[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1792 Placed on Calendar Senate (PCS)]
Calendar No. 346
106th CONGRESS
1st Session
S. 1792
[Report No. 106-201]
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to extend expiring
provisions, to fully allow the nonrefundable personal credits against
regular tax liability, and for other purposes.
_______________________________________________________________________
October 26, 1999
Read twice and placed on the calendar
Calendar No. 346
106th CONGRESS
1st Session
S. 1792
[Report No. 106-201]
To amend the Internal Revenue Code of 1986 to extend expiring
provisions, to fully allow the nonrefundable personal credits against
regular tax liability, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
October 26, 1999
Mr. Roth, from the Committee on Finance, reported the following
original bill; which was read twice and placed on the calendar
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to extend expiring
provisions, to fully allow the nonrefundable personal credits against
regular tax liability, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Relief
Extension Act of 1999''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--EXTENSION OF EXPIRED AND EXPIRING PROVISIONS
Sec. 101. Extension of minimum tax relief for individuals.
Sec. 102. Extension of exclusion for employer-provided educational
assistance.
Sec. 103. Extension of research and experimentation credit and increase
in rates for alternative incremental
research credit.
Sec. 104. Extension of exceptions under subpart F for active financing
income.
Sec. 105. Extension of suspension of net income limitation on
percentage depletion from marginal oil and
gas wells.
Sec. 106. Extension of work opportunity tax credit and welfare-to-work
tax credit.
Sec. 107. Extension and modification of tax credit for electricity
produced from certain renewable resources.
Sec. 108. Expansion of brownfields environmental remediation.
Sec. 109. Temporary increase in amount of rum excise tax covered over
to Puerto Rico and Virgin Islands.
Sec. 110. Delay requirement that registered motor fuels terminals offer
dyed fuel as a condition of registration.
Sec. 111. Extension of production credit for fuel produced by certain
gasification facilities.
TITLE II--REVENUE OFFSET PROVISIONS
Subtitle A--General Provisions
Sec. 201. Modification of individual estimated tax safe harbor.
Sec. 202. Modification of foreign tax credit carryover rules.
Sec. 203. Clarification of tax treatment of income and losses on
derivatives.
Sec. 204. Inclusion of certain vaccines against streptococcus
pneumoniae to list of taxable vaccines.
Sec. 205. Expansion of reporting of cancellation of indebtedness
income.
Sec. 206. Imposition of limitation on prefunding of certain employee
benefits.
Sec. 207. Increase in elective withholding rate for nonperiodic
distributions from deferred compensation
plans.
Sec. 208. Limitation on conversion of character of income from
constructive ownership transactions.
Sec. 209. Treatment of excess pension assets used for retiree health
benefits.
Sec. 210. Modification of installment method and repeal of installment
method for accrual method taxpayers.
Sec. 211. Limitation on use of nonaccrual experience method of
accounting.
Sec. 212. Denial of charitable contribution deduction for transfers
associated with split-dollar insurance
arrangements.
Sec. 213. Prevention of duplication of loss through assumption of
liabilities giving rise to a deduction.
Sec. 214. Consistent treatment and basis allocation rules for transfers
of intangibles in certain nonrecognition
transactions.
Sec. 215. Distributions by a partnership to a corporate partner of
stock in another corporation.
Sec. 216. Prohibited allocations of stock in S corporation ESOP.
Subtitle B--Provisions Relating to Real Estate Investment Trusts
Part I--Treatment of Income and Services Provided by Taxable REIT
Subsidiaries
Sec. 221. Modifications to asset diversification test.
Sec. 222. Treatment of income and services provided by taxable REIT
subsidiaries.
Sec. 223. Taxable REIT subsidiary.
Sec. 224. Limitation on earnings stripping.
Sec. 225. 100 percent tax on improperly allocated amounts.
Sec. 226. Effective date.
Part II--Health Care REITs
Sec. 231. Health care REITs.
Part III--Conformity With Regulated Investment Company Rules
Sec. 241. Conformity with regulated investment company rules.
Part IV--Clarification of Exception From Impermissible Tenant Service
Income
Sec. 251. Clarification of exception for independent operators.
Part V--Modification of Earnings and Profits Rules
Sec. 261. Modification of earnings and profits rules.
Part VI--Modification of Estimated Tax Rules
Sec. 271. Modification of estimated tax rules for closely held real
estate investment trusts.
Part VIII--Modification of Treatment of Closely-Held REITs
Sec. 281. Controlled entities ineligible for REIT status.
TITLE III--BUDGET PROVISION
Sec. 301. Exclusion from paygo scorecard.
TITLE I--EXTENSION OF EXPIRED AND EXPIRING PROVISIONS
SEC. 101. EXTENSION OF MINIMUM TAX RELIEF FOR INDIVIDUALS.
(a) In General.--The second sentence of section 26(a) (relating to
limitations based on amount of tax) is amended by striking ``1998'' and
inserting ``calendar year 1998, 1999, or 2000''.
(b) Child Credit.--Section 24(d)(2) (relating to reduction of
credit to taxpayer subject to alternative minimum tax) is amended by
striking ``December 31, 1998'' and inserting ``December 31, 2000''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 102. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
(a) In General.--Section 127(d) (relating to termination) is
amended by striking ``May 31, 2000'' and inserting ``December 31,
2000''.
(b) Repeal of Limitation on Graduate Education.--
(1) In general.--The last sentence of section 127(c)(1)
(defining educational assistance) is amended by striking ``,
and such term also does not include any payment for, or the provision
of any benefits with respect to, any graduate level course of a kind
normally taken by an individual pursuing a program leading to a law,
business, medical, or other advanced academic or professional degree''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply with respect to expenses relating to courses
beginning after December 31, 1999.
SEC. 103. EXTENSION OF RESEARCH AND EXPERIMENTATION CREDIT AND INCREASE
IN RATES FOR ALTERNATIVE INCREMENTAL RESEARCH CREDIT.
(a) Extension.--
(1) In general.--Section 41(h) (relating to termination) is
amended--
(A) by striking ``June 30, 1999'' and inserting
``December 31, 2000'',
(B) by striking ``36-month'' and inserting ``54-
month'', and
(C) by striking ``36 months'' and inserting ``54
months''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``June 30, 1999'' and inserting ``December 31,
2000''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after June 30, 1999.
(b) Increase in Percentages Under Alternative Incremental Credit.--
(1) In general.--Subparagraph (A) of section 41(c)(4) is
amended--
(A) by striking ``1.65 percent'' and inserting
``2.65 percent'',
(B) by striking ``2.2 percent'' and inserting ``3.2
percent'', and
(C) by striking ``2.75 percent'' and inserting
``3.75 percent''.
(2) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after June 30, 1999.
(c) Extension of Research Credit to Research in Puerto Rico and the
Possessions of the United States.--
(1) In general.--Section 41(d)(4)(F) (relating to foreign
research) is amended by inserting ``, the Commonwealth of
Puerto Rico, or any possession of the United States'' after
``United States''.
(2) Denial of double benefit.--Section 280C(c)(1) is
amended by inserting ``or credit'' after ``deduction'' each
place it appears.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after June 30, 1999.
SEC. 104. EXTENSION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE FINANCING
INCOME.
(a) In General.--Sections 953(e)(10) and 954(h)(9) (relating to
application) are each amended--
(1) by striking ``the first taxable year'' and inserting
``taxable years'',
(2) by striking ``January 1, 2000'' and inserting ``January
1, 2001'', and
(3) by striking ``within which such'' and inserting
``within which any such''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1999.
SEC. 105. EXTENSION OF SUSPENSION OF NET INCOME LIMITATION ON
PERCENTAGE DEPLETION FROM MARGINAL OIL AND GAS WELLS.
(a) In General.--Subparagraph (H) of section 613A(c)(6) (relating
to temporary suspension of taxable limit with respect to marginal
production) is amended by striking ``January 1, 2000'' and inserting
``January 1, 2001''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1999.
SEC. 106. EXTENSION OF WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK
TAX CREDIT.
(a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) (relating
to termination) are each amended by striking ``June 30, 1999'' and
inserting ``December 31, 2000''.
(b) Clarification of First Year of Employment.--Paragraph (2) of
section 51(i) is amended by striking ``during which he was not a member
of a targeted group''.
(c) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after June 30,
1999.
SEC. 107. EXTENSION AND MODIFICATION OF TAX CREDIT FOR ELECTRICITY
PRODUCED FROM CERTAIN RENEWABLE RESOURCES.
(a) Extension and Modification of Placed-in-Service Rules.--
Paragraph (3) of section 45(c) is amended to read as follows:
``(3) Qualified facility.--
``(A) Wind facility.--In the case of a facility
using wind to produce electricity, the term `qualified
facility' means any facility owned by the taxpayer
which is originally placed in service after December
31, 1993, and before January 1, 2001.
``(B) Closed-loop biomass facility.--In the case of
a facility using closed-loop biomass to produce
electricity, the term `qualified facility' means any
facility owned by the taxpayer which is--
``(i) originally placed in service after
December 31, 1992, and before January 1, 2001,
or
``(ii) originally placed in service before
December 31, 1992, and modified to use closed-
loop biomass to co-fire with coal after such
date and before January 1, 2001.
``(C) Biomass facility.--In the case of a facility
using biomass (other than closed-loop biomass) to
produce electricity, the term `qualified facility'
means any facility owned by the taxpayer which is
originally placed in service before January 1, 2001.
``(D) Landfill gas or poultry waste facility.--
``(i) In general.--In the case of a
facility using landfill gas or poultry waste to
produce electricity, the term `qualified
facility' means any facility of the taxpayer
which is originally placed in service after
December 31, 1999, and before January 1, 2001.
``(ii) Landfill gas.--In the case of a
facility using landfill gas, such term shall
include equipment and housing (not including
wells and related systems required to collect
and transmit gas to the production facility)
required to generate electricity which are
owned by the taxpayer and so placed in service.
``(E) Special rule.--In the case of a qualified
facility described in subparagraph (B) or (C) using
coal to co-fire with biomass, the 10-year period
referred to in subsection (a) shall be treated as
beginning no earlier than January 1, 2000.''
(b) Expansion of Qualified Energy Resources.--
(1) In general.--Section 45(c)(1) (defining qualified
energy resources) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting a comma, and by adding at the
end the following new subparagraphs:
``(C) biomass (other than closed-loop biomass),
``(D) landfill gas, and
``(E) poultry waste.''
(2) Definitions.--Section 45(c), as amended by subsection
(a), is amended by redesignating paragraph (3) as paragraph (6)
and inserting after paragraph (2) the following new paragraphs:
``(3) Biomass.--The term `biomass' means any solid,
nonhazardous, cellulosic waste material which is segregated
from other waste materials and which is derived from--
``(A) any of the following forest-related
resources: mill residues, precommercial thinnings,
slash, and brush, but not including old-growth timber,
``(B) urban sources, including waste pallets,
crates, and dunnage, manufacturing and construction
wood wastes, and landscape or right-of-way tree
trimmings, but not including unsegregated municipal
solid waste (garbage) or paper that is commonly
recycled, or
``(C) agriculture sources, including orchard tree
crops, vineyard, grain, legumes, sugar, and other crop
by-products or residues.
``(4) Landfill gas.--The term `landfill gas' means gas from
the decomposition of any household solid waste, commercial
solid waste, and industrial solid waste disposed of in a
municipal solid waste landfill unit (as such terms are defined
in regulations promulgated under subtitle D of the Solid Waste
Disposal Act (42 U.S.C. 6941 et seq.)).
``(5) Poultry waste.--The term `poultry waste' means
poultry manure and litter, including wood shavings, straw, rice
hulls, and other bedding material for the disposition of
manure.''
(c) Special Rules.--Section 45(d) (relating to definitions and
special rules) is amended by adding at the end the following new
paragraphs:
``(6) Credit eligibility in the case of government-owned
facilities using poultry waste.--In the case of a facility
using poultry waste to produce electricity and owned by a
governmental unit, the person eligible for the credit under
subsection (a) is the lessor or the operator of such facility.
``(7) Proportional credit for facility using coal to co-
fire with biomass.--In the case of a qualified facility
described in subparagraph (B) or (C) of subsection (c)(6) using
coal to co-fire with biomass, the amount of the credit
determined under subsection (a) for the taxable year shall be
reduced by the percentage coal comprises (on a Btu basis) of
the average fuel input of the facility for the taxable year.
``(8) Denial of double benefit.--No credit shall be allowed
under this section with respect to a facility for any taxable
year if the credit under section 29 is allowed in such year or
has been allowed in any preceding taxable year with respect to
any fuel produced from such facility.''
(d) Conforming Amendment.--Section 29(d) (relating to other
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(9) Denial of double benefit.--No credit shall be allowed
under this section with respect to any fuel produced from a
facility for any taxable year if the credit under section 45 is
allowed in such year or has been allowed in any preceding
taxable year with respect to such facility.''
(e) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 108. EXPANSION OF BROWNFIELDS ENVIRONMENTAL REMEDIATION.
(a) In General.--Section 198(c) is amended to read as follows:
``(c) Qualified Contaminated Site.--For purposes of this section--
``(1) In general.--The term `qualified contaminated site'
means any area--
``(A) which is held by the taxpayer for use in a
trade or business or for the production of income, or
which is property described in section 1221(1) in the
hands of the taxpayer, and
``(B) at or on which there has been a release (or
threat of release) or disposal of any hazardous
substance.
``(2) National priorities listed sites not included.--Such
term shall not include any site which is on, or proposed for,
the national priorities list under section 105(a)(8)(B) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this section).
``(3) Taxpayer must receive statement from state
environmental agency.--An area shall be treated as a qualified
contaminated site with respect to expenditures paid or incurred
during any taxable year only if the taxpayer receives a
statement from the appropriate environmental agency of the
State in which such area is located that such area meets the
requirement of paragraph (1)(B).
``(4) Appropriate state agency.--For purposes of paragraph
(3), the chief executive officer of each State may, in
consultation with the Administrator of the Environmental
Protection Agency, designate the appropriate State
environmental agency within 60 days of the date of the
enactment of this section. If the chief executive officer of a
State has not designated an appropriate State environmental
agency within such 60-day period, the appropriate environmental
agency for such State shall be designated by the Administrator
of the Environmental Protection Agency.''
(b) Effective Date.--The amendment made by this section shall apply
to expenditures paid or incurred after December 31, 1999.
SEC. 109. TEMPORARY INCREASE IN AMOUNT OF RUM EXCISE TAX COVERED OVER
TO PUERTO RICO AND VIRGIN ISLANDS.
(a) In General.--Section 7652(f)(1) (relating to limitation on
cover over of tax on distilled spirits) is amended to read as follows:
``(1) $10.50 ($13.50 in the case of distilled spirits
brought into the United States after June 30, 1999, and before
January 1, 2001), or''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
take effect on July 1, 1999.
(2) Special rule.--
(A) In general.--For the period beginning after
June 30, 1999, and before January 1, 2001, the treasury
of Puerto Rico shall make a Conservation Trust Fund
transfer within 30 days from the date of each cover
over payment made during such period to such treasury
under section 7652(e) of the Internal Revenue Code of
1986.
(B) Conservation trust fund transfer.--
(i) In general.--For purposes of this
paragraph, the term ``Conservation Trust Fund
transfer'' means a transfer to the Puerto Rico
Conservation Trust Fund of an amount equal to
50 cents per proof gallon of the taxes imposed
under section 5001 or section 7652 of such Code
on distilled spirits that are covered over to
the treasury of Puerto Rico under section
7652(e) of such Code.
(ii) Treatment of transfer.--Each
Conservation Trust Fund transfer shall be
treated as principal for an endowment, the
income from which to be available for use by
the Puerto Rico Conservation Trust Fund for the
purposes for which the Trust Fund was
established.
(iii) Result of nontransfer.--
(I) In general.--Upon notification
by the Secretary of the Interior that a
Conservation Trust Fund transfer has
not been made by the treasury of Puerto
Rico during the period described in
subparagraph (A), the Secretary of the
Treasury shall, except as provided in
subclause (II), deduct and withhold
from the next cover over payment to be
made to the treasury of Puerto Rico
under section 7652(e) of such Code an
amount equal to the appropriate
Conservation Trust Fund transfer and
interest thereon at the underpayment
rate established under section 6621 of
such Code as of the due date of such
transfer. The Secretary of the Treasury
shall transfer such amount deducted and
withheld, and the interest thereon,
directly to the Puerto Rico
Conservation Trust Fund.
(II) Good cause exception.--If the
Secretary of the Interior finds, after
consultation with the Governor of
Puerto Rico, that the failure by the treasury of Puerto Rico to make a
required transfer was for good cause, and notifies the Secretary of the
Treasury of the finding of such good cause before the due date of the
next cover over payment following the notification of nontransfer, then
the Secretary of the Treasury shall not deduct the amount of such
nontransfer from any cover over payment.
(C) Puerto rico conservation trust fund.--For
purposes of this paragraph, the term ``Puerto Rico
Conservation Trust Fund'' means the fund established
pursuant to a Memorandum of Understanding between the
United States Department of the Interior and the
Commonwealth of Puerto Rico, dated December 24, 1968.
SEC. 110. DELAY REQUIREMENT THAT REGISTERED MOTOR FUELS TERMINALS OFFER
DYED FUEL AS A CONDITION OF REGISTRATION.
Subsection (f)(2) of section 1032 of the Taxpayer Relief Act of
1997, as amended by section 9008 of the Transportation Equity Act for
the 21st Century, is amended by striking ``July 1, 2000'' and inserting
``January 1, 2001''.
SEC. 111. EXTENSION OF PRODUCTION CREDIT FOR FUEL PRODUCED BY CERTAIN
GASIFICATION FACILITIES.
(a) In General.--Section 29(g)(1)(A) (relating to extension for
certain facilities) is amended by striking ``July 1, 1998'' and
inserting ``July 1, 2000''.
(b) Effective Date.--The amendment made by this section shall apply
to fuels produced on and after July 1, 1998.
(c) Special Rule.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, the credit determined under section 29 of such Code
which is otherwise allowable under such Code by reason of the
amendment made by subsection (a) and which is attributable to
the suspension period shall not be taken into account prior to
October 1, 2004. On or after such date, such credit may be
taken into account through the filing of an amended return, an
application for expedited refund, an adjustment of estimated
taxes, or other means allowed by such Code. Interest shall not
be allowed under section 6511(a) of such Code on any
overpayment attributable to such credit for any period before
the 45th day after the credit is taken into account under the
preceding sentence.
(2) Suspension period.--For purposes of this subsection,
the suspension period is the period beginning on July 1, 1998,
and ending on September 30, 2004.
(3) Expedited refunds.--
(A) In general.--If there is an overpayment of tax
with respect to a taxable year by reason of paragraph
(1), the taxpayer may file an application for a
tentative refund of such overpayment. Such application
shall be in such manner and form, and contain such
information, as the Secretary may prescribe.
(B) Deadline for applications.--Subparagraph (A)
shall apply only to applications filed before October
1, 2005.
(C) Allowance of adjustments.--Not later than 90
days after the date on which an application is filed
under this paragraph, the Secretary shall--
(i) review the application,
(ii) determine the amount of the
overpayment, and
(iii) apply, credit, or refund such
overpayment,
in a manner similar to the manner provided in section
6411(b) of such Code.
(D) Consolidated returns.--The provisions of
section 6411(c) of such Code shall apply to an
adjustment under this paragraph in such manner as the
Secretary may provide.
(4) Credit attributable to suspension period.--For purposes
of this subsection, in the case of a taxable year which
includes a portion of the suspension period, the amount of
credit determined under section 29 of such Code for such
taxable year which is attributable to such period is the amount
which bears the same ratio to the amount of credit determined
under such section 29 for such taxable year as the number of
months in the suspension period which are during such taxable
year bears to the number of months in such taxable year.
(5) Waiver of statute of limitations.--If, on October 1,
2004 (or at any time within the 1-year period beginning on such
date) credit or refund of any overpayment of tax resulting from
the provisions of this subsection is barred by any law or rule
of law, credit or refund of such overpayment shall,
nevertheless, be allowed or made if claim therefore is filed
before the date 1 year after October 1, 2004.
(6) Secretary.--For purposes of this subsection, the term
``Secretary'' means the Secretary of the Treasury (or such
Secretary's delegate).
TITLE II--REVENUE OFFSET PROVISIONS
Subtitle A--General Provisions
SEC. 201. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE HARBOR.
(a) In General.--The table contained in clause (i) of section
6654(d)(1)(C) (relating to limitation on use of preceding year's tax)
is amended by striking all matter beginning with the item relating to
1999 or 2000 and inserting the following new items:
``1999........................................ 110.5
2000.......................................... 106
2001.......................................... 112
2002.......................................... 110
2003.......................................... 112
2004 or thereafter............................ 110''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to any installment payment for taxable years beginning
after December 31, 1999.
SEC. 202. MODIFICATION OF FOREIGN TAX CREDIT CARRYOVER RULES.
(a) In General.--Section 904(c) (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,
1999.
SEC. 203. CLARIFICATION OF TAX TREATMENT OF INCOME AND LOSS ON
DERIVATIVES.
(a) In General.--Section 1221 (defining capital assets) is
amended--
(1) by striking ``For purposes'' and inserting the
following:
``(a) In General.--For purposes'',
(2) by striking the period at the end of paragraph (5) and
inserting a semicolon, and
(3) by adding at the end the following:
``(6) any commodities derivative financial instrument held
by a commodities derivatives dealer, unless--
``(A) it is established to the satisfaction of the
Secretary that such instrument has no connection to the
activities of such dealer as a dealer, and
``(B) such instrument is clearly identified in such
dealer's records as being described in subparagraph (A)
before the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe);
``(7) any hedging transaction which is clearly identified
as such before the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe); or
``(8) supplies of a type regularly used or consumed by the
taxpayer in the ordinary course of a trade or business of the
taxpayer.
``(b) Definitions and Special Rules.--
``(1) Commodities derivative financial instruments.--For
purposes of subsection (a)(6)--
``(A) Commodities derivatives dealer.--The term
`commodities derivatives dealer' means a person which
regularly offers to enter into, assume, offset, assign,
or terminate positions in commodities derivative
financial instruments with customers in the ordinary
course of a trade or business.
``(B) Commodities derivative financial
instrument.--
``(i) In general.--The term `commodities
derivative financial instrument' means any
contract or financial instrument with respect
to commodities (other than a share of stock in
a corporation, a beneficial interest in a
partnership or trust, a note, bond, debenture,
or other evidence of indebtedness, or a section
1256 contract (as defined in section 1256(b)),
the value or settlement price of which is
calculated by or determined by reference to a
specified index.
``(ii) Specified index.--The term
`specified index' means any one or more or any
combination of--
``(I) a fixed rate, price, or
amount, or
``(II) a variable rate, price, or
amount,
which is based on any current, objectively
determinable financial or economic information
with respect to commodities which is not within
the control of any of the parties to the
contract or instrument and is not unique to any
of the parties' circumstances.
``(2) Hedging transaction.--
``(A) In general.--For purposes of this section,
the term `hedging transaction' means any transaction
entered into by the taxpayer in the normal course of
the taxpayer's trade or business primarily--
``(i) to manage risk of price changes or
currency fluctuations with respect to ordinary
property which is held or to be held by the
taxpayer,
``(ii) to manage risk of interest rate or
price changes or currency fluctuations with
respect to borrowings made or to be made, or
ordinary obligations incurred or to be
incurred, by the taxpayer, or
``(iii) to manage such other risks as the
Secretary may prescribe in regulations.
``(B) Treatment of nonidentification or improper
identification of hedging transactions.--
Notwithstanding subsection (a)(7), the Secretary shall
prescribe regulations to properly characterize any
income, gain, expense, or loss arising from a
transaction--
``(i) which is a hedging transaction but
which was not identified as such in accordance
with subsection (a)(7), or
``(ii) which was so identified but is not a
hedging transaction.
``(3) Regulations.--The Secretary shall prescribe such
regulations as are appropriate to carry out the purposes of
paragraph (6) and (7) of subsection (a) in the case of
transactions involving related parties.''.
(b) Management of Risk.--
(1) Section 475(c)(3) is amended by striking ``reduces''
and inserting ``manages''.
(2) Section 871(h)(4)(C)(iv) is amended by striking ``to
reduce'' and inserting ``to manage''.
(3) Clauses (i) and (ii) of section 988(d)(2)(A) are each
amended by striking ``to reduce'' and inserting ``to manage''.
(4) Paragraph (2) of section 1256(e) is amended to read as
follows:
``(2) Definition of hedging transaction.--For purposes of
this subsection, the term `hedging transaction' means any
hedging transaction (as defined in section 1221(b)(2)(A)) if, before
the close of the day on which such transaction was entered into (or
such earlier time as the Secretary may prescribe by regulations), the
taxpayer clearly identifies such transaction as being a hedging
transaction.''.
(c) Conforming Amendments.--
(1) Each of the following sections are amended by striking
``section 1221'' and inserting ``section 1221(a)'':
(A) Section 170(e)(3)(A).
(B) Section 170(e)(4)(B).
(C) Section 367(a)(3)(B)(i).
(D) Section 818(c)(3).
(E) Section 865(i)(1).
(F) Section 1092(a)(3)(B)(ii)(II).
(G) Subparagraphs (C) and (D) of section
1231(b)(1).
(H) Section 1234(a)(3)(A).
(2) Each of the following sections are amended by striking
``section 1221(1)'' and inserting ``section 1221(a)(1)'':
(A) Section 198(c)(1)(A)(i).
(B) Section 263A(b)(2)(A).
(C) Clauses (i) and (iii) of section 267(f)(3)(B).
(D) Section 341(d)(3).
(E) Section 543(a)(1)(D)(i).
(F) Section 751(d)(1).
(G) Section 775(c).
(H) Section 856(c)(2)(D).
(I) Section 856(c)(3)(C).
(J) Section 856(e)(1).
(K) Section 856(j)(2)(B).
(L) Section 857(b)(4)(B)(i).
(M) Section 857(b)(6)(B)(iii).
(N) Section 864(c)(4)(B)(iii).
(O) Section 864(d)(3)(A).
(P) Section 864(d)(6)(A).
(Q) Section 954(c)(1)(B)(iii).
(R) Section 995(b)(1)(C).
(S) Section 1017(b)(3)(E)(i).
(T) Section 1362(d)(3)(C)(ii).
(U) Section 4662(c)(2)(C).
(V) Section 7704(c)(3).
(W) Section 7704(d)(1)(D).
(X) Section 7704(d)(1)(G).
(Y) Section 7704(d)(5).
(3) Section 818(b)(2) is amended by striking ``section
1221(2)'' and inserting ``section 1221(a)(2)''.
(4) Section 1397B(e)(2) is amended by striking ``section
1221(4)'' and inserting ``section 1221(a)(4)''.
(d) Effective Date.--The amendments made by this section shall
apply to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after the
date of the enactment of this Act.
SEC. 204. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS
PNEUMONIAE TO LIST OF TAXABLE VACCINES.
(a) Inclusion of Vaccines.--
(1) In general.--Section 4132(a)(1) (defining taxable
vaccine) is amended by adding at the end the following new
subparagraph:
``(L) Any conjugate vaccine against streptococcus
pneumoniae.''
(2) Effective date.--
(A) Sales.--The amendment made by this subsection
shall apply to vaccine sales beginning on the day after
the date on which the Centers for Disease Control makes
a final recommendation for routine administration to
children of any conjugate vaccine against streptococcus
pneumoniae, but shall not take effect if subsection (b)
does not take effect.
(B) Deliveries.--For purposes of subparagraph (A),
in the case of sales on or before the date described in
such subparagraph for which delivery is made after such
date, the delivery date shall be considered the sale
date.
(b) Vaccine Tax and Trust Fund Amendments.--
(1) Sections 1503 and 1504 of the Vaccine Injury
Compensation Program Modification Act (and the amendments made
by such sections) are hereby repealed.
(2) Subparagraph (A) of section 9510(c)(1) is amended by
striking ``August 5, 1997'' and inserting ``October 21, 1998''.
(3) The amendments made by this subsection shall take
effect as if included in the provisions of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act,
1999 to which they relate.
(c) Report.--Not later than January 31, 2000, the Comptroller
General of the United States shall prepare and submit a report to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate on the operation of the Vaccine
Injury Compensation Trust Fund and on the adequacy of such Fund to meet
future claims made under the Vaccine Injury Compensation Program.
SEC. 205. EXPANSION OF REPORTING OF CANCELLATION OF INDEBTEDNESS
INCOME.
(a) In General.--Paragraph (2) of section 6050P(c) (relating to
definitions and special rules) is amended by striking ``and'' at the
end of subparagraph (B), by striking the period at the end of
subparagraph (C) and inserting ``, and'', and by inserting after
subparagraph (C) the following new subparagraph:
``(D) any organization a significant trade or
business of which is the lending of money.''
(b) Effective Date.--The amendment made by subsection (a) shall
apply to discharges of indebtedness after December 31, 1999.
SEC. 206. IMPOSITION OF LIMITATION ON PREFUNDING OF CERTAIN EMPLOYEE
BENEFITS.
(a) Benefits to Which Exception Applies.--Section 419A(f)(6)(A)
(relating to exception for 10 or more employer plans) is amended to
read as follows:
``(A) In general.--This subpart shall not apply to
a welfare benefit fund which is part of a 10 or more
employer plan if the only benefits provided through the
fund are 1 or more of the following:
``(i) Medical benefits.
``(ii) Disability benefits.
``(iii) Group term life insurance benefits
which do not provide directly or indirectly for
any cash surrender value or other money that
can be paid, assigned, borrowed, or pledged for
collateral for a loan.
The preceding sentence shall not apply to any plan
which maintains experience-rating arrangements with
respect to individual employers.''
(b) Limitation on Use of Amounts for Other Purposes.--Section
4976(b) (defining disqualified benefit) is amended by adding at the end
the following new paragraph:
``(5) Special rule for 10 or more employer plans exempted
from prefunding limits.--For purposes of paragraph (1)(C), if--
``(A) subpart D of part I of subchapter D of
chapter 1 does not apply by reason of section
419A(f)(6) to contributions to provide 1 or more
welfare benefits through a welfare benefit fund under a
10 or more employer plan, and
``(B) any portion of the welfare benefit fund
attributable to such contributions is used for a
purpose other than that for which the contributions
were made,
then such portion shall be treated as reverting to the benefit
of the employers maintaining the fund.''
(c) Effective Date.--The amendments made by this section shall
apply to contributions paid or accrued after June 9, 1999, in taxable
years ending after such date.
SEC. 207. INCREASE IN ELECTIVE WITHHOLDING RATE FOR NONPERIODIC
DISTRIBUTIONS FROM DEFERRED COMPENSATION PLANS.
(a) In General.--Section 3405(b)(1) (relating to withholding) is
amended by striking ``10 percent'' and inserting ``15 percent''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to distributions after December 31, 2000.
SEC. 208. LIMITATION ON CONVERSION OF CHARACTER OF INCOME FROM
CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
(a) In General.--Part IV of subchapter P of chapter 1 (relating to
special rules for determining capital gains and losses) is amended by
inserting after section 1259 the following new section:
``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
``(a) In General.--If the taxpayer has gain from a constructive
ownership transaction with respect to any financial asset and such gain
would (without regard to this section) be treated as a long-term
capital gain--
``(1) such gain shall be treated as ordinary income to the
extent that such gain exceeds the net underlying long-term
capital gain, and
``(2) to the extent such gain is treated as a long-term
capital gain after the application of paragraph (1), the
determination of the capital gain rate (or rates) applicable to
such gain under section 1(h) shall be determined on the basis
of the respective rate (or rates) that would have been
applicable to the net underlying long-term capital gain.
``(b) Interest Charge on Deferral of Gain Recognition.--
``(1) In general.--If any gain is treated as ordinary
income for any taxable year by reason of subsection (a)(1), the
tax imposed by this chapter for such taxable year shall be
increased by the amount of interest determined under paragraph
(2) with respect to each prior taxable year during any portion
of which the constructive ownership transaction was open. Any
amount payable under this paragraph shall be taken into account
in computing the amount of any deduction allowable to the
taxpayer for interest paid or accrued during such taxable year.
``(2) Amount of interest.--The amount of interest
determined under this paragraph with respect to a prior taxable
year is the amount of interest which would have been imposed
under section 6601 on the underpayment of tax for such year
which would have resulted if the gain (which is treated as
ordinary income by reason of subsection (a)(1)) had been
included in gross income in the taxable years in which it
accrued (determined by treating the income as accruing at a
constant rate equal to the applicable Federal rate as in effect
on the day the transaction closed). The period during which
such interest shall accrue shall end on the due date (without
extensions) for the return of tax imposed by this chapter for
the taxable year in which such transaction closed.
``(3) Applicable federal rate.--For purposes of paragraph
(2), the applicable Federal rate is the applicable Federal rate
determined under 1274(d) (compounded semiannually) which would
apply to a debt instrument with a term equal to the period the
transaction was open.
``(4) No credits against increase in tax.--Any increase in
tax under paragraph (1) shall not be treated as tax imposed by
this chapter for purposes of determining--
``(A) the amount of any credit allowable under this
chapter, or
``(B) the amount of the tax imposed by section 55.
``(c) Financial Asset.--For purposes of this section--
``(1) In general.--The term `financial asset' means--
``(A) any equity interest in any pass-thru entity,
and
``(B) to the extent provided in regulations--
``(i) any debt instrument, and
``(ii) any stock in a corporation which is
not a pass-thru entity.
``(2) Pass-thru entity.--For purposes of paragraph (1), the
term `pass-thru entity' means--
``(A) a regulated investment company,
``(B) a real estate investment trust,
``(C) an S corporation,
``(D) a partnership,
``(E) a trust,
``(F) a common trust fund,
``(G) a passive foreign investment company (as
defined in section 1297 without regard to subsection
(e) thereof),
``(H) a foreign personal holding company,
``(I) a foreign investment company (as defined in
section 1246(b)), and
``(J) a REMIC.
``(d) Constructive Ownership Transaction.--For purposes of this
section--
``(1) In general.--The taxpayer shall be treated as having
entered into a constructive ownership transaction with respect
to any financial asset if the taxpayer--
``(A) holds a long position under a notional
principal contract with respect to the financial asset,
``(B) enters into a forward or futures contract to
acquire the financial asset,
``(C) is the holder of a call option, and is the
grantor of a put option, with respect to the financial
asset and such options have substantially equal strike
prices and substantially contemporaneous maturity
dates, or
``(D) to the extent provided in regulations
prescribed by the Secretary, enters into one or more
other transactions (or acquires one or more positions)
that have substantially the same effect as a
transaction described in any of the preceding
subparagraphs.
``(2) Exception for positions which are marked to market.--
This section shall not apply to any constructive ownership
transaction if all of the positions which are part of such
transaction are marked to market under any provision of this
title or the regulations thereunder.
``(3) Long position under notional principal contract.--A
person shall be treated as holding a long position under a
notional principal contract with respect to any financial asset
if such person--
``(A) has the right to be paid (or receive credit
for) all or substantially all of the investment yield
(including appreciation) on such financial asset for a
specified period, and
``(B) is obligated to reimburse (or provide credit
for) all or substantially all of any decline in the
value of such financial asset.
``(4) Forward contract.--The term `forward contract' means
any contract to acquire in the future (or provide or receive
credit for the future value of) any financial asset.
``(e) Net Underlying Long-Term Capital Gain.--For purposes of this
section, in the case of any constructive ownership transaction with
respect to any financial asset, the term `net underlying long-term
capital gain' means the aggregate net capital gain that the taxpayer
would have had if--
``(1) the financial asset had been acquired for fair market
value on the date such transaction was opened and sold for fair
market value on the date such transaction was closed, and
``(2) only gains and losses that would have resulted from
the deemed ownership under paragraph (1) were taken into
account.
The amount of the net underlying long-term capital gain with respect to
any financial asset shall be treated as zero unless the amount thereof
is established by clear and convincing evidence.
``(f) Special Rule Where Taxpayer Takes Delivery.--Except as
provided in regulations prescribed by the Secretary, if a constructive
ownership transaction is closed by reason of taking delivery, this
section shall be applied as if the taxpayer had sold all the contracts,
options, or other positions which are part of such transaction for fair
market value on the closing date. The amount of gain recognized under
the preceding sentence shall not exceed the amount of gain treated as
ordinary income under subsection (a). Proper adjustments shall be made
in the amount of any gain or loss subsequently realized for gain
recognized and treated as ordinary income under this subsection.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) to permit taxpayers to mark to market constructive
ownership transactions in lieu of applying this section, and
``(2) to exclude certain forward contracts which do not
convey substantially all of the economic return with respect to
a financial asset.''
(b) Clerical Amendment.--The table of sections for part IV of
subchapter P of chapter 1 is amended by adding at the end the following
new item:
``Sec. 1260. Gains from constructive
ownership transactions.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after July 11, 1999.
SEC. 209. TREATMENT OF EXCESS PENSION ASSETS USED FOR RETIREE HEALTH
BENEFITS.
(a) Extension.--
(1) In general.--Paragraph (5) of section 420(b) (relating
to expiration) is amended by striking ``in any taxable year
beginning after December 31, 2000'' and inserting ``made after
September 30, 2009''.
(2) Conforming amendments.--
(A) Section 101(e)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1021(e)(3)) is
amended by striking ``January 1, 1995'' and inserting
``the date of the enactment of the Tax Relief Extension
Act of 1999''.
(B) Section 403(c)(1) of such Act (29 U.S.C.
1103(c)(1)) is amended by striking ``January 1, 1995''
and inserting ``the date of the enactment of the Tax
Relief Extension Act of 1999''.
(C) Paragraph (13) of section 408(b) of such Act
(29 U.S.C. 1108(b)(13)) is amended--
(i) by striking ``in a taxable year
beginning before January 1, 2001'' and
inserting ``made before October 1, 2009'', and
(ii) by striking ``January 1, 1995'' and
inserting ``the date of the enactment of the
Tax Relief Extension Act of 1999''.
(b) Application of Minimum Cost Requirements.--
(1) In general.--Paragraph (3) of section 420(c) is amended
to read as follows:
``(3) Minimum cost requirements.--
``(A) In general.--The requirements of this
paragraph are met if each group health plan or
arrangement under which applicable health benefits are
provided provides that the applicable employer cost for
each taxable year during the cost maintenance period
shall not be less than the higher of the applicable
employer costs for each of the 2 taxable years
immediately preceding the taxable year of the qualified
transfer.
``(B) Applicable employer cost.--For purposes of
this paragraph, the term `applicable employer cost'
means, with respect to any taxable year, the amount
determined by dividing--
``(i) the qualified current retiree health
liabilities of the employer for such taxable
year determined--
``(I) without regard to any
reduction under subsection (e)(1)(B),
and
``(II) in the case of a taxable
year in which there was no qualified
transfer, in the same manner as if
there had been such a transfer at the
end of the taxable year, by
``(ii) the number of individuals to whom
coverage for applicable health benefits was
provided during such taxable year.
``(C) Election to compute cost separately.--An
employer may elect to have this paragraph applied
separately with respect to individuals eligible for
benefits under title XVIII of the Social Security Act
at any time during the taxable year and with respect to
individuals not so eligible.
``(D) Cost maintenance period.--For purposes of
this paragraph, the term `cost maintenance period'
means the period of 5 taxable years beginning with the
taxable year in which the qualified transfer occurs. If
a taxable year is in two or more overlapping cost
maintenance periods, this paragraph shall be applied by
taking into account the highest applicable employer
cost required to be provided under subparagraph (A) for
such taxable year.''.
(2) Conforming amendments.--
(A) Clause (iii) of section 420(b)(1)(C) is amended
by striking ``benefits'' and inserting ``cost''.
(B) Subparagraph (D) of section 420(e)(1) is
amended by striking ``and shall not be subject to the
minimum benefit requirements of subsection (c)(3)'' and
inserting ``or in calculating applicable employer cost
under subsection (c)(3)(B)''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to qualified transfers occurring after the date of the
enactment of this Act.
(2) Transition rule.--If the cost maintenance period for
any qualified transfer after the date of the enactment of this
Act includes any portion of a benefit maintenance period for
any qualified transfer on or before such date, the amendments
made by subsection (b) shall not apply to such portion of the
cost maintenance period (and such portion shall be treated as a
benefit maintenance period).
SEC. 210. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF INSTALLMENT
METHOD FOR ACCRUAL METHOD TAXPAYERS.
(a) Repeal of Installment Method for Accrual Basis Taxpayers.--
(1) In general.--Subsection (a) of section 453 (relating to
installment method) is amended to read as follows:
``(a) Use of Installment Method.--
``(1) In general.--Except as otherwise provided in this
section, income from an installment sale shall be taken into
account for purposes of this title under the installment
method.
``(2) Accrual method taxpayer.--The installment method
shall not apply to income from an installment sale if such
income would be reported under an accrual method of accounting
without regard to this section. The preceding sentence shall
not apply to a disposition described in subparagraph (A) or (B)
of subsection (l)(2).''
(2) Conforming amendments.--Sections 453(d)(1), 453(i)(1),
and 453(k) are each amended by striking ``(a)'' each place it
appears and inserting ``(a)(1)''.
(b) Modification of Pledge Rules.--Paragraph (4) of section 453A(d)
(relating to pledges, etc., of installment obligations) is amended by
adding at the end the following: ``A payment shall be treated as
directly secured by an interest in an installment obligation to the
extent an arrangement allows the taxpayer to satisfy all or a portion
of the indebtedness with the installment obligation.''
(c) Effective Date.--The amendments made by this section shall
apply to sales or other dispositions occurring on or after the date of
the enactment of this Act.
SEC. 211. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF
ACCOUNTING.
(a) In General.--Section 448(d)(5) (relating to special rule for
services) is amended--
(1) by inserting ``in fields described in paragraph
(2)(A)'' after ``services by such person'', and
(2) by inserting ``certain personal'' before ``services''
in the heading.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
ending after the date of the enactment of this Act--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to
be taken into account by the taxpayer under section 481
of the Internal Revenue Code of 1986 shall be taken
into account over a period (not greater than 4 taxable
years) beginning with such first taxable year.
SEC. 212. DENIAL OF CHARITABLE CONTRIBUTION DEDUCTION FOR TRANSFERS
ASSOCIATED WITH SPLIT-DOLLAR INSURANCE ARRANGEMENTS.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules) is
amended by adding at the end the following new paragraph:
``(10) Split-dollar life insurance, annuity, and endowment
contracts.--
``(A) In general.--Nothing in this section or in
section 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2),
or 2522 shall be construed to allow a deduction, and no
deduction shall be allowed, for any transfer to or for
the use of an organization described in subsection (c)
if in connection with such transfer--
``(i) the organization directly or
indirectly pays, or has previously paid, any
premium on any personal benefit contract with
respect to the transferor, or
``(ii) there is an understanding or
expectation that any person will directly or
indirectly pay any premium on any personal
benefit contract with respect to the
transferor.
``(B) Personal benefit contract.--For purposes of
subparagraph (A), the term `personal benefit contract'
means, with respect to the transferor, any life
insurance, annuity, or endowment contract if any direct
or indirect beneficiary under such contract is the
transferor, any member of the transferor's family, or
any other person (other than an organization described
in subsection (c)) designated by the transferor.
``(C) Application to charitable remainder trusts.--
In the case of a transfer to a trust referred to in
subparagraph (E), references in subparagraphs (A) and
(F) to an organization described in subsection (c)
shall be treated as a reference to such trust.
``(D) Exception for certain annuity contracts.--If,
in connection with a transfer to or for the use of an
organization described in subsection (c), such
organization incurs an obligation to pay a charitable
gift annuity (as defined in section 501(m)) and such
organization purchases any annuity contract to fund
such obligation, persons receiving payments under the
charitable gift annuity shall not be treated for
purposes of subparagraph (B) as indirect beneficiaries
under such contract if--
``(i) such organization possesses all of
the incidents of ownership under such contract,
``(ii) such organization is entitled to all
the payments under such contract, and
``(iii) the timing and amount of payments
under such contract are substantially the same
as the timing and amount of payments to each
such person under such obligation (as such
obligation is in effect at the time of such
transfer).
``(E) Exception for certain contracts held by
charitable remainder trusts.--A person shall not be
treated for purposes of subparagraph (B) as an indirect
beneficiary under any life insurance, annuity, or
endowment contract held by a charitable remainder
annuity trust or a charitable remainder unitrust (as
defined in section 664(d)) solely by reason of being
entitled to any payment referred to in paragraph (1)(A)
or (2)(A) of section 664(d) if--
``(i) such trust possesses all of the
incidents of ownership under such contract, and
``(ii) such trust is entitled to all the
payments under such contract.
``(F) Excise tax on premiums paid.--
``(i) In general.--There is hereby imposed
on any organization described in subsection (c)
an excise tax equal to the premiums paid by
such organization on any life insurance,
annuity, or endowment contract if the payment
of premiums on such contract is in connection
with a transfer for which a deduction is not
allowable under subparagraph (A), determined
without regard to when such transfer is made.
``(ii) Payments by other persons.--For
purposes of clause (i), payments made by any
other person pursuant to an understanding or
expectation referred to in subparagraph (A)
shall be treated as made by the organization.
``(iii) Reporting.--Any organization on
which tax is imposed by clause (i) with respect
to any premium shall file an annual return
which includes--
``(I) the amount of such premiums
paid during the year and the name and
TIN of each beneficiary under the
contract to which the premium relates,
and
``(II) such other information as
the Secretary may require.
The penalties applicable to returns required
under section 6033 shall apply to returns
required under this clause. Returns required
under this clause shall be furnished at such
time and in such manner as the Secretary shall
by forms or regulations require.
``(iv) Certain rules to apply.--The tax
imposed by this subparagraph shall be treated
as imposed by chapter 42 for purposes of this
title other than subchapter B of chapter 42.
``(G) Special rule where state requires
specification of charitable gift annuitant in
contract.--In the case of an obligation to pay a
charitable gift annuity referred to in subparagraph (D)
which is entered into under the laws of a State which
requires, in order for the charitable gift annuity to
be exempt from insurance regulation by such State, that
each beneficiary under the charitable gift annuity be
named as a beneficiary under an annuity contract issued
by an insurance company authorized to transact business
in such State, the requirements of clauses (i) and (ii)
of subparagraph (D) shall be treated as met if--
``(i) such State law requirement was in
effect on February 8, 1999,
``(ii) each such beneficiary under the
charitable gift annuity is a bona fide resident
of such State at the time the obligation to pay
a charitable gift annuity is entered into, and
``(iii) the only persons entitled to
payments under such contract are persons
entitled to payments as beneficiaries under
such obligation on the date such obligation is
entered into.
``(H) Member of family.--For purposes of this
paragraph, an individual's family consists of the
individual's grandparents, the grandparents of such
individual's spouse, the lineal descendants of such
grandparents, and any spouse of such a lineal
descendant.
``(I) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this paragraph, including
regulations to prevent the avoidance of such
purposes.''
(b) Effective Date.--
(1) In general.--Except as otherwise provided in this
section, the amendment made by this section shall apply to
transfers made after February 8, 1999.
(2) Excise tax.--Except as provided in paragraph (3) of
this subsection, section 170(f)(10)(F) of the Internal Revenue
Code of 1986 (as added by this section) shall apply to premiums
paid after the date of the enactment of this Act.
(3) Reporting.--Clause (iii) of such section 170(f)(10)(F)
shall apply to premiums paid after February 8, 1999 (determined
as if the tax imposed by such section applies to premiums paid
after such date).
SEC. 213. PREVENTION OF DUPLICATION OF LOSS THROUGH ASSUMPTION OF
LIABILITIES GIVING RISE TO A DEDUCTION.
(a) In General.--Section 358 (relating to basis to distributees) is
amended by adding at the end the following new subsection:
``(h) Special Rules for Assumption of Liabilities To Which
Subsection (d) Does Not Apply.--
``(1) In general.--If, after application of the other
provisions of this section to an exchange or series of
exchanges, the basis of property to which subsection (a)(1)
applies exceeds the fair market value of such property, then
such basis shall be reduced (but not below such fair market
value) by the amount (determined as of the date of the
exchange) of any liability--
``(A) which is assumed in exchange for such
property, and
``(B) with respect to which subsection (d)(1) does
not apply to the assumption.
``(2) Exception.--Paragraph (1) shall not apply to any
liability if the trade or business giving rise to the liability
is transferred to the person assuming the liability as part of
the exchange.
``(3) Liability.--For purposes of this subsection, the term
`liability' shall include any obligation to make payment,
without regard to whether the obligation is fixed or contingent
or otherwise taken into account for purposes of this title.
``(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this subsection.''
(b) Application of Comparable Rules to Partnerships.--The Secretary
of the Treasury or his delegate shall prescribe rules which provide
appropriate adjustments under subchapter K of chapter 1 of the Internal
Revenue Code of 1986 to prevent the acceleration or duplication of
losses through the assumption of (or transfer of assets subject to)
liabilities described in section 358(h)(3) of such Code (as added by
subsection (a)) in transactions involving partnerships.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to assumptions of liability after October 18, 1999.
(2) Rules.--The rules prescribed under subsection (b) shall
apply to assumptions of liability after October 18, 1999, or
such later date as may be prescribed in such rules.
SEC. 214. CONSISTENT TREATMENT AND BASIS ALLOCATION RULES FOR TRANSFERS
OF INTANGIBLES IN CERTAIN NONRECOGNITION TRANSACTIONS.
(a) Transfers to Corporations.--Section 351 (relating to transfer
to corporation controlled by transferor) is amended by redesignating
subsection (h) as subsection (i) and by inserting after subsection (g)
the following new subsection:
``(h) Treatment of Transfers of Intangible Property.--
``(1) Transfers of less than all substantial rights.
``(A) In general.--A transfer of an interest in
intangible property (as defined in section
936(h)(3)(B)) shall be treated under this section as a
transfer of property even if the transfer is of less
than all of the substantial rights of the transferor in
the property.
``(B) Allocation of basis.--In the case of a
transfer of less than all of the substantial rights of
the transferor in the intangible property, the
transferor's basis immediately before the transfer
shall be allocated among the rights retained by the
transferor and the rights transferred on the basis of
their respective fair market values.
``(2) Nonrecognition not to apply to intangible property
developed for transferee.--This section shall not apply to a
transfer of intangible property developed by the transferor or
any related person if such development was pursuant to an
arrangement with the transferee.''
(b) Transfers to Partnerships.--Subsection (d) of section 721 is
amended to read as follows:
``(d) Transfers of Intangible Property.--
``(1) In general.--Rules similar to the rules of section
351(h) shall apply for purposes of this section.
``(2) Transfers to foreign partnerships.--For regulatory
authority to treat intangibles transferred to a partnership as
sold, see section 367(d)(3).''
(c) Effective Date.--The amendments made by this section shall
apply to transfers on or after the date of the enactment of this Act.
SEC. 215. DISTRIBUTIONS BY A PARTNERSHIP TO A CORPORATE PARTNER OF
STOCK IN ANOTHER CORPORATION.
(a) In General.--Section 732 (relating to basis of distributed
property other than money) is amended by adding at the end the
following new subsection:
``(f) Corresponding Adjustment to Basis of Assets of a Distributed
Corporation Controlled by a Corporate Partner.--
``(1) In general.--If--
``(A) a corporation (hereafter in this subsection
referred to as the `corporate partner') receives a
distribution from a partnership of stock in another
corporation (hereafter in this subsection referred to
as the `distributed corporation'),
``(B) the corporate partner has control of the
distributed corporation immediately after the
distribution or at any time thereafter, and
``(C) the partnership's adjusted basis in such
stock immediately before the distribution exceeded the
corporate partner's adjusted basis in such stock
immediately after the distribution,
then an amount equal to such excess shall be applied to reduce
(in accordance with subsection (c)) the basis of property held
by the distributed corporation at such time (or, if the
corporate partner does not control the distributed corporation
at such time, at the time the corporate partner first has such
control).
``(2) Exception for certain distributions before control
acquired.--Paragraph (1) shall not apply to any distribution of
stock in the distributed corporation if--
``(A) the corporate partner does not have control
of such corporation immediately after such
distribution, and
``(B) the corporate partner establishes to the
satisfaction of the Secretary that such distribution
was not part of a plan or arrangement to acquire
control of the distributed corporation.
``(3) Limitations on basis reduction.--
``(A) In general.--The amount of the reduction
under paragraph (1) shall not exceed the amount by
which the sum of the aggregate adjusted bases of the
property and the amount of money of the distributed
corporation exceeds the corporate partner's adjusted
basis in the stock of the distributed corporation.
``(B) Reduction not to exceed adjusted basis of
property.--No reduction under paragraph (1) in the
basis of any property shall exceed the adjusted basis
of such property (determined without regard to such
reduction).
``(4) Gain recognition where reduction limited.--If the
amount of any reduction under paragraph (1) (determined after
the application of paragraph (3)(A)) exceeds the aggregate
adjusted bases of the property of the distributed corporation--
``(A) such excess shall be recognized by the
corporate partner as long-term capital gain, and
``(B) the corporate partner's adjusted basis in the
stock of the distributed corporation shall be increased
by such excess.
``(5) Control.--For purposes of this subsection, the term
`control' means ownership of stock meeting the requirements of
section 1504(a)(2).
``(6) Indirect distributions.--For purposes of paragraph
(1), if a corporation acquires (other than in a distribution
from a partnership) stock the basis of which is determined in
whole or in part by reference to subsection (a)(2) or (b), the
corporation shall be treated as receiving a distribution of
such stock from a partnership.
``(7) Special rule for stock in controlled corporation.--If
the property held by a distributed corporation is stock in a
corporation which the distributed corporation controls, this
subsection shall be applied to reduce the basis of the property
of such controlled corporation. This subsection shall be
reapplied to any property of any controlled corporation which
is stock in a corporation which it controls.
``(8) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection, including regulations to avoid double counting
and to prevent the abuse of such purposes.''
(b) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall apply to distributions
made after July 14, 1999.
(2) Partnerships in existence on July 14, 1999.--In the
case of a corporation which is a partner in a partnership as of
July 14, 1999, the amendment made by this section shall apply
to distributions made to such partner from such partnership
after the date of the enactment of this Act.
SEC. 216. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.
(a) In General.--Section 409 (relating to qualifications for tax
credit employee stock ownership plans) is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Prohibited Allocations of Securities in an S Corporation.--
``(1) In general.--An employee stock ownership plan holding
employer securities consisting of stock in an S corporation
shall provide that no portion of the assets of the plan
attributable to (or allocable in lieu of) such employer
securities may, during a nonallocation year, accrue (or be
allocated directly or indirectly under any plan of the employer
meeting the requirements of section 401(a)) for the benefit of
any disqualified person.
``(2) Failure to meet requirements.--
``(A) In general.--If a plan fails to meet the
requirements of paragraph (1), the plan shall be
treated as having distributed to any disqualified
person the amount allocated to the account of such
person in violation of paragraph (1) at the time of
such allocation.
``(B) Cross reference.--
``For excise tax relating to violations
of paragraph (1) and ownership of synthetic equity, see section 4979A.
``(3) Nonallocation year.--For purposes of this
subsection--
``(A) In general.--The term `nonallocation year'
means any plan year of an employee stock ownership plan
if, at any time during such plan year--
``(i) such plan holds employer securities
consisting of stock in an S corporation, and
``(ii) disqualified persons own at least 50
percent of the number of shares of stock in the
S corporation.
``(B) Attribution rules.--For purposes of
subparagraph (A)--
``(i) In general.--The rules of section
318(a) shall apply for purposes of determining
ownership, except that--
``(I) in applying paragraph (1)
thereof, the members of an individual's
family shall include members of the
family described in paragraph (4)(D),
and
``(II) paragraph (4) thereof shall
not apply.
``(ii) Deemed-owned shares.--
Notwithstanding the employee trust exception in
section 318(a)(2)(B)(i), individual shall be
treated as owning deemed-owned shares of the
individual.
Solely for purposes of applying paragraph (5), this
subparagraph shall be applied after the attribution
rules of paragraph (5) have been applied.
``(4) Disqualified person.--For purposes of this
subsection--
``(A) In general.--The term `disqualified person'
means any person if--
``(i) the aggregate number of deemed-owned
shares of such person and the members of such
person's family is at least 20 percent of the
number of deemed-owned shares of stock in the S
corporation, or
``(ii) in the case of a person not
described in clause (i), the number of deemed-
owned shares of such person is at least 10
percent of the number of deemed-owned shares of
stock in such corporation.
``(B) Treatment of family members.--In the case of
a disqualified person described in subparagraph (A)(i),
any member of such person's family with deemed-owned
shares shall be treated as a disqualified person if not
otherwise treated as a disqualified person under
subparagraph (A).
``(C) Deemed-owned shares.--
``(i) In general.--The term `deemed-owned
shares' means, with respect to any person--
``(I) the stock in the S
corporation constituting employer
securities of an employee stock
ownership plan which is allocated to
such person under the plan, and
``(II) such person's share of the
stock in such corporation which is held
by such plan but which is not allocated
under the plan to participants.
``(ii) Person's share of unallocated
stock.--For purposes of clause (i)(II), a
person's share of unallocated S corporation
stock held by such plan is the amount of the unallocated stock which
would be allocated to such person if the unallocated stock were
allocated to all participants in the same proportions as the most
recent stock allocation under the plan.
``(D) Member of family.--For purposes of this
paragraph, the term `member of the family' means, with
respect to any individual--
``(i) the spouse of the individual,
``(ii) an ancestor or lineal descendant of
the individual or the individual's spouse,
``(iii) a brother or sister of the
individual or the individual's spouse and any
lineal descendant of the brother or sister, and
``(iv) the spouse of any individual
described in clause (ii) or (iii).
A spouse of an individual who is legally separated from
such individual under a decree of divorce or separate
maintenance shall not be treated as such individual's
spouse for purposes of this subparagraph.
``(5) Treatment of synthetic equity.--For purposes of
paragraphs (3) and (4), in the case of a person who owns
synthetic equity in the S corporation, except to the extent
provided in regulations, the shares of stock in such
corporation on which such synthetic equity is based shall be
treated as outstanding stock in such corporation and deemed-
owned shares of such person if such treatment of synthetic
equity of 1 or more such persons results in--
``(A) the treatment of any person as a disqualified
person, or
``(B) the treatment of any year as a nonallocation
year.
For purposes of this paragraph, synthetic equity shall be
treated as owned by a person in the same manner as stock is
treated as owned by a person under the rules of paragraphs (2)
and (3) of section 318(a). If, without regard to this
paragraph, a person is treated as a disqualified person or a
year is treated as a nonallocation year, this paragraph shall
not be construed to result in the person or year not being so
treated.
``(6) Definitions.--For purposes of this subsection--
``(A) Employee stock ownership plan.--The term
`employee stock ownership plan' has the meaning given
such term by section 4975(e)(7).
``(B) Employer securities.--The term `employer
security' has the meaning given such term by section
409(l).
``(C) Synthetic equity.--The term `synthetic
equity' means any stock option, warrant, restricted
stock, deferred issuance stock right, or similar
interest or right that gives the holder the right to
acquire or receive stock of the S corporation in the
future. Except to the extent provided in regulations,
synthetic equity also includes a stock appreciation
right, phantom stock unit, or similar right to a future
cash payment based on the value of such stock or
appreciation in such value.
``(7) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection.''
(b) Coordination With Section 4975(e)(7).--The last sentence of
section 4975(e)(7) (defining employee stock ownership plan) is amended
by inserting ``, section 409(p),'' after ``409(n)''.
(c) Excise Tax.--
(1) Application of tax.--Subsection (a) of section 4979A
(relating to tax on certain prohibited allocations of employer
securities) is amended--
(A) by striking ``or'' at the end of paragraph (1),
(B) by striking the period at the end of paragraph
(2) and inserting a comma, and
(C) by striking all that follows paragraph (2) and
inserting the following:
``(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (c)(2)(C) with respect to an
employee stock ownership plan, or
``(4) any synthetic equity is owned by a disqualified
person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to
50 percent of the amount involved.''
(2) Liability.--Section 4979A(c) (defining liability for
tax) is amended to read as follows:
``(c) Liability for Tax.--The tax imposed by this section shall be
paid--
``(1) in the case of an allocation referred to in paragraph
(1) or (2) of subsection (a), by--
``(A) the employer sponsoring such plan, or
``(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),
and
``(2) in the case of an allocation or ownership referred to
in paragraph (3) or (4) of subsection (a), by the S corporation
the stock in which was so allocated or owned.''
(3) Definitions.--Section 4979A(e) (relating to
definitions) is amended to read as follows:
``(e) Definitions and Special Rules.--For purposes of this
section--
``(1) Definitions.--Except as provided in paragraph (2),
terms used in this section have the same respective meanings as
when used in sections 409 and 4978.
``(2) Special rules relating to tax imposed by reason of
paragraph (3) or (4) of subsection (a).--
``(A) Prohibited allocations.--The amount involved
with respect to any tax imposed by reason of subsection
(a)(3) is the amount allocated to the account of any
person in violation of section 409(p)(1).
``(B) Synthetic equity.--The amount involved with
respect to any tax imposed by reason of subsection
(a)(4) is the value of the shares on which the
synthetic equity is based.
``(C) Special rule during first nonallocation
year.--For purposes of subparagraph (A), the amount
involved for the first nonallocation year of any
employee stock ownership plan shall be determined by
taking into account the total value of all the deemed-
owned shares of all disqualified persons with respect
to such plan.
``(D) Statute of limitations.--The statutory period
for the assessment of any tax imposed by this section
by reason of paragraph (3) or (4) of subsection (a)
shall not expire before the date which is 3 years from
the later of--
``(i) the allocation or ownership referred
to in such paragraph giving rise to such tax,
or
``(ii) the date on which the Secretary is
notified of such allocation or ownership.''
(d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2000.
(2) Exception for certain plans.--In the case of any--
(A) employee stock ownership plan established after
July 14, 1999, or
(B) employee stock ownership plan established on or
before such date if employer securities held by the
plan consist of stock in a corporation with respect to
which an election under section 1362(a) of the Internal
Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years
ending after July 14, 1999.
Subtitle B--Provisions Relating to Real Estate Investment Trusts
PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT
SUBSIDIARIES
SEC. 221. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.
(a) In General.--Subparagraph (B) of section 856(c)(4) is amended
to read as follows:
``(B)(i) not more than 25 percent of the value of
its total assets is represented by securities (other
than those includible under subparagraph (A)),
``(ii) not more than 20 percent of the value of its
total assets is represented by securities of 1 or more
taxable REIT subsidiaries, and
``(iii) except with respect to a taxable REIT
subsidiary and securities includible under subparagraph
(A)--
``(I) not more than 5 percent of the value
of its total assets is represented by
securities of any one issuer,
``(II) the trust does not hold securities
possessing more than 10 percent of the total
voting power of the outstanding securities of
any one issuer, and
``(III) the trust does not hold securities
having a value of more than 10 percent of the
total value of the outstanding securities of
any one issuer.''.
(b) Exception for Straight Debt Securities.--Subsection (c) of
section 856 is amended by adding at the end the following new
paragraph:
``(7) Straight debt safe harbor in applying paragraph
(4).--Securities of an issuer which are straight debt (as
defined in section 1361(c)(5) without regard to subparagraph
(B)(iii) thereof) shall not be taken into account in applying
paragraph (4)(B)(ii)(III) if--
``(A) the issuer is an individual, or
``(B) the only securities of such issuer which are
held by the trust or a taxable REIT subsidiary of the
trust are straight debt (as so defined), or
``(C) the issuer is a partnership and the trust
holds at least a 20 percent profits interest in the
partnership.''.
SEC. 222. TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT
SUBSIDIARIES.
(a) Income From Taxable REIT Subsidiaries Not Treated as
Impermissible Tenant Service Income.--Clause (i) of section
856(d)(7)(C) (relating to exceptions to impermissible tenant service
income) is amended by inserting ``or through a taxable REIT subsidiary
of such trust'' after ``income''.
(b) Certain Income From Taxable REIT Subsidiaries Not Excluded From
Rents From Real Property.--
(1) In general.--Subsection (d) of section 856 (relating to
rents from real property defined) is amended by adding at the
end the following new paragraphs:
``(8) Special rule for taxable reit subsidiaries.--For
purposes of this subsection, amounts paid to a real estate
investment trust by a taxable REIT subsidiary of such trust
shall not be excluded from rents from real property by reason
of paragraph (2)(B) if the requirements of either of the
following subparagraphs are met:
``(A) Limited rental exception.--The requirements
of this subparagraph are met with respect to any
property if at least 90 percent of the leased space of
the property is rented to persons other than taxable
REIT subsidiaries of such trust and other than persons
described in section 856(d)(2)(B). The preceding
sentence shall apply only to the extent that the
amounts paid to the trust as rents from real property
(as defined in paragraph (1) without regard to
paragraph (2)(B)) from such property are substantially
comparable to such rents made by the other tenants of
the trust's property for comparable space.
``(B) Exception for certain lodging facilities.--
The requirements of this subparagraph are met with
respect to an interest in real property which is a
qualified lodging facility leased by the trust to a
taxable REIT subsidiary of the trust if the property is
operated on behalf of such subsidiary by a person who
is an eligible independent contractor.
``(9) Eligible independent contractor.--For purposes of
paragraph (8)(B)--
``(A) In general.--The term `eligible independent
contractor' means, with respect to any qualified
lodging facility, any independent contractor if, at the
time such contractor enters into a management agreement
or other similar service contract with the taxable REIT
subsidiary to operate the facility, such contractor (or
any related person) is actively engaged in the trade or
business of operating qualified lodging facilities for
any person who is not a related person with respect to
the real estate investment trust or the taxable REIT
subsidiary.
``(B) Special rules.--Solely for purposes of this
paragraph and paragraph (8)(B), a person shall not fail
to be treated as an independent contractor with respect
to any qualified lodging facility by reason of any of
the following:
``(i) The taxable REIT subsidiary bears the
expenses for the operation of the facility
pursuant to the management agreement or other
similar service contract.
``(ii) The taxable REIT subsidiary receives
the revenues from the operation of such
facility, net of expenses for such operation
and fees payable to the operator pursuant to
such agreement or contract.
``(iii) The real estate investment trust
receives income from such person with respect
to another property that is attributable to a
lease of such other property to such person
that was in effect as of the later of--
``(I) January 1, 1999, or
``(II) the earliest date that any
taxable REIT subsidiary of such trust
entered into a management agreement or
other similar service contract with
such person with respect to such
qualified lodging facility.
``(C) Renewals, etc., of existing leases.--For
purposes of subparagraph (B)(iii)--
``(i) a lease shall be treated as in effect
on January 1, 1999, without regard to its
renewal after such date, so long as such
renewal is pursuant to the terms of such lease
as in effect on whichever of the dates under
subparagraph (B)(iii) is the latest, and
``(ii) a lease of a property entered into
after whichever of the dates under subparagraph
(B)(iii) is the latest shall be treated as in
effect on such date if--
``(I) on such date, a lease of such
property from the trust was in effect,
and
``(II) under the terms of the new
lease, such trust receives a
substantially similar or lesser benefit
in comparison to the lease referred to
in subclause (I).
``(D) Qualified lodging facility.--For purposes of
this paragraph--
``(i) In general.--The term `qualified
lodging facility' means any lodging facility
unless wagering activities are conducted at or
in connection with such facility by any person
who is engaged in the business of accepting
wagers and who is legally authorized to engage
in such business at or in connection with such
facility.
``(ii) Lodging facility.--The term `lodging
facility' means a hotel, motel, or other
establishment more than one-half of the
dwelling units in which are used on a transient
basis.
``(iii) Customary amenities and
facilities.--The term `lodging facility'
includes customary amenities and facilities
operated as part of, or associated with, the
lodging facility so long as such amenities and
facilities are customary for other properties
of a comparable size and class owned by other
owners unrelated to such real estate investment
trust.
``(E) Operate includes manage.--References in this
paragraph to operating a property shall be treated as
including a reference to managing the property.
``(F) Related person.--Persons shall be treated as
related to each other if such persons are treated as a
single employer under subsection (a) or (b) of section
52.''.
(2) Conforming amendment.--Subparagraph (B) of section
856(d)(2) is amended by inserting ``except as provided in
paragraph (8),'' after ``(B)''.
(3) Determining rents from real property.--
(A)(i) Paragraph (1) of section 856(d) is amended
by striking ``adjusted bases'' each place it occurs and
inserting ``fair market values''.
(ii) The amendment made by this subparagraph shall
apply to taxable years beginning after December 31,
2000.
(B)(i) Clause (i) of section 856(d)(2)(B) is
amended by striking ``number'' and inserting ``value''.
(ii) The amendment made by this subparagraph shall
apply to amounts received or accrued in taxable years
beginning after December 31, 2000, except for amounts
paid pursuant to leases in effect on July 12, 1999, or
pursuant to a binding contract in effect on such date
and at all times thereafter.
SEC. 223. TAXABLE REIT SUBSIDIARY.
(a) In General.--Section 856 is amended by adding at the end the
following new subsection:
``(l) Taxable REIT Subsidiary.--For purposes of this part--
``(1) In general.--The term `taxable REIT subsidiary'
means, with respect to a real estate investment trust, a
corporation (other than a real estate investment trust) if--
``(A) such trust directly or indirectly owns stock
in such corporation, and
``(B) such trust and such corporation jointly elect
that such corporation shall be treated as a taxable
REIT subsidiary of such trust for purposes of this
part.
Such an election, once made, shall be irrevocable unless both
such trust and corporation consent to its revocation. Such
election, and any revocation thereof, may be made without the
consent of the Secretary.
``(2) 35 percent ownership in another taxable reit
subsidiary.--The term `taxable REIT subsidiary' includes, with
respect to any real estate investment trust, any corporation
(other than a real estate investment trust) with respect to
which a taxable REIT subsidiary of such trust owns directly or
indirectly--
``(A) securities possessing more than 35 percent of
the total voting power of the outstanding securities of
such corporation, or
``(B) securities having a value of more than 35
percent of the total value of the outstanding
securities of such corporation.
The preceding sentence shall not apply to a qualified REIT
subsidiary (as defined in subsection (i)(2)). The rule of
section 856(c)(7) shall apply for purposes of subparagraph (B).
``(3) Exceptions.--The term `taxable REIT subsidiary' shall
not include--
``(A) any corporation which directly or indirectly
operates or manages a lodging facility or a health care
facility, and
``(B) any corporation which directly or indirectly
provides to any other person (under a franchise,
license, or otherwise) rights to any brand name under
which any lodging facility or health care facility is
operated.
Subparagraph (B) shall not apply to rights provided to an
eligible independent contractor to operate or manage a lodging
facility if such rights are held by such corporation as a
franchisee, licensee, or in a similar capacity and such lodging
facility is either owned by such corporation or is leased to
such corporation from the real estate investment trust.
``(4) Definitions.--For purposes of paragraph (3)--
``(A) Lodging facility.--The term `lodging
facility' has the meaning given to such term by
paragraph (9)(D)(ii).
``(B) Health care facility.--The term `health care
facility' has the meaning given to such term by
subsection (e)(6)(D)(ii).''.
(b) Conforming Amendment.--Paragraph (2) of section 856(i) is
amended by adding at the end the following new sentence: ``Such term
shall not include a taxable REIT subsidiary.''.
SEC. 224. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163(j) (relating to limitation on
deduction for interest on certain indebtedness) is amended by striking
``and'' at the end of subparagraph (A), by striking the period at the
end of subparagraph (B) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(C) any interest paid or accrued (directly or
indirectly) by a taxable REIT subsidiary (as defined in
section 856(l)) of a real estate investment trust to
such trust.''.
SEC. 225. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.
(a) In General.--Subsection (b) of section 857 (relating to method
of taxation of real estate investment trusts and holders of shares or
certificates of beneficial interest) is amended by redesignating
paragraphs (7) and (8) as paragraphs (8) and (9), respectively, and by
inserting after paragraph (6) the following new paragraph:
``(7) Income from redetermined rents, redetermined
deductions, and excess interest.--
``(A) Imposition of tax.--There is hereby imposed
for each taxable year of the real estate investment
trust a tax equal to 100 percent of redetermined rents,
redetermined deductions, and excess interest.
``(B) Redetermined rents.--
``(i) In general.--The term `redetermined
rents' means rents from real property (as
defined in subsection 856(d)) the amount of
which would (but for subparagraph (E)) be
reduced on distribution, apportionment, or
allocation under section 482 to clearly reflect
income as a result of services furnished or
rendered by a taxable REIT subsidiary of the
real estate investment trust to a tenant of
such trust.
``(ii) Exception for certain services.--
Clause (i) shall not apply to amounts received
directly or indirectly by a real estate
investment trust for services described in
paragraph (1)(B) or (7)(C)(i) of section
856(d).
``(iii) Exception for de minimis amounts.--
Clause (i) shall not apply to amounts described
in section 856(d)(7)(A) with respect to a
property to the extent such amounts do not
exceed the one percent threshold described in
section 856(d)(7)(B) with respect to such
property.
``(iv) Exception for comparably priced
services.--Clause (i) shall not apply to any
service rendered by a taxable REIT subsidiary
of a real estate investment trust to a tenant
of such trust if--
``(I) such subsidiary renders a
significant amount of similar services
to persons other than such trust and
tenants of such trust who are unrelated
(within the meaning of section
856(d)(8)(F)) to such subsidiary,
trust, and tenants, but
``(II) only to the extent the
charge for such service so rendered is
substantially comparable to the charge
for the similar services rendered to
persons referred to in subclause (I).
``(v) Exception for certain separately
charged services.--Clause (i) shall not apply
to any service rendered by a taxable REIT
subsidiary of a real estate investment trust to
a tenant of such trust if--
``(I) the rents paid to the trust
by tenants (leasing at least 25 percent
of the net leasable space in the
trust's property) who are not receiving
such service from such subsidiary are
substantially comparable to the rents
paid by tenants leasing comparable
space who are receiving such service
from such subsidiary, and
``(II) the charge for such service
from such subsidiary is separately
stated.
``(vi) Exception for certain services based
on subsidiary's income from the services.--
Clause (i) shall not apply to any service
rendered by a taxable REIT subsidiary of a real
estate investment trust to a tenant of such
trust if the gross income of such subsidiary
from such service is not less than 150 percent
of such subsidiary's direct cost in furnishing
or rendering the service.
``(vii) Exceptions granted by secretary.--
The Secretary may waive the tax otherwise
imposed by subparagraph (A) if the trust
establishes to the satisfaction of the
Secretary that rents charged to tenants were
established on an arms' length basis even
though a taxable REIT subsidiary of the trust
provided services to such tenants.
``(C) Redetermined deductions.--The term
`redetermined deductions' means deductions (other than
redetermined rents) of a taxable REIT subsidiary of a
real estate investment trust if the amount of such
deductions would (but for subparagraph (E)) be
decreased on distribution, apportionment, or allocation
under section 482 to clearly reflect income as between
such subsidiary and such trust.
``(D) Excess interest.--The term `excess interest'
means any deductions for interest payments by a taxable
REIT subsidiary of a real estate investment trust to
such trust to the extent that the interest payments are
in excess of a rate that is commercially reasonable.
``(E) Coordination with section 482.--The
imposition of tax under subparagraph (A) shall be in
lieu of any distribution, apportionment, or allocation
under section 482.
``(F) Regulatory authority.--The Secretary shall
prescribe such regulations as may be necessary or
appropriate to carry out the purposes of this
paragraph. Until the Secretary prescribes such
regulations, real estate investment trusts and their taxable REIT
subsidiaries may base their allocations on any reasonable method.''.
(b) Amount Subject to Tax Not Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) (relating to real estate
investment trust taxable income) is amended by striking ``paragraph
(5)'' and inserting ``paragraphs (5) and (7)''.
SEC. 226. EFFECTIVE DATE.
(a) In General.--The amendments made by this part shall apply to
taxable years beginning after December 31, 2000.
(b) Transitional Rules Related to Section 221.--
(1) Existing arrangements.--
(A) In general.--Except as otherwise provided in
this paragraph, the amendment made by section 221 shall
not apply to a real estate investment trust with
respect to--
(i) securities of a corporation held
directly or indirectly by such trust on July
12, 1999,
(ii) securities of a corporation held by an
entity on July 12, 1999, if such trust acquires
control of such entity pursuant to a written
binding contract in effect on such date and at
all times thereafter before such acquisition,
(iii) securities received by such trust (or
a successor) in exchange for, or with respect
to, securities described in clause (i) or (ii)
in a transaction in which gain or loss is not
recognized, and
(iv) securities acquired directly or
indirectly by such trust as part of a
reorganization (as defined in section 368(a)(1)
of the Internal Revenue Code of 1986) with
respect to such trust if such securities are
described in clause (i), (ii), or (iii) with
respect to any other real estate investment
trust.
(B) New trade or business or substantial new
assets.--Subparagraph (A) shall cease to apply to
securities of a corporation as of the first day after
July 12, 1999, on which such corporation engages in a
substantial new line of business, or acquires any
substantial asset, other than--
(i) pursuant to a binding contract in
effect on such date and at all times thereafter
before the acquisition of such asset,
(ii) in a transaction in which gain or loss
is not recognized by reason of section 1031 or
1033 of the Internal Revenue Code of 1986, or
(iii) in a reorganization (as so defined)
with another corporation the securities of
which are described in paragraph (1)(A) of this
subsection.
(C) Limitation on transition rules.--Subparagraph
(A) shall cease to apply to securities of a corporation
held, acquired, or received, directly or indirectly, by
a real estate investment trust as of the first day
after July 12, 1999, on which such trust acquires any
additional securities of such corporation other than--
(i) pursuant to a binding contract in
effect on July 12, 1999, and at all times
thereafter, or
(ii) in a reorganization (as so defined)
with another corporation the securities of
which are described in paragraph (1)(A) of this
subsection.
(2) Tax-free conversion.--If--
(A) at the time of an election for a corporation to
become a taxable REIT subsidiary, the amendment made by
section 221 does not apply to such corporation by
reason of paragraph (1), and
(B) such election first takes effect before January
1, 2004,
such election shall be treated as a reorganization qualifying
under section 368(a)(1)(A) of such Code.
PART II--HEALTH CARE REITS
SEC. 231. HEALTH CARE REITS.
(a) Special Foreclosure Rule for Health Care Properties.--
Subsection (e) of section 856 (relating to special rules for
foreclosure property) is amended by adding at the end the following new
paragraph:
``(6) Special rule for qualified health care properties.--
For purposes of this subsection--
``(A) Acquisition at expiration of lease.--The term
`foreclosure property' shall include any qualified
health care property acquired by a real estate
investment trust as the result of the termination of a
lease of such property (other than a termination by
reason of a default, or the imminence of a default, on
the lease).
``(B) Grace period.--In the case of a qualified
health care property which is foreclosure property
solely by reason of subparagraph (A), in lieu of
applying paragraphs (2) and (3)--
``(i) the qualified health care property
shall cease to be foreclosure property as of
the close of the second taxable year after the
taxable year in which such trust acquired such
property, and
``(ii) if the real estate investment trust
establishes to the satisfaction of the
Secretary that an extension of the grace period
in clause (i) is necessary to the orderly
leasing or liquidation of the trust's interest
in such qualified health care property, the
Secretary may grant one or more extensions of
the grace period for such qualified health care
property.
Any such extension shall not extend the grace period
beyond the close of the 6th year after the taxable year
in which such trust acquired such qualified health care property.
``(C) Income from independent contractors.--For
purposes of applying paragraph (4)(C) with respect to
qualified health care property which is foreclosure
property by reason of subparagraph (A) or paragraph
(1), income derived or received by the trust from an
independent contractor shall be disregarded to the
extent such income is attributable to--
``(i) any lease of property in effect on
the date the real estate investment trust
acquired the qualified health care property
(without regard to its renewal after such date
so long as such renewal is pursuant to the
terms of such lease as in effect on such date),
or
``(ii) any lease of property entered into
after such date if--
``(I) on such date, a lease of such
property from the trust was in effect,
and
``(II) under the terms of the new
lease, such trust receives a
substantially similar or lesser benefit
in comparison to the lease referred to
in subclause (I).
``(D) Qualified health care property.--
``(i) In general.--The term `qualified
health care property' means any real property
(including interests therein), and any personal
property incident to such real property,
which--
``(I) is a health care facility, or
``(II) is necessary or incidental
to the use of a health care facility.
``(ii) Health care facility.--For purposes
of clause (i), the term `health care facility'
means a hospital, nursing facility, assisted
living facility, congregate care facility,
qualified continuing care facility (as defined
in section 7872(g)(4)), or other licensed
facility which extends medical or nursing or
ancillary services to patients and which,
immediately before the termination, expiration,
default, or breach of the lease of or mortgage
secured by such facility, was operated by a
provider of such services which was eligible
for participation in the medicare program under
title XVIII of the Social Security Act with
respect to such facility.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2000.
PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES
SEC. 241. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.
(a) Distribution Requirement.--Clauses (i) and (ii) of section
857(a)(1)(A) (relating to requirements applicable to real estate
investment trusts) are each amended by striking ``95 percent (90
percent for taxable years beginning before January 1, 1980)'' and
inserting ``90 percent''.
(b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A)
(relating to imposition of tax in case of failure to meet certain
requirements) is amended by striking ``95 percent (90 percent in the
case of taxable years beginning before January 1, 1980)'' and inserting
``90 percent''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE
INCOME
SEC. 251. CLARIFICATION OF EXCEPTION FOR INDEPENDENT OPERATORS.
(a) In General.--Paragraph (3) of section 856(d) (relating to
independent contractor defined) is amended by adding at the end the
following flush sentence:
``In the event that any class of stock of either the real
estate investment trust or such person is regularly traded on
an established securities market, only persons who own,
directly or indirectly, more than 5 percent of such class of
stock shall be taken into account as owning any of the stock of
such class for purposes of applying the 35 percent limitation
set forth in subparagraph (B) (but all of the outstanding stock
of such class shall be considered outstanding in order to
compute the denominator for purpose of determining the
applicable percentage of ownership).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2000.
PART V--MODIFICATION OF EARNINGS AND PROFITS RULES
SEC. 261. MODIFICATION OF EARNINGS AND PROFITS RULES.
(a) Rules for Determining Whether Regulated Investment Company Has
Earnings and Profits From Non-RIC Year.--Subsection (c) of section 852
is amended by adding at the end the following new paragraph:
``(3) Distributions to meet requirements of subsection
(a)(2)(B).--Any distribution which is made in order to comply
with the requirements of subsection (a)(2)(B)--
``(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made from the
earliest earnings and profits accumulated in any
taxable year to which the provisions of this part did
not apply rather than the most recently accumulated
earnings and profits, and
``(B) to the extent treated under subparagraph (A)
as made from accumulated earnings and profits, shall
not be treated as a distribution for purposes of
subsection (b)(2)(D) and section 855.''.
(b) Clarification of Application of REIT Spillover Dividend Rules
to Distributions To Meet Qualification Requirement.--Subparagraph (B)
of section 857(d)(3) is amended by inserting before the period ``and
section 858''.
(c) Application of Deficiency Dividend Procedures.--Paragraph (1)
of section 852(e) is amended by adding at the end the following new
sentence: ``If the determination under subparagraph (A) is solely as a
result of the failure to meet the requirements of subsection (a)(2),
the preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year.''.
(d) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2000.
PART VI--MODIFICATION OF ESTIMATED TAX RULES
SEC. 271. MODIFICATION OF ESTIMATED TAX RULES FOR CLOSELY HELD REAL
ESTATE INVESTMENT TRUSTS.
(a) In General.--Subsection (e) of section 6655 (relating to
estimated tax by corporations) is amended by adding at the end the
following new paragraph:
``(5) Treatment of certain reit dividends.--
``(A) In general.--Any dividend received from a
closely held real estate investment trust by any person
which owns (after application of subsections (d)(5) and
(l)(3)(B) of section 856) 10 percent or more (by vote
or value) of the stock or beneficial interests in the
trust shall be taken into account in computing
annualized income installments under paragraph (2) in a
manner similar to the manner under which partnership
income inclusions are taken into account.
``(B) Closely held reit.--For purposes of
subparagraph (A), the term `closely held real estate
investment trust' means a real estate investment trust
with respect to which 5 or fewer persons own (after
application of subsections (d)(5) and (l)(3)(B) of
section 856) 50 percent or more (by vote or value) of
the stock or beneficial interests in the trust.''
(b) Effective Date.--The amendment made by subsection (a) shall
apply to estimated tax payments due on or after November 15, 1999.
PART VII--MODIFICATION OF TREATMENT OF CLOSELY-HELD REITS
SEC. 281. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.
(a) In General.--Subsection (a) of section 856 (relating to
definition of real estate investment trust) is amended by striking
``and'' at the end of paragraph (6), by redesignating paragraph (7) as
paragraph (8), and by inserting after paragraph (6) the following new
paragraph:
``(7) which is not a controlled entity (as defined in
subsection (l)); and''.
(b) Controlled Entity.--Section 856 is amended by adding at the end
the following new subsection:
``(l) Controlled Entity.--
``(1) In general.--For purposes of subsection (a)(7), an
entity is a controlled entity if, at any time during the
taxable year, one person (other than a qualified entity)--
``(A) in the case of a corporation, owns stock--
``(i) possessing at least 50 percent of the
total voting power of the stock of such
corporation, or
``(ii) having a value equal to at least 50
percent of the total value of the stock of such
corporation, or
``(B) in the case of a trust, owns beneficial
interests in the trust which would meet the
requirements of subparagraph (A) if such interests were
stock.
``(2) Qualified entity.--For purposes of paragraph (1), the
term `qualified entity' means--
``(A) any real estate investment trust, and
``(B) any partnership in which one real estate
investment trust owns at least 50 percent of the
capital and profits interests in the partnership.
``(3) Attribution rules.--For purposes of this paragraphs
(1) and (2)--
``(A) In general.--Rules similar to the rules of
subsections (d)(5) and (h)(3) shall apply; except that
section 318(a)(3)(C) shall not be applied under such
rules to treat stock owned by a qualified entity as
being owned by a person which is not a qualified
entity.
``(B) Stapled entities.--A group of entities which
are stapled entities (as defined in section 269B(c)(2))
shall be treated as one person.
``(4) Exception for certain new reits.--
``(A) In general.--The term `controlled entity'
shall not include an incubator REIT.
``(B) Incubator reit.--A corporation shall be
treated as an incubator REIT for any taxable year
during the eligibility period if it meets all the
following requirements for such year:
``(i) The corporation elects to be treated
as an incubator REIT.
``(ii) The corporation has only voting
common stock outstanding.
``(iii) Not more than 50 percent of the
corporation's real estate assets consist of
mortgages.
``(iv) From not later than the beginning of
the last half of the second taxable year, at
least 10 percent of the corporation's capital
is provided by lenders or equity investors who
are unrelated to the corporation's largest
shareholder.
``(v) The corporation annually increases
the value of its real estate assets by at least
10 percent.
``(vi) The directors of the corporation
adopt a resolution setting forth an intent to
engage in a going public transaction.
No election may be made with respect to any REIT if an
election under this subsection was in effect for any
predecessor of such REIT. The requirement of clause
(ii) shall not fail to be met merely because a going
public transaction is accomplished through a
transaction described in section 368(a)(1) with another
corporation which had another class of stock
outstanding prior to the transaction.
``(C) Eligibility period.--
``(i) In general.--The eligibility period
(for which an incubator REIT election can be
made) begins with the REIT's second taxable
year and ends at the close of the REIT's third
taxable year, except that the REIT may, subject
to clauses (ii), (iii), and (iv), elect to
extend such period for an additional 2 taxable
years.
``(ii) Going public transaction.--A REIT
may not elect to extend the eligibility period
under clause (i) unless it enters into an
agreement with the Secretary that if it does
not engage in a going public transaction by the
end of the extended eligibility period, it
shall pay Federal income taxes for the 2 years
of the extended eligibility period as if it had
not made an incubator REIT election and had
ceased to qualify as a REIT for those 2 taxable
years.
``(iii) Returns, interest, and notice.--
``(I) Returns.--In the event the
corporation ceases to be treated as a
REIT by operation of clause (ii), the
corporation shall file any appropriate
amended returns reflecting the change
in status within 3 months of the close
of the extended eligibility period.
``(II) Interest.--Interest shall be
payable on any tax imposed by reason of
clause (ii) for any taxable year but,
unless there was a finding under
subparagraph (D), no substantial
underpayment penalties shall be
imposed.
``(III) Notice.--The corporation
shall, at the same time it files its
returns under subclause (I), notify its
shareholders and any other persons
whose tax position is, or may
reasonably be expected to be, affected
by the change in status so they also
may file any appropriate amended
returns to conform their tax treatment
consistent with the corporation's loss
of REIT status.
``(IV) Regulations.--The Secretary
shall provide appropriate regulations
setting forth transferee liability and
other provisions to ensure collection
of tax and the proper administration of
this provision.
``(iv) Clauses (ii) and (iii) shall not
apply if the corporation allows its incubator
REIT status to lapse at the end of the initial
2-year eligibility period without engaging in a
going public transaction if the corporation is
not a controlled entity as of the beginning of
its fourth taxable year. In such a case, the
corporation's directors may still be liable for
the penalties described in subparagraph (D)
during the eligibility period.
``(D) Special penalties.--If the Secretary
determines that an incubator REIT election was filed
for a principal purpose other than as part of a
reasonable plan to undertake a going public
transaction, an excise tax of $20,000 shall be imposed
on each of the corporation's directors for each taxable
year for which an election was in effect.
``(E) Going public transaction.--For purposes of
this paragraph, a going public transaction means--
``(i) a public offering of shares of the
stock of the incubator REIT;
``(ii) a transaction, or series of
transactions, that results in the stock of the
incubator REIT being regularly traded on an
established securities market and that results
in at least 50 percent of such stock being held
by shareholders who are unrelated to persons
who held such stock before it began to be so
regularly traded; or
``(iii) any transaction resulting in
ownership of the REIT by 200 or more persons
(excluding the largest single shareholder) who
in the aggregate own at least 50 percent of the
stock of the REIT.
For the purposes of this subparagraph, the rules of
paragraph (3) shall apply in determining the ownership
of stock.
``(F) Definitions.--The term `established
securities market' shall have the meaning set forth in
the regulations under section 897.''
(c) Conforming Amendment.--Paragraph (2) of section 856(h) is
amended by striking ``and (6)'' each place it appears and inserting ``,
(6), and (7)''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after July 14, 1999.
(2) Exception for existing controlled entities.--The
amendments made by this section shall not apply to any entity
which is a controlled entity (as defined in section 856(l) of
the Internal Revenue Code of 1986, as added by this section) as
of July 14, 1999, which is a real estate investment trust for
the taxable year which includes such date, and which has
significant business assets or activities as of such date. For
purposes of the preceding sentence, an entity shall be treated
as such a controlled entity on July 14, 1999, if it becomes
such an entity after such date in a transaction--
(A) made pursuant to a written agreement which was
binding on such date and at all times thereafter, or
(B) described on or before such date in a filing
with the Securities and Exchange Commission required
solely by reason of the transaction.
TITLE III--BUDGET PROVISION
SEC. 301. EXCLUSION FROM PAYGO SCORECARD.
Any net deficit increase or net surplus increase resulting from the
enactment of this Act shall not be counted for purposes of section 252
of the Balanced Budget and Emergency Deficit Control Act of 1985 (2
U.S.C. 902).