph (1)(B)--
            ``(A) Property and casualty contracts.--The unearned 
        premiums and reserves of a qualifying insurance company with 
        respect to property, casualty, or health insurance contracts 
        shall be determined using the same methods and interest rates 
        which would be used if such company were subject to tax under 
        subchapter L.
            ``(B) Life insurance and annuity contracts.--The reserves 
        of a qualifying insurance company with respect to life 
        insurance or annuity contracts shall be determined under the 
        method described in paragraph (5) which such company elects to 
        apply for purposes of this paragraph. Such election shall be 
        made at such time and in such manner as the Secretary may 
        prescribe and, once made, shall be irrevocable without the 
        consent of the Secretary.
            ``(C) Limitation on reserves.--In no event shall the 
        reserve determined under this paragraph for any contract as of 
        any time exceed the amount which would be taken into account 
        with respect to such contract as of such time in determining 
        foreign annual statement reserves (less any catastrophe or 
        deficiency reserves).
        ``(5) Methods.--The methods described in this paragraph are as 
    follows:
            ``(A) U.S. method.--The method which would apply if the 
        qualifying insurance company were subject to tax under 
        subchapter L, except that the interest rate used shall be an 
        interest rate determined for the foreign country in which such 
        company is created or organized and which is calculated in the 
        same manner as the Federal mid-term rate under section 1274(d).
            ``(B) Foreign method.--A preliminary term method, except 
        that the interest rate used shall be the interest rate 
        determined for the foreign country in which such company is 
        created or organized and which is calculated in the same manner 
        as the Federal mid-term rate under section 1274(d). If a 
        qualifying insurance company uses such a preliminary term 
        method with respect to contracts insuring risks located in such 
        foreign country, such method shall apply if such company elects 
        the method under this clause.
            ``(C) Cash surrender value.--A method under which reserves 
        are equal to the net surrender value (as defined in section 
        807(e)(1)(A)) of the contract.
        ``(6) Definitions.--For purposes of this subsection--
            ``(A) Terms relating to insurance companies.--
                ``(i) Qualifying insurance company.--The term 
            `qualifying insurance company' means any entity which--

                    ``(I) is subject to regulation as an insurance 
                company under the laws of its country of incorporation,
                    ``(II) realizes at least 50 percent of its net 
                written premiums from the insurance or reinsurance of 
                risks located within the country in which such entity 
                is created or organized, and
                    ``(III) is engaged in the active conduct of an 
                insurance business and would be subject to tax under 
                subchapter L if it were a domestic corporation.

                ``(ii) Start-up company.--A qualifying insurance 
            company shall be treated as a start-up company if such 
            company (and any predecessor) has not been engaged in the 
            active conduct of an insurance business for more than 5 
            years as of the beginning of the taxable year of such 
            company.
            ``(B) Located.--For purposes of paragraph (3)(A)--
                ``(i) In general.--A person shall be treated as 
            located--

                    ``(I) except as provided in subclause (II), within 
                the country in which it maintains an office or other 
                fixed place of business through which it engages in a 
                trade or business and by which the transaction is 
                effected, or
                    ``(II) in the case of a natural person, within the 
                country in which such person is physically located when 
                such person enters into a transaction.

                ``(ii) Special rule for qualified business units.--
            Gross income derived by a corporation's qualified business 
            unit (within the meaning of section 989(a)) from 
            transactions with persons which are not related persons (as 
            defined in subsection (d)(3)) and which are located in the 
            country in which the qualified business unit both maintains 
            its principal office and conducts substantial business 
            activity shall be treated as derived from transactions with 
            persons which are not related persons (as defined in 
            subsection (d)(3)) and which are located within the country 
            under the laws of which the controlled foreign corporation 
            is created or organized.
        ``(7) Anti-abuse rules.--For purposes of applying this 
    subsection, there shall be disregarded any item of income, gain, 
    loss, or deduction with respect to any transaction or series of 
    transactions one of the principal purposes of which is qualifying 
    income or gain for the exclusion under this section, including any 
    change in the method of computing reserves or any other transaction 
    or series of transactions a principal purpose of which is the 
    acceleration or deferral of any item in order to claim the benefits 
    of such exclusion through the application of this subsection.
        ``(8) Coordination with section 953.--This subsection shall not 
    apply to investment income allocable to contracts that insure 
    related party risks or risks located in a foreign country other 
    than the country in which the qualifying insurance comapny is 
    created or organized.
        ``(9) Application.--This subsection shall apply to the first 
    full taxable year of a foreign corporation beginning after December 
    31, 1997, and before January 1, 1999, and to taxable years of 
    United States shareholders with or within which such taxable year 
    of such foreign corporation ends.''.
    (b) Exemption From Foreign Base Company Services Income.--Paragraph 
(2) of section 954(e) is amended by striking ``or'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, or'', and by adding at the end the following:
            ``(C) in the case of taxable years described in subsection 
        (h)(8), the active conduct by a controlled foreign corporation 
        of a banking, financing, insurance, or similar business, but 
        only if the corporation is predominantly engaged in the active 
        conduct of such business (within the meaning of subsection 
        (h)(3)) or is a qualifying insurance company.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the first full taxable year of a foreign corporation beginning 
after December 31, 1997, and before January 1, 1999, and to taxable 
years of United States shareholders with or within which such taxable 
year of such foreign corporation ends.

   TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES
             Subtitle A--Provisions Relating to Individuals

SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM TAX EXEMPTION AMOUNT 
              FOR CERTAIN DEPENDENTS.

    (a) Basic Standard Deduction.--
        (1) In general.--Paragraph (5) of section 63(c) (relating to 
    limitation on basic standard deduction in the case of certain 
    dependents) is amended by striking ``shall not exceed'' and all 
    that follows and inserting ``shall not exceed the greater of--
            ``(A) $500, or
            ``(B) the sum of $250 and such individual's earned 
        income.''.
        (2) Conforming amendment.--Paragraph (4) of section 63(c) is 
    amended--
            (A) by striking ``(5)(A)'' in the material preceding 
        subparagraph (A) and inserting ``(5)'', and
            (B) by striking ``by substituting'' and all that follows in 
        subparagraph (B) and inserting ``by substituting for `calendar 
        year 1992' in subparagraph (B) thereof--
                ``(i) `calendar year 1987' in the case of the dollar 
            amounts contained in paragraph (2) or (5)(A) or subsection 
            (f), and
                ``(ii) `calendar year 1997' in the case of the dollar 
            amount contained in paragraph (5)(B).''.
    (b) Minimum Tax Exemption Amount.--
        (1) In general.--Subsection (j) of section 59 is amended to 
    read as follows:
    ``(j) Treatment of Unearned Income of Minor Children.--
        ``(1) In general.--In the case of a child to whom section 1(g) 
    applies, the exemption amount for purposes of section 55 shall not 
    exceed the sum of--
            ``(A) such child's earned income (as defined in section 
        911(d)(2)) for the taxable year, plus
            ``(B) $5,000.
        ``(2) Inflation adjustment.--In the case of any taxable year 
    beginning in a calendar year after 1998, the dollar amount in 
    paragraph (1)(B) shall be increased by an amount equal to the 
    product of--
            ``(A) such dollar amount, and
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `1997' for `1992' in 
        subparagraph (B) thereof.
    If any increase determined under the preceding sentence is not a 
    multiple of $50, such increase shall be rounded to the nearest 
    multiple of $50.''.
        (2) Conforming amendment.--Clause (iv) of section 6103(e)(1)(A) 
    is amended by striking ``or 59(j)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM ESTIMATED TAX 
              REQUIREMENTS.

    (a) In General.--Paragraph (1) of section 6654(e) (relating to 
exception where tax is small amount) is amended by striking ``$500'' 
and inserting ``$1,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1203. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL 
              CARRIERS.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (o) as subsection (p) 
and by inserting after subsection (n) the following new subsection:
    ``(o) Treatment of Certain Reimbursed Expenses of Rural Mail 
Carriers.--
        ``(1) General rule.--In the case of any employee of the United 
    States Postal Service who performs services involving the 
    collection and delivery of mail on a rural route and who receives 
    qualified reimbursements for the expenses incurred by such employee 
    for the use of a vehicle in performing such services--
            ``(A) the amount allowable as a deduction under this 
        chapter for the use of a vehicle in performing such services 
        shall be equal to the amount of such qualified reimbursements; 
        and
            ``(B) such qualified reimbursements shall be treated as 
        paid under a reimbursement or other expense allowance 
        arrangement for purposes of section 62(a)(2)(A) (and section 
        62(c) shall not apply to such qualified reimbursements).
        ``(2) Definition of qualified reimbursements.--For purposes of 
    this subsection, the term `qualified reimbursements' means the 
    amounts paid by the United States Postal Service to employees as an 
    equipment maintenance allowance under the 1991 collective 
    bargaining agreement between the United States Postal Service and 
    the National Rural Letter Carriers' Association. Amounts paid as an 
    equipment maintenance allowance by such Postal Service under later 
    collective bargaining agreements that supersede the 1991 agreement 
    shall be considered qualified reimbursements if such amounts do not 
    exceed the amounts that would have been paid under the 1991 
    agreement, adjusted for changes in the Consumer Price Index (as 
    defined in section 1(f)(5)) since 1991.''.
    (b) Technical Amendment.--Section 6008 of the Technical and 
Miscellaneous Revenue Act of 1988 is hereby repealed.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1204. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL EMPLOYEES 
              ENGAGED IN CRIMINAL INVESTIGATIONS.

    (a) In General.--Subsection (a) of section 162 is amended by adding 
at the end the following new sentence: ``The preceding sentence shall 
not apply to any Federal employee during any period for which such 
employee is certified by the Attorney General (or the designee thereof) 
as traveling on behalf of the United States in temporary duty status to 
investigate, or provide support services for the investigation of, a 
Federal crime.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts paid or incurred with respect to taxable years ending 
after the date of the enactment of this Act.

SEC. 1205. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

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

``SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

    ``(a) Authority To Receive.--It shall be lawful for the Secretary 
to receive for internal revenue taxes (or in payment for internal 
revenue stamps) any commercially acceptable means that the Secretary 
deems appropriate to the extent and under the conditions provided in 
regulations prescribed by the Secretary.
    ``(b) Ultimate Liability.--If a check, money order, or other method 
of payment, including payment by credit card, debit card, or charge 
card so received is not duly paid, or is paid and subsequently charged 
back to the Secretary, the person by whom such check, or money order, 
or other method of payment has been tendered shall remain liable for 
the payment of the tax or for the stamps, and for all legal penalties 
and additions, to the same extent as if such check, money order, or 
other method of payment had not been tendered.
    ``(c) Liability of Banks and Others.--If any certified, 
treasurer's, or cashier's check (or other guaranteed draft), or any 
money order, or any other means of payment that has been guaranteed by 
a financial institution (such as a credit card, debit card, or charge 
card transaction which has been guaranteed expressly by a financial 
institution) so received is not duly paid, the United States shall, in 
addition to its right to exact payment from the party originally 
indebted therefor, have a lien for--
        ``(1) the amount of such check (or draft) upon all assets of 
    the financial institution on which drawn,
        ``(2) the amount of such money order upon all the assets of the 
    issuer thereof, or
        ``(3) the guaranteed amount of any other transaction upon all 
    the assets of the institution making such guarantee,
and such amount shall be paid out of such assets in preference to any 
other claims whatsoever against such financial institution, issuer, or 
guaranteeing institution, except the necessary costs and expenses of 
administration and the reimbursement of the United States for the 
amount expended in the redemption of the circulating notes of such 
financial institution.
    ``(d) Payment by Other Means.--
        ``(1) Authority to prescribe regulations.--The Secretary shall 
    prescribe such regulations as the Secretary deems necessary to 
    receive payment by commercially acceptable means, including 
    regulations that--
            ``(A) specify which methods of payment by commercially 
        acceptable means will be acceptable,
            ``(B) specify when payment by such means will be considered 
        received,
            ``(C) identify types of nontax matters related to payment 
        by such means that are to be resolved by persons ultimately 
        liable for payment and financial intermediaries, without the 
        involvement of the Secretary, and
            ``(D) ensure that tax matters will be resolved by the 
        Secretary, without the involvement of financial intermediaries.
        ``(2) Authority to enter into contracts.--Notwithstanding 
    section 3718(f) of title 31, United States Code, the Secretary is 
    authorized to enter into contracts to obtain services related to 
    receiving payment by other means where cost beneficial to the 
    Government. The Secretary may not pay any fee or provide any other 
    consideration under such contracts.
        ``(3) Special provisions for use of credit cards.--If use of 
    credit cards is accepted as a method of payment of taxes pursuant 
    to subsection (a)--
            ``(A) a payment of internal revenue taxes (or a payment for 
        internal revenue stamps) by a person by use of a credit card 
        shall not be subject to section 161 of the Truth in Lending Act 
        (15 U.S.C. 1666), or to any similar provisions of State law, if 
        the error alleged by the person is an error relating to the 
        underlying tax liability, rather than an error relating to the 
        credit card account such as a computational error or numerical 
        transposition in the credit card transaction or an issue as to 
        whether the person authorized payment by use of the credit 
        card,
            ``(B) a payment of internal revenue taxes (or a payment for 
        internal revenue stamps) shall not be subject to section 170 of 
        the Truth in Lending Act (15 U.S.C. 1666i), or to any similar 
        provisions of State law,
            ``(C) a payment of internal revenue taxes (or a payment for 
        internal revenue stamps) by a person by use of a debit card 
        shall not be subject to section 908 of the Electronic Fund 
        Transfer Act (15 U.S.C. 1693f), or to any similar provisions of 
        State law, if the error alleged by the person is an error 
        relating to the underlying tax liability, rather than an error 
        relating to the debit card account such as a computational 
        error or numerical transposition in the debit card transaction 
        or an issue as to whether the person authorized payment by use 
        of the debit card,
            ``(D) the term `creditor' under section 103(f) of the Truth 
        in Lending Act (15 U.S.C. 1602(f)) shall not include the 
        Secretary with respect to credit card transactions in payment 
        of internal revenue taxes (or payment for internal revenue 
        stamps), and
            ``(E) notwithstanding any other provision of law to the 
        contrary, in the case of payment made by credit card or debit 
        card transaction of an amount owed to a person as the result of 
        the correction of an error under section 161 of the Truth in 
        Lending Act (15 U.S.C. 1666) or section 908 of the Electronic 
        Fund Transfer Act (15 U.S.C. 1693f), the Secretary is 
        authorized to provide such amount to such person as a credit to 
        that person's credit card or debit card account through the 
        applicable credit card or debit card system.
    ``(e) Confidentiality of Information.--
        ``(1) In general.--Except as otherwise authorized by this 
    subsection, no person may use or disclose any information relating 
    to credit or debit card transactions obtained pursuant to section 
    6103(k)(8) other than for purposes directly related to the 
    processing of such transactions, or the billing or collection of 
    amounts charged or debited pursuant thereto.
        ``(2) Exceptions.--
            ``(A) Debit or credit card issuers or others acting on 
        behalf of such issuers may also use and disclose such 
        information for purposes directly related to servicing an 
        issuer's accounts.
            ``(B) Debit or credit card issuers or others directly 
        involved in the processing of credit or debit card transactions 
        or the billing or collection of amounts charged or debited 
        thereto may also use and disclose such information for purposes 
        directly related to--
                ``(i) statistical risk and profitability assessment;
                ``(ii) transferring receivables, accounts, or interest 
            therein;
                ``(iii) auditing the account information;
                ``(iv) complying with Federal, State, or local law; and
                ``(v) properly authorized civil, criminal, or 
            regulatory investigation by Federal, State, or local 
            authorities.
        ``(3) Procedures.--Use and disclosure of information under this 
    paragraph shall be made only to the extent authorized by written 
    procedures promulgated by the Secretary.
        ``(4) Cross reference.--
          ``For provision providing for civil damages for violation of 
        paragraph (1), see section 7431.''.

    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 64 is amended by striking the item relating to section 6311 and 
inserting the following:
        ``Sec. 6311. Payment of tax by commercially acceptable means.''.

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

        Subtitle B--Provisions Relating to Businesses Generally

SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

    (a) Look-Back Method Not To Apply in Certain Cases.--Subsection (b) 
of section 460 (relating to percentage of completion method) is amended 
by adding at the end the following new paragraph:
        ``(6) Election to have look-back method not apply in de minimis 
    cases.--
            ``(A) Amounts taken into account after completion of 
        contract.--Paragraph (1)(B) shall not apply with respect to any 
        taxable year (beginning after the taxable year in which the 
        contract is completed) if--
                ``(i) the cumulative taxable income (or loss) under the 
            contract as of the close of such taxable year, is within
                ``(ii) 10 percent of the cumulative look-back taxable 
            income (or loss) under the contract as of the close of the 
            most recent taxable year to which paragraph (1)(B) applied 
            (or would have applied but for subparagraph (B)).
            ``(B) De minimis discrepancies.--Paragraph (1)(B) shall not 
        apply in any case to which it would otherwise apply if--
                ``(i) the cumulative taxable income (or loss) under the 
            contract as of the close of each prior contract year, is 
            within
                ``(ii) 10 percent of the cumulative look-back income 
            (or loss) under the contract as of the close of such prior 
            contract year.
            ``(C) Definitions.--For purposes of this paragraph--
                ``(i) Contract year.--The term `contract year' means 
            any taxable year for which income is taken into account 
            under the contract.
                ``(ii) Look-back income or loss.--The look-back income 
            (or loss) is the amount which would be the taxable income 
            (or loss) under the contract if the allocation method set 
            forth in paragraph (2)(A) were used in determining taxable 
            income.
                ``(iii) Discounting not applicable.--The amounts taken 
            into account after the completion of the contract shall be 
            determined without regard to any discounting under the 2nd 
            sentence of paragraph (2).
            ``(D) Contracts to which paragraph applies.--This paragraph 
        shall only apply if the taxpayer makes an election under this 
        subparagraph. Unless revoked with the consent of the Secretary, 
        such an election shall apply to all long-term contracts 
        completed during the taxable year for which election is made or 
        during any subsequent taxable year.''.
    (b) Modification of Interest Rate.--
        (1) In general.--Subparagraph (C) of section 460(b)(2) is 
    amended by striking ``the overpayment rate established by section 
    6621'' and inserting ``the adjusted overpayment rate (as defined in 
    paragraph (7))''.
        (2) Adjusted overpayment rate.--Subsection (b) of section 460 
    is amended by adding at the end the following new paragraph:
        ``(7) Adjusted overpayment rate.--
            ``(A) In general.--The adjusted overpayment rate for any 
        interest accrual period is the overpayment rate in effect under 
        section 6621 for the calendar quarter in which such interest 
        accrual period begins.
            ``(B) Interest accrual period.--For purposes of 
        subparagraph (A), the term `interest accrual period' means the 
        period--
                ``(i) beginning on the day after the return due date 
            for any taxable year of the taxpayer, and
                ``(ii) ending on the return due date for the following 
            taxable year.
        For purposes of the preceding sentence, the term `return due 
        date' means the date prescribed for filing the return of the 
        tax imposed by this chapter (determined without regard to 
        extensions).''.
    (c) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to contracts completed 
    in taxable years ending after the date of the enactment of this 
    Act.
        (2) Subsection (b).--The amendments made by subsection (b) 
    shall apply for purposes of section 167(g) of the Internal Revenue 
    Code of 1986 to property placed in service after September 13, 
    1995.

SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND CASUALTY 
              INSURANCE COMPANIES.

    (a) In General.--Clause (i) of section 56(g)(4)(B) (relating to 
inclusion of items included for purposes of computing earnings and 
profits) is amended by adding at the end the following new sentence: 
``In the case of any insurance company taxable under section 831(b), 
this clause shall not apply to any amount not described in section 
834(b).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1213. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM 
              LEASES.

    (a) In General.--Part III of subchapter B of chapter 1 is amended 
by inserting after section 109 the following new section:

``SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM 
              LEASES.

    ``(a) In General.--Gross income of a lessee does not include any 
amount received in cash (or treated as a rent reduction) by a lessee 
from a lessor--
        ``(1) under a short-term lease of retail space, and
        ``(2) for the purpose of such lessee's constructing or 
    improving qualified long-term real property for use in such 
    lessee's trade or business at such retail space,
but only to the extent that such amount does not exceed the amount 
expended by the lessee for such construction or improvement.
    ``(b) Consistent Treatment by Lessor.--Qualified long-term real 
property constructed or improved in connection with any amount excluded 
from a lessee's income by reason of subsection (a) shall be treated as 
nonresidential real property of the lessor (including for purposes of 
section 168(i)(8)(B)).
    ``(c) Definitions.--For purposes of this section--
        ``(1) Qualified long-term real property.--The term `qualified 
    long-term real property' means nonresidential real property which 
    is part of, or otherwise present at, the retail space referred to 
    in subsection (a) and which reverts to the lessor at the 
    termination of the lease.
        ``(2) Short-term lease.--The term `short-term lease' means a 
    lease (or other agreement for occupancy or use) of retail space for 
    15 years or less (as determined under the rules of section 
    168(i)(3)).
        ``(3) Retail space.--The term `retail space' means real 
    property leased, occupied, or otherwise used by a lessee in its 
    trade or business of selling tangible personal property or services 
    to the general public.
    ``(d) Information Required To Be Furnished to Secretary.--Under 
regulations, the lessee and lessor described in subsection (a) shall, 
at such times and in such manner as may be provided in such 
regulations, furnish to the Secretary--
        ``(1) information concerning the amounts received (or treated 
    as a rent reduction) and expended as described in subsection (a), 
    and
        ``(2) any other information which the Secretary deems necessary 
    to carry out the provisions of this section.''.
    (b) Treatment as Information Return.--Subparagraph (A) of section 
6724(d)(1)(A) is amended by striking ``or'' at the end of clause (vii), 
by adding ``or'' at the end of clause (viii), and by adding at the end 
the following new clause:
                ``(ix) section 110(d) (relating to qualified lessee 
            construction allowances for short-term leases),''.
    (c) Cross Reference.--Paragraph (8) of section 168(i) (relating to 
treatment of leasehold improvements) is amended by adding at the end 
the following new subparagraph:
            ``(C) Cross reference.--
          ``For treatment of qualified long-term real property 
        constructed or improved in connection with cash or rent 
        reduction from lessor to lessee, see section 110(b).''.

    (d) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 109 the following new item:
        ``Sec. 110. Qualified lessee construction allowances for short-
                  term leases.''.

    (e) Effective Date.--The amendments made by this section shall 
apply to leases entered into after the date of the enactment of this 
Act.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       PART I--GENERAL PROVISIONS

SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE PARTNERSHIPS.

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

        ``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

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

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

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

``SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ``(a) General Rule.--In determining the income tax of a partner of 
an electing large partnership, such partner shall take into account 
separately such partner's distributive share of the partnership's--
        ``(1) taxable income or loss from passive loss limitation 
    activities,
        ``(2) taxable income or loss from other activities,
        ``(3) net capital gain (or net capital loss)--
            ``(A) to the extent allocable to passive loss limitation 
        activities, and
            ``(B) to the extent allocable to other activities,
        ``(4) tax-exempt interest,
        ``(5) applicable net AMT adjustment separately computed for--
            ``(A) passive loss limitation activities, and
            ``(B) other activities,
        ``(6) general credits,
        ``(7) low-income housing credit determined under section 42,
        ``(8) rehabilitation credit determined under section 47,
        ``(9) foreign income taxes,
        ``(10) the credit allowable under section 29, and
        ``(11) other items to the extent that the Secretary determines 
    that the separate treatment of such items is appropriate.
    ``(b) Separate Computations.--In determining the amounts required 
under subsection (a) to be separately taken into account by any 
partner, this section and section 773 shall be applied separately with 
respect to such partner by taking into account such partner's 
distributive share of the items of income, gain, loss, deduction, or 
credit of the partnership.
    ``(c) Treatment at Partner Level.--
        ``(1) In general.--Except as provided in this subsection, rules 
    similar to the rules of section 702(b) shall apply to any partner's 
    distributive share of the amounts referred to in subsection (a).
        ``(2) Income or loss from passive loss limitation activities.--
    For purposes of this chapter, any partner's distributive share of 
    any income or loss described in subsection (a)(1) shall be treated 
    as an item of income or loss (as the case may be) from the conduct 
    of a trade or business which is a single passive activity (as 
    defined in section 469). A similar rule shall apply to a partner's 
    distributive share of amounts referred to in paragraphs (3)(A) and 
    (5)(A) of subsection (a).
        ``(3) Income or loss from other activities.--
            ``(A) In general.--For purposes of this chapter, any 
        partner's distributive share of any income or loss described in 
        subsection (a)(2) shall be treated as an item of income or 
        expense (as the case may be) with respect to property held for 
        investment.
            ``(B) Deductions for loss not subject to section 67.--The 
        deduction under section 212 for any loss described in 
        subparagraph (A) shall not be treated as a miscellaneous 
        itemized deduction for purposes of section 67.
        ``(4) Treatment of net capital gain or loss.--For purposes of 
    this chapter, any partner's distributive share of any gain or loss 
    described in subsection (a)(3) shall be treated as a long-term 
    capital gain or loss, as the case may be.
        ``(5) Minimum tax treatment.--In determining the alternative 
    minimum taxable income of any partner, such partner's distributive 
    share of any applicable net AMT adjustment shall be taken into 
    account in lieu of making the separate adjustments provided in 
    sections 56, 57, and 58 with respect to the items of the 
    partnership. Except as provided in regulations, the applicable net 
    AMT adjustment shall be treated, for purposes of section 53, as an 
    adjustment or item of tax preference not specified in section 
    53(d)(1)(B)(ii).
        ``(6) General credits.--A partner's distributive share of the 
    amount referred to in paragraph (6) of subsection (a) shall be 
    taken into account as a current year business credit.
    ``(d) Operating Rules.--For purposes of this section--
        ``(1) Passive loss limitation activity.--The term `passive loss 
    limitation activity' means--
            ``(A) any activity which involves the conduct of a trade or 
        business, and
            ``(B) any rental activity.
    For purposes of the preceding sentence, the term `trade or 
    business' includes any activity treated as a trade or business 
    under paragraph (5) or (6) of section 469(c).
        ``(2) Tax-exempt interest.--The term `tax-exempt interest' 
    means interest excludable from gross income under section 103.
        ``(3) Applicable net amt adjustment.--
            ``(A) In general.--The applicable net AMT adjustment is--
                ``(i) with respect to taxpayers other than 
            corporations, the net adjustment determined by using the 
            adjustments applicable to individuals, and
                ``(ii) with respect to corporations, the net adjustment 
            determined by using the adjustments applicable to 
            corporations.
            ``(B) Net adjustment.--The term `net adjustment' means the 
        net adjustment in the items attributable to passive loss 
        activities or other activities (as the case may be) which would 
        result if such items were determined with the adjustments of 
        sections 56, 57, and 58.
        ``(4) Treatment of certain separately stated items.--
            ``(A) Exclusion for certain purposes.--In determining the 
        amounts referred to in paragraphs (1) and (2) of subsection 
        (a), any net capital gain or net capital loss (as the case may 
        be), and any item referred to in subsection (a)(11), shall be 
        excluded.
            ``(B) Allocation rules.--The net capital gain shall be 
        treated--
                ``(i) as allocable to passive loss limitation 
            activities to the extent the net capital gain does not 
            exceed the net capital gain determined by only taking into 
            account gains and losses from sales and exchanges of 
            property used in connection with such activities, and
                ``(ii) as allocable to other activities to the extent 
            such gain exceeds the amount allocated under clause (i).
        A similar rule shall apply for purposes of allocating any net 
        capital loss.
            ``(C) Net capital loss.--The term `net capital loss' means 
        the excess of the losses from sales or exchanges of capital 
        assets over the gains from sales or exchange of capital assets.
        ``(5) General credits.--The term `general credits' means any 
    credit other than the low-income housing credit, the rehabilitation 
    credit, the foreign tax credit, and the credit allowable under 
    section 29.
        ``(6) Foreign income taxes.--The term `foreign income taxes' 
    means taxes described in section 901 which are paid or accrued to 
    foreign countries and to possessions of the United States.
    ``(e) Special Rule for Unrelated Business Tax.--In the case of a 
partner which is an organization subject to tax under section 511, such 
partner's distributive share of any items shall be taken into account 
separately to the extent necessary to comply with the provisions of 
section 512(c)(1).
    ``(f) Special Rules for Applying Passive Loss Limitations.--If any 
person holds an interest in an electing large partnership other than as 
a limited partner--
        ``(1) paragraph (2) of subsection (c) shall not apply to such 
    partner, and
        ``(2) such partner's distributive share of the partnership 
    items allocable to passive loss limitation activities shall be 
    taken into account separately to the extent necessary to comply 
    with the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an 
interest held as a limited partner.

``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

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

``SEC. 774. OTHER MODIFICATIONS.

    ``(a) Treatment of Certain Optional Adjustments, Etc.--In the case 
of an electing large partnership--
        ``(1) computations under section 773 shall be made without 
    regard to any adjustment under section 743(b) or 108(b), but
        ``(2) a partner's distributive share of any amount referred to 
    in section 772(a) shall be appropriately adjusted to take into 
    account any adjustment under section 743(b) or 108(b) with respect 
    to such partner.
    ``(b) Credit Recapture Determined at Partnership Level.--
        ``(1) In general.--In the case of an electing large 
    partnership--
            ``(A) any credit recapture shall be taken into account by 
        the partnership, and
            ``(B) the amount of such recapture shall be determined as 
        if the credit with respect to which the recapture is made had 
        been fully utilized to reduce tax.
        ``(2) Method of taking recapture into account.--An electing 
    large partnership shall take into account a credit recapture by 
    reducing the amount of the appropriate current year credit to the 
    extent thereof, and if such recapture exceeds the amount of such 
    current year credit, the partnership shall be liable to pay such 
    excess.
        ``(3) Dispositions not to trigger recapture.--No credit 
    recapture shall be required by reason of any transfer of an 
    interest in an electing large partnership.
        ``(4) Credit recapture.--For purposes of this subsection, the 
    term `credit recapture' means any increase in tax under section 
    42(j) or 50(a).
    ``(c) Partnership Not Terminated by Reason of Change in 
Ownership.--Subparagraph (B) of section 708(b)(1) shall not apply to an 
electing large partnership.
    ``(d) Partnership Entitled to Certain Credits.--The following shall 
be allowed to an electing large partnership and shall not be taken into 
account by the partners of such partnership:
        ``(1) The credit provided by section 34.
        ``(2) Any credit or refund under section 852(b)(3)(D).
    ``(e) Treatment of REMIC Residuals.--For purposes of applying 
section 860E(e)(6) to any electing large partnership--
        ``(1) all interests in such partnership shall be treated as 
    held by disqualified organizations,
        ``(2) in lieu of applying subparagraph (C) of section 
    860E(e)(6), the amount subject to tax under section 860E(e)(6) 
    shall be excluded from the gross income of such partnership, and
        ``(3) subparagraph (D) of section 860E(e)(6) shall not apply.
    ``(f) Special Rules for Applying Certain Installment Sale Rules.--
In the case of an electing large partnership--
        ``(1) the provisions of sections 453(l)(3) and 453A shall be 
    applied at the partnership level, and
        ``(2) in determining the amount of interest payable under such 
    sections, such partnership shall be treated as subject to tax under 
    this chapter at the highest rate of tax in effect under section 1 
    or 11.

``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.

    ``(a) General Rule.--For purposes of this part--
        ``(1) In general.--The term `electing large partnership' means, 
    with respect to any partnership taxable year, any partnership if--
            ``(A) the number of persons who were partners in such 
        partnership in the preceding partnership taxable year equaled 
        or exceeded 100, and
            ``(B) such partnership elects the application of this part.
    To the extent provided in regulations, a partnership shall cease to 
    be treated as an electing large partnership for any partnership 
    taxable year if in such taxable year fewer than 100 persons were 
    partners in such partnership.
        ``(2) Election.--The election under this subsection shall apply 
    to the taxable year for which made and all subsequent taxable years 
    unless revoked with the consent of the Secretary.
    ``(b) Special Rules for Certain Service Partnerships.--
        ``(1) Certain partners not counted.--For purposes of this 
    section, the term `partner' does not include any individual 
    performing substantial services in connection with the activities 
    of the partnership and holding an interest in such partnership, or 
    an individual who formerly performed substantial services in 
    connection with such activities and who held an interest in such 
    partnership at the time the individual performed such services.
        ``(2) Exclusion.--For purposes of this part, an election under 
    subsection (a) shall not be effective with respect to any 
    partnership if substantially all the partners of such partnership--
            ``(A) are individuals performing substantial services in 
        connection with the activities of such partnership or are 
        personal service corporations (as defined in section 269A(b)) 
        the owner-employees (as defined in section 269A(b)) of which 
        perform such substantial services,
            ``(B) are retired partners who had performed such 
        substantial services, or
            ``(C) are spouses of partners who are performing (or had 
        previously performed) such substantial services.
        ``(3) Special rule for lower tier partnerships.--For purposes 
    of this subsection, the activities of a partnership shall include 
    the activities of any other partnership in which the partnership 
    owns directly an interest in the capital and profits of at least 80 
    percent.
    ``(c) Exclusion of Commodity Pools.--For purposes of this part, an 
election under subsection (a) shall not be effective with respect to 
any partnership the principal activity of which is the buying and 
selling of commodities (not described in section 1221(1)), or options, 
futures, or forwards with respect to such commodities.
    ``(d) Secretary May Rely on Treatment on Return.--If, on the 
partnership return of any partnership, such partnership is treated as 
an electing large partnership, such treatment shall be binding on such 
partnership and all partners of such partnership but not on the 
Secretary.

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

    ``(a) Computation of Percentage Depletion.--In the case of an 
electing large partnership, except as provided in subsection (b)--
        ``(1) the allowance for depletion under section 611 with 
    respect to any partnership oil or gas property shall be computed at 
    the partnership level without regard to any provision of section 
    613A requiring such allowance to be computed separately by each 
    partner,
        ``(2) such allowance shall be determined without regard to the 
    provisions of section 613A(c) limiting the amount of production for 
    which percentage depletion is allowable and without regard to 
    paragraph (1) of section 613A(d), and
        ``(3) paragraph (3) of section 705(a) shall not apply.
    ``(b) Treatment of Certain Partners.--
        ``(1) In general.--In the case of a disqualified person, the 
    treatment under this chapter of such person's distributive share of 
    any item of income, gain, loss, deduction, or credit attributable 
    to any partnership oil or gas property shall be determined without 
    regard to this part. Such person's distributive share of any such 
    items shall be excluded for purposes of making determinations under 
    sections 772 and 773.
        ``(2) Disqualified person.--For purposes of paragraph (1), the 
    term `disqualified person' means, with respect to any partnership 
    taxable year--
            ``(A) any person referred to in paragraph (2) or (4) of 
        section 613A(d) for such person's taxable year in which such 
        partnership taxable year ends, and
            ``(B) any other person if such person's average daily 
        production of domestic crude oil and natural gas for such 
        person's taxable year in which such partnership taxable year 
        ends exceeds 500 barrels.
        ``(3) Average daily production.--For purposes of paragraph (2), 
    a person's average daily production of domestic crude oil and 
    natural gas for any taxable year shall be computed as provided in 
    section 613A(c)(2)--
            ``(A) by taking into account all production of domestic 
        crude oil and natural gas (including such person's 
        proportionate share of any production of a partnership),
            ``(B) by treating 6,000 cubic feet of natural gas as a 
        barrel of crude oil, and
            ``(C) by treating as 1 person all persons treated as 1 
        taxpayer under section 613A(c)(8) or among whom allocations are 
        required under such section.

``SEC. 777. REGULATIONS.

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

    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years beginning after December 31, 1997.

SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE PARTNERSHIPS.

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

        ``Subchapter D--Treatment of electing large partnerships

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

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

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

``SEC. 6240. APPLICATION OF SUBCHAPTER.

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

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

    ``(a) General Rule.--A partner of any electing large partnership 
shall, on the partner's return, treat each partnership item 
attributable to such partnership in a manner which is consistent with 
the treatment of such partnership item on the partnership return.
    ``(b) Underpayment Due to Inconsistent Treatment Assessed as Math 
Error.--Any underpayment of tax by a partner by reason of failing to 
comply with the requirements of subsection (a) shall be assessed and 
collected in the same manner as if such underpayment were on account of 
a mathematical or clerical error appearing on the partner's return. 
Paragraph (2) of section 6213(b) shall not apply to any assessment of 
an underpayment referred to in the preceding sentence.
    ``(c) Adjustments Not To Affect Prior Year of Partners.--
        ``(1) In general.--Except as provided in paragraph (2), 
    subsections (a) and (b) shall apply without regard to any 
    adjustment to the partnership item under part II.
        ``(2) Certain changes in distributive share taken into account 
    by partner.--
            ``(A) In general.--To the extent that any adjustment under 
        part II involves a change under section 704 in a partner's 
        distributive share of the amount of any partnership item shown 
        on the partnership return, such adjustment shall be taken into 
        account in applying this title to such partner for the 
        partner's taxable year for which such item was required to be 
        taken into account.
            ``(B) Coordination with deficiency procedures.--
                ``(i) In general.--Subchapter B shall not apply to the 
            assessment or collection of any underpayment of tax 
            attributable to an adjustment referred to in subparagraph 
            (A).
                ``(ii) Adjustment not precluded.--Notwithstanding any 
            other law or rule of law, nothing in subchapter B (or in 
            any proceeding under subchapter B) shall preclude the 
            assessment or collection of any underpayment of tax (or the 
            allowance of any credit or refund of any overpayment of 
            tax) attributable to an adjustment referred to in 
            subparagraph (A) and such assessment or collection or 
            allowance (or any notice thereof) shall not preclude any 
            notice, proceeding, or determination under subchapter B.
            ``(C) Period of limitations.--The period for--
                ``(i) assessing any underpayment of tax, or
                ``(ii) filing a claim for credit or refund of any 
            overpayment of tax,
        attributable to an adjustment referred to in subparagraph (A) 
        shall not expire before the close of the period prescribed by 
        section 6248 for making adjustments with respect to the 
        partnership taxable year involved.
            ``(D) Tiered structures.--If the partner referred to in 
        subparagraph (A) is another partnership or an S corporation, 
        the rules of this paragraph shall also apply to persons holding 
        interests in such partnership or S corporation (as the case may 
        be); except that, if such partner is an electing large 
        partnership, the adjustment referred to in subparagraph (A) 
        shall be taken into account in the manner provided by section 
        6242.
    ``(d) Addition to Tax for Failure to Comply With Section.--
          ``For addition to tax in case of partner's disregard of 
        requirements of this section, see part II of subchapter A of 
        chapter 68.

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

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

                ``PART II--PARTNERSHIP LEVEL ADJUSTMENTS

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

                 ``Subpart A--Adjustments by Secretary

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

``SEC. 6245. SECRETARIAL AUTHORITY.

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

``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

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

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

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

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

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

           ``Subpart B--Claims for Adjustments by Partnership

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

``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

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

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

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

               ``PART III--DEFINITIONS AND SPECIAL RULES

        ``Sec. 6255. Definitions and special rules.

``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
        ``(1) Electing large partnership.--The term `electing large 
    partnership' has the meaning given to such term by section 775.
        ``(2) Partnership item.--The term `partnership item' has the 
    meaning given to such term by section 6231(a)(3).
    ``(b) Partners Bound by Actions of Partnership, Etc.--
        ``(1) Designation of partner.--Each electing large partnership 
    shall designate (in the manner prescribed by the Secretary) a 
    partner (or other person) who shall have the sole authority to act 
    on behalf of such partnership under this subchapter. In any case in 
    which such a designation is not in effect, the Secretary may select 
    any partner as the partner with such authority.
        ``(2) Binding effect.--An electing large partnership and all 
    partners of such partnership shall be bound--
            ``(A) by actions taken under this subchapter by the 
        partnership, and
            ``(B) by any decision in a proceeding brought under this 
        subchapter.
    ``(c) Partnerships Having Principal Place of Business Outside the 
United States.--For purposes of sections 6247 and 6252, a principal 
place of business located outside the United States shall be treated as 
located in the District of Columbia.
    ``(d) Treatment Where Partnership Ceases To Exist.--If a 
partnership ceases to exist before a partnership adjustment under this 
subchapter takes effect, such adjustment shall be taken into account by 
the former partners of such partnership under regulations prescribed by 
the Secretary.
    ``(e) Date Decision Becomes Final.--For purposes of this 
subchapter, the principles of section 7481(a) shall be applied in 
determining the date on which a decision of a district court or the 
Claims Court becomes final.
    ``(f) Partnerships in Cases Under Title 11 of the United States 
Code.--
        ``(1) Suspension of period of limitations on making adjustment, 
    assessment, or collection.--The running of any period of 
    limitations provided in this subchapter on making a partnership 
    adjustment (or provided by section 6501 or 6502 on the assessment 
    or collection of any amount required to be paid under section 6242) 
    shall, in a case under title 11 of the United States Code, be 
    suspended during the period during which the Secretary is 
    prohibited by reason of such case from making the adjustment (or 
    assessment or collection) and--
            ``(A) for adjustment or assessment, 60 days thereafter, and
            ``(B) for collection, 6 months thereafter.
    A rule similar to the rule of section 6213(f)(2) shall apply for 
    purposes of section 6246.
        ``(2) Suspension of period of limitation for filing for 
    judicial review.--The running of the period specified in section 
    6247(a) or 6252(b) shall, in a case under title 11 of the United 
    States Code, be suspended during the period during which the 
    partnership is prohibited by reason of such case from filing a 
    petition under section 6247 or 6252 and for 60 days thereafter.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this subchapter, 
including regulations--
        ``(1) to prevent abuse through manipulation of the provisions 
    of this subchapter, and
        ``(2) providing that this subchapter shall not apply to any 
    case described in section 6231(c)(1) (or the regulations prescribed 
    thereunder) where the application of this subchapter to such a case 
    would interfere with the effective and efficient enforcement of 
    this title.
In any case to which this subchapter does not apply by reason of 
paragraph (2), rules similar to the rules of sections 6229(f) and 
6255(f) shall apply.''.
    (b) Conforming Amendments.--
        (1) Subsection (a) of section 7421 is amended by inserting 
    ``6246(b),'' after ``6213(a),''.
        (2) Subsection (c) of section 7459 is amended by striking ``or 
    section 6228(a)'' and inserting ``, 6228(a), 6247, or 6252''.
        (3) Subparagraph (E) of section 7482(b)(1) is amended by 
    striking ``or 6228(a)'' and inserting ``, 6228(a), 6247, or 6252''.
        (4)(A) The text of section 7485(b) is amended by striking ``or 
    6228(a)'' and inserting ``, 6228(a), 6247, or 6252''.
        (B) The subsection heading for section 7485(b) is amended to 
    read as follows:
    ``(b) Bond in Case of Appeal of Certain Partnership-Related 
Decisions.--''.
    (c) Clerical Amendment.--The table of subchapters for chapter 63 is 
amended by adding at the end thereof the following new item:

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

SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF ELECTING 
              LARGE PARTNERSHIPS.

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

SEC. 1224. RETURNS REQUIRED ON MAGNETIC MEDIA.

    Paragraph (2) of section 6011(e) (relating to returns on magnetic 
media) is amended by adding at the end thereof the following new 
sentence:
    ``Notwithstanding the preceding sentence, the Secretary shall 
    require partnerships having more than 100 partners to file returns 
    on magnetic media.''.

SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT 
              ACCOUNTS.

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

SEC. 1226. EFFECTIVE DATE.

    The amendments made by this part shall apply to partnership taxable 
years ending on or after December 31, 1997.

      PART II--PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS

SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.

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

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

    ``(a) General Rule.--If--
        ``(1) a taxpayer files an oversheltered return for a taxable 
    year,
        ``(2) the Secretary makes a determination with respect to the 
    treatment of items (other than partnership items) of such taxpayer 
    for such taxable year, and
        ``(3) the adjustments resulting from such determination do not 
    give rise to a deficiency (as defined in section 6211) but would 
    give rise to a deficiency if there were no net loss from 
    partnership items,
the Secretary is authorized to send a notice of adjustment reflecting 
such determination to the taxpayer by certified or registered mail.
    ``(b) Oversheltered Return.--For purposes of this section, the term 
`oversheltered return' means an income tax return which--
        ``(1) shows no taxable income for the taxable year, and
        ``(2) shows a net loss from partnership items.
    ``(c) Judicial Review in the Tax Court.--Within 90 days, or 150 
days if the notice is addressed to a person outside the United States, 
after the day on which the notice of adjustment authorized in 
subsection (a) is mailed to the taxpayer, the taxpayer may file a 
petition with the Tax Court for redetermination of the adjustments. 
Upon the filing of such a petition, the Tax Court shall have 
jurisdiction to make a declaration with respect to all items (other 
than partnership items and affected items which require partner level 
determinations as described in section 6230(a)(2)(A)(i)) for the 
taxable year to which the notice of adjustment relates, in accordance 
with the principles of section 6214(a). Any such declaration shall have 
the force and effect of a decision of the Tax Court and shall be 
reviewable as such.
    ``(d) Failure To File Petition.--
        ``(1) In general.--Except as provided in paragraph (2), if the 
    taxpayer does not file a petition with the Tax Court within the 
    time prescribed in subsection (c), the determination of the 
    Secretary set forth in the notice of adjustment that was mailed to 
    the taxpayer shall be deemed to be correct.
        ``(2) Exception.--Paragraph (1) shall not apply after the date 
    that the taxpayer--
            ``(A) files a petition with the Tax Court within the time 
        prescribed in subsection (c) with respect to a subsequent 
        notice of adjustment relating to the same taxable year, or
            ``(B) files a claim for refund of an overpayment of tax 
        under section 6511 for the taxable year involved.
    If a claim for refund is filed by the taxpayer, then solely for 
    purposes of determining (for the taxable year involved) the amount 
    of any computational adjustment in connection with a partnership 
    proceeding under this subchapter (other than under this section) or 
    the amount of any deficiency attributable to affected items in a 
    proceeding under section 6230(a)(2), the items that are the subject 
    of the notice of adjustment shall be presumed to have been 
    correctly reported on the taxpayer's return during the pendency of 
    the refund claim (and, if within the time prescribed by section 
    6532 the taxpayer commences a civil action for refund under section 
    7422, until the decision in the refund action becomes final).
    ``(e) Limitations Period.--
        ``(1) In general.--Any notice to a taxpayer under subsection 
    (a) shall be mailed before the expiration of the period prescribed 
    by section 6501 (relating to the period of limitations on 
    assessment).
        ``(2) Suspension when secretary mails notice of adjustment.--If 
    the Secretary mails a notice of adjustment to the taxpayer for a 
    taxable year, the period of limitations on the making of 
    assessments shall be suspended for the period during which the 
    Secretary is prohibited from making the assessment (and, in any 
    event, if a proceeding in respect of the notice of adjustment is 
    placed on the docket of the Tax Court, until the decision of the 
    Tax Court becomes final), and for 60 days thereafter.
        ``(3) Restrictions on assessment.--Except as otherwise provided 
    in section 6851, 6852, or 6861, no assessment of a deficiency with 
    respect to any tax imposed by subtitle A attributable to any item 
    (other than a partnership item or any item affected by a 
    partnership item) shall be made--
            ``(A) until the expiration of the applicable 90-day or 150-
        day period set forth in subsection (c) for filing a petition 
        with the Tax Court, or
            ``(B) if a petition has been filed with the Tax Court, 
        until the decision of the Tax Court has become final.
    ``(f) Further Notices of Adjustment Restricted.--If the Secretary 
mails a notice of adjustment to the taxpayer for a taxable year and the 
taxpayer files a petition with the Tax Court within the time prescribed 
in subsection (c), the Secretary may not mail another such notice to 
the taxpayer with respect to the same taxable year in the absence of a 
showing of fraud, malfeasance, or misrepresentation of a material fact.
    ``(g) Coordination With Other Proceedings Under This Subchapter.--
        ``(1) In general.--The treatment of any item that has been 
    determined pursuant to subsection (c) or (d) shall be taken into 
    account in determining the amount of any computational adjustment 
    that is made in connection with a partnership proceeding under this 
    subchapter (other than under this section), or the amount of any 
    deficiency attributable to affected items in a proceeding under 
    section 6230(a)(2), for the taxable year involved. Notwithstanding 
    any other law or rule of law pertaining to the period of 
    limitations on the making of assessments, for purposes of the 
    preceding sentence, any adjustment made in accordance with this 
    section shall be taken into account regardless of whether any 
    assessment has been made with respect to such adjustment.
        ``(2) Special rule in case of computational adjustment.--In the 
    case of a computational adjustment that is made in connection with 
    a partnership proceeding under this subchapter (other than under 
    this section), the provisions of paragraph (1) shall apply only if 
    the computational adjustment is made within the period prescribed 
    by section 6229 for assessing any tax under subtitle A which is 
    attributable to any partnership item or affected item for the 
    taxable year involved.
        ``(3) Conversion to deficiency proceeding.--If--
            ``(A) after the notice referred to in subsection (a) is 
        mailed to a taxpayer for a taxable year but before the 
        expiration of the period for filing a petition with the Tax 
        Court under subsection (c) (or, if a petition is filed with the 
        Tax Court, before the Tax Court makes a declaration for that 
        taxable year), the treatment of any partnership item for the 
        taxable year is finally determined, or any such item ceases to 
        be a partnership item pursuant to section 6231(b), and
            ``(B) as a result of that final determination or cessation, 
        a deficiency can be determined with respect to the items that 
        are the subject of the notice of adjustment,
    the notice of adjustment shall be treated as a notice of deficiency 
    under section 6212 and any petition filed in respect of the notice 
    shall be treated as an action brought under section 6213.
        ``(4) Finally determined.--For purposes of this subsection, the 
    treatment of partnership items shall be treated as finally 
    determined if--
            ``(A) the Secretary enters into a settlement agreement 
        (within the meaning of section 6224) with the taxpayer 
        regarding such items,
            ``(B) a notice of final partnership administrative 
        adjustment has been issued and--
                ``(i) no petition has been filed under section 6226 and 
            the time for doing so has expired, or
                ``(ii) a petition has been filed under section 6226 and 
            the decision of the court has become final, or
            ``(C) the period within which any tax attributable to such 
        items may be assessed against the taxpayer has expired.
    ``(h) Special Rules if Secretary Incorrectly Determines Applicable 
Procedure.--
        ``(1) Special rule if secretary erroneously mails notice of 
    adjustment.--If the Secretary erroneously determines that 
    subchapter B does not apply to a taxable year of a taxpayer and 
    consistent with that determination timely mails a notice of 
    adjustment to the taxpayer pursuant to subsection (a) of this 
    section, the notice of adjustment shall be treated as a notice of 
    deficiency under section 6212 and any petition that is filed in 
    respect of the notice shall be treated as an action brought under 
    section 6213.
        ``(2) Special rule if secretary erroneously mails notice of 
    deficiency.--If the Secretary erroneously determines that 
    subchapter B applies to a taxable year of a taxpayer and consistent 
    with that determination timely mails a notice of deficiency to the 
    taxpayer pursuant to section 6212, the notice of deficiency shall 
    be treated as a notice of adjustment under subsection (a) and any 
    petition that is filed in respect of the notice shall be treated as 
    an action brought under subsection (c).''.
    (b) Treatment of Partnership Items in Deficiency Proceedings.--
Section 6211 (defining deficiency) is amended by adding at the end the 
following new subsection:
    ``(c) Coordination With Subchapter C.--In determining the amount of 
any deficiency for purposes of this subchapter, adjustments to 
partnership items shall be made only as provided in subchapter C.''.
    (c) Clerical Amendment.--The table of sections for subchapter C of 
chapter 63 is amended by adding at the end the following new item:
        ``Sec. 6234. Declaratory judgment relating to treatment of items 
                  other than partnership items with respect to an 
                  oversheltered return.''.

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

SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES 
              TO BE FOLLOWED.

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

SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

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

SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

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

SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR LIMITATION ON 
              ASSESSMENT.

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

SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE 
              ADJUSTMENT.

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

SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF 
              PARTNERSHIP PROCEEDINGS.

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

SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

    (a) In General.--Section 6221 (relating to tax treatment determined 
at partnership level) is amended by striking ``item'' and inserting 
``item (and the applicability of any penalty, addition to tax, or 
additional amount which relates to an adjustment to a partnership 
item)''.
    (b) Conforming Amendments.--
        (1) Subsection (f) of section 6226 is amended--
            (A) by striking ``relates and'' and inserting ``relates,'', 
        and
            (B) by inserting before the period ``, and the 
        applicability of any penalty, addition to tax, or additional 
        amount which relates to an adjustment to a partnership item''.
        (2) Clause (i) of section 6230(a)(2)(A) is amended to read as 
    follows:
                ``(i) affected items which require partner level 
            determinations (other than penalties, additions to tax, and 
            additional amounts that relate to adjustments to 
            partnership items), or''.
        (3)(A) Subparagraph (A) of section 6230(a)(3), as added by 
    section 1237, is amended by inserting ``(including any liability 
    for any penalties, additions to tax, or additional amounts relating 
    to such adjustment)'' after ``partnership item''.
        (B) Subparagraph (B) of such section is amended by inserting 
    ``(and the applicability of any penalties, additions to tax, or 
    additional amounts)'' after ``partnership items''.
        (C) Subparagraph (A) of section 6230(c)(5), as added by section 
    1237, is amended by inserting before the period ``(including any 
    liability for any penalties, additions to tax, or additional 
    amounts relating to such adjustment)''.
        (D) Subparagraph (D) of section 6230(c)(5), as added by section 
    1237, is amended by inserting ``(and the applicability of any 
    penalties, additions to tax, or additional amounts)'' after 
    ``partnership items''.
        (4) Paragraph (1) of section 6230(c) is amended by striking 
    ``or'' at the end of subparagraph (A), by striking the period at 
    the end of subparagraph (B) and inserting ``, or'', and by adding 
    at the end the following new subparagraph:
            ``(C) the Secretary erroneously imposed any penalty, 
        addition to tax, or additional amount which relates to an 
        adjustment to a partnership item.''.
        (5) So much of subparagraph (A) of section 6230(c)(2) as 
    precedes ``shall be filed'' is amended to read as follows:
            ``(A) Under paragraph (1) (a) or (c).--Any claim under 
        subparagraph (A) or (C) of paragraph (1)''.
        (6) Paragraph (4) of section 6230(c) is amended by adding at 
    the end the following: ``In addition, the determination under the 
    final partnership administrative adjustment or under the decision 
    of the court (whichever is appropriate) concerning the 
    applicability of any penalty, addition to tax, or additional amount 
    which relates to an adjustment to a partnership item shall also be 
    conclusive. Notwithstanding the preceding sentence, the partner 
    shall be allowed to assert any partner level defenses that may 
    apply or to challenge the amount of the computational 
    adjustment.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

    (a) Tax Court Jurisdiction To Enjoin Premature Assessments of 
Deficiencies Attributable to Partnership Items.--Subsection (b) of 
section 6225 is amended by striking ``the proper court.'' and inserting 
``the proper court, including the Tax Court. The Tax Court shall have 
no jurisdiction to enjoin any action or proceeding under this 
subsection unless a timely petition for a readjustment of the 
partnership items for the taxable year has been filed and then only in 
respect of the adjustments that are the subject of such petition.''.
    (b) Jurisdiction To Consider Statute of Limitations With Respect to 
Partners.--Paragraph (1) of section 6226(d) is amended by adding at the 
end the following new sentence:
    ``Notwithstanding subparagraph (B), any person treated under 
    subsection (c) as a party to an action shall be permitted to 
    participate in such action (or file a readjustment petition under 
    subsection (b) or paragraph (2) of this subsection) solely for the 
    purpose of asserting that the period of limitations for assessing 
    any tax attributable to partnership items has expired with respect 
    to such person, and the court having jurisdiction of such action 
    shall have jurisdiction to consider such assertion.''.
    (c) Tax Court Jurisdiction To Determine Overpayments Attributable 
to Affected Items.--
        (1) Paragraph (6) of section 6230(d) is amended by striking 
    ``(or an affected item)''.
        (2) Paragraph (3) of section 6512(b) is amended by adding at 
    the end the following new sentence:
    ``In the case of a credit or refund relating to an affected item 
    (within the meaning of section 6231(a)(5)), the preceding sentence 
    shall be applied by substituting the periods under sections 6229 
    and 6230(d) for the periods under section 6511(b)(2), (c), and 
    (d).''.
    (d) Venue on Appeal.--
        (1) Paragraph (1) of section 7482(b) is amended by striking 
    ``or'' at the end of subparagraph (D), by striking the period at 
    the end of subparagraph (E) and inserting ``, or'', and by 
    inserting after subparagraph (E) the following new subparagraph:
            ``(F) in the case of a petition under section 6234(c)--
                ``(i) the legal residence of the petitioner if the 
            petitioner is not a corporation, and
                ``(ii) the place or office applicable under 
            subparagraph (B) if the petitioner is a corporation.''.
        (2) The last sentence of section 7482(b)(1) is amended by 
    striking ``or 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
    (e) Other Provisions.--
        (1) Subsection (c) of section 7459 is amended by striking ``or 
    section 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
        (2) Subsection (o) of section 6501 is amended by adding at the 
    end the following new paragraph:
        ``(3) For declaratory judgment relating to treatment of items 
    other than partnership items with respect to an oversheltered 
    return, see section 6234.''.
        (3) Subsection (a) of section 7421, as amended by section 1222, 
    is amended by inserting ``6225(b),'' after ``6213(a),''.
    (f) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR 
              5-PERCENT GROUPS.

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

SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.

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

SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL 
              ADJUSTMENT RESULTING FROM CERTAIN SETTLEMENTS.

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

SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH 
              RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.

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

  PART III--PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR 
                 WITH RESPECT TO DECEASED PARTNER, ETC.

SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED 
              PARTNER, ETC.

    (a) General Rule.--Subparagraph (A) of section 706(c)(2) (relating 
to disposition of entire interest) is amended to read as follows:
            ``(A) Disposition of entire interest.--The taxable year of 
        a partnership shall close with respect to a partner whose 
        entire interest in the partnership terminates (whether by 
        reason of death, liquidation, or otherwise).''.
    (b) Clerical Amendment.--The paragraph heading for paragraph (2) of 
section 706(c) is amended to read as follows:
        ``(2) Treatment of dispositions.--''.
    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years beginning after December 31, 1997.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF 
              SHAREHOLDERS.

    (a) Rules Relating to Determination of Ownership.--
        (1) Failure to issue shareholder demand letter not to 
    disqualify reit.--Section 857(a) (relating to requirements 
    applicable to real estate investment trusts) is amended by striking 
    paragraph (2) and by redesignating paragraph (3) as paragraph (2).
        (2) Shareholder demand letter requirement; penalty.--Section 
    857 (relating to taxation of real estate investment trusts and 
    their beneficiaries) is amended by redesignating subsection (f) as 
    subsection (g) and by inserting after subsection (e) the following 
    new subsection:
    ``(f) Real Estate Investment Trusts To Ascertain Ownership.--
        ``(1) In general.--Each real estate investment trust shall each 
    taxable year comply with regulations prescribed by the Secretary 
    for the purposes of ascertaining the actual ownership of the 
    outstanding shares, or certificates of beneficial interest, of such 
    trust.
        ``(2) Failure to comply.--
            ``(A) In general.--If a real estate investment trust fails 
        to comply with the requirements of paragraph (1) for a taxable 
        year, such trust shall pay (on notice and demand by the 
        Secretary and in the same manner as tax) a penalty of $25,000.
            ``(B) Intentional disregard.--If any failure under 
        paragraph (1) is due to intentional disregard of the 
        requirement under paragraph (1), the penalty under subparagraph 
        (A) shall be $50,000.
            ``(C) Failure to comply after notice.--The Secretary may 
        require a real estate investment trust to take such actions as 
        the Secretary determines appropriate to ascertain actual 
        ownership if the trust fails to meet the requirements of 
        paragraph (1). If the trust fails to take such actions, the 
        trust shall pay (on notice and demand by the Secretary and in 
        the same manner as tax) an additional penalty equal to the 
        penalty determined under subparagraph (A) or (B), whichever is 
        applicable.
            ``(D) Reasonable cause.--No penalty shall be imposed under 
        this paragraph with respect to any failure if it is shown that 
        such failure is due to reasonable cause and not to willful 
        neglect.''.
    (b) Compliance With Closely Held Prohibition.--
        (1) In general.--Section 856 (defining real estate investment 
    trust) is amended by adding at the end the following new 
    subsection:
    ``(k) Requirement That Entity Not Be Closely Held Treated as Met in 
Certain Cases.--A corporation, trust, or association--
        ``(1) which for a taxable year meets the requirements of 
    section 857(f)(1), and
        ``(2) which does not know, or exercising reasonable diligence 
    would not have known, whether the entity failed to meet the 
    requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6) for 
the taxable year.''.
        (2) Conforming amendment.--Paragraph (6) of section 856(a) is 
    amended by inserting ``subject to the provisions of subsection 
    (k),'' before ``which is not''.

SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.

    (a) In General.--Paragraph (2) of section 856(d) (defining rents 
from real property) is amended by striking subparagraph (C) and the 
last sentence and inserting:
            ``(C) any impermissible tenant service income (as defined 
        in paragraph (7)).''.
    (b) Impermissible Tenant Service Income.--Section 856(d) is amended 
by adding at the end the following new paragraph:
        ``(7) Impermissible tenant service income.--For purposes of 
    paragraph (2)(C)--
            ``(A) In general.--The term `impermissible tenant service 
        income' means, with respect to any real or personal property, 
        any amount received or accrued directly or indirectly by the 
        real estate investment trust for--
                ``(i) services furnished or rendered by the trust to 
            the tenants of such property, or
                ``(ii) managing or operating such property.
            ``(B) Disqualification of all amounts where more than de 
        minimis amount.--If the amount described in subparagraph (A) 
        with respect to a property for any taxable year exceeds 1 
        percent of all amounts received or accrued during such taxable 
        year directly or indirectly by the real estate investment trust 
        with respect to such property, the impermissible tenant service 
        income of the trust with respect to the property shall include 
        all such amounts.
            ``(C) Exceptions.--For purposes of subparagraph (A)--
                ``(i) services furnished or rendered, or management or 
            operation provided, through an independent contractor from 
            whom the trust itself does not derive or receive any income 
            shall not be treated as furnished, rendered, or provided by 
            the trust, and
                ``(ii) there shall not be taken into account any amount 
            which would be excluded from unrelated business taxable 
            income under section 512(b)(3) if received by an 
            organization described in section 511(a)(2).
            ``(D) Amount attributable to impermissible services.--For 
        purposes of subparagraph (A), the amount treated as received 
        for any service (or management or operation) shall not be less 
        than 150 percent of the direct cost of the trust in furnishing 
        or rendering the service (or providing the management or 
        operation).
            ``(E) Coordination with limitations.--For purposes of 
        paragraphs (2) and (3) of subsection (c), amounts described in 
        subparagraph (A) shall be included in the gross income of the 
        corporation, trust, or association.''.

SEC. 1253. ATTRIBUTION RULES APPLICABLE TO STOCK OWNERSHIP.

    Section 856(d)(5) (relating to constructive ownership of stock) is 
amended by striking ``except that'' and all that follows and inserting 
``except that--
            ``(A) `10 percent' shall be substituted for `50 percent' in 
        subparagraph (C) of paragraphs (2) and (3) of section 318(a), 
        and
            ``(B) section 318(a)(3)(A) shall be applied in the case of 
        a partnership by taking into account only partners who own 
        (directly or indirectly) 25 percent or more of the capital 
        interest, or the profits interest, in the partnership.''.

SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL GAINS.

    (a) General Rule.--Paragraph (3) of section 857(b) (relating to 
capital gains) is amended by redesignating subparagraph (D) as 
subparagraph (E) and by inserting after subparagraph (C) the following 
new subparagraph:
            ``(D) Treatment by shareholders of undistributed capital 
        gains.--
                ``(i) Every shareholder of a real estate investment 
            trust at the close of the trust's taxable year shall 
            include, in computing his long-term capital gains in his 
            return for his taxable year in which the last day of the 
            trust's taxable year falls, such amount as the trust shall 
            designate in respect of such shares in a written notice 
            mailed to its shareholders at any time prior to the 
            expiration of 60 days after the close of its taxable year 
            (or mailed to its shareholders or holders of beneficial 
            interests with its annual report for the taxable year), but 
            the amount so includible by any shareholder shall not 
            exceed that part of the amount subjected to tax in 
            subparagraph (A)(ii) which he would have received if all of 
            such amount had been distributed as capital gain dividends 
            by the trust to the holders of such shares at the close of 
            its taxable year.
                ``(ii) For purposes of this title, every such 
            shareholder shall be deemed to have paid, for his taxable 
            year under clause (i), the tax imposed by subparagraph 
            (A)(ii) on the amounts required by this subparagraph to be 
            included in respect of such shares in computing his long-
            term capital gains for that year; and such shareholders 
            shall be allowed credit or refund as the case may be, for 
            the tax so deemed to have been paid by him.
                ``(iii) The adjusted basis of such shares in the hands 
            of the holder shall be increased with respect to the 
            amounts required by this subparagraph to be included in 
            computing his long-term capital gains, by the difference 
            between the amount of such includible gains and the tax 
            deemed paid by such shareholder in respect of such shares 
            under clause (ii).
                ``(iv) In the event of such designation, the tax 
            imposed by subparagraph (A)(ii) shall be paid by the real 
            estate investment trust within 30 days after the close of 
            its taxable year.
                ``(v) The earnings and profits of such real estate 
            investment trust, and the earnings and profits of any such 
            shareholder which is a corporation, shall be appropriately 
            adjusted in accordance with regulations prescribed by the 
            Secretary.
                ``(vi) As used in this subparagraph, the terms `shares' 
            and `shareholders' shall include beneficial interests and 
            holders of beneficial interests, respectively.''.
    (b) Conforming Amendments.--
        (1) Clause (i) of section 857(b)(7)(A) is amended by striking 
    ``subparagraph (B)'' and inserting ``subparagraph (B) or (D)''.
        (2) Clause (iii) of section 852(b)(3)(D) is amended by striking 
    ``by 65 percent'' and all that follows and inserting ``by the 
    difference between the amount of such includible gains and the tax 
    deemed paid by such shareholder in respect of such shares under 
    clause (ii).''.

SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.

    (a) General Rule.--Subsection (c) of section 856 (relating to 
limitations) is amended--
        (1) by adding ``and'' at the end of paragraph (3),
        (2) by striking paragraphs (4) and (8), and
        (3) by redesignating paragraphs (5), (6), and (7) as paragraphs 
    (4), (5), and (6), respectively.
    (b) Conforming Amendments.--
        (1) Subparagraph (G) of section 856(c)(5), as redesignated by 
    subsection (a), is amended by striking ``and such agreement shall 
    be treated as a security for purposes of paragraph (4)(A)''.
        (2) Paragraph (5) of section 857(b) is amended by striking 
    ``section 856(c)(7)'' and inserting ``section 856(c)(6)''.
        (3) Subparagraph (C) of section 857(b)(6) is amended by 
    striking ``section 856(c)(6)(B)'' and inserting ``section 
    856(c)(5)(B)''.

SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR DETERMINING 
              WHETHER REIT HAS EARNINGS AND PROFITS FROM NON-REIT YEAR.

    Subsection (d) of section 857 is amended by adding at the end the 
following new paragraph:
        ``(3) Distributions to meet requirements of subsection 
    (a)(2)(B).--Any distribution which is made in order to comply with 
    the requirements of subsection (a)(2)(B)--
            ``(A) shall be treated for purposes of this subsection and 
        subsection (a)(2)(B) as made from the earliest accumulated 
        earnings and profits (other than earnings and profits to which 
        subsection (a)(2)(A) applies) rather than the most recently 
        accumulated earnings and profits, and
            ``(B) to the extent treated under subparagraph (A) as made 
        from accumulated earnings and profits, shall not be treated as 
        a distribution for purposes of subsection (b)(2)(B).''.

SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.

    (a) Grace Periods.--
        (1) Initial period.--Paragraph (2) of section 856(e) (relating 
    to special rules for foreclosure property) is amended by striking 
    ``on the date which is 2 years after the date the trust acquired 
    such property'' and inserting ``as of the close of the 3d taxable 
    year following the taxable year in which the trust acquired such 
    property''.
        (2) Extension.--Paragraph (3) of section 856(e) is amended--
            (A) by striking ``or more extensions'' and inserting 
        ``extension'', and
            (B) by striking the last sentence and inserting: ``Any such 
        extension shall not extend the grace period beyond the close of 
        the 3d taxable year following the last taxable year in the 
        period under paragraph (2).''.
    (b) Revocation of Election.--Paragraph (5) of section 856(e) is 
amended by striking the last sentence and inserting: ``A real estate 
investment trust may revoke any such election for a taxable year by 
filing the revocation (in the manner provided by the Secretary) on or 
before the due date (including any extension of time) for filing its 
return of tax under this chapter for the taxable year. If a trust 
revokes an election for any property, no election may be made by the 
trust under this paragraph with respect to the property for any 
subsequent taxable year.''.
    (c) Certain Activities Not To Disqualify Property.--Paragraph (4) 
of section 856(e) is amended by adding at the end the following new 
flush sentence:
    ``For purposes of subparagraph (C), property shall not be treated 
    as used in a trade or business by reason of any activities of the 
    real estate investment trust with respect to such property to the 
    extent that such activities would not result in amounts received or 
    accrued, directly or indirectly, with respect to such property 
    being treated as other than rents from real property.''.

SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.

    Section 856(c)(5)(G) (relating to treatment of certain interest 
rate agreements), as redesignated by section 1255, is amended to read 
as follows:
            ``(G) Treatment of certain hedging instruments.--Except to 
        the extent provided by regulations, any--
                ``(i) payment to a real estate investment trust under 
            an interest rate swap or cap agreement, option, futures 
            contract, forward rate agreement, or any similar financial 
            instrument, entered into by the trust in a transaction to 
            reduce the interest rate risks with respect to any 
            indebtedness incurred or to be incurred by the trust to 
            acquire or carry real estate assets, and
                ``(ii) gain from the sale or other disposition of any 
            such investment,
        shall be treated as income qualifying under paragraph (2).''.

SEC. 1259. EXCESS NONCASH INCOME.

    Section 857(e)(2) (relating to determination of amount of excess 
noncash income) is amended--
        (1) by striking subparagraph (B),
        (2) by striking the period at the end of subparagraph (C) and 
    inserting a comma,
        (3) by redesignating subparagraph (C) (as amended by paragraph 
    (2)) as subparagraph (B), and
        (4) by adding at the end the following new subparagraphs:
            ``(C) the amount (if any) by which--
                ``(i) the amounts includible in gross income with 
            respect to instruments to which section 860E(a) or 1272 
            applies, exceed
                ``(ii) the amount of money and the fair market value of 
            other property received during the taxable year under such 
            instruments, and
            ``(D) amounts includible in income by reason of 
        cancellation of indebtedness.''.

SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.

    Clause (iii) of section 857(b)(6)(C) (relating to certain sales not 
to constitute prohibited transactions) is amended by striking ``(other 
than foreclosure property)'' in subclauses (I) and (II) and inserting 
``(other than sales of foreclosure property or sales to which section 
1033 applies)''.

SEC. 1261. SHARED APPRECIATION MORTGAGES.

    (a) Bankruptcy Safe Harbor.--Section 856(j) (relating to treatment 
of shared appreciation mortgages) is amended by redesignating paragraph 
(4) as paragraph (5) and by inserting after paragraph (3) the following 
new paragraph:
        ``(4) Coordination with 4-year holding period.--
            ``(A) In general.--For purposes of section 857(b)(6)(C), if 
        a real estate investment trust is treated as having sold 
        secured property under paragraph (3)(A), the trust shall be 
        treated as having held such property for at least 4 years if--
                ``(i) the secured property is sold or otherwise 
            disposed of pursuant to a case under title 11 of the United 
            States Code,
                ``(ii) the seller is under the jurisdiction of the 
            court in such case, and
                ``(iii) the disposition is required by the court or is 
            pursuant to a plan approved by the court.
            ``(B) Exception.--Subparagraph (A) shall not apply if--
                ``(i) the secured property was acquired by the seller 
            with the intent to evict or foreclose, or
                ``(ii) the trust knew or had reason to know that 
            default on the obligation described in paragraph (5)(A) 
            would occur.''.
    (b) Clarification of Definition of Shared Appreciation Provision.--
Clause (ii) of section 856(j)(5)(A) is amended by inserting before the 
period ``or appreciation in value as of any specified date''.

SEC. 1262. WHOLLY OWNED SUBSIDIARIES.

    Section 856(i)(2) (defining qualified REIT subsidiary) is amended 
by striking ``at all times during the period such corporation was in 
existence''.

SEC. 1263. EFFECTIVE DATE.

    The amendments made by this part shall apply to taxable years 
beginning after the date of the enactment of this Act.

   Subtitle E--Provisions Relating to Regulated Investment Companies

SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

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

                    Subtitle F--Taxpayer Protections

SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.

    (a) Information on Deductible Employee Contributions.--Subsection 
(g) of section 6652 (relating to information required in connection 
with deductible employee contributions) is amended by adding at the end 
the following new sentence: ``No penalty shall be imposed under this 
subsection on any failure which is shown to be due to reasonable cause 
and not willful neglect.''.
    (b) Reports on Status as Qualified Small Business.--Subsection (k) 
of section 6652 (relating to failure to make reports required under 
section 1202) is amended by adding at the end the following new 
sentence: ``No penalty shall be imposed under this subsection on any 
failure which is shown to be due to reasonable cause and not willful 
neglect.''.
    (c) Returns of Personal Holding Company Tax by Foreign 
Corporations.--Section 6683 (relating to failure of foreign corporation 
to file return of personal holding company tax) is amended by adding at 
the end the following new sentence: ``No penalty shall be imposed under 
this section on any failure which is shown to be due to reasonable 
cause and not willful neglect.''.
    (d) Failure To Make Required Payments.--Subparagraph (A) of section 
7519(f)(4) is amended by adding at the end the following new sentence: 
``No penalty shall be imposed under this subparagraph on any failure 
which is shown to be due to reasonable cause and not willful 
neglect.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR REFUNDS.

    (a) In General.--Paragraph (3) of section 6512(b) (relating to 
overpayment determined by Tax Court) is amended by adding at the end 
the following flush sentence:
    ``In a case described in subparagraph (B) where the date of the 
    mailing of the notice of deficiency is during the third year after 
    the due date (with extensions) for filing the return of tax and no 
    return was filed before such date, the applicable period under 
    subsections (a) and (b)(2) of section 6511 shall be 3 years.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to claims for credit or refund for taxable years ending after the 
date of the enactment of this Act.

SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR 
              HAS BEEN AUDITED.

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

SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.

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

SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.

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

TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING REQUIREMENTS.

    (a) In General.--Section 6019 is amended by striking ``or'' at the 
end of paragraph (1), by adding ``or'' at the end of paragraph (2), and 
by inserting after paragraph (2) the following new paragraph:
        ``(3) a transfer with respect to which a deduction is allowed 
    under section 2522 but only if--
            ``(A)(i) such transfer is of the donor's entire interest in 
        the property transferred, and
            ``(ii) no other interest in such property is or has been 
        transferred (for less than adequate and full consideration in 
        money or money's worth) from the donor to a person, or for a 
        use, not described in subsection (a) or (b) of section 2522, or
            ``(B) such transfer is described in section 2522(d),''.
    (b) Effective Date.--The amendment made by this section shall apply 
to gifts made after the date of the enactment of this Act.

SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

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

SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.

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

SEC. 1304. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM OBLIGATIONS 
              HELD BY NONRESIDENT ALIENS.

    (a) In General.--Subsection (b) of section 2105 is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by inserting 
after paragraph (3) the following new paragraph:
        ``(4) obligations which would be original issue discount 
    obligations as defined in section 871(g)(1) but for subparagraph 
    (B)(i) thereof, if any interest thereon (were such interest 
    received by the decedent at the time of his death) would not be 
    effectively connected with the conduct of a trade or business 
    within the United States.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

SEC. 1305. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    (a) In General.--Subpart A of part I of subchapter J (relating to 
estates, trusts, beneficiaries, and decedents) is amended by adding at 
the end the following new section:

``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    ``(a) General Rule.--For purposes of this subtitle, if both the 
executor (if any) of an estate and the trustee of a qualified revocable 
trust elect the treatment provided in this section, such trust shall be 
treated and taxed as part of such estate (and not as a separate trust) 
for all taxable years of the estate ending after the date of the 
decedent's death and before the applicable date.
    ``(b) Definitions.--For purposes of subsection (a)--
        ``(1) Qualified revocable trust.--The term `qualified revocable 
    trust' means any trust (or portion thereof) which was treated under 
    section 676 as owned by the decedent of the estate referred to in 
    subsection (a) by reason of a power in the grantor (determined 
    without regard to section 672(e)).
        ``(2) Applicable date.--The term `applicable date' means--
            ``(A) if no return of tax imposed by chapter 11 is required 
        to be filed, the date which is 2 years after the date of the 
        decedent's death, and
            ``(B) if such a return is required to be filed, the date 
        which is 6 months after the date of the final determination of 
        the liability for tax imposed by chapter 11.
    ``(c) Election.--The election under subsection (a) shall be made 
not later than the time prescribed for filing the return of tax imposed 
by this chapter for the first taxable year of the estate (determined 
with regard to extensions) and, once made, shall be irrevocable.''.
    (b) Comparable Treatment Under Generation-Skipping Tax.--Paragraph 
(1) of section 2652(b) is amended by adding at the end the following 
new sentence: ``Such term shall not include any trust during any period 
the trust is treated as part of an estate under section 646.''.
    (c) Clerical Amendment.--The table of sections for such subpart A 
is amended by adding at the end the following new item:
        ``Sec. 646. Certain revocable trusts treated as part of 
                  estate.''.

    (d) Effective Date.--The amendments made by this section shall 
apply with respect to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 1306. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF 
              ESTATE.

    (a) In General.--Subsection (b) of section 663 (relating to 
distributions in first 65 days of taxable year) is amended by inserting 
``an estate or'' before ``a trust'' each place it appears.
    (b) Conforming Amendment.--Paragraph (2) of section 663(b) is 
amended by striking ``the fiduciary of such trust'' and inserting ``the 
executor of such estate or the fiduciary of such trust (as the case may 
be)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1307. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

    (a) In General.--Subsection (c) of section 663 (relating to 
separate shares treated as separate trusts) is amended--
        (1) by inserting before the last sentence the following new 
    sentence: ``Rules similar to the rules of the preceding provisions 
    of this subsection shall apply to treat substantially separate and 
    independent shares of different beneficiaries in an estate having 
    more than 1 beneficiary as separate estates.'', and
        (2) by inserting ``or estates'' after ``trusts'' in the last 
    sentence.
    (b) Conforming Amendment.--The subsection heading of section 663(c) 
is amended by inserting ``Estates or'' before ``Trusts''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after the date of the enactment of 
this Act.

SEC. 1308. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED 
              PERSONS FOR DISALLOWANCE OF LOSSES, ETC.

    (a) Disallowance of Losses.--Subsection (b) of section 267 
(relating to losses, expenses, and interest with respect to 
transactions between related taxpayers) is amended by striking ``or'' 
at the end of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``; or'', and by adding at the end the 
following new paragraph:
        ``(13) Except in the case of a sale or exchange in satisfaction 
    of a pecuniary bequest, an executor of an estate and a beneficiary 
    of such estate.''.
    (b) Ordinary Income From Gain From Sale of Depreciable Property.--
Subsection (b) of section 1239 is amended by striking the period at the 
end of paragraph (2) and inserting ``, and'' and by adding at the end 
the following new paragraph:
        ``(3) except in the case of a sale or exchange in satisfaction 
    of a pecuniary bequest, an executor of an estate and a beneficiary 
    of such estate.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1309. TREATMENT OF FUNERAL TRUSTS.

    (a) In General.--Subpart F of part I of subchapter J of chapter 1 
is amended by adding at the end the following new section:

``SEC. 685. TREATMENT OF FUNERAL TRUSTS.

    ``(a) In General.--In the case of a qualified funeral trust--
        ``(1) subparts B, C, D, and E shall not apply, and
        ``(2) no deduction shall be allowed by section 642(b).
    ``(b) Qualified Funeral Trust.--For purposes of this subsection, 
the term `qualified funeral trust' means any trust (other than a 
foreign trust) if--
        ``(1) the trust arises as a result of a contract with a person 
    engaged in the trade or business of providing funeral or burial 
    services or property necessary to provide such services,
        ``(2) the sole purpose of the trust is to hold, invest, and 
    reinvest funds in the trust and to use such funds solely to make 
    payments for such services or property for the benefit of the 
    beneficiaries of the trust,
        ``(3) the only beneficiaries of such trust are individuals with 
    respect to whom such services or property are to be provided at 
    their death under contracts described in paragraph (1),
        ``(4) the only contributions to the trust are contributions by 
    or for the benefit of such beneficiaries,
        ``(5) the trustee elects the application of this subsection, 
    and
        ``(6) the trust would (but for the election described in 
    paragraph (5)) be treated as owned under subpart E by the 
    purchasers of the contracts described in paragraph (1).
    ``(c) Dollar Limitation on Contributions.--
        ``(1) In general.--The term `qualified funeral trust' shall not 
    include any trust which accepts aggregate contributions by or for 
    the benefit of an individual in excess of $7,000.
        ``(2) Related trusts.--For purposes of paragraph (1), all 
    trusts having trustees which are related persons shall be treated 
    as 1 trust. For purposes of the preceding sentence, persons are 
    related if--
            ``(A) the relationship between such persons is described in 
        section 267 or 707(b),
            ``(B) such persons are treated as a single employer under 
        subsection (a) or (b) of section 52, or
            ``(C) the Secretary determines that treating such persons 
        as related is necessary to prevent avoidance of the purposes of 
        this section.
        ``(3) Inflation adjustment.--In the case of any contract 
    referred to in subsection (b)(1) which is entered into during any 
    calendar year after 1998, the dollar amount referred to paragraph 
    (1) shall be increased by an amount equal to--
            ``(A) such dollar amount, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year, by substituting 
        `calendar year 1997' for `calendar year 1992' in subparagraph 
        (B) thereof.
    If any dollar amount after being increased under the preceding 
    sentence is not a multiple of $100, such dollar amount shall be 
    rounded to the nearest multiple of $100.
    ``(d) Application of Rate Schedule.--Section 1(e) shall be applied 
to each qualified funeral trust by treating each beneficiary's interest 
in each such trust as a separate trust.
    ``(e) Treatment of Amounts Refunded to Purchaser on Cancellation.--
No gain or loss shall be recognized to a purchaser of a contract 
described in subsection (b)(1) by reason of any payment from such trust 
to such purchaser by reason of cancellation of such contract. If any 
payment referred to in the preceding sentence consists of property 
other than money, the basis of such property in the hands of such 
purchaser shall be the same as the trust's basis in such property 
immediately before the payment.
    ``(f) Simplified Reporting.--The Secretary may prescribe rules for 
simplified reporting of all trusts having a single trustee.''.
    (b) Clerical Amendment.--The table of sections for subpart F of 
part I of subchapter J of chapter 1 is amended by adding at the end the 
following new item:
        ``Sec. 685. Treatment of funeral trusts.''.

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

SEC. 1310. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.

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

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

    ``(a) Inclusion of Certain Property in Gross Estate.--If--
        ``(1) the decedent made a transfer (by trust or otherwise) of 
    an interest in any property, or relinquished a power with respect 
    to any property, during the 3-year period ending on the date of the 
    decedent's death, and
        ``(2) the value of such property (or an interest therein) would 
    have been included in the decedent's gross estate under section 
    2036, 2037, 2038, or 2042 if such transferred interest or 
    relinquished power had been retained by the decedent on the date of 
    his death,
the value of the gross estate shall include the value of any property 
(or interest therein) which would have been so included.
    ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years Before 
Decedent's Death.--The amount of the gross estate (determined without 
regard to this subsection) shall be increased by the amount of any tax 
paid under chapter 12 by the decedent or his estate on any gift made by 
the decedent or his spouse during the 3-year period ending on the date 
of the decedent's death.
    ``(c) Other Rules Relating to Transfers Within 3 Years of Death.--
        ``(1) In general.--For purposes of--
            ``(A) section 303(b) (relating to distributions in 
        redemption of stock to pay death taxes),
            ``(B) section 2032A (relating to special valuation of 
        certain farms, etc., real property), and
            ``(C) subchapter C of chapter 64 (relating to lien for 
        taxes),
    the value of the gross estate shall include the value of all 
    property to the extent of any interest therein of which the 
    decedent has at any time made a transfer, by trust or otherwise, 
    during the 3-year period ending on the date of the decedent's 
    death.
        ``(2) Coordination with section 6166.--An estate shall be 
    treated as meeting the 35 percent of adjusted gross estate 
    requirement of section 6166(a)(1) only if the estate meets such 
    requirement both with and without the application of paragraph (1).
        ``(3) Marital and small transfers.--Paragraph (1) shall not 
    apply to any transfer (other than a transfer with respect to a life 
    insurance policy) made during a calendar year to any donee if the 
    decedent was not required by section 6019 (other than by reason of 
    section 6019(2)) to file any gift tax return for such year with 
    respect to transfers to such donee.
    ``(d) Exception.--Subsection (a) shall not apply to any bona fide 
sale for an adequate and full consideration in money or money's worth.
    ``(e) Treatment of Certain Transfers From Revocable Trusts.--For 
purposes of this section and section 2038, any transfer from any 
portion of a trust during any period that such portion was treated 
under section 676 as owned by the decedent by reason of a power in the 
grantor (determined without regard to section 672(e)) shall be treated 
as a transfer made directly by the decedent.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by striking ``gifts'' in the item 
relating to section 2035 and inserting ``certain gifts''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

SEC. 1311. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER 
              QUALIFIED TERMINABLE INTEREST RULES.

    (a) In General.--Subparagraph (C) of section 2056(b)(7) is amended 
by inserting ``(or, in the case of an interest in an annuity arising 
under the community property laws of a State, included in the gross 
estate of the decedent under section 2033)'' after ``section 2039''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

SEC. 1312. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF 
              OWNERSHIP WHICH ARE NOT TRUSTS.

    (a) In General.--Subsection (c) of section 2056A (defining 
qualified domestic trust) is amended by adding at the end the following 
new paragraph:
        ``(3) Trust.--To the extent provided in regulations prescribed 
    by the Secretary, the term `trust' includes other arrangements 
    which have substantially the same effect as a trust.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

SEC. 1313. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.

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

SEC. 1314. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES TRUSTEE FOR 
              QUALIFIED DOMESTIC TRUSTS.

    (a) In General.--Subparagraph (A) of section 2056A(a)(1) is amended 
by inserting ``except as provided in regulations prescribed by the 
Secretary,'' before ``requires''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

  TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                    EXEMPT BONDS, AND OTHER MATTERS
                 Subtitle A--Excise Tax Simplification

          PART I--EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS

SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET ALTERATIONS 
              FOR HEAVY TRUCKS AND LUXURY CARS.

    (a) In General.--Sections 4003(a)(3)(C) and 4051(b)(2)(B) (relating 
to exceptions) are each amended by striking ``$200'' and inserting 
``$1,000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to installations on vehicles sold after the date of the enactment 
of this Act.

SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE OF TIRES 
              IN COMPUTING PRICE.

    (a) In General.--Subsection (e) of section 4051 is amended to read 
as follows:
    ``(e) Credit Against Tax for Tire Tax.--If--
        ``(1) tires are sold on or in connection with the sale of any 
    article, and
        ``(2) tax is imposed by this subchapter on the sale of such 
    tires,
there shall be allowed as a credit against the tax imposed by this 
subchapter an amount equal to the tax (if any) imposed by section 4071 
on such tires.''.
    (b) Conforming Amendment.--Subparagraph (B) of section 4052(b)(1) 
is amended by striking clause (iii), by adding ``and'' at the end of 
clause (ii), and by redesignating clause (iv) as clause (iii).
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

   PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER

SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS 
              RETURNED TO DISTILLED SPIRITS PLANT.

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

SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT 
              SUBMISSION OF RECORDS.

    (a) In General.--Section 5175(c) (relating to cancellation of 
credit of export bonds) is amended by striking ``on the submission of'' 
and all that follows and inserting ``if there is such proof of 
exportation as the Secretary may by regulations require.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 1st day of the 1st calendar quarter that begins at 
least 180 days after the date of the enactment of this Act.

SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF 
              DISTILLED SPIRITS PLANT.

    (a) In General.--Section 5207(c) (relating to preservation and 
inspection) is amended by striking ``shall be kept on the premises 
where the operations covered by the record are carried on and''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 1st day of the 1st calendar quarter that begins at 
least 180 days after the date of the enactment of this Act.

SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A 
              DISTILLED SPIRITS PLANT.

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

SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO 
              POST SIGN.

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

SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO 
              UNMERCHANTABLE WINE.

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

SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.

    (a) In General.--Section 5384(b)(2)(D) (relating to ameliorated 
fruit and berry wines) is amended by striking ``loganberries, currants, 
or gooseberries,'' and inserting ``any fruit or berry with a natural 
fixed acid of 20 parts per thousand or more (before any correction of 
such fruit or berry)''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the 1st day of the 1st calendar quarter that begins at least 
180 days after the date of the enactment of this Act.

SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR 
              USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.

    (a) In General.--Section 5053 (relating to exemptions), as amended 
by section 1414(b), is amended by inserting after subsection (f) the 
following new subsection:
    ``(g) Removals for Use of Foreign Embassies, Legations, Etc.--
        ``(1) In general.--Subject to such regulations as the Secretary 
    may prescribe--
            ``(A) beer may be withdrawn from the brewery without 
        payment of tax for transfer to any customs bonded warehouse for 
        entry pending withdrawal therefrom as provided in subparagraph 
        (B), and
            ``(B) beer entered into any customs bonded warehouse under 
        subparagraph (A) may be withdrawn for consumption in the United 
        States by, and for the official and family use of, such foreign 
        governments, organizations, and individuals as are entitled to 
        withdraw imported beer from such warehouses free of tax.
    Beer transferred to any customs bonded warehouse under subparagraph 
    (A) shall be entered, stored, and accounted for in such warehouse 
    under such regulations and bonds as the Secretary may prescribe, 
    and may be withdrawn therefrom by such governments, organizations, 
    and individuals free of tax under the same conditions and 
    procedures as imported beer.
        ``(2) Other rules to apply.--Rules similar to the rules of 
    paragraphs (2) and (3) of section 5362(e) shall apply for purposes 
    of this subsection.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 1st day of the 1st calendar quarter that begins at 
least 180 days after the date of the enactment of this Act.

SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) In General.--Section 5053 (relating to exemptions), as amended 
by section 1418(a), is amended by inserting after subsection (g) the 
following new subsection:
    ``(h) Removals for Destruction.--Subject to such regulations as the 
Secretary may prescribe, beer may be removed from the brewery without 
payment of tax for destruction.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 1st day of the 1st calendar quarter that begins at 
least 180 days after the date of the enactment of this Act.

SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT 
              SUBMISSION OF RECORDS.

    (a) In General.--The first sentence of section 5055 (relating to 
drawback of tax on beer) is amended by striking ``found to have been 
paid'' and all that follows and inserting ``paid on such beer if there 
is such proof of exportation as the Secretary may by regulations 
require.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the 1st day of the 1st calendar quarter that begins at 
least 180 days after the date of the enactment of this Act.

SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT 
              OF TAX.

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

``SEC. 5418. BEER IMPORTED IN BULK.

    ``Beer imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may prescribe, 
be withdrawn from customs custody and transferred in such bulk 
containers to the premises of a brewery without payment of the internal 
revenue tax imposed on such beer. The proprietor of a brewery to which 
such beer is transferred shall become liable for the tax on the beer 
withdrawn from customs custody under this section upon release of the 
beer from customs custody, and the importer, or the person bringing 
such beer into the United States, shall thereupon be relieved of the 
liability for such tax.''.
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end the following new item:
        ``Sec. 5418. Beer imported in bulk.''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the 1st day of the 1st calendar quarter that begins at least 
180 days after the date of the enactment of this Act.

SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED IN BULK 
              WITHOUT PAYMENT OF TAX.

    (a) In General.--Part II of subchapter F of chapter 51 is amended 
by inserting after section 5363 the following new section:

``SEC. 5364. WINE IMPORTED IN BULK.

    ``Wine imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may prescribe, 
be withdrawn from customs custody and transferred in such bulk 
containers to the premises of a bonded wine cellar without payment of 
the internal revenue tax imposed on such wine. The proprietor of a 
bonded wine cellar to which such wine is transferred shall become 
liable for the tax on the wine withdrawn from customs custody under 
this section upon release of the wine from customs custody, and the 
importer, or the person bringing such wine into the United States, 
shall thereupon be relieved of the liability for such tax.''.
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by inserting after the item relating to section 5363 the 
following new item:
        ``Sec. 5364. Wine imported in bulk.''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the 1st day of the 1st calendar quarter that begins at least 
180 days after the date of the enactment of this Act.

                 PART III--OTHER EXCISE TAX PROVISIONS

SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION 
              REQUIREMENTS.

    (a) In General.--Section 4222(b)(2) (relating to export) is 
amended--
        (1) by striking ``in the case of any sale or resale for 
    export,'', and
        (2) by striking ``Export'' and inserting ``Under regulations''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 1432. REPEAL OF EXPIRED PROVISIONS.

    (a) Piggy-Back Trailers.--Section 4051 (relating to imposition of 
tax on heavy trucks and trailers sold at retail) is amended by striking 
subsection (d) and by redesignating subsection (e) as subsection (d).
    (b) Deep Seabed Mining.--
        (1) In general.--Subchapter F of chapter 36 (relating to tax on 
    removal of hard mineral resources from deep seabed) is hereby 
    repealed.
        (2) Conforming amendment.--The table of subchapters for chapter 
    36 is amended by striking the item relating to subchapter F.
    (c) Ozone-Depleting Chemicals.--
        (1) Paragraph (1) of section 4681(b) is amended by striking 
    subparagraphs (B) and (C) and inserting the following new 
    subparagraph:
            ``(B) Base tax amount.--The base tax amount for purposes of 
        subparagraph (A) with respect to any sale or use during any 
        calendar year after 1995 shall be $5.35 increased by 45 cents 
        for each year after 1995.''.
        (2) Subsection (g) of section 4682 is amended to read as 
    follows:
    ``(g) Chemicals Used as Propellants in Metered-Dose Inhalers.--
        ``(1) Exemption from tax.--
            ``(A) 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.
            ``(B) Qualified sale.--For purposes of subparagraph (A), 
        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.
        ``(2) 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 tax so paid. 
    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 paragraph.''.

SEC. 1433. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON ARROWS.

    (a) In General.--Subsection (b) of section 4161 (relating to 
imposition of tax) is amended to read as follows:
    ``(b) Bows and Arrows, Etc.--
        ``(1) Bows.--
            ``(A) In general.--There is hereby imposed on the sale by 
        the manufacturer, producer, or importer of any bow which has a 
        draw weight of 10 pounds or more, a tax equal to 11 percent of 
        the price for which so sold.
            ``(B) Parts and accessories.--There is hereby imposed upon 
        the sale by the manufacturer, producer, or importer--
                ``(i) of any part of accessory suitable for inclusion 
            in or attachment to a bow described in subparagraph (A), 
            and
                ``(ii) of any quiver suitable for use with arrows 
            described in paragraph (2),
        a tax equivalent to 11 percent of the price for which so sold.
        ``(2) Arrows.--There is hereby imposed on the sale by the 
    manufacturer, producer, or importer of any shaft, point, nock, or 
    vane of a type used in the manufacture of any arrow which after its 
    assembly--
            ``(A) measures 18 inches overall or more in length, or
            ``(B) measures less than 18 inches overall in length but is 
        suitable for use with a bow described in paragraph (1)(A),
    a tax equal to 12.4 percent of the price for which so sold.
        ``(3) Coordination with subsection (a).--No tax shall be 
    imposed under this subsection with respect to any article taxable 
    under subsection (a).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to articles sold by the manufacturer, producer, or importer after 
September 30, 1997.

SEC. 1434. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.

    (a) Certain Repairs and Modifications Not Treated as Manufacture.--
Section 4052 is amended by redesignating the subsection defining a 
long-term lease as subsection (e) and by adding at the end the 
following new subsection:
    ``(f) Certain Repairs and Modifications Not Treated as 
Manufacture.--
        ``(1) In general.--An article described in section 4051(a)(1) 
    shall not be treated as manufactured or produced solely by reason 
    of repairs or modifications to the article (including any 
    modification which changes the transportation function of the 
    article or restores a wrecked article to a functional condition) if 
    the cost of such repairs and modifications does not exceed 75 
    percent of the retail price of a comparable new article.
        ``(2) Exception.--Paragraph (1) shall not apply if the article 
    (as repaired or modified) would, if new, be taxable under section 
    4051 and the article when new was not taxable under this section or 
    the corresponding provision of prior law.''.
    (b) Simplification of Certification Procedures With Respect to 
Sales of Taxable Articles.--
        (1) Repeal of registration requirement.--Subsection (d) of 
    section 4052 is amended by striking ``rules of--'' and all that 
    follows through ``shall apply'' and inserting ``rules of 
    subsections (c) and (d) of section 4216 (relating to partial 
    payments) shall apply''.
        (2) Requirement to modify regulations.--Section 4052 is amended 
    by adding at the end the following new subsection:
    ``(g) Regulations.--The Secretary shall prescribe regulations which 
permit, in lieu of any other certification, persons who are purchasing 
articles taxable under this subchapter for resale or leasing in a long-
term lease to execute a statement (made under penalties of perjury) on 
the sale invoice that such sale is for resale. The Secretary shall not 
impose any registration requirement as a condition of using such 
procedure.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

SEC. 1435. SKYDIVING FLIGHTS EXEMPT FROM TAX ON TRANSPORTATION OF 
              PERSONS BY AIR.

    (a) In General.--Section 4261 (relating to imposition of tax on 
transportation of persons by air), as previously amended by this Act, 
is amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Exemption for Skydiving Uses.--No tax shall be imposed by 
this section or section 4271 on any air transportation exclusively for 
the purpose of skydiving.''.
    (b) Transportation Treated as Noncommercial Aviation.--The last 
sentence of section 4041(c)(2) is amended by inserting before the 
period ``or by reason of section 4261(h)''.
    (c) Effective Dates.--
        (1) Subsection (a).--The amendment made by subsection (a) shall 
    apply to amounts paid after September 30, 1997.
        (2) Subsection (b).--The amendment made by subsection (b) shall 
    take effect on October 1, 1997.

SEC. 1436. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID AVIATION FUEL 
              PURCHASED BY REGISTERED PRODUCER OF AVIATION FUEL.

    (a) In General.--Section 4091 (relating to aviation fuel) is 
amended by adding at the end the following new subsection:
    ``(d) Refund of Tax-Paid Aviation Fuel to Registered Producer of 
Fuel.--If--
        ``(1) a producer of aviation fuel is registered under section 
    4101, and
        ``(2) such producer establishes to the satisfaction of the 
    Secretary that a prior tax was paid (and not credited or refunded) 
    on aviation fuel held by such producer,
then an amount equal to the tax so paid shall be allowed as a refund 
(without interest) to such producer in the same manner as if it were an 
overpayment of tax imposed by this section.''.
    (b) Conforming Amendment.--The last sentence of section 6416(d) is 
amended by inserting before the period ``or to the tax imposed by 
section 4091 in the case of refunds described in section 4091(d)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to fuel acquired by the producer after September 30, 1997.

                 Subtitle B--Tax-Exempt Bond Provisions

SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
              YEAR EXCEPTION FROM REBATE.

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

SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE 
              FUND UNDER CONSTRUCTION BOND RULES.

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

SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN 
              CERTAIN NONPURPOSE INVESTMENTS.

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

SEC. 1444. REPEAL OF EXPIRED PROVISIONS.

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

SEC. 1445. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to bonds issued 
after the date of the enactment of this Act.

                    Subtitle C--Tax Court Procedures

SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.

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

SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

    (a) In General.--Subsection (c) of section 7481 (relating to 
jurisdiction over interest determinations) is amended to read as 
follows:
    ``(c) Jurisdiction Over Interest Determinations.--
        ``(1) In general.--Notwithstanding subsection (a), if, within 1 
    year after the date the decision of the Tax Court becomes final 
    under subsection (a) in a case to which this subsection applies, 
    the taxpayer files a motion in the Tax Court for a redetermination 
    of the amount of interest involved, then the Tax Court may reopen 
    the case solely to determine whether the taxpayer has made an 
    overpayment of such interest or the Secretary has made an 
    underpayment of such interest and the amount thereof.
        ``(2) Cases to which this subsection applies.--This subsection 
    shall apply where--
            ``(A)(i) an assessment has been made by the Secretary under 
        section 6215 which includes interest as imposed by this title, 
        and
            ``(ii) the taxpayer has paid the entire amount of the 
        deficiency plus interest claimed by the Secretary, and
            ``(B) the Tax Court finds under section 6512(b) that the 
        taxpayer has made an overpayment.
        ``(3) Special rules.--If the Tax Court determines under this 
    subsection that the taxpayer has made an overpayment of interest or 
    that the Secretary has made an underpayment of interest, then that 
    determination shall be treated under section 6512(b)(1) as a 
    determination of an overpayment of tax. An order of the Tax Court 
    redetermining interest, when entered upon the records of the court, 
    shall be reviewable in the same manner as a decision of the Tax 
    Court.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF 
              LITIGATION COSTS.

    (a) In General.--Paragraph (4) of section 7430(c) (defining 
prevailing party) is amended by adding at the end thereof the following 
new subparagraph:
            ``(D) Special rules for applying net worth requirement.--In 
        applying the requirements of section 2412(d)(2)(B) of title 28, 
        United States Code, for purposes of subparagraph (A)(iii) of 
        this paragraph--
                ``(i) the net worth limitation in clause (i) of such 
            section shall apply to--

                    ``(I) an estate but shall be determined as of the 
                date of the decedent's death, and
                    ``(II) a trust but shall be determined as of the 
                last day of the taxable year involved in the 
                proceeding, and

                ``(ii) individuals filing a joint return shall be 
            treated as separate individuals for purposes of clause (i) 
            of such section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.

    (a) In General.--Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties) is amended by redesignating 
section 7436 as section 7437 and by inserting after section 7435 the 
following new section:

``SEC. 7436. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.

    ``(a) Creation of Remedy.--If, in connection with an audit of any 
person, there is an actual controversy involving a determination by the 
Secretary as part of an examination that--
        ``(1) one or more individuals performing services for such 
    person are employees of such person for purposes of subtitle C, or
        ``(2) such person is not entitled to the treatment under 
    subsection (a) of section 530 of the Revenue Act of 1978 with 
    respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may determine 
whether such a determination by the Secretary is correct. Any such 
redetermination by the Tax Court shall have the force and effect of a 
decision of the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
        ``(1) Petitioner.--A pleading may be filed under this section 
    only by the person for whom the services are performed.
        ``(2) Time for filing action.--If the Secretary sends by 
    certified or registered mail notice to the petitioner of a 
    determination by the Secretary described in subsection (a), no 
    proceeding may be initiated under this section with respect to such 
    determination unless the pleading is filed before the 91st day 
    after the date of such mailing.
        ``(3) No adverse inference from treatment while action is 
    pending.--If, during the pendency of any proceeding brought under 
    this section, the petitioner changes his treatment for employment 
    tax purposes of any individual whose employment status as an 
    employee is involved in such proceeding (or of any individual 
    holding a substantially similar position) to treatment as an 
    employee, such change shall not be taken into account in the Tax 
    Court's determination under this section.
    ``(c) Small Case Procedures.--
        ``(1) In general.--At the option of the petitioner, concurred 
    in by the Tax Court or a division thereof before the hearing of the 
    case, proceedings under this section may (notwithstanding the 
    provisions of section 7453) be conducted subject to the rules of 
    evidence, practice, and procedure applicable under section 7463 if 
    the amount of employment taxes placed in dispute is $10,000 or less 
    for each calendar quarter involved.
        ``(2) Finality of decisions.--A decision entered in any 
    proceeding conducted under this subsection shall not be reviewed in 
    any other court and shall not be treated as a precedent for any 
    other case not involving the same petitioner and the same 
    determinations.
        ``(3) Certain rules to apply.--Rules similar to the rules of 
    the last sentence of subsection (a), and subsections (c), (d), and 
    (e), of section 7463 shall apply to proceedings conducted under 
    this subsection.
    ``(d) Special Rules.--
        ``(1) Restrictions on assessment and collection pending action, 
    etc.--The principles of subsections (a), (b), (c), (d), and (f) of 
    section 6213, section 6214(a), section 6215, section 6503(a), 
    section 6512, and section 7481 shall apply to proceedings brought 
    under this section in the same manner as if the Secretary's 
    determination described in subsection (a) were a notice of 
    deficiency.
        ``(2) Awarding of costs and certain fees.--Section 7430 shall 
    apply to proceedings brought under this section.
    ``(e) Employment Tax.--The term `employment tax' means any tax 
imposed by subtitle C.''.
    (b) Conforming Amendments.--
        (1) Subsection (d) of section 6511 is amended by adding at the 
    end the following new paragraph:
        ``(7) Special period of limitation with respect to self-
    employment tax in certain cases.--If--
            ``(A) the claim for credit or refund relates to an 
        overpayment of the tax imposed by chapter 2 (relating to the 
        tax on self-employment income) attributable to Tax Court 
        determination in a proceeding under section 7436, and
            ``(B) the allowance of a credit or refund of such 
        overpayment is otherwise prevented by the operation of any law 
        or rule of law other than section 7122 (relating to 
        compromises),
    such credit or refund may be allowed or made if claim therefor is 
    filed on or before the last day of the second year after the 
    calendar year in which such determination becomes final.''.
        (2) Subsection (a) of section 7421 is amended by striking ``and 
    7429(b)'' and inserting ``7429(b), and 7436''.
        (3) Sections 7453 and 7481(b) are each amended by striking 
    ``section 7463'' and inserting ``section 7436(c) or 7463''.
        (4) The table of sections for subchapter B of chapter 76 is 
    amended by striking the last item and inserting the following:
        ``Sec. 7436. Proceedings for determination of employment status.
        ``Sec. 7437. Cross references.''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                      Subtitle D--Other Provisions

SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED TAX PAYMENT 
              BY PRIVATE FOUNDATIONS.

    (a) In General.--Paragraph (3) of section 6655(g) is amended by 
adding at the end the following new sentence: ``In the case of a 
private foundation, subsection (c)(2) shall be applied by substituting 
`May 15' for `April 15'.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply for purposes of determining underpayments of estimated tax for 
taxable years beginning after the date of the enactment of this Act.

SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO INCOME 
              TAXES FROM SALARIES OF FEDERAL EMPLOYEES.

    (a) In General.--Subsection (c) of section 5517 of title 5, United 
States Code, is amended by striking ``or territory or possession'' and 
inserting ``, territory, possession, or commonwealth''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on January 1, 1998.

SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING 
              INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) General Rule.--Subparagraph (B) of section 6621(c)(2) (defining 
applicable date) is amended by adding at the end the following new 
clause:
                ``(iii) Exception for letters or notices involving 
            small amounts.--For purposes of this paragraph, any letter 
            or notice shall be disregarded if the amount of the 
            deficiency or proposed deficiency (or the assessment or 
            proposed assessment) set forth in such letter or notice is 
            not greater than $100,000 (determined by not taking into 
            account any interest, penalties, or additions to tax).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply for purposes of determining interest for periods after December 
31, 1997.

                TITLE XV--PENSIONS AND EMPLOYEE BENEFITS
                       Subtitle A--Simplification

SEC. 1501. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED INDIVIDUALS NOT 
              TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.

    (a) In General.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended by adding at the end the 
following:
        ``(9) Matching contributions on behalf of self-employed 
    individuals not treated as elective employer contributions.--Except 
    as provided in section 401(k)(3)(D)(ii), any matching contribution 
    described in section 401(m)(4)(A) which is made on behalf of a 
    self-employed individual (as defined in section 401(c)) shall not 
    be treated as an elective employer contribution under a qualified 
    cash or deferred arrangement (as defined in section 401(k)) for 
    purposes of this title.''.
    (b) Conforming Amendment for Simple Retirement Accounts.--Section 
408(p) (relating to simple retirement accounts) is amended by adding at 
the end the following:
        ``(8) Matching contributions on behalf of self-employed 
    individuals not treated as elective employer contributions.--Any 
    matching contribution described in paragraph (2)(A)(iii) which is 
    made on behalf of a self-employed individual (as defined in section 
    401(c)) shall not be treated as an elective employer contribution 
    to a simple retirement account for purposes of this title.''.
    (c) Effective Dates.--
        (1) Elective deferrals.--The amendment made by subsection (a) 
    shall apply to years beginning after December 31, 1997.
        (2) Simple retirement accounts.--The amendment made by 
    subsection (b) shall apply to years beginning after December 31, 
    1996.

SEC. 1502. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR ALIENATION.

    (a) Amendment to ERISA.--Section 206(d) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1056(d)) is amended by adding at 
the end the following:
    ``(4) Paragraph (1) shall not apply to any offset of a 
participant's benefits provided under an employee pension benefit plan 
against an amount that the participant is ordered or required to pay to 
the plan if--
        ``(A) the order or requirement to pay arises--
            ``(i) under a judgment of conviction for a crime involving 
        such plan,
            ``(ii) under a civil judgment (including a consent order or 
        decree) entered by a court in an action brought in connection 
        with a violation (or alleged violation) of part 4 of this 
        subtitle, or
            ``(iii) pursuant to a settlement agreement between the 
        Secretary and the participant, or a settlement agreement 
        between the Pension Benefit Guaranty Corporation and the 
        participant, in connection with a violation (or alleged 
        violation) of part 4 of this subtitle by a fiduciary or any 
        other person,
        ``(B) the judgment, order, decree, or settlement agreement 
    expressly provides for the offset of all or part of the amount 
    ordered or required to be paid to the plan against the 
    participant's benefits provided under the plan, and
        ``(C) in a case in which the survivor annuity requirements of 
    section 205 apply with respect to distributions from the plan to 
    the participant, if the participant has a spouse at the time at 
    which the offset is to be made--
            ``(i) either--
                ``(I) such spouse has consented in writing to such 
            offset and such consent is witnessed by a notary public or 
            representative of the plan (or it is established to the 
            satisfaction of a plan representative that such consent may 
            not be obtained by reason of circumstances described in 
            section 205(c)(2)(B)), or
                ``(II) an election to waive the right of the spouse to 
            a qualified joint and survivor annuity or a qualified 
            preretirement survivor annuity is in effect in accordance 
            with the requirements of section 205(c),
            ``(ii) such spouse is ordered or required in such judgment, 
        order, decree, or settlement to pay an amount to the plan in 
        connection with a violation of part 4 of this subtitle, or
            ``(iii) in such judgment, order, decree, or settlement, 
        such spouse retains the right to receive the survivor annuity 
        under a qualified joint and survivor annuity provided pursuant 
        to section 205(a)(1) and under a qualified preretirement 
        survivor annuity provided pursuant to section 205(a)(2), 
        determined in accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements of 
section 205 solely by reason of an offset under this paragraph.
    ``(5)(A) The survivor annuity described in paragraph (4)(C)(iii) 
shall be determined as if--
        ``(i) the participant terminated employment on the date of the 
    offset,
        ``(ii) there was no offset,
        ``(iii) the plan permitted commencement of benefits only on or 
    after normal retirement age,
        ``(iv) the plan provided only the minimum-required qualified 
    joint and survivor annuity, and
        ``(v) the amount of the qualified preretirement survivor 
    annuity under the plan is equal to the amount of the survivor 
    annuity payable under the minimum-required qualified joint and 
    survivor annuity.
    ``(B) For purposes of this paragraph, the term `minimum-required 
qualified joint and survivor annuity' means the qualified joint and 
survivor annuity which is the actuarial equivalent of the participant's 
accrued benefit (within the meaning of section 3(23)) and under which 
the survivor annuity is 50 percent of the amount of the annuity which 
is payable during the joint lives of the participant and the spouse.''.
    (b) Amendment to 1986 Code.--Section 401(a)(13) (relating to 
assignment and alienation) is amended by adding at the end the 
following:
            ``(C) Special rule for certain judgments and settlements.--
        Subparagraph (A) shall not apply to any offset of a 
        participant's benefits provided under a plan against an amount 
        that the participant is ordered or required to pay to the plan 
        if--
                ``(i) the order or requirement to pay arises--

                    ``(I) under a judgment of conviction for a crime 
                involving such plan,
                    ``(II) under a civil judgment (including a consent 
                order or decree) entered by a court in an action 
                brought in connection with a violation (or alleged 
                violation) of part 4 of subtitle B of title I of the 
                Employee Retirement Income Security Act of 1974, or
                    ``(III) pursuant to a settlement agreement between 
                the Secretary of Labor and the participant, or a 
                settlement agreement between the Pension Benefit 
                Guaranty Corporation and the participant, in connection 
                with a violation (or alleged violation) of part 4 of 
                such subtitle by a fiduciary or any other person,

                ``(ii) the judgment, order, decree, or settlement 
            agreement expressly provides for the offset of all or part 
            of the amount ordered or required to be paid to the plan 
            against the participant's benefits provided under the plan, 
            and
                ``(iii) in a case in which the survivor annuity 
            requirements of section 401(a)(11) apply with respect to 
            distributions from the plan to the participant, if the 
            participant has a spouse at the time at which the offset is 
            to be made--

                    ``(I) either such spouse has consented in writing 
                to such offset and such consent is witnessed by a 
                notary public or representative of the plan (or it is 
                established to the satisfaction of a plan 
                representative that such consent may not be obtained by 
                reason of circumstances described in section 
                417(a)(2)(B)), or an election to waive the right of the 
                spouse to either a qualified joint and survivor annuity 
                or a qualified preretirement survivor annuity is in 
                effect in accordance with the requirements of section 
                417(a),
                    ``(II) such spouse is ordered or required in such 
                judgment, order, decree, or settlement to pay an amount 
                to the plan in connection with a violation of part 4 of 
                such subtitle, or
                    ``(III) in such judgment, order, decree, or 
                settlement, such spouse retains the right to receive 
                the survivor annuity under a qualified joint and 
                survivor annuity provided pursuant to section 
                401(a)(11)(A)(i) and under a qualified preretirement 
                survivor annuity provided pursuant to section 
                401(a)(11)(A)(ii), determined in accordance with 
                subparagraph (D).

        A plan shall not be treated as failing to meet the requirements 
        of this subsection, subsection (k), section 403(b), or section 
        409(d) solely by reason of an offset described in this 
        subparagraph.
            ``(D) Survivor annuity.--
                ``(i) In general.--The survivor annuity described in 
            subparagraph (C)(iii)(III) shall be determined as if--

                    ``(I) the participant terminated employment on the 
                date of the offset,
                    ``(II) there was no offset,
                    ``(III) the plan permitted commencement of benefits 
                only on or after normal retirement age,
                    ``(IV) the plan provided only the minimum-required 
                qualified joint and survivor annuity, and
                    ``(V) the amount of the qualified preretirement 
                survivor annuity under the plan is equal to the amount 
                of the survivor annuity payable under the minimum-
                required qualified joint and survivor annuity.

                ``(ii) Definition.--For purposes of this subparagraph, 
            the term `minimum-required qualified joint and survivor 
            annuity' means the qualified joint and survivor annuity 
            which is the actuarial equivalent of the participant's 
            accrued benefit (within the meaning of section 411(a)(7)) 
            and under which the survivor annuity is 50 percent of the 
            amount of the annuity which is payable during the joint 
            lives of the participant and the spouse.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to judgments, orders, and decrees issued, and settlement 
agreements entered into, on or after the date of the enactment of this 
Act.

SEC. 1503. ELIMINATION OF PAPERWORK BURDENS ON PLANS.

    (a) Elimination of Unnecessary Filing Requirements.--Section 101(b) 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1021(b)) is amended by striking paragraphs (1), (2), and (3) and by 
redesignating paragraphs (4) and (5) as paragraphs (1) and (2), 
respectively.
    (b) Elimination of Plan Description.--
        (1) In general.--Section 102(a) of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1022(a)) is amended--
            (A) by striking paragraph (2), and
            (B) by striking ``(a)(1)'' and inserting ``(a)''.
        (2) Conforming amendments.--
            (A) Section 102(b) of such Act (29 U.S.C. 1022(b)) is 
        amended by striking ``The plan description and summary plan 
        description shall contain'' and inserting ``The summary plan 
        description shall contain''.
            (B) The heading for section 102 of such Act is amended by 
        striking ``plan description and''.
    (c) Furnishing of Reports.--
        (1) In general.--Section 104(a)(1) of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1024(a)(1)) is amended to 
    read as follows:
    ``Sec. 104. (a)(1) The administrator of any employee benefit plan 
subject to this part shall file with the Secretary the annual report 
for a plan year within 210 days after the close of such year (or within 
such time as may be required by regulations promulgated by the 
Secretary in order to reduce duplicative filing). The Secretary shall 
make copies of such annual reports available for inspection in the 
public document room of the Department of Labor.''.
        (2) Secretary may request documents.--
            (A) In general.--Section 104(a) of such Act (29 U.S.C. 
        1024(a)) is amended by adding at the end the following:
    ``(6) The administrator of any employee benefit plan subject to 
this part shall furnish to the Secretary, upon request, any documents 
relating to the employee benefit plan, including but not limited to, 
the latest summary plan description (including any summaries of plan 
changes not contained in the summary plan description), and the 
bargaining agreement, trust agreement, contract, or other instrument 
under which the plan is established or operated.''.
            (B) Penalty.--Section 502(c) of such Act (29 U.S.C. 
        1132(c)) is amended by redesignating paragraph (6) as paragraph 
        (7) and by inserting after paragraph (5) the following:
    ``(6) If, within 30 days of a request by the Secretary to a plan 
administrator for documents under section 104(a)(6), the plan 
administrator fails to furnish the material requested to the Secretary, 
the Secretary may assess a civil penalty against the plan administrator 
of up to $100 a day from the date of such failure (but in no event in 
excess of $1,000 per request). No penalty shall be imposed under this 
paragraph for any failure resulting from matters reasonably beyond the 
control of the plan administrator.''.
    (d) Conforming Amendments.--
        (1) Section 104(b)(1) of the Employee Retirement Income 
    Security Act of 1974 (29 U.S.C. 1024(b)(1)) is amended by striking 
    ``section 102(a)(1)'' each place it appears and inserting ``section 
    102(a)''.
        (2) Section 104(b)(2) of such Act (29 U.S.C. 1024(b)(2)) is 
    amended by striking ``the plan description and'' and inserting 
    ``the latest updated summary plan description and''.
        (3) Section 104(b)(4) of such Act (29 U.S.C. 1024(b)(4)) is 
    amended by striking ``plan description''.
        (4) Section 106(a) of such Act (29 U.S.C. 1026(a)) is amended 
    by striking ``descriptions,''.
        (5) Section 107 of such Act (29 U.S.C. 1027) is amended by 
    striking ``description or''.
        (6) Section 108(2)(B) of such Act (29 U.S.C. 1028(2)(B)) is 
    amended by striking ``plan descriptions, annual reports,'' and 
    inserting ``annual reports''.
        (7) Section 502(a)(6) of such Act (29 U.S.C. 1132(a)(6)) is 
    amended by striking ``or (5)'' and inserting ``(5), or (6)''.
    (e) Technical Correction.--Section 1144(c) of the Social Security 
Act (42 U.S.C. 1320b-14(c)) is amended by redesignating paragraph (9) 
as paragraph (8).

SEC. 1504. MODIFICATION OF 403(B) EXCLUSION ALLOWANCE TO CONFORM TO 415 
              MODIFICATIONS.

    (a) Definition of Compensation.--
        (1) In general.--Section 403(b)(3) (defining includible 
    compensation) is amended by adding at the end the following: ``Such 
    term includes--
            ``(A) any elective deferral (as defined in section 
        402(g)(3)), and
            ``(B) 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.''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to years beginning after December 31, 1997.
    (b) Repeal of Rules in Section 415(e).--The Secretary of the 
Treasury shall modify the regulations regarding the exclusion allowance 
under section 403(b)(2) of the Internal Revenue Code of 1986 to reflect 
the amendment made by section 1452(a) of the Small Business Job 
Protection Act of 1996. Such modification shall take effect for years 
beginning after December 31, 1999.

SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
              NONDISCRIMINATION RULES TO STATE AND LOCAL GOVERNMENTS.

    (a) General Nondiscrimination and Participation Rules.--
        (1) Nondiscrimination requirements.--Section 401(a)(5) 
    (relating to qualified pension, profit-sharing, and stock bonus 
    plans) is amended by adding at the end the following:
            ``(G) State and local governmental plans.--Paragraphs (3) 
        and (4) shall not apply to a governmental plan (within the 
        meaning of section 414(d)) maintained by a State or local 
        government or political subdivision thereof (or agency or 
        instrumentality thereof).''.
        (2) Additional participation requirements.--Section 
    401(a)(26)(H) (relating to additional participation requirements) 
    is amended to read as follows:
            ``(H) Exception for state and local governmental plans.--
        This paragraph shall not apply to a governmental plan (within 
        the meaning of section 414(d)) maintained by a State or local 
        government or political subdivision thereof (or agency or 
        instrumentality thereof).''.
        (3) Minimum participation standards.--Section 410(c)(2) 
    (relating to application of participation standards to certain 
    plans) is amended to read as follows:
        ``(2) A plan described in paragraph (1) shall be treated as 
    meeting the requirements of this section for purposes of section 
    401(a), except that in the case of a plan described in subparagraph 
    (B), (C), or (D) of paragraph (1), this paragraph shall apply only 
    if such plan meets the requirements of section 401(a)(3) (as in 
    effect on September 1, 1974).''.
    (b) Participation and Discrimination Standards for Qualified Cash 
or Deferred Arrangements.--Section 401(k)(3) (relating to application 
of participation and discrimination standards) is amended by adding at 
the end the following:
            ``(G) A governmental plan (within the meaning of section 
        414(d)) maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality thereof) 
        shall be treated as meeting the requirements of this 
        paragraph.''.
    (c) Nondiscrimination Rules for Section 403(b) Plans.--Section 
403(b)(12) (relating to nondiscrimination requirements) is amended by 
adding at the end the following:
            ``(C) State and local governmental plans.--For purposes of 
        paragraph (1)(D), the requirements of subparagraph (A)(i) 
        (other than those relating to section 401(a)(17)) shall not 
        apply to a governmental plan (within the meaning of section 
        414(d)) maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality thereof).''.
    (d) Effective Dates.--
        (1) In general.--The amendments made by this section apply to 
    taxable years beginning on or after the date of enactment of this 
    Act.
        (2) Treatment for years beginning before date of enactment.--A 
    governmental plan (within the meaning of section 414(d) of the 
    Internal Revenue Code of 1986) maintained by a State or local 
    government or political subdivision thereof (or agency or 
    instrumentality thereof) shall be treated as satisfying the 
    requirements of sections 401(a)(3), 401(a)(4), 401(a)(26), 401(k), 
    401(m), 403 (b)(1)(D) and (b)(12), and 410 of such Code for all 
    taxable years beginning before the date of enactment of this Act.

SEC. 1506. CLARIFICATION OF CERTAIN RULES RELATING TO EMPLOYEE STOCK 
              OWNERSHIP PLANS OF S CORPORATIONS.

    (a) Certain Cash Distributions Permitted.--
        (1) Paragraph (2) of section 409(h) is amended by adding at the 
    end the following new subparagraph:
            ``(B) Exception for certain plans restricted from 
        distributing securities.--
                ``(i) In general.--A plan to which this subparagraph 
            applies shall not be treated as failing to meet the 
            requirements of this subsection or section 401(a) merely 
            because it does not permit a participant to exercise the 
            right described in paragraph (1)(A) if such plan provides 
            that the participant entitled to a distribution has a right 
            to receive the distribution in cash, except that such plan 
            may distribute employer securities subject to a requirement 
            that such securities may be resold to the employer under 
            terms which meet the requirements of paragraph (1)(B).
                ``(ii) Applicable plans.--This subparagraph shall apply 
            to a plan which otherwise meets the requirements of this 
            subsection or section 4975(e)(7) and which is established 
            and maintained by--

                    ``(I) an employer whose charter or bylaws restrict 
                the ownership of substantially all outstanding employer 
                securities to employees or to a trust described in 
                section 401(a), or
                    ``(II) an S corporation.''.

        (2) Paragraph (2) of section 409(h), as in effect before the 
    amendment made by paragraph (1), is amended--
            (A) by striking ``A plan which'' in the first sentence and 
        inserting the following:
            ``(A) In general.--A plan which'', and
            (B) by striking the last sentence.
    (b) Certain Shareholder-Employees Not Treated as Owner-Employees.--
        (1) Amendment to 1986 code.--
            (A) In general.--Section 4975(f) is amended by adding at 
        the end the following new paragraph:
        ``(6) Exemptions not to apply to certain transactions.--
            ``(A) In general.--In the case of a trust described in 
        section 401(a) which is part of a plan providing contributions 
        or benefits for employees some or all of whom are owner-
        employees (as defined in section 401(c)(3)), the exemptions 
        provided by subsection (d) (other than paragraphs (9) and (12)) 
        shall not apply to a transaction in which the plan directly or 
        indirectly--
                ``(i) lends any part of the corpus or income of the 
            plan to,
                ``(ii) pays any compensation for personal services 
            rendered to the plan to, or
                ``(iii) acquires for the plan any property from, or 
            sells any property to,
        any such owner-employee, a member of the family (as defined in 
        section 267(c)(4)) of any such owner-employee, or any 
        corporation in which any such owner-employee owns, directly or 
        indirectly, 50 percent or more of the total combined voting 
        power of all classes of stock entitled to vote or 50 percent or 
        more of the total value of shares of all classes of stock of 
        the corporation.
            ``(B) Special rules for shareholder-employees, etc.--
                ``(i) In general.--For purposes of subparagraph (A), 
            the following shall be treated as owner-employees:

                    ``(I) A shareholder-employee.
                    ``(II) A participant or beneficiary of an 
                individual retirement plan (as defined in section 
                7701(a)(37)).
                    ``(III) An employer or association of employees 
                which establishes such an individual retirement plan 
                under section 408(c).

                ``(ii) Exception for certain transactions involving 
            shareholder-employees.--Subparagraph (A)(iii) shall not 
            apply to a transaction which consists of a sale of employer 
            securities to an employee stock ownership plan (as defined 
            in subsection (e)(7)) by a shareholder-employee, a member 
            of the family (as defined in section 267(c)(4)) of such 
            shareholder-employee, or a corporation in which such a 
            shareholder-employee owns stock representing a 50 percent 
            or greater interest described in subparagraph (A).
            ``(C) Shareholder-employee.--For purposes of subparagraph 
        (B), the term `shareholder-employee' means an employee or 
        officer of an S corporation who owns (or is considered as 
        owning within the meaning of section 318(a)(1)) more than 5 
        percent of the outstanding stock of the corporation on any day 
        during the taxable year of such corporation.''.
            (B) Conforming amendments.--Section 4975(d) is amended--
                (i) by striking ``The prohibitions'' and inserting 
            ``Except as provided in subsection (f)(6), the 
            prohibitions'', and
                (ii) by striking the last two sentences thereof.
        (2) Amendment to erisa.--Section 408(d) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)) is 
    amended to read as follows:
    ``(d)(1) Section 407(b) and subsections (b), (c), and (e) of this 
section shall not apply to a transaction in which a plan directly or 
indirectly--
        ``(A) lends any part of the corpus or income of the plan to,
        ``(B) pays any compensation for personal services rendered to 
    the plan to, or
        ``(C) acquires for the plan any property from, or sells any 
    property to,
any person who is with respect to the plan an owner-employee (as 
defined in section 401(c)(3) of the Internal Revenue Code of 1986), a 
member of the family (as defined in section 267(c)(4) of such Code) of 
any such owner-employee, or any corporation in which any such owner-
employee owns, directly or indirectly, 50 percent or more of the total 
combined voting power of all classes of stock entitled to vote or 50 
percent or more of the total value of shares of all classes of stock of 
the corporation.
    ``(2)(A) For purposes of paragraph (1), the following shall be 
treated as owner-employees:
        ``(i) A shareholder-employee.
        ``(ii) A participant or beneficiary of an individual retirement 
    plan (as defined in section 7701(a)(37) of the Internal Revenue 
    Code of 1986).
        ``(iii) An employer or association of employees which 
    establishes such an individual retirement plan under section 408(c) 
    of such Code.
    ``(B) Paragraph (1)(C) shall not apply to a transaction which 
consists of a sale of employer securities to an employee stock 
ownership plan (as defined in section 407(d)(6)) by a shareholder-
employee, a member of the family (as defined in section 267(c)(4) of 
such Code) of any such owner-employee, or a corporation in which such a 
shareholder-employee owns stock representing a 50 percent or greater 
interest described in paragraph (1).
    ``(3) For purposes of paragraph (2), the term `shareholder-
employee' means an employee or officer of an S corporation (as defined 
in section 1361(a)(1) of such Code) who owns (or is considered as 
owning within the meaning of section 318(a)(1) of such Code) more than 
5 percent of the outstanding stock of the corporation on any day during 
the taxable year of such corporation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1507. MODIFICATION OF 10-PERCENT TAX FOR NONDEDUCTIBLE 
              CONTRIBUTIONS.

    (a) In General.--Section 4972(c)(6)(B) (relating to exceptions) is 
amended to read as follows:
            ``(B) so much of the contributions to 1 or more defined 
        contribution plans which are not deductible when contributed 
        solely because of section 404(a)(7) as does not exceed the 
        greater of--
                ``(i) the amount of contributions not in excess of 6 
            percent of compensation (within the meaning of section 
            404(a)) paid or accrued (during the taxable year for which 
            the contributions were made) to beneficiaries under the 
            plans, or
                ``(ii) the sum of--

                    ``(I) the amount of contributions described in 
                section 401(m)(4)(A), plus
                    ``(II) the amount of contributions described in 
                section 402(g)(3)(A).''.

    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1508. MODIFICATION OF FUNDING REQUIREMENTS FOR CERTAIN PLANS.

    (a) Funding Rules for Certain Plans.--Section 769 of the Retirement 
Protection Act of 1994 is amended by adding at the end the following 
new subsection:
    ``(c) Transition Rules for Certain Plans.--
        ``(1) In general.--In the case of a plan that--
            ``(A) was not required to pay a variable rate premium for 
        the plan year beginning in 1996;
            ``(B) has not, in any plan year beginning after 1995 and 
        before 2009, merged with another plan (other than a plan 
        sponsored by an employer that was in 1996 within the controlled 
        group of the plan sponsor); and
            ``(C) is sponsored by a company that is engaged primarily 
        in the interurban or interstate passenger bus service,
    the transition rules described in paragraph (2) shall apply for any 
    plan year beginning after 1996 and before 2010.
        ``(2) Transition rules.--The transition rules described in this 
    paragraph are as follows:
            ``(A) For purposes of section 412(l)(9)(A) of the Internal 
        Revenue Code of 1986 and section 302(d)(9)(A) of the Employee 
        Retirement Income Security Act of 1974--
                ``(i) the funded current liability percentage for any 
            plan year beginning after 1996 and before 2005 shall be 
            treated as not less than 90 percent if for such plan year 
            the funded current liability percentage is at least 85 
            percent, and
                ``(ii) the funded current liability percentage for any 
            plan year beginning after 2004 and before 2010 shall be 
            treated as not less than 90 percent if for such plan year 
            the funded current liability percentage satisfies the 
            minimum percentage determined according to the following 
            table:

  

                  ``In the case of a    The minimum percentage is:      
                   plan year beginning                                  
                   in:                                                  
                      2005............     86 percent                   
                      2006............     87 percent                   
                      2007............     88 percent                   
                      2008............     89 percent                   
                      2009 and             90 percent.                  
                   thereafter.                                          
                                                                        

            ``(B) Sections 412(c)(7)(E)(i)(I) of such Code and 
        302(c)(7)(E)(i)(I) of such Act shall be applied--
                ``(i) by substituting `85 percent' for `90 percent' for 
            plan years beginning after 1996 and before 2005, and
                ``(ii) by substituting the minimum percentage specified 
            in the table contained in subparagraph (A)(ii) for `90 
            percent' for plan years beginning after 2004 and before 
            2010.
            ``(C) In the event the funded current liability percentage 
        of a plan is less than 85 percent for any plan year beginning 
        after 1996 and before 2005, the transition rules under 
        subparagraphs (A) and (B) shall continue to apply to the plan 
        if contributions for such a plan year are made to the plan in 
        an amount equal to the lesser of--
                ``(i) the amount necessary to result in a funded 
            current liability percentage of 85 percent, or
                ``(ii) the greater of--

                    ``(I) 2 percent of the plan's current liability as 
                of the beginning of such plan year, or
                    ``(II) the amount necessary to result in a funded 
                current liability percentage of 80 percent as of the 
                end of such plan year.

        For the plan year beginning in 2005 and for each of the 3 
        succeeding plan years, the transition rules under subparagraphs 
        (A) and (B) shall continue to apply to the plan for such plan 
        year only if contributions to the plan for such plan year equal 
        at least the expected increase in current liability due to 
        benefits accruing during such plan year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 1996.

SEC. 1509. CLARIFICATION OF DISQUALIFICATION RULES RELATING TO 
              ACCEPTANCE OF ROLLOVER CONTRIBUTIONS.

    The Secretary of the Treasury or his delegate shall clarify that, 
under the Internal Revenue Service regulations protecting pension plans 
from disqualification by reason of the receipt of invalid rollover 
contributions under section 402(c) of the Internal Revenue Code of 
1986, in order for the administrator of the plan receiving any such 
contribution to reasonably conclude that the contribution is a valid 
rollover contribution it is not necessary for the distributing plan to 
have a determination letter with respect to its status as a qualified 
plan under section 401 of such Code.

SEC. 1510. NEW TECHNOLOGIES IN RETIREMENT PLANS.

    (a) In General.--Not later than December 31, 1998, the Secretary of 
the Treasury and the Secretary of Labor shall each issue guidance which 
is designed to--
        (1) interpret the notice, election, consent, disclosure, and 
    time requirements (and related recordkeeping requirements) under 
    the Internal Revenue Code of 1986 and the Employee Retirement 
    Income Security Act of 1974 relating to retirement plans as applied 
    to the use of new technologies by plan sponsors and administrators 
    while maintaining the protection of the rights of participants and 
    beneficiaries, and
        (2) clarify the extent to which writing requirements under the 
    Internal Revenue Code of 1986 relating to retirement plans shall be 
    interpreted to permit paperless transactions.
    (b) Applicability of Final Regulations.--Final regulations 
applicable to the guidance regarding new technologies described in 
subsection (a) shall not be effective until the first plan year 
beginning at least 6 months after the issuance of such final 
regulations.

Subtitle B--Other Provisions Relating to Pensions and Employee Benefits

SEC. 1521. INCREASE IN CURRENT LIABILITY FUNDING LIMIT.

    (a) Amendment to 1986 Code.--Section 412(c)(7) (relating to full-
funding limitation) is amended--
            (A) by striking ``150 percent'' in subparagraph (A)(i)(I) 
        and inserting ``the applicable percentage'', and
            (B) by adding at the end the following:
            ``(F) Applicable percentage.--For purposes of subparagraph 
        (A)(i)(I), the applicable percentage shall be determined in 
        accordance with the following table:
``In the case of any plan year beginning in--
The applicable percentage is--
    1999 or 2000..............................................


                                                                    155 

    2001 or 2002..............................................


                                                                    160 

    2003 or 2004..............................................


                                                                    165 

    2005 and succeeding years.................................


                                                                 170.''.

    (b) Amendment to ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is 
amended--
            (A) by striking ``150 percent'' in subparagraph (A)(i)(I) 
        and inserting ``the applicable percentage'', and
            (B) by adding at the end the following:
        ``(F) Applicable percentage.--For purposes of subparagraph 
    (A)(i)(I), the applicable percentage shall be determined in 
    accordance with the following table:
``In the case of any plan year beginning in--
The applicable percentage is--
    1999 or 2000..............................................


                                                                    155 

    2001 or 2002..............................................


                                                                    160 

    2003 or 2004..............................................


                                                                    165 

    2005 and succeeding years.................................


                                                                 170.''.

    (c) Special Amortization Rule.--
        (1) Code amendment.--Section 412(b)(2) 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 after subparagraph (D) the following:
            ``(E) the amount necessary to amortize in equal annual 
        installments (until fully amortized) over a period of 20 years 
        the contributions which would be required to be made under the 
        plan but for the provisions of subsection (c)(7)(A)(i)(I).''.
        (2) ERISA amendment.--Section 302(b)(2) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)(2)) 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 after subparagraph (D) the following:
        ``(E) the amount necessary to amortize in equal annual 
    installments (until fully amortized) over a period of 20 years the 
    contributions which would be required to be made under the plan but 
    for the provisions of subsection (c)(7)(A)(i)(I).''.
        (3) Conforming amendments.--
            (A) Section 412(c)(7)(D) is amended by adding ``and'' at 
        the end of clause (i), by striking ``, and'' at the end of 
        clause (ii) and inserting a period, and by striking clause 
        (iii).
            (B) Section 302(c)(7)(D) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1082(c)(7)(D)) is amended by 
        adding ``and'' at the end of clause (i), by striking ``, and'' 
        at the end of clause (ii) and inserting a period, and by 
        striking clause (iii).
    (d) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to plan years beginning after December 31, 1998.
        (2) Special rule for unamortized balances under existing law.--
    The unamortized balance (as of the close of the plan year preceding 
    the plan's first year beginning in 1999) of any amortization base 
    established under section 412(c)(7)(D)(iii) of such Code and 
    section 302(c)(7)(D)(iii) of such Act (as repealed by subsection 
    (c)(3)) for any plan year beginning before 1999 shall be amortized 
    in equal annual installments (until fully amortized) over a period 
    of years equal to the excess of--
            (A) 20 years, over
            (B) the number of years since the amortization base was 
        established.

SEC. 1522. SPECIAL RULES FOR CHURCH PLANS.

    (a) In General.--Section 414(e)(5) (relating to special rules for 
chaplains and self-employed ministers) is amended--
        (1) by striking ``not eligible to participate'' in subparagraph 
    (C) and inserting ``not otherwise participating'', and
        (2) by adding at the end the following new subparagraph:
            ``(E) Exclusion.--In the case of a contribution to a church 
        plan made on behalf of a minister described in subparagraph 
        (A)(i)(II), such contribution shall not be included in the 
        gross income of the minister to the extent that such 
        contribution would not be so included if the minister was an 
        employee of a church.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1997.

SEC. 1523. REPEAL OF APPLICATION OF UNRELATED BUSINESS INCOME TAX TO 
              ESOPS.

    (a) In General.--Section 512(e) is amended by adding at the end the 
following new paragraph:
        ``(3) Exception for esops.--This subsection shall not apply to 
    employer securities (within the meaning of section 409(l)) held by 
    an employee stock ownership plan described in section 
    4975(e)(7).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1524. DIVERSIFICATION OF SECTION 401(K) PLAN INVESTMENTS.

    (a) Limitations on Investment in Employer Securities and Employer 
Real Property by Cash or Deferred Arrangements.--Section 407(b) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1107(b)) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
        ``(2)(A) If this paragraph applies to an eligible individual 
    account plan, the portion of such plan which consists of applicable 
    elective deferrals (and earnings allocable thereto) shall be 
    treated as a separate plan--
            ``(i) which is not an eligible individual account plan, and
            ``(ii) to which the requirements of this section apply.
        ``(B)(i) This paragraph shall apply to any eligible individual 
    account plan if any portion of the plan's applicable elective 
    deferrals (or earnings allocable thereto) are required to be 
    invested in qualifying employer securities or qualifying employer 
    real property or both--
            ``(I) pursuant to the terms of the plan, or
            ``(II) at the direction of a person other than the 
        participant on whose behalf such elective deferrals are made to 
        the plan (or a beneficiary).
        ``(ii) This paragraph shall not apply to an individual account 
    plan for a plan year if, on the last day of the preceding plan 
    year, the fair market value of the assets of all individual account 
    plans maintained by the employer equals not more than 10 percent of 
    the fair market value of the assets of all pension plans (other 
    than multiemployer plans) maintained by the employer.
        ``(iii) This paragraph shall not apply to an individual account 
    plan that is an employee stock ownership plan as defined in section 
    4975(e)(7) of the Internal Revenue Code of 1986.
        ``(iv) This paragraph shall not apply to an individual account 
    plan if, pursuant to the terms of the plan, the portion of any 
    employee's applicable elective deferrals which is required to be 
    invested in qualifying employer securities and qualifying employer 
    real property for any year may not exceed 1 percent of the 
    employee's compensation which is taken into account under the plan 
    in determining the maximum amount of the employee's applicable 
    elective deferrals for such year.
        ``(C) For purposes of this paragraph, the term `applicable 
    elective deferral' means any elective deferral (as defined in 
    section 402(g)(3)(A) of the Internal Revenue Code of 1986) which is 
    made pursuant to a qualified cash or deferred arrangement as 
    defined in section 401(k) of the Internal Revenue Code of 1986.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to elective deferrals for plan years beginning after December 31, 
1998.

SEC. 1525. SECTION 401(K) PLANS FOR CERTAIN IRRIGATION AND DRAINAGE 
              ENTITIES.

    (a) In General.--Subparagraph (B) of section 401(k)(7) (relating to 
rural cooperative plan) is amended--
        (1) by striking ``and'' at the end of clause (iii), by 
    redesignating clause (iv) as clause (v), and by inserting after 
    clause (iii) the following new clause:
                ``(iv) any organization which--

                    ``(I) is a mutual irrigation or ditch company 
                described in section 501(c)(12) (without regard to the 
                85 percent requirement thereof), or
                    ``(II) is a district organized under the laws of a 
                State as a municipal corporation for the purpose of 
                irrigation, water conservation, or drainage, and'', and

        (2) in clause (v), as so redesignated, by striking ``or (iii)'' 
    and inserting ``, (iii), or (iv)''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to years beginning after December 31, 1997.

SEC. 1526. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER GOVERNMENTAL 
              PENSION PLANS.

    (a) In General.--Section 415 (relating to limitations on benefits 
and contributions under qualified plans) is amended by adding at the 
end the following new subsection:
    ``(n) Special Rules Relating to Purchase of Permissive Service 
Credit.--
        ``(1) In general.--If an employee makes 1 or more contributions 
    to a defined benefit governmental plan (within the meaning of 
    section 414(d)) to purchase permissive service credit under such 
    plan, then the requirements of this section shall be treated as met 
    only if--
            ``(A) the requirements of subsection (b) are met, 
        determined by treating the accrued benefit derived from all 
        such contributions as an annual benefit for purposes of 
        subsection (b), or
            ``(B) the requirements of subsection (c) are met, 
        determined by treating all such contributions as annual 
        additions for purposes of subsection (c).
        ``(2) Application of limit.--For purposes of--
            ``(A) applying paragraph (1)(A), the plan shall not fail to 
        meet the reduced limit under subsection (b)(2)(C) solely by 
        reason of this subsection, and
            ``(B) applying paragraph (1)(B), the plan shall not fail to 
        meet the percentage limitation under subsection (c)(1)(B) 
        solely by reason of this subsection.
        ``(3) Permissive service credit.--For purposes of this 
    subsection--
            ``(A) In general.--The term `permissive service credit' 
        means service credit--
                ``(i) recognized by the governmental plan for purposes 
            of calculating a participant's benefit under the plan,
                ``(ii) which such participant has not received under 
            such governmental plan, and
                ``(iii) which such participant may receive only by 
            making a voluntary additional contribution, in an amount 
            determined under such governmental plan, which does not 
            exceed the amount necessary to fund the benefit 
            attributable to such service credit.
            ``(B) Limitation on nonqualified service credit.--A plan 
        shall fail to meet the requirements of this section if--
                ``(i) more than 5 years of permissive service credit 
            attributable to nonqualified service are taken into account 
            for purposes of this subsection, or
                ``(ii) any permissive service credit attributable to 
            nonqualified service is taken into account under this 
            subsection before the employee has at least 5 years of 
            participation under the plan.
            ``(C) Nonqualified service.--For purposes of subparagraph 
        (B), the term `nonqualified service' means service for which 
        permissive service credit is allowed other than--
                ``(i) service (including parental, medical, sabbatical, 
            and similar leave) as an employee of the Government of the 
            United States, any State or political subdivision thereof, 
            or any agency or instrumentality of any of the foregoing 
            (other than military service or service for credit which 
            was obtained as a result of a repayment described in 
            subsection (k)(3)),
                ``(ii) service (including parental, medical, 
            sabbatical, and similar leave) as an employee (other than 
            as an employee described in clause (i)) of an educational 
            organization described in section 170(b)(1)(A)(ii) which is 
            a public, private, or sectarian school which provides 
            elementary or secondary education (through grade 12), as 
            determined under State law,
                ``(iii) service as an employee of an association of 
            employees who are described in clause (i), or
                ``(iv) military service (other than qualified military 
            service under section 414(u)) recognized by such 
            governmental plan.
        In the case of service described in clauses (i), (ii), or 
        (iii), such service will be nonqualified service if recognition 
        of such service would cause a participant to receive a 
        retirement benefit for the same service under more than one 
        plan.''.
    (b) Special Rule for Repayment of Cashouts.--Section 415(k) 
(relating to special rules) is amended by adding at the end the 
following new paragraph:
        ``(3) Repayments of cashouts under governmental plans.--In the 
    case of any repayment of contributions (including interest thereon) 
    to the governmental plan with respect to an amount previously 
    refunded upon a forfeiture of service credit under the plan or 
    under another governmental plan maintained by a State or local 
    government employer within the same State, any such repayment shall 
    not be taken into account for purposes of this section.''.
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to permissive service credit contributions made in years 
    beginning after December 31, 1997.
        (2) Transition rule.--
            (A) In general.--In the case of an eligible participant in 
        a governmental plan (within the meaning of section 414(d) of 
        the Internal Revenue Code of 1986), the limitations of section 
        415(c)(1) of such Code shall not be applied to reduce the 
        amount of permissive service credit which may be purchased to 
        an amount less than the amount which was allowed to be 
        purchased under the terms of the plan as in effect on the date 
        of the enactment of this Act.
            (B) Eligible participant.--For purposes of subparagraph 
        (A), an eligible participant is an individual who first became 
        a participant in the plan before the first plan year beginning 
        after the last day of the calendar year in which the next 
        regular session (following the date of the enactment of this 
        Act) of the governing body with authority to amend the plan 
        ends.

SEC. 1527. REMOVAL OF DOLLAR LIMITATION ON BENEFIT PAYMENTS FROM A 
              DEFINED BENEFIT PLAN MAINTAINED FOR CERTAIN POLICE AND 
              FIRE EMPLOYEES.

    (a) In General.--Subparagraph (G) of section 415(b)(2) is amended 
by striking ``participant--'' and all that follows and inserting 
``participant, subparagraph (C) of this paragraph shall not apply.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1996.

SEC. 1528. SURVIVOR BENEFITS FOR PUBLIC SAFETY OFFICERS KILLED IN THE 
              LINE OF DUTY.

    (a) In General.--Section 101 (relating to certain death benefits) 
is amended by adding at the end the following new subsection:
    ``(h) Survivor Benefits Attributable to Service by a Public Safety 
Officer who is Killed in the Line of Duty.--
        ``(1) In general.--Gross income shall not include any amount 
    paid as a survivor annuity on account of the death of a public 
    safety officer (as such term is defined in section 1204 of the 
    Omnibus Crime Control and Safe Streets Act of 1968) killed in the 
    line of duty--
            ``(A) if such annuity is provided, under a governmental 
        plan which meets the requirements of section 401(a), to the 
        spouse (or a former spouse) of the public safety officer or to 
        a child of such officer; and
            ``(B) to the extent such annuity is attributable to such 
        officer's service as a public safety officer.
        ``(2) Exceptions.--Paragraph (1) shall not apply with respect 
    to the death of any public safety officer if, as determined in 
    accordance with the provisions of the Omnibus Crime Control and 
    Safe Streets Act of 1968--
            ``(A) the death was caused by the intentional misconduct of 
        the officer or by such officer's intention to bring about such 
        officer's death;
            ``(B) the officer was voluntarily intoxicated (as defined 
        in section 1204 of such Act) at the time of death;
            ``(C) the officer was performing such officer's duties in a 
        grossly negligent manner at the time of death; or
            ``(D) the payment is to an individual whose actions were a 
        substantial contributing factor to the death of the officer.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts received in taxable years beginning after December 31, 
1996, with respect to individuals dying after such date.

SEC. 1529. TREATMENT OF CERTAIN DISABILITY BENEFITS RECEIVED BY FORMER 
              POLICE OFFICERS OR FIREFIGHTERS.

    (a) General Rule.--For purposes of determining whether any amount 
to which this section applies is excludable from gross income under 
section 104(a)(1) of the Internal Revenue Code of 1986, the following 
conditions shall be treated as personal injuries or sickness in the 
course of employment:
        (1) Heart disease.
        (2) Hypertension.
    (b) Amounts To Which Section Applies.--This section shall apply to 
any amount--
        (1) which is payable--
            (A) to an individual (or to the survivors of an individual) 
        who was a full-time employee of any police department or fire 
        department which is organized and operated by a State, by any 
        political subdivision thereof, or by any agency or 
        instrumentality of a State or political subdivision thereof, 
        and
            (B) under a State law (as amended on May 19, 1992) which 
        irrebuttably presumed that heart disease and hypertension are 
        work-related illnesses but only for employees separating from 
        service before July 1, 1992; and
        (2) which was received in calendar year 1989, 1990, or 1991.
    (c) Waiver of Statute of Limitations.--If, on the date of the 
enactment of this Act (or at any time within the 1-year period 
beginning on such date of enactment), credit or refund of any 
overpayment of tax resulting from the provisions of this section is 
barred by any law or rule of law (including res judicata), then credit 
or refund of such overpayment shall, nevertheless, be allowed or made 
if claim therefore is filed before the date 1 year after such date of 
enactment.

SEC. 1530. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.

    (a) In General.--Subparagraph (C) of section 664(d)(1) and 
subparagraph (C) of section 664(d)(2) are each amended by striking the 
period at the end thereof and inserting ``or, to the extent the 
remainder interest is in qualified employer securities (as defined in 
subsection (g)(4)), all or part of such securities are to be 
transferred to an employee stock ownership plan (as defined in section 
4975(e)(7)) in a qualified gratuitous transfer (as defined by 
subsection (g)).''.
    (b) Qualified Gratuitous Transfer Defined.--Section 664 is amended 
by adding at the end the following new subsection:
    ``(g) Qualified Gratuitous Transfer of Qualified Employer 
Securities.--
        ``(1) In general.--For purposes of this section, the term 
    `qualified gratuitous transfer' means a transfer of qualified 
    employer securities to an employee stock ownership plan (as defined 
    in section 4975(e)(7)) but only to the extent that--
            ``(A) the securities transferred previously passed from a 
        decedent dying before January 1, 1999, to a trust described in 
        paragraph (1) or (2) of subsection (d),
            ``(B) no deduction under section 404 is allowable with 
        respect to such transfer,
            ``(C) such plan contains the provisions required by 
        paragraph (3),
            ``(D) such plan treats such securities as being 
        attributable to employer contributions but without regard to 
        the limitations otherwise applicable to such contributions 
        under section 404, and
            ``(E) the employer whose employees are covered by the plan 
        described in this paragraph files with the Secretary a verified 
        written statement consenting to the application of sections 
        4978 and 4979A with respect to such employer.
        ``(2) Exception.--The term `qualified gratuitous transfer' 
    shall not include a transfer of qualified employer securities to an 
    employee stock ownership plan unless--
            ``(A) such plan was in existence on August 1, 1996,
            ``(B) at the time of the transfer, the decedent and members 
        of the decedent's family (within the meaning of section 
        2032A(e)(2)) own (directly or through the application of 
        section 318(a)) no more than 10 percent of the value of the 
        stock of the corporation referred to in paragraph (4), and
            ``(C) immediately after the transfer, such plan owns (after 
        the application of section 318(a)(4)) at least 60 percent of 
        the value of the outstanding stock of the corporation.
        ``(3) Plan requirements.--A plan contains the provisions 
    required by this paragraph if such plan provides that--
            ``(A) the qualified employer securities so transferred are 
        allocated to plan participants in a manner consistent with 
        section 401(a)(4),
            ``(B) plan participants are entitled to direct the plan as 
        to the manner in which such securities which are entitled to 
        vote and are allocated to the account of such participant are 
        to be voted,
            ``(C) an independent trustee votes the securities so 
        transferred which are not allocated to plan participants,
            ``(D) each participant who is entitled to a distribution 
        from the plan has the rights described in subparagraphs (A) and 
        (B) of section 409(h)(1),
            ``(E) such securities are held in a suspense account under 
        the plan to be allocated each year, up to the limitations under 
        section 415(c), after first allocating all other annual 
        additions for the limitation year, up to the limitations under 
        sections 415 (c) and (e), and
            ``(F) on termination of the plan, all securities so 
        transferred which are not allocated to plan participants as of 
        such termination are to be transferred to, or for the use of, 
        an organization described in section 170(c).
    For purposes of the preceding sentence, the term `independent 
    trustee' means any trustee who is not a member of the family 
    (within the meaning of section 2032A(e)(2)) of the decedent or a 5-
    percent shareholder. A plan shall not fail to be treated as meeting 
    the requirements of section 401(a) by reason of meeting the 
    requirements of this subsection.
        ``(4) Qualified employer securities.--For purposes of this 
    section, the term `qualified employer securities' means employer 
    securities (as defined in section 409(l)) which are issued by a 
    domestic corporation--
            ``(A) which has no outstanding stock which is readily 
        tradable on an established securities market, and
            ``(B) which has only 1 class of stock.
        ``(5) Treatment of securities allocated by employee stock 
    ownership plan to persons related to decedent or 5-percent 
    shareholders.--
            ``(A) In general.--If any portion of the assets of the plan 
        attributable to securities acquired by the plan in a qualified 
        gratuitous transfer are allocated to the account of--
                ``(i) any person who is related to the decedent (within 
            the meaning of section 267(b)) or a member of the 
            decedent's family (within the meaning of section 
            2032A(e)(2)), or
                ``(ii) any person who, at the time of such allocation 
            or at any time during the 1-year period ending on the date 
            of the acquisition of qualified employer securities by the 
            plan, is a 5-percent shareholder of the employer 
            maintaining the plan,
        the plan shall be treated as having distributed (at the time of 
        such allocation) to such person or shareholder the amount so 
        allocated.
            ``(B) 5-percent shareholder.--For purposes of subparagraph 
        (A), the term `5-percent shareholder' means any person who owns 
        (directly or through the application of section 318(a)) more 
        than 5 percent of the outstanding stock of the corporation 
        which issued such qualified employer securities or of any 
        corporation which is a member of the same controlled group of 
        corporations (within the meaning of section 409(l)(4)) as such 
        corporation. For purposes of the preceding sentence, section 
        318(a) shall be applied without regard to the exception in 
        paragraph (2)(B)(i) thereof.
            ``(C) Cross reference.--
          ``For excise tax on allocations described in subparagraph (A), 
        see section 4979A.

        ``(6) Tax on failure to transfer unallocated securities to 
    charity on termination of plan.--If the requirements of paragraph 
    (3)(F) are not met with respect to any securities, there is hereby 
    imposed a tax on the employer maintaining the plan in an amount 
    equal to the sum of--
            ``(A) the amount of the increase in the tax which would be 
        imposed by chapter 11 if such securities were not transferred 
        as described in paragraph (1), and
            ``(B) interest on such amount at the underpayment rate 
        under section 6621 (and compounded daily) from the due date for 
        filing the return of the tax imposed by chapter 11.''.
    (c) Conforming Amendments.--
        (1) Section 401(a)(1) is amended by inserting ``or by a 
    charitable remainder trust pursuant to a qualified gratuitous 
    transfer (as defined in section 664(g)(1)),'' after ``stock bonus 
    plans),''.
        (2) Section 404(a)(9) is amended by inserting after 
    subparagraph (B) the following new subparagraph:
            ``(C) A qualified gratuitous transfer (as defined in 
        section 664(g)(1)) shall have no effect on the amount or 
        amounts otherwise deductible under paragraph (3) or (7) or 
        under this paragraph.''.
        (3) Section 415(c)(6) is amended by adding at the end thereof 
    the following new sentence:
    ``The amount of any qualified gratuitous transfer (as defined in 
    section 664(g)(1)) allocated to a participant for any limitation 
    year shall not exceed the limitations imposed by this section, but 
    such amount shall not be taken into account in determining whether 
    any other amount exceeds the limitations imposed by this 
    section.''.
        (4) Section 415(e) is amended--
            (A) by redesignating paragraph (6) as paragraph (7), and
            (B) by inserting after paragraph (5) the following new 
        paragraph:
        ``(6) Special rule for qualified gratuitous transfers.--Any 
    qualified gratuitous transfer of qualified employer securities (as 
    defined by section 664(g)) shall not be taken into account in 
    calculating, and shall not be subject to, the limitations provided 
    in this subsection.''.
        (5) Subparagraph (B) of section 664(d)(1) and subparagraph (B) 
    of section 664(d)(2) are each amended by inserting ``and other than 
    qualified gratuitous transfers described in subparagraph (C)'' 
    after ``subparagraph (A)''.
        (6) Paragraph (4) of section 674(b) is amended by inserting 
    before the period ``or to an employee stock ownership plan (as 
    defined in section 4975(e)(7)) in a qualified gratuitous transfer 
    (as defined in section 664(g)(1))''.
        (7) Section 2055(a) is amended--
            (i) by striking ``or'' at the end of paragraph (3),
            (ii) by striking the period at the end of paragraph (4) and 
        inserting ``; or'', and
            (iii) by inserting after paragraph (4) the following new 
        paragraph:
        ``(5) to an employee stock ownership plan if such transfer 
    qualifies as a qualified gratuitous transfer of qualified employer 
    securities within the meaning of section 664(g).''.
        (8) Paragraph (8) of section 2056(b) is amended to read as 
    follows:
        ``(8) Special rule for charitable remainder trusts.--
            ``(A) In general.--If the surviving spouse of the decedent 
        is the only beneficiary of a qualified charitable remainder 
        trust who is not a charitable beneficiary nor an ESOP 
        beneficiary, paragraph (1) shall not apply to any interest in 
        such trust which passes or has passed from the decedent to such 
        surviving spouse.
            ``(B) Definitions.--For purposes of subparagraph (A)--
                ``(i) Charitable beneficiary.--The term `charitable 
            beneficiary' means any beneficiary which is an organization 
            described in section 170(c).
                ``(ii) ESOP beneficiary.--The term `ESOP beneficiary' 
            means any beneficiary which is an employee stock ownership 
            plan (as defined in section 4975(e)(7)) that holds a 
            remainder interest in qualified employer securities (as 
            defined in section 664(g)(4)) to be transferred to such 
            plan in a qualified gratuitous transfer (as defined in 
            section 664(g)(1)).
                ``(iii) Qualified charitable remainder trust.--The term 
            `qualified charitable remainder trust' means a charitable 
            remainder annuity trust or a charitable remainder unitrust 
            (described in section 664).''.
        (9) Section 4947(b) is amended by inserting after paragraph (3) 
    the following new paragraph:
        ``(4) Section 507.--The provisions of section 507(a) shall not 
    apply to a trust which is described in subsection (a)(2) by reason 
    of a distribution of qualified employer securities (as defined in 
    section 664(g)(4)) to an employee stock ownership plan (as defined 
    in section 4975(e)(7)) in a qualified gratuitous transfer (as 
    defined by section 664(g)).''.
        (10) The last sentence of section 4975(e)(7) is amended by 
    inserting ``and section 664(g)'' after ``section 409(n)''.
        (11) Subsection (a) of section 4978 is amended--
            (A) by inserting ``or acquired any qualified employer 
        securities in a qualified gratuitous transfer to which section 
        664(g) applied'' after ``section 1042 applied'', and
            (B) by inserting before the comma at the end of paragraph 
        (2) ``60 percent of the total value of all employer securities 
        as of such disposition in the case of any qualified employer 
        securities acquired in a qualified gratuitous transfer to which 
        section 664(g) applied)''.
        (12) Paragraph (2) of section 4978(b) is amended--
            (A) by inserting ``or acquired in the qualified gratuitous 
        transfer to which section 664(g) applied'' after ``section 1042 
        applied'', and
            (B) by inserting ``or to which section 664(g) applied'' 
        after ``section 1042 applied'' in subparagraph (A) thereof.
        (13) Subsection (c) of section 4978 is amended by striking 
    ``written statement'' and all that follows and inserting ``written 
    statement described in section 664(g)(1)(E) or in section 
    1042(b)(3) (as the case may be).''.
        (14) Paragraph (2) of section 4978(e) is amended by striking 
    the period and inserting ``; except that such section shall be 
    applied without regard to subparagraph (B) thereof for purposes of 
    applying this section and section 4979A with respect to securities 
    acquired in a qualified gratuitous transfer (as defined in section 
    664(g)(1)).''.
        (15) Subsection (a) of section 4979A is amended to read as 
    follows:
    ``(a) Imposition of Tax.--If--
        ``(1) there is a prohibited allocation of qualified securities 
    by any employee stock ownership plan or eligible worker-owned 
    cooperative, or
        ``(2) there is an allocation described in section 664(g)(5)(A),
there is hereby imposed a tax on such allocation equal to 50 percent of 
the amount involved.''.
        (16) Subsection (c) of section 4979A is amended to read as 
    follows:
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid by--
        ``(1) the employer sponsoring such plan, or
        ``(2) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or 
in section 1042(b)(3)(B) (as the case may be).''.
        (17) Section 4979A is amended by redesignating subsection (d) 
    as subsection (e) and by inserting after subsection (c) the 
    following new subsection:
    ``(d) Special Statute of Limitations for Tax Attributable to 
Certain Allocations.--The statutory period for the assessment of any 
tax imposed by this section on an allocation described in subsection 
(a)(2) of qualified employer securities shall not expire before the 
date which is 3 years from the later of--
        ``(1) the 1st allocation of such securities in connection with 
    a qualified gratuitous transfer (as defined in section 664(g)(1)), 
    or
        ``(2) the date on which the Secretary is notified of the 
    allocation described in subsection (a)(2).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers made by trusts to, or for the use of, an employee 
stock ownership plan after the date of the enactment of this Act.

         Subtitle C--Provisions Relating to Certain Health Acts

SEC. 1531. AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986 TO IMPLEMENT 
              THE NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT OF 1996 
              AND THE MENTAL HEALTH PARITY ACT OF 1996.

    (a) In General.--Subtitle K is amended--
        (1) by striking all that precedes section 9801 and inserting 
    the following:

              ``Subtitle K--Group Health Plan Requirements

        ``Chapter 100. Group health plan requirements.

             ``CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS

        ``Subchapter A. Requirements relating to portability, access, 
                  and renewability.
        ``Subchapter B. Other requirements.
        ``Subchapter C. General provisions.

   ``Subchapter A--Requirements Relating to Portability, Access, and 
                              Renewability

        ``Sec. 9801. Increased portability through limitation on 
                  preexisting condition exclusions.
        ``Sec. 9802. Prohibiting discrimination against individual 
                  participants and beneficiaries based on health status.
        ``Sec. 9803. Guaranteed renewability in multiemployer plans and 
                  certain multiple employer welfare arrangements.'',

        (2) by redesignating sections 9804, 9805, and 9806 as sections 
    9831, 9832, and 9833, respectively,
        (3) by inserting before section 9831 (as so redesignated) the 
    following:

                   ``Subchapter C--General Provisions

        ``Sec. 9831. General exceptions.
        ``Sec. 9832. Definitions.
        ``Sec. 9833. Regulations.'', and

        (4) by inserting after section 9803 the following:

                   ``Subchapter B--Other Requirements

        ``Sec. 9811. Standards relating to benefits for mothers and 
                  newborns.
        ``Sec. 9812. Parity in the application of certain limits to 
                  mental health benefits.

``SEC. 9811. STANDARDS RELATING TO BENEFITS FOR MOTHERS AND NEWBORNS.

    ``(a) Requirements for Minimum Hospital Stay Following Birth.--
        ``(1) In general.--A group health plan may not--
            ``(A) except as provided in paragraph (2)--
                ``(i) restrict benefits for any hospital length of stay 
            in connection with childbirth for the mother or newborn 
            child, following a normal vaginal delivery, to less than 48 
            hours, or
                ``(ii) restrict benefits for any hospital length of 
            stay in connection with childbirth for the mother or 
            newborn child, following a caesarean section, to less than 
            96 hours; or
            ``(B) require that a provider obtain authorization from the 
        plan or the issuer for prescribing any length of stay required 
        under subparagraph (A) (without regard to paragraph (2)).
        ``(2) Exception.--Paragraph (1)(A) shall not apply in 
    connection with any group health plan in any case in which the 
    decision to discharge the mother or her newborn child prior to the 
    expiration of the minimum length of stay otherwise required under 
    paragraph (1)(A) is made by an attending provider in consultation 
    with the mother.
    ``(b) Prohibitions.--A group health plan may not--
        ``(1) deny to the mother or her newborn child eligibility, or 
    continued eligibility, to enroll or to renew coverage under the 
    terms of the plan, solely for the purpose of avoiding the 
    requirements of this section;
        ``(2) provide monetary payments or rebates to mothers to 
    encourage such mothers to accept less than the minimum protections 
    available under this section;
        ``(3) penalize or otherwise reduce or limit the reimbursement 
    of an attending provider because such provider provided care to an 
    individual participant or beneficiary in accordance with this 
    section;
        ``(4) provide incentives (monetary or otherwise) to an 
    attending provider to induce such provider to provide care to an 
    individual participant or beneficiary in a manner inconsistent with 
    this section; or
        ``(5) subject to subsection (c)(3), restrict benefits for any 
    portion of a period within a hospital length of stay required under 
    subsection (a) in a manner which is less favorable than the 
    benefits provided for any preceding portion of such stay.
    ``(c) Rules of Construction.--
        ``(1) Nothing in this section shall be construed to require a 
    mother who is a participant or beneficiary--
            ``(A) to give birth in a hospital; or
            ``(B) to stay in the hospital for a fixed period of time 
        following the birth of her child.
        ``(2) This section shall not apply with respect to any group 
    health plan which does not provide benefits for hospital lengths of 
    stay in connection with childbirth for a mother or her newborn 
    child.
        ``(3) Nothing in this section shall be construed as preventing 
    a group health plan from imposing deductibles, coinsurance, or 
    other cost-sharing in relation to benefits for hospital lengths of 
    stay in connection with childbirth for a mother or newborn child 
    under the plan, except that such coinsurance or other cost-sharing 
    for any portion of a period within a hospital length of stay 
    required under subsection (a) may not be greater than such 
    coinsurance or cost-sharing for any preceding portion of such stay.
    ``(d) Level and Type of Reimbursements.--Nothing in this section 
shall be construed to prevent a group health plan from negotiating the 
level and type of reimbursement with a provider for care provided in 
accordance with this section.
    ``(f) Preemption; Exception for Health Insurance Coverage in 
Certain States.--The requirements of this section shall not apply with 
respect to health insurance coverage if there is a State law (including 
a decision, rule, regulation, or other State action having the effect 
of law) for a State that regulates such coverage that is described in 
any of the following paragraphs:
        ``(1) Such State law requires such coverage to provide for at 
    least a 48-hour hospital length of stay following a normal vaginal 
    delivery and at least a 96-hour hospital length of stay following a 
    caesarean section.
        ``(2) Such State law requires such coverage to provide for 
    maternity and pediatric care in accordance with guidelines 
    established by the American College of Obstetricians and 
    Gynecologists, the American Academy of Pediatrics, or other 
    established professional medical associations.
        ``(3) Such State law requires, in connection with such coverage 
    for maternity care, that the hospital length of stay for such care 
    is left to the decision of (or required to be made by) the 
    attending provider in consultation with the mother.

``SEC. 9812. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL 
              HEALTH BENEFITS.

    ``(a) In General.--
        ``(1) Aggregate lifetime limits.--In the case of a group health 
    plan that provides both medical and surgical benefits and mental 
    health benefits--
            ``(A) No lifetime limit.--If the plan does not include an 
        aggregate lifetime limit on substantially all medical and 
        surgical benefits, the plan may not impose any aggregate 
        lifetime limit on mental health benefits.
            ``(B) Lifetime limit.--If the plan includes an aggregate 
        lifetime limit on substantially all medical and surgical 
        benefits (in this paragraph referred to as the `applicable 
        lifetime limit'), the plan shall either--
                ``(i) apply the applicable lifetime limit both to the 
            medical and surgical benefits to which it otherwise would 
            apply and to mental health benefits and not distinguish in 
            the application of such limit between such medical and 
            surgical benefits and mental health benefits; or
                ``(ii) not include any aggregate lifetime limit on 
            mental health benefits that is less than the applicable 
            lifetime limit.
            ``(C) Rule in case of different limits.--In the case of a 
        plan that is not described in subparagraph (A) or (B) and that 
        includes no or different aggregate lifetime limits on different 
        categories of medical and surgical benefits, the Secretary 
        shall establish rules under which subparagraph (B) is applied 
        to such plan with respect to mental health benefits by 
        substituting for the applicable lifetime limit an average 
        aggregate lifetime limit that is computed taking into account 
        the weighted average of the aggregate lifetime limits 
        applicable to such categories.
        ``(2) Annual limits.--In the case of a group health plan that 
    provides both medical and surgical benefits and mental health 
    benefits--
            ``(A) No annual limit.--If the plan does not include an 
        annual limit on substantially all medical and surgical 
        benefits, the plan may not impose any annual limit on mental 
        health benefits.
            ``(B) Annual limit.--If the plan includes an annual limit 
        on substantially all medical and surgical benefits (in this 
        paragraph referred to as the `applicable annual limit'), the 
        plan shall either--
                ``(i) apply the applicable annual limit both to medical 
            and surgical benefits to which it otherwise would apply and 
            to mental health benefits and not distinguish in the 
            application of such limit between such medical and surgical 
            benefits and mental health benefits; or
                ``(ii) not include any annual limit on mental health 
            benefits that is less than the applicable annual limit.
            ``(C) Rule in case of different limits.--In the case of a 
        plan that is not described in subparagraph (A) or (B) and that 
        includes no or different annual limits on different categories 
        of medical and surgical benefits, the Secretary shall establish 
        rules under which subparagraph (B) is applied to such plan with 
        respect to mental health benefits by substituting for the 
        applicable annual limit an average annual limit that is 
        computed taking into account the weighted average of the annual 
        limits applicable to such categories.
    ``(b) Construction.--Nothing in this section shall be construed--
        ``(1) as requiring a group health plan to provide any mental 
    health benefits; or
        ``(2) in the case of a group health plan that provides mental 
    health benefits, as affecting the terms and conditions (including 
    cost sharing, limits on numbers of visits or days of coverage, and 
    requirements relating to medical necessity) relating to the amount, 
    duration, or scope of mental health benefits under the plan, except 
    as specifically provided in subsection (a) (in regard to parity in 
    the imposition of aggregate lifetime limits and annual limits for 
    mental health benefits).
    ``(c) Exemptions.--
        ``(1) Small employer exemption.--This section shall not apply 
    to any group health plan for any plan year of a small employer (as 
    defined in section 4980D(d)(2)).
        ``(2) Increased cost exemption.--This section shall not apply 
    with respect to a group health plan if the application of this 
    section to such plan results in an increase in the cost under the 
    plan of at least 1 percent.
    ``(d) Separate Application to Each Option Offered.--In the case of 
a group health plan that offers a participant or beneficiary two or 
more benefit package options under the plan, the requirements of this 
section shall be applied separately with respect to each such option.
    ``(e) Definitions.--For purposes of this section:
        ``(1) Aggregate lifetime limit.--The term `aggregate lifetime 
    limit' means, with respect to benefits under a group health plan, a 
    dollar limitation on the total amount that may be paid with respect 
    to such benefits under the plan with respect to an individual or 
    other coverage unit.
        ``(2) Annual limit.--The term `annual limit' means, with 
    respect to benefits under a group health plan, a dollar limitation 
    on the total amount of benefits that may be paid with respect to 
    such benefits in a 12-month period under the plan with respect to 
    an individual or other coverage unit.
        ``(3) Medical or surgical benefits.--The term `medical or 
    surgical benefits' means benefits with respect to medical or 
    surgical services, as defined under the terms of the plan, but does 
    not include mental health benefits.
        ``(4) Mental health benefits.--The term `mental health 
    benefits' means benefits with respect to mental health services, as 
    defined under the terms of the plan, but does not include benefits 
    with respect to treatment of substance abuse or chemical 
    dependency.
    ``(f) Sunset.--This section shall not apply to benefits for 
services furnished on or after September 30, 2001.''.
    (b) Conforming Amendments.--
        (1) Chapter 100 of such Code is further amended--
            (A) in the last sentence of section 9801(c)(1), by striking 
        ``section 9805(c)'' and inserting ``section 9832(c)'';
            (B) in section 9831(b), by striking ``9805(c)(1)'' and 
        inserting ``9832(c)(1)'';
            (C) in section 9831(c)(1), by striking ``9805(c)(2)'' and 
        inserting ``9832(c)(2)'';
            (D) in section 9831(c)(2), by striking ``9805(c)(3)'' and 
        inserting ``9832(c)(3)''; and
            (E) in section 9831(c)(3), by striking ``9805(c)(4)'' and 
        inserting ``9832(c)(4)''.
        (2) Section 4980D of such Code is amended--
            (A) in subsection (a), by striking ``plan portability, 
        access, and renewability'' and inserting ``plans'';
            (B) in subsection (c)(3)(B)(i)(I), by striking 
        ``9805(d)(3)'' and inserting ``9832(d)(3)'';
            (C) in subsection (d)(1), by inserting ``(other than a 
        failure attributable to section 9811)'' after ``on any 
        failure'';
            (D) in subsection (d)(3), by striking ``9805'' and 
        inserting ``9832'';
            (E) in subsection (f)(1), by striking ``9805(a)'' and 
        inserting ``9832(a)''.
        (3) The table of subtitles for such Code is amended by striking 
    the item relating to subtitle K and inserting the following new 
    item:
        ``Subtitle K. Group health plan requirements.''.

    (c) Effective Date.--The amendments made by this section shall 
apply with respect to group health plans for plan years beginning on or 
after January 1, 1998.

SEC. 1532. SPECIAL RULES RELATING TO CHURCH PLANS.

    (a) In General.--Section 9802 (relating to prohibiting 
discrimination against individual participants and beneficiaries based 
on health status) is amended by adding at the end the following new 
subsection:
    ``(c) Special Rules for Church Plans.--A church plan (as defined in 
section 414(e)) shall not be treated as failing to meet the 
requirements of this section solely because such plan requires evidence 
of good health for coverage of--
        ``(1) both any employee of an employer with 10 or less 
    employees (determined without regard to section 414(e)(3)(C)) and 
    any self-employed individual, or
        ``(2) any individual who enrolls after the first 90 days of 
    initial eligibility under the plan.
This subsection shall apply to a plan for any year only if the plan 
included the provisions described in the preceding sentence on July 15, 
1997, and at all times thereafter before the beginning of such year.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect as if included in the amendments made by section 401(a) of 
the Health Insurance Portability and Accountability Act of 1996.

           Subtitle D--Provisions Relating to Plan Amendments

SEC. 1541. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment--
        (1) such plan or contract shall be treated as being operated in 
    accordance with the terms of the plan during the period described 
    in subsection (b)(2)(A), and
        (2) such plan shall not fail to meet the requirements of 
    section 411(d)(6) of the Internal Revenue Code of 1986 or section 
    204(g) of the Employee Retirement Income Security Act of 1974 by 
    reason of such amendment.
    (b) Amendments to Which Section Applies.--
        (1) In general.--This section shall apply to any amendment to 
    any plan or annuity contract which is made--
            (A) pursuant to any amendment made by this title or 
        subtitle H of title X, and
            (B) before the first day of the first plan year beginning 
        on or after January 1, 1999.
    In the case of a governmental plan (as defined in section 414(d) of 
    the Internal Revenue Code of 1986), this paragraph shall be applied 
    by substituting ``2001'' for ``1999''.
        (2) Conditions.--This section shall not apply to any amendment 
    unless--
            (A) during the period--
                (i) beginning on the date the legislative amendment 
            described in paragraph (1)(A) takes effect (or in the case 
            of a plan or contract amendment not required by such 
            legislative amendment, the effective date specified by the 
            plan), and
                (ii) ending on the date described in paragraph (1)(B) 
            (or, if earlier, the date the plan or contract amendment is 
            adopted),
        the plan or contract is operated as if such plan or contract 
        amendment were in effect, and
            (B) such plan or contract amendment applies retroactively 
        for such period.

     TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB 
              PROTECTION ACT OF 1996 AND OTHER LEGISLATION

SEC. 1600. COORDINATION WITH OTHER TITLES.

    For purposes of applying the amendments made by any title of this 
Act other than this title, the provisions of this title shall be 
treated as having been enacted immediately before the provisions of 
such other titles.

SEC. 1601. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 
              1996.

    (a) Amendments Related to Subtitle A.--
        (1) Amendment related to section 1116.--Paragraph (1) of 
    section 6050R(c) is amended by striking ``name and address'' and 
    inserting ``name, address, and phone number of the information 
    contact''.
        (2) Amendment to section 1116.--Paragraphs (1) and (2)(C) of 
    section 1116(b) of the Small Business Job Protection Act of 1996 
    shall each be applied as if the reference to chapter 68 were a 
    reference to chapter 61.
    (b) Amendment Related to Subtitle B.--Subsection (c) of section 52 
is amended by striking ``targeted jobs credit'' and inserting ``work 
opportunity credit''.
    (c) Amendments Related to Subtitle C.--
        (1) Amendment related to section 1302.--Subparagraph (B) of 
    section 1361(e)(1) is amended by striking ``and'' at the end of 
    clause (i), striking the period at the end of clause (ii) and 
    inserting ``, and'', and adding at the end the following new 
    clause:
                ``(iii) any charitable remainder annuity trust or 
            charitable remainder unitrust (as defined in section 
            664(d)).''.
        (2) Effective date for section 1307.--
            (A) Notwithstanding section 1317 of the Small Business Job 
        Protection Act of 1996, the amendments made by subsections (a) 
        and (b) of section 1307 of such Act shall apply to 
        determinations made after December 31, 1996.
            (B) In no event shall the 120-day period referred to in 
        section 1377(b)(1)(B) of the Internal Revenue Code of 1986 (as 
        added by such section 1307) expire before the end of the 120-
        day period beginning on the date of the enactment of this Act.
        (3) Amendment related to section 1308.--Subparagraph (A) of 
    section 1361(b)(3) is amended by striking ``For purposes of this 
    title'' and inserting ``Except as provided in regulations 
    prescribed by the Secretary, for purposes of this title''.
        (4) Amendments related to section 1316.--
            (A) Paragraph (2) of section 512(e) is amended by striking 
        ``within the meaning of section 1012'' and inserting ``as 
        defined in section 1361(e)(1)(C)''.
            (B) Paragraph (7) of section 1361(c) is redesignated as 
        paragraph (6).
            (C) Subparagraph (B) of section 1361(b)(1) is amended by 
        striking ``subsection (c)(7)'' and inserting ``subsection 
        (c)(6)''.
            (D) Paragraph (1) of section 512(e) is amended by striking 
        ``section 1361(c)(7)'' and inserting ``section 1361(c)(6)''.
    (d) Amendments Related to Subtitle D.--
        (1) Amendments related to section 1421.--
            (A) Subsection (i) of section 408 is amended in the last 
        sentence by striking ``30 days'' and inserting ``31 days''.
            (B) Subparagraph (H) of section 408(k)(6) is amended by 
        striking ``if the terms of such pension'' and inserting ``of an 
        employer if the terms of simplified employee pensions of such 
        employer''.
            (C)(i) Subparagraph (B) of section 408(l)(2) is amended--
                (I) by inserting ``and the issuer of an annuity 
            established under such an arrangement'' after ``under 
            subsection (p)'', and
                (II) in clause (i), by inserting ``or issuer'' after 
            ``trustee''.
            (ii) Paragraph (2) of section 6693(c) is amended--
                (I) by inserting ``or issuer'' after ``trustee'', and
                (II) in the heading, by inserting ``and issuer'' after 
            ``trustee''.
            (D) Subsection (p) of section 408 is amended by adding at 
        the end the following new paragraph:
        ``(8) Coordination with maximum limitation under subsection 
    (a).--In the case of any simple retirement account, subsections 
    (a)(1) and (b)(2) shall be applied by substituting `the sum of the 
    dollar amount in effect under paragraph (2)(A)(ii) of this 
    subsection and the employer contribution required under 
    subparagraph (A)(iii) or (B)(i) of paragraph (2) of this 
    subsection, whichever is applicable' for `$2,000'.''.
            (E) Clause (i) of section 408(p)(2)(D) is amended by adding 
        at the end the following new sentence: ``If only individuals 
        other than employees described in subparagraph (A) or (B) of 
        section 410(b)(3) are eligible to participate in such 
        arrangement, then the preceding sentence shall be applied 
        without regard to any qualified plan in which only employees so 
        described are eligible to participate.''.
            (F) Subparagraph (D) of section 408(p)(2) is amended by 
        adding at the end the following new clause:
                ``(iii) Grace period.--In the case of an employer who 
            establishes and maintains a plan under this subsection for 
            1 or more years and who fails to meet any requirement of 
            this subsection for any subsequent year due to any 
            acquisition, disposition, or similar transaction involving 
            another such employer, rules similar to the rules of 
            section 410(b)(6)(C) shall apply for purposes of this 
            subsection.''.
            (G) Paragraph (5) of section 408(p) is amended in the text 
        preceding subparagraph (A) by striking ``simplified'' and 
        inserting ``simple''.
        (2) Amendments related to section 1422.--
            (A) Clause (ii) of section 401(k)(11)(D) is amended by 
        striking the period and inserting ``if such plan allows only 
        contributions required under this paragraph.''.
            (B) Paragraph (11) of section 401(k) is amended by adding 
        at the end the following new subparagraph:
            ``(E) Cost-of-living adjustment.--The Secretary shall 
        adjust the $6,000 amount under subparagraph (B)(i)(I) at the 
        same time and in the same manner as under section 
        408(p)(2)(E).''.
            (C) Subparagraph (A) of section 404(a)(3) is amended--
                (i) in clause (i), by striking ``not in excess of'' and 
            all that follows and inserting the following: ``not in 
            excess of the greater of--

                    ``(I) 15 percent of the compensation otherwise paid 
                or accrued during the taxable year to the beneficiaries 
                under the stock bonus or profit-sharing plan, or
                    ``(II) the amount such employer is required to 
                contribute to such trust under section 401(k)(11) for 
                such year.'', and

                (ii) in clause (ii), by striking ``15 percent'' and all 
            that follows and inserting the following ``the amount 
            described in subclause (I) or (II) of clause (i), whichever 
            is greater, with respect to such taxable year.''.
            (D) Subparagraph (B) of section 401(k)(11) is amended by 
        adding at the end the following new clause:
                ``(iii) Administrative requirements.--

                    ``(I) In general.--Rules similar to the rules of 
                subparagraphs (B) and (C) of section 408(p)(5) shall 
                apply for purposes of this subparagraph.
                    ``(II) Notice of election period.--The requirements 
                of this subparagraph shall not be treated as met with 
                respect to any year unless the employer notifies each 
                employee eligible to participate, within a reasonable 
                period of time before the 60th day before the beginning 
                of such year (and, for the first year the employee is 
                so eligible, the 60th day before the first day such 
                employee is so eligible), of the rules similar to the 
                rules of section 408(p)(5)(C) which apply by reason of 
                subclause (I).''.

        (3) Amendment related to section 1433.--The heading of 
    paragraph (11) of section 401(m) is amended by striking 
    ``Alternative'' and inserting ``Additional alternative''.
        (4) Clarification of section 1450.--
            (A) Section 403(b)(11) of the Internal Revenue Code of 1986 
        shall not apply with respect to a distribution from a contract 
        described in section 1450(b)(1) of such Act to the extent that 
        such distribution is not includible in income by reason of--
                (i) in the case of distributions before January 1, 
            1998, section 403 (b)(8) or (b)(10) of such Code 
            (determined after the application of section 1450(b)(2) of 
            such Act), and
                (ii) in the case of distributions on and after such 
            date, such section 403(b)(1).
            (B) This paragraph shall apply as if included in section 
        1450 of the Small Business Job Protection Act of 1996.
        (5) Amendment related to section 1451.--Clause (ii) of section 
    205(c)(8)(A) of the Employee Retirement Income Security Act of 1974 
    is amended by striking ``Secretary'' and inserting ``Secretary of 
    the Treasury''.
        (6) Amendments related to section 1461.--
            (A) Section 414(e)(5)(A) is amended to read as follows:
            ``(A) Certain ministers may participate.--For purposes of 
        this part--
                ``(i) In general.--A duly ordained, commissioned, or 
            licensed minister of a church is described in paragraph 
            (3)(B) if, in connection with the exercise of their 
            ministry, the minister--

                    ``(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 which is described in section 501(c)(3) 
                and with respect to which the minister shares common 
                religious bonds.

                ``(ii) Treatment as employer and employee.--For 
            purposes of sections 403(b)(1)(A) and 404(a)(10), a 
            minister described in clause (i)(I) shall be treated as 
            employed by the minister's own employer which is an 
            organization described in section 501(c)(3) and exempt from 
            tax under section 501(a).''.
            (B) Section 403(b)(1)(A) 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 the minister described in section 
            414(e)(5)(A) by the minister or by an employer,''.
        (7) Amendment related to section 1462.--The paragraph (7) of 
    section 414(q) added by section 1462 of the Small Business Job 
    Protection Act of 1996 is redesignated as paragraph (9).
    (e) Amendment Related to Subtitle E.--Subparagraph (A) of section 
956(b)(1) is amended by inserting ``to the extent such amount was 
accumulated in prior taxable years'' after ``section 316(a)(1)''.
    (f) Amendments Related to Subtitle F.--
        (1) Amendments related to section 1601.--
            (A) The heading of section 30A is amended to read as 
        follows:

``SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY CREDIT.''.

            (B) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended in the item relating to 
        section 30A by striking ``Puerto Rican'' and inserting ``Puerto 
        Rico''.
            (C) Paragraph (1) of section 55(c) is amended by striking 
        ``Puerto Rican'' and inserting ``Puerto Rico''.
        (2) Amendments related to section 1606.--
            (A) Clause (ii) of section 9503(c)(2)(A) is amended by 
        striking ``(or with respect to qualified diesel-powered highway 
        vehicles purchased before January 1, 1999)''.
            (B) Subparagraph (A) of section 9503(e)(5) is amended by 
        striking ``; except that'' and all that follows and inserting a 
        period.
        (3) Amendments related to section 1607.--
            (A) Subsection (f) of section 4001 (relating to phasedown 
        of tax on luxury passenger automobiles) is amended--
                (i) by inserting ``and section 4003(a)'' after 
            ``subsection (a)'', and
                (ii) by inserting ``, each place it appears,'' before 
            ``the percentage''.
            (B) Subsection (g) of section 4001 (relating to 
        termination) is amended by striking ``tax imposed by this 
        section'' and inserting ``taxes imposed by this section and 
        section 4003'' and by striking ``or use'' and inserting ``, 
        use, or installation''.
            (C) The amendments made by this paragraph shall apply to 
        sales after the date of the enactment of this Act.
        (4) Amendments related to section 1609.--
            (A) Subsection (l) of section 4041 is amended--
                (i) by inserting ``or a fixed-wing aircraft'' after 
            ``helicopter'', and
                (ii) in the heading, by striking ``Helicopter''.
            (B) The last sentence of section 4041(a)(2) is amended by 
        striking ``section 4081(a)(2)(A)'' and inserting ``section 
        4081(a)(2)(A)(i)''.
            (C) Subsection (b) of section 4092 is amended by striking 
        ``section 4041(c)(4)'' and inserting ``section 4041(c)(2)''.
            (D) Subsection (g) of section 4261 (as redesignated by 
        title X) is amended by inserting ``on that flight'' after 
        ``dedicated''.
            (E) Paragraph (1) of section 1609(h) of such Act is amended 
        by striking ``paragraph (3)(A)(i)'' and inserting ``paragraph 
        (3)(A)''.
            (F) Paragraph (4) of section 1609(h) of such Act is amended 
        by inserting before the period ``or exclusively for the use 
        described in section 4092(b) of such Code''.
        (5) Amendments related to section 1616.--
            (A) Subparagraph (A) of section 593(e)(1) is amended by 
        inserting ``(and, in the case of an S corporation, the 
        accumulated adjustments account, as defined in section 
        1368(e)(1))'' after ``1951,''.
            (B) Paragraph (7) of section 1374(d) is amended by adding 
        at the end the following new sentence: ``For purposes of 
        applying this section to any amount includible in income by 
        reason of section 593(e), the preceding sentence shall be 
        applied without regard to the phrase `10-year'.''.
        (6) Amendments related to section 1621.--
            (A) Subparagraph (A) of section 860L(b)(1) is amended in 
        the text preceding clause (i) by striking ``after the startup 
        date'' and inserting ``on or after the startup date''.
            (B) Paragraph (2) of section 860L(d) is amended by striking 
        ``section 860I(c)(2)'' and inserting ``section 860I(b)(2)''.
            (C) Subparagraph (B) of section 860L(e)(2) is amended by 
        inserting ``other than foreclosure property'' after ``any 
        permitted asset''.
            (D) Subparagraph (A) of section 860L(e)(3) is amended by 
        striking ``if the FASIT'' and all that follows and inserting 
        the following new flush text after clause (ii):
        ``if the FASIT were treated as a REMIC and permitted assets 
        (other than cash or cash equivalents) were treated as qualified 
        mortgages.''.
            (E)(i) Paragraph (3) of section 860L(e) is amended by 
        adding at the end the following new subparagraph:
            ``(D) Income from dispositions of former hedge assets.--
        Paragraph (2)(A) shall not apply to income derived from the 
        disposition of--
                ``(i) an asset which was described in subsection 
            (c)(1)(D) when first acquired by the FASIT but on the date 
            of such disposition was no longer described in subsection 
            (c)(1)(D)(ii), or
                ``(ii) a contract right to acquire an asset described 
            in clause (i).''.
            (ii) Subparagraph (A) of section 860L(e)(2) is amended by 
        inserting ``except as provided in paragraph (3),'' before ``the 
        receipt''.
    (g) Amendments Related to Subtitle G.--
        (1) Extension of period for claiming refunds for alcohol 
    fuels.--Notwithstanding section 6427(i)(3)(C) of the Internal 
    Revenue Code of 1986, a claim filed under section 6427(f) of such 
    Code for any period after September 30, 1995, and before October 1, 
    1996, shall be treated as timely filed if filed before the 60th day 
    after the date of the enactment of this Act.
        (2) Amendments to Sections 1703 and 1704.--Sections 1703(n)(8) 
    and 1704(j)(4)(B) of the Small Business Job Protection Act of 1996 
    shall each be applied as if such sections referred to section 1702 
    instead of section 1602.
    (h) Amendments Related to Subtitle H.--
        (1) Amendments related to section 1806.--
            (A) Subparagraph (B) of section 529(e)(1) is amended by 
        striking ``subsection (c)(2)(C)'' and inserting ``subsection 
        (c)(3)(C)''.
            (B) Subparagraph (C) of section 529(e)(1) is amended by 
        inserting ``(or agency or instrumentality thereof)'' after 
        ``local government''.
            (C) Paragraph (2) of section 1806(c) of the Small Business 
        Job Protection Act of 1996 is amended by striking so much of 
        the first sentence as follows subparagraph (B)(ii) and 
        inserting the following:
    ``then such program (as in effect on August 20, 1996) shall be 
    treated as a qualified State tuition program with respect to 
    contributions (and earnings allocable thereto) pursuant to 
    contracts entered into under such program before the first date on 
    which such program meets such requirements (determined without 
    regard to this paragraph) and the provisions of such program (as so 
    in effect) shall apply in lieu of section 529(b) of the Internal 
    Revenue Code of 1986 with respect to such contributions and 
    earnings.''.
        (2) Amendments related to section 1807.--
            (A) Paragraph (2) of section 23(a) is amended to read as 
        follows:
        ``(2) Year credit allowed.--The credit under paragraph (1) with 
    respect to any expense shall be allowed--
            ``(A) in the case of any expense paid or incurred before 
        the taxable year in which such adoption becomes final, for the 
        taxable year following the taxable year during which such 
        expense is paid or incurred, and
            ``(B) in the case of an expense paid or incurred during or 
        after the taxable year in which such adoption becomes final, 
        for the taxable year in which such expense is paid or 
        incurred.''.
            (B) Subparagraph (B) of section 23(b)(2) is amended by 
        striking ``determined--'' and all that follows and inserting 
        the following: ``determined without regard to sections 911, 
        931, and 933.''.
            (C) Paragraph (1) of section 137(b) (relating to adoption 
        assistance programs) is amended by striking ``amount excludable 
        from gross income'' and inserting ``of the amounts paid or 
        expenses incurred which may be taken into account''.
            (D)(i) Subparagraph (C) of section 414(n)(3) is amended by 
        inserting ``137,'' after ``132,''.
            (ii) Paragraph (2) of section 414(t) is amended by 
        inserting ``137,'' after ``132,''.
            (iii) Paragraph (1) of section 6039D(d) is amended by 
        striking ``or 129'' and inserting ``129, or 137''.
    (i) Amendments Related to Subtitle I.--
        (1) Amendment related to section 1901.--Subsection (b) of 
    section 6048 is amended in the heading by striking ``Grantor'' and 
    inserting ``Owner''.
        (2) Amendments related to section 1903.--
            Clauses (ii) and (iii) of section 679(a)(3)(C) are each 
        amended by inserting ``, owner,'' after ``grantor''.
        (3) Amendments related to section 1907.--
            (A) Clause (ii) of section 7701(a)(30)(E) is amended by 
        striking ``fiduciaries'' and inserting ``persons''.
            (B) Subsection (b) of section 641 is amended by adding at 
        the end the following new sentence: ``For purposes of this 
        subsection, a foreign trust or foreign estate shall be treated 
        as a nonresident alien individual who is not present in the 
        United States at any time.''.
        (4) Effective date related to subtitle i.--The Secretary of the 
    Treasury may by regulations or other administrative guidance 
    provide that the amendments made by section 1907(a) of the Small 
    Business Job Protection Act of 1996 shall not apply to a trust with 
    respect to a reasonable period beginning on the date of the 
    enactment of such Act, if--
            (A) such trust is in existence on August 20, 1996, and is a 
        United States person for purposes of the Internal Revenue Code 
        of 1986 on such date (determined without regard to such 
        amendments),
            (B) no election is in effect under section 1907(a)(3)(B) of 
        such Act with respect to such trust,
            (C) before the expiration of such reasonable period, such 
        trust makes the modifications necessary to be treated as a 
        United States person for purposes of such Code (determined with 
        regard to such amendments), and
            (D) such trust meets such other conditions as the Secretary 
        may require.
    (j) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall take effect as if included in 
    the provisions of the Small Business Job Protection Act of 1996 to 
    which they relate.
        (2) Certain administrative requirements with respect to certain 
    pension plans.--The amendment made by subsection (d)(2)(D) shall 
    apply to calendar years beginning after the date of the enactment 
    of this Act.

SEC. 1602. AMENDMENTS RELATED TO HEALTH INSURANCE PORTABILITY AND 
              ACCOUNTABILITY ACT OF 1996.

    (a) Amendments Related to Section 301.--
        (1) Paragraph (2) of section 26(b) is amended by striking 
    ``and'' at the end of subparagraph (N), by striking the period at 
    the end of subparagraph (O) and inserting ``, and'', and by adding 
    at the end the following new subparagraph:
            ``(P) section 220(f)(4) (relating to additional tax on 
        medical savings account distributions not used for qualified 
        medical expenses).''.
        (2) Paragraph (3) of section 220(c) is amended by striking 
    subparagraph (A) and redesignating subparagraphs (B) through (D) as 
    subparagraphs (A) through (C), respectively.
        (3) Subparagraph (C) of section 220(d)(2) is amended by 
    striking ``an eligible individual'' and inserting ``described in 
    clauses (i) and (ii) of subsection (c)(1)(A)''.
        (4) 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)(X).''.
        (5) Paragraph (4) of section 4975(c) is amended by striking 
    ``if, with respect to such transaction'' and all that follows and 
    inserting the following: ``if section 220(e)(2) applies to such 
    transaction.''.
    (b) Amendment Related to Section 321.--Subparagraph (B) of section 
7702B(c)(2) is amended in the last sentence by inserting ``described in 
subparagraph (A)(i)'' after ``chronically ill individual''.
    (c) Amendments Related to Section 322.--Subparagraph (B) of section 
162(l)(2) is amended by adding at the end the following new sentence: 
``The preceding sentence shall be applied separately with respect to--
                ``(i) plans which include coverage for qualified long-
            term care services (as defined in section 7702B(c)) or are 
            qualified long-term care insurance contracts (as defined in 
            section 7702B(b)), and
                ``(ii) plans which do not include such coverage and are 
            not such contracts.''.
    (d) Amendments Related to Section 323.--
        (1) Paragraph (1) of section 6050Q(b) is amended by inserting 
    ``, address, and phone number of the information contact'' after 
    ``name''.
        (2)(A) Paragraph (2) of section 6724(d) is amended by striking 
    so much as follows subparagraph (Q) and precedes the last sentence, 
    and inserting the following new subparagraphs:
            ``(R) section 6050R(c) (relating to returns relating to 
        certain purchases of fish),
            ``(S) section 6051 (relating to receipts for employees),
            ``(T) section 6052(b) (relating to returns regarding 
        payment of wages in the form of group-term life insurance),
            ``(U) section 6053(b) or (c) (relating to reports of tips),
            ``(V) section 6048(b)(1)(B) (relating to foreign trust 
        reporting requirements),
            ``(W) section 4093(c)(4)(B) (relating to certain purchasers 
        of diesel and aviation fuels),
            ``(X) 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
            ``(Y) 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) Subsection (e) of section 6652 is amended in the last 
    sentence by striking ``section 6724(d)(2)(X)'' and inserting 
    ``section 6724(d)(2)(Y)''.
    (e) Amendment Related to Section 325.--Clauses (ii) and (iii) of 
section 7702B(g)(4)(B) are each amended by striking ``Secretary'' and 
inserting ``appropriate State regulatory agency''.
    (f) Amendments Related to Section 501.--
        (1) Paragraph (4) of section 264(a) is amended by striking 
    subparagraph (A) and all that follows through ``by the taxpayer.'' 
    and inserting the following:
            ``(A) is or was an officer or employee, or
            ``(B) is or was financially interested in,
    any trade or business carried on (currently or formerly) by the 
    taxpayer.''.
        (2) The last 2 sentences of section 264(d)(2)(B)(ii) are 
    amended to read as follows:
            ``For purposes of subclause (II), the term `applicable 
            period' means the 12-month period beginning on the date the 
            policy is issued (and each successive 12-month period 
            thereafter) unless the taxpayer elects a number of months 
            (not greater than 12) other than such 12-month period to be 
            its applicable period. Such an election shall be made not 
            later than the 90th day after the date of the enactment of 
            this sentence and, if made, shall apply to the taxpayer's 
            first taxable year ending on or after October 13, 1995, and 
            all subsequent taxable years unless revoked with the 
            consent of the Secretary.''.
        (3) Subparagraph (B) of section 264(d)(4) is amended by 
    striking ``the employer'' and inserting ``the taxpayer''.
        (4) Subsection (c) of section 501 of the Health Insurance 
    Portability and Accountability Act of 1996 is amended by striking 
    paragraph (3).
        (5) Paragraph (2) of section 501(d) of such Act is amended by 
    striking ``no additional premiums'' and all that follows and 
    inserting the following: ``a lapse occurring after October 13, 
    1995, by reason of no additional premiums being received under the 
    contract.''.
    (g) Amendments Related to Section 511.--
        (1) Subparagraph (B) of section 877(d)(2) is amended by 
    striking ``the 10-year period described in subsection (a)'' and 
    inserting ``the 10-year period beginning on the date the individual 
    loses United States citizenship''.
        (2) Subparagraph (D) of section 877(d)(2) is amended by adding 
    at the end the following new sentence: ``In the case of any 
    exchange occurring during such 5 years, any gain recognized under 
    this subparagraph shall be recognized immediately after such loss 
    of citizenship.''.
        (3) Paragraph (3) of section 877(d) is amended by inserting 
    ``and the period applicable under paragraph (2)'' after 
    ``subsection (a)''.
        (4) Subparagraph (A) of section 877(d)(4) is amended--
            (A) by inserting ``during the 10-year period beginning on 
        the date the individual loses United States citizenship'' after 
        ``contributes property'' in clause (i),
            (B) by inserting ``immediately before such contribution'' 
        after ``from such property'', and
            (C) by striking ``during the 10-year period referred to in 
        subsection (a),''.
        (5) Subparagraph (C) of section 2501(a)(3) is amended by 
    striking ``decedent'' and inserting ``donor''.
        (6)(A) Clause (i) of section 2107(c)(2)(B) is amended by 
    striking ``such foreign country in respect of property included in 
    the gross estate as the value of the property'' and inserting 
    ``such foreign country as the value of the property subjected to 
    such taxes by such foreign country and''.
        (B) Subparagraph (C) of section 2107(c)(2) is amended to read 
    as follows:
            ``(C) Proportionate share.--In the case of property which 
        is included in the gross estate solely by reason of subsection 
        (b), such property's proportionate share is the percentage 
        which the value of such property bears to the total value of 
        all property included in the gross estate solely by reason of 
        subsection (b).''.
    (h) Amendments Related to Section 512.--
        (1) Subpart A of part III of subchapter A of chapter 61 is 
    amended by redesignating the section 6039F added by section 512 of 
    the Health Insurance Portability and Accountability Act of 1996 as 
    section 6039G and by moving such section 6039G to immediately after 
    the section 6039F added by section 1905 of the Small Business Job 
    Protection Act of 1996.
        (2) The table of sections for subpart A of part III of 
    subchapter A of chapter 61 is amended by striking the item relating 
    to the section 6039F related to information on individuals losing 
    United States citizenship and inserting after the item relating to 
    the section 6039F related to notice of large gifts received from 
    foreign persons the following new item:
        ``Sec. 6039G. Information on individuals losing United States 
                  citizenship.''.

        (3) Paragraph (1) of section 877(e) is amended by striking 
    ``6039F'' and inserting ``6039G''.
    (i) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of the Health Insurance 
Portability and Accountability Act of 1996 to which such amendments 
relate.

SEC. 1603. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.

    (a) Amendment Related to Section 1311.--Subsection (b) of section 
4962 is amended by striking ``subchapter A or C'' and inserting 
``subchapter A, C, or D''.
    (b) Amendments Related to Section 1312.--
        (1)(A) Paragraph (10) of section 6033(b) is amended by striking 
    all that precedes subparagraph (A) and inserting the following:
        ``(10) the respective amounts (if any) of the taxes imposed on 
    the organization, or any organization manager of the organization, 
    during the taxable year under any of the following provisions (and 
    the respective amounts (if any) of reimbursements paid by the 
    organization during the taxable year with respect to taxes imposed 
    on any such organization manager under any of such provisions):''.
        (B) Subparagraph (C) of section 6033(b)(10) is amended by 
    adding at the end the following: ``except to the extent that, by 
    reason of section 4962, the taxes imposed under such section are 
    not required to be paid or are credited or refunded,''.
        (2) Paragraph (11) of section 6033(b) is amended to read as 
    follows:
        ``(11) the respective amounts (if any) of--
            ``(A) the taxes imposed with respect to the organization on 
        any organization manager, or any disqualified person, during 
        the taxable year under section 4958 (relating to taxes on 
        private excess benefit from certain charitable organizations), 
        and
            ``(B) reimbursements paid by the organization during the 
        taxable year with respect to taxes imposed under such section,
    except to the extent that, by reason of section 4962, the taxes 
    imposed under such section are not required to be paid or are 
    credited or refunded,''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of the Taxpayer Bill of Rights 
2 to which such amendments relate.

SEC. 1604. MISCELLANEOUS PROVISIONS.

    (a) Amendments Related to Energy Policy Act of 1992.--
        (1) Paragraph (1) of section 263(a) is amended by striking 
    ``or'' at the end of subparagraph (F), by striking the period at 
    the end of subparagraph (G) and inserting ``; or'', and by adding 
    at the end the following new subparagraph:
            ``(H) expenditures for which a deduction is allowed under 
        section 179A.''.
        (2) Subparagraph (B) of section 312(k)(3) is amended--
            (A) by striking ``179'' in the heading and the first place 
        it appears in the text and inserting ``179 or 179A'', and
            (B) by striking ``179'' the last place it appears and 
        inserting ``179 or 179A, as the case may be''.
        (3) Paragraphs (2)(C) and (3)(C) of section 1245(a) are each 
    amended by inserting ``179A,'' after ``179,''.
        (4) The amendments made by this subsection shall take effect as 
    if included in the amendments made by section 1913 of the Energy 
    Policy Act of 1992.
    (b) Amendments Related to Uruguay Round Agreements Act.--
        (1) Paragraph (1) of section 6621(a) is amended in the last 
    sentence by striking ``subsection (c)(3))'' and inserting 
    ``subsection (c)(3), applied by substituting `overpayment' for 
    `underpayment')''.
        (2)(A) Subclause (II) of section 412(m)(5)(E)(ii) is amended by 
    striking ``clause (i)'' and inserting ``subclause (I)''.
        (B) Subclause (II) of section 302(e)(5)(E)(ii) of the Employee 
    Retirement Income Security Act of 1974 is amended by striking 
    ``clause (i)'' and inserting ``subclause (I)''.
        (3) Subparagraph (A) of section 767(d)(3) of the Uruguay Round 
    Agreements Act is amended in the last sentence by striking 
    ``(except that'' and all that follows through ``into account)''.
        (4) The amendments made by this subsection shall take effect as 
    if included in the sections of the Uruguay Round Agreements Act to 
    which they relate.
    (c) Amendment Related to Omnibus Budget Reconciliation Act of 
1993.--
        (1) Paragraph (6) of section 168(j) (defining Indian 
    reservation) is amended by adding at the end the following new 
    flush sentence:
    ``For purposes of the preceding sentence, such section 3(d) shall 
    be applied by treating the term `former Indian reservations in 
    Oklahoma' as including only lands which are within the 
    jurisdictional area of an Oklahoma Indian tribe (as determined by 
    the Secretary of the Interior) and are recognized by such Secretary 
    as eligible for trust land status under 25 CFR Part 151 (as in 
    effect on the date of the enactment of this sentence).''.
        (2) The amendment made by paragraph (1) shall apply as if 
    included in the amendments made by section 13321 of the Omnibus 
    Budget Reconciliation Act of 1993, except that such amendment shall 
    not apply--
            (A) with respect to property (with an applicable recovery 
        period under section 168(j) of the Internal Revenue Code of 
        1986 of 6 years or less) held by the taxpayer if the taxpayer 
        claimed the benefits of section 168(j) of such Code with 
        respect to such property on a return filed before March 18, 
        1997, but only if such return is the first return of tax filed 
        for the taxable year in which such property was placed in 
        service, or
            (B) with respect to wages for which the taxpayer claimed 
        the benefits of section 45A of such Code for a taxable year on 
        a return filed before March 18, 1997, but only if such return 
        was the first return of tax filed for such taxable year.
    (d) Amendments Related to Tax Reform Act of 1986.--
        (1) Paragraph (3) of section 1059(d) is amended by striking 
    ``subsection (a)(2)'' and inserting ``subsection (a)''.
        (2)(A) Subparagraph (A) of section 833(b)(1) is amended--
            (i) by inserting before the comma at the end of clause (i) 
        ``and liabilities incurred during the taxable year under cost-
        plus contracts'', and
            (ii) by inserting before the comma at the end of clause 
        (ii) ``or in connection with the administration of cost-plus 
        contracts''.
        (B) The amendment made by subparagraph (A) shall take effect as 
    if included in the amendments made by section 1012 of the Tax 
    Reform Act of 1986.
    (e) Amendment Related to Tax Reform Act of 1984.--
        (1) Section 267(f) is amended by adding at the end the 
    following new paragraph:
        ``(4) Determination of relationship resulting in disallowance 
    of loss, for purposes of other provisions.--For purposes of any 
    other section of this title which refers to a relationship which 
    would result in a disallowance of losses under this section, 
    deferral under paragraph (2) shall be treated as disallowance.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in section 174(b) of the Tax Reform Act 
    of 1984.
    (f) Amendments Related to Balanced Budget Act of 1997.--
        (1) The Balanced Budget Act of 1997 is amended--
            (A) in the table of contents for title IV, in the item 
        relating to section 4921, by striking ``children with'';
            (B) in the heading for section 4921, by striking ``children 
        with''; and
            (C) in the section added by section 4921--
                (i) in the heading for such section, by striking 
            ``children with''; and
                (ii) by amending subsection (a) to read as follows:
    ``(a) In General.--The Secretary, directly or through grants, shall 
provide for research into the prevention and cure of Type I 
diabetes.''.
        (2)(A) Section 11201(g)(2)(B)(iii) of the Balanced Budget Act 
    of 1997 shall apply as if the reference in such section to 
    ``December 31, 2003'' were a reference to ``December 31, 2001''.
        (B) Notwithstanding section 11104(b)(3) of the Balanced Budget 
    Act of 1997, in carrying out any of the management reform plans 
    under such section, the head of a department of the government of 
    the District of Columbia shall report solely to the District of 
    Columbia Financial Responsibility and Management Assistance 
    Authority.
        (3) Section 9302 of the Balanced Budget Act of 1997 is amended 
    by adding at the end the following new subsection:
    ``(k) Coordination With Tobacco Industry Settlement Agreement.--The 
increase in excise taxes collected as a result of the amendments made 
by subsections (a), (e), and (g) of this section shall be credited 
against the total payments made by parties pursuant to Federal 
legislation implementing the tobacco industry settlement agreement of 
June 20, 1997.
    (4) The provisions of, and amendments made by, this subsection 
shall take effect immediately after the sections referred to in this 
subsection take effect.
    (g) Clerical Amendments.--
        (1) Clause (iii) of section 163(j)(2)(B) is amended by striking 
    ``clause (i)'' and inserting ``clause (ii)''.
        (2) Paragraph (1) of section 665(d) is amended in the last 
    sentence by striking ``or 669(d) and (e)''.
        (3) Subsection (g) of section 1441 (relating to cross 
    reference) is amended by striking ``one-half'' and inserting ``85 
    percent''.
        (4) Paragraph (1) of section 2523(g) is amended by striking 
    ``qualified remainder trust'' and inserting ``qualified charitable 
    remainder trust''.
        (5) Subsection (d) of section 9502 is amended by redesignating 
    the paragraph added by section 806 of the Federal Aviation 
    Reauthorization Act of 1996 as paragraph (6).

TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
                                  VETO

SEC. 1701. IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
              VETO.

    Section 1021(a)(3) of the Congressional Budget and Impoundment 
Control Act of 1974 shall only apply to--
        (1) section 101(c) (relating to high risk pools permitted to 
    cover dependents of high risk individuals);
        (2) section 222 (relating to limitation on qualified 501(c)(3) 
    bonds other than hospital bonds);
        (3) section 224 (relating to contributions of computer 
    technology and equipment for elementary or secondary school 
    purposes);
        (4) section 312(a) (relating to treatment of remainder 
    interests for purposes of provision relating to gain on sale of 
    principal residence);
        (5) section 501(b) (relating to indexing of alternative 
    valuation of certain farm, etc., real property);
        (6) section 504 (relating to extension of treatment of certain 
    rents under section 2032A to lineal descendants);
        (7) section 505 (relating to clarification of judicial review 
    of eligibility for extension of time for payment of estate tax);
        (8) section 508 (relating to treatment of land subject to 
    qualified conservation easement);
        (9) section 511 (relating to expansion of exception from 
    generation-skipping transfer tax for transfers to individuals with 
    deceased parents);
        (10) section 601 (relating to the research tax credit);
        (11) section 602 (relating to contributions of stock to private 
    foundations);
        (12) section 603 (relating to the work opportunity tax credit);
        (13) section 604 (relating to orphan drug tax credit);
        (14) section 701 (relating to incentives for revitalization of 
    the District of Columbia) to the extent it amends the Internal 
    Revenue Code of 1986 to create sections 1400 and 1400A (relating to 
    tax-exempt economic development bonds);
        (15) section 701 (relating to incentives for revitalization of 
    the District of Columbia) to the extent it amends the Internal 
    Revenue Code of 1986 to create section 1400C (relating to first-
    time homebuyer credit for District of Columbia);
        (16) section 801 (relating to incentives for employing long-
    term family assistance recipients);
        (17) section 904(b) (relating to uniform rate of tax on 
    vaccines) as it relates to any vaccine containing pertussis 
    bacteria, extracted or partial cell bacteria, or specific pertussis 
    antigens;
        (18) section 904(b) (relating to uniform rate of tax on 
    vaccines) as it relates to any vaccine against measles;
        (19) section 904(b) (relating to uniform rate of tax on 
    vaccines) as it relates to any vaccine against mumps;
        (20) section 904(b) (relating to uniform rate of tax on 
    vaccines) as it relates to any vaccine against rubella;
        (21) section 905 (relating to operators of multiple retail 
    gasoline outlets treated as wholesale distributors for refund 
    purposes);
        (22) section 906 (relating to exemption of electric and other 
    clean-fuel motor vehicles from luxury automobile classification);
        (23) section 907(a) (relating to rate of tax on liquefied 
    natural gas determined on basis of BTU equivalency with gasoline);
        (24) section 907(b) (relating to rate of tax on methanol from 
    natural gas determined on basis of BTU equivalency with gasoline);
        (25) section 908 (relating to modification of tax treatment of 
    hard cider);
        (26) section 914 (relating to mortgage financing for residences 
    located in disaster areas);
        (27) section 962 (relating to assignment of workmen's 
    compensation liability eligible for exclusion relating to personal 
    injury liability assignments);
        (28) section 963 (relating to tax-exempt status for certain 
    State worker's compensation act companies);
        (29) section 967 (relating to additional advance refunding of 
    certain Virgin Island bonds);
        (30) section 968 (relating to nonrecognition of gain on sale of 
    stock to certain farmers' cooperatives);
        (31) section 971 (relating to exemption of the incremental cost 
    of a clean fuel vehicle from the limits on depreciation for 
    vehicles);
        (32) section 974 (relating to clarification of treatment of 
    certain receivables purchased by cooperative hospital service 
    organizations);
        (33) section 975 (relating to deduction in computing adjusted 
    gross income for expenses in connection with service performed by 
    certain officials) with respect to taxable years beginning before 
    1991;
        (34) section 977 (relating to elective carryback of existing 
    carryovers of National Railroad Passenger Corporation);
        (35) section 1005(b)(2)(B) (relating to transition rule for 
    instruments described in a ruling request submitted to the Internal 
    Revenue Service on or before June 8, 1997);
        (36) section 1005(b)(2)(C) (relating to transition rule for 
    instruments described on or before June 8, 1997, in a public 
    announcement or in a filing with the Securities and Exchange 
    Commission) as it relates to a public announcement;
        (37) section 1005(b)(2)(C) (relating to transition rule for 
    instruments described on or before June 8, 1997, in a public 
    announcement or in a filing with the Securities and Exchange 
    Commission) as it relates to a filing with the Securities and 
    Exchange Commission;
        (38) section 1011(d)(2)(B) (relating to transition rule for 
    distributions made pursuant to the terms of a tender offer 
    outstanding on May 3, 1995);
        (39) section 1011(d)(3) (relating to transition rule for 
    distributions made pursuant to the terms of a tender offer 
    outstanding on September 13, 1995);
        (40) section 1012(d)(3)(B) (relating to transition rule for 
    distributions pursuant to an acquisition described in section 
    355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described in 
    a ruling request submitted to the Internal Revenue Service on or 
    before April 16, 1997);
        (41) section 1012(d)(3)(C) (relating to transition rule for 
    distributions pursuant to an acquisition described in section 
    355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described in 
    a public announcement or filing with the Securities and Exchange 
    Commission) as it relates to a public announcement;
        (42) section 1012(d)(3)(C) (relating to transition rule for 
    distributions pursuant to an acquisition described in section 
    355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described in 
    a public announcement or filing with the Securities and Exchange 
    Commission) as it relates to a filing with the Securities and 
    Exchange Commission;
        (43) section 1013(d)(2)(B) (relating to transition rule for 
    distributions or acquisitions after June 8, 1997, described in a 
    ruling request submitted to the Internal Revenue Service submitted 
    on or before June 8, 1997);
        (44) section 1013(d)(2)(C) (relating to transition rule for 
    distributions or acquisitions after June 8, 1997, described in a 
    public announcement or filing with the Securities and Exchange 
    Commission on or before June 8, 1997) as it relates to a public 
    announcement;
        (45) section 1013(d)(2)(C) (relating to transition rule for 
    distributions or acquisitions after June 8, 1997, described in a 
    public announcement or filing with the Securities and Exchange 
    Commission on or before June 8, 1997) as it relates to a filing 
    with the Securities and Exchange Commission;
        (46) section 1014(f)(2)(B) (relating to transition rule for any 
    transaction after June 8, 1997, if such transaction is described in 
    a ruling request submitted to the Internal Revenue Service on or 
    before June 8, 1997);
        (47) section 1014(f)(2)(C) (relating to transition rule for any 
    transaction after June 8, 1997, if such transaction is described in 
    a public announcement or filing with the Securities and Exchange 
    Commission on or before June 8, 1997) as it relates to a public 
    announcement;
        (48) section 1014(f)(2)(C) (relating to transition rule for any 
    transaction after June 8, 1997, if such transaction is described in 
    a public announcement or filing with the Securities and Exchange 
    Commission on or before June 8, 1997) as it relates to a filing 
    with the Securities and Exchange Commission;
        (49) section 1042(b) (relating to special rules for provision 
    terminating certain exceptions from rules relating to exempt 
    organizations which provide commercial-type insurance);
        (50) section 1081(a) (relating to termination of suspense 
    accounts for family corporations required to use accrual method of 
    accounting) as it relates to the repeal of Internal Revenue Code 
    section 447(i)(3);
        (51) section 1089(b)(3) (relating to reformations);
        (52) section 1089(b)(5)(B)(i) (relating to persons under a 
    mental disability;
        (53) section 1171 (relating to treatment of computer software 
    as FSC export property);
        (54) section 1175 (relating to exemption for active financing 
    income);
        (55) section 1204 (relating to travel expenses of certain 
    Federal employees engaged in criminal investigations);
        (56) section 1236 (relating to extension of time for filing a 
    request for administrative adjustment);
        (57) section 1243 (relating to special rules for administrative 
    adjustment request with respect to bad debts or worthless 
    securities);
        (58) section 1251 (relating to clarification of limitation on 
    maximum number of shareholders);
        (59) section 1253 (relating to attribution rules applicable to 
    stock ownership);
        (60) section 1256 (relating to modification of earnings and 
    profits rules for determining whether REIT has earnings and profits 
    from non-REIT year);
        (61) section 1257 (relating to treatment of foreclosure 
    property);
        (62) section 1261 (relating to shared appreciation mortgages);
        (63) section 1302 (relating to clarification of waiver of 
    certain rights of recovery);
        (64) section 1303 (relating to transitional rule under section 
    2056A);
        (65) section 1304 (relating to treatment for estate tax 
    purposes of short-term obligations held by nonresident aliens);
        (66) section 1311 (relating to clarification of treatment of 
    survivor annuities under qualified terminable interest rules);
        (67) section 1312 (relating to treatment of qualified domestic 
    trust rules of forms of ownership which are not trusts);
        (68) section 1313 (relating to opportunity to correct failures 
    under section 2032A);
        (69) section 1414 (relating to fermented material from any 
    brewery may be received at a distilled spirits plant);
        (70) section 1417 (relating to use of additional ameliorating 
    material in certain wines);
        (71) section 1418 (relating to domestically produced beer may 
    be withdrawn free of tax for use of foreign embassies, legations, 
    etc.);
        (72) section 1421 (relating to transfer to brewery of beer 
    imported in bulk without payment of tax);
        (73) section 1422 (relating to transfer to bonded wine cellars 
    of wine imported in bulk without payment of tax);
        (74) section 1506 (relating to clarification of certain rules 
    relating to employee stock ownership plans of S corporations);
        (75) section 1507 (relating to modification of 10-percent tax 
    for nondeductible contributions);
        (76) section 1523 (relating to repeal of application of 
    unrelated business income tax to ESOPs);
        (77) section 1530 (relating to gratuitous transfers for the 
    benefit of employees);
        (78) section 1532 (relating to special rules relating to church 
    plans); and
        (79) section 1604(c)(2) (relating to amendment related to 
    Omnibus Budget Reconciliation Act of 1993).

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.