[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2014 Reported in House (RH)]






                                                  Union Calendar No. 88
105th CONGRESS
  1st Session
                                H. R. 2014

                          [Report No. 105-148]

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.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 24, 1997

  Mr. Kasich from the Committee on the Budget, reported the following 
 bill; which was committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________

                                 A BILL


 
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; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Revenue 
Reconciliation 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) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code.
TITLE I--CHILD TAX CREDIT; TAX INCENTIVES FOR DEPENDENT CARE AND HEALTH 
                           CARE FOR CHILDREN

Sec. 101. Child tax credit.
Sec. 102. Inflation adjustment of limits and other modifications of 
                            dependent care credit.
                     TITLE II--EDUCATION INCENTIVES

        Subtitle A--Tax Benefits Relating to Education Expenses

Sec. 201. Hope credit for higher education tuition and related 
                            expenses.
Sec. 202. Deduction for qualified higher education expenses.
Sec. 203. Penalty-free withdrawals from individual retirement plans for 
                            higher education expenses.
Sec. 204. Expenses for education which supplements elementary and 
                            secondary education.
    Subtitle B--Expanded Education Investment Savings Opportunities

Sec. 211. Eligible educational institutions permitted to maintain 
                            qualified tuition programs; other 
                            modifications of qualified State tuition 
                            programs.
Sec. 212. Education investment accounts.
                Subtitle C--Other Education Initiatives

Sec. 221. Extension of exclusion for employer-provided educational 
                            assistance.
Sec. 222. Increase in limitation on qualified 501(c)(3) bonds other 
                            than hospital bonds.
Sec. 223. Contributions of computer technology and equipment for 
                            elementary or secondary school purposes.
Sec. 224. Treatment of cancellation of certain student loans.
              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

Sec. 301. Establishment of American Dream IRA.
                       Subtitle B--Capital Gains

                    Part I--Individual Capital Gains

Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Indexing of certain assets acquired after December 31, 2000, 
                            for purposes of determining gain.
Sec. 313. Exemption from tax for gain on sale of principal residence.
                    Part II--Corporate Capital Gains

Sec. 321. Reduction of alternative capital gain tax for corporations.
                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

Sec. 401. Adjustment of exemption amounts for taxpayers other than 
                            corporations.
Sec. 402. Exemption from alternative minimum tax for small 
                            corporations.
Sec. 403. Repeal of adjustment for depreciation.
Sec. 404. 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. 20-year installment payment where estate consists largely of 
                            interest in closely held business.
Sec. 503. No interest on certain portion of estate tax extended under 
                            section 6166, reduced interest on remaining 
                            portion, and no deduction for such reduced 
                            interest.
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. Termination of throwback rules for domestic trusts.
Sec. 508. Unified credit of decedent increased by unified credit of 
                            spouse used on split gift included in 
                            decedent's gross estate.
Sec. 509. Reformation of defective bequests, etc., to spouse of 
                            decedent.
             Subtitle B--Generation-Skipping Tax Provisions

Sec. 511. Severing of trusts holding property having an inclusion ratio 
                            of greater than zero.
Sec. 512. Expansion of exception from generation-skipping transfer tax 
                            for transfers to individuals with deceased 
                            parents.
  TITLE VI--EXTENSION AND MODIFICATION OF CERTAIN EXPIRING PROVISIONS

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.
Sec. 702. Incentives conditioned on other DC reform.
                 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. Repeal of tax on diesel fuel used in recreational boats.
Sec. 902. Continued application of tax on imported recycled Halon-1211.
Sec. 903. Uniform rate of tax on vaccines.
Sec. 904. Operators of multiple gasoline retail outlets treated as 
                            wholesale distributor for refund purposes.
Sec. 905. Exemption of electric and other clean-fuel motor vehicles 
                            from luxury automobile classification.
    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

Sec. 911. Section 401(k) plans for certain irrigation and drainage 
                            entities.
Sec. 912. Extension of moratorium on application of certain 
                            nondiscrimination rules to State and local 
                            governments.
Sec. 913. Treatment of certain disability benefits received by former 
                            police officers or firefighters.
Sec. 914. Portability of permissive service credit under governmental 
                            pension plans.
Sec. 915. Gratuitous transfers for the benefit of employees.
Sec. 916. Treatment of certain transportation on non-commercially 
                            operated aircraft as a fringe benefit 
                            excludable from gross income.
Sec. 917. Minimum pension accrued benefit distributable without consent 
                            increased to $5,000.
Sec. 918. Clarification of certain rules relating to employee stock 
                            ownership plans of S corporations.
              Subtitle C--Revisions Relating to Disasters

Sec. 921. Authority to postpone certain tax-related deadlines by reason 
                            of presidentially declared disaster.
Sec. 922. Use of certain appraisals to establish amount of disaster 
                            loss.
Sec. 923. Treatment of livestock sold on account of weather-related 
                            conditions.
Sec. 924. Mortgage financing for residences located in disaster areas.
          Subtitle D--Provisions Relating to Employment Taxes

Sec. 931. Clarification of employment tax status of individuals 
                            distributing bakery products.
Sec. 932. Clarification of standard to be used in determining 
                            employment tax status of retail securities 
                            brokers.
Sec. 933. Clarification of exemption from self-employment tax for 
                            certain termination payments received by 
                            former insurance salesmen.
Sec. 934. Standards for determining whether individuals are not 
                            employees.
          Subtitle E--Provisions Relating to Small Businesses

Sec. 941. Waiver of penalty through 1998 on small businesses failing to 
                            make electronic fund transfers of taxes.
Sec. 942. Clarification of treatment of home office use for 
                            administrative and management activities.
                      Subtitle F--Other Provisions

Sec. 951. Use of estimates of shrinkage for inventory accounting.
Sec. 952. Assignment of workmen's compensation liability eligible for 
                            exclusion relating to personal injury 
                            liability assignments.
Sec. 953. Tax-exempt status for certain State worker's compensation act 
                            companies.
Sec. 954. Election to continue exception from treatment of publicly 
                            traded partnerships as corporations.
Sec. 955. Exclusion from unrelated business taxable income for certain 
                            sponsorship payments.
Sec. 956. Associations of holders of timeshare interests to be taxed 
                            like other homeowners associations.
Sec. 957. Additional advance refunding of certain Virgin Island bonds.
Sec. 958. Nonrecognition of gain on sale of stock to certain farmers' 
                            cooperatives.
Sec. 959. Exception from reporting of real estate transactions for 
                            sales and exchanges of certain principal 
                            residences.
Sec. 960. Increased deductibility of business meal expenses for 
                            individuals subject to Federal hours of 
                            service.
Sec. 961. Qualified lessee construction allowances for short-term 
                            leases.
Sec. 962. Tax treatment of consolidations of life insurance departments 
                            of mutual savings banks.
Sec. 963. Offset of past-due, legally enforceable State tax obligations 
                            against overpayments.
Sec. 964. Exemption of the incremental cost of a clean fuel vehicle 
                            from the limits on depreciation for 
                            vehicles.
Sec. 965. Tax benefits for law enforcement officers killed in the line 
                            of duty.
Sec. 966. Temporary suspension of taxable income limit on percentage 
                            depletion for marginal production.
 Subtitle G--Extension of Duty-Free Treatment Under Generalized System 
  of Preferences; Tariff Treatment of Certain Equipment and Repair of 
                                Vessels

Sec. 971. Generalized system of preferences.
Sec. 972. Equipment and repair of vessels.
    Subtitle H--United States-Caribbean Basin Trade Partnership Act

Sec. 981. Short title.
Sec. 982. Findings and policy.
Sec. 983. Definitions.
Sec. 984. Temporary provisions to provide NAFTA parity to partnership 
                            countries.
Sec. 985. Effect of NAFTA on sugar imports from beneficiary countries.
Sec. 986. Duty-free treatment for certain beverages made with Caribbean 
                            rum.
Sec. 987. Meetings of trade ministers and USTR.
Sec. 988. Report on economic development and market oriented reforms in 
                            the Caribbean.
                           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. Modification of rules for allocating interest expense to 
                            tax-exempt interest.
Sec. 1004. Gains and losses from certain terminations with respect to 
                            property.
Sec. 1005. Determination of original issue discount where pooled debt 
                            obligations subject to acceleration.
Sec. 1006. 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 followed by 
                            acquisitions and to intragroup 
                            transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Modification of holding period applicable to dividends 
                            received deduction.
                 Subtitle C--Other Corporate Provisions

Sec. 1021. Registration and other provisions relating to confidential 
                            corporate tax shelters.
Sec. 1022. Certain preferred stock treated as boot.
                 Subtitle D--Administrative Provisions

Sec. 1031. Reporting of certain payments made to attorneys.
Sec. 1032. Decrease of threshold for reporting payments to corporations 
                            performing services for Federal agencies.
Sec. 1033. Disclosure of return information for administration of 
                            certain veterans programs.
Sec. 1034. Continuous levy on certain payments.
Sec. 1035. Modification of levy exemption.
Sec. 1036. Confidentiality and disclosure of returns and return 
                            information.
Sec. 1037. Returns of beneficiaries of estates and trusts required to 
                            file returns consistent with estate or 
                            trust return or to notify secretary of 
                            inconsistency.
                   Subtitle E--Excise Tax Provisions

Sec. 1041. Extension and modification of Airport and Airway Trust Fund 
                            taxes.
Sec. 1042. Kerosene taxed as diesel fuel.
Sec. 1043. Reduction of incentives for alcohol fuels.
Sec. 1044. Restoration of Leaking Underground Storage Tank Trust Fund 
                            taxes.
Sec. 1045. Application of communications tax to long-distance prepaid 
                            telephone cards.
         Subtitle F--Provisions Relating to Tax-Exempt Entities

Sec. 1051. Expansion of look-thru rule for interest, annuities, 
                            royalties, and rents derived by 
                            subsidiaries of tax-exempt organizations.
Sec. 1052. Limitation on increase in basis of property resulting from 
                            sale by tax-exempt entity to a related 
                            person.
Sec. 1053. Modifications to exception from reporting, etc. of lobbying 
                            activities.
Sec. 1054. Termination of certain exceptions from rules relating to 
                            exempt organizations which provide 
                            commercial-type insurance.
                  Subtitle G--Other Revenue Provisions

Sec. 1061. Termination of suspense accounts for family corporations 
                            required to use accrual method of 
                            accounting.
Sec. 1062. Modification of taxable years to which net operating losses 
                            may be carried.
Sec. 1063. Expansion of denial of deduction for certain amounts paid in 
                            connection with insurance.
Sec. 1064. Allocation of basis among properties distributed by 
                            partnership.
Sec. 1065. Repeal of requirement that inventory be substantially 
                            appreciated.
Sec. 1066. Extension of time for taxing precontribution gain.
Sec. 1067. Restrictions on availability of earned income credit for 
                            taxpayers who improperly claimed credit in 
                            prior year.
Sec. 1068. Limitation on property for which income forecast method may 
                            be used.
Sec. 1069. Repeal of special rule for rental use of vacation homes, 
                            etc., for less than 15 days.
Sec. 1070. Expansion of requirement that involuntarily converted 
                            property be replaced with property acquired 
                            from an unrelated person.
Sec. 1071. Treatment of exception from installment sales rules for 
                            sales of property by a manufacturer to a 
                            dealer.
     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

Sec. 1101. Treatment of computer software as FSC export property.
Sec. 1102. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1103. Certain individuals exempt from foreign tax credit 
                            limitation.
Sec. 1104. Exchange rate used in translating foreign taxes.
Sec. 1105. Election to use simplified section 904 limitation for 
                            alternative minimum tax.
Sec. 1106. Treatment of personal transactions by individuals under 
                            foreign currency rules.
Sec. 1107. All noncontrolled section 902 corporations which are not 
                            passive foreign investment companies in one 
                            foreign tax limitation basket.
        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. 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 limitation 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.
                      Subtitle H--Other Provisions

Sec. 1171. Definition of foreign personal holding company income.
Sec. 1172. 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. 1173. Holding period requirement for certain foreign taxes.
Sec. 1174. Penalties for failure to disclose position that certain 
                            international transportation income is not 
                            includible in gross income.
Sec. 1175. Denial of treaty benefits for certain payments through 
                            hybrid entities.
Sec. 1176. Interest on underpayments not reduced by foreign tax credit 
                            carrybacks.
Sec. 1177. Clarification of period of limitations on claim for credit 
                            or refund attributable to foreign tax 
                            credit carryforward.
Sec. 1178. Miscellaneous clarifications.
   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. Optional methods for computing SECA tax combined.
Sec. 1204. Treatment of certain reimbursed expenses of rural mail 
                            carriers.
Sec. 1205. Treatment of traveling expenses of certain Federal employees 
                            engaged in criminal investigations.
Sec. 1206. 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.
   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 may be 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 tenant 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.
Sec. 1286. Penalty for unauthorized inspection of tax returns or tax 
                            return information.
Sec. 1287. Civil damages for unauthorized inspection of returns and 
                            return information; notification of 
                            unlawful inspection or disclosure.
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. Clarifications relating to disclaimers.
Sec. 1305. Increase of amount of lapse of general power of appointment 
                            not treated as release for purposes of 
                            estate and gift tax (5 or 5 power).
Sec. 1306. Treatment for estate tax purposes of short-term obligations 
                            held by nonresident aliens.
Sec. 1307. Certain revocable trusts treated as part of estate.
Sec. 1308. Distributions during first 65 days of taxable year of 
                            estate.
Sec. 1309. Separate share rules available to estates.
Sec. 1310. Executor of estate and beneficiaries treated as related 
                            persons for disallowance of losses, etc.
Sec. 1311. Limitation on taxable year of estates.
Sec. 1312. Treatment of funeral trusts.
Sec. 1313. Adjustments for gifts within 3 years of decedent's death.
Sec. 1314. Clarification of treatment of survivor annuities under 
                            qualified terminable interest rules.
Sec. 1315. Treatment under qualified domestic trust rules of forms of 
                            ownership which are not trusts.
Sec. 1316. Opportunity to correct certain failures under section 2032A.
Sec. 1317. 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.
                 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--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996 AND OTHER LEGISLATION

Sec. 1501. Amendments related to Small Business Job Protection Act of 
                            1996.
Sec. 1502. Amendments related to Health Insurance Portability and 
                            Accountability Act of 1996.
Sec. 1503. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1504. Miscellaneous provisions.

    TITLE I--CHILD TAX CREDIT; MODIFICATION OF DEPENDENT CARE 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 an amount 
equal to $500 multiplied by the number of qualifying children of the 
taxpayer.
    ``(b) Limitations.--
            ``(1) Limitation based on adjusted gross income.--For 
        limitation based on adjusted gross income, see section 26(c).
            ``(2) Reduction for dependent care credit.--In the case of 
        taxable years beginning after December 31, 2001--
                    ``(A) In general.--The credit allowed by subsection 
                (a) for the taxable year (determined after paragraph 
                (1) but before paragraph (3)) shall be reduced by the 
                amount equal to 50 percent of the credit allowed under 
                section 21 for such taxable year (determined after 
                section 26(c)).
                    ``(B) No reduction for dependent care of 
                individuals incapable of self-care.--Subparagraph (A) 
                shall not apply to so much of the credit which would 
                have been allowed under section 21 (determined without 
                regard to section 26(c)) if only qualifying individuals 
                described in subparagraph (B) or (C) of section 
                21(b)(1) were taken into account.
            ``(3) Limitation based on amount of tax.--The credit 
        allowed by subsection (a) (determined after paragraphs (1) and 
        (2)) shall not exceed the excess (if any) of--
                    ``(A) the taxpayer's regular tax liability for the 
                taxable year reduced by the credits allowable against 
                such tax under this subpart (other than this section), 
                over
                    ``(B) the sum of--
                            ``(i) the taxpayer's tentative minimum tax 
                        for such taxable year (determined without 
                        regard to the alternative minimum tax foreign 
                        tax credit), plus
                            ``(ii) the credit allowed for the taxable 
                        year under section 32.
    ``(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) 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.
    ``(e) Phasein of Credit.--In the case of taxable years beginning in 
1998, subsection (a) shall be applied by substituting `$400' for 
`$500'.''
    (b) High Risk Pools Permitted To Cover Dependents of High Risk 
Individuals.--Paragraph (26) of section 501(c) is amended by adding at 
the end the following flush sentence:
        ``A 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).''
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 26 is amended by inserting 
        ``(other than the credit allowed by section 24)'' after 
        ``credits allowed by this subpart''.
            (2) 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.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 102. INFLATION ADJUSTMENT OF LIMITS AND OTHER MODIFICATIONS OF 
              DEPENDENT CARE CREDIT.

    (a) Inflation Adjustment.--
            (1) In general.--Subsection (c) of section 21 (relating to 
        expenses for household and dependent care services necessary 
        for gainful employment) is amended to read as follows:
    ``(c) Dollar Limit on Amount Creditable.--
            ``(1) In general.--The amount of the employment-related 
        expenses incurred during any taxable year which may be taken 
        into account under subsection (a) shall not exceed--
                    ``(A) $2,400 if there is 1 qualifying individual 
                with respect to the taxpayer for such taxable year, or
                    ``(B) $4,800 if there are 2 or more qualifying 
                individuals with respect to the taxpayer for such 
                taxable year.
        The amount determined under subparagraph (A) or (B) (whichever 
        is applicable) shall be reduced by the aggregate amount 
        excludable from gross income under section 129 for the taxable 
        year.
            ``(2) Inflation adjustment.--In the case of taxable years 
        beginning in a calendar year after 1997, each of the dollar 
        amounts contained in 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 1996' for `calendar year 
                1992' in subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $50, such amount shall be rounded to the next 
        lowest multiple of $50.''
            (2) Conforming amendment.--Paragraph (2) of section 21(d) 
        is amended by striking ``(c)(1)'' and inserting ``(c)(1)(A)'' 
        and by striking ``(c)(2)'' and inserting ``(c)(1)(B)''.
    (b) Reduction of Benefit Based on Adjusted Gross Income.--
            (1) In general.--Section 26 is amended by redesignating 
        subsection (c) as subsection (d) and by inserting after 
        subsection (b) the following new subsection:
    ``(c) Reduction of Dependent Care Credit and Child Credit Based on 
Adjusted Gross Income.--
            ``(1) In general.--The aggregate amount which would (but 
        for subsection (a), this subsection, and paragraphs (2) and (3) 
        of section 24(b)) be allowed under sections 21 and 24 shall be 
        reduced (but not below zero) by $25 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.
            ``(3) Remaining credit treated as attributable to dependent 
        care tax credit.--The aggregate amount allowable under sections 
        21 and 24 after the application of paragraph (1) shall be 
        treated as allowable solely under section 21 to the extent such 
        amount does not exceed the amount allowable under section 21 
        (determined without regard to section 21(a)(3)).''
            (2) Conforming amendments.--
                    (A) Subsection (a) of section 21 is amended by 
                adding at the end the following new paragraph:
            ``(3) Limitation based on adjusted gross income.--

                                ``For limitation based on adjusted 
gross income, see section 26(c).''
                    (B) The section heading for section 26 is amended 
                by inserting before the period ``; phaseout of certain 
                credits based on income''.
                    (C) The item relating to section 26 in the table of 
                sections for subpart A of part IV of subchapter A of 
                chapter 1 is amended by inserting before the period ``; 
                phaseout of certain credits based on income''.
    (c) 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 CREDIT FOR HIGHER EDUCATION TUITION AND RELATED 
              EXPENSES.

    (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. HIGHER EDUCATION TUITION AND RELATED EXPENSES.

    ``(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 50 percent of qualified 
tuition and related expenses paid by the taxpayer during such taxable 
year for education furnished during any academic period beginning in 
such year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The amount allowed as a credit 
        under subsection (a) for any taxable year with respect to the 
        qualified tuition and related expenses of any 1 individual 
        shall not exceed $1,500.
            ``(2) Credit allowed only for 2 taxable years.--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. An 
        election under this paragraph shall not take effect with 
        respect to an individual for any taxable year if an election 
        under this paragraph (by the taxpayer or any other individual) 
        is in effect with respect to such individual for any 2 prior 
        taxable years.
            ``(3) Credit allowed for year only if individual is at 
        least \1/2\ time student for portion of year.--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 such individual is an eligible student for at least one 
        academic period which begins during such year.
            ``(4) Credit allowed only for first two years of 
        postsecondary education.--No credit shall be allowed under 
        subsection (a) for a taxable year with respect to the qualified 
        tuition and related expenses of an individual if the individual 
        has completed (before the beginning of such taxable year) the 
        first 2 years of postsecondary education at an eligible 
        educational institution.
    ``(c) 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.
    ``(d) 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 and books 
                required 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.
            ``(3) Eligible student.--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) Other terms relating to the higher education act.--
        The following terms shall have the meanings prescribed in 
        regulations under section 481(g) of the Higher Education Act of 
        1965 (20 U.S.C. 1088(g)), as added by the Student Financial Aid 
        Improvements Act of 1997:
                    ``(A) Academic period.
                    ``(B) Normal full-time workload.
                    ``(C) First two years of postsecondary education.
    ``(e) 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--
            ``(1) no credit shall be allowed under subsection (a) to 
        such individual for such individual's taxable year, and
            ``(2) 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.
    ``(f) 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.
    ``(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) and (c)) 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) Denial of credit if student convicted of a felony 
        drug offense.--No credit shall be allowed under subsection (a) 
        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.
            ``(4) 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.
            ``(5) 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.
            ``(6) 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 1998, the $1,500 amount in 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 1997' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $50, such amount 
                shall be rounded to the next lowest multiple of $50.
            ``(2) Income limits.--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2000, the $40,000 and $80,000 amounts 
                in subsection (c)(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 1999' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $5,000, such 
                amount shall be rounded to the next lowest multiple of 
                $5,000.
    ``(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 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) 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 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 subsection 
        (b)(2)(C).
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 section 6724 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 Date.--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.

SEC. 202. DEDUCTION FOR QUALIFIED HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.-- 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. QUALIFIED HIGHER EDUCATION EXPENSES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction the amount of qualified higher 
education expenses paid by the taxpayer during the taxable year for 
education furnished during any academic period (within the meaning of 
section 25A) beginning in such year.
    ``(b) Limitations.--
            ``(1) Annual limit.--The amount allowed as a deduction 
        under subsection (a) for any taxable year with respect to 
        expenses paid for education furnished to any 1 individual shall 
        not exceed the lesser of--
                    ``(A) $10,000, or
                    ``(B) the amount includible in the taxpayer's gross 
                income for such taxable year by reason of a 
                distribution from a qualified tuition program (as 
                defined in section 529), or an education investment 
                account (as defined in section 530), the beneficiary of 
                which is such individual.
            ``(2) Aggregate limit.--The amount allowed as a deduction 
        under subsection (a) to the taxpayer or any other individual 
        with respect to expenses paid for education furnished to any 1 
        individual shall not exceed $40,000 for all taxable years.
            ``(3) Deduction allowed for year only if individual is at 
        least \1/2\ time student for portion of year.--No deduction 
        shall be allowed under subsection (a) for a taxable year with 
        respect to the qualified higher education expenses of an 
        individual unless such individual is an eligible student (as 
        defined in section 25A(d)(3)) for at least one academic period 
        which begins during such year.
            ``(4) Deduction allowed only for first 4 years of 
        postsecondary education.--No deduction shall be allowed under 
        subsection (a) for a taxable year with respect to the qualified 
        higher education expenses of an individual if the individual 
        has completed (before the beginning of such taxable year) the 
        equivalent of the first 4 years of postsecondary education at 
        an eligible educational institution (determined under the rules 
        of section 25A).
            ``(5) Coordination with credit for higher education 
        expenses.--No deduction shall be allowed under this section for 
        a taxable year with respect to the qualified higher education 
        expenses of an individual if an election is in effect under 
        section 25A with respect to such individual for such taxable 
        year.
    ``(c) Qualified Higher Education Expenses.--The term `qualified 
higher education expenses' means qualified higher education expenses 
(as defined in section 529) for the education of--
            ``(1) the taxpayer,
            ``(2) the taxpayer's spouse, or
            ``(3) any dependent of the taxpayer with respect to whom 
        the taxpayer is allowed a deduction under section 151,
at an eligible educational institution (as defined in section 
529(e)(5)).
    ``(d) 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--
            ``(1) no deduction shall be allowed under subsection (a) to 
        such individual for such individual's taxable year, and
            ``(2) qualified higher education 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.
    ``(e) Coordination With Amounts Includible in Gross Income Under 
Section 529 or 530.--If any deduction is allowed under subsection (a) 
with respect to the qualified higher education expenses of an 
individual with respect to whom the taxpayer is allowed a deduction 
under section 151(c), any amount which would (but for this subsection) 
be includible in such individual's gross income by reason of section 
529 or section 530 shall be includible in the gross income of the 
taxpayer and not such individual.
    ``(f) Adjustment for Certain Scholarships, Etc.--The amount of 
qualified higher education expenses otherwise taken into account under 
subsection (a) with respect to an individual for an academic period 
shall be reduced (before the application of subsection (b)) by the sum 
of--
            ``(1) the aggregate amount of the reductions under section 
        25A(g)(2) for the benefit of such individual for such period, 
        and
            ``(2) the amount excludable from gross income under section 
        135 by reason of such expenses with respect to such individual 
        which are allocable to such period.
    ``(g) Denial of Deduction if Student Convicted of a Felony Drug 
Offense.--No deduction shall be allowed under subsection (a) for 
qualified higher education 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.
    ``(h) Denial of Double Benefit.--No deduction shall be allowed 
under subsection (a) for any expense for which a deduction is allowed 
to the taxpayer under any other provision of this chapter.''
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--
            (1) In general.--Subsection (b) of section 63 is amended by 
        striking ``and'' at the end of paragraph (1), by striking the 
        period at the end of paragraph (2) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(3) the deduction allowed by section 221 (relating to 
        deduction for qualified higher education expenses).''
            (2) Conforming amendment.--Subsection (d) of section 63 is 
        amended by striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(3) the deduction allowed by section 221 (relating to 
        deduction for qualified higher education expenses).''
    (c) Phaseout of Exclusion for Qualified Tuition Reductions.--
Subsection (d) of section 117 is amended by redesignating the last 
paragraph as paragraph (4) and by adding at the end the following new 
paragraph:
            ``(5) Phaseout of exclusion.--
                    ``(A) Termination.--Paragraph (1) shall not apply 
                to any qualified tuition reduction for any course of 
                instruction beginning after December 31, 2001.
                    ``(B) Phaseout.--The amount excludable from gross 
                income under paragraph (1) for any course of 
                instruction beginning in a calendar year after 1997 and 
                before 2002 shall not exceed the applicable percentage 
                (determined in accordance with the following table) for 
                such calendar year of the amount which would be so 
                excludable but for this subparagraph:

                In the case of
                                                         The applicable
                  calendar year:
                                                         percentage is:

                  1998...............................               80 
                  1999...............................               60 
                  2000...............................               40 
                  2001...............................             20.''

    (d) Technical Amendments.--
            (1) Subparagraph (A) of section 529(e)(3) is amended by 
        inserting ``(except as provided in section 221(e))'' after 
        ``distributee''.
            (2) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        221 and inserting:

                              ``Sec. 221. Qualified higher education 
                                        expenses.
                              ``Sec. 222. Cross reference.''
    (e) Effective Date.--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.

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) without 
                regard to subparagraph (C) thereof) 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.

SEC. 204. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY AND 
              SECONDARY EDUCATION.

    (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 25A, as added by this title, the following new section:

``SEC. 25B. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY AND 
              SECONDARY EDUCATION.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed a credit against the tax imposed by this chapter for 
the taxable year an amount equal to 50 percent of the qualifying 
educational assistance expenses paid by the taxpayer during the taxable 
year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The amount allowed as a credit 
        under subsection (a) for any taxable year with respect to the 
        qualified educational assistance expenses of any 1 individual 
        shall not exceed $150.
            ``(2) Reduction of credit based on adjusted gross income.--
                    ``(A) In general.--The aggregate amount which would 
                (but for this paragraph) be allowed by this section 
                shall be reduced (but not below zero) by $25 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.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the term `threshold amount' means--
                            ``(i) $80,000 in the case of a joint 
                        return,
                            ``(ii) $50,000 in the case of an individual 
                        who is not married, and
                            ``(iii) $40,000 in the case of a married 
                        individual filing a separate return.
                For purposes of this subparagraph, marital status shall 
                be determined under section 7703.
    ``(c) Qualified Educational Assistance Expenses.--For purposes of 
this section--
            ``(1) In general.--The term `qualified educational 
        assistance expenses' means amounts paid to a qualified entity 
        to provide supplementary education to any dependent (within the 
        meaning of section 152) of the taxpayer--
                    ``(A) who is less than 18 years of age as of the 
                close of the taxable year, and
                    ``(B) who is enrolled as a full-time student in an 
                elementary or secondary school.
            ``(2) Supplementary education.--For purposes of paragraph 
        (1), supplementary education is education provided with respect 
        to reading, mathematics, or any subject that the dependent 
        student is studying at the time in elementary or secondary 
        school classes. Eligible courses of study shall not include 
        courses providing assistance with respect to preparation for 
        college entrance examinations.
            ``(3) Qualified entity.--The term `qualified entity' means 
        a person that is accredited as a supplementary education 
        service provider by an accreditation organization that is 
        recognized by the Secretary of Education or by any other 
        agency, association, or group that is certified by the 
        Secretary for purposes of this section.''
    (b) 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 25A the following new item:

                              ``Sec. 25B. Expenses for education which 
                                        supplements elementary and 
                                        secondary education.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

    Subtitle B--Expanded Education Investment Savings Opportunities

SEC. 211. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN 
              QUALIFIED TUITION PROGRAMS; OTHER MODIFICATIONS OF 
              QUALIFIED STATE TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted to Maintain 
Qualified Tuition Programs.--Paragraph (1) of section 529(b) (defining 
qualified State tuition program) is amended by inserting ``or by one or 
more eligible educational institutions'' after ``maintained by a State 
or agency or instrumentality thereof''.
    (b) 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 
                education institution.
                    ``(B) Room and board included for students who are 
                at least half-time.--In the case of an individual who 
                is an eligible student (as defined in section 
                25A(d)(3)) for any academic period, such term shall 
                also include reasonable costs for such period (as 
                determined under the qualified tuition program) 
                incurred by the designated beneficiary for room and 
                board while attending such institution. 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.
                    ``(C) Exclusion for graduate level courses.--Such 
                term shall not include expenses for any graduate level 
                course of a kind normally taken by an individual 
                pursuing a program leading to a law, business, medical, 
                or other advanced academic or professional degree. Such 
                courses shall not be taken into account in determining 
                whether an individual is described in subsection 
                (f)(3)(A).''
    (c) 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) No contributions after beneficiary attains age 18; 
        distributions required in certain cases.--Subsection (b) of 
        section 529 (as amended by subsection (f) of this section) is 
        amended by adding at the end the following new paragraph:
            ``(7) Restrictions relating to age of beneficiary; 
        completion of education.--
                    ``(A) In general.--A program shall be treated as a 
                qualified tuition program only if--
                            ``(i) no contribution is accepted on behalf 
                        of a designated beneficiary after the date on 
                        which such beneficiary attains age 18, and
                            ``(ii) any balance to the credit of a 
                        designated beneficiary (if any) on the account 
                        termination date shall be distributed within 30 
                        days after such date to such beneficiary (or in 
                        the case of death, the estate of the 
                        beneficiary).
                    ``(B) Account termination date.--For purposes of 
                subparagraph (A), the term `account termination date' 
                means whichever of the following dates is the earliest:
                            ``(i) The date on which the designated 
                        beneficiary completes the equivalent of 4 years 
                        of post-secondary education (whether or not at 
                        the same eligible educational institution).
                            ``(ii) The date on which the designated 
                        beneficiary attains age 30.
                            ``(iii) The date on which the designated 
                        beneficiary dies.''
            (4) 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, any contribution to a qualified tuition 
        program on behalf of any designated beneficiary--
                    ``(A) shall be treated as a completed gift to such 
                beneficiary which is not a future interest in property, 
                and
                    ``(B) shall not be treated as a qualified transfer 
                under section 2503(e).''
                            (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.--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.''
            (5) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--Subsection (b) of section 
        529 is amended by adding at the end the following new 
        paragraph:
            ``(9) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--In the case of a program 
        not maintained by a State or agency or instrumentality thereof, 
        such program shall not be treated as a qualified tuition 
        program unless it limits the annual contribution to the program 
        on behalf of a designated beneficiary to an amount equal to the 
        lesser of--
                    ``(A) $5,000, or
                    ``(B) the excess of--
                            ``(i) $50,000, over
                            ``(ii) the aggregate amount contributed to 
                        such program on behalf of such beneficiary for 
                        all prior taxable years.''
    (d) Additional Tax on Amounts Not Used For Higher Education 
Expenses.--Section 529 is amended by adding at the end the following 
new subsection:
    ``(f) Imposition of Additional Tax.--
            ``(1) In general.--The tax imposed by this chapter for any 
        taxable year on any taxpayer who receives a payment or 
        distribution from a qualified tuition program which is 
        includible in gross income shall be increased by 10 percent of 
        the amount which is so includible.
            ``(2) Exceptions.--Paragraph (1) shall not apply if the 
        payment or distribution is--
                    ``(A) used for qualified higher education expenses 
                of the designated beneficiary,
                    ``(B) made to a beneficiary (or to the estate of 
                the designated beneficiary) on or after the death of 
                the designated beneficiary,
                    ``(C) attributable to the designated beneficiary's 
                being disabled (within the meaning of section 
                72(m)(7)), or
                    ``(D) made on account of a scholarship, allowance, 
                or payment described in subparagraph (A), (B), or (C) 
                of section 135(d)(1) 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.
            ``(3) Excess contributions returned before due date of 
        return.--In the case of a qualified tuition program not 
        maintained by a State or any agency or instrumentality thereof, 
        paragraph (1) shall not apply to the distribution to a 
        contributor of any contribution made during a taxable year on 
        behalf of a designated beneficiary to the extent that such 
        contribution exceeds the limitation in section 4973(e) if--
                    ``(A) 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
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the contributor for the taxable year in 
        which such excess contribution was made.''
    (e) 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 tuition program.--
                Such term shall include any contribution to a qualified 
                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 72 by 
                reason of the portion of such contribution which is not 
                includible in gross income by reason of this 
                subparagraph.''
    (f) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 is amended 
        by striking ``or'' at the end of paragraph (2) and by inserting 
        after paragraph (3) the following new paragraphs:
            ``(4) a qualified tuition program (as defined in section 
        529) not maintained by a State or any agency or instrumentality 
        thereof, or
            ``(5) an education investment 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 Private Qualfied Tuition Program and 
Education Investment Accounts.--For purposes of this section--
            ``(1) In general.--In the case of private education 
        investment accounts maintained for the benefit of any 1 
        beneficiary, the term `excess contributions' means the amount 
        by which the amount contributed for the taxable year to such 
        accounts exceeds the lesser of--
                    ``(A) the excess of--
                            ``(i) $5,000, over
                            ``(ii) the aggregate amount contributed to 
                        all qualified tuition programs (as defined in 
                        section 529) maintained by a State or any 
                        agency or instrumentality thereof on behalf of 
                        such beneficiary for such taxable year, or
                    ``(B) the excess of--
                            ``(i) $50,000, over
                            ``(ii) the sum of--
                                    ``(I) the aggregate amount 
                                contributed to such accounts for all 
                                prior taxable years, and
                                    ``(II) the aggregate amount 
                                contributed to all qualified tuition 
                                programs (as defined in section 529) 
                                maintained by a State or any agency or 
                                instrumentality thereof on behalf of 
                                such beneficiary for such taxable year 
                                and all prior taxable years.
            ``(2) Private education investment account.--For purposes 
        of paragraph (1), the term `private education investment 
        account' means--
                    ``(A) a qualified tuition program (as defined in 
                section 529) not maintained by a State or any agency or 
                instrumentality thereof, and
                    ``(B) an education investment account (as defined 
                in section 530).
            ``(3) 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 investment account in a distribution to 
                which section 530(c)(3)(B) applies.
                    ``(B) Any contribution to a qualified tuition 
                program (as so defined) described in section 
                530(b)(2)(B) from any such account.
                    ``(C) Any rollover contribution.''
    (g) Technical Amendments.--
            (1) Paragraph (2) of section 26(b) 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 529(f) (relating to additional tax on 
                certain distributions from qualified tuition 
                programs),''.
            (2) The text of section 529 is amended by striking 
        ``qualified State tuition program'' each place it appears and 
        inserting ``qualified tuition program''.
            (3) Subsection (b) of section 529 is amended by striking 
        paragraph (3) and by redesignating paragraphs (4) through (7) 
        as paragraphs (3) through (6), respectively.
            (4)(A) The section heading of section 529 is amended to 
        read as follows:

``SEC. 529. QUALIFIED TUITION PROGRAMS.''

            (B) The item relating to section 529 in the table of 
        sections for part VIII of subchapter F of chapter 1 is amended 
        by striking ``State''.
            (5)(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.''
    (h) 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, etc.--The 
        amendments made by subsection (b) and (c)(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.
            (3) Penalty for noneducation withdrawals.--The amendment 
        made by subsection (d) shall apply to distributions after 
        December 31, 1997.
            (4) Coordination with education savings bonds.--The 
        amendment made by subsection (e) 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.

SEC. 212. EDUCATION INVESTMENT 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 INVESTMENT ACCOUNTS.

    ``(a) General Rule.--An education investment account shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, the education investment 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 investment account.--The term `education 
        investment account' means a trust created or organized in the 
        United States exclusively for the purpose of paying the 
        qualified higher education expenses of the account holder, 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 the account 
                        holder attains age 18, or
                            ``(iii) in excess of $5,000 for the taxable 
                        year.
                    ``(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.
                    ``(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) Any balance in the account will be 
                distributed as required under section 529(b)(8)(B) (as 
                if such account were a qualified tuition program).
        For $50,000 limit on aggregate contributions to accounts, see 
        section 4973(e).
            ``(2) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' has the same meaning given such 
                term by section 529(e)(3).
                    ``(B) Qualified 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 tuition program (as defined 
                in section 529(b)) for the benefit of the account 
                holder.
            ``(3) Eligible educational institution.--The term `eligible 
        educational institution' has the meaning given such term by 
        section 529(e)(5).
            ``(4) Account holder.--The term `account holder' means the 
        individual for whose benefit the education investment account 
        is established.
    ``(c) Tax Treatment of Distributions.--
            ``(1) In general.--Any amount paid or distributed shall be 
        includible in gross income as required by section 529(c)(3) 
        (determined as if such account were a qualified tuition 
        program).
            ``(2) 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.
            ``(3) Additional tax for distributions not used for 
        educational expenses.--
                    ``(A) In general.--The tax imposed by section 
                529(f) shall apply to payments and distributions from 
                an education investment account in the same manner as 
                such tax applies to qualified tuition programs (as 
                defined in section 529).
                    ``(B) Excess contributions returned before due date 
                of return.--Subparagraph (A) shall not apply to the 
                distribution to a contributor of any contribution paid 
                during a taxable year to an education investment 
                account to the extent that such contribution exceeds 
                the limitation in section 4973(e) if such distribution 
                (and the net income with respect to such excess 
                contribution) meet requirements comparable to the 
                requirements of section 529(f)(3).
            ``(4) Rollover contributions--Paragraph (1) shall not apply 
        to any amount paid or distributed from an education investment 
        account to the extent that the amount received is paid into 
        another education investment account for the benefit of the 
        account holder or a member of the family (within the meaning of 
        section 529(e)(2)) of the account holder 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.
            ``(5) Change in account holder.--Any change in the account 
        holder of an education investment account shall not be treated 
        as a distribution for purposes of paragraph (1) if the new 
        account holder is a member of the family (as so defined) of the 
        old account holder.
            ``(6) Special rules for death and divorce.--Rules similar 
        to the rules of paragraphs (7) and (8) of section 220(f) shall 
        apply.
    ``(d) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any education 
investment account.
    ``(e) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(f) 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.
    ``(g) Reports.--The trustee of an education investment account 
shall make such reports regarding such account to the Secretary and to 
the account holder with respect to contributions, distributions, and 
such other matters as the Secretary may require under regulations. 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 those regulations.''
    (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 investment 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 investment accounts.--An 
        individual for whose benefit an education investment 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 Investment Accounts.--
            (1) In general.--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 530(g) (relating to education 
                investment accounts).''
            (2) Clerical amendment.--The section heading for section 
        6693 is amended by striking ``individual retirement'' and 
        inserting ``certain tax-favored''.
    (d) Technical Amendments.--
            (1) Subparagraph (F) of section 26(b)(2), as added by the 
        preceding section, is amended by inserting before the comma 
        ``and section 530(c)(3) (relating to additional tax on certain 
        distributions from education investment accounts)''.
            (2) Subparagraph (C) of section 135(c)(2), as added by the 
        preceding section, is amended by inserting ``, or to an 
        education investment account (as defined in section 530) on 
        behalf of an account holder (as defined in such section),'' 
        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 investment 
                                        accounts.''
            (4) 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''.
    (e) 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 of instruction beginning after December 31, 
1997.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1996.

SEC. 222. INCREASE IN LIMITATION ON QUALIFIED 501(C)(3) BONDS OTHER 
              THAN HOSPITAL BONDS.

    (a) In General.--The text of paragraph (1) of section 145(b) is 
amended by striking ``$150,000,000.'' and inserting ``the limitation 
determined in accordance with the following table:

In the case of
  calendar year:
                                                     The limitation is:
    1998.............................................     $160,000,000 
    1999.............................................      170,000,000 
    2000.............................................      180,000,000 
    2001.............................................      190,000,000 
    2002 or thereafter...............................    200,000,000.''

    (b) Conforming Amendment.--The heading for subsection (b) of 
section 145 is amended by striking ``$150,000,000''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

SEC. 223. 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) 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,
                            ``(iv) the property is not transferred by 
                        the donee in exchange for money, other 
                        property, or services, except for shipping, 
                        installation and transfer costs,
                            ``(v) the property will fit productively 
                        into the entity's education plan, and
                            ``(vi) the entity's use and disposition of 
                        the property will be in accordance with the 
                        provisions of clauses (iii) and (iv).
                    ``(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 (iv) 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 (iii) through 
                                (vi) 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).''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the calendar year in which this Act is 
enacted.

SEC. 224. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.

    (a) Certain Direct Student Loans the Repayment of Which Is Income 
Contingent.--Paragraph (1) of section 108(f) is amended by striking 
``any student loan if'' and all that follows and inserting ``any 
student loan if--
                    ``(A) such discharge was pursuant to a provision of 
                such loan under which all or part of the indebtedness 
                of the individual would be discharged if the individual 
                worked for a certain period of time in certain 
                professions for any of a broad class of employers, or
                    ``(B) in the case of a loan made under part D of 
                title IV of the Higher Education Act of 1965 which has 
                a repayment schedule established under section 
                455(e)(4) of such Act (relating to income contingent 
                repayments), such discharge is after the maximum 
                repayment period under such loan (as prescribed under 
                such part).''
    (b) 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.''
    (c) Effective Date.--The amendments made by this section shall 
apply to discharges of indebtedness after the date of the enactment of 
this Act.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

SEC. 301. ESTABLISHMENT OF AMERICAN DREAM IRA.

    (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. AMERICAN DREAM IRA.

    ``(a) General Rule.--Except as provided in this section, an 
American Dream IRA shall be treated for purposes of this title in the 
same manner as an individual retirement plan.
    ``(b) American Dream IRA.--For purposes of this title, the term 
`American Dream IRA' or `AD IRA' means an individual retirement plan 
(as defined in section 7701(a)(37)) which is designated at the time of 
the establishment of the plan as an American Dream 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 an AD IRA.
            ``(2) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions for any taxable year to all AD IRAs 
                maintained for the benefit of an individual shall not 
                exceed $2,000.
                    ``(B) Inflation adjustment.--In the case of taxable 
                years beginning in a calendar year after 1998, the 
                $2,000 amount contained in subparagraph (A) 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 `calendar year 
                        1997' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If the amount as adjusted under the preceding sentence 
                is not a multiple of $50, such amount shall be rounded 
                to the next lowest multiple of $50.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to an AD IRA may be made even after the 
        individual for whom the account is maintained has attained age 
        70\1/2\.
            ``(4) Mandatory distribution rules not to apply, etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), subsections (a)(6) and (b)(3) of 
                section 408 (relating to required distributions) and 
                section 4974 (relating to excise tax on certain 
                accumulations in qualified retirement plans) shall not 
                apply to any AD IRA.
                    ``(B) Post-death distributions.--Rules similar to 
                the rules of section 401(a)(9) (other than subparagraph 
                (A) thereof) shall apply for purposes of this section.
            ``(5) Rules relating to rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to an AD 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).
            ``(6) 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 an AD IRA shall not be includible in 
                gross income.
                    ``(B) Nonqualified distributions.--In applying 
                section 72 to any distribution from an AD IRA which is 
                not a qualified distribution, such distribution shall 
                be treated as made from contributions to the AD IRA to 
                the extent that such distribution, when added to all 
                previous distributions from the AD IRA, does not exceed 
                the aggregate amount of contributions to the AD IRA. 
                For purposes of the preceding sentence, all AD IRAs 
                maintained for the benefit of an individual shall be 
                treated as 1 account.
                    ``(C) Exception from penalty tax.--Section 72(t) 
                shall not apply to--
                            ``(i) any qualified distribution from an AD 
                        IRA, and
                            ``(ii) any qualified first-time homebuyer 
                        distribution (whether or not a qualified 
                        distribution) from an AD 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 first-time 
                        homebuyer distribution.
                    ``(B) Distributions within 5 years.--No payment or 
                distribution shall be treated as a qualified 
                distribution 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 an 
                        AD IRA (or such individual's spouse made a 
                        contribution to an AD 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 (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.
                Clause (ii) shall not apply to a qualified rollover 
                contribution from an AD IRA.
            ``(3) Rollovers.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any distribution which is transferred in a qualified 
                rollover contribution to an AD IRA.
                    ``(B) Income inclusion for rollovers from non-ad 
                iras.--
                            ``(i) In general.--In the case of any 
                        distribution to which this subparagraph 
                        applies--
                                    ``(I) sections 72(t) and 408(d)(3) 
                                shall not apply (but section 4980A 
                                shall apply), and
                                    ``(II) 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 distribution is made.
                            ``(ii) Distributions to which subparagraph 
                        applies.--This subparagraph shall apply to a 
                        distribution before January 1, 1999, from an 
                        individual retirement plan (other than an AD 
                        IRA) maintained for the benefit of an 
                        individual to an AD IRA maintained for the 
                        benefit of such individual if such distribution 
                        would be a qualified rollover contribution were 
                        such individual retirement plan an AD IRA.
                            ``(iii) Conversions.--The conversion of an 
                        individual retirement plan (other than an AD 
                        IRA) to an AD IRA shall be treated for purposes 
                        of this subparagraph as a distribution from 
                        such plan to such AD IRA.
                    ``(C) Additional reporting requirements.--The 
                Secretary shall require that trustees of AD IRAs, 
                trustees of individual retirement plans, or both, 
                whichever is appropriate, shall include such additional 
                information in reports required under section 408(i) as 
                is necessary to ensure that amounts required to be 
                included in gross income under subparagraph (B) are so 
                included.
            ``(4) Qualified first-time homebuyer distribution.--For 
        purposes of this section--
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual, 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 section) 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)(A)(i) applies to any other amount.
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a rollover 
contribution to an AD IRA from another such account, but only if such 
rollover contribution meets the requirements of section 408(d)(3).''
    (b) Repeal of Nondeductible Contributions.--
            (1) Subsection (f) of section 219 is amended by striking 
        paragraph (7).
            (2) Paragraph (5) of section 408(d) is amended by striking 
        the last sentence.
            (3) Section 408(o) is amended by adding at the end the 
        following new paragraph:
            ``(5) Termination.--This subsection shall not apply to any 
        designated nondeductible contribution for any taxable year 
        beginning after December 31, 1997.''
            (4) Subsection (b) of section 4973 is amended by striking 
        the last sentence.
    (c) Excess Distributions Tax Not To Apply.--
            (1) Subparagraph (A) of section 4980A(d)(3) is amended by 
        inserting ``(other than AD IRAs, as defined in section 
        4980A(b))'' after ``individual retirement plans''.
            (2) Subparagraph (B) of section 4980A(e)(1) is amended by 
        inserting ``other than an AD IRA (as defined in section 
        408A(b))'' after ``retirement plan''.
    (d) Excess Contributions.--
            (1) Section 4973 is amended by adding at the end the 
        following new subsection:
    ``(f) Excess Contributions to American Dream IRAs.--For purposes of 
this section, in the case of American Dream IRAs, the term `excess 
contributions' means the amount by which the amount contributed for the 
taxable year to such IRAs exceeds the limitation in section 
408A(c)(2).''
            (2) Subsection (b) of section 4973 is amended by adding at 
        the end the following new sentence: ``For purposes of this 
        subsection, an American Dream IRA shall not be treated as an 
        individual retirement plan.''
    (e) Clerical 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. American Dream IRA.''

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

                       Subtitle B--Capital Gains

                    PART I--INDIVIDUAL CAPITAL GAINS

SEC. 311. 20 PERCENT MAXIMUM CAPITAL GAINS RATE 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) the base tax amount,
                    ``(B) 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 of 15 percent or less, over
                            ``(ii) the taxable income reduced by the 
                        adjusted net capital gain, plus
                    ``(C) 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 (B).
            ``(2) 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).
            ``(3) Base tax amount.--For purposes of paragraph (1), the 
        base tax amount is the lesser of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                taxable income reduced by the adjusted net capital 
                gain, or
                    ``(B) the sum of--
                            ``(i) 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 amount of taxable income 
                                taxed at a rate below 28 percent,
                            ``(ii) a tax of 26 percent of the lesser 
                        of--
                                    ``(I) the section 1250 gain, or
                                    ``(II) the amount of taxable income 
                                in excess of the sum of the amount on 
                                which tax is determined under clause 
                                (i) plus the net capital gain 
                                determined without regard to section 
                                1250 gain, plus
                            ``(iii) a tax of 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 clauses 
                                (i) and (ii).
            ``(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) section 1202 gain, and
                    ``(C) section 1250 gain.
            ``(5) Collectibles gain.--For purposes of paragraph (4)--
                    ``(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) Coordination with section 1022.--Gain from 
                the disposition of a collectible which is an indexed 
                asset to which section 1022(a) applies shall be 
                disregarded for purposes of this subsection. A taxpayer 
                may elect to treat any collectible specified in such 
                election as not being an indexed asset for purposes of 
                section 1022. Any such election, and any specification 
                therein, once made, shall be irrevocable.
                    ``(C) 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) Section 1202 gain.--For purposes of paragraph (4), 
        the term `section 1202 gain' means gain from the sale or 
        exchange of any qualified small business stock (as defined in 
        section 1202(c)) held more than 5 years which is taken into 
        account in computing gross income.
            ``(7) Section 1250 gain.--For purposes of paragraph (4), 
        the term `section 1250 gain' means the excess (if any) of--
                    ``(A) the amount which would be treated as ordinary 
                income under section 1245 if all section 1250 property 
                disposed of by the taxpayer were section 1245 property, 
                over
                    ``(B) the amount treated as ordinary income under 
                section 1250.
        In the case of a taxable year which includes May 7, 1997, 
        section 1250 gain shall be determined by taking into account 
        only the gain properly taken into account for the portion of 
        the taxable year after May 6, 1997.
            ``(8) Pre-effective date gain.--
                    ``(A) In general.--In the case of a taxable year 
                which includes May 7, 1997, adjusted net capital gain 
                shall be determined without regard to pre-May 7, 1997, 
                gain.
                    ``(B) Pre-may 7, 1997, gain.--The term `pre-May 7, 
                1997, gain' means the amount which would be adjusted 
                net capital gain for the taxable year if adjusted net 
                capital gain were determined by taking into account 
                only the gain or loss properly taken into account for 
                the portion of the taxable year before May 7, 1997.
                    ``(C) 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.
                    ``(D) Pass-thru entity defined.--For purposes of 
                subparagraph (C), 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.''
    (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 lesser of--
                            ``(i) 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 
                        adjusted net capital gain (as defined in 
                        section 1(h)(4)), or
                            ``(ii) the sum of--
                                    ``(I) 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 sum of 
                                the adjusted net capital gain (as so 
                                defined) and the section 1250 gain (as 
                                defined in section 1(h)(7)), plus
                                    ``(II) 26 percent of the lesser of 
                                the section 1250 gain (as so defined) 
                                or the taxable excess reduced by the 
                                adjusted net capital gain (as so 
                                defined),
                    ``(B) a tax of 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)(B), plus
                    ``(C) a tax of 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 (B).''
            (2) Conforming amendment.--Clause (ii) of section 
        55(b)(1)(A) is amended by striking ``clause (i)'' and inserting 
        ``this subsection''.
    (c) Other Conforming Amendments.--
            (1) Subsection (d) of section 291 is amended by inserting 
        at the end the following new sentence: ``Any capital gain 
        dividend treated as having been paid out of such difference to 
        a shareholder which is not a corporation retains its characters 
        as section 1250 gain for purposes of applying section 1(h) to 
        such shareholder.''
            (2) Paragraph (1) of section 1445(e) is amended by striking 
        ``28 percent'' and inserting ``20 percent''.
            (3) 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''.
    (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)(2) 
        shall apply only to amounts paid after the date of the 
        enactment of this Act.
            (3) Application of estimated tax rules.--Clause (i) of 
        section 6654(d)(1)(C) of the Internal Revenue Code of 1986 
        shall be applied by substituting ``109 percent'' for ``110 
        percent'' where the preceding taxable year referred in such 
        clause is a taxable year beginning in calendar year 1996.

SEC. 312. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 2000, 
              FOR PURPOSES OF DETERMINING GAIN.

    (a) In General.--Part II of subchapter O of chapter 1 (relating to 
basis rules of general application) is amended by inserting after 
section 1021 the following new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 
              2000, FOR PURPOSES OF DETERMINING GAIN.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Solely 
        for purposes of determining gain on the sale or other 
        disposition by a taxpayer (other than a corporation) of an 
        indexed asset which has been held for more than 3 years, the 
        indexed basis of the asset shall be substituted for its 
        adjusted basis.
            ``(2) Exception for depreciation, etc.--The deductions for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
            ``(3) Exception for principal residences.--Paragraph (1) 
        shall not apply to any disposition of the principal residence 
        (within the meaning of section 121) of the taxpayer .
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) common stock in a C corporation (other than a 
                foreign corporation), and
                    ``(B) tangible property,
        which is a capital asset or property used in the trade or 
        business (as defined in section 1231(b)).
            ``(2) Stock in certain foreign corporations included.--For 
        purposes of this section--
                    ``(A) In general.--The term `indexed asset' 
                includes common stock in a foreign corporation which is 
                regularly traded on an established securities market.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to--
                            ``(i) stock of a foreign investment company 
                        (within the meaning of section 1246(b)),
                            ``(ii) stock in a passive foreign 
                        investment company (as defined in section 
                        1296),
                            ``(iii) stock in a foreign corporation held 
                        by a United States person who meets the 
                        requirements of section 1248(a)(2), and
                            ``(iv) stock in a foreign personal holding 
                        company (as defined in section 552).
                    ``(C) Treatment of american depository receipts.--
                An American depository receipt for common stock in a 
                foreign corporation shall be treated as common stock in 
                such corporation.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) General rule.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, increased by
                    ``(B) the applicable inflation adjustment.
            ``(2) Applicable inflation adjustment.--The applicable 
        inflation adjustment for any asset is an amount equal to--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the percentage (if any) by which--
                            ``(i) the chain-type price index for GDP 
                        for the last calendar quarter ending before the 
                        asset is disposed of, exceeds
                            ``(ii) the chain-type price index for GDP 
                        for the last calendar quarter ending before the 
                        asset was acquired by the taxpayer.
        The percentage under subparagraph (B) shall be rounded to the 
        nearest \1/10\ of 1 percentage point.
            ``(3) Chain-type price index for GDP.--The chain-type price 
        index for GDP for any calendar quarter is such index for such 
        quarter (as shown in the last revision thereof released by the 
        Secretary of Commerce before the close of the following 
        calendar quarter).
    ``(d) Suspension of Holding Period Where Diminished Risk of Loss; 
Treatment of Short Sales.--
            ``(1) In general.--If the taxpayer (or a related person) 
        enters into any transaction which substantially reduces the 
        risk of loss from holding any asset, such asset shall not be 
        treated as an indexed asset for the period of such reduced 
        risk.
            ``(2) Short sales.--
                    ``(A) In general.--In the case of a short sale of 
                an indexed asset with a short sale period in excess of 
                3 years, for purposes of this title, the amount 
                realized shall be an amount equal to the amount 
                realized (determined without regard to this paragraph) 
                increased by the applicable inflation adjustment. In 
                applying subsection (c)(2) for purposes of the 
                preceding sentence, the date on which the property is 
                sold short shall be treated as the date of acquisition 
                and the closing date for the sale shall be treated as 
                the date of disposition.
                    ``(B) Short sale period.--For purposes of 
                subparagraph (A), the short sale period begins on the 
                day that the property is sold and ends on the closing 
                date for the sale.
    ``(e) Treatment of Regulated Investment Companies and Real Estate 
Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the adjustment under subsection (a) 
                shall be allowed to any qualified investment entity 
                (including for purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for corporate shareholders.--Under 
                regulations--
                            ``(i) in the case of a distribution by a 
                        qualified investment entity (directly or 
                        indirectly) to a corporation--
                                    ``(I) the determination of whether 
                                such distribution is a dividend shall 
                                be made without regard to this section, 
                                and
                                    ``(II) the amount treated as gain 
                                by reason of the receipt of any capital 
                                gain dividend shall be increased by the 
                                percentage by which the entity's net 
                                capital gain for the taxable year 
                                (determined without regard to this 
                                section) exceeds the entity's net 
                                capital gain for such year determined 
                                with regard to this section, and
                            ``(ii) there shall be other appropriate 
                        adjustments (including deemed distributions) so 
                        as to ensure that the benefits of this section 
                        are not allowed (directly or indirectly) to 
                        corporate shareholders of qualified investment 
                        entities.
                For purposes of the preceding sentence, any amount 
                includible in gross income under section 852(b)(3)(D) 
                shall be treated as a capital gain dividend and an S 
                corporation shall not be treated as a corporation.
                    ``(C) Exception for qualification purposes.--This 
                section shall not apply for purposes of sections 851(b) 
                and 856(c).
                    ``(D) Exception for certain taxes imposed at entity 
                level.--
                            ``(i) Tax on failure to distribute entire 
                        gain.--If any amount is subject to tax under 
                        section 852(b)(3)(A) for any taxable year, the 
                        amount on which tax is imposed under such 
                        section shall be increased by the percentage 
                        determined under subparagraph (B)(i)(II). A 
                        similar rule shall apply in the case of any 
                        amount subject to tax under paragraph (2) or 
                        (3) of section 857(b) to the extent 
                        attributable to the excess of the net capital 
                        gain over the deduction for dividends paid 
                        determined with reference to capital gain 
                        dividends only. The first sentence of this 
                        clause shall not apply to so much of the amount 
                        subject to tax under section 852(b)(3)(A) as is 
                        designated by the company under section 
                        852(b)(3)(D).
                            ``(ii) Other taxes.--This section shall not 
                        apply for purposes of determining the amount of 
                        any tax imposed by paragraph (4), (5), or (6) 
                        of section 857(b).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) Regulated investment companies.--Stock in a 
                regulated investment company (within the meaning of 
                section 851) shall be an indexed asset for any calendar 
                quarter in the same ratio as--
                            ``(i) the average of the fair market values 
                        of the indexed assets held by such company at 
                        the close of each month during such quarter, 
                        bears to
                            ``(ii) the average of the fair market 
                        values of all assets held by such company at 
                        the close of each such month.
                    ``(B) Real estate investment trusts.--Stock in a 
                real estate investment trust (within the meaning of 
                section 856) shall be an indexed asset for any calendar 
                quarter in the same ratio as--
                            ``(i) the fair market value of the indexed 
                        assets held by such trust at the close of such 
                        quarter, bears to
                            ``(ii) the fair market value of all assets 
                        held by such trust at the close of such 
                        quarter.
                    ``(C) Ratio of 80 percent or more.--If the ratio 
                for any calendar quarter determined under subparagraph 
                (A) or (B) would (but for this subparagraph) be 80 
                percent or more, such ratio for such quarter shall be 
                100 percent.
                    ``(D) Ratio of 20 percent or less.--If the ratio 
                for any calendar quarter determined under subparagraph 
                (A) or (B) would (but for this subparagraph) be 20 
                percent or less, such ratio for such quarter shall be 
                zero.
                    ``(E) Look-thru of partnerships.--For purposes of 
                this paragraph, a qualified investment entity which 
                holds a partnership interest shall be treated (in lieu 
                of holding a partnership interest) as holding its 
                proportionate share of the assets held by the 
                partnership.
            ``(3) Treatment of return of capital distributions.--Except 
        as otherwise provided by the Secretary, a distribution with 
        respect to stock in a qualified investment entity which is not 
        a dividend and which results in a reduction in the adjusted 
        basis of such stock shall be treated as allocable to stock 
        acquired by the taxpayer in the order in which such stock was 
        acquired.
            ``(4) Qualified investment entity.--For purposes of this 
        subsection, the term `qualified investment entity' means--
                    ``(A) a regulated investment company (within the 
                meaning of section 851), and
                    ``(B) a real estate investment trust (within the 
                meaning of section 856).
    ``(f) Other Pass-Thru Entities.--
            ``(1) Partnerships.--
                    ``(A) In general.--In the case of a partnership, 
                the adjustment made under subsection (a) at the 
                partnership level shall be passed through to the 
                partners.
                    ``(B) Special rule in the case of section 754 
                elections.--In the case of a transfer of an interest in 
                a partnership with respect to which the election 
                provided in section 754 is in effect--
                            ``(i) the adjustment under section 
                        743(b)(1) shall, with respect to the transferor 
                        partner, be treated as a sale of the 
                        partnership assets for purposes of applying 
                        this section, and
                            ``(ii) with respect to the transferee 
                        partner, the partnership's holding period for 
                        purposes of this section in such assets shall 
                        be treated as beginning on the date of such 
                        adjustment.
            ``(2) S corporations.--In the case of an S corporation, the 
        adjustment made under subsection (a) at the corporate level 
        shall be passed through to the shareholders. This section shall 
        not apply for purposes of determining the amount of any tax 
        imposed by section 1374 or 1375.
            ``(3) Common trust funds.--In the case of a common trust 
        fund, the adjustment made under subsection (a) at the trust 
        level shall be passed through to the participants.
            ``(4) Indexing adjustment disregarded in determining loss 
        on sale of interest in entity.--Notwithstanding the preceding 
        provisions of this subsection, for purposes of determining the 
        amount of any loss on a sale or exchange of an interest in a 
        partnership, S corporation, or common trust fund, the 
        adjustment made under subsection (a) shall not be taken into 
        account in determining the adjusted basis of such interest.
    ``(g) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(h) Transfers To Increase Indexing Adjustment.--If any person 
transfers cash, debt, or any other property to another person and the 
principal purpose of such transfer is to secure or increase an 
adjustment under subsection (a), the Secretary may disallow part or all 
of such adjustment or increase.
    ``(i) Special Rules.--For purposes of this section--
            ``(1) Treatment of improvements, etc.--If there is an 
        addition to the adjusted basis of any tangible property or of 
        any stock in a corporation during the taxable year by reason of 
        an improvement to such property or a contribution to capital of 
        such corporation--
                    ``(A) such addition shall never be taken into 
                account under subsection (c)(1)(A) if the aggregate 
                amount thereof during the taxable year with respect to 
                such property or stock is less than $1,000, and
                    ``(B) such addition shall be treated as a separate 
                asset acquired at the close of such taxable year if the 
                aggregate amount thereof during the taxable year with 
                respect to such property or stock is $1,000 or more.
        A rule similar to the rule of the preceding sentence shall 
        apply to any other portion of an asset to the extent that 
        separate treatment of such portion is appropriate to carry out 
        the purposes of this section.
            ``(2) Assets which are not indexed assets throughout 
        holding period.--The applicable inflation adjustment shall be 
        appropriately reduced for periods during which the asset was 
        not an indexed asset.
            ``(3) Treatment of certain distributions.--A distribution 
        with respect to stock in a corporation which is not a dividend 
        shall be treated as a disposition.
            ``(4) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a)(1) to an asset while such asset was held by the taxpayer, 
        the date of acquisition of such asset by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
            ``(5) Collapsible corporations.--The application of section 
        341(a) (relating to collapsible corporations) shall be 
        determined without regard to this section.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of chapter 1 is amended by inserting after the item 
relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of certain assets 
                                        acquired after December 31, 
                                        2000, for purposes of 
                                        determining gain.''

    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to the disposition of any property the holding period of 
        which begins after December 31, 2000.
            (2) Certain transactions between related persons.--The 
        amendments made by this section shall not apply to the 
        disposition of any property acquired after December 31, 2000, 
        from a related person (as defined in section 1022(g)(2) of the 
        Internal Revenue Code of 1986, as added by this section) if--
                    (A) such property was so acquired for a price less 
                than the property's fair market value, and
                    (B) the amendments made by this section did not 
                apply to such property in the hands of such related 
                person.
    (d) 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 an indexed 
                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 indexed asset 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. 313. 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) Dollar limitation.--The amount of gain excluded from 
        gross income under subsection (a) with respect to any sale or 
        exchange shall not exceed $250,000 ($500,000 in the case of a 
        joint return where both spouses meet the use requirement of 
        subsection (a)).
            ``(2) 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 or his spouse to which subsection (a) applied.
                    ``(B) Premarriage sales by spouse not taken into 
                account.--If, but for this subparagraph, subsection (a) 
                would not apply to a sale or exchange by a married 
                individual by reason of a sale or exchange by such 
                individual's spouse before their marriage--
                            ``(i) subparagraph (A) shall be applied 
                        without regard to the sale or exchange by such 
                        individual's spouse, but
                            ``(ii) the amount of gain excluded from 
                        gross income under subsection (a) with respect 
                        to the sale or exchange by such individual 
                        shall not exceed $250,000.
                    ``(C) 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)(2) shall not apply; but the amount of gain excluded from 
        gross income under subsection (a) with respect to such sale of 
        exchange shall not exceed--
                    ``(A) the amount which bears the same ratio to the 
                amount which would be so excluded 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 or his spouse 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)(2), and
                    ``(B) such sale or exchange is by reason of a 
                change in place of employment, health, or, to the 
                extent provided in regulations, other unforeseen 
                circumstances.
    ``(d) Special Rules.--
            ``(1) Joint returns.--For purposes of this section, if a 
        husband and wife make a joint return for the taxable year of 
        the sale or exchange of the property, subsection (a) shall, 
        subject to the provisions of subsection (b), 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 such property shall 
        include the period such deceased spouse held such property 
        before death.
            ``(3) Property of divorced spouse.--For purposes of this 
        section, in the case of an individual holding property 
        transferred to such individual incident to divorce (within the 
        meaning of section 1041(c))--
                    ``(A) the period such individual owns such property 
                shall include the period the former spouse owned the 
                property, and
                    ``(B) the dollar limitation applicable under 
                paragraph (1) shall not be less than the amount such 
                limitation would have been had the sale or exchange 
                occurred on the date the divorce became final.
            ``(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) Determination of marital status.--In the case of any 
        sale or exchange, for purposes of this section--
                    ``(A) the determination of whether an individual is 
                married shall be made as of the date of the sale or 
                exchange, and
                    ``(B) an individual legally separated from his 
                spouse under a decree of divorce or of separate 
                maintenance shall not be considered as married.
            ``(9) Sales of life estates and remainder interests.--For 
        purposes of this section--
                    ``(A) In general.--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 
                life estate or a remainder interest in such residence, 
                but this section shall apply only to one such 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 sentence) 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) 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 Revenue Reconciliation 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 
        Revenue Reconciliation 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 Revenue Reconciliation 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 Revenue Reconciliation Act of 1997)'' after ``1034''.
            (10) Paragraph (7) of section 1250(d) is amended to read as 
        follows:
            ``(7) Disposition of principal residence.--Subsection (a) 
        shall not apply to a disposition of property to the extent used 
        by the taxpayer as his principal residence (within the meaning 
        of section 121, relating to gain on sale of principal 
        residence).''
            (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 of such Code 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) 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.

                    PART II--CORPORATE CAPITAL GAINS

SEC. 321. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR CORPORATIONS.

    (a) In General.--Section 1201 is amended to read as follows:

``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

    ``(a) General Rule.--If for any taxable year a corporation has 8-
year gain, then, in lieu of the tax imposed by sections 11, 511, and 
831 (a) and (b) (whichever is applicable), there is hereby imposed a 
tax (if such tax is less than the tax imposed by such sections) which 
shall consist of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        amount of the 8-year gain, at the rates and in the manner as if 
        this subsection had not been enacted, plus
            ``(2) a tax of the applicable percentage of the amount of 
        the 8-year gain (or, if less, taxable income).
    ``(b) Applicable Percentage.--For purposes of subsection (a)--
            ``(1) In general.--The term `applicable percentage' means--
                    ``(A) 32 percent for the portion of any taxable 
                year within 1998,
                    ``(B) 31 percent for the portion of any taxable 
                year within 1999, and
                    ``(C) 30 percent for the portion of any taxable 
                year after 1999.
            ``(2) Fiscal year taxpayers.--
                    ``(A) Taxable years beginning in 1997.--In applying 
                this section to taxable years beginning in 1997, 8-year 
                gain shall not exceed the 8-year gain determined by 
                taking into account only gains and losses properly 
                taken into account for the portion of the taxable year 
                after December 31, 1997.
                    ``(B) Taxable years beginning in 1998 or 1999.--In 
                the case of a taxable year beginning in 1998 or 1999 
                which includes portions of 2 calendar years, the 
                applicable percentage shall be applied separately to 
                such portions by taking into account--
                            ``(i) in the case of the first such 
                        portion, the lesser of--
                                    ``(I) the 8-year gain determined by 
                                taking into account only gains and 
                                losses properly taken into account for 
                                such portion, or
                                    ``(II) the 8-year gain determined 
                                for the entire taxable year, and
                            ``(ii) in the case of the second such 
                        portion, the 8-year gain (and the taxable 
                        income) determined for the entire taxable year 
                        reduced by the amount on which tax is 
                        determined under subsection (a)(2) for the 
                        first such portion determined under clause (i).
                    ``(C) Special rule for pass-thru entities.--Section 
                1(h)(8)(C) shall apply for purposes of this paragraph.
    ``(c) 8-Year Gain.--For purposes of this section, the term `8-year 
gain' means the lesser of--
            ``(1) the amount of long-term capital gain which would be 
        computed for the taxable year if only gain from the sale or 
        exchange of property held by the taxpayer for more than 8 years 
        were taken into account, or
            ``(2) net capital gain.
The determination under the preceding sentence shall be made without 
regard to collectibles gain (as defined in section 1(h)(5)) or section 
1250 gain (as defined in section 1(h)(7)).
    ``(d) Cross References.--

                                ``For computation of the alternative 
tax--
                                  ``(1) in the case of life insurance 
companies, see section 801(a)(2),
                                  ``(2) in the case of regulated 
investment companies and their shareholders, see section 852(b)(3)(A) 
and (D), and
                                  ``(3) in the case of real estate 
investment trusts, see section 857(b)(3)(A).''

    (b) Technical Amendments.--
            (1) Subsection (d) of section 291 is amended by striking 
        ``subsection (a)(1) to such shareholder'' and inserting 
        ``subsection (a)(1) and section 1201 to such shareholder''.
            (2) Clause (iii) of section 852(b)(3)(D) is amended by 
        striking ``65 percent'' and inserting ``the applicable 
        percentage'' and by inserting at the end the following new 
        sentence: ``For purposes of the preceding sentence, the term 
        `applicable percentage' means the percentage equal to the 
        excess of 100 percent over the percentage applicable under 
        section 1201(a).''
            (3)(A) Subparagraph (B) of section 852(b)(3) is amended to 
        read as follows:
                    ``(B) Treatment of capital gain dividends by 
                shareholders.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), a capital gain dividend shall be 
                        treated by the shareholders as gain from the 
                        sale or exchange of a capital asset held for 
                        more than 1 year.
                            ``(ii) Coordination with 8-year holding 
                        period for corporate net capital gain.--The 
                        portion of any capital gain dividend designated 
                        by the company as allocable to gain from the 
                        sale or exchange of property held by the 
                        company for more than 8 years shall be treated 
                        as gain from the sale or exchange of a capital 
                        asset held for more than 8 years. Rules similar 
                        to the rules of subparagraph (C) shall apply to 
                        any designation under the preceding sentence.''
            (B) Clause (i) of section 851(b)(3)(D) is amended by adding 
        at the end thereof the following new sentence: ``Rules similar 
        to the rules of subparagraph (B) shall apply in determining 
        character of the amount to be so included by any such 
        shareholder which is a corporation.''
            (4) Subparagraph (B) of section 857(b)(3) is amended to 
        read as follows:
                    ``(B) Treatment of capital gain dividends by 
                shareholders.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), a capital gain dividend shall be 
                        treated by the shareholders or holders of 
                        beneficial interests as gain from the sale or 
                        exchange of a capital asset held for more than 
                        1 year.
                            ``(ii) Coordination with 8-year holding 
                        period for corporate net capital gain.--The 
                        portion of any capital gain dividend designated 
                        by the company as allocable to gain from the 
                        sale or exchange of property held by the 
                        company for more than 8 years shall be treated 
                        as gain from the sale or exchange of a capital 
                        asset held for more than 8 years. Rules similar 
                        to the rules of subparagraph (C) shall apply to 
                        any designation under the preceding sentence.''
            (5) Subsection (c) of section 584 is amended--
                    (A) by inserting ``but not more than 8 years'' 
                after ``1 year'' each place it appears in paragraph 
                (2),
                    (B) by striking ``and'' at the end of paragraph 
                (2), and
                    (C) by redesignating paragraph (3) as paragraph (4) 
                and inserting after paragraph (2) the following new 
                paragraph:
            ``(3) as part of its gains and losses from sales or 
        exchanges of capital assets held for more than 8 years, its 
        proportionate share of the gains and losses of the common trust 
        fund from sales or exchanges of capital assets held for more 
        than 8 years, and''.
            (6) Subparagraph (E) of section 904(b)(3) is amended by 
        adding at the end the following new clause:
                            ``(iv) Regulations.--The Secretary shall 
                        prescribe regulations that adjust the 
                        limitation under subsection (a) to reflect the 
                        rate differential for 8-year gain (as defined 
                        in section 1201(c)) between the highest rate of 
                        tax specified in section 11(b) and the 
                        alternate rate of tax under section 1201(a) and 
                        the limitation on the deduction for capital 
                        losses under section 1211.''
    (c) Effective Dates.--The amendments made by this section shall 
apply to taxable years ending after December 31, 1997.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

SEC. 401. ADJUSTMENT OF EXEMPTION AMOUNTS FOR TAXPAYERS OTHER THAN 
              CORPORATIONS.

    (a) In General.--Subsection (d) of section 55 is amended by adding 
at the end the following new paragraph:
            ``(4) Adjustment of exemption amounts for taxpayers other 
        than corporations.--
                    ``(A) Taxable years beginning before january 1, 
                2008.--In the case of any taxable year beginning in a 
                calendar year after 1998 and before 2008--
                            ``(i) In general.--The dollar amount 
                        applicable under paragraph (1)(A) for any odd-
                        numbered calendar year--
                                    ``(I) shall be $1,000 greater than 
                                the dollar amount applicable under 
                                paragraph (1)(A) for the prior odd-
                                numbered calendar year, and
                                    ``(II) shall apply to taxable years 
                                beginning in such odd-numbered calendar 
                                year and the succeeding calendar year.
                    ``(B) Taxable years beginning after december 31, 
                2007.--In the case of any taxable year beginning in a 
                calendar year after 2007, the dollar amount applicable 
                under paragraph (1)(A) for taxable years beginning in 
                2007 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 `calendar year 2006' 
                        for `calendar year 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.
                    ``(C) Other amounts.--
                            ``(i) The dollar amount applicable under 
                        paragraph (1)(B) for any taxable year shall be 
                        an amount equal to 75 percent of the dollar 
                        amount applicable under paragraph (1)(A) for 
                        such year.
                            ``(ii) The dollar amount applicable under 
                        paragraph (1)(C) for any taxable year shall be 
                        an amount equal to 50 percent of the dollar 
                        amount applicable under paragraph (1)(A) for 
                        such year.''
    (b) Conforming Amendment.--The last sentence of section 55(d)(3) is 
amended by striking ``$165,000 or (ii) $22,500'' and inserting ``the 
minimum amount of such income (as so determined) for which the 
exemption amount under paragraph (1)(C) is zero, or (ii) such exemption 
amount (determined without regard to this paragraph)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 402. 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 any prior 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 December 31, 1997, 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 without regard to transactions entered into or other 
        items arising in taxable years prior to such first taxable 
        year.
            ``(3) 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), the amount described in paragraph (2) of section 53(b) 
        shall not be less than the greater of--
                    ``(A) the tentative minimum tax for the taxable 
                year, or
                    ``(B) 25 percent of so much of the regular tax 
                liability (reduced by the credit allowed by section 27) 
                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. 403. REPEAL OF ADJUSTMENT FOR DEPRECIATION.

    Clause (i) of section 56(a)(1)(A) is amended by inserting ``and 
before January 1, 1999,'' after ``December 31, 1986,''.

SEC. 404. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.

    (a) In General.--The last sentence of paragraph (6) of section 
56(a) (relating to treatment of installment sales in computing 
alternative minimum taxable income) is amended to read as follows: 
``This paragraph shall not apply to any disposition--
                    ``(A) in the case of a taxpayer using the cash 
                receipts and disbursements method of accounting, 
                described in section 453(l)(2)(A) (relating to farm 
                property), or
                    ``(B) with respect to which an election is in 
                effect under section 453(l)(2)(B) (relating to 
                timeshares and residential lots).''
    (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--
            ``(1) In general.--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:

        l``In the case of estates of decedents
                                                         The applicable
          dying, and gifts made, during:
                                                   exclusion amount is:
                  1998...............................        $ 650,000 
                  1999...............................        $ 750,000 
                  2000...............................        $ 765,000 
                  2001 through 2004..................        $ 775,000 
                  2005...............................        $ 800,000 
                  2006...............................        $ 825,000 
                  2007 or thereafter.................       $1,000,000.

            ``(2) Cost-of-living adjustment.--In the case of any 
        decedent dying, and gift made, in a calendar year after 2007, 
        the $1,000,000 amount set forth in paragraph (1) 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 2006' 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) 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. 20-YEAR INSTALLMENT PAYMENT WHERE ESTATE CONSISTS LARGELY OF 
              INTEREST IN CLOSELY HELD BUSINESS.

    (a) In General.--Section 6166(a) (relating to extension of time for 
payment of estate tax where estate consists largely of interest in 
closely held business) is amended by striking ``10'' in paragraph (1) 
and the heading thereof and inserting ``20''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1997.

SEC. 503. NO INTEREST ON CERTAIN PORTION OF ESTATE TAX EXTENDED UNDER 
              SECTION 6166, REDUCED INTEREST ON REMAINING PORTION, AND 
              NO DEDUCTION FOR SUCH REDUCED INTEREST.

    (a) No Interest and Reduced Interest.--
            (1) 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), as amended by section 501(e), 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) no interest shall be paid on the no-interest 
                portion of such amount, and
                    ``(B) interest on so much of such amount as exceeds 
                such no-interest 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) No-interest portion.--For purposes of this section, 
        the term `no-interest 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.''
            (2) Conforming amendments.--
                    (A) Section 6601(j), as amended by section 501, is 
                amended--
                            (i) by striking ``4-percent'' each place it 
                        appears in paragraph (3) and inserting ``no-
                        interest'', and
                            (ii) by striking ``4-Percent Rate on 
                        Certain Portion of'' in the heading and 
                        inserting ``Rate on''.
                    (B) Section 6166(b)(7)(A)(iii) is amended to read 
                as follows:
                            ``(iii) for purposes of applying section 
                        6601(j) (relating to rate on estate tax 
                        extended under section 6166), the no-interest 
                        portion shall be zero.''
                    (C) Section 6166(b)(8)(A)(iii) is amended to read 
                as follows:
                            ``(iii) No-interest portion not to apply.--
                        For purposes of applying section 6601(j) 
                        (relating to rate on estate tax extended under 
                        section 6166), the no-interest portion shall be 
                        zero.''
    (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.--Subparagraph (E) of section 163(h)(2) is 
        amended by striking ``or 6166''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1997.

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, whether 
such extension has ceased to apply, or the amount of such installment 
payments. 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. TERMINATION OF THROWBACK RULES FOR DOMESTIC TRUSTS.

    (a) Accumulation Distributions.--
            (1) In general.--Section 665 is amended by adding at the 
        end the following new subsection:
    ``(f) Special Rule For United States Trusts.--For purposes of this 
subpart, in the case of a trust other than a foreign 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) Conforming amendment.--Subsection (b) of section 665 is 
        amended by inserting ``except as provided in subsection (f),'' 
        after ``subpart,''
    (b) Property Transferred to Trusts.--Subsection (e) of section 644 
is amended by striking ``or'' at the end of paragraph (3), by striking 
the period at the end of paragraph (4) and inserting ``, or '', and by 
adding at the end the following new paragraph:
            ``(5) in the case of a trust other than a foreign trust, 
        any sale or exchange of property after the date of the 
        enactment of this paragraph.''
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section 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. UNIFIED CREDIT OF DECEDENT INCREASED BY UNIFIED CREDIT OF 
              SPOUSE USED ON SPLIT GIFT INCLUDED IN DECEDENT'S GROSS 
              ESTATE.

    (a) In General.--Section 2010 (relating to unified credit against 
estate tax) is amended by adding at the end the following new 
subsection:
    ``(d) Treatment of Unified Credit Used By Spouse on Split-Gift 
Included in Decedent's Gross Estate.--If--
            ``(1) the decedent was the donor of any gift one-half of 
        which was considered under section 2513 as made by the 
        decedent's spouse, and
            ``(2) the amount of such gift is includible in the gross 
        estate of the decedent by reason of section 2035, 2036, 2037, 
        or 2038,
the amount of the credit allowable by subsection (a) to the estate of 
the decedent shall be increased by the amount of the unified credit 
allowed against the tax imposed by section 2501 on the amount of such 
gift considered under section 2513 as made by such spouse.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to gifts made after the date of the enactment of this Act.

SEC. 509. REFORMATION OF DEFECTIVE BEQUESTS, ETC., TO SPOUSE OF 
              DECEDENT.

    (a) In General.--Subsection (b) of section 2056 (relating to 
bequests, etc., to surviving spouse) is amended by adding at the end 
the following new paragraph:
            ``(11) Reformations permitted.--
                    ``(A) In general.--In the case of any interest in 
                property with respect to which a deduction would be 
                allowable under subsection (a) but for a provision of 
                this subsection, if--
                            ``(i) the surviving spouse is entitled to 
                        all of the income from the property for life,
                            ``(ii) no person other than such spouse is 
                        entitled to any distribution of such property 
                        during such spouse's life, and
                            ``(iii) there is a change of a governing 
                        instrument (by reformation, amendment, 
                        construction, or otherwise) as of the 
                        applicable date which results in the 
                        satisfaction of the requirements of such 
                        provision as of the date of the decedent's 
                        death,
                the determination of whether such deduction is 
                allowable shall be made as of the applicable date.
                    ``(B) Special rule where timely commencement of 
                reformation.--Clauses (i) and (ii) of subparagraph (A) 
                shall not apply to any interest if, not later than the 
                date described in subparagraph (C)(i), a judicial 
                proceeding is commenced to change such interest into an 
                interest which satisfies the requirements of the 
                provision by reason of which (but for this paragraph) a 
                deduction would not be allowable under subsection (a) 
                for such interest.
                    ``(C) Applicable date.--For purposes of 
                subparagraph (A), the term `applicable date' means--
                            ``(i) the last date (including extensions) 
                        for filing the return of tax imposed by this 
                        chapter, or
                            ``(ii) if a judicial proceeding is 
                        commenced to comply with such provision, the 
                        time when the changes pursuant to such 
                        proceeding are made.
                    ``(D) Special rule.--If the change referred to in 
                subparagraph (A)(iii) is to qualify the passage of the 
                interest under paragraph (7), subparagraph (A) shall 
                apply only if the election under paragraph (7)(B) is 
                made.
                    ``(E) Statute of limitations.--If a judicial 
                proceeding described in subparagraph (C)(ii) is 
                commenced with respect to any interest, the period for 
                assessing any deficiency of tax attributable to such 
                interest shall not expire before the date 1 year after 
                the date on which the Secretary is notified that such 
                provision has been complied with or that such 
                proceeding has been terminated.''
    (b) Comparable Rule for Gift Tax.--Section 2523 (relating to gift 
to spouse) is amended by adding at the end the following new 
subsection:
    ``(j) Reformations permitted.--Rules similar to the rules of 
section 2056(b)(11) shall apply for purposes of this section.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after the date of 
the enactment of this Act.

             Subtitle B--Generation-Skipping Tax Provisions

SEC. 511. SEVERING OF TRUSTS HOLDING PROPERTY HAVING AN INCLUSION RATIO 
              OF GREATER THAN ZERO.

    (a) In General.--Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following new 
paragraph:
            ``(3) Severing of trusts holding property having an 
        inclusion ratio of greater than zero.--
                    ``(A) In general.--If a trust holding property 
                having an inclusion ratio of greater than zero is 
                severed in a qualified severance, at the election of 
                the trustee of such trust, the trusts resulting from 
                such severance shall be treated as separate trusts for 
                purposes of this chapter and 1 such trust shall have an 
                inclusion ratio of 1 and the other such trust shall 
                have an inclusion ratio of zero.
                    ``(B) Qualified severance.--For purposes of 
                subparagraph (A), the term `qualified severance' means 
                the creation of 2 trusts from a single trust if each 
                property held by the single trust was divided between 
                the 2 created trusts such that one trust received an 
                interest in each such property equal to the applicable 
                fraction of the single trust. Such term includes any 
                other severance permitted under regulations prescribed 
                by the Secretary.
                    ``(C) Election.--The election under this paragraph 
                shall be made at the time prescribed by the Secretary. 
                Such an election, once made, shall be irrevocable.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to severances after the date of the enactment of this Act.

SEC. 512. 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 ``December 
        31, 1998'', and
            (2) by striking in the last sentence ``during the first 11 
        months of such taxable year.'' and inserting ``during the 30-
        month period beginning with the first month of such year. The 
        30 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 ``December 31, 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 
``December 31, 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.--
            (1) In general.--Subparagraph (B) of section 51(c)(4) 
        (relating to termination) is amended by striking ``September 
        30, 1997'' and inserting ``September 30, 1998''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to individuals who begin work for the employer 
        after September 30, 1997.
    (b) Work Opportunity Credit Allowed Against Minimum Tax.--
            (1) In General.--Subsection (c) of section 38 (relating to 
        limitation based on amount of tax) is amended by redesignating 
        paragraph (3) as paragraph (4) and by inserting after paragraph 
        (2) the following new paragraph:
            ``(3) Special rules for work opportunity credit.--
                    ``(A) In general.--In the case of the work 
                opportunity credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) subparagraph (A) shall not 
                                apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the work 
                                opportunity credit).
                    ``(B) Work opportunity credit.--For purposes of 
                this subsection, the term `work opportunity credit' 
                means the credit allowable under subsection (a) by 
                reason of section 51(a).''
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) is amended by inserting ``or the work 
        opportunity credit'' after ``employment credit''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1997.
    (c) 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 services.--In the 
                case of an individual who has completed at least 120 
                hours, but less than 400 hours, of services performed 
                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 services.--No wages shall be 
                taken into account under subsection (a) with respect to 
                any individual unless such individual has completed at 
                least 120 hours of services performed for the 
                employer.''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to individuals who begin work for the employer 
        after September 30, 1997.
    (d) 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.''
            (3) Effective date.--The amendments made by this subsection 
        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. Credit for equity 
                                        investments in and loans to 
                                        District of Columbia 
                                        businesses.
                              ``Sec. 1400C. Zero percent capital gains 
                                        rate.
                              ``Sec. 1400D. Credit to provide 
                                        equivalent of 10 percent rate 
                                        bracket in lieu of 15 percent 
                                        bracket.

``SEC. 1400. ESTABLISHMENT OF DC ZONE.

    ``(a) In General.--The applicable DC area is hereby designated as 
the District of Columbia Enterprise Zone. For purposes of this title 
(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 
                35 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 Rule for Application of Employment Credit.--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) 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 as an enterprise 
        community, under subchapter U, of the census tracts referred to 
        in subsection (b)(1) 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--
            ``(1) subsection (a) of section 1394 (relating to tax-
        exempt facility bonds for empowerment zones and enterprise 
        communities) applies only with respect to bonds issued by the 
        Economic Development Corporation, and
            ``(2) 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) Economic Development Corporation.--For purposes of this 
section, the term `Economic Development Corporation' means an entity 
which is created by Federal law in 1997 as part of the District of 
Columbia government.
    ``(c) 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. CREDIT FOR EQUITY INVESTMENTS IN AND LOANS TO DISTRICT OF 
              COLUMBIA BUSINESSES.

    ``(a) General Rule.--For purposes of section 38, the DC Zone 
investment credit determined under this section for any taxable year 
is--
            ``(1) the qualified lender credit for such year, and
            ``(2) the qualified equity investment credit for such year.
    ``(b) Qualified Lender Credit.--For purposes of this section--
            ``(1) In general.--The qualified lender credit for any 
        taxable year is the amount of credit specified for such year by 
        the Economic Development Corporation with respect to qualified 
        District loans made by the taxpayer.
            ``(2) Limitation.--In no event may the qualified lender 
        credit with respect to any loan exceed 25 percent of the cost 
        of the property purchased with the proceeds of the loan.
            ``(3) Qualified district loan.--For purposes of paragraph 
        (1), the term `qualified district loan' means any loan for the 
        purchase (as defined in section 179(d)(2)) of property to which 
        section 168 applies (or would apply but for section 179) (or 
        land which is functionally related and subordinate to such 
        property) and substantially all of the use of which is in the 
        District of Columbia and is in the active conduct of a trade or 
        business in the District of Columbia. A rule similar to the 
        rule of section 1397C(a)(2) shall apply for purposes of the 
        preceding sentence.
    ``(c) Qualified Equity Investment Credit.--
            ``(1) In general.--For purposes of this section, the 
        qualified equity investment credit determined under this 
        section for any taxable year is an amount equal to the 
        percentage specified by the Economic Development Corporation 
        (but not greater than 25 percent) of the aggregate amount paid 
        in cash by the taxpayer during the taxable year for the 
        purchase of District business investments.
            ``(2) District business investment.--For purposes of this 
        subsection, the term `District business investment' means--
                    ``(A) any District business stock, and
                    ``(B) any District partnership interest.
            ``(3) District business stock.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `District business stock' 
                means any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer at its original issue (directly or 
                        through an underwriter) solely in exchange for 
                        cash, and
                            ``(ii) as of the time such stock was 
                        issued, such corporation was engaged in a trade 
                        or business in the District of Columbia (or, in 
                        the case of a new corporation, such corporation 
                        was being organized for purposes of engaging in 
                        such a trade or business).
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(4) Qualified district partnership interest.--For 
        purposes of this subsection, the term `qualified District 
        partnership interest' means any interest in a partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash, and
                    ``(B) as of the time such interest was acquired, 
                such partnership was engaging in a trade or business in 
                the District of Columbia (or, in the case of a new 
                partnership, such partnership was being organized for 
                purposes of engaging in such a trade or business).
        A rule similar to the rule of paragraph (3)(B) shall apply for 
        purposes of this paragraph.
            ``(5) Recapture of credit upon certain dispositions of 
        district business investments.--
                    ``(A) In general.--If a taxpayer disposes of any 
                District business investment (or any other property the 
                basis of which is determined in whole or in part by 
                reference to the adjusted basis of such investment) 
                before the end of the 5-year period beginning on the 
                date such investment was acquired by the taxpayer, the 
                taxpayer's tax imposed by this chapter for the taxable 
                year in which such distribution occurs shall be 
                increased by the aggregate decrease in the credits 
                allowed under section 38 for all prior taxable years 
                which would have resulted solely from reducing to zero 
                any credit determined under this section with respect 
                to such investment.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                to any gift, transfer, or transaction described in 
                paragraph (1), (2), or (3) of section 1245(b).
                    ``(C) Special rule.--Any increase in tax under 
                subparagraph (A) shall not be treated as a tax imposed 
                by this chapter for purposes of--
                            ``(i) determining the amount of any credit 
                        allowable under this chapter, and
                            ``(ii) determining the amount of the tax 
                        imposed by section 55.
            ``(6) Basis reduction.--For purposes of this title, the 
        basis of any District business investment shall be reduced by 
        the amount of the credit determined under this section with 
        respect to such investment.
    ``(d) Limitation on Amount of Credit.--
            ``(1) In general.--The amount of the DC Zone investment 
        credit determined under this section with respect to any 
        taxpayer for any taxable year shall not exceed the credit 
        amount allocated to such taxpayer for such taxable year by the 
        Economic Development Corporation.
            ``(2) Overall limitation.--The aggregate credit amount 
        which may be allocated by the Economic Development Corporation 
        under this section shall not exceed $75,000,000.
            ``(3) Criteria for allocating credit amounts.--The 
        allocation of credit amounts under this section shall be made 
        in accordance with criteria established by the Economic 
        Development Corporation. In establishing such criteria, such 
        Corporation shall take into account--
                    ``(A) the degree to which the business receiving 
                the loan or investment will provide job opportunities 
                for low and moderate income residents of the DC Zone, 
                and
                    ``(B) whether such business is within the DC Zone.
    ``(e) Economic Development Corporation.--For purposes of this 
section, the term `Economic Development Corporation' has the meaning 
given such term by section 1400A(b).
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section.
    ``(g) Application of Section.--This section shall apply to any 
credit amount allocated for taxable years beginning after December 31, 
1997, and before January 1, 2003.

``SEC. 1400C. 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 by treating no area other 
than the DC Zone as an empowerment zone or enterprise community.
    ``(d) 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 on real property not qualified.--The 
        term `qualified capital gain' shall not include any gain which 
        would be treated as ordinary income 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).
    ``(e) 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.
    ``(f) 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. 1400D. CREDIT TO PROVIDE EQUIVALENT OF 10 PERCENT RATE BRACKET 
              IN LIEU OF 15 PERCENT BRACKET.

    ``(a) In General.--In the case of a DC Zone individual, there shall 
be allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 5 percent of so much of the taxpayer's 
taxable income for the year as does not exceed the highest amount of 
such income which is subject to the 15 percent rate under section 1.
    ``(b) DC Zone Individual.--For purposes of this section, the term 
`DC Zone individual' means an individual who has a principal place of 
abode in the District of Columbia Enterprise Zone for not less than 183 
days of the taxable year.
    ``(c) Credit Not To Apply to Estate or Trust.--This section shall 
not apply to an estate or trust.
    ``(d) Coordination With Other Credits.--For purposes of this 
chapter, the credit under this section shall be treated as a credit 
under subpart A of part IV of subchapter A.
    ``(e) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 2007.''
    (b) Credits Made Part of General Business Credit.--
            (1) Subsection (b) of section 38 is amended by striking 
        ``plus'' at the end of paragraph (11), by striking the period 
        at the end of paragraph (12) and inserting ``, plus'', and by 
        adding at the end the following new paragraph:
            ``(13) the DC Zone investment credit determined under 
        section 1400B(a).''
            (2) 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 credit under section 1400B, 
        or to the credits under subchapter U by reason of section 1400, 
        may be carried back to a taxable year ending before the date of 
        the enactment of sections 1400B and 1400.''
            (3) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (6), by striking the period at 
        the end of paragraph (7) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
            ``(8) the DC Zone investment credit determined under 
        section 1400B(a).''
    (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.--This section shall take effect on the date of 
the enactment of this Act.

SEC. 702. INCENTIVES CONDITIONED ON OTHER DC REFORM.

    The amendments made by section 701 shall not take effect unless an 
entity known as the Economic Development Corporation is created by 
Federal law in 1997 as part of the District of Columbia government.

                 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 Revenue 
        Reconciliation 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. 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 (2) of section 9503(f) is amended by striking 
        subparagraph (C) and by redesignating subparagraphs (D) and (E) 
        as subparagraphs (C) and (D), respectively.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

SEC. 902. 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. 903. 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 84 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), and (4) and by redesignating 
paragraphs (5) through (8) as paragraphs (2) through (5), respectively.
    (d) Effective Date.--The amendments made by this section shall take 
effect on October 1, 1997.

SEC. 904. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS 
              WHOLESALE DISTRIBUTOR FOR REFUND PURPOSES.

    (a) In General.--Subparagraph (B) of section 6416(a)(4) (defining 
whole 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 
take effect on the date of the enactment of this Act.

SEC. 905. 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 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) $30,000, 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 $30,000.
                            ``(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 to read as follows:
    ``(e) Inflation Adjustment.--
            ``(1) In general.--The $30,000 amount in subparagraphs (A), 
        (B)(i), and (C)(i) of subsection (a)(2) shall be increased by 
        an amount equal to--
                    ``(A) $30,000, multiplied by
                    ``(B) the cost-of-living adjustment under section 
                1(f)(3) for the calendar year in which the vehicle is 
                sold, determined by substituting `calendar year 1990' 
                for `calendar year 1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $2,000, such amount shall be rounded 
        to the next lowest multiple of $2,000.''
            (2) Subsection (f) of section 4001 (relating to phasedown) 
        is amended by striking ``subsection (a)'' and inserting 
        ``subsection (a)(1)''.
            (3) 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 on or after the date of the 
enactment of this Act.

    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

SEC. 911. 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. 912. 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) Governmental plans.--Paragraphs (3) and (4) 
                shall not apply to a governmental plan (within the 
                meaning of section 414(d)).''.
            (2) Additional participation requirements.--Section 
        401(a)(26)(H) (relating to additional participation 
        requirements) is amended to read as follows:
                    ``(H) Exception for governmental plans.--This 
                paragraph shall not apply to a governmental plan 
                (within the meaning of section 414(d)).''.
            (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 only apply if such plan meets the requirements of section 
        401(a)(3) (as in effect on September 1, 1974).''.
    (b) Participation 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)(i) The requirements of subparagraph (A)(i) 
                and (C) shall not apply to a governmental plan (within 
                the meaning of section 414(d)).
                    ``(ii) The requirements of subsection (m)(2) 
                (without regard to subsection (a)(4)) shall apply to 
                any matching contribution of a governmental plan (as so 
                defined).''.
    (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) Governmental plans.--For purposes of 
                paragraph (1)(D), the requirements of subparagraph 
                (A)(i) shall not apply to a governmental plan (within 
                the meaning of section 414(d)).''.
    (d) Effective Date.--
            (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) 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. 913. 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, 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. 914. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER GOVERNMENTAL 
              PENSION PLANS.

    (a) In General.--Section 415(b)(2) (relating to the limitation for 
defined benefit plans) is amended by adding at the end the following 
new subparagraph:
                    ``(J) Purchase of permissive service credit.--
                            ``(i) Benefits treated as derived from 
                        employer contributions.--For purposes of this 
                        section, the term `annual benefit' shall 
                        include the accrued benefit derived from 
                        contributions to a governmental plan (within 
                        the meaning of section 414(d)) to purchase 
                        permissive service credit.
                            ``(ii) Definition of permissive service 
                        credit.--For purposes of this subparagraph, the 
                        term `permissive service credit' means credit--
                                    ``(I) for a period of service 
                                recognized by a governmental plan for 
                                purposes of calculating an employee's 
                                accrued benefit under such plan,
                                    ``(II) which such employee has not 
                                received (or has forfeited), and
                                    ``(III) which such employee may 
                                receive only by making a contribution, 
                                as determined under the governmental 
                                plan, which does not exceed the amount 
                                (actuarially determined under the terms 
                                of such governmental plan) necessary to 
                                fund the accrued benefit attributable 
                                to such period of service.
                            ``(iii) No effect on employer `pick-up' 
                        contributions.--Nothing in this subparagraph 
                        shall be construed as preventing the 
                        application of section 414(h) to contributions 
                        to purchase permissive service credit.''
    (b) Conforming Amendment.--Section 415(c)(2) is amended by adding 
at the end the following new sentence: ``The term `annual addition' 
shall not include contributions to purchase permissive service credit 
(within the meaning of subsection (b)(2)(J)).''
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1997.

SEC. 915. 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 
paragraph (3)(C)), is 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 267(c)(4)) 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 267(c)(4)) 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
                            ``(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 period at the end of 
                subparagraph (B) ``60 percent of the total value of all 
                employer securities as of such disposition in the case 
                of any qualified employer securities 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 (C) 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.

SEC. 916. TREATMENT OF CERTAIN TRANSPORTATION ON NON-COMMERCIALLY 
              OPERATED AIRCRAFT AS A FRINGE BENEFIT EXCLUDABLE FROM 
              GROSS INCOME.

    (a) In General.--Subsection (b) of section 132 (relating to no-
additional-cost service defined) is amended to read as follows:-
    ``(b) No-Additional-Cost Service Defined.--For purposes of this 
section, the term `no-additional-cost service' means any service 
provided by an employer to an employee for use by such employee if----
            ``(1) such service--
                    ``(A) is offered for sale to customers in the 
                ordinary course of the line of business of the employer 
                in which the employee is performing services, or
                    ``(B) consists of transportation on an aircraft, 
                if--
                            ``(i) transportation on such aircraft is 
                        not offered for sale to customers,
                            ``(ii) such transportation for use by such 
                        employee is provided on a flight made in the 
                        ordinary course of the trade or business of an 
                        employer which owns or leases such aircraft for 
                        use in such trade or business, and
                            ``(iii) the flight on which the 
                        transportation is provided would have been made 
                        whether or not such employee was transported on 
                        the flight, and--
            ``(2) the employer incurs no substantial additional cost 
        (including forgone revenue) in providing such service to the 
        employee (determined without regard to any amount paid by the 
        employee for such service).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services provided after December 31, 1997.

SEC. 917. MINIMUM PENSION ACCRUED BENEFIT DISTRIBUTABLE WITHOUT CONSENT 
              INCREASED TO $5,000.

    (a) In General.--Subparagraph (A) of section 411(a)(11) (relating 
to restrictions on certain mandatory distributions) is amended by 
striking ``$3,500'' and inserting ``the applicable limit''.
    (b) Applicable Limit.--Paragraph (11) of section 411(a) is amended 
by adding at the end the following new subparagraph:
                    ``(D) Applicable limit.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the applicable limit is 
                        $5,000.
                            ``(ii) Inflation adjustment.--In the case 
                        of plan years beginning in a calendar year 
                        after 1998, the dollar amount contained in 
                        clause (i) 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 `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 $50, such amount 
                        shall be rounded to the next lowest multiple of 
                        $50.''
    (c) Conforming Amendments.--
            (1) 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 in appears (other than the headings) and 
        inserting ``the applicable limit under section 411(a)(11)(D)''.
            (2) 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 ``applicable 
        limit''.
    (d) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after the date of the enactment of this 
Act.

SEC. 918. 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) Plan maintained by s corporation.--In the 
                case of a plan established and maintained by an S 
                corporation which otherwise meets the requirements of 
                this subsection or section 4975(e)(7), such plan 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.''
            (2) Paragraph (2) of section 409(h) 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 moving the text before subparagraph (B) 2 
                ems to the right.
    (b) Shareholder-Employees Not Treated as Owner-Employees Under Tax 
on Prohibited Transactions.--The last sentence of section 4975(d) is 
amended by striking all that follows ``preceding sentence,'' through 
``Revision Act of 1982,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

              Subtitle C--Revisions Relating to Disasters

SEC. 921. 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 by the taxpayer 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. 922. 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. 923. 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. 924. 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 Disaster Relief and Emergency 
        Assistance Act (as in effect on the date of the enactment of 
        the Revenue Reconciliation Act of 1997), this section shall be 
        applied with the following modifications to financing provided 
        with respect to such residence within 1 year 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, 2000.''

          Subtitle D--Provisions Relating to Employment Taxes

SEC. 931. CLARIFICATION OF EMPLOYMENT TAX STATUS OF INDIVIDUALS 
              DISTRIBUTING BAKERY PRODUCTS.

    (a) Internal Revenue Code.--Subparagraph (A) of section 3121(d)(3) 
is amended by striking ``bakery products,''.
    (b) Social Security Act.--Subparagraph (A) of section 210(j)(3) of 
the Social Security Act is amended by striking ``bakery products,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services performed after December 31, 1997.

SEC. 932. 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. 933. 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 solely on policies sold by such 
                individual during the last year of such agreement and 
                the extent to which such policies remain in force for 
                some period after such termination, and
                    ``(B) does not depend to any extent on length of 
                service or overall earnings from services performed for 
                such company.''
    (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 solely on policies sold by such 
                individual during the last year of such agreement and 
                the extent to which such policies remain in force for 
                some period after such termination, and
                    ``(B) does not depend to any extent on length of 
                service or overall earnings from services performed for 
                such company.''
    (c) Effective Date.--The amendments made by this section shall 
apply to payments after December 31, 1997.

SEC. 934. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
              EMPLOYEES.

    (a) In General.--Chapter 25 (general provisions relating to 
employment taxes) is amended by adding after section 3510 the following 
new section:

``SEC. 3511. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
              EMPLOYEES.

    ``(a) General Rule.--For purposes of this title, and 
notwithstanding any provision of this title to the contrary, if the 
requirements of subsections (b), (c), and (d) are met with respect to 
any service performed by any individual, then with respect to such 
service--
            ``(1) the service provider shall not be treated as an 
        employee,
            ``(2) the service recipient shall not be treated as an 
        employer, and
            ``(3) the payor shall not be treated as an employer.
    ``(b) Service Provider Requirements With Regard to Service 
Recipient.--For the purposes of subsection (a), the requirements of 
this subsection are met if the service provider, in connection with 
performing the service--
            ``(1) has a significant investment in assets and/or 
        training,
            ``(2) incurs significant unreimbursed expenses,
            ``(3) agrees to perform the service for a particular amount 
        of time or to complete a specific result and is liable for 
        damages for early termination without cause,
            ``(4) is paid primarily on a commissioned basis, or
            ``(5) purchases products for resale.
    ``(c) Additional Service Provider Requirements With Regard to 
Others.--For the purposes of subsection (a), the requirements of this 
subsection are met if--
            ``(1) the service provider--
                    ``(A) has a principal place of business,
                    ``(B) does not primarily provide the service in the 
                service recipient's place of business, or
                    ``(C) pays a fair market rent for use of the 
                service recipient's place of business; or
            ``(2) the service provider--
                    ``(A) is not required to perform service 
                exclusively for the service recipient, and
                    ``(B) in the year involved, or in the preceding or 
                subsequent year--
                            ``(i) has performed a significant amount of 
                        service for other persons,
                            ``(ii) has offered to perform service for 
                        other persons through--
                                    ``(I) advertising,
                                    ``(II) individual written or oral 
                                solicitations,
                                    ``(III) listing with registries, 
                                agencies, brokers, and other persons in 
                                the business of providing referrals to 
                                other service recipients, or
                                    ``(IV) other similar activities, or
                            ``(iii) provides service under a business 
                        name which is registered with (or for which a 
                        license has been obtained from) a State, a 
                        political subdivision of a State, or any agency 
                        or instrumentality of 1 or more States or 
                        political subdivisions.
    ``(d) Written Document Requirements.--For purposes of subsection 
(a), the requirements of this subsection are met if the services 
performed by the individual are performed pursuant to a written 
contract between such individual and the person for whom the services 
are performed, or the payor, and such contract provides that the 
individual will not be treated as an employee with respect to such 
services for purposes of this subtitle or subtitle A.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) If for any taxable year any service recipient or 
        payor fails to meet the applicable reporting requirements of 
        sections 6041(a), 6041A(a), or 6051 with respect to a service 
        provider, then, unless such failure is due to reasonable cause 
        and not willful neglect, this section shall not apply in 
        determining whether such service provider shall not be treated 
        as an employee of such service recipient or payor for such 
        year.
            ``(2) If the service provider is performing services 
        through an entity owned in whole or in part by such service 
        provider, then the references to `service provider' in 
        subsections (b) through (d) may include such entity, provided 
        that the written contract referred to in paragraph (1) of 
        subsection (d) may be with either the service provider or such 
        entity and need not be with both.
    ``(f) Definitions.--For the purposes of this section--
            ``(1) Service provider.--The term `service provider' means 
        any individual who performs service for another person.
            ``(2) Service recipient.--Except as provided in paragraph 
        (5), the term `service recipient' means the person for whom the 
        service provider performs such service.
            ``(3) Payor.--Except as provided in paragraph (5), the term 
        `payor' means the person who pays the service provider for the 
        performance of such service in the event that the service 
        recipients do not pay the service provider.
            ``(4) In connection with performing the service.--The term 
        `in connection with performing the service' means in connection 
        or related to--
                    ``(A) the actual service performed by the service 
                provider for the service recipients or for other 
                persons for whom the service provider has performed 
                similar service, or
                    ``(B) the operation of the service provider's trade 
                or business.
            ``(5) Exceptions.--The terms `service recipient' and 
        `payor' do not include any entity which is owned in whole or in 
        part by the service provider.''
    (b) Clerical Amendment.--The table of sections for chapter 25 is 
amended by adding at the end the following new item:

                              ``Sec. 3511. Standards for determining 
                                        whether individuals are not 
                                        employees.''
    (c) Effective Date.--The amendments made by this section shall 
apply to services performed after December 31, 1997.

          Subtitle E--Provisions Relating to Small Businesses

SEC. 941. WAIVER OF PENALTY THROUGH 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 January 1, 1999.

SEC. 942. 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, 1997.

                      Subtitle F--Other Provisions

SEC. 951. 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 deemed not 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, and
                    (C) the period for taking into account the 
                adjustments under section 481 by reason of such change 
                shall be 4 years.

SEC. 952. 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. 953. 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 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, 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) of such Code 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. 954. ELECTION TO CONTINUE EXCEPTION FROM TREATMENT OF PUBLICLY 
              TRADED PARTNERSHIPS AS CORPORATIONS.

    (a) In General.--Section 7704 is amended by adding at the end 
thereof the following new subsection:
    ``(g) Exception for Existing Publicly Traded Partnerships.--
            ``(1) In general.--Subsection (a) shall not apply to an 
        existing publicly traded partnership which elects the 
        application of this subsection and consents to the application 
        of the tax imposed by paragraph (3).
            ``(2) Existing publicly traded partnership.--For purposes 
        of this section, the term `existing publicly traded 
        partnership' means any publicly traded partnership to which 
        subsection (a) does not apply as of the date of the enactment 
        of this paragraph (other than by reason of subsection (c)(1)).
            ``(3) Additional tax on electing publicly traded 
        partnerships.--
                    ``(A) Imposition of tax.--There is hereby imposed 
                for each taxable year on the income of every electing 
                publicly traded partnership a tax equal to 15 percent 
                of the gross income for such taxable year from the 
                active conduct of trades and businesses by the 
                partnership.
                    ``(B) Electing publicly traded partnership.--For 
                purposes of this paragraph, the term `electing publicly 
                traded partnership' means any partnership for which the 
                consent under paragraph (1) is in effect.
                    ``(C) Adjustments in the case of tiered 
                partnerships.--For purposes of this paragraph, if the 
                income of the partnership includes its distributive 
                share of income from another partnership for any 
                taxable year, the gross income referred to in 
                subparagraph (A) shall include the gross income of such 
                other partnership from the active conduct of trades and 
                businesses of such other partnership (in lieu of such 
                distributive share). A similar rule shall apply in the 
                case of lower-tiered partnerships.
                    ``(D) 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. 955. 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) Acknowledgements or advertising in 
                        periodicals.--The term `qualified sponsorship 
                        payment' does not include any payment which 
                        entitles the payor to an acknowledgement or 
                        advertising 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.
            ``(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. 956. 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) 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)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 957. 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. 958. 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 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, and
                            ``(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 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. 959. EXCEPTION FROM REPORTING OF REAL ESTATE TRANSACTIONS FOR 
              SALES AND EXCHANGES OF CERTAIN PRINCIPAL RESIDENCES.

    (a) In General.--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)(A) 
                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) there is no federally subsidized 
                        mortgage financing assistance with respect to 
                        the mortgage on such residence, and
                            ``(iii) the seller meets the requirements 
                        of section 121(a) with respect to such sale or 
                        exchange.
                If such assurance includes an assurance that the seller 
                is married, the preceding sentence shall be applied by 
                substituting `$500,000' for `$250,000'.
                    ``(B) Seller.--For purposes of this paragraph, the 
                term `seller' includes the person relinquishing the 
                residence in an exchange.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales and exchanges after the date of the enactment of this 
Act.

SEC. 960. 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. 961. 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 by the lessor.
    ``(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.

SEC. 962. TAX TREATMENT OF CONSOLIDATIONS OF LIFE INSURANCE DEPARTMENTS 
              OF MUTUAL SAVINGS BANKS.

    (a) General Rule.--Section 594 (relating to alternative tax for 
mutual savings banks conducting life insurance business) is amended by 
adding at the end thereof the following new subsection:
    ``(c) Treatment of Consolidations.--If 2 or more life insurance 
departments to which subsection (a) applied are consolidated into a 
single life insurance company pursuant to a requirement of State law--
            ``(1) such consolidation shall be treated as a 
        reorganization described in section 368(a)(1)(E), and
            ``(2) any payments required to be made to policyholders in 
        connection with such consolidation shall be treated as 
        policyholder dividends deductible under section 808 but only 
        if--
                    ``(A) such payments are only with respect to 
                policies in effect immediately before such 
                consolidation,
                    ``(B) such payments are only with respect to 
                policies which are participating before and after such 
                consolidation,
                    ``(C) such payments shall cease with respect to any 
                policy if such policy lapses after such consolidation,
                    ``(D) the policyholders before such consolidation 
                had no divisible right to the surplus of any such 
                department and had no right to vote, and
                    ``(E) the approval of such policyholders was not 
                required for such consolidation.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on December 31, 1991.

SEC. 963. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE STATE TAX OBLIGATIONS 
              AGAINST OVERPAYMENTS.

    (a) In General.--Section 6402 is amended by redesignating 
subsections (e) through (i) as subsections (f) through (j), 
respectively, and by inserting after subsection (d) the following new 
subsection:
    ``(e) Collection of Past-Due, Legally Enforceable State Tax 
Obligations.--
            ``(1) In general.--Upon receiving notice from any State 
        that a named person owes a past-due, legally enforceable State 
        tax obligation to such State, the Secretary shall, under such 
        conditions as may be prescribed by the Secretary--
                    ``(A) reduce the amount of any overpayment payable 
                to such person by the amount of such State tax 
                obligation;
                    ``(B) pay the amount by which such overpayment is 
                reduced under subparagraph (A) to such State and notify 
                such State of such person's name, taxpayer 
                identification number, address, and the amount 
                collected; and
                    ``(C) notify the person making such overpayment 
                that the overpayment has been reduced by an amount 
                necessary to satisfy a past-due, legally enforceable 
                State tax obligation.
        If an offset is made pursuant to a joint return, the notice 
        under subparagraph (B) shall include the names, taxpayer 
        identification numbers, and addresses of each person filing 
        such return.
            ``(2) Offset permitted only against residents of state 
        seeking offset.--Paragraph (1) shall apply to an overpayment by 
        any person for a taxable year only if the address shown on the 
        return for such taxable year is an address within the State 
        seeking the offset.
            ``(3) Priorities for offset.--Any overpayment by a person 
        shall be reduced pursuant to this subsection--
                    ``(A) after such overpayment is reduced pursuant 
                to--
                            ``(i) subsection (a) with respect to any 
                        liability for any internal revenue tax on the 
                        part of the person who made the overpayment,
                            ``(ii) subsection (c) with respect to past-
                        due support, and
                            ``(iii) subsection (d) with respect to any 
                        past-due, legally enforceable debt owed to a 
                        Federal agency, and
                    ``(B) before such overpayment is credited to the 
                future liability for any Federal internal revenue tax 
                of such person pursuant to subsection (b).
        If the Secretary receives notice from 1 or more agencies of the 
        State of more than 1 debt subject to paragraph (1) that is owed 
        by such person to such an agency, any overpayment by such 
        person shall be applied against such debts in the order in 
        which such debts accrued.
            ``(4) Notice; consideration of evidence.--No State may take 
        action under this subsection until such State--
                    ``(A) notifies the person owing the past-due State 
                tax liability that the State proposes to take action 
                pursuant to this section,
                    ``(B) gives such person at least 60 days to present 
                evidence that all or part of such liability is not 
                past-due or not legally enforceable,
                    ``(C) considers any evidence presented by such 
                person and determines that an amount of such debt is 
                past-due and legally enforceable, and
                    ``(D) satisfies such other conditions as the 
                Secretary may prescribe to ensure that the 
                determination made under subparagraph (C) is valid and 
                that the State has made reasonable efforts to obtain 
                payment of such State tax obligation.
            ``(5) Past-due, legally enforceable state tax obligation.--
        For purposes of this subsection, the term `past-due, legally 
        enforceable State tax obligation' means a debt--
                    ``(A)(i) which resulted from--
                            ``(I) a judgment rendered by a court of 
                        competent jurisdiction which has determined an 
                        amount of State tax to be due, or
                            ``(II) a determination after an 
                        administrative hearing which has determined an 
                        amount of State tax to be due, and
                    ``(ii) which is no longer subject to judicial 
                review, or
                    ``(B) which resulted from a State tax which has 
                been assessed but not collected, the time for 
                redetermination of which has expired, and which has not 
                been delinquent for more than 10 years.
        For purposes of this paragraph, the term `State tax' includes 
        any local tax administered by the chief tax administration 
        agency of the State.
            ``(6) Regulations.--The Secretary shall issue regulations 
        prescribing the time and manner in which States must submit 
        notices of past-due, legally enforceable State tax obligations 
        and the necessary information that must be contained in or 
        accompany such notices. The regulations shall specify the types 
        of State taxes and the minimum amount of debt to which the 
        reduction procedure established by paragraph (1) may be 
        applied. The regulations may require States to pay a fee to 
        reimburse the Secretary for the cost of applying such 
        procedure. Any fee paid to the Secretary pursuant to the 
        preceding sentence shall be used to reimburse appropriations 
        which bore all or part of the cost of applying such procedure.
            ``(7) Erroneous payment to state.--Any State receiving 
        notice from the Secretary that an erroneous payment has been 
        made to such State under paragraph (1) shall pay promptly to 
        the Secretary, in accordance with such regulations as the 
        Secretary may prescribe, an amount equal to the amount of such 
        erroneous payment (without regard to whether any other amounts 
        payable to such State under such paragraph have been paid to 
        such State).''
    (b) Disclosure of Certain Information to States Requesting Refund 
Offsets for Past-Due, Legally Enforceable State Tax Obligations.--
            (1) Paragraph (10) of section 6103(l) is amended by 
        striking ``(c) or (d)'' each place it appears and inserting 
        ``(c), (d), or (e)''.
            (2) The paragraph heading for such paragraph (10) is 
        amended by striking ``section 6402(c) or 6402(d)'' and 
        inserting ``subsection (c), (d), or (e) of section 6402''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 6402 is amended by striking 
        ``(c) and (d)'' and inserting ``(c), (d), and (e)''.
            (2) Paragraph (2) of section 6402(d) is amended by striking 
        ``and before such overpayment'' and inserting ``and before such 
        overpayment is reduced pursuant to subsection (e) and before 
        such overpayment''.
            (3) Subsection (f) of section 6402, as redesignated by 
        subsection (a), is amended--
                    (A) by striking ``(c) or (d)'' and inserting ``(c), 
                (d), or (e)'', and
                    (B) by striking ``Federal agency'' and inserting 
                ``Federal agency or State''.
            (4) Subsection (h) of section 6402, as redesignated by 
        subsection (a), is amended by striking ``subsection (c)'' and 
        inserting ``subsection (c) or (e)''.
    (d) Amendments Applied After Technical Corrections to Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996.--
            (1) Section 110(l) of the Personal Responsibility and Work 
        Opportunity Reconciliation Act of 1996 is amended by striking 
        paragraphs (4), (5), and (7) (and the amendments made by such 
        paragraphs), and the Internal Revenue Code of 1986 shall be 
        applied as if such paragraphs (and amendments) had never been 
        enacted.
            (2) For purposes of applying the amendments made by this 
        section other than this subsection, the provisions of this 
        subsection shall be treated as having been enacted immediately 
        before the other provisions of this section.
    (e) Effective Date.--The amendments made by this section (other 
than subsection (d)) shall apply to refunds payable under section 6402 
of the Internal Revenue Code of 1986 after December 31, 1998.

SEC. 964. 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 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 as 
                        depreciated pursuant to section 168 by applying 
                        the rules under subsections (b)(1), (d)(1), and 
                        (e)(3)(B) thereof.
                            ``(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 on or after the date of enactment 
of this Act and before January 1, 2005.

SEC. 965. TAX BENEFITS FOR LAW ENFORCEMENT OFFICERS KILLED IN THE LINE 
              OF DUTY.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 138 as section 139 and by inserting after section 
137 the following new section:

``SEC. 138. SURVIVOR BENEFITS ATTRIBUTABLE TO SERVICE BY A LAW 
              ENFORCEMENT OFFICER WHO IS KILLED IN THE LINE OF DUTY.

    ``(a) In General.--Gross income shall not include any amount paid 
as a survivor annuity on account of the death of a law enforcement 
officer killed in the line of duty--
            ``(1) 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 law enforcement officer or to a 
        child of such officer, and
            ``(2) to the extent such annuity is attributable to such 
        officer's service as a law enforcement officer.
    ``(b) Exceptions.--
            ``(1) In general.--Subsection (a) shall not apply with 
        respect to the death of any law enforcement officer if--
                    ``(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 the Omnibus Crime Control 
                and Safe Streets Act of 1968) at the time of death, or
                    ``(C) the officer was performing such officer's 
                duties in a grossly negligent manner at the time of 
                death.
            ``(2) Exception for benefits paid to certain individuals.--
        Subsection (a) shall not apply to any payment to an individual 
        whose actions were a substantial contributing factor to the 
        death of the officer.
    ``(c) Law Enforcement Officer.--For purposes of this section, the 
term `law enforcement officer' means an individual serving a public 
agency (as defined in section 1204 of the Omnibus Crime Control and 
Safe Streets Act of 1968) in an official capacity, with or without 
compensation, as a law enforcement officer (as defined in such 
section).''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following new items:

                              ``Sec. 138. Survivor benefits 
                                        attributable to service by a 
                                        law enforcement officer who is 
                                        killed in the line of duty.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this subsection shall 
apply to amounts received in taxable years beginning after December 31, 
1996, with respect to individuals dying after such date.

SEC. 966. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON PERCENTAGE 
              DEPLETION FOR MARGINAL PRODUCTION.

    In the case of taxable years beginning after December 31, 1997, and 
before January 1, 2000, paragraph (1) of section 613A(d) of the 
Internal Revenue Code of 1986 shall not apply to so much of the 
allowance for depletion computed under section 613A(c) of such Code as 
is attributable to paragraph (6) thereof.

 Subtitle G--Extension of Duty-Free Treatment Under Generalized System 
  of Preferences; Tariff Treatment of Certain Equipment and Repair of 
                                Vessels

SEC. 971. 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 ``May 31, 1999''.
    (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.

SEC. 972. EQUIPMENT AND REPAIR OF VESSELS.

    (a) Tariff Treatment.--Section 466 of the Tariff Act of 1930 (19 
U.S.C. 1466), is amended by adding at the end the following new 
subsection:
    ``(i)(1) The duty imposed by subsection (a) shall not apply with 
respect to activities occurring in a Shipbuilding Agreement Party, with 
respect to--
            ``(A) self-propelled seagoing vessels of 100 gross tons or 
        more that are used for transportation of goods or persons or 
        for performance of a specialized service (including, but not 
        limited to, ice breakers and dredges), and
            ``(B) tugs of 365 kilowatts or more.
A vessel shall be considered `self-propelled seagoing' if its permanent 
propulsion and steering provide it all the characteristics of self-
navigability in the high seas.
    ``(2) As used in this subsection--
            ``(A) the term `Shipbuilding Agreement Party' means a state 
        or separate customs territory that is a signatory to the 
        Shipbuilding Agreement; and
            ``(B) the term `Shipbuilding Agreement' means The Agreement 
        Respecting Normal Competitive Conditions in the Commercial 
        Shipbuilding and Repair Industry, resulting from negotiations 
        under the auspices of the Organization for Economic Cooperation 
        and Development, and entered into on December 21, 1994.''.
    (b) Applicability.--The amendment made by subsection (a) applies 
only with respect to activities occurring in a Shipbuilding Agreement 
Party (as defined in section 466(i) of the Tariff Act of 1930) during 
the 1-year period beginning on the date of the enactment of this Act.

    Subtitle H--United States-Caribbean Basin Trade Partnership Act

SEC. 981. SHORT TITLE.

    This subtitle may be cited as the ``United States-Caribbean Basin 
Trade Partnership Act''.

SEC. 982. FINDINGS AND POLICY.

    (a) Findings.--The Congress makes the following findings:
            (1) The United States apparel industry is a major component 
        of the United States manufacturing sector of the United States, 
        employing nearly 825,000 people who are located in every State 
        in the country. The United States apparel industry consumes 42 
        percent of the fabric produced by United States textile mills, 
        which employ more than 650,000 people.
            (2) In 1973 the United States apparel industry supplied 88 
        percent of the garments consumed by Americans, and in 1995 that 
        share fell to less than 50 percent.
            (3) Countries in the Western Hemisphere offer the greatest 
        opportunities for increased exports of United States textile 
        and apparel products.
            (4) Given the greater propensity of countries located in 
        the Western Hemisphere to use United States components and to 
        purchase United States products compared to other countries, 
        increased trade and economic activity between the United States 
        and countries in the Western Hemisphere will create new jobs in 
        the United States as a result of expanding export 
        opportunities.
            (5) The Caribbean Basin Economic Recovery Act represents a 
        permanent commitment by the United States to encourage the 
        development of strong democratic governments and revitalized 
        economies in neighboring countries in the Caribbean Basin.
            (6) The economic security of the countries in the Caribbean 
        Basin is potentially threatened by the diversion of investment 
        to Mexico as a result of the North American Free Trade 
        Agreement.
            (7) Offering NAFTA equivalent benefits to Caribbean Basin 
        beneficiary countries, pending their eventual accession to the 
        NAFTA or a free trade agreement comparable to the NAFTA, will 
        promote the growth of free enterprise and economic opportunity 
        in the region, and thereby enhance the national security 
        interests of the United States.
    (b) Policy.--It is the policy of the United States--
            (1) to assure that the domestic textile and apparel 
        industry remains competitive in the global marketplace by 
        encouraging the formation and expansion of ``partnerships'' 
        between the textile and apparel industry of the United States 
        and the textile and apparel industry of various countries 
        located in the Western Hemisphere; and
            (2) to offer to the products of Caribbean Basin partnership 
        countries tariffs and quota treatment equivalent to that 
        accorded to products of NAFTA countries, and to seek the 
        accession of these partnership countries to the NAFTA or a free 
        trade agreement comparable to the NAFTA at the earliest 
        possible date, with the goal of achieving full participation in 
        the NAFTA or in a free trade agreement comparable to the NAFTA 
        by all partnership countries by not later than January 1, 2005.

SEC. 983. DEFINITIONS.

    As used in this Act:
            (1) Partnership country.--The term ``partnership country'' 
        means a beneficiary country as defined in section 212(a)(1)(A) 
        of the Caribbean Basin Economic Recovery Act (19 U.S.C. 
        2702(a)(1)(A)).
            (2) NAFTA.--The term ``NAFTA'' means the North American 
        Free Trade Agreement entered into between the United States, 
        Mexico, and Canada on December 17, 1992.
            (3) Trade representative.--The term ``Trade 
        Representative'' means the United States Trade Representative.
            (4) WTO and wto member.--The terms ``WTO'' and ``WTO 
        member'' have the meanings given those terms in section 2 of 
        the Uruguay Round Agreements Act (19 U.S.C. 3501).

SEC. 984. TEMPORARY PROVISIONS TO PROVIDE NAFTA PARITY TO PARTNERSHIP 
              COUNTRIES.

    (a) Temporary Provisions.--Section 213(b) of the Caribbean Basin 
Economic Recovery Act (19 U.S.C. 2703(b)) is amended to read as 
follows:
    ``(b) Import-Sensitive Articles.--
            ``(1) In general.--Subject to paragraphs (2) through (5), 
        the duty-free treatment provided under this title does not 
        apply to--
                    ``(A) textile and apparel articles which are 
                subject to textile agreements;
                    ``(B) footwear not designated at the time of the 
                effective date of this title as eligible articles for 
                the purpose of the generalized system of preferences 
                under title V of the Trade Act of 1974;
                    ``(C) tuna, prepared or preserved in any manner, in 
                airtight containers;
                    ``(D) petroleum, or any product derived from 
                petroleum, provided for in headings 2709 and 2710 of 
                the HTS;
                    ``(E) watches and watch parts (including cases, 
                bracelets and straps), of whatever type including, but 
                not limited to, mechanical, quartz digital, or quartz 
                analog, if such watches or watch parts contain any 
                material which is the product of any country with 
                respect to which HTS column 2 rates of duty apply; or
                    ``(F) articles to which reduced rates of duty apply 
                under subsection (h).
            ``(2) NAFTA transition period treatment of certain textile 
        and apparel articles.--
                    ``(A) Equivalent tariff and quota treatment.--
                During the transition period--
                            ``(i) the tariff treatment accorded at any 
                        time to any textile or apparel article that 
                        originates in the territory of a partnership 
                        country shall be identical to the tariff 
                        treatment that is accorded at such time under 
                        section 2 of the Annex to an article described 
                        in the same 8-digit subheading of the HTS that 
                        is an originating good of Mexico and is 
                        imported into the United States;
                            ``(ii) duty-free treatment under this title 
                        shall apply to any textile or apparel article 
                        that is imported into the United States from a 
                        partnership country and that--
                                    ``(I) is assembled in a partnership 
                                country, from fabrics wholly formed and 
                                cut in the United States from yarns 
                                formed in the United States, and is 
                                entered--
                                            ``(aa) under subheading 
                                        9802.00.80 of the HTS; or
                                            ``(bb) under chapter 61 or 
                                        62 of the HTS if, after such 
                                        assembly, the article would 
                                        have qualified for treatment 
                                        under subheading 9802.00.80 of 
                                        the HTS, but for the fact the 
                                        article was subjected to 
                                        bleaching, dyeing, stone-
                                        washing, enzyme-washing, acid-
                                        washing, perma-pressing, or 
                                        similar processes or 
                                        embroidery; or
                                    ``(II) is knit-to-shape in a 
                                partnership country from yarns wholly 
                                formed in the United States;
                                    ``(III) is made from fabric knit in 
                                a partnership country from yarns wholly 
                                formed in the United States;
                                    ``(IV) is cut and assembled in a 
                                partnership country from yarns wholly 
                                formed in the United States; or
                                    ``(V) is identified under 
                                subparagraph (C) as a handloomed, 
                                handmade, or folklore article of such 
                                country and is certified as such by the 
                                competent authority of such country; 
                                and
                            ``(iii) no quantitative restriction under 
                        any bilateral textile agreement may be applied 
                        to the importation into the United States of 
                        any textile or apparel article that--
                                    ``(I) originates in the territory 
                                of a partnership country, or
                                    ``(II) qualifies for duty-free 
                                treatment under subclause (I), (II), 
                                (III), (IV), or (V) of clause (ii).
                    ``(B) NAFTA transition period treatment of 
                nonoriginating textile and apparel articles.--
                            ``(i) Preferential tariff treatment.--
                        Subject to clause (ii), the President may place 
                        in effect at any time during the transition 
                        period with respect to any textile or apparel 
                        article that--
                                    ``(I) is a product of a partnership 
                                country, but
                                    ``(II) does not qualify as a good 
                                that originates in the territory of a 
                                partnership country,
                        tariff treatment that is identical to the in-
                        preference-level tariff treatment accorded at 
                        such time under Appendix 6.B of the Annex to an 
                        article described in the same 8-digit 
                        subheading of the HTS that is a product of 
                        Mexico and is imported into the United States. 
                        For purposes of this clause, the `in-
                        preference-level tariff treatment' accorded to 
                        an article that is a product of Mexico is the 
                        rate of duty applied to that article when 
                        imported in quantities less than or equal to 
                        the quantities specified in Schedule 6.B.1, 
                        6.B.2., or 6.B.3. of the Annex for imports of 
                        that article from Mexico into the United 
                        States.
                            ``(ii) Limitations on certain articles.--
                        (I) Tariff treatment under clause (i) may be 
                        extended, during any calendar year, to not more 
                        than 45,000,000 square meter equivalents of 
                        cotton or man-made fiber apparel, to not more 
                        than 1,500,000 square meter equivalents of wool 
                        apparel, and to not more than 25,000,000 square 
                        meter equivalents of goods entered under 
                        subheading 9802.00.80 of the HTS.
                            ``(II) Except as provided in subclause 
                        (III), the amounts set forth in subclause (I) 
                        shall be allocated among the 7 partnership 
                        countries with the largest volume of exports to 
                        the United States of textile and apparel goods 
                        in calendar year 1996, based upon a pro rata 
                        share of the volume of textile and apparel 
                        goods of each of those 7 countries that entered 
                        the United States under subheading 9802.00.80 
                        of the HTS during the first 12 months of the 
                        14-month period ending on the date of the 
                        enactment of the United States-Caribbean Basin 
                        Trade Partnership Act.
                            ``(III) Five percent of the amounts set 
                        forth in subclause (I) shall be allocated among 
                        the partnership countries, other than those to 
                        which subclause (II) applies, based upon a pro 
                        rata share of the exports to the United States 
                        of textile and apparel goods of each of those 
                        countries during the first 12 months of the 14-
                        month period ending on the date of the 
                        enactment of the United States-Caribbean Basin 
                        Trade Partnership Act.
                            ``(iii) Prior consultation.--The President 
                        may implement the preferential tariff treatment 
                        described in clause (i) only after consultation 
                        with representatives of the United States 
                        textile and apparel industry and other 
                        interested parties regarding--
                                    ``(I) the specific articles to 
                                which such treatment will be extended,
                                    ``(II) the annual quantities of 
                                such articles that may be imported at 
                                the preferential duty rates described 
                                in clause (i), and
                                    ``(III) the allocation of such 
                                annual quantities among beneficiary 
                                countries.
                    ``(C) Handloomed, handmade, and folklore 
                articles.--For purposes of subparagraph (A), the Trade 
                Representative shall consult with representatives of 
                the partnership country for the purpose of identifying 
                particular textile and apparel goods that are mutually 
                agreed upon as being handloomed, handmade, or folklore 
                goods of a kind described in section 2.3 (a), (b), or 
                (c) or Appendix 3.1.B.11 of the Annex.
                    ``(D) Bilateral emergency actions.--(i) The 
                President may take--
                            ``(I) bilateral emergency tariff actions of 
                        a kind described in section 4 of the Annex with 
                        respect to any textile or apparel article 
                        imported from a partnership country if the 
                        application of tariff treatment under 
                        subparagraph (A) to such article results in 
                        conditions that would be cause for the taking 
                        of such actions under such section 4 with 
                        respect to an article described in the same 8-
                        digit subheading of the HTS that is imported 
                        from Mexico; or
                            ``(II) bilateral emergency quantitative 
                        restriction actions of a kind described in 
                        section 5 of the Annex with respect to imports 
                        of any textile or apparel article described in 
                        subparagraph (B)(i) (I) and (II) if the 
                        importation of such article into the United 
                        States results in conditions that would be 
                        cause for the taking of such actions under such 
                        section 5 with respect to a like article that 
                        is a product of Mexico.
                    ``(ii) The requirement in paragraph (5) of section 
                4 of the Annex (relating to providing compensation) 
                shall not be deemed to apply to a bilateral emergency 
                action taken under this subparagraph.
                    ``(iii) For purposes of applying bilateral 
                emergency action under this subparagraph--
                            ``(I) the term `transition period' in 
                        sections 4 and 5 of the Annex shall be deemed 
                        to be the period defined in paragraph (5)(D); 
                        and
                            ``(II) any requirements to consult 
                        specified in section 4 or 5 of the Annex are 
                        deemed to be satisfied if the President 
                        requests consultations with the partnership 
                        country in question and the country does not 
                        agree to consult within the time period 
                        specified in such section.
            ``(3) NAFTA transition period treatment of certain other 
        articles originating in beneficiary countries.--
                    ``(A) Equivalent tariff treatment.--
                            ``(i) In general.--Subject to clause (ii), 
                        the tariff treatment accorded at any time 
                        during the transition period to any article 
                        referred to in any of subparagraphs (B) through 
                        (F) of paragraph (1) that originates in the 
                        territory of a partnership country shall be 
                        identical to the tariff treatment that is 
                        accorded at such time under Annex 302.2 of the 
                        NAFTA to an article described in the same 8-
                        digit subheading of the HTS that is an 
                        originating good of Mexico and is imported into 
                        the United States.
                            ``(ii) Exception.--Clause (i) does not 
                        apply to any article accorded duty-free 
                        treatment under U.S. Note 2(b) to subchapter II 
                        of chapter 98 of the HTS.
                    ``(B) Relationship to subsection (h) duty 
                reductions.--If at any time during the transition 
                period the rate of duty that would (but for action 
                taken under subparagraph (A)(i) in regard to such 
                period) apply with respect to any article under 
                subsection (h) is a rate of duty that is lower than the 
                rate of duty resulting from such action, then such 
                lower rate of duty shall be applied for the purposes of 
                implementing such action.
            ``(4) Customs procedures.--
                    ``(A) In general.--
                            ``(i) The obligations under chapter 5 of 
                        the NAFTA regarding customs procedures, as such 
                        obligations apply to the exporting country, 
                        shall apply to importations under paragraphs 
                        (2) and (3) of articles from partnership 
                        countries.
                            ``(ii) The Secretary of the Treasury shall 
                        prescribe regulations that require, as a 
                        condition of entry, that any importer of record 
                        that claims preferential treatment under 
                        paragraph (2) or (3) must comply with 
                        requirements similar in all material respects 
                        to the requirements of article 502.1 of the 
                        NAFTA. The certificate of origin that otherwise 
                        would be required under this subparagraph shall 
                        not be required in the case of an article 
                        imported under paragraph (2) or (3) if such 
                        certificate of origin would not be required 
                        under article 503 of the NAFTA for a similar 
                        importation from Mexico.
                    ``(B) Penalties for engaging in transshipment or 
                other customs fraud.--If an exporter is determined 
                under the laws of the United States to have engaged in 
                illegal transshipment of textile or apparel products 
                from a partnership country, then the President shall 
                deny all benefits under this title to such exporter, 
                and any successors of such exporter, for a period of 2 
                years.
                    ``(C) Study by USTR on Cooperation of Other 
                Countries Concerning Circumvention.--The Trade 
                Representative, in consultation with the United States 
                Commissioner of Customs, shall conduct a study 
                analyzing the extent to which each partnership 
                country--
                            ``(i) has cooperated fully with the United 
                        States, consistent with its domestic laws and 
                        procedures, in instances of circumvention or 
                        alleged circumvention of existing quotas on 
                        imports of textile and apparel goods, to 
                        establish necessary relevant facts in the 
                        places of import, export, and, where 
                        applicable, transshipment, including 
                        investigation of circumvention practices, 
                        exchanges of documents, correspondence, 
                        reports, and other relevant information, to the 
                        extent such information is available;
                            ``(ii) has taken appropriate measures, 
                        consistent with its domestic laws and 
                        procedures, against exporters and importers 
                        involved in instances of false declaration 
                        concerning fiber content, quantities, 
                        description, classification, or origin of 
                        textile and apparel goods; and
                            ``(iii) has penalized the individuals and 
                        entities involved in any such circumvention, 
                        consistent with its domestic laws and 
                        procedures, and has worked closely to seek the 
                        cooperation of any third country to prevent 
                        such circumvention from taking place in that 
                        third country.
                The Trade Representative shall submit to the Congress, 
                not later than October 1, 1998, a report on the study 
                conducted under this subparagraph.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) The term `the Annex' means Annex 300-B of the 
                NAFTA.
                    ``(B) The term `NAFTA' means the North American 
                Free Trade Agreement entered into between the United 
                States, Mexico, and Canada on December 17, 1992.
                    ``(C) The term `partnership country' means a 
                beneficiary country.
                    ``(D) The term `textile or apparel article' means 
                any article referred to in paragraph (1)(A) that is a 
                good listed in Appendix 1.1 of the Annex.
                    ``(E) The term `transition period' means, with 
                respect to a partnership country, the period that 
                begins on January 1, 1998, and ends on the earlier of--
                            ``(i) December 31, 1998; or
                            ``(ii) the date on which--
                                    ``(I) the United States first 
                                applies the NAFTA to the partnership 
                                country upon its accession to the 
                                NAFTA, or
                                    ``(II) there enters into force with 
                                respect to the United States and the 
                                partnership country a free trade 
                                agreement comparable to the NAFTA that 
                                makes substantial progress in achieving 
                                the negotiating objectives set forth in 
                                section 108(b)(5) of the North American 
                                Free Trade Agreement Implementation Act 
                                (19 U.S.C. 3317(b)(5)).
                    ``(F) An article shall be deemed as originating in 
                the territory of a partnership country if the article 
                meets the rules of origin for a good set forth in 
                chapter 4 of the NAFTA, and, in the case of an article 
                described in Appendix 6.A of the Annex, the 
                requirements stated in such Appendix 6.A for such 
                article to be treated as if it were an originating 
                good. In applying such chapter 4 or Appendix 6.A with 
                respect to a partnership country for purposes of this 
                subsection--
                            ``(i) no countries other than the United 
                        States and partnership countries may be treated 
                        as being Parties to the NAFTA,
                            ``(ii) references to trade between the 
                        United States and Mexico shall be deemed to 
                        refer to trade between the United States and 
                        partnership countries, and
                            ``(iii) references to a Party shall be 
                        deemed to refer to the United States or a 
                        partnership country, and references to the 
                        Parties shall be deemed to refer to any 
                        combination of partnership countries or the 
                        United States.''.
    (b) Determination Regarding Retention of Designation.--Section 
212(e)(1) of the Caribbean Basin Economic Recovery Act (19 U.S.C. 
2702(e)) is amended--
            (1) by inserting ``(A)'' after ``(1)'';
            (2) by redesignating subparagraphs (A) and (B) as clauses 
        (i) and (ii), respectively;
            (3) by adding at the end the following:
            ``(B)(i) Based on the President's review and analysis 
        described in subsection (f), the President may determine if the 
        preferential treatment under section 213(b)(2) and (3) should 
        be withdrawn, suspended, or limited with respect to any article 
        of a partnership country. Such determination shall be included 
        in the report required by subsection (f).
            ``(ii) Withdrawal, suspension, or limitation of the 
        preferential treatment under section 213(b)(2) and (3) with 
        respect to a partnership country shall be taken only after the 
        requirements of subsection (a)(2) and paragraph (2) of this 
        subsection have been met.''.
    (c) Reporting Requirements.--Section 212(f) of the Caribbean Basin 
Economic Recovery Act (19 U.S.C. 2702(f)) is amended to read as 
follows:
    ``(f) Reporting Requirements.--Not later than 1 year after the date 
of the enactment of the United States-Caribbean Basin Trade Partnership 
Act and at the close of each 3-year period thereafter, the President 
shall submit to the Congress a complete report regarding the operation 
of this title, including--
            ``(1) with respect to subsections (b) and (c) of this 
        section, the results of a general review of beneficiary 
        countries based on the considerations described in such 
        subsections;
            ``(2) with respect to subsection (c)(4), the degree to 
        which a country follows accepted rules of international trade 
        provided for under the General Agreement on Tariffs and Trade 
        and the World Trade Organization;
            ``(3) with respect to subsection (c)(9), the extent to 
        which beneficiary countries are providing or taking steps to 
        provide protection of intellectual property rights comparable 
        to the protection provided to the United States in bilateral 
        intellectual property rights agreements;
            ``(4) with respect to subsection (b)(2) and subsection 
        (c)(5), the extent that beneficiary countries are providing or 
        taking steps to provide protection of investment and investors 
        comparable to the protection provided to the United States in 
        bilateral investment treaties;
            ``(5) with respect to subsection (c)(3), the extent that 
        beneficiary countries are providing the United States with 
        equitable and reasonable market access in the product sectors 
        for which benefits are provided under this title;
            ``(6) with respect to subsection (c)(11), the extent that 
        beneficiary countries are cooperating with the United States in 
        administering the provisions of section 213(b); and
            ``(7) with respect to subsection (c)(8), the extent that 
        beneficiary countries are meeting the internationally 
        recognized worker rights criteria under such subsection.
In the first report under this subsection, the President shall include 
a review of the implementation of section 213(b), and his analysis of 
whether the benefits under paragraphs (2) and (3) of such section 
further the objectives of this title and whether such benefits should 
be continued.''.
    (d) Conforming Amendment.--Section 213(a)(1) of the Caribbean Basin 
Economic Recovery Act is amended by inserting ``and except as provided 
in section 213(b)(2) and (3),'' after ``Tax Reform Act of 1986,''.

SEC. 985. EFFECT OF NAFTA ON SUGAR IMPORTS FROM BENEFICIARY COUNTRIES.

    The President shall monitor the effects, if any, that the 
implementation of the NAFTA has on the access of beneficiary countries 
under the Caribbean Basin Economic Recovery Act to the United States 
market for sugars, syrups, and molasses. If the President considers 
that the implementation of the NAFTA is affecting, or will likely 
affect, in an adverse manner the access of such countries to the United 
States market, the President shall promptly--
            (1) take such actions, after consulting with interested 
        parties and with the appropriate committees of the House of 
        Representatives and the Senate, or
            (2) propose to the Congress such legislative actions,
as may be necessary or appropriate to ameliorate such adverse effect.

SEC. 986. DUTY-FREE TREATMENT FOR CERTAIN BEVERAGES MADE WITH CARIBBEAN 
              RUM.

    Section 213(a) of the Caribbean Basin Economic Recovery Act (19 
U.S.C. 2703(a)) is amended--
            (1) in paragraph (5), by striking ``chapter'' and inserting 
        ``title''; and
            (2) by adding at the end the following new paragraph:
    ``(6) Notwithstanding paragraph (1), the duty-free treatment 
provided under this title shall apply to liqueurs and spirituous 
beverages produced in the territory of Canada from rum if--
            ``(A) such rum is the growth, product, or manufacture of a 
        beneficiary country or of the Virgin Islands of the United 
        States;
            ``(B) such rum is imported directly from a beneficiary 
        country or the Virgin Islands of the United States into the 
        territory of Canada, and such liqueurs and spirituous beverages 
        are imported directly from the territory of Canada into the 
        customs territory of the United States;
            ``(C) when imported into the customs territory of the 
        United States, such liqueurs and spirituous beverages are 
        classified in subheading 2208.90 or 2208.40 of the HTS; and
            ``(D) such rum accounts for at least 90 percent by volume 
        of the alcoholic content of such liqueurs and spiritous 
        beverages.''.

SEC. 987. MEETINGS OF TRADE MINISTERS AND USTR.

    (a) Schedule of Meetings.--The President shall take the necessary 
steps to convene a meeting with the trade ministers of the partnership 
countries in order to establish a schedule of regular meetings, to 
commence as soon as is practicable, of the trade ministers and the 
Trade Representative, for the purpose set forth in subsection (b).
    (b) Purpose.--The purpose of the meetings scheduled under 
subsection (a) is to reach agreement between the United States and 
partnership countries on the likely timing and procedures for 
initiating negotiations for partnership to accede to the NAFTA, or to 
enter into mutually advantageous free trade agreements with the United 
States that contain provisions comparable to those in the NAFTA and 
would make substantial progress in achieving the negotiating objectives 
set forth in section 108(b)(5) of the North American Free Trade 
Agreement Implementation Act (19 U.S.C. 3317(b)(5)).

SEC. 988. REPORT ON ECONOMIC DEVELOPMENT AND MARKET ORIENTED REFORMS IN 
              THE CARIBBEAN.

    (a) In General.--The Trade Representative shall make an assessment 
of the economic development efforts and market oriented reforms in each 
partnership country and the ability of each such country, on the basis 
of such efforts and reforms, to undertake the obligations of the NAFTA. 
The Trade Representative shall, not later than July 1, 1998, submit to 
the President and to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives a report on 
that assessment.
    (b) Accession to NAFTA.--
            (1) Ability of countries to implement nafta.--The Trade 
        Representative shall include in the report under subsection (a) 
        a discussion of possible timetables and procedures pursuant to 
        which partnership countries can complete the economic reforms 
        necessary to enable them to negotiate accession to the NAFTA. 
        The Trade Representative shall also include an assessment of 
        the potential phase-in periods that may be necessary for those 
        partnership countries with less developed economies to 
        implement the obligations of the NAFTA.
            (2) Factors in assessing ability to implement nafta.--In 
        assessing the ability of each partnership country to undertake 
        the obligations of the NAFTA, the Trade Representative should 
        consider, among other factors--
                    (A) whether the country has joined the WTO;
                    (B) the extent to which the country provides 
                equitable access to the markets of that country;
                    (C) the degree to which the country uses export 
                subsidies or imposes export performance requirements or 
                local content requirements;
                    (D) macroeconomic reforms in the country such as 
                the abolition of price controls on traded goods and 
                fiscal discipline;
                    (E) progress the country has made in the protection 
                of intellectual property rights;
                    (F) progress the country has made in the 
                elimination of barriers to trade in services;
                    (G) whether the country provides national treatment 
                to foreign direct investment;
                    (H) the level of tariffs bound by the country under 
                the WTO (if the country is a WTO member);
                    (I) the extent to which the country has taken other 
                trade liberalization measures; and
                    (J) the extent which the country works to 
                accommodate market access objectives of the United 
                States.
    (c) Parity Review in the Event a New Country Accedes to NAFTA.--
If--
            (1) a country or group of countries accedes to the NAFTA, 
        or
            (2) the United States negotiates a comparable free trade 
        agreement with another country or group of countries,
the Trade Representative shall provide to the committees referred to in 
subsection (a) a separate report on the economic impact of the new 
trade relationship on partnership countries. The report shall include 
any measures the Trade Representative proposes to minimize the 
potential for the diversion of investment from partnership countries to 
the new NAFTA member or free trade agreement partner.

                           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 straight debt 
                (as defined in section 1361(c)(5)(B) without regard to 
                clause (iii) thereof), 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.--In 
        applying this section, there shall be disregarded any 
        transaction (which would otherwise be treated as a constructive 
        sale) during the taxable year if--
                    ``(A) such transaction is closed before the end of 
                the 30th day after the close of such taxable year, and
                    ``(B) in the case of a transaction which is closed 
                during the 90-day period ending on such 30th day--
                            ``(i) the taxpayer holds the appreciated 
                        financial position throughout the 60-day period 
                        beginning on the date such transaction is 
                        closed, and
                            ``(ii) 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.
            ``(4) Related person.--A person is related to another 
        person with respect to a transaction if--
                    ``(A) the relationship is described in section 267 
                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.
            ``(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 Securities Traders and for 
Traders and Dealers in Commodities.--Subsection (d) of section 475 
(relating to mark to market accounting method for dealers in 
securities) is amended by adding at the end the following new 
paragraph:
            ``(4) Election of mark to market for securities traders and 
        for traders and dealers in commodities.--
                    ``(A) In general.--In the case of a person--
                            ``(i) who is engaged in a trade or business 
                        to which this paragraph applies, and
                            ``(ii) who elects to be treated as a dealer 
                        in securities for purposes of this section with 
                        respect to such trade or business,
                subsections (a), (b)(3), (c)(3), and (e) and the 
                preceding provisions of this subsection (or, in the 
                case of a dealer in commodities, this section) shall 
                apply to all commodities and securities held by such 
                person in any trade or business with respect to which 
                such election is in effect in the same manner as if 
                such person were a dealer in securities and all 
                references to securities included references to 
                commodities.
                    ``(B) Application of paragraph.--This paragraph 
                shall apply to any active trade or business--
                            ``(i) as a trader in securities, or
                            ``(ii) as a trader or dealer in 
                        commodities.
                    ``(C) Exception for certain holdings of traders.--
                In the case of a trader in securities or commodities, 
                subsection (a) shall not apply to any security or 
                commodity (to which subsection (a) would otherwise 
                apply solely by reason of this paragraph) if such 
                security or commodity is clearly identified in the 
                trader's records (before the close of the day 
                applicable under subsection (b)(2)) as being held other 
                than in a trade or business to which the election under 
                subparagraph (A) is in effect. A security or commodity 
                so identified shall be treated as described in 
                subsection (b)(1).
                    ``(D) Commodity.--For purposes of this paragraph, 
                the term `commodities' includes only commodities of a 
                kind customarily dealt in on an organized commodity 
                exchange.
                    ``(E) Election.--An election under this paragraph 
                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.--A constructive sale before June 9, 1997, and the 
        property to which the position involved in the transaction 
        relates, shall not be taken into account in determining whether 
        any other constructive sale after June 8, 1997, has occurred 
        if, within before the close of the 30-day period beginning on 
        the date of the enactment of this Act, such position and 
        property are clearly identified in the taxpayer's records as 
        offsetting. The preceding sentence shall cease to apply as of 
        the date the taxpayer ceases to hold such position or property.
            (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) for not less than 2 
                years after the date of such transaction (whether such 
                period is before or after such date), 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 any 
        property related thereto, as determined under the principles of 
        section 1259(d)(1) of such Code (as so added)) shall be treated 
        as property constituting rights to receive an item of income in 
        respect of a decedent under section 691 of such Code.
            (4) Election of securities traders, and for traders and 
        dealers in commodities, to be treated as dealers in 
        securities.--
                    (A) In general.--The amendment 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 section 475(d)(4) of the 
                Internal Revenue Code of 1986 (as added by this 
                section) to change its method of accounting for its 
                first taxable year ending after the date of the 
                enactment of this Act, 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. 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, whether or not readily 
                marketable, and
                    ``(B) by treating all of the following as 
                securities:
                            ``(i) Money.
                            ``(ii) Any financial instrument (as defined 
                        in section 731(c)(2)(C)).
                            ``(iii) Any foreign currency.
                            ``(iv) Any interest in a real estate 
                        investment trust, a common trust fund, a 
                        regulated investment company, or a publicly 
                        traded partnership (as defined in section 
                        7704(b)).
                            ``(v) Any interest described in clause 
                        (iv), (v), or (vi) of section 731(c)(2)(B) (or 
                        which would be so described without regard to 
                        any reference to active trading or 
                        marketability).
                            ``(vi) Any other asset specified in 
                        regulations prescribed by the Secretary.''
    (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, that provides for 
        the transfer of a fixed amount of property, and at all times 
        thereafter before such transfer.

SEC. 1003. MODIFICATION OF RULES FOR ALLOCATING INTEREST EXPENSE TO 
              TAX-EXEMPT INTEREST.

    (a) Pro Rata Allocation Rules Applicable to Corporations.--
            (1) In general.--Paragraph (1) of section 265(b) is amended 
        by striking ``In the case of a financial institution'' and 
        inserting ``In the case of a corporation''.
            (2) Only obligations acquired after June 8, 1997, taken 
        into account.--Subparagraph (A) of section 265(b)(2) is amended 
        by striking ``August 7, 1986'' and inserting ``June 8, 1997 
        (August 7, 1986, in the case of a financial institution)''.
            (3) Small issuer exception not to apply.--Subparagraph (A) 
        of section 265(b)(3) is amended by striking ``Any qualified'' 
        and inserting ``In the case of a financial institution, any 
        qualified''.
            (4) Exception for certain bonds acquired on sale of goods 
        or services.--Subparagraph (B) of section 265(b)(4) is amended 
        by adding at the end the following new sentence: ``In the case 
        of a taxpayer other than a financial institution, such term 
        shall not include a nonsalable obligation acquired by such 
        taxpayer in the ordinary course of business as payment for 
        goods or services provided by such taxpayer to any State or 
        local government.''
            (5) Look-thru rules for partnerships.--Paragraph (6) of 
        section 265(b) is amended by adding at the end the following 
        new subparagraph:
                    ``(C) Look-thru rules for partnerships.--In the 
                case of a corporation which is a partner in a 
                partnership, such corporation shall be treated for 
                purposes of this subsection as holding directly its 
                allocable share of the assets of the partnership.''
            (6) Application of pro rata disallowance on affiliated 
        group basis.--Subsection (b) of section 265 is amended by 
        adding at the end the following new paragraph:
            ``(7) Application of disallowance on affiliated group 
        basis.--
                    ``(A) In general.--For purposes of this subsection, 
                all members of an affiliated group filing a 
                consolidated return under section 1501 shall be treated 
                as 1 taxpayer.
                    ``(B) Treatment of insurance companies.--This 
                subsection shall not apply to an insurance company, and 
                subparagraph (A) shall be applied without regard to any 
                member of an affiliated group which is an insurance 
                company.''
            (6) De minimis exception for nonfinancial institutions.--
        Subsection (b) of section 265 is amended by adding at the end 
        the following new paragraph:
            ``(8) De minimis exception for nonfinancial institutions.--
        In the case of a corporation, paragraph (1) shall not apply for 
        any taxable year if the amount described in paragraph (2)(A) 
        with respect to such corporation does not exceed the lesser 
        of--
                    ``(A) 2 percent of the amount described in 
                paragraph (2)(B), or
                    ``(B) $1,000,000.
        The preceding sentence shall not apply to a financial 
        institution or to a dealer in tax-exempt obligations.''
            (7) Clerical amendment.--The subsection heading for section 
        265(b) is amended by striking ``Financial Institutions'' and 
        inserting ``Corporations''.
    (b) Application of Section 265(a)(2) With Respect to Controlled 
Groups.--Paragraph (2) of section 265(a) is amended after 
``obligations'' by inserting ``held by the taxpayer (or any corporation 
which is a member of a controlled group (as defined in section 
267(f)(1)) which includes the taxpayer)''.
    (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. 1004. 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) 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 179(d)(2)) 
        after June 8, 1997.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of enactment of this Act.

SEC. 1005. 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 (i) the following:
                            ``(iii) any pool of debt instruments the 
                        yield on which may be reduced 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, 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. 1006. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT INSTRUMENTS.

    (a) In General.--Section 163 (relating to deduction for interest) 
is amended by redesignating subsection (k) as subsection (l) and by 
inserting after subsection (j) the following new subsection:
    ``(k) 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 subparagraphs (A) and (B), 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 
                distribution.

        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 FOLLOWED BY 
              ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.

    (a) Distributions Followed by Acquisitions.--Section 355 (relating 
to distribution of stock and securities of a controlled corporation) is 
amended by adding at the end the following new subsection:
    ``(e) Recognition of Gain Where Certain Distributions of Stock or 
Securities Are Followed by Acquisition.--
            ``(1) General rule.--If there is a distribution to which 
        this subsection applies, the following rules shall apply:
                    ``(A) Acquisition of controlled corporation.--If 
                there is an acquisition described in paragraph 
                (2)(A)(ii) with respect to any controlled corporation, 
                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).
                    ``(B) Acquisition of distributing corporation.--If 
                there is an acquisition described in paragraph 
                (2)(A)(ii) with respect to the distributing 
                corporation, the controlled corporation shall recognize 
                gain in an amount equal to the amount of net gain which 
                would be recognized if all the assets of the 
                distributing corporation (immediately after the 
                distribution) were sold (at such time) for fair market 
                value. Any gain recognized under the preceding sentence 
                shall be treated as long-term capital gain and shall be 
                taken into account for the taxable year which includes 
                the day after the date of such distribution.
            ``(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) 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 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 in such 
                        distributing or controlled corporation.
                            ``(iv) The acquisition of stock in a 
                        corporation if shareholders owning directly or 
                        indirectly a 50-percent or greater interest in 
                        the distributing corporation or any controlled 
                        corporation before such acquisition own 
                        indirectly a 50-percent or greater interest 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 described in subparagraph (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 355(d)(8)(A) 
                        shall apply in determining whether a person 
                        holds stock or securities in any corporation.
                    ``(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 an 
                acquisition to which paragraph (1) (A) or (B) 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 acquisition 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 acquisition 
                        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) Section 355 Not To Apply to Certain Intragroup Transactions.--
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 Transactions.--
Except as provided in regulations, this section shall not apply to the 
distribution of stock from 1 member of an affiliated group filing a 
consolidated return to another member of such group, and the Secretary 
shall provide proper adjustments for the treatment of such 
distribution, including (if necessary) adjustments to--
            ``(1) the adjusted basis of any stock which--
                    ``(A) is in a corporation which is a member of such 
                group, and
                    ``(B) is held by another member of such group, and
            ``(2) the earnings and profits of any member of such 
        group.''
    (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.--
            ``(1) In general.--In determining control for purposes of 
        this section--
                    ``(A) 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
                    ``(B) 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 hold 
                at least a 50-percent interest in such corporation 
                immediately after the distribution.
            ``(2) 50-percent interest.--For purposes of this 
        subsection, the term `50-percent interest' means stock 
        possessing 50 percent of the total combined voting power of all 
        classes of stock entitled to vote and 50 percent of the total 
        value of shares of all classes of stock.''
            (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 hold a 50-
                        percent or greater interest (as defined in 
                        section 351(c)(2)) in such corporation 
                        immediately after the transfer.''
    (d) Effective Dates.--
            (1) Section 355 rules.--The amendments made by subsections 
        (a) and (b) shall apply to distributions after April 16, 1997.
            (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 after April 16, 1997, if 
        such distribution 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 
                distribution.
        This paragraph shall not apply to any written agreement, ruling 
        request, or public announcement or filing unless it identifies 
        the unrelated acquirer of the distributing corporation or of 
        any controlled corporation, 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. 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.--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.

                 Subtitle C--Other Corporate Provisions

SEC. 1021. 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.

SEC. 1022. 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.--For purposes of subsections (a) and (b), 
        the term `stock' shall not include nonqualified preferred 
        stock.
            ``(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 (including through a 
                conversion privilege) 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 
                distribution.

                 Subtitle D--Administrative Provisions

SEC. 1031. 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. 1032. 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. 1033. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
              CERTAIN VETERANS PROGRAMS.

    (a) General Rule.--Subparagraph (D) of section 6103(l)(7) (relating 
to disclosure of return information to Federal, State, and local 
agencies administering certain programs) is amended by striking 
``Clause (viii) shall not apply after September 30, 1998.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 1034. 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 described in subsection 
                (a)(6) of this section.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to levies issued after the date of the enactment of this Act.

SEC. 1035. 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. 1036. 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 6301(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. 1037. 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.

                   Subtitle E--Excise Tax Provisions

SEC. 1041. EXTENSION AND MODIFICATION OF AIRPORT AND AIRWAY TRUST FUND 
              TAXES.

    (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 calendar year in which the segment begins:

                In the case of segments
                  beginning during:
                                                            The tax is:
                  1997 or 1998.......................             $2.00
                  1999...............................             $2.25
                  2000...............................             $2.50
                  2001...............................             $2.75
                  2002 or thereafter.................            $3.00.

            ``(2) Domestic segment.--For purposes of this section, the 
        term `domestic segment' means any segment which is taxable 
        transportation described in section 4262(a)(1).
            ``(3) Changes in segments by reason of rerouting.--If--
                    ``(A) a ticket is purchased for transportation 
                between 2 locations on specified flights, and
                    ``(B) at the initiation of the air carrier after 
                such purchase, there is a change in the route taken 
                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 $15.50 
        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, such tax shall apply only on departure.''
            (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) 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 to segments of such transportation which begin 
        and end in the United States.
            ``(2) Amounts paid for right to award free or reduced rate 
        air transportation.--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. 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.
            ``(3) 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 
                dollar amount contained in subsection (b) and the 
                dollar amount contained in subsection (c) 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 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 a dollar amount 
                        contained in subsection (b), and
                            ``(ii) 1998 in the case of a dollar amount 
                        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.''
            (3) Secondary liability of carrier for unpaid tax.--
        Subsection (c) of section 4263 is amended by striking 
        ``subchapter--'' and all that follows and inserting ``, such 
        tax shall be paid by the carrier providing the initial segment 
        of such transportation which begins or ends in the United 
        States.''
    (d) Modification of Rules on Airline Fare Advertising.--Subsection 
(b) of section 7275 (relating to advertising) is amended by striking 
``shall--'' and all that follows and inserting ``shall--
            ``(1) separately state--
                    ``(A) the amount to be paid for such 
                transportation, and
                    ``(B) the amount of the taxes imposed by 
                subsections (a), (b), and (c) of section 4261 at a 
                location proximate to (and in a type size not less than 
                half the type size of) the statement of the amount 
                described in subparagraph (A), and
            ``(2) describe such taxes substantially as: `user taxes to 
        pay for airport construction and airway safety and 
        operations'.''
    (e) 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), and
                    (B) by striking ``to the extent attributable to the 
                Airport and Airway Trust Fund financing rate'' in 
                subparagraph (C).
            (2) Section 9502 is amended by striking subsection (f).
    (f) 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 date of enactment.--The amendments made by 
                subsection (c) shall not apply to amounts paid for a 
                ticket purchased before the date of the enactment of 
                this Act for a specified flight beginning on or after 
                October 1, 1997.
                    (C) Amounts paid for right to award mileage 
                awards.--
                            (i) In general.--Paragraph (2) 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 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)(2) 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) Advertising.--The amendment made by subsection (d) 
        shall take effect on October 1, 1997.
            (4) Increased deposits into airport and airway trust 
        fund.--The amendments made by subsection (e) shall apply with 
        respect to taxes received in the Treasury on and after October 
        1, 1997.
    (g) Delayed Deposits of Airline Ticket Tax Revenues.--In the case 
of deposits of taxes imposed by section 4261 of the Internal Revenue 
Code of 1986, 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.

SEC. 1042. 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) and (c) and inserting ``diesel 
        fuel and kerosene''.
            (2) Certain kerosene exempt from dyeing requirement.--
        Section 4082 is amended by redesignating subsections (c) and 
        (d) as subsections (d) and (e), respectively, and by inserting 
        after subsection (b) the following new subsection:
    ``(c) Exceptions to Dyeing Requirements.--
            ``(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 barge 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) 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''.
    (d) Conforming Amendments.--
            (1) Paragraph (2) of section 4041(a) is amended by striking 
        ``kerosene, gas oil, or fuel oil'' and inserting ``gas oil, 
        fuel oil''.
            (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''.
            (15) Paragraphs (1)(B) and (2) of section 9503(f) are each 
        amended by inserting ``or kerosene'' after ``diesel fuel'' each 
        place it appears.
    (e) Effective Date.--The amendments made by this section shall take 
effect on July 1, 1998.
    (f) 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 24.3 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. 1043. REDUCTION OF INCENTIVES FOR ALCOHOL FUELS.

    (a) Denial of Credit for Alcohol Used To Produce Ether.--Subsection 
(b) of section 40 is amended by adding at the end the following new 
paragraph:
            ``(6) Denial of credit for alcohol used to produce ether.--
        No credit shall be allowed under this section for alcohol used 
        to produce any ether.''
    (b) Limitation on Alcohol Eligible for Credit for Alcohol Used as 
Fuel--
            (1) In general.--Subparagraph (A) of section 40(d)(1) 
        (defining alcohol) is amended by striking ``or'' at the end of 
        clause (i), by striking the period at the end of clause (ii) 
        and inserting ``, or'', and by adding at the end the following 
        new clause:
                            ``(iii) alcohol produced by a still (or 
                        other distilling apparatus) placed in service 
                        after June 8, 1997.''
            (2) Future credit limited to average historical 
        production.--Section 40 is amended by adding at the end the 
        following new subsection:
    ``(i) Expanded Production Ineligible for Credit.--
            ``(1) In general.--Subsection (a) shall apply to alcohol 
        produced after December 31, 1997, only if the alcohol is 
        designated under this subsection by a producer who is 
        registered under section 4101.
            ``(2) Designation based on historical production.--
                    ``(A) In general.--The amount of alcohol produced 
                by a producer during any calendar year which may be 
                designated under this subsection by any producer other 
                than an eligible small ethanol producer is the amount 
                equal to the average annual amount of alcohol (as 
                defined in subsection (d)(1)(A) without regard to 
                clause (iii))--
                            ``(i) which was produced by such producer 
                        (other than casual off-farm production) during 
                        each of the base period years, and
                            ``(ii) which was sold or used by such 
                        producer for any purpose described in clause 
                        (i) of subsection (b)(4)(B).
                For purposes of the preceding sentence, a rule similar 
                to the rule of subsection (b)(4)(D) shall apply.
                    ``(B) Base period year.--For purposes of 
                subparagraph (A), the term `base period year' means 
                each of 3 years which are among the 5-year period 
                ending on May 31, 1997, determined by disregarding--
                            ``(i) one year for which the production 
                        described in subparagraph (A)(i) was the 
                        largest, and
                            ``(ii) one year for which the production 
                        described in subparagraph (A)(i) was the 
                        smallest.
            ``(3) Production for less than entire base period.--If 
        alcohol is produced by a producer for less than 3 base period 
        years, the average referred to in paragraph (2) shall be 
        treated as being not less than 50 percent of the annual 
        productive capacity of such producer as of June 8, 1997.
            ``(4) Acquisitions and dispositions.--Rules similar to the 
        rules of subparagraphs (A) and (B) of section 41(f)(3) shall 
        apply for purposes of this subsection.''
            (3) Conforming amendment.--Paragraph (1) of section 40(g) 
        is amended by striking ``clauses (i) and (ii)'' and inserting 
        ``clauses (i), (ii), and (iii)''.
    (c) Reduction of Credit For Ethanol By Reason of Carbon Dioxide 
Byproduct Benefit.--
            (1) Subsection (h) of section 40 is amended--
                    (A) by striking ``54 cents'' each place it appears 
                and inserting ``51 cents'', and
                    (B) by striking ``40 cents'' each place it appears 
                and inserting ``38.25 cents''.
            (2) Subparagraph (A) of section 4041(b)(2) is amended by 
        striking ``5.4 cents'' and inserting ``5.1 cents''.
            (3) Paragraphs (4)(A) and (5) of section 4081(c) are each 
        amended by striking ``5.4 cents'' each place it appears and 
        inserting ``5.1 cents''.
            (4) Paragraph (1) of section 4091(c) is amended by striking 
        ``13.4 cents'' and inserting ``13.1 cents''.
    (d) Excise Tax on Excess Production of Fuel Alcohol.--
            (1) In general.--Chapter 36 (relating to certain other 
        excise taxes) is amended by inserting after subchapter B the 
        following new subchapter:

           ``Subchapter C--Excess Production of Fuel Alcohol

                              ``Sec. 4476. Imposition of tax.

``SEC. 4476. IMPOSITION OF TAX.

    ``(a) General Rule.--There is hereby imposed a tax of 51 cents for 
each gallon of excess fuel alcohol produced, imported, or brought into 
the United States.
    ``(b) Liability for Tax.--The tax imposed by subsection (a) shall 
be paid by the person who would be liable for the tax imposed by 
section 5001 on the alcohol but for paragraph (1)(C) or (12) of section 
5214(a).
    ``(c) Excess Fuel Alcohol.--For purposes of this section--
            ``(1) Domestic production.--In the case of alcohol produced 
        in the United States, the term `excess fuel alcohol' means any 
        alcohol--
                    ``(A) which is withdrawn free of tax under 
                paragraph (1)(C) or (12) of section 5214(a) during any 
                calendar year, and
                    ``(B) which is not designated under section 40(i).
            ``(2) Other production.--In the case of alcohol imported or 
        brought into the United States--
                    ``(A) In general.--The term `excess fuel alcohol' 
                means, with respect to the person importing or bringing 
                such alcohol into the United States, the excess of--
                            ``(i) the amount of alcohol so imported or 
                        brought into the United States by such person 
                        during any year, over
                            ``(ii) such person's historical average 
                        determined under rules similar to the rules of 
                        section 40(i)(2).
                    ``(B) Exception.--Such term shall not include any 
                alcohol which the person importing or bringing such 
                alcohol into the United States establishes to the 
                satisfaction of the Secretary that such alcohol is not 
                to be used as a fuel or in a mixture to be used as a 
                fuel.
            ``(3) Alcohol.--The term `alcohol' includes methanol and 
        ethanol but does not include alcohol produced from petroleum, 
        natural gas, or coal (including lignite).
    ``(d) Special Rules.--
            ``(1) Exception for casual off-farm production.--The tax 
        imposed by this section shall not apply to casual off-farm 
        production (within the meaning of section 40).
            ``(2) Alcohol must be withdrawn for fuel use.--Alcohol 
        withdrawn free of tax under section 5214(a)(1)(C) shall be 
        taken into account under this section only if withdrawn for 
        fuel use.
            ``(3) Certain rules to apply.--The tax imposed by this 
        section shall attach, and be determined and paid, as if it were 
        tax imposed by section 5001.
    ``(e) Application of Tax Dependent on Availability of Other Fuel 
Alcohol Subsidies.--
            ``(1) Application if fuel alcohol subsidies continue.--
        Paragraphs (1)(B) and (2)(A)(ii) of subsection (c) shall not 
        apply after December 31, 2000, if this section is in effect 
        after such date.
            ``(2) Application if fuel alcohol subsidies terminate.--
        This section shall not apply after December 31, 2000, if none 
        of the fuel alcohol subsidies apply to any sale or use after 
        such date. For purposes of the preceding sentence, the fuel 
        alcohol subsidies are sections 40, 4041(b)(2), 4081(c), 
        4091(c), 6427(f), and 6427(q).''
            (2) Tax to be nondeductible.--Subsection (a) of section 275 
        is amended by adding at the end the following new paragraph:
            ``(7) Taxes imposed by section 4476 (relating to excess 
        production of fuel alcohol).''
            (3) Tax to be deposited into highway trust fund.--Paragraph 
        (1) of section 9503(b) is amended by striking ``and'' at the 
        end of subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                    ``(F) section 4476 (relating to excess production 
                of fuel alcohol), and''.
            (4) Clerical amendment.--The table of subchapters for 
        chapter 36 is amended by inserting after the item relating to 
        subchapter B the following new item:

                              ``Subchapter C. Excess production of fuel 
                                        alcohol.''
    (e) Increase in Small Ethanol Producer Credit.--Subparagraph (A) of 
section 40(b)(4) is amended by striking ``10 cents'' and inserting ``13 
cents''.
    (f) Effective Date.--
            (1) Amendments relating to credit.--The amendments made by 
        subsections (a), (b), (c)(1), and (e) shall apply to alcohol 
        produced after December 31, 1997, in taxable years ending after 
        such date.
            (2) Amendments relating to excise taxes.--The amendments 
        made by subsections (c)(2) and (d) shall take effect on January 
        1, 1998.
            (3) Stills placed in service pursuant to binding 
        contracts.--For purposes of subsections (d)(1)(A)(iii) and 
        (i)(3) of section 40 of the Internal Revenue Code of 1986, as 
        amended by this section, a still (or other distilling 
        apparatus) shall be treated as placed in service before June 9, 
        1997, if such still (or other apparatus) is constructed or 
        acquired by the taxpayer pursuant to a written contract which 
        was binding on June 8, 1997, and at all times thereafter before 
        such construction or acquisition.

SEC. 1044. 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 the 
date of the enactment of the Revenue Reconciliation Act of 1997 and 
before October 1, 2002''.

SEC. 1045. APPLICATION OF COMMUNICATIONS TAX TO LONG-DISTANCE PREPAID 
              TELEPHONE CARDS.

    (a) In General.--Subsection (b) of section 4251 is amended--
            (1) by adding at the end the following new paragraph:
            ``(3) Long-distance prepaid telephone cards and similar 
        arrangements.--Any amount paid (and the value of any other 
        benefit provided) to a provider of communications services (or 
        any related person) for the right to award, sell, or otherwise 
        make available telephone service (or reductions in the cost of 
        such service) other than local telephone service through 
        prepaid telephone cards or any similar arrangement shall be 
        treated as an amount paid for communications services. 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.'', and
            (2) by inserting ``And Special Rule'' after ``Definitions'' 
        in the heading.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts paid on or after the date of the enactment of 
        this Act.
            (2) Payments within controlled group.--For purposes of 
        paragraph (1), any amount paid after June 11, 1997, and before 
        the date of the enactment of this Act by 1 member of a 
        controlled group for a right which is described in section 
        4251(b)(3) of the Internal Revenue Code of 1986 (as added by 
        this section) and is furnished by another member of such group 
        shall be treated as paid on the date of the enactment of this 
        Act. 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.

         Subtitle F--Provisions Relating to Tax-Exempt Entities

SEC. 1051. 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) Control test.--In the case of taxable years beginning 
        before January 1, 1999, an organization shall be treated as 
        controlling another organization for purposes of section 
        512(b)(13) of the Internal Revenue Code of 1986 (as amended by 
        this section) only if it controls such organization within the 
        meaning of such section, determined by substituting ``80 
        percent'' for ``50 percent'' each place it appears in 
        subparagraph (D) thereof.

SEC. 1052. LIMITATION ON INCREASE IN BASIS OF PROPERTY RESULTING FROM 
              SALE BY TAX-EXEMPT ENTITY TO A RELATED PERSON.

    (a) In General.--Part IV of subchapter O of chapter 1 (relating to 
special rules for gain or loss on disposition of property) is amended 
by redesignating section 1061 as section 1062 and by inserting after 
section 1060 the following new section:

``SEC. 1061. BASIS LIMITATION FOR SALE OR EXCHANGE OF PROPERTY BY TAX-
              EXEMPT ENTITY TO RELATED PERSON.

    ``(a) General Rule.--In the case of a sale or exchange of property 
directly or indirectly between a tax-exempt entity and a related 
person, the basis of the related person in the property acquired shall 
not exceed the adjusted basis of such property (immediately before the 
exchange) in the hands of the tax-exempt entity, increased by the 
amount of gain recognized to the tax-exempt entity on the transfer 
which is subject to tax under section 511.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Tax-exempt entity.--The term `tax-exempt entity' 
        means any entity which is exempt from the tax imposed by this 
        chapter.
            ``(2) Related person.--The term `related person' means any 
        person bearing a relationship to the tax-exempt entity which is 
        described in section 267(b) or 707(b)(1). For purposes of 
        applying section 267(b)(2) under the preceding sentence, such 
        an entity shall be treated as if it were an individual.''
    (b) Clerical Amendment.--The table of sections for part IV of 
subchapter O of chapter 1 is amended by striking the last item and 
inserting the following:

                              ``Sec. 1061. Basis limitation for sale or 
                                        exchange of property by tax-
                                        exempt entity to related 
                                        person.
                              ``Sec. 1062. Cross references.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to sales and exchanges after June 8, 1997.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any sale or exchange pursuant to a written 
        contract which was binding on June 8, 1997, and at all times 
        thereafter before the sale or exchange.

SEC. 1053. MODIFICATIONS TO EXCEPTION FROM REPORTING, ETC. OF LOBBYING 
              ACTIVITIES.

    (a) In General.--Paragraph (3) of section 6033(e) (relating to 
exception where dues generally nondeductible) is amended to read as 
follows:
            ``(3) Exception where dues generally nondeductible.--
                    ``(A) In general.--Paragraph (1)(A) shall not apply 
                to an organization if more than 90 percent of the 
                amount of the aggregate annual dues (or similar 
                payments) paid to such organization are paid--
                            ``(i) by individuals or families whose 
                        annual dues (or similar amounts) are less than 
                        $100, or
                            ``(ii) by organizations which are exempt 
                        from tax.
                For purposes of the preceding sentence, all 
                organizations sharing a name, charter, historic 
                affiliation, or similar characteristics and 
                coordinating their lobbying activities shall be treated 
                a 1 organization.
                    ``(B) Inflation adjustment.--In the case of dues 
                for annual periods beginning in any calendar year after 
                1998, the dollar amount contained in subparagraph 
                (A)(i) 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 `calendar year 
                        1997' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any increase determined under the preceding sentence 
                is not a multiple of $5, such increase shall be rounded 
                to the nearest multiple of $5.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1054. 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 organizations 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 G--Other Revenue Provisions

SEC. 1061. 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 adding 
at the end the following new paragraph:
            ``(7) 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. 1062. 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 Casualty Losses of 
Individuals.--Paragraph (1) of section 172(b) is amended by adding at 
the end the following new subparagraph:
                    ``(F) Casualty losses of individuals.--Subparagraph 
                (A)(i) shall be applied by substituting `3 years' for 
                `2 years' with respect to the portion of the net 
                operating loss of an individual for the taxable year 
                which is attributable to losses of property arising 
                from fire, storm, shipwreck, or other casualty, or from 
                theft.''
    (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. 1063. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN AMOUNTS PAID IN 
              CONNECTION WITH INSURANCE.

    (a) Denial of Deduction for Premiums.--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.''
    (b) Interest on Policy Loans.--Paragraph (4) of section 264(a) is 
amended by striking ``individual, who'' and all that follows and 
inserting ``individual.''
    (c) Pro Rata Allocation of Interest Expense to Policy Cash 
Values.--Section 264 is amended by adding at the end the following new 
subsection:
    ``(e) 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 average adjusted bases (within the 
                meaning of section 1016) for all assets of the 
                taxpayer.
            ``(3) Unborrowed policy cash values.--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 in respect of such 
                policy or contract.
            ``(4) Exception for certain policies and contracts covering 
        officers, directors, and employees.--Paragraph (1) shall not 
        apply to any policy or contract owned by an entity engaged in a 
        trade or business which covers any individual who is an 
        officer, director, or employee of such trade or business at the 
        time first covered by the policy or contract, and such policies 
        and contracts shall not be taken into account under paragraph 
        (2).
            ``(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, to the extent of the 
                        unborrowed cash value of such 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 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) for purposes of applying paragraph 
                        (2)(B), the adjusted bases otherwise taken into 
                        account 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, and 
                subparagraph (A) shall be applied without regard to any 
                insurance company.''
    (b) Treatment of Insurance Companies.--
            (1) 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 section 264(e)(3)(A)) 
        of life insurance policies and annuity and endowment contracts 
        to which section 264(e) applies'' after ``tax-exempt 
        interest''.
            (2) 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 section 
        264(e)(3)(A)) of life insurance policies and annuity and 
        endowment contracts to which section 264(e) applies, and''.
            (3) 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 
        264(e)(3)(A)) of life insurance policies and annuity and 
        endowment contracts to which section 264(e) applies,''.
            (4) 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 
        264(e)(3)(A)) of life insurance policies and annuity and 
        endowment contracts to which section 264(e) applies,''.
            (5) 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 
                264(e)(3)(A)) of life insurance policies and annuity 
                and endowment contracts to which section 264(e) 
                applies.''
            (6) 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 264(e)(3)(A)) of life insurance 
                        policies and annuity and endowment contracts to 
                        which section 264(e) 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. 1064. 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 not allocated 
                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. 1065. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY 
              APPRECIATED.

    (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) 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).''
            (2) 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.--The amendments made by this section shall 
apply to sales, exchanges, and distributions after the date of the 
enactment of this Act.

SEC. 1066. 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 ``10 years''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property contributed to a partnership after June 8, 1997.

SEC. 1067. RESTRICTIONS ON AVAILABILITY OF EARNED INCOME CREDIT FOR 
              TAXPAYERS WHO IMPROPERLY CLAIMED CREDIT IN PRIOR YEAR.

    (a) 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.''
    (b) 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 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.''
    (c) 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).''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1068. 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. Such term shall not 
                include cellular telephones and any computer or 
                peripheral equipment (as defined in section 168(i)).
                    ``(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, 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 level 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. 1069. REPEAL OF SPECIAL RULE FOR RENTAL USE OF VACATION HOMES, 
              ETC., FOR LESS THAN 15 DAYS.

    (a) In General.--Section 280A (relating to disallowance of certain 
expenses in connection with business use of home, rental of vacation 
homes, etc.) is amended by striking subsection (g).
    (b) No Basis Reduction Unless Depreciation Claimed.--Section 1016 
is amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection:
    ``(e) Special Rule Where Rental Use of Vacation Home, Etc., for 
Less Than 15 Days.--If a dwelling unit is used during the taxable year 
by the taxpayer as a residence and such dwelling unit is actually 
rented for less than 15 days during the taxable year, the reduction 
under subsection (a)(2) by reason of such rental use in any taxable 
year beginning after December 31, 1997, shall not exceed the 
depreciation deduction allowed for such rental use.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1070. 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. 1071. 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 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, 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.

     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

SEC. 1101. 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.
    (c) Phasein of Treatment.--For purposes of the Internal Revenue 
Code of 1986--
            (1) 1998.--In the case of gross receipts attributable to 
        calendar year 1998, the amendment made by subsection (a) shall 
        apply to only \1/3\ of such gross receipts.
            (2) 1999.--In the case of gross receipts attributable to 
        calendar year 1999, the amendment made by subsection (a) shall 
        apply to only \2/3\ of such gross receipts.

SEC. 1102. 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. 1103. 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. 1104. 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 tax pools 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 shall be taken into account for the 
                taxable year to which such taxes relate (and 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. 1105. 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. 1106. 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 section 162 or 212 (other than that part of 
        section 212 dealing with expenses incurred in connection with 
        taxes).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1107. ALL NONCONTROLLED SECTION 902 CORPORATIONS WHICH ARE NOT 
              PASSIVE FOREIGN INVESTMENT COMPANIES IN ONE FOREIGN TAX 
              LIMITATION BASKET.

    (a) In General.--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-pfic's 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). 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.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2001.

        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. 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.--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 if such person is treated as the owner 
of such trust under section 671.''
    (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 foreign corporation shall 
not, for purposes of determining the extent to which gain shall be 
recognized on such transfer, be considered to be a corporation.''
            (3) Certain transfers to partnerships.--Section 721 is 
        amended by adding at the end the following new subsection:
    ``(c) Regulations Relating to Transfers to Foreign Persons.--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, except so as to consider a United 
                States person as owning such an interest which is owned 
                by a person which is not a United States person.
                    ``(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 of foreign partnerships 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-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.--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).''
    (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 the person otherwise required to file 
        a return with respect to such transfer elects to apply the 
        amendments made by this section to transfers after August 20, 
        1996. The Secretary of the Treasury or his delegate may 
        prescribe simplified reporting under the preceding sentence.

SEC. 1145. EXTENSION OF STATUTE OF LIMITATION 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 
partnership is more properly treated as a foreign partnership under 
regulations prescribed by the Secretary''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

              Subtitle 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.

                      Subtitle H--Other Provisions

SEC. 1171. 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. 1172. 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. 1173. 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 prevent the 
                abuse of the exception provided by this paragraph.
            ``(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) 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. 1174. PENALTIES FOR FAILURE TO DISCLOSE POSITION THAT CERTAIN 
              INTERNATIONAL TRANSPORTATION INCOME IS NOT INCLUDIBLE IN 
              GROSS INCOME.

    (a) In General.--Section 883 is amended by adding at the end the 
following new subsection:
    ``(d) Penalties for Failure to Disclose Position That Certain 
International Transportation Income Is Not Includible in Gross 
Income.--
            ``(1) In general.--A taxpayer who, with respect to any tax 
        imposed by this title, takes the position that any of its gross 
        income derived from the international operation of 1 or more 
        ships or aircraft is not includible in gross income by reason 
        of paragraph (1) or (2) of subsection (a) or paragraph (1) or 
        (2) of section 872(b) (or by reason of any applicable treaty) 
        shall be entitled to such treatment only if such position is 
        disclosed (in such manner as the Secretary may prescribe) on 
        the return of tax for such tax (or any statement attached to 
        such return).
            ``(2) Additional penalties for failing to disclose 
        position.--If a taxpayer fails to meet the requirement of 
        paragraph (1) for any taxable year with respect to the 
        international operation of 1 or more ships or 1 or more 
        aircraft--
                    ``(A) the amount of the income from the 
                international operation to which such failure relates--
                            ``(i) which is from sources without the 
                        United States, and
                            ``(ii) which is attributable to a fixed 
                        place of business in the United States,
                shall be treated for purposes of this title as 
                effectively connected with the conduct of a trade or 
                business within the United States, and
                    ``(B) no deductions or credits shall be allowed 
                which are attributable to income from the international 
                operation to which the failure relates.
            ``(3) Reasonable cause exception.--This subsection shall 
        not apply to a failure to disclose a position if it is shown 
        that such failure is due to reasonable cause and not due to 
        willful neglect.''
    (b) Conforming Amendments.--Paragraphs (1) and (2) of section 
872(b), and paragraphs (1) and (2) of section 883(a), are each amended 
by striking ``Gross income'' each place it appears and inserting 
``Except as provided in section 883(d), gross income''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1997.
            (2) Coordination with treaties.--The amendments made by 
        this section shall not apply in any case where their 
        application would be contrary to any treaty obligation of the 
        United States.
    (d) Information To Be Provided by Customs Service.--The United 
States Custom Service shall provide the Secretary of the Treasury or 
his delegate with such information as may be specified by such 
Secretary in order to enable such Secretary to determine whether ships 
which are not registered in the United States are engaged in 
transportation to or from the United States.

SEC. 1175. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH 
              HYBRID ENTITIES.

    A foreign person shall 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 the Internal Revenue Code of 1986 on an item 
of income derived through any partnership or other pass-thru entity 
only to the extent that such item is treated for purposes of the 
taxation laws of such foreign country as an item of income of such 
person. The preceding sentence shall not apply if--
            (1) the treaty contains a provision addressing the 
        applicability of the treaty in the case of an item of income 
        derived through a partnership, or
            (2) the foreign country imposes tax on a distribution of 
        such item of income from such partnership to such person.

SEC. 1176. 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 carrybacks arising in taxable years beginning after the date 
of the enactment of this Act.

SEC. 1177. 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. 1178. 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.

   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.--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.''
    (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. OPTIONAL METHODS FOR COMPUTING SECA TAX COMBINED.

    (a) Internal Revenue Code.--
            (1) In general.--Subsection (h) of section 1402 is amended 
        to read as follows:
    ``(h) Optional Method for Computing Self-Employment Income.--
            ``(1) Individuals.--In the case of any trade or business 
        which is carried on by an individual--
                    ``(A) if the gross income derived by him from such 
                trade or business is not more than the upper limit for 
                the taxable year, the net earnings from self-employment 
                derived by him from such trade or business may, at his 
                option, be deemed to be 66\2/3\ percent of such gross 
                income, or
                    ``(B) if the gross income derived by him from such 
                trade or business is more than the upper limit for the 
                taxable year and the net earnings from self-employment 
                derived by him from such trade or business (computed 
                under subsection (a) without regard to this sentence) 
                are less than the lower limit for the taxable year, the 
                net earnings from self-employment derived by him from 
                such trade or business may, at his option, be deemed to 
                be the lower limit for the taxable year.
            ``(2) Member of a partnership.--In the case of a member of 
        a partnership carrying on any trade or business--
                    ``(A) if his distributive share of the gross income 
                of the partnership derived from such trade or business 
                (after such gross income has been reduced by the sum of 
                all payments to which section 707(c) applies) is not 
                more than the upper limit for the taxable year, his 
                distributive share of income described in section 
                702(a)(8) derived from such trade or business may, at 
                his option, be deemed to be an amount equal to 66\2/3\ 
                percent of his distributive share of such gross income 
                (after such gross income has been so reduced), or
                    ``(B) if his distributive share of the gross income 
                of the partnership derived from such trade or business 
                (after such gross income has been reduced by the sum of 
                all payments to which section 707(c) applies) is more 
                than the upper limit for the taxable year and his 
                distributive share (whether or not distributed) of 
                income described in section 702(a)(8) derived from such 
                trade or business (computed under this subsection 
                without regard to this sentence) is less than the lower 
                limit for the taxable year, his distributive share of 
                income described in section 702(a)(8) derived from such 
                trade or business may, at his option, be deemed to be 
                the lower limit for the taxable year.
            ``(3) Upper and lower limits.--For purposes of this 
        subsection--
                    ``(A) Lower limit.--The lower limit for any taxable 
                year is the sum of the amounts applicable under section 
                213(d) of the Social Security Act for calendar quarters 
                ending with or within such taxable year.
                    ``(B) Upper limit.--The upper limit for any taxable 
                year is the amount equal to 150 percent of the lower 
                limit for such taxable year.
            ``(4) Determination of gross income.--For purposes of this 
        subsection, the term `gross income' means--
                    ``(A) in the case of any such trade or business in 
                which the income is computed under a cash receipts and 
                disbursements method, the gross receipts from such 
                trade or business reduced by the cost or other basis of 
                property which was purchased and sold in carrying on 
                such trade or business, adjusted (after such reduction) 
                in accordance with the provisions of paragraphs (1) 
                through (7) and paragraph (9) of subsection (a), and
                    ``(B) in the case of any such trade or business in 
                which the income is computed under an accrual method, 
                the gross income from such trade or business, adjusted 
                in accordance with the provisions of paragraphs (1) 
                through (7) and paragraph (9) of subsection (a).
            ``(5) Income derived from more than 1 trade or business.--
        For purposes of this subsection, if an individual (including a 
        member of a partnership) derives gross income from more than 1 
        such trade or business, such gross income (including his 
        distributive share of the gross income of any partnership 
        derived from any such trade or business) shall be deemed to 
        have been derived from one trade or business.
                            ``(6) Election.--The option under this 
                        subsection shall be allowed for any taxable 
                        year only if elected on the first return filed 
                        for such taxable year.''
            (2) Conforming amendment.--Subsection (a) of section 1402 
        is amended by striking all that follows the first sentence 
        following paragraph (15) and inserting ``For optional method of 
        determining net earnings from self-employment, see subsection 
        (h).''
    (b) Social Security Act.--Subsection (g) of section 211 of the 
Social Security Act is amended to read as follows:
    ``(g) Optional Method for Computing Self-Employment Income.--
            ``(1) Individuals.--In the case of any trade or business 
        which is carried on by an individual--
                    ``(A) if the gross income derived by him from such 
                trade or business is not more than the upper limit for 
                the taxable year, the net earnings from self-employment 
                derived by him from such trade or business may, at his 
                option, be deemed to be 66\2/3\ percent of such gross 
                income, or
                    ``(B) if the gross income derived by him from such 
                trade or business is more than the upper limit for the 
                taxable year and the net earnings from self-employment 
                derived by him from such trade or business (computed 
                under subsection (a) without regard to this sentence) 
                are less than the lower limit for the taxable year, the 
                net earnings from self-employment derived by him from 
                such trade or business may, at his option, be deemed to 
                be the lower limit for the taxable year.
            ``(2) Member of a partnership.--In the case of a member of 
        a partnership carrying on any trade or business--
                    ``(A) if his distributive share of the gross income 
                of the partnership derived from such trade or business 
                (after such gross income has been reduced by the sum of 
                all payments to which section 707(c) of the Internal 
                Revenue Code of 1986 applies) is not more than the 
                upper limit for the taxable year, his distributive 
                share of income described in section 702(a)(8) of such 
                Code derived from such trade or business may, at his 
                option, be deemed to be an amount equal to 66\2/3\ 
                percent of his distributive share of such gross income 
                (after such gross income has been so reduced), or
                    ``(B) if his distributive share of the gross income 
                of the partnership derived from such trade or business 
                (after such gross income has been reduced by the sum of 
                all payments to which section 707(c) of such Code 
                applies) is more than the upper limit for the taxable 
                year and his distributive share (whether or not 
                distributed) of income described in section 702(a)(8) 
                of such Code derived from such trade or business 
                (computed under this subsection without regard to this 
                sentence) is less than the lower limit for the taxable 
                year, his distributive share of income described in 
                section 702(a)(8) of such Code derived from such trade 
                or business may, at his option, be deemed to be the 
                lower limit for the taxable year.
            ``(3) Upper and lower limits.--For purposes of this 
        subsection--
                    ``(A) Lower limit.--The lower limit for any taxable 
                year is the sum of the amounts applicable under section 
                213(d) for calendar quarters ending with or within such 
                taxable year.
                    ``(B) Upper limit.--The upper limit for any taxable 
                year is the amount equal to 150 percent of the lower 
                limit for such taxable year.
            ``(4) Determination of gross income.--For purposes of this 
        subsection, the term `gross income 'means--
                    ``(A) in the case of any such trade or business in 
                which the income is computed under a cash receipts and 
                disbursements method, the gross receipts from such 
                trade or business reduced by the cost or other basis of 
                property which was purchased and sold in carrying on 
                such trade or business, adjusted (after such reduction) 
                in accordance with the provisions of paragraphs (1) 
                through (6) and paragraph (8) of subsection (a), and
                    ``(B) in the case of any such trade or business in 
                which the income is computed under an accrual method, 
                the gross income from such trade or business, adjusted 
                in accordance with the provisions of paragraphs (1) 
                through (6) and paragraph (8) of subsection (a).
            ``(5) Income derived from more than 1 trade or business.--
        For purposes of this subsection, if an individual (including a 
        member of a partnership) derives gross income from more than 1 
        such trade or business, such gross income (including his 
        distributive share of the gross income of any partnership 
        derived from any such trade or business) shall be deemed to 
        have been derived from one trade or business.
                            ``(6) Election.--The option under this 
                        subsection shall be allowed for any taxable 
                        year only if elected on the first return filed 
                        for such taxable year.''
            (2) Conforming amendment.--Subsection (a) of section 211 of 
        the Social Security Act is amended by striking all that follows 
        the first sentence following paragraph (15) and inserting ``For 
        optional method of determining net earnings from self-
        employment, see subsection (g).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1204. 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. 1205. 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. 1206. 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.
            ``(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) Separate Appropriation Required for Payment of Credit Card 
Fees.--No amount may be paid by the United States to a credit card 
issuer for the right to receive payments of internal revenue taxes by 
credit card without a separate appropriation therefor.
    (c) 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.''
    (d) 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)''.
    (e) 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.

   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 subsection shall have the force and effect of a 
decision of the Tax Court or a final judgment or decree of the district 
court or the Claims Court, as the case may be, and shall be reviewable 
as such. The date of any such determination shall be treated as being 
the date of the court's order entering the decision.

               ``PART III--DEFINITIONS AND SPECIAL RULES

                              ``Sec. 6255. Definitions and special 
                                        rules.

``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) 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.--The running of any period of limitations provided in this 
subchapter on making a partnership adjustment (or provided by section 
6501 or 6502 on the assessment or collection of any amount required to 
be paid under section 6242) shall, in a case under title 11 of the 
United States Code, be suspended during the period during which the 
Secretary is prohibited by reason of such case from making the 
adjustment (or assessment or collection) and--
            ``(1) for adjustment or assessment, 60 days thereafter, and
            ``(2) for collection, 6 months thereafter.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this subchapter, 
including regulations--
            ``(1) to prevent abuse through manipulation of the 
        provisions of this subchapter, and
            ``(2) providing that this subchapter shall not apply to any 
        case described in section 6231(c)(1) (or the regulations 
        prescribed thereunder) where the application of this subchapter 
        to such a case would interfere with the effective and efficient 
        enforcement of this title.
In any case to which this subchapter does not apply by reason of 
paragraph (2), rules similar to the rules of sections 6229(f) and 
6255(f) shall apply.''
    (b) Clerical Amendment.--The table of subchapters for chapter 63 is 
amended by adding at the end thereof the following new item:

      ``Subchapter D. Treatment of 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 MAY BE REQUIRED ON MAGNETIC MEDIA.

    Paragraph (2) of section 6011(e) (relating to returns on magnetic 
media) is amended by adding at the end thereof the following new 
sentence:
        ``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 14317, is amended by inserting ``(including any 
        liability for any penalty, addition to tax, or additional 
        amount relating to such adjustment)'' after ``partnership 
        item''.
            (B) Subparagraph (B) of such section is amended by 
        inserting ``(and the applicability of any penalties, additions 
        to tax, or additional amounts)'' after ``partnership items''.
            (C) Subparagraph (A) of section 6230(c)(5), as added by 
        section 14317, 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 14317, 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.''
    (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 TENANT OWNERSHIP.

    Section 856(d)(5) (relating to constructive ownership of stock) is 
amended by adding at the end the following: ``For purposes of paragraph 
(2)(B), section 318(a)(3)(A) shall be applied under the preceding 
sentence 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 trust 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 ending 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.

SEC. 1286. PENALTY FOR UNAUTHORIZED INSPECTION OF TAX RETURNS OR TAX 
              RETURN INFORMATION.

    (a) In General.--Part I of subchapter A of chapter 75 (relating to 
crimes, other offenses, and forfeitures) is amended by adding after 
section 7213 the following new section:

``SEC. 7213A. UNAUTHORIZED INSPECTION OF RETURNS OR RETURN INFORMATION.

    ``(a) Prohibitions.--
            ``(1) Federal employees and other persons.--It shall be 
        unlawful for--
                    ``(A) any officer or employee of the United States, 
                or
                    ``(B) any person described in section 6103(n) or an 
                officer or employee of any such person,
        willfully to inspect, except as authorized in this title, any 
        return or return information.
            ``(2) State and other employees.--It shall be unlawful for 
        any person (not described in paragraph (1)) willfully to 
        inspect, except as authorized in this title, any return or 
        return information acquired by such person or another person 
        under a provision of section 6103 referred to in section 
        7213(a)(2).
    ``(b) Penalty.--
            ``(1)  In general.--Any violation of subsection (a) shall 
        be punishable upon conviction by a fine in any amount not 
        exceeding $1,000, or imprisonment of not more than 1 year, or 
        both, together with the costs of prosecution.
            ``(2) Federal officers or employees.--An officer or 
        employee of the United States who is convicted of any violation 
        of subsection (a) shall, in addition to any other punishment, 
        be dismissed from office or discharged from employment.
    ``(c) Definitions.--For purposes of this section, the terms 
`inspect', `return', and `return information' have the respective 
meanings given such terms by section 6103(b).''
    (b) Technical Amendments.--
            (1) Paragraph (2) of section 7213(a) is amended by 
        inserting ``(5),'' after ``(m)(2), (4),''.
            (2) The table of sections for part I of subchapter A of 
        chapter 75 is amended by inserting after the item relating to 
        section 7213 the following new item:

                              ``Sec. 7213A. Unauthorized inspection of 
                                        returns or return 
                                        information.''
    (c) Effective Date.--The amendments made by this section shall 
apply to violations occurring on and after the date of the enactment of 
this Act.

SEC. 1287. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OF RETURNS AND 
              RETURN INFORMATION; NOTIFICATION OF UNLAWFUL INSPECTION 
              OR DISCLOSURE.

    (a) Civil Damages for Unauthorized Inspection.--Subsection (a) of 
section 7431 is amended--
            (1) by striking ``Disclosure'' in the headings for 
        paragraphs (1) and (2) and inserting ``Inspection or 
        disclosure'', and
            (2) by striking ``discloses'' in paragraphs (1) and (2) and 
        inserting ``inspects or discloses''.
    (b) Notification of Unlawful Inspection or Disclosure.--Section 
7431 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) Notification of Unlawful Inspection and Disclosure.--If any 
person is criminally charged by indictment or information with 
inspection or disclosure of a taxpayer's return or return information 
in violation of--
            ``(1) paragraph (1) or (2) of section 7213(a),
            ``(2) section 7213A(a), or
            ``(3) subparagraph (B) of section 1030(a)(2) of title 18, 
        United States Code,
the Secretary shall notify such taxpayer as soon as practicable of such 
inspection or disclosure.''
    (c) No Damages for Inspection Requested by Taxpayer.--Subsection 
(b) of section 7431 is amended to read as follows:
    ``(b) Exceptions.--No liability shall arise under this section with 
respect to any inspection or disclosure--
            ``(1) which results from a good faith, but erroneous, 
        interpretation of section 6103, or
            ``(2) which is requested by the taxpayer.''
    (d) Conforming Amendments.--
            (1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d) of section 
        7431 are each amended by inserting ``inspection or'' before 
        ``disclosure''.
            (2) Clause (ii) of section 7431(c)(1)(B) is amended by 
        striking ``willful disclosure or a disclosure'' and inserting 
        ``willful inspection or disclosure or an inspection or 
        disclosure''.
            (3) Subsection (f) of section 7431, as redesignated by 
        subsection (b), is amended to read as follows:
    ``(f) Definitions.--For purposes of this section, the terms 
`inspect', `inspection', `return', and `return information' have the 
respective meanings given such terms by section 6103(b).''
            (4) The section heading for section 7431 is amended by 
        inserting ``inspection or'' before ``disclosure''.
            (5) The table of sections for subchapter B of chapter 76 is 
        amended by inserting ``inspection or'' before ``disclosure'' in 
        the item relating to section 7431.
            (6) Paragraph (2) of section 7431(g), as redesignated by 
        subsection (b), is amended by striking ``any use'' and 
        inserting ``any inspection or use''.
    (e) Effective Date.--The amendments made by this section shall 
apply to inspections and disclosures occurring on and 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, except that this paragraph shall 
        apply with respect to a transfer of property (other than a 
        transfer described in section 2522(d)) only if the entire value 
        of such property is allowed as a deduction under section 
        2522,''.
    (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. CLARIFICATIONS RELATING TO DISCLAIMERS.

    (a) Partial Transfer-Type Disclaimers Permitted.--Paragraph (3) of 
section 2518(c) (relating to certain transfers treated as disclaimers) 
is amended by inserting ``(or an undivided portion of such interest)'' 
after ``entire interest in the property''.
    (b) Retention of Interest by Decedent's Spouse Permitted in 
Transfer-Type Disclaimers.--Paragraph (3) of section 2518(c) is amended 
by adding at the end the following new flush sentence:
        ``For purposes of the preceding sentence, a written transfer by 
        the spouse of the decedent of property to a trust shall not 
        fail to be treated as a transfer of such spouse's interest in 
        such property by reason of such spouse having an interest in 
        such trust.''
    (c) Disclaimers Are Effective For Income Tax Purposes.--Subsection 
(a) of section 2518 is amended by inserting ``and subtitle A'' after 
``this subtitle'' each place it appears.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers creating an interest in the person disclaiming, and 
disclaimers, made after the date of the enactment of this Act.

SEC. 1305. INCREASE OF AMOUNT OF LAPSE OF GENERAL POWER OF APPOINTMENT 
              NOT TREATED AS RELEASE FOR PURPOSES OF ESTATE AND GIFT 
              TAX (5 OR 5 POWER).

    (a) Estate Tax.--Subparagraph (A) of section 2041(b)(2) (relating 
to lapse of power) is amended by striking ``$5,000'' and inserting 
``$10,000''.
    (b) Gift Tax.--Paragraph (1) of section 2514(e) (relating to lapse 
of power) is amended by striking ``$5,000'' and inserting ``$10,000''.
    (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. 1306. 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. 1307. 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. 1308. 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. 1309. 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. 1310. 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. 1311. LIMITATION ON TAXABLE YEAR OF ESTATES.

    (a) In General.--Section 645 (relating to taxable year of trusts) 
is amended to read as follows:

``SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.

    ``(a) Estates.--For purposes of this subtitle, the taxable year of 
an estate shall be a year ending on October 31, November 30, or 
December 31.
    ``(b) Trusts.--
            ``(1) In general.--For purposes of this subtitle, the 
        taxable year of any trust shall be the calendar year.
            ``(2) Exception for trusts exempt from tax and charitable 
        trusts.--Paragraph (1) shall not apply to a trust exempt from 
        taxation under section 501(a) or to a trust described in 
        section 4947(a)(1).''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter J of chapter 1 is amended by striking the item 
relating to section 645 and inserting the following new item:

                              ``Sec. 645. Taxable year of estates and 
                                        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. 1312. 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. 684. 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 
        who have entered into contracts described in paragraph (1) to 
        have such services or property provided at their death,
            ``(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 by the beneficiaries under 
        subpart E.
    ``(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 Beneficiary on 
Cancellation.--No gain or loss shall be recognized to a beneficiary 
described in subsection (b)(3) of any qualified funeral trust by reason 
of any payment from such trust to such beneficiary by reason of 
cancellation of a contract referred to in subsection (b)(1). 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 
beneficiary 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. 684. Treatment of funeral 
                                        trusts.''

    (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. 1313. 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. 1314. 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. 1315. 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. 1316. 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. 1317. 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 90 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 90 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 90 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 
90 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 
90 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 
90 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 90 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 90 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 90 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 
90 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 
90 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.''

                 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 1 individual for purposes 
                        of clause (i) of such section, except in the 
                        case of a spouse relieved of liability under 
                        section 6013(e).''
    (b) Effective Date.--The amendment made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

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 7435 as section 7436 and by inserting after section 7434 the 
following new section:

``SEC. 7435. 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 
determination 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), and (d) 
        of section 6213, section 6214(a), section 6503(a), and section 
        6512 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 
                7435, 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) Sections 7453 and 7481(b) are each amended by striking 
        ``section 7463'' and inserting ``section 7435(c) or 7463''.
            (3) The table of sections for subchapter B of chapter 76 is 
        amended by striking the last item and inserting the following:

                              ``Sec. 7435. Proceedings for 
                                        determination of employment 
                                        status.
                              ``Sec. 7436. 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--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996 AND OTHER LEGISLATION

SEC. 1501. 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(e)(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 the requirements of this 
                        subparagraph 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 
                        subparagraph.''
                    (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) 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).
            (5) 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 section 403(b)(8) of 
                such Code (determined after the application of section 
                1450(b)(2) of such Act).
                    (B) This paragraph shall apply as if included in 
                section 1450 of the Small Business Job Protection Act 
                of 1996.
    (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''.
            (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. 1502. 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(d) 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) Amendment 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 by reason of no 
        additional premiums being received under the contract after 
        October 13, 1995.''
    (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)(A) is amended by 
        striking ``such foreign country in respect of property included 
        in the gross estate'' and inserting ``such foreign country''.
            (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. 1503. 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. 1504. 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) Subclause (II) of section 412(m)(5)(E)(ii) 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) Amendment Related to Tax Reform Act of 1986.--Paragraph (3) of 
section 1059(d) is amended by striking ``subsection (a)(2)'' and 
inserting ``subsection (a)''.
    (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) 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).




                                                  Union Calendar No. 88

105th CONGRESS

  1st Session

                               H. R. 2014

                          [Report No. 105-148]

_______________________________________________________________________

                                 A BILL

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.

_______________________________________________________________________

                             June 24, 1997

Committed to the Committee of the Whole House on the State of the Union 
                       and ordered to be printed