[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3874 Introduced in House (IH)]







106th CONGRESS
  2d Session
                                H. R. 3874

 To amend the Internal Revenue Code of 1986 to provide tax relief for 
               small businesses, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 9, 2000

  Mr. Rangel (for himself, Mr. Gephardt, Mr. Bonior, Mr. Matsui, Mr. 
 Coyne, Mr. Neal of Massachusetts, Mr. Obey, Mr. LaFalce, Mrs. Mink of 
Hawaii, Mr. Skelton, Mr. Stenholm, Mr. Ackerman, Mr. Spratt, Mr. Evans, 
  Mr. Wise, Mr. Sawyer, Mr. Serrano, Mr. Abercrombie, Mr. Engel, Ms. 
DeLauro, Mr. Nadler, Mr. Hinchey, Mr. Brown of Ohio, Ms. Eddie Bernice 
   Johnson of Texas, Mr. Stupak, Mr. Wynn, Mr. Forbes, Mr. Kind, Mr. 
 Strickland, Mr. McGovern, Mr. Turner, Mr. Boswell, Mr. Hinojosa, Ms. 
 Sanchez, Mr. Sandlin, Mr. Wu, Mr. Holt, Mrs. Capps, Mr. Meeks of New 
    York, Mr. Larson, Ms. Berkley, Mrs. Napolitano, Mr. Phelps, Mr. 
    Gonzalez, Mr. Inslee, and Mr. Udall of Colorado) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide tax relief for 
               small businesses, and for other purposes.

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

         TITLE II--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986

SEC. 200. SHORT TITLE.

    (a) Short Title.--This title may be cited as the ``Small Business 
Tax Relief Act of 2000''.
    (b) Table of Contents.--

         TITLE II--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986

Sec. 200. Short title.
Subtitle A--Permanent Extension of Work Opportunity Credit and Welfare-
                             to-Work Credit

Sec. 201. Work opportunity credit and welfare-to-work credit; repeal of 
                            age limitation on eligibility of food stamp 
                            recipients.
  Subtitle B--Deduction for 100 Percent of Health Insurance Costs of 
                       Self-Employed Individuals

Sec. 211. Deduction for 100 percent of health insurance costs of self-
                            employed individuals.
                     Subtitle C--Pension Provisions

Sec. 221. Treatment of multiemployer plans under section 415.
Sec. 222. Early retirement limits for certain plans.
Sec. 223. Certain post-secondary educational benefits provided by an 
                            employer to children of employees 
                            excludable from gross income as a 
                            scholarship.
                    Subtitle D--Business Tax Relief

Sec. 231. Increase in expense treatment for small businesses.
Sec. 232. Small businesses allowed increased deduction for meal and 
                            entertainment expenses.
Sec. 233. Restoration of deduction for travel expenses of spouse, etc. 
                            accompanying taxpayer on business travel.
Sec. 234. Increased credit and amortization deduction for reforestation 
                            expenditures.
Sec. 235. Repeal of modification of installment method.
         Subtitle E--Expansion of Incentives for Public Schools

Sec. 241. Expansion of incentives for public schools.
   Subtitle F--Increased Estate Tax Relief for Family-Owned Business 
                               Interests

Sec. 251. Increase in estate tax benefit for family-owned business 
                            interests.
                      Subtitle G--Revenue Offsets

             Part I--Revision of Tax Rules on Expatriation

Sec. 261. Revision of tax rules on expatriation.
  subpart a--disallowance of noneconomic tax attributes; increase in 
     penalty with respect to disallowed noneconomic tax attributes
Sec. 266. Disallowance of noneconomic tax attributes.
Sec. 267. Increase in substantial underpayment penalty with respect to 
                            disallowed noneconomic tax attributes.
Sec. 268. Penalty on marketed tax avoidance strategies which have no 
                            economic substance, etc.
Sesubpart b--limitations on importation or transfer of built-in losses
Sec. 271. Limitation on importation of built-in losses.
Sec. 272. Disallowance of partnership loss transfers.
                 Part III--Estate and Gift Tax Offsets

Sec. 276. Valuation rules for transfers involving nonbusiness assets.
Sec. 277. Correction of technical error affecting largest estates.
                         Part IV--Other Offsets

Sec. 281. Consistent amortization periods for intangibles.
Sec. 282. Modification of foreign tax credit carryover rules.
Sec. 283. Recognition of gain on transfers to swap funds.

Subtitle A--Permanent Extension of Work Opportunity Credit and Welfare-
                             to-Work Credit

SEC. 201. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT; REPEAL OF 
              AGE LIMITATION ON ELIGIBILITY OF FOOD STAMP RECIPIENTS.

    (a) Permanent Extension.--
            (1) In general.--
                    (A) Section 51(c) of the Internal Revenue Code of 
                1986 is amended by striking paragraph (4).
                    (B) Section 51A of such Code is amended by striking 
                subsection (f).
            (2) Effective date.--The amendments made by this subsection 
        shall apply to individuals who begin work for the employer 
        after December 31, 2001.
    (b) Repeal of Age Limitation on Eligibility of Food Stamp 
Recipients.--
            (1) In general.--Subparagraph (A) of section 51(d)(8) of 
        such Code is amended to read as follows:
                    ``(A) In general.--The term `qualified food stamp 
                recipient' means any individual who is certified by the 
                designated local agency as being a member of a family--
                            ``(i) receiving assistance under a food 
                        stamp program under the Food Stamp Act of 1977 
                        for the 6-month period ending on the hiring 
                        date, or
                            ``(ii) receiving such assistance for at 
                        least 3 months of the 5-month period ending on 
                        the hiring date, in the case of a member of a 
                        family who ceases to be eligible for such 
assistance under section 6(o) of the Food Stamp Act of 1977.''
            (2) Effective date.--The amendment made by this subsection 
        shall apply to individuals who begin work for the employer 
        after the date of the enactment of this Act.

  Subtitle B--Deduction for 100 Percent of Health Insurance Costs of 
                       Self-Employed Individuals

SEC. 211. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-
              EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) of the Internal 
Revenue Code of 1986 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) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

                     Subtitle C--Pension Provisions

SEC. 221. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b) of the 
Internal Revenue Code of 1986 (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) Combining and Aggregation of Plans.--
            (1) Combining of plans.--Subsection (f) of section 415 of 
        such Code (relating to combining of plans) is amended by adding 
        at the end the following:
            ``(3) Exception for multiemployer plans.--Notwithstanding 
        paragraph (1) and subsection (g), a multiemployer plan (as 
        defined in section 414(f)) shall not be combined or aggregated 
        with any other plan maintained by an employer for purposes of 
        applying the limitations established in this section, except 
        that such plan shall be combined or aggregated with another 
        plan which is not such a multiemployer plan solely for purposes 
        of determining whether such other plan meets the requirements 
        of subsection (b)(1)(A).''.
            (2) Conforming amendment for aggregation of plans.--
        Subsection (g) of section 415 of such Code (relating to 
        aggregation of plans) is amended by striking ``The Secretary'' 
        and inserting ``Except as provided in subsection (f)(3), the 
        Secretary''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1999.

SEC. 222. EARLY RETIREMENT LIMITS FOR CERTAIN PLANS.

    (a) In General.--Subparagraph (F) of section 415(b)(2) of the 
Internal Revenue Code of 1986 is amended to read as follows:
                    ``(F) Multiemployer plans and plans maintained by 
                governments and tax exempt organizations.--In the case 
                of a governmental plan (within the meaning of section 
                414(d)), a plan maintained by an organization (other 
                than a governmental unit) exempt from tax under this 
                subtitle, a multiemployer plan (as defined in section 
                414(f)), or a qualified merchant marine plan--
                            ``(i) subparagraph (C) shall be applied--
                                    ``(I) by substituting `age 62' for 
                                `social security retirement age' each 
                                place it appears, and
                                    ``(II) as if the last sentence 
                                thereof read as follows: `The reduction 
                                under this subparagraph shall not 
                                reduce the limitation of paragraph 
                                (1)(A) below (i) 80 percent of such 
                                limitation as in effect for the year, 
                                or (ii) if the benefit begins before 
                                age 55, the equivalent of such 80 
                                percent amount for age 55.', and
                            ``(ii) subparagraph (D) shall be applied by 
                        substituting `age 65' for `social security 
                        retirement age' each place it appears.
                For purposes of this subparagraph, the term `qualified 
                merchant marine plan' means a plan in existence on 
January 1, 1986, the participants in which are merchant marine officers 
holding licenses issued by the Secretary of Transportation under title 
46, United States Code.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1999.

SEC. 223. CERTAIN POST-SECONDARY EDUCATIONAL BENEFITS PROVIDED BY AN 
              EMPLOYER TO CHILDREN OF EMPLOYEES EXCLUDABLE FROM GROSS 
              INCOME AS A SCHOLARSHIP.

    (a) In General.--Section 117 of the Internal Revenue Code of 1986 
(relating to qualified scholarships) is amended by adding at the end 
the following:
    ``(e) Employer-Provided Post-Secondary Educational Benefits 
Provided to Children of Employees.--
            ``(1) In general.--In determining whether any amount is a 
        qualified scholarship for purposes of subsection (a), the fact 
        that such amount is provided in connection with an employment 
        relationship shall be disregarded if--
                    ``(A) such amount is provided by the employer to a 
                child (as defined in section 151(c)(3)) of an employee 
                or former employee of such employer,
                    ``(B) such amount is provided pursuant to a plan 
                which meets the nondiscrimination requirements of 
                subsection (d)(3), and
                    ``(C) amounts provided under such plan are in 
                addition to any other compensation payable to employees 
                and such plan does not provide employees with a choice 
                between such amounts and any other benefit.
        For purposes of subparagraph (C), the business practices of the 
        employer (as well as such plan) shall be taken into account.
            ``(2) Dollar limitations.--
                    ``(A) Per child.--The amount excluded from the 
                gross income of the employee by reason of paragraph (1) 
                for a taxable year with respect to amounts provided to 
                each child of such employee shall not exceed $2,000.
                    ``(B) Aggregate limit.--The amount excluded from 
                the gross income of the employee by reason of paragraph 
                (1) for a taxable year (after the application of 
                subparagraph (A)) shall not exceed the excess of the 
                dollar amount contained in section 127(a)(2) over the 
                amount excluded from the employee's gross income under 
                section 127 for such year.
            ``(3) Principal shareholders and owners.--Paragraph (1) 
        shall not apply to any amount provided to any child of any 
        individual if such individual (or such individual's spouse) 
        owns (on any day of the year) more than 5 percent of the stock 
        or of the capital or profits interest in the employer.
            ``(4) Special rules of application.--In the case of an 
        amount which is treated as a qualified scholarship by reason of 
        this subsection--
                    ``(A) subsection (a) shall be applied without 
                regard to the requirement that the recipient be a 
                candidate for a degree, and
                    ``(B) subsection (b)(2)(A) shall be applied by 
                substituting `section 529(e)(5)' for `section 
                170(b)(1)(A)(ii)'.
            ``(5) Certain other rules to apply.--Rules similar to the 
        rules of paragraphs (4), (5), and (7) of section 127(c) shall 
        apply for purposes of this subsection.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

                    Subtitle D--Business Tax Relief

SEC. 231. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) In General.--Paragraph (1) of section 179(b) of the Internal 
Revenue Code of 1986 (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, 2000.

SEC. 232. SMALL BUSINESSES ALLOWED INCREASED DEDUCTION FOR MEAL AND 
              ENTERTAINMENT EXPENSES.

    (a) In General.--Subsection (n) of section 274 (relating to only 50 
percent of meal and entertainment expenses allowed as deduction) is 
amended by adding at the end the following new paragraph:
            ``(4) Special rule for small businesses.--
                    ``(A) In general.--In the case of any taxpayer 
                which is a small business, paragraph (1) shall be 
                applied by substituting for `50 percent'--
                            ``(i) `55 percent' in the case of taxable 
                        years beginning in 2001 and 2002, and
                            ``(ii) `60 percent' in the case of taxable 
                        years beginning in 2003, 2004, 2005, and 2006, 
                        and
                            ``(iii) `65 percent' in the case of taxable 
                        years beginning after 2006.
                    ``(B) Small business.--For purposes of this 
                paragraph, the term `small business' means, with 
                respect to expenses paid or incurred during any taxable 
                year--
                            ``(i) any C corporation which meets the 
                        requirements of section 55(e)(1) for such year, 
                        and
                            ``(ii) any S corporation, partnership, or 
                        sole proprietorship which would meet such 
                        requirements if it were a C corporation.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2000.

SEC. 233. RESTORATION OF DEDUCTION FOR TRAVEL EXPENSES OF SPOUSE, ETC. 
              ACCOMPANYING TAXPAYER ON BUSINESS TRAVEL.

    (a) In General.--Subsection (m) of section 274 of the Internal 
Revenue Code of 1986 (relating to additional limitations on travel 
expenses) is amended by striking paragraph (3).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 234. INCREASED CREDIT AND AMORTIZATION DEDUCTION FOR REFORESTATION 
              EXPENDITURES.

    (a) Increase in Credit.--Paragraph (1) of section 48(b) of the 
Internal Revenue Code of 1986 (relating to reforestation credit) is 
amended by striking ``10 percent'' and inserting ``20 percent''.
    (b) Reduction in Amortization Period.--Subsection (a) of section 
194 of such Code (relating to amortization of reforestation 
expenditures) is amended--
            (1) by striking ``84 months'' and inserting ``36 months'', 
        and
            (2) by striking ``84-month period'' and inserting ``36-
        month period''.
    (c) Increase in Maximum Amount Which May Be Amortized.--Paragraph 
(1) of section 194(b) of such Code is amended by striking ``$10,000 
($5,000'' and inserting ``$20,000 ($10,000''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 235. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

    (a) In General.--Subsection (a) of section 536 of the Ticket to 
Work and Work Incentives Improvement Act of 1999 (relating to 
modification of installment method and repeal of installment method for 
accrual method taxpayers) is repealed effective with respect to sales 
and other dispositions occurring on or after the date of the enactment 
of such Act.
    (b) Applicability.--The Internal Revenue Code of 1986 shall be 
applied and administered as if that subsection (and the amendments made 
by that subsection) had not been enacted.

         Subtitle E--Expansion of Incentives for Public Schools

SEC. 241. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subchapter:

         ``Subchapter X--Public School Modernization Provisions

                              ``Part I. Credit to holders of qualified 
                                        public school modernization 
                                        bonds.
                              ``Part II. Qualified school construction 
                                        bonds.
                              ``Part III. Incentives for education 
                                        zones.

 ``PART I--CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL MODERNIZATION 
                                 BONDS

                              ``Sec. 1400F. Credit to holders of 
                                        qualified public school 
                                        modernization bonds.

``SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL 
              MODERNIZATION BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified public school modernization bond on a credit allowance date 
of such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for such 
taxable year an amount equal to the sum of the credits determined under 
subsection (b) with respect to credit allowance dates during such year 
on which the taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified public school modernization bond is 25 percent 
        of the annual credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified public school modernization bond is 
        the product of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (1), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the day before the 
        date of issuance of the issue) on outstanding long-term 
        corporate debt obligations (determined under regulations 
        prescribed by the Secretary).
            ``(4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under part 
                IV of subchapter A (other than subpart C thereof, 
                relating to refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Qualified Public School Modernization Bond; Credit Allowance 
Date.--For purposes of this section--
            ``(1) Qualified public school modernization bond.--The term 
        `qualified public school modernization bond' means--
                    ``(A) a qualified zone academy bond, and
                    ``(B) a qualified school construction bond.
            ``(2) Credit allowance date.--The term `credit allowance 
        date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
    ``(e) Other Definitions.--For purposes of this subchapter--
            ``(1) Local educational agency.--The term `local 
        educational agency' has the meaning given to such term by 
        section 14101 of the Elementary and Secondary Education Act of 
        1965. Such term includes the local educational agency that 
        serves the District of Columbia but does not include any other 
        State agency.
            ``(2) Bond.--The term `bond' includes any obligation.
            ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
            ``(4) Public school facility.--The term `public school 
        facility' shall not include--
                    ``(A) any stadium or other facility primarily used 
                for athletic contests or exhibitions or other events 
                for which admission is charged to the general public, 
                or
                    ``(B) any facility which is not owned by a State or 
                local government or any agency or instrumentality of a 
                State or local government.
    ``(f) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(g) Bonds Held by Regulated Investment Companies.--If any 
qualified public school modernization bond is held by a regulated 
investment company, the credit determined under subsection (a) shall be 
allowed to shareholders of such company under procedures prescribed by 
the Secretary.
    ``(h) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
            ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified public school 
        modernization bond and the entitlement to the credit under this 
        section with respect to such bond. In case of any such 
        separation, the credit under this section shall be allowed to 
        the person who on the credit allowance date holds 
the instrument evidencing the entitlement to the credit and not to the 
holder of the bond.
            ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified public school modernization bond as if 
        it were a stripped bond and to the credit under this section as 
        if it were a stripped coupon.
    ``(i) Treatment for Estimated Tax Purposes.--Solely for purposes of 
sections 6654 and 6655, the credit allowed by this section to a 
taxpayer by reason of holding a qualified public school modernization 
bond on a credit allowance date shall be treated as if it were a 
payment of estimated tax made by the taxpayer on such date.
    ``(j) Credit May Be Transferred.--Nothing in any law or rule of law 
shall be construed to limit the transferability of the credit allowed 
by this section through sale and repurchase agreements.
    ``(k) Reporting.--Issuers of qualified public school modernization 
bonds shall submit reports similar to the reports required under 
section 149(e).
    ``(l) Penalty on Contractors Failing To Pay Prevailing Wage.--
            ``(1) In general.--If any contractor on any project funded 
        by any qualified public school modernization bond has failed, 
        during any portion of such contractor's taxable year, to pay 
        prevailing wages that would be required under section 439 of 
        the General Education Provisions Act if such funding were an 
        applicable program under such section, the tax imposed by 
        chapter 1 on such contractor for such taxable year shall be 
        increased by 200 percent of the amount involved in such 
        failure.
            ``(2) Amount involved.--For purposes of paragraph (1), the 
        amount involved with respect to any failure is the excess of 
        the amount of wages such contractor would be so required to pay 
        under such section over the amount of wages paid.
            ``(3) Abatement of tax if failure corrected.--If a failure 
        to pay prevailing wages is corrected within a reasonable 
        period, then any tax imposed by paragraph (1) with respect to 
        such failure (including interest, additions to the tax, and 
        additional amounts) shall not be assessed, and if assessed the 
        assessment shall be abated, and if collected shall be credited 
        or refunded as an overpayment.
            ``(4) No credits against tax.--The tax imposed by paragraph 
        (1) shall not be treated as a 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 minimum tax imposed by 
                section 55.
    ``(m) Termination.--This section shall not apply to any bond issued 
after December 31, 2004.

             ``PART II--QUALIFIED SCHOOL CONSTRUCTION BONDS

                              ``Sec. 1400G. Qualified school 
                                        construction bonds.

``SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

    ``(a) Qualified School Construction Bond.--For purposes of this 
subchapter, the term `qualified school construction bond' means any 
bond issued as part of an issue if--
            ``(1) 95 percent or more of the proceeds of such issue are 
        to be used for the construction, rehabilitation, or repair of a 
        public school facility or for the acquisition of land on which 
        such a facility is to be constructed with part of the proceeds 
        of such issue,
            ``(2) the bond is issued by a State or local government 
        within the jurisdiction of which such school is located,
            ``(3) the issuer designates such bond for purposes of this 
        section, and
            ``(4) the term of each bond which is part of such issue 
        does not exceed 15 years.
    ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds issued during any calendar year which 
may be designated under subsection (a) by any issuer shall not exceed 
the sum of--
            ``(1) the limitation amount allocated under subsection (d) 
        for such calendar year to such issuer, and
            ``(2) if such issuer is a large local educational agency 
        (as defined in subsection (e)(4)) or is issuing on behalf of 
        such an agency, the limitation amount allocated under 
        subsection (e) for such calendar year to such agency.
    ``(c) National Limitation on Amount of Bonds Designated.--There is 
a national qualified school construction bond limitation for each 
calendar year. Such limitation is--
            ``(1) $11,000,000,000 for 2001,
            ``(2) except as provided in subsection (f), zero after 
        2001.
    ``(d) Half of Limitation Allocated Among States.--
            ``(1) In general.--One-half of the limitation applicable 
        under subsection (c) for any calendar year shall be allocated 
        among the States under paragraph (2) by the Secretary. The 
        limitation amount allocated to a State under the preceding 
        sentence shall be allocated by the State to issuers within such 
        State and such allocations may be made only if there is an 
        approved State application.
            ``(2) Allocation formula.--The amount to be allocated under 
        paragraph (1) for any calendar year shall be allocated among 
        the States in proportion to the respective amounts each such 
        State received for Basic Grants under subpart 2 of part A of 
        title I of the Elementary and Secondary Education Act of 1965 
        (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending 
        before such calendar year. For purposes of the preceding 
        sentence, Basic Grants attributable to large local educational 
        agencies (as defined in subsection (e)) shall be disregarded.
            ``(3) Minimum allocations to states.--
                    ``(A) In general.--The Secretary shall adjust the 
                allocations under this subsection for any calendar year 
                for each State to the extent necessary to ensure that 
                the sum of--
                            ``(i) the amount allocated to such State 
                        under this subsection for such year, and
                            ``(ii) the aggregate amounts allocated 
                        under subsection (e) to large local educational 
                        agencies in such State for such year,
                is not less than an amount equal to such State's 
                minimum percentage of the amount to be allocated under 
                paragraph (1) for the calendar year.
                    ``(B) Minimum percentage.--A State's minimum 
                percentage for any calendar year is the minimum 
                percentage described in section 1124(d) of the 
                Elementary and Secondary Education Act of 1965 (20 
                U.S.C. 6334(d)) for such State for the most recent 
                fiscal year ending before such calendar year.
            ``(4) Allocations to certain possessions.--The amount to be 
        allocated under paragraph (1) to any possession of the United 
        States other than Puerto Rico shall be the amount which would 
        have been allocated if all allocations under paragraph (1) were 
        made on the basis of respective populations of individuals 
        below the poverty line (as defined by the Office of Management 
        and Budget). In making other allocations, the amount to be 
        allocated under paragraph (1) shall be reduced by the aggregate 
        amount allocated under this paragraph to possessions of the 
        United States.
            ``(5) Allocations for indian schools.--In addition to the 
        amounts otherwise allocated under this subsection, $200,000,000 
        for calendar year 2001 shall be allocated by the Secretary of 
        the Interior for purposes of the construction, rehabilitation, 
        and repair of schools funded by the Bureau of Indian Affairs. 
        In the case of amounts allocated under the preceding sentence, 
        Indian tribal governments (as defined in section 7871) shall be 
        treated as qualified issuers for purposes of this subchapter.
            ``(6) Approved state application.--For purposes of 
        paragraph (1), the term `approved State application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the State with the involvement of 
                local education officials, members of the public, and 
                experts in school construction and management) of such 
                State's needs for public school facilities, including 
                descriptions of--
                            ``(i) health and safety problems at such 
                        facilities,
                            ``(ii) the capacity of public schools in 
                        the State to house projected enrollments, and
                            ``(iii) the extent to which the public 
                        schools in the State offer the physical 
                        infrastructure needed to provide a high-quality 
                        education to all students, and
                    ``(B) a description of how the State will allocate 
                to local educational agencies, or otherwise use, its 
                allocation under this subsection to address the needs 
                identified under subparagraph (A), including a 
                description of how it will--
                            ``(i) give highest priority to localities 
                        with the greatest needs, as demonstrated by 
                        inadequate school facilities coupled with a low 
                        level of resources to meet those needs,
                            ``(ii) use its allocation under this 
                        subsection to assist localities that lack 
the fiscal capacity to issue bonds on their own, and
                            ``(iii) ensure that its allocation under 
                        this subsection is used only to supplement, and 
                        not supplant, the amount of school 
                        construction, rehabilitation, and repair in the 
                        State that would have occurred in the absence 
                        of such allocation.
        Any allocation under paragraph (1) by a State shall be binding 
        if such State reasonably determined that the allocation was in 
        accordance with the plan approved under this paragraph.
    ``(e) Half of Limitation Allocated Among Largest School 
Districts.--
            ``(1) In general.--One-half of the limitation applicable 
        under subsection (c) for any calendar year shall be allocated 
        under paragraph (2) by the Secretary among local educational 
        agencies which are large local educational agencies for such 
        year. No qualified school construction bond may be issued by 
        reason of an allocation to a large local educational agency 
        under the preceding sentence unless such agency has an approved 
        local application.
            ``(2) Allocation formula.--The amount to be allocated under 
        paragraph (1) for any calendar year shall be allocated among 
        large local educational agencies in proportion to the 
        respective amounts each such agency received for Basic Grants 
        under subpart 2 of part A of title I of the Elementary and 
        Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for 
        the most recent fiscal year ending before such calendar year.
            ``(3) Allocation of unused limitation to state.--The amount 
        allocated under this subsection to a large local educational 
        agency for any calendar year may be reallocated by such agency 
        to the State in which such agency is located for such calendar 
        year. Any amount reallocated to a State under the preceding 
        sentence may be allocated as provided in subsection (d)(1).
            ``(4) Large local educational agency.--For purposes of this 
        section, the term `large local educational agency' means, with 
        respect to a calendar year, any local educational agency if 
        such agency is--
                    ``(A) among the 100 local educational agencies with 
                the largest numbers of children aged 5 through 17 from 
                families living below the poverty level, as determined 
                by the Secretary using the most recent data available 
                from the Department of Commerce that are satisfactory 
                to the Secretary, or
                    ``(B) 1 of not more than 25 local educational 
                agencies (other than those described in subparagraph 
                (A)) that the Secretary of Education determines (based 
                on the most recent data available satisfactory to the 
                Secretary) are in particular need of assistance, based 
                on a low level of resources for school construction, a 
                high level of enrollment growth, or such other factors 
                as the Secretary deems appropriate.
            ``(5) Approved local application.--For purposes of 
        paragraph (1), the term `approved local application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the local educational agency or 
                the State with the involvement of school officials, 
                members of the public, and experts in school 
                construction and management) of such agency's needs for 
                public school facilities, including descriptions of--
                            ``(i) the overall condition of the local 
                        educational agency's school facilities, 
                        including health and safety problems,
                            ``(ii) the capacity of the agency's schools 
                        to house projected enrollments, and
                            ``(iii) the extent to which the agency's 
                        schools offer the physical infrastructure 
                        needed to provide a high-quality education to 
                        all students,
                    ``(B) a description of how the local educational 
                agency will use its allocation under this subsection to 
                address the needs identified under subparagraph (A), 
                and
                    ``(C) a description of how the local educational 
                agency will ensure that its allocation under this 
                subsection is used only to supplement, and not 
                supplant, the amount of school construction, 
                rehabilitation, or repair in the locality that would 
                have occurred in the absence of such allocation.
        A rule similar to the rule of the last sentence of subsection 
        (d)(6) shall apply for purposes of this paragraph.
    ``(f) Carryover of Unused Limitation.--If for any calendar year--
            ``(1) the amount allocated under subsection (d) to any 
        State, exceeds
            ``(2) the amount of bonds issued during such year which are 
        designated under subsection (a) pursuant to such allocation,
the limitation amount under such subsection for such State for the 
following calendar year shall be increased by the amount of such 
excess. A similar rule shall apply to the amounts allocated under 
subsection (d)(5) or (e).
    ``(g) Special Rules Relating to Arbitrage.--
            ``(1) In general.--A bond shall not be treated as failing 
        to meet the requirement of subsection (a)(1) solely by reason 
        of the fact that the proceeds of the issue of which such bond 
        is a part are invested for a temporary period (but not more 
        than 36 months) until such proceeds are needed for the purpose 
        for which such issue was issued.
            ``(2) Binding commitment requirement.--Paragraph (1) shall 
        apply to an issue only if, as of the date of issuance, there is 
        a reasonable expectation that--
                    ``(A) at least 10 percent of the proceeds of the 
                issue will be spent within the 6-month period beginning 
                on such date for the purpose for which such issue was 
                issued, and
                    ``(B) the remaining proceeds of the issue will be 
                spent with due diligence for such purpose.
            ``(3) Earnings on proceeds.--Any earnings on proceeds 
        during the temporary period shall be treated as proceeds of the 
        issue for purposes of applying subsection (a)(1) and paragraph 
        (1) of this subsection.

               ``PART III--INCENTIVES FOR EDUCATION ZONES

                              ``Sec. 1400H. Qualified zone academy 
                                        bonds.

``SEC. 1400H. QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Qualified Zone Academy Bond.--For purposes of this 
subchapter--
            ``(1) In general.--The term `qualified zone academy bond' 
        means any bond issued as part of an issue if--
                    ``(A) 95 percent or more of the proceeds of such 
                issue are to be used for a qualified purpose with 
                respect to a qualified zone academy established by a 
                local educational agency,
                    ``(B) the bond is issued by a State or local 
                government within the jurisdiction of which such 
                academy is located,
                    ``(C) the issuer--
                            ``(i) designates such bond for purposes of 
                        this section,
                            ``(ii) certifies that it has written 
                        assurances that the private business 
                        contribution requirement of paragraph (2) will 
                        be met with respect to such academy, and
                            ``(iii) certifies that it has the written 
                        approval of the local educational agency for 
                        such bond issuance, and
                    ``(D) the term of each bond which is part of such 
                issue does not exceed 15 years.
        Rules similar to the rules of section 1400G(g) shall apply for 
        purposes of paragraph (1).
            ``(2) Private business contribution requirement.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the private business contribution requirement of this 
                paragraph is met with respect to any issue if the local 
                educational agency that established the qualified zone 
                academy has written commitments from private entities 
                to make qualified contributions having a present value 
                (as of the date of issuance of the issue) of not less 
                than 10 percent of the proceeds of the issue.
                    ``(B) Qualified contributions.--For purposes of 
                subparagraph (A), the term `qualified contribution' 
                means any contribution (of a type and quality 
                acceptable to the local educational agency) of--
                            ``(i) equipment for use in the qualified 
                        zone academy (including state-of-the-art 
                        technology and vocational equipment),
                            ``(ii) technical assistance in developing 
                        curriculum or in training teachers in order to 
                        promote appropriate market driven technology in 
                        the classroom,
                            ``(iii) services of employees as volunteer 
                        mentors,
                            ``(iv) internships, field trips, or other 
                        educational opportunities outside the academy 
                        for students, or
                            ``(v) any other property or service 
                        specified by the local educational agency.
            ``(3) Qualified zone academy.--The term `qualified zone 
        academy' means any public school (or academic program within a 
        public school) which is established by and operated under the 
        supervision of a local educational agency to provide education 
        or training below the postsecondary level if--
                    ``(A) such public school or program (as the case 
                may be) is designed in cooperation with business to 
                enhance the academic curriculum, increase graduation 
                and employment rates, and better prepare students for 
                the rigors of college and the increasingly complex 
                workforce,
                    ``(B) students in such public school or program (as 
                the case may be) will be subject to the same academic 
                standards and assessments as other students educated by 
                the local educational agency,
                    ``(C) the comprehensive education plan of such 
                public school or program is approved by the local 
                educational agency, and
                    ``(D)(i) such public school is located in an 
                empowerment zone or enterprise community (including any 
                such zone or community designated after the date of the 
                enactment of this section), or
                    ``(ii) there is a reasonable expectation (as of the 
                date of issuance of the bonds) that at least 35 percent 
                of the students attending such school or participating 
                in such program (as the case may be) will be eligible 
                for free or reduced-cost lunches under the school lunch 
                program established under the National School Lunch 
                Act.
            ``(4) Qualified purpose.--The term `qualified purpose' 
        means, with respect to any qualified zone academy--
                    ``(A) constructing, rehabilitating, or repairing 
                the public school facility in which the academy is 
                established,
                    ``(B) acquiring the land on which such facility is 
                to be constructed with part of the proceeds of such 
                issue,
                    ``(C) providing equipment for use at such academy,
                    ``(D) developing course materials for education to 
                be provided at such academy, and
                    ``(E) training teachers and other school personnel 
                in such academy.
    ``(b) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a national zone academy bond 
        limitation for each calendar year. Such limitation is--
                    ``(A) $400,000,000 for 1998,
                    ``(B) $400,000,000 for 1999,
                    ``(C) $400,000,000 for 2000,
                    ``(D) $1,400,000,000 for 2001,
                    ``(E) except as provided in paragraph (3), zero 
                after 2001.
            ``(2) Allocation of limitation.--
                    ``(A) Allocation among states.--
                            ``(i) 1998, 1999, and 2000 limitations.--
                        The national zone academy bond limitations for 
                        calendar years 1998, 1999, and 2000 shall be 
                        allocated by the Secretary among the States on 
                        the basis of their respective populations of 
                        individuals below the poverty line (as defined 
                        by the Office of Management and Budget).
                            ``(ii) Limitation after 2000.--The national 
                        zone academy bond limitation for any calendar 
                        year after 2000 shall be allocated by the 
                        Secretary among the States in the manner 
                        prescribed by section 1400G(d); except that in 
                        making the allocation under this clause, the 
                        Secretary shall take into account--
                                    ``(I) Basic Grants attributable to 
                                large local educational agencies (as 
                                defined in section 1400G(e)).
                                    ``(II) the national zone academy 
                                bond limitation.
                    ``(B) Allocation to local educational agencies.--
                The limitation amount allocated to a State under 
                subparagraph (A) shall be allocated by the State 
                education agency to qualified zone academies within 
                such State.
                    ``(C) Designation subject to limitation amount.--
                The maximum aggregate face amount of bonds issued 
                during any calendar year which may be designated under 
                subsection (a) with respect to any qualified zone 
                academy shall not exceed the limitation amount 
                allocated to such academy under subparagraph (B) for 
                such calendar year.
            ``(3) Carryover of unused limitation.--If for any calendar 
        year--
                    ``(A) the limitation amount under this subsection 
                for any State, exceeds
                    ``(B) the amount of bonds issued during such year 
                which are designated under subsection (a) (or the 
                corresponding provisions of prior law) with respect to 
                qualified zone academies within such State,
        the limitation amount under this subsection for such State for 
        the following calendar year shall be increased by the amount of 
        such excess.''.
    (b) Reporting.--Subsection (d) of section 6049 of such Code 
(relating to returns regarding payments of interest) is amended by 
adding at the end the following new paragraph:
            ``(8) Reporting of credit on qualified public school 
        modernization bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 1400F(f) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 1400F(d)(2)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''
    (c) Other Conforming Amendments.--
            (1) Subchapter U of chapter 1 of such Code is amended by 
        striking part IV, by redesignating part V as part IV, and by 
        redesignating section 1397F as section 1397E.
            (2) The table of subchapters for chapter 1 of such Code is 
        amended by adding at the end the following new item:

                              ``Subchapter X. Public school 
                                        modernization provisions.''
            (3) The table of parts of subchapter U of chapter 1 of such 
        Code is amended by striking the last 2 items and inserting the 
        following item:

                              ``Part IV. Regulations.''
    (d) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        obligations issued after December 31, 2000.
            (2) Repeal of restriction on zone academy bond holders.--In 
        the case of bonds to which section 1397E of the Internal 
        Revenue Code of 1986 (as in effect before the date of the 
        enactment of this Act) applies, the limitation of such section 
        to eligible taxpayers (as defined in subsection (d)(6) of such 
        section) shall not apply after the date of the enactment of 
        this Act.

   Subtitle F--Increased Estate Tax Relief for Family-Owned Business 
                               Interests

SEC. 251. INCREASE IN ESTATE TAX BENEFIT FOR FAMILY-OWNED BUSINESS 
              INTERESTS.

    (a) Transfer to Credit Provisions.--Section 2057 of the Internal 
Revenue Code of 1986 (relating to family-owned business interests) is 
hereby moved to part II of subchapter A of chapter 11 of such Code, 
inserted after section 2010, and redesignated as section 2010A.
    (b) Increase in Credit; Surviving Spouse Allowed Unused Credit of 
Decedent.--Subsection (a) of section 2010A of such Code, as 
redesignated by subsection (a) of this section, is amended to read as 
follows:
    ``(a) Increase in United Credit.--For purposes of determining the 
unified credit under section 2010 in the case of an estate of a 
decedent to which this section applies--
            ``(1) In general.--The applicable exclusion amount under 
        section 2010(c) shall be increased (but not in excess of 
        $2,000,000) by the adjusted value of the qualified family-owned 
        business interests of the decedent which are described in 
        subsection (b)(2) and for which no deduction is allowed under 
        section 2056.
            ``(2) Treatment of unused limitation of predeceased 
        spouse.--In the case of a decedent--
                    ``(A) having no surviving spouse, but
                    ``(B) who was the surviving spouse of a decedent--
                            ``(i) who died after December 31, 2000, and
                            ``(ii) whose estate met the requirements of 
                        subsection (b)(1) other than subparagraph (B) 
                        thereof,
        there shall be substituted for `$2,000,000' in paragraph (1) an 
        amount equal to the excess of $4,000,000 over the exclusion 
        equivalent of the credit allowed under section 2010 (as 
        increased by this section) to the estate of the decedent 
        referred to in subparagraph (B). For purposes of the preceding 
        sentence, the exclusion equivalent of the credit is the amount 
        on which a tentative tax under section 2001(c) equal to such 
        credit would be imposed.''
    (c) Conforming Amendments.--
            (1) The table of sections for part IV of subchapter A of 
        chapter 11 of such Code is amended by striking the item 
        relating to section 2057.
            (2) Paragraph (10) of section 2031(c) of such Code is 
        amended by striking ``section 2057(e)(3)'' and inserting 
        ``section 2010A(e)(3)''.
            (3) The table of sections for part II of subchapter A of 
        chapter 11 of such Code is amended by inserting after the item 
        relating to section 2010 the following new item:

                              ``Sec. 2010A. Family-owned business 
                                        interests.''
    (d) Effective date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2000.

                      Subtitle G--Revenue Offsets

             PART I--REVISION OF TAX RULES ON EXPATRIATION

SEC. 261. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsection 
        (f), all property of a covered expatriate to whom this section 
        applies shall be treated as sold on the day before the 
        expatriation date for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence.
            ``(3) Exclusion for certain gain.--The amount which would 
        (but for this paragraph) be includible in the gross income of 
        any individual by reason of this section shall be reduced (but 
        not below zero) by $600,000. For purposes of this paragraph, 
        allocable expatriation gain taken into account under subsection 
        (f)(2) shall be treated in the same manner as an amount 
        required to be includible in gross income.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property treated as sold 
        by reason of subsection (a), the payment of the additional tax 
        attributable to such property shall be postponed until the due 
        date of the return for the taxable year in which such property 
        is disposed of (or, in the case of property disposed of in a 
        transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
            ``(3) Termination of postponement.--No tax may be postponed 
        under this subsection later than the due date for the return of 
        tax imposed by this chapter for the taxable year which includes 
        the date of death of the expatriate (or, if earlier, the time 
        that the security provided with respect to the property fails 
        to meet the requirements of paragraph (4), unless the taxpayer 
        corrects such failure within the time specified by the 
        Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided with respect to such 
                property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2)(A) 
                        for the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be under paragraph (1) 
        with respect to an interest in a trust with respect to which 
        gain is required to be recognized under subsection (f)(1).
            ``(7) Interest.--For purposes of section 6601, the last 
        date for the payment of tax shall be determined without regard 
        to the election under this subsection.
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--The term `covered expatriate' means an 
        expatriate who meets the requirements of subparagraph (A) or 
        (B) of section 877(a)(2).
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has been a resident of the United 
                        States (as defined in section 
                        7701(b)(1)(A)(ii)) for not more than 8 taxable 
                        years during the 15-taxable year period ending 
                        with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Section Not To Apply to Certain Property.--This section shall 
not apply to the following property:
            ``(1) United states real property interests.--Any United 
        States real property interest (as defined in section 
        897(c)(1)), other than stock of a United States real property 
        holding corporation which does not, on the day before the 
        expatriation date, meet the requirements of section 897(c)(2).
            ``(2) Interest in certain retirement plans.--
                    ``(A) In general.--Any interest in a qualified 
                retirement plan (as defined in section 4974(c)), other 
                than any interest attributable to contributions which 
                are in excess of any limitation or which violate any 
                condition for tax-favored treatment.
                    ``(B) Foreign pension plans.--
                            ``(i) In general.--Under regulations 
                        prescribed by the Secretary, interests in 
                        foreign pension plans or similar retirement 
                        arrangements or programs.
                            ``(ii) Limitation.--The value of property 
                        which is treated as not sold by reason of this 
                        subparagraph shall not exceed $500,000.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                his citizenship, and
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his United 
                States nationality before a diplomatic or consular 
                officer of the United States pursuant to paragraph (5) 
of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 
1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust on the day before the expatriation date--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets on the day before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii).
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year which 
                        includes the day before the expatriation date, 
                        multiplied by the amount of the distribution, 
                        or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on 
any distribution to the person holding the trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the day before the expatriation date 
                        were the date of such cessation, disposition, 
                        or death, whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rule.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust--
                                    ``(I) which is organized under, and 
                                governed by, the laws of the United 
                                States or a State, and
                                    ``(II) with respect to which the 
                                trust instrument requires that at least 
                                1 trustee of the trust be an individual 
                                citizen of the United States or a 
                                domestic corporation.
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        day before the expatriation date, is vested in 
                        the beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
protector or any similar advisor.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, Etc.--In the case of any covered 
expatriate, notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate on the day before the expatriation 
        date, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply on the day before the expatriation date and the unpaid 
        portion of such tax shall be due and payable at the time and in 
        the manner prescribed by the Secretary.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Tax on Gifts and Bequests Received By United States Citizens 
and Residents From Expatriates.--
            (1) In general.--Subtitle B of the Internal Revenue Code of 
        1986 (relating to estate and gift taxes) is amended by 
        inserting after chapter 13 the following new chapter:

           ``CHAPTER 13A--GIFTS AND BEQUESTS FROM EXPATRIATES

                              ``Sec. 2681. Imposition of tax.

``SEC. 2681. IMPOSITION OF TAX.

    ``(a) In General.--If, during any calendar year, any United States 
citizen or resident receives any covered gift or bequest, there is 
hereby imposed a tax equal to the product of--
            ``(1) the highest rate of tax specified in the table 
        contained in section 2001(c) as in effect on the date of such 
        receipt, and
            ``(2) the value of such covered gift or bequest.
    ``(b) Tax To Be Paid by Recipient.--The tax imposed by subsection 
(a) on any covered gift or bequest shall be paid by the person 
receiving such gift or bequest.
    ``(c) Exception for Certain Gifts.--Subsection (a) shall apply only 
to the extent that the covered gifts and bequests received during the 
calendar year exceed $10,000.
    ``(d) Tax Reduced By Foreign Gift or Estate Tax.--The tax imposed 
by subsection (a) on any covered gift or bequest shall be reduced by 
the amount of any gift or estate tax paid to a foreign country with 
respect to such covered gift or bequest.
    ``(e) Covered Gift or Bequest.--
            ``(1) In general.--For purposes of this chapter, the term 
        `covered gift or bequest' means--
                    ``(A) any property acquired by gift directly or 
                indirectly from an individual who, at the time of such 
                acquisition, was an expatriate, and
                    ``(B) any property acquired by bequest, devise, or 
                inheritance directly or indirectly from an individual 
                who, at the time of death, was an expatriate.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Such term shall not include--
                    ``(A) any property shown on a timely filed return 
                of tax imposed by chapter 12 which is a taxable gift by 
                the expatriate, and
                    ``(B) any property shown on a timely filed return 
                of tax imposed by chapter 11 of the estate of the 
                expatriate.
            ``(3) Transfers in trust.--Any covered gift or bequest 
        which is made in trust shall be treated as made to the 
        beneficiaries of such trust in proportion to their respective 
        interests in such trust (as determined under section 
        877A(f)(3)).
    ``(f) Expatriate.--For purposes of this section, the term 
`expatriate' has the meaning given to such term by section 
877A(e)(1).''.
            (2) Clerical amendment.--The table of chapters for subtitle 
        B of such Code is amended by inserting after the item relating 
        to chapter 13 the following new item:

                              ``Chapter 13A. Gifts and bequests from 
                                        expatriates.''
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) of such Code is amended by adding at the end the 
following new paragraph:
            ``(47) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date 
                on which the individual's citizenship is treated as 
                relinquished under section 877A(e)(3).
                    ``(B) Dual citizens.--Under regulations prescribed 
                by the Secretary, subparagraph (A) shall not apply to 
                an individual who became at birth a citizen of the 
                United States and a citizen of another country.''
    (d) Conforming Amendment.--Paragraph (1) of section 6039G(d) of 
such Code is amended by inserting ``or 877A'' after ``section 877''.
    (e) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 of such Code is amended by 
inserting after the item relating to section 877 the following new 
item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''.
    (f) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after March 9, 2000.
            (2) Gifts and bequests.--Chapter 13A of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to covered gifts and bequests (as defined in section 2681 of 
        such Code, as so added) received on or after March 9, 2000.

          PART II--DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES

  Subpart A--Disallowance of Noneconomic Tax Attributes; Increase in 
     Penalty With Respect to Disallowed Noneconomic Tax Attributes

SEC. 266. DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES.

    Section 7701 of the Internal Revenue Code of 1986 is amended by 
redesignating subsection (m) as subsection (n) and by inserting after 
subsection (l) the following new subsection:
    ``(m) Disallowance of Noneconomic Tax Attributes.--
            ``(1) In general.--In determining liability for any tax 
        under subtitle A, noneconomic tax attributes shall not be 
        allowed.
            ``(2) Noneconomic tax attribute.--For purposes of this 
        subsection, a noneconomic tax attribute is any deduction, loss, 
        or credit claimed to result from any transaction unless--
                    ``(A) the transaction changes in a meaningful way 
                (apart from Federal income tax consequences) the 
                taxpayer's economic position, and
                    ``(B)(i) the present value of the reasonably 
                expected potential income from the transaction (and the 
                taxpayer's risk of loss from the transaction) are 
                substantial in relationship to the present value of the 
                tax benefits claimed, or
                    ``(ii) in the case of a transaction which is in 
                substance the borrowing of money or the acquisition of 
                financial capital, the deductions claimed with respect 
                to the transaction for any period are not significantly 
                in excess of the economic return for such period 
                realized by the person lending the money or providing 
                the financial capital.
            ``(3) Presumption of noneconomic tax attributes.--For 
        purposes of paragraph (2), the following factors shall give 
        rise to a presumption that a transaction fails to meet the 
        requirements of paragraph (2):
                    ``(A) The fact that the payments, liabilities, or 
                assets that purport to create a loss (or other benefit) 
                for tax purposes are not reflected to any meaningful 
                extent on the taxpayer's books and records for 
                financial reporting purposes.
                    ``(B) The fact that the transaction results in an 
                allocation of income or gain to a tax-indifferent party 
                which is substantially in excess of such party's 
                economic income or gain from the transaction.
            ``(4) Treatment of built-in loss.--The determination of 
        whether a transaction results in the realization of a built-in 
        loss shall be made under subtitle A as if this subsection had 
        not been enacted. For purposes of the preceding sentence, the 
        term `built-in loss' means any loss or deduction to the extent 
        that such loss or deduction had economically been incurred 
        before such transaction is entered into and to the extent that 
the loss or deduction was economically borne by the taxpayer.
            ``(5) Definition and special rules.--For purposes of this 
        subsection--
                    ``(A) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity exempt 
                from tax under subtitle A. A person shall be treated as 
                a tax-indifferent party with respect to a transaction 
                if, by reason of such person's method of accounting, 
                the items taken into account with respect to the 
                transaction have no substantial impact on such person's 
                liability under subtitle A.
                    ``(B) Series of related transaction.--A transaction 
                which is part of a series of related transactions shall 
                be treated as meeting the requirements of paragraph (2) 
                only if--
                            ``(i) such transaction meets such 
                        requirements without regard to the other 
                        transactions, and
                            ``(ii) such transactions, if treated as 1 
                        transaction, would meet such requirements.
                A similar rule shall apply to a multiple step 
                transaction with each step being treated as a separate 
                related transaction.
                    ``(C) Normal business transactions.--In the case of 
                a transaction which is an integral part of a taxpayer's 
                trade or business and which is entered into in the 
                normal course of such trade or business, the 
                determination of the potential income from such 
                transaction shall be made by taking into account its 
                relationship to the overall trade or business of the 
                taxpayer.
                    ``(D) Treatment of fees.--In determining whether 
                there is risk of loss from a transaction (and the 
                amount thereof), potential loss of fees and other 
                transaction expenses shall be disregarded.
                    ``(E) Treatment of economic return enhancements.--
                The following shall be treated as economic returns and 
                not tax benefits:
                            ``(i) The credit under section 29 (relating 
                        to credit for producing fuel from a 
                        nonconventional source).
                            ``(ii) The credit under section 42 
                        (relating to low-income housing credit).
                            ``(iii) The credit under section 45 
                        (relating to electricity produced from certain 
                        renewable resources).
                            ``(iv) The credit under section 1397E 
                        (relating to credit to holders of qualified 
                        zone academy bonds) or any similar program 
                        hereafter enacted.
                            ``(v) Any other tax benefit specified in 
                        regulations.
                    ``(F) Exceptions for nonbusiness transactions.--
                            ``(i) Individuals.--In the case of an 
                        individual, this subsection shall only apply to 
                        transactions entered into in connection with a 
                        trade or business or activity engaged in for 
                        profit.
                            ``(ii) Charitable transfers.--This 
                        subsection shall not apply in determining the 
                        amount allowable as a deduction under section 
                        170, 545(b)(2), 556(b)(2), or 642(c).
            ``(6) Economic substance doctrine, etc., not affected.--The 
        provisions of this subsection shall not be construed as 
        altering or supplanting any rule of law referred to in section 
        6662(i)(2)(B) and the requirements of this subsection shall be 
        construed as being in addition to any such rule of law.''

SEC. 267. INCREASE IN SUBSTANTIAL UNDERPAYMENT PENALTY WITH RESPECT TO 
              DISALLOWED NONECONOMIC TAX ATTRIBUTES.

    (a) In General.--Section 6662 of the Internal Revenue Code of 1986 
(relating to imposition of accuracy-related penalty) is amended by 
adding at the end the following new subsection:
    ``(i) Increase in Penalty in Case of Disallowed Noneconomic Tax 
Attributes.--
            ``(1) In general.--In the case of the portion of the 
        underpayment to which this subsection applies--
                    ``(A) subsection (a) shall be applied with respect 
                to such portion by substituting `40 percent' for `20 
                percent', and
                    ``(B) subsection (d)(2)(B) and section 6664(c) 
                shall not apply.
            ``(2) Underpayments to which subsection applies.--This 
        subsection shall apply to an underpayment to which this section 
        applies by reason of paragraph (1) or (2) of subsection (b) 
        but--
                    ``(A) only to the extent that such underpayment is 
                attributable to--
                            ``(i) the disallowance of any noneconomic 
                        tax attribute (determined under section 
                        7701(m)), or
                            ``(ii) the disallowance of any other 
                        benefit--
                                    ``(I) because of a lack of economic 
                                substance or business purpose for the 
                                transaction giving rise to the claimed 
                                benefit,
                                    ``(II) because the form of the 
                                transaction did not reflect its 
                                substance, or
                                    ``(III) because of any other 
                                similar rule of law, and
                    ``(B) only if the underpayment so attributable 
                exceeds $1,000,000.
            ``(3) Increase in penalty not to apply if compliance with 
        disclosure requirements.--Paragraph (1)(A) shall not apply if 
        the taxpayer--
                    ``(A) discloses to the Secretary within 30 days 
                after the closing of the transaction appropriate 
                documents describing the transaction, and
                    ``(B) files with the taxpayer's return of tax 
                imposed by subtitle A--
                            ``(i) a statement verifying that such 
                        disclosure has been made,
                            ``(ii) a detailed description of the facts, 
                        assumptions of facts, and factual conclusions 
                        with respect to the business or economic 
                        purposes or objectives of the transaction that 
                        are relied upon to support the manner in which 
                        it is reported on the return,
                            ``(iii) a description of the due diligence 
                        performed to ascertain the accuracy of such 
                        facts, assumptions, and factual conclusions,
                            ``(iv)(I) a statement (signed by the senior 
                        financial officer of the corporation under 
                        penalty of perjury) that the facts, 
                        assumptions, or factual conclusions relied upon 
                        in reporting the transaction are true and 
                        correct as of the date the return is filed, to 
                        the best of such officer's knowledge and 
                        belief, and
                            ``(II) if the actual facts varied 
                        materially from the facts, assumptions, or 
                        factual conclusions relied upon, a statement 
                        describing such variances,
                            ``(v) copies of any written material 
                        provided in connection with the offer of the 
                        transaction to the taxpayer by a third party,
                            ``(vi) a full description of any express or 
                        implied agreement or arrangement with any 
                        advisor, or with any offeror, that the fee 
                        payable to such person would be contingent or 
                        subject to possible reimbursement, and
                            ``(vii) a full description of any express 
                        or implied warranty from any person with 
                        respect to the anticipated tax results from the 
                        transaction.''
    (b) Modifications to Penalty on Substantial Understatement of 
Income Tax.--
            (1) Modification of threshold.--Subparagraph (A) of section 
        6662(d)(2) of such Code is amended to read as follows:
                    ``(A) In general.--For purposes of this section, 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) $1,000,000, or
                            ``(ii) the greater of 10 percent of the tax 
                        required to be shown on the return for the 
                        taxable year or $5,000.''
            (2) Reduction of penalty on account of disclosure not to 
        apply to tax shelters.--Subparagraph (C) of section 6662(d)(2) 
        of such Code is amended by striking clause (ii), by 
        redesignating clause (iii) as clause (ii), and by striking 
        clause (i) and inserting the following new clause:
                            ``(i) In general.--Subparagraph (B) shall 
                        not apply to any item attributable to a tax 
                        shelter.''
    (c) Treatment of Amended Returns.--Subsection (a) of section 6664 
of such Code is amended by adding at the end the following new 
sentence: ``For purposes of this subsection, an amended return shall be 
disregarded if such return is filed on or after the date the taxpayer 
is first contacted by the Secretary regarding the examination of the 
return.''

SEC. 268. PENALTY ON MARKETED TAX AVOIDANCE STRATEGIES WHICH HAVE NO 
              ECONOMIC SUBSTANCE, ETC.

    (a) Penalty.--
            (1) In general.--Section 6700 of the Internal Revenue Code 
        of 1986 (relating to promoting abusive tax shelters, etc.) is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Penalty on Substantial Promoters for Promoting Tax Avoidance 
Strategies Which Have No Economic Substance, Etc.--
            ``(1) Imposition of penalty.--Any substantial promoter of a 
        tax avoidance strategy shall pay a penalty in the amount 
        determined under paragraph (2) with respect to such strategy if 
        any tax benefit attributable to such strategy (or any similar 
        strategy promoted by such promoter) is not allowable by reason 
        of any rule of law referred to in section 6662(i)(2)(A).
            ``(2) Amount of penalty.--The penalty under paragraph (1) 
        with respect to a promoter of a tax avoidance strategy is an 
        amount equal to 100 percent of the gross income derived (or to 
        be derived) by such promoter from such strategy.
            ``(3) Tax avoidance strategy.--For purposes of this 
        subsection, the term `tax avoidance strategy' means any entity, 
        plan, arrangement, or transaction a significant purpose of the 
        structure of which is the avoidance or evasion of Federal 
        income tax.
            ``(4) Substantial promoter.--For purposes of this 
        subsection --
                    ``(A) In general.--The term `substantial promoter' 
                means, with respect to any tax avoidance strategy, any 
                promoter if--
                            ``(i) such promoter offers such strategy to 
                        more than 1 potential participant, and
                            ``(ii) such promoter may receive fees in 
                        excess of $1,000,000 in the aggregate with 
                        respect to such strategy.
                    ``(B) Aggregation rules.--For purposes of this 
                paragraph--
                            ``(i) Related persons.--A promoter and all 
                        persons related to such promoter shall be 
                        treated as 1 person.
                            ``(ii) Similar strategies.--All similar tax 
                        avoidance strategies of a promoter shall be 
                        treated as 1 tax avoidance strategy.
                    ``(C) Promoter.--The term `promoter' means any 
                person who participates in the promotion, offering, or 
                sale of the tax avoidance strategy.
                    ``(D) Related person.--Persons are related if they 
                bear a relationship to each other which is described in 
                section 267(b) or 707(b).
            ``(4) Coordination with subsection (a).--No penalty shall 
        be imposed by this subsection on any promoter with respect to a 
        tax avoidance strategy if a penalty is imposed under subsection 
        (a) on such promoter with respect to such strategy.''
            (2) Conforming amendment.--Subsection (d) of section 6700 
        of such Code is amended--
                    (A) by striking ``Penalty'' and inserting 
                ``Penalties'', and
                    (B) by striking ``penalty'' the first place it 
                appears in the text and inserting ``penalties''.
    (b) Increase in Penalty on Promoting Abusive Tax Shelters.--The 
first sentence of section 6700(a) of such Code is amended by striking 
``a penalty equal to'' and all that follows and inserting ``a penalty 
equal to the greater of $1,000 or 100 percent of the gross income 
derived (or to be derived) by such person from such activity.''

SEC. 269. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsections (b) and (c), the 
amendments made by this subpart shall apply to transactions after the 
date of the enactment of this Act.
    (b) Section 267.--The amendments made by subsections (b) and (c) of 
section 267 shall apply to taxable years ending after the date of the 
enactment of this Act.
    (c) Section 268.--The amendments made by subsection (a) of section 
268 shall apply to any tax avoidance strategy (as defined in section 
6700(c) of the Internal Revenue Code of 1986, as amended by this title) 
interests in which are offered to potential participants after the date 
of the enactment of this Act.

  Subpart B--Limitations on Importation or Transfer of Built-in Losses

SEC. 271. LIMITATION ON IMPORTATION OF BUILT-IN LOSSES.

    (a) In General.--Section 362 of the Internal Revenue Code of 1986 
(relating to basis to corporations) is amended by adding at the end the 
following new subsection:
    ``(e) Limitation on Importation of Built-in Losses.--
            ``(1) In general.--If in any transaction described in 
        subsection (a) or (b) there would (but for this subsection) be 
        an importation of a net built-in loss, the basis of each 
        property described in paragraph (2) which is acquired in such 
transaction shall (notwithstanding subsections (a) and (b)) be its fair 
market value immediately after such transaction.
            ``(2) Property described.--For purposes of paragraph (1), 
        property is described in this paragraph if--
                    ``(A) gain or loss with respect to such property is 
                not subject to tax under this subtitle in the hands of 
                the transferor immediately before the transfer, and
                    ``(B) gain or loss with respect to such property is 
                subject to such tax in the hands of the transferee 
                immediately after such transfer.
        In any case in which the transferor is a partnership, the 
        preceding sentence shall be applied by treating each partner in 
        such partnership as holding such partner's proportionate share 
        of the property of such partnership.
            ``(3) Importation of net built-in loss.--For purposes of 
        paragraph (1), there is an importation of a net built-in loss 
        in a transaction if the transferee's aggregate adjusted bases 
        of property described in paragraph (2) which is transferred in 
        such transaction would (but for this subsection) exceed the 
        fair market value of such property immediately after such 
        transaction.''
    (b) Comparable Treatment Where Liquidation.--Paragraph (1) of 
section 334(b) of such Code (relating to liquidation of subsidiary) is 
amended to read as follows:
            ``(1) In general.--If property is received by a corporate 
        distributee in a distribution in a complete liquidation to 
        which section 332 applies (or in a transfer described in 
        section 337(b)(1)), the basis of such property in the hands of 
        such distributee shall be the same as it would be in the hands 
        of the transferor; except that the basis of such property in 
        the hands of such distributee shall be the fair market value of 
        the property at the time of the distribution--
                    ``(A) in any case in which gain or loss is 
                recognized by the liquidating corporation with respect 
                to such property, or
                    ``(B) in any case in which the liquidating 
                corporation is a foreign corporation, the corporate 
                distributee is a domestic corporation, and the 
                corporate distributee's aggregate adjusted bases of 
                property described in section 362(e)(2) which is 
                distributed in such liquidation would (but for this 
                subparagraph) exceed the fair market value of such 
                property immediately after such liquidation.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act.

SEC. 272. DISALLOWANCE OF PARTNERSHIP LOSS TRANSFERS.

    (a) Treatment of Contributed Property With Built-in Loss.--
Paragraph (1) of section 704(c) of the Internal Revenue Code of 1986 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:
                    ``(C) if any property so contributed has a built-in 
                loss--
                            ``(i) such built-in loss shall be taken 
                        into account only in determining the amount of 
                        items allocated to the contributing partner, 
                        and
                            ``(ii) except as provided in regulations, 
                        in determining the amount of items allocated to 
                        other partners, the basis of the contributed 
                        property in the hands of the partnership shall 
                        be treated as being equal to its fair market 
                        value immediately after the contribution.
        For purposes of subparagraph (C), the term `built-in loss' 
        means the excess of the adjusted basis of the property over its 
        fair market value immediately after the contribution.''
    (b) Adjustment to Basis of Partnership Property on Transfer of 
Partnership Interest If There is Substantial Built-in Loss.--
            (1) Adjustment required.--Subsection (a) of section 743 of 
        such Code (relating to optional adjustment to basis of 
        partnership property) is amended by inserting before the period 
        ``or unless the partnership has a substantial built-in loss 
        immediately after such transfer''.
            (2) Adjustment.--Subsection (b) of section 743 of such Code 
        is amended by inserting ``or with respect to which there is a 
        substantial built-in loss immediately after such transfer'' 
        after ``section 754 is in effect''.
            (3) Substantial built-in loss.--Section 743 of such Code is 
        amended by adding at the end the following new subsection:
    ``(d) Substantial Built-in Loss.--For purposes of this section, a 
partnership has a substantial built-in loss with respect to a transfer 
of an interest in a partnership if the transferee partner's 
proportionate share of the adjusted basis of the partnership property 
exceeds 110 percent of the basis of such partner's interest in the 
partnership.''
            (4) Clerical amendments.--
                    (A) The section heading for section 743 of such 
                Code is amended to read as follows:

``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION 
              754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.''

                    (B) The table of sections for subpart C of part II 
                of subchapter K of chapter 1 of such Code is amended by 
                striking the item relating to section 743 and inserting 
                the following new item:

                              ``Sec. 743. Adjustment to basis of 
                                        partnership property where 
                                        section 754 election or 
                                        substantial built-in loss.''
    (c) Adjustment to Basis of Undistributed Partnership Property If 
There is Substantial Basis Reduction.--
            (1) Adjustment required.--Subsection (a) of section 734 of 
        such Code (relating to optional adjustment to basis of 
        undistributed partnership property) is amended by inserting 
        before the period ``or unless there is a substantial downward 
        adjustment''.
            (2) Adjustment.--Subsection (b) of section 734 of such Code 
        is amended by inserting ``or unless there is a substantial 
        downward adjustment'' after ``section 754 is in effect''.
            (3) Substantial downward adjustment.--Section 734 of such 
        Code is amended by adding at the end the following new 
        subsection:
    ``(d) Substantial Downward Adjustment.--For purposes of this 
section, there is a substantial downward adjustment with respect to a 
distribution if the sum of the amounts described in subparagraphs (A) 
and (B) of subsection (b)(2) exceeds 10 percent of the aggregate 
adjusted basis of partnership property immediately after the 
distribution.''
            (4) Clerical amendments.--
                    (A) The section heading for section 734 of such 
                Code is amended to read as follows:

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY 
              WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS 
              REDUCTION.''

                    (B) The table of sections for subpart B of part II 
                of subchapter K of chapter 1 of such Code is amended by 
                striking the item relating to section 734 and inserting 
                the following new item:

                              ``Sec. 734. Adjustment to basis of 
                                        undistributed partnership 
                                        property where section 754 
                                        election or substantial basis 
                                        reduction.''
    (d) Effective Dates.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to contributions made after the date of the 
        enactment of this Act.
            (2) Subsection (b).--The amendments made by subsection (a) 
        shall apply to transfers after the date of the enactment of 
        this Act.
            (3) Subsection (c).--The amendments made by subsection (a) 
        shall apply to distributions after the date of the enactment of 
        this Act.

                 PART III--ESTATE AND GIFT TAX OFFSETS

SEC. 276. VALUATION RULES FOR TRANSFERS INVOLVING NONBUSINESS ASSETS.

    (a) In General.--Section 2031 of the Internal Revenue Code of 1986 
(relating to definition of gross estate) is amended by redesignating 
subsection (d) as subsection (e) and by inserting after subsection (c) 
the following new subsection:
    ``(d) Valuation Rules for Certain Transfers of Nonbusiness 
Assets.--For purposes of this chapter and chapter 12--
            ``(1) In general.--In the case of the transfer of any 
        interest in an entity other than an interest which is actively 
        traded (within the meaning of section 1092), the value of such 
        interest shall be determined by taking into account--
                    ``(A) the value of such interest's proportionate 
                share of the nonbusiness assets of such entity (and no 
                valuation discount shall be allowed with respect to 
                such nonbusiness assets), plus
                    ``(B) the value of such entity determined without 
                regard to the value taken into account under 
                subparagraph (A).
            ``(2) Nonbusiness assets.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonbusiness asset' 
                means any asset which is not used in the active conduct 
                of 1 or more trades or businesses.
                    ``(B) Exception for certain passive assets.--Except 
                as provided in subparagraph (C), a passive asset shall 
                not be treated for purposes of subparagraph (A) as used 
                in the active conduct of a trade or business unless--
                            ``(i) the asset is property described in 
                        paragraph (1) or (4) of section 1221(a) or is a 
                        hedge with respect to such property, or
                            ``(ii) the asset is real property used in 
                        the active conduct of 1 or more real property 
                        trades or businesses (within the meaning of 
                        section 469(c)(7)(C)) in which the transferor 
                        materially participates and with respect to 
                        which the transferor meets the requirements of 
                        section 469(c)(7)(B)(ii).
                For purposes of clause (ii), material participation 
                shall be determined under the rules of section 469(h), 
                except that section 469(h)(3) shall be applied without 
                regard to the limitation to farming activity.
                    ``(C) Exception for working capital.--Any asset 
                (including a passive asset) which is held as a part of 
                the reasonably required working capital needs of a 
                trade or business shall be treated as used in the 
                active conduct of a trade or business.
            ``(3) Passive asset.--For purposes of this subsection, the 
        term `passive asset' means any--
                    ``(A) cash or cash equivalents,
                    ``(B) except to the extent provided by the 
                Secretary, stock in a corporation or any other equity, 
                profits, or capital interest in any entity,
                    ``(C) evidence of indebtedness, option, forward or 
                futures contract, notional principal contract, or 
                derivative,
                    ``(D) asset described in clause (iii), (iv), or (v) 
                of section 351(e)(1)(B),
                    ``(E) annuity,
                    ``(F) real property used in 1 or more real property 
                trades or businesses (as defined in section 
                469(c)(7)(C)),
                    ``(G) asset (other than a patent, trademark, or 
                copyright) which produces royalty income,
                    ``(H) commodity,
                    ``(I) collectible (within the meaning of section 
                401(m)), or
                    ``(J) any other asset specified in regulations 
                prescribed by the Secretary.
            ``(4) Look-thru rules.--
                    ``(A) In general.--If a nonbusiness asset of an 
                entity consists of a 10-percent interest in any other 
                entity, this subsection shall be applied by 
                disregarding the 10-percent interest and by treating 
                the entity as holding directly its ratable share of the 
                assets of the other entity. This subparagraph shall be 
                applied successively to any 10-percent interest of such 
                other entity in any other entity.
                    ``(B) 10-percent interest.--The term `10-percent 
                interest' means--
                            ``(i) in the case of an interest in a 
                        corporation, ownership of at least 10 percent 
                        (by vote or value) of the stock in such 
                        corporation,
                            ``(ii) in the case of an interest in a 
                        partnership, ownership of at least 10 percent 
                        of the capital or profits interest in the 
                        partnership, and
                            ``(iii) in any other case, ownership of at 
                        least 10 percent of the beneficial interests in 
                        the entity.
            ``(5) Coordination with subsection (b).--Subsection (b) 
        shall apply after the application of this subsection.''
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 277. CORRECTION OF TECHNICAL ERROR AFFECTING LARGEST ESTATES.

    (a) In General.--Paragraph (2) of section 2001(c) of the Internal 
Revenue Code of 1986 is amended by striking ``$10,000,000'' and all 
that follows and inserting ``$10,000,000. The amount of the increase 
under the preceding sentence shall not exceed the sum of the applicable 
credit amount under section 2010(c) (as increased by section 2010A) and 
$359,200.''
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying, and gifts made, after December 31, 2000.

                         PART IV--OTHER OFFSETS

SEC. 281. CONSISTENT AMORTIZATION PERIODS FOR INTANGIBLES.

    (a) Start-Up Expenditures.--
            (1) Allowance of deduction.--Paragraph (1) of section 
        195(b) of the Internal Revenue Code of 1986 (relating to start-
        up expenditures) is amended to read as follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection with respect to any start-up 
        expenditures--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the active trade or business 
begins in an amount equal to the lesser of--
                            ``(i) the amount of start-up expenditures 
                        with respect to the active trade or business, 
                        or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such start-up 
                        expenditures exceed $50,000, and
                    ``(B) the remainder of such start-up expenditures 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                active trade or business begins.''
            (2) Conforming amendment.--Subsection (b) of section 195 is 
        amended by striking ``Amortize'' and inserting ``Deduct'' in 
        the heading.
    (b) Organizational Expenditures.--Subsection (a) of section 248 of 
such Code (relating to organizational expenditures) is amended to read 
as follows:
    ``(a) Election to Deduct.--If a corporation elects the application 
of this subsection (in accordance with regulations prescribed by the 
Secretary) with respect to any organizational expenditures--
            ``(1) the corporation shall be allowed a deduction for the 
        taxable year in which the corporation begins business in an 
        amount equal to the lesser of--
                    ``(A) the amount of organizational expenditures 
                with respect to the taxpayer, or
                    ``(B) $5,000, reduced (but not below zero) by the 
                amount by which such organizational expenditures exceed 
                $50,000, and
            ``(2) the remainder of such organizational expenditures 
        shall be allowed as a deduction ratably over the 180-month 
        period beginning with the month in which the corporation begins 
        business.''
    (c) Treatment of Organizational and Syndication Fees or 
Partnerships.--Section 709(b) of such Code (relating to amortization of 
organization fees) is amended by redesignating paragraph (2) as 
paragraph (4) and by amending paragraph (1) to read as follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection (in accordance with regulations 
        prescribed by the Secretary) with respect to any organizational 
        expenses--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the partnership begins 
                business in an amount equal to the lesser of--
                            ``(i) the amount of organizational expenses 
                        with respect to the partnership, or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such organizational 
                        expenses exceed $50,000, and
                    ``(B) the remainder of such organizational expenses 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                partnership begins business.
            ``(2) Dispositions before close of amortization period.--In 
        any case in which a partnership is liquidated before the end of 
        the period to which paragraph (1)(B) applies, any deferred 
        expenses attributable to the partnership which were not allowed 
        as a deduction by reason of this section may be deducted to the 
        extent allowable under section 165.''
    (d) Conforming Amendment.--Subsection (b) of section 709 of such 
Code is amended by striking ``Amortization'' and inserting 
``Deduction'' in the heading.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 282. MODIFICATION OF FOREIGN TAX CREDIT CARRYOVER RULES.

    (a) In General.--Section 904(c) of the Internal Revenue Code of 
1986 (relating to limitation on credit) is amended--
            (1) by striking ``in the second preceding taxable year,'', 
        and
            (2) by striking ``or fifth'' and inserting ``fifth, sixth, 
        or seventh''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to credits arising in taxable years beginning after December 31, 
2000.

SEC. 283. RECOGNITION OF GAIN ON TRANSFERS TO SWAP FUNDS.

    (a) Interests Similar to Preferred Stock Treated as Stock.--Clause 
(vi) of section 351(e)(1)(B) of the Internal Revenue Code of 1986 
(relating to transfer of property to an investment company) is amended 
to read as follows:
                            ``(vi) except as otherwise provided in 
                        regulations prescribed by the Secretary--
                                    ``(I) any interest in an entity if 
                                the return on such interest is limited 
                                and preferred, and
                                    ``(II) interests (not described in 
                                subclause (I)) in any entity if 
                                substantially all of the assets of such 
                                entity consist (directly or indirectly) 
                                of any assets described in subclause 
                                (I), any preceding clause, or clause 
                                (viii).''
    (b) Certain Transfers Deemed To Be to Investment Companies.--
Subsection (e) of section 351 of such Code is amended by adding at the 
end the following new paragraph:
            ``(3) Transfers of marketable securities to certain 
        corporations.--A transfer of property to a corporation if--
                    ``(A) such property is marketable securities (as 
                defined in section 731(c)(2)), other than a diversified 
                portfolio of securities,
                    ``(B) such corporation--
                            ``(i) is registered under the Investment 
                        Company Act of 1940 as an investment company, 
                        or is exempt from registration as a investment 
                        company under section 3(c)(7) of such Act 
                        because interests in such corporation are 
                        offered to qualified purchasers within the 
                        meaning of section 2(a)(51) of such Act, or
                            ``(ii) is formed or availed of for purposes 
                        of allowing persons who have significant blocks 
                        of marketable securities with unrealized 
                        appreciation to diversify those holdings 
                        without recognition of gain, and
                    ``(C) the transfer results, directly or indirectly, 
                in diversification of the transferor's interest.''
    (c) Transfers to Partnerships.--Subsection (b) of section 721 of 
such Code is amended to read as follows:
    ``(b) Special Rule.--Subsection (a) shall not apply to gain 
realized on a transfer of property to a partnership if, were the 
partnership incorporated--
            ``(1) such partnership would be treated as an investment 
        company (within the meaning of section 351), or
            ``(2) section 351 would not apply to such transfer by 
        reason of section 351(e)(3).''
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transfers after March 8, 2000.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any transfer pursuant to a written binding 
        contract in effect on August 4, 1999, and at all times 
        thereafter before such transfer if such contract provides for 
        the transfer of a fixed amount of property.
                                 <all>