[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2488 Enrolled Bill (ENR)]

        H.R.2488

                       One Hundred Sixth Congress

                                 of the

                        United States of America


                          AT THE FIRST SESSION

         Begun and held at the City of Washington on Wednesday,
   the sixth day of January, one thousand nine hundred and ninety-nine


                                 An Act


 
 To provide for reconciliation pursuant to sections 105 and 211 of the 
        concurrent resolution on the budget for fiscal year 2000.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer Refund 
and Relief Act of 1999''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.
    (d) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

               TITLE I--BROAD-BASED AND FAMILY TAX RELIEF

            Subtitle A--Reduction in Individual Income Taxes

Sec. 101. Reduction in individual income taxes.

                      Subtitle B--Family Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Exclusion for foster care payments to apply to payments by 
          qualified placement agencies.
Sec. 113. Expansion of adoption credit.
Sec. 114. Modification of dependent care credit.
Sec. 115. Marriage penalty relief for earned income credit.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

Sec. 121. Repeal of alternative minimum tax on individuals.

        TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

                  Subtitle A--Capital Gains Tax Relief

Sec. 201. Reduction in individual capital gain tax rates.
Sec. 202. Indexing of certain assets acquired after December 31, 1999, 
          for purposes of determining gain.
Sec. 203. Capital gains tax rates applied to capital gains of designated 
          settlement funds.
Sec. 204. Special rule for members of uniformed services and Foreign 
          Service, and other employees, in determining exclusion of gain 
          from sale of principal residence.
Sec. 205. Tax treatment of income and loss on derivatives.
Sec. 206. Worthless securities of financial institutions.

             Subtitle B--Individual Retirement Arrangements

Sec. 211. Modification of deduction limits for IRA contributions.
Sec. 212. Modification of income limits on contributions and rollovers 
          to Roth IRAs.
Sec. 213. Deemed IRAs under employer plans.
Sec. 214. Catchup contributions to IRAs by individuals age 50 or over.

                TITLE III--ALTERNATIVE MINIMUM TAX REFORM

Sec. 301. Modification of alternative minimum tax on corporations.
Sec. 302. Repeal of 90 percent limitation on foreign tax credit.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Sec. 403. Exclusion of certain amounts received under the National 
          Health Service Corps Scholarship Program, the F. Edward Hebert 
          Armed Forces Health Professions Scholarship and Financial 
          Assistance Program, and certain other programs.
Sec. 404. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 405. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 406. Modification of arbitrage rebate rules applicable to public 
          school construction bonds.
Sec. 407. Elimination of 60-month limit and increase in income 
          limitation on 
          student loan interest deduction.
Sec. 408. 2-percent floor on miscellaneous itemized deductions not to 
          apply to qualified professional development expenses of 
          elementary and secondary school teachers.

                     TITLE V--HEALTH CARE PROVISIONS

Sec. 501. Deduction for health and long-term care insurance costs of 
          individuals not participating in employer-subsidized health 
          plans.
Sec. 502. Long-term care insurance permitted to be offered under 
          cafeteria plans and flexible spending arrangements.
Sec. 503. Additional personal exemption for taxpayer caring for elderly 
          family member in taxpayer's home.
Sec. 504. Expanded human clinical trials qualifying for orphan drug 
          credit.
Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae 
          to list of taxable vaccines; reduction in per dose tax rate.
Sec. 506. Drug benefits for medicare beneficiaries.

                       TITLE VI--ESTATE TAX RELIEF

   Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                   Repeal of Step Up in Basis At Death

Sec. 601. Repeal of estate, gift, and generation-skipping taxes.
Sec. 602. Termination of step up in basis at death.
Sec. 603. Carryover basis at death.

   Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

Sec. 611. Additional reductions of estate and gift tax rates.

    Subtitle C--Unified Credit Replaced With Unified Exemption Amount

Sec. 621. Unified credit against estate and gift taxes replaced with 
          unified exemption amount.

      Subtitle D--Modifications of Generation-Skipping Transfer Tax

Sec. 631. Deemed allocation of gst exemption to lifetime transfers to 
          trusts; 
          retroactive allocations.
Sec. 632. Severing of trusts.
Sec. 633. Modification of certain valuation rules.
Sec. 634. Relief provisions.

                   Subtitle E--Conservation Easements

Sec. 641. Expansion of estate tax rule for conservation easements.

     TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

Sec. 701. Short title.
Sec. 702. Designation of and tax incentives for renewal communities.
Sec. 703. Extension of expensing of environmental remediation costs to 
          renewal communities.
Sec. 704. Extension of work opportunity tax credit for renewal 
          communities.
Sec. 705. Conforming and clerical amendments.

                      Subtitle B--Farming Incentive

Sec. 711. Production flexibility contract payments.

                   Subtitle C--Oil and Gas Incentives

Sec. 721. 5-year net operating loss carryback for losses attributable to 
          operating mineral interests of independent oil and gas 
          producers.
Sec. 722. Deduction for delay rental payments.
Sec. 723. Election to expense geological and geophysical expenditures.
Sec. 724. Temporary suspension of limitation based on 65 percent of 
          taxable 
          income.
Sec. 725. Determination of small refiner exception to oil depletion 
          deduction.

                      Subtitle D--Timber Incentives

Sec. 731. Temporary suspension of maximum amount of amortizable 
          reforestation expenditures.
Sec. 732. Capital gain treatment under section 631(b) to apply to 
          outright sales by land owner.

                 TITLE VIII--RELIEF FOR SMALL BUSINESSES

Sec. 801. Deduction for 100 percent of health insurance costs of self-
          employed 
          individuals.
Sec. 802. Increase in expense treatment for small businesses.
Sec. 803. Repeal of Federal unemployment surtax.
Sec. 804. Increased deduction for meal expenses; increased deductibility 
          of business meal expenses for individuals subject to Federal 
          limitations on hours of service.
Sec. 805. Income averaging for farmers and fishermen not to increase 
          alternative minimum tax liability.
Sec. 806. Farm, fishing, and ranch risk management accounts.
Sec. 807. Exclusion of investment securities income from passive income 
          test for bank S corporations.
Sec. 808. Treatment of qualifying director shares.

                   TITLE IX--INTERNATIONAL TAX RELIEF

Sec. 901. Interest allocation rules.
Sec. 902. Look-thru rules to apply to dividends from noncontrolled 
          section 902 
          corporations.
Sec. 903. Clarification of treatment of pipeline transportation income.
Sec. 904. Subpart F treatment of income from transmission of high 
          voltage 
          electricity.
Sec. 905. Recharacterization of overall domestic loss.
Sec. 906. Treatment of military property of foreign sales corporations.
Sec. 907. Treatment of certain dividends of regulated investment 
          companies.
Sec. 908. Repeal of special rules for applying foreign tax credit in 
          case of foreign oil and gas income.
Sec. 909. Advance pricing agreements treated as confidential taxpayer 
          information.
Sec. 910. Increase in dollar limitation on section 911 exclusion.
Sec. 911. Airline mileage awards to certain foreign persons.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

Sec.1001.Exemption from income tax for State-created organizations 
          providing property and casualty insurance for property for 
          which such coverage is otherwise unavailable.
Sec.1002.Modification of special arbitrage rule for certain funds.
Sec.1003.Exemption procedure from taxes on self-dealing.
Sec.1004.Expansion of declaratory judgment remedy to tax-exempt 
          organizations.
Sec.1005.Modifications to section 512(b)(13).
Sec.1006.Mileage reimbursements to charitable volunteers excluded from 
          gross 
          income.
Sec.1007.Charitable contribution deduction for certain expenses incurred 
          in 
          support of Native Alaskan subsistence whaling.
Sec.1008.Simplification of lobbying expenditure limitation.
Sec.1009.Tax-free distributions from individual retirement accounts for 
          charitable purposes.

                    TITLE XI--REAL ESTATE PROVISIONS

          Subtitle A--Improvements in Low-Income Housing Credit

Sec.1101.Modification of State ceiling on low-income housing credit.
Sec.1102.Modification of criteria for allocating housing credits among 
          projects.
Sec.1103.Additional responsibilities of housing credit agencies.
Sec.1104.Modifications to rules relating to basis of building which is 
          eligible for credit.
Sec.1105.Other modifications.
Sec.1106.Carryforward rules.
Sec.1107.Effective date.

    Subtitle B--Provisions Relating to Real Estate Investment Trusts

   Part I--Treatment of Income and Services Provided by Taxable REIT 
                              Subsidiaries

Sec.1111.Modifications to asset diversification test.
Sec.1112.Treatment of income and services provided by taxable REIT 
          subsidiaries.
Sec.1113.Taxable REIT subsidiary.
Sec.1114.Limitation on earnings stripping.
Sec.1115.100 percent tax on improperly allocated amounts.
Sec.1116.Effective date.

                       Part II--Health Care REITs

Sec.1121.Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec.1131.Conformity with regulated investment company rules.

 Part IV--Clarification of Exception From Impermissible Tenant Service 
                                 Income

Sec.1141.Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec.1151.Modification of earnings and profits rules.

     Subtitle C--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

Sec.1161.Treatment under at-risk rules of publicly traded nonrecourse 
          debt.

 Subtitle D--Treatment of Certain Contributions to Capital of Retailers

Sec.1171.Exclusion from gross income for certain contributions to the 
          capital of certain retailers.

              Subtitle E--Private Activity Bond Volume Cap

Sec.1181.Acceleration of phase-in of increase in volume cap on private 
          activity bonds.

           Subtitle F--Deduction for Renovating Historic Homes

Sec.1191.Deduction for renovating historic homes.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

Sec.1201.Increase in benefit and contribution limits.
Sec.1202.Plan loans for subchapter S owners, partners, and sole 
          proprietors.
Sec.1203.Modification of top-heavy rules.
Sec.1204.Elective deferrals not taken into account for purposes of 
          deduction limits.
Sec.1205.Repeal of coordination requirements for deferred compensation 
          plans of State and local governments and tax-exempt 
          organizations.
Sec.1206.Elimination of user fee for requests to IRS regarding pension 
          plans.
Sec.1207.Deduction limits.
Sec.1208.Option to treat elective deferrals as after-tax contributions.
Sec.1209.Reduced PBGC premium for new plans of small employers.
Sec.1210.Reduction of additional PBGC premium for new and small plans.

                Subtitle B--Enhancing Fairness for Women

Sec.1221.Catchup contributions for individuals age 50 or over.
Sec.1222.Equitable treatment for contributions of employees to defined 
          contribution plans.
Sec.1223.Faster vesting of certain employer matching contributions.
Sec.1224.Simplify and update the minimum distribution rules.
Sec.1225.Clarification of tax treatment of division of section 457 plan 
          benefits upon divorce.
Sec.1226.Modification of safe harbor relief for hardship withdrawals 
          from cash or deferred arrangements.

           Subtitle C--Increasing Portability for Participants

Sec.1231.Rollovers allowed among various types of plans.
Sec.1232.Rollovers of IRAs into workplace retirement plans.
Sec.1233.Rollovers of after-tax contributions.
Sec.1234.Hardship exception to 60-day rule.
Sec.1235.Treatment of forms of distribution.
Sec.1236.Rationalization of restrictions on distributions.
Sec.1237.Purchase of service credit in governmental defined benefit 
          plans.
Sec.1238.Employers may disregard rollovers for purposes of cash-out 
          amounts.
Sec.1239.Minimum distribution and inclusion requirements for section 457 
          plans.

       Subtitle D--Strengthening Pension Security and Enforcement

Sec.1241.Repeal of 150 percent of current liability funding limit.
Sec.1242.Maximum contribution deduction rules modified and applied to 
          all 
          defined benefit plans.
Sec.1243.Missing participants.
Sec.1244.Excise tax relief for sound pension funding.
Sec.1245.Excise tax on failure to provide notice by defined benefit 
          plans significantly reducing future benefit accruals.
Sec.1246.Protection of investment of employee contributions to 401(k) 
          plans.
Sec.1247.Treatment of multiemployer plans under section 415.

                 Subtitle E--Reducing Regulatory Burdens

Sec.1251.Modification of timing of plan valuations.
Sec.1252.ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec.1253.Repeal of transition rule relating to certain highly 
          compensated employees.
Sec.1254.Employees of tax-exempt entities.
Sec.1255.Clarification of treatment of employer-provided retirement 
          advice.
Sec.1256.Reporting simplification.
Sec.1257.Improvement of employee plans compliance resolution system.
Sec.1258.Substantial owner benefits in terminated plans.
Sec.1259.Modification of exclusion for employer provided transit passes.
Sec.1260.Repeal of the multiple use test.
Sec.1261.Flexibility in nondiscrimination, coverage, and line of 
          business rules.
Sec.1262.Extension to international organizations of moratorium on 
          application of certain nondiscrimination rules applicable to 
          State and local plans.

                       Subtitle F--Plan Amendments

Sec.1271.Provisions relating to plan amendments.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec.1301.Consistent treatment of survivor benefits for public safety 
          officers killed in the line of duty.
Sec.1302.Expansion of dc homebuyer tax credit.
Sec.1303.No Federal income tax on amounts and lands received by 
          Holocaust 
          victims or their heirs.

          Subtitle B--Provisions Primarily Affecting Businesses

Sec.1311.Distributions from publicly traded partnerships treated as 
          qualifying 
          income of regulated investment companies.
Sec.1312.Special passive activity rule for publicly traded partnerships 
          to apply to regulated investment companies.
Sec.1313.Large electric trucks, vans, and buses eligible for deduction 
          for clean-fuel vehicles in lieu of credit.
Sec.1314.Modifications to special rules for nuclear decommissioning 
          costs.
Sec.1315.Consolidation of life insurance companies with other 
          corporations.
Sec.1316.Modification of active business definition under section 355.
Sec.1317.Expansion of exemption from personal holding company tax for 
          lending or finance companies.
Sec.1318.Extension of expensing of environmental remediation costs.

             Subtitle C--Provisions Relating to Excise Taxes

Sec.1321.Consolidation of Hazardous Substance Superfund and Leaking 
          Underground Storage Tank Trust Fund.
Sec.1322.Repeal of certain motor fuel excise taxes on fuel used by 
          railroads and on inland waterway transportation.
Sec.1323.Repeal of excise tax on fishing tackle boxes.
Sec.1324.Clarification of excise tax imposed on arrow components.
Sec.1325.Exemption from ticket taxes for certain transportation provided 
          by small seaplanes.
Sec.1326.Modification of rural airport definition.

                      Subtitle D--Other Provisions

Sec.1331.Tax-exempt financing of qualified highway infrastructure 
          construction.
Sec.1332.Tax treatment of Alaska Native Settlement Trusts.
Sec.1333.Increase in threshold for Joint Committee reports on refunds 
          and credits.
Sec.1334.Credit for clinical testing research expenses attributable to 
          certain qualified academic institutions including teaching 
          hospitals.
Sec.1335.Payment of dividends on stock of cooperatives without reducing 
          patronage dividends.

                    Subtitle E--Tax Court Provisions

Sec.1341.Tax court filing fee in all cases commenced by filing petition.
Sec.1342.Expanded use of Tax Court practice fee.
Sec.1343.Confirmation of authority of Tax Court to apply doctrine of 
          equitable recoupment.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

Sec.1401.Research credit.
Sec.1402.Subpart F exemption for active financing income.
Sec.1403.Taxable income limit on percentage depletion for marginal 
          production.
Sec.1404.Work opportunity credit and welfare-to-work credit.
Sec.1405.Extension and modification of credit for producing electricity 
          from certain renewable resources.

                        TITLE XV--REVENUE OFFSETS

Sec.1501.Returns relating to cancellations of indebtedness by 
          organizations lending money.
Sec.1502.Extension of Internal Revenue Service user fees.
Sec.1503.Limitations on welfare benefit funds of 10 or more employer 
          plans.
Sec.1504.Increase in elective withholding rate for nonperiodic 
          distributions from deferred compensation plans.
Sec.1505.Controlled entities ineligible for REIT status.
Sec.1506.Treatment of gain from constructive ownership transactions.
Sec.1507.Transfer of excess defined benefit plan assets for retiree 
          health benefits.
Sec.1508.Modification of installment method and repeal of installment 
          method for accrual method taxpayers.
Sec.1509.Limitation on use of nonaccrual experience method of 
          accounting.
Sec.1510.Charitable split-dollar life insurance, annuity, and endowment 
          contracts.
Sec.1511.Restriction on use of real estate investment trusts to avoid 
          estimated tax payment requirements.
Sec.1512.Modification of anti-abuse rules related to assumption of 
          liability.
Sec.1513.Allocation of basis on transfers of intangibles in certain 
          nonrecognition transactions.
Sec.1514.Distributions to a corporate partner of stock in another 
          corporation.
Sec.1515.Prohibited allocations of S corporation stock held by an ESOP.

                  TITLE XVI--COMPLIANCE WITH BUDGET ACT

Sec.1601.Compliance with Budget Act.

               TITLE I--BROAD-BASED AND FAMILY TAX RELIEF
            Subtitle A--Reduction in Individual Income Taxes

SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES.

    (a) Regular Income Tax Rates.--
        (1) In general.--Subsection (f) of section 1 is amended by 
    adding at the end the following new paragraph:
        ``(8) Rate reductions.--The following adjustments shall apply 
    in prescribing the tables under paragraph (1):
            ``(A) Reduction in lowest rate.--With respect to taxable 
        years beginning after December 31, 2000, the rate applicable to 
        the lowest income bracket shall be--
                ``(i) 14.5 percent in the case of taxable years 
            beginning during 2001 or 2002, and
                ``(ii) 14.0 percent in the case of taxable years 
            beginning after 2002.
            ``(B) Reduction in other rates.--With respect to taxable 
        years beginning after December 31, 2004, each rate (other than 
        the rate referred to in subparagraph (A)) shall be reduced by 1 
        percentage point.
            ``(C) Phaseout of marriage penalty in lowest bracket.--
                ``(i) In general.--With respect to taxable years 
            beginning after December 31, 2004--

                    ``(I) the maximum taxable income in the lowest rate 
                bracket in the table contained in subsection (a) (and 
                the minimum taxable income in the next higher taxable 
                income bracket in such table) shall be the applicable 
                percentage of the maximum taxable income in the lowest 
                rate bracket in the table contained in subsection (c) 
                (after any other adjustment under this subsection), and
                    ``(II) the comparable taxable income amounts in the 
                table contained in subsection (d) shall be \1/2\ of the 
                amounts determined under subclause (I).

                ``(ii) Applicable percentage.--For purposes of clause 
            (i), the applicable percentage shall be determined in 
            accordance with the following table:

        ``For taxable years beginning
                                                          The applicable
          in calendar year--
                                                         percentage is--
            2005..............................................
                                                                  173.7 
            2006..............................................
                                                                  176.1 
            2007..............................................
                                                                  188.1 
            2008 and thereafter...............................
                                                                 200.0. 

            ``(D) Increase in maximum taxable income in lowest bracket 
        for other individuals.--
                ``(i) In general.--With respect to taxable years 
            beginning after December 31, 2005, the maximum taxable 
            income in the lowest rate bracket in the tables contained 
            in subsections (b) and (c), after any other adjustment 
            under this subsection (and the minimum taxable income in 
            the next higher taxable income bracket in such tables, as 
            so adjusted) shall be increased by $3,000.
                ``(ii) Cost-of-living adjustment.--In the case of any 
            taxable year beginning in any calendar year after 2006, the 
            $3,000 amount 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 paragraph (3) for the calendar year in which the 
                taxable year begins, determined by substituting 
                `calendar year 2005' for `calendar year 1992' in 
                subparagraph (B) thereof.''.

                ``(iii) Any increase under clause (ii) shall be added 
            to the amount it is increasing before such amount is 
            rounded under paragraph (6).
        ``(9) Post-2001 rate reductions contingent on no increase in 
    interest on total united states debt.--
            ``(A) In general.--If the calendar year preceding any 
        adjustment year is not a debt reduction calendar year, then--
                ``(i) such adjustment shall not take effect until the 
            calendar year following the adjustment year, and
                ``(ii) this subparagraph shall apply to such following 
            calendar year as if it were an adjustment year.
        For purposes of this subparagraph, the term `adjustment year' 
        means, with respect to any adjustment under subparagraph (A), 
        (B), or (D) of paragraph (8), the first calendar year for which 
        such adjustment takes effect without regard to this paragraph.
            ``(B) Debt reduction calendar year.--For purposes of this 
        paragraph, the term `debt reduction calendar year' means any 
        calendar year after 2000 if the Secretary of the Treasury 
        (after consultation with the chairman of the Federal Reserve 
        Board) determines by August 31 of such calendar year that the 
        United States interest expense for the 12-month period ending 
        on July 31 of such calendar year is not more than 
        $1,000,000,000 greater than the United States interest expense 
        for the 12-month period ending on July 31 of the preceding 
        calendar year.
            ``(C) United states interest expense.--For purposes of this 
        paragraph, the term `United States interest expense' means 
        interest on obligations which are subject to the public debt 
        limit in section 3101 of title 31, United States Code.''.
        (2) Technical amendments.--
            (A) Subparagraph (B) of section 1(f)(2) is amended by 
        inserting ``except as provided in paragraph (8),'' before ``by 
        not changing''.
            (B) Subparagraph (C) of section 1(f)(2) is amended by 
        inserting ``and the reductions under paragraph (8) in the rates 
        of tax'' before the period.
            (C) The heading for subsection (f) of section 1 is amended 
        by inserting ``Rate Reductions;'' before ``Adjustments''.
            (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 
        percent'' and inserting ``the percentage applicable to the 
        lowest income bracket in subsection (c)''.
            (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) 
        are each amended by striking ``28 percent'' and inserting ``27 
        percent''.
            (F) Section 531 is amended by striking ``39.6 percent of 
        the accumulated taxable income'' and inserting ``the product of 
        the accumulated taxable income and the percentage applicable to 
        the highest income bracket in section 1(c)''.
            (G) Section 541 is amended by striking ``39.6 percent of 
        the undistributed personal holding company income'' and 
        inserting ``the product of the undistributed personal holding 
        company income and the percentage applicable to the highest 
        income bracket in section 1(c)''.
            (H) Section 3402(p)(1)(B) is amended by striking 
        ``specified is 7, 15, 28, or 31 percent'' and all that follows 
        and inserting ``specified is--
                ``(i) 7 percent,
                ``(ii) a percentage applicable to one of the three 
            lowest income brackets in section 1(c), or
                ``(iii) such other percentage as is permitted under 
            regulations prescribed by the Secretary.''.
            (I) Section 3402(p)(2) is amended by striking ``15 percent 
        of such payment'' and inserting ``the product of such payment 
        and the percentage applicable to the lowest income bracket in 
        section 1(c)''.
            (j) Section 3402(q)(1) is amended by striking ``28 percent 
        of such payment'' and inserting ``the product of such payment 
        and the percentage applicable to the next to the lowest income 
        bracket in section 1(c)''.
            (K) Section 3402(r)(3) is amended by striking ``31 
        percent'' and inserting ``the rate applicable to the third 
        income bracket in such section''.
            (L) Section 3406(a)(1) is amended by striking ``31 percent 
        of such payment'' and inserting ``the product of such payment 
        and the percentage applicable to the third income bracket in 
        section 1(c)''.
    (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is 
amended by adding at the end the following new clause:
                ``(iv) Rate reduction.--In the case of taxable years 
            beginning after December 31, 2004, each rate in clause (i) 
            shall be reduced by 1 percentage point.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

                     Subtitle B--Family Tax Relief

SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended--
        (1) by striking ``$5,000'' in subparagraph (A) and inserting 
    ``200 percent of the dollar amount in effect under subparagraph (C) 
    for the taxable year'',
        (2) by adding ``or'' at the end of subparagraph (B),
        (3) by striking ``in the case of'' and all that follows in 
    subparagraph (C) and inserting ``in any other case.'', and
        (4) by striking subparagraph (D).
    (b) Phase-in.--Subsection (c) of section 63 is amended by adding at 
the end the following new paragraph:
        ``(7) Phase-in of increase in basic standard deduction.--In the 
    case of taxable years beginning before January 1, 2005--
            ``(A) paragraph (2)(A) shall be applied by substituting for 
        `200 percent'--
                ``(i) `172.8 percent' in the case of taxable years 
            beginning during 2001,
                ``(ii) `180.1 percent' in the case of taxable years 
            beginning during 2002,
                ``(iii) `187.0 percent' in the case of taxable years 
            beginning during 2003, and
                ``(iv) `193.5 percent' in the case of taxable years 
            beginning during 2004, and
            ``(B) the basic standard deduction for a married individual 
        filing a separate return shall be one-half of the amount 
        applicable under paragraph (2)(A).
    If any amount determined under subparagraph (A) is not a multiple 
    of $50, such amount shall be rounded to the next lowest multiple of 
    $50.''.
    (c) Technical Amendments.--
        (1) Subparagraph (B) of section 1(f)(6) is amended by striking 
    ``(other than with'' and all that follows through ``shall be 
    applied'' and inserting ``(other than with respect to sections 
    63(c)(4) and 151(d)(4)(A)) shall be applied''.
        (2) Paragraph (4) of section 63(c) is amended by adding at the 
    end the following flush sentence:
    ``The preceding sentence shall not apply to the amount referred to 
    in paragraph (2)(A).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY 
              QUALIFIED PLACEMENT AGENCIES.

    (a) In General.--The matter preceding subparagraph (B) of section 
131(b)(1) (defining qualified foster care payment) is amended to read 
as follows:
        ``(1) In general.--The term `qualified foster care payment' 
    means any payment made pursuant to a foster care program of a State 
    or political subdivision thereof--
            ``(A) which is paid by--
                ``(i) the State or political subdivision thereof, or
                ``(ii) a qualified foster care placement agency, and''.
    (b) Qualified Foster Individuals To Include Individuals Placed by 
Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) 
(defining qualified foster individual) is amended to read as follows:
            ``(B) a qualified foster care placement agency.''.
    (c) Qualified Foster Care Placement Agency Defined.--Subsection (b) 
of section 131 is amended by redesignating paragraph (3) as paragraph 
(4) and by inserting after paragraph (2) the following new paragraph:
        ``(3) Qualified foster care placement agency.--The term 
    `qualified foster care placement agency' means any placement agency 
    which is licensed or certified by--
            ``(A) a State or political subdivision thereof, or
            ``(B) an entity designated by a State or political 
        subdivision thereof,
    for the foster care program of such State or political subdivision 
    to make foster care payments to providers of foster care.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 113. EXPANSION OF ADOPTION CREDIT.

    (a) In General.--Section 23(a)(1) (relating to allowance of credit) 
is amended to read as follows:
        ``(1) In general.--In the case of an individual, there shall be 
    allowed as a credit against the tax imposed by this chapter--
            ``(A) in the case of an adoption of a child other than a 
        child with special needs, the amount of the qualified adoption 
        expenses paid or incurred by the taxpayer, and
            ``(B) in the case of an adoption of a child with special 
        needs, $10,000.''.
    (b) Dollar Limitation.--Section 23(b)(1) is amended--
        (1) by striking ``($6,000, in the case of a child with special 
    needs)'', and
        (2) by striking ``subsection (a)'' and inserting ``subsection 
    (a)(1)''.
    (c) Year Credit Allowed.--Section 23(a)(2) is amended by adding at 
the end the following new flush sentence:
    ``In the case of the adoption of a child with special needs, the 
    credit allowed under paragraph (1) shall be allowed for the taxable 
    year in which the adoption becomes final.''.
    (d) Definition of Eligible Child.--
        (1) In general.--Section 23(d)(2) is amended to read as 
    follows:
        ``(2) Eligible child.--The term `eligible child' means any 
    individual who--
            ``(A) has not attained age 18, or
            ``(B) is physically or mentally incapable of caring for 
        himself.''.
        (2) Clarification of termination.--Section 23 is amended by 
    adding at the end the following new subsection:
    ``(i) Termination for Children Without Special Needs.--Except in 
the case of a child with special needs, this section shall not apply to 
expenses paid or incurred after December 31, 2001.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT.

    (a) Increase in Percentage of Employment-Related Expenses Taken 
Into Account.--Subsection (a)(2) of section 21 (relating to expenses 
for household and dependent care services necessary for gainful 
employment) is amended--
        (1) by striking ``30 percent'' and inserting ``35 percent (40 
    percent in the case of taxable years beginning after December 31, 
    2005)'',
        (2) by striking ``$2,000'' and inserting ``$1,000'', and
        (3) by striking ``$10,000'' and inserting ``$30,000''.
    (b) Indexing of Limit on Employment-Related Expenses.--Section 
21(c) (relating to dollar limit on amount creditable) 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) an amount equal to 50 percent of the amount 
        determined under subparagraph (B) if there is one qualifying 
        individual with respect to the taxpayer for such taxable year, 
        or
            ``(B) $4,800 if there are two 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) Cost-of-living adjustment.--
            ``(A) In general.--In the case of a taxable year beginning 
        after 2001, the $4,800 amount under paragraph (1)(B) shall be 
        increased by an amount equal to--
                ``(i) such dollar amount, multiplied by
                ``(ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for the calendar year in which the taxable 
            year begins, determined by substituting `calendar year 
            2000' for `calendar year 1992' in subparagraph (B) thereof.
            ``(B) Rounding rules.--If any amount after adjustment under 
        subparagraph (A) is not a multiple of $50, such amount shall be 
        rounded to the next lower multiple of $50.''.
    (c) Minimum Dependent Care Credit Allowed for Stay-at-Home 
Parents.--Section 21(e) (relating to special rules) is amended by 
adding at the end the following:
        ``(11) Minimum credit allowed for stay-at-home parents.--
            ``(A) In general.--Notwithstanding subsection (d), in the 
        case of any taxpayer with one or more qualifying individuals 
        described in subsection (b)(1)(A) under the age of 1, such 
        taxpayer shall be deemed to have employment-related expenses 
        for the taxable year with respect to each such qualifying 
        individual in an amount equal to the sum of--
                ``(i) $200 for each month in such taxable year during 
            which such qualifying individual is under the age of 1, and
                ``(ii) the amount of employment-related expenses 
            otherwise incurred for such qualifying individual for the 
            taxable year (determined under this section without regard 
            to this paragraph).
            ``(B) Election to not apply this paragraph.--This paragraph 
        shall not apply with respect to any qualifying individual for 
        any taxable year if the taxpayer elects to not have this 
        paragraph apply to such qualifying individual for such taxable 
        year.''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning after December 31, 2001.
        (2) Subsection (c).--The amendment made by subsection (c) shall 
    apply to taxable years beginning after December 31, 2005.

SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT.

    (a) In General.--Paragraph (2) of section 32(b) (relating to 
percentages and amounts) is amended--
        (1) by striking ``Amounts.--The earned'' and inserting 
    ``Amounts.--
            ``(A) In general.--Subject to subparagraph (B), the 
        earned'', and
        (2) by adding at the end the following new subparagraph:
            ``(B) Joint returns.--In the case of a joint return, the 
        phaseout amount determined under subparagraph (A) shall be 
        increased by $2,000.''.
    (b) Inflation adjustment.--Paragraph (1)(B) of section 32(j) 
(relating to inflation adjustments) is amended to read as follows:
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined--
                ``(i) in the case of amounts in subsections (b)(1)(A) 
            and (i)(1), by substituting `calendar year 1995' for 
            `calendar year 1992' in subparagraph (B) thereof, and
                ``(ii) in the case of the $2,000 amount in subsection 
            (b)(1)(B), by substituting `calendar year 2005' for 
            `calendar year 1992' in subparagraph (B) of such section 
            1.''.
    (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) is 
amended by striking ``subsection (b)(2)'' and inserting ``subsection 
(b)(2)(A) (after being increased under subparagraph (B) thereof)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

    (a) In General.--Subsection (a) of section 55 is amended by adding 
at the end the following new flush sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer 
other than a corporation for any taxable year beginning after December 
31, 2007, shall be zero.''.
    (b) Reduction of Tax on Individuals Prior to Repeal.--Section 55 is 
amended by adding at the end the following new subsection:
    ``(f) Phaseout of Tax on Individuals.--
        ``(1) In general.--The tax imposed by this section on a 
    taxpayer other than a corporation for any taxable year beginning 
    after December 31, 2004, and before January 1, 2008, shall be the 
    applicable percentage of the tax which would be imposed but for 
    this subsection.
        ``(2) Applicable percentage.--For purposes of paragraph (1), 
    the applicable percentage shall be determined in accordance with 
    the following table:

    ``For taxable years beginning
                                                          The applicable
      in calendar year--
                                                         percentage is--
        2005..................................................
                                                                  80    
        2006..................................................
                                                                  70    
        2007..................................................
                                                              60.''.    

    (c) Nonrefundable Personal Credits Fully Allowed Against Regular 
Tax Liability.--
        (1) In general.--Subsection (a) of section 26 (relating to 
    limitation based on amount of tax) is amended to read as follows:
    ``(a) Limitation Based on Amount of Tax.--The aggregate amount of 
credits allowed by this subpart for the taxable year shall not exceed 
the taxpayer's regular tax liability for the taxable year.''.
        (2) Child credit.--Subsection (d) of section 24 is amended by 
    striking paragraph (2) and by redesignating paragraph (3) as 
    paragraph (2).
    (d) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--Subsection (c) of section 53 is amended to read as follows:
    ``(c) Limitation.--
        ``(1) In general.--Except as otherwise provided in this 
    subsection, the credit allowable under subsection (a) for any 
    taxable year shall not exceed the excess (if any) of--
            ``(A) the regular tax liability of the taxpayer for such 
        taxable year reduced by the sum of the credits allowable under 
        subparts A, B, D, E, and F of this part, over
            ``(B) the tentative minimum tax for the taxable year.
        ``(2) Taxable years beginning after 2007.--In the case of any 
    taxable year beginning after 2007, the credit allowable under 
    subsection (a) to a taxpayer other than a corporation for any 
    taxable year shall not exceed 90 percent of the excess (if any) 
    of--
            ``(A) regular tax liability of the taxpayer for such 
        taxable year, over
            ``(B) the sum of the credits allowable under subparts A, B, 
        D, E, and F of this part.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS
                  Subtitle A--Capital Gains Tax Relief

SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES.

    (a) In General.--
        (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
    striking ``10 percent'' and inserting ``8 percent''.
        (2) The following sections are each amended by striking ``20 
    percent'' and inserting ``18 percent'':
            (A) Section 1(h)(1)(C).
            (B) Section 55(b)(3)(C).
            (C) Section 1445(e)(1).
            (D) The second sentence of section 7518(g)(6)(A).
            (E) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936.
        (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by 
    striking ``25 percent'' and inserting ``23 percent''.
    (b) Conforming Amendments.--
        (1) Section 311 of the Taxpayer Relief Act of 1997 is amended 
    by striking subsection (e).
        (2) Section 1(h) is amended--
            (A) by striking paragraphs (2), (9), and (13),
            (B) by redesignating paragraphs (3) through (8) as 
        paragraphs (2) through (7), respectively, and
            (C) by redesignating paragraphs (10), (11), and (12) as 
        paragraphs (8), (9), and (10), respectively.
        (3) Paragraph (3) of section 55(b) is amended by striking ``In 
    the case of taxable years beginning after December 31, 2000, rules 
    similar to the rules of section 1(h)(2) shall apply for purposes of 
    subparagraphs (B) and (C).''.
        (4) Paragraph (7) of section 57(a) is amended--
            (A) by striking ``42 percent'' and inserting ``28 
        percent'', and
            (B) by striking the last sentence.
    (c) Effective Dates.--
        (1) In general.--Except as otherwise provided by this 
    subsection, the amendments made by this section shall apply to 
    taxable years beginning after December 31, 1998.
        (2) Withholding.--The amendment made by subsection (a)(2)(C) 
    shall apply to amounts paid after the date of the enactment of this 
    Act.

SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, 
              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, 
              1999, 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 1 year, 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 1 year, 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, 1999, 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, 1999.
        (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, 1999, 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, 2000.--
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, 2000, 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, 2000, 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, 2000, is readily tradable on an established securities 
    market or otherwise.

SEC. 203. CAPITAL GAINS TAX RATES APPLIED TO CAPITAL GAINS OF 
              DESIGNATED SETTLEMENT FUNDS.

    (a) In General.--Paragraph (1) of section 468B(b) (relating to 
taxation of designated settlement funds) is amended by inserting 
``(subject to section 1(h))'' after ``maximum rate''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 204. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
              SERVICE, AND OTHER EMPLOYEES, IN DETERMINING EXCLUSION OF 
              GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    (a) In General.--Subsection (d) of section 121 (relating to 
exclusion of gain from sale of principal residence) is amended by 
adding at the end the following new paragraphs:
        ``(9) Members of uniformed services and foreign service.--
            ``(A) In general.--The running of the 5-year period 
        described in subsection (a) shall be suspended with respect to 
        an individual during any time that such individual or such 
        individual's spouse is serving on qualified official extended 
        duty as a member of the uniformed services or of the Foreign 
        Service.
            ``(B) Qualified official extended duty.--For purposes of 
        this paragraph--
                ``(i) In general.--The term `qualified official 
            extended duty' means any period of extended duty as a 
            member of the uniformed services or a member of the Foreign 
            Service during which the member serves at a duty station 
            which is at least 50 miles from such property or is under 
            Government orders to reside in Government quarters.
                ``(ii) Uniformed services.--The term `uniformed 
            services' has the meaning given such term by section 
            101(a)(5) of title 10, United States Code, as in effect on 
            the date of the enactment of the Taxpayer Refund and Relief 
            Act of 1999.
                ``(iii) Foreign service of the united states.--The term 
            `member of the Foreign Service' has the meaning given the 
            term `member of the Service' by paragraph (1), (2), (3), 
            (4), or (5) of section 103 of the Foreign Service Act of 
            1980, as in effect on the date of the enactment of the 
            Taxpayer Refund and Relief Act of 1999.
                ``(iv) Extended duty.--The term `extended 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.
        ``(10) Other employees.--
            ``(A) In general.--The running of the 5-year period 
        described in subsection (a) shall be suspended with respect to 
        an individual during any time that such individual or such 
        individual's spouse is serving as an employee for a period in 
        excess of 90 days in an assignment by such employee's employer 
        outside the United States.
            ``(B) Limitations and special rules.--
                ``(i) Maximum period of suspension.--The suspension 
            under subparagraph (A) with respect to a principal 
            residence shall not exceed (in the aggregate) 5 years.
                ``(ii) Members of uniformed services and foreign 
            service.--Subparagraph (A) shall not apply to an individual 
            to whom paragraph (9) applies.
                ``(iii) Self-employed individual not considered an 
            employee.--For purposes of this paragraph, the term 
            `employee' does not include an individual who is an 
            employee within the meaning of section 401(c)(1) (relating 
            to self-employed individuals).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales and exchanges after the date of the enactment of this Act.

SEC. 205. TAX TREATMENT OF INCOME AND LOSS ON DERIVATIVES.

    (a) In General.--Section 1221 (defining capital assets) is 
amended--
        (1) by striking ``For purposes'' and inserting the following:
    ``(a) In General.--For purposes'',
        (2) by striking the period at the end of paragraph (5) and 
    inserting a semicolon, and
        (3) by adding at the end the following:
        ``(6) any commodities derivative financial instrument held by a 
    commodities derivatives dealer, unless--
            ``(A) it is established to the satisfaction of the 
        Secretary that such instrument has no connection to the 
        activities of such dealer as a dealer, and
            ``(B) such instrument is clearly identified in such 
        dealer's records as being described in subparagraph (A) before 
        the close of the day on which it was acquired, originated, or 
        entered into (or such other time as the Secretary may by 
        regulations prescribe);
        ``(7) any hedging transaction which is clearly identified as 
    such before the close of the day on which it was acquired, 
    originated, or entered into (or such other time as the Secretary 
    may by regulations prescribe); or
        ``(8) supplies of a type regularly used or consumed by the 
    taxpayer in the ordinary course of a trade or business of the 
    taxpayer.
    ``(b) Definitions and Special Rules.--
        ``(1) Commodities derivative financial instruments.--For 
    purposes of subsection (a)(6)--
            ``(A) Commodities derivatives dealer.--The term 
        `commodities derivatives dealer' means a person which regularly 
        offers to enter into, assume, offset, assign, or terminate 
        positions in commodities derivative financial instruments with 
        customers in the ordinary course of a trade or business.
            ``(B) Commodities derivative financial instrument.--
                ``(i) In general.--The term `commodities derivative 
            financial instrument' means any contract or financial 
            instrument with respect to commodities (other than a share 
            of stock in a corporation, a beneficial interest in a 
            partnership or trust, a note, bond, debenture, or other 
            evidence of indebtedness, or a section 1256 contract (as 
            defined in section 1256(b)), the value or settlement price 
            of which is calculated by or determined by reference to a 
            specified index.
                ``(ii) Specified index.--The term `specified index' 
            means any one or more or any combination of--

                    ``(I) a fixed rate, price, or amount, or
                    ``(II) a variable rate, price, or amount,

            which is based on any current, objectively determinable 
            financial or economic information with respect to 
            commodities which is not within the control of any of the 
            parties to the contract or instrument and is not unique to 
            any of the parties' circumstances.
        ``(2) Hedging transaction.--
            ``(A) In general.--For purposes of this section, the term 
        `hedging transaction' means any transaction entered into by the 
        taxpayer in the normal course of the taxpayer's trade or 
        business primarily--
                ``(i) to manage risk of price changes or currency 
            fluctuations with respect to ordinary property which is 
            held or to be held by the taxpayer,
                ``(ii) to manage risk of interest rate or price changes 
            or currency fluctuations with respect to borrowings made or 
            to be made, or ordinary obligations incurred or to be 
            incurred, by the taxpayer, or
                ``(iii) to manage such other risks as the Secretary may 
            prescribe in regulations.
            ``(B) Treatment of nonidentification or improper 
        identification of hedging transactions.--Notwithstanding 
        subsection (a)(7), the Secretary shall prescribe regulations to 
        properly characterize any income, gain, expense, or loss 
        arising from a transaction--
                ``(i) which is a hedging transaction but which was not 
            identified as such in accordance with subsection (a)(7), or
                ``(ii) which was so identified but is not a hedging 
            transaction.
        ``(3) Regulations.--The Secretary shall prescribe such 
    regulations as are appropriate to carry out the purposes of 
    paragraph (6) and (7) of subsection (a) in the case of transactions 
    involving related parties.''.
    (b) Management of Risk.--
        (1) Section 475(c)(3) is amended by striking ``reduces'' and 
    inserting ``manages''.
        (2) Section 871(h)(4)(C)(iv) is amended by striking ``to 
    reduce'' and inserting ``to manage''.
        (3) Clauses (i) and (ii) of section 988(d)(2)(A) are each 
    amended by striking ``to reduce'' and inserting ``to manage''.
        (4) Paragraph (2) of section 1256(e) is amended to read as 
    follows:
        ``(2) Definition of hedging transaction.--For purposes of this 
    subsection, the term `hedging transaction' means any hedging 
    transaction (as defined in section 1221(b)(2)(A)) if, before the 
    close of the day on which such transaction was entered into (or 
    such earlier time as the Secretary may prescribe by regulations), 
    the taxpayer clearly identifies such transaction as being a hedging 
    transaction.''.
    (c) Conforming Amendments.--
        (1) Each of the following sections are amended by striking 
    ``section 1221'' and inserting ``section 1221(a)'':
            (A) Section 170(e)(3)(A).
            (B) Section 170(e)(4)(B).
            (C) Section 367(a)(3)(B)(i).
            (D) Section 818(c)(3).
            (E) Section 865(i)(1).
            (F) Section 1092(a)(3)(B)(ii)(II).
            (G) Subparagraphs (C) and (D) of section 1231(b)(1).
            (H) Section 1234(a)(3)(A).
        (2) Each of the following sections are amended by striking 
    ``section 1221(1)'' and inserting ``section 1221(a)(1)'':
            (A) Section 198(c)(1)(A)(i).
            (B) Section 263A(b)(2)(A).
            (C) Clauses (i) and (iii) of section 267(f)(3)(B).
            (D) Section 341(d)(3).
            (E) Section 543(a)(1)(D)(i).
            (F) Section 751(d)(1).
            (G) Section 775(c).
            (H) Section 856(c)(2)(D).
            (I) Section 856(c)(3)(C).
            (J) Section 856(e)(1).
            (K) Section 856(j)(2)(B).
            (L) Section 857(b)(4)(B)(i).
            (M) Section 857(b)(6)(B)(iii).
            (N) Section 864(c)(4)(B)(iii).
            (O) Section 864(d)(3)(A).
            (P) Section 864(d)(6)(A).
            (Q) Section 954(c)(1)(B)(iii).
            (R) Section 995(b)(1)(C).
            (S) Section 1017(b)(3)(E)(i).
            (T) Section 1362(d)(3)(C)(ii).
            (U) Section 4662(c)(2)(C).
            (V) Section 7704(c)(3).
            (W) Section 7704(d)(1)(D).
            (X) Section 7704(d)(1)(G).
            (Y) Section 7704(d)(5).
        (3) Section 818(b)(2) is amended by striking ``section 
    1221(2)'' and inserting ``section 1221(a)(2)''.
        (4) Section 1397B(e)(2) is amended by striking ``section 
    1221(4)'' and inserting ``section 1221(a)(4)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to any instrument held, acquired, or entered into, any 
transaction entered into, and supplies held or acquired on or after the 
date of the enactment of this Act.

SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS.

    (a) In General.--The first sentence following section 165(g)(3)(B) 
(relating to securities of affiliated corporation) is amended to read 
as follows: ``In computing gross receipts for purposes of the preceding 
sentence, (i) gross receipts from sales or exchanges of stocks and 
securities shall be taken into account only to the extent of gains 
therefrom, and (ii) gross receipts from royalties, rents, dividends, 
interest, annuities, and gains from sales or exchanges of stocks and 
securities derived from (or directly related to) the conduct of an 
active trade or business of an insurance company subject to tax under 
subchapter L or a qualified financial institution (as defined in 
subsection (l)(3)) shall be treated as from such sources other than 
royalties, rents, dividends, interest, annuities, and gains.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to securities which become worthless in taxable years beginning 
after December 31, 1999.

             Subtitle B--Individual Retirement Arrangements

SEC. 211. MODIFICATION OF DEDUCTION LIMITS FOR IRA CONTRIBUTIONS.

    (a) Increase in Contribution Limit.--
        (1) In general.--Paragraph (1)(A) of section 219(b) (relating 
    to maximum amount of deduction) is amended by striking ``$2,000'' 
    and inserting ``the deductible amount''.
        (2) Deductible amount.--Section 219(b) is amended by adding at 
    the end the following new paragraph:
        ``(5) Deductible amount.--For purposes of paragraph (1)(A)--
            ``(A) In general.--The deductible amount shall be 
        determined in accordance with the following table:

``For taxable years
                                                          The deductible
beginning in:
                                                              amount is:
    2001, 2002, and 2003......................................


                                                                 $3,000 

    2004 and 2005.............................................


                                                                 $4,000 

    2006 and thereafter.......................................


                                                                 $5,000.

            ``(B) Cost-of-living adjustment.--
                ``(i) In general.--In the case of any taxable year 
            beginning in a calendar year after 2006, the $5,000 amount 
            under 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 the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2005' for `calendar year 1992' in 
                subparagraph (B) thereof.

                ``(ii) Rounding rules.--If any amount after adjustment 
            under clause (i) is not a multiple of $100, such amount 
            shall be rounded to the next lower multiple of $100.''.
    (b) Conforming Amendments.--
        (1) Section 408(a)(1) is amended by striking ``in excess of 
    $2,000 on behalf of any individual'' and inserting ``on behalf of 
    any individual in excess of the amount in effect for such taxable 
    year under section 219(b)(1)(A)''.
        (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' and 
    inserting ``the dollar amount in effect under section 
    219(b)(1)(A)''.
        (3) Section 408(b) is amended by striking ``$2,000'' in the 
    matter following paragraph (4) and inserting ``the dollar amount in 
    effect under section 219(b)(1)(A)''.
        (4) Section 408(j) is amended by striking ``$2,000''.
        (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
    inserting ``the dollar amount in effect under section 
    219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 212. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND ROLLOVERS 
              TO ROTH IRAS.

    (a) Repeal of AGI Limit on Contributions.--Section 408A(c)(3) 
(relating to limits based on modified adjusted gross income) is 
amended--
        (1) by striking clause (ii) of subparagraph (A) and inserting:
                ``(ii) $10,000.'', and
        (2) by striking clause (ii) of subparagraph (C) and inserting:
                ``(ii) the applicable dollar amount is--

                    ``(I) $200,000 in the case of a taxpayer filing a 
                joint return, and
                    ``(II) $100,000 in the case of any other 
                taxpayer.''.

    (b) Increase in AGI Limit for Rollover Contributions.--Section 
408A(c)(3)(B) (relating to rollover from IRA) is amended to read as 
follows:
            ``(B) Rollover from ira.--A taxpayer shall not be allowed 
        to make a qualified rollover contribution from an individual 
        retirement plan other than a Roth IRA during any taxable year 
        if, for the taxable year of the distribution to which the 
        contribution relates, the taxpayer's adjusted gross income 
        exceeds $100,000 ($200,000 in the case of a taxpayer filing a 
        joint return).''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 213. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
        ``(1) General rule.--If--
            ``(A) a qualified employer plan elects to allow employees 
        to make voluntary employee contributions to a separate account 
        or annuity established under the plan, and
            ``(B) under the terms of the qualified employer plan, such 
        account or annuity meets the applicable requirements of this 
        section or section 408A for an individual retirement account or 
        annuity,
    then such account or annuity shall be treated for purposes of this 
    title in the same manner as an individual retirement plan (and 
    contributions to such account or annuity as contributions to an 
    individual retirement plan). For purposes of subparagraph (B), the 
    requirements of subsection (a)(5) shall not apply.
        ``(2) Special rules for qualified employer plans.--For purposes 
    of this title--
            ``(A) a qualified employer plan shall not fail to meet any 
        requirement of this title solely by reason of establishing and 
        maintaining a program described in paragraph (1), and
            ``(B) any account or annuity described in paragraph (1), 
        and any contribution to the account or annuity, shall not be 
        subject to any requirement of this title applicable to a 
        qualified employer plan or taken into account in applying any 
        such requirement to any other contributions under the plan.
        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Qualified employer plan.--The term `qualified 
        employer plan' has the meaning given such term by section 
        72(p)(4).
            ``(B) Voluntary employee contribution.--The term `voluntary 
        employee contribution' means any contribution (other than a 
        mandatory contribution within the meaning of section 
        411(c)(2)(C))--
                ``(i) which is made by an individual as an employee 
            under a qualified employer plan which allows employees to 
            elect to make contributions described in paragraph (1), and
                ``(ii) with respect to which the individual has 
            designated the contribution as a contribution to which this 
            subsection applies.''.
    (b) Amendment of ERISA.--
        (1) In general.--Section 4 of the Employee Retirement Income 
    Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the 
    end the following new subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as provided 
in section 408(q) of the Internal Revenue Code of 1986, such accounts 
and annuities (and contributions thereto) shall not be treated as part 
of such plan (or as a separate pension plan) for purposes of any 
provision of this title other than section 403(c), 404, or 405 
(relating to exclusive benefit, and fiduciary and co-fiduciary 
responsibilities).''.
        (2) Conforming amendment.--Section 4(a) of such Act (29 U.S.C. 
    1003(a)) is amended by inserting ``or (c)'' after ``subsection 
    (b)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1999.

SEC. 214. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 219(b), as amended by section 211, is 
amended by adding at the end the following new paragraph:
        ``(6) Catchup contributions.--
            ``(A) In general.--In the case of an individual who has 
        attained the age of 50 before the close of the taxable year, 
        the dollar amount in effect under paragraph (1)(A) for such 
        taxable year shall be equal to the applicable percentage of 
        such amount determined without regard to this paragraph.
            ``(B) Applicable percentage.--For purposes of this 
        paragraph, the applicable percentage shall be determined in 
        accordance with the following table:

``For taxable years
                                                          The applicable
beginning in:
                                                          percentage is:
    2001......................................................


                                                            110 percent 

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


                                                            120 percent 

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


                                                            130 percent 

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


                                                            140 percent 

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


                                                         150 percent.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2000.

               TITLE III--ALTERNATIVE MINIMUM TAX REFORM

SEC. 301. MODIFICATION OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

    (a) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--Subsection (c) of section 53, as amended by section 121, is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
        ``(2) Corporations for taxable years beginning after 2004.--In 
    the case of a corporation for any taxable year beginning after 
    2004, the limitation under paragraph (1) shall be increased by the 
    lesser of--
            ``(A) 50 percent of the tentative minimum tax for the 
        taxable year, or
            ``(B) the excess (if any) of the tentative minimum tax for 
        the taxable year over the regular tax for the taxable year.''.
    (b) Repeal of 90 Percent Limitation on NOL Deduction.--Section 
56(d)(1)(A) is amended by striking ``90 percent'' and inserting ``90 
percent (100 percent in the case of a corporation)''.
    (c) Effective Dates.--
        (1) Subsection (a).--The amendment made by subsection (a) shall 
    apply to taxable years beginning after December 31, 2004.
        (2) Subsection (b).--The amendment made by subsection (b) shall 
    apply to taxable years beginning after December 31, 2001.

SEC. 302. REPEAL OF 90 PERCENT LIMITATION ON FOREIGN TAX CREDIT.

    (a) In General.--Section 59(a) (relating to alternative minimum tax 
foreign tax credit) is amended by striking paragraph (2) and by 
redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
respectively.
    (b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is amended by 
striking ``and if section 59(a)(2) did not apply''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) Maximum Annual Contributions.--
        (1) In general.--Section 530(b)(1)(A)(iii) (defining education 
    individual retirement account) is amended by striking ``$500'' and 
    inserting ``$2,000''.
        (2) Conforming amendment.--Section 4973(e)(1)(A) is amended by 
    striking ``$500'' and inserting ``$2,000''.
    (b) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
        (1) In general.--Section 530(b)(2) (defining qualified higher 
    education expenses) is amended to read as follows:
        ``(2) Qualified education expenses.--
            ``(A) In general.--The term `qualified education expenses' 
        means--
                ``(i) qualified higher education expenses (as defined 
            in section 529(e)(3)), and
                ``(ii) qualified elementary and secondary education 
            expenses (as defined in paragraph (4)).
            ``(B) Qualified state tuition programs.--Such term shall 
        include any contribution to a qualified State tuition program 
        (as defined in section 529(b)) on behalf of the designated 
        beneficiary (as defined in section 529(e)(1)); but there shall 
        be no increase in the investment in the contract for purposes 
        of applying section 72 by reason of any portion of such 
        contribution which is not includible in gross income by reason 
        of subsection (d)(2).''.
        (2) Qualified elementary and secondary education expenses.--
    Section 530(b) (relating to definitions and special rules) is 
    amended by adding at the end the following new paragraph:
        ``(4) Qualified elementary and secondary education expenses.--
            ``(A) In general.--The term `qualified elementary and 
        secondary education expenses' means--
                ``(i) expenses for tuition, fees, academic tutoring, 
            special needs services, books, supplies, computer equipment 
            (including related software and services), and other 
            equipment which are incurred in connection with the 
            enrollment or attendance of the designated beneficiary of 
            the trust as an elementary or secondary school student at a 
            public, private, or religious school, and
                ``(ii) expenses for room and board, uniforms, 
            transportation, and supplementary items and services 
            (including extended day programs) which are required or 
            provided by a public, private, or religious school in 
            connection with such enrollment or attendance.
            ``(B) Special rule for homeschooling.--Such term shall 
        include expenses described in subparagraph (A)(i) in connection 
        with education provided by homeschooling if the requirements of 
        any applicable State or local law are met with respect to such 
        education.
            ``(C) School.--The term `school' means any school which 
        provides elementary education or secondary education 
        (kindergarten through grade 12), as determined under State 
        law.''.
        (3) Conforming amendments.--Section 530 is amended--
            (A) by striking ``higher'' each place it appears in 
        subsections (b)(1) and (d)(2), and
            (B) by striking ``higher'' in the heading for subsection 
        (d)(2).
    (c) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is 
amended by adding at the end the following flush sentence:
    ``The age limitations in subparagraphs (A)(ii) and (E) and 
    paragraphs (5) and (6) of subsection (d) shall not apply to any 
    designated beneficiary with special needs (as determined under 
    regulations prescribed by the Secretary).''.
    (d) Entities Permitted To Contribute to Accounts.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended by striking ``The maximum amount 
which a contributor'' and inserting ``In the case of a contributor who 
is an individual, the maximum amount the contributor''.
    (e) Time When Contributions Deemed Made.--
        (1) In general.--Section 530(b) (relating to definitions and 
    special rules), as amended by subsection (b)(2), is amended by 
    adding at the end the following new paragraph:
        ``(5) Time when contributions deemed made.--An individual shall 
    be deemed to have made a contribution to an education individual 
    retirement account on the last day of the preceding taxable year if 
    the contribution is made on account of such taxable year and is 
    made not later than the time prescribed by law for filing the 
    return for such taxable year (not including extensions thereof).''.
        (2) Extension of time to return excess contributions.--
    Subparagraph (C) of section 530(d)(4) (relating to additional tax 
    for distributions not used for educational expenses) is amended--
            (A) by striking clause (i) and inserting the following new 
        clause:
                ``(i) such distribution is made before the first day of 
            the sixth month of the taxable year following the taxable 
            year, and'', and
            (B) by striking ``due date of return'' in the heading and 
        inserting ``certain date''.
    (f) Coordination With Hope and Lifetime Learning Credits and 
Qualified Tuition Programs.--
        (1) In general.--Section 530(d)(2)(C) is amended to read as 
    follows:
            ``(C) Coordination with hope and lifetime learning credits 
        and qualified tuition programs.--For purposes of subparagraph 
        (A)--
                ``(i) Credit coordination.--The total amount of 
            qualified higher education expenses with respect to an 
            individual for the taxable year shall be reduced--

                    ``(I) as provided in section 25A(g)(2), and
                    ``(II) by the amount of such expenses which were 
                taken into account in determining the credit allowed to 
                the taxpayer or any other person under section 25A.

                ``(ii) Coordination with qualified tuition programs.--
            If, with respect to an individual for any taxable year--

                    ``(I) the aggregate distributions during such year 
                to which subparagraph (A) and section 529(c)(3)(B) 
                apply, exceed
                    ``(II) the total amount of qualified education 
                expenses (after the application of clause (i)) for such 
                year,

            the taxpayer shall allocate such expenses among such 
            distributions for purposes of determining the amount of the 
            exclusion under subparagraph (A) and section 
            529(c)(3)(B).''.
        (2) Conforming amendments.--
            (A) Subsection (e) of section 25A is amended to read as 
        follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''.
            (B) Section 135(d)(2)(A) is amended by striking 
        ``allowable'' and inserting ``allowed''.
            (C) Section 530(d)(2)(D) is amended--
                (i) by striking ``or credit'', and
                (ii) by striking ``credit or'' in the heading.
            (D) Section 4973(e)(1) is amended by adding ``and'' at the 
        end of subparagraph (A), by striking subparagraph (B), and by 
        redesignating subparagraph (C) as subparagraph (B).
    (g) Renaming Education Individual Retirement Accounts as Education 
Savings Accounts.--
        (1) In general.--
            (A) Section 530 (as amended by the preceding provisions of 
        this section) is amended by striking ``education individual 
        retirement account'' each place it appears and inserting 
        ``education savings account''.
            (B) The heading for paragraph (1) of section 530(b) is 
        amended by striking ``Education individual retirement account'' 
        and inserting ``Education savings account''.
            (C) The heading for section 530 is amended to read as 
        follows:

``SEC. 530. EDUCATION SAVINGS ACCOUNTS.''.

            (D) The item in the table of contents for part VII of 
        subchapter F of chapter 1 relating to section 530 is amended to 
        read as follows:

        ``Sec. 530. Education savings accounts.''.

        (2) Conforming amendments.--
            (A) The following provisions are each amended by striking 
        ``education individual retirement'' each place it appears and 
        inserting ``education savings'':
                (i) Section 25A(e)(2).
                (ii) Section 26(b)(2)(E).
                (iii) Section 72(e)(9).
                (iv) Section 135(c)(2)(C).
                (v) Subsections (a) and (e) of section 4973.
                (vi) Subsections (c) and (e) of section 4975.
                (vii) Section 6693(a)(2)(D).
            (B) The headings for each of the following provisions are 
        amended by striking ``education individual retirement 
        accounts'' each place it appears and inserting ``education 
        savings accounts''.
                (i) Section 72(e)(9).
                (ii) Section 135(c)(2)(C).
                (iii) Section 4973(e).
                (iv) Section 4975(c)(5).
    (h) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 2000.
        (2) Subsection (g).--The amendments made by subsection (g) 
    shall take effect on the date of the enactment of this Act.

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Short Title.--This section may be cited as the ``Collegiate 
Learning and Student Savings (CLASS) Act''.
    (b) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
        (1) In general.--Section 529(b)(1) (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''.
        (2) Private qualified tuition programs limited to benefit 
    plans.--Clause (ii) of section 529(b)(1)(A) is amended by inserting 
    ``in the case of a program established and maintained by a State or 
    agency or instrumentality thereof,'' before ``may make''.
        (3) Conforming amendments.--
            (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
        530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are each amended by 
        striking ``qualified State tuition'' each place it appears and 
        inserting ``qualified tuition''.
            (B) The headings for sections 72(e)(9) and 135(c)(2)(C) are 
        each amended by striking ``qualified state tuition'' and 
        inserting ``qualified tuition''.
            (C) The headings for sections 529(b) and 530(b)(2)(B) are 
        each amended by striking ``Qualified state tuition'' and 
        inserting ``Qualified tuition''.
            (D) The heading for section 529 is amended by striking 
        ``state''.
            (E) 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''.
    (c) Exclusion From Gross Income of Education Distributions From 
Qualified Tuition Programs.--
        (1) In general.--Section 529(c)(3)(B) (relating to 
    distributions) is amended to read as follows:
            ``(B) Distributions for qualified higher education 
        expenses.--For purposes of this paragraph--
                ``(i) In-kind distributions.--No amount shall be 
            includible in gross income under subparagraph (A) by reason 
            of a distribution which consists of providing a benefit to 
            the distributee which, if paid for by the distributee, 
            would constitute payment of a qualified higher education 
            expense.
                ``(ii) Cash distributions.--In the case of 
            distributions not described in clause (i), if--

                    ``(I) such distributions do not exceed the 
                qualified higher education expenses (reduced by 
                expenses described in clause (i)), no amount shall be 
                includible in gross income, and
                    ``(II) in any other case, the amount otherwise 
                includible in gross income shall be reduced by an 
                amount which bears the same ratio to such amount as 
                such expenses bear to such distributions.

                ``(iii) Exception for institutional programs.--In the 
            case of any taxable year beginning before January 1, 2004, 
            clauses (i) and (ii) shall not apply with respect to any 
            distribution during such taxable year under a qualified 
            tuition program established and maintained by one or more 
            eligible educational institutions.
                ``(iv) Treatment as distributions.--Any benefit 
            furnished to a designated beneficiary under a qualified 
            tuition program shall be treated as a distribution to the 
            beneficiary for purposes of this paragraph.
                ``(v) Coordination with hope and lifetime learning 
            credits.--The total amount of qualified higher education 
            expenses with respect to an individual for the taxable year 
            shall be reduced--

                    ``(I) as provided in section 25A(g)(2), and
                    ``(II) by the amount of such expenses which were 
                taken into account in determining the credit allowed to 
                the taxpayer or any other person under section 25A.

                ``(vi) Coordination with education individual 
            retirement accounts.--If, with respect to an individual for 
            any taxable year--

                    ``(I) the aggregate distributions to which clauses 
                (i) and (ii) and section 530(d)(2)(A) apply, exceed
                    ``(II) the total amount of qualified higher 
                education expenses otherwise taken into account under 
                clauses (i) and (ii) (after the application of clause 
                (v)) for such year,

            the taxpayer shall allocate such expenses among such 
            distributions for purposes of determining the amount of the 
            exclusion under clauses (i) and (ii) and section 
            530(d)(2)(A).''.
        (2) Conforming amendments.--
            (A) Section 135(d)(2)(B) is amended by striking ``the 
        exclusion under section 530(d)(2)'' and inserting ``the 
        exclusions under sections 529(c)(3)(B)(i) and 530(d)(2)''.
            (B) Section 221(e)(2)(A) is amended by inserting ``529,'' 
        after ``135,''.
    (d) Rollover to Different Program for Benefit of Same Designated 
Beneficiary.--Section 529(c)(3)(C) (relating to change in 
beneficiaries) is amended--
        (1) by striking ``transferred to the credit'' in clause (i) and 
    inserting ``transferred--

                    ``(I) to another qualified tuition program for the 
                benefit of the designated beneficiary, or
                    ``(II) to the credit'',

        (2) by adding at the end the following new clause:
                ``(iii) Limitation on certain rollovers.--Clause (i)(I) 
            shall not apply to any amount transferred with respect to a 
            designated beneficiary if, at any time during the 1-year 
            period ending on the day of such transfer, any other amount 
            was transferred with respect to such beneficiary which was 
            not includible in gross income by reason of clause 
            (i)(I).'', and
        (3) by inserting ``or programs'' after ``beneficiaries'' in the 
    heading.
    (e) Member of Family Includes First Cousin.--Section 529(e)(2) 
(defining member of family) is amended by striking ``and'' at the end 
of subparagraph (B), by striking the period at the end of subparagraph 
(C) and by inserting ``; and'', and by adding at the end the following 
new subparagraph:
            ``(D) any first cousin of such beneficiary.''.
    (f) Definition of Qualified Higher Education Expenses.--
        (1) In general.--Subparagraph (A) of section 529(e)(3) 
    (relating to definition of qualified higher education expenses) is 
    amended to read as follows:
            ``(A) In general.--The term `qualified higher education 
        expenses' means--
                ``(i) tuition and fees required for the enrollment or 
            attendance of a designated beneficiary at an eligible 
            educational institution for courses of instruction of such 
            beneficiary at such institution, and
                ``(ii) expenses for books, supplies, and equipment 
            which are incurred in connection with such enrollment or 
            attendance, but not to exceed the allowance for books and 
            supplies included 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 the 
            Taxpayer Refund and Relief Act of 1999) as determined by 
            the eligible educational institution.''.
        (2) Exception for education involving sports, etc.--Paragraph 
    (3) of section 529(e) (relating to qualified higher education 
    expenses) is amended by adding at the end the following new 
    subparagraph:
            ``(C) Exception for education involving sports, etc.--The 
        term `qualified higher education expenses' shall 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 beneficiary's degree program or is 
        taken to acquire or improve job skills of the beneficiary.''.
    (g) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning after December 31, 1999.
        (2) Qualified higher education expenses.--The amendments made 
    by subsection (f) shall apply to amounts paid for courses beginning 
    after December 31, 1999.

SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
              HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM, THE F. EDWARD 
              HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND 
              FINANCIAL ASSISTANCE PROGRAM, AND CERTAIN OTHER PROGRAMS.

    (a) In General.--Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is amended--
        (1) by striking ``Subsections (a)'' and inserting the 
    following:
        ``(1) In general.--Except as provided in paragraph (2), 
    subsections (a)'', and
        (2) by adding at the end the following new paragraph:
        ``(2) Exceptions.--Paragraph (1) shall not apply to any amount 
    received by an individual under--
            ``(A) the National Health Service Corps Scholarship program 
        under section 338A(g)(1)(A) of the Public Health Service Act,
            ``(B) the Armed Forces Health Professions Scholarship and 
        Financial Assistance program under subchapter I of chapter 105 
        of title 10, United States Code,
            ``(C) the National Institutes of Health Undergraduate 
        Scholarship program under section 487D of the Public Health 
        Service Act, or
            ``(D) any State program determined by the Secretary to have 
        substantially similar objectives as such programs.''.
    (b) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by subsection (a) shall apply to amounts received 
    in taxable years beginning after December 31, 1993.
        (2) State programs.--Section 117(c)(2)(D) of the Internal 
    Revenue Code of 1986 (as added by the amendments made by subsection 
    (a)) shall apply to amounts received in taxable years beginning 
    after December 31, 1999.

SEC. 404. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    Section 127(d) (relating to termination of exclusion for 
educational assistance programs) is amended by striking ``May 31, 
2000'' and inserting ``December 31, 2003''.

SEC. 405. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
              FACILITIES.

    (a) In General.--Section 148(f)(4)(D)(vii) (relating to increase in 
exception for bonds financing public school capital expenditures) is 
amended by striking ``$5,000,000'' the second place it appears and 
inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued in calendar years beginning after December 
31, 1999.

SEC. 406. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE TO PUBLIC 
              SCHOOL CONSTRUCTION BONDS.

    (a) In General.--Subparagraph (C) of section 148(f)(4) is amended 
by adding at the end the following new clause:
                ``(xviii) 4-year spending requirement for public school 
            construction issue.--

                    ``(I) In general.--In the case of a public school 
                construction issue, the spending requirements of clause 
                (ii) shall be treated as met if at least 10 percent of 
                the available construction proceeds of the construction 
                issue are spent for the governmental purposes of the 
                issue within the 1-year period beginning on the date 
                the bonds are issued, 30 percent of such proceeds are 
                spent for such purposes within the 2-year period 
                beginning on such date, 60 percent of such proceeds are 
                spent for such purposes within the 3-year period 
                beginning on such date, and 100 percent of such 
                proceeds are spent for such purposes within the 4-year 
                period beginning on such date.
                    ``(II) Public school construction issue.--For 
                purposes of this clause, the term `public school 
                construction issue' means any construction issue if no 
                bond which is part of such issue is a private activity 
                bond and all of the available construction proceeds of 
                such issue are to be used for the construction (as 
                defined in clause (iv)) of public school facilities to 
                provide education or training below the postsecondary 
                level or for the acquisition of land that is 
                functionally related and subordinate to such 
                facilities.
                    ``(III) Other rules to apply.--Rules similar to the 
                rules of the preceding provisions of this subparagraph 
                which apply to clause (ii) also apply to this 
                clause.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to obligations issued after December 31, 1999.

SEC. 407. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
              LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
        (1) In general.--Section 221 (relating to interest on education 
    loans) is amended by striking subsection (d) and by redesignating 
    subsections (e), (f), and (g) as subsections (d), (e), and (f), 
    respectively.
        (2) Conforming amendment.--Section 6050S(e) is amended by 
    striking ``section 221(e)(1)'' and inserting ``section 221(d)(1)''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply with respect to any loan interest paid after December 
    31, 1999, in taxable years ending after such date.
    (b) Increase in Income Limitation.--
        (1) In general.--Section 221(b)(2)(B) (relating to amount of 
    reduction) is amended by striking clauses (i) and (ii) and 
    inserting the following:
                ``(i) the excess of--

                    ``(I) the taxpayer's modified adjusted gross income 
                for such taxable year, over
                    ``(II) $45,000 ($90,000 in the case of a joint 
                return), bears to

                ``(ii) $15,000.''.
        (2) Conforming amendment.--Section 221(g)(1) is amended by 
    striking ``$40,000 and $60,000 amounts'' and inserting ``$45,000 
    and $90,000 amounts''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to taxable years ending after December 31, 1999.

SEC. 408. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED DEDUCTIONS NOT TO 
              APPLY TO QUALIFIED PROFESSIONAL DEVELOPMENT EXPENSES OF 
              ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

    (a) In General.--Section 67(b) (defining miscellaneous itemized 
deductions) is amended by striking ``and'' at the end of paragraph 
(11), by striking the period at the end of paragraph (12) and inserting 
``, and'', and by adding at the end the following new paragraph:
        ``(13) any deduction allowable for the qualified professional 
    development expenses of an eligible teacher.''.
    (b) Definitions.--Section 67 (relating to 2-percent floor on 
miscellaneous itemized deductions) is amended by adding at the end the 
following new subsection:
    ``(g) Qualified Professional Development Expenses of Eligible 
Teachers.--For purposes of subsection (b)(13)--
        ``(1) Qualified professional development expenses.--
            ``(A) In general.--The term `qualified professional 
        development expenses' means expenses in an amount not to exceed 
        $1,000 for any taxable year--
                ``(i) for tuition, fees, books, supplies, equipment, 
            and transportation required for the enrollment or 
            attendance of an individual in a qualified course of 
            instruction, and
                ``(ii) with respect to which a deduction is allowable 
            under section 162 (determined without regard to this 
            section).
            ``(B) Qualified course of instruction.--The term `qualified 
        course of instruction' means a course of instruction which--
                ``(i) is--

                    ``(I) at an institution of higher education (as 
                defined 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 subsection), or
                    ``(II) a professional conference, and

                ``(ii) is part of a program of professional development 
            which is approved and certified by the appropriate local 
            educational agency as furthering the individual's teaching 
            skills.
        ``(C) Local educational agency.--The term `local educational 
    agency' has the meaning given such term by section 14101 of the 
    Elementary and Secondary Education Act of 1965, as so in effect.
        ``(2) Eligible teacher.--
            ``(A) In general.--The term `eligible teacher' means an 
        individual who is a kindergarten through grade 12 classroom 
        teacher, instructor, counselor, aide, or principal in an 
        elementary or secondary school.
            ``(B) Elementary or secondary school.--The terms 
        `elementary school' and `secondary school' have the meanings 
        given such terms by section 14101 of the Elementary and 
        Secondary Education Act of 1965 (20 U.S.C. 8801), as so in 
        effect.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000, and ending 
before January 1, 2005.

                    TITLE V--HEALTH CARE PROVISIONS

SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE COSTS OF 
              INDIVIDUALS NOT PARTICIPATING IN EMPLOYER-SUBSIDIZED 
              HEALTH PLANS.

    (a) In General.--Part VII of subchapter B of chapter 1 is amended 
by redesignating section 222 as section 223 and by inserting after 
section 221 the following new section:

``SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the applicable percentage of 
the amount paid during the taxable year for insurance which constitutes 
medical care for the taxpayer and the taxpayer's spouse and dependents.
    ``(b) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage shall be determined in accordance with the 
following table:

``For taxable years beginning
                                                          The applicable
  in calendar year--
                                                         percentage is--
    2002, 2003, and 2004......................................
                                                                    25  
    2005......................................................
                                                                    35  
    2006......................................................
                                                                    65  
    2007 and thereafter.......................................
                                                                  100.  

    ``(c) Limitation Based on Other Coverage.--
        ``(1) Coverage under certain subsidized employer plans.--
            ``(A) In general.--Subsection (a) shall not apply to any 
        taxpayer for any calendar month for which the taxpayer 
        participates in any health plan maintained by any employer of 
        the taxpayer or of the spouse of the taxpayer if 50 percent or 
        more of the cost of coverage under such plan (determined under 
        section 4980B and without regard to payments made with respect 
        to any coverage described in subsection (e)) is paid or 
        incurred by the employer.
            ``(B) Employer contributions to cafeteria plans, flexible 
        spending arrangements, and medical savings accounts.--Employer 
        contributions to a cafeteria plan, a flexible spending or 
        similar arrangement, or a medical savings account which are 
        excluded from gross income under section 106 shall be treated 
        for purposes of subparagraph (A) as paid by the employer.
            ``(C) Aggregation of plans of employer.--A health plan 
        which is not otherwise described in subparagraph (A) shall be 
        treated as described in such subparagraph if such plan would be 
        so described if all health plans of persons treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414 
        were treated as one health plan.
            ``(D) Separate application to health insurance and long-
        term care insurance.--Subparagraphs (A) and (C) shall be 
        applied separately with respect to--
                ``(i) plans which include primarily coverage for 
            qualified long-term care services or are qualified long-
            term care insurance contracts, and
                ``(ii) plans which do not include such coverage and are 
            not such contracts.
        ``(2) Coverage under certain federal programs.--
            ``(A) In general.--Subsection (a) shall not apply to any 
        amount paid for any coverage for an individual for any calendar 
        month if, as of the first day of such month, the individual is 
        covered under any medical care program described in--
                ``(i) title XVIII, XIX, or XXI of the Social Security 
            Act,
                ``(ii) chapter 55 of title 10, United States Code,
                ``(iii) chapter 17 of title 38, United States Code,
                ``(iv) chapter 89 of title 5, United States Code, or
                ``(v) the Indian Health Care Improvement Act.
            ``(B) Exceptions.--
                ``(i) Qualified long-term care.--Subparagraph (A) shall 
            not apply to amounts paid for coverage under a qualified 
            long-term care insurance contract.
                ``(ii) Continuation coverage of fehbp.--Subparagraph 
            (A)(iv) shall not apply to coverage which is comparable to 
            continuation coverage under section 4980B.
    ``(d) Long-Term Care Deduction Limited to Qualified Long-Term Care 
Insurance Contracts.--In the case of a qualified long-term care 
insurance contract, only eligible long-term care premiums (as defined 
in section 213(d)(10)) may be taken into account under subsection (a).
    ``(e) Deduction Not Available for Payment of Ancillary Coverage 
Premiums.--Any amount paid as a premium for insurance which provides 
for--
        ``(1) coverage for accidents, disability, dental care, vision 
    care, or a specified illness, or
        ``(2) making payments of a fixed amount per day (or other 
    period) by reason of being hospitalized.
shall not be taken into account under subsection (a).
    ``(f) Special Rules.--
        ``(1) Coordination with deduction for health insurance costs of 
    self-employed individuals.--The amount taken into account by the 
    taxpayer in computing the deduction under section 162(l) shall not 
    be taken into account under this section.
        ``(2) Coordination with medical expense deduction.--The amount 
    taken into account by the taxpayer in computing the deduction under 
    this section shall not be taken into account under section 213.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including regulations 
requiring employers to report to their employees and the Secretary such 
information as the Secretary determines to be appropriate.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 is amended by inserting after 
paragraph (17) the following new item:
        ``(18) Health and long-term care insurance costs.--The 
    deduction allowed by section 222.''.
    (c) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following new items:

        ``Sec. 222. Health and long-term care insurance costs.
        ``Sec. 223. Cross reference.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED UNDER 
              CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

    (a) Cafeteria Plans.--
        (1) In general.--Subsection (f) of section 125 (defining 
    qualified benefits) is amended by inserting before the period at 
    the end ``; except that such term shall include the payment of 
    premiums for any qualified long-term care insurance contract (as 
    defined in section 7702B) to the extent the amount of such payment 
    does not exceed the eligible long-term care premiums (as defined in 
    section 213(d)(10)) for such contract''.
    (b) Flexible Spending Arrangements.--Section 106 (relating to 
contributions by employer to accident and health plans) is amended by 
striking subsection (c).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 503. ADDITIONAL PERSONAL EXEMPTION FOR TAXPAYER CARING FOR ELDERLY 
              FAMILY MEMBER IN TAXPAYER'S HOME.

    (a) In General.--Section 151 (relating to allowance of deductions 
for personal exemptions) is amended by redesignating subsection (e) as 
subsection (f) and by inserting after subsection (d) the following new 
subsection:
    ``(e) Additional Exemption for Certain Elderly Family Members 
Residing With Taxpayer.--
        ``(1) In general.--An exemption of the exemption amount for 
    each qualified family member of the taxpayer.
        ``(2) Qualified family member.--For purposes of this 
    subsection, the term `qualified family member' means, with respect 
    to any taxable year, any individual--
            ``(A) who is an ancestor of the taxpayer or of the 
        taxpayer's spouse or who is the spouse of any such ancestor,
            ``(B) who is a member for the entire taxable year of a 
        household maintained by the taxpayer, and
            ``(C) who has been certified, before the due date for 
        filing the return of tax for the taxable year (without 
        extensions), by a physician (as defined in section 1861(r)(1) 
        of the Social Security Act) as being an individual with long-
        term care needs described in paragraph (3) for a period--
                ``(i) which is at least 180 consecutive days, and
                ``(ii) a portion of which occurs within the taxable 
            year.
    Such term shall not include any individual otherwise meeting the 
    requirements of the preceding sentence unless within the 39\1/2\ 
    month period ending on such due date (or such other period as the 
    Secretary prescribes) a physician (as so defined) has certified 
    that such individual meets such requirements.
        ``(3) Individuals with long-term care needs.--An individual is 
    described in this paragraph if the individual--
            ``(A) is unable to perform (without substantial assistance 
        from another individual) at least two activities of daily 
        living (as defined in section 7702B(c)(2)(B)) due to a loss of 
        functional capacity, or
            ``(B) requires substantial supervision to protect such 
        individual from threats to health and safety due to severe 
        cognitive impairment and is unable to perform, without 
        reminding or cuing assistance, at least one activity of daily 
        living (as so defined) or to the extent provided in regulations 
        prescribed by the Secretary (in consultation with the Secretary 
        of Health and Human Services), is unable to engage in age 
        appropriate activities.
        ``(4) Special rules.--Rules similar to the rules of paragraphs 
    (1), (2), (3), (4), and (5) of section 21(e) shall apply for 
    purposes of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 504. EXPANDED HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG 
              CREDIT.

    (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) is 
amended to read as follows:

                    ``(I) after the date that the application is filed 
                for designation under such section 526, and''.

    (b) Conforming Amendment.--Clause (i) of section 45C(b)(2)(A) is 
amended by inserting ``which is'' before ``being'' and by inserting 
before the comma at the end ``and which is designated under section 526 
of such Act''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 1999.

SEC. 505. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
              PNEUMONIAE TO LIST OF TAXABLE VACCINES; REDUCTION IN PER 
              DOSE TAX RATE.

    (a) Inclusion of Vaccines.--
        (1) In general.--Section 4132(a)(1) (defining taxable vaccine) 
    is amended by adding at the end the following new subparagraph:
            ``(L) Any conjugate vaccine against streptococcus 
        pneumoniae.''.
        (2) Effective date.--
            (A) Sales.--The amendment made by this subsection shall 
        apply to vaccine sales beginning on the day after the date on 
        which the Centers for Disease Control makes a final 
        recommendation for routine administration to children of any 
        conjugate vaccine against streptococcus pneumoniae, but shall 
        not take effect if subsection (c) does not take effect.
            (B) Deliveries.--For purposes of subparagraph (A), in the 
        case of sales on or before the date described in such 
        subparagraph for which delivery is made after such date, the 
        delivery date shall be considered the sale date.
    (b) Reduction in Per Dose Tax Rate.--
        (1) In general.--Section 4131(b)(1) (relating to amount of tax) 
    is amended by striking ``75 cents'' and inserting ``50 cents''.
        (2) Effective date.--
            (A) Sales.--The amendment made by this subsection shall 
        apply to vaccine sales after December 31, 2004, but shall not 
        take effect if subsection (c) does not take effect.
            (B) Deliveries.--For purposes of subparagraph (A), in the 
        case of sales on or before the date described in such 
        subparagraph for which delivery is made after such date, the 
        delivery date shall be considered the sale date.
        (3) Limitation on certain credits or refunds.--For purposes of 
    applying section 4132(b) of the Internal Revenue Code of 1986 with 
    respect to any claim for credit or refund filed after August 31, 
    2004, the amount of tax taken into account shall not exceed the tax 
    computed under the rate in effect on January 1, 2005.
    (c) Vaccine Tax and Trust Fund Amendments.--
        (1) Sections 1503 and 1504 of the Vaccine Injury Compensation 
    Program Modification Act (and the amendments made by such sections) 
    are hereby repealed.
        (2) Subparagraph (A) of section 9510(c)(1) is amended by 
    striking ``August 5, 1997'' and inserting ``October 21, 1998''.
        (3) The amendments made by this subsection shall take effect as 
    if included in the provisions of the Tax and Trade Relief Extension 
    Act of 1998 to which they relate.

SEC. 506. DRUG BENEFITS FOR MEDICARE BENEFICIARIES.

    (a) In General.--Section 213 (relating to medical, dental, etc., 
expenses) is amended by redesignating subsection (e) as subsection (f) 
and by inserting after subsection (d) the following new subsection:
    ``(e) Drug Benefits for Medicare Beneficiaries.--
        ``(1) Deduction for certain former prescription drugs.--
            ``(A) In general.--Subsection (b) shall not apply to 
        amounts paid for eligible former prescription drugs for a 
        medicare beneficiary who is the taxpayer or the taxpayer's 
        spouse or dependent (as defined in section 152).
            ``(B) Eligible former prescription drug.--For purposes of 
        subparagraph (A), the term `eligible former prescription drug' 
        means any drug or biological which is not a prescribed drug at 
        the time purchased by the taxpayer but was a prescribed drug at 
        any prior time during the calendar year in which so purchased 
        or during the 2 preceding calendar years.
        ``(2) Adjusted gross income threshold not to apply to 
    prescription drug insurance coverage for medicare beneficiaries if 
    certain conditions met.--The 7.5 percent adjusted gross income 
    threshold in subsection (a) shall not apply to the expenses paid 
    during the taxable year for prescription drug insurance coverage 
    for a medicare beneficiary who is the taxpayer or the taxpayer's 
    spouse or dependent (as defined in section 152) if--
            ``(A) the Secretary certifies that, throughout such taxable 
        year, the conditions specified in paragraph (3) are met, and
            ``(B) the charge for such coverage is either separately 
        stated in the contract or furnished to the policyholder by the 
        insurance company in a separate statement.
        ``(3) Conditions.--For purposes of paragraph (2), the 
    conditions specified in this paragraph are met if all of the 
    following are in effect:
            ``(A) Assistance for prescription drugs for low-income 
        medicare beneficiaries.--
                ``(i) Low-income assistance is available to enable the 
            purchase of coverage of prescription drugs as described in 
            subparagraph (B) or (C) for medicare beneficiaries with 
            incomes under 135 percent of the applicable Federal poverty 
            level, with such assistance phasing out for beneficiaries 
            with incomes between 135 percent and 150 percent of such 
            level.
                ``(ii) The Federal Government provides funding for the 
            costs of such assistance.
            ``(B) Authorizing medigap coverage solely of prescription 
        drugs.--At least one of the benefit packages authorized to be 
        offered under a medicare supplemental policy under the Social 
        Security Act is a package which provides solely for the 
        coverage of costs of prescription drugs.
            ``(C) Structural medicare reform.--Coverage for outpatient 
        prescription drugs for medicare beneficiaries is provided only 
        through integrated comprehensive health plans which offer 
        current medicare covered services and maximum limitations on 
        out-of-pocket spending and such comprehensive plans sponsored 
        by the Health Care Financing Administration compete on the same 
        basis as private plans.
            ``(D) Deduction for eligible former prescription drugs.--
        The treatment under paragraph (1) of expenses paid for eligible 
        former prescription drugs applies for such taxable year.
        ``(4) Definition and special rule.--
            ``(A) Medicare beneficiary.--For purposes of this 
        subsection, the term `medicare beneficiary' means an individual 
        who is entitled to benefits under part A, or enrolled under 
        part B or C, of title XVIII of the Social Security Act.
            ``(B) Coordination with other expenses.--Expenses to which 
        the 7.5 percent adjusted gross income threshold in subsection 
        (a) does not apply by reason of paragraph (1) and (2) shall not 
        be taken into account in applying such threshold to other 
        expenses.''.
    (b) Deduction for Prescription Drug Insurance Coverage Allowed 
Whether or Not Taxpayer Itemizes Other Deductions.--Subsection (a) of 
section 62 (defining adjusted gross income) is amended by inserting 
after paragraph (18) the following new paragraph:
        ``(19) Prescription drug insurance coverage for medicare 
    beneficiaries.--The deduction allowed by section 213(a) to the 
    extent of the expenses to which the 7.5 percent adjusted gross 
    income threshold in subsection (a) does not apply by reason of 
    paragraph (2) of section 213(e).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

                      TITLE VI--ESTATE TAX RELIEF
  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

SEC. 601. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES.

    (a) In General.--Subtitle B is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to the estates of decedents dying, and gifts and generation-skipping 
transfers made, after December 31, 2008.

SEC. 602. TERMINATION OF STEP UP IN BASIS AT DEATH.

    (a) Termination of Application of Section 1014.--Section 1014 
(relating to basis of property acquired from a decedent) is amended by 
adding at the end the following:
    ``(f) Termination.--In the case of a decedent dying after December 
31, 2008, this section shall not apply to property for which basis is 
provided by section 1023.''.
    (b) Conforming Amendment.--Subsection (a) of section 1016 (relating 
to adjustments to basis) is amended by striking ``and'' at the end of 
paragraph (26), by striking the period at the end of paragraph (27) and 
inserting ``; and'', and by adding at the end the following:
        ``(28) to the extent provided in section 1023 (relating to 
    basis for certain property acquired from a decedent dying after 
    December 31, 2008).''.

SEC. 603. CARRYOVER BASIS AT DEATH.

    (a) General Rule.--Part II of subchapter O of chapter 1 (relating 
to basis rules of general application) is amended by inserting after 
section 1022, as added by section 202, the following:

``SEC. 1023. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A 
              DECEDENT DYING AFTER DECEMBER 31, 2008.

    ``(a) Carryover Basis.--Except as otherwise provided in this 
section, the basis of carryover basis property in the hands of a person 
acquiring such property from a decedent shall be determined under 
section 1015.
    ``(b) Carryover Basis Property Defined.--
        ``(1) In general.--For purposes of this section, the term 
    `carryover basis property' means any property--
            ``(A) which is acquired from or passed from a decedent who 
        died after December 31, 2008, and
            ``(B) which is not excluded pursuant to paragraph (2).
    The property taken into account under subparagraph (A) shall be 
    determined under section 1014(b) without regard to subparagraph (A) 
    of the last sentence of paragraph (9) thereof.
        ``(2) Certain property not carryover basis property.--The term 
    `carryover basis property' does not include--
            ``(A) any item of gross income in respect of a decedent 
        described in section 691,
            ``(B) property which was acquired from the decedent by the 
        surviving spouse of the decedent but only if the value of such 
        property would have been deductible from the value of the 
        taxable estate of the decedent under section 2056, as in effect 
        on the day before the date of the enactment of the Taxpayer 
        Refund and Relief Act of 1999, and
            ``(C) any includible property of the decedent if the 
        aggregate adjusted fair market value of such property does not 
        exceed $2,000,000.
    For purposes of this subsection, the term `adjusted fair market 
    value' means, with respect to any property, fair market value 
    reduced by any indebtedness secured by such property.
        ``(3) Limitation on exception for property acquired by 
    surviving spouse.--The adjusted fair market value of property which 
    is not carryover basis property by reason of paragraph (2)(B) shall 
    not exceed $3,000,000. The executor shall allocate the limitation 
    under the preceding sentence among such property.
        ``(4) Phasein of carryover basis if property exceeds 
    $1,300,000.--
            ``(A) In general.--If the aggregate adjusted fair market 
        value of the includible property of the decedent exceeds 
        $1,300,000, but does not exceed $2,000,000, the amount of the 
        increase in the basis of includible property which would (but 
        for this paragraph) result under section 1014 shall be reduced 
        by the amount which bears the same ratio to such increase as 
        such excess bears to $700,000.
            ``(B) Allocation of reduction.--The reduction under 
        subparagraph (A) shall be allocated among only the excepted 
        includible property having net appreciation and shall be 
        allocated in proportion to the respective amounts of such net 
        appreciation. For purposes of the preceding sentence, the term 
        `net appreciation' means the excess of the adjusted fair market 
        value over the decedent's adjusted basis immediately before 
        such decedent's death.
        ``(5) Includible property.--
            ``(A) In general.--For purposes of this subsection, the 
        term `includible property' means property which would be 
        included in the gross estate of the decedent under any of the 
        following provisions as in effect on the day before the date of 
        the enactment of the Taxpayer Refund and Relief Act of 1999:
                ``(i) Section 2033.
                ``(ii) Section 2038.
                ``(iii) Section 2040.
                ``(iv) Section 2041.
                ``(v) Section 2042(1).
            ``(B) Exclusion of property acquired by spouse.--Such term 
        shall not include property which is not carryover basis 
        property by reason of paragraph (2)(B).
    ``(c) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Miscellaneous Amendments Related To Carryover Basis.--
        (1) Capital gain treatment for inherited art work or similar 
    property.--
            (A) In general.--Subparagraph (C) of section 1221(3) 
        (defining capital asset) is amended by inserting ``(other than 
        by reason of section 1023)'' after ``is determined''.
            (B) Coordination with section 170.--Paragraph (1) of 
        section 170(e) (relating to certain contributions of ordinary 
        income and capital gain property) is amended by adding at the 
        end the following: ``For purposes of this paragraph, the 
        determination of whether property is a capital asset shall be 
        made without regard to the exception contained in section 
        1221(3)(C) for basis determined under section 1023.''.
        (2) Definition of Executor.--Section 7701(a) (relating to 
    definitions) is amended by adding at the end the following:
        ``(47) Executor.--The term `executor' means the executor or 
    administrator of the decedent, or, if there is no executor or 
    administrator appointed, qualified, and acting within the United 
    States, then any person in actual or constructive possession of any 
    property of the decedent.''.
        (3) Clerical amendment.--The table of sections for part II of 
    subchapter O of chapter 1 is amended by adding at the end the 
    following new item:

        ``Sec. 1023. Carryover basis for certain property acquired from 
                  a decedent dying after December 31, 2008.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2008.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

SEC. 611. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

    (a) Maximum Rate of Tax Reduced to 50 Percent.--
        (1) In general.--The table contained in section 2001(c)(1) is 
    amended by striking the two highest brackets and inserting the 
    following:

  ``Over $2,500,000
  $1,025,800, plus 50% of the excess over $2,500,000.''.

        (2) Phase-in of reduced rate.--Subsection (c) of section 2001 
    is amended by adding at the end the following new paragraph:
        ``(3) Phase-in of reduced rate.--In the case of decedents 
    dying, and gifts made, during 2001, the last item in the table 
    contained in paragraph (1) shall be applied by substituting `53%' 
    for `50%'.''.
    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of 
section 2001 is amended by striking paragraph (2) and redesignating 
paragraph (3), as added by subsection (a), as paragraph (2).
    (c) Additional Reductions of Rates of Tax.--Subsection (c) of 
section 2001, as so amended, is amended by adding at the end the 
following new paragraph:
        ``(3) Phasedown of tax.--In the case of estates of decedents 
    dying, and gifts made, during any calendar year after 2004 and 
    before 2009--
            ``(A) In general.--Except as provided in subparagraph (C), 
        the tentative tax under this subsection shall be determined by 
        using a table prescribed by the Secretary (in lieu of using the 
        table contained in paragraph (1)) which is the same as such 
        table; except that--
                ``(i) each of the rates of tax shall be reduced by the 
            number of percentage points determined under subparagraph 
            (B), and
                ``(ii) the amounts setting forth the tax shall be 
            adjusted to the extent necessary to reflect the adjustments 
            under clause (i).
            ``(B) Percentage points of reduction.--

          
                                                         The number of  
        ``For calendar year:
                                                   percentage points is:
            2003..............................................
                                                                    1.0 
            2004..............................................
                                                                    2.0 
            2005..............................................
                                                                    3.0 
            2006..............................................
                                                                    4.0 
            2007..............................................
                                                                    5.5 
            2008..............................................
                                                                    7.5.

            ``(C) Coordination with income tax rates.--The reductions 
        under subparagraph (A)--
                ``(i) shall not reduce any rate under paragraph (1) 
            below the lowest rate in section 1(c), and
                ``(ii) shall not reduce the highest rate under 
            paragraph (1) below the highest rate in section 1(c).
            ``(D) Coordination with credit for state death taxes.--
        Rules similar to the rules of subparagraph (A) shall apply to 
        the table contained in section 2011(b) except that the 
        Secretary shall prescribe percentage point reductions which 
        maintain the proportionate relationship (as in effect before 
        any reduction under this paragraph) between the credit under 
        section 2011 and the tax rates under subsection (c).''.
    (d) Effective Dates.--
        (1) Subsections (a) and (b).--The amendments made by 
    subsections (a) and (b) shall apply to estates of decedents dying, 
    and gifts made, after December 31, 2000.
        (2) Subsection (c).--The amendment made by subsection (c) shall 
    apply to estates of decedents dying, and gifts made, after December 
    31, 2004.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH 
              UNIFIED EXEMPTION AMOUNT.

    (a) In General.--
        (1) Estate tax.--Part IV of subchapter A of chapter 11 is 
    amended by inserting after section 2051 the following new section:

``SEC. 2052. EXEMPTION.

    ``(a) In general.--For purposes of the tax imposed by section 2001, 
the value of the taxable estate shall be determined by deducting from 
the value of the gross estate an amount equal to the excess (if any) 
of--
        ``(1) the exemption amount for the calendar year in which the 
    decedent died, over
        ``(2) the sum of--
            ``(A) the aggregate amount allowed as an exemption under 
        section 2521 with respect to gifts made by the decedent after 
        December 31, 2000, and
            ``(B) the aggregate amount of gifts made by the decedent 
        for which credit was allowed by section 2505 (as in effect on 
        the day before the date of the enactment of the Taxpayer Refund 
        and Relief Act of 1999).
Gifts which are includible in the gross estate of the decedent shall 
not be taken into account in determining the amounts under paragraph 
(2).
    ``(b) Exemption Amount.--For purposes of subsection (a), the term 
`exemption amount' means the amount determined in accordance with the 
following table:

``In the case of
                                                           The exemption
  calendar year:
                                                              amount is:
    2001................................................
                                                               $675,000 
    2002 and 2003.......................................
                                                               $700,000 
    2004................................................
                                                               $850,000 
    2005................................................
                                                               $950,000 
    2006 or thereafter..................................
                                                          $1,000,000.''.

        (2) Gift tax.--Subchapter C of chapter 12 (relating to 
    deductions) is amended by inserting before section 2522 the 
    following new section:

``SEC. 2521. EXEMPTION.

    ``In computing taxable gifts for any calendar year, there shall be 
allowed as a deduction in the case of a citizen or resident of the 
United States an amount equal to the excess of--
        ``(1) the exemption amount determined under section 2052 for 
    such calendar year, over
        ``(2) the sum of--
            ``(A) the aggregate amount allowed as an exemption under 
        this section for all preceding calendar years after 2000, and
            ``(B) the aggregate amount of gifts for which credit was 
        allowed by section 2505 (as in effect on the day before the 
        date of the enactment of the Taxpayer Refund and Relief Act of 
        1999).''.
    (b) Repeal of Unified Credits.--
        (1) Section 2010 (relating to unified credit against estate 
    tax) is hereby repealed.
        (2) Section 2505 (relating to unified credit against gift tax) 
    is hereby repealed.
    (c) Conforming Amendments.--
        (1) Subparagraph (B) of section 2001(b)(1) is amended by 
    inserting before the comma ``reduced by the amount described in 
    section 2052(a)(2)(B)''.
        (2)(A) Subsection (b) of section 2011 is amended--
            (i) by striking ``adjusted'' in the table, and
            (ii) by striking the last sentence.
        (B) Subsection (f) of section 2011 is amended by striking ``, 
    reduced by the amount of the unified credit provided by section 
    2010''.
        (3) Subsection (a) of section 2012 is amended by striking ``and 
    the unified credit provided by section 2010''.
        (4)(A) Subsection (b) of section 2013 is amended by inserting 
    before the period at the end of the first sentence ``and increased 
    by the exemption allowed under section 2052 or 2106(a)(4) (or the 
    corresponding provisions of prior law) in determining the taxable 
    estate of the transferor for purposes of the estate tax''.
        (B) Subparagraph (A) of section 2013(c)(1) is amended by 
    striking ``2010,''.
        (5) Paragraph (2) of section 2014(b) is amended by striking 
    ``2010,''.
        (6) Clause (ii) of section 2056A(b)(12)(C) is amended to read 
    as follows:
                ``(ii) to treat any reduction in the tax imposed by 
            paragraph (1)(A) by reason of the credit allowable under 
            section 2010 (as in effect on the day before the date of 
            the enactment of the Taxpayer Refund and Relief Act of 
            1999) or the exemption allowable under section 2052 with 
            respect to the decedent as a credit under section 2505 (as 
            so in effect) or exemption under section 2521 (as the case 
            may be) allowable to such surviving spouse for purposes of 
            determining the amount of the exemption allowable under 
            section 2521 with respect to taxable gifts made by the 
            surviving spouse during the year in which the spouse 
            becomes a citizen or any subsequent year,''.
        (7) Paragraph (3) of section 2057(a) is amended to read as 
    follows:
        ``(3) Coordination with exemption amount.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        if this section applies to an estate, the exemption amount 
        under section 2052 shall be $625,000.
            ``(B) Increase in exemption amount if deduction is less 
        than $675,000.--If the deduction allowed by this section is 
        less than $675,000, the amount of the exemption amount under 
        section 2052 shall be increased (but not above the amount which 
        would apply to the estate without regard to this section) by 
        the excess of $675,000 over the amount of the deduction 
        allowed.''.
        (8)(A) Subparagraph (B) of section 2101(b)(1) is amended by 
    inserting before the comma ``reduced by the aggregate amount of 
    gifts for which credit was allowed by section 2505 (as in effect on 
    the day before the date of the enactment of the Taxpayer Refund and 
    Relief Act of 1999)''
        (B) Subsection (b) of section 2101 is amended by striking the 
    last sentence.
        (9) Section 2102 is amended by striking subsection (c).
        (10) Subsection (a) of section 2106 is amended by adding at the 
    end the following new paragraph:
        ``(4) Exemption.--
            ``(A) In general.--An exemption of $60,000.
            ``(B) Residents of possessions of the united states.--In 
        the case of a decedent who is considered to be a nonresident 
        not a citizen of the United States under section 2209, the 
        exemption under this paragraph shall be the greater of--
                ``(i) $60,000, or
                ``(ii) that proportion of $175,000 which the value of 
            that part of the decedent's gross estate which at the time 
            of his death is situated in the United States bears to the 
            value of his entire gross estate wherever situated.
            ``(C) Special rules.--
                ``(i) Coordination with treaties.--To the extent 
            required under any treaty obligation of the United States, 
            the exemption allowed under this paragraph shall be equal 
            to the amount which bears the same ratio to the exemption 
            amount under section 2052 (for the calendar year in which 
            the decedent died) as the value of the part of the 
            decedent's gross estate which at the time of his death is 
            situated in the United States bears to the value of his 
            entire gross estate wherever situated. For purposes of the 
            preceding sentence, property shall not be treated as 
            situated in the United States if such property is exempt 
            from the tax imposed by this subchapter under any treaty 
            obligation of the United States.
                ``(ii) Coordination with gift tax exemption and unified 
            credit.--If an exemption has been allowed under section 
            2521 (or a credit has been allowed under section 2505 as in 
            effect on the day before the date of the enactment of the 
            Taxpayer Refund and Relief Act of 1999) with respect to any 
            gift made by the decedent, each dollar amount contained in 
            subparagraph (A) or (B) or the exemption amount applicable 
            under clause (i) of this subparagraph (whichever applies) 
            shall be reduced by the exemption so allowed under 2521 
            (or, in the case of such a credit, by the amount of the 
            gift for which the credit was so allowed).''.
        (11)(A) Subsection (a) of section 2107 is amended by adding at 
    the end the following new paragraph:
        ``(3) Limitation on exemption amount.--Subparagraphs (B) and 
    (C) of section 2106(a)(4) shall not apply in applying section 2106 
    for purposes of this section.''.
        (B) Subsection (c) of section 2107 is amended--
                (i) by striking paragraph (1) and by redesignating 
            paragraphs (2) and (3) as paragraphs (1) and (2), 
            respectively, and
                (ii) by striking the second sentence of paragraph (2) 
            (as so redesignated).
        (12) Section 2206 is amended by striking ``the taxable estate'' 
    in the first sentence and inserting ``the sum of the taxable estate 
    and the amount of the exemption allowed under section 2052 or 
    2106(a)(4) in computing the taxable estate''.
        (13) Section 2207 is amended by striking ``the taxable estate'' 
    in the first sentence and inserting ``the sum of the taxable estate 
    and the amount of the exemption allowed under section 2052 or 
    2106(a)(4) in computing the taxable estate''.
        (14) Subparagraph (B) of section 2207B(a)(1) is amended to read 
    as follows:
            ``(B) the sum of the taxable estate and the amount of the 
        exemption allowed under section 2052 or 2106(a)(4) in computing 
        the taxable estate.''.
        (15) Subsection (a) of section 2503 is amended by striking 
    ``section 2522'' and inserting ``section 2521''.
        (16) Paragraph (1) of section 6018(a) is amended by striking 
    ``the applicable exclusion amount in effect under section 2010(c)'' 
    and inserting ``the exemption amount under section 2052''.
        (17) Subparagraph (A) of section 6601(j)(2) is amended to read 
    as follows:
            ``(A) the amount of the tax which would be imposed by 
        chapter 11 on an amount of taxable estate equal to $1,000,000, 
        or''.
        (18) The table of sections for part II of subchapter A of 
    chapter 11 is amended by striking the item relating to section 
    2010.
        (19) The table of sections for part IV of subchapter A of 
    chapter 11 is amended by inserting after the item relating to 
    section 2051 the following new item:

        ``Sec. 2052. Exemption.''.

        (20) The table of sections for subchapter A of chapter 12 is 
    amended by striking the item relating to section 2505.
        (21) The table of sections for subchapter C of chapter 12 is 
    amended by inserting before the item relating to section 2522 the 
    following new item:

        ``Sec. 2521. Exemption.''.

    (d) Effective Date.--The amendments made by this section--
        (1) insofar as they relate to the tax imposed by chapter 11 of 
    the Internal Revenue Code of 1986, shall apply to estates of 
    decedents dying after December 31, 2000, and
        (2) insofar as they relate to the tax imposed by chapter 12 of 
    such Code, shall apply to gifts made after December 31, 2000.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

SEC. 631. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO 
              TRUSTS; RETROACTIVE ALLOCATIONS.

    (a) In General.--Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating subsection (c) 
as subsection (e) and by inserting after subsection (b) the following 
new subsections:
    ``(c) Deemed Allocation to Certain Lifetime Transfers to GST 
Trusts.--
        ``(1) In general.--If any individual makes an indirect skip 
    during such individual's lifetime, any unused portion of such 
    individual's GST exemption shall be allocated to the property 
    transferred to the extent necessary to make the inclusion ratio for 
    such property zero. If the amount of the indirect skip exceeds such 
    unused portion, the entire unused portion shall be allocated to the 
    property transferred.
        ``(2) Unused portion.--For purposes of paragraph (1), the 
    unused portion of an individual's GST exemption is that portion of 
    such exemption which has not previously been--
            ``(A) allocated by such individual,
            ``(B) treated as allocated under subsection (b) with 
        respect to a direct skip occurring during or before the 
        calendar year in which the indirect skip is made, or
            ``(C) treated as allocated under paragraph (1) with respect 
        to a prior indirect skip.
        ``(3) Definitions.--
            ``(A) Indirect skip.--For purposes of this subsection, the 
        term `indirect skip' means any transfer of property (other than 
        a direct skip) subject to the tax imposed by chapter 12 made to 
        a GST trust.
            ``(B) GST trust.--The term `GST trust' means a trust that 
        could have a generation-skipping transfer with respect to the 
        transferor unless--
                ``(i) the trust instrument provides that more than 25 
            percent of the trust corpus must be distributed to or may 
            be withdrawn by 1 or more individuals who are non-skip 
            persons--

                    ``(I) before the date that the individual attains 
                age 46,
                    ``(II) on or before one or more dates specified in 
                the trust instrument that will occur before the date 
                that such individual attains age 46, or
                    ``(III) upon the occurrence of an event that, in 
                accordance with regulations prescribed by the 
                Secretary, may reasonably be expected to occur before 
                the date that such individual attains age 46;

                ``(ii) the trust instrument provides that more than 25 
            percent of the trust corpus must be distributed to or may 
            be withdrawn by one or more individuals who are non-skip 
            persons and who are living on the date of death of another 
            person identified in the instrument (by name or by class) 
            who is more than 10 years older than such individuals;
                ``(iii) the trust instrument provides that, if one or 
            more individuals who are non-skip persons die on or before 
            a date or event described in clause (i) or (ii), more than 
            25 percent of the trust corpus either must be distributed 
            to the estate or estates of one or more of such individuals 
            or is subject to a general power of appointment exercisable 
            by one or more of such individuals;
                ``(iv) the trust is a trust any portion of which would 
            be included in the gross estate of a non-skip person (other 
            than the transferor) if such person died immediately after 
            the transfer;
                ``(v) the trust is a charitable lead annuity trust 
            (within the meaning of section 2642(e)(3)(A)) or a 
            charitable remainder annuity trust or a charitable 
            remainder unitrust (within the meaning of section 664(d)); 
            or
                ``(vi) the trust is a trust with respect to which a 
            deduction was allowed under section 2522 for the amount of 
            an interest in the form of the right to receive annual 
            payments of a fixed percentage of the net fair market value 
            of the trust property (determined yearly) and which is 
            required to pay principal to a non-skip person if such 
            person is alive when the yearly payments for which the 
            deduction was allowed terminate.
        For purposes of this subparagraph, the value of transferred 
        property shall not be considered to be includible in the gross 
        estate of a non-skip person or subject to a right of withdrawal 
        by reason of such person holding a right to withdraw so much of 
        such property as does not exceed the amount referred to in 
        section 2503(b) with respect to any transferor, and it shall be 
        assumed that powers of appointment held by non-skip persons 
        will not be exercised.
        ``(4) Automatic allocations to certain gst trusts.--For 
    purposes of this subsection, an indirect skip to which section 
    2642(f) applies shall be deemed to have been made only at the close 
    of the estate tax inclusion period. The fair market value of such 
    transfer shall be the fair market value of the trust property at 
    the close of the estate tax inclusion period.
        ``(5) Applicability and effect.--
            ``(A) In general.--An individual--
                ``(i) may elect to have this subsection not apply to--

                    ``(I) an indirect skip, or
                    ``(II) any or all transfers made by such individual 
                to a particular trust, and

                ``(ii) may elect to treat any trust as a GST trust for 
            purposes of this subsection with respect to any or all 
            transfers made by such individual to such trust.
            ``(B) Elections.--
                ``(i) Elections with respect to indirect skips.--An 
            election under subparagraph (A)(i)(I) shall be deemed to be 
            timely if filed on a timely filed gift tax return for the 
            calendar year in which the transfer was made or deemed to 
            have been made pursuant to paragraph (4) or on such later 
            date or dates as may be prescribed by the Secretary.
                ``(ii) Other elections.--An election under clause 
            (i)(II) or (ii) of subparagraph (A) may be made on a timely 
            filed gift tax return for the calendar year for which the 
            election is to become effective.
    ``(d) Retroactive Allocations.--
        ``(1) In general.--If--
            ``(A) a non-skip person has an interest or a future 
        interest in a trust to which any transfer has been made,
            ``(B) such person--
                ``(i) is a lineal descendant of a grandparent of the 
            transferor or of a grandparent of the transferor's spouse 
            or former spouse, and
                ``(ii) is assigned to a generation below the generation 
            assignment of the transferor, and
            ``(C) such person predeceases the transferor,
    then the transferor may make an allocation of any of such 
    transferor's unused GST exemption to any previous transfer or 
    transfers to the trust on a chronological basis.
        ``(2) Special rules.--If the allocation under paragraph (1) by 
    the transferor is made on a gift tax return filed on or before the 
    date prescribed by section 6075(b) for gifts made within the 
    calendar year within which the non-skip person's death occurred--
            ``(A) the value of such transfer or transfers for purposes 
        of section 2642(a) shall be determined as if such allocation 
        had been made on a timely filed gift tax return for each 
        calendar year within which each transfer was made,
            ``(B) such allocation shall be effective immediately before 
        such death, and
            ``(C) the amount of the transferor's unused GST exemption 
        available to be allocated shall be determined immediately 
        before such death.
        ``(3) Future interest.--For purposes of this subsection, a 
    person has a future interest in a trust if the trust may permit 
    income or corpus to be paid to such person on a date or dates in 
    the future.''.
    (b) Conforming Amendment.--Paragraph (2) of section 2632(b) is 
amended by striking ``with respect to a direct skip'' and inserting 
``or subsection (c)(1)''.
    (c) Effective Dates.--
        (1) Deemed allocation.--Section 2632(c) of the Internal Revenue 
    Code of 1986 (as added by subsection (a)), and the amendment made 
    by subsection (b), shall apply to transfers subject to chapter 11 
    or 12 made after December 31, 1999, and to estate tax inclusion 
    periods ending after December 31, 1999.
        (2) Retroactive allocations.--Section 2632(d) of the Internal 
    Revenue Code of 1986 (as added by subsection (a)) shall apply to 
    deaths of non-skip persons occurring after the date of the 
    enactment of this Act.

SEC. 632. SEVERING OF TRUSTS.

    (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.--
            ``(A) In general.--If a trust is severed in a qualified 
        severance, the trusts resulting from such severance shall be 
        treated as separate trusts thereafter for purposes of this 
        chapter.
            ``(B) Qualified severance.--For purposes of subparagraph 
        (A)--
                ``(i) In general.--The term `qualified severance' means 
            the division of a single trust and the creation (by any 
            means available under the governing instrument or under 
            local law) of two or more trusts if--

                    ``(I) the single trust was divided on a fractional 
                basis, and
                    ``(II) the terms of the new trusts, in the 
                aggregate, provide for the same succession of interests 
                of beneficiaries as are provided in the original trust.

                ``(ii) Trusts with inclusion ratio greater than zero.--
            If a trust has an inclusion ratio of greater than zero and 
            less than 1, a severance is a qualified severance only if 
            the single trust is divided into two trusts, one of which 
            receives a fractional share of the total value of all trust 
            assets equal to the applicable fraction of the single trust 
            immediately before the severance. In such case, the trust 
            receiving such fractional share shall have an inclusion 
            ratio of zero and the other trust shall have an inclusion 
            ratio of 1.
                ``(iii) Regulations.--The term `qualified severance' 
            includes any other severance permitted under regulations 
            prescribed by the Secretary.
            ``(C) Timing and manner of severances.--A severance 
        pursuant to this paragraph may be made at any time. The 
        Secretary shall prescribe by forms or regulations the manner in 
        which the qualified severance shall be reported to the 
        Secretary.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to severances after the date of the enactment of this Act.

SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES.

    (a) Gifts for Which Gift Tax Return Filed or Deemed Allocation 
Made.--Paragraph (1) of section 2642(b) (relating to valuation rules, 
etc.) is amended to read as follows:
        ``(1) Gifts for which gift tax return filed or deemed 
    allocation made.--If the allocation of the GST exemption to any 
    transfers of property is made on a gift tax return filed on or 
    before the date prescribed by section 6075(b) for such transfer or 
    is deemed to be made under section 2632 (b)(1) or (c)(1)--
            ``(A) the value of such property for purposes of subsection 
        (a) shall be its value as finally determined for purposes of 
        chapter 12 (within the meaning of section 2001(f)(2)), or, in 
        the case of an allocation deemed to have been made at the close 
        of an estate tax inclusion period, its value at the time of the 
        close of the estate tax inclusion period, and
            ``(B) such allocation shall be effective on and after the 
        date of such transfer, or, in the case of an allocation deemed 
        to have been made at the close of an estate tax inclusion 
        period, on and after the close of such estate tax inclusion 
        period.''.
    (b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is 
amended to read as follows:
            ``(A) Transfers at death.--If property is transferred as a 
        result of the death of the transferor, the value of such 
        property for purposes of subsection (a) shall be its value as 
        finally determined for purposes of chapter 11; except that, if 
        the requirements prescribed by the Secretary respecting 
        allocation of post-death changes in value are not met, the 
        value of such property shall be determined as of the time of 
        the distribution concerned.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 1431 of the Tax 
Reform Act of 1986.

SEC. 634. RELIEF PROVISIONS.

    (a) In General.--Section 2642 is amended by adding at the end the 
following new subsection:
    ``(g) Relief Provisions.--
        ``(1) Relief for late elections.--
            ``(A) In general.--The Secretary shall by regulation 
        prescribe such circumstances and procedures under which 
        extensions of time will be granted to make--
                ``(i) an allocation of GST exemption described in 
            paragraph (1) or (2) of subsection (b), and
                ``(ii) an election under subsection (b)(3) or (c)(5) of 
            section 2632.
        Such regulations shall include procedures for requesting 
        comparable relief with respect to transfers made before the 
        date of the enactment of this paragraph.
            ``(B) Basis for determinations.--In determining whether to 
        grant relief under this paragraph, the Secretary shall take 
        into account all relevant circumstances, including evidence of 
        intent contained in the trust instrument or instrument of 
        transfer and such other factors as the Secretary deems 
        relevant. For purposes of determining whether to grant relief 
        under this paragraph, the time for making the allocation (or 
        election) shall be treated as if not expressly prescribed by 
        statute.
        ``(2) Substantial compliance.--An allocation of GST exemption 
    under section 2632 that demonstrates an intent to have the lowest 
    possible inclusion ratio with respect to a transfer or a trust 
    shall be deemed to be an allocation of so much of the transferor's 
    unused GST exemption as produces the lowest possible inclusion 
    ratio. In determining whether there has been substantial 
    compliance, all relevant circumstances shall be taken into account, 
    including evidence of intent contained in the trust instrument or 
    instrument of transfer and such other factors as the Secretary 
    deems relevant.''.
    (b) Effective Dates.--
        (1) Relief for late elections.--Section 2642(g)(1) of the 
    Internal Revenue Code of 1986 (as added by subsection (a)) shall 
    apply to requests pending on, or filed after, the date of the 
    enactment of this Act.
        (2) Substantial compliance.--Section 2642(g)(2) of such Code 
    (as so added) shall take effect on the date of the enactment of 
    this Act and shall apply to allocations made prior to such date for 
    purposes of determining the tax consequences of generation-skipping 
    transfers with respect to which the period of time for filing 
    claims for refund has not expired. No implication is intended with 
    respect to the availability of relief for late elections or the 
    application of a rule of substantial compliance prior to the 
    enactment of this amendment.

                   Subtitle E--Conservation Easements

SEC. 641. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Where Land Is Located.--
        (1) In general.--Clause (i) of section 2031(c)(8)(A) (defining 
    land subject to a conservation easement) is amended--
            (A) by striking ``25 miles'' both places it appears and 
        inserting ``50 miles'', and
            (B) striking ``10 miles'' and inserting ``25 miles''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply to estates of decedents dying after December 31, 1999.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--
        (1) In general.--Section 2031(c)(2) (defining applicable 
    percentage) is amended by adding at the end the following new 
    sentence: ``The values taken into account under the preceding 
    sentence shall be such values as of the date of the contribution 
    referred to in paragraph (8)(B).''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to estates of decedents dying after December 31, 1997.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES
           Subtitle A--American Community Renewal Act of 1999

SEC. 701. SHORT TITLE.

    This subtitle may be cited as the ``American Community Renewal Act 
of 1999''.

SEC. 702. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL COMMUNITIES.

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

                  ``Subchapter X--Renewal Communities

        ``Part   I. Designation.
        ``Part  II. Renewal community capital gain; renewal community 
                  business.
        ``Part  III. Family development accounts.
        ``Part   IV. Additional incentives.

                         ``PART I--DESIGNATION

        ``Sec. 1400E. Designation of renewal communities.

``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

    ``(a) Designation.--
        ``(1) Definitions.--For purposes of this title, the term 
    `renewal community' means any area--
            ``(A) which is nominated by one or more local governments 
        and the State or States in which it is located for designation 
        as a renewal community (hereinafter in this section referred to 
        as a `nominated area'); and
            ``(B) which the Secretary of Housing and Urban Development 
        designates as a renewal community, after consultation with--
                ``(i) the Secretaries of Agriculture, Commerce, Labor, 
            and the Treasury; the Director of the Office of Management 
            and Budget; and the Administrator of the Small Business 
            Administration; and
                ``(ii) in the case of an area on an Indian reservation, 
            the Secretary of the Interior.
        ``(2) Number of designations.--
            ``(A) In general.--The Secretary of Housing and Urban 
        Development may designate not more than 20 nominated areas as 
        renewal communities.
            ``(B) Minimum designation in rural areas.--Of the areas 
        designated under paragraph (1), at least four must be areas--
                ``(i) which are within a local government jurisdiction 
            or jurisdictions with a population of less than 50,000,
                ``(ii) which are outside of a metropolitan statistical 
            area (within the meaning of section 143(k)(2)(B)), or
                ``(iii) which are determined by the Secretary of 
            Housing and Urban Development, after consultation with the 
            Secretary of Commerce, to be rural areas.
        ``(3) Areas designated based on degree of poverty, etc.--
            ``(A) In general.--Except as otherwise provided in this 
        section, the nominated areas designated as renewal communities 
        under this subsection shall be those nominated areas with the 
        highest average ranking with respect to the criteria described 
        in subparagraphs (B), (C), and (D) of subsection (c)(3). For 
        purposes of the preceding sentence, an area shall be ranked 
        within each such criterion on the basis of the amount by which 
        the area exceeds such criterion, with the area which exceeds 
        such criterion by the greatest amount given the highest 
        ranking.
            ``(B) Exception where inadequate course of action, etc.--An 
        area shall not be designated under subparagraph (A) if the 
        Secretary of Housing and Urban Development determines that the 
        course of action described in subsection (d)(2) with respect to 
        such area is inadequate.
            ``(C) Priority for empowerment zones and enterprise 
        communities with respect to first half of designations.--With 
        respect to the first 10 designations made under this section--
                ``(i) all shall be chosen from nominated areas which 
            are empowerment zones or enterprise communities (and are 
            otherwise eligible for designation under this section); and
                ``(ii) two shall be areas described in paragraph 
            (2)(B).
        ``(4) Limitation on designations.--
            ``(A) Publication of regulations.--The Secretary of Housing 
        and Urban Development shall prescribe by regulation no later 
        than 4 months after the date of the enactment of this section, 
        after consultation with the officials described in paragraph 
        (1)(B)--
                ``(i) the procedures for nominating an area under 
            paragraph (1)(A);
                ``(ii) the parameters relating to the size and 
            population characteristics of a renewal community; and
                ``(iii) the manner in which nominated areas will be 
            evaluated based on the criteria specified in subsection 
            (d).
            ``(B) Time limitations.--The Secretary of Housing and Urban 
        Development may designate nominated areas as renewal 
        communities only during the 24-month period beginning on the 
        first day of the first month following the month in which the 
        regulations described in subparagraph (A) are prescribed.
            ``(C) Procedural rules.--The Secretary of Housing and Urban 
        Development shall not make any designation of a nominated area 
        as a renewal community under paragraph (2) unless--
                ``(i) the local governments and the States in which the 
            nominated area is located have the authority--

                    ``(I) to nominate such area for designation as a 
                renewal community;
                    ``(II) to make the State and local commitments 
                described in subsection (d); and
                    ``(III) to provide assurances satisfactory to the 
                Secretary of Housing and Urban Development that such 
                commitments will be fulfilled,

                ``(ii) a nomination regarding such area is submitted in 
            such a manner and in such form, and contains such 
            information, as the Secretary of Housing and Urban 
            Development shall by regulation prescribe; and
                ``(iii) the Secretary of Housing and Urban Development 
            determines that any information furnished is reasonably 
            accurate.
        ``(5) Nomination process for indian reservations.--For purposes 
    of this subchapter, in the case of a nominated area on an Indian 
    reservation, the reservation governing body (as determined by the 
    Secretary of the Interior) shall be treated as being both the State 
    and local governments with respect to such area.
    ``(b) Period for Which Designation Is in Effect.--
        ``(1) In general.--Any designation of an area as a renewal 
    community shall remain in effect during the period beginning on the 
    date of the designation and ending on the earliest of--
            ``(A) December 31, 2007,
            ``(B) the termination date designated by the State and 
        local governments in their nomination, or
            ``(C) the date the Secretary of Housing and Urban 
        Development revokes such designation.
        ``(2) Revocation of designation.--The Secretary of Housing and 
    Urban Development may revoke the designation under this section of 
    an area if such Secretary determines that the local government or 
    the State in which the area is located--
            ``(A) has modified the boundaries of the area, or
            ``(B) is not complying substantially with, or fails to make 
        progress in achieving, the State or local commitments, 
        respectively, described in subsection (d).
    ``(c) Area and Eligibility Requirements.--
        ``(1) In general.--The Secretary of Housing and Urban 
    Development may designate a nominated area as a renewal community 
    under subsection (a) only if the area meets the requirements of 
    paragraphs (2) and (3) of this subsection.
        ``(2) Area requirements.--A nominated area meets the 
    requirements of this paragraph if--
            ``(A) the area is within the jurisdiction of one or more 
        local governments;
            ``(B) the boundary of the area is continuous; and
            ``(C) the area--
                ``(i) has a population, of at least--

                    ``(I) 4,000 if any portion of such area (other than 
                a rural area described in subsection (a)(2)(B)(i)) is 
                located within a metropolitan statistical area (within 
                the meaning of section 143(k)(2)(B)) which has a 
                population of 50,000 or greater; or
                    ``(II) 1,000 in any other case; or

                ``(ii) is entirely within an Indian reservation (as 
            determined by the Secretary of the Interior).
        ``(3) Eligibility requirements.--A nominated area meets the 
    requirements of this paragraph if the State and the local 
    governments in which it is located certify (and the Secretary of 
    Housing and Urban Development, after such review of supporting data 
    as he deems appropriate, accepts such certification) that--
            ``(A) the area is one of pervasive poverty, unemployment, 
        and general distress;
            ``(B) the unemployment rate in the area, as determined by 
        the most recent available data, was at least 1\1/2\ times the 
        national unemployment rate for the period to which such data 
        relate;
            ``(C) the poverty rate for each population census tract 
        within the nominated area is at least 20 percent; and
            ``(D) in the case of an urban area, at least 70 percent of 
        the households living in the area have incomes below 80 percent 
        of the median income of households within the jurisdiction of 
        the local government (determined in the same manner as under 
        section 119(b)(2) of the Housing and Community Development Act 
        of 1974).
        ``(4) Consideration of high incidence of crime.--The Secretary 
    of Housing and Urban Development shall take into account, in 
    selecting nominated areas for designation as renewal communities 
    under this section, the extent to which such areas have a high 
    incidence of crime.
        ``(5) Consideration of communities identified in gao study.--
    The Secretary of Housing and Urban Development shall take into 
    account, in selecting nominated areas for designation as renewal 
    communities under this section, if the area has census tracts 
    identified in the May 12, 1998, report of the Government Accounting 
    Office regarding the identification of economically distressed 
    areas.
    ``(d) Required State and Local Commitments.--
        ``(1) In general.--The Secretary of Housing and Urban 
    Development may designate any nominated area as a renewal community 
    under subsection (a) only if--
            ``(A) the local government and the State in which the area 
        is located agree in writing that, during any period during 
        which the area is a renewal community, such governments will 
        follow a specified course of action which meets the 
        requirements of paragraph (2) and is designed to reduce the 
        various burdens borne by employers or employees in such area; 
        and
            ``(B) the economic growth promotion requirements of 
        paragraph (3) are met.
        ``(2) Course of action.--
            ``(A) In general.--A course of action meets the 
        requirements of this paragraph if such course of action is a 
        written document, signed by a State (or local government) and 
        neighborhood organizations, which evidences a partnership 
        between such State or government and community-based 
        organizations and which commits each signatory to specific and 
        measurable goals, actions, and timetables. Such course of 
        action shall include at least five of the following:
                ``(i) A reduction of tax rates or fees applying within 
            the renewal community.
                ``(ii) An increase in the level of efficiency of local 
            services within the renewal community.
                ``(iii) Crime reduction strategies, such as crime 
            prevention (including the provision of such services by 
            nongovernmental entities).
                ``(iv) Actions to reduce, remove, simplify, or 
            streamline governmental requirements applying within the 
            renewal community.
                ``(v) Involvement in the program by private entities, 
            organizations, neighborhood organizations, and community 
            groups, particularly those in the renewal community, 
            including a commitment from such private entities to 
            provide jobs and job training for, and technical, 
            financial, or other assistance to, employers, employees, 
            and residents from the renewal community.
                ``(vi) State or local income tax benefits for fees paid 
            for services performed by a nongovernmental entity which 
            were formerly performed by a governmental entity.
                ``(vii) The gift (or sale at below fair market value) 
            of surplus real property (such as land, homes, and 
            commercial or industrial structures) in the renewal 
            community to neighborhood organizations, community 
            development corporations, or private companies.
            ``(B) Recognition of past efforts.--For purposes of this 
        section, in evaluating the course of action agreed to by any 
        State or local government, the Secretary of Housing and Urban 
        Development shall take into account the past efforts of such 
        State or local government in reducing the various burdens borne 
        by employers and employees in the area involved.
        ``(3) Economic growth promotion requirements.--The economic 
    growth promotion requirements of this paragraph are met with 
    respect to a nominated area if the local government and the State 
    in which such area is located certify in writing that such 
    government and State, respectively, have repealed or otherwise will 
    not enforce within the area, if such area is designated as a 
    renewal community--
            ``(A) licensing requirements for occupations that do not 
        ordinarily require a professional degree;
            ``(B) zoning restrictions on home-based businesses which do 
        not create a public nuisance;
            ``(C) permit requirements for street vendors who do not 
        create a public nuisance;
            ``(D) zoning or other restrictions that impede the 
        formation of schools or child care centers; and
            ``(E) franchises or other restrictions on competition for 
        businesses providing public services, including but not limited 
        to taxicabs, jitneys, cable television, or trash hauling,
    except to the extent that such regulation of businesses and 
    occupations is necessary for and well-tailored to the protection of 
    health and safety.
    ``(e) Coordination With Treatment of Empowerment Zones and 
Enterprise Communities.--For purposes of this title, if there are in 
effect with respect to the same area both--
        ``(1) a designation as a renewal community; and
        ``(2) a designation as an empowerment zone or enterprise 
    community,
both of such designations shall be given full effect with respect to 
such area.
    ``(f) Definitions and Special Rules.--For purposes of this 
subchapter--
        ``(1) Governments.--If more than one government seeks to 
    nominate an area as a renewal community, any reference to, or 
    requirement of, this section shall apply to all such governments.
        ``(2) State.--The term `State' includes Puerto Rico, the Virgin 
    Islands of the United States, Guam, American Samoa, the Northern 
    Mariana Islands, and any other possession of the United States.
        ``(3) Local government.--The term `local government' means--
            ``(A) any county, city, town, township, parish, village, or 
        other general purpose political subdivision of a State;
            ``(B) any combination of political subdivisions described 
        in subparagraph (A) recognized by the Secretary of Housing and 
        Urban Development; and
            ``(C) the District of Columbia.
        ``(4) Application of rules relating to census tracts and census 
    data.--The rules of sections 1392(b)(4) and 1393(a)(9) shall apply.

 ``PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

        ``Sec. 1400F. Renewal community capital gain.
        ``Sec. 1400G. Renewal community business defined.

``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

    ``(a) General Rule.--Gross income does not include any qualified 
capital gain recognized on the sale or exchange of a qualified 
community asset held for more than 5 years.
    ``(b) Qualified Community Asset.--For purposes of this section--
        ``(1) In general.--The term `qualified community asset' means--
            ``(A) any qualified community stock;
            ``(B) any qualified community partnership interest; and
            ``(C) any qualified community business property.
        ``(2) Qualified community stock.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        the term `qualified community stock' means any stock in a 
        domestic corporation if--
                ``(i) such stock is acquired by the taxpayer after 
            December 31, 2000, and before January 1, 2008, at its 
            original issue (directly or through an underwriter) from 
            the corporation solely in exchange for cash;
                ``(ii) as of the time such stock was issued, such 
            corporation was a renewal community business (or, in the 
            case of a new corporation, such corporation was being 
            organized for purposes of being a renewal community 
            business); and
                ``(iii) during substantially all of the taxpayer's 
            holding period for such stock, such corporation qualified 
            as a renewal community business.
            ``(B) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this paragraph.
        ``(3) Qualified community partnership interest.--The term 
    `qualified community partnership interest' means any capital or 
    profits interest in a domestic partnership if--
            ``(A) such interest is acquired by the taxpayer after 
        December 31, 2000, and before January 1, 2008;
            ``(B) as of the time such interest was acquired, such 
        partnership was a renewal community business (or, in the case 
        of a new partnership, such partnership was being organized for 
        purposes of being a renewal community business); and
            ``(C) during substantially all of the taxpayer's holding 
        period for such interest, such partnership qualified as a 
        renewal community business.
    A rule similar to the rule of paragraph (2)(B) shall apply for 
    purposes of this paragraph.
        ``(4) Qualified community business property.--
            ``(A) In general.--The term `qualified community 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, 2000, and before January 1, 2008;
                ``(ii) the original use of such property in the renewal 
            community 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 renewal community business of 
            the taxpayer.
            ``(B) Special rule for substantial improvements.--The 
        requirements of clauses (i) and (ii) of subparagraph (A) shall 
        be treated as satisfied with respect to--
                ``(i) property which is substantially improved (within 
            the meaning of section 1400B(b)(4)(B)(ii)) by the taxpayer 
            before January 1, 2008; and
                ``(ii) any land on which such property is located.
    ``(c) Certain Rules To Apply.--Rules similar to the rules of 
paragraphs (5), (6), and (7) of subsection (b), and subsections (e), 
(f), and (g), of section 1400B shall apply for purposes of this 
section.

``SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

    ``For purposes of this part, the term `renewal community business' 
means any entity or proprietorship which would be a qualified business 
entity or qualified proprietorship under section 1397B if--
        ``(1) references to renewal communities were substituted for 
    references to empowerment zones in such section; and
        ``(2) `80 percent' were substituted for `50 percent' in 
    subsections (b)(2) and (c)(1) of such section.

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

        ``Sec. 1400H. Family development accounts for renewal community 
                  EITC recipients.
        ``Sec. 1400I. Designation of earned income tax credit payments 
                  for deposit to family development account.

``SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL COMMUNITY EITC 
              RECIPIENTS.

    ``(a) Allowance of Deduction.--
        ``(1) In general.--There shall be allowed as a deduction--
            ``(A) in the case of a qualified individual, the amount 
        paid in cash for the taxable year by such individual to any 
        family development account for such individual's benefit; and
            ``(B) in the case of any person other than a qualified 
        individual, the amount paid in cash for the taxable year by 
        such person to any family development account for the benefit 
        of a qualified individual but only if the amount so paid is 
        designated for purposes of this section by such individual.
        ``(2) Limitation.--
            ``(A) In general.--The amount allowable as a deduction to 
        any individual for any taxable year by reason of paragraph 
        (1)(A) shall not exceed the lesser of--
                ``(i) $2,000, or
                ``(ii) an amount equal to the compensation includible 
            in the individual's gross income for such taxable year.
            ``(B) Persons donating to family development accounts of 
        others.--The amount which may be designated under paragraph 
        (1)(B) by any qualified individual for any taxable year of such 
        individual shall not exceed $1,000.
        ``(3) Special rules for certain married individuals.--Rules 
    similar to rules of section 219(c) shall apply to the limitation in 
    paragraph (2)(A).
        ``(4) Coordination with iras.--No deduction shall be allowed 
    under this section for any taxable year to any person by reason of 
    a payment to an account for the benefit of a qualified individual 
    if any amount is paid for such taxable year into an individual 
    retirement account (including a Roth IRA) for the benefit of such 
    individual.
        ``(5) Rollovers.--No deduction shall be allowed under this 
    section with respect to any rollover contribution.
    ``(b) Tax Treatment of Distributions.--
        ``(1) Inclusion of amounts in gross income.--Except as 
    otherwise provided in this subsection, any amount paid or 
    distributed out of a family development account shall be included 
    in gross income by the payee or distributee, as the case may be.
        ``(2) Exclusion of qualified family development 
    distributions.--Paragraph (1) shall not apply to any qualified 
    family development distribution.
    ``(c) Qualified Family Development Distribution.--For purposes of 
this section--
        ``(1) In general.--The term `qualified family development 
    distribution' means any amount paid or distributed out of a family 
    development account which would otherwise be includible in gross 
    income, to the extent that such payment or distribution is used 
    exclusively to pay qualified family development expenses for the 
    holder of the account or the spouse or dependent (as defined in 
    section 152) of such holder.
        ``(2) Qualified family development expenses.--The term 
    `qualified family development expenses' means any of the following:
            ``(A) Qualified higher education expenses.
            ``(B) Qualified first-time homebuyer costs.
            ``(C) Qualified business capitalization costs.
            ``(D) Qualified medical expenses.
            ``(E) Qualified rollovers.
        ``(3) Qualified higher education expenses.--
            ``(A) In general.--The term `qualified higher education 
        expenses' has the meaning given such term by section 72(t)(7), 
        determined by treating postsecondary vocational educational 
        schools as eligible educational institutions.
            ``(B) Postsecondary vocational education school.--The term 
        `postsecondary vocational educational school' means an area 
        vocational education school (as defined in subparagraph (C) or 
        (D) of section 521(4) of the Carl D. Perkins Vocational and 
        Applied Technology Education Act (20 U.S.C. 2471(4))) which is 
        in any State (as defined in section 521(33) of such Act), as 
        such sections are in effect on the date of the enactment of 
        this section.
            ``(C) 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).
        ``(4) Qualified first-time homebuyer costs.--The term 
    `qualified first-time homebuyer costs' means qualified acquisition 
    costs (as defined in section 72(t)(8) without regard to 
    subparagraph (B) thereof) with respect to a principal residence 
    (within the meaning of section 121) for a qualified first-time 
    homebuyer (as defined in section 72(t)(8)).
        ``(5) Qualified business capitalization costs.--
            ``(A) In general.--The term `qualified business 
        capitalization costs' means qualified expenditures for the 
        capitalization of a qualified business pursuant to a qualified 
        plan.
            ``(B) Qualified expenditures.--The term `qualified 
        expenditures' means expenditures included in a qualified plan, 
        including capital, plant, equipment, working capital, and 
        inventory expenses.
            ``(C) Qualified business.--The term `qualified business' 
        means any trade or business other than any trade or business--
                ``(i) which consists of the operation of any facility 
            described in section 144(c)(6)(B), or
                ``(ii) which contravenes any law.
            ``(D) Qualified plan.--The term `qualified plan' means a 
        business plan which meets such requirements as the Secretary 
        may specify.
        ``(6) Qualified medical expenses.--The term `qualified medical 
    expenses' means any amount paid during the taxable year, not 
    compensated for by insurance or otherwise, for medical care (as 
    defined in section 213(d)) of the taxpayer, his spouse, or his 
    dependent (as defined in section 152).
        ``(7) Qualified rollovers.--The term `qualified rollover' means 
    any amount paid from a family development account of a taxpayer 
    into another such account established for the benefit of--
            ``(A) such taxpayer, or
            ``(B) any qualified individual who is--
                ``(i) the spouse of such taxpayer, or
                ``(ii) any dependent (as defined in section 152) of the 
            taxpayer.
    Rules similar to the rules of section 408(d)(3) shall apply for 
    purposes of this paragraph.
    ``(d) Tax Treatment of Accounts.--
        ``(1) In general.--Any family development account is exempt 
    from taxation under this subtitle unless such account has ceased to 
    be a family development account by reason of paragraph (2). 
    Notwithstanding the preceding sentence, any such account is subject 
    to the taxes imposed by section 511 (relating to imposition of tax 
    on unrelated business income of charitable, etc., organizations). 
    Notwithstanding any other provision of this title (including 
    chapters 11 and 12), the basis of any person in such an account is 
    zero.
        ``(2) Loss of exemption in case of prohibited transactions.--
    For purposes of this section, rules similar to the rules of section 
    408(e) shall apply.
        ``(3) Other rules to apply.--Rules similar to the rules of 
    paragraphs (4), (5), and (6) of section 408(d) shall apply for 
    purposes of this section.
    ``(e) Family Development Account.--For purposes of this title, the 
term `family development account' means a trust created or organized in 
the United States for the exclusive benefit of a qualified individual 
or his beneficiaries, but only if the written governing instrument 
creating the trust meets the following requirements:
        ``(1) Except in the case of a qualified rollover (as defined in 
    subsection (c)(7))--
            ``(A) no contribution will be accepted unless it is in 
        cash; and
            ``(B) contributions will not be accepted for the taxable 
        year in excess of $3,000.
        ``(2) The requirements of paragraphs (2) through (6) of section 
    408(a) are met.
    ``(f) Qualified Individual.--For purposes of this section, the term 
`qualified individual' means, for any taxable year, an individual--
        ``(1) who is a bona fide resident of a renewal community 
    throughout the taxable year; and
        ``(2) to whom a credit was allowed under section 32 for the 
    preceding taxable year.
    ``(g) Other Definitions and Special Rules.--
        ``(1) Compensation.--The term `compensation' has the meaning 
    given such term by section 219(f)(1).
        ``(2) Married individuals.--The maximum deduction under 
    subsection (a) shall be computed separately for each individual, 
    and this section shall be applied without regard to any community 
    property laws.
        ``(3) Time when contributions deemed made.--For purposes of 
    this section, a taxpayer shall be deemed to have made a 
    contribution to a family development account on the last day of the 
    preceding taxable year if the contribution is made on account of 
    such taxable year and is made not later than the time prescribed by 
    law for filing the return for such taxable year (not including 
    extensions thereof).
        ``(4) Employer payments; custodial accounts.--Rules similar to 
    the rules of sections 219(f)(5) and 408(h) shall apply for purposes 
    of this section.
        ``(5) Reports.--The trustee of a family development account 
    shall make such reports regarding such account to the Secretary and 
    to the individual for whom the account is maintained with respect 
    to contributions (and the years to which they relate), 
    distributions, and such other matters as the Secretary may require 
    under regulations. The reports required by this paragraph--
            ``(A) shall be filed at such time and in such manner as the 
        Secretary prescribes in such regulations; and
            ``(B) shall be furnished to individuals--
                ``(i) not later than January 31 of the calendar year 
            following the calendar year to which such reports relate; 
            and
                ``(ii) in such manner as the Secretary prescribes in 
            such regulations.
        ``(6) Investment in collectibles treated as distributions.--
    Rules similar to the rules of section 408(m) shall apply for 
    purposes of this section.
    ``(h) Penalty for Distributions Not Used for Qualified Family 
Development Expenses.--
        ``(1) In general.--If any amount is distributed from a family 
    development account and is not used exclusively to pay qualified 
    family development expenses for the holder of the account or the 
    spouse or dependent (as defined in section 152) of such holder, the 
    tax imposed by this chapter for the taxable year of such 
    distribution shall be increased by 10 percent of the portion of 
    such amount which is includible in gross income.
        ``(2) Exception for certain distributions.--Paragraph (1) shall 
    not apply to distributions which are--
            ``(A) made on or after the date on which the account holder 
        attains age 59\1/2\,
            ``(B) made to a beneficiary (or the estate of the account 
        holder) on or after the death of the account holder, or
            ``(C) attributable to the account holder's being disabled 
        within the meaning of section 72(m)(7).
    ``(i) Application of Section.--This section shall apply to amounts 
paid to a family development account for any taxable year beginning 
after December 31, 2000, and before January 1, 2008.

``SEC. 1400I. DESIGNATION OF EARNED INCOME TAX CREDIT PAYMENTS FOR 
              DEPOSIT TO FAMILY DEVELOPMENT ACCOUNT.

    ``(a) In General.--With respect to the return of any qualified 
individual (as defined in section 1400H(f)) for the taxable year of the 
tax imposed by this chapter, such individual may designate that a 
specified portion (not less than $1) of any overpayment of tax for such 
taxable year which is attributable to the earned income tax credit 
shall be deposited by the Secretary into a family development account 
of such individual. The Secretary shall so deposit such portion 
designated under this subsection.
    ``(b) Manner and Time of Designation.--A designation under 
subsection (a) may be made with respect to any taxable year--
        ``(1) at the time of filing the return of the tax imposed by 
    this chapter for such taxable year, or
        ``(2) at any other time (after the time of filing the return of 
    the tax imposed by this chapter for such taxable year) specified in 
    regulations prescribed by the Secretary.
Such designation shall be made in such manner as the Secretary 
prescribes by regulations.
    ``(c) Portion Attributable to Earned Income Tax Credit.--For 
purposes of subsection (a), an overpayment for any taxable year shall 
be treated as attributable to the earned income tax credit to the 
extent that such overpayment does not exceed the credit allowed to the 
taxpayer under section 32 for such taxable year.
    ``(d) Overpayments Treated as Refunded.--For purposes of this 
title, any portion of an overpayment of tax designated under subsection 
(a) shall be treated as being refunded to the taxpayer as of the last 
date prescribed for filing the return of tax imposed by this chapter 
(determined without regard to extensions) or, if later, the date the 
return is filed.
    ``(e) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 2007.

                    ``PART IV--ADDITIONAL INCENTIVES

        ``Sec. 1400K. Commercial revitalization deduction.
        ``Sec. 1400L. Increase in expensing under section 179.

``SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.

    ``(a) General Rule.--At the election of the taxpayer, either--
        ``(1) one-half of any qualified revitalization expenditures 
    chargeable to capital account with respect to any qualified 
    revitalization building shall be allowable as a deduction for the 
    taxable year in which the building is placed in service, or
        ``(2) a deduction for all such expenditures shall be allowable 
    ratably over the 120-month period beginning with the month in which 
    the building is placed in service.
The deduction provided by this section with respect to such expenditure 
shall be in lieu of any depreciation deduction otherwise allowable on 
account of such expenditure.
    ``(b) Qualified Revitalization Buildings and Expenditures.--For 
purposes of this section--
        ``(1) Qualified revitalization building.--The term `qualified 
    revitalization building' means any building (and its structural 
    components) if--
            ``(A) such building is located in a renewal community and 
        is placed in service after December 31, 2000;
            ``(B) a commercial revitalization deduction amount is 
        allocated to the building under subsection (d); and
            ``(C) depreciation (or amortization in lieu of 
        depreciation) is allowable with respect to the building 
        (without regard to this section).
        ``(2) Qualified revitalization expenditure.--
            ``(A) In general.--The term `qualified revitalization 
        expenditure' means any amount properly chargeable to capital 
        account--
                ``(i) for property for which depreciation is allowable 
            under section 168 (without regard to this section) and 
            which is--

                    ``(I) nonresidential real property; or
                    ``(II) an addition or improvement to property 
                described in subclause (I);

                ``(ii) in connection with the construction of any 
            qualified revitalization building which was not previously 
            placed in service or in connection with the substantial 
            rehabilitation (within the meaning of section 47(c)(1)(C)) 
            of a building which was placed in service before the 
            beginning of such rehabilitation; and
                ``(iii) for land (including land which is functionally 
            related to such property and subordinate thereto).
            ``(B) Dollar limitation.--The aggregate amount which may be 
        treated as qualified revitalization expenditures with respect 
        to any qualified revitalization building for any taxable year 
        shall not exceed the excess of--
                ``(i) $10,000,000, reduced by
                ``(ii) any such expenditures with respect to the 
            building taken into account by the taxpayer or any 
            predecessor in determining the amount of the deduction 
            under this section for all preceding taxable years.
            ``(C) Certain expenditures not included.--The term 
        `qualified revitalization expenditure' does not include--
                ``(i) Acquisition costs.--The costs of acquiring any 
            building or interest therein and any land in connection 
            with such building to the extent that such costs exceed 30 
            percent of the qualified revitalization expenditures 
            determined without regard to this clause.
                ``(ii) Credits.--Any expenditure which the taxpayer may 
            take into account in computing any credit allowable under 
            this title unless the taxpayer elects to take the 
            expenditure into account only for purposes of this section.
    ``(c) When Expenditures Taken Into Account.--Qualified 
revitalization expenditures with respect to any qualified 
revitalization building shall be taken into account for the taxable 
year in which the qualified revitalization building is placed in 
service. For purposes of the preceding sentence, a substantial 
rehabilitation of a building shall be treated as a separate building.
    ``(d) Limitation on Aggregate Deductions Allowable With Respect to 
Buildings Located in a State.--
        ``(1) In general.--The amount of the deduction determined under 
    this section for any taxable year with respect to any building 
    shall not exceed the commercial revitalization deduction amount (in 
    the case of an amount determined under subsection (a)(2), the 
    present value of such amount as determined under the rules of 
    section 42(b)(2)(C) by substituting `100 percent' for `72 percent' 
    in clause (ii) thereof) allocated to such building under this 
    subsection by the commercial revitalization agency. Such allocation 
    shall be made at the same time and in the same manner as under 
    paragraphs (1) and (7) of section 42(h).
        ``(2) Commercial revitalization deduction amount for 
    agencies.--
            ``(A) In general.--The aggregate commercial revitalization 
        deduction amount which a commercial revitalization agency may 
        allocate for any calendar year is the amount of the State 
        commercial revitalization deduction ceiling determined under 
        this paragraph for such calendar year for such agency.
            ``(B) State commercial revitalization deduction ceiling.--
        The State commercial revitalization deduction ceiling 
        applicable to any State--
                ``(i) for each calendar year after 2000 and before 2008 
            is $6,000,000 for each renewal community in the State; and
                ``(ii) zero for each calendar year thereafter.
            ``(C) Commercial revitalization agency.--For purposes of 
        this section, the term `commercial revitalization agency' means 
        any agency authorized by a State to carry out this section.
    ``(e) Responsibilities of Commercial Revitalization Agencies.--
        ``(1) Plans for allocation.--Notwithstanding any other 
    provision of this section, the commercial revitalization deduction 
    amount with respect to any building shall be zero unless--
            ``(A) such amount was allocated pursuant to a qualified 
        allocation plan of the commercial revitalization agency which 
        is approved (in accordance with rules similar to the rules of 
        section 147(f)(2) (other than subparagraph (B)(ii) thereof)) by 
        the governmental unit of which such agency is a part; and
            ``(B) such agency notifies the chief executive officer (or 
        its equivalent) of the local jurisdiction within which the 
        building is located of such allocation and provides such 
        individual a reasonable opportunity to comment on the 
        allocation.
        ``(2) Qualified allocation plan.--For purposes of this 
    subsection, the term `qualified allocation plan' means any plan--
            ``(A) which sets forth selection criteria to be used to 
        determine priorities of the commercial revitalization agency 
        which are appropriate to local conditions;
            ``(B) which considers--
                ``(i) the degree to which a project contributes to the 
            implementation of a strategic plan that is devised for a 
            renewal community through a citizen participation process;
                ``(ii) the amount of any increase in permanent, full-
            time employment by reason of any project; and
                ``(iii) the active involvement of residents and 
            nonprofit groups within the renewal community; and
            ``(C) which provides a procedure that the agency (or its 
        agent) will follow in monitoring compliance with this section.
    ``(f) Regulations.--For purposes of this section, the Secretary 
shall, by regulations, provide for the application of rules similar to 
the rules of section 49 and subsections (a) and (b) of section 50.
    ``(g) Termination.--This section shall not apply to any building 
placed in service after December 31, 2007.

``SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.

    ``(a) General Rule.--In the case of a renewal community business 
(as defined in section 1400G), for purposes of section 179--
        ``(1) the limitation under section 179(b)(1) shall be increased 
    by the lesser of--
            ``(A) $35,000; or
            ``(B) the cost of section 179 property which is qualified 
        renewal property placed in service during the taxable year; and
        ``(2) the amount taken into account under section 179(b)(2) 
    with respect to any section 179 property which is qualified renewal 
    property shall be 50 percent of the cost thereof.
    ``(b) Recapture.--Rules similar to the rules under section 
179(d)(10) shall apply with respect to any qualified renewal property 
which ceases to be used in a renewal community by a renewal community 
business.
    ``(c) Qualified Renewal Property.--For purposes of this section--
        ``(1) In general.--The term `qualified renewal property' means 
    any property to which section 168 applies (or would apply but for 
    section 179) if--
            ``(A) such property was acquired by the taxpayer by 
        purchase (as defined in section 179(d)(2)) after December 31, 
        2000, and before January 1, 2008; and
            ``(B) such property would be qualified zone property (as 
        defined in section 1397C) if references to renewal communities 
        were substituted for references to empowerment zones in section 
        1397C.
        ``(2) Certain rules to apply.--The rules of subsections (a)(2) 
    and (b) of section 1397C shall apply for purposes of this 
    section.''.

SEC. 703. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS TO 
              RENEWAL COMMUNITIES.

    (a) Extension.--Paragraph (2) of section 198(c) (defining targeted 
area) is amended by redesignating subparagraph (C) as subparagraph (D) 
and by inserting after subparagraph (B) the following new subparagraph:
            ``(C) Renewal communities included.--Except as provided in 
        subparagraph (B), such term shall include a renewal community 
        (as defined in section 1400E) with respect to expenditures paid 
        or incurred after December 31, 2000.''.
    (b) Extension of Termination Date for Renewal Communities.--
Subsection (h) of section 198 is amended by inserting before the period 
``(December 31, 2007, in the case of a renewal community, as defined in 
section 1400E).''.

SEC. 704. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR RENEWAL 
              COMMUNITIES.

    (a) Extension.--Subsection (c) of section 51 (relating to 
termination) is amended by adding at the end the following new 
paragraph:
        ``(5) Extension of credit for renewal communities.--
            ``(A) In general.--In the case of an individual who begins 
        work for the employer after the date contained in paragraph 
        (4)(B), for purposes of section 38--
                ``(i) in lieu of applying subsection (a), the amount of 
            the work opportunity credit determined under this section 
            for the taxable year shall be equal to--

                    ``(I) 15 percent of the qualified first-year wages 
                for such year; and
                    ``(II) 30 percent of the qualified second-year 
                wages for such year;

                ``(ii) subsection (b)(3) shall be applied by 
            substituting `$10,000' for `$6,000';
                ``(iii) paragraph (4)(B) shall be applied by 
            substituting for the date contained therein the last day 
            for which the designation under section 1400E of the 
            renewal community referred to in subparagraph (B)(i) is in 
            effect; and
                ``(iv) rules similar to the rules of section 
            51A(b)(5)(C) shall apply.
            ``(B) Qualified first- and second-year wages.--For purposes 
        of subparagraph (A)--
                ``(i) In general.--The term `qualified wages' means, 
            with respect to each 1-year period referred to in clause 
            (ii) or (iii), as the case may be, the wages paid or 
            incurred by the employer during the taxable year to any 
            individual but only if--

                    ``(I) the employer is engaged in a trade or 
                business in a renewal community throughout such 1-year 
                period;
                    ``(II) the principal place of abode of such 
                individual is in such renewal community throughout such 
                1-year period; and
                    ``(III) substantially all of the services which 
                such individual performs for the employer during such 
                1-year period are performed in such renewal community.

                ``(ii) 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.
                ``(iii) 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 clause (ii).''.
    (b) Congruent Treatment of Renewal Communities and Enterprise Zones 
for Purposes of Youth Residence Requirements.--
        (1) High-risk youth.--Subparagraphs (A)(ii) and (B) of section 
    51(d)(5) are each amended by striking ``empowerment zone or 
    enterprise community'' and inserting ``empowerment zone, enterprise 
    community, or renewal community''.
        (2) Qualified summer youth employee.--Clause (iv) of section 
    51(d)(7)(A) is amended by striking ``empowerment zone or enterprise 
    community'' and inserting ``empowerment zone, enterprise community, 
    or renewal community''.
        (3) Headings.--Paragraphs (5)(B) and (7)(C) of section 51(d) 
    are each amended by inserting ``or community'' in the heading after 
    ``zone''.
        (4) Effective date.--The amendments made by this subsection 
    shall apply to individuals who begin work for the employer after 
    December 31, 2000.

SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.

    (a) Deduction for Contributions to Family Development Accounts 
Allowable Whether or Not Taxpayer Itemizes.--Subsection (a) of section 
62 (relating to adjusted gross income defined) is amended by inserting 
after paragraph (19) the following new paragraph:
        ``(20) Family development accounts.--The deduction allowed by 
    section 1400H(a)(1).''.
    (b) Tax on Excess Contributions.--
        (1) Tax imposed.--Subsection (a) of section 4973 is amended by 
    striking ``or'' at the end of paragraph (3), adding ``or'' at the 
    end of paragraph (4), and inserting after paragraph (4) the 
    following new paragraph:
        ``(5) a family development account (within the meaning of 
    section 1400H(e)),''.
        (2) Excess contributions.--Section 4973 is amended by adding at 
    the end the following new subsection:
    ``(g) Family Development Accounts.--For purposes of this section, 
in the case of family development accounts, the term `excess 
contributions' means the sum of--
        ``(1) the excess (if any) of--
            ``(A) the amount contributed for the taxable year to the 
        accounts (other than a qualified rollover, as defined in 
        section 1400H(c)(7)), over
            ``(B) the amount allowable as a deduction under section 
        1400H for such contributions; and
        ``(2) the amount determined under this subsection for the 
    preceding taxable year reduced by the sum of--
            ``(A) the distributions out of the accounts for the taxable 
        year which were included in the gross income of the payee under 
        section 1400H(b)(1);
            ``(B) the distributions out of the accounts for the taxable 
        year to which rules similar to the rules of section 408(d)(5) 
        apply by reason of section 1400H(d)(3); and
            ``(C) the excess (if any) of the maximum amount allowable 
        as a deduction under section 1400H for the taxable year over 
        the amount contributed to the account for the taxable year.
For purposes of this subsection, any contribution which is distributed 
from the family development account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
1400H(d)(3) shall be treated as an amount not contributed.''.
    (c) Tax on Prohibited Transactions.--Section 4975 is amended--
        (1) by adding at the end of subsection (c) the following new 
    paragraph:
        ``(6) Special rule for family development accounts.--An 
    individual for whose benefit a family development 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, with respect to such transaction, 
    the account ceases to be a family development account by reason of 
    the application of section 1400H(d)(2) to such account.''; and
        (2) in subsection (e)(1), by striking ``or'' at the end of 
    subparagraph (E), by redesignating subparagraph (F) as subparagraph 
    (G), and by inserting after subparagraph (E) the following new 
    subparagraph:
            ``(F) a family development account described in section 
        1400H(e), or''.
    (d) Information Relating to Certain Trusts and Annuity Plans.--
Subsection (c) of section 6047 is amended--
        (1) by inserting ``or section 1400H'' after ``section 219''; 
    and
        (2) by inserting ``, of any family development account 
    described in section 1400H(e),'', after ``section 408(a)''.
    (e) Inspection of Applications for Tax Exemption.--Clause (i) of 
section 6104(a)(1)(B) is amended by inserting ``a family development 
account described in section 1400H(e),'' after ``section 408(a),''.
    (f) Failure To Provide Reports on Family Development Accounts.--
Paragraph (2) of section 6693(a) is amended by striking ``and'' at the 
end of subparagraph (C), by striking the period and inserting ``, and'' 
at the end of subparagraph (D), and by adding at the end the following 
new subparagraph:
            ``(E) section 1400H(g)(6) (relating to family development 
        accounts).''.
    (g) Conforming Amendments Regarding Commercial Revitalization 
Deduction.--
        (1) Section 172 is amended by redesignating subsection (j) as 
    subsection (k) and by inserting after subsection (i) the following 
    new subsection:
    ``(j) No carryback of section 1400k Deduction Before Date of the 
Enactment.--No portion of the net operating loss for any taxable year 
which is attributable to any commercial revitalization deduction 
determined under section 1400K may be carried back to a taxable year 
ending before the date of the enactment of section 1400K.''.
        (2) Subparagraph (B) of section 48(a)(2) is amended by 
    inserting ``or commercial revitalization'' after ``rehabilitation'' 
    each place it appears in the text and heading.
        (3) Subparagraph (C) of section 469(i)(3) is amended--
            (A) by inserting ``or section 1400K'' after ``section 42''; 
        and
            (B) by inserting ``and commercial revitalization 
        deduction'' after ``credit'' in the heading.
    (h) Clerical Amendments.--The table of subchapters for chapter 1 is 
amended by adding at the end the following new item:

                 ``Subchapter X. Renewal Communities.''.

                     Subtitle B--Farming Incentive

SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.

    Any option to accelerate the receipt of any payment under a 
production flexibility contract which is payable under the Federal 
Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7200 et seq.), 
as in effect on the date of the enactment of this Act, shall be 
disregarded in determining the taxable year for which such payment is 
properly includible in gross income for purposes of the Internal 
Revenue Code of 1986.

                   Subtitle C--Oil and Gas Incentives

SEC. 721. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES ATTRIBUTABLE 
              TO OPERATING MINERAL INTERESTS OF INDEPENDENT OIL AND GAS 
              PRODUCERS.

    (a) In General.--Paragraph (1) of section 172(b) (relating to years 
to which loss may be carried) is amended by adding at the end the 
following new subparagraph:
            ``(H) Losses on operating mineral interests of independent 
        oil and gas producers.--In the case of a taxpayer--
                ``(i) which has an eligible oil and gas loss (as 
            defined in subsection (j)) for a taxable year, and
                ``(ii) which is not an integrated oil company (as 
            defined in section 291(b)(4)),
        such eligible oil and gas loss shall be a net operating loss 
        carryback to each of the 5 taxable years preceding the taxable 
        year of such loss.''.
    (b) Eligible Oil and Gas Loss.--Section 172 is amended by 
redesignating subsection (j) as subsection (k) and by inserting after 
subsection (i) the following new subsection:
    ``(j) Eligible Oil and Gas Loss.--For purposes of this section--
        ``(1) In general.--The term `eligible oil and gas loss' means 
    the lesser of--
            ``(A) the amount which would be the net operating loss for 
        the taxable year if only income and deductions attributable to 
        operating mineral interests (as defined in section 614(d)) in 
        oil and gas wells are taken into account, or
            ``(B) the amount of the net operating loss for such taxable 
        year.
        ``(2) Coordination with subsection (b)(2).--For purposes of 
    applying subsection (b)(2), an eligible oil and gas loss for any 
    taxable year shall be treated in a manner similar to the manner in 
    which a specified liability loss is treated.
        ``(3) Election.--Any taxpayer entitled to a 5-year carryback 
    under subsection (b)(1)(H) from any loss year may elect to have the 
    carryback period with respect to such loss year determined without 
    regard to subsection (b)(1)(H).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to net operating losses for taxable years beginning after 
December 31, 1998.

SEC. 722. DEDUCTION FOR DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (i) the following new subsection:
    ``(j) Delay Rental Payments for Domestic Oil and Gas Wells.--
        ``(1) In general.--Notwithstanding subsection (a), a taxpayer 
    may elect to treat delay rental payments incurred in connection 
    with the development of oil or gas within the United States (as 
    defined in section 638) as payments which are not chargeable to 
    capital account. Any payments so treated shall be allowed as a 
    deduction in the taxable year in which paid or incurred.
        ``(2) Delay rental payments.--For purposes of paragraph (1), 
    the term `delay rental payment' means an amount paid for the 
    privilege of deferring development of an oil or gas well.''.
    (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(j),'' after ``263(i),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 1999.

SEC. 723. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (j) the following new subsection:
    ``(k) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat geological and geophysical expenses incurred in connection with 
the exploration for, or development of, oil or gas within the United 
States (as defined in section 638) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''.
    (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 1999.

SEC. 724. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 PERCENT OF 
              TAXABLE INCOME.

    (a) In General.--Subsection (d) of section 613A (relating to 
limitation on percentage depletion in case of oil and gas wells) is 
amended by adding at the end the following new paragraph:
        ``(6) Temporary suspension of taxable income limit.--Paragraph 
    (1) shall not apply to taxable years beginning after December 31, 
    1998, and before January 1, 2005, including with respect to amounts 
    carried under the second sentence of paragraph (1) to such taxable 
    years.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

SEC. 725. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
              DEDUCTION.

    (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
        ``(4) Certain refiners excluded.--If the taxpayer or a related 
    person engages in the refining of crude oil, subsection (c) shall 
    not apply to the taxpayer for a taxable year if the average daily 
    refinery runs of the taxpayer and the related person for the 
    taxable year exceed 50,000 barrels. For purposes of this paragraph, 
    the average daily refinery runs for any taxable year shall be 
    determined by dividing the aggregate refinery runs for the taxable 
    year by the number of days in the taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

                     Subtitle D--Timber Incentives

SEC. 731. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT OF AMORTIZABLE 
              REFORESTATION EXPENDITURES.

    (a) Increase in Dollar Limitation.--Paragraph (1) of section 194(b) 
(relating to amortization of reforestation expenditures) is amended by 
striking ``$10,000 ($5,000'' and inserting ``$25,000 ($12,500''.
    (b) Temporary Suspension of Increased Dollar Limitation.--
Subsection (b) of section 194(b) (relating to amortization of 
reforestation expenditures) is amended by adding at the end the 
following new paragraph:
        ``(5) Suspension of dollar limitation.--Paragraph (1) shall not 
    apply to taxable years beginning after December 31, 1999, and 
    before January 1, 2004.
    (c) Conforming Amendment.--Paragraph (1) of section 48(b) is 
amended by striking ``section 194(b)(1)'' and inserting ``section 
194(b)(1) and without regard to section 194(b)(5)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 732. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
              OUTRIGHT SALES BY LAND OWNER.

    (a) In General.--Subsection (b) of section 631 (relating to 
disposal of timber with a retained economic interest) is amended--
        (1) by inserting ``and Outright Sales of Timber'' after 
    Economic Interest'' in the subsection heading, and
        (2) by adding before the last sentence the following new 
    sentence: ``The requirement in the first sentence of this 
    subsection to retain an economic interest in timber shall not apply 
    to an outright sale of such timber by the owner thereof if such 
    owner owned the land (at the time of such sale) from which the 
    timber is cut.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales after the date of the enactment of this Act.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

SEC. 801. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-
              EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) is amended to read 
as follows:
        ``(1) Allowance of deduction.--In the case of an individual who 
    is an employee within the meaning of section 401(c)(1), there shall 
    be allowed as a deduction under this section an amount equal to 100 
    percent of the amount paid during the taxable year for insurance 
    which constitutes medical care for the taxpayer and the taxpayer's 
    spouse and dependents.''.
    (b) Clarification of Limitations on Other Coverage.--The first 
sentence of section 162(l)(2)(B) is amended to read as follows: 
``Paragraph (1) shall not apply to any taxpayer for any calendar month 
for which the taxpayer participates in any subsidized health plan 
maintained by any employer (other than an employer described in section 
401(c)(4)) of the taxpayer or the spouse of the taxpayer.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

 SEC. 802. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) In General.--Paragraph (1) of section 179(b) (relating to 
dollar limitation) is amended to read as follows:
        ``(1) Dollar limitation.--The aggregate cost which may be taken 
    into account under subsection (a) for any taxable year shall not 
    exceed $30,000.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

    (a) In General.--Section 3301 (relating to rate of Federal 
unemployment tax) is amended--
        (1) by striking ``2007'' and inserting ``2004'', and
        (2) by striking ``2008'' and inserting ``2005''.
    (b) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after the date of the enactment of this 
Act.

SEC. 804. INCREASED DEDUCTION FOR MEAL EXPENSES; INCREASED 
              DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR INDIVIDUALS 
              SUBJECT TO FEDERAL LIMITATIONS ON HOURS OF SERVICE.

    (a) In General.--Paragraph (1) of section 274(n) (relating to only 
50 percent of meal and entertainment expenses allowed as deduction) is 
amended by striking ``50 percent'' in the text and inserting ``the 
allowable percentage''.
    (b) Allowable Percentages.--Subsection (n) of section 274 is 
amended by redesignating paragraphs (2) and (3) as paragraphs (3) and 
(4), respectively, and by inserting after paragraph (2) the following 
new paragraph:
        ``(2) Allowable percentage.--For purposes of paragraph (1), the 
    allowable percentage is--
            ``(A) in the case of amounts for items described in 
        paragraph (1)(B), 50 percent, and
            ``(B) in the case of expenses for food or beverages, the 
        percentage determined in accordance with the following table:

        ``For taxable years beginning
                                                           The allowable
          in calendar year--
                                                         percentage is--
            2000 through 2005.................................
                                                                     50 
            2006..............................................
                                                                     55 
            2007 and thereafter...............................
                                                                  60.''.

    (c) Individuals Subject to Federal Limitations on Hours of 
Service.--The table in section 274(n)(4)(B) (relating to special rule 
for individuals subject to Federal hours of service), as redesignated 
by subsection (b), is amended--
        (1) by striking ``or 2007'', and
        (2) by striking ``2008'' and inserting ``2007''.
    (d) Conforming Amendments.--
        (1) The heading for subsection (n) of section 274 is amended by 
    striking ``50 Percent'' and inserting ``Limited Percentages''.
        (2) Subparagraph (A) of section 274(n)(4), as redesignated by 
    subsection (b), is amended by striking ``50 percent'' and inserting 
    ``the allowable percentage''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 805. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE 
              ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Section 55(c) (defining regular tax) is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following:
        ``(2) Coordination with income averaging for farmers and 
    fishermen.--Solely for purposes of this section, section 1301 
    (relating to averaging of farm and fishing income) shall not apply 
    in computing the regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
        (1) In general.--Section 1301(a) is amended by striking 
    ``farming business'' and inserting ``farming business or fishing 
    business,''.
        (2) Definition of elected farm income.--
            (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
        amended by inserting ``or fishing business'' before the 
        semicolon.
            (B) Conforming amendment.--Subparagraph (B) of section 
        1301(b)(1) is amended by inserting ``or fishing business'' 
        after ``farming business'' both places it occurs.
        (3) Definition of fishing business.--Section 1301(b) is amended 
    by adding at the end the following new paragraph:
        ``(4) Fishing business.--The term `fishing business' means the 
    conduct of commercial fishing as defined in section 3 of the 
    Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 
    1802).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 806. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

    (a) In General.--Subpart C of part II of subchapter E of chapter 1 
(relating to taxable year for which deductions taken) is amended by 
inserting after section 468B the following:

``SEC. 468C. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual engaged in 
an eligible farming business or commercial fishing, there shall be 
allowed as a deduction for any taxable year the amount paid in cash by 
the taxpayer during the taxable year to a Farm, Fishing, and Ranch Risk 
Management Account (hereinafter referred to as the `FFARRM Account').
    ``(b) Limitation.--
        ``(1) Contributions.--The amount which a taxpayer may pay into 
    the FFARRM Account for any taxable year shall not exceed 20 percent 
    of so much of the taxable income of the taxpayer (determined 
    without regard to this section) which is attributable (determined 
    in the manner applicable under section 1301) to any eligible 
    farming business or commercial fishing.
        ``(2) Distributions.--Distributions from a FFARRM Account may 
    not be used to purchase, lease, or finance any new fishing vessel, 
    add capacity to any fishery, or otherwise contribute to the 
    overcapitalization of any fishery. The Secretary of Commerce shall 
    implement regulations to enforce this paragraph.
    ``(c) Eligible Businesses.--For purposes of this section--
        ``(1) Eligible farming business.--The term `eligible farming 
    business' means any farming business (as defined in section 
    263A(e)(4)) which is not a passive activity (within the meaning of 
    section 469(c)) of the taxpayer.
        ``(2) Commercial Fishing.--The term `commercial fishing' has 
    the meaning given such term by section (3) of the Magnuson-Stevens 
    Fishery Conservation and Management Act (16 U.S.C. 1802) but only 
    if such fishing is not a passive activity (within the meaning of 
    section 469(c)) of the taxpayer.
    ``(d) FFARRM Account.--For purposes of this section--
        ``(1) In general.--The term `FFARRM Account' means a trust 
    created or organized in the United States for the exclusive benefit 
    of the taxpayer, but only if the written governing instrument 
    creating the trust meets the following requirements:
            ``(A) No contribution will be accepted for any taxable year 
        in excess of the amount allowed as a deduction under subsection 
        (a) for such 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 such person will administer 
        the trust will be consistent with the requirements of this 
        section.
            ``(C) The assets of the trust consist entirely of cash or 
        of obligations which have adequate stated interest (as defined 
        in section 1274(c)(2)) and which pay such interest not less 
        often than annually.
            ``(D) All income of the trust is distributed currently to 
        the grantor.
            ``(E) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
        ``(2) Account taxed as grantor trust.--The grantor of a FFARRM 
    Account shall be treated for purposes of this title as the owner of 
    such Account and shall be subject to tax thereon in accordance with 
    subpart E of part I of subchapter J of this chapter (relating to 
    grantors and others treated as substantial owners).
    ``(e) Inclusion of Amounts Distributed.--
        ``(1) In general.--Except as provided in paragraph (2), there 
    shall be includible in the gross income of the taxpayer for any 
    taxable year--
            ``(A) any amount distributed from a FFARRM Account of the 
        taxpayer during such taxable year, and
            ``(B) any deemed distribution under--
                ``(i) subsection (f)(1) (relating to deposits not 
            distributed within 5 years),
                ``(ii) subsection (f)(2) (relating to cessation in 
            eligible farming business), and
                ``(iii) subparagraph (A) or (B) of subsection (f)(3) 
            (relating to prohibited transactions and pledging account 
            as security).
        ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
            ``(A) any distribution to the extent attributable to income 
        of the Account, and
            ``(B) the distribution of any contribution paid during a 
        taxable year to a FFARRM Account to the extent that such 
        contribution exceeds the limitation applicable under subsection 
        (b) if requirements similar to the requirements of section 
        408(d)(4) are met.
    For purposes of subparagraph (A), distributions shall be treated as 
    first attributable to income and then to other amounts.
    ``(f) Special Rules.--
        ``(1) Tax on deposits in account which are not distributed 
    within 5 years.--
            ``(A) In general.--If, at the close of any taxable year, 
        there is a nonqualified balance in any FFARRM Account--
                ``(i) there shall be deemed distributed from such 
            Account during such taxable year an amount equal to such 
            balance, and
                ``(ii) the taxpayer's tax imposed by this chapter for 
            such taxable year shall be increased by 10 percent of such 
            deemed distribution.
        The preceding sentence shall not apply if an amount equal to 
        such nonqualified balance is distributed from such Account to 
        the taxpayer before the due date (including extensions) for 
        filing the return of tax imposed by this chapter for such year 
        (or, if earlier, the date the taxpayer files such return for 
        such year).
            ``(B) Nonqualified balance.--For purposes of subparagraph 
        (A), the term `nonqualified balance' means any balance in the 
        Account on the last day of the taxable year which is 
        attributable to amounts deposited in such Account before the 
        4th preceding taxable year.
            ``(C) Ordering rule.--For purposes of this paragraph, 
        distributions from a FFARRM Account (other than distributions 
        of current income) shall be treated as made from deposits in 
        the order in which such deposits were made, beginning with the 
        earliest deposits.
        ``(2) Cessation in eligible business.--At the close of the 
    first disqualification period after a period for which the taxpayer 
    was engaged in an eligible farming business or commercial fishing, 
    there shall be deemed distributed from the FFARRM Account of the 
    taxpayer an amount equal to the balance in such Account (if any) at 
    the close of such disqualification period. For purposes of the 
    preceding sentence, the term `disqualification period' means any 
    period of 2 consecutive taxable years for which the taxpayer is not 
    engaged in an eligible farming business or commercial fishing.
        ``(3) Certain rules to apply.--Rules similar to the following 
    rules shall apply for purposes of this section:
            ``(A) Section 220(f)(8) (relating to treatment on death).
            ``(B) Section 408(e)(2) (relating to loss of exemption of 
        account where individual engages in prohibited transaction).
            ``(C) Section 408(e)(4) (relating to effect of pledging 
        account as security).
            ``(D) Section 408(g) (relating to community property laws).
            ``(E) Section 408(h) (relating to custodial accounts).
        ``(4) Time when payments deemed made.--For purposes of this 
    section, a taxpayer shall be deemed to have made a payment to a 
    FFARRM Account on the last day of a taxable year if such payment is 
    made on account of such taxable year and is made on or before the 
    due date (without regard to extensions) for filing the return of 
    tax for such taxable year.
        ``(5) Individual.--For purposes of this section, the term 
    `individual' shall not include an estate or trust.
        ``(6) Deduction not allowed for self-employment tax.--The 
    deduction allowable by reason of subsection (a) shall not be taken 
    into account in determining an individual's net earnings from self-
    employment (within the meaning of section 1402(a)) for purposes of 
    chapter 2.
    ``(g) Reports.--The trustee of a FFARRM Account shall make such 
reports regarding such Account to the Secretary and to the person for 
whose benefit the Account is maintained 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 persons at 
such time and in such manner as may be required by such regulations.''.
    (b) Tax on Excess Contributions.--
        (1) Subsection (a) of section 4973 (relating to tax on excess 
    contributions to certain tax-favored accounts and annuities) is 
    amended by striking ``or'' at the end of paragraph (3), by 
    redesignating paragraph (4) as paragraph (5), and by inserting 
    after paragraph (3) the following:
        ``(4) a FFARRM Account (within the meaning of section 468C(d)), 
    or''.
        (2) Section 4973 is amended by adding at the end the following:
    ``(g) Excess Contributions to FFARRM Accounts.--For purposes of 
this section, in the case of a FFARRM Account (within the meaning of 
section 468C(d)), the term `excess contributions' means the amount by 
which the amount contributed for the taxable year to the Account 
exceeds the amount which may be contributed to the Account under 
section 468C(b) for such taxable year. For purposes of this subsection, 
any contribution which is distributed out of the FFARRM Account in a 
distribution to which section 468C(e)(2)(B) applies shall be treated as 
an amount not contributed.''.
        (3) The section heading for section 4973 is amended to read as 
    follows:

``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES, 
              ETC.''.

        (4) The table of sections for chapter 43 is amended by striking 
    the item relating to section 4973 and inserting the following:

        ``Sec. 4973. Excess contributions to certain accounts, 
                  annuities, etc.''.

    (c) Tax on Prohibited Transactions.--
        (1) Subsection (c) of section 4975 (relating to tax on 
    prohibited transactions) is amended by adding at the end the 
    following:
        ``(6) Special rule for ffarrm accounts.--A person for whose 
    benefit a FFARRM Account (within the meaning of section 468C(d)) is 
    established 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, with respect to 
    such transaction, the account ceases to be a FFARRM Account by 
    reason of the application of section 468C(f)(3)(A) to such 
    account.''.
        (2) Paragraph (1) of section 4975(e) is amended by 
    redesignating subparagraphs (E) and (F) as subparagraphs (F) and 
    (G), respectively, and by inserting after subparagraph (D) the 
    following:
            ``(E) a FFARRM Account described in section 468C(d),''.
    (d) Failure To Provide Reports on FFARRM Accounts.--Paragraph (2) 
of section 6693(a) (relating to failure to provide reports on certain 
tax-favored accounts or annuities) is amended by redesignating 
subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, 
and by inserting after subparagraph (B) the following:
            ``(C) section 468C(g) (relating to FFARRM Accounts),''.
    (e) Clerical Amendment.--The table of sections for subpart C of 
part II of subchapter E of chapter 1 is amended by inserting after the 
item relating to section 468B the following:

        ``Sec. 468C. Farm, Fishing and Ranch Risk Management 
                  Accounts.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 807. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME 
              TEST FOR BANK S CORPORATIONS.

    (a) In General.--Section 1362(d)(3)(C) (defining passive investment 
income) is amended by adding at the end the following:
                ``(v) Exception for banks; etc.--In the case of a bank 
            (as defined in section 581), a bank holding company (as 
            defined in section 246A(c)(3)(B)(ii)), or a qualified 
            subchapter S subsidiary bank, the term `passive investment 
            income' shall not include--

                    ``(I) interest income earned by such bank, bank 
                holding company, or qualified subchapter S subsidiary 
                bank, or
                    ``(II) dividends on assets required to be held by 
                such bank, bank holding company, or qualified 
                subchapter S subsidiary bank to conduct a banking 
                business, including stock in the Federal Reserve Bank, 
                the Federal Home Loan Bank, or the Federal Agricultural 
                Mortgage Bank or participation certificates issued by a 
                Federal Intermediate Credit Bank.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 808. TREATMENT OF QUALIFYING DIRECTOR SHARES.

    (a) In General.--Section 1361 is amended by adding at the end the 
following:
    ``(f) Treatment of Qualifying Director Shares.--
        ``(1) In general.--For purposes of this subchapter--
            ``(A) qualifying director shares shall not be treated as a 
        second class of stock, and
            ``(B) no person shall be treated as a shareholder of the 
        corporation by reason of holding qualifying director shares.
        ``(2) Qualifying director shares defined.--For purposes of this 
    subsection, the term `qualifying director shares' means any shares 
    of stock in a bank (as defined in section 581) or in a bank holding 
    company registered as such with the Federal Reserve System--
                ``(i) which are held by an individual solely by reason 
            of status as a director of such bank or company or its 
            controlled subsidiary; and
                ``(ii) which are subject to an agreement pursuant to 
            which the holder is required to dispose of the shares of 
            stock upon termination of the holder's status as a director 
            at the same price as the individual acquired such shares of 
            stock.
        ``(3) Distributions.--A distribution (not in part or full 
    payment in exchange for stock) made by the corporation with respect 
    to qualifying director shares shall be includible as ordinary 
    income of the holder and deductible to the corporation as an 
    expense in computing taxable income under section 1363(b) in the 
    year such distribution is received.''.
    (b) Conforming Amendments.--
        (1) Section 1361(b)(1) is amended by inserting ``, except as 
    provided in subsection (f),'' before ``which does not''.
        (2) Section 1366(a) is amended by adding at the end the 
    following:
        ``(3) Allocation with respect to qualifying director shares.--
    The holders of qualifying director shares (as defined in section 
    1361(f)) shall not, with respect to such shares of stock, be 
    allocated any of the items described in paragraph (1).''.
        (3) Section 1373(a) 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 adding at the end the following:
        ``(3) no amount of an expense deductible under this subchapter 
    by reason of section 1361(f)(3) shall be apportioned or allocated 
    to such income.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

                   TITLE IX--INTERNATIONAL TAX RELIEF

SEC. 901. INTEREST ALLOCATION RULES.

    (a) Election To Allocate Interest on a Worldwide Basis.--Subsection 
(e) of section 864 (relating to rules for allocating interest, etc.) is 
amended by redesignating paragraphs (6) and (7) as paragraphs (7) and 
(8), respectively, and by inserting after paragraph (5) the following 
new paragraph:
        ``(6) Election to allocate interest on a worldwide basis.--
            ``(A) In general.--Except as provided in this paragraph, 
        this subsection shall be applied by treating a worldwide 
        affiliated group for which an election under this paragraph is 
        in effect as an affiliated group solely for purposes of 
        allocating and apportioning interest expense of each domestic 
        corporation which is a member of such group.
            ``(B) Worldwide affiliated group.--For purposes of this 
        paragraph, the term `worldwide affiliated group' means the 
        group of corporations which consists of--
                ``(i) all corporations in an affiliated group (as 
            defined in section 1504 without regard to paragraphs (2) 
            and (4) of section 1504(b)), and
                ``(ii) all foreign corporations (other than a FSC, as 
            defined in section 922(a)) with respect to which 
            corporations described in clause (i) own stock meeting the 
            ownership requirements of section 957(a).
        For purposes of clause (ii), ownership shall be determined 
        under section 958; except that paragraphs (3) and (4) of 
        section 318(a) shall not apply for purposes of section 958(b).
            ``(C) Treatment of worldwide affiliated group.--For 
        purposes of applying paragraph (1), the taxable income of the 
        domestic members of a worldwide affiliated group from sources 
        outside the United States shall be determined by allocating and 
        apportioning the interest expense of such domestic members to 
        such income in an amount equal to the excess (if any) of--
                ``(i) the total interest expense of the worldwide 
            affiliated group multiplied by the ratio which the foreign 
            assets of the worldwide affiliated group bears to all the 
            assets of the worldwide affiliated group, over
                ``(ii) the interest expense of all foreign corporations 
            which are members of the worldwide affiliated group to the 
            extent such interest expense of such foreign corporations 
            would have been allocated and apportioned to foreign source 
            income if this subsection were applied to a group 
            consisting of all the foreign corporations in such 
            worldwide affiliated group.
            ``(D) Assets and interest expense of foreign 
        corporations.--
                ``(i) In general.--For purposes of subparagraph (C), 
            only the applicable percentage of the interest expense and 
            assets of a foreign corporation described in subparagraph 
            (B)(ii) shall be taken into account.
                ``(ii) Applicable percentage.--For purposes of this 
            paragraph, the term `applicable percentage' means, with 
            respect to any foreign corporation, the percentage equal to 
            the ratio which the value of the stock in such corporation 
            taken into account under subparagraph (B)(ii) (without 
            regard to stock considered as owned under section 958(b)) 
            bears to the aggregate value of all stock in such 
            corporation.
            ``(E) Election.--An election under this paragraph with 
        respect to any worldwide affiliated group may be made only by 
        the common parent of the affiliated group referred to in 
        subparagraph (B)(i) and may be made only for the first taxable 
        year beginning after December 31, 2001, in which a worldwide 
        affiliated group exists which includes such affiliated group 
        and at least one corporation described in subparagraph (B)(ii). 
        Such an election, once made, shall apply to such common parent 
        and all other corporations which are members of such worldwide 
        affiliated group for such taxable year and all subsequent years 
        unless revoked with the consent of the Secretary.''.
    (b) Election To Allocate Interest Within Financial Institution 
Groups and Subsidiary Groups.--Section 864 is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection:
    ``(f) Election To Apply Subsection (e) on Basis of Financial 
Institution Group and Subsidiary Groups.--
        ``(1) In general.--In the case of a worldwide affiliated group 
    for which an election under subsection (e)(6) is in effect, 
    subsection (e) shall be applied--
            ``(A) by treating an electing financial institution group 
        as if it were a separate worldwide affiliated group, and
            ``(B) by treating each electing subsidiary group as if it 
        were a separate worldwide affiliated group for purposes of 
        allocating interest expense with respect to qualified 
        indebtedness of members of an electing subsidiary group.
    Subsection (e) shall apply to any such electing group in the same 
    manner as subsection (e) applies to the pre-election worldwide 
    affiliated group of which such electing group is a part.
        ``(2) Electing financial institution group.--For purposes of 
    this subsection--
            ``(A) In general.--The term `electing financial institution 
        group' means any group of corporations if--
                ``(i) such group consists only of all of the financial 
            corporations in the pre-election worldwide affiliated 
            group, and
                ``(ii) an election under this paragraph is in effect 
            for such group of corporations.
            ``(B) Financial corporation.--
                ``(i) In general.--The term `financial corporation' 
            means any corporation if at least 80 percent of its gross 
            income is income described in section 904(d)(2)(C)(ii) and 
            the regulations thereunder which is derived from 
            transactions with unrelated persons.
                ``(ii) Income from related financial corporations.--
            Dividend income, and income described in section 
            904(d)(2)(C)(ii) and the regulations thereunder, which is 
            derived directly or indirectly from a financial corporation 
            (as defined in clause (i) without regard to this clause) 
            which is not an unrelated person shall be treated as income 
            described in clause (i).
                ``(iii) Bank holding companies.--To the extent provided 
            in regulations prescribed by the Secretary, a bank holding 
            company (within the meaning of section 2(a) of the Bank 
            Holding Company Act of 1956) shall be treated as a 
            corporation meeting the requirements of clause (i).
                ``(iv) Antiabuse rule.--For purposes of this 
            subparagraph, there shall be disregarded any item of income 
            or gain from a transaction or series of transactions a 
            principal purpose of which is the qualification of any 
            corporation as a financial corporation.
            ``(C) Effect of certain transactions.--Rules similar to the 
        rules of paragraph (3)(D) shall apply to transactions between 
        any member of the electing financial institution group and any 
        member of the pre-election worldwide affiliated group (other 
        than a member of the electing financial institution group).
            ``(D) Election.--An election under this paragraph with 
        respect to any financial institution group may be made only by 
        the common parent of the pre-election worldwide affiliated 
        group and may be made only for the first taxable year beginning 
        after December 31, 2001, in which such affiliated group 
        includes one or more financial corporations described in 
        subparagraph (B). Such an election, once made, shall apply to 
        such taxable year and all subsequent years unless revoked with 
        the consent of the Secretary.
        ``(3) Electing subsidiary groups.--
            ``(A) In general.--The term `electing subsidiary group' 
        means any group of corporations if--
                ``(i) such group consists only of corporations in the 
            pre-election worldwide affiliated group,
                ``(ii) such group includes--

                    ``(I) a domestic corporation (which is not the 
                common parent of the pre-election worldwide affiliated 
                group or a member of an electing financial institution 
                group) which incurs interest expense with respect to 
                qualified indebtedness, and
                    ``(II) every other corporation (other than a member 
                of an electing financial institution group) which is in 
                the pre-election worldwide affiliated group and which 
                would be a member of an affiliated group having such 
                domestic corporation as the common parent, and

                ``(iii) an election under this paragraph is in effect 
            for such group.
            ``(B) Equalization rule.--All interest expense of a 
        domestic corporation which is a member of a pre-election 
        worldwide affiliated group (other than subsidiary group 
        interest expense) shall be treated as allocated to foreign 
        source income to the extent such expense does not exceed the 
        excess (if any) of--
                ``(i) the interest expense of the pre-election 
            worldwide affiliated group (including subsidiary group 
            interest expense) which would (but for any election under 
            this paragraph) be allocated to foreign source income, over
                ``(ii) the subsidiary group interest expense allocated 
            to foreign source income.
        For purposes of the preceding sentence, the subsidiary group 
        interest expense is the interest expense to which subsection 
        (e) applies separately by reason of paragraph (1)(B).
            ``(C) Qualified indebtedness.--For purposes of this 
        subsection, the term `qualified indebtedness' means any 
        indebtedness of a domestic corporation--
                ``(i) which is held by an unrelated person, and
                ``(ii) which is not guaranteed (or otherwise supported) 
            by any corporation which is a member of the pre-election 
            worldwide affiliated group other than a corporation which 
            is a member of the electing subsidiary group.
            ``(D) Effect of certain transactions on qualified 
        indebtedness.--In the case of a corporation which is a member 
        of an electing subsidiary group, to the extent that such 
        corporation--
                ``(i) distributes dividends or makes other 
            distributions with respect to its stock after the date of 
            the enactment of this paragraph to any member of the pre-
            election worldwide affiliated group (other than to a member 
            of the electing subsidiary group) in excess of the greater 
            of--

                    ``(I) its average annual dividend (expressed as a 
                percentage of current earnings and profits) during the 
                5-taxable-year period ending with the taxable year 
                preceding the taxable year, or
                    ``(II) 25 percent of its average annual earnings 
                and profits for such 5 taxable year period, or

                ``(ii) deals with any person in any manner not clearly 
            reflecting the income of the corporation (as determined 
            under principles similar to the principles of section 482),
        except as provided by the Secretary, an amount of qualified 
        indebtedness equal to the excess distribution or the 
        understatement or overstatement of income, as the case may be, 
        shall be recharacterized (for the taxable year and subsequent 
        taxable years) for purposes of this subsection as indebtedness 
        which is not qualified indebtedness. If a corporation has not 
        been in existence for 5 taxable years, this subparagraph shall 
        be applied with respect to the period it was in existence.
            ``(E) Election.--An election under this paragraph with 
        respect to any electing subsidiary group may be made only by 
        the common parent of the pre-election worldwide affiliated 
        group. Such an election, once made, shall apply to the taxable 
        year for which made and the 4 succeeding taxable years unless 
        revoked with the consent of the Secretary. No election may be 
        made under this paragraph if the effect of the election would 
        be to have the same member of the pre-election worldwide 
        affiliated group included in more than one electing subsidiary 
        group.
        ``(4) Pre-election worldwide affiliated group.--For purposes of 
    this subsection, the term `pre-election worldwide affiliated group' 
    means, with respect to a corporation, the worldwide affiliated 
    group of which such corporation would (but for an election under 
    this subsection) be a member for purposes of applying subsection 
    (e).
        ``(5) Unrelated person.--For purposes of this subsection, the 
    term `unrelated person' means any person not bearing a relationship 
    specified in section 267(b) or 707(b)(1) to the corporation.
        ``(6) Regulations.--The Secretary shall prescribe such 
    regulations as may be appropriate to carry out this subsection and 
    subsection (e), including regulations--
            ``(A) providing for the direct allocation of interest 
        expense in other circumstances where such allocation would be 
        appropriate to carry out the purposes of this subsection,
            ``(B) preventing assets or interest expense from being 
        taken into account more than once, and
            ``(C) dealing with changes in members of any group (through 
        acquisitions or otherwise) treated under this subsection as an 
        affiliated group for purposes of subsection (e).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) (relating to application of 
look-thru rules to dividends from noncontrolled section 902 
corporations) is amended to read as follows:
        ``(4) Look-thru applies to dividends from noncontrolled section 
    902 corporations.--
            ``(A) In general.--For purposes of this subsection, any 
        dividend from a noncontrolled section 902 corporation with 
        respect to the taxpayer shall be treated as income in a 
        separate category in proportion to the ratio of--
                ``(i) the portion of earnings and profits attributable 
            to income in such category, to
                ``(ii) the total amount of earnings and profits.
            ``(B) Special rules.--For purposes of this paragraph--
                ``(i) In general.--Rules similar to the rules of 
            paragraph (3)(F) shall apply; except that the term 
            `separate category' shall include the category of income 
            described in paragraph (1)(I).
                ``(ii) Earnings and profits.--

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

                ``(iii) Dividends not allocable to separate category.--
            The portion of any dividend from a noncontrolled section 
            902 corporation which is not treated as income in a 
            separate category under subparagraph (A) shall be treated 
            as a dividend to which subparagraph (A) does not apply.
                ``(iv) Look-thru with respect to carryforwards of 
            credit.--Rules similar to subparagraph (A) also shall apply 
            to any carryforward under subsection (c) from a taxable 
            year beginning before January 1, 2002, of tax allocable to 
            a dividend from a noncontrolled section 902 corporation 
            with respect to the taxpayer.''.
    (b) Conforming Amendments.--
        (1) Subparagraph (E) of section 904(d)(1), as in effect both 
    before and after the amendments made by section 1105 of the 
    Taxpayer Relief Act of 1997, is hereby repealed.
        (2) Section 904(d)(2)(C)(iii), as so in effect, is amended by 
    striking subclause (II) and by redesignating subclause (III) as 
    subclause (II).
        (3) The last sentence of section 904(d)(2)(D), as so in effect, 
    is amended to read as follows: ``Such term does not include any 
    financial services income.''.
        (4) Section 904(d)(2)(E) is amended by striking clauses (ii) 
    and (iv) and by redesignating clause (iii) as clause (ii).
        (5) Section 904(d)(3)(F) is amended by striking ``(D), or (E)'' 
    and inserting ``or (D)''.
        (6) Section 864(d)(5)(A)(i) is amended by striking 
    ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.

    (a) In General.--Section 954(g)(1) (defining foreign base company 
oil related income) is amended by striking ``or'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, or'', and by inserting after subparagraph (B) the 
following new subparagraph:
            ``(C) the pipeline transportation of oil or gas within such 
        foreign country.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
December 31, 2001, and taxable years of United States shareholders with 
or within which such taxable years of controlled foreign corporations 
end.

SEC. 904. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF HIGH 
              VOLTAGE ELECTRICITY.

    (a) In General.--Paragraph (2) of section 954(e) (relating to 
foreign base company services income) is amended by striking ``or'' at 
the end of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, or'', and by inserting after 
subparagraph (B) the following new subparagraph:
            ``(C) the transmission of high voltage electricity.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
December 31, 2001, and taxable years of United States shareholders with 
or within which such taxable years of controlled foreign corporations 
end.

SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l), respectively, and by inserting after subsection (f) the 
following new subsection:
    ``(g) Recharacterization of Overall Domestic Loss.--
        ``(1) General rule.--For purposes of this subpart and section 
    936, in the case of any taxpayer who sustains an overall domestic 
    loss for any taxable year beginning after December 31, 2005, that 
    portion of the taxpayer's taxable income from sources within the 
    United States for each succeeding taxable year which is equal to 
    the lesser of--
            ``(A) the amount of such loss (to the extent not used under 
        this paragraph in prior taxable years), or
            ``(B) 50 percent of the taxpayer's taxable income from 
        sources within the United States for such succeeding taxable 
        year,
    shall be treated as income from sources without the United States 
    (and not as income from sources within the United States).
        ``(2) Overall domestic loss defined.--For purposes of this 
    subsection--
            ``(A) In general.--The term `overall domestic loss' means 
        any domestic loss to the extent such loss offsets taxable 
        income from sources without the United States for the taxable 
        year or for any preceding taxable year by reason of a 
        carryback. For purposes of the preceding sentence, the term 
        `domestic loss' means the amount by which the gross income for 
        the taxable year from sources within the United States is 
        exceeded by the sum of the deductions properly apportioned or 
        allocated thereto (determined without regard to any carryback 
        from a subsequent taxable year).
            ``(B) Taxpayer must have elected foreign tax credit for 
        year of loss.--The term `overall domestic loss' shall not 
        include any loss for any taxable year unless the taxpayer chose 
        the benefits of this subpart for such taxable year.
        ``(3) Characterization of subsequent income.--
            ``(A) In general.--Any income from sources within the 
        United States that is treated as income from sources without 
        the United States under paragraph (1) shall be allocated among 
        and increase the income categories in proportion to the loss 
        from sources within the United States previously allocated to 
        those income categories.
            ``(B) Income category.--For purposes of this paragraph, the 
        term `income category' has the meaning given such term by 
        subsection (f)(5)(E)(i).
        ``(4) Coordination with subsection (f).--The Secretary shall 
    prescribe such regulations as may be necessary to coordinate the 
    provisions of this subsection with the provisions of subsection 
    (f).''.
    (b) Conforming Amendments.--
        (1) Section 535(d)(2) is amended by striking ``section 
    904(g)(6)'' and inserting ``section 904(h)(6)''.
        (2) Subparagraph (A) of section 936(a)(2) is amended by 
    striking ``section 904(f)'' and inserting ``subsections (f) and (g) 
    of section 904''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses for taxable years beginning after December 31, 2005.

SEC. 906. TREATMENT OF MILITARY PROPERTY OF FOREIGN SALES CORPORATIONS.

    (a) In General.--Section 923(a) (defining exempt foreign trade 
income) is amended by striking paragraph (5) and by redesignating 
paragraph (6) as paragraph (5).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 907. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT 
              COMPANIES.

    (a) Treatment of Certain Dividends.--
        (1) Nonresident alien individuals.--Section 871 (relating to 
    tax on nonresident alien individuals) is amended by redesignating 
    subsection (k) as subsection (l) and by inserting after subsection 
    (j) the following new subsection:
    ``(k) Exemption for Certain Dividends of Regulated Investment 
Companies.--
        ``(1) Interest-related dividends.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        no tax shall be imposed under paragraph (1)(A) of subsection 
        (a) on any interest-related dividend received from a regulated 
        investment company.
            ``(B) Exceptions.--Subparagraph (A) shall not apply--
                ``(i) to any interest-related dividend received from a 
            regulated investment company by a person to the extent such 
            dividend is attributable to interest (other than interest 
            described in clause (i), (iii), or the last sentence of 
            subparagraph (E)) received by such company on indebtedness 
            issued by such person or by any corporation or partnership 
            with respect to which such person is a 10-percent 
            shareholder,
                ``(ii) to any interest-related dividend with respect to 
            stock of a regulated investment company unless the person 
            who would otherwise be required to deduct and withhold tax 
            from such dividend under chapter 3 receives a statement 
            (which meets requirements similar to the requirements of 
            subsection (h)(5)) that the beneficial owner of such stock 
            is not a United States person, and
                ``(iii) to any interest-related dividend paid to any 
            person within a foreign country (or any interest-related 
            dividend payment addressed to, or for the account of, 
            persons within such foreign country) during any period 
            described in subsection (h)(6) with respect to such 
            country.
        Clause (iii) shall not apply to any dividend with respect to 
        any stock the holding period of which begins on or before the 
        date of the publication of the Secretary's determination under 
        subsection (h)(6).
            ``(C) Interest-related dividend.--For purposes of this 
        paragraph, an interest-related dividend is any dividend (or 
        part thereof) which is designated by the regulated investment 
        company as an interest-related dividend in a written notice 
        mailed to its shareholders not later than 60 days after the 
        close of its taxable year. If the aggregate amount so 
        designated with respect to a taxable year of the company 
        (including amounts so designated with respect to dividends paid 
        after the close of the taxable year described in section 855) 
        is greater than the qualified net interest income of the 
        company for such taxable year, the portion of each distribution 
        which shall be an interest-related dividend shall be only that 
        portion of the amounts so designated which such qualified net 
        interest income bears to the aggregate amount so designated.
            ``(D) Qualified net interest income.--For purposes of 
        subparagraph (C), the term `qualified net interest income' 
        means the qualified interest income of the regulated investment 
        company reduced by the deductions properly allocable to such 
        income.
            ``(E) Qualified interest income.--For purposes of 
        subparagraph (D), the term `qualified interest income' means 
        the sum of the following amounts derived by the regulated 
        investment company from sources within the United States:
                ``(i) Any amount includible in gross income as original 
            issue discount (within the meaning of section 1273) on an 
            obligation payable 183 days or less from the date of 
            original issue (without regard to the period held by the 
            company).
                ``(ii) Any interest includible in gross income 
            (including amounts recognized as ordinary income in respect 
            of original issue discount or market discount or 
            acquisition discount under part V of subchapter P and such 
            other amounts as regulations may provide) on an obligation 
            which is in registered form; except that this clause shall 
            not apply to--

                    ``(I) any interest on an obligation issued by a 
                corporation or partnership if the regulated investment 
                company is a 10-percent shareholder in such corporation 
                or partnership, and
                    ``(II) any interest which is treated as not being 
                portfolio interest under the rules of subsection 
                (h)(4).

                ``(iii) Any interest referred to in subsection 
            (i)(2)(A) (without regard to the trade or business of the 
            regulated investment company).
                ``(iv) Any interest-related dividend includable in 
            gross income with respect to stock of another regulated 
            investment company.
        Such term includes any interest derived by the regulated 
        investment company from sources outside the United States other 
        than interest that is subject to a tax imposed by a foreign 
        jurisdiction if the amount of such tax is reduced (or 
        eliminated) by a treaty with the United States.
            ``(F) 10-percent shareholder.--For purposes of this 
        paragraph, the term `10-percent shareholder' has the meaning 
        given such term by subsection (h)(3)(B).
        ``(2) Short-term capital gain dividends.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        no tax shall be imposed under paragraph (1)(A) of subsection 
        (a) on any short-term capital gain dividend received from a 
        regulated investment company.
            ``(B) Exception for aliens taxable under subsection 
        (a)(2).--Subparagraph (A) shall not apply in the case of any 
        nonresident alien individual subject to tax under subsection 
        (a)(2).
            ``(C) Short-term capital gain dividend.--For purposes of 
        this paragraph, a short-term capital gain dividend is any 
        dividend (or part thereof) which is designated by the regulated 
        investment company as a short-term capital gain dividend in a 
        written notice mailed to its shareholders not later than 60 
        days after the close of its taxable year. If the aggregate 
        amount so designated with respect to a taxable year of the 
        company (including amounts so designated with respect to 
        dividends paid after the close of the taxable year described in 
        section 855) is greater than the qualified short-term gain of 
        the company for such taxable year, the portion of each 
        distribution which shall be a short-term capital gain dividend 
        shall be only that portion of the amounts so designated which 
        such qualified short-term gain bears to the aggregate amount so 
        designated.
            ``(D) Qualified short-term gain.--For purposes of 
        subparagraph (C), the term `qualified short-term gain' means 
        the excess of the net short-term capital gain of the regulated 
        investment company for the taxable year over the net long-term 
        capital loss (if any) of such company for such taxable year. 
        For purposes of this subparagraph--
                ``(i) the net short-term capital gain of the regulated 
            investment company shall be computed by treating any short-
            term capital gain dividend includible in gross income with 
            respect to stock of another regulated investment company as 
            a short-term capital gain, and
                ``(ii) the excess of the net short-term capital gain 
            for a taxable year over the net long-term capital loss for 
            a taxable year (to which an election under section 
            4982(e)(4) does not apply) shall be determined without 
            regard to any net capital loss or net short-term capital 
            loss attributable to transactions after October 31 of such 
            year, and any such net capital loss or net short-term 
            capital loss shall be treated as arising on the first day 
            of the next taxable year.
        To the extent provided in regulations, clause (ii) shall apply 
        also for purposes of computing the taxable income of the 
        regulated investment company.''.
        (2) Foreign corporations.--Section 881 (relating to tax on 
    income of foreign corporations not connected with United States 
    business) is amended by redesignating subsection (e) as subsection 
    (f) and by inserting after subsection (d) the following new 
    subsection:
    ``(e) Tax Not To Apply to Certain Dividends of Regulated Investment 
Companies.--
        ``(1) Interest-related dividends.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        no tax shall be imposed under paragraph (1) of subsection (a) 
        on any interest-related dividend (as defined in section 
        871(k)(1)) received from a regulated investment company.
            ``(B) Exception.--Subparagraph (A) shall not apply--
                ``(i) to any dividend referred to in section 
            871(k)(1)(B), and
                ``(ii) to any interest-related dividend received by a 
            controlled foreign corporation (within the meaning of 
            section 957(a)) to the extent such dividend is attributable 
            to interest received by the regulated investment company 
            from a person who is a related person (within the meaning 
            of section 864(d)(4)) with respect to such controlled 
            foreign corporation.
            ``(C) Treatment of dividends received by controlled foreign 
        corporations.--The rules of subsection (c)(5)(A) shall apply to 
        any interest-related dividend received by a controlled foreign 
        corporation (within the meaning of section 957(a)) to the 
        extent such dividend is attributable to interest received by 
        the regulated investment company which is described in clause 
        (ii) of section 871(k)(1)(E) (and not described in clause (i), 
        (iii), or the last sentence of such section).
        ``(2) Short-term capital gain dividends.--No tax shall be 
    imposed under paragraph (1) of subsection (a) on any short-term 
    capital gain dividend (as defined in section 871(k)(2)) received 
    from a regulated investment company.''.
        (3) Withholding taxes.--
            (A) Section 1441(c) (relating to exceptions) is amended by 
        adding at the end the following new paragraph:
        ``(12) Certain dividends received from regulated investment 
    companies.--
            ``(A) In general.--No tax shall be required to be deducted 
        and withheld under subsection (a) from any amount exempt from 
        the tax imposed by section 871(a)(1)(A) by reason of section 
        871(k).
            ``(B) Special rule.--For purposes of subparagraph (A), 
        clause (i) of section 871(k)(1)(B) shall not apply to any 
        dividend unless the regulated investment company knows that 
        such dividend is a dividend referred to in such clause. A 
        similar rule shall apply with respect to the exception 
        contained in section 871(k)(2)(B).''.
            (B) Section 1442(a) (relating to withholding of tax on 
        foreign corporations) is amended--
                (i) by striking ``and the reference in section 
            1441(c)(10)'' and inserting ``the reference in section 
            1441(c)(10)'', and
                (ii) by inserting before the period at the end the 
            following: ``, and the references in section 1441(c)(12) to 
            sections 871(a) and 871(k) shall be treated as referring to 
            sections 881(a) and 881(e) (except that for purposes of 
            applying subparagraph (A) of section 1441(c)(12), as so 
            modified, clause (ii) of section 881(e)(1)(B) shall not 
            apply to any dividend unless the regulated investment 
            company knows that such dividend is a dividend referred to 
            in such clause)''.
    (b) Estate Tax Treatment of Interest in Certain Regulated 
Investment Companies.--Section 2105 (relating to property without the 
United States for estate tax purposes) is amended by adding at the end 
the following new subsection:
    ``(d) Stock in a RIC.--
        ``(1) In general.--For purposes of this subchapter, stock in a 
    regulated investment company (as defined in section 851) owned by a 
    nonresident not a citizen of the United States shall not be deemed 
    property within the United States in the proportion that, at the 
    end of the quarter of such investment company's taxable year 
    immediately preceding a decedent's date of death (or at such other 
    time as the Secretary may designate in regulations), the assets of 
    the investment company that were qualifying assets with respect to 
    the decedent bore to the total assets of the investment company.
        ``(2) Qualifying assets.--For purposes of this subsection, 
    qualifying assets with respect to a decedent are assets that, if 
    owned directly by the decedent, would have been--
            ``(A) amounts, deposits, or debt obligations described in 
        subsection (b) of this section,
            ``(B) debt obligations described in the last sentence of 
        section 2104(c), or
            ``(C) other property not within the United States.''.
    (c) Treatment of Regulated Investment Companies Under Section 
897.--
        (1) Paragraph (1) of section 897(h) is amended by striking 
    ``REIT'' each place it appears and inserting ``qualified investment 
    entity''.
        (2) Paragraphs (2) and (3) of section 897(h) are amended to 
    read as follows:
        ``(2) Sale of stock in domestically controlled entity not 
    taxed.--The term `United States real property interest' does not 
    include any interest in a domestically controlled qualified 
    investment entity.
        ``(3) Distributions by domestically controlled qualified 
    investment entities.--In the case of a domestically controlled 
    qualified investment entity, rules similar to the rules of 
    subsection (d) shall apply to the foreign ownership percentage of 
    any gain.''.
        (3) Subparagraphs (A) and (B) of section 897(h)(4) are amended 
    to read as follows:
            ``(A) Qualified investment entity.--The term `qualified 
        investment entity' means any real estate investment trust and 
        any regulated investment company.
            ``(B) Domestically controlled.--The term `domestically 
        controlled qualified investment entity' means any qualified 
        investment entity in which at all times during the testing 
        period less than 50 percent in value of the stock was held 
        directly or indirectly by foreign persons.''.
        (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
    amended by striking ``REIT'' and inserting ``qualified investment 
    entity''.
        (5) The subsection heading for subsection (h) of section 897 is 
    amended by striking ``REITS'' and inserting ``Certain Investment 
    Entities''.
    (d) Effective Date.--
        (1) In general.--Except as otherwise provided in this 
    subsection, the amendments made by this section shall apply to 
    dividends with respect to taxable years of regulated investment 
    companies beginning after December 31, 2004.
        (2) Estate tax treatment.--The amendment made by subsection (b) 
    shall apply to estates of decedents dying after December 31, 2004.
        (3) Certain other provisions.--The amendments made by 
    subsection (c) (other than paragraph (1) thereof) shall take effect 
    on January 1, 2005.

SEC. 908. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN 
              CASE OF FOREIGN OIL AND GAS INCOME.

    (a) In General.--Section 907 (relating to special rules in case of 
foreign oil and gas income) is repealed.
    (b) Conforming Amendments.--
        (1) Each of the following provisions are amended by striking 
    ``907,'':
            (A) Section 245(a)(10).
            (B) Section 865(h)(1)(B).
            (C) Section 904(d)(1).
            (D) Section 904(g)(10)(A).
        (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, as in 
    effect before its repeal by the Taxpayer Refund and Relief Act of 
    1999'' after ``section 907(c)(4)(B)''.
        (3) Section 954(g)(1) is amended by inserting ``, as in effect 
    before its repeal by the Taxpayer Refund and Relief Act of 1999'' 
    after ``907(c)''.
        (4) Section 6501(i) is amended--
            (A) by striking ``, or under section 907(f) (relating to 
        carryback and carryover of disallowed oil and gas extraction 
        taxes)'', and
            (B) by striking ``or 907(f)''.
        (5) The table of sections for subpart A of part III of 
    subchapter N of chapter 1 is amended by striking the item relating 
    to section 907.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 909. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL TAXPAYER 
              INFORMATION.

    (a) In General.--
        (1) Treatment as return information.--Paragraph (2) of section 
    6103(b) (defining return information) is amended by striking 
    ``and'' at the end of subparagraph (A), by inserting ``and'' at the 
    end of subparagraph (B), and by inserting after subparagraph (B) 
    the following new subparagraph:
            ``(C) any advance pricing agreement entered into by a 
        taxpayer and the Secretary and any background information 
        related to such agreement or any application for an advance 
        pricing agreement,''.
        (2) Exception from public inspection as written 
    determination.--Paragraph (1) of section 6110(b) (defining written 
    determination) is amended by adding at the end the following new 
    sentence: ``Such term shall not include any advance pricing 
    agreement entered into by a taxpayer and the Secretary and any 
    background information related to such agreement or any application 
    for an advance pricing agreement.''.
        (3) Effective date.--The amendments made by this subsection 
    shall take effect on the date of the enactment of this Act.
    (b) Annual Report Regarding Advance Pricing Agreements.--
        (1) In general.--Not later than 90 days after the end of each 
    calendar year, the Secretary of the Treasury shall prepare and 
    publish a report regarding advance pricing agreements.
        (2) Contents of report.--The report shall include the following 
    for the calendar year to which such report relates:
            (A) Information about the structure, composition, and 
        operation of the advance pricing agreement program office.
            (B) A copy of each model advance pricing agreement.
            (C) The number of--
                (i) applications filed during such calendar year for 
            advanced pricing agreements;
                (ii) advance pricing agreements executed cumulatively 
            to date and during such calendar year;
                (iii) renewals of advanced pricing agreements issued;
                (iv) pending requests for advance pricing agreements;
                (v) pending renewals of advance pricing agreements;
                (vi) for each of the items in clauses (ii) through (v), 
            the number that are unilateral, bilateral, and 
            multilateral, respectively;
                (vii) advance pricing agreements revoked or canceled, 
            and the number of withdrawals from the advance pricing 
            agreement program; and
                (viii) advanced pricing agreements finalized or renewed 
            by industry.
            (D) General descriptions of--
                (i) the nature of the relationships between the related 
            organizations, trades, or businesses covered by advance 
            pricing agreements;
                (ii) the covered transactions and the business 
            functions performed and risks assumed by such 
            organizations, trades, or businesses;
                (iii) the related organizations, trades, or businesses 
            whose prices or results are tested to determine compliance 
            with transfer pricing methodologies prescribed in advanced 
            pricing agreements;
                (iv) methodologies used to evaluate tested parties and 
            transactions and the circumstances leading to the use of 
            those methodologies;
                (v) critical assumptions made and sources of 
            comparables used;
                (vi) comparable selection criteria and the rationale 
            used in determining such criteria;
                (vii) the nature of adjustments to comparables or 
            tested parties;
                (viii) the nature of any ranges agreed to, including 
            information regarding when no range was used and why, when 
            interquartile ranges were used, and when there was a 
            statistical narrowing of the comparables;
                (ix) adjustment mechanisms provided to rectify results 
            that fall outside of the agreed upon advance pricing 
            agreement range;
                (x) the various term lengths for advance pricing 
            agreements, including rollback years, and the number of 
            advance pricing agreements with each such term length;
                (xi) the nature of documentation required; and
                (xii) approaches for sharing of currency or other 
            risks.
            (E) Statistics regarding the amount of time taken to 
        complete new and renewal advance pricing agreements.
            (F) A detailed description of the Secretary of the 
        Treasury's efforts to ensure compliance with existing advance 
        pricing agreements.
        (3) Confidentiality.--The reports required by this subsection 
    shall be treated as authorized by the Internal Revenue Code of 1986 
    for purposes of section 6103 of such Code, but the reports shall 
    not include information--
            (A) which would not be permitted to be disclosed under 
        section 6110(c) of such Code if such report were a written 
        determination as defined in section 6110 of such Code, or
            (B) which can be associated with, or otherwise identify, 
        directly or indirectly, a particular taxpayer.
        (4) First report.--The report for calendar year 1999 shall 
    include prior calendar years after 1990.
    (c) User Fee.--Section 7527, as added by title XV of this Act, is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Advance Pricing Agreements.--
        ``(1) In general.--In addition to any fee otherwise imposed 
    under this section, the fee imposed for requests for advance 
    pricing agreements shall be increased by $500.
        ``(2) Reduced fee for small businesses.--The Secretary shall 
    provide an appropriate reduction in the amount imposed by reason of 
    paragraph (1) for requests for advance pricing agreements for small 
    businesses.''.
    (d) Regulations.--The Secretary of the Treasury or the Secretary's 
delegate shall prescribe such regulations as may be necessary or 
appropriate to carry out the purposes of section 6103(b)(2)(C), and the 
last sentence of section 6110(b)(1), of the Internal Revenue Code of 
1986, as added by this section.

SEC. 910. INCREASE IN DOLLAR LIMITATION ON SECTION 911 EXCLUSION.

    (a) General Rule.--The table contained in clause (i) of section 
911(b)(2)(D) is amended to read as follows:

``For calendar year--
                                               The exclusion amount is--
    2000......................................................


                                                                $76,000 

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


                                                                 78,000 

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


                                                                 80,000 

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


                                                                 83,000 

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


                                                                 86,000 

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


                                                                 89,000 

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


                                                                 92,000 

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


                                                              95,000.''.

    (b) Conforming Amendment.--Clause (ii) of section 911(b)(2)(D) is 
amended by striking ``$80,000'' and inserting ``$95,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 911. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.

    (a) In General.--Paragraph (3) of section 4261(e) is amended by 
redesignating subparagraph (C) as subparagraph (D) and by inserting 
after subparagraph (B) the following new subparagraph:
            ``(C) Mileage awards issued to individuals residing outside 
        the united states.--The tax imposed by subsection (a) shall not 
        apply to amounts attributable to mileage awards credited to 
        individuals whose mailing addresses on record with the person 
        providing the right to air transportation are outside the 
        United States.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid after December 31, 2004.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

SEC. 1001. EXEMPTION FROM INCOME TAX FOR STATE-CREATED ORGANIZATIONS 
              PROVIDING PROPERTY AND CASUALTY INSURANCE FOR PROPERTY 
              FOR WHICH SUCH COVERAGE IS OTHERWISE UNAVAILABLE.

    (a) In General.--Subsection (c) of section 501 (relating to 
exemption from tax on corporations, certain trusts, etc.) is amended by 
adding at the end the following new paragraph:
        ``(28)(A) Any association created before January 1, 1999, by 
    State law and organized and operated exclusively to provide 
    property and casualty insurance coverage for property located 
    within the State for which the State has determined that coverage 
    in the authorized insurance market is limited or unavailable at 
    reasonable rates, if--
            ``(i) no part of the net earnings of which inures to the 
        benefit of any private shareholder or individual,
            ``(ii) except as provided in clause (v), no part of the 
        assets of which may be used for, or diverted to, any purpose 
        other than--
                ``(I) to satisfy, in whole or in part, the liability of 
            the association for, or with respect to, claims made on 
            policies written by the association,
                ``(II) to invest in investments authorized by 
            applicable law,
                ``(III) to pay reasonable and necessary administration 
            expenses in connection with the establishment and operation 
            of the association and the processing of claims against the 
            association, or
                ``(IV) to make remittances pursuant to State law to be 
            used by the State to provide for the payment of claims on 
            policies written by the association, purchase reinsurance 
            covering losses under such policies, or to support 
            governmental programs to prepare for or mitigate the 
            effects of natural catastrophic events,
            ``(iii) the State law governing the association permits the 
        association to levy assessments on insurance companies 
        authorized to sell property and casualty insurance in the 
        State, or on property and casualty insurance policyholders with 
        insurable interests in property located in the State to fund 
        deficits of the association, including the creation of 
        reserves,
            ``(iv) the plan of operation of the association is subject 
        to approval by the chief executive officer or other official of 
        the State, by the State legislature, or both, and
            ``(v) the assets of the association revert upon dissolution 
        to the State, the State's designee, or an entity designated by 
        the State law governing the association, or State law does not 
        permit the dissolution of the association.
        ``(B)(i) An entity described in clause (ii) shall be 
    disregarded as a separate entity and treated as part of the 
    association described in subparagraph (A) from which it receives 
    remittances described in clause (ii) if an election is made within 
    30 days after the date that such association is determined to be 
    exempt from tax.
        ``(ii) An entity is described in this clause if it is an entity 
    or fund created before January 1, 1999, pursuant to State law and 
    organized and operated exclusively to receive, hold, and invest 
    remittances from an association described in subparagraph (A) and 
    exempt from tax under subsection (a), to make disbursements to pay 
    claims on insurance contracts issued by such association, and to 
    make disbursements to support governmental programs to prepare for 
    or mitigate the effects of natural catastrophic events.''.
    (b) Unrelated Business Taxable Income.--Subsection (a) of section 
512 (relating to unrelated business taxable income) is amended by 
adding at the end the following new paragraph:
        ``(6) Special rule applicable to organizations described in 
    section 501(c)(28).--In the case of an organization described in 
    section 501(c)(28), the term `unrelated business taxable income' 
    means taxable income for a taxable year computed without the 
    application of section 501(c)(28) if at the end of the immediately 
    preceding taxable year the organization's net equity exceeded 15 
    percent of the total coverage in force under insurance contracts 
    issued by the organization and outstanding at the end of such 
    preceding year.''.
    (c) Transitional Rule.--No income or gain shall be recognized by an 
association as a result of a change in status to that of an association 
described by section 501(c)(28) of the Internal Revenue Code of 1986, 
as amended by subsection (a).
    (d) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1999.

SEC. 1002. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    (a) In General.--Paragraph (1) of section 648 of the Tax Reform Act 
of 1984 is amended to read as follows:
        ``(1) such securities or obligations are held in a fund--
            ``(A) which, except to the extent of the investment 
        earnings on such securities or obligations, cannot be used, 
        under State constitutional or statutory restrictions 
        continuously in effect since October 9, 1969, through the date 
        of issue of the bond issue, to pay debt service on the bond 
        issue or to finance the facilities that are to be financed with 
        the proceeds of the bonds, or
            ``(B) the annual distributions from which cannot exceed 7 
        percent of the average fair market value of the assets held in 
        such fund except to the extent distributions are necessary to 
        pay debt service on the bond issue,''.
    (b) Conforming Amendment.--Paragraph (3) of such section is amended 
by striking ``the investment earnings of'' and inserting 
``distributions from''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2000.

SEC. 1003. EXEMPTION PROCEDURE FROM TAXES ON SELF-DEALING.

    (a) In General.--Subsection (d) of section 4941 (relating to taxes 
on self-dealing) is amended by adding at the end the following new 
paragraph:
        ``(3) Special exemption.--The Secretary shall establish an 
    exemption procedure for purposes of this subsection. Pursuant to 
    such procedure, the Secretary may grant a conditional or 
    unconditional exemption of any disqualified person or transaction 
    or class of disqualified persons or transactions, from all or part 
    of the restrictions imposed by paragraph (1). The Secretary may not 
    grant an exemption under this paragraph unless he finds that such 
    exemption is--
            ``(A) administratively feasible,
            ``(B) in the interests of the private foundation, and
            ``(C) protective of the rights of the private foundation.
    Before granting an exemption under this paragraph, the Secretary 
    shall require adequate notice to be given to interested persons and 
    shall publish notice in the Federal Register of the pendency of 
    such exemption and shall afford interested persons an opportunity 
    to present views.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions occurring after the date of the enactment of this Act.

SEC. 1004. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
              ORGANIZATIONS.

    (a) In General.--Subsection (a) of section 7428 (relating to 
creation of remedy) is amended--
        (1) in subparagraph (B) by inserting after ``509(a))'' the 
    following: ``or as a private operating foundation (as defined in 
    section 4942(j)(3))'', and
        (2) by amending subparagraph (C) to read as follows:
            ``(C) with respect to the initial qualification or 
        continuing qualification of an organization as an organization 
        described in section 501(c) (other than paragraph (3)) which is 
        exempt from tax under section 501(a), or''.
    (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended 
in the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to pleadings filed with respect to determinations (or requests 
for determinations) made after the date of the enactment of this Act.

SEC. 1005. MODIFICATIONS TO SECTION 512(B)(13).

    (a) In General.--Paragraph (13) of section 512(b) is amended by 
redesignating subparagraph (E) as subparagraph (F) and by inserting 
after subparagraph (D) the following new paragraph:
            ``(E) Paragraph to apply only to excess payments.--
                ``(i) In general.--Subparagraph (A) shall apply only to 
            the portion of a specified payment received by the 
            controlling organization that exceeds the amount which 
            would have been paid if such payment met the requirements 
            prescribed under section 482.
                ``(ii) Addition to tax for valuation misstatements.--
            The tax imposed by this chapter on the controlling 
            organization shall be increased by an amount equal to 20 
            percent of such excess.''.
    (b) Effective Date.--
        (1) In general.--The amendment made by this section shall apply 
    to payments received or accrued after December 31, 1999.
        (2) Payments subject to binding contract transition rule.--If 
    the amendments made by section 1041 of the Taxpayer Relief Act of 
    1997 do not apply to any amount received or accrued after the date 
    of the enactment of this Act under any contract described in 
    subsection (b)(2) of such section, such amendments also shall not 
    apply to amounts received or accrued under such contract before 
    January 1, 2000.

SEC. 1006. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS EXCLUDED 
              FROM GROSS INCOME.

    (a) In General.--Part III of subchapter B of chapter 1 is amended 
by inserting after section 138 the following new section:

``SEC. 138A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

    ``(a) In General.--Gross income of an individual does not include 
amounts received, from an organization described in section 170(c), as 
reimbursement of operating expenses with respect to use of a passenger 
automobile for the benefit of such organization for which a deduction 
would otherwise be allowable under section 170. The preceding sentence 
shall apply only to the extent that such reimbursement would be 
deductible under section 274(d) (determined by applying the standard 
business mileage rate established pursuant to section 274(d)) if the 
organization were not so described and such individual were an employee 
of such organization.
    ``(b) No Double Benefit.--Subsection (a) shall not apply with 
respect to any expenses if the individual claims a deduction or credit 
for such expenses under any other provision of this title.
    ``(c) Exemption From Reporting Requirements.--Section 6041 shall 
not apply with respect to reimbursements excluded from income under 
subsection (a).''.
    (b) 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 138 the following new items:

        ``Sec. 138A. Reimbursement for use of passenger automobile for 
                  charity.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 1007. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES 
              INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE 
              WHALING.

    (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts) is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the following new 
subsection:
    ``(m) Expenses Paid by Certain Whaling Captains in Support of 
Native Alaskan Subsistence Whaling.--
        ``(1) In general.--In the case of an individual who is 
    recognized by the Alaska Eskimo Whaling Commission as a whaling 
    captain charged with the responsibility of maintaining and carrying 
    out sanctioned whaling activities and who engages in such 
    activities during the taxable year, the amount described in 
    paragraph (2) (to the extent such amount does not exceed $7,500 for 
    the taxable year) shall be treated for purposes of this section as 
    a charitable contribution.
        ``(2) Amount described.--
            ``(A) In general.--The amount described in this paragraph 
        is the aggregate of the reasonable and necessary whaling 
        expenses paid by the taxpayer during the taxable year in 
        carrying out sanctioned whaling activities.
            ``(B) Whaling expenses.--For purposes of subparagraph (A), 
        the term `whaling expenses' includes expenses for--
                ``(i) the acquisition and maintenance of whaling boats, 
            weapons, and gear used in sanctioned whaling activities,
                ``(ii) the supplying of food for the crew and other 
            provisions for carrying out such activities, and
                ``(iii) storage and distribution of the catch from such 
            activities.
        ``(3) Sanctioned whaling activities.--For purposes of this 
    subsection, the term `sanctioned whaling activities' means 
    subsistence bowhead whale hunting activities conducted pursuant to 
    the management plan of the Alaska Eskimo Whaling Commission.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 1999.

SEC. 1008. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.

    (a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) of 
section 501(h) (relating to expenditures by public charities to 
influence legislation) is amended to read as follows:
        ``(1) General rule.--In the case of an organization to which 
    this subsection applies, exemption from taxation under subsection 
    (a) shall be denied because a substantial part of the activities of 
    such organization consists of carrying on propaganda, or otherwise 
    attempting, to influence legislation, but only if such organization 
    normally makes lobbying expenditures in excess of the lobbying 
    ceiling amount for such organization for each taxable year.''.
    (b) Conforming Amendments.--
        (1) Section 501(h)(2) is amended by striking subparagraphs (C) 
    and (D).
        (2) Section 4911(b) is amended to read as follows:
    ``(b) Excess Lobbying Expenditures.--For purposes of this section, 
the term `excess lobbying expenditures' means, for a taxable year, the 
amount by which the lobbying expenditures made by the organization 
during the taxable year exceed the lobbying nontaxable amount for such 
organization for such taxable year.''.
        (3) Section 4911(c) is amended by striking paragraphs (3) and 
    (4).
        (4) Paragraph (1)(A) of section 4911(f) is amended by striking 
    ``limits of section 501(h)(1) have'' and inserting ``limit of 
    section 501(h)(1) has''.
        (5) Paragraph (1)(C) of section 4911(f) is amended by striking 
    ``limits of section 501(h)(1) are'' and inserting ``limit of 
    section 501(h)(1) is''.
        (6) Paragraphs (4)(A) and (4)(B) of section 4911(f) are each 
    amended by striking ``limits of section 501(h)(1)'' and inserting 
    ``limit of section 501(h)(1)''.
        (7) Paragraph (8) of section 6033(b) (relating to certain 
    organizations described in section 501(c)(3)) is amended by 
    inserting ``and'' at the end of subparagraph (A) and by striking 
    subparagraphs (C) and (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 1009. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
              FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
        ``(8) Distributions for charitable purposes.--
            ``(A) In general.--In the case of a qualified charitable 
        distribution from an individual retirement account to an 
        organization described in section 170(c), no amount shall be 
        includible in the gross income of the distributee.
            ``(B) Qualified charitable distribution.--For purposes of 
        this paragraph, the term `qualified charitable distribution' 
        means any distribution from an individual retirement account--
                ``(i) which is made on or after the date that the 
            individual for whose benefit the account is maintained has 
            attained age 70\1/2\, and
                ``(ii) which is a charitable contribution (as defined 
            in section 170(c)) made directly from the account to an 
            organization or entity described in section 170(c).
            ``(C) Denial of deduction.--The amount allowable as a 
        deduction to the taxpayer for the taxable year under section 
        170 for qualified charitable distributions shall be reduced 
        (but not below zero) by the sum of the amounts of the qualified 
        charitable distributions during such year which (but for this 
        paragraph) would have been includible in the gross income of 
        the taxpayer for such year.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2002.

                    TITLE XI--REAL ESTATE PROVISIONS
         Subtitle A--Improvements in Low-Income Housing Credit

SEC. 1101. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

    (a) In General.--Clauses (i) and (ii) of section 42(h)(3)(C) 
(relating to State housing credit ceiling) are amended to read as 
follows:
                ``(i) the unused State housing credit ceiling (if any) 
            of such State for the preceding calendar year,
                ``(ii) the greater of--

                    ``(I) the applicable amount under subparagraph (H) 
                multiplied by the State population, or
                    ``(II) $2,000,000,''.

    (b) Applicable Amount.--Paragraph (3) of section 42(h) (relating to 
housing credit dollar amount for agencies) is amended by adding at the 
end the following new subparagraph:
            ``(H) Applicable amount of state ceiling.--For purposes of 
        subparagraph (C)(ii), the applicable amount shall be determined 
        under the following table:

        ``For calendar year:
                                               The applicable amount is:
            2000..............................................
                                                               $1.35    
            2001..............................................
                                                                1.45    
            2002..............................................
                                                                1.55    
            2003..............................................
                                                                1.65    
            2004 and thereafter...............................
                                                             1.75.''.   

    (c) Adjustment of State Ceiling for Increases in Cost-of-Living.--
Paragraph (3) of section 42(h) (relating to housing credit dollar 
amount for agencies), as amended by subsection (c), is amended by 
adding at the end the following new subparagraph:
            ``(I) Cost-of-living adjustment.--
                ``(i) In general.--In the case of a calendar year after 
            2004, the $2,000,000 in subparagraph (C) and the $1.75 
            amount in subparagraph (H) 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 `calendar year 2003' for `calendar year 
                1992' in subparagraph (B) thereof.

                ``(ii) Rounding.--

                    ``(I) In the case of the amount in subparagraph 
                (C), any increase under clause (i) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                    ``(II) In the case of the amount in subparagraph 
                (H), any increase under clause (i) which is not a 
                multiple of 5 cents shall be rounded to the next lowest 
                multiple of 5 cents.''.

    (d) Conforming Amendments.--
        (1) Section 42(h)(3)(C), as amended by subsection (a), is 
    amended--
            (A) by striking ``clause (ii)'' in the matter following 
        clause (iv) and inserting ``clause (i)'', and
            (B) by striking ``clauses (i)'' in the matter following 
        clause (iv) and inserting ``clauses (ii)''.
        (2) Section 42(h)(3)(D)(ii) is amended--
            (A) by striking ``subparagraph (C)(ii)'' and inserting 
        ``subparagraph (C)(i)'', and
            (B) by striking ``clauses (i)'' in subclause (II) and 
        inserting ``clauses (ii)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to calendar years after 2000 but shall not take effect if 
sections 1102 and 1103 do not take effect.

SEC. 1102. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING CREDITS 
              AMONG PROJECTS.

    (a) Selection Criteria.--Subparagraph (C) of section 42(m)(1) 
(relating to certain selection criteria must be used) is amended--
        (1) by inserting ``, including whether the project includes the 
    use of existing housing as part of a community revitalization 
    plan'' before the comma at the end of clause (iii), and
        (2) by striking clauses (v), (vi), and (vii) and inserting the 
    following new clauses:
                ``(v) tenant populations with special housing needs,
                ``(vi) public housing waiting lists,
                ``(vii) tenant populations of individuals with 
            children, and
                ``(viii) projects intended for eventual tenant 
            ownership.''.
    (b) Preference for Community Revitalization Projects Located in 
Qualified Census Tracts.--Clause (ii) of section 42(m)(1)(B) is amended 
by striking ``and'' at the end of subclause (I), by adding ``and'' at 
the end of subclause (II), and by inserting after subclause (II) the 
following new subclause:

                    ``(III) projects which are located in qualified 
                census tracts (as defined in subsection (d)(5)(C)) and 
                the development of which contributes to a concerted 
                community revitalization plan,''.

SEC. 1103. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.

    (a) Market Study; Public Disclosure of Rationale for Not Following 
Credit Allocation Priorities.--Subparagraph (A) of section 42(m)(1) 
(relating to responsibilities of housing credit agencies) is amended by 
striking ``and'' at the end of clause (i), by striking the period at 
the end of clause (ii) and inserting a comma, and by adding at the end 
the following new clauses:
                ``(iii) a comprehensive market study of the housing 
            needs of low-income individuals in the area to be served by 
            the project is conducted before the credit allocation is 
            made and at the developer's expense by a disinterested 
            party who is approved by such agency, and
                ``(iv) a written explanation is available to the 
            general public for any allocation of a housing credit 
            dollar amount which is not made in accordance with 
            established priorities and selection criteria of the 
            housing credit agency.''.
    (b) Site Visits.--Clause (iii) of section 42(m)(1)(B) (relating to 
qualified allocation plan) is amended by inserting before the period 
``and in monitoring for noncompliance with habitability standards 
through regular site visits''.

SEC. 1104. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH 
              IS ELIGIBLE FOR CREDIT.

    (a) Adjusted Basis To Include Portion of Certain Buildings Used by 
Low-Income Individuals Who Are Not Tenants and by Project Employees.--
Paragraph (4) of section 42(d) (relating to special rules relating to 
determination of adjusted basis) is amended--
        (1) by striking ``subparagraph (B)'' in subparagraph (A) and 
    inserting ``subparagraphs (B) and (C)'',
        (2) by redesignating subparagraph (C) as subparagraph (D), and
        (3) by inserting after subparagraph (B) the following new 
    subparagraph:
            ``(C) Inclusion of basis of property used to provide 
        services for certain nontenants.--
                ``(i) In general.--The adjusted basis of any building 
            located in a qualified census tract (as defined in 
            paragraph (5)(C)) shall be determined by taking into 
            account the adjusted basis of property (of a character 
            subject to the allowance for depreciation and not otherwise 
            taken into account) used throughout the taxable year in 
            providing any community service facility.
                ``(ii) Limitation.--The increase in the adjusted basis 
            of any building which is taken into account by reason of 
            clause (i) shall not exceed 10 percent of the eligible 
            basis of the qualified low-income housing project of which 
            it is a part. For purposes of the preceding sentence, all 
            community service facilities which are part of the same 
            qualified low-income housing project shall be treated as 
            one facility.
                ``(iii) Community service facility.--For purposes of 
            this subparagraph, the term `community service facility' 
            means any facility designed to serve primarily individuals 
            whose income is 60 percent or less of area median income 
            (within the meaning of subsection (g)(1)(B)).''.
    (b) Certain Native American Housing Assistance Disregarded in 
Determining Whether Building Is Federally Subsidized for Purposes of 
the Low-Income Housing Credit.--Subparagraph (E) of section 42(i)(2) 
(relating to determination of whether building is federally subsidized) 
is amended--
        (1) in clause (i), by inserting ``or the Native American 
    Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 
    4101 et seq.) (as in effect on October 1, 1997)'' after ``this 
    subparagraph)'', and
        (2) in the subparagraph heading, by inserting ``or native 
    american housing assistance'' after ``home assistance''.

SEC. 1105. OTHER MODIFICATIONS.

    (a) Allocation of Credit Limit to Certain Buildings.--
        (1) The first sentence of section 42(h)(1)(E)(ii) is amended by 
    striking ``(as of'' the first place it appears and inserting ``(as 
    of the later of the date which is 6 months after the date that the 
    allocation was made or''.
        (2) The last sentence of section 42(h)(3)(C) is amended by 
    striking ``project which'' and inserting ``project which fails to 
    meet the 10 percent test under paragraph (1)(E)(ii) on a date after 
    the close of the calendar year in which the allocation was made or 
    which''.
    (b) Determination of Whether Buildings Are Located in High Cost 
Areas.--The first sentence of section 42(d)(5)(C)(ii)(I) is amended--
        (1) by inserting ``either'' before ``in which 50 percent'', and
        (2) by inserting before the period ``or which has a poverty 
    rate of at least 25 percent''.

SEC. 1106. CARRYFORWARD RULES.

    (a) In General.--Clause (ii) of section 42(h)(3)(D) (relating to 
unused housing credit carryovers allocated among certain States) is 
amended by striking ``the excess'' and all that follows and inserting 
``the excess (if any) of--

                    ``(I) the unused State housing credit ceiling for 
                the year preceding such year, over
                    ``(II) the aggregate housing credit dollar amount 
                allocated for such year.''.

    (b) Conforming Amendment.--The second sentence of section 
42(h)(3)(C) (relating to State housing credit ceiling) is amended by 
striking ``clauses (i) and (iii)'' and inserting ``clauses (i) through 
(iv)''.

SEC. 1107. EFFECTIVE DATE.

    Except as otherwise provided in this subtitle, the amendments made 
by this subtitle shall apply to--
        (1) housing credit dollar amounts allocated after December 31, 
    1999, and
        (2) buildings placed in service after such date to the extent 
    paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 
    does not apply to any building by reason of paragraph (4) thereof, 
    but only with respect to bonds issued after such date.

    Subtitle B--Provisions Relating to Real Estate Investment Trusts

   PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                              SUBSIDIARIES

SEC. 1111. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.

    (a) In General.--Subparagraph (B) of section 856(c)(4) is amended 
to read as follows:
            ``(B)(i) not more than 25 percent of the value of its total 
        assets is represented by securities (other than those 
        includible under subparagraph (A)), and
            ``(ii) except with respect to a taxable REIT subsidiary and 
        securities includible under subparagraph (A)--
                ``(I) not more than 5 percent of the value of its total 
            assets is represented by securities of any one issuer,
                ``(II) the trust does not hold securities possessing 
            more than 10 percent of the total voting power of the 
            outstanding securities of any one issuer, and
                ``(III) the trust does not hold securities having a 
            value of more than 10 percent of the total value of the 
            outstanding securities of any one issuer.''.
    (b) Exception for Straight Debt Securities.--Subsection (c) of 
section 856 is amended by adding at the end the following new 
paragraph:
        ``(7) Straight debt safe harbor in applying paragraph (4).--
    Securities of an issuer which are straight debt (as defined in 
    section 1361(c)(5) without regard to subparagraph (B)(iii) thereof) 
    shall not be taken into account in applying paragraph 
    (4)(B)(ii)(III) if--
            ``(A) the issuer is an individual, or
            ``(B) the only securities of such issuer which are held by 
        the trust or a taxable REIT subsidiary of the trust are 
        straight debt (as so defined), or
            ``(C) the issuer is a partnership and the trust holds at 
        least a 20 percent profits interest in the partnership.''.

SEC. 1112. TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
              SUBSIDIARIES.

    (a) Income From Taxable REIT Subsidiaries Not Treated as 
Impermissible Tenant Service Income.--Clause (i) of section 
856(d)(7)(C) (relating to exceptions to impermissible tenant service 
income) is amended by inserting ``or through a taxable REIT subsidiary 
of such trust'' after ``income''.
    (b) Certain Income From Taxable REIT Subsidiaries Not Excluded From 
Rents From Real Property.--
        (1) In general.--Subsection (d) of section 856 (relating to 
    rents from real property defined) is amended by adding at the end 
    the following new paragraphs:
        ``(8) Special rule for taxable reit subsidiaries.--For purposes 
    of this subsection, amounts paid to a real estate investment trust 
    by a taxable REIT subsidiary of such trust shall not be excluded 
    from rents from real property by reason of paragraph (2)(B) if the 
    requirements of either of the following subparagraphs are met:
            ``(A) Limited rental exception.--The requirements of this 
        subparagraph are met with respect to any property if at least 
        90 percent of the leased space of the property is rented to 
        persons other than taxable REIT subsidiaries of such trust and 
        other than persons described in section 856(d)(2)(B). The 
        preceding sentence shall apply only to the extent that the 
        amounts paid to the trust as rents from real property (as 
        defined in paragraph (1) without regard to paragraph (2)(B)) 
        from such property are substantially comparable to such rents 
        made by the other tenants of the trust's property for 
        comparable space.
            ``(B) Exception for certain lodging facilities.--The 
        requirements of this subparagraph are met with respect to an 
        interest in real property which is a qualified lodging facility 
        leased by the trust to a taxable REIT subsidiary of the trust 
        if the property is operated on behalf of such subsidiary by a 
        person who is an eligible independent contractor.
        ``(9) Eligible independent contractor.--For purposes of 
    paragraph (8)(B)--
            ``(A) In general.--The term `eligible independent 
        contractor' means, with respect to any qualified lodging 
        facility, any independent contractor if, at the time such 
        contractor enters into a management agreement or other similar 
        service contract with the taxable REIT subsidiary to operate 
        the facility, such contractor (or any related person) is 
        actively engaged in the trade or business of operating 
        qualified lodging facilities for any person who is not a 
        related person with respect to the real estate investment trust 
        or the taxable REIT subsidiary.
            ``(B) Special rules.--Solely for purposes of this paragraph 
        and paragraph (8)(B), a person shall not fail to be treated as 
        an independent contractor with respect to any qualified lodging 
        facility by reason of any of the following:
                ``(i) The taxable REIT subsidiary bears the expenses 
            for the operation of the facility pursuant to the 
            management agreement or other similar service contract.
                ``(ii) The taxable REIT subsidiary receives the 
            revenues from the operation of such facility, net of 
            expenses for such operation and fees payable to the 
            operator pursuant to such agreement or contract.
                ``(iii) The real estate investment trust receives 
            income from such person with respect to another property 
            that is attributable to a lease of such other property to 
            such person that was in effect as of the later of--

                    ``(I) January 1, 1999, or
                    ``(II) the earliest date that any taxable REIT 
                subsidiary of such trust entered into a management 
                agreement or other similar service contract with such 
                person with respect to such qualified lodging facility.

            ``(C) Renewals, etc., of existing leases.--For purposes of 
        subparagraph (B)(iii)--
                ``(i) a lease shall be treated as in effect on January 
            1, 1999, without regard to its renewal after such date, so 
            long as such renewal is pursuant to the terms of such lease 
            as in effect on whichever of the dates under subparagraph 
            (B)(iii) is the latest, and
                ``(ii) a lease of a property entered into after 
            whichever of the dates under subparagraph (B)(iii) is the 
            latest shall be treated as in effect on such date if--

                    ``(I) on such date, a lease of such property from 
                the trust was in effect, and
                    ``(II) under the terms of the new lease, such trust 
                receives a substantially similar or lesser benefit in 
                comparison to the lease referred to in subclause (I).

            ``(D) Qualified lodging facility.--For purposes of this 
        paragraph--
                ``(i) In general.--The term `qualified lodging 
            facility' means any lodging facility unless wagering 
            activities are conducted at or in connection with such 
            facility by any person who is engaged in the business of 
            accepting wagers and who is legally authorized to engage in 
            such business at or in connection with such facility.
                ``(ii) Lodging facility.--The term `lodging facility' 
            means a hotel, motel, or other establishment more than one-
            half of the dwelling units in which are used on a transient 
            basis.
                ``(iii) Customary amenities and facilities.--The term 
            `lodging facility' includes customary amenities and 
            facilities operated as part of, or associated with, the 
            lodging facility so long as such amenities and facilities 
            are customary for other properties of a comparable size and 
            class owned by other owners unrelated to such real estate 
            investment trust.
            ``(E) Operate includes manage.--References in this 
        paragraph to operating a property shall be treated as including 
        a reference to managing the property.
            ``(F) Related person.--Persons shall be treated as related 
        to each other if such persons are treated as a single employer 
        under subsection (a) or (b) of section 52.''.
        (2) Conforming amendment.--Subparagraph (B) of section 
    856(d)(2) is amended by inserting ``except as provided in paragraph 
    (8),'' after ``(B)''.
        (3) Determining rents from real property.--
            (A)(i) Paragraph (1) of section 856(d) is amended by 
        striking ``adjusted bases'' each place it occurs and inserting 
        ``fair market values''.
            (ii) The amendment made by this subparagraph shall apply to 
        taxable years beginning after December 31, 2000.
            (B)(i) Clause (i) of section 856(d)(2)(B) is amended by 
        striking ``number'' and inserting ``value''.
            (ii) The amendment made by this subparagraph shall apply to 
        amounts received or accrued in taxable years beginning after 
        December 31, 2000, except for amounts paid pursuant to leases 
        in effect on July 12, 1999, or pursuant to a binding contract 
        in effect on such date and at all times thereafter.

SEC. 1113. TAXABLE REIT SUBSIDIARY.

    (a) In General.--Section 856 is amended by adding at the end the 
following new subsection:
    ``(l) Taxable REIT Subsidiary.--For purposes of this part--
        ``(1) In general.--The term `taxable REIT subsidiary' means, 
    with respect to a real estate investment trust, a corporation 
    (other than a real estate investment trust) if--
            ``(A) such trust directly or indirectly owns stock in such 
        corporation, and
            ``(B) such trust and such corporation jointly elect that 
        such corporation shall be treated as a taxable REIT subsidiary 
        of such trust for purposes of this part.
    Such an election, once made, shall be irrevocable unless both such 
    trust and corporation consent to its revocation. Such election, and 
    any revocation thereof, may be made without the consent of the 
    Secretary.
        ``(2) 35 percent ownership in another taxable reit 
    subsidiary.--The term `taxable REIT subsidiary' includes, with 
    respect to any real estate investment trust, any corporation (other 
    than a real estate investment trust) with respect to which a 
    taxable REIT subsidiary of such trust owns directly or indirectly--
            ``(A) securities possessing more than 35 percent of the 
        total voting power of the outstanding securities of such 
        corporation, or
            ``(B) securities having a value of more than 35 percent of 
        the total value of the outstanding securities of such 
        corporation.
    The preceding sentence shall not apply to a qualified REIT 
    subsidiary (as defined in subsection (i)(2)). The rule of section 
    856(c)(7) shall apply for purposes of subparagraph (B).
        ``(3) Exceptions.--The term `taxable REIT subsidiary' shall not 
    include--
            ``(A) any corporation which directly or indirectly operates 
        or manages a lodging facility or a health care facility, and
            ``(B) any corporation which directly or indirectly provides 
        to any other person (under a franchise, license, or otherwise) 
        rights to any brand name under which any lodging facility or 
        health care facility is operated.
    Subparagraph (B) shall not apply to rights provided to an eligible 
    independent contractor to operate or manage a lodging facility if 
    such rights are held by such corporation as a franchisee, licensee, 
    or in a similar capacity and such lodging facility is either owned 
    by such corporation or is leased to such corporation from the real 
    estate investment trust.
        ``(4) Definitions.--For purposes of paragraph (3)--
            ``(A) Lodging facility.--The term `lodging facility' has 
        the meaning given to such term by paragraph (9)(D)(ii).
            ``(B) Health care facility.--The term `health care 
        facility' has the meaning given to such term by subsection 
        (e)(6)(D)(ii).''.
    (b) Conforming Amendment.--Paragraph (2) of section 856(i) is 
amended by adding at the end the following new sentence: ``Such term 
shall not include a taxable REIT subsidiary.''.

SEC. 1114. LIMITATION ON EARNINGS STRIPPING.

    Paragraph (3) of section 163(j) (relating to limitation on 
deduction for interest on certain indebtedness) 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) any interest paid or accrued (directly or indirectly) 
        by a taxable REIT subsidiary (as defined in section 856(l)) of 
        a real estate investment trust to such trust.''.

SEC. 1115. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.

    (a) In General.--Subsection (b) of section 857 (relating to method 
of taxation of real estate investment trusts and holders of shares or 
certificates of beneficial interest) is amended by redesignating 
paragraphs (7) and (8) as paragraphs (8) and (9), respectively, and by 
inserting after paragraph (6) the following new paragraph:
        ``(7) Income from redetermined rents, redetermined deductions, 
    and excess interest.--
            ``(A) Imposition of tax.--There is hereby imposed for each 
        taxable year of the real estate investment trust a tax equal to 
        100 percent of redetermined rents, redetermined deductions, and 
        excess interest.
            ``(B) Redetermined rents.--
                ``(i) In general.--The term `redetermined rents' means 
            rents from real property (as defined in subsection 856(d)) 
            the amount of which would (but for subparagraph (E)) be 
            reduced on distribution, apportionment, or allocation under 
            section 482 to clearly reflect income as a result of 
            services furnished or rendered by a taxable REIT subsidiary 
            of the real estate investment trust to a tenant of such 
            trust.
                ``(ii) Exception for certain services.--Clause (i) 
            shall not apply to amounts received directly or indirectly 
            by a real estate investment trust for services described in 
            paragraph (1)(B) or (7)(C)(i) of section 856(d).
                ``(iii) Exception for de minimis amounts.--Clause (i) 
            shall not apply to amounts described in section 
            856(d)(7)(A) with respect to a property to the extent such 
            amounts do not exceed the one percent threshold described 
            in section 856(d)(7)(B) with respect to such property.
                ``(iv) Exception for comparably priced services.--
            Clause (i) shall not apply to any service rendered by a 
            taxable REIT subsidiary of a real estate investment trust 
            to a tenant of such trust if--

                    ``(I) such subsidiary renders a significant amount 
                of similar services to persons other than such trust 
                and tenants of such trust who are unrelated (within the 
                meaning of section 856(d)(8)(F)) to such subsidiary, 
                trust, and tenants, but
                    ``(II) only to the extent the charge for such 
                service so rendered is substantially comparable to the 
                charge for the similar services rendered to persons 
                referred to in subclause (I).

                ``(v) Exception for certain separately charged 
            services.--Clause (i) shall not apply to any service 
            rendered by a taxable REIT subsidiary of a real estate 
            investment trust to a tenant of such trust if--

                    ``(I) the rents paid to the trust by tenants 
                (leasing at least 25 percent of the net leasable space 
                in the trust's property) who are not receiving such 
                service from such subsidiary are substantially 
                comparable to the rents paid by tenants leasing 
                comparable space who are receiving such service from 
                such subsidiary, and
                    ``(II) the charge for such service from such 
                subsidiary is separately stated.

                ``(vi) Exception for certain services based on 
            subsidiary's income from the services.--Clause (i) shall 
            not apply to any service rendered by a taxable REIT 
            subsidiary of a real estate investment trust to a tenant of 
            such trust if the gross income of such subsidiary from such 
            service is not less than 150 percent of such subsidiary's 
            direct cost in furnishing or rendering the service.
                ``(vii) Exceptions granted by secretary.--The Secretary 
            may waive the tax otherwise imposed by subparagraph (A) if 
            the trust establishes to the satisfaction of the Secretary 
            that rents charged to tenants were established on an arms' 
            length basis even though a taxable REIT subsidiary of the 
            trust provided services to such tenants.
            ``(C) Redetermined deductions.--The term `redetermined 
        deductions' means deductions (other than redetermined rents) of 
        a taxable REIT subsidiary of a real estate investment trust if 
        the amount of such deductions would (but for subparagraph (E)) 
        be decreased on distribution, apportionment, or allocation 
        under section 482 to clearly reflect income as between such 
        subsidiary and such trust.
            ``(D) Excess interest.--The term `excess interest' means 
        any deductions for interest payments by a taxable REIT 
        subsidiary of a real estate investment trust to such trust to 
        the extent that the interest payments are in excess of a rate 
        that is commercially reasonable.
            ``(E) Coordination with section 482.--The imposition of tax 
        under subparagraph (A) shall be in lieu of any distribution, 
        apportionment, or allocation under section 482.
            ``(F) Regulatory authority.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to carry 
        out the purposes of this paragraph. Until the Secretary 
        prescribes such regulations, real estate investment trusts and 
        their taxable REIT subsidiaries may base their allocations on 
        any reasonable method.''.
    (b) Amount Subject to Tax Not Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) (relating to real estate 
investment trust taxable income) is amended by striking ``paragraph 
(5)'' and inserting ``paragraphs (5) and (7)''.

SEC. 1116. EFFECTIVE DATE.

    (a) In General.--The amendments made by this part shall apply to 
taxable years beginning after December 31, 2000.
    (b) Transitional Rules Related to Section 1111.--
        (1) Existing arrangements.--
            (A) In general.--Except as otherwise provided in this 
        paragraph, the amendment made by section 1111 shall not apply 
        to a real estate investment trust with respect to--
                (i) securities of a corporation held directly or 
            indirectly by such trust on July 12, 1999,
                (ii) securities of a corporation held by an entity on 
            July 12, 1999, if such trust acquires control of such 
            entity pursuant to a written binding contract in effect on 
            such date and at all times thereafter before such 
            acquisition,
                (iii) securities received by such trust (or a 
            successor) in exchange for, or with respect to, securities 
            described in clause (i) or (ii) in a transaction in which 
            gain or loss is not recognized, and
                (iv) securities acquired directly or indirectly by such 
            trust as part of a reorganization (as defined in section 
            368(a)(1) of the Internal Revenue Code of 1986) with 
            respect to such trust if such securities are described in 
            clause (i), (ii), or (iii) with respect to any other real 
            estate investment trust.
            (B) New trade or business or substantial new assets.--
        Subparagraph (A) shall cease to apply to securities of a 
        corporation as of the first day after July 12, 1999, on which 
        such corporation engages in a substantial new line of business, 
        or acquires any substantial asset, other than--
                (i) pursuant to a binding contract in effect on such 
            date and at all times thereafter before the acquisition of 
            such asset,
                (ii) in a transaction in which gain or loss is not 
            recognized by reason of section 1031 or 1033 of the 
            Internal Revenue Code of 1986, or
                (iii) in a reorganization (as so defined) with another 
            corporation the securities of which are described in 
            paragraph (1)(A) of this subsection.
            (C) Limitation on transition rules.--Subparagraph (A) shall 
        cease to apply to securities of a corporation held, acquired, 
        or received, directly or indirectly, by a real estate 
        investment trust as of the first day after July 12, 1999, on 
        which such trust acquires any additional securities of such 
        corporation other than--
                (i) pursuant to a binding contract in effect on July 
            12, 1999, and at all times thereafter, or
                (ii) in a reorganization (as so defined) with another 
            corporation the securities of which are described in 
            paragraph (1)(A) of this subsection.
        (2) Tax-free conversion.--If--
            (A) at the time of an election for a corporation to become 
        a taxable REIT subsidiary, the amendment made by section 1021 
        does not apply to such corporation by reason of paragraph (1), 
        and
            (B) such election first takes effect before January 1, 
        2004,
    such election shall be treated as a reorganization qualifying under 
    section 368(a)(1)(A) of such Code.

                       PART II--HEALTH CARE REITS

SEC. 1121. HEALTH CARE REITS.

    (a) Special Foreclosure Rule for Health Care Properties.--
Subsection (e) of section 856 (relating to special rules for 
foreclosure property) is amended by adding at the end the following new 
paragraph:
        ``(6) Special rule for qualified health care properties.--For 
    purposes of this subsection--
            ``(A) Acquisition at expiration of lease.--The term 
        `foreclosure property' shall include any qualified health care 
        property acquired by a real estate investment trust as the 
        result of the termination of a lease of such property (other 
        than a termination by reason of a default, or the imminence of 
        a default, on the lease).
            ``(B) Grace period.--In the case of a qualified health care 
        property which is foreclosure property solely by reason of 
        subparagraph (A), in lieu of applying paragraphs (2) and (3)--
                ``(i) the qualified health care property shall cease to 
            be foreclosure property as of the close of the second 
            taxable year after the taxable year in which such trust 
            acquired such property, and
                ``(ii) if the real estate investment trust establishes 
            to the satisfaction of the Secretary that an extension of 
            the grace period in clause (i) is necessary to the orderly 
            leasing or liquidation of the trust's interest in such 
            qualified health care property, the Secretary may grant one 
            or more extensions of the grace period for such qualified 
            health care property.
        Any such extension shall not extend the grace period beyond the 
        close of the 6th year after the taxable year in which such 
        trust acquired such qualified health care property.
            ``(C) Income from independent contractors.--For purposes of 
        applying paragraph (4)(C) with respect to qualified health care 
        property which is foreclosure property by reason of 
        subparagraph (A) or paragraph (1), income derived or received 
        by the trust from an independent contractor shall be 
        disregarded to the extent such income is attributable to--
                ``(i) any lease of property in effect on the date the 
            real estate investment trust acquired the qualified health 
            care property (without regard to its renewal after such 
            date so long as such renewal is pursuant to the terms of 
            such lease as in effect on such date), or
                ``(ii) any lease of property entered into after such 
            date if--

                    ``(I) on such date, a lease of such property from 
                the trust was in effect, and
                    ``(II) under the terms of the new lease, such trust 
                receives a substantially similar or lesser benefit in 
                comparison to the lease referred to in subclause (I).

            ``(D) Qualified health care property.--
                ``(i) In general.--The term `qualified health care 
            property' means any real property (including interests 
            therein), and any personal property incident to such real 
            property, which--

                    ``(I) is a health care facility, or
                    ``(II) is necessary or incidental to the use of a 
                health care facility.

                ``(ii) Health care facility.--For purposes of clause 
            (i), the term `health care facility' means a hospital, 
            nursing facility, assisted living facility, congregate care 
            facility, qualified continuing care facility (as defined in 
            section 7872(g)(4)), or other licensed facility which 
            extends medical or nursing or ancillary services to 
            patients and which, immediately before the termination, 
            expiration, default, or breach of the lease of or mortgage 
            secured by such facility, was operated by a provider of 
            such services which was eligible for participation in the 
            medicare program under title XVIII of the Social Security 
            Act with respect to such facility.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

      PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

SEC. 1131. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.

    (a) Distribution Requirement.--Clauses (i) and (ii) of section 
857(a)(1)(A) (relating to requirements applicable to real estate 
investment trusts) are each amended by striking ``95 percent (90 
percent for taxable years beginning before January 1, 1980)'' and 
inserting ``90 percent''.
    (b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A) 
(relating to imposition of tax in case of failure to meet certain 
requirements) is amended by striking ``95 percent (90 percent in the 
case of taxable years beginning before January 1, 1980)'' and inserting 
``90 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

 PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE 
                                 INCOME

SEC. 1141. CLARIFICATION OF EXCEPTION FOR INDEPENDENT OPERATORS.

    (a) In General.--Paragraph (3) of section 856(d) (relating to 
independent contractor defined) is amended by adding at the end the 
following flush sentence:
    ``In the event that any class of stock of either the real estate 
    investment trust or such person is regularly traded on an 
    established securities market, only persons who own, directly or 
    indirectly, more than 5 percent of such class of stock shall be 
    taken into account as owning any of the stock of such class for 
    purposes of applying the 35 percent limitation set forth in 
    subparagraph (B) (but all of the outstanding stock of such class 
    shall be considered outstanding in order to compute the denominator 
    for purpose of determining the applicable percentage of 
    ownership).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

           PART V--MODIFICATION OF EARNINGS AND PROFITS RULES

SEC. 1151. MODIFICATION OF EARNINGS AND PROFITS RULES.

    (a) Rules for Determining Whether Regulated Investment Company Has 
Earnings and Profits From Non-RIC Year.--Subsection (c) of section 852 
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 earnings and 
        profits accumulated in any taxable year to which the provisions 
        of this part did not apply 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)(D) and section 
        855.''.
    (b) Clarification of Application of REIT Spillover Dividend Rules 
to Distributions To Meet Qualification Requirement.--Subparagraph (B) 
of section 857(d)(3) is amended by inserting before the period ``and 
section 858''.
    (c) Application of Deficiency Dividend Procedures.--Paragraph (1) 
of section 852(e) is amended by adding at the end the following new 
sentence: ``If the determination under subparagraph (A) is solely as a 
result of the failure to meet the requirements of subsection (a)(2), 
the preceding sentence shall also apply for purposes of applying 
subsection (a)(2) to the non-RIC year.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2000.

     Subtitle C--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

SEC. 1161. TREATMENT UNDER AT-RISK RULES OF PUBLICLY TRADED NONRECOURSE 
              DEBT.

    (a) In General.--Subparagraph (A) of section 465(b)(6) (relating to 
qualified nonrecourse financing treated as amount at risk) is amended 
by striking ``share of'' and all that follows and inserting ``share 
of--
                ``(i) any qualified nonrecourse financing which is 
            secured by real property used in such activity, and
                ``(ii) any other financing which--

                    ``(I) would (but for subparagraph (B)(ii)) be 
                qualified nonrecourse financing,
                    ``(II) is qualified publicly traded debt, and
                    ``(III) is not borrowed by the taxpayer from a 
                person described in subclause (I), (II), or (III) of 
                section 49(a)(1)(D)(iv).''.

    (b) Qualified Publicly Traded Debt.--Paragraph (6) of section 
465(b) is amended by adding at the end the following new subparagraph:
            ``(F) Qualified publicly traded debt.--For purposes of 
        subparagraph (A), the term `qualified publicly traded debt' 
        means any debt instrument which is readily tradable on an 
        established securities market. Such term shall not include any 
        debt instrument which has a yield to maturity which equals or 
        exceeds the limitation in section 163(i)(1)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to debt instruments issued after December 31, 1999.

 Subtitle D--Treatment of Certain Contributions to Capital of Retailers

SEC. 1171. EXCLUSION FROM GROSS INCOME FOR CERTAIN CONTRIBUTIONS TO THE 
              CAPITAL OF CERTAIN RETAILERS.

    (a) In General.--Section 118 (relating to contributions to the 
capital of a corporation) 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) Safe Harbor for Contributions to Certain Retailers.--
        ``(1) General rule.--For purposes of this section, the term 
    `contribution to the capital of the taxpayer' includes any amount 
    of money or other property received by the taxpayer if--
            ``(A) the taxpayer has entered into an agreement to operate 
        (or cause to be operated) a qualified retail business at a 
        particular location for a period of at least 15 years,
            ``(B)(i) immediately after the receipt of such money or 
        other property, the taxpayer owns the land and the structure to 
        be used by the taxpayer in carrying on a qualified retail 
        business at such location, or
            ``(ii) the taxpayer uses such amount to acquire ownership 
        of at least such land and structure,
            ``(C) such amount meets the requirements of the expenditure 
        rule of paragraph (2), and
            ``(D) the contributor of such amount does not hold a 
        beneficial interest in any property located on the premises of 
        such qualified retail business other than de minimis amounts of 
        property associated with the operation of property adjacent to 
        such premises.
        ``(2) Expenditure rule.--An amount meets the requirements of 
    this paragraph if--
            ``(A) an amount equal to such amount is expended for the 
        acquisition of land or for acquisition or construction of other 
        property described in section 1231(b)--
                ``(i) which was the purpose motivating the 
            contribution, and
                ``(ii) which is used predominantly in a qualified 
            retail business at the location referred to in paragraph 
            (1)(A),
            ``(B) the expenditure referred to in subparagraph (A) 
        occurs before the end of the second taxable year after the year 
        in which such amount was received, and
            ``(C) accurate records are kept of the amounts contributed 
        and expenditures made on the basis of the project for which the 
        contribution was made and on the basis of the year of the 
        contribution expenditure.
        ``(3) Definition of qualified retail business.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        the term `qualified retail business' means a trade or business 
        of selling tangible personal property to the general public if 
        the premises on which such trade or business is conducted is in 
        close proximity to property that the contributor of the amount 
        referred to in paragraph (1) is developing or operating for 
        profit (or, in the case of a contributor which is a 
        governmental entity, is attempting to revitalize).
            ``(B) Services.--A trade or business shall not fail to be 
        treated as a qualified retail business by reason of sales of 
        services if such sales are incident to the sale of tangible 
        personal property or if the services are de minimis in amount.
        ``(4) Special rules.--
            ``(A) Leases.--For purposes of paragraph (1)(B)(i), 
        property shall be treated as owned by the taxpayer if the 
        taxpayer is the lessee of such property under a lease having a 
        term of at least 30 years and on which only nominal rent is 
        required.
            ``(B) Controlled groups.--For purposes of this subsection, 
        all persons treated as a single employer under subsection (a) 
        or (b) of section 52 shall be treated as one person.
        ``(5) Disallowance of deductions and credits; adjusted basis.--
    Notwithstanding any other provision of this subtitle, no deduction 
    or credit shall be allowed for, or by reason of, any amount 
    received by the taxpayer which constitutes a contribution to 
    capital to which this subsection applies. The adjusted basis of any 
    property acquired with the contributions to which this subsection 
    applies shall be reduced by the amount of the contributions to 
    which this subsection applies.
        ``(6) Regulations.--The Secretary shall prescribe such 
    regulations are appropriate to prevent the abuse of the purposes of 
    the subsection, including regulations which allocate income and 
    deductions (or adjust the amount excludable under this subsection) 
    in cases in which--
            ``(A) payments in excess of fair market value are paid to 
        the contributor by the taxpayer, or
            ``(B) the contributor and the taxpayer are related 
        parties.''.
    (b) Conforming Amendment.--Subsection (e) of section 118 (as 
redesignated by subsection (a)) is amended by adding at the end the 
following flush sentence:
``Rules similar to the rules of the preceding sentence shall apply to 
any amount treated as a contribution to the capital of the taxpayer 
under subsection (d).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after December 31, 1999.

              Subtitle E--Private Activity Bond Volume Cap

SEC. 1181. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON 
              PRIVATE ACTIVITY BONDS.

    (a) In General.--The table contained in section 146(d)(2) (relating 
to per capita limit; aggregate limit) is amended to read as follows:
---------------------------------------------------------------------------
  

 
       ``Calendar Year           Per Capita Limit      Aggregate Limit
------------------------------------------------------------------------
  2000.......................         $55.00             165,000,000
  2001.......................          60.00             180,000,000
  2002.......................          65.00             195,000,000
  2003.......................          70.00             210,000,000
  2004 and thereafter........          75.00           225,000,000.''.

    (b) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after 1999.

          Subtitle F--Deduction for Renovating Historic Homes

SEC. 1191. DEDUCTION FOR RENOVATING HISTORIC HOMES.

    (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions for individuals) is amended by 
redesignating section 223 as section 224 and by inserting after section 
222 the following new section:

``SEC. 223. HISTORIC HOMEOWNERSHIP REHABILITATION DEDUCTION.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to 50 percent of the qualified 
rehabilitation expenditures made by the taxpayer with respect to a 
qualified historic home.
    ``(b) Dollar Limitation.--The deduction allowed by subsection (a) 
with respect to any residence of a taxpayer shall not exceed $50,000 
($25,000 in the case of a married individual filing a separate return).
    ``(c) Qualified Rehabilitation Expenditure.--For purposes of this 
section--
        ``(1) In general.--The term `qualified rehabilitation 
    expenditure' means any amount properly chargeable to capital 
    account--
            ``(A) in connection with the certified rehabilitation of a 
        qualified historic home, and
            ``(B) for property for which depreciation would be 
        allowable under section 168 if the qualified historic home were 
        used in a trade or business.
        ``(2) Certain expenditures not included.--
            ``(A) Exterior.--Such term shall not include any 
        expenditure in connection with the rehabilitation of a building 
        unless at least 5 percent of the total expenditures made in the 
        rehabilitation process are allocable to the rehabilitation of 
        the exterior of such building.
            ``(B) Other rules to apply.--Rules similar to the rules of 
        clauses (ii) and (iii) of section 47(c)(2)(B) shall apply.
        ``(3) Mixed use or multifamily building.--If only a portion of 
    a building is used as the principal residence of the taxpayer, only 
    qualified rehabilitation expenditures which are properly allocable 
    to such portion shall be taken into account under this section.
    ``(d) Certified Rehabilitation.--For purposes of this section:
        ``(1) In general.--Except as otherwise provided in this 
    subsection, the term `certified rehabilitation' has the meaning 
    given such term by section 47(c)(2)(C).
        ``(2) Factors to be considered in the case of targeted area 
    residences, etc.--
            ``(A) In general.--For purposes of applying section 
        47(c)(2)(C) under this section with respect to the 
        rehabilitation of a building to which this paragraph applies, 
        consideration shall be given to--
                ``(i) the feasibility of preserving existing 
            architectural and design elements of the interior of such 
            building,
                ``(ii) the risk of further deterioration or demolition 
            of such building in the event that certification is denied 
            because of the failure to preserve such interior elements, 
            and
                ``(iii) the effects of such deterioration or demolition 
            on neighboring historic properties.
            ``(B) Buildings to which this paragraph applies.--This 
        paragraph shall apply with respect to any building--
                ``(i) any part of which is a targeted area residence 
            within the meaning of section 143(j)(1), or
                ``(ii) which is located within an enterprise community 
            or empowerment zone as designated under section 1391,
        but shall not apply with respect to any building which is 
        listed in the National Register.
        ``(3) Approved state program.--The term `certified 
    rehabilitation' includes a certification made by--
            ``(A) a State Historic Preservation Officer who administers 
        a State Historic Preservation Program approved by the Secretary 
        of the Interior pursuant to section 101(b)(1) of the National 
        Historic Preservation Act, as in effect on July 21, 1999, or
            ``(B) a local government, certified pursuant to section 
        101(c)(1) of the National Historic Preservation Act, as in 
        effect on July 21, 1999, and authorized by a State Historic 
        Preservation Officer, or the Secretary of the Interior where 
        there is no approved State program),
    subject to such terms and conditions as may be specified by the 
    Secretary of the Interior for the rehabilitation of buildings 
    within the jurisdiction of such officer (or local government) for 
    purposes of this section.
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Qualified historic home.--The term `qualified historic 
    home' means a certified historic structure--
            ``(A) which has been substantially rehabilitated, and
            ``(B) which (or any portion of which)--
                ``(i) is owned by the taxpayer, and
                ``(ii) is used (or will, within a reasonable period, be 
            used) by such taxpayer as his principal residence.
        ``(2) Substantially rehabilitated.--The term `substantially 
    rehabilitated' has the meaning given such term by section 
    47(c)(1)(C); except that, in the case of any building described in 
    subsection (d)(2), clause (i)(I) of section 47(c)(1)(C) shall not 
    apply.
        ``(3) Principal residence.--The term `principal residence' has 
    the same meaning as when used in section 121.
        ``(4) Certified historic structure.--
            ``(A) In general.--The term `certified historic structure' 
        means any building (and its structural components) which--
                ``(i) is listed in the National Register, or
                ``(ii) is located in a registered historic district (as 
            defined in section 47(c)(3)(B)) within which only qualified 
            census tracts (or portions thereof) are located, and is 
            certified by the Secretary of the Interior to the Secretary 
            as being of historic significance to the district.
            ``(B) Certain structures included.--Such term includes any 
        building (and its structural components) which is designated as 
        being of historic significance under a statute of a State or 
        local government, if such statute is certified by the Secretary 
        of the Interior to the Secretary as containing criteria which 
        will substantially achieve the purpose of preserving and 
        rehabilitating buildings of historic significance.
            ``(C) Qualified census tracts.--For purposes of 
        subparagraph (A)(ii)--
                ``(i) In general.--The term `qualified census tract' 
            means a census tract in which the median family income is 
            less than twice the statewide median family income.
                ``(ii) Data used.--The determination under clause (i) 
            shall be made on the basis of the most recent decennial 
            census for which data are available.
        ``(5) Rehabilitation not complete before certification.--A 
    rehabilitation shall not be treated as complete before the date of 
    the certification referred to in subsection (d).
        ``(6) Lessees.--A taxpayer who leases his principal residence 
    shall, for purposes of this section, be treated as the owner 
    thereof if the remaining term of the lease (as of the date 
    determined under regulations prescribed by the Secretary) is not 
    less than such minimum period as the regulations require.
        ``(7) Tenant-stockholder in cooperative housing corporation.--
    If the taxpayer holds stock as a tenant-stockholder (as defined in 
    section 216) in a cooperative housing corporation (as defined in 
    such section), such stockholder shall be treated as owning the 
    house or apartment which the taxpayer is entitled to occupy as such 
    stockholder.
        ``(8) Allocation of expenditures relating to exterior of 
    building containing cooperative or condominium units.--The 
    percentage of the total expenditures made in the rehabilitation of 
    a building containing cooperative or condominium residential units 
    allocated to the rehabilitation of the exterior of the building 
    shall be attributed proportionately to each cooperative or 
    condominium residential unit in such building for which a deduction 
    under this section is claimed.
    ``(f) When Expenditures Taken Into Account.--Qualified 
rehabilitation expenditures shall be treated for purposes of this 
section as made on the date the rehabilitation is completed.
    ``(g) Recapture.--
        ``(1) In general.--If, before the end of the 5-year period 
    beginning on the date on which the rehabilitation of the building 
    is completed--
            ``(A) the taxpayer disposes of such taxpayer's interest in 
        such building, or
            ``(B) such building ceases to be used as the principal 
        residence of the taxpayer,
    the taxpayer's gross income for the taxable year in which such 
    disposition or cessation occurs shall be increased by the recapture 
    percentage of the deduction allowed under this section for all 
    prior taxable years with respect to such rehabilitation.
        ``(2) Recapture percentage.--For purposes of paragraph (1), the 
    recapture percentage shall be determined in accordance with the 
    following table:

``If the disposition or cessation 
    occurs within--
The recapture percentage is--
    (i) One full year after the taxpayer becomes entitled to 
      the deduction...........................................


                                                                    100 

    (ii) One full year after the close of the period described 
      in clause (i)...........................................


                                                                     80 

    (iii) One full year after the close of the period 
      described in clause (ii)................................


                                                                     60 

    (iv) One full year after the close of the period described 
      in clause (iii).........................................


                                                                     40 

    (v) One full year after the close of the period described 
      in clause (iv)..........................................


                                                                  20.''.

    ``(h) Basis Adjustments.--For purposes of this subtitle, if a 
deduction is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such property 
which would (but for this subsection) result from such expenditure 
shall be reduced by the amount of the deduction so allowed.
    ``(i) Denial of Double Benefit.--No deduction shall be allowed 
under this section for any amount for which credit is allowed under 
section 47.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations where less than all of a building is used as a 
principal residence and where more than one taxpayer use the same 
dwelling unit as their principal residence.''.
    (b) Conforming Amendments.--
        (1) Clause (i) of section 56(b)(1)(A) is amended by inserting 
    before the comma ``other than the deduction under section 223 
    (relating to historic homeownership rehabilitation deduction)''.
        (2) Subsection (a) of section 1016 is amended by striking 
    ``and'' at the end of paragraph (27), by striking the period at the 
    end of paragraph (28) and inserting ``, and'', and by adding at the 
    end the following new item:
        ``(29) to the extent provided in section 223(h).''.
    (c) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 223 and inserting the following new items:

        ``Sec. 223. Historic homeownership rehabilitation deduction.
        ``Sec. 224. Cross reference.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid or incurred in taxable years beginning after 
December 31, 1999.

               TITLE XII--PROVISIONS RELATING TO PENSIONS
                     Subtitle A--Expanding Coverage

SEC. 1201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
        (1) Dollar limit.--
            (A) Subparagraph (A) of section 415(b)(1) (relating to 
        limitation for defined benefit plans) is amended by striking 
        ``$90,000'' and inserting ``$160,000''.
            (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
        amended by striking ``$90,000'' each place it appears in the 
        headings and the text and inserting ``$160,000''.
            (C) Paragraph (7) of section 415(b) (relating to benefits 
        under certain collectively bargained plans) is amended by 
        striking ``the greater of $68,212 or one-half the amount 
        otherwise applicable for such year under paragraph (1)(A) for 
        `$90,000''' and inserting ``one-half the amount otherwise 
        applicable for such year under paragraph (1)(A) for 
        `$160,000'''.
        (2) Limit reduced when benefit begins before age 62.--
    Subparagraph (C) of section 415(b)(2) is amended by striking ``the 
    social security retirement age'' each place it appears in the 
    heading and text and inserting ``age 62''.
        (3) Limit increased when benefit begins after age 65.--
    Subparagraph (D) of section 415(b)(2) is amended by striking ``the 
    social security retirement age'' each place it appears in the 
    heading and text and inserting ``age 65''.
        (4) Cost-of-living adjustments.--Subsection (d) of section 415 
    (related to cost-of-living adjustments) is amended--
            (A) by striking ``$90,000'' in paragraph (1)(A) and 
        inserting ``$160,000'', and
            (B) in paragraph (3)(A)--
                (i) by striking ``$90,000'' in the heading and 
            inserting ``$160,000'', and
                (ii) by striking ``October 1, 1986'' and inserting 
            ``July 1, 2000''.
        (5) Conforming amendment.--Section 415(b)(2) is amended by 
    striking subparagraph (F).
    (b) Defined Contribution Plans.--
        (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
    (relating to limitation for defined contribution plans) is amended 
    by striking ``$30,000'' and inserting ``$40,000''.
        (2) Cost-of-living adjustments.--Subsection (d) of section 415 
    (related to cost-of-living adjustments) is amended--
            (A) by striking ``$30,000'' in paragraph (1)(C) and 
        inserting ``$40,000'', and
            (B) in paragraph (3)(D)--
                (i) by striking ``$30,000'' in the heading and 
            inserting ``$40,000'', and
                (ii) by striking ``October 1, 1993'' and inserting 
            ``July 1, 2000''.
    (c) Qualified Trusts.--
        (1) Compensation limit.--Sections 401(a)(17), 404(l), 408(k), 
    and 505(b)(7) are each amended by striking ``$150,000'' each place 
    it appears and inserting ``$200,000''.
        (2) Base period and rounding of cost-of-living adjustment.--
    Subparagraph (B) of section 401(a)(17) is amended--
            (A) by striking ``October 1, 1993'' and inserting ``July 1, 
        2000'', and
            (B) by striking ``$10,000'' both places it appears and 
        inserting ``$5,000''.
    (d) Elective Deferrals.--
        (1) In general.--Paragraph (1) of section 402(g) (relating to 
    limitation on exclusion for elective deferrals) is amended to read 
    as follows:
        ``(1) In general.--
            ``(A) Limitation.--Notwithstanding subsections (e)(3) and 
        (h)(1)(B), the elective deferrals of any individual for any 
        taxable year shall be included in such individual's gross 
        income to the extent the amount of such deferrals for the 
        taxable year exceeds the applicable dollar amount.
            ``(B) Applicable dollar amount.--For purposes of 
        subparagraph (A), the applicable dollar amount shall be the 
        amount determined in accordance with the following table:

        ``For taxable years
                                                          The applicable
            beginning in
                                                          dollar amount:
            calendar year:
            2001..............................................
                                                                $11,000 
            2002..............................................
                                                                $12,000 
            2003..............................................
                                                                $13,000 
            2004..............................................
                                                                $14,000 
            2005 or thereafter................................
                                                             $15,000.''.

        (2) Cost-of-living adjustment.--Paragraph (5) of section 402(g) 
    is amended to read as follows:
        ``(5) Cost-of-living adjustment.--In the case of taxable years 
    beginning after December 31, 2005, the Secretary shall adjust the 
    $15,000 amount under paragraph (1)(B) at the same time and in the 
    same manner as under section 415(d), except that the base period 
    shall be the calendar quarter beginning July 1, 2004, and any 
    increase under this paragraph which is not a multiple of $500 shall 
    be rounded to the next lowest multiple of $500.''.
        (3) Conforming amendments.--
            (A) Section 402(g) (relating to limitation on exclusion for 
        elective deferrals), as amended by paragraphs (1) and (2), is 
        further amended by striking paragraph (4) and redesignating 
        paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), 
        (6), (7), and (8), respectively.
            (B) Paragraph (2) of section 457(c) is amended by striking 
        ``402(g)(8)(A)(iii)'' and inserting ``402(g)(7)(A)(iii)''.
            (C) Clause (iii) of section 501(c)(18)(D) is amended by 
        striking ``(other than paragraph (4) thereof)''.
    (e) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
        (1) In general.--Section 457 (relating to deferred compensation 
    plans of State and local governments and tax-exempt organizations) 
    is amended--
            (A) in subsections (b)(2)(A) and (c)(1) by striking 
        ``$7,500'' each place it appears and inserting ``the applicable 
        dollar amount'', and
            (B) in subsection (b)(3)(A) by striking ``$15,000'' and 
        inserting ``twice the dollar amount in effect under subsection 
        (b)(2)(A)''.
        (2) Applicable dollar amount; cost-of-living adjustment.--
    Paragraph (15) of section 457(e) is amended to read as follows:
        ``(15) Applicable dollar amount.--
            ``(A) In general.--The applicable dollar amount shall be 
        the amount determined in accordance with the following table:

        ``For taxable years
                                                          The applicable
            beginning in
                                                          dollar amount:
            calendar year:
            2001..............................................
                                                                $11,000 
            2002..............................................
                                                                $12,000 
            2003..............................................
                                                                $13,000 
            2004..............................................
                                                                $14,000 
            2005 or thereafter................................
                                                                $15,000.

            ``(B) Cost-of-living adjustments.--In the case of taxable 
        years beginning after December 31, 2005, the Secretary shall 
        adjust the $15,000 amount specified in the table in 
        subparagraph (A) at the same time and in the same manner as 
        under section 415(d), except that the base period shall be the 
        calendar quarter beginning July 1, 2004, and any increase under 
        this paragraph which is not a multiple of $500 shall be rounded 
        to the next lowest multiple of $500.''.
    (f) Simple Retirement Accounts.--
        (1) Limitation.--Clause (ii) of section 408(p)(2)(A) (relating 
    to general rule for qualified salary reduction arrangement) is 
    amended by striking ``$6,000'' and inserting ``the applicable 
    dollar amount''.
        (2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2) is 
    amended to read as follows:
            ``(E) Applicable dollar amount; cost-of-living 
        adjustment.--
                ``(i) In general.--For purposes of subparagraph 
            (A)(ii), the applicable dollar amount shall be the amount 
            determined in accordance with the following table:

        ``For taxable years
                                                          The applicable
            beginning in
                                                          dollar amount:
            calendar year:
                  2001........................................
                                                                 $7,000 
                  2002........................................
                                                                 $8,000 
                  2003........................................
                                                                 $9,000 
                  2004 or thereafter..........................
                                                                $10,000.

                ``(ii) Cost-of-living adjustment.--In the case of a 
            year beginning after December 31, 2004, the Secretary shall 
            adjust the $10,000 amount under clause (i) at the same time 
            and in the same manner as under section 415(d), except that 
            the base period taken into account shall be the calendar 
            quarter beginning July 1, 2003, and any increase under this 
            subparagraph which is not a multiple of $500 shall be 
            rounded to the next lower multiple of $500.''.
        (3) Conforming amendments.--
            (A) Clause (I) of section 401(k)(11)(B)(i) is amended by 
        striking ``$6,000'' and inserting ``the amount in effect under 
        section 408(p)(2)(A)(ii)''.
            (B) Section 401(k)(11) is amended by striking subparagraph 
        (E).
    (g) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
        ``(4) Rounding.--
            ``(A) $160,000 amount.--Any increase under subparagraph (A) 
        of paragraph (1) which is not a multiple of $5,000 shall be 
        rounded to the next lowest multiple of $5,000.
            ``(B) $40,000 amount.--Any increase under subparagraph (C) 
        of paragraph (1) which is not a multiple of $1,000 shall be 
        rounded to the next lowest multiple of $1,000.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 1202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
              PROPRIETORS.

    (a) Amendment to 1986 Code.--Subparagraph (B) of section 4975(f)(6) 
(relating to exemptions not to apply to certain transactions) is 
amended by adding at the end the following new clause:
                ``(iii) Loan exception.--For purposes of subparagraph 
            (A)(i), the term `owner-employee' shall only include a 
            person described in subclause (II) or (III) of clause 
            (i).''.
    (b) Amendment to ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is 
amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-employee' 
shall only include a person described in clause (ii) or (iii) of 
subparagraph (A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to loans made after December 31, 2000.

SEC. 1203. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
        (1) In general.--Section 416(i)(1)(A) (defining key employee) 
    is amended--
            (A) by striking ``or any of the 4 preceding plan years'' in 
        the matter preceding clause (i),
            (B) by striking clause (i) and inserting the following:
                ``(i) an officer of the employer having an annual 
            compensation greater than $150,000,'',
            (C) by striking clause (ii) and redesignating clauses (iii) 
        and (iv) as clauses (ii) and (iii), respectively, and
            (D) by striking the second sentence in the matter following 
        clause (iii), as redesignated by subparagraph (C).
        (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is amended 
    by striking ``and subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
    (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
        (1) In general.--Paragraph (3) of section 416(g) is amended to 
    read as follows:
        ``(3) Distributions during last year before determination date 
    taken into account.--
            ``(A) In general.--For purposes of determining--
                ``(i) the present value of the cumulative accrued 
            benefit for any employee, or
                ``(ii) the amount of the account of any employee,
        such present value or amount shall be increased by the 
        aggregate distributions made with respect to such employee 
        under the plan during the 1-year period ending on the 
        determination date. The preceding sentence shall also apply to 
        distributions under a terminated plan which if it had not been 
        terminated would have been required to be included in an 
        aggregation group.
            ``(B) 5-year period in case of in-service distribution.--In 
        the case of any distribution made for a reason other than 
        separation from service, death, or disability, subparagraph (A) 
        shall be applied by substituting `5-year period' for `1-year 
        period'.''.
        (2) Benefits not taken into account.--Subparagraph (E) of 
    section 416(g)(4) is amended--
            (A) by striking ``last 5 years'' in the heading and 
        inserting ``last year before determination date'', and
            (B) by striking ``5-year period'' and inserting ``1-year 
        period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
            ``(H) Cash or deferred arrangements using alternative 
        methods of meeting nondiscrimination requirements.--The term 
        `top-heavy plan' shall not include a plan which consists solely 
        of--
                ``(i) a cash or deferred arrangement which meets the 
            requirements of section 401(k)(12), and
                ``(ii) matching contributions with respect to which the 
            requirements of section 401(m)(11) are met.
        If, but for this subparagraph, a plan would be treated as a 
        top-heavy plan because it is a member of an aggregation group 
        which is a top-heavy group, contributions under the plan may be 
        taken into account in determining whether any other plan in the 
        group meets the requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
            (A) by striking ``clause (ii)'' in clause (i) and inserting 
        ``clause (ii) or (iii)'', and
            (B) by adding at the end the following:
                ``(iii) Exception for frozen plan.--For purposes of 
            determining an employee's years of service with the 
            employer, any service with the employer shall be 
            disregarded to the extent that such service occurs during a 
            plan year when the plan benefits (within the meaning of 
            section 410(b)) no employee or former employee.''.
    (f) Elimination of Family Attribution.--Section 416(i)(1)(B) 
(defining 5-percent owner) is amended by adding at the end the 
following new clause:
                ``(iv) Family attribution disregarded.--Solely for 
            purposes of applying this paragraph (and not for purposes 
            of any provision of this title which incorporates by 
            reference the definition of a key employee or 5-percent 
            owner under this paragraph), section 318 shall be applied 
            without regard to subsection (a)(1) thereof in determining 
            whether any person is a 5-percent owner.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 1204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
              DEDUCTION LIMITS.

    (a) In General.--Section 404 (relating to deduction for 
contributions of an employer to an employees' trust or annuity plan and 
compensation under a deferred payment plan) is amended by adding at the 
end the following new subsection:
    ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3)) 
shall not be subject to any limitation contained in paragraph (3), (7), 
or (9) of subsection (a), and such elective deferrals shall not be 
taken into account in applying any such limitation to any other 
contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
              COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND 
              TAX-EXEMPT ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations), as amended by section 1201, is amended to read 
as follows:
    ``(c) Limitation.--The maximum amount of the compensation of any 
one individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2000.

SEC. 1206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING 
              PENSION PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment of user 
fees under the program established under section 7527 of the Internal 
Revenue Code of 1986 for requests to the Internal Revenue Service for 
determination letters with respect to the qualified status of a pension 
benefit plan maintained solely by one or more eligible employers or any 
trust which is part of the plan. The preceding sentence shall not apply 
to any request--
        (1) made after the 5th plan year the pension benefit plan is in 
    existence, or
        (2) made by the sponsor of any prototype or similar plan which 
    the sponsor intends to market to participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
    (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' has the same meaning given such term in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The 
determination of whether an employer is an eligible employer under this 
section shall be made as of the date of the request described in 
subsection (a).
    (d) Effective Date.--The provisions of this section shall apply 
with respect to requests made after December 31, 2000.

SEC. 1207. DEDUCTION LIMITS.

    (a) In General.--Section 404(a) (relating to general rule) is 
amended by adding at the end the following:
        ``(12) Definition of compensation.--For purposes of paragraphs 
    (3), (7), (8), and (9), the term `compensation' shall include 
    amounts treated as participant's compensation under subparagraph 
    (C) or (D) of section 415(c)(3).''.
    (b) Conforming Amendment.--Subparagraph (B) of section 404(a)(3) is 
amended by striking the last sentence thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 1208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
              CONTRIBUTIONS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to deferred compensation, etc.) is amended by inserting after 
section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
              CONTRIBUTIONS.

    ``(a) General Rule.--If an applicable retirement plan includes a 
qualified plus contribution program--
        ``(1) any designated plus contribution made by an employee 
    pursuant to the program shall be treated as an elective deferral 
    for purposes of this chapter, except that such contribution shall 
    not be excludable from gross income, and
        ``(2) such plan (and any arrangement which is part of such 
    plan) shall not be treated as failing to meet any requirement of 
    this chapter solely by reason of including such program.
    ``(b) Qualified Plus Contribution Program.--For purposes of this 
section--
        ``(1) In general.--The term `qualified plus contribution 
    program' means a program under which an employee may elect to make 
    designated plus contributions in lieu of all or a portion of 
    elective deferrals the employee is otherwise eligible to make under 
    the applicable retirement plan.
        ``(2) Separate accounting required.--A program shall not be 
    treated as a qualified plus contribution program unless the 
    applicable retirement plan--
            ``(A) establishes separate accounts (`designated plus 
        accounts') for the designated plus contributions of each 
        employee and any earnings properly allocable to the 
        contributions, and
            ``(B) maintains separate recordkeeping with respect to each 
        account.
    ``(c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
        ``(1) Designated plus contribution.--The term `designated plus 
    contribution' means any elective deferral which--
            ``(A) is excludable from gross income of an employee 
        without regard to this section, and
            ``(B) the employee designates (at such time and in such 
        manner as the Secretary may prescribe) as not being so 
        excludable.
        ``(2) Designation limits.--The amount of elective deferrals 
    which an employee may designate under paragraph (1) shall not 
    exceed the excess (if any) of--
            ``(A) the maximum amount of elective deferrals excludable 
        from gross income of the employee for the taxable year (without 
        regard to this section), over
            ``(B) the aggregate amount of elective deferrals of the 
        employee for the taxable year which the employee does not 
        designate under paragraph (1).
        ``(3) Rollover contributions.--
            ``(A) In general.--A rollover contribution of any payment 
        or distribution from a designated plus account which is 
        otherwise allowable under this chapter may be made only if the 
        contribution is to--
                ``(i) another designated plus account of the individual 
            from whose account the payment or distribution was made, or
                ``(ii) a Roth IRA of such individual.
            ``(B) Coordination with limit.--Any rollover contribution 
        to a designated plus account under subparagraph (A) shall not 
        be taken into account for purposes of paragraph (1).
    ``(d) Distribution Rules.--For purposes of this title--
        ``(1) Exclusion.--Any qualified distribution from a designated 
    plus account shall not be includible in gross income.
        ``(2) Qualified distribution.--For purposes of this 
    subsection--
            ``(A) In general.--The term `qualified distribution' has 
        the meaning given such term by section 408A(d)(2)(A) (without 
        regard to clause (iv) thereof).
            ``(B) Distributions within nonexclusion period.--A payment 
        or distribution from a designated plus account shall not be 
        treated as a qualified distribution if such payment or 
        distribution is made within the 5-taxable-year period beginning 
        with the earlier of--
                ``(i) the first taxable year for which the individual 
            made a designated plus contribution to any designated plus 
            account established for such individual under the same 
            applicable retirement plan, or
                ``(ii) if a rollover contribution was made to such 
            designated plus account from a designated plus account 
            previously established for such individual under another 
            applicable retirement plan, the first taxable year for 
            which the individual made a designated plus contribution to 
            such previously established account.
            ``(C) Distributions of excess deferrals and earnings.--The 
        term `qualified distribution' shall not include any 
        distribution of any excess deferral under section 402(g)(2) and 
        any income on the excess deferral.
        ``(3) Aggregation rules.--Section 72 shall be applied 
    separately with respect to distributions and payments from a 
    designated plus account and other distributions and payments from 
    the plan.
    ``(e) Other Definitions.--For purposes of this section--
        ``(1) Applicable retirement plan.--The term `applicable 
    retirement plan' means--
            ``(A) an employees' trust described in section 401(a) which 
        is exempt from tax under section 501(a), and
            ``(B) a plan under which amounts are contributed by an 
        individual's employer for an annuity contract described in 
        section 403(b).
        ``(2) Elective deferral.--The term `elective deferral' means 
    any elective deferral described in subparagraph (A) or (C) of 
    section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
        (1) by adding at the end of paragraph (1) the following new 
    sentence: ``The preceding sentence shall not apply to so much of 
    such excess as does not exceed the designated plus contributions of 
    the individual for the taxable year.'', and
        (2) by inserting ``(or would be included but for the last 
    sentence thereof)'' after ``paragraph (1)'' in paragraph (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
        ``If any portion of an eligible rollover distribution is 
        attributable to payments or distributions from a designated 
        plus account (as defined in section 402A), an eligible 
        retirement plan with respect to such portion shall include only 
        another designated plus account and a Roth IRA.''.
    (d) Reporting Requirements.--
        (1) W-2 information.--Section 6051(a)(8) is amended by 
    inserting ``, including the amount of designated plus contributions 
    (as defined in section 402A)'' before the comma at the end.
        (2) Information.--Section 6047 is amended by redesignating 
    subsection (f) as subsection (g) and by inserting after subsection 
    (e) the following new subsection:
    ``(f) Designated Plus Contributions.--The Secretary shall require 
the plan administrator of each applicable retirement plan (as defined 
in section 402A) to make such returns and reports regarding designated 
plus contributions (as so defined) to the Secretary, participants and 
beneficiaries of the plan, and such other persons as the Secretary may 
prescribe.''.
    (e) Conforming Amendments.--
        (1) Section 408A(e) is amended by adding after the first 
    sentence the following new sentence: ``Such term includes a 
    rollover contribution described in section 402A(c)(3)(A).''.
        (2) 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 402 the following new item:

        ``Sec. 402A. Optional treatment of elective deferrals as plus 
                  contributions.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 1209. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

    (a) In General.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
        (1) in clause (i), by inserting ``other than a new single-
    employer plan (as defined in subparagraph (F)) maintained by a 
    small employer (as so defined),'' after ``single-employer plan,'',
        (2) in clause (iii), by striking the period at the end and 
    inserting ``, and'', and
        (3) by adding at the end the following new clause:
        ``(iv) in the case of a new single-employer plan (as defined in 
    subparagraph (F)) maintained by a small employer (as so defined) 
    for the plan year, $5 for each individual who is a participant in 
    such plan during the plan year.''.
    (b) Definition of New Single-Employer Plan.--Section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)) is amended by adding at the end the following new 
subparagraph:
    ``(F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years if, during the 36-
month period ending on the date of the adoption of such plan, the 
sponsor or any member of such sponsor's controlled group (or any 
predecessor of either) had not established or maintained a plan to 
which this title applies with respect to which benefits were accrued 
for substantially the same employees as are in the new single-employer 
plan.
    ``(ii)(I) For purposes of this paragraph, the term `small employer' 
means an employer which on the first day of any plan year has, in 
aggregation with all members of the controlled group of such employer, 
100 or fewer employees.
    ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plans established after December 31, 2000.

SEC. 1210. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL 
              PLANS.

    (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following new 
clause:
    ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an amount equal 
to the product of the amount determined under clause (ii) and the 
applicable percentage. For purposes of this clause, the term 
`applicable percentage' means--
        ``(I) 0 percent, for the first plan year.
        ``(II) 20 percent, for the second plan year.
        ``(III) 40 percent, for the third plan year.
        ``(IV) 60 percent, for the fourth plan year.
        ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in 
section 3(35)) maintained by a contributing sponsor shall be treated as 
a new defined benefit plan for its first 5 plan years if, during the 
36-month period ending on the date of the adoption of the plan, the 
sponsor and each member of any controlled group including the sponsor 
(or any predecessor of either) did not establish or maintain a plan to 
which this title applies with respect to which benefits were accrued 
for substantially the same employees as are in the new plan.''.
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)) is amended--
        (1) by striking ``The'' in subparagraph (E)(i) and inserting 
    ``Except as provided in subparagraph (G), the'', and
        (2) by inserting after subparagraph (F) the following new 
    subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer employees 
on the first day of the plan year, the additional premium determined 
under subparagraph (E) for each participant shall not exceed $5 
multiplied by the number of participants in the plan as of the close of 
the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 25 or 
fewer employees on the first day of the plan year is determined taking 
into consideration all of the employees of all members of the 
contributing sponsor's controlled group. In the case of a plan 
maintained by two or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether 25-or-fewer-employees limitation 
has been satisfied.''.
    (c) Effective Dates.--
        (1) Subsection (a).--The amendments made by subsection (a) 
    shall apply to plans established after December 31, 2000.
        (2) Subsection (b).--The amendments made by subsection (b) 
    shall apply to plan years beginning after December 31, 2000.

                Subtitle B--Enhancing Fairness for Women

SEC. 1221. CATCHUP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(v) Catchup Contributions for Individuals Age 50 or Over.--
        ``(1) In general.--An applicable employer plan shall not be 
    treated as failing to meet any requirement of this title solely 
    because the plan permits an eligible participant to make additional 
    elective deferrals in any plan year.
        ``(2) Limitation on amount of additional deferrals.--
            ``(A) In general.--A plan shall not permit additional 
        elective deferrals under paragraph (1) for any year in an 
        amount greater than the lesser of--
                ``(i) the applicable percentage of the applicable 
            dollar amount for such elective deferrals for such year, or
                ``(ii) the excess (if any) of--

                    ``(I) the participant's compensation for the year, 
                over
                    ``(II) any other elective deferrals of the 
                participant for such year which are made without regard 
                to this subsection.

            ``(B) Applicable percentage.--For purposes of this 
        paragraph, the applicable percentage shall be determined in 
        accordance with the following table:

``For taxable years
                                                          The applicable
beginning in:
                                                          percentage is:
    2001......................................................


                                                             10 percent 

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


                                                             20 percent 

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


                                                             30 percent 

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


                                                             40 percent 

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


                                                             50 percent.

        ``(3) Treatment of contributions.--In the case of any 
    contribution to a plan under paragraph (1)--
            ``(A) such contribution shall not, with respect to the year 
        in which the contribution is made--
                ``(i) be subject to any otherwise applicable limitation 
            contained in section 402(g), 402(h), 403(b), 404(a), 
            404(h), 408, 415, or 457, or
                ``(ii) be taken into account in applying such 
            limitations to other contributions or benefits under such 
            plan or any other such plan, and
            ``(B) such plan shall not be treated as failing to meet the 
        requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 
        401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k), 408(p), 
        408B, 410(b), or 416 by reason of the making of (or the right 
        to make) such contribution.
        ``(4) Eligible participant.--For purposes of this subsection, 
    the term `eligible participant' means, with respect to any plan 
    year, a participant in a plan--
            ``(A) who has attained the age of 50 before the close of 
        the plan year, and
            ``(B) with respect to whom no other elective deferrals may 
        (without regard to this subsection) be made to the plan for the 
        plan year by reason of the application of any limitation or 
        other restriction described in paragraph (3) or contained in 
        the terms of the plan.
        ``(5) Other definitions and rules.--For purposes of this 
    subsection--
            ``(A) Applicable dollar amount.--The term `applicable 
        dollar amount' means, with respect to any year, the amount in 
        effect under section 402(g)(1)(B), 408(p)(2)(E)(i), or 
        457(e)(15)(A), whichever is applicable to an applicable 
        employer plan, for such year.
            ``(B) Applicable employer plan.--The term `applicable 
        employer plan' means--
                ``(i) an employees' trust described in section 401(a) 
            which is exempt from tax under section 501(a),
                ``(ii) a plan under which amounts are contributed by an 
            individual's employer for an annuity contract described in 
            section 403(b),
                ``(iii) an eligible deferred compensation plan under 
            section 457 of an eligible employer as defined in section 
            457(e)(1)(A), and
                ``(iv) an arrangement meeting the requirements of 
            section 408 (k) or (p).
            ``(C) Elective deferral.--The term `elective deferral' has 
        the meaning given such term by subsection (u)(2)(C).
            ``(D) Exception for section 457 plans.--This subsection 
        shall not apply to an applicable employer plan described in 
        subparagraph (B)(iii) for any year to which section 457(b)(3) 
        applies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2000.

SEC. 1222. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO 
              DEFINED CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
        (1) In general.--Subparagraph (B) of section 415(c)(1) 
    (relating to limitation for defined contribution plans) is amended 
    by striking ``25 percent'' and inserting ``100 percent''.
        (2) Application to section 403(b).--Section 403(b) is amended--
            (A) by striking ``the exclusion allowance for such taxable 
        year'' in paragraph (1) and inserting ``the applicable limit 
        under section 415'',
            (B) by striking paragraph (2), and
            (C) by inserting ``or any amount received by a former 
        employee after the 5th taxable year following the taxable year 
        in which such employee was terminated'' before the period at 
        the end of the second sentence of paragraph (3).
        (3) Conforming amendments.--
            (A) Subsection (f) of section 72 is amended by striking 
        ``section 403(b)(2)(D)(iii))'' and inserting ``section 
        403(b)(2)(D)(iii), as in effect before the enactment of the 
        Taxpayer Refund and Relief Act of 1999)''.
            (B) Section 404(a)(10)(B) is amended by striking ``, the 
        exclusion allowance under section 403(b)(2),''.
            (C) Section 415(a)(2) is amended by striking ``, and the 
        amount of the contribution for such portion shall reduce the 
        exclusion allowance as provided in section 403(b)(2)''.
            (D) Section 415(c)(3) is amended by adding at the end the 
        following new subparagraph:
            ``(E) Annuity contracts.--In the case of an annuity 
        contract described in section 403(b), the term `participant's 
        compensation' means the participant's includible compensation 
        determined under section 403(b)(3).''.
            (E) Section 415(c) is amended by striking paragraph (4).
            (F) Section 415(c)(7) is amended to read as follows:
        ``(7) Certain contributions by church plans not treated as 
    exceeding limit.--
            ``(A) In general.--Notwithstanding any other provision of 
        this subsection, at the election of a participant who is an 
        employee of a church or a convention or association of 
        churches, including an organization described in section 
        414(e)(3)(B)(ii), contributions and other additions for an 
        annuity contract or retirement income account described in 
        section 403(b) with respect to such participant, when expressed 
        as an annual addition to such participant's account, shall be 
        treated as not exceeding the limitation of paragraph (1) if 
        such annual addition is not in excess of $10,000.
            ``(B) $40,000 aggregate limitation.--The total amount of 
        additions with respect to any participant which may be taken 
        into account for purposes of this subparagraph for all years 
        may not exceed $40,000.
            ``(C) Annual addition.--For purposes of this paragraph, the 
        term `annual addition' has the meaning given such term by 
        paragraph (2).''.
            (G) Subparagraph (B) of section 402(g)(7) (as redesignated 
        by section 1201) is amended by inserting before the period at 
        the end the following: ``(as in effect before the enactment of 
        the Taxpayer Refund and Relief Act of 1999)''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to years beginning after December 31, 2000.
    (b) Special Rules for Sections 403(b) and 408.--
        (1) In general.--Subsection (k) of section 415 is amended by 
    adding at the end the following new paragraph:
        ``(4) Special rules for sections 403(b) and 408.--For purposes 
    of this section, any annuity contract described in section 403(b) 
    for the benefit of a participant shall be treated as a defined 
    contribution plan maintained by each employer with respect to which 
    the participant has the control required under subsection (b) or 
    (c) of section 414 (as modified by subsection (h)). For purposes of 
    this section, any contribution by an employer to a simplified 
    employee pension plan for an individual for a taxable year shall be 
    treated as an employer contribution to a defined contribution plan 
    for such individual for such year.''.
        (2) Effective date.--
            (A) In general.--The amendment made by paragraph (1) shall 
        apply to limitation years beginning after December 31, 1999.
            (B) Exclusion allowance.--Effective for limitation years 
        beginning in 2000, in the case of any annuity contract 
        described in section 403(b) of the Internal Revenue Code of 
        1986, the amount of the contribution disqualified by reason of 
        section 415(g) of such Code shall reduce the exclusion 
        allowance as provided in section 403(b)(2) of such Code.
        (3) Modification of 403(b) exclusion allowance to conform to 
    415 modification.--The Secretary of the Treasury shall modify the 
    regulations regarding the exclusion allowance under section 
    403(b)(2) of the Internal Revenue Code of 1986 to render void the 
    requirement that contributions to a defined benefit pension plan be 
    treated as previously excluded amounts for purposes of the 
    exclusion allowance. For taxable years beginning after December 31, 
    1999, such regulations shall be applied as if such requirement were 
    void.
    (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
        (1) In general.--Subparagraph (B) of section 457(b)(2) 
    (relating to salary limitation on eligible deferred compensation 
    plans) is amended by striking ``33\1/3\ percent'' and inserting 
    ``100 percent''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to years beginning after December 31, 2000.

SEC. 1223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) Amendments to 1986 Code.--Section 411(a) (relating to minimum 
vesting standards) is amended--
        (1) in paragraph (2), by striking ``A plan'' and inserting 
    ``Except as provided in paragraph (12), a plan'', and
        (2) by adding at the end the following:
        ``(12) Faster vesting for matching contributions.--In the case 
    of matching contributions (as defined in section 401(m)(4)(A)), 
    paragraph (2) shall be applied--
            ``(A) by substituting `3 years' for `5 years' in 
        subparagraph (A), and
            ``(B) by substituting the following table for the table 
        contained in subparagraph (B):

                                                      The nonforfeitable
``Years of service:
                                                          percentage is:
    2.........................................................


                                                                     20 

    3.........................................................


                                                                     40 

    4.........................................................


                                                                     60 

    5.........................................................


                                                                     80 

    6.........................................................


                                                                 100.''.

    (b) Amendments to ERISA.--Section 203(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
        (1) in paragraph (2), by striking ``A plan'' and inserting 
    ``Except as provided in paragraph (4), a plan'', and
        (2) by adding at the end the following:
        ``(4) Faster vesting for matching contributions.--In the case 
    of matching contributions (as defined in section 401(m)(4)(A) of 
    the Internal Revenue Code of 1986), paragraph (2) shall be 
    applied--
            ``(A) by substituting `3 years' for `5 years' in 
        subparagraph (A), and
            ``(B) by substituting the following table for the table 
        contained in subparagraph (B):

                                                      The nonforfeitable
``Years of service:
                                                          percentage is:
    2.........................................................


                                                                     20 

    3.........................................................


                                                                     40 

    4.........................................................


                                                                     60 

    5.........................................................


                                                                     80 

    6.........................................................


                                                                 100.''.

    (c) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to contributions for 
    plan years beginning after December 31, 2000.
        (2) Collective bargaining agreements.--In the case of a plan 
    maintained pursuant to one or more collective bargaining agreements 
    between employee representatives and one or more employers ratified 
    by the date of the enactment of this Act, the amendments made by 
    this section shall not apply to contributions on behalf of 
    employees covered by any such agreement for plan years beginning 
    before the earlier of--
            (A) the later of--
                (i) the date on which the last of such collective 
            bargaining agreements terminates (determined without regard 
            to any extension thereof on or after such date of the 
            enactment), or
                (ii) January 1, 2001, or
            (B) January 1, 2005.
        (3) Service required.--With respect to any plan, the amendments 
    made by this section shall not apply to any employee before the 
    date that such employee has 1 hour of service under such plan in 
    any plan year to which the amendments made by this section apply.

SEC. 1224. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

    (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
        (1) In general.--The Secretary of the Treasury shall--
            (A) simplify and finalize the regulations relating to 
        minimum distribution requirements under sections 401(a)(9), 
        408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the Internal 
        Revenue Code of 1986, and
            (B) modify such regulations to--
                (i) reflect current life expectancy, and
                (ii) revise the required distribution methods so that, 
            under reasonable assumptions, the amount of the required 
            minimum distribution does not decrease over a participant's 
            life expectancy.
        (2) Fresh start.--Notwithstanding subparagraph (D) of section 
    401(a)(9) of such Code, during the first year that regulations are 
    in effect under this subsection, required distributions for future 
    years may be redetermined to reflect changes under such 
    regulations. Such redetermination shall include the opportunity to 
    choose a new designated beneficiary and to elect a new method of 
    calculating life expectancy.
        (3) Effective date for regulations.--Regulations referred to in 
    paragraph (1) shall be effective for years beginning after December 
    31, 2000, and shall apply in such years without regard to whether 
    an individual had previously begun receiving minimum distributions.
    (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
        (1) In general.--Subparagraph (B) of section 401(a)(9) is 
    amended by striking clause (i) and redesignating clauses (ii), 
    (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
        (2) Conforming changes.--
            (A) Clause (i) of section 401(a)(9)(B) (as so redesignated) 
        is amended--
                (i) by striking ``for other cases'' in the heading, and
                (ii) by striking ``the distribution of the employee's 
            interest has begun in accordance with subparagraph 
            (A)(ii)'' and inserting ``his entire interest has been 
            distributed to him,''.
            (B) Clause (ii) of section 401(a)(9)(B) (as so 
        redesignated) is amended by striking ``clause (ii)'' and 
        inserting ``clause (i)''.
            (C) Clause (iii) of section 401(a)(9)(B) (as so 
        redesignated) is amended--
                (i) by striking ``clause (iii)(I)'' and inserting 
            ``clause (ii)(I)'',
                (ii) by striking ``clause (iii)(III)'' in subclause (I) 
            and inserting ``clause (ii)(III)'',
                (iii) by striking ``the date on which the employee 
            would have attained the age 70\1/2\,'' in subclause (I) and 
            inserting ``April 1 of the calendar year following the 
            calendar year in which the spouse attains 70\1/2\,'', and
                (iv) by striking ``the distributions to such spouse 
            begin,'' in subclause (II) and inserting ``his entire 
            interest has been distributed to him,''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to years beginning after December 31, 2000.
    (c) Reduction in Excise Tax.--
        (1) In general.--Subsection (a) of section 4974 is amended by 
    striking ``50 percent'' and inserting ``10 percent''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to years beginning after December 31, 2000.

SEC. 1225. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
              PLAN BENEFITS UPON DIVORCE.

    (a) In General.--Section 414(p)(11) (relating to application of 
rules to governmental and church plans) is amended--
        (1) by inserting ``or an eligible deferred compensation plan 
    (within the meaning of section 457(b))'' after ``subsection (e))'', 
    and
        (2) in the heading, by striking ``governmental and church 
    plans'' and inserting ``certain other plans''.
    (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
    (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
        ``(12) Tax treatment of payments from a section 457 plan.--If a 
    distribution or payment from an eligible deferred compensation plan 
    described in section 457(b) is made pursuant to a qualified 
    domestic relations order, rules similar to the rules of section 
    402(e)(1)(A) shall apply to such distribution or payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers, distributions, and payments made after December 31, 
2000.

SEC. 1226. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS 
              FROM CASH OR DEFERRED ARRANGEMENTS.

    (a) In General.--The Secretary of the Treasury shall revise the 
regulations relating to hardship distributions under section 
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide 
that the period an employee is prohibited from making elective and 
employee contributions in order for a distribution to be deemed 
necessary to satisfy financial need shall be equal to 6 months.
    (b) Effective Date.--The revised regulations under subsection (a) 
shall apply to years beginning after December 31, 2000.

          Subtitle C--Increasing Portability for Participants

SEC. 1231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
        (1) Rollovers from section 457 plans.--
            (A) In general.--Section 457(e) (relating to other 
        definitions and special rules) is amended by adding at the end 
        the following:
        ``(16) Rollover amounts.--
            ``(A) General rule.--In the case of an eligible deferred 
        compensation plan established and maintained by an employer 
        described in subsection (e)(1)(A), if--
                ``(i) any portion of the balance to the credit of an 
            employee in such plan is paid to such employee in an 
            eligible rollover distribution (within the meaning of 
            section 402(c)(4) without regard to subparagraph (C) 
            thereof),
                ``(ii) the employee transfers any portion of the 
            property such employee receives in such distribution to an 
            eligible retirement plan described in section 402(c)(8)(B), 
            and
                ``(iii) in the case of a distribution of property other 
            than money, the amount so transferred consists of the 
            property distributed,
        then such distribution (to the extent so transferred) shall not 
        be includible in gross income for the taxable year in which 
        paid.
            ``(B) Certain rules made applicable.--The rules of 
        paragraphs (2) through (7) (other than paragraph (4)(C)) and 
        (9) of section 402(c) and section 402(f) shall apply for 
        purposes of subparagraph (A).
            ``(C) Reporting.--Rollovers under this paragraph shall be 
        reported to the Secretary in the same manner as rollovers from 
        qualified retirement plans (as defined in section 4974(c)).''.
            (B) Deferral limit determined without regard to rollover 
        amounts.--Section 457(b)(2) (defining eligible deferred 
        compensation plan) is amended by inserting ``(other than 
        rollover amounts)'' after ``taxable year''.
            (C) Direct rollover.--Paragraph (1) of section 457(d) is 
        amended by striking ``and'' at the end of subparagraph (A), by 
        striking the period at the end of subparagraph (B) and 
        inserting ``, and'', and by inserting after subparagraph (B) 
        the following:
            ``(C) in the case of a plan maintained by an employer 
        described in subsection (e)(1)(A), the plan meets requirements 
        similar to the requirements of section 401(a)(31).
    Any amount transferred in a direct trustee-to-trustee transfer in 
    accordance with section 401(a)(31) shall not be includible in gross 
    income for the taxable year of transfer.''.
            (D) Withholding.--
                (i) Paragraph (12) of section 3401(a) is amended by 
            adding at the end the following:
            ``(E) under or to an eligible deferred compensation plan 
        which, at the time of such payment, is a plan described in 
        section 457(b) maintained by an employer described in section 
        457(e)(1)(A); or''.
                (ii) Paragraph (3) of section 3405(c) is amended to 
            read as follows:
        ``(3) Eligible rollover distribution.--For purposes of this 
    subsection, the term `eligible rollover distribution' has the 
    meaning given such term by section 402(f)(2)(A).''.
                (iii) Liability for withholding.--Subparagraph (B) of 
            section 3405(d)(2) is amended by striking ``or'' at the end 
            of clause (ii), by striking the period at the end of clause 
            (iii) and inserting ``, or'', and by adding at the end the 
            following:
                ``(iv) section 457(b).''.
        (2) Rollovers to section 457 plans.--
            (A) In general.--Section 402(c)(8)(B) (defining eligible 
        retirement plan) is amended by striking ``and'' at the end of 
        clause (iii), by striking the period at the end of clause (iv) 
        and inserting ``, and'', and by inserting after clause (iv) the 
        following new clause:
                ``(v) an eligible deferred compensation plan described 
            in section 457(b) of an employer described in section 
            457(e)(1)(A).''.
            (B) Separate accounting.--Section 402(c) is amended by 
        adding at the end the following new paragraph:
        ``(11) Separate accounting.--Unless a plan described in clause 
    (v) of paragraph (8)(B) agrees to separately account for amounts 
    rolled into such plan from eligible retirement plans not described 
    in such clause, the plan described in such clause may not accept 
    transfers or rollovers from such retirement plans.''.
            (C) 10 percent additional tax.--Subsection (t) of section 
        72 (relating to 10-percent additional tax on early 
        distributions from qualified retirement plans) is amended by 
        adding at the end the following new paragraph:
        ``(9) Special rule for rollovers to section 457 plans.--For 
    purposes of this subsection, a distribution from an eligible 
    deferred compensation plan (as defined in section 457(b)) of an 
    employer described in section 457(e)(1)(A) shall be treated as a 
    distribution from a qualified retirement plan described in 
    4974(c)(1) to the extent that such distribution is attributable to 
    an amount transferred to an eligible deferred compensation plan 
    from a qualified retirement plan (as defined in section 
    4974(c)).''.
    (b) Allowance of Rollovers From and to 403 (b) Plans.--
        (1) Rollovers from section 403 (b) plans.--Section 
    403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
    striking ``such distribution'' and all that follows and inserting 
    ``such distribution to an eligible retirement plan described in 
    section 402(c)(8)(B), and''.
        (2) Rollovers to section 403 (b) plans.--Section 402(c)(8)(B) 
    (defining eligible retirement plan), as amended by subsection (a), 
    is amended by striking ``and'' at the end of clause (iv), by 
    striking the period at the end of clause (v) and inserting ``, 
    and'', and by inserting after clause (v) the following new clause:
                ``(vi) an annuity contract described in section 
            403(b).''.
    (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) is amended 
by striking ``and'' at the end of subparagraph (C), by striking the 
period at the end of subparagraph (D) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
            ``(E) of the provisions under which distributions from the 
        eligible retirement plan receiving the distribution may be 
        subject to restrictions and tax consequences which are 
        different from those applicable to distributions from the plan 
        making such distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover 
where spouse receives distribution after death of employee) is amended 
by striking ``; except that'' and all that follows up to the end 
period.
    (e) Conforming Amendments.--
        (1) Section 72(o)(4) is amended by striking ``and 408(d)(3)'' 
    and inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
        (2) Section 219(d)(2) is amended by striking ``or 408(d)(3)'' 
    and inserting ``408(d)(3), or 457(e)(16)''.
        (3) Section 401(a)(31)(B) is amended by striking ``and 
    403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
    457(e)(16)''.
        (4) Subparagraph (A) of section 402(f)(2) is amended by 
    striking ``or paragraph (4) of section 403(a)'' and inserting ``, 
    paragraph (4) of section 403(a), subparagraph (A) of section 
    403(b)(8), or subparagraph (A) of section 457(e)(16)''.
        (5) Paragraph (1) of section 402(f) is amended by striking 
    ``from an eligible retirement plan''.
        (6) Subparagraphs (A) and (B) of section 402(f)(1) are amended 
    by striking ``another eligible retirement plan'' and inserting ``an 
    eligible retirement plan''.
        (7) Subparagraph (B) of section 403(b)(8) is amended to read as 
    follows:
            ``(B) Certain rules made applicable.--The rules of 
        paragraphs (2) through (7) and (9) of section 402(c) and 
        section 402(f) shall apply for purposes of subparagraph (A), 
        except that section 402(f) shall be applied to the payor in 
        lieu of the plan administrator.''.
        (8) Section 408(a)(1) is amended by striking ``or 403(b)(8)'' 
    and inserting ``, 403(b)(8), or 457(e)(16)''.
        (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
    amended by striking ``and 408(d)(3)'' and inserting ``403(b)(8), 
    408(d)(3), and 457(e)(16)''.
        (10) Section 415(c)(2) is amended by striking ``and 408(d)(3)'' 
    and inserting ``408(d)(3), and 457(e)(16)''.
        (11) Section 4973(b)(1)(A) is amended by striking ``or 
    408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
    (f) Effective Date; Special Rule.--
        (1) Effective date.--The amendments made by this section shall 
    apply to distributions after December 31, 2000.
        (2) Special rule.--Notwithstanding any other provision of law, 
    subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act 
    of 1986 shall not apply to any distribution from an eligible 
    retirement plan (as defined in clause (iii) or (iv) of section 
    402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an 
    individual if there was a rollover to such plan on behalf of such 
    individual which is permitted solely by reason of any amendment 
    made by this section.

SEC. 1232. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

    (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                ``(ii) the entire amount received (including money and 
            any other property) is paid into an eligible retirement 
            plan for the benefit of such individual not later than the 
            60th day after the date on which the payment or 
            distribution is received, except that the maximum amount 
            which may be paid into such plan may not exceed the portion 
            of the amount received which is includible in gross income 
            (determined without regard to this paragraph).
        For purposes of clause (ii), the term `eligible retirement 
        plan' means an eligible retirement plan described in clause 
        (iii), (iv), (v), or (vi) of section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
        (1) Paragraph (1) of section 403(b) is amended by striking 
    ``section 408(d)(3)(A)(iii)'' and inserting ``section 
    408(d)(3)(A)(ii)''.
        (2) Clause (i) of section 408(d)(3)(D) is amended by striking 
    ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
        (3) Subparagraph (G) of section 408(d)(3) is amended to read as 
    follows:
            ``(G) Simple retirement accounts.--In the case of any 
        payment or distribution out of a simple retirement account (as 
        defined in subsection (p)) to which section 72(t)(6) applies, 
        this paragraph shall not apply unless such payment or 
        distribution is paid into another simple retirement account.''.
    (c) Effective Date; Special Rule.--
        (1) Effective date.--The amendments made by this section shall 
    apply to distributions after December 31, 2000.
        (2) Special rule.--Notwithstanding any other provision of law, 
    subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act 
    of 1986 shall not apply to any distribution from an eligible 
    retirement plan (as defined in clause (iii) or (iv) of section 
    402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an 
    individual if there was a rollover to such plan on behalf of such 
    individual which is permitted solely by reason of the amendments 
    made by this section.

SEC. 1233. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
            ``(A) such portion is transferred in a direct trustee-to-
        trustee transfer to a qualified trust which is part of a plan 
        which is a defined contribution plan and which agrees to 
        separately account for amounts so transferred, including 
        separately accounting for the portion of such distribution 
        which is includible in gross income and the portion of such 
        distribution which is not so includible, or
            ``(B) such portion is transferred to an eligible retirement 
        plan described in clause (i) or (ii) of paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply to such distribution if the plan to which such 
distribution is transferred--
                ``(i) agrees to separately account for amounts so 
            transferred, including separately accounting for the 
            portion of such distribution which is includible in gross 
            income and the portion of such distribution which is not so 
            includible, or
                ``(ii) is an eligible retirement plan described in 
            clause (i) or (ii) of section 402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of 
section 408(d) (relating to special rules for applying section 72) is 
amended by inserting at the end the following:
            ``(H) Application of section 72.--
                ``(i) In general.--If--

                    ``(I) a distribution is made from an individual 
                retirement plan, and
                    ``(II) a rollover contribution is made to an 
                eligible retirement plan described in section 
                402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to 
                all or part of such distribution,

            then, notwithstanding paragraph (2), the rules of clause 
            (ii) shall apply for purposes of applying section 72.
                ``(ii) Applicable rules.--In the case of a distribution 
            described in clause (i)--

                    ``(I) section 72 shall be applied separately to 
                such distribution,
                    ``(II) notwithstanding the pro rata allocation of 
                income on, and investment in, the contract to 
                distributions under section 72, the portion of such 
                distribution rolled over to an eligible retirement plan 
                described in clause (i) shall be treated as from income 
                on the contract (to the extent of the aggregate income 
                on the contract from all individual retirement plans of 
                the distributee), and
                    ``(III) appropriate adjustments shall be made in 
                applying section 72 to other distributions in such 
                taxable year and subsequent taxable years.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2000.

SEC. 1234. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
        ``(3) Transfer must be made within 60 days of receipt.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        paragraph (1) shall not apply to any transfer of a distribution 
        made after the 60th day following the day on which the 
        distributee received the property distributed.
            ``(B) Hardship exception.--The Secretary may waive the 60-
        day requirement under subparagraph (A) where the failure to 
        waive such requirement would be against equity or good 
        conscience, including casualty, disaster, or other events 
        beyond the reasonable control of the individual subject to such 
        requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 1233, is amended by adding after 
subparagraph (H) the following new subparagraph:
            ``(I) Waiver of 60-day requirement.--The Secretary may 
        waive the 60-day requirement under subparagraphs (A) and (D) 
        where the failure to waive such requirement would be against 
        equity or good conscience, including casualty, disaster, or 
        other events beyond the reasonable control of the individual 
        subject to such requirement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2000.

SEC. 1235. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
        (1) Amendment to internal revenue code of 1986.--Paragraph (6) 
    of section 411(d) (relating to accrued benefit not to be decreased 
    by amendment) is amended by adding at the end the following:
            ``(D) Plan transfers.--
                ``(i) A defined contribution plan (in this subparagraph 
            referred to as the `transferee plan') shall not be treated 
            as failing to meet the requirements of this subsection 
            merely because the transferee plan does not provide some or 
            all of the forms of distribution previously available under 
            another defined contribution plan (in this subparagraph 
            referred to as the `transferor plan') to the extent that--

                    ``(I) the forms of distribution previously 
                available under the transferor plan applied to the 
                account of a participant or beneficiary under the 
                transferor plan that was transferred from the 
                transferor plan to the transferee plan pursuant to a 
                direct transfer rather than pursuant to a distribution 
                from the transferor plan,
                    ``(II) the terms of both the transferor plan and 
                the transferee plan authorize the transfer described in 
                subclause (I),
                    ``(III) the transfer described in subclause (I) was 
                made pursuant to a voluntary election by the 
                participant or beneficiary whose account was 
                transferred to the transferee plan,
                    ``(IV) the election described in subclause (III) 
                was made after the participant or beneficiary received 
                a notice describing the consequences of making the 
                election,
                    ``(V) if the transferor plan provides for an 
                annuity as the normal form of distribution under the 
                plan in accordance with section 417, the transfer is 
                made with the consent of the participant's spouse (if 
                any), and such consent meets requirements similar to 
                the requirements imposed by section 417(a)(2), and
                    ``(VI) the transferee plan allows the participant 
                or beneficiary described in clause (iii) to receive any 
                distribution to which the participant or beneficiary is 
                entitled under the transferee plan in the form of a 
                single sum distribution.

                ``(ii) Clause (i) shall apply to plan mergers and other 
            transactions having the effect of a direct transfer, 
            including consolidations of benefits attributable to 
            different employers within a multiple employer plan.
            ``(E) Elimination of form of distribution.--Except to the 
        extent provided in regulations, a defined contribution plan 
        shall not be treated as failing to meet the requirements of 
        this section merely because of the elimination of a form of 
        distribution previously available thereunder. This subparagraph 
        shall not apply to the elimination of a form of distribution 
        with respect to any participant unless--
                ``(i) a single sum payment is available to such 
            participant at the same time or times as the form of 
            distribution being eliminated, and
                ``(ii) such single sum payment is based on the same or 
            greater portion of the participant's account as the form of 
            distribution being eliminated.''.
        (2) Amendment to erisa.--Section 204(g) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
    amended by adding at the end the following:
    ``(4)(A) A defined contribution plan (in this subparagraph referred 
to as the `transferee plan') shall not be treated as failing to meet 
the requirements of this subsection merely because the transferee plan 
does not provide some or all of the forms of distribution previously 
available under another defined contribution plan (in this subparagraph 
referred to as the `transferor plan') to the extent that--
        ``(i) the forms of distribution previously available under the 
    transferor plan applied to the account of a participant or 
    beneficiary under the transferor plan that was transferred from the 
    transferor plan to the transferee plan pursuant to a direct 
    transfer rather than pursuant to a distribution from the transferor 
    plan;
        ``(ii) the terms of both the transferor plan and the transferee 
    plan authorize the transfer described in clause (i);
        ``(iii) the transfer described in clause (i) was made pursuant 
    to a voluntary election by the participant or beneficiary whose 
    account was transferred to the transferee plan;
        ``(iv) the election described in clause (iii) was made after 
    the participant or beneficiary received a notice describing the 
    consequences of making the election;
        ``(v) if the transferor plan provides for an annuity as the 
    normal form of distribution under the plan in accordance with 
    section 205, the transfer is made with the consent of the 
    participant's spouse (if any), and such consent meets requirements 
    similar to the requirements imposed by section 205(c)(2); and
        ``(vi) the transferee plan allows the participant or 
    beneficiary described in clause (iii) to receive any distribution 
    to which the participant or beneficiary is entitled under the 
    transferee plan in the form of a single sum distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including 
consolidations of benefits attributable to different employers within a 
multiple employer plan.
    ``(5) Elimination of form of distribution.--Except to the extent 
provided in regulations, a defined contribution plan shall not be 
treated as failing to meet the requirements of this section merely 
because of the elimination of a form of distribution previously 
available thereunder. This paragraph shall not apply to the elimination 
of a form of distribution with respect to any participant unless--
        ``(A) a single sum payment is available to such participant at 
    the same time or times as the form of distribution being 
    eliminated; and
        ``(B) such single sum payment is based on the same or greater 
    portion of the participant's account as the form of distribution 
    being eliminated.''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to years beginning after December 31, 2000.
    (b) Regulations.--
        (1) Amendment to internal revenue code of 1986.--The last 
    sentence of paragraph (6)(B) of section 411(d) (relating to accrued 
    benefit not to be decreased by amendment) is amended to read as 
    follows: ``The Secretary shall by regulations provide that this 
    subparagraph shall not apply to any plan amendment that does not 
    adversely affect the rights of participants in a material 
    manner.''.
        (2) Amendment to erisa.--The last sentence of section 204(g)(2) 
    of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
    1054(g)(2)) is amended to read as follows: ``The Secretary of the 
    Treasury shall by regulations provide that this paragraph shall not 
    apply to any plan amendment that does not adversely affect the 
    rights of participants in a material manner.''.
        (3) Secretary directed.--Not later than December 31, 2001, the 
    Secretary of the Treasury is directed to issue final regulations 
    under section 411(d)(6) of the Internal Revenue Code of 1986 and 
    section 204(g) of the Employee Retirement Income Security Act of 
    1974, including the regulations required by the amendments made by 
    this subsection. Such regulations shall apply to plan years 
    beginning after December 31, 2001, or such earlier date as is 
    specified by the Secretary of the Treasury.

SEC. 1236. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
        (1) Section 401(k).--
            (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
        or deferred arrangements) is amended by striking ``separation 
        from service'' and inserting ``severance from employment''.
            (B) Subparagraph (A) of section 401(k)(10) (relating to 
        distributions upon termination of plan or disposition of assets 
        or subsidiary) is amended to read as follows:
            ``(A) In general.--An event described in this subparagraph 
        is the termination of the plan without establishment or 
        maintenance of another defined contribution plan (other than an 
        employee stock ownership plan as defined in section 
        4975(e)(7)).''.
            (C) Section 401(k)(10) is amended--
                (i) in subparagraph (B)--

                    (I) by striking ``An event'' in clause (i) and 
                inserting ``A termination'', and
                    (II) by striking ``the event'' in clause (i) and 
                inserting ``the termination'',

                (ii) by striking subparagraph (C), and
                (iii) by striking ``or disposition of assets or 
            subsidiary'' in the heading.
        (2) Section 403(b).--
            (A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are 
        each amended by striking ``separates from service'' and 
        inserting ``has a severance from employment''.
            (B) The heading for paragraph (11) of section 403(b) is 
        amended by striking ``separation from service'' and inserting 
        ``severance from employment''.
        (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
    amended by striking ``is separated from service'' and inserting 
    ``has a severance from employment''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2000.

SEC. 1237. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
              PLANS.

    (a) 403(b) Plans.--Subsection (b) of section 403 is amended by 
adding at the end the following new paragraph:
        ``(13) Trustee-to-trustee transfers to purchase permissive 
    service credit.--No amount shall be includible in gross income by 
    reason of a direct trustee-to-trustee transfer to a defined benefit 
    governmental plan (as defined in section 414(d)) if such transfer 
    is--
            ``(A) for the purchase of permissive service credit (as 
        defined in section 415(n)(3)(A)) under such plan, or
            ``(B) a repayment to which section 415 does not apply by 
        reason of subsection (k)(3) thereof.''.
    (b) 457 Plans.--
        (1) Subsection (e) of section 457 is amended by adding after 
    paragraph (16) the following new paragraph:
        ``(17) Trustee-to-trustee transfers to purchase permissive 
    service credit.--No amount shall be includible in gross income by 
    reason of a direct trustee-to-trustee transfer to a defined benefit 
    governmental plan (as defined in section 414(d)) if such transfer 
    is--
            ``(A) for the purchase of permissive service credit (as 
        defined in section 415(n)(3)(A)) under such plan, or
            ``(B) a repayment to which section 415 does not apply by 
        reason of subsection (k)(3) thereof.''.
        (2) Section 457(b)(2) is amended by striking ``(other than 
    rollover amounts)'' and inserting ``(other than rollover amounts 
    and amounts received in a transfer referred to in subsection 
    (e)(17))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to trustee-to-trustee transfers after December 31, 2000.

SEC. 1238. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
              AMOUNTS.

    (a) Qualified Plans.--
        (1) Amendment to internal revenue code of 1986.--Section 
    411(a)(11) (relating to restrictions on certain mandatory 
    distributions) is amended by adding at the end the following:
            ``(D) Special rule for rollover contributions.--A plan 
        shall not fail to meet the requirements of this paragraph if, 
        under the terms of the plan, the present value of the 
        nonforfeitable accrued benefit is determined without regard to 
        that portion of such benefit which is attributable to rollover 
        contributions (and earnings allocable thereto). For purposes of 
        this subparagraph, the term `rollover contributions' means any 
        rollover contribution under sections 402(c), 403(a)(4), 
        403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).''.
        (2) Amendment to erisa.--Section 203(e) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
    amended by adding at the end the following:
    ``(4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value of the 
nonforfeitable accrued benefit is determined without regard to that 
portion of such benefit which is attributable to rollover contributions 
(and earnings allocable thereto). For purposes of this subparagraph, 
the term `rollover contributions' means any rollover contribution under 
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2000.

SEC. 1239. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
              457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
        ``(2) Minimum distribution requirements.--A plan meets the 
    minimum distribution requirements of this paragraph if such plan 
    meets the requirements of section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
        (1) Year of inclusion.--Subsection (a) of section 457 (relating 
    to year of inclusion in gross income) is amended to read as 
    follows:
    ``(a) Year of inclusion in gross income.--
        ``(1) In general.--Any amount of compensation deferred under an 
    eligible deferred compensation plan, and any income attributable to 
    the amounts so deferred, shall be includible in gross income only 
    for the taxable year in which such compensation or other income--
            ``(A) is paid to the participant or other beneficiary, in 
        the case of a plan of an eligible employer described in 
        subsection (e)(1)(A), and
            ``(B) is paid or otherwise made available to the 
        participant or other beneficiary, in the case of a plan of an 
        eligible employer described in subsection (e)(1)(B).
        ``(2) Special rule for rollover amounts.--To the extent 
    provided in section 72(t)(9), section 72(t) shall apply to any 
    amount includible in gross income under this subsection.''.
        (2) Conforming amendments.--
            (A) So much of paragraph (9) of section 457(e) as precedes 
        subparagraph (A) is amended to read as follows:
        ``(9) Benefits of tax exempt organization plans not treated as 
    made available by reason of certain elections, etc.--In the case of 
    an eligible deferred compensation plan of an employer described in 
    subsection (e)(1)(B)--''.
            (B) Section 457(d) is amended by adding at the end the 
        following new paragraph:
        ``(3) Special rule for government plan.--An eligible deferred 
    compensation plan of an employer described in subsection (e)(1)(A) 
    shall not be treated as failing to meet the requirements of this 
    subsection solely by reason of making a distribution described in 
    subsection (e)(9)(A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2000.

       Subtitle D--Strengthening Pension Security and Enforcement

SEC. 1241. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

    (a) Amendment to Internal Revenue Code of 1986.--Section 412(c)(7) 
(relating to full-funding limitation) is amended--
        (1) by striking ``the applicable percentage'' in subparagraph 
    (A)(i)(I) and inserting ``in the case of plan years beginning 
    before January 1, 2004, the applicable percentage'', and
        (2) by amending subparagraph (F) to read as follows:
            ``(F) Applicable percentage.--For purposes of subparagraph 
        (A)(i)(I), the applicable percentage shall be determined in 
        accordance with the following table:

        ``In the case of any plan year
                                                          The applicable
          beginning in--
                                                         percentage is--
            2001..............................................
                                                                    160 
            2002..............................................
                                                                    165 
            2003..............................................
                                                                 170.''.

    (b) Amendment to ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is 
amended--
        (1) by striking ``the applicable percentage'' in subparagraph 
    (A)(i)(I) and inserting ``in the case of plan years beginning 
    before January 1, 2004, the applicable percentage'', and
        (2) by amending subparagraph (F) to read as follows:
            ``(F) Applicable percentage.--For purposes of subparagraph 
        (A)(i)(I), the applicable percentage shall be determined in 
        accordance with the following table:

        ``In the case of any plan year
                                                          The applicable
          beginning in--
                                                         percentage is--
            2001..............................................
                                                                    160 
            2002..............................................
                                                                    165 
            2003..............................................
                                                                 170.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2000.

SEC. 1242. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
              ALL DEFINED BENEFIT PLANS.

    (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
            ``(D) Special rule in case of certain plans.--
                ``(i) In general.--In the case of any defined benefit 
            plan, except as provided in regulations, the maximum amount 
            deductible under the limitations of this paragraph shall 
            not be less than the unfunded termination liability 
            (determined as if the proposed termination date referred to 
            in section 4041(b)(2)(A)(i)(II) of the Employee Retirement 
            Income Security Act of 1974 were the last day of the plan 
            year).
                ``(ii) Plans with less than 100 participants.--For 
            purposes of this subparagraph, in the case of a plan which 
            has less than 100 participants for the plan year, 
            termination liability shall not include the liability 
            attributable to benefit increases for highly compensated 
            employees (as defined in section 414(q)) resulting from a 
            plan amendment which is made or becomes effective, 
            whichever is later, within the last 2 years before the 
            termination date.
                ``(iii) Rule for determining number of participants.--
            For purposes of determining whether a plan has more than 
            100 participants, all defined benefit plans maintained by 
            the same employer (or any member of such employer's 
            controlled group (within the meaning of section 
            412(l)(8)(C))) shall be treated as one plan, but only 
            employees of such member or employer shall be taken into 
            account.
                ``(iv) Plans established and maintain by professional 
            service employers.--Clause (i) shall not apply to a plan 
            described in section 4021(b)(13) of the Employee Retirement 
            Income Security Act of 1974.''.
    (b) Conforming Amendment.--Paragraph (6) of section 4972(c) is 
amended to read as follows:
        ``(6) Exceptions.--In determining the amount of nondeductible 
    contributions for any taxable year, there shall not be taken into 
    account so much of the contributions to one or more defined 
    contribution plans which are not deductible when contributed solely 
    because of section 404(a)(7) as does not exceed the greater of--
            ``(A) the amount of contributions not in excess of 6 
        percent of compensation (within the meaning of section 404(a)) 
        paid or accrued (during the taxable year for which the 
        contributions were made) to beneficiaries under the plans, or
            ``(B) the sum of--
                ``(i) the amount of contributions described in section 
            401(m)(4)(A), plus
                ``(ii) the amount of contributions described in section 
            402(g)(3)(A).
    For purposes of this paragraph, the deductible limits under section 
    404(a)(7) shall first be applied to amounts contributed to a 
    defined benefit plan and then to amounts described in subparagraph 
    (B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2000.

SEC. 1243. MISSING PARTICIPANTS.

    (a) In General.--Section 4050 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after subsection (b) 
the following:
    ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
    ``(d) Plans Not Otherwise Subject to Title.--
        ``(1) Transfer to corporation.--The plan administrator of a 
    plan described in paragraph (4) may elect to transfer a missing 
    participant's benefits to the corporation upon termination of the 
    plan.
        ``(2) Information to the corporation.--To the extent provided 
    in regulations, the plan administrator of a plan described in 
    paragraph (4) shall, upon termination of the plan, provide the 
    corporation information with respect to benefits of a missing 
    participant if the plan transfers such benefits--
            ``(A) to the corporation, or
            ``(B) to an entity other than the corporation or a plan 
        described in paragraph (4)(B)(ii).
        ``(3) Payment by the corporation.--If benefits of a missing 
    participant were transferred to the corporation under paragraph 
    (1), the corporation shall, upon location of the participant or 
    beneficiary, pay to the participant or beneficiary the amount 
    transferred (or the appropriate survivor benefit) either--
            ``(A) in a single sum (plus interest), or
            ``(B) in such other form as is specified in regulations of 
        the corporation.
        ``(4) Plans described.--A plan is described in this paragraph 
    if--
            ``(A) the plan is a pension plan (within the meaning of 
        section 3(2))--
                ``(i) to which the provisions of this section do not 
            apply (without regard to this subsection), and
                ``(ii) which is not a plan described in paragraphs (2) 
            through (11) of section 4021(b), and
            ``(B) at the time the assets are to be distributed upon 
        termination, the plan--
                ``(i) has missing participants, and
                ``(ii) has not provided for the transfer of assets to 
            pay the benefits of all missing participants to another 
            pension plan (within the meaning of section 3(2)).
        ``(5) Certain provisions not to apply.--Subsections (a)(1) and 
    (a)(3) shall not apply to a plan described in paragraph (4).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions made after final regulations implementing subsections 
(c) and (d) of section 4050 of the Employee Retirement Income Security 
Act of 1974 (as added by subsection (a)), respectively, are prescribed.

SEC. 1244. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
        ``(7) Defined benefit plan exception.--In determining the 
    amount of nondeductible contributions for any taxable year, an 
    employer may elect for such year not to take into account any 
    contributions to a defined benefit plan except to the extent that 
    such contributions exceed the full-funding limitation (as defined 
    in section 412(c)(7), determined without regard to subparagraph 
    (A)(i)(I) thereof). For purposes of this paragraph, the deductible 
    limits under section 404(a)(7) shall first be applied to amounts 
    contributed to defined contribution plans and then to amounts 
    described in this paragraph. If an employer makes an election under 
    this paragraph for a taxable year, paragraph (6) shall not apply to 
    such employer for such taxable year.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 1245. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
              PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

    (a) Amendment to 1986 Code.--Chapter 43 of subtitle D (relating to 
qualified pension, etc., plans) is amended by adding at the end the 
following new section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
              SATISFY NOTICE REQUIREMENTS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
    ``(b) Amount of Tax.--
        ``(1) In general.--The amount of the tax imposed by subsection 
    (a) on any failure with respect to any applicable individual shall 
    be $100 for each day in the noncompliance period with respect to 
    such failure.
        ``(2) Noncompliance period.--For purposes of this section, the 
    term `noncompliance period' means, with respect to any failure, the 
    period beginning on the date the failure first occurs and ending on 
    the date the failure is corrected.
    ``(c) Limitations on Amount of Tax.--
        ``(1) Overall limitation for unintentional failures.--In the 
    case of failures that are due to reasonable cause and not to 
    willful neglect, the tax imposed by subsection (a) for failures 
    during the taxable year of the employer (or, in the case of a 
    multiemployer plan, the taxable year of the trust forming part of 
    the plan) shall not exceed $500,000. For purposes of the preceding 
    sentence, all multiemployer plans of which the same trust forms a 
    part shall be treated as one plan. For purposes of this paragraph, 
    if not all persons who are treated as a single employer for 
    purposes of this section have the same taxable year, the taxable 
    years taken into account shall be determined under principles 
    similar to the principles of section 1561.
        ``(2) Waiver by secretary.--In the case of a failure which is 
    due to reasonable cause and not to willful neglect, the Secretary 
    may waive part or all of the tax imposed by subsection (a) to the 
    extent that the payment of such tax would be excessive relative to 
    the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
        ``(1) In the case of a plan other than a multiemployer plan, 
    the employer.
        ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
        ``(1) In general.--If an applicable pension plan is amended to 
    provide for a significant reduction in the rate of future benefit 
    accrual, the plan administrator shall provide written notice to 
    each applicable individual (and to each employee organization 
    representing applicable individuals).
        ``(2) Notice.--The notice required by paragraph (1) shall be 
    written in a manner calculated to be understood by the average plan 
    participant and shall provide sufficient information (as determined 
    in accordance with regulations prescribed by the Secretary) to 
    allow applicable individuals to understand the effect of the plan 
    amendment.
        ``(3) Timing of notice.--Except as provided in regulations, the 
    notice required by paragraph (1) shall be provided within a 
    reasonable time before the effective date of the plan amendment.
        ``(4) Designees.--Any notice under paragraph (1) may be 
    provided to a person designated, in writing, by the person to which 
    it would otherwise be provided.
        ``(5) Notice before adoption of amendment.--A plan shall not be 
    treated as failing to meet the requirements of paragraph (1) merely 
    because notice is provided before the adoption of the plan 
    amendment if no material modification of the amendment occurs 
    before the amendment is adopted.
    ``(f) Applicable Individual; Applicable Pension Plan.--For purposes 
of this section--
        ``(1) Applicable individual.--The term `applicable individual' 
    means, with respect to any plan amendment--
            ``(A) any participant in the plan, and
            ``(B) any beneficiary who is an alternate payee (within the 
        meaning of section 414(p)(8)) under an applicable qualified 
        domestic relations order (within the meaning of section 
        414(p)(1)(A)),
    who may reasonably be expected to be affected by such plan 
    amendment.
        ``(2) Applicable pension plan.--The term `applicable pension 
    plan' means--
            ``(A) any defined benefit plan, or
            ``(B) an individual account plan which is subject to the 
        funding standards of section 412,
    which had 100 or more participants who had accrued a benefit, or 
    with respect to whom contributions were made, under the plan 
    (whether or not vested) as of the last day of the plan year 
    preceding the plan year in which the plan amendment becomes 
    effective. Such term shall not include a governmental plan (within 
    the meaning of section 414(d)) or a church plan (within the meaning 
    of section 414(e)) with respect to which the election provided by 
    section 410(d) has not been made.''.
    (b) Amendment to ERISA.--Section 204(h) of the Employee Retirement 
Income Security Act or 1974 (29 U.S.C. 1054(h)) is amended by adding at 
the end the following new paragraph:
    ``(3)(A) A plan to which paragraph (1) applies shall not be treated 
as meeting the requirements of such paragraph unless, in addition to 
any notice required to be provided to an individual or organization 
under such paragraph, the plan administrator provides the notice 
described in subparagraph (B).
    ``(B) The notice required by subparagraph (A) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall provide sufficient information (as determined in accordance with 
regulations prescribed by the Secretary of the Treasury) to allow 
individuals to understand the effect of the plan amendment.
    ``(C) Except as provided in regulations prescribed by the Secretary 
of the Treasury, the notice required by subparagraph (A) shall be 
provided within a reasonable time before the effective date of the plan 
amendment.
    ``(D) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because notice is provided 
before the adoption of the plan amendment if no material modification 
of the amendment occurs before the amendment is adopted.''.
    (c) Clerical Amendment.--The table of sections for chapter 43 of 
subtitle D is amended by adding at the end the following new item:

         ``Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.''.

    (d) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to plan amendments taking effect on or after the date of the 
    enactment of this Act.
        (2) Transition.--Until such time as the Secretary of the 
    Treasury issues regulations under sections 4980F(e)(2) and (3) of 
    the Internal Revenue Code of 1986 and section 204(h)(3) of the 
    Employee Retirement Income Security Act of 1974 (as added by the 
    amendments made by this section), a plan shall be treated as 
    meeting the requirements of such sections if it makes a good faith 
    effort to comply with such requirements.
        (3) Special rule.--The period for providing any notice required 
    by the amendments made by this section shall not end before the 
    date which is 3 months after the date of the enactment of this Act.

SEC. 1246. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
              PLANS.

    (a) In General.--Section 1524(b) of the Taxpayer Relief Act of 1997 
is amended to read as follows:
    ``(b) Effective Date.--
        ``(1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to elective deferrals 
    for plan years beginning after December 31, 1998.
        ``(2) Nonapplication to previously acquired property.--The 
    amendments made by this section shall not apply to any elective 
    deferral which is invested in assets consisting of qualifying 
    employer securities, qualifying employer real property, or both, if 
    such assets were acquired before January 1, 1999.''.
    (b) Effective Date.--The amendment made by this section shall apply 
as if included in the provision of the Taxpayer Relief Act of 1997 to 
which it relates.

SEC. 1247. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b) (relating 
to limitation for defined benefit plans) is amended to read as follows:
        ``(11) Special limitation rule for governmental and 
    multiemployer plans.--In the case of a governmental plan (as 
    defined in section 414(d)) or a multiemployer plan (as defined in 
    section 414(f)), subparagraph (B) of paragraph (1) shall not 
    apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

                Subtitle E--Reducing Regulatory Burdens

SEC. 1251. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Section 412(c)(9) (relating to annual valuation) 
is amended--
        (1) by striking ``For purposes'' and inserting the following:
            ``(A) In general.--For purposes'', and
        (2) by adding at the end the following:
            ``(B) Election to use prior year valuation.--
                ``(i) In general.--Except as provided in clause (ii), 
            if, for any plan year--

                    ``(I) an election is in effect under this 
                subparagraph with respect to a plan, and
                    ``(II) the assets of the plan are not less than 125 
                percent of the plan's current liability (as defined in 
                paragraph (7)(B)), determined as of the valuation date 
                for the preceding plan year,

            then this section shall be applied using the information 
            available as of such valuation date.
                ``(ii) Exceptions.--

                    ``(I) Actual valuation every 3 years.--Clause (i) 
                shall not apply for more than 2 consecutive plan years 
                and valuation shall be under subparagraph (A) with 
                respect to any plan year to which clause (i) does not 
                apply by reason of this subclause.
                    ``(II) Regulations.--Clause (i) shall not apply to 
                the extent that more frequent valuations are required 
                under the regulations under subparagraph (A).

                ``(iii) Adjustments.--Information under clause (i) 
            shall, in accordance with regulations, be actuarially 
            adjusted to reflect significant differences in 
            participants.
                ``(iv) Election.--An election under this subparagraph, 
            once made, shall be irrevocable without the consent of the 
            Secretary.''.
    (b) Amendments to ERISA.--Paragraph (9) of section 302(c) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
amended--
        (1) by inserting ``(A)'' after ``(9)'', and
        (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), if, for any plan year--
        ``(I) an election is in effect under this subparagraph with 
    respect to a plan, and
        ``(II) the assets of the plan are not less than 125 percent of 
    the plan's current liability (as defined in paragraph (7)(B)), 
    determined as of the valuation date for the preceding plan year,
then this section shall be applied using the information available as 
of such valuation date.
    ``(ii)(I) Clause (i) shall not apply for more than 2 consecutive 
plan years and valuation shall be under subparagraph (A) with respect 
to any plan year to which clause (i) does not apply by reason of this 
subclause.
    ``(II) Clause (i) shall not apply to the extent that more frequent 
valuations are required under the regulations under subparagraph (A).
    ``(iii) Information under clause (i) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant differences 
in participants.
    ``(iv) An election under this subparagraph, once made, shall be 
irrevocable without the consent of the Secretary of the Treasury.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2000.

SEC. 1252. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
              DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                ``(iii) is, at the election of such participants or 
            their beneficiaries--

                    ``(I) payable as provided in clause (i) or (ii), or
                    ``(II) paid to the plan and reinvested in 
                qualifying employer securities, or''.

    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 1253. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
              COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to plan years beginning after December 31, 1999.

SEC. 1254. EMPLOYEES OF TAX-EXEMPT ENTITIES.

    (a) In General.--The Secretary of the Treasury shall modify 
Treasury Regulations section 1.410(b)-6(g) to provide that employees of 
an organization described in section 403(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 who are eligible to make contributions under 
section 403(b) of such Code pursuant to a salary reduction agreement 
may be treated as excludable with respect to a plan under section 401 
(k) or (m) of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
        (1) no employee of an organization described in section 
    403(b)(1)(A)(i) of such Code is eligible to participate in such 
    section 401(k) plan or section 401(m) plan, and
        (2) 95 percent of the employees who are not employees of an 
    organization described in section 403(b)(1)(A)(i) of such Code are 
    eligible to participate in such plan under such section 401 (k) or 
    (m).
    (b) Effective Date.--The modification required by subsection (a) 
shall apply as of the same date set forth in section 1426(b) of the 
Small Business Job Protection Act of 1996.

SEC. 1255. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
              ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at the end 
of paragraph (5), by striking the period at the end of paragraph (6) 
and inserting ``, or'', and by adding at the end the following new 
paragraph:
        ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
    ``(m) Qualified Retirement Planning Services.--
        ``(1) In general.--For purposes of this section, the term 
    `qualified retirement planning services' means any retirement 
    planning service provided to an employee and his spouse by an 
    employer maintaining a qualified employer plan.
        ``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply in 
    the case of highly compensated employees only if such services are 
    available on substantially the same terms to each member of the 
    group of employees normally provided education and information 
    regarding the employer's qualified employer plan.
        ``(3) Qualified employer plan.--For purposes of this 
    subsection, the term `qualified employer plan' means a plan, 
    contract, pension, or account described in section 219(g)(5).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 1256. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
        (1) In general.--The Secretary of the Treasury shall modify the 
    requirements for filing annual returns with respect to one-
    participant retirement plans to ensure that such plans with assets 
    of $250,000 or less as of the close of the plan year need not file 
    a return for that year.
        (2) One-participant retirement plan defined.--For purposes of 
    this subsection, the term ``one-participant retirement plan'' means 
    a retirement plan that--
            (A) on the first day of the plan year--
                (i) covered only the employer (and the employer's 
            spouse) and the employer owned the entire business (whether 
            or not incorporated), or
                (ii) covered only one or more partners (and their 
            spouses) in a business partnership (including partners in 
            an S or C corporation),
            (B) meets the minimum coverage requirements of section 
        410(b) of the Internal Revenue Code of 1986 without being 
        combined with any other plan of the business that covers the 
        employees of the business,
            (C) does not provide benefits to anyone except the employer 
        (and the employer's spouse) or the partners (and their 
        spouses),
            (D) does not cover a business that is a member of an 
        affiliated service group, a controlled group of corporations, 
        or a group of businesses under common control, and
            (E) does not cover a business that leases employees.
        (3) Other definitions.--Terms used in paragraph (2) which are 
    also used in section 414 of the Internal Revenue Code of 1986 shall 
    have the respective meanings given such terms by such section.
    (b) Simplified Annual Filing Requirement for Plans With Fewer Than 
25 Employees.--In the case of a retirement plan which covers less than 
25 employees on the first day of the plan year and meets the 
requirements described in subparagraphs (B), (D), and (E) of subsection 
(a)(2), the Secretary of the Treasury shall provide for the filing of a 
simplified annual return that is substantially similar to the annual 
return required to be filed by a one-participant retirement plan.
    (c) Effective Date.--The provisions of this section shall take 
effect on January 1, 2001.

SEC. 1257. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

    The Secretary of the Treasury shall continue to update and improve 
the Employee Plans Compliance Resolution System (or any successor 
program) giving special attention to--
        (1) increasing the awareness and knowledge of small employers 
    concerning the availability and use of the program,
        (2) taking into account special concerns and circumstances that 
    small employers face with respect to compliance and correction of 
    compliance failures,
        (3) extending the duration of the self-correction period under 
    the Administrative Policy Regarding Self-Correction for significant 
    compliance failures,
        (4) expanding the availability to correct insignificant 
    compliance failures under the Administrative Policy Regarding Self-
    Correction during audit, and
        (5) assuring that any tax, penalty, or sanction that is imposed 
    by reason of a compliance failure is not excessive and bears a 
    reasonable relationship to the nature, extent, and severity of the 
    failure.

SEC. 1258. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

    (a) Modification of Phase-In of Guarantee.--Section 4022(b)(5) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1322(b)(5)) is amended to read as follows:
    ``(5)(A) For purposes of this paragraph, the term `majority owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
        ``(i) owns the entire interest in an unincorporated trade or 
    business,
        ``(ii) in the case of a partnership, is a partner who owns, 
    directly or indirectly, 50 percent or more of either the capital 
    interest or the profits interest in such partnership, or
        ``(iii) in the case of a corporation, owns, directly or 
    indirectly, 50 percent or more in value of either the voting stock 
    of that corporation or all the stock of that corporation.
For purposes of clause (iii), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).
    ``(B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal the 
product of--
        ``(i) a fraction (not to exceed 1) the numerator of which is 
    the number of years from the later of the effective date or the 
    adoption date of the plan to the termination date, and the 
    denominator of which is 10, and
        ``(ii) the amount of benefits that would be guaranteed under 
    this section if the participant were not a majority owner.''.
    (b) Modification of Allocation of Assets.--
        (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
    Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
    striking ``section 4022(b)(5)'' and inserting ``section 
    4022(b)(5)(B)''.
        (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
    amended--
            (A) by striking ``(5)'' in paragraph (2) and inserting 
        ``(4), (5),'', and
            (B) by redesignating paragraphs (3) through (6) as 
        paragraphs (4) through (7), respectively, and by inserting 
        after paragraph (2) the following:
        ``(3) If assets available for allocation under paragraph (4) of 
    subsection (a) are insufficient to satisfy in full the benefits of 
    all individuals who are described in that paragraph, the assets 
    shall be allocated first to benefits described in subparagraph (A) 
    of that paragraph. Any remaining assets shall then be allocated to 
    benefits described in subparagraph (B) of that paragraph. If assets 
    allocated to such subparagraph (B) are insufficient to satisfy in 
    full the benefits described in that subparagraph, the assets shall 
    be allocated pro rata among individuals on the basis of the present 
    value (as of the termination date) of their respective benefits 
    described in that subparagraph.''.
    (c) Conforming Amendments.--
        (1) Section 4021 of the Employee Retirement Income Security Act 
    of 1974 (29 U.S.C. 1321) is amended--
            (A) in subsection (b)(9), by striking ``as defined in 
        section 4022(b)(6)'', and
            (B) by adding at the end the following:
    ``(d) For purposes of subsection (b)(9), the term `substantial 
owner' means an individual who, at any time during the 60-month period 
ending on the date the determination is being made--
        ``(1) owns the entire interest in an unincorporated trade or 
    business,
        ``(2) in the case of a partnership, is a partner who owns, 
    directly or indirectly, more than 10 percent of either the capital 
    interest or the profits interest in such partnership, or
        ``(3) in the case of a corporation, owns, directly or 
    indirectly, more than 10 percent in value of either the voting 
    stock of that corporation or all the stock of that corporation.
For purposes of paragraph (3), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).''.
    (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) is 
amended by striking ``section 4022(b)(6)'' and inserting ``section 
4021(d)''.
    (d) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to plan terminations--
            (A) under section 4041(c) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1341(c)) with respect to which 
        notices of intent to terminate are provided under section 
        4041(a)(2) of such Act (29 U.S.C. 1341(a)(2)) after December 
        31, 2000, and
            (B) under section 4042 of such Act (29 U.S.C. 1342) with 
        respect to which proceedings are instituted by the corporation 
        after such date.
        (2) Conforming amendments.--The amendments made by subsection 
    (c) shall take effect on the date of the enactment of this Act.

SEC. 1259. MODIFICATION OF EXCLUSION FOR EMPLOYER PROVIDED TRANSIT 
              PASSES.

    (a) In General.--Section 132(f)(3) (relating to cash 
reimbursements) is amended by striking the last sentence.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1260. REPEAL OF THE MULTIPLE USE TEST.

    (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
        ``(9) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection and subsection (k), including regulations permitting 
    appropriate aggregation of plans and contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1261. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
              BUSINESS RULES.

    (a) Nondiscrimination.--
        (1) In general.--The Secretary of the Treasury shall, by 
    regulation, provide that a plan shall be deemed to satisfy the 
    requirements of section 401(a)(4) of the Internal Revenue Code of 
    1986 if such plan satisfies the facts and circumstances test under 
    section 401(a)(4) of such Code, as in effect before January 1, 
    1994, but only if--
            (A) the plan satisfies conditions prescribed by the 
        Secretary to appropriately limit the availability of such test, 
        and
            (B) the plan is submitted to the Secretary for a 
        determination of whether it satisfies such test.
    Subparagraph (B) shall only apply to the extent provided by the 
    Secretary.
        (2) Effective dates.--
            (A) Regulations.--The regulation required by paragraph (1) 
        shall apply to years beginning after December 31, 2000.
            (B) Conditions of availability.--Any condition of 
        availability prescribed by the Secretary under paragraph (1)(A) 
        shall not apply before the first year beginning not less than 
        120 days after the date on which such condition is prescribed.
    (b) Coverage Test.--
        (1) In general.--Section 410(b)(1) (relating to minimum 
    coverage requirements) is amended by adding at the end the 
    following:
            ``(D) In the case that the plan fails to meet the 
        requirements of subparagraphs (A), (B) and (C), the plan--
                ``(i) satisfies subparagraph (B), as in effect 
            immediately before the enactment of the Tax Reform Act of 
            1986,
                ``(ii) is submitted to the Secretary for a 
            determination of whether it satisfies the requirement 
            described in clause (i), and
                ``(iii) satisfies conditions prescribed by the 
            Secretary by regulation that appropriately limit the 
            availability of this subparagraph.
        Clause (ii) shall apply only to the extent provided by the 
        Secretary.''.
        (2) Effective dates.--
            (A) In general.--The amendment made by paragraph (1) shall 
        apply to years beginning after December 31, 2000.
            (B) Conditions of availability.--Any condition of 
        availability prescribed by the Secretary under regulations 
        prescribed by the Secretary under section 410(b)(1)(D) of the 
        Internal Revenue Code of 1986 shall not apply before the first 
        year beginning not less than 120 days after the date on which 
        such condition is prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury shall, 
on or before December 31, 2000, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 1262. EXTENSION TO INTERNATIONAL ORGANIZATIONS OF MORATORIUM ON 
              APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE 
              TO STATE AND LOCAL PLANS.

    (a) In General.--Subparagraph (G) of section 401(a)(5), 
subparagraph (H) of section 401(a)(26), subparagraph (G) of section 
401(k)(3), and paragraph (2) of section 1505(d) of the Taxpayer Relief 
Act of 1997 are each amended by inserting ``or by an international 
organization which is described in section 414(d)'' after ``or 
instrumentality thereof)''.
    (b) Conforming Amendments.--
        (1) The headings for subparagraph (G) of section 401(a)(5) and 
    subparagraph (H) of section 401(a)(26) are each amended by 
    inserting ``and international organization'' after 
    ``governmental''.
        (2) Subparagraph (G) of section 401(k)(3) is amended by 
    inserting ``State and local governmental and international 
    organization plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

                      Subtitle F--Plan Amendments

SEC. 1271. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment--
        (1) such plan or contract shall be treated as being operated in 
    accordance with the terms of the plan during the period described 
    in subsection (b)(2)(A), and
        (2) such plan shall not fail to meet the requirements of 
    section 411(d)(6) of the Internal Revenue Code of 1986 by reason of 
    such amendment.
    (b) Amendments to Which Section Applies.--
        (1) In general.--This section shall apply to any amendment to 
    any plan or annuity contract which is made--
            (A) pursuant to any amendment made by this title, or 
        pursuant to any regulation issued under this title, and
            (B) on or before the last day of the first plan year 
        beginning on or after January 1, 2003.
    In the case of a government plan (as defined in section 414(d) of 
    the Internal Revenue Code of 1986), this paragraph shall be applied 
    by substituting ``2005'' for ``2003''.
        (2) Conditions.--This section shall not apply to any amendment 
    unless--
            (A) during the period--
                (i) beginning on the date the legislative or regulatory 
            amendment described in paragraph (1)(A) takes effect (or in 
            the case of a plan or contract amendment not required by 
            such legislative or regulatory amendment, the effective 
            date specified by the plan), and
                (ii) ending on the date described in paragraph (1)(B) 
            (or, if earlier, the date the plan or contract amendment is 
            adopted),
        the plan or contract is operated as if such plan or contract 
        amendment were in effect, and
            (B) such plan or contract amendment applies retroactively 
        for such period.

                  TITLE XIII--MISCELLANEOUS PROVISIONS
         Subtitle A--Provisions Primarily Affecting Individuals

SEC. 1301. CONSISTENT TREATMENT OF SURVIVOR BENEFITS FOR PUBLIC SAFETY 
              OFFICERS KILLED IN THE LINE OF DUTY.

    Subsection (b) of section 1528 of the Taxpayer Relief Act of 1997 
(Public Law 105-34) is amended by striking the period and inserting `, 
and to amounts received in taxable years beginning after December 31, 
1999, with respect to individuals dying on or before December 31, 
1996.''.

SEC. 1302. EXPANSION OF DC HOMEBUYER TAX CREDIT.

    (a) Expansion of Income Limitation.--Section 1400C(b)(1) (relating 
to limitation based on modified adjusted gross income) is amended--
        (1) by striking ``$110,000'' in subparagraph (A)(i) and 
    inserting ``$140,000'', and
        (2) by inserting ``($40,000 in the case of a joint return)'' 
    after ``$20,000'' in subparagraph (B).
    (b) Effective Date.--The amendments made by this section shall 
apply to purchases on or after the date of the enactment of this Act.

SEC. 1303. NO FEDERAL INCOME TAX ON AMOUNTS AND LANDS RECEIVED BY 
              HOLOCAUST VICTIMS OR THEIR HEIRS.

    (a) In General.--For purposes of the Internal Revenue Code of 1986, 
gross income shall not include--
        (1) any amount received by an individual (or any heir of the 
    individual)--
            (A) from the Swiss Humanitarian Fund established by the 
        Government of Switzerland or from any similar fund established 
        by any foreign country, or
            (B) as a result of the settlement of the action entitled 
        ``In re Holocaust Victims' Asset Litigation'', (E.D. NY), C.A. 
        No. 96-4849, or as a result of any similar action; and
        (2) the value of any land (including structures thereon) 
    recovered by an individual (or any heir of the individual) from a 
    government of a foreign country as a result of a settlement of a 
    claim arising out of the confiscation of such land in connection 
    with the Holocaust.
    (b) Effective Date.--This section shall apply to any amount 
received on or after the date of the enactment of this Act.

         Subtitle B--Provisions Primarily Affecting Businesses

SEC. 1311. DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS TREATED AS 
              QUALIFYING INCOME OF REGULATED INVESTMENT COMPANIES.

    (a) In General.--Paragraph (2) of section 851(b) (defining 
regulated investment company) is amended by inserting ``income derived 
from an interest in a publicly traded partnership (as defined in 
section 7704(b)),'' after ``dividends, interest,''.
    (b) Source Flow-Through Rule Not To Apply.--The last sentence of 
section 851(b) is amended by inserting ``(other than a publicly traded 
partnership (as defined in section 7704(b)))'' after ``derived from a 
partnership''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 1312. SPECIAL PASSIVE ACTIVITY RULE FOR PUBLICLY TRADED 
              PARTNERSHIPS TO APPLY TO REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subsection (k) of section 469 (relating to 
separate application of section in case of publicly traded 
partnerships) is amended by adding at the end the following new 
paragraph:
        ``(4) Application to regulated investment companies.--For 
    purposes of this section, a regulated investment company (as 
    defined in section 851) holding an interest in a publicly traded 
    partnership shall be treated as a taxpayer described in subsection 
    (a)(2) with respect to items attributable to such interest.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 1313. LARGE ELECTRIC TRUCKS, VANS, AND BUSES ELIGIBLE FOR 
              DEDUCTION FOR CLEAN-FUEL VEHICLES IN LIEU OF CREDIT.

    (a) In General.--Paragraph (1) of section 30(c) (relating to credit 
for qualified electric vehicles) is amended by adding at the end the 
following new flush sentence:
    ``Such term shall not include any vehicle described in subclause 
    (I) or (II) of section 179A(b)(1)(A)(iii).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after December 31, 1999.

SEC. 1314. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING 
              COSTS.

    (a) Repeal of Limitation on Deposits Into Fund Based on Cost of 
Service.--Subsection (b) of section 468A is amended to read as follows:
    ``(b) Limitation on Amounts Paid Into Fund.--The amount which a 
taxpayer may pay into the Fund for any taxable year shall not exceed 
the ruling amount applicable to such taxable year.''.
    (b) Clarification of Treatment of Fund Transfers.--Subsection (e) 
of section 468A is amended by adding at the end the following new 
paragraph:
        ``(8) Treatment of fund transfers.--If, in connection with the 
    transfer of the taxpayer's interest in a nuclear powerplant, the 
    taxpayer transfers the Fund with respect to such powerplant to the 
    transferee of such interest and the transferee elects to continue 
    the application of this section to such Fund--
            ``(A) the transfer of such Fund shall not cause such Fund 
        to be disqualified from the application of this section, and
            ``(B) no amount shall be treated as distributed from such 
        Fund, or be includible in gross income, by reason of such 
        transfer.''.
    (c) Transfers of Balances in Nonqualified Funds.--Section 468A is 
amended by redesignating subsections (f) and (g) as subsections (g) and 
(h), respectively, and by inserting after subsection (e) the following 
new subsection:
    ``(f) Transfers of Balances in Nonqualified Funds Into Qualified 
Funds.--
        ``(1) In general.--Notwithstanding subsection (b), any taxpayer 
    maintaining a Fund to which this section applies with respect to a 
    nuclear powerplant may transfer into such Fund amounts held in any 
    nonqualified fund of such taxpayer with respect to such powerplant.
        ``(2) Maximum amount permitted to be transferred.--The amount 
    permitted to be transferred under paragraph (1) shall not exceed 
    the balance in the nonqualified fund as of December 31, 1998.
        ``(3) Deduction for amounts transferred.--
            ``(A) In general.--The deduction allowed by subsection (a) 
        for any transfer permitted by this subsection shall be allowed 
        ratably over the remaining estimated useful life (within the 
        meaning of subsection (d)(2)(A)) of the nuclear powerplant, 
        beginning with the later of the taxable year during which the 
        transfer is made or the taxpayer's first taxable year beginning 
        after December 31, 2001.
            ``(B) Denial of deduction for previously deducted 
        amounts.--No deduction shall be allowed for any transfer under 
        this subsection of an amount for which a deduction was allowed 
        when such amount was paid into the nonqualified fund. For 
        purposes of the preceding sentence, a ratable portion of each 
        transfer shall be treated as being from previously deducted 
        amounts to the extent thereof.
            ``(C) Transfers of qualified funds.--If--
                ``(i) any transfer permitted by this subsection is made 
            to any Fund to which this section applies, and
                ``(ii) such Fund is transferred thereafter,
        any deduction under this subsection for taxable years ending 
        after the date that such Fund is transferred shall be allowed 
        to the transferee and not to the transferor. The preceding 
        sentence shall not apply if the transferor is an organization 
        exempt from tax imposed by this chapter.
        ``(4) New ruling amount required.--Paragraph (1) shall not 
    apply to any transfer unless the taxpayer requests from the 
    Secretary a new schedule of ruling amounts in connection with such 
    transfer.
        ``(5) Nonqualified fund.--For purposes of this subsection, the 
    term `nonqualified fund' means, with respect to any nuclear 
    powerplant, any fund in which amounts are irrevocably set aside 
    pursuant to the requirements of any State or Federal agency 
    exclusively for the purpose of funding the decommissioning of such 
    powerplant.
        ``(6) No basis in qualified funds.--Notwithstanding any other 
    provision of law, the basis of any Fund to which this section 
    applies shall not be increased by reason of any transfer permitted 
    by this subsection.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 1315. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
              CORPORATIONS.

    (a) In General.--Section 1504(b) (defining includible corporation) 
is amended by striking paragraph (2).
    (b) Conforming Amendments.--
        (1) Subsection (c) of section 1503 is amended by striking 
    paragraph (2) (relating to losses of recent nonlife affiliates).
        (2) Section 1504 is amended by striking subsection (c) and by 
    redesignating subsections (d), (e), and (f) as subsections (c), 
    (d), and (e), respectively.
        (3) Section 1503(c)(1) (relating to special rule for 
    application of certain losses against income of insurance companies 
    taxed under section 801) is amended by striking ``an election under 
    section 1504(c)(2) is in effect for the taxable year and''.
    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning after December 31, 2000.
        (2) Losses of recent nonlife affiliates.--The amendment made by 
    subsection (b)(1) shall apply to taxable years beginning after 
    December 31, 2005.
    (d) No Carryback Before January 1, 2006.--To the extent that a 
consolidated net operating loss is allowed or increased by reason of 
the amendments made by this section, such loss may not be carried back 
to a taxable year beginning before January 1, 2006.
    (e) Nontermination of Group.--No affiliated group shall terminate 
solely as a result of the amendments made by this section.
    (f) Waiver of 5-Year Waiting Period.--Under regulations prescribed 
by the Secretary of the Treasury or his delegate, an automatic waiver 
from the 5-year waiting period for reconsolidation provided in section 
1504(a)(3) of the Internal Revenue Code of 1986 shall be granted to any 
corporation which was previously an includible corporation but was 
subsequently deemed a nonincludible corporation as a result of becoming 
a subsidiary of a corporation which was not an includible corporation 
solely by operation of section 1504(c)(2) of such Code (as in effect on 
the day before the date of the enactment of this Act).

SEC. 1316. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 
              355.

    (a) In General.--Section 355(b) (defining active conduct of a trade 
or business) is amended by adding at the end the following new 
paragraph:
        ``(3) Special rules relating to active business requirement.--
            ``(A) In general.--For purposes of determining whether a 
        corporation meets the requirement of paragraph (2)(A), all 
        members of such corporation's separate affiliated group shall 
        be treated as one corporation. For purposes of the preceding 
        sentence, a corporation's separate affiliated group is the 
        affiliated group which would be determined under section 
        1504(a) if such corporation were the common parent and section 
        1504(b) did not apply.
            ``(B) Control.--For purposes of paragraph (2)(D), all 
        distributee corporations which are members of the same 
        affiliated group (as defined in section 1504(a) without regard 
        to section 1504(b)) shall be treated as one distributee 
        corporation.''.
    (b) Conforming Amendments.--
        (1) Subparagraph (A) of section 355(b)(2) is amended to read as 
    follows:
            ``(A) it is engaged in the active conduct of a trade or 
        business,''.
        (2) Section 355(b)(2) is amended by striking the last sentence.
    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to distributions after the date of the enactment of this Act.
        (2) Transition rule.--The amendments made by this section shall 
    not apply to any distribution pursuant to a transaction which is--
            (A) made pursuant to an agreement which was binding on such 
        date and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described on or before such date in a public 
        announcement or in a filing with the Securities and Exchange 
        Commission.
        (3) Election to have amendments apply.--Paragraph (2) shall not 
    apply if the distributing corporation elects not to have such 
    paragraph apply to distributions of such corporation. Any such 
    election, once made, shall be irrevocable.

SEC. 1317. EXPANSION OF EXEMPTION FROM PERSONAL HOLDING COMPANY TAX FOR 
              LENDING OR FINANCE COMPANIES.

    (a) In General.--Paragraph (6) of section 542(c) (defining personal 
holding company) is amended--
        (1) by striking ``rents,'' in subparagraph (B), and
        (2) by adding ``and'' at the end of subparagraph (B),
        (3) by striking subparagraph (C), and
        (4) by redesignating subparagraph (D) as subparagraph (C).
    (b) Exception for Lending or Finance Companies Determined on 
Affiliated Group Basis.--Subsection (d) of section 542 is amended by 
striking paragraphs (1) and (2) and inserting the following new 
paragraphs:
        ``(1) Lending or finance business defined.-- For purposes of 
    subsection (c)(6), the term `lending or finance business' means a 
    business of--
            ``(A) making loans,
            ``(B) purchasing or discounting accounts receivable, notes, 
        or installment obligations,
            ``(C) engaging in leasing (including entering into leases 
        and purchasing, servicing, and disposing of leases and leased 
        assets),
            ``(D) rendering services or making facilities available in 
        the ordinary course of a lending or finance business,
            ``(E) rendering services or making facilities available in 
        connection with activities described in subparagraphs (A), (B), 
        and (C) carried on by the corporation rendering services or 
        making facilities available, or
            ``(F) rendering services or making facilities available to 
        another corporation which is engaged in the lending or finance 
        business (within the meaning of this paragraph), if such 
        services or facilities are related to the lending or finance 
        business (within such meaning) of such other corporation and 
        such other corporation and the corporation rendering services 
        or making facilities available are members of the same 
        affiliated group (as defined in section 1504).
        ``(2) Exception determined on an affiliated group basis.--In 
    the case of a lending or finance company which is a member of an 
    affiliated group (as defined in section 1504), such company shall 
    be treated as meeting the requirements of subsection (c)(6) if such 
    group (determined by taking into account only members of such group 
    which are engaged in a lending or finance business) meets such 
    requirements.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 1999.

SEC. 1318. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Expansion of Qualified Contaminated Site.--Section 198(c) is 
amended to read as follows:
    ``(c) Qualified Contaminated Site.--For purposes of this section--
        ``(1) In general.--The term `qualified contaminated site' means 
    any area--
            ``(A) which is held by the taxpayer for use in a trade or 
        business or for the production of income, or which is property 
        described in section 1221(1) in the hands of the taxpayer, and
            ``(B) at or on which there has been a release (or threat of 
        release) or disposal of any hazardous substance.
        ``(2) National priorities listed sites not included.--Such term 
    shall not include any site which is on, or proposed for, the 
    national priorities list under section 105(a)(8)(B) of the 
    Comprehensive Environmental Response, Compensation, and Liability 
    Act of 1980 (as in effect on the date of the enactment of this 
    section).
        ``(3) Taxpayer must receive statement from state environmental 
    agency.--An area shall be treated as a qualified contaminated site 
    with respect to expenditures paid or incurred during any taxable 
    year only if the taxpayer receives a statement from the appropriate 
    agency of the State in which such area is located that such area 
    meets the requirement of paragraph (1)(B).
        ``(4) Appropriate state agency.--For purposes of paragraph (2), 
    the chief executive officer of each State may, in consultation with 
    the Administrator of the Environmental Protection Agency, designate 
    the appropriate State environmental agency within 60 days of the 
    date of the enactment of this section. If the chief executive 
    officer of a State has not designated an appropriate State 
    environmental agency within such 60-day period, the appropriate 
    environmental agency for such State shall be designated by the 
    Administrator of the Environmental Protection Agency.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to expenditures paid or incurred after December 31, 1999.

            Subtitle C--Provisions Relating to Excise Taxes

SEC. 1321. CONSOLIDATION OF HAZARDOUS SUBSTANCE SUPERFUND AND LEAKING 
              UNDERGROUND STORAGE TANK TRUST FUND.

    (a) In General.--Subchapter A of chapter 98 (relating to trust fund 
code) is amended by striking sections 9507 and 9508 and inserting the 
following new section:

``SEC. 9507. ENVIRONMENTAL REMEDIATION TRUST FUND.

    ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the `Environmental 
Remediation Trust Fund' consisting of such amounts as may be--
        ``(1) appropriated to the Environmental Remediation Trust Fund 
    as provided in this section,
        ``(2) appropriated to the Environmental Remediation Trust Fund 
    pursuant to section 517(b) of the Superfund Revenue Act of 1986, or
        ``(3) credited to the Environmental Remediation Trust Fund as 
    provided in section 9602(b).
    ``(b) Transfers to Environmental Remediation Trust Fund.--
        ``(1) In general.--There are hereby appropriated to the 
    Environmental Remediation Trust Fund amounts equivalent to--
            ``(A) the taxes received in the Treasury under--
                ``(i) section 59A, 4611, 4661, or 4671 (relating to 
            environmental taxes),
                ``(ii) section 4041(d) (relating to additional taxes on 
            motor fuels),
                ``(iii) section 4081 (relating to tax on gasoline, 
            diesel fuel, and kerosene) to the extent attributable to 
            the Environmental Remediation Trust Fund financing rate 
            under such section,
                ``(iv) section 4091 (relating to tax on aviation fuel) 
            to the extent attributable to the Environmental Remediation 
            Trust Fund financing rate under such section, and
                ``(v) section 4042 (relating to tax on fuel used in 
            commercial transportation on inland waterways) to the 
            extent attributable to the Environmental Remediation Trust 
            Fund financing rate under such section,
            ``(B) amounts recovered on behalf of the Environmental 
        Remediation Trust Fund under the Comprehensive Environmental 
        Response, Compensation, and Liability Act of 1980 (hereinafter 
        in this section referred to as `CERCLA'),
            ``(C) all moneys recovered or collected under section 
        311(b)(6)(B) of the Clean Water Act,
            ``(D) penalties assessed under title I of CERCLA,
            ``(E) punitive damages under section 107(c)(3) of CERCLA, 
        and
            ``(F) amounts received in the Treasury and collected under 
        section 9003(h)(6) of the Solid Waste Disposal Act.
        ``(2) Limitation on transfers.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        no amount may be appropriated or credited to the Environmental 
        Remediation Trust Fund on and after the date of any expenditure 
        from any such Trust Fund which is not permitted by this 
        section. The determination of whether an expenditure is so 
        permitted shall be made without regard to--
                ``(i) any provision of law which is not contained or 
            referenced in this title or in a revenue Act, and
                ``(ii) whether such provision of law is a subsequently 
            enacted provision or directly or indirectly seeks to waive 
            the application of this paragraph.
            ``(B) Exception for prior obligations.--Subparagraph (A) 
        shall not apply to any expenditure to liquidate any contract 
        entered into (or for any amount otherwise obligated) in 
        accordance with the provisions of this section.''.
    ``(c) Expenditures From Environmental Remediation Trust Fund.--
        ``(1) In general.--Amounts in the Environmental Remediation 
    Trust Fund shall be available, as provided in appropriation Acts, 
    only for purposes of making expenditures--
            ``(A) to carry out the purposes of--
                ``(i) paragraphs (1), (2), (5), and (6) of section 
            111(a) of CERCLA as in effect on July 12, 1999,
                ``(ii) section 111(c) of CERCLA (as so in effect), 
            other than paragraphs (1) and (2) thereof, and
                ``(iii) section 111(m) of CERCLA (as so in effect), or
            ``(B) to carry out section 9003(h) of the Solid Waste 
        Disposal Act as in effect on July 12, 1999.
        ``(2) Exception for certain transfers, etc., of hazardous 
    substances.--No amount in the Environmental Remediation Trust Fund 
    or derived from the Environmental Remediation Trust Fund shall be 
    available or used for the transfer or disposal of hazardous waste 
    carried out pursuant to a cooperative agreement between the 
    Administrator of the Environmental Protection Agency and a State if 
    the following conditions apply--
            ``(A) the transfer or disposal, if made on December 13, 
        1985, would not comply with a State or local requirement,
            ``(B) the transfer is to a facility for which a final 
        permit under section 3005(a) of the Solid Waste Disposal Act 
        was issued after January 1, 1983, and before November 1, 1984, 
        and
            ``(C) the transfer is from a facility identified as the 
        McColl Site in Fullerton, California.
        ``(3) Transfers from trust fund for certain repayments and 
    credits.--
            ``(A) In general.--The Secretary shall pay from time to 
        time from the Environmental Remediation Trust Fund into the 
        general fund of the Treasury amounts equivalent to--
                ``(i) amounts paid under--

                    ``(I) section 6420 (relating to amounts paid in 
                respect of gasoline used on farms),
                    ``(II) section 6421 (relating to amounts paid in 
                respect of gasoline used for certain nonhighway 
                purposes or by local transit systems), and
                    ``(III) section 6427 (relating to fuels not used 
                for taxable purposes), and

                ``(ii) credits allowed under section 34,
        with respect to the taxes imposed by section 4041(d) or by 
        sections 4081 and 4091 (to the extent attributable to the 
        Leaking Underground Storage Tank Trust Fund financing rate or 
        the Environmental Remediation Trust Fund financing rate under 
        such sections).
            ``(B) Transfers based on estimates.--Transfers under 
        subparagraph (A) shall be made on the basis of estimates by the 
        Secretary, and proper adjustments shall be made in amounts 
        subsequently transferred to the extent prior estimates were in 
        excess of or less than the amounts required to be transferred.
    ``(d) Liability of United States Limited to Amount in Trust Fund.--
        ``(1) General rule.--Any claim filed against the Environmental 
    Remediation Trust Fund may be paid only out of the Environmental 
    Remediation Trust Fund.
        ``(2) Coordination with other provisions.--Nothing in CERCLA or 
    the Superfund Amendments and Reauthorization Act of 1986 (or in any 
    amendment made by either of such Acts) shall authorize the payment 
    by the United States Government of any amount with respect to any 
    such claim out of any source other than the Environmental 
    Remediation Trust Fund.
        ``(3) Order in which unpaid claims are to be paid.--If at any 
    time the Environmental Remediation Trust Fund has insufficient 
    funds to pay all of the claims payable out of the Environmental 
    Remediation Trust Fund at such time, such claims shall, to the 
    extent permitted under paragraph (1), be paid in full in the order 
    in which they were finally determined.
    ``(e) Separate Accounting if Superfund Reauthorized.--
        ``(1) In general.--If a Federal law is enacted after September 
    30, 1999, which authorizes expenditures out of the Environmental 
    Remediation Trust Fund for purposes of carrying out provisions of 
    CERCLA not described in subsection (c)(1)(A), this section shall be 
    applied as if such Fund consisted of two accounts: a Superfund 
    Account and a Leaking Underground Storage Tank Account.
        ``(2) Amounts in accounts.--
            ``(A) Leaking underground storage tank account.--The 
        Leaking Underground Storage Tank Account--
                ``(i) shall consist of amounts which would have been 
            appropriated or credited to the Leaking Underground Storage 
            Tank Trust Fund but for the amendments made by section 1321 
            of the Taxpayer Refund and Relief Act of 1999, and
                ``(ii) shall be available, as provided in appropriation 
            Acts, for the purposes for which the Leaking Underground 
            Storage Tank Trust Fund was available (as in effect on the 
            day before the date of the enactment of such amendments).
            ``(B) Superfund account.--The Superfund Account--
                ``(i) shall consist of amounts which would have been 
            appropriated or credited to the Hazardous Substance 
            Superfund but for such amendments, and
                ``(ii) shall be available, as provided in appropriation 
            Acts, for the purposes for which the Hazardous Substance 
            Superfund was available (as so in effect).
        ``(3) Opening balances.--
            ``(A) Leaking underground storage tank account.--The 
        balance in the Leaking Underground Storage Tank Account as of 
        the date of the enactment of the Federal law referred to in 
        paragraph (1) shall be the sum of--
                ``(i) the amount which bears the same ratio to the 
            balance in such Trust Fund as of such date, bears to the 
            sum of the balances (as of the close of September 30, 1999) 
            in Leaking Underground Storage Tank Trust Fund and the 
            Hazardous Substance Superfund, and
                ``(ii) the aggregate amount appropriated to the 
            Environmental Remediation Trust Fund after September 30, 
            1999, by reason of taxes received in the Treasury.
            ``(B) Superfund account.--The balance in the Superfund 
        Account as of the date of the enactment of the Federal law 
        referred to in paragraph (1) shall be the excess of the balance 
        in such Trust Fund as of such date over the balance of the 
        Leaking Underground Storage Tank Account determined under 
        subparagraph (A).
        ``(4) Special transfer rule.--If the balance in the 
    Environmental Remediation Trust Fund as of the date of the 
    enactment of the Federal law referred to in paragraph (1) is less 
    than the required balance for the Leaking Underground Storage Tank 
    Account, amounts otherwise required to be deposited in the 
    Superfund Account shall be reduced (to the extent of the shortfall) 
    and deposited into the Leaking Underground Storage Tank Account.''.
    (b) Conforming Amendments.--
        (1) Subsections (c) and (e) of section 4611 are each amended by 
    striking ``Hazardous Substance Superfund'' each place it appears 
    and inserting ``Environmental Remediation Trust Fund''.
        (2) Subsection (c) of section 4661 is amended by striking 
    ``Hazardous Substance Superfund'' and inserting ``Environmental 
    Remediation Trust Fund''.
        (3) Sections 4041(d), 4042(b), 4081(a)(2)(B), 4081(d)(3), 
    4091(b), 4092(b), 6421(f), and 6427(l) are each amended by striking 
    ``Leaking Underground Storage Tank'' each place it appears (other 
    than the headings) and inserting ``Environmental Remediation''.
        (4) The heading for subsection (d) of section 4041 is amended 
    by striking ``Leaking Underground Storage Tank'' and inserting 
    ``Environmental Remediation''.
        (5) The headings for subsections (a)(2)(B) and (d)(3) of 
    section 4081 and section 4091(b)(2) are each amended by striking 
    ``Leaking underground storage tank'' and inserting ``Environmental 
    remediation''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 1999.
    (d) Environmental Remediation Trust Fund Treated as Continuation of 
Old Trust Funds.--The Environmental Remediation Trust Fund established 
by the amendments made by this section shall be treated for all 
purposes of law as a continuation of both the Hazardous Substance 
Superfund and the Leaking Underground Storage Tank Trust Fund. Any 
reference in any law to the Hazardous Substance Superfund or the 
Leaking Underground Storage Tank Trust Fund shall be deemed to include 
(wherever appropriate) a reference to the Environmental Remediation 
Trust Fund established by such amendments.

SEC. 1322. REPEAL OF CERTAIN MOTOR FUEL EXCISE TAXES ON FUEL USED BY 
              RAILROADS AND ON INLAND WATERWAY TRANSPORTATION.

    (a) Repeal of Leaking Underground Storage Tank Trust Fund Taxes on 
Fuel Used in Trains.--
        (1) In general.--Paragraph (1) of section 4041(d) is amended by 
    adding at the end the following new sentence: ``The preceding 
    sentence shall not apply to any sale for use, or use, of fuel in a 
    diesel-powered train.''.
        (2) Conforming amendments.--
            (A) Paragraph (3) of section 6421(f) is amended by striking 
        ``with respect to--'' and all that follows through ``so much 
        of'' and inserting ``with respect to so much of''.
            (B) Paragraph (3) of section 6427(l) is amended by striking 
        ``with respect to--'' and all that follows through ``so much 
        of'' and inserting ``with respect to so much of''.
    (b) Repeal of 4.3-Cent Motor Fuel Excise Taxes on Railroads and 
Inland Waterway Transportation Which Remain in General Fund.--
        (1) Taxes on trains.--
            (A) In general.--Subparagraph (A) of section 4041(a)(1) is 
        amended by striking ``or a diesel-powered train'' each place it 
        appears and by striking ``or train''.
            (B) Conforming amendments.--
                (i) Subparagraph (C) of section 4041(a)(1) is amended 
            by striking clause (ii) and by redesignating clause (iii) 
            as clause (ii).
                (ii) Subparagraph (C) of section 4041(b)(1) is amended 
            by striking all that follows ``section 6421(e)(2)'' and 
            inserting a period.
                (iii) Paragraph (3) of section 4083(a) is amended by 
            striking ``or a diesel-powered train''.
                (iv) Section 6421(f) is amended by striking paragraph 
            (3).
                (v) Section 6427(l) is amended by striking paragraph 
            (3).
        (2) Fuel used on inland waterways.--
            (A) In general.--Paragraph (1) of section 4042(b) is 
        amended by adding ``and'' at the end of subparagraph (A), by 
        striking ``, and'' at the end of subparagraph (B) and inserting 
        a period, and by striking subparagraph (C).
            (B) Conforming amendment.--Paragraph (2) of section 4042(b) 
        is amended by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this subsection shall 
take effect on October 1, 1999 (October 1, 2003, in the case of the 
amendments made by subsection (b)), but shall not take effect if 
section 1321 does not take effect.

SEC. 1323. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.

    (a) Repeal.--Paragraph (6) of section 4162(a) (defining sport 
fishing equipment) is amended by striking subparagraph (C) and by 
redesignating subparagraphs (D) through (J) as subparagraphs (C) 
through (I), respectively.
    (b) Modification of Transfer to Aquatic Resources Trust Fund.--
Section 9503(b)(4)(D) is amended--
        (1) by striking ``11.5 cents'' in clause (i) and inserting 
    ``11.7 cents'',
        (2) by striking ``13 cents'' in clause (ii) and inserting 
    ``13.2 cents'', and
        (3) by striking ``13.5 cents'' in clause (iii) and inserting 
    ``13.7 cents''.
    (c) Effective Date.--The amendments made by this section shall take 
effect 30 days after the date of the enactment of this Act.

SEC. 1324. CLARIFICATION OF EXCISE TAX IMPOSED ON ARROW COMPONENTS.

    (a) In General.--Paragraph (2) of section 4161(b) (relating to bows 
and arrows, etc.) is amended to read as follows:
        ``(2) Arrows.--
            ``(A) In general.--There is hereby imposed on the sale by 
        the manufacturer, producer, or importer of any shaft, point, 
        article used to attach a point to a shaft, nock, or vane of a 
        type used in the manufacture of any arrow which after its 
        assembly--
                ``(i) measures 18 inches overall or more in length, or
                ``(ii) measures less than 18 inches overall in length 
            but is suitable for use with a bow described in paragraph 
            (1)(A),
        a tax equal to 12.4 percent of the price for which so sold.
            ``(B) Reduced rate on certain hunting points.--Subparagraph 
        (A) shall be applied by substituting `11 percent' for `12.4 
        percent' in the case of a point which is designed primarily for 
        use in hunting fish or large animals.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to articles sold by the manufacturer, producer, or importer after the 
close of the first calendar month ending more than 30 days after the 
date of the enactment of this Act.

SEC. 1325. EXEMPTION FROM TICKET TAXES FOR CERTAIN TRANSPORTATION 
              PROVIDED BY SMALL SEAPLANES.

    (a) In General.--Section 4281 (relating to small aircraft on 
nonestablished lines) is amended to read as follows:

``SEC. 4281. SMALL AIRCRAFT.

    ``The taxes imposed by sections 4261 and 4271 shall not apply to--
        ``(1) transportation by an aircraft having a maximum 
    certificated takeoff weight of 6,000 pounds or less, except when 
    such aircraft is operated on an established line, and
        ``(2) transportation by a seaplane having a maximum 
    certificated takeoff weight of 6,000 pounds or less with respect to 
    any segment consisting of a takeoff from, and a landing on, water.
For purposes of the preceding sentence, the term `maximum certificated 
takeoff weight' means the maximum such weight contained in the type 
certificate or airworthiness certificate.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter C of chapter 33 is amended by striking ``on nonestablished 
lines'' in the item relating to section 4281.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid for transportation beginning after December 31, 
1999, but shall not apply to any amount paid on or before such date 
with respect to taxes imposed by sections 4261 and 4271 of the Internal 
Revenue Code of 1986.

SEC. 1326. MODIFICATION OF RURAL AIRPORT DEFINITION.

    (a) In General.--Clause (ii) of section 4261(e)(1)(B) (defining 
rural airport) is amended by striking the period at the end of 
subclause (II) and inserting ``, or'', and by adding at the end the 
following new subclause:

                    ``(III) is not connected by paved roads to another 
                airport.''.

    (b) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after 1999.

                      Subtitle D--Other Provisions

SEC. 1331. TAX-EXEMPT FINANCING OF QUALIFIED HIGHWAY INFRASTRUCTURE 
              CONSTRUCTION.

    (a) Treatment as Exempt Facility Bond.--A bond described in 
subsection (b) shall be treated as described in section 141(e)(1)(A) of 
the Internal Revenue Code of 1986, except that--
        (1) section 146 of such Code shall not apply to such bond, and
        (2) section 147(c)(1) of such Code shall be applied by 
    substituting ``any portion of'' for ``25 percent or more''.
    (b) Bond Described.--
        (1) In general.--A bond is described in this subsection if such 
    bond is issued after December 31, 1999, as part of an issue--
            (A) 95 percent or more of the net proceeds of which are to 
        be used to provide a qualified highway infrastructure project, 
        and
            (B) to which there has been allocated a portion of the 
        allocation to the project under paragraph (2)(C)(ii) which is 
        equal to the aggregate face amount of bonds to be issued as 
        part of such issue.
        (2) Qualified highway infrastructure projects.--
            (A) In general.--For purposes of paragraph (1), the term 
        ``qualified highway infrastructure project'' means a project--
                (i) for the construction or reconstruction of a 
            highway, and
                (ii) designated under subparagraph (B) as an eligible 
            pilot project.
            (B) Eligible pilot project.--
                (i) In general.--The Secretary of Transportation, in 
            consultation with the Secretary of the Treasury, shall 
            select not more than 15 highway infrastructure projects to 
            be pilot projects eligible for tax-exempt financing.
                (ii) Eligibility criteria.--In determining the criteria 
            necessary for the eligibility of pilot projects, the 
            Secretary of Transportation shall include the following:

                    (I) The project must serve the general public.
                    (II) The project is necessary to evaluate the 
                potential of the private sector's participation in the 
                provision of the highway infrastructure of the United 
                States.
                    (III) The project must be located on publicly-owned 
                rights-of-way.
                    (IV) The project must be publicly owned or the 
                ownership of the highway constructed or reconstructed 
                under the project must revert to the public.
                    (V) The project must be consistent with a 
                transportation plan developed pursuant to section 
                134(g) or 135(e) of title 23, United States Code.

            (C) Aggregate face amount of tax-exempt financing.--
                (i) In general.--The aggregate face amount of bonds 
            issued pursuant to this section shall not exceed 
            $15,000,000,000, determined without regard to any bond the 
            proceeds of which are used exclusively to refund (other 
            than to advance refund) a bond issued pursuant to this 
            section (or a bond which is a part of a series of 
            refundings of a bond so issued) if the amount of the 
            refunding bond does not exceed the outstanding amount of 
            the refunded bond.
                (ii) Allocation.--The Secretary of Transportation, in 
            consultation with the Secretary of the Treasury, shall 
            allocate the amount described in clause (i) among the 
            eligible pilot projects designated under subparagraph (B).
                (iii) Reallocation.--If any portion of an allocation 
            under clause (ii) is unused on the date which is 3 years 
            after such allocation, the Secretary of Transportation, in 
            consultation with the Secretary of the Treasury, may 
            reallocate such portion among the remaining eligible pilot 
            projects.

SEC. 1332. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

    (a) In General.--Subpart A of part I of subchapter J of chapter 1 
(relating to general rules for taxation of trusts and estates) is 
amended by adding at the end the following new section:

``SEC. 646. ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--Except as otherwise provided in this section, 
the provisions of this subchapter and section 1(e) shall apply to all 
Settlement Trusts.
    ``(b) Beneficiaries of Electing Trust Not Taxed on Contributions.--
        ``(1) In general.--In the case of a Settlement Trust for which 
    an election under paragraph (2) is in effect for any taxable year, 
    no amount shall be includible in the gross income of a beneficiary 
    of the Settlement Trust by reason of a contribution to the 
    Settlement Trust made during such taxable year.
        ``(2) One-time election.--
            ``(A) In general.--A Settlement Trust may elect to have the 
        provisions of this section apply to the trust and its 
        beneficiaries.
            ``(B) Time and method of election.--An election under 
        subparagraph (A) shall be made--
                ``(i) on or before the due date (including extensions) 
            for filing the Settlement Trust's return of tax for the 
            first taxable year of the Settlement Trust ending after 
            December 31, 1999, and
                ``(ii) by attaching to such return of tax a statement 
            specifically providing for such election.
            ``(C) Period election in effect.--Except as provided in 
        paragraph (3), an election under subparagraph (A)--
                ``(i) shall apply to the first taxable year described 
            in subparagraph (B)(i) and all subsequent taxable years, 
            and
                ``(ii) may not be revoked once it is made.
    ``(c) Special Rules Where Transfer Restrictions Modified.--
        ``(1) Transfer of beneficial interests.--If, at any time, a 
    beneficial interest in a Settlement Trust may be disposed of to a 
    person in a manner which would not be permitted by section 7(h) of 
    the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) if the 
    interest were Settlement Common Stock--
            ``(A) no election may be made under subsection (b)(2) with 
        respect to such trust, and
            ``(B) if such an election is in effect as of such time, 
        such election shall cease to apply for purposes of subsection 
        (b)(1) as of the first day of the taxable year following the 
        taxable year in which such disposition is first permitted.
        ``(2) Stock in corporation.--If--
            ``(A) the Settlement Common Stock in any Native Corporation 
        which transferred assets to a Settlement Trust making an 
        election under subsection (b)(2) may be disposed of to a person 
        in a manner not permitted by section 7(h) of the Alaska Native 
        Claims Settlement Act (43 U.S.C. 1606(h)), and
            ``(B) at any time after such disposition of stock is first 
        permitted, such corporation transfers assets to such trust,
    subparagraph (B) of paragraph (1) shall be applied to such trust on 
    and after the date of the transfer in the same manner as if the 
    trust permitted dispositions of beneficial interests in the trust 
    in a manner not permitted by such section 7(h).
    ``(c) Tax Treatment of Distributions to Beneficiaries.--
        ``(1) In general.--In the case of a Settlement Trust for which 
    an election under subsection (b)(2) is in effect for any taxable 
    year, any distribution to a beneficiary shall be included in gross 
    income of the beneficiary as ordinary income to the extent such 
    distribution reduces the earnings and profits of any Native 
    Corporation making a contribution to such Trust.
        ``(2) Earnings and profits.--The earnings and profits of any 
    Native Corporation making a contribution to a Settlement Trust 
    shall not be reduced on account thereof at the time of such 
    contribution, but such earnings and profits shall be reduced (up to 
    the amount of such contribution) as distributions are thereafter 
    made by the Settlement Trust which exceed the sum of--
            ``(A) such Trust's total undistributed net income for all 
        prior years during which an election under subsection (b)(2) is 
        in effect, and
            ``(B) such Trust's distributable net income.
    ``(d) Definitions.--For purposes of this section--
        ``(1) Native corporation.--The term `Native Corporation' has 
    the meaning given such term by section 3(m) of the Alaska Native 
    Claims Settlement Act (43 U.S.C. 1602(m)).
        ``(2) Settlement trust.--The term `Settlement Trust' means a 
    trust which constitutes a Settlement Trust under section 39 of the 
    Alaska Native Claims Settlement Act (43 U.S.C. 1629e).''.
    (b) Withholding on Distributions by Electing ANCSA Settlement 
Trusts.--Section 3402 is amended by adding at the end the following new 
subsection:
    ``(t) Tax Withholding on Distributions by Electing ANCSA Settlement 
Trusts.--
        ``(1) In general.--Any Settlement Trust (as defined in section 
    646(d)) for which an election under section 646(b)(2) is in effect 
    (in this subsection referred to as an `electing trust') and which 
    makes a payment to any beneficiary which is includable in gross 
    income under section 646(c) shall deduct and withhold from such 
    payment a tax in an amount equal to such payment's proportionate 
    share of the annualized tax.
        ``(2) Exception.--The tax imposed by paragraph (1) shall not 
    apply to any payment to the extent that such payment, when 
    annualized, does not exceed an amount equal to the amount in effect 
    under section 6012(a)(1)(A)(i) for taxable years beginning in the 
    calendar year in which the payment is made.
        ``(3) Annualized tax.--For purposes of paragraph (1), the term 
    `annualized tax' means, with respect to any payment, the amount of 
    tax which would be imposed by section 1(c) (determined without 
    regard to any rate of tax in excess of 31 percent) on an amount of 
    taxable income equal to the excess of--
            ``(A) the annualized amount of such payment, over
            ``(B) the amount determined under paragraph (2).
        ``(4) Annualization.--For purposes of this subsection, amounts 
    shall be annualized in the manner prescribed by the Secretary.
        ``(5) Alternate withholding procedures.--At the election of an 
    electing trust, the tax imposed by this subsection on any payment 
    made by such trust shall be determined in accordance with such 
    tables or computational procedures as may be specified in 
    regulations prescribed by the Secretary (in lieu of in accordance 
    with paragraphs (2) and (3)).
        ``(6) Coordination with other sections.--For purposes of this 
    chapter and so much of subtitle F as relates to this chapter, 
    payments which are subject to withholding under this subsection 
    shall be treated as if they were wages paid by an employer to an 
    employee.''.
    (c) Reporting.--Section 6041 is amended by adding at the end the 
following new subsection:
    ``(f) Application to Alaska Native Settlement Trusts.--In the case 
of any distribution from a Settlement Trust (as defined in section 
646(d)) to a beneficiary which is includable in gross income under 
section 646(c), this section shall apply, except that--
        ``(1) this section shall apply to such distribution without 
    regard to the amount thereof,
        ``(2) the Settlement Trust shall include on any return or 
    statement required by this section information as to the character 
    of such distribution (if applicable) and the amount of tax imposed 
    by chapter 1 which has been deducted and withheld from such 
    distribution, and
        ``(3) the filing of any return or statement required by this 
    section shall satisfy any requirement to file any other form or 
    schedule under this title with respect to distributive share 
    information (including any form or schedule to be included with the 
    trust's tax return).''.
    (d) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter J of chapter 1 is amended by adding at the end the 
following new item:

        ``Sec. 646. Electing Alaska Native Settlement Trusts.''.

    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years of Settlement Trusts ending after December 31, 
1999, and to contributions to such trusts after such date.

SEC. 1333. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS 
              AND CREDITS.

    (a) General Rule.--Subsections (a) and (b) of section 6405 are each 
amended by striking ``$1,000,000'' and inserting ``$2,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act, except that such 
amendment shall not apply with respect to any refund or credit with 
respect to a report that has been made before such date of the 
enactment under section 6405 of the Internal Revenue Code of 1986.

SEC. 1334. CREDIT FOR CLINICAL TESTING RESEARCH EXPENSES ATTRIBUTABLE 
              TO CERTAIN QUALIFIED ACADEMIC INSTITUTIONS INCLUDING 
              TEACHING HOSPITALS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 41 the following:

``SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.

    ``(a) General Rule.--For purposes of section 38, the medical 
innovation credit determined under this section for the taxable year 
shall be an amount equal to 40 percent of the excess (if any) of--
        ``(1) the qualified medical innovation expenses for the taxable 
    year, over
        ``(2) the medical innovation base period amount.
    ``(b) Qualified Medical Innovation Expenses.--For purposes of this 
section--
        ``(1) In general.--The term `qualified medical innovation 
    expenses' means the amounts which are paid or incurred by the 
    taxpayer during the taxable year directly or indirectly to any 
    qualified academic institution for clinical testing research 
    activities.
        ``(2) Clinical testing research activities.--
            ``(A) In general.--The term `clinical testing research 
        activities' means human clinical testing conducted at any 
        qualified academic institution in the development of any 
        product, which occurs before--
                ``(i) the date on which an application with respect to 
            such product is approved under section 505(b), 506, or 507 
            of the Federal Food, Drug, and Cosmetic Act (as in effect 
            on the date of the enactment of this section),
                ``(ii) the date on which a license for such product is 
            issued under section 351 of the Public Health Service Act 
            (as so in effect), or
                ``(iii) the date classification or approval of such 
            product which is a device intended for human use is given 
            under section 513, 514, or 515 of the Federal Food, Drug, 
            and Cosmetic Act (as so in effect).
            ``(B) Product.--The term `product' means any drug, 
        biologic, or medical device.
        ``(3) Qualified academic institution.--The term `qualified 
    academic institution' means any of the following institutions:
            ``(A) Educational institution.--A qualified organization 
        described in section 170(b)(1)(A)(iii) which is owned by, or 
        affiliated with, an institution of higher education (as defined 
        in section 3304(f)).
            ``(B) Teaching hospital.--A teaching hospital which--
                ``(i) is publicly supported or owned by an organization 
            described in section 501(c)(3), and
                ``(ii) is affiliated with an organization meeting the 
            requirements of subparagraph (A).
            ``(C) Foundation.--A medical research organization 
        described in section 501(c)(3) (other than a private 
        foundation) which is affiliated with, or owned by--
                ``(i) an organization meeting the requirements of 
            subparagraph (A), or
                ``(ii) a teaching hospital meeting the requirements of 
            subparagraph (B).
            ``(D) Charitable research hospital.--A hospital that is 
        designated as a cancer center by the National Cancer Institute.
        ``(4) Exclusion for amounts funded by grants, etc.--The term 
    `qualified medical innovation expenses' shall not include any 
    amount to the extent such amount is funded by any grant, contract, 
    or otherwise by another person (or any governmental entity).
    ``(c) Medical Innovation Base Period Amount.--For purposes of this 
section, the term `medical innovation base period amount' means the 
average annual qualified medical innovation expenses paid by the 
taxpayer during the 3-taxable year period ending with the taxable year 
immediately preceding the first taxable year of the taxpayer beginning 
after December 31, 1998.
    ``(d) Special Rules.--
        ``(1) Limitation on foreign testing.--No credit shall be 
    allowed under this section with respect to any clinical testing 
    research activities conducted outside the United States.
        ``(2) Certain rules made applicable.--Rules similar to the 
    rules of subsections (f) and (g) of section 41 shall apply for 
    purposes of this section.
        ``(3) Election.--This section shall apply to any taxpayer for 
    any taxable year only if such taxpayer elects to have this section 
    apply for such taxable year.
        ``(4) Coordination with credit for increasing research 
    expenditures and with credit for clinical testing expenses for 
    certain drugs for rare diseases.--Any qualified medical innovation 
    expense for a taxable year to which an election under this section 
    applies shall not be taken into account for purposes of determining 
    the credit allowable under section 41 or 45C for such taxable 
    year.''.
    (b) Credit To Be Part of General Business Credit.--
        (1) In general.--Section 38(b) (relating to current year 
    business credits) 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:
        ``(13) the medical innovation expenses credit determined under 
    section 41A(a).''.
        (2) Transition rule.--Section 39(d) is amended by adding at the 
    end the following new paragraph:
        ``(9) No carryback of section 41a credit before enactment.--No 
    portion of the unused business credit for any taxable year which is 
    attributable to the medical innovation credit determined under 
    section 41A may be carried back to a taxable year beginning before 
    January 1, 1999.''.
    (c) Denial of Double Benefit.--Section 280C is amended by adding at 
the end the following new subsection:
    ``(d) Credit for Increasing Medical Innovation Expenses.--
        ``(1) In general.--No deduction shall be allowed for that 
    portion of the qualified medical innovation expenses (as defined in 
    section 41A(b)) otherwise allowable as a deduction for the taxable 
    year which is equal to the amount of the credit determined for such 
    taxable year under section 41A(a).
        ``(2) Certain rules to apply.--Rules similar to the rules of 
    paragraphs (2), (3), and (4) of subsection (c) shall apply for 
    purposes of this subsection.''.
    (d) Deduction for Unused Portion of Credit.--Section 196(c) 
(defining qualified business credits) is amended by redesignating 
paragraphs (5) through (8) as paragraphs (6) through (9), respectively, 
and by inserting after paragraph (4) the following new paragraph:
        ``(5) the medical innovation expenses credit determined under 
    section 41A(a) (other than such credit determined under the rules 
    of section 280C(d)(2)),''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding after the 
item relating to section 41 the following:

        ``Sec. 41A. Credit for medical innovation expenses.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 1335. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
              REDUCING PATRONAGE DIVIDENDS.

    (a) In General.--Subsection (a) of section 1388 (relating to 
patronage dividend defined) is amended by adding at the end the 
following: ``For purposes of paragraph (3), net earnings shall not be 
reduced by amounts paid during the year as dividends on capital stock 
or other proprietary capital interests of the organization to the 
extent that the articles of incorporation or bylaws of such 
organization or other contract with patrons provide that such dividends 
are in addition to amounts otherwise payable to patrons which are 
derived from business done with or for patrons during the taxable 
year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions in taxable years beginning after the date of the 
enactment of this Act.

                    Subtitle E--Tax Court Provisions

SEC. 1341. TAX COURT FILING FEE IN ALL CASES COMMENCED BY FILING 
              PETITION.

    (a) In General.--Section 7451 (relating to fee for filing a Tax 
Court petition) is amended by striking all that follows ``petition'' 
and inserting a period.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1342. EXPANDED USE OF TAX COURT PRACTICE FEE.

    Subsection (b) of section 7475 (relating to use of fees) is amended 
by inserting before the period at the end ``and to provide services to 
pro se taxpayers''.

SEC. 1343. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY DOCTRINE OF 
              EQUITABLE RECOUPMENT.

    (a) Confirmation of Authority of Tax Court To Apply Doctrine of 
Equitable Recoupment.--Subsection (b) of section 6214 (relating to 
jurisdiction over other years and quarters) is amended by adding at the 
end the following new sentence: ``Notwithstanding the preceding 
sentence, the Tax Court may apply the doctrine of equitable recoupment 
to the same extent that it is available in civil tax cases before the 
district courts of the United States and the United States Court of 
Federal Claims.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to any action or proceeding in the Tax Court with respect to 
which a decision has not become final (as determined under section 7481 
of the Internal Revenue Code of 1986) as of the date of the enactment 
of this Act.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

SEC. 1401. RESEARCH CREDIT.

    (a) Extension.--
        (1) In general.--Paragraph (1) of section 41(h) (relating to 
    termination) is amended--
            (A) by striking ``June 30, 1999'' and inserting ``June 30, 
        2004'', and
            (B) by striking the material following subparagraph (B).
        (2) Technical amendment.--Subparagraph (D) of section 45C(b)(1) 
    is amended by striking ``June 30, 1999'' and inserting ``June 30, 
    2004''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to amounts paid or incurred after June 30, 1999.
    (b) Increase in Percentages Under Alternative Incremental Credit.--
        (1) In general.--Subparagraph (A) of section 41(c)(4) is 
    amended--
            (A) by striking ``1.65 percent'' and inserting ``2.65 
        percent'',
            (B) by striking ``2.2 percent'' and inserting ``3.2 
        percent'', and
            (C) by striking ``2.75 percent'' and inserting ``3.75 
        percent''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply to taxable years beginning after June 30, 1999.

SEC. 1402. SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) In General.--Sections 953(e)(10) and 954(h)(9) are each 
amended--
        (1) by striking ``the first taxable year'' and inserting 
    ``taxable years'', and
        (2) by striking ``January 1, 2000'' and inserting ``January 1, 
    2005''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1403. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR MARGINAL 
              PRODUCTION.

    (a) In General.--Subparagraph (H) of section 613A(c)(6) is amended 
by striking ``January 1, 2000'' and inserting ``January 1, 2005''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1404. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.

    (a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) (relating 
to termination) are each amended by striking ``June 30, 1999'' and 
inserting ``December 31, 2001''.
    (b) Clarification of First Year of Employment.--Paragraph (2) of 
section 51(i) is amended by striking ``during which he was not a member 
of a targeted group''.
    (c) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after June 30, 
1999.

SEC. 1405. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING 
              ELECTRICITY FROM CERTAIN RENEWABLE RESOURCES.

    (a) Extension and Modification of Placed-in-Service Rules.--
Paragraph (3) of section 45(c) is amended to read as follows:
        ``(3) Qualified facility.--
            ``(A) Wind facility.--In the case of a facility using wind 
        to produce electricity, the term `qualified facility' means any 
        facility owned by the taxpayer which is originally placed in 
        service after December 31, 1993, and before July 1, 2003.
            ``(B) Closed-loop biomass facility.--In the case of a 
        facility using closed-loop biomass to produce electricity, the 
        term `qualified facility' means any facility owned by the 
        taxpayer which is originally placed in service after December 
        31, 1992, and before July 1, 2003.
            ``(C) Poultry waste facility.--In the case of a facility 
        using poultry waste to produce electricity, the term `qualified 
        facility' means any facility of the taxpayer which is 
        originally placed in service after December 31, 1999, and 
        before July 1, 2003.''.
    (b) Expansion of Qualified Energy Resources.--
        (1) In general.--Section 45(c)(1) (defining qualified energy 
    resources) 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) poultry waste.''.
        (2) Definition.--Section 45(c) is amended by adding at the end 
    the following new paragraph:
        ``(4) Poultry waste.--The term `poultry waste' means poultry 
    manure and litter, including wood shavings, straw, rice hulls, and 
    other bedding material for the disposition of manure.''.
    (c) Special Rules.--Section 45(d) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraphs:
        ``(6) Credit eligibility in the case of government-owned 
    facilities using poultry waste.--In the case of a facility using 
    poultry waste to produce electricity and owned by a governmental 
    unit, the person eligible for the credit under subsection (a) is 
    the lessor or the operator of such facility.
        ``(7) Credit not to apply to electricity sold to utilities 
    under certain contracts.--
            ``(A) In general.--The credit determined under subsection 
        (a) shall not apply to electricity--
                ``(i) produced at a qualified facility described in 
            paragraph (3)(A) which is placed in service by the taxpayer 
            after June 30, 1999, and
                ``(ii) sold to a utility pursuant to a contract 
            originally entered into before January 1, 1987 (whether or 
            not amended or restated after that date).
            ``(B) Exception.--Subparagraph (A) shall not apply if--
                ``(i) the prices for energy and capacity from such 
            facility are established pursuant to an amendment to the 
            contract referred to in subparagraph (A)(ii);
                ``(ii) such amendment provides that the prices set 
            forth in the contract which exceed avoided cost prices 
            determined at the time of delivery shall apply only to 
            annual quantities of electricity (prorated for partial 
            years) which do not exceed the greater of--

                    ``(I) the average annual quantity of electricity 
                sold to the utility under the contract during calendar 
                years 1994, 1995, 1996, 1997, and 1998, or
                    ``(II) the estimate of the annual electricity 
                production set forth in the contract, or, if there is 
                no such estimate, the greatest annual quantity of 
                electricity sold to the utility under the contract in 
                any of the calendar years 1996, 1997, or 1998; and

                ``(iii) such amendment provides that energy and 
            capacity in excess of the limitation in clause (ii) may 
            be--

                    ``(I) sold to the utility only at prices that do 
                not exceed avoided cost prices determined at the time 
                of delivery, or
                    ``(II) sold to a third party subject to a mutually 
                agreed upon advance notice to the utility.

        For purposes of this subparagraph, avoided cost prices shall be 
        determined as provided for in 18 CFR 292.304(d)(1) or any 
        successor regulation.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                       TITLE XV--REVENUE OFFSETS

SEC. 1501. RETURNS RELATING TO CANCELLATIONS OF INDEBTEDNESS BY 
              ORGANIZATIONS LENDING MONEY.

    (a) In General.--Paragraph (2) of section 6050P(c) (relating to 
definitions and special rules) 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 inserting after 
subparagraph (C) the following new subparagraph:
            ``(D) any organization a significant trade or business of 
        which is the lending of money.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to discharges of indebtedness after December 31, 1999.

SEC. 1502. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

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

``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

    ``(a) General Rule.--The Secretary shall establish a program 
requiring the payment of user fees for--
        ``(1) requests to the Internal Revenue Service for ruling 
    letters, opinion letters, and determination letters, and
        ``(2) other similar requests.
    ``(b) Program Criteria.--
        ``(1) In general.--The fees charged under the program required 
    by subsection (a)--
            ``(A) shall vary according to categories (or subcategories) 
        established by the Secretary,
            ``(B) shall be determined after taking into account the 
        average time for (and difficulty of) complying with requests in 
        each category (and subcategory), and
            ``(C) shall be payable in advance.
        ``(2) Exemptions, etc.--The Secretary shall provide for such 
    exemptions (and reduced fees) under such program as the Secretary 
    determines to be appropriate.
        ``(3) Average fee requirement.--The average fee charged under 
    the program required by subsection (a) shall not be less than the 
    amount determined under the following table:

``Category:
                                                            Average Fee:
    Employee plan ruling and opinion..........................


                                                                   $250 

    Exempt organization ruling................................


                                                                   $350 

    Employee plan determination...............................


                                                                   $300 

    Exempt organization determination.........................


                                                                   $275 

    Chief counsel ruling......................................


                                                                   $200.

    ``(c) Termination.--No fee shall be imposed under this section with 
respect to requests made after September 30, 2009.''.
    (b) Conforming Amendments.--
        (1) The table of sections for chapter 77 is amended by adding 
    at the end the following new item:

        ``Sec. 7527. Internal Revenue Service user fees.''.

        (2) Section 10511 of the Revenue Act of 1987 is repealed.
    (c) Effective Date.--The amendments made by this section shall 
apply to requests made after the date of the enactment of this Act.

SEC. 1503. LIMITATIONS ON WELFARE BENEFIT FUNDS OF 10 OR MORE EMPLOYER 
              PLANS.

    (a) Benefits to Which Exception Applies.--Section 419A(f)(6)(A) 
(relating to exception for 10 or more employer plans) is amended to 
read as follows:
            ``(A) In general.--This subpart shall not apply to a 
        welfare benefit fund which is part of a 10 or more employer 
        plan if the only benefits provided through the fund are one or 
        more of the following:
                ``(i) Medical benefits.
                ``(ii) Disability benefits.
                ``(iii) Group term life insurance benefits which do not 
            provide directly or indirectly for any cash surrender value 
            or other money that can be paid, assigned, borrowed, or 
            pledged for collateral for a loan.
        The preceding sentence shall not apply to any plan which 
        maintains experience-rating arrangements with respect to 
        individual employers.''.
    (b) Limitation on Use of Amounts for Other Purposes.--Section 
4976(b) (defining disqualified benefit) is amended by adding at the end 
the following new paragraph:
        ``(5) Special rule for 10 or more employer plans exempted from 
    prefunding limits.--For purposes of paragraph (1)(C), if--
            ``(A) subpart D of part I of subchapter D of chapter 1 does 
        not apply by reason of section 419A(f)(6) to contributions to 
        provide one or more welfare benefits through a welfare benefit 
        fund under a 10 or more employer plan, and
            ``(B) any portion of the welfare benefit fund attributable 
        to such contributions is used for a purpose other than that for 
        which the contributions were made,
    then such portion shall be treated as reverting to the benefit of 
    the employers maintaining the fund.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions paid or accrued after June 9, 1999, in taxable 
years ending after such date.

SEC. 1504. INCREASE IN ELECTIVE WITHHOLDING RATE FOR NONPERIODIC 
              DISTRIBUTIONS FROM DEFERRED COMPENSATION PLANS.

    (a) In General.--Section 3405(b)(1) (relating to withholding) is 
amended by striking ``10 percent'' and inserting ``15 percent''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after December 31, 2000.

SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

    (a) In General.--Subsection (a) of section 856 (relating to 
definition of real estate investment trust) is amended by striking 
``and'' at the end of paragraph (6), by redesignating paragraph (7) as 
paragraph (8), and by inserting after paragraph (6) the following new 
paragraph:
        ``(7) which is not a controlled entity (as defined in 
    subsection (l)); and''.
    (b) Controlled Entity.--Section 856 is amended by adding at the end 
the following new subsection:
    ``(l) Controlled Entity.--
        ``(1) In general.--For purposes of subsection (a)(7), an entity 
    is a controlled entity if, at any time during the taxable year, one 
    person (other than a qualified entity)--
            ``(A) in the case of a corporation, owns stock--
                ``(i) possessing at least 50 percent of the total 
            voting power of the stock of such corporation, or
                ``(ii) having a value equal to at least 50 percent of 
            the total value of the stock of such corporation, or
            ``(B) in the case of a trust, owns beneficial interests in 
        the trust which would meet the requirements of subparagraph (A) 
        if such interests were stock.
        ``(2) Qualified entity.--For purposes of paragraph (1), the 
    term `qualified entity' means--
            ``(A) any real estate investment trust, and
            ``(B) any partnership in which one real estate investment 
        trust owns at least 50 percent of the capital and profits 
        interests in the partnership.
        ``(3) Attribution rules.--For purposes of this paragraphs (1) 
    and (2)--
            ``(A) In general.--Rules similar to the rules of 
        subsections (d)(5) and (h)(3) shall apply; except that section 
        318(a)(3)(C) shall not be applied under such rules to treat 
        stock owned by a qualified entity as being owned by a person 
        which is not a qualified entity.
            ``(B) Stapled entities.--A group of entities which are 
        stapled entities (as defined in section 269B(c)(2)) shall be 
        treated as one person.
        ``(4) Exception for certain new reits.--
            ``(A) In general.--The term `controlled entity' shall not 
        include an incubator REIT.
            ``(B) Incubator reit.--A corporation shall be treated as an 
        incubator REIT for any taxable year during the eligibility 
        period if it meets all the following requirements for such 
        year:
                ``(i) The corporation elects to be treated as an 
            incubator REIT.
                ``(ii) The corporation has only voting common stock 
            outstanding.
                ``(iii) Not more than 50 percent of the corporation's 
            real estate assets consist of mortgages.
                ``(iv) From not later than the beginning of the last 
            half of the second taxable year, at least 10 percent of the 
            corporation's capital is provided by lenders or equity 
            investors who are unrelated to the corporation's largest 
            shareholder.
                ``(v) The corporation annually increases the value of 
            its real estate assets by at least 10 percent.
                ``(vi) The directors of the corporation adopt a 
            resolution setting forth an intent to engage in a going 
            public transaction.
        No election may be made with respect to any REIT if an election 
        under this subsection was in effect for any predecessor of such 
        REIT.
            ``(C) Eligibility period.--
                ``(i) In general.--The eligibility period (for which an 
            incubator REIT election can be made) begins with the REIT's 
            second taxable year and ends at the close of the REIT's 
            third taxable year, except that the REIT may, subject to 
            clauses (ii), (iii), and (iv), elect to extend such period 
            for an additional 2 taxable years.
                ``(ii) Going public transaction.--A REIT may not elect 
            to extend the eligibility period under clause (i) unless it 
            enters into an agreement with the Secretary that if it does 
            not engage in a going public transaction by the end of the 
            extended eligibility period, it shall pay Federal income 
            taxes for the 2 years of the extended eligibility period as 
            if it had not made an incubator REIT election and had 
            ceased to qualify as a REIT for those 2 taxable years.
                ``(iii) Returns, interest, and notice.--

                    ``(I) Returns.--In the event the corporation ceases 
                to be treated as a REIT by operation of clause (ii), 
                the corporation shall file any appropriate amended 
                returns reflecting the change in status within 3 months 
                of the close of the extended eligibility period.
                    ``(II) Interest.--Interest shall be payable on any 
                tax imposed by reason of clause (ii) for any taxable 
                year but, unless there was a finding under subparagraph 
                (D), no substantial underpayment penalties shall be 
                imposed.
                    ``(III) Notice.--The corporation shall, at the same 
                time it files its returns under subclause (I), notify 
                its shareholders and any other persons whose tax 
                position is, or may reasonably be expected to be, 
                affected by the change in status so they also may file 
                any appropriate amended returns to conform their tax 
                treatment consistent with the corporation's loss of 
                REIT status.
                    ``(IV) Regulations.--The Secretary shall provide 
                appropriate regulations setting forth transferee 
                liability and other provisions to ensure collection of 
                tax and the proper administration of this provision.

                ``(iv) Clauses (ii) and (iii) shall not apply if the 
            corporation allows its incubator REIT status to lapse at 
            the end of the initial 2-year eligibility period without 
            engaging in a going public transaction if the corporation 
            is not a controlled entity as of the beginning of its 
            fourth taxable year. In such a case, the corporation's 
            directors may still be liable for the penalties described 
            in subparagraph (D) during the eligibility period.
            ``(D) Special penalties.--If the Secretary determines that 
        an incubator REIT election was filed for a principal purpose 
        other than as part of a reasonable plan to undertake a going 
        public transaction, an excise tax of $20,000 shall be imposed 
        on each of the corporation's directors for each taxable year 
        for which an election was in effect.
            ``(E) Going public transaction.--For purposes of this 
        paragraph, a going public transaction means--
                ``(i) a public offering of shares of the stock of the 
            incubator REIT;
                ``(ii) a transaction, or series of transactions, that 
            results in the stock of the incubator REIT being regularly 
            traded on an established securities market and that results 
            in at least 50 percent of such stock being held by 
            shareholders who are unrelated to persons who held such 
            stock before it began to be so regularly traded; or
                ``(iii) any transaction resulting in ownership of the 
            REIT by 200 or more persons (excluding the largest single 
            shareholder) who in the aggregate own at least 50 percent 
            of the stock of the REIT.
        For the purposes of this subparagraph, the rules of paragraph 
        (3) shall apply in determining the ownership of stock.
            ``(F) Definitions.--The term `established securities 
        market' shall have the meaning set forth in the regulations 
        under section 897.''.
    (c) Conforming Amendment.--Paragraph (2) of section 856(h) is 
amended by striking ``and (6)'' each place it appears and inserting ``, 
(6), and (7)''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years ending after July 14, 1999.
        (2) Exception for existing controlled entities.--The amendments 
    made by this section shall not apply to any entity which is a 
    controlled entity (as defined in section 856(l) of the Internal 
    Revenue Code of 1986, as added by this section) as of July 14, 
    1999, which is a real estate investment trust for the taxable year 
    which includes such date, and which has significant business assets 
    or activities as of such date. For purposes of the preceding 
    sentence, an entity shall be treated as such a controlled entity on 
    July 14, 1999, if it becomes such an entity after such date in a 
    transaction--
            (A) made pursuant to a written agreement which was binding 
        on such date and at all times thereafter, or
            (B) described on or before such date in a filing with the 
        Securities and Exchange Commission required solely by reason of 
        the transaction.

SEC. 1506. TREATMENT OF GAIN FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

    (a) In General.--Part IV of subchapter P of chapter 1 (relating to 
special rules for determining capital gains and losses) is amended by 
inserting after section 1259 the following new section:

``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

    ``(a) In General.--If the taxpayer has gain from a constructive 
ownership transaction with respect to any financial asset and such gain 
would (without regard to this section) be treated as a long-term 
capital gain--
        ``(1) such gain shall be treated as ordinary income to the 
    extent that such gain exceeds the net underlying long-term capital 
    gain, and
        ``(2) to the extent such gain is treated as a long-term capital 
    gain after the application of paragraph (1), the determination of 
    the capital gain rate (or rates) applicable to such gain under 
    section 1(h) shall be determined on the basis of the respective 
    rate (or rates) that would have been applicable to the net 
    underlying long-term capital gain.
    ``(b) Interest Charge on Deferral of Gain Recognition.--
        ``(1) In general.--If any gain is treated as ordinary income 
    for any taxable year by reason of subsection (a)(1), the tax 
    imposed by this chapter for such taxable year shall be increased by 
    the amount of interest determined under paragraph (2) with respect 
    to each prior taxable year during any portion of which the 
    constructive ownership transaction was open. Any amount payable 
    under this paragraph shall be taken into account in computing the 
    amount of any deduction allowable to the taxpayer for interest paid 
    or accrued during such taxable year.
        ``(2) Amount of interest.--The amount of interest determined 
    under this paragraph with respect to a prior taxable year is the 
    amount of interest which would have been imposed under section 6601 
    on the underpayment of tax for such year which would have resulted 
    if the gain (which is treated as ordinary income by reason of 
    subsection (a)(1)) had been included in gross income in the taxable 
    years in which it accrued (determined by treating the income as 
    accruing at a constant rate equal to the applicable Federal rate as 
    in effect on the day the transaction closed). The period during 
    which such interest shall accrue shall end on the due date (without 
    extensions) for the return of tax imposed by this chapter for the 
    taxable year in which such transaction closed.
        ``(3) Applicable federal rate.--For purposes of paragraph (2), 
    the applicable Federal rate is the applicable Federal rate 
    determined under 1274(d) (compounded semiannually) which would 
    apply to a debt instrument with a term equal to the period the 
    transaction was open.
        ``(4) No credits against increase in tax.--Any increase in tax 
    under paragraph (1) shall not be treated as tax imposed by this 
    chapter for purposes of determining--
            ``(A) the amount of any credit allowable under this 
        chapter, or
            ``(B) the amount of the tax imposed by section 55.
    ``(c) Financial Asset.--For purposes of this section--
        ``(1) In general.--The term `financial asset' means--
            ``(A) any equity interest in any pass-thru entity, and
            ``(B) to the extent provided in regulations--
                ``(i) any debt instrument, and
                ``(ii) any stock in a corporation which is not a pass-
            thru entity.
        ``(2) Pass-thru entity.--For purposes of paragraph (1), the 
    term `pass-thru entity' means--
            ``(A) a regulated investment company,
            ``(B) a real estate investment trust,
            ``(C) an S corporation,
            ``(D) a partnership,
            ``(E) a trust,
            ``(F) a common trust fund,
            ``(G) a passive foreign investment company (as defined in 
        section 1297 without regard to subsection (e) thereof),
            ``(H) a foreign personal holding company,
            ``(I) a foreign investment company (as defined in section 
        1246(b)), and
            ``(J) a REMIC.
    ``(d) Constructive Ownership Transaction.--For purposes of this 
section--
        ``(1) In general.--The taxpayer shall be treated as having 
    entered into a constructive ownership transaction with respect to 
    any financial asset if the taxpayer--
            ``(A) holds a long position under a notional principal 
        contract with respect to the financial asset,
            ``(B) enters into a forward or futures contract to acquire 
        the financial asset,
            ``(C) is the holder of a call option, and is the grantor of 
        a put option, with respect to the financial asset and such 
        options have substantially equal strike prices and 
        substantially contemporaneous maturity dates, or
            ``(D) to the extent provided in regulations prescribed by 
        the Secretary, enters into one or more other transactions (or 
        acquires one or more positions) that have substantially the 
        same effect as a transaction described in any of the preceding 
        subparagraphs.
        ``(2) Exception for positions which are marked to market.--This 
    section shall not apply to any constructive ownership transaction 
    if all of the positions which are part of such transaction are 
    marked to market under any provision of this title or the 
    regulations thereunder.
        ``(3) Long position under notional principal contract.--A 
    person shall be treated as holding a long position under a notional 
    principal contract with respect to any financial asset if such 
    person--
            ``(A) has the right to be paid (or receive credit for) all 
        or substantially all of the investment yield (including 
        appreciation) on such financial asset for a specified period, 
        and
            ``(B) is obligated to reimburse (or provide credit for) all 
        or substantially all of any decline in the value of such 
        financial asset.
        ``(4) Forward contract.--The term `forward contract' means any 
    contract to acquire in the future (or provide or receive credit for 
    the future value of) any financial asset.
    ``(e) Net Underlying Long-Term Capital Gain.--For purposes of this 
section, in the case of any constructive ownership transaction with 
respect to any financial asset, the term `net underlying long-term 
capital gain' means the aggregate net capital gain that the taxpayer 
would have had if--
        ``(1) the financial asset had been acquired for fair market 
    value on the date such transaction was opened and sold for fair 
    market value on the date such transaction was closed, and
        ``(2) only gains and losses that would have resulted from the 
    deemed ownership under paragraph (1) were taken into account.
The amount of the net underlying long-term capital gain with respect to 
any financial asset shall be treated as zero unless the amount thereof 
is established by clear and convincing evidence.
    ``(f) Special Rule Where Taxpayer Takes Delivery.--Except as 
provided in regulations prescribed by the Secretary, if a constructive 
ownership transaction is closed by reason of taking delivery, this 
section shall be applied as if the taxpayer had sold all the contracts, 
options, or other positions which are part of such transaction for fair 
market value on the closing date. The amount of gain recognized under 
the preceding sentence shall not exceed the amount of gain treated as 
ordinary income under subsection (a). Proper adjustments shall be made 
in the amount of any gain or loss subsequently realized for gain 
recognized and treated as ordinary income under this subsection.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
        ``(1) to permit taxpayers to mark to market constructive 
    ownership transactions in lieu of applying this section, and
        ``(2) to exclude certain forward contracts which do not convey 
    substantially all of the economic return with respect to a 
    financial asset.''.
    (b) 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. 1260. Gains from constructive ownership transactions.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after July 11, 1999.

SEC. 1507. TRANSFER OF EXCESS DEFINED BENEFIT PLAN ASSETS FOR RETIREE 
              HEALTH BENEFITS.

    (a) Extension.--
        (1) In General.--Paragraph (5) of section 420(b) (relating to 
    expiration) is amended by striking ``in any taxable year beginning 
    after December 31, 2000'' and inserting ``made after September 30, 
    2009''.
        (2) Conforming amendments.--
            (A) Section 101(e)(3) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
        striking ``1995'' and inserting ``2001''.
            (B) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
        amended by striking ``1995'' and inserting ``2001''.
            (C) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
        1108(b)(13)) is amended--
                (i) by striking ``in a taxable year beginning before 
            January 1, 2001'' and inserting ``made before October 1, 
            2009'', and
                (ii) by striking ``1995'' and inserting ``2001''.
    (b) Application of Minimum Cost Requirements.--
        (1) In general.--Paragraph (3) of section 420(c) is amended to 
    read as follows:
        ``(3) Minimum cost requirements.--
            ``(A) In general.--The requirements of this paragraph are 
        met if each group health plan or arrangement under which 
        applicable health benefits are provided provides that the 
        applicable employer cost for each taxable year during the cost 
        maintenance period shall not be less than the higher of the 
        applicable employer costs for each of the 2 taxable years 
        immediately preceding the taxable year of the qualified 
        transfer.
            ``(B) Applicable employer cost.--For purposes of this 
        paragraph, the term `applicable employer cost' means, with 
        respect to any taxable year, the amount determined by 
        dividing--
                ``(i) the qualified current retiree health liabilities 
            of the employer for such taxable year determined--

                    ``(I) without regard to any reduction under 
                subsection (e)(1)(B), and
                    ``(II) in the case of a taxable year in which there 
                was no qualified transfer, in the same manner as if 
                there had been such a transfer at the end of the 
                taxable year, by

                ``(ii) the number of individuals to whom coverage for 
            applicable health benefits was provided during such taxable 
            year.
            ``(C) Election to compute cost separately.--An employer may 
        elect to have this paragraph applied separately with respect to 
        individuals eligible for benefits under title XVIII of the 
        Social Security Act at any time during the taxable year and 
        with respect to individuals not so eligible.
            ``(D) Cost maintenance period.--For purposes of this 
        paragraph, the term `cost maintenance period' means the period 
        of 5 taxable years beginning with the taxable year in which the 
        qualified transfer occurs. If a taxable year is in two or more 
        overlapping cost maintenance periods, this paragraph shall be 
        applied by taking into account the highest applicable employer 
        cost required to be provided under subparagraph (A) for such 
        taxable year.''.
        (2) Conforming amendments.--
            (A) Clause (iii) of section 420(b)(1)(C) is amended by 
        striking ``benefits'' and inserting ``cost''.
            (B) Subparagraph (D) of section 420(e)(1) is amended by 
        striking ``and shall not be subject to the minimum benefit 
        requirements of subsection (c)(3)'' and inserting ``or in 
        calculating applicable employer cost under subsection 
        (c)(3)(B)''.
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to qualified transfers occurring after the date of the 
    enactment of this Act.
        (2) Transition rule.--If the cost maintenance period for any 
    qualified transfer after the date of the enactment of this Act 
    includes any portion of a benefit maintenance period for any 
    qualified transfer on or before such date, the amendments made by 
    subsection (b) shall not apply to such portion of the cost 
    maintenance period (and such portion shall be treated as a benefit 
    maintenance period).

SEC. 1508. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF INSTALLMENT 
              METHOD FOR ACCRUAL METHOD TAXPAYERS.

    (a) Repeal of Installment Method for Accrual Basis Taxpayers.--
        (1) In general.--Subsection (a) of section 453 (relating to 
    installment method) is amended to read as follows:
    ``(a) Use of Installment Method.--
        ``(1) In general.--Except as otherwise provided in this 
    section, income from an installment sale shall be taken into 
    account for purposes of this title under the installment method.
        ``(2) Accrual method taxpayer.--The installment method shall 
    not apply to income from an installment sale if such income would 
    be reported under an accrual method of accounting without regard to 
    this section. The preceding sentence shall not apply to a 
    disposition described in subparagraph (A) or (B) of subsection 
    (l)(2).''.
        (2) Conforming amendments.--Sections 453(d)(1), 453(i)(1), and 
    453(k) are each amended by striking ``(a)'' each place it appears 
    and inserting ``(a)(1)''.
    (b) Modification of Pledge Rules.--Paragraph (4) of section 453A(d) 
(relating to pledges, etc., of installment obligations) is amended by 
adding at the end the following: ``A payment shall be treated as 
directly secured by an interest in an installment obligation to the 
extent an arrangement allows the taxpayer to satisfy all or a portion 
of the indebtedness with the installment obligation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales or other dispositions occurring on or after the date of 
the enactment of this Act.

SEC. 1509. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF 
              ACCOUNTING.

    (a) In General.--Section 448(d)(5) (relating to special rule for 
services) is amended--
        (1) by inserting ``in fields described in paragraph (2)(A)'' 
    after ``services by such person'', and
        (2) by inserting ``certain personal'' before ``services'' in 
    the heading.
    (b) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years ending after the date of the enactment of 
    this Act.
        (2) Change in method of accounting.--In the case of any 
    taxpayer required by the amendments made by this section to change 
    its method of accounting for its first taxable year ending after 
    the date of the enactment of this Act--
            (A) such change shall be treated as initiated by the 
        taxpayer,
            (B) such change shall be treated as made with the consent 
        of the Secretary of the Treasury, and
            (C) the net amount of the adjustments required to be taken 
        into account by the taxpayer under section 481 of the Internal 
        Revenue Code of 1986 shall be taken into account over a period 
        (not greater than 4 taxable years) beginning with such first 
        taxable year.

SEC. 1510. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, AND 
              ENDOWMENT CONTRACTS.

    (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules) is 
amended by adding at the end the following new paragraph:
        ``(10) Split-dollar life insurance, annuity, and endowment 
    contracts.--
            ``(A) In general.--Nothing in this section or in section 
        545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall 
        be construed to allow a deduction, and no deduction shall be 
        allowed, for any transfer to or for the use of an organization 
        described in subsection (c) if in connection with such 
        transfer--
                ``(i) the organization directly or indirectly pays, or 
            has previously paid, any premium on any personal benefit 
            contract with respect to the transferor, or
                ``(ii) there is an understanding or expectation that 
            any person will directly or indirectly pay any premium on 
            any personal benefit contract with respect to the 
            transferor.
            ``(B) Personal benefit contract.--For purposes of 
        subparagraph (A), the term `personal benefit contract' means, 
        with respect to the transferor, any life insurance, annuity, or 
        endowment contract if any direct or indirect beneficiary under 
        such contract is the transferor, any member of the transferor's 
        family, or any other person (other than an organization 
        described in subsection (c)) designated by the transferor.
            ``(C) Application to charitable remainder trusts.--In the 
        case of a transfer to a trust referred to in subparagraph (E), 
        references in subparagraphs (A) and (F) to an organization 
        described in subsection (c) shall be treated as a reference to 
        such trust.
            ``(D) Exception for certain annuity contracts.--If, in 
        connection with a transfer to or for the use of an organization 
        described in subsection (c), such organization incurs an 
        obligation to pay a charitable gift annuity (as defined in 
        section 501(m)) and such organization purchases any annuity 
        contract to fund such obligation, persons receiving payments 
        under the charitable gift annuity shall not be treated for 
        purposes of subparagraph (B) as indirect beneficiaries under 
        such contract if--
                ``(i) such organization possesses all of the incidents 
            of ownership under such contract,
                ``(ii) such organization is entitled to all the 
            payments under such contract, and
                ``(iii) the timing and amount of payments under such 
            contract are substantially the same as the timing and 
            amount of payments to each such person under such 
            obligation (as such obligation is in effect at the time of 
            such transfer).
            ``(E) Exception for certain contracts held by charitable 
        remainder trusts.--A person shall not be treated for purposes 
        of subparagraph (B) as an indirect beneficiary under any life 
        insurance, annuity, or endowment contract held by a charitable 
        remainder annuity trust or a charitable remainder unitrust (as 
        defined in section 664(d)) solely by reason of being entitled 
        to any payment referred to in paragraph (1)(A) or (2)(A) of 
        section 664(d) if--
                ``(i) such trust possesses all of the incidents of 
            ownership under such contract, and
                ``(ii) such trust is entitled to all the payments under 
            such contract.
            ``(F) Excise tax on premiums paid.--
                ``(i) In general.--There is hereby imposed on any 
            organization described in subsection (c) an excise tax 
            equal to the premiums paid by such organization on any life 
            insurance, annuity, or endowment contract if the payment of 
            premiums on such contract is in connection with a transfer 
            for which a deduction is not allowable under subparagraph 
            (A), determined without regard to when such transfer is 
            made.
                ``(ii) Payments by other persons.--For purposes of 
            clause (i), payments made by any other person pursuant to 
            an understanding or expectation referred to in subparagraph 
            (A) shall be treated as made by the organization.
                ``(iii) Reporting.--Any organization on which tax is 
            imposed by clause (i) with respect to any premium shall 
            file an annual return which includes--

                    ``(I) the amount of such premiums paid during the 
                year and the name and TIN of each beneficiary under the 
                contract to which the premium relates, and
                    ``(II) such other information as the Secretary may 
                require.

            The penalties applicable to returns required under section 
            6033 shall apply to returns required under this clause. 
            Returns required under this clause shall be furnished at 
            such time and in such manner as the Secretary shall by 
            forms or regulations require.
                ``(iv) Certain rules to apply.--The tax imposed by this 
            subparagraph shall be treated as imposed by chapter 42 for 
            purposes of this title other than subchapter B of chapter 
            42.
            ``(G) Special rule where state requires specification of 
        charitable gift annuitant in contract.--In the case of an 
        obligation to pay a charitable gift annuity referred to in 
        subparagraph (D) which is entered into under the laws of a 
        State which requires, in order for the charitable gift annuity 
        to be exempt from insurance regulation by such State, that each 
        beneficiary under the charitable gift annuity be named as a 
        beneficiary under an annuity contract issued by an insurance 
        company authorized to transact business in such State, the 
        requirements of clauses (i) and (ii) of subparagraph (D) shall 
        be treated as met if--
                ``(i) such State law requirement was in effect on 
            February 8, 1999,
                ``(ii) each such beneficiary under the charitable gift 
            annuity is a bona fide resident of such State at the time 
            the obligation to pay a charitable gift annuity is entered 
            into, and
                ``(iii) the only persons entitled to payments under 
            such contract are persons entitled to payments as 
            beneficiaries under such obligation on the date such 
            obligation is entered into.
            ``(H) Member of family.--For purposes of this paragraph, an 
        individual's family consists of the individual's grandparents, 
        the grandparents of such individual's spouse, the lineal 
        descendants of such grandparents, and any spouse of such a 
        lineal descendant.
            ``(I) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this paragraph, including regulations to prevent 
        the avoidance of such purposes.''.
    (b) Effective Date.--
        (1) In general.--Except as otherwise provided in this section, 
    the amendment made by this section shall apply to transfers made 
    after February 8, 1999.
        (2) Excise tax.--Except as provided in paragraph (3) of this 
    subsection, section 170(f)(10)(F) of the Internal Revenue Code of 
    1986 (as added by this section) shall apply to premiums paid after 
    the date of the enactment of this Act.
        (3) Reporting.--Clause (iii) of such section 170(f)(10)(F) 
    shall apply to premiums paid after February 8, 1999 (determined as 
    if the tax imposed by such section applies to premiums paid after 
    such date).

SEC. 1511. RESTRICTION ON USE OF REAL ESTATE INVESTMENT TRUSTS TO AVOID 
              ESTIMATED TAX PAYMENT REQUIREMENTS.

    (a) In General.--Subsection (e) of section 6655 (relating to 
estimated tax by corporations) is amended by adding at the end the 
following new paragraph:
        ``(5) Treatment of certain reit dividends.--
            ``(A) In general.--Any dividend received from a closely 
        held real estate investment trust by any person which owns 
        (after application of subsections (d)(5) and (l)(3)(B) of 
        section 856) 10 percent or more (by vote or value) of the stock 
        or beneficial interests in the trust shall be taken into 
        account in computing annualized income installments under 
        paragraph (2) in a manner similar to the manner under which 
        partnership income inclusions are taken into account.
            ``(B) Closely held reit.--For purposes of subparagraph (A), 
        the term `closely held real estate investment trust' means a 
        real estate investment trust with respect to which five or 
        fewer persons own (after application of subsections (d)(5) and 
        (l)(3)(B) of section 856) 50 percent or more (by vote or value) 
        of the stock or beneficial interests in the trust.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to estimated tax payments due on or after September 15, 1999.

SEC. 1512. MODIFICATION OF ANTI-ABUSE RULES RELATED TO ASSUMPTION OF 
              LIABILITY.

    (a) In General.--Section 357(b)(1) (relating to tax avoidance 
purpose) is amended--
        (1) by striking ``the principal purpose'' and inserting ``a 
    principal purpose'', and
        (2) by striking ``on the exchange'' in subparagraph (A).
    (b) Effective Date.--The amendments made by this section shall 
apply to assumptions of liability after July 14, 1999.

SEC. 1513. ALLOCATION OF BASIS ON TRANSFERS OF INTANGIBLES IN CERTAIN 
              NONRECOGNITION TRANSACTIONS.

    (a) Transfers to Corporations.--Section 351 (relating to transfer 
to corporation controlled by transferor) is amended by redesignating 
subsection (h) as subsection (i) and by inserting after subsection (g) 
the following new subsection:
    ``(h) Treatment of Transfers of Intangible Property.--
        ``(1) Transfers of less than all substantial rights.
            ``(A) In general.--A transfer of an interest in intangible 
        property (as defined in section 936(h)(3)(B)) shall be treated 
        under this section as a transfer of property even if the 
        transfer is of less than all of the substantial rights of the 
        transferor in the property.
            ``(B) Allocation of basis.--In the case of a transfer of 
        less than all of the substantial rights of the transferor in 
        the intangible property, the transferor's basis immediately 
        before the transfer shall be allocated among the rights 
        retained by the transferor and the rights transferred on the 
        basis of their respective fair market values.
        ``(2) Nonrecognition not to apply to intangible property 
    developed for transferee.--This section shall not apply to a 
    transfer of intangible property developed by the transferor or any 
    related person if such development was pursuant to an arrangement 
    with the transferee.''.
    (b) Transfers to Partnerships.--Subsection (d) of section 721 is 
amended to read as follows:
    ``(d) Transfers of Intangible Property.--
        ``(1) In general.--Rules similar to the rules of section 351(h) 
    shall apply for purposes of this section.
        ``(2) Transfers to foreign partnerships.--For regulatory 
    authority to treat intangibles transferred to a partnership as 
    sold, see section 367(d)(3).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers on or after the date of the enactment of this Act.

SEC. 1514. DISTRIBUTIONS TO A CORPORATE PARTNER OF STOCK IN ANOTHER 
              CORPORATION.

    (a) In General.--Section 732 (relating to basis of distributed 
property other than money) is amended by adding at the end the 
following new subsection:
    ``(f) Corresponding Adjustment to Basis of Assets of a Distributed 
Corporation Controlled by a Corporate Partner.--
        ``(1) In general.--If--
            ``(A) a corporation (hereafter in this subsection referred 
        to as the `corporate partner') receives a distribution from a 
        partnership of stock in another corporation (hereafter in this 
        subsection referred to as the `distributed corporation'),
            ``(B) the corporate partner has control of the distributed 
        corporation immediately after the distribution or at any time 
        thereafter, and
            ``(C) the partnership's adjusted basis in such stock 
        immediately before the distribution exceeded the corporate 
        partner's adjusted basis in such stock immediately after the 
        distribution,
    then an amount equal to such excess shall be applied to reduce (in 
    accordance with subsection (c)) the basis of property held by the 
    distributed corporation at such time (or, if the corporate partner 
    does not control the distributed corporation at such time, at the 
    time the corporate partner first has such control).
        ``(2) Exception for certain distributions before control 
    acquired.--Paragraph (1) shall not apply to any distribution of 
    stock in the distributed corporation if--
            ``(A) the corporate partner does not have control of such 
        corporation immediately after such distribution, and
            ``(B) the corporate partner establishes to the satisfaction 
        of the Secretary that such distribution was not part of a plan 
        or arrangement to acquire control of the distributed 
        corporation.
        ``(3) Limitations on basis reduction.--
            ``(A) In general.--The amount of the reduction under 
        paragraph (1) shall not exceed the amount by which the sum of 
        the aggregate adjusted bases of the property and the amount of 
        money of the distributed corporation exceeds the corporate 
        partner's adjusted basis in the stock of the distributed 
        corporation.
            ``(B) Reduction not to exceed adjusted basis of property.--
        No reduction under paragraph (1) in the basis of any property 
        shall exceed the adjusted basis of such property (determined 
        without regard to such reduction).
        ``(4) Gain recognition where reduction limited.--If the amount 
    of any reduction under paragraph (1) (determined after the 
    application of paragraph (3)(A)) exceeds the aggregate adjusted 
    bases of the property of the distributed corporation--
            ``(A) such excess shall be recognized by the corporate 
        partner as long-term capital gain, and
            ``(B) the corporate partner's adjusted basis in the stock 
        of the distributed corporation shall be increased by such 
        excess.
        ``(5) Control.--For purposes of this subsection, the term 
    `control' means ownership of stock meeting the requirements of 
    section 1504(a)(2).
        ``(6) Indirect distributions.--For purposes of paragraph (1), 
    if a corporation acquires (other than in a distribution from a 
    partnership) stock the basis of which is determined (by reason of 
    being distributed from a partnership) in whole or in part by 
    reference to subsection (a)(2) or (b), the corporation shall be 
    treated as receiving a distribution of such stock from a 
    partnership.
        ``(7) Special rule for stock in controlled corporation.--If the 
    property held by a distributed corporation is stock in a 
    corporation which the distributed corporation controls, this 
    subsection shall be applied to reduce the basis of the property of 
    such controlled corporation. This subsection shall be reapplied to 
    any property of any controlled corporation which is stock in a 
    corporation which it controls.
        ``(8) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection, including regulations to avoid double counting and to 
    prevent the abuse of such purposes.''.
    (b) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendment made by this section shall apply to distributions made 
    after July 14, 1999.
        (2) Partnerships in existence on July 14, 1999.--In the case of 
    a corporation which is a partner in a partnership as of July 14, 
    1999, the amendment made by this section shall apply to 
    distributions made to such partner from such partnership after the 
    date of the enactment of this Act.

SEC. 1515. PROHIBITED ALLOCATIONS OF S CORPORATION STOCK HELD BY AN 
              ESOP.

    (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Prohibited Allocation of Securities in an S Corporation.--
        ``(1) In general.--An employee stock ownership plan holding 
    employer securities consisting of stock in an S corporation shall 
    provide that no portion of the assets of the plan attributable to 
    (or allocable in lieu of) such employer securities may, during a 
    nonallocation year, accrue (or be allocated directly or indirectly 
    under any plan of the employer meeting the requirements of section 
    401(a)) for the benefit of any disqualified individual.
        ``(2) Failure to meet requirements.--If a plan fails to meet 
    the requirements of paragraph (1)--
            ``(A) the plan shall be treated as having distributed to 
        any disqualified individual the amount allocated to the account 
        of such individual in violation of paragraph (1) at the time of 
        such allocation,
            ``(B) the provisions of section 4979A shall apply, and
            ``(C) the statutory period for the assessment of any tax 
        imposed by section 4979A shall not expire before the date which 
        is 3 years from the later of--
                ``(i) the allocation of employer securities resulting 
            in the failure under paragraph (1) giving rise to such tax, 
            or
                ``(ii) the date on which the Secretary is notified of 
            such failure.
        ``(3) Nonallocation year.--For purposes of this subsection--
            ``(A) In general.--The term `nonallocation year' means any 
        plan year of an employee stock ownership plan if, at any time 
        during such plan year--
                ``(i) such plan holds employer securities consisting of 
            stock in an S corporation, and
                ``(ii) disqualified individuals own at least 50 percent 
            of the number of outstanding shares of stock in such S 
            corporation.
            ``(B) Attribution rules.--For purposes of subparagraph 
        (A)--
                ``(i) In general.--The rules of section 318(a) shall 
            apply for purposes of determining ownership, except that--

                    ``(I) in applying paragraph (1) thereof, the 
                members of an individual's family shall include members 
                of the family described in paragraph (4)(D), and
                    ``(II) paragraph (4) thereof shall not apply.

                ``(ii) Deemed-owned shares.--Notwithstanding the 
            employee trust exception in section 318(a)(2)(B)(i), 
            disqualified individuals shall be treated as owning deemed-
            owned shares.
        ``(4) Disqualified individual.--For purposes of this 
    subsection--
            ``(A) In general.--The term `disqualified individual' means 
        any individual who is a participant or beneficiary under the 
        employee stock ownership plan if--
                ``(i) the aggregate number of deemed-owned shares of 
            such individual and the members of the individual's family 
            is at least 20 percent of the number of outstanding shares 
            of stock in the S corporation constituting employer 
            securities of such plan, or
                ``(ii) if such individual is not described in clause 
            (i), the number of deemed-owned shares of such individual 
            is at least 10 percent of the number of outstanding shares 
            of stock in such corporation.
            ``(B) Treatment of family members.--In the case of a 
        disqualified individual described in subparagraph (A)(i), any 
        member of the individual's family with deemed-owned shares 
        shall be treated as a disqualified individual if not otherwise 
        a disqualified individual under subparagraph (A).
            ``(C) Deemed-owned shares.--For purposes of this 
        paragraph--
                ``(i) In general.--The term `deemed-owned shares' 
            means, with respect to any participant or beneficiary under 
            the employee stock ownership plan--

                    ``(I) the stock in the S corporation constituting 
                employer securities of such plan which is allocated to 
                such participant or beneficiary under the plan, and
                    ``(II) such participant's or beneficiary's share of 
                the stock in such corporation which is held by such 
                trust but which is not allocated under the plan to 
                employees.

                ``(ii) Individual's share of unallocated stock.--For 
            purposes of clause (i)(II), an individual's share of 
            unallocated S corporation stock held by the trust is the 
            amount of the unallocated stock which would be allocated to 
            such individual if the unallocated stock were allocated to 
            individuals in the same proportions as the most recent 
            stock allocation under the plan.
            ``(D) Member of family.--For purposes of this paragraph, 
        the term `member of the family' means, with respect to any 
        individual--
                ``(i) the spouse of the individual,
                ``(ii) an ancestor or lineal descendant of the 
            individual or the individual's spouse,
                ``(iii) a brother or sister of the individual or the 
            individual's spouse and any lineal descendant of the 
            brother or sister, and
                ``(iv) the spouse of any person described in clause 
            (ii) or (iii).
        ``(5) Definitions.--For purposes of this subsection--
            ``(A) Employee stock ownership plan.--The term `employee 
        stock ownership plan' has the meaning given such term by 
        section 4975(e)(7).
            ``(B) Employer securities.--The term `employer security' 
        has the meaning given such term by section 409(l).
        ``(6) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection, including regulations providing for the treatment of 
    any stock option, restricted stock, stock appreciation right, 
    phantom stock unit, performance unit, or similar instrument granted 
    by an S corporation as stock or not stock.''.
    (b) Excise Tax.--
        (1) In general.--Section 4979A(b) (defining prohibited 
    allocation) 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) any allocation of employer securities which violates the 
    provisions of section 409(p).''.
        (2) Liability.--Section 4979A(c) (defining liability for tax) 
    is amended by adding at the end the following new sentence: ``In 
    the case of a prohibited allocation described in subsection (b)(3), 
    such tax shall be paid by the S corporation the stock in which was 
    allocated in violation of section 409(p).''.
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to plan years beginning after December 31, 2000.
        (2) Exception for certain plans.--In the case of any--
            (A) employee stock ownership plan established after July 
        14, 1999, or
            (B) employee stock ownership plan established on or before 
        such date if employer securities held by the plan consist of 
        stock in a corporation with respect to which an election under 
        section 1362(a) of the Internal Revenue Code of 1986 is not in 
        effect on such date,
    the amendments made by this section shall apply to plan years 
    ending after July 14, 1999.

                 TITLE XVI--COMPLIANCE WITH BUDGET ACT

SEC. 1601. COMPLIANCE WITH BUDGET ACT.

    (a) In General.--Except as provided in subsection (b), all 
provisions of, and amendments made by, this Act which are in effect on 
September 30, 2009, shall cease to apply as of the close of September 
30, 2009.
    (b) Sunset for Certain Provisions.--The amendments made by sections 
101, 111, 121, 201, 202, 211, 214, and 1221 of this Act shall not apply 
to any taxable year beginning after December 31, 2008.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.