[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5166 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 5166

             To simplify the Internal Revenue Code of 1986.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 18, 2002

Mr. Portman (for himself, Mr. Armey, Mr. Crane, Mr. Houghton, Mr. Camp, 
   Ms. Dunn of Washington, Mr. English, Mr. Watkins of Oklahoma, Mr. 
Weller, Mr. Lewis of Kentucky, and Mr. Foley) introduced the following 
      bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
             To simplify the Internal Revenue Code of 1986.

    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 Simplification 
Act of 2002''.
    (b) References to Internal Revenue Code of 1986.--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.--

Sec. 1. Short title; etc.
                    TITLE I--ALTERNATIVE MINIMUM TAX

Sec. 101. Repeal of alternative minimum tax.
                  TITLE II--FAMILY-RELATED PROVISIONS

             Subtitle A--Qualifying Child and Family Status

Sec. 201. Uniform definition of child, etc.
Sec. 202. Modifications of definition of head of household.
Sec. 203. Modifications of dependent care credit.
Sec. 204. Modifications of child tax credit.
Sec. 205. Modifications of earned income credit.
Sec. 206. Modifications of deduction for personal exemption for 
                            dependents.
Sec. 207. Modification of determination of marital status.
Sec. 208. Technical and conforming amendments.
Sec. 209. Effective date.
              Subtitle B--Other Family-Related Provisions

Sec. 211. Acceleration of repeal of phaseout of personal exemptions.
Sec. 212. Acceleration of repeal of phaseout of overall limitation on 
                            itemized deductions.
Sec. 213. Repeal of certain phaseout provisions.
Sec. 214. Simplification of capital gains tax.
Sec. 215. Exemption of certain interest and dividend income from tax.
Sec. 216. Simplification of deduction for points on home mortgage.
Sec. 217. Increase in exclusion for group-term life insurance purchased 
                            for employees.
                TITLE III--EDUCATION-RELATED PROVISIONS

Sec. 301. Uniform definition of qualifying higher education expenses.
Sec. 302. Combining Hope and Lifetime Learning credits.
Sec. 303. Clarification of interaction of various education tax 
                            incentive provisions.
                     TITLE IV--BUSINESS PROVISIONS

Sec. 401. Cash method of accounting.
Sec. 402. Repeal of collapsible corporations.
Sec. 403. Simplification of active business test for certain corporate 
                            reorganizations.
Sec. 404. Study on simplification of attribution rules.
Sec. 405. Clarification of treatment of contributions of intangibles to 
                            corporations and partnerships.
Sec. 406. Modernization of references to general and limited partners.
Sec. 407. Repeal of ability to elect large partnership reporting rules.
Sec. 408. Repeal of personal holding company tax.
Sec. 409. Timing rules for guaranteed payments.
Sec. 410. Secretarial authority to prescribe class life for property.
Sec. 411. Repeal of occupational taxes relating to distilled spirits, 
                            wine, and beer.
Sec. 412. Consolidation of life insurance companies with other 
                            companies permitted.
                         TITLE V--ESTIMATED TAX

Sec. 501. Failure to pay estimated tax penalty by individuals converted 
                            to interest charge on accumulated unpaid 
                            balance.
Sec. 502. Conforming and clerical amendments.
                TITLE VI--REPEAL OF DEADWOOD PROVISIONS

Sec. 601. Repeal of deadwood provisions.

                    TITLE I--ALTERNATIVE MINIMUM TAX

SEC. 101. REPEAL OF ALTERNATIVE MINIMUM TAX.

    (a) In General.--Part VI of subchapter A of chapter 1 (relating to 
alternative minimum tax) is hereby repealed.
    (b) Expedited Use of Credit for Prior Year Minimum Tax Liability of 
Corporations.--Subsection (c) of section 53 of such Code is amended to 
read as follows:
    ``(c) Limitations.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        credit allowable under subsection (a) for any taxable year 
        shall not exceed the excess (if any) of--
                    ``(A) the regular tax liability of the taxpayer for 
                such taxable year reduced by the sum of the credits 
                allowable under subparts A, B, D, E, and F of this 
                part.
            ``(2) Corporations.--In the case of a corporation, the 
        credit allowable under subsection (a) for any taxable year 
        shall not exceed the lesser of--
                    ``(A) 20 percent of the minimum tax credit 
                (determined as of January 1, 2003), and
                    ``(B) 90 percent of the regular tax liability of 
                the taxpayer for such taxable year reduced by the sum 
                of the credits allowable under subparts B, D, E, and F 
                of this part.
        This paragraph shall not apply to taxable years beginning after 
        the December 31, 2007.''.
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 1(g)(7) (relating to 
        election to claim certain unearned income of child on parent's 
        return) is amended--
                    (A) by inserting ``and'' at the end of clause (i),
                    (B) by striking ``and'' at the end of clause (ii) 
                and inserting a period, and
                    (C) by striking clause (iii).
            (2) Subsection (d) of section 2 (relating to taxes imposed 
        on nonresident aliens) is amended by striking ``sections 1 and 
        55'' and inserting ``section 1''.
            (3) Subsection (a) of section 5 (relating to cross 
        references relating to tax on individuals) is amended by 
        striking paragraph (4).
            (4) Subsection (d) of section 11 (relating to taxes imposed 
        on foreign corporations) is amended by striking ``the taxes 
        imposed by subsection (a) and section 55'' and inserting ``the 
        tax imposed by subsection (a)''.
            (5) Section 12 (relating to cross references relating to 
        tax on corporations) is amended by striking paragraph (7).
            (6) Subparagraph (A) of section 23(b) (relating to 
        limitation based on amount of tax) is amended to read as 
        follows:
                    ``(A) the regular tax liability (as defined in 
                section 26(b)), over''.
            (7) Subparagraph (A) of section 24(b)(3) (relating to 
        limitation based on amount of tax) is amended to read as 
        follows:
                    ``(A) the regular tax liability (as defined in 
                section 26(b)), over''.
            (8) Paragraph (1) of section 25B(g) (relating to limitation 
        based on amount of tax) is amended to read as follows:
            ``(1) the regular tax liability (as defined in section 
        26(b)), over''.
            (9) Section 26 (relating to limitation based on tax 
        liability; definition of tax liability) is amended--
                    (A) by amending subsection (a) to read as follows:
    ``(a) Limitation Based on Amount of Tax.--The aggregate amount of 
credits allowed by this subpart for the taxable year shall not exceed 
the taxpayer's regular tax liability for the taxable year.'',
                    (B) in subsection (b)(2), by striking subparagraph 
                (A) and by redesignating subparagraphs (B) through (N) 
                as subparagraphs (A) through (M), respectively, and
                    (C) by striking subsection (c).
            (10) Paragraph (6) of section 29(b) (relating to credit for 
        producing fuel from a nonconventional source) is amended 
        striking ``the excess'' and all that follows and inserting 
        ``the regular tax for the taxable year reduced by the sum of 
        the credits allowable under subpart A and section 27.''
            (11) Paragraph (3) of section 30(b) (relating to credit for 
        qualified electric vehicles) is amended by striking ``the 
        excess'' and all that follows and inserting ``the regular tax 
        for the taxable year reduced by the sum of the credits 
        allowable under subpart A and sections 27 and 29.''
            (12) Subsection (c) of section 38 (relating to general 
        business credit) is amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting the following new paragraph:
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed 25 percent of so much of 
        the taxpayer's net regular tax liability as exceeds $25,000. 
        For purposes of the preceding sentence, the term `net regular 
        tax liability' means the regular tax liability reduced by the 
        sum of the credits allowable under subparts A and B of this 
        part.'', and
                    (B) by redesignating paragraph (3) as paragraph 
                (2).
            (13) Paragraph (4) of section 45A(d) (relating to Indian 
        employment credit) is amended by striking ``for purposes'' and 
        all that follows and inserting ``for purposes of determining 
        the amount of any credit allowable under this chapter.''
            (14) Subparagraph (B) of section 45D(g)(4) (relating to new 
        markets tax credit) is amended by striking ``or for purposes of 
        section 55''.
            (15) Subparagraph (B) of section 45F(d)(4) (relating to no 
        credits against tax) is amended by striking ``or for purposes 
        of section 55''.
            (16) Subsection (d) of section 53 (relating to credit for 
        prior year minimum tax liability) is amended by adding at the 
        end the following:
``For purposes of this subsection, references to sections 55, 56, and 
59 shall be treated as references to such sections as in effect on the 
day before the date of the enactment of the Tax Simplification Act of 
2002.''.
            (17) Subsection (b) of section 59A (relating to 
        environmental tax) is amended by adding at the end the 
        following:
``For purposes of this subsection, references to sections 55 and 56 
shall be treated as references to such sections as in effect on the day 
before the date of the enactment of the Tax Simplification Act of 
2002.''.
            (18)(A) Paragraph (2) of section 148(b) (relating to higher 
        yield investments) is amended by adding at the end the 
        following new flush sentence:
        ``Such term shall not include any tax-exempt bond.''
            (B) Paragraph (3) of section 148(b) is hereby repealed.
            (19) Subparagraph (B) of section 149(g)(3) (relating to 
        hedge bonds) is amended--
                    (A) in the heading, by striking ``bonds not subject 
                to minimum tax.--'' and inserting ``bonds.--'', and
                    (B) by striking all that follows ``invested in 
                bonds'' and inserting ``the interest on which is not 
                includible in gross income under section 103.''
            (20) Subsection (j) of section 168 (relating to accelerated 
        cost recovery system) is amended by striking paragraph (3).
            (21) Paragraph (2) of section 168(k) (relating to deduction 
        allowed in computing minimum tax) is amended by striking 
        subparagraph (F).
            (22) Section 173 (relating to circulation expenditures) is 
        amended by striking ``(a) General Rule.--'' and by striking 
        subsection (b).
            (23) Subsection (f) of section 174 (relating to research 
        and experimental expenditures) is amended to read as follows:
    ``(f) Cross Reference.--

                                ``For adjustments to basis of property 
for amounts allowed as deductions as deferred expenses under subsection 
(b), see section 1016(a)(14).''
            (24) Subsection (c) of section 263 (relating to capital 
        expenditures) is amended by striking ``59(e) or''.
            (25) Subsection (c) of section 263A (relating to 
        capitalization and inclusion in inventory costs of certain 
        expenses) is amended by striking paragraph (6).
            (26) Section 382(l) (relating to limitation on net 
        operating loss carryforwards and certain built-in losses 
        following ownership change) is amended by striking paragraph 
        (7) and by redesignating paragraph (8) as paragraph (7).
            (27) Section 443 (relating to returns for a period of less 
        than 12 months adjustment in computing minimum tax and tax 
        preferences) is amended by striking subsection (d) and by 
        redesignating subsection (e) as subsection (d).
            (28) Section 616 (relating to development expenditures) is 
        amended by striking subsection (e).
            (29) Section 617 (relating to deduction and recapture of 
        certain mining exploration expenditures) is amended by striking 
        subsection (i).
            (30) Subsection (c) of section 641 (relating to imposition 
        of tax) is amended--
                    (A) in paragraph (2) by striking subparagraph (B) 
                and redesignating subparagraphs (C) and (D) as 
                subparagraphs (B) and (C), respectively, and
                    (B) in paragraph (3), by striking ``paragraph 
                (2)(C)'' and inserting ``paragraph (2)(B)''.
            (31) Subsections (b) and (c) of section 666 (relating to 
        accumulation distribution allocated to preceding years) are 
        each amended by striking ``(other than the tax imposed by 
        section 55)''.
            (32)(A) Subsection (a) of section 772 (relating to 
        simplified flow-through) is amended by striking paragraph (5) 
        and redesignating paragraphs (6), (7), (8), (9), (10), and (11) 
        as paragraphs (5), (6), (7), (8), (9), and (10), respectively.
            (B) Subsection (c) of section 772 is amended--
                    (i) in paragraph (2), by striking ``paragraphs 
                (3)(A) and (5)(A)'' and inserting ``paragraph (3)(A)'',
                    (ii) by striking paragraph (5), and
                    (iii) by redesignating paragraph (6) as paragraph 
                (5), and in that paragraph by striking ``paragraph (6) 
                of subsection (a)'' and inserting ``paragraph (5) of 
                subsection (a)''.
            (C) Subsection (d) of section 772 is amended--
                    (i) by striking paragraph (3) and redesignating 
                paragraphs (4), (5), and (6) as paragraphs (3), (4), 
                and (5), respectively, and
                    (ii) in subparagraph (A) of paragraph (3), as so 
                redesignated, by striking ``subsection (a)(11)'' and 
                inserting ``subsection (a)(10)''.
            (33) Paragraph (2) of section 815(c) (relating to 
        distributions to shareholders from pre-1984 policyholders 
        surplus account) is amended by striking the last sentence.
            (34) Section 847 (relating to special estimated tax 
        payments) is amended--
                    (A) in paragraph (9), by striking the last 
                sentence;
                    (B) in paragraph (10), by inserting ``and'' at the 
                end of subparagraph (A) and by striking subparagraph 
                (B) and redesignating subparagraph (C) as subparagraph 
                (B).
            (35) Section 848 (relating to capitalization of certain 
        policy acquisition expenses) is amended by striking subsection 
        (i) and by redesignating subsection (j) as subsection (i).
            (36) Subsection (a) of section 860E (relating to treatment 
        of income in excess of daily accruals on residual interests) is 
        amended by striking paragraph (4).
            (37) Section 860J (relating to non-FASIT losses not to 
        offset certain FASIT inclusions) is amended by striking 
        subsection (c) and redesignating subsection (d) as subsection 
        (c).
            (38) Paragraph (1) of section 871(b) (relating to tax on 
        nonresident alien individuals) is amended by striking ``or 
        55''.
            (39) Subsection (b) of section 877 (relating to 
        expatriation to avoid tax) is amended by striking ``or 55''.
            (40) Paragraph (1) of section 882(a) (relating to tax on 
        income of foreign corporations connected with United States 
        business) is amended by striking ``55,''.
            (41) Subsection (a) of section 897 (relating to disposition 
        of investment in United States real property) is amended to 
        read as follows:
    ``(a) Treatment as Effectively Connected With United States Trade 
or Business.--For purposes of this title, gain or loss of a nonresident 
alien individual or a foreign corporation from the disposition of a 
United States real property interest shall be taken into account--
            ``(1) in the case of a nonresident alien individual, under 
        section 871(b)(1), or
            ``(2) in the case of a foreign corporation, under section 
        882(a)(1),
as if the taxpayer were engaged in a trade or business within the 
United States during the taxable year and as if such gain or loss were 
effectively connected with such trade or business.''
            (42) Subsection (k) of section 904 (relating to limitation 
        on credit) is amended to read as follows:
    ``(k) Cross Reference.--

                                ``For increase of limitation under 
subsection (a) for taxes paid with respect to amounts received which 
were included in the gross income of the taxpayer for a prior taxable 
year as a United States shareholder with respect to a controlled 
foreign corporation, see section 960(b).''
            (43) Paragraph (1) of section 962(a) (relating to election 
        by individuals to be subject to tax at corporate rates) is 
        amended--
                    (A) by striking ``sections 1 and 55'' and inserting 
                ``section 1'', and
                    (B) by striking ``sections 11 and 55'' and 
                inserting ``section 11''.
            (44) Paragraph (20) of section 1016(a) (relating to 
        adjustments to basis) is amended by inserting ``, as in effect 
        on the day before the date of the enactment of the Tax 
        Simplification Act of 2002'' after ``preferences)''.
            (45) Paragraph (4) of section 1260(b) (relating to gains 
        from constructive ownership transactions) is amended by 
        striking ``for purposes'' and all that follows and inserting 
        ``for purposes of determining the amount of any credit 
        allowable under this chapter.''
            (46) Paragraph (1) of section 1397E(c) (relating to credit 
        to holders of qualified zone academy bonds) is amended by 
        striking ``plus the tax imposed by section 55''.
            (47) Subsection (f) of section 1400I (relating to 
        commercial revitalization deduction) is amended by striking 
        paragraph (4).
            (48) Section 1400L is amended--
                    (A) in subsection (b)(2) (defining qualified New 
                York Liberty Zone property) by striking subparagraph 
                (E), and
                    (B) in subsection (d)(5) (relating to special rules 
                for tax-exempt bond financing) by striking subparagraph 
                (E).
            (49) Subsection (a) of section 1561 (relating to 
        limitations on certain multiple tax benefits in the case of 
        certain controlled corporations) is amended by striking the 
        last sentence.
            (50) Subparagraph (B) of section 6015(d)(2) (relating to 
        relief from joint and several liability on joint return) is 
        amended by striking ``or 55''.
            (51) Subparagraph (A) of section 6425(c)(1) (defining 
        income tax liability) is amended--
                    (A) by inserting ``plus'' at the end of clause (i), 
                and
                    (B) by striking clause (ii) and redesignating 
                clause (iii) as clause (ii).
            (52) Section 6654(d)(2) (relating to failure by individual 
        to pay estimated income tax) is amended--
                    (A) in clause (i) of subparagraph (B), by striking 
                ``, alternative minimum taxable income,'', and
                    (B) in clause (i) of subparagraph (C), by striking 
                ``, alternative minimum taxable income,''.
            (53) Subparagraph (A) of section 6655(g)(1) (relating to 
        failure by corporation to pay estimated income tax) is 
        amended--
                    (A) by striking clause (ii), and
                    (B) by redesignating clauses (iii) and (iv) as 
                clauses (ii) and (iii), respectively.
            (54) Subparagraph (C) of section 6662(e)(3) (relating to 
        imposition of accuracy-related penalty) is amended by inserting 
        ``, as in effect on the day before the date of the enactment of 
        the Tax Simplification Act of 2002'' after ``55(c)''.
    (d) Clerical Amendment.--The table of parts for subchapter A of 
chapter 1 is amended by striking the item relating to part VI.
    (e) Effective Date.--The amendments made by this section shall take 
effect in taxable years beginning after December 31, 2002.

                  TITLE II--FAMILY-RELATED PROVISIONS

             Subtitle A--Qualifying Child and Family Status

SEC. 201. UNIFORM DEFINITION OF CHILD, ETC.

    Section 152 (defining dependent) is amended to read as follows:

``SEC. 152. DEPENDENT DEFINED.

    ``(a) In General.--For purposes of this subtitle, the term 
`dependent' means--
            ``(1) a qualifying child, or
            ``(2) a qualifying relative.
    ``(b) Exceptions.--For purposes of this section--
            ``(1) Dependents ineligible.--If an individual is a 
        dependent of a taxpayer for any taxable year of such taxpayer 
        beginning in a calendar year, such individual shall be treated 
        as having no dependents for any taxable year of such individual 
        beginning in such calendar year.
            ``(2) Married dependents.--An individual shall not be 
        treated as a dependent of a taxpayer under subsection (a) if 
        such individual has made a joint return with the individual's 
        spouse under section 6013 for the taxable year beginning in the 
        calendar year in which the taxable year of the taxpayer begins.
            ``(3) Citizens or nationals of other countries.--
                    ``(A) In general.--The term `dependent' does not 
                include an individual who is not a citizen or national 
                of the United States unless such individual is a 
                resident of the United States or a country contiguous 
                to the United States.
                    ``(B) Exception for adopted child.--Subparagraph 
                (A) shall not exclude any legally adopted child of a 
                taxpayer from the definition of `dependent' if--
                            ``(i) for the taxable year of the taxpayer, 
                        the child's principal place of abode is the 
                        home of the taxpayer, and
                            ``(ii) the taxpayer is a citizen or 
                        national of the United States.
    ``(c) Qualifying Child.--For purposes of this section--
            ``(1) In general.--The term `qualifying child' means, with 
        respect to any taxpayer for any taxable year, an individual--
                    ``(A) who bears a relationship to the taxpayer 
                described in paragraph (2),
                    ``(B) who has the same principal place of abode as 
                the taxpayer for more than one-half of such taxable 
                year, and
                    ``(C) who meets the age requirements of paragraph 
                (3).
            ``(2) Relationship test.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), an individual bears a relationship to the 
                taxpayer described in this paragraph if such individual 
                is--
                            ``(i) a son, daughter, stepson, or 
                        stepdaughter of the taxpayer or a descendant of 
                        any such relative,
                            ``(ii) a brother, sister, stepbrother, or 
                        stepsister of the taxpayer or a descendant of 
                        any such relative, whom the taxpayer cares for 
                        as the taxpayer's own child, or
                            ``(iii) an eligible foster child of the 
                        taxpayer.
                    ``(B) Adopted child.--For purposes of subparagraph 
                (A), a child who is legally adopted, or who is placed 
                with the taxpayer by an authorized placement agency for 
                adoption by the taxpayer, shall be treated as a child 
                by blood.
                    ``(C) Eligible foster child.--For purposes of 
                subparagraph (A), the term `eligible foster child' 
                means an individual--
                            ``(i) who is placed with the taxpayer by an 
                        authorized placement agency or by judgment, 
                        decree, or other order of any court of 
                        competent jurisdiction, and
                            ``(ii) whom the taxpayer cares for as the 
                        taxpayer's own child.
            ``(3) Age requirements.--For purposes of paragraph (1)(C), 
        an individual meets the requirements of this paragraph if such 
        individual--
                    ``(A) has not attained the age of 19 as of the 
                close of the calendar year in which the taxable year of 
                the taxpayer begins, or
                    ``(B) is a student who has not attained the age of 
                24 as of the close of such calendar year.
            ``(4) Special rule relating to 2 or more claiming 
        qualifying child.--
                    ``(A) In general.--Except as provided in subsection 
                (e), if an individual may be claimed, and is claimed, 
                as a qualifying child by 2 or more taxpayers (but for 
                this paragraph) for a taxable year beginning in the 
                same calendar year, such individual shall be treated as 
                the qualifying child of the taxpayer who is--
                            ``(i) a parent of the individual, or
                            ``(ii) if clause (i) does not apply, the 
                        taxpayer with the highest adjusted gross income 
                        for such taxable year.
                    ``(B) More than 1 parent claiming qualifying 
                child.--If the parents claiming the credit with respect 
                to any qualifying child do not file a joint return 
                together, such child shall be treated as the qualifying 
                child of--
                            ``(i) the parent with whom the child 
                        resided for the longest period of time during 
                        the taxable year, or
                            ``(ii) if the child resides with both 
                        parents for the same amount of time during such 
                        taxable year, the parent with the highest 
                        adjusted gross income.
    ``(d) Qualifying Relative.--For purposes of this section--
            ``(1) In general.--The term `qualifying relative' means, 
        with respect to any taxpayer for any taxable year, an 
        individual--
                    ``(A) who bears a relationship to the taxpayer 
                described in paragraph (2),
                    ``(B) whose gross income for the calendar year in 
                which such taxable year begins is less than the 
                exemption amount (as defined in section 151(d)),
                    ``(C) with respect to whom the taxpayer provides 
                over half of the individual's support for the calendar 
                year in which such taxable year begins, and
                    ``(D) who is not a qualifying child of such 
                taxpayer or any other taxpayer for any taxable year 
                beginning in the calendar year in which such taxable 
                year begins.
            ``(2) Relationship.--For purposes of paragraph (1)(A), an 
        individual bears a relationship to the taxpayer described in 
        this paragraph if the individual is any of the following with 
        respect to the taxpayer:
                    ``(A) A child or a descendant of a child.
                    ``(B) A brother, sister, stepbrother, or 
                stepsister.
                    ``(C) The father or mother, or an ancestor of 
                either.
                    ``(D) A stepfather or stepmother.
                    ``(E) A son or daughter of a brother or sister of 
                the taxpayer.
                    ``(F) A brother or sister of the father or mother 
                of the taxpayer.
                    ``(G) A son-in-law, daughter-in-law, father-in-law, 
                mother-in-law, brother-in-law, or sister-in-law.
                    ``(H) An individual (other than an individual who 
                at any time during the taxable year was the spouse, 
                determined without regard to section 7703, of the 
                taxpayer) who, for the taxable year of the taxpayer, 
                has as such individual's principal place of abode the 
                home of the taxpayer and is a member of the taxpayer's 
                family.
            ``(3) Special rule relating to multiple support 
        agreements.--For purposes of paragraph (1)(C), over half of the 
        support of an individual for a calendar year shall be treated 
        as received from the taxpayer if--
                    ``(A) no one person contributed over half of such 
                support,
                    ``(B) over half of such support was received from 2 
                or more persons each of whom, but for the fact that any 
                such person alone did not contribute over half of such 
                support, would have been entitled to claim such 
                individual as a dependent for a taxable year beginning 
                in such calendar year,
                    ``(C) the taxpayer contributed over 10 percent of 
                such support, and
                    ``(D) each person described in subparagraph (B) 
                (other than the taxpayer) who contributed over 10 
                percent of such support files a written declaration (in 
                such manner and form as the Secretary may by 
                regulations prescribe) that such person will not claim 
                such individual as a dependent for any taxable year 
                beginning in such calendar year.
            ``(4) Special rule relating to income of handicapped 
        dependents.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(B), the gross income of an individual who is 
                permanently and totally disabled (as defined in section 
                22(e)(3)) at any time during the taxable year shall not 
                include income attributable to services performed by 
                the individual at a sheltered workshop if--
                            ``(i) the availability of medical care at 
                        such workshop is the principal reason for the 
                        individual's presence there, and
                            ``(ii) the income arises solely from 
                        activities at such workshop which are incident 
                        to such medical care.
                    ``(B) Sheltered workshop defined.--For purposes of 
                subparagraph (A), the term `sheltered workshop' means a 
                school--
                            ``(i) which provides special instruction or 
                        training designed to alleviate the disability 
                        of the individual, and
                            ``(ii) which is operated by an organization 
                        described in section 501(c)(3) and exempt from 
                        tax under section 501(a), or by a State, a 
                        possession of the United States, any political 
                        subdivision of any of the foregoing, the United 
                        States, or the District of Columbia.
            ``(5) Special rule relating to treatment of government 
        benefits in determining support.--For purposes of paragraph 
        (1)(C), any means-tested benefits obtained under programs 
        described in section 6103(l)(7) or substantially similar 
        government programs shall not be taken into account for 
        purposes of determining whether over half of the support of an 
        individual for a calendar year was provided by the taxpayer.
    ``(e) Special Rule for Certain Pre-2003 Instruments.--
            ``(1) In general.--Notwithstanding subsection (c)(4) or 
        (d)(1)(C), a child who has parents who--
                    ``(A) are divorced or legally separated under a 
                decree of divorce or separate maintenance,
                    ``(B) are separated under a written separation 
                agreement, or
                    ``(C) live apart at all times during the last 6 
                months of the calendar year, shall be treated as being 
the qualifying child or qualifying relative of the noncustodial parent 
for a calendar year if the requirements described in paragraph (2) are 
met.
            ``(2) Requirements.--For purposes of paragraph (1), the 
        requirements described in this paragraph are met if--
                    ``(A) a qualified pre-2003 instrument between the 
                parents applicable to the taxable year beginning in 
                such calendar year provides that--
                            ``(i) the noncustodial parent shall be 
                        entitled to any deduction allowable under 
                        section 151 for such child, or
                            ``(ii) the custodial parent will sign a 
                        written declaration that such parent will not 
                        claim such child as a dependent for such 
                        taxable year, and
                    ``(B) in the case of an agreement executed before 
                January 1, 1985, the noncustodial parent provides at 
                least $600 for the support of such child during such 
                calendar year.
            ``(3) Qualified pre-2003 instrument.--For purposes of this 
        subsection, the term `qualified pre-2003 instrument' means any 
        decree of divorce or separate maintenance or written 
        agreement--
                    ``(A) which is executed before January 1, 2003,
                    ``(B) which on such date contains either of the 
                provisions described in paragraph (2)(A), and
                    ``(C) which is not modified on or after such date 
                in a modification which expressly provides that this 
                subsection shall not apply to such decree or agreement.
            ``(4) Custodial parent and noncustodial parent.--For 
        purposes of this subsection--
                    ``(A) Custodial parent.--The term `custodial 
                parent' means the parent with whom a child shared the 
                same principal place of abode for the greater portion 
                of the calendar year.
                    ``(B) Noncustodial parent.--The term `noncustodial 
                parent' means the parent who is not the custodial 
                parent.
            ``(5) Special rules for support.--For purposes of this 
        subsection--
                    ``(A) payments to a spouse which are includible in 
                the gross income of such spouse under section 71 or 682 
                shall not be treated as a payment by the payor spouse 
                for the support of any dependent,
                    ``(B) amounts expended for the support of a child 
                or children shall be treated as received from the 
                noncustodial parent to the extent that such parent 
                provided amounts for such support, and
                    ``(C) in the case of the remarriage of a parent, 
                support of a child received from the parent's spouse 
                shall be treated as received from the parent.
    ``(f) Other Definitions and Rules.--For purposes of this section--
            ``(1) Child defined.--The term `child' means an individual 
        who (within the meaning of this section) is a son, daughter, 
        stepson, or stepdaughter of the taxpayer.
            ``(2) Student defined.--The term `student' means an 
        individual who during each of 5 calendar months during the 
        calendar year in which the taxable year of the taxpayer 
        begins--
                    ``(A) is a full-time student at an educational 
                organization described in section 170(b)(1)(A)(ii), or
                    ``(B) is pursuing a full-time course of 
                institutional on-farm training under the supervision of 
                an accredited agent of an educational organization 
                described in section 170(b)(1)(A)(ii) or of a State or 
                political subdivision of a State.
            ``(3) Place of abode.--An individual shall not be treated 
        as having the same principal place of abode of the taxpayer if 
        at any time during the taxable year of the taxpayer the 
        relationship between the individual and the taxpayer is in 
        violation of local law.
            ``(5) Treatment of missing children.--
                    ``(A) In general.--Solely for the purposes referred 
                to in subparagraph (B), a child of the taxpayer--
                            ``(i) who is presumed by law enforcement 
                        authorities to have been kidnapped by someone 
                        who is not a member of the family of such child 
                        or the taxpayer, and
                            ``(ii) who had, for the taxable year in 
                        which the kidnapping occurred, the same 
                        principal place of abode as the taxpayer for 
                        more than one-half of the portion of such year 
                        before the date of the kidnapping,
                shall be treated as meeting the requirement of 
                subsection (c)(1)(B) with respect to a taxpayer for all 
                taxable years ending during the period that the 
                individual is kidnapped.
                    ``(B) Purposes.--Subparagraph (A) shall apply 
                solely for purposes of determining--
                            ``(i) the deduction under section 151(c),
                            ``(ii) the credit under section 24 
                        (relating to child tax credit),
                            ``(iii) whether an individual is a 
                        surviving spouse or a head of a household (as 
                        such terms are defined in section 2), and
                            ``(iv) the earned income credit under 
                        section 32.
                    ``(C) Comparable treatment of certain qualifying 
                relatives.--For purposes of this section, a child of 
                the taxpayer--
                            ``(i) who is presumed by law enforcement 
                        authorities to have been kidnapped by someone 
                        who is not a member of the family of such child 
                        or the taxpayer, and
                            ``(ii) who was (without regard to this 
                        paragraph) a qualifying relative of the 
                        taxpayer for the portion of the taxable year 
                        before the date of the kidnapping,
                shall be treated as a qualifying relative of the 
                taxpayer for all taxable years ending during the period 
                that the child is kidnapped.
                    ``(D) Termination of treatment.--Subparagraphs (A) 
                and (C) shall cease to apply as of the first taxable 
                year of the taxpayer beginning after the calendar year 
                in which there is a determination that the child is 
                dead (or, if earlier, in which the child would have 
                attained age 18).
            ``(6) Cross references.--

                              ``For provision treating child as 
dependent of both parents for purposes of certain provisions, see 
sections 105(b), 132(h)(2)(B), and 213(d)(5).''

SEC. 202. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

    (a) Head of Household.--Section 2(b)(1)(A)(i) is amended to read as 
follows:
                            ``(i) a qualifying child of the individual 
                        (as defined in section 152(c)), but not if such 
                        child is married at the close of the taxpayer's 
                        taxable year and such child has made a joint 
                        return with the child's spouse under section 
                        6013 for the taxable year beginning in the 
                        calendar year in which the taxable year of the 
                        taxpayer begins, or''.
    (b) Special Rule Relating to Treatment of Government Benefits in 
Determining Cost of Maintaining Household.--Paragraph (1) of section 
2(b) is amended by adding after the flush sentence at the end the 
following: ``For purposes of the preceding sentence, any means-tested 
benefits obtained under programs described in section 6103(l)(7) or 
substantially similar government programs shall not be taken into 
account for purposes of determining whether over half of the cost of 
maintaining the household is furnished by the individual.''.
    (c) Conforming Amendment.--Clauses (i) and (ii) of section 
2(b)(3)(B) are amended to read as follows:
                            ``(i) subparagraph (H) of section 
                        152(d)(2), or
                            ``(ii) paragraph (3) of section 152(d).''.

SEC. 203. MODIFICATIONS OF DEPENDENT CARE CREDIT.

    (a) In General.--Section 21(a)(1) is amended by striking ``(as 
defined in subsection (b)(1))'' and inserting ``(as defined in 
subparagraph (B) or (C) of subsection (b)(1)) or who has one or more 
qualifying individuals (as defined in subsection (b)(1)(A))''.
    (b) Qualifying Individual.--Section 21(b)(1)(A) is amended to read 
as follows:
                    ``(A) a qualifying child of the taxpayer (as 
                defined in section 152(c)) who has not attained age 
                13,''.
    (c) Special Rule Relating to Treatment of Government Benefits in 
Determining Cost of Maintaining Household.--Section 21(c)(1) is amended 
by adding at the end the following: ``Any means-tested benefits 
obtained under programs described in section 6103(l)(7) or 
substantially similar government programs shall not be taken into 
account for purposes of determining whether over half of the cost of 
maintaining the household is furnished by the individual.''.

SEC. 204. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) In General.--Section 24(c)(1) is amended to read as follows:
            ``(1) In general.--The term `qualifying child' means a 
        qualifying child of the taxpayer (as defined in section 152(c)) 
        who has not attained age 17.''.
    (b) Conforming Amendment.--Section 24(c)(2) is amended by striking 
``first sentence of section 152(b)(3)'' and inserting ``subparagraph 
(A) of section 152(b)(3)''.

SEC. 205. MODIFICATIONS OF EARNED INCOME CREDIT.

    (a) Qualifying Child.--
            (1) In general.--Paragraph (3) of section 32(c) is amended 
        to read as follows:
            ``(3) Qualifying child.--
                    ``(A) In general.--The term `qualifying child' 
                means a qualifying child of the taxpayer (as defined in 
                section 152(c)).
                    ``(B) Married individual.--The term `qualifying 
                child' shall not include an individual who is married 
                as of the close of the taxpayer's taxable year unless 
                the taxpayer is entitled to a deduction under section 
                151 for such taxable year with respect to such 
                individual (or would be so entitled but for subsection 
                (d)(3) or (e) of section 152).
                    ``(C) Place of abode.--For purposes of subparagraph 
                (A), the requirements of section 152(c)(1)(B) shall be 
                met only if the principal place of abode is in the 
                United States.
                    ``(D) Identification requirements.--
                            ``(i) In general.--A qualifying child shall 
                        not be taken into account under subsection (b) 
                        unless the taxpayer includes the name, age, and 
                        TIN of the qualifying child on the return of 
                        tax for the taxable year.
                            ``(ii) Other methods.--The Secretary may 
                        prescribe other methods for providing the 
                        information described in clause (i).''.
            (2) Conforming amendments.--
                    (A) Section 32(c)(1) is amended by striking 
                subparagraph (C) and by redesignating subparagraphs 
                (D), (E), (F), and (G) as subparagraphs (C), (D), (E), 
                and (F), respectively.
                    (B) Section 32(c)(4) is amended by striking 
                ``(3)(E)'' and inserting ``(3)(C)''.
                    (C) Section 32(m) is amended by striking 
                ``subsections (c)(1)(F)'' and inserting ``subsections 
                (c)(1)(E)''.
    (b) Modification of Joint Return Requirement.--Subsection (d) of 
section 32 is amended to read as follows:
    ``(d) Married Individuals.--
            ``(1) In general.--If the taxpayer is married at the close 
        of the taxable year, the credit shall be allowed under 
        subsection (a) only if the taxpayer and his spouse file a joint 
        return for the taxable year.
            ``(2) Marital status.--For purposes of paragraph (1), an 
        individual legally separated from his spouse under a decree of 
        divorce or of separate maintenance shall not be considered as 
        married.
            ``(3) Certain married individuals living apart.--For 
        purposes of paragraph (1), if--
                    ``(A) an individual--
                            ``(i) is married and files a separate 
                        return, and
                            ``(ii) has a qualifying child who is a son, 
                        daughter, stepson, or stepdaughter of such 
                        individual, and
                    ``(B) during the last 6 months of such taxable 
                year, such individual and such individual's spouse do 
                not have the same principal place of abode,
        such individual shall not be considered as married.''.

SEC. 206. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION FOR 
              DEPENDENTS.

    Section 151(c) (relating to additional exemption for dependents) is 
amended to read as follows:
    ``(c) Additional Exemption for Dependents.--An exemption of the 
exemption amount for each individual who is a dependent (as defined in 
section 152) of the taxpayer for the taxable year.''

SEC. 207. MODIFICATION OF DETERMINATION OF MARITAL STATUS.

    Section 7703 (relating to determination of marital status) is 
amended by adding at the end the following new subsection:
    ``(c) Special Rule Relating to Treatment of Government Benefits in 
Determining Cost of Maintaining Household.--For purposes of subsection 
(b)(2), any means-tested benefits obtained under programs described in 
section 6103(l)(7) or substantially similar government programs shall 
not be taken into account for purposes of determining whether over half 
of the cost of maintaining the household is furnished by the 
individual.''.

SEC. 208. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) Section 21(e)(5)(A) is amended by striking ``paragraph 
        (2) or (4) of''.
            (2) Section 21(e)(6)(B) is amended by striking ``section 
        151(c)(3)'' and inserting ``section 152(f)(1)''.
            (3) Section 25B(c)(2)(B) is amended by striking 
        ``151(c)(4)'' and inserting ``152(f)(2)''.
            (4)(A) Subparagraphs (A) and (B) of section 51(i)(1) are 
        each amended by striking ``paragraphs (1) through (8) of 
        section 152(a)'' both places it appears and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (B) Section 51(i)(1)(C) is amended by striking 
        ``152(a)(9)'' and inserting ``152(d)(2)(H)''.
            (5) Section 72(t)(7)(A)(iii) is amended by striking 
        ``151(c)(3)'' and inserting ``152(f)(1)''.
            (6) Section 129(c)(2) is amended by striking ``151(c)(3)'' 
        and inserting ``152(f)(1)''.
            (7) The first sentence of section 132(h)(2)(B) is amended 
        by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
            (8) Section 153 is amended by striking paragraph (1) and by 
        redesignating paragraphs (2), (3), and (4) as paragraphs (1), 
        (2), and (3), respectively.
            (9) Section 170(g)(3) is amended by striking ``paragraphs 
        (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (10) The second sentence of section 213(d)(11) is amended 
        by striking ``paragraphs (1) through (8) of section 152(a)'' 
        and inserting ``subparagraphs (A) through (G) of section 
        152(d)(2)''.
            (11) Section 529(e)(2)(B) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (12) Section 2032A(c)(7)(D) is amended by striking 
        ``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
            (13) Section 7701(a)(17) is amended by striking 
        ``152(b)(4), 682,'' and inserting ``682''.
            (14) Section 7702B(f)(2)(C)(iii) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (15) Section 7703(b)(1) is amended--
                    (A) by striking ``151(c)(3)'' and inserting 
                ``152(f)(1)'', and
                    (B) by striking ``paragraph (2) or (4) of''.

SEC. 209. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to taxable years 
beginning after December 31, 2002.

              Subtitle B--Other Family-Related Provisions

SEC. 211. ACCELERATION OF REPEAL OF PHASEOUT OF PERSONAL EXEMPTIONS.

    (a) In General.--Subsection (d) of section 151 (relating to 
phaseout of exemption amount) is amended by striking paragraph (3) and 
redesignating paragraph (4) as paragraph (3).
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 151(d), as amended by 
        subsection (a), is amended to read as follows:
            ``(3) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 1989, the dollar amount 
        contained in paragraph (1) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `calendar year 
                1988' for `calendar year 1992' in subparagraph (B) 
                thereof.''.
            (2) Section 1(f)(6) is amended--
                    (A) in subparagraph (A) by striking ``151(d)(4)'' 
                and inserting ``151(d)(3)'', and
                    (B) in subparagraph (B), both as in effect on the 
                date of the enactment of this Act and as amended by the 
                Economic Growth and Tax Relief Reconciliation Act of 
                2001, by striking ``151(d)(4)(A)'' and inserting 
                ``151(d)(3)''.
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2002.

SEC. 212. ACCELERATION OF REPEAL OF PHASEOUT OF OVERALL LIMITATION ON 
              ITEMIZED DEDUCTIONS.

    (a) In General.--Section 68 (relating to overall limitation on 
itemized deductions) is hereby repealed and the table of sections for 
part I of subchapter B of chapter 1 is amended by striking the item 
relating to section 68.
    (b) Conforming Amendments.--
            (1) Section 1(f)(6)(A) is amended by striking ``, section 
        68(b)(2)''.
            (2) Section 773(a)(3)(B) is amended by striking clause (i) 
        and redesignating clauses (ii), (iii), and (iv) as clauses (i), 
        (ii), and (iii), respectively.
    (c) Effective Date.--The amendments by this section shall apply to 
taxable years beginning after December 31, 2002.

SEC. 213. REPEAL OF CERTAIN PHASEOUT PROVISIONS.

    (a) Child Tax Credit.--Subsection (b) of section 24 (relating to 
limitations) is amended--
            (1) by striking paragraphs (1) and (2),
            (2) by striking ````(3) Limitation based on amount of 
        tax.--'' and moving the text 2 ems to the left, and
            (3) by redesignating subparagraphs (A) and (B) as 
        paragraphs (1) and (2), respectively.
    (b) Household and Dependent Care Services Necessary for Gainful 
Employment.--Subsection (a) of section 21 (relating to allowance of 
credit) is amended--
            (1) in paragraph (1) by striking ``applicable percentage'' 
        and inserting ``35 percent'',
            (2) by striking paragraph (2), and
            (3) by striking ``(1) In general.--'' and moving the text 2 
        ems to the left.
    (c) Retirement Savings.--
            (1) In general.--Section 219 (relating to retirement 
        savings) is amended by striking subsection (g).
            (2) Conforming amendments.--
                    (A) Sections 132(m)(3) and 408(p)(2)(D)(ii) are 
                each amended by inserting ``(as in effect on the day 
                before the enactment of this parenthetical)'' after 
                ``section 219(g)(5)'' each place it appears.
                    (B) Section 408(d)(5)(B) is amended by striking the 
                last sentence.
                    (C) Section 408(o)(2)(B)(i) is amended by striking 
                ``(determined without regard to section 219(g))'' both 
                places it appears.
                    (D) Section 408A(c)(2)(A) is amended by striking 
                ``or (g)''.
                    (E) Section 408A(c) is amended by striking 
                paragraph (3) and redesignating paragraphs (4), (5), 
                (6), and (7) as paragraphs (3), (4), (5), and (6), 
                respectively.
                    (F) Section 4973(b)(2) is amended by striking the 
                last sentence.
    (d) Hope and Lifetime Learning Credits.--Section 25A (relating to 
hope and lifetime learning credits) is amended by striking subsection 
(d).
    (e) Interest on Education Loans.--Section 221(b) (relating to 
maximum deduction) is amended--
            (1) by striking paragraph (2),
            (2) by striking ``(1) In general.--Except as provided in 
        paragraph (2), the'' and inserting ``The'', and
            (3) moving the text 2 ems to the left.
    (f) Income From United States Savings Bonds Used To Pay Higher 
Education Tuition and Fees.--Subsection (c) of section 135 is amended 
to read as follows:
    ``(b) Limitation.--
            ``(1) In general.--If--
                    ``(A) the aggregate proceeds of qualified United 
                States savings bonds redeemed by the taxpayer during 
                the taxable year exceed
                    ``(B) the qualified higher education expenses paid 
                by the taxpayer during such taxable year,
        the amount excludable from gross income under subsection (a) 
        shall not exceed the applicable fraction of the amount 
        excludable from gross income under subsection (a) without 
        regard to this subsection.
            ``(2) Applicable fraction.--For purposes of paragraph (1), 
        the term `applicable fraction' means the fraction the numerator 
        of which is the amount described in paragraph (1)(B) and the 
        denominator of which is the amount described in paragraph 
        (1)(A).''.
    (g) Adoption Credit.--Subsection (b) of section 23 (relating to 
limitations) is amended by striking paragraph (2) and redesignating 
paragraphs (3) and (4) as paragraphs (2) and (3).
    (h) Adoption Assistance Programs.--
            (1) In general.--Subsection (b) of section 137 is amended--
                    (A) by striking paragraphs (2) and (3),
                    (B) in paragraph (1)--
                            (i) by striking ``(1) Dollar limitations.--
                        '', and
                            (ii) moving the text 2 ems to the left.
            (2) Conforming amendment.--Section 23(h) is amended by 
        striking ``section 137(b)(1)'' and inserting ``section 
        137(b)''.
    (i) Qualified Tuition and Related Expenses.--Subsection (b) of 
section 222 is amended to read as follows:
    ``(b) Dollar Limitations.--
            ``(1) In general.--The amount allowed as a deduction under 
        subsection (a) with respect to the taxpayer for any taxable 
        year shall not exceed the applicable dollar limit.
            ``(2) Applicable dollar limit.--For purposes of paragraph 
        (1), the applicable dollar limit shall be determined in 
        accordance with the following table:

``Taxable years beginning in        The applicable dollar limit is:
        calendar year:
    2003...........................
                                        $3,000.
    2004 and 2005..................
                                        $4,000.''.
    (j) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 214. SIMPLIFICATION OF CAPITAL GAINS TAX.

    (a) In General.--Part I of subchapter P of chapter 1 (relating to 
treatment of capital gains) is amended by adding at the end the 
following new section:

``SEC. 1203. CAPITAL GAINS DEDUCTION.

    ``If for any taxable year a taxpayer other than a corporation has a 
net capital gain, 50 percent of such gain shall be a deduction from 
gross income.''.
    (b) Deduction Allowable Whether or Not Taxpayer Itemizes Other 
Deductions.--
            (1) Subsection (b) of section 63 is amended by striking 
        ``and'' at the end of paragraph (1), by striking the period at 
        the end of paragraph (2) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
            ``(3) the deduction allowed by section 1203.''.
            (2) Subsection (d) of section 63 is amended by striking 
        ``and'' at the end of paragraph (1), by striking the period at 
        the end of paragraph (2) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
            ``(3) the deduction allowed by section 1203.''.
    (c) Technical and Conforming Amendments.--
            (1) Section 1 is amended by striking subsection (h).
            (2) Subparagraph (E) of section 163(d)(4) is amended to 
        read as follows:
                    ``(E) Coordination with capital gains deduction.--
                The net capital gain taken into account under section 
                1203 for any taxable year shall be reduced (but not 
                below zero) by the amount which the taxpayer takes into 
                account as investment income under subparagraph 
                (B)(iii) for such year.''.
            (3) Paragraph (1) of section 170(e) is amended by striking 
        ``the amount of gain'' in the material following subparagraph 
        (B)(ii) and inserting ``50 percent (100 percent in the case of 
        a corporation) of the amount of gain''.
            (4) Subparagraph (B) of section 172(d)(2) is amended to 
        read as follows:
                    ``(B) the exclusion under section 1202 and the 
                deduction under section 1203 shall not be allowed.''.
            (5) The last sentence of section 453A(c)(3) is amended by 
        striking all that follows ``long-term capital gain,'' and 
        inserting ``the maximum rate on net capital gain under section 
        1201 or the deduction under section 1203 (whichever is 
        appropriate) shall be taken into account.''.
            (6)(A) Section 641(c)(2)(A) is amended by striking ``Except 
        as provided in section 1(h), the'' and inserting ``The''.
            (B) Section 641(c)(2)(C) is amended by inserting after 
        clause (iii) the following new clause:
                            ``(iv) The deduction under section 1203.''.
            (7) Paragraph (4) of section 642(c) is amended to read as 
        follows:
            ``(4) Adjustments.--To the extent that the amount otherwise 
        allowable as a deduction under this subsection consists of gain 
        from the sale or exchange of capital assets held for more than 
        1 year, proper adjustment shall be made for any exclusion 
        allowable under section 1202 and any deduction allowable under 
        section 1203 to the estate or trust. In the case of a trust, 
        the deduction allowed by this subsection shall be subject to 
        section 681 (relating to unrelated business income).''.
            (8) Section 642 is amended by adding at the end the 
        following new subsection:
    ``(j) Capital Gains Deduction.--The deduction under section 1203 to 
an estate or trust shall be computed by excluding the portion (if any) 
of the gains for the taxable year which is includible by the income 
beneficiaries under sections 652 and 662 (relating to inclusions of 
amounts in gross income of beneficiaries of trusts) as gain derived 
from the sale or exchange of capital assets.''.
            (9) The last sentence of section 643(a)(3) is amended to 
        read as follows: ``The exclusion under section 1202 and the 
        deduction under section 1203 shall not be taken into 
        account.''.
            (10) Subparagraph (C) of section 643(a)(6) is amended by 
        inserting ``(i)'' before ``there shall'' and by inserting 
        before the period ``, and (ii) the deduction under section 1203 
        (relating to capital gains deduction) shall not be taken into 
        account''.
            (11) Paragraph (4) of section 691(c) is amended by striking 
        ``1(h),'' and by inserting ``1203,'' after ``1202,''.
            (12) The second sentence of paragraph (2) of section 871(a) 
        is amended by striking ``section 1202'' and inserting 
        ``sections 1202 and 1203''.
            (13)(A) Paragraph (2) of section 904(b) is amended by 
        striking subparagraphs (A) and (C)'', by redesignating 
        subparagraph (B) as subparagraph (A), and by inserting after 
        subparagraph (A) (as so redesignated) the following new 
        subparagraph:
                    ``(B) Other taxpayers.--In the case of a taxpayer 
                other than a corporation, taxable income from sources 
                outside the United States shall include gain from the 
                sale or exchange of capital assets only to the extent 
                of foreign source capital gain net income.''.
            (B) Subparagraph (A) of section 904(b)(2), as so 
        redesignated, is amended--
                    (i) by striking all that precedes clause (i) and 
                inserting the following:
                    ``(A) Corporations.--In the case of a corporation--
                '', and
                    (ii) by striking in clause (i) ``in lieu of 
                applying subparagraph (A),''.
            (C) Paragraph (3) of section 904(b) is amended by striking 
        subparagraphs (D) and (E) and inserting the following new 
        subparagraph:
                    ``(D) Rate differential portion.--The rate 
                differential portion of foreign source net capital 
                gain, net capital gain, or the excess of net capital 
                gain from sources within the United States over net 
                capital gain, as the case may be, is the same 
                proportion of such amount as the excess of the highest 
                rate of tax specified in section 11(b) over the 
                alternative rate of tax under section 1201(a) bears to 
                the highest rate of tax specified in section 11(b).''.
            (14) Paragraph (1) of section 1402(i) is amended by 
        inserting ``, and the deduction provided by section 1203 shall 
        not apply'' before the period at the end thereof.
            (15) Paragraph (1) of section 1445(e) is amended by 
        striking ``20 percent'' and inserting ``one-half of the maximum 
        rate of tax in effect under section 1''.
            (16)(A) The second sentence of section 7518(g)(6)(A) is 
        amended--
                    (i) by striking ``during a taxable year to which 
                section 1(h) or 1201(a) applies'', and
                    (ii) by striking ``20 percent'' and inserting 
                ``one-half of the maximum rate of tax in effect under 
                section 1''.
                    (B) The second sentence of section 607(h)(6)(A) of 
                the Merchant Marine Act, 1936, is amended--
                            (i) by striking ``during a taxable year to 
                        which section 1(h) or 1201(a) of such Code 
                        applies'', and
                            (ii) by striking ``20 percent'' and 
                        inserting ``one-half of the maximum rate of tax 
                        in effect under section 1 of such Code''.
    (d) Clerical Amendment.--The table of sections for part I of 
subchapter P of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 1203. Capital gains deduction.''.
    (e) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2002.
            (2) Withholding.--The amendments made by subsection (d)(15) 
        shall apply only to amounts paid after December 31, 2002.
            (3) Repeal of election.--Section 311 of the Taxpayer Relief 
        Act of 1997 is amended by striking subsection (e).
            (4) Coordination with prior transition rule.--Any amount 
        treated as long-term capital gain by reason of paragraph (3) of 
        section 1122(h) of the Tax Reform Act of 1986 shall not be 
        taken into account for purposes of applying section 1203 of the 
        Internal Revenue Code of 1986 (as added by this section).

SEC. 215. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME FROM TAX.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
amounts specifically excluded from gross income) is amended by 
inserting after section 115 the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
dividends and interest otherwise includible in gross income which are 
received during the taxable year by an individual.
    ``(b) Limitations.--
            ``(1) Maximum amount.--The aggregate amount excluded under 
        subsection (a) for any taxable year shall not exceed $250 ($500 
        in the case of a joint return).
            ``(2) Certain dividends excluded.--Subsection (a) shall not 
        apply to any dividend from a corporation which for the taxable 
        year of the corporation in which the distribution is made is a 
        corporation exempt from tax under section 521 (relating to 
        farmers' cooperative associations).
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Exclusion not to apply to capital gain dividends from 
        regulated investment companies and real estate investment 
        trusts.--

                                ``For treatment of capital gain 
dividends, see sections 854(a) and 857(c).
            ``(2) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only in determining the taxes 
        imposed for the taxable year pursuant to sections 871(b)(1) and 
        877(b).
            ``(3) Dividends from employee stock ownership plans.--
        Subsection (a) shall not apply to any dividend described in 
        section 404(k).''.
    (b) Conforming Amendments.--
            (1) Subparagraph (C) of section 32(c)(5) is amended by 
        striking ``or'' at the end of clause (i), by striking the 
        period at the end of clause (ii) and inserting ``; or'', and by 
        inserting after clause (ii) the following new clause:
                            ``(iii) interest and dividends received 
                        during the taxable year which are excluded from 
                        gross income under section 116.''.
            (2) Subparagraph (A) of section 32(i)(2) is amended by 
        inserting ``(determined without regard to section 116)'' before 
        the comma.
            (3) Subparagraph (B) of section 86(b)(2) is amended to read 
        as follows:
                    ``(B) increased by the sum of--
                            ``(i) the amount of interest received or 
                        accrued by the taxpayer during the taxable year 
                        which is exempt from tax, and
                            ``(ii) the amount of interest and dividends 
                        received during the taxable year which are 
                        excluded from gross income under section 
                        116.''.
            (4) Subsection (d) of section 135 is amended by 
        redesignating paragraph (4) as paragraph (5) and by inserting 
        after paragraph (3) the following new paragraph:
            ``(4) Coordination with section 116.--This section shall be 
        applied before section 116.''.
            (5) Paragraph (2) of section 265(a) is amended by inserting 
        before the period ``, or to purchase or carry obligations or 
        shares, or to make deposits, to the extent the interest thereon 
        is excludable from gross income under section 116''.
            (6) Subsection (c) of section 584 is amended by adding at 
        the end the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends or interest received by the common trust fund and to which 
section 116 applies shall be considered for purposes of such section as 
having been received by such participant.''.
            (7) Subsection (a) of section 643 is amended by 
        redesignating paragraph (7) as paragraph (8) and by inserting 
        after paragraph (6) the following new paragraph:
            ``(7) Dividends or interest.--There shall be included the 
        amount of any dividends or interest excluded from gross income 
        pursuant to section 116.''.
            (8) Section 854(a) is amended by inserting ``section 116 
        (relating to partial exclusion of dividends and interest 
        received by individuals) and'' after ``For purposes of''.
            (9) Section 857(c) is amended to read as follows:
    ``(c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
            ``(1) Treatment for section 116.--For purposes of section 
        116 (relating to partial exclusion of dividends and interest 
        received by individuals), a capital gain dividend (as defined 
        in subsection (b)(3)(C)) received from a real estate investment 
        trust which meets the requirements of this part shall not be 
        considered as a dividend.
            ``(2) Treatment for section 243.--For purposes of section 
        243 (relating to deductions for dividends received by 
        corporations), a dividend received from a real estate 
        investment trust which meets the requirements of this part 
        shall not be considered as a dividend.''.
            (10) The table of sections for part III of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 115 the following new item:

                              ``Sec. 116. Partial exclusion of 
                                        dividends and interest received 
                                        by individuals.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 216. SIMPLIFICATION OF DEDUCTION FOR POINTS ON HOME MORTGAGE.

    (a) In General.--Paragraph (2) of section 461(g) (relating to 
prepaid interest) is amended by adding at the end the following new 
sentence: ``This subsection also shall not apply to points paid in 
respect of indebtedness secured by such residence resulting from the 
refinancing of indebtedness meeting the requirements of the preceding 
sentence (or this sentence), but only to the extent the amount of the 
indebtedness resulting from such refinancing does not exceed the amount 
of the refinanced indebtedness.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 217. INCREASE IN EXCLUSION FOR GROUP-TERM LIFE INSURANCE PURCHASED 
              FOR EMPLOYEES.

    (a) In General.--Paragraph (1) of section 79(a) is amended by 
striking ``$50,000'' and inserting ``$100,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2002.

                TITLE III--EDUCATION-RELATED PROVISIONS

SEC. 301. UNIFORM DEFINITION OF QUALIFYING HIGHER EDUCATION EXPENSES.

    (a) In General.--Paragraph (3) of section 529(e) (relating to other 
definitions and special rules) is amended to read as follows:
            ``(3) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means--
                            ``(i) tuition, fees, books, supplies, and 
                        equipment required for the enrollment or 
                        attendance of a designated beneficiary at an 
                        eligible educational institution; and
                            ``(ii) expenses for special needs services 
                        in the case of a special needs beneficiary 
                        which are incurred in connection with such 
                        enrollment or attendance.
                    ``(B) Room and board included for students who are 
                at least half-time.--
                            ``(i) In general.--In the case of an 
                        individual who is an eligible student (as 
                        defined in section 25A(b)(3)) for any academic 
                        period, such term shall also include reasonable 
                        costs for such period (as determined under the 
                        qualified tuition program) incurred by the 
                        designated beneficiary for room and board while 
                        attending such institution. For purposes of 
                        subsection (b)(7), a designated beneficiary 
                        shall be treated as meeting the requirements of 
                        this clause.
                            ``(ii) Limitation.--The amount treated as 
                        qualified higher education expenses by reason 
                        of clause (i) shall not exceed--
                                    ``(I) the allowance (applicable to 
                                the student) for room and board 
                                included in the cost of attendance 
(as defined in section 472 of the Higher Education Act of 1965 (20 
U.S.C. 1087ll), as in effect on the date of the enactment of the 
Economic Growth and Tax Relief Reconciliation Act of 2001) as 
determined by the eligible educational institution for such period, or
                                    ``(II) if greater, the actual 
                                invoice amount the student residing in 
                                housing owned or operated by the 
                                eligible educational institution is 
                                charged by such institution for room 
                                and board costs for such period.
                    ``(C) Exceptions.--
                            ``(i) Exception for education involving 
                        sports, etc.--Such term does not include 
                        expenses with respect to any course or other 
                        education involving sports, games, or hobbies, 
                        unless such course or other education is part 
                        of the individual's degree program.
                            ``(ii) Exception for nonacademic fees.--
                        Such term does not include student activity 
                        fees, athletic fees, insurance expenses, or 
                        other expenses unrelated to an individual's 
                        academic course of instruction.''.
    (b) Conforming Amendments.--
            (1) Section 25A and 6050S are each amended by striking 
        ``qualified tuition and related expenses'' each place it 
        appears and inserting ``qualified higher education expenses''.
            (2) Section 25A(f)(1) is amended to read as follows:
            ``(1) Qualified higher education expenses.--The term 
        `qualified higher education expenses' means the qualified 
        higher education expenses (as defined by section 529(e)(3) 
        without regard to subparagraph (B) thereof) required for the 
        enrollment or attendance of--
                    ``(A) the taxpayer,
                    ``(B) the taxpayer's spouse, or
                    ``(C) any dependent of the taxpayer with respect to 
                whom the taxpayer is allowed a deduction under section 
                151,
        at an eligible educational institution for courses of 
        instruction of such individual at such institution.''.
            (3) Section 135(c)(2) is amended--
                    (A) by striking ``tuition and fees'' and inserting 
                ``the qualified higher education expenses (as defined 
                by section 529(e)(3) without regard to subparagraph (B) 
                thereof)'', and
                    (B) by striking subparagraph (B) and redesignating 
                subparagraph (C) as subparagraph (B).
            (4) Section 221(d)(2) is amended by striking ``the cost of 
        attendance (as defined in section 472 of the Higher Education 
        Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before 
        the date of the enactment of this Act)'' and inserting ``the 
        qualified higher education expenses (as defined by section 
        529(e)(3) without regard to subparagraph (B) thereof) incurred 
        for attendance''.
            (5)(A) Section 222 is amended by striking ``qualified 
        tuition and related expenses'' each place it appears and 
        inserting ``qualified higher education expenses''.
            (B) Section 222(d)(1) is amended to read as follows:
            ``(1) Qualified higher education expenses.--The term 
        `qualified higher education expenses' has the meaning given 
        such term by section 529(e)(3) (without regard to subparagraph 
        (B) thereof). Such expenses shall be reduced in the same manner 
        as under section 25A(g)(2).''.
            (C) Section 222(d) is amended by redesignating paragraph 
        (6) as paragraph (7) and by inserting after paragraph (5) the 
        following new paragraph:
            ``(6) Room and board included for students who are full-
        time.--No amount shall be taken into account under this section 
        for an expense described in section 529(e)(3)(B) (relating to 
        room and board included for students who are at least half-
        time) unless such individual is an eligible student (as defined 
        in section 25A(b)(3)), determined by substituting `the normal 
        full-time work load' in lieu of `\1/2\ the normal full-time 
        work load' in subparagraph (B) thereof.''.
            (D) The heading for section 222 is amended by striking 
        ``TUITITION AND RELATED'' and inserting ``HIGHER EDUCATION''.
            (E) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by amending the item relating to section 
        222 to read as follows:

                              ``Sec. 222. Qualified higher education 
                                        expenses.''.
            (6)(A) Section 6724(d) is amended--
                    (i) in paragraph (1)(B)(x) by striking ``qualified 
                tuition and related expenses'' and inserting 
                ``qualified higher education expenses'', and
                    (ii) in paragraph (2)(Z) by striking ``qualified 
                tuition and related expenses'' and inserting 
                ``qualified higher education expenses''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid in taxable years beginning after December 31, 
2002, for education furnished in periods beginning after such date.

SEC. 302. COMBINING HOPE AND LIFETIME LEARNING CREDITS.

    (a) In General.--So much of section 25A (relating to Hope and 
Lifetime Learning Credits) as precedes subsection (d) is amended to 
read as follows:

``SEC. 25A. EDUCATION CREDIT.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year the amount equal to 20 percent of so much of the 
qualified expenses paid by the taxpayer during the taxable year (for 
education furnished during any academic period beginning in such 
taxable year) as does not exceed $10,000.
    ``(b) Qualified Expenses.--For purposes of subsection (a), the term 
`qualified expenses' means the sum of--
            ``(1) qualified higher education expenses, and
            ``(2) the expenses described in subsection (d)(1) with 
        respect to any course of instruction at an eligible educational 
        institution to acquire or improve job skills of the 
        individual.''.
    (b) Conforming Amendments to Credit.--
            (1) Section 25A, as amended by subsection (a) and sections 
        207(d) and 301, is further amended--
                    (A) by striking subsection (h), and
                    (B) by redesignating subsections (e), (f), (g), and 
                (i) as subsections (c), (d), (e), and (f), 
                respectively.
            (2) Subsection (e)(2), as so redesignated, is amended by 
        striking ``(before the application of subsections (b), (c), and 
        (d))''.
    (c) Other Conforming and Clerical Amendments.--
            (1) The following provisions are each amended by striking 
        ``section 25A(g)(2)'' and inserting ``section 25A(e)(2)'':
                    (A) Section 72(t)(7)(B).
                    (B) 221(d)(2)(B).
                    (C) 222(d)(1) (as amended by section 301(b)(6) of 
                this Act).
                    (D) 529(c)(3)(B)(v)(I).
                    (E) 530(b)(2)(A).
                    (F) 530(d)(2)(C)(i)(I).
                    (G) 530(d)(4)(B)(iii).
            (2) Section 221(d) is amended--
                    (A) in paragraph (2) by striking ``section 
                25A(f)(2)'' and inserting ``section 25A(d)(2)'', and
                    (B) by amending paragraph (3) to read as follows:
            ``(3) Eligible student.--The term `eligible student' means, 
        with respect to any academic period, a student who--
                    ``(A) meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965 (20 U.S.C. 
                1091(a)(1)), as in effect on the date of the enactment 
                of this section, and
                    ``(B) is carrying at least \1/2\ the normal full-
                time work load for the course of study the student is 
                pursuing.''.
            (3) Section 529(e)(3)(B)(i) is amended by striking 
        ``section 25A(b)(3)'' and inserting ``section 221(d)(3)''.
            (4) The heading of section 529(c)(3)(B)(v) is amended to 
        read as follows: ``Coordination with education credit.--''.
            (5) The heading of section 530(d)(2)(C) is amended to read 
        as follows: ``Coordination with education credit and qualified 
        tuition programs.--''.
            (6) Section 6050S(e) is amended by striking ``subsection 
        (g)(2)'' and inserting ``subsection (e)(2)''.
            (7) Section 6213(g)(2)(J) is amended by striking ``section 
        25A(g)(1)'' and inserting ``section 25A(e)(1)''.
            (8) The item relating to section 25A in the table of 
        sections for subpart A of part IV of subchapter A of chapter 1 
        is amended to read as follows:

                              ``Sec. 25A. Education Credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 303. CLARIFICATION OF INTERACTION OF VARIOUS EDUCATION TAX 
              INCENTIVE PROVISIONS.

    (a) Repeal of Excise Tax on Excess Contributions to Education 
Savings Accounts.--Section 4973 is amended--
            (1) in subsection (a) by inserting ``or'' at the end of 
        paragraph (2), by striking ``or'' at the end of paragraph (3), 
        and by striking paragraph (4), and
            (2) by striking subsection (e) and redesignating subsection 
        (f) as subsection (e).
    (b) Coordination of Education Incentives.--Section 222(c)(2) is 
amended to read as follows:
            ``(2) Coordination with education exclusions.--The total 
        amount of qualified higher education expenses shall be reduced 
        by the amount of such expenses taken into account in 
        determining any amount excluded under section 135, 529(c)(1), 
        or 530(d)(2). For purposes of the preceding sentence, the 
        amount taken into account in determining the amount excluded 
        under section 529(c)(1) shall not include that portion of the 
        distribution which represents a return of any contributions to 
        the plan.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

                     TITLE IV--BUSINESS PROVISIONS

SEC. 401. CASH METHOD OF ACCOUNTING.

    (a) Personal Service Corporations.--
            (1) In general.--Subsection (b) of section 448 (relating to 
        exception to general rule on limitation on use of cash method 
        of accounting) is amended--
                    (A) by striking paragraph (2), and
                    (B) by redesignating paragraph (3) as paragraph 
                (2).
            (2) Conforming amendments.--
                    (A) Section 448(d) is amended by striking paragraph 
                (2) and redesignating paragraphs (3) through (8) as 
                paragraphs (2) through (7), respectively.
                    (B) Section 11(b)(2) is amended by inserting ``(as 
                in effect on the day before the date of the enactment 
                of this parenthetical)'' after ``section 448(d)(2)''.
    (b) Increase in Gross Receipts Test Amount; Testing Period Limited 
to 3 Years.--
            (1) In general.--Paragraph (2) of section 448(b) (relating 
        to entities with gross receipts of not more than $5,000,000), 
        as redesignated by subsection (a), is amended--
                    (A) by striking ``$5,000,000'' in the heading and 
                inserting ``$10,000,000'',
                    (B) by striking ``$5,000,000'' in the text, and
                    (C) by striking ``, for all prior taxable years 
                beginning after December 31, 1985,''.
            (2) Gross receipts test defined.--Subsection (c) of section 
        448 (relating to $5,000,000 gross receipts test) is amended--
                    (A) by striking ``$5,000,000'' in the heading and 
                the first place it appears in paragraph (1), and
                    (B) by striking ``$5,000,000'' the second place it 
                appears in paragraph (1) and inserting ``$10,000,000''.
    (c) Effective Dates.--
            (1) Personal service corporations.--The amendments made by 
        subsection (a) shall apply to taxable years beginning after 
        December 31, 2002.
            (2) Gross receipts test.--The amendments made by subsection 
        (b) shall apply to determinations of whether the requirement of 
        section 448(b)(2) of the Internal Revenue Code of 1986 (as 
        amended by this section) is met for any taxable year beginning 
        after December 31, 2002.

SEC. 402. REPEAL OF COLLAPSIBLE CORPORATIONS.

    (a) In General.--Subpart C of part II of subchapter C of chapter 1 
(relating to collapsible corporations) is hereby repealed.
    (b) Clerical Amendment.--The table of subparts for part II of 
subchapter C of chapter 1 is amended by striking the item relating to 
subpart C.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales, exchanges, and distributions made after the date of the 
enactment of this Act.

SEC. 403. SIMPLIFICATION OF ACTIVE BUSINESS TEST FOR CERTAIN CORPORATE 
              REORGANIZATIONS.

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

SEC. 404. STUDY ON SIMPLIFICATION OF ATTRIBUTION RULES.

    The Secretary of the Treasury shall conduct a study of the 
different provisions in the Internal Revenue Code of 1986 relating to 
the attribution rules with respect to the ownership of stock. Such 
study shall address the advantages and disadvantages of adopting 
uniform attribution rules and the extent to which such uniform rules 
would better serve taxpayers, practitioners, and the Internal Revenue 
Service. Not later than 180 days after the date of the enactment of 
this Act, the Secretary shall submit such study, together with any 
recommendation the Secretary considers appropriate, to the Committee on 
Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate.

SEC. 405. ALLOCATION OF BASIS ON TRANSFERS OF INTANGIBLES IN CERTAIN 
              NONRECOGNITION TRANSACTIONS.

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

SEC. 406. STUDY ON MODERNIZATION OF REFERENCES TO GENERAL AND LIMITED 
              PARTNERS.

    (a) In General.--The Secretary of the Treasury shall conduct a 
study on modernizing the use of the terms ``general partners'' and 
``limited partners'' in the Internal Revenue Code of 1986 in light of 
the increased use of limited liability companies and other business 
entities classified as partnerships for Federal tax purposes. Such 
study shall address whether the distinction between general and limited 
partners should be determined based on liability for debts of the 
partnership or on the right to participate in management of the 
partnership.
    (b) Submission of Study to Congress.--Not later than one year after 
the date of the enactment of this Act, the Secretary shall submit the 
study conducted under subsection (a), together with any recommendation 
the Secretary considers appropriate, to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of the 
Senate.

SEC. 407. REPEAL OF ABILITY TO ELECT LARGE PARTNERSHIP REPORTING RULES.

    (a) In General.--Paragraph (2) of section 775(a) (relating to 
election) is amended by adding at the end the following: ``No election 
under this subsection shall be made after December 31, 2003.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to partnership taxable years beginning after December 31, 2002.

SEC. 408. REPEAL OF PERSONAL HOLDING COMPANY TAX.

    (a) In General.--Part II of subchapter G of chapter 1 (relating to 
personal holding companies) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Section 12(2) is amended to read as follows:
            ``(2) For accumulated earnings tax, see part I of 
        subchapter G (sec. 531 and following).''.
            (2) Section 26(b)(2) is amended by striking subparagraph 
        (G) and by redesignating the succeeding subparagraphs 
        accordingly.
            (3) Section 30A(c) is amended by striking paragraph (3) and 
        by redesignating paragraph (4) as paragraph (3).
            (4) Section 41(e)(7)(E) is amended by adding ``and'' at the 
        end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).
            (5) Section 56(b)(2) is amended by striking subparagraph 
        (C) and by redesignating subparagraph (D) as subparagraph (C).
            (6) Section 170(e)(4)(D) is amended by adding ``and'' at 
        the end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).
            (7) Section 111(d) is amended to read as follows:
    ``(d) Special Rules for Accumulated Earnings Tax.--In applying 
subsection (a) for the purpose of determining the accumulated earnings 
tax under section 531--
            ``(1) any excluded amount under subsection (a) allowed for 
        purposes of this subtitle (other than section 531) shall be 
        allowed whether or not such amount resulted in a reduction of 
        the tax under section 531 for the prior taxable year, and
            ``(2) where any excluded amount under subsection (a) was 
        not allowed as a deduction for the prior taxable year for 
        purposes of this subtitle other than section 531 but was 
        allowable for the same taxable year under section 531, then 
        such excluded amount shall be allowable if it did not result in 
        a reduction of the tax under section 531.''.
            (8)(A) Section 316(b) is amended by striking paragraph (2) 
        and by redesignating paragraph (3) as paragraph (2).
            (B) Section 331(b) is amended by striking ``(other than a 
        distribution referred to in paragraph (2)(B) of section 
        316(b))''.
            (9) Section 341(d) is amended--
                    (A) by striking ``section 544(a)'' and inserting 
                ``section 465(f)'', and
                    (B) by inserting before the period at the end of 
                the next to the last sentence ``and such paragraph (2) 
                shall be applied by inserting `by or for his partner' 
                after `his family' ''.
            (10) Section 381(c) is amended by striking paragraphs (14) 
        and (17).
            (11) Section 443(e) is amended by striking paragraph (2) 
        and by redesignating paragraphs (3), (4), and (5) as paragraphs 
        (2), (3), and (4), respectively.
            (12) Section 447(g)(4)(A) is amended by striking ``other 
        than--'' and all that follows and inserting ``other than an S 
        corporation.''
            (13)(A) Section 465(a)(1)(B) is amended to read as follows:
                    ``(B) a C corporation which is closely held,''.
            (B) Section 465(a)(3) is amended to read as follows:
            ``(3) Closely held determination.--For purposes of 
        paragraph (1), a corporation is closely held if, at any time 
        during the last half of the taxable year, more than 50 percent 
        in value of its outstanding stock is owned, directly or 
        indirectly, by or for not more than 5 individuals. For purposes 
        of this paragraph, an organization described in section 401(a), 
501(c)(17), or 509(a) or a portion of a trust permanently set aside or 
to be used exclusively for the purposes described in section 642(c) 
shall be considered an individual.''
            (C) Section 465 is amended by adding at the end the 
        following new subsection:
    ``(f) Constructive Ownership Rules.--For purposes of subsection 
(a)(3)--
            ``(1) Stock not owned by individual.--Stock owned, directly 
        or indirectly, by or for a corporation, partnership, estate, or 
        trust shall be considered as being owned proportionately by its 
        shareholders, partners, or beneficiaries.
            ``(2) Family ownership.--An individual shall be considered 
        as owning the stock owned, directly or indirectly, by or for 
        his family. For purposes of this paragraph, the family of an 
        individual includes only his brothers and sisters (whether by 
        the whole or half blood), spouse, ancestors, and lineal 
        descendants.
            ``(3) Options.--If any person has an option to acquire 
        stock, such stock shall be considered as owned by such person. 
        For purposes of this paragraph, an option to acquire such an 
        option, and each one of a series of such options, shall be 
        considered as an option to acquire such stock.
            ``(4) Application of family and option rules.--Paragraphs 
        (2) and (3) shall be applied if, but only if, the effect is to 
        make the corporation closely held under subsection (a)(3).
            ``(5) Constructive ownership as actual ownership.--Stock 
        constructively owned by a person by reason of the application 
        of paragraph (1) or (3), shall, for purposes of applying 
        paragraph (1) or (2), be treated as actually owned by such 
        person; but stock constructively owned by an individual by 
        reason of the application of paragraph (2) shall not be treated 
        as owned by him for purposes of again applying such paragraph 
        in order to make another the constructive owner of such stock.
            ``(6) Option rule in lieu of family rule.--If stock may be 
        considered as owned by an individual under either paragraph (2) 
        or (3) it shall be considered as owned by him under paragraph 
        (3).
            ``(7) Convertible securities.--Outstanding securities 
        convertible into stock (whether or not convertible during the 
        taxable year) shall be considered as outstanding stock if the 
        effect of the inclusion of all such securities is to make the 
        corporation closely held under subsection (a)(3). The 
        requirement under the preceding sentence that all convertible 
        securities must be included if any are to be included shall be 
        subject to the exception that, where some of the outstanding 
        securities are convertible only after a later date than in the 
        case of others, the class having the earlier conversion date 
        may be included although the others are not included, but no 
        convertible securities shall be included unless all outstanding 
        securities having a prior conversion date are also included.''
            (D) Section 465(c)(7)(B) is amended by striking clause (i) 
        and by redesignating clauses (ii) and (iii) as clauses (i) and 
        (ii), respectively.
            (E) Section 465(c)(7)(G) is amended to read as follows:
                    ``(G) Loss of 1 member of affiliated group may not 
                offset income of personal service corporation.--Nothing 
                in this paragraph shall permit any loss of a member of 
                an affiliated group to be used as an offset against the 
                income of any other member of such group which is a 
                personal service corporation (as defined in section 
                269A(b) but determined by substituting `5 percent' for 
                `10 percent' in section 269A(b)(2)).''
            (14) Sections 508(d), 4947, and 4948(c)(4) are each amended 
        by striking ``545(b)(2),'' each place it appears.
            (15) Section 532(b) is amended by striking paragraph (1) 
        and by redesignating paragraphs (2), (3), and (4) as paragraphs 
        (1), (2), and (3), respectively.
            (16) Sections 535(b)(1) and 556(b)(1) are each amended by 
        striking ``section 541'' and inserting ``section 541 (as in 
        effect before its repeal)''.
            (17)(A) Section 553(a)(1) is amended by striking ``section 
        543(d)'' and inserting ``subsection (c)''.
            (B) Section 553 is amended by adding at the end the 
        following new subsection:
    ``(c) Active Business Computer Software Royalties.--
            ``(1) In general.--For purposes of subsection (a), the term 
        `active business computer software royalties' means any 
        royalties--
                    ``(A) received by any corporation during the 
                taxable year in connection with the licensing of 
                computer software, and
                    ``(B) with respect to which the requirements of 
                paragraphs (2), (3), (4), and (5) are met.
            ``(2) Royalties must be received by corporation actively 
        engaged in computer software business.--The requirements of 
        this paragraph are met if the royalties described in paragraph 
        (1)--
                    ``(A) are received by a corporation engaged in the 
                active conduct of the trade or business of developing, 
                manufacturing, or producing computer software, and
                    ``(B) are attributable to computer software which--
                            ``(i) is developed, manufactured, or 
                        produced by such corporation (or its 
                        predecessor) in connection with the trade or 
                        business described in subparagraph (A), or
                            ``(ii) is directly related to such trade or 
                        business.
            ``(3) Royalties must constitute at least 50 percent of 
        income.--The requirements of this paragraph are met if the 
        royalties described in paragraph (1) constitute at least 50 
        percent of the ordinary gross income of the corporation for the 
        taxable year.
            ``(4) Deductions under sections 162 and 174 relating to 
        royalties must equal or exceed 25 percent of ordinary gross 
        income.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if--
                            ``(i) the sum of the deductions allowable 
                        to the corporation under sections 162, 174, and 
                        195 for the taxable year which are properly 
                        allocable to the trade or business described in 
                        paragraph (2) equals or exceeds 25 percent of 
                        the ordinary gross income of such corporation 
                        for such taxable year, or
                            ``(ii) the average of such deductions for 
                        the 5-taxable year period ending with such 
                        taxable year equals or exceeds 25 percent of 
                        the average ordinary gross income of such 
                        corporation for such period.
                If a corporation has not been in existence during the 
                5-taxable year period described in clause (ii), then 
                the period of existence of such corporation shall be 
                substituted for such 5-taxable year period.
                    ``(B) Deductions allowable under section 162.--For 
                purposes of subparagraph (A), a deduction shall not be 
                treated as allowable under section 162 if it is 
                specifically allowable under another section.
                    ``(C) Limitation on allowable deductions.--For 
                purposes of subparagraph (A), no deduction shall be 
                taken into account with respect to compensation for 
                personal services rendered by the 5 individual 
                shareholders holding the largest percentage (by value) 
                of the outstanding stock of the corporation. For 
                purposes of the preceding sentence individuals holding 
                less than 5 percent (by value) of the stock of such 
                corporation shall not be taken into account.''
            (18) Section 561(a) is amended by striking paragraph (3), 
        by inserting ``and'' at the end of paragraph (1), and by 
        striking '', and'' at the end of paragraph (2) and inserting a 
        period.
            (19) Section 562(b) is amended to read as follows:
    ``(b) Distributions in Liquidation.--Except in the case of a 
foreign personal holding company described in section 552--
            ``(1) in the case of amounts distributed in liquidation, 
        the part of such distribution which is properly chargeable to 
        earnings and profits accumulated after February 28, 1913, shall 
        be treated as a dividend for purposes of computing the 
        dividends paid deduction, and
            ``(2) in the case of a complete liquidation occurring 
        within 24 months after the adoption of a plan of liquidation, 
        any distribution within such period pursuant to such plan 
        shall, to the extent of the earnings and profits (computed 
        without regard to capital losses) of the corporation for the 
        taxable year in which such distribution is made, be treated as 
        a dividend for purposes of computing the dividends paid 
        deduction.
For purposes of paragraph (1), a liquidation includes a redemption of 
stock to which section 302 applies. Except to the extent provided in 
regulations, the preceding sentence shall not apply in the case of any 
mere holding or investment company which is not a regulated investment 
company.''
            (20) Section 563 is amended by striking subsection (b).
            (21) Section 564 is hereby repealed.
            (22) Section 631(c) is amended by striking ``or section 
        545(b)(5)''.
            (23) Section 852(b)(1) is amended by striking ``which is a 
        personal holding company (as defined in section 542) or''.
            (24)(A) Section 856(h)(1) is amended to read as follows:
            ``(1) In general.--For purposes of subsection (a)(6), a 
        corporation, trust, or association is closely held if the stock 
        ownership requirement of section 465(a)(3) is met.''
            (B) Section 856(h)(3)(A)(i) is amended by striking 
        ``section 542(a)(2)'' and inserting ``section 465(a)(3)''.
            (C) Paragraph (3) of section 856(h) is amended by striking 
        subparagraph (B) and by redesignating subparagraphs (C) and (D) 
        as subparagraphs (B) and (C), respectively.
            (D) Subparagraph (C) of section 856(h)(3), as redesignating 
        by the preceding subparagraph, is amended by striking 
        ``subparagraph (C)'' and inserting ``subparagraph (B)''.
            (25) The last sentence of section 882(c)(2) is amended to 
        read as follows:
        ``The preceding sentence shall not be construed to deny the 
        credit provided by section 33 for tax withheld at source or the 
        credit provided by section 34 for certain uses of gasoline.''.
            (26) Section 936(a)(3) is amended by striking subparagraph 
        (C), by inserting ``or'' at the end of subparagraph (B), and by 
        redesignating subparagraph (D) as subparagraph (C).
            (27) Section 992(d) is amended by striking paragraph (2) 
        and by redesignating succeeding paragraphs accordingly.
            (28) Section 992(e) is amended by striking ``and section 
        541 (relating to personal holding company tax)''.
            (29) Section 1202(e)(8) is amended by striking ``section 
        543(d)(1)'' and inserting ``section 553(c)(1)''.
            (30) Section 1362(d)(3)(C)(iii) is amended by adding at the 
        end the following new sentence: ``References to section 542 in 
        the preceding sentence shall be treated as references to such 
        section as in effect on the day before its repeal.''
            (31) Section 1504(c)(2)(B) is amended by adding ``and'' at 
        the end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).
            (32) Section 2057(e)(2)(C) is amended by adding at the end 
        the following new sentence: ``References to sections 542 and 
        543 in the preceding sentence shall be treated as references to 
        such sections as in effect on the day before their repeal.''
            (33) Sections 6422 is amended by striking paragraph (3) and 
        by redesignating paragraphs (4) through (12) and paragraphs (3) 
        through (11), respectively.
            (34) Section 6501 is amended by striking subsection (f).
            (35) Section 6503(k) is amended by striking paragraph (1) 
        and by redesignating paragraphs (2) through (5) as paragraphs 
        (1) through (4), respectively.
            (36) Section 6515 is amended by striking paragraph (1) and 
        by redesignating paragraphs (2) through (6) as paragraphs (1) 
        through (5), respectively.
            (37) Subsections (d)(1)(B) and (e)(2) of section 6662 are 
        each amended by striking ``or a personal holding company (as 
        defined in section 542)''.
            (38) Section 6683 is hereby repealed.
    (c) Clerical Amendments.--
            (1) The table of parts for subchapter G of chapter 1 is 
        amended by striking the item relating to part II.
            (2) The table of sections for part IV of such subchapter G 
        is amended by striking the item relating to section 564.
            (3) The table of sections for part I of subchapter B of 
        chapter 68 is amended by striking the item relating to section 
        6683.
    (d) Effective Date.--The amendments made by this Act shall apply to 
taxable years beginning after December 31, 2001.

SEC. 409. TIMING RULES FOR GUARANTEED PAYMENTS.

    (a) In General.--Subsection (e) of section 267 (relating to special 
rules for pass-thru entities) is amended by striking paragraph (4) and 
redesignating paragraphs (5) and (6) as paragraphs (4) and (5), 
respectively.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2002.

SEC. 410. SECRETARIAL AUTHORITY TO PRESCRIBE CLASS LIFE FOR PROPERTY.

    (a) In General.--Paragraph (1) of section 168(i) (defining class 
life) is amended to read as follows:
            ``(1) Class life.--
                    ``(A) In general.--Except as provided in this 
                section, the term `class life' means the class life (if 
                any) which would be applicable with respect to any 
                property as of January 1, 1986, under subsection (m) of 
                section 167 (determined without regard to paragraph (4) 
                and as if the taxpayer had made an election under such 
                subsection). The Secretary, through an office 
                established in the Treasury, shall monitor and analyze 
                actual experience with respect to all depreciable 
                assets. The reference in this paragraph to subsection 
                (m) of section 167 shall be treated as a reference to 
                such subsection as in effect on the day before the date 
                of the enactment of the Revenue Reconciliation Act of 
                1990.
                    ``(B) Secretarial authority.--The Secretary, except 
                in the case of residential rental property or 
                nonresidential real property--
                            ``(i) may prescribe a new class life for 
                        any property,
                            ``(ii) in the case of assigned property, 
                        may modify any assigned item, or
                            ``(iii) may prescribe a class life for any 
                        property which does not have a class life 
                        within the meaning of subparagraph (A).
                Any class life or assigned item prescribed or modified 
                under the preceding sentence shall reasonably reflect 
                the anticipated useful life, and the anticipated 
                decline in value over time, of the property to the 
                industry or other group.
                    ``(C) Effect of modification.--Any class life or 
                assigned item with respect to any property prescribed 
                or modified under subparagraph (B) shall be used in 
                classifying such property under subsection (e) and in 
                applying subsection (g).
                    ``(D) Assigned property and item.--For purposes of 
                this subparagraph--
                            ``(i) Assigned property.--The term 
                        `assigned property' means property for which a 
                        class life, classification, or recovery period 
                        is assigned under subsection (e)(3) or 
                        subparagraph (B), (C), or (D) of subsection 
                        (g)(3).
                            ``(ii) Assigned items.--The term `assigned 
                        item' means the class life, classification, or 
                        recovery period assigned under subsection 
                        (e)(3) or subparagraph (B), (C), or (D) of 
                        subsection (g)(3).
                            ``(iii) Special rule for railroad grading 
                        or tunnel bores.--In the case of any property 
                        which is a railroad grading or tunnel bore--
                                    ``(I) such property shall be 
                                treated as an assigned property,
                                    ``(II) the recovery period 
                                applicable to such property shall be 
                                treated as an assigned item, and
                                    ``(III) clause (ii) of subparagraph 
                                (D) shall not apply.
                    ``(E) Special rule for effective date and 
                application of class life and assigned items.--A class 
                life or assigned item prescribed or modified under 
                subparagraph (B)--
                            ``(i) shall take effect on the date 
                        prescribed by the Secretary, except that such 
                        date shall not be before the date which is 6 
                        months after the date on which the Secretary 
                        submits such class life or assigned item to the 
                        Congress.
                            ``(ii) shall apply only for periods, as 
                        determined by the Secretary, after such date, 
                        except that the Secretary may allow taxpayers 
                        to elect to apply a class life which is 
                        shortened under this paragraph to periods 
                        before such date. ''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 411. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, 
              WINE, AND BEER.

    (a) Repeal of Occupational Taxes.--
            (1) In general.--The following provisions of part II of 
        subchapter A of chapter 51 (relating to occupational taxes) are 
        hereby repealed:
                    (A) Subpart A (relating to proprietors of distilled 
                spirits plants, bonded wine cellars, etc.).
                    (B) Subpart B (relating to brewer).
                    (C) Subpart D (relating to wholesale dealers) 
                (other than sections 5114 and 5116).
                    (D) Subpart E (relating to retail dealers) (other 
                than section 5124).
                    (E) Subpart G (relating to general provisions) 
                (other than sections 5142, 5143, 5145, and 5146).
            (2) Nonbeverage domestic drawback.--Section 5131 is amended 
        by striking ``, on payment of a special tax per annum,''.
            (3) Industrial use of distilled spirits.--Section 5276 is 
        hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) The heading for part II of subchapter A of chapter 
        51 and the table of subparts for such part are amended to read 
        as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

                              ``Subpart A. Manufacturers of stills.
                              ``Subpart B. Nonbeverage domestic 
                                        drawback claimants.
                              ``Subpart C. Recordkeeping by dealers.
                              ``Subpart D. Other provisions.''
            (B) The table of parts for such subchapter A is amended by 
        striking the item relating to part II and inserting the 
        following new item:

                              ``Part II. Miscellaneous provisions.''
            (2) Subpart C of part II of such subchapter (relating to 
        manufacturers of stills) is redesignated as subpart A.
            (3)(A) Subpart F of such part II (relating to nonbeverage 
        domestic drawback claimants) is redesignated as subpart B and 
        sections 5131 through 5134 are redesignated as sections 5111 
        through 5114, respectively.
            (B) The table of sections for such subpart B, as so 
        redesignated, is amended--
                    (i) by redesignating the items relating to sections 
                5131 through 5134 as relating to sections 5111 through 
                5114, respectively, and
                    (ii) by striking ``and rate of tax'' in the item 
                relating to section 5111, as so redesignated.
            (C) Section 5111, as redesignated by subparagraph (A), is 
        amended--
                    (i) by striking ``and rate of tax'' in the section 
                heading,
                    (ii) by striking the subsection heading for 
                subsection (a), and
                    (iii) by striking subsection (b).
            (4) Part II of subchapter A of chapter 51 is amended by 
        adding after subpart B, as redesignated by paragraph (3), the 
        following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

                              ``Sec. 5121. Recordkeeping by wholesale 
                                        dealers.
                              ``Sec. 5122. Recordkeeping by retail 
                                        dealers.
                              ``Sec. 5123. Preservation and inspection 
                                        of records, and entry of 
                                        premises for inspection.''
            (5)(A) Section 5114 (relating to records) is moved to 
        subpart C of such part II and inserted after the table of 
        sections for such subpart.
            (B) Section 5114 is amended--
                    (i) by striking the section heading and inserting 
                the following new heading:

``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

                and
                    (ii) by redesignating subsection (c) as subsection 
                (d) and by inserting after subsection (b) the following 
                new subsection:
    ``(c) Wholesale Dealers.--For purposes of this part--
            ``(1) Wholesale dealer in liquors.--The term `wholesale 
        dealer in liquors' means any dealer (other than a wholesale 
        dealer in beer) who sells, or offers for sale, distilled 
        spirits, wines, or beer, to another dealer.
            ``(2) Wholesale dealer in beer.--The term `wholesale dealer 
        in beer' means any dealer who sells, or offers for sale, beer, 
        but not distilled spirits or wines, to another dealer.
            ``(3) Dealer.--The term `dealer' means any person who 
        sells, or offers for sale, any distilled spirits, wines, or 
        beer.
            ``(4) Presumption in case of sale of 20 wine gallons or 
        more.--The sale, or offer for sale, of distilled spirits, 
        wines, or beer, in quantities of 20 wine gallons or more to the 
        same person at the same time, shall be presumptive evidence 
        that the person making such sale, or offer for sale, is engaged 
        in or carrying on the business of a wholesale dealer in liquors 
        or a wholesale dealer in beer, as the case may be. Such 
        presumption may be overcome by evidence satisfactorily showing 
        that such sale, or offer for sale, was made to a person other 
        than a dealer.''
            (C) Paragraph (3) of section 5121(d), as so redesignated, 
        is amended by striking ``section 5146'' and inserting ``section 
        5123''.
            (6)(A) Section 5124 (relating to records) is moved to 
        subpart C of part II of subchapter A of chapter 51 and inserted 
        after section 5121.
            (B) Section 5124 is amended--
                    (i) by striking the section heading and inserting 
                the following new heading:

``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

                    (ii) by striking ``section 5146'' in subsection (c) 
                and inserting ``section 5123'', and
                    (iii) by redesignating subsection (c) as subsection 
                (d) and inserting after subsection (b) the following 
                new subsection:
    ``(c) Retail Dealers.--For purposes of this section--
            ``(1) Retail dealer in liquors.--The term `retail dealer in 
        liquors' means any dealer (other than a retail dealer in beer) 
        who sells, or offers for sale, distilled spirits, wines, or 
        beer, to any person other than a dealer.
            ``(2) Retail dealer in beer.--The term `retail dealer in 
        beer' means any dealer who sells, or offers for sale, beer, but 
        not distilled spirits or wines, to any person other than a 
        dealer.
            ``(3) Dealer.--The term `dealer' has the meaning given such 
        term by section 5121(c)(3).''
            (7) Section 5146 of the Internal Revenue Code of 1986 is 
        moved to subpart C of part II of subchapter A of chapter 51 of 
        such Code, inserted after section 5122, and redesignated as 
        section 5123.
            (8) Part II of subchapter A of chapter 51 is amended by 
        inserting after subpart C the following new subpart:

                     ``Subpart D--Other Provisions

                              ``Sec. 5131. Packaging distilled spirits 
                                        for industrial uses.
                              ``Sec. 5132. Prohibited purchases by 
                                        dealers.''
            (9) Section 5116 of such Code is moved to subpart D of part 
        II of subchapter A of chapter 51 of such Code, inserted after 
        the table of sections, redesignated as section 5131, and 
        amended by inserting ``(as defined in section 5121(c))'' after 
        ``dealer'' in subsection (a).
            (10) Subpart D of part II of subchapter A of chapter 51 is 
        amended by adding at the end thereof the following new section:

``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

    ``(a) In General.--Except as provided in regulations prescribed by 
the Secretary, it shall be unlawful for a dealer to purchase distilled 
spirits from any person other than a wholesale dealer in liquors who is 
required to keep the records prescribed by section 5121.
    ``(b) Penalty and Forfeiture.--

                                ``For penalty and forfeiture provisions 
applicable to violations of subsection (a), see sections 5687 and 
7302.''

            (11) Subsection (b) of section 5002 is amended--
                    (A) by striking ``section 5112(a)'' and inserting 
                ``section 5121(c)(3)'',
                    (B) by striking ``section 5112'' and inserting 
                ``section 5121(c)'',
                    (C) by striking ``section 5122'' and inserting 
                ``section 5122(c)''.
            (12) Subparagraph (A) of section 5010(c)(2) is amended by 
        striking ``section 5134'' and inserting ``section 5114''.
            (13) Subsection (d) of section 5052 is amended to read as 
        follows:
    ``(d) Brewer.--For purposes of this chapter, the term `brewer' 
means any person who brews beer or produces beer for sale. Such term 
shall not include any person who produces only beer exempt from tax 
under section 5053(e).''
            (14) The text of section 5182 is amended to read as 
        follows:
            ``For provisions requiring recordkeeping by wholesale 
        liquor dealers, see section 5112, and by retail liquor dealers, 
        see section 5122.''
            (15) Subsection (b) of section 5402 is amended by striking 
        ``section 5092'' and inserting ``section 5052(d)''.
            (16) Section 5671 is amended by striking ``or 5091''.
            (17)(A) Part V of subchapter J of chapter 51 is hereby 
        repealed.
            (B) The table of parts for such subchapter J is amended by 
        striking the item relating to part V.
            (18)(A) Sections 5142, 5143, and 5145 of such Code are 
        moved to subchapter D of chapter 52 of such Code, inserted 
        after section 5731, redesignated as sections 5732, 5733, and 
        5734, respectively, and amended by striking ``this part'' each 
        place it appears and inserting ``this subchapter''.
            (B) Section 5732, as redesignated by subparagraph (A), is 
        amended by striking ``(except the tax imposed by section 
        5131)'' each place it appears.
            (C) Subsection (c) of section 5733, as redesignated by 
        subparagraph (A), is amended by striking paragraph (2) and by 
        redesignating paragraph (3) as paragraph (2).
            (D) The table of sections for subchapter D of chapter 52 is 
        amended by adding at the end thereof the following:

                              ``Sec. 5732. Payment of tax.
                              ``Sec. 5733. Provisions relating to 
                                        liability for occupational 
                                        taxes.
                              ``Sec. 5734. Application of State laws.''
            (E) Section 5731 is amended by striking subsection (c) and 
        by redesignating subsection (d) as subsection (c).
            (19) Subsection (c) of section 6071 is amended by striking 
        ``section 5142'' and inserting ``section 5732''.
            (20) Paragraph (1) of section 7652(g) is amended--
                    (A) by striking ``subpart F'' and inserting 
                ``subpart B'', and
                    (B) by striking ``section 5131(a)'' and inserting 
                ``section 5111(a)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on July 1 of the year following the year in which this Act is 
enacted, but shall not apply to taxes imposed for periods before such 
date.

SEC. 412. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
              COMPANIES PERMITTED.

    (a) In General.--Section 1504(b) (defining includible corporation) 
is amended by striking paragraph (2) and by redesignating paragraphs 
(3) through (8) as paragraphs (2) through (7), respectively.
    (b) Conforming Amendments.--
            (1) Section 1503 is amended by striking subsection (c) 
        (relating to special rule for application of certain losses 
        against income of insurance companies taxed under section 801) 
        and by redesignating subsections (d), (e), and (f) as 
        subsections (b), (c), and (d), respectively.
            (2) Section 1504 is amended by striking subsection (c) and 
        by redesignating subsections (d), (e), and (f) as subsections 
        (c), (d), and (e), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.
    (d) Election for Pre-2004 Years of Groups With Insurance 
Companies.--For taxable years beginning after December 31, 2002, and 
before January 1, 2004, the common parent of an affiliated group 
(determined without regard to section 1504(b)(2) of such Code as in 
effect on the day before the date of the enactment of this Act) which 
includes 1 or more domestic insurance companies subject to tax under 
section 801 of such Code may elect to treat all such insurance 
companies as corporations which are not includible corporations within 
the meaning of subsection (b) of section 1504 of such Code, if, as of 
the date of the enactment of this section--
            (1) such affiliated group included 1 or more insurance 
        companies subject to tax under section 801 of such Code, and
            (2) no additional election was in effect under section 
        1504(c)(2) of such Code (as in effect on the day before the 
        date of the enactment of this Act).
    (e) No Carryback Before January 1, 2002.--To the extent that a 
consolidated net operating loss is allowed or increased by reason of 
the amendments made by this section, such loss may not be carried back 
to a taxable year beginning before January 1, 2001.
    (f) Nontermination of Group.--No affiliated group shall terminate 
solely as a result of the amendments made by this section.
    (g) Subsidiary Stock Basis Adjustments.--A parent corporation's 
basis in the stock of a subsidiary corporation shall be adjusted to 
reflect the preconsolidation income, gain, deduction and loss incurred 
during a period when such corporations were members of an affiliated 
group (determined without regard to section 1504(b)(2) of such Code as 
in effect on the day before the date of enactment of this Act) but were 
not included in a consolidated return of such group by operation of 
section 1504(c)(2)(A) of such Code (as in effect on the day before the 
date of the enactment of this Act).
    (h) Waiver of 5-Year Waiting Period.--Under regulations prescribed 
by the Secretary of the Treasury or his delegate, an automatic waiver 
from the 5-year waiting period for reconsolidation provided in section 
1504(a)(3) of such Code shall be granted to any corporation which was 
previously an includible corporation but was subsequently deemed a 
nonincludible corporation as a result of becoming a subsidiary of a 
corporation which was not an includible corporation solely by operation 
of section 1504(c)(2) of such Code (as in effect on the day before the 
date of enactment of this Act).

                         TITLE V--ESTIMATED TAX

SEC. 501. FAILURE TO PAY ESTIMATED TAX PENALTY BY INDIVIDUALS CONVERTED 
              TO INTEREST CHARGE ON ACCUMULATED UNPAID BALANCE.

    (a) Penalty Moved to Interest Chapter of Code.--The Internal 
Revenue Code of 1986 is amended by redesignating section 6654 as 
section 6641 and by moving section 6641 (as so redesignated) from part 
I of subchapter A of chapter 68 to the end of subchapter E of chapter 
67 (as added by subsection (e)(1) of this section).
    (b) Penalty Converted to Interest Charge.--The heading and 
subsections (a) and (b) of section 6641 (as so redesignated) are 
amended to read as follows:

``SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
              TAX.

    ``(a) In General.--Interest shall be paid on any underpayment of 
estimated tax by an individual for a taxable year for each day of such 
underpayment. The amount of such interest for any day shall be the 
product of the underpayment rate established under subsection (b)(2) 
multiplied by the amount of the underpayment.
    ``(b) Amount of Underpayment; Interest Rate.--For purposes of 
subsection (a)--
            ``(1) Amount.--The amount of the underpayment on any day 
        shall be the excess of--
                    ``(A) the sum of the required installments for the 
                taxable year the due dates for which are on or before 
                such day, over
                    ``(B) the sum of the amounts (if any) of estimated 
                tax payments made on or before such day on such 
                required installments.
            ``(2) Determination of interest rate.--
                    ``(A) In general.--The underpayment rate with 
                respect to any day in an installment underpayment 
                period shall be the underpayment rate established under 
                section 6621 for the first day of the calendar quarter 
                in which such installment underpayment period begins.
                    ``(B) Installment underpayment period.--For 
                purposes of subparagraph (A), the term `installment 
                underpayment period' means the period beginning on the 
                day after the due date for a required installment and 
                ending on the due date for the subsequent required 
                installment (or in the case of the 4th required 
                installment, the 15th day of the 4th month following 
                the close of a taxable year).
                    ``(C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily basis and 
                shall be based on the assumption of 365 days in a 
                calendar year.
            ``(3) Termination of estimated tax interest.--No day after 
        the end of the installment underpayment period for the 4th 
        required installment specified in paragraph (2)(B) for a 
        taxable year shall be treated as a day of underpayment with 
        respect to such taxable year.''.
    (c) Increase in Safe Harbor Where Tax is Small.--
            (1) In general.--Clause (i) of section 6641(d)(1)(B) (as so 
        redesignated) is amended to read as follows:
                            ``(i) the lesser of--
                                    ``(I) 90 percent of the tax shown 
                                on the return for the taxable year (or, 
                                if no return is filed, 90 percent of 
                                the tax for such year), or
                                    ``(II) the tax shown on the return 
                                for the taxable year (or, if no return 
                                is filed, the tax for such year) 
                                reduced (but not below zero) by $2,000, 
                                or''.
            (2) Repeal of alternate safe harbor.--Subparagraph (C) of 
        section 6641(d)(1) (as so redesignated) is hereby repealed.
            (3) Conforming amendment.--
                    (A) Subsection (e) of section 6641 (as so 
                redesignated) is amended by striking paragraph (1) and 
                redesignating paragraphs (2) and (3) as paragraphs (1) 
                and (2), respectively.
                    (B) Subparagraph (C) of section 6641(i)(1) (as so 
                redesignated) is amended by striking ``and without 
                regard to subparagraph (C) of subsection (d)(1)''.

SEC. 502. CONFORMING AND CLERICAL AMENDMENTS.

    (a) Conforming Amendments Relating to Section 6641.--
            (1) Paragraphs (1) and (2) of subsection (e) (as 
        redesignated by subsection (c)(2)) and subsection (h) of 
        section 6641 (as so designated) are each amended by striking 
        ``addition to tax'' each place it occurs and inserting 
        ``interest''.
            (2) Section 167(g)(5)(D) is amended by striking ``6654'' 
        and inserting ``6641''.
            (3) Section 460(b)(1) is amended by striking ``6654'' and 
        inserting ``6641''.
            (4) Section 3510(b) is amended--
                    (A) by striking ``section 6654'' in paragraph (1) 
                and inserting ``section 6641'';
                    (B) by amending paragraph (2)(B) to read as 
                follows:
                    ``(B) no interest would be required to be paid (but 
                for this section) under 6641 for such taxable year by 
                reason of the $2,000 amount specified in section 
                6641(d)(1)(B)(i)(II).'';
                    (C) by striking ``section 6654(d)(2)'' in paragraph 
                (3) and inserting ``section 6641(d)(2)''; and
                    (D) by striking paragraph (4).
            (5) Section 6201(b)(1) is amended--
                    (A) by striking ``estimated income tax'' and 
                inserting ``interest'', and
                    (B) by striking ``6654'' and inserting ``6641''.
            (6) Section 6601(h) is amended by striking ``6654'' and 
        inserting ``6641''.
            (7) Section 6621(b)(2)(B) is amended by striking ``addition 
        to tax under section 6654'' and inserting ``interest required 
        to be paid under section 6641''.
            (8) Section 6622(b) is amended--
                    (A) by striking ``Penalty for'' in the heading; and
                    (B) by striking ``addition to tax under section 
                6654 or 6655'' and inserting ``interest required to be 
                paid under section 6641 or addition to tax under 
                section 6655''.
            (9) Section 6658(a) is amended--
                    (A) by striking ``6654, or 6655'' and inserting 
                ``or 6655, and no interest shall be required to be paid 
                under section 6641,''; and
                    (B) by inserting ``or paying interest'' after ``the 
                tax'' in paragraph (2)(B)(ii).
            (10) Section 6665(b) is amended--
                    (A) in the matter preceding paragraph (1) by 
                striking ``, 6654,''; and
                    (B) in paragraph (2) by striking ``6654 or''.
            (11) Section 7203 is amended by striking ``section 6654 or 
        6655'' and inserting ``section 6655 or interest required to be 
        paid under section 6641''.
    (b) Clerical Amendments.--
            (1) Chapter 67 is amended by inserting after subchapter D 
        the following:

    ``Subchapter E--Interest on Failure to Pay Estimated Income Tax

                              ``Sec. 6641. Interest on failure by 
                                        individual to pay estimated 
                                        income tax.''.
            (2) The table of subchapters for chapter 67 is amended by 
        adding at the end the following new items:

                              ``Subchapter D. Notice requirements.
                              ``Subchapter E. Interest on failure to 
                                        pay estimated income tax.''.
            (3) The table of sections for part I of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6654.
    (c) Effective Date.--The amendments made by this section shall 
apply to installment payments for taxable years beginning after 
December 31, 2002.

                TITLE VI--REPEAL OF DEADWOOD PROVISIONS

SEC. 601. REPEAL OF DEADWOOD PROVISIONS.

    (a) In General.--
            (1) Adjustments in tax tables so that inflation will not 
        result in tax increases.--Paragraph (7) of section 1(f) is 
        amended to read as follows:
            ``(7) Special rule for certain brackets.--In prescribing 
        tables under paragraph (1) which apply to taxable years 
        beginning in a calendar year after 1994, the cost-of-living 
        adjustment used in making adjustments to the dollar amounts at 
        which the 36 percent bracket begins or at which the 39.6 rate 
        bracket begins shall be determined under paragraph (3) by 
        substituting `1993' for `1992'.''.
            (2) Credit for producing fuel from nonconventional 
        source.--Section 29 is amended by striking subsection (e) and 
        redesignating subsection (f) as subsection (e).
            (3) Earned income credit.--Paragraph (1) of section 32(b) 
        is amended--
                    (A) by striking subparagraphs (B) and (C), and
                    (B) in subparagraph (A) by striking ``(A) In 
                general.--In the case of taxable years beginning after 
                1995'' and moving the table 2 ems to the left.
            (4) General business credits.--Subsection (d) of section 38 
        is amended by striking paragraph (3).
            (5) Carryback and carryforward of unused credits.--
        Subsection (d) of section 39 is amended by striking paragraphs 
        (1) through (8) and be redesignating paragraphs (9) and (10) as 
        paragraphs (1) and (2), respectively.
            (6) Annuities; certain proceeds of endowment and life 
        insurance contracts.--Section 72 is amended--
                    (A) in subsection (c)(4) by striking ``; except 
                that if such date was before January 1, 1954, then the 
                annuity starting date is January 1, 1954'', and
                    (B) in subsection (g)(3) by striking ``January 1, 
                1954, or'' and ``, whichever is later''.
            (7) Accident and health plans.--Section 105(f) is amended 
        by striking ``or (d)''.
            (8) Flexible spending arrangements.--Section 106(c)(1) is 
        amended by striking ``Effective on and after January 1, 1997, 
        gross'' and inserting ``Gross''.
            (9) Certain combat zone compensation of members of the 
        armed forces.--Subsection (c) of section 112 is amended--
                    (A) by striking ``(after June 24, 1950)'' in 
                paragraph (2), and
                    (B) striking ``such zone;'' and all that follows in 
                paragraph (3) and inserting ``such zone.''.
            (10) Principal residence.--Section 121(b)(3) is amended--
                    (A) by striking subparagraph (B); and
                    (B) in subparagraph (A) by striking ``(A) In 
                general.--'' and moving the text 2 ems to the left.
            (11) Certain reduced uniformed services retirement pay.--
        Section 122(b)(1) is amended by striking ``after December 31, 
        1965,''.
            (12) Great plains conservation program.--Section 126(a) is 
        amended by striking paragraph (6) and redesignating paragraphs 
        (7), (8), (9), and (10) as paragraphs (6), (7), (8), and (9), 
        respectively.
            (13) Treble damage payments under the antitrust law.--
        Section 162(g) is amended by striking the last sentence.
            (14) State legislators' travel expenses away from home.--
        Paragraph (4) of section 162(h) is amended by striking ``For 
        taxable years beginning after December 31, 1980, this'' and 
        inserting ``This''.
            (15) Interest.--Section 163 is amended by striking 
        paragraph (6) of subsection (d) and paragraph (5) (relating to 
        phase-in of limitation) of subsection (h).
            (16) Charitable, etc., contributions and gifts.--Section 
        170 is amended by striking subsection (k).
            (17) Amortizable bond premium.--Subparagraph (B) of section 
        171(b)(1) is amended to read as follows:
                    ``(B)(i) in the case of a bond described in 
                subsection (a)(2), with reference to the amount payable 
                on maturity or earlier call date, and
                    ``(ii) in the case of a bond described in 
                subsection (a)(1), with reference to the amount payable 
                on maturity (or if it results in a smaller amortizable 
                bond premium attributable to the period of earlier call 
                date, with reference to the amount payable on earlier 
                call date), and''.
            (18) Net operating loss carrybacks and carryovers.--
                    (A) Section 172 is amended--
                            (i) by striking subparagraph (D) of 
                        subsection (b)(1) and redesignating 
                        subparagraphs (E), (F), and (G) as 
                        subparagraphs (D), (E), and (F), respectively,
                            (ii) by striking subsection (g), and
                            (iii) by striking subparagraph (F) of 
                        subsection (h)(2).
                    (B) Section 172(h)(4) is amended by striking 
                ``subsection (b)(1)(E)'' each place it appears and 
                inserting ``subsection (b)(1)(D)''.
                    (C) Section 172(j)(3) is amended by striking 
                ``subsection (b)(1)(G)'' each place it appears and 
                inserting ``subsection (b)(1)(F)''.
                    (D) Section 172, as amended by subparagraphs (A) 
                through (C) of this paragraph, is further amended--
                            (i) by redesignating subsections (h), (i), 
                        and (j) as subsections (g), (h), and (i), 
                        respectively,
                            (ii) by striking ``subsection (h)'' each 
                        place it appears and inserting ``subsection 
                        (g)'',
                            (iii) by striking ``subsection (i)'' each 
                        place it appears and inserting ``subsection 
                        (h)'',
                    (E) Sections 904(f)(2)(B)(i) and 
                907(c)(4)(B)(iii)(I) are each amended by striking 
                ``section 172(h)'' and inserting ``section 172(g)''.
            (19) Research and experimental expenditures.--Subparagraph 
        (A) of section 174(a)(2) is amended to read as follows:
                    ``(A) Without consent.--A taxpayer may, without the 
                consent of the Secretary, adopt the method provided in 
                this subsection for his first taxable year for which 
                expenditures described in paragraph (1) are paid or 
                incurred.''.
            (20) Amortization of certain research and experimental 
        expenditures.--Paragraph (2) of section 174(b)(2) is amended by 
        striking ``beginning after December 31, 1953''.
            (21) Soil and water conservation expenditures.--Paragraph 
        (1) of section 175(d) is amended to read as follows:
            ``(1) Without consent.--A taxpayer may, without the consent 
        of the Secretary, adopt the method provided in this section for 
        his first taxable year for which expenditures described in 
        subsection (a) are paid or incurred.''.
            (22) Activities not engaged in for profit.--Section 
        183(e)(1) is amended by striking the last sentence.
            (23) Dividends received on certain preferred stock; and 
        dividends paid on certain preferred stock of public 
        utilities.--
                    (A) Sections 244 and 247 are hereby repealed and 
                the table of sections for part VIII of subchapter B of 
                chapter 1 is amended by striking the items relating to 
                sections 244 and 247.
                    (B) Paragraph (5) of section 172(d) is amended to 
                read as follows:
            ``(5) Computation of deduction for dividends received.--The 
        deductions allowed by section 243 (relating to dividends 
        received by corporations) and 245 (relating to dividends 
        received from certain foreign corporations) shall be computed 
        without regard to section 246(b) (relating to limitation on 
        aggregate amount of deductions).''.
                    (C) Paragraph (1) of section 243(c) is amended to 
                read as follows:
            ``(1) In general.--In the case of any dividend received 
        from a 20-percent owned corporation, subsection (a)(1) shall be 
        applied by substituting `80 percent' for `70 percent'.''.
                    (D) Section 243(d) is amended by striking paragraph 
                (4).
                    (E) Section 246 is amended--
                            (i) by striking ``, 244,'' in subsection 
                        (a)(1),
                            (ii) in subsection (b)(1)--
                                    (I) by striking ``sections 
                                243(a)(1), and 244(a),'' the first 
                                place it appears and inserting 
                                ``section 243(a)(1),'',
                                    (II) by striking ``244(a),'' the 
                                second place it appears therein, and
                                    (III) by striking ``subsection (a) 
                                or (b) of section 245, and 247,'' and 
                                inserting ``and subsection (a) or (b) 
                                of section 245,'',
                            (iii) by striking ``244,'' subsection 
                        (c)(1).
                    (F) Section 246A is amended by striking ``, 244,'' 
                both places it appears in subsections (a) and (e).
                    (G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 
                469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and 
                (D) of section 805(a)(4), 805(b)(5), 812(e)(2)(A), 
                815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E), 
                1059(b)(2)(B), and 1244(c)(2)(C) are each amended by 
                striking ``, 244,'' each place it appears.
                    (H) Section 805(a)(4)(B) is amended by striking ``, 
                244(a),'' each place it appears.
                    (I) Section 810(c)(2)(B) is amended by striking 
                ``244 (relating to dividends on certain preferred stock 
                of public utilities),''.
            (24) Organization expenses.--Section 248(c) is amended by 
        striking ``beginning after December 31, 1953,'' and by striking 
        the last sentence.
            (25) Bond repurchase premium.--Section 249(b)(1) is amended 
        by striking ``, in the case of bonds or other evidences of 
        indebtedness issued after February 28, 1913,''.
            (26) Amount of gain where loss previously disallowed.--
        Section 267(d) is amended by striking ``(or by reason of 
        section 24(b) of the Internal Revenue Code of 1939)'' in 
        paragraph (1), by striking ``after December 31, 1953,'' in 
        paragraph (2), by striking the second sentence, and by striking 
        ``or by reason of section 118 of the Internal Revenue Code of 
        1939'' in the last sentence.
            (27) Acquisitions made to evade or avoid income tax.--
        Paragraphs (1) and (2) of section 269(a) are each amended by 
        striking ``or acquired on or after October 8, 1940,''.
            (28) Interest on indebtedness incurred by corporations to 
        acquire stock or assets of another corporation.--Section 279 is 
        amended--
                    (A) by striking ``after December 31, 1967,'' in 
                subsection (a)(2),
                    (B) by striking ``after October 9, 1969,'' in 
                subsection (b),
                    (C) by striking ``after October 9, 1969, and'' in 
                subsection (d)(5), and
                    (D) by striking subsection (i) and redesignating 
                subsection (j) as subsection (i).
            (29) Special rules relating to corporate preference 
        items.--Paragraph (4) of section 291(a) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        1984, section'' and inserting ``Section''.
            (30) Distributions of property.--Section 301(c)(3) is 
        amended to read as follows:
            ``(3) Amounts in excess of basis.--That portion of the 
        distribution which is not a dividend, to the extent that it 
        exceeds the adjusted basis of the stock, shall be treated as 
        gain from the sale or exchange of property.''.
            (31) Effect on earnings and profits.--Subsection (d) of 
        section 312 is amended by striking paragraph (2) and 
        redesignating paragraph (3) as paragraph (2).
            (32) Basis to corporations.--Section 362 is amended--
                    (A) by striking ``on or after June 22, 1954,'' in 
                subsection (a), and
                    (B) by striking ``, on or after June 22, 1954,'' 
                each place it appears in subsection (c).
            (33) Qualifications for tax credit employee stock ownership 
        plan.--Section 409 is amended by striking subsections (a), (g), 
        and (p).
            (34) Funding standards.--Section 412(m)(4) is amended--
                    (A) by striking ``the applicable percentage'' in 
                subparagraph (A) and inserting ``25 percent'', and
                    (B) by striking subparagraph (C) and redesignating 
                subparagraph (D) as subparagraph (C).
            (35) Retiree health accounts.--Section 420 is amended--
                    (A) by striking paragraph (4) in subsection (b) and 
                redesignating paragraph (5) as paragraph (4), and
                    (B) by amending paragraph (2) of subsection (c) to 
                read as follows:
            ``(2) Requirements relating to pension benefits accruing 
        before transfer.--The requirements of this paragraph are met if 
        the plan provides that the accrued pension benefits of any 
        participant or beneficiary under the plan become nonforfeitable 
        in the same manner which would be required if the plan had 
        terminated immediately before the qualified transfer (or in the 
        case of a participant who separated during the 1-year period 
        ending on the date of the transfer, immediately before such 
        separation).''.
            (36) Employee stock purchase plans.--Section 423(a) is 
        amended by striking ``after December 31, 1963,''.
            (37) Limitation on deductions for certain farming.--Section 
        464 is amended--
                    (A) by striking ``any farming syndicate (as defined 
                in subsection (c))'' both places it appears in 
                subsections (a) and (b) and inserting ``any taxpayer to 
                whom subsection (f) applies'', and
                    (B) by striking subsection (g).
            (38) Deductions limited to amount at risk.--
                    (A) Paragraph (3) of section 465(c) is amended by 
                striking ``In the case of taxable years beginning after 
                December 31, 1978, this'' and inserting ``This''.
                    (B) Paragraph (2) of section 465(e)(2)(A) is 
                amended by striking ``beginning after December 31, 
                1978''.
            (39) Nuclear decommissioning costs.--Section 468A(e)(2) is 
        amended--
                    (A) by striking ``at the rate set forth in 
                subparagraph (B)'' in subparagraph (A) and inserting 
                ``at a rate of 20 percent'', and
                    (B) by striking subparagraph (B) and redesignating 
                subparagraphs (C) and (D) as subparagraphs (B) and (C), 
                respectively.
            (40) Passive activity losses and credits limited.--Section 
        469 is amended by striking subsection (m).
            (41) Adjustments required by changes in method of 
        accounting.--Section 481(b)(3) is amended by striking 
        subparagraph (C).
            (42) Exemption from tax on corporations, certain trusts, 
        etc.--Section 501 is amended by striking subsection (p).
            (43) Requirements for exemption.--
                    (A) Section 503(a)(1) is amended to read as 
                follows:
            ``(1) General rule.--An organization described in paragraph 
        (17) or (18) of section 501(a) or described in section 401(a) 
        and referred to in section 4975(g)(2) or (3) shall not be 
        exempt from taxation under section 501(a) if it has engaged in 
        a prohibited transaction.''.
                    (B) Paragraph (2) of section 503(a) is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                paragraph (a)(1)(B)'' and inserting ``described in 
                paragraph (1)''.
                    (C) Subsection (c) of section 503 is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                subsection (a)(1)(B)'' and inserting ``described in 
                subsection (a)(1)''.
            (44) Accumulated taxable income.--Paragraph (1) of section 
        535(b), paragraph (1) of section 545(b), and paragraph (1) of 
        section 556(b) are each amended by striking ``section 531'' and 
        all that follows and inserting ``section 531 or the personal 
        holding company tax imposed by section 541.''.
            (45) Definition of foreign personal holding company.--
        Paragraph (1) of section 552(a) is amended by striking ``ending 
        after August 26, 1937,''.
            (46) Special rules as to operating mineral interest in oil 
        and gas wells or geothermal deposits.--Section 614(b) is 
        amended--
                    (A) by striking paragraphs (3)(C) and (5), and
                    (B) by striking ``whichever of the following 
                taxable years is the later: The first taxable year 
                beginning after December 31, 1963, or'' in paragraph 
                (4)(A).
            (47) Amounts received by surviving annuitant under joint 
        and survivor annuity contract.--Subparagraph (A) of section 
        691(d)(1) is amended by striking ``after December 31, 1953, 
        and''.
            (48) Income taxes of members of armed forces on death.--
        Section 692(a)(1) is amended by striking ``after June 24, 
        1950''.
            (49) Special rules for computing reserves.--Section 
        807(e)(7) is amended by striking subparagraph (B) and 
        redesignating subparagraph (C) as subparagraph (B).
            (50) Transitional rule for certain high surplus mutual life 
        insurance companies.--Section 809 is amended by striking 
        subsection (i) and redesignating subsection (j) as subsection 
        (i).
            (51) Insurance company taxable income.--
                    (A) Section 832(e) is amended by striking ``of 
                taxable years beginning after December 31, 1966,''.
                    (B) Section 832(e)(6) is amended by striking ``In 
                the case of any taxable year beginning after December 
                31, 1970, the'' and by inserting ``The''.
            (52) Capitalization of certain policy acquisition 
        expenses.--Section 848 is amended by striking subsection (j).
            (53) Tax on nonresident alien individuals.--Subparagraph 
        (B) of section 871(a)(1) is amended to read as follows:
                    ``(B) gains described in section 631(b) or (c),''.
            (54) Limitation on credit.--Paragraph (2) of section 904(d) 
        is amended by striking subparagraph (I).
            (55) Basis of property acquired from a decedent.--Section 
        1014(b) is amended by striking paragraphs (7) and (8) and 
        redesignating paragraphs (9) and (10) as paragraphs (7) and 
        (8), respectively.
            (56) Adjustments to basis.--Section 1016(a) is amended by 
        striking paragraphs (4) and (12).
            (57) Property on which lessee has made improvements.--
        Section 1019 is amended by striking the last sentence.
            (58) Property acquired during affiliation.--Section 1051 is 
        repealed and the table of sections for part IV of subchapter O 
        of chapter 1 is amended by striking the item relating to 
        section 1051.
            (59) Section 1081: nonrecognition of gain or loss on 
        exchanges or distributions in obedience to orders of s.e.c.--
                    (A) Part VI of subchapter O of chapter 1 (relating 
                to exchanges in obedience to S.E.C. orders) is 
                repealed, and the table of parts for subchapter O is 
                amended by striking the item relating to part VI.
                    (B) Paragraph (3) of section 1223 is repealed.
                    (C) Paragraph (5) of section 1245(b) is repealed.
                    (D) Paragraph (5) of section 1250(d) is repealed.
            (60) Redeemable ground rents.--Subsection (b) of section 
        1055 is repealed and subsections (c) and (d) are redesignated 
        as subsections (b) and (c), respectively.
            (61) Holding period of property.--
                    (A) Paragraph (5) of section 1223 is amended by 
                striking ``(or under so much of section 1052(c) as 
                refers to section 113(a)(23) of the Internal Revenue 
                Code of 1939)''.
                    (B) Paragraph (7) of section 1223 is amended by 
                striking the last sentence.
                    (C) Paragraph (9) of section 1223 is repealed.
            (62) Property used in the trade or business and involuntary 
        conversions.--Subparagraph (A) of section 1231(c)(2) is amended 
        by striking ``beginning after December 31, 1981''.
            (63) Sale or exchange of patents.--Section 1235 is amended 
        by striking subsection (c) and redesignating subsections (d) 
and (e) as (c) and (d), respectively.
            (64) Dealers in securities.--Subsection (b) of section 1236 
        is amended by striking ``after November 19, 1951,''.
            (65) Sale of patents.--Subsection (a) of section 1249 is 
        amended by striking ``after December 31, 1962,''.
            (66) Gain from disposition of farm land.--Paragraph (1) of 
        section 1252(a) is amended by striking ``after December 31, 
        1969,'' both places it appears.
            (67) Treatment of amounts received on retirement or sale or 
        exchange of debt instruments.--Subsection (c) of section 1271 
        is amended by striking paragraph (1).
            (68) Amount and method of adjustment.--Section 1314 is 
        amended by striking subsection (d) and redesignating subsection 
        (e) as subsection (d).
            (69) Computation of tax where taxpayer restores substantial 
        amount held under claim of right.--Section 1341(a) is amended 
        by striking the last sentence.
            (70) Election; revocation; termination.--Clause (iii) of 
        section 1362(d)(3) is amended by striking ``unless'' and all 
        that follows and inserting ``unless the corporation was an S 
        corporation for such taxable year.''.
            (71) Old-age, survivors, and disability insurance.--
        Subsection (a) of section 1401 is amended by striking ``the 
        following percent'' and all that follows and inserting ``12.4 
        percent of the amount of the self-employment income for such 
        taxable year.''.
            (72) Hospital insurance.--Subsection (b) of section 1401 is 
        amended by striking ``the following percent'' and all that 
        follows and inserting ``2.9 percent of the amount of the self-
        employment income for such taxable year.''.
            (73) Ministers, members of religious orders, and christian 
        science practitioners.--Paragraph (3) of section 1402(e) is 
        amended by striking ``whichever of the following dates is 
        later: (A)'' and by striking ``; or (B)'' and all that follows 
        and by inserting a period.
            (74) Withholding of tax on nonresident aliens.--The first 
        sentence of subsection (b) of section 1441 and the first 
        sentence of paragraph (5) of section 1441(c) are each amended 
        by striking ``gains subject to tax'' and all that follows 
        through ``October 4, 1966'' and inserting ``and gains subject 
        to tax under section 871(a)(1)(D)''.
            (75) Affiliated group defined.--Subparagraph (A) of section 
        1504(a)(3) is amended by striking ``for a taxable year which 
        includes any period after December 31, 1984'' in clause (i) and 
        by striking ``in a taxable year beginning after December 31, 
        1984'' in clause (ii).
            (76) Disallowance of the benefits of the graduated 
        corporate rates and accumulated earnings credit.--
                    (A) Subsection (a) of section 1551 is amended by 
                striking paragraph (1) and redesignating paragraphs (2) 
                and (3) as paragraphs (1) and (2), respectively.
                    (B) Subsection (b) of section 1551 is amended by 
                striking ``or (2)''.
            (77) Property within the united states.--Subsection (c) of 
        section 2104 is amended by striking ``With respect to estates 
        of decedents dying after December 31, 1969, deposits'' and 
        inserting ``Deposits''.
            (78) Powers of appointment.--Section 2514 is amended by 
        striking subsection (f).
            (79) Credits against tax.--
                    (A) Paragraph (4) of section 3302(f) is amended by 
                striking ``subsection--'' and all that follows through 
                ``(A) In general.--'', by striking subparagraph (B), by 
                redesignating clauses (i) and (ii) as subparagraphs (A) 
                and (B), respectively, and by moving the text of such 
                subparagraphs (as so redesignated) 2 ems to the left.
                    (B) Paragraph (5) of section 3302(f) is amended by 
                striking subparagraphs (D) and redesignating 
                subparagraph (E) as subparagraph (D).
            (80) Domestic service employment taxes.--Section 3510(b) is 
        amended by striking paragraph (4).
            (81) Tax on fuel used in commercial transportation on 
        inland waterways.--Section 4042(b)(2)(A) is amended to read as 
        follows:
                    ``(A) The Inland Waterways Trust Fund financing 
                rate is 20 cents per gallon.''.
            (82) Transportation by air.--Section 4261(e) is amended--
                    (A) in paragraph (1) by striking subparagraph (C), 
                and
                    (B) by striking paragraph (5).
            (83) Taxes on failure to distribute income.--Section 4942 
        is amended--
                    (A) by striking subsection (f)(2)(D),
                    (B) in subsection (g)(2)(A) by striking ``For all 
                taxable years beginning on or after January 1, 1975, 
                subject'' and inserting ``Subject'',
                    (C) in subsection (g) by striking paragraph (4), 
                and
                    (D) in subsection (i)(2) by striking ``beginning 
                after December 31, 1969, and''.
            (84) Taxes on taxable expenditures.--Section 4945(f) is 
        amended by striking ``(excluding therefrom any preceding 
        taxable year which begins before January 1, 1970)''.
            (85) Returns.--Subsection (a) of section 6039D is amended 
        by striking ``beginning after December 31, 1984,''.
            (86) Information returns.--Subsection (c) of section 6060 
        is amended by striking ``year'' and all that follows and 
        inserting ``year.''.
            (87) Abatements.--Section 6404(f) is amended by striking 
        paragraph (3).
            (88) Failure by corporation to pay estimated income tax.--
        Clause (i) of section 6655(g)(4)(A) is amended by striking 
        ``(or the corresponding provisions of prior law)''.
            (89) Retirement.--Section 7447(i)(3)(B)(ii) is amended by 
        striking ``at 4 percent per annum to December 31, 1947, and at 
        3 percent per annum thereafter'', and inserting ``at 3 percent 
        per annum''.
            (90) Annuities to surviving spouses and dependent children 
        of judges.--
                    (A) Paragraph (2) of section 7448(a) is amended by 
                striking ``or under section 1106 of the Internal 
                Revenue Code of 1939'' and by striking ``or pursuant to 
                section 1106(d) of the Internal Revenue Code of 1939''.
                    (B) Subsection (g) of section 7448 is amended by 
                striking ``or other than pursuant to section 1106 of 
                the Internal Revenue Code of 1939''.
                    (C) Subsection (j)(1) and (j)(2) of section 7448 
                are each amended by striking ``at 4 percent per annum 
                to December 31, 1947, and at 3 percent per annum 
                thereafter'' and inserting ``at 3 percent per annum''.
            (91) Merchant marine capital construction funds.--Paragraph 
        (4) of section 7518(g) is amended by striking ``any 
        nonqualified withdrawal'' and all that follows through ``shall 
        be determined'' and inserting ``any nonqualified withdrawal 
        shall be determined''.
            (92) Valuation tables.--Paragraph (3) of section 7520(c) is 
        amended--
                    (A) by striking ``Not later than December 31, 1989, 
                the'' and inserting ``The'', and
                    (B) by striking ``thereafter'' in the last sentence 
                thereof.
            (93) Administration and collection of taxes in 
        possessions.--Section 7651 is amended by striking paragraph (4) 
        and redesignating paragraph (5) as paragraph (4).
            (94) Definition of employee.--(A) Section 7701(a)(20) is 
        amended by striking ``chapter 21'' and all that follows and 
        inserting ``chapter 21.''.
    (b) Effective Date.--
            (1) General rule.--Except as otherwise provided in 
        paragraph (2), the amendments made by subsection (a) shall take 
        effect on the date of enactment of this Act.
            (2) Savings provision.--If--
                    (A) any provision amended or repealed by subsection 
                (a) applied to--
                            (i) any transaction occurring before the 
                        date of the enactment of this Act,
                            (ii) any property acquired before such date 
                        of enactment, or
                            (iii) any item of income, loss, deduction, 
                        or credit taken into account before such date 
                        of enactment, and
                    (B) the treatment of such transaction, property, or 
                item under such provision would (without regard to the 
                amendments made by subsection (a)) affect the liability 
                for tax for periods ending after such date of 
                enactment,
        nothing in the amendments made by subsection (a) shall be 
        construed to affect the treatment of such transaction, 
        property, or item for purposes of determining liability for tax 
        for periods ending after such date of enactment.
                                 <all>