[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 896 Placed on Calendar Senate (PCS)]






                                                        Calendar No. 43
107th CONGRESS
  1st Session
                                 S. 896

To provide for reconciliation pursuant to section 103 of the concurrent 
    resolution on the budget for fiscal year 2002 (H. Con. Res. 83).


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                 May 16 (legislative day, May 15), 2001

Mr. Grassley, from the Committee on Finance, reported the following 
        original bill; which was read twice and placed on the calendarY

_______________________________________________________________________

                                 A BILL


 
To provide for reconciliation pursuant to section 103 of the concurrent 
    resolution on the budget for fiscal year 2002 (H. Con. Res. 83).

    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 ``Restoring Earnings 
To Lift Individuals and Empower Families (RELIEF) Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.
    (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; etc.
             TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS

                         Subtitle A--In General

Sec. 101. Reduction in income tax rates for individuals.
Sec. 102. Increase in amount of income required before phaseout of 
                            itemized deductions begins.
Sec. 103. Repeal of phaseout of deduction for personal exemptions.
          Subtitle B--Compliance With Congressional Budget Act

Sec. 111. Sunset of provisions of title.
Sec. 112. Restoration of provisions of title.
                       TITLE II--CHILD TAX CREDIT

                         Subtitle A--In General

Sec. 201. Modifications to child tax credit.
          Subtitle B--Compliance With Congressional Budget Act

Sec. 211. Sunset of provisions of title.
Sec. 212. Restoration of provisions of title.
                   TITLE III--MARRIAGE PENALTY RELIEF

                         Subtitle A--In General

Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in 15-percent bracket.
Sec. 303. Marriage penalty relief for earned income credit; earned 
                            income to include only amounts includible 
                            in gross income; simplification of earned 
                            income credit.
          Subtitle B--Compliance With Congressional Budget Act

Sec. 311. Sunset of provisions of title.
Sec. 312. Restoration of provisions of title.
               TITLE IV--AFFORDABLE EDUCATION PROVISIONS

                Subtitle A--Education Savings Incentives

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
                   Subtitle B--Educational Assistance

Sec. 411. Permanent extension of exclusion for employer-provided 
                            educational assistance.
Sec. 412. Elimination of 60-month limit and increase in income 
                            limitation on student loan interest 
                            deduction.
Sec. 413. Exclusion of certain amounts received under the national 
                            health service corps scholarship program 
                            and the F. Edward Hebert Armed Forces 
                            Health Professions Scholarship and 
                            Financial Assistance Program.
  Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public 
                          School Construction

Sec. 421. Additional increase in arbitrage rebate exception for 
                            governmental bonds used to finance 
                            educational facilities.
Sec. 422. Treatment of qualified public educational facility bonds as 
                            exempt facility bonds.
                      Subtitle D--Other Provisions

Sec. 431. Deduction for higher education expenses.
Sec. 432. Credit for interest on higher education loans.
          Subtitle E--Compliance With Congressional Budget Act

Sec. 441. Sunset of provisions of title.
Sec. 442. Restoration of provisions of title.
 TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS

  Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes

Sec. 501. Repeal of estate and generation-skipping transfer taxes.
          Subtitle B--Reductions of Estate and Gift Tax Rates

Sec. 511. Additional reductions of estate and gift tax rates.
               Subtitle C--Increase in Exemption Amounts

Sec. 521. Increase in exemption equivalent of unified credit, lifetime 
                            gifts exemption, and GST exemption amounts.
                Subtitle D--Credit for State Death Taxes

Sec. 531. Reduction of credit for State death taxes.
Sec. 532. Credit for State death taxes replaced with deduction for such 
                            taxes.
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With 
                                 Repeal

Sec. 541. Termination of step-up in basis at death.
Sec. 542. Treatment of property acquired from a decedent dying after 
                            December 31, 2010.
                   Subtitle F--Conservation Easements

Sec. 551. Expansion of estate tax rule for conservation easements.
     Subtitle G--Modifications of Generation-Skipping Transfer Tax

Sec. 561. Deemed allocation of GST exemption to lifetime transfers to 
                            trusts; retroactive allocations.
Sec. 562. Severing of trusts.
Sec. 563. Modification of certain valuation rules.
Sec. 564. Relief provisions.
        Subtitle H--Extension of Time for Payment of Estate Tax

Sec. 571. Expansion of availability of installment payment for estates 
                            with interests qualifying lending and 
                            finance businesses.
Sec. 572. Clarification of availability of installment payment.
          Subtitle I--Compliance With Congressional Budget Act

Sec. 581. Sunset of provisions of title.
Sec. 582. Restoration of provisions of title.
   TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

               Subtitle A--Individual Retirement Accounts

Sec. 601. Modification of IRA contribution limits.
Sec. 602. Deemed IRAs under employer plans.
Sec. 603. Tax-free distributions from individual retirement accounts 
                            for charitable purposes.
                     Subtitle B--Expanding Coverage

Sec. 611. Increase in benefit and contribution limits.
Sec. 612. Plan loans for subchapter S owners, partners, and sole 
                            proprietors.
Sec. 613. Modification of top-heavy rules.
Sec. 614. Elective deferrals not taken into account for purposes of 
                            deduction limits.
Sec. 615. Repeal of coordination requirements for deferred compensation 
                            plans of State and local governments and 
                            tax-exempt organizations.
Sec. 616. Deduction limits.
Sec. 617. Option to treat elective deferrals as after-tax Roth 
                            contributions.
Sec. 618. Nonrefundable credit to certain individuals for elective 
                            deferrals and IRA contributions.
Sec. 619. Credit for qualified pension plan contributions of small 
                            employers.
Sec. 620. Credit for pension plan startup costs of small employers.
Sec. 621. Elimination of user fee for requests to IRS regarding new 
                            pension plans.
Sec. 622. Treatment of nonresident aliens engaged in international 
                            transportation services.
                Subtitle C--Enhancing Fairness for Women

Sec. 631. Catch-up contributions for individuals age 50 or over.
Sec. 632. Equitable treatment for contributions of employees to defined 
                            contribution plans.
Sec. 633. Faster vesting of certain employer matching contributions.
Sec. 634. Modifications to minimum distribution rules.
Sec. 635. Clarification of tax treatment of division of section 457 
                            plan benefits upon divorce.
Sec. 636. Provisions relating to hardship distributions.
Sec. 637. Waiver of tax on nondeductible contributions for domestic or 
                            similar workers.
          Subtitle D--Increasing Portability for Participants

Sec. 641. Rollovers allowed among various types of plans.
Sec. 642. Rollovers of IRAs into workplace retirement plans.
Sec. 643. Rollovers of after-tax contributions.
Sec. 644. Hardship exception to 60-day rule.
Sec. 645. Treatment of forms of distribution.
Sec. 646. Rationalization of restrictions on distributions.
Sec. 647. Purchase of service credit in governmental defined benefit 
                            plans.
Sec. 648. Employers may disregard rollovers for purposes of cash-out 
                            amounts.
Sec. 649. Minimum distribution and inclusion requirements for section 
                            457 plans.
       Subtitle E--Strengthening Pension Security and Enforcement

                       Part I--General Provisions

Sec. 651. Repeal of 160 percent of current liability funding limit.
Sec. 652. Maximum contribution deduction rules modified and applied to 
                            all defined benefit plans.
Sec. 653. Excise tax relief for sound pension funding.
Sec. 654. Treatment of multiemployer plans under section 415.
Sec. 655. Protection of investment of employee contributions to 401(k) 
                            plans.
Sec. 656. Prohibited allocations of stock in S corporation ESOP.
Sec. 657. Automatic rollovers of certain mandatory distributions.
Sec. 658. Clarification of treatment of contributions to multiemployer 
                            plan.
 Part II--Treatment of Plan Amendments Reducing Future Benefit Accruals

Sec. 659. Notice required for pension plan amendments having the effect 
                            of significantly reducing future benefit 
                            accruals.
                Subtitle F--Reducing Regulatory Burdens

Sec. 661. Modification of timing of plan valuations.
Sec. 662. ESOP dividends may be reinvested without loss of dividend 
                            deduction.
Sec. 663. Repeal of transition rule relating to certain highly 
                            compensated employees.
Sec. 664. Employees of tax-exempt entities.
Sec. 665. Clarification of treatment of employer-provided retirement 
                            advice.
Sec. 666. Reporting simplification.
Sec. 667. Improvement of employee plans compliance resolution system.
Sec. 668. Repeal of the multiple use test.
Sec. 669. Flexibility in nondiscrimination, coverage, and line of 
                            business rules.
Sec. 670. Extension to all governmental plans of moratorium on 
                            application of certain nondiscrimination 
                            rules applicable to State and local plans.
                   Subtitle G--Other ERISA Provisions

Sec. 681. Missing participants.
Sec. 682. Reduced PBGC premium for new plans of small employers.
Sec. 683. Reduction of additional PBGC premium for new and small plans.
Sec. 684. Authorization for PBGC to pay interest on premium overpayment 
                            refunds.
Sec. 685. Substantial owner benefits in terminated plans.
                  Subtitle H--Miscellaneous Provisions

Sec. 691. Tax treatment and information requirements of Alaska Native 
                            Settlement Trusts.
          Subtitle I--Compliance With Congressional Budget Act

Sec. 695. Sunset of provisions of title.
Sec. 696. Restoration of provisions of title.
                   TITLE VII--ALTERNATIVE MINIMUM TAX

                         Subtitle A--In General

Sec. 701. Increase in alternative minimum tax exemption.
          Subtitle B--Compliance With Congressional Budget Act

Sec. 711. Sunset of provisions of title.
Sec. 712. Restoration of provisions of title.
                      TITLE VIII--OTHER PROVISIONS

                         Subtitle A--In General

Sec. 801. Time for payment of corporate estimated taxes.
Sec. 802. Expansion of authority to postpone certain tax-related 
                            deadlines by reason of presidentially 
                            declared disaster.
          Subtitle B--Compliance With Congressional Budget Act

Sec. 811. Sunset of provisions of title.
Sec. 812. Restoration of provisions of title.

             TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS

                         Subtitle A--In General

SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.

    (a) In General.--Section 1 is amended by adding at the end the 
following new subsection:
    ``(i) Rate Reductions After 2000.--
            ``(1) 10-percent rate bracket.--
                    ``(A) In general.--In the case of taxable years 
                beginning after December 31, 2000--
                            ``(i) the rate of tax under subsections 
                        (a), (b), (c), and (d) on taxable income not 
                        over the initial bracket amount shall be 10 
                        percent, and
                            ``(ii) the 15 percent rate of tax shall 
                        apply only to taxable income over the initial 
                        bracket amount but not over the maximum dollar 
                        amount for the 15-percent rate bracket.
                    ``(B) Initial bracket amount.--For purposes of this 
                subsection, the initial bracket amount is--
                            ``(i) $12,000 in the case of subsection 
                        (a),
                            ``(ii) $10,000 in the case of subsection 
                        (b), and
                            ``(iii) \1/2\ the amount applicable under 
                        clause (i) (after adjustment, if any, under 
                        subparagraph (C)) in the case of subsections 
                        (c) and (d).
                    ``(C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with respect to 
                taxable years beginning in calendar years after 2001--
                            ``(i) the Secretary shall make no 
                        adjustment to the initial bracket amount for 
                        any taxable year beginning before January 1, 
                        2007,
                            ``(ii) the cost-of-living adjustment used 
                        in making adjustments to the initial bracket 
                        amount for any taxable year beginning after 
                        December 31, 2006, shall be determined under 
                        subsection (f)(3) by substituting `2005' for 
                        `1992' in subparagraph (B) thereof, and
                            ``(iii) such adjustment shall not apply to 
                        the amount referred to in subparagraph 
                        (B)(iii).
                If any amount after adjustment under the preceding 
                sentence is not a multiple of $50, such amount shall be 
                rounded to the next lowest multiple of $50.
            ``(2) Reductions in rates after 2001.--In the case of 
        taxable years beginning in a calendar year after 2001, the 
        corresponding percentage specified for such calendar year in 
        the following table shall be substituted for the otherwise 
        applicable tax rate in the tables under subsections (a), (b), 
        (c), (d), and (e).


------------------------------------------------------------------------
                                         The corresponding percentages
                 ``In the case of        shall be substituted for  the
                   taxable years            following percentages:
                 beginning during    -----------------------------------
                  calendar year:        28%      31%      36%     39.6%
------------------------------------------------------------------------
              2002, 2003, and 2004..    27%      30%      35%     38.6%
              2005 and 2006.........    26%      29%      34%     37.6%
              2007 and thereafter...    25%      28%      33%      36%
------------------------------------------------------------------------

            ``(3) Adjustment of tables.--The Secretary shall adjust the 
        tables prescribed under subsection (f) to carry out this 
        subsection.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 1(g)(7) is amended by 
        striking ``15 percent'' in clause (ii)(II) and inserting ``10 
        percent.''.
            (2) Section 1(h) is amended--
                    (A) by striking ``28 percent'' both places it 
                appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and 
                inserting ``25 percent'', and
                    (B) by striking paragraph (13).
            (3) Section 531 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to the product of the 
        highest rate of tax under section 1(c) and the accumulated 
        taxable income.''.
            (4) Section 541 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to the product of the 
        highest rate of tax under section 1(c) and the undistributed 
        personal holding company income.''.
            (5) Section 3402(p)(1)(B) is amended by striking ``7, 15, 
        28, or 31 percent'' and inserting ``7 percent, any percentage 
        applicable to any of the 3 lowest income brackets in the table 
        under section 1(c),''.
            (6) Section 3402(p)(2) is amended by striking ``15 
        percent'' and inserting ``10 percent''.
            (7) Section 3402(q)(1) is amended by striking ``equal to 28 
        percent of such payment'' and inserting ``equal to the product 
        of the third lowest rate of tax under section 1(c) and such 
        payment''.
            (8) Section 3402(r)(3) is amended by striking ``31 
        percent'' and inserting ``the fourth lowest rate of tax under 
        section 1(c)''.
            (9) Section 3406(a)(1) is amended by striking ``equal to 31 
        percent of such payment'' and inserting ``equal to the product 
        of the fourth lowest rate of tax under section 1(c) and such 
        payment''.
            (10) Section 13273 of the Revenue Reconciliation Act of 
        1993 is amended by striking ``28 percent'' and inserting ``the 
        third lowest rate of tax under section 1(c) of the Internal 
        Revenue Code of 1986''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Amendments to withholding provisions.--The amendments 
        made by paragraphs (6), (7), (8), (9), (10), and (11) of 
        subsection (b) shall apply to amounts paid after the 60th day 
        after the date of the enactment of this Act.

SEC. 102. INCREASE IN AMOUNT OF INCOME REQUIRED BEFORE PHASEOUT OF 
              ITEMIZED DEDUCTIONS BEGINS.

    (a) In General.--Section 68(b)(1) (defining applicable amount) is 
amended--
            (1) by striking ``$100,000'' and inserting ``$150,000'', 
        and
            (2) by striking ``$50,000'' and inserting ``$75,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 103. REPEAL OF PHASEOUT OF DEDUCTION FOR PERSONAL EXEMPTIONS.

    (a) In General.--Subsection (d) of section 151 (relating to 
exemption amount) is amended by striking paragraph (3).
    (b) Technical Amendments.--
            (1) Paragraph (6) of section 1(f) is amended--
                    (A) by striking ``section 151(d)(4)'' in 
                subparagraph (A) and inserting ``section 151(d)(3)'', 
                and
                    (B) by striking ``section 151(d)(4)(A)'' in 
                subparagraph (B) and inserting ``section 151(d)(3)''.
            (2) Paragraph (4) of section 151(d) 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.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

          Subtitle B--Compliance With Congressional Budget Act

SEC. 111. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 112. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 111 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

                       TITLE II--CHILD TAX CREDIT

                         Subtitle A--In General

SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.

    (a) Increase in Per Child Amount.--Subsection (a) of section 24 
(relating to child tax credit) is amended to read as follows:
    ``(a) Allowance of Credit.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year 
        with respect to each qualifying child of the taxpayer an amount 
        equal to the per child amount.
            ``(2) Per child amount.--For purposes of paragraph (1), the 
        per child amount shall be determined as follows:

``In the case of any taxable year   The per child amount is--
        beginning in--
    2001, 2002, or 2003...........................              $  600 
    2004, 2005, or 2006...........................                 700 
    2007, 2008, or 2009...........................                 800 
    2010..........................................                 900 
    2011 or thereafter............................            1,000.''.
    (b) Credit Allowed Against Alternative Minimum Tax.--
            (1) In general.--Subsection (b) of section 24 (relating to 
        child tax credit) is amended by adding at the end the following 
        new paragraph:
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section) and section 27 for 
                the taxable year.''.
            (2) Conforming amendments.--
                    (A) The heading for section 24(b) is amended to 
                read as follows: ``Limitations.--''.
                    (B) The heading for section 24(b)(1) is amended to 
                read as follows: ``Limitation based on adjusted gross 
                income.--''.
                    (C) Section 24(d) is amended--
                            (i) by striking ``section 26(a)'' each 
                        place it appears and inserting ``subsection 
                        (b)(3)'', and
                            (ii) in paragraph (1)(B) by striking 
                        ``aggregate amount of credits allowed by this 
                        subpart'' and inserting ``amount of credit 
                        allowed by this section''.
                    (D) Paragraph (1) of section 26(a) is amended by 
                inserting ``(other than section 24)'' after ``this 
                subpart''.
                    (E) Subsection (c) of section 23 is amended by 
                striking ``and section 1400C'' and inserting ``and 
                sections 24 and 1400C''.
                    (F) Subparagraph (C) of section 25(e)(1) is amended 
                by inserting ``, 24,'' after ``sections 23''.
                    (G) Section 904(h) is amended by inserting ``(other 
                than section 24)'' after ``chapter''.
                    (H) Subsection (d) of section 1400C is amended by 
                inserting ``and section 24'' after ``this section''.
    (c) Refundable Child Credit.--
            (1) In general.--So much of section 24(d) (relating to 
        additional credit for families with 3 or more children) as 
        precedes paragraph (2) is amended to read as follows:
    ``(d) Portion of Credit Refundable.--
            ``(1) In general.--The aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the lesser of--
                    ``(A) the credit which would be allowed under this 
                section without regard to this subsection and the 
                limitation under subsection (b)(3), or
                    ``(B) the amount by which the amount of credit 
                allowed by this section (determined without regard to 
                this subsection) would increase if the limitation 
                imposed by subsection (b)(3) were increased by the 
                greater of--
                            ``(i) 15 percent of so much of the 
                        taxpayer's earned income (within the meaning of 
                        section 32) for the taxable year as exceeds 
                        $10,000, or
                            ``(ii) in the case of a taxpayer with 3 or 
                        more qualifying children, the excess (if any) 
                        of--
                                    ``(I) the taxpayer's social 
                                security taxes for the taxable year, 
                                over
                                    ``(II) the credit allowed under 
                                section 32 for the taxable year.
        The amount of the credit allowed under this subsection shall 
        not be treated as a credit allowed under this subpart and shall 
        reduce the amount of credit otherwise allowable under 
        subsection (a) without regard to subsection (b)(3).''.
            (2) Conforming amendment.--Section 32 is amended by 
        striking subsection (n).
    (d) Elimination of Reduction of Credit to Taxpayer Subject to 
Alternative Minimum Tax Provision.--Section 24(d) is amended--
            (1) by striking paragraph (2), and
            (2) by redesignating paragraph (3) as paragraph (2).
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to taxable years beginning after December 31, 2001.

          Subtitle B--Compliance With Congressional Budget Act

SEC. 211. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 212. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 211 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

                   TITLE III--MARRIAGE PENALTY RELIEF

                         Subtitle A--In General

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and 
        inserting ``the applicable percentage of the dollar amount in 
        effect under subparagraph (C) for the taxable year'';
            (2) by adding ``or'' at the end of subparagraph (B);
            (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.''; and
            (4) by striking subparagraph (D).
    (b) Applicable Percentage.--Section 63(c) (relating to standard 
deduction) is amended by adding at the end the following new paragraph:
            ``(7) Applicable percentage.--For purposes of paragraph 
        (2), the applicable percentage shall be determined in 
        accordance with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                    2006...................................        174 
                    2007...................................        180 
                    2008...................................        187 
                    2009...................................        193 
                    2010 and thereafter....................     200.''.
    (c) Technical Amendments.--
            (1) Subparagraph (B) of section 1(f)(6), as amended by 
        section 103(b), is amended by striking ``(other than with'' and 
        all that follows through ``shall be applied'' and inserting 
        ``(other than with respect to sections 63(c)(4) and 
        151(d)(3)(A)) shall be applied''.
            (2) Paragraph (4) of section 63(c) is amended by adding at 
        the end the following flush sentence:
        ``The preceding sentence shall not apply to the amount referred 
        to in paragraph (2)(A).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

    (a) In General.--Section 1(f) (relating to adjustments in tax 
tables so that inflation will not result in tax increases) is amended 
by adding at the end the following new paragraph:
            ``(8) Phaseout of marriage penalty in 15-percent bracket.--
                    ``(A) In general.--With respect to taxable years 
                beginning after December 31, 2005, in prescribing the 
                tables under paragraph (1)--
                            ``(i) the maximum taxable income in the 15-
                        percent rate bracket in the table contained in 
                        subsection (a) (and the minimum taxable income 
                        in the next higher taxable income bracket in 
                        such table) shall be the applicable percentage 
                        of the maximum taxable income in the 15-percent 
                        rate bracket in the table contained in 
                        subsection (c) (after any other adjustment 
                        under this subsection), and
                            ``(ii) the comparable taxable income 
                        amounts in the table contained in subsection 
                        (d) shall be \1/2\ of the amounts determined 
                        under clause (i).
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                    2006...................................        174 
                    2007...................................        180 
                    2008...................................        187 
                    2009...................................        193 
                    2010 and thereafter....................       200. 
                    ``(C) Rounding.--If any amount determined under 
                subparagraph (A)(i) is not a multiple of $50, such 
                amount shall be rounded to the next lowest multiple of 
                $50.''.
    (b) Technical Amendments.--
            (1) Subparagraph (A) of section 1(f)(2) is amended by 
        inserting ``except as provided in paragraph (8),'' before ``by 
        increasing''.
            (2) The heading for subsection (f) of section 1 is amended 
        by inserting ``Phaseout of Marriage Penalty in 15-Percent 
        Bracket;'' before ``Adjustments''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED 
              INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS 
              INCOME; SIMPLIFICATION OF EARNED INCOME CREDIT.

    (a) Increased Phaseout Amount.--
            (1) In general.--Section 32(b)(2) (relating to amounts) is 
        amended--
                    (A) by striking ``Amounts.--The earned'' and 
                inserting ``Amounts.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                earned'', and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Joint returns.--In the case of a joint return 
                filed by an eligible individual and such individual's 
                spouse, the phaseout amount determined under 
                subparagraph (A) shall be increased by $3,000.''.
            (2) Inflation adjustment.--Paragraph (1)(B) of section 
        32(j) (relating to inflation adjustments) is amended to read as 
        follows:
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined--
                            ``(i) in the case of amounts in subsections 
                        (b)(2)(A) and (i)(1), by substituting `calendar 
                        year 1995' for `calendar year 1992' in 
                        subparagraph (B) thereof, and
                            ``(ii) in the case of the $3,000 amount in 
                        subsection (b)(2)(B), by substituting `calendar 
                        year 2001' for `calendar year 1992' in 
                        subparagraph (B) of such section 1.''.
            (3) Rounding.--Section 32(j)(2)(A) (relating to rounding) 
        is amended by striking ``subsection (b)(2)'' and inserting 
        ``subsection (b)(2)(A) (after being increased under 
        subparagraph (B) thereof)''.
    (b) Earned Income To Include Only Amounts Includible in Gross 
Income.--Clause (i) of section 32(c)(2)(A) (defining earned income) is 
amended by inserting ``, but only if such amounts are includible in 
gross income for the taxable year'' after ``other employee 
compensation''.
    (c) Repeal of Reduction of Credit to Taxpayers Subject to 
Alternative Minimum Tax.--Section 32(h) is repealed.
    (d) Replacement of Modified Adjusted Gross Income With Adjusted 
Gross Income.--
            (1) In general.--Section 32(a)(2)(B) is amended by striking 
        ``modified''.
            (2) Conforming amendments.--
                    (A) Section 32(c) is amended by striking paragraph 
                (5).
                    (B) Section 32(f)(2)(B) is amended by striking 
                ``modified'' each place it appears.
    (e) Relationship Test.--
            (1) In general.--Clause (i) of section 32(c)(3)(B) 
        (relating to relationship test) is amended to read as follows:
                            ``(i) In general.--An individual bears a 
                        relationship to the taxpayer described in this 
                        subparagraph if such individual is--
                                    ``(I) a son, daughter, stepson, or 
                                stepdaughter, or a descendant of any 
                                such individual,
                                    ``(II) a brother, sister, 
                                stepbrother, or stepsister, or a 
                                descendant of any such individual, who 
                                the taxpayer cares for as the 
                                taxpayer's own child, or
                                    ``(III) an eligible foster child of 
                                the taxpayer.''.
            (2) Eligible foster child.--
                    (A) In general.--Clause (iii) of section 
                32(c)(3)(B) is amended to read as follows:
                            ``(iii) Eligible foster child.--For 
                        purposes of clause (i), the term `eligible 
                        foster child' means an individual not described 
                        in subclause (I) or (II) of clause (i) who--
                                    ``(I) is placed with the taxpayer 
                                by an authorized placement agency, and
                                    ``(II) the taxpayer cares for as 
                                the taxpayer's own child.''.
                    (B) Conforming amendment.--Section 32(c)(3)(A)(ii) 
                is amended by striking ``except as provided in 
                subparagraph (B)(iii),''.
    (f) 2 or More Claiming Qualifying Child.--Section 32(c)(1)(C) is 
amended to read as follows:
                    ``(C) 2 or more claiming qualifying child.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), if (but for this paragraph) an 
                        individual may be claimed, and is claimed, as a 
                        qualifying child by 2 or more taxpayers 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 subclause (I) does not 
                                apply, the taxpayer with the highest 
                                adjusted gross income for such taxable 
                                year.
                            ``(ii) More than 1 claiming credit.--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.''.
    (g) Expansion of Mathematical Error Authority.--Paragraph (2) of 
section 6213(g) is amended by striking ``and'' at the end of 
subparagraph (K), by striking the period at the end of subparagraph (L) 
and inserting ``, and'', and by inserting after subparagraph (L) the 
following new subparagraph:
                    ``(M) the entry on the return claiming the credit 
                under section 32 with respect to a child if, according 
                to the Federal Case Registry of Child Support Orders 
                established under section 453(h) of the Social Security 
                Act, the taxpayer is a noncustodial parent of such 
                child.''
    (h) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2001.
            (2) Subsection (g).--The amendment made by subsection (g) 
        shall take effect on January 1, 2004.

          Subtitle B--Compliance With Congressional Budget Act

SEC. 311. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 312. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 311 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

               TITLE IV--AFFORDABLE EDUCATION PROVISIONS

                Subtitle A--Education Savings Incentives

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``$2,000''.
            (2) Conforming amendment.--Section 4973(e)(1)(A) is amended 
        by striking ``$500'' and inserting ``$2,000''.
    (b) Modification of AGI Limits To Remove Marriage Penalty.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended--
            (1) by striking ``$150,000'' in subparagraph (A)(ii) and 
        inserting ``$190,000'', and
            (2) by striking ``$10,000'' in subparagraph (B) and 
        inserting ``$30,000''.
    (c) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
            (1) In general.--Section 530(b)(2) (defining qualified 
        higher education expenses) is amended to read as follows:
            ``(2) Qualified education expenses.--
                    ``(A) In general.--The term `qualified education 
                expenses' means--
                            ``(i) qualified higher education expenses 
                        (as defined in section 529(e)(3)), and
                            ``(ii) qualified elementary and secondary 
                        education expenses (as defined in paragraph 
                        (4)).
                    ``(B) Qualified state tuition programs.--Such term 
                shall include any contribution to a qualified State 
                tuition program (as defined in section 529(b)) on 
                behalf of the designated beneficiary (as defined in 
                section 529(e)(1)); but there shall be no increase in 
                the investment in the contract for purposes of applying 
                section 72 by reason of any portion of such 
                contribution which is not includible in gross income by 
                reason of subsection (d)(2).''.
            (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) (relating to definitions and special 
        rules) is amended by adding at the end the following new 
        paragraph:
            ``(4) Qualified elementary and secondary education 
        expenses.--
                    ``(A) In general.--The term `qualified elementary 
                and secondary education expenses' means--
                            ``(i) expenses for tuition, fees, academic 
                        tutoring, special needs services, books, 
                        supplies, computer equipment (including related 
                        software and services), and other equipment 
                        which are incurred in connection with the 
                        enrollment or attendance of the designated 
                        beneficiary of the trust as an elementary or 
                        secondary school student at a public, private, 
                        or religious school, and
                            ``(ii) expenses for room and board, 
                        uniforms, transportation, and supplementary 
                        items and services (including extended day 
                        programs) which are required or provided by a 
                        public, private, or religious school in 
                        connection with such enrollment or attendance.
                    ``(B) School.--The term `school' means any school 
                which provides elementary education or secondary 
                education (kindergarten through grade 12), as 
                determined under State law.''.
            (3) Conforming amendments.--Section 530 is amended--
                    (A) by striking ``higher'' each place it appears in 
                subsections (b)(1) and (d)(2), and
                    (B) by striking ``higher'' in the heading for 
                subsection (d)(2).
    (d) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is 
amended by adding at the end the following flush sentence:
        ``The age limitations in subparagraphs (A)(ii) and (E), and 
        paragraphs (5) and (6) of subsection (d), shall not apply to 
        any designated beneficiary with special needs (as determined 
        under regulations prescribed by the Secretary).''.
    (e) Entities Permitted To Contribute to Accounts.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended by striking ``The maximum amount 
which a contributor'' and inserting ``In the case of a contributor who 
is an individual, the maximum amount the contributor''.
    (f) Time When Contributions Deemed Made.--
            (1) In general.--Section 530(b) (relating to definitions 
        and special rules), as amended by subsection (c)(2), is amended 
        by adding at the end the following new paragraph:
            ``(5) Time when contributions deemed made.--An individual 
        shall be deemed to have made a contribution to an education 
        individual retirement account on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).''.
            (2) Extension of time to return excess contributions.--
        Subparagraph (C) of section 530(d)(4) (relating to additional 
        tax for distributions not used for educational expenses) is 
        amended--
                    (A) by striking clause (i) and inserting the 
                following new clause:
                            ``(i) such distribution is made before the 
                        first day of the sixth month of the taxable 
                        year following the taxable year, and'', and
                    (B) by striking ``due date of return'' in the 
                heading and inserting ``certain date''.
    (g) Coordination With Hope and Lifetime Learning Credits and 
Qualified Tuition Programs.--
            (1) In general.--Section 530(d)(2)(C) is amended to read as 
        follows:
                    ``(C) Coordination with hope and lifetime learning 
                credits and qualified tuition programs.--For purposes 
                of subparagraph (A)--
                            ``(i) Credit coordination.--The total 
                        amount of qualified higher education expenses 
                        with respect to an individual for the taxable 
                        year shall be reduced--
                                    ``(I) as provided in section 
                                25A(g)(2), and
                                    ``(II) by the amount of such 
                                expenses which were taken into account 
                                in determining the credit allowed to 
                                the taxpayer or any other person under 
                                section 25A.
                            ``(ii) Coordination with qualified tuition 
                        programs.--If, with respect to an individual 
                        for any taxable year--
                                    ``(I) the aggregate distributions 
                                during such year to which subparagraph 
                                (A) and section 529(c)(3)(B) apply, 
                                exceed
                                    ``(II) the total amount of 
                                qualified education expenses (after the 
                                application of clause (i)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under subparagraph 
                        (A) and section 529(c)(3)(B).''.
            (2) Conforming amendments.--
                    (A) Subsection (e) of section 25A is amended to 
                read as follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''.
                    (B) Section 135(d)(2)(A) is amended by striking 
                ``allowable'' and inserting ``allowed''.
                    (C) Section 530(d)(2)(D) is amended--
                            (i) by striking ``or credit'', and
                            (ii) by striking ``credit or'' in the 
                        heading.
                    (D) Section 4973(e)(1) is amended by adding ``and'' 
                at the end of subparagraph (A), by striking 
                subparagraph (B), and by redesignating subparagraph (C) 
                as subparagraph (B).
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
          (1) In general.--Section 529(b)(1) (defining qualified State 
        tuition program) is amended--
                    (A) by inserting ``or by 1 or more eligible 
                educational institutions'' after ``maintained by a 
                State or agency or instrumentality thereof'' in the 
                matter preceding subparagraph (A), and
                    (B) by adding at the end the following new flush 
                sentence:
        ``Except to the extent provided in regulations, a program 
        established and maintained by 1 or more eligible educational 
        institutions shall not be treated as a qualified tuition 
        program unless such program has received a ruling or 
        determination that such program meets the applicable 
        requirements for a qualified tuition program.''.
            (2) Private qualified tuition programs limited to benefit 
        plans.--Clause (ii) of section 529(b)(1)(A) is amended by 
        inserting ``in the case of a program established and maintained 
        by a State or agency or instrumentality thereof,'' before ``may 
        make''.
            (3) Conforming amendments.--
                    (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 
                529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are 
                amended by striking ``qualified State tuition'' each 
                place it appears and inserting ``qualified tuition''.
                    (B) The headings for sections 72(e)(9) and 
                135(c)(2)(C) are amended by striking ``qualified state 
                tuition'' each place it appears and inserting 
                ``qualified tuition''.
                    (C) The headings for sections 529(b) and 
                530(b)(2)(B) are amended by striking ``Qualified state 
                tuition'' each place it appears and inserting 
                ``Qualified tuition''.
                    (D) The heading for section 529 is amended by 
                striking ``state''.
                    (E) The item relating to section 529 in the table 
                of sections for part VIII of subchapter F of chapter 1 
                is amended by striking ``State''.
    (b) Exclusion From Gross Income of Education Distributions From 
Qualified Tuition Programs.--
            (1) In general.--Section 529(c)(3)(B) (relating to 
        distributions) is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--For purposes of this paragraph--
                            ``(i) In-kind distributions.--No amount 
                        shall be includible in gross income under 
                        subparagraph (A) by reason of a distribution 
                        which consists of providing a benefit to the 
                        distributee which, if paid for by the 
                        distributee, would constitute payment of a 
                        qualified higher education expense.
                            ``(ii) Cash distributions.--In the case of 
                        distributions not described in clause (i), if--
                                    ``(I) such distributions do not 
                                exceed the qualified higher education 
                                expenses (reduced by expenses described 
                                in clause (i)), no amount shall be 
                                includible in gross income, and
                                    ``(II) in any other case, the 
                                amount otherwise includible in gross 
                                income shall be reduced by an amount 
                                which bears the same ratio to such 
                                amount as such expenses bear to such 
                                distributions.
                            ``(iii) Exception for institutional 
                        programs.--In the case of any taxable year 
                        beginning before January 1, 2004, clauses (i) 
                        and (ii) shall not apply with respect to any 
                        distribution during such taxable year under a 
                        qualified tuition program established and 
                        maintained by 1 or more eligible educational 
                        institutions.
                            ``(iv) Treatment as distributions.--Any 
                        benefit furnished to a designated beneficiary 
                        under a qualified tuition program shall be 
                        treated as a distribution to the beneficiary 
                        for purposes of this paragraph.
                            ``(v) Coordination with hope and lifetime 
                        learning credits.--The total amount of 
                        qualified higher education expenses with 
                        respect to an individual for the taxable year 
                        shall be reduced--
                                    ``(I) as provided in section 
                                25A(g)(2), and
                                    ``(II) by the amount of such 
                                expenses which were taken into account 
                                in determining the credit allowed to 
                                the taxpayer or any other person under 
                                section 25A.
                            ``(vi) Coordination with education 
                        individual retirement accounts.--If, with 
                        respect to an individual for any taxable year--
                                    ``(I) the aggregate distributions 
                                to which clauses (i) and (ii) and 
                                section 530(d)(2)(A) apply, exceed
                                    ``(II) the total amount of 
                                qualified higher education expenses 
                                otherwise taken into account under 
                                clauses (i) and (ii) (after the 
                                application of clause (v)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under clauses (i) 
                        and (ii) and section 530(d)(2)(A).''.
            (2) Conforming amendments.--
                    (A) Section 135(d)(2)(B) is amended by striking 
                ``the exclusion under section 530(d)(2)'' and inserting 
                ``the exclusions under sections 529(c)(3)(B) and 
                530(d)(2)''.
                    (B) Section 221(e)(2)(A) is amended by inserting 
                ``529,'' after ``135,''.
    (c) Rollover to Different Program for Benefit of Same Designated 
Beneficiary.--Section 529(c)(3)(C) (relating to change in 
beneficiaries) is amended--
            (1) by striking ``transferred to the credit'' in clause (i) 
        and inserting ``transferred--
                                    ``(I) to another qualified tuition 
                                program for the benefit of the 
                                designated beneficiary, or
                                    ``(II) to the credit'',
            (2) by adding at the end the following new clause:
                            ``(iii) Limitation on certain rollovers.--
                        Clause (i)(I) shall only apply to the first 3 
                        transfers with respect to a designated 
                        beneficiary.'', and
            (3) by inserting ``or programs'' after ``beneficiaries'' in 
        the heading.
    (d) Member of Family Includes First Cousin.--Section 529(e)(2) 
(defining member of family) is amended by striking ``and'' at the end 
of subparagraph (B), by striking the period at the end of subparagraph 
(C) and by inserting ``; and'', and by adding at the end the following 
new subparagraph:
                    ``(D) any first cousin of such beneficiary.''.
    (e) Adjustment of Limitation on Room and Board Distributions.--
Section 529(e)(3)(B)(ii) is amended to read as follows:
                            ``(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 Restoring Earnings 
                                To Lift Individuals and Empower 
                                Families (RELIEF) 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.''.
    (f) Technical Amendments.--Section 529(c)(3)(D) is amended--
            (1) by inserting ``except to the extent provided by the 
        Secretary,'' before ``all distributions'' in clause (ii), and
            (2) by inserting ``except to the extent provided by the 
        Secretary,'' before ``the value'' in clause (iii).
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                   Subtitle B--Educational Assistance

SEC. 411. PERMANENT EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED 
              EDUCATIONAL ASSISTANCE.

    (a) In General.--Section 127 (relating to exclusion for educational 
assistance programs) is amended by striking subsection (d) and by 
redesignating subsection (e) as subsection (d).
    (b) Repeal of Limitation on Graduate Education.--The last sentence 
of section 127(c)(1) is amended by striking ``, and such term also does 
not include any payment for, or the provision of any benefits with 
respect to, any graduate level course of a kind normally taken by an 
individual pursuing a program leading to a law, business, medical, or 
other advanced academic or professional degree''.
    (c) Conforming Amendment.--Section 51A(b)(5)(B)(iii) is amended by 
striking ``or would be so excludable but for section 127(d)''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to expenses relating to courses beginning after 
December 31, 2001.

SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
              LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
            (1) In general.--Section 221 (relating to interest on 
        education loans), as amended by section 402(b)(2)(B), is 
        amended by striking subsection (d) and by redesignating 
        subsections (e), (f), and (g) as subsections (d), (e), and (f), 
        respectively.
            (2) Conforming amendment.--Section 6050S(e) is amended by 
        striking ``section 221(e)(1)'' and inserting ``section 
        221(d)(1)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply with respect to any loan interest paid after 
        December 31, 2001, in taxable years ending after such date.
    (b) Increase in Income Limitation.--
            (1) In general.--Section 221(b)(2)(B) (relating to amount 
        of reduction) is amended by striking clauses (i) and (ii) and 
        inserting the following:
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $50,000 ($100,000 in the 
                                case of a joint return), bears to
                            ``(ii) $15,000 ($30,000 in the case of a 
                        joint return).''.
            (2) Conforming amendment.--Section 221(g)(1) is amended by 
        striking ``$40,000 and $60,000 amounts'' and inserting 
        ``$50,000 and $100,000 amounts''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after December 31, 2001.

SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
              HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM AND THE F. 
              EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP 
              AND FINANCIAL ASSISTANCE PROGRAM.

    (a) In General.--Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is amended--
            (1) by striking ``Subsections (a)'' and inserting the 
        following:
            ``(1) In general.--Except as provided in paragraph (2), 
        subsections (a)'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Exceptions.--Paragraph (1) shall not apply to any 
        amount received by an individual under--
                    ``(A) the National Health Service Corps Scholarship 
                Program under section 338A(g)(1)(A) of the Public 
                Health Service Act, or
                    ``(B) the Armed Forces Health Professions 
                Scholarship and Financial Assistance program under 
                subchapter I of chapter 105 of title 10, United States 
                Code.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to amounts received in taxable years beginning after December 31, 
2001.

  Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public 
                          School Construction

SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
              FACILITIES.

    (a) In General.--Section 148(f)(4)(D)(vii) (relating to increase in 
exception for bonds financing public school capital expenditures) is 
amended by striking ``$5,000,000'' the second place it appears and 
inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued in calendar years beginning after December 
31, 2001.

SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 (relating to exempt facility bond) is amended by striking ``or'' at 
the end of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``, or'', and by adding at the end the 
following new paragraph:
            ``(13) qualified public educational facilities.''.
    (b) Qualified Public Educational Facilities.--Section 142 (relating 
to exempt facility bond) is amended by adding at the end the following 
new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection (a)(13), the 
        term `qualified public educational facility' means any school 
        facility which is--
                    ``(A) part of a public elementary school or a 
                public secondary school, and
                    ``(B) owned by a private, for-profit corporation 
                pursuant to a public-private partnership agreement with 
                a State or local educational agency described in 
                paragraph (2).
            ``(2) Public-private partnership agreement described.--A 
        public-private partnership agreement is described in this 
        paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the following: 
                        construct, rehabilitate, refurbish, or equip a 
                        school facility, and
                            ``(ii) at the end of the term of the 
                        agreement, to transfer the school facility to 
                        such agency for no additional consideration, 
                        and
                    ``(B) the term of which does not exceed the term of 
                the issue to be used to provide the school facility.
            ``(3) School facility.--For purposes of this subsection, 
        the term `school facility' means--
                    ``(A) any school building,
                    ``(B) any functionally related and subordinate 
                facility and land with respect to such building, 
                including any stadium or other facility primarily used 
                for school events, and
                    ``(C) any property, to which section 168 applies 
                (or would apply but for section 179), for use in a 
                facility described in subparagraph (A) or (B).
            ``(4) Public schools.--For purposes of this subsection, the 
        terms `elementary school' and `secondary school' have the 
        meanings given such terms by section 14101 of the Elementary 
        and Secondary Education Act of 1965 (20 U.S.C. 8801), as in 
        effect on the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(13) if the 
                aggregate face amount of bonds issued by the State 
                pursuant thereto (when added to the aggregate face 
                amount of bonds previously so issued during the 
                calendar year) exceeds an amount equal to the greater 
                of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the State may 
                        allocate the amount described in subparagraph 
                        (A) for any calendar year in such manner as the 
                        State determines appropriate.
                            ``(ii) Rules for carryforward of unused 
                        limitation.--A State may elect to carry forward 
                        an unused limitation for any calendar year for 
                        3 calendar years following the calendar year in 
                        which the unused limitation arose under rules 
                        similar to the rules of section 146(f), except 
                        that the only purpose for which the 
                        carryforward may be elected is the issuance of 
                        exempt facility bonds described in subsection 
                        (a)(13).''.
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) (relating to exception for certain bonds) is amended--
            (1) by striking ``or (12)'' and inserting ``(12), or 
        (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric generating 
        facilities, and qualified public educational facilities''.
    (d) Exemption From Limitation on Use for Land Acquisition.--Section 
147(h) (relating to certain rules not to apply to mortgage revenue 
bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is 
amended by adding at the end the following new paragraph:
            ``(3) Exempt facility bonds for qualified public-private 
        schools.--Subsection (c) shall not apply to any exempt facility 
        bond issued as part of an issue described in section 142(a)(13) 
        (relating to qualified public educational facilities).''.
    (e) Conforming Amendment.--The heading for section 147(h) is 
amended by striking ``Mortgage Revenue Bonds, Qualified Student Loan 
Bonds, and Qualified 501(c)(3) Bonds'' and inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2001.

                      Subtitle D--Other Provisions

SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is amended 
by redesignating section 222 as section 223 and by inserting after 
section 221 the following:

``SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the qualified 
tuition and related expenses paid by the taxpayer during the taxable 
year.
    ``(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.--
                    ``(A) 2002 and 2003.--In the case of a taxable year 
                beginning in 2002 or 2003, the applicable dollar limit 
                shall be equal to--
                            ``(i) in the case of a taxpayer whose 
                        adjusted gross income for the taxable year does 
                        not exceed $65,000 ($130,000 in the case of a 
                        joint return), $3,000, and--
                            ``(ii) in the case of any other taxpayer, 
                        zero.
                    ``(B) 2004 and 2005.--In the case of a taxable year 
                beginning in 2004 or 2005, the applicable dollar amount 
                shall be equal to--
                            ``(i) in the case of a taxpayer whose 
                        adjusted gross income for the taxable year does 
                        not exceed $65,000 ($130,000 in the case of a 
                        joint return), $5,000,
                            ``(ii) in the case of a taxpayer not 
                        described in clause (i) whose adjusted gross 
                        income for the taxable year does not exceed 
                        $80,000 ($160,000 in the case of a joint 
                        return), $2,000, and
                            ``(iii) in the case of any other taxpayer, 
                        zero.
                    ``(C) Adjusted gross income.--For purposes of this 
                paragraph, adjusted gross income shall be determined--
                            ``(i) without regard to this section and 
                        sections 911, 931, and 933, and
                            ``(ii) after application of sections 86, 
                        135, 137, 219, 221, and 469.
    ``(c) No Double Benefit.--
            ``(1) In general.--No deduction shall be allowed under 
        subsection (a) for any expense for which a deduction is allowed 
        to the taxpayer under any other provision of this chapter.
            ``(2) Coordination with other education incentives.--
                    ``(A) Denial of deduction if credit elected.--No 
                deduction shall be allowed under subsection (a) for a 
                taxable year with respect to the qualified tuition and 
                related expenses with respect to an individual if the 
                taxpayer or any other person elects to have section 25A 
                apply with respect to such individual for such year.
                    ``(B) Coordination with exclusions.--The total 
                amount of qualified tuition and related 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).
            ``(3) Dependents.--No deduction shall be allowed under 
        subsection (a) to any individual with respect to whom a 
        deduction under section 151 is allowable to another taxpayer 
        for a taxable year beginning in the calendar year in which such 
        individual's taxable year begins.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified tuition and related expenses.--The term 
        `qualified tuition and related expenses' has the meaning given 
        such term by section 25A(f). Such expenses shall be reduced in 
        the same manner as under section 25A(g)(2).
            ``(2) Identification requirement.--No deduction shall be 
        allowed under subsection (a) to a taxpayer with respect to the 
        qualified tuition and related expenses of an individual unless 
        the taxpayer includes the name and taxpayer identification 
        number of the individual on the return of tax for the taxable 
        year.
            ``(3) Limitation on taxable year of deduction.--
                    ``(A) In general.--A deduction shall be allowed 
                under subsection (a) for qualified tuition and related 
                expenses for any taxable year only to the extent such 
                expenses are in connection with enrollment at an 
                institution of higher education during the taxable 
                year.
                    ``(B) Certain prepayments allowed.--Subparagraph 
                (A) shall not apply to qualified tuition and related 
                expenses paid during a taxable year if such expenses 
                are in connection with an academic term beginning 
                during such taxable year or during the first 3 months 
                of the next taxable year.
            ``(4) No deduction for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(5) Nonresident aliens.--If the taxpayer is a nonresident 
        alien individual for any portion of the taxable year, this 
        section shall apply only if such individual is treated as a 
        resident alien of the United States for purposes of this 
        chapter by reason of an election under subsection (g) or (h) of 
        section 6013.
            ``(6) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this section, including regulations requiring recordkeeping and 
        information reporting.
    ``(e) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2005.''.
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) is amended by inserting after paragraph (17) the following:
            ``(18) Higher education expenses.--The deduction allowed by 
        section 222.''.
    (c) Conforming Amendments.--
            (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) 
        are each amended by inserting ``222,'' after ``221,''.
            (2) Section 221(b)(2)(C) is amended by inserting ``222,'' 
        before ``911''.
            (3) Section 469(i)(3)(E) is amended by striking ``and 221'' 
        and inserting ``, 221, and 222''.
            (4) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        222 and inserting the following:

                              ``Sec. 222. Qualified tuition and related 
                                        expenses.
                              ``Sec. 223. Cross reference.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to payments made in taxable years beginning after December 31, 
2001.

SEC. 432. CREDIT FOR INTEREST ON HIGHER EDUCATION LOANS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25A the following new section:

``SEC. 25B. INTEREST ON HIGHER EDUCATION LOANS.

    ``(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 an amount equal to the interest paid by the 
taxpayer during the taxable year on any qualified education loan.
    ``(b) Maximum Credit.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        credit allowed by subsection (a) for the taxable year shall not 
        exceed $500.
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $35,000 ($70,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be 
                allowable as a credit under this section shall be 
                reduced (but not below zero) by the amount which bears 
                the same ratio to the amount which would be so 
                allowable as such excess bears to $10,000 ($20,000 in 
                the case of a joint return).
                    ``(B) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means adjusted gross 
                income determined without regard to sections 911, 931, 
                and 933.
                    ``(C) Inflation adjustment.--In the case of any 
                taxable year beginning after 2009, the $35,000 and 
                $70,000 amounts referred to in subparagraph (A) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section (1)(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `2008' for `1992'.
                    ``(D) Rounding.--If any amount as adjusted under 
                subparagraph (C) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50.
    ``(c) Dependents Not Eligible for Credit.--No credit shall be 
allowed by this section to an individual for the taxable year if a 
deduction under section 151 with respect to such individual is allowed 
to another taxpayer for the taxable year beginning in the calendar year 
in which such individual's taxable year begins.
    ``(d) Limit on Period Credit Allowed.--A credit shall be allowed 
under this section only with respect to interest paid on any qualified 
education loan during the first 60 months (whether or not consecutive) 
in which interest payments are required. For purposes of this 
subsection, any loan and all refinancings of such loan shall be treated 
as 1 loan. Such 60 months shall be determined in the manner prescribed 
by the Secretary in the case of multiple loans which are refinanced by, 
or serviced as, a single loan and in the case of loans incurred before 
January 1, 2009.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Qualified education loan.--The term `qualified 
        education loan' has the meaning given such term by section 
        221(e)(1).
            ``(2) Dependent.--The term `dependent' has the meaning 
        given such term by section 152.
    ``(f) Special Rules.--
            ``(1) Denial of double benefit.--No credit shall be allowed 
        under this section if any amount of interest on a qualified 
        education loan is taken into account for any deduction under 
        any other provision of this chapter for the taxable year.
            ``(2) Married couples must file joint return.--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 the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(3) Marital status.--Marital status shall be determined 
        in accordance with section 7703.''.
    (b) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 25A the following new item:

                              ``Sec. 25B. Interest on higher education 
                                        loans.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any qualified education loan (as defined in section 25B(e)(1) 
of the Internal Revenue Code of 1986, as added by this section) 
incurred on, before, or after December 31, 2008, but only with respect 
to any loan interest payment due in taxable years beginning after 
December 31, 2008.

          Subtitle E--Compliance With Congressional Budget Act

SEC. 441. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 442. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 441 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

 TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS

  Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes

SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.

    (a) Estate Tax Repeal.--Subchapter C of chapter 11 of subtitle B 
(relating to miscellaneous) is amended by adding at the end the 
following new section:

``SEC. 2210. TERMINATION.

    ``(a) In General.--Except as provided in subsection (b), this 
chapter shall not apply to the estates of decedents dying after 
December 31, 2010.
    ``(b) Certain Distributions From Qualified Domestic Trusts.--In 
applying section 2056A with respect to the surviving spouse of a 
decedent dying before January 1, 2011--
            ``(1) section 2056A(b)(1)(A) shall not apply to 
        distributions made after December 31, 2021, and
            ``(2) section 2056A(b)(1)(B) shall not apply after December 
        31, 2010.''.
    (b) Generation-Skipping Transfer Tax Repeal.--Subchapter G of 
chapter 13 of subtitle B (relating to administration) is amended by 
adding at the end the following new section:

``SEC. 2664. TERMINATION.

    ``This chapter shall not apply to generation-skipping transfers 
made after December 31, 2010.''.
    (c) Conforming Amendments.--
            (1) The table of sections for subchapter C of chapter 11 is 
        amended by adding at the end the following new item:

                              ``Sec. 2210. Termination.''.
            (2) The table of sections for subchapter G of chapter 13 is 
        amended by adding at the end the following new item:

                              ``Sec. 2664. Termination.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying, and generation-skipping 
transfers made, after December 31, 2010.

          Subtitle B--Reductions of Estate and Gift Tax Rates

SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

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

    ``Over $2,500,000..............
                                        $1,025,800, plus 50% of the 
                                                excess over 
                                                $2,500,000.''.
    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of 
section 2001 is amended by striking paragraph (2).
    (c) Additional Reductions of Maximum Rate of Tax.--Subsection (c) 
of section 2001, as amended by subsection (b), is amended by adding at 
the end the following new paragraph:
            ``(2) Phasedown of maximum rate of tax.--
                    ``(A) In general.--In the case of estates of 
                decedents dying, and gifts made, in calendar years 
                after 2002 and before 2011, the tentative tax under 
                this subsection shall be determined by using a table 
                prescribed by the Secretary (in lieu of using the table 
                contained in paragraph (1)) which is the same as such 
                table; except that--
                            ``(i) the maximum rate of tax for any 
                        calendar year shall be determined in the table 
                        under subparagraph (B), and
                            ``(ii) the brackets and the amounts setting 
                        forth the tax shall be adjusted to the extent 
                        necessary to reflect the adjustments under 
                        subparagraph (A).
                    ``(B) Maximum rate.--

                                                                Maximum
``Calendar year:                                                  Rate:
    2003..........................................          49 percent 
    2004..........................................          48 percent 
    2005..........................................          47 percent 
    2006..........................................          46 percent 
    2007, 2008, 2009, and 2010....................       45 percent.''.
    (d) Maximum Gift Tax Rate Reduced to 40 Percent After 2010.--
Subsection (a) of section 2502 (relating to rate of tax) is amended to 
read as follows:
    ``(a) Computation of Tax.--
            ``(1) In general.--The tax imposed by section 2501 for each 
        calendar year shall be an amount equal to the excess of--
                    ``(A) a tentative tax, computed under paragraph 
                (2), on the aggregate sum of the taxable gifts for such 
                calendar year and for each of the preceding calendar 
                periods, over
                    ``(B) a tentative tax, computed under paragraph 
                (2), on the aggregate sum of the taxable gifts for each 
                of the preceding calendar periods.
            ``(2) Rate schedule.--

``If the amount with respect to     The tentative tax is:
        which
the tentative tax to be computed 
        is:
    Not over $10,000...............
                                        18% of such amount.
    Over $10,000 but not over 
        $20,000.
                                        $1,800, plus 20% of the excess 
                                                over $10,000.
    Over $20,000 but not over 
        $40,000.
                                        $3,800, plus 22% of the excess 
                                                over $20,000.
    Over $40,000 but not over 
        $60,000.
                                        $8,200, plus 24% of the excess 
                                                over $40,000.
    Over $60,000 but not over 
        $80,000.
                                        $13,000, plus 26% of the excess 
                                                over $60,000.
    Over $80,000 but not over 
        $100,000.
                                        $18,200, plus 28% of the excess 
                                                over $80,000.
    Over $100,000 but not over 
        $150,000.
                                        $23,800, plus 30% of the excess 
                                                over $100,000.
    Over $150,000 but not over 
        $250,000.
                                        $38,800, plus 32% of the excess 
                                                over $150,000.
    Over $250,000 but not over 
        $500,000.
                                        $70,800, plus 34% of the excess 
                                                over $250,000.
    Over $500,000 but not over 
        $750,000.
                                        $155,800, plus 37% of the 
                                                excess over $500,000.
    Over $750,000 but not over 
        $1,000,000.
                                        $248,300, plus 39% of the 
                                                excess over $750,000.
    Over $1,000,000................
                                        $345,800, plus 40% of the 
                                                excess over 
                                                $1,000,000.''.
    (e) Treatment of Certain Transfers in Trust.--Section 2511 
(relating to transfers in general) is amended by adding at the end the 
following new subsection:
    ``(c) Treatment of Certain Transfers in Trust.--Notwithstanding any 
other provision of this section and except as provided in regulations, 
a transfer in trust shall be treated as a taxable gift under section 
2503, unless the trust is treated as wholly owned by the donor or the 
donor's spouse under subpart E of part I of subchapter J of chapter 
1.''.
    (f) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall apply to estates of decedents 
        dying, and gifts made, after December 31, 2001.
            (2) Subsection (c).--The amendment made by subsection (c) 
        shall apply to estates of decedents dying, and gifts made, 
        after December 31, 2002.
            (3) Subsections (d) and (e).--The amendments made by 
        subsections (d) and (e) shall apply to gifts made after 
        December 31, 2010.

               Subtitle C--Increase in Exemption Amounts

SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME 
              GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS.

    (a) In General.--Subsection (c) of section 2010 (relating to 
applicable credit amount) is amended by striking the table and 
inserting the following new table:

        ``In the case of estates of decedents
                                                         The applicable
          dying during:
                                                   exclusion amount is:
                  2002 and 2003......................       $1,000,000 
                  2004...............................       $2,000,000 
                  2005, 2006, 2007, and 2008.........       $3,000,000 
                  2009...............................       $3,500,000 
                  2010...............................    $4,000,000.''.
    (b) Lifetime Gift Exemption Increased to $1,000,000.--
            (1) For periods before estate tax repeal.--Paragraph (1) of 
        section 2505(a) (relating to unified credit against gift tax) 
        is amended by inserting ``(determined as if the applicable 
        exclusion amount were $1,000,000)'' after ``calendar year''.
            (2) For periods after estate tax repeal.--Paragraph (1) of 
        section 2505(a) (relating to unified credit against gift tax), 
        as amended by paragraph (1), is amended to read as follows:
            ``(1) the amount of the tentative tax which would be 
        determined under the rate schedule set forth in section 
        2502(a)(2) if the amount with respect to which such tentative 
        tax is to be computed were $1,000,000, reduced by''.
    (c) GST Exemption.--
            (1) In general.--Subsection (a) of 2631 (relating to GST 
        exemption) is amended by striking ``of $1,000,000'' and 
        inserting ``amount''.
            (2) Exemption amount.--Subsection (c) of section 2631 is 
        amended to read as follows:
    ``(c) GST Exemption Amount.--For purposes of subsection (a), the 
GST exemption amount for any calendar year shall be equal to the 
applicable exclusion amount under section 2010(c) for such calendar 
year.''.
    (d) Repeal of Special Benefit for Family-Owned Business 
Interests.--
            (1) In general.--Section 2057 is hereby repealed.
            (2) Conforming amendments.--
                    (A) Paragraph (10) of section 2031(c) is amended by 
                inserting ``(as in effect on the day before the date of 
                the enactment of this parenthetical)'' before the 
                period.
                    (B) The table of sections for part IV of subchapter 
                A of chapter 11 is amended by striking the item 
                relating to section 2057.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to estates 
        of decedents dying, and gifts made, after December 31, 2001.
            (2) Subsection (b)(2).--The amendments made by subsection 
        (b)(2) shall apply to gifts made after December 31, 2010.
            (3) Subsections (c) and (d).--The amendments made by 
        subsections (c) and (d) shall apply to estates of decedents 
        dying, and generation-skipping transfers made, after December 
        31, 2003.

                Subtitle D--Credit for State Death Taxes

SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.

    (a) Maximum Credit Reduced to 8 Percent.--
            (1) In general.--The table contained in section 2011(b) is 
        amended by striking the ten highest brackets and inserting the 
        following:

    ``Over $2,040,000..............
                                        $106,800, plus 8% of the excess 
                                                over $2,040,000.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2001.
    (b) Maximum Credit Reduced to 7.2 Percent.--
            (1) In general.--The table contained in section 2011(b), as 
        amended by subsection (a), is amended by striking the two 
        highest brackets and inserting the following:

    ``Over $1,540,000..............
                                        $70,800, plus 7.2% of the 
                                                excess over 
                                                $1,540,000.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2002.
    (c) Maximum Credit Reduced to 7.04 Percent.--
            (1) In general.--The table contained in section 2011(b), as 
        amended by subsections (a) and (b), is amended by striking the 
        highest bracket and inserting the following:

    ``Over $1,540,000..............
                                        $70,800, plus 7.04% of the 
                                                excess over 
                                                $1,540,000.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2003.

SEC. 522. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH 
              TAXES.

    (a) Repeal of Credit.--Section 2011 (relating to credit for State 
death taxes) is repealed.
    (b) Deduction for State Death Taxes.--Part IV of subchapter A of 
chapter 11 is amended by adding at the end the following new section:

``SEC. 2058. STATE DEATH TAXES.

    ``(a) Allowance of Deduction.--For purposes of the tax imposed by 
section 2001, the value of the taxable estate shall be determined by 
deducting from the value of the gross estate the amount of any estate, 
inheritance, legacy, or succession taxes actually paid to any State or 
the District of Columbia, in respect of any property included in the 
gross estate (not including any such taxes paid with respect to the 
estate of a person other than the decedent).
    ``(b) Period of Limitations.--The deduction allowed by this section 
shall include only such taxes as were actually paid and deduction 
therefor claimed before the later of--
            ``(1) 4 years after the filing of the return required by 
        section 6018, or
            ``(2) if--
                    ``(A) a petition for redetermination of a 
                deficiency has been filed with the Tax Court within the 
                time prescribed in section 6213(a), the expiration of 
                60 days after the decision of the Tax Court becomes 
                final,
                    ``(B) an extension of time has been granted under 
                section 6161 or 6166 for payment of the tax shown on 
                the return, or of a deficiency, the date of the 
                expiration of the period of the extension, or
                    ``(C) a claim for refund or credit of an 
                overpayment of tax imposed by this chapter has been 
                filed within the time prescribed in section 6511, the 
                latest of the expiration of--
                            ``(i) 60 days from the date of mailing by 
                        certified mail or registered mail by the 
                        Secretary to the taxpayer of a notice of the 
                        disallowance of any part of such claim,
                            ``(ii) 60 days after a decision by any 
                        court of competent jurisdiction becomes final 
                        with respect to a timely suit instituted upon 
                        such claim, or
                            ``(iii) 2 years after a notice of the 
                        waiver of disallowance is filed under section 
                        6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on the deduction 
may be made if the claim for refund is filed within the period provided 
in the preceding sentence. Any such refund shall be made without 
interest.''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 2012 is amended by striking 
        ``the credit for State death taxes provided by section 2011 
        and''.
            (2) Subparagraph (A) of section 2013(c)(1) is amended by 
        striking ``2011,''.
            (3) Paragraph (2) of section 2014(b) is amended by striking 
        ``, 2011,''.
            (4) Sections 2015 and 2016 are each amended by striking 
        ``2011 or''.
            (5) Subsection (d) of section 2053 is amended to read as 
        follows:
    ``(d) Certain Foreign Death Taxes.--
            ``(1) In general.--Notwithstanding the provisions of 
        subsection (c)(1)(B), for purposes of the tax imposed by 
        section 2001, the value of the taxable estate may be 
        determined, if the executor so elects before the expiration of 
        the period of limitation for assessment provided in section 
        6501, by deducting from the value of the gross estate the 
        amount (as determined in accordance with regulations prescribed 
        by the Secretary) of any estate, succession, legacy, or 
        inheritance tax imposed by and actually paid to any foreign 
        country, in respect of any property situated within such 
        foreign country and included in the gross estate of a citizen 
        or resident of the United States, upon a transfer by the 
        decedent for public, charitable, or religious uses described in 
        section 2055. The determination under this paragraph of the 
        country within which property is situated shall be made in 
        accordance with the rules applicable under subchapter B (sec. 
        2101 and following) in determining whether property is situated 
        within or without the United States. Any election under this 
        paragraph shall be exercised in accordance with regulations 
        prescribed by the Secretary.
            ``(2) Condition for allowance of deduction.--No deduction 
        shall be allowed under paragraph (1) for a foreign death tax 
        specified therein unless the decrease in the tax imposed by 
        section 2001 which results from the deduction provided in 
        paragraph (1) will inure solely for the benefit of the public, 
        charitable, or religious transferees described in section 2055 
        or section 2106(a)(2). In any case where the tax imposed by 
        section 2001 is equitably apportioned among all the transferees 
        of property included in the gross estate, including those 
        described in sections 2055 and 2106(a)(2) (taking into account 
        any exemptions, credits, or deductions allowed by this 
        chapter), in determining such decrease, there shall be 
        disregarded any decrease in the Federal estate tax which any 
        transferees other than those described in sections 2055 and 
        2106(a)(2) are required to pay.
            ``(3) Effect on credit for foreign death taxes of deduction 
        under this subsection.--
                    ``(A) Election.--An election under this subsection 
                shall be deemed a waiver of the right to claim a 
                credit, against the Federal estate tax, under a death 
                tax convention with any foreign country for any tax or 
                portion thereof in respect of which a deduction is 
                taken under this subsection.
                    ``(B) Cross reference.--

                                ``See section 2014(f) for the effect of 
a deduction taken under this paragraph on the credit for foreign death 
taxes.''.
            (6) Subparagraph (A) of section 2056A(b)(10) is amended--
                    (A) by striking ``2011,'', and
                    (B) by inserting ``2058,'' after ``2056,''.
            (7)(A) Subsection (a) of section 2102 is amended to read as 
        follows:
    ``(a) In General.--The tax imposed by section 2101 shall be 
credited with the amounts determined in accordance with sections 2012 
and 2013 (relating to gift tax and tax on prior transfers).''.
            (B) Section 2102 is amended by striking subsection (b) and 
        by redesignating subsection (c) as subsection (b).
            (C) Section 2102(b)(5) (as redesignated by subparagraph 
        (B)) and section 2107(c)(3) are each amended by striking ``2011 
        to 2013, inclusive,'' and inserting ``2012 and 2013''.
            (8) Subsection (a) of section 2106 is amended by adding at 
        the end the following new paragraph:
            ``(4) State death taxes.--The amount which bears the same 
        ratio to the State death taxes as the value of the property, as 
        determined for purposes of this chapter, upon which State death 
        taxes were paid and which is included in the gross estate under 
        section 2103 bears to the value of the total gross estate under 
        section 2103. For purposes of this paragraph, the term `State 
        death taxes' means the taxes described in section 2011(a).''.
            (9) Section 2201 is amended--
                    (A) by striking ``as defined in section 2011(d)'', 
                and
                    (B) by adding at the end the following new flush 
                sentence:
``For purposes of this section, the additional estate tax is the 
difference between the tax imposed by section 2001 or 2101 and the 
amount equal to 125 percent of the maximum credit provided by section 
2011(b), as in effect before its repeal by the Restoring Earnings To 
Lift Individuals and Empower Families (RELIEF) Act of 2001.''.
            (10) Section 2604 is repealed.
            (11) Paragraph (2) of section 6511(i) is amended by 
        striking ``2011(c), 2014(b),'' and inserting ``2014(b)''.
            (12) Subsection (c) of section 6612 is amended by striking 
        ``section 2011(c) (relating to refunds due to credit for State 
        taxes),''.
            (13) The table of sections for part II of subchapter A of 
        chapter 11 is amended by striking the item relating to section 
        2011.
            (14) The table of sections for part IV of subchapter A of 
        chapter 11 is amended by adding at the end the following new 
        item:

                              ``Sec. 2058. State death taxes.''.
            (15) The table of sections for subchapter A of chapter 13 
        is amended by striking the item relating to section 2604.
    (d) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2004.

Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With 
                                 Repeal

SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.

    Section 1014 (relating to basis of property acquired from a 
decedent) is amended by adding at the end the following new subsection:
    ``(f) Termination.--This section shall not apply with respect to 
decedents dying after December 31, 2010.''.

SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2010.

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

``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2010.

    ``(a) In General.--Except as otherwise provided in this section--
            ``(1) property acquired from a decedent dying after 
        December 31, 2010, shall be treated for purposes of this 
        subtitle as transferred by gift, and
            ``(2) the basis of the person acquiring property from such 
        a decedent shall be the lesser of--
                    ``(A) the adjusted basis of the decedent, or
                    ``(B) the fair market value of the property at the 
                date of the decedent's death.
    ``(b) Basis Increase for Certain Property.--
            ``(1) In general.--In the case of property to which this 
        subsection applies, the basis of such property under subsection 
        (a) shall be increased by its basis increase under this 
        subsection.
            ``(2) Basis increase.--For purposes of this subsection--
                    ``(A) In general.--The basis increase under this 
                subsection for any property is the portion of the 
                aggregate basis increase which is allocated to the 
                property pursuant to this section.
                    ``(B) Aggregate basis increase.--In the case of any 
                estate, the aggregate basis increase under this 
                subsection is $1,300,000.
                    ``(C) Limit increased by unused built-in losses and 
                loss carryovers.--The limitation under subparagraph (B) 
                shall be increased by--
                            ``(i) the sum of the amount of any capital 
                        loss carryover under section 1212(b), and the 
                        amount of any net operating loss carryover 
                        under section 172, which would (but for the 
                        decedent's death) be carried from the 
                        decedent's last taxable year to a later taxable 
                        year of the decedent, plus
                            ``(ii) the sum of the amount of any losses 
                        that would have been allowable under section 
                        165 if the property acquired from the decedent 
                        had been sold at fair market value immediately 
                        before the decedent's death.
            ``(3) Decedent nonresidents who are not citizens of the 
        united states.--In the case of a decedent nonresident not a 
        citizen of the United States--
                    ``(A) paragraph (2)(B) shall be applied by 
                substituting `$60,000' for `$1,300,000', and
                    ``(B) paragraph (2)(C) shall not apply.
    ``(c) Additional Basis Increase for Property Acquired by Surviving 
Spouse.--
            ``(1) In general.--In the case of property to which this 
        subsection applies and which is qualified spousal property, the 
        basis of such property under subsection (a) (as increased under 
        subsection (b)) shall be increased by its spousal property 
        basis increase.
            ``(2) Spousal property basis increase.--For purposes of 
        this subsection--
                    ``(A) In general.--The spousal property basis 
                increase for property referred to in paragraph (1) is 
                the portion of the aggregate spousal property basis 
                increase which is allocated to the property pursuant to 
                this section.
                    ``(B) Aggregate spousal property basis increase.--
                In the case of any estate, the aggregate spousal 
                property basis increase is $3,000,000.
            ``(3) Qualified spousal property.--For purposes of this 
        subsection, the term `qualified spousal property' means--
                    ``(A) outright transfer property, and
                    ``(B) qualified terminable interest property.
            ``(4) Outright transfer property.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `outright transfer 
                property' means any interest in property acquired from 
                the decedent by the decedent's surviving spouse.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                where, on the lapse of time, on the occurrence of an 
                event or contingency, or on the failure of an event or 
                contingency to occur, an interest passing to the 
                surviving spouse will terminate or fail--
                            ``(i)(I) if an interest in such property 
                        passes or has passed (for less than an adequate 
                        and full consideration in money or money's 
                        worth) from the decedent to any person other 
                        than such surviving spouse (or the estate of 
                        such spouse), and
                            ``(II) if by reason of such passing such 
                        person (or his heirs or assigns) may possess or 
                        enjoy any part of such property after such 
                        termination or failure of the interest so 
                        passing to the surviving spouse, or
                            ``(ii) if such interest is to be acquired 
                        for the surviving spouse, pursuant to 
                        directions of the decedent, by his executor or 
                        by the trustee of a trust.
                For purposes of this subparagraph, an interest shall 
                not be considered as an interest which will terminate 
                or fail merely because it is the ownership of a bond, 
                note, or similar contractual obligation, the discharge 
                of which would not have the effect of an annuity for 
                life or for a term.
                    ``(C) Interest of spouse conditional on survival 
                for limited period.--For purposes of this paragraph, an 
                interest passing to the surviving spouse shall not be 
                considered as an interest which will terminate or fail 
                on the death of such spouse if--
                            ``(i) such death will cause a termination 
                        or failure of such interest only if it occurs 
                        within a period not exceeding 6 months after 
                        the decedent's death, or only if it occurs as a 
                        result of a common disaster resulting in the 
                        death of the decedent and the surviving spouse, 
                        or only if it occurs in the case of either such 
                        event, and
                            ``(ii) such termination or failure does not 
                        in fact occur.
            ``(5) Qualified terminable interest property.--For purposes 
        of this subsection--
                  ``(A) In general.--The term `qualified terminable 
                interest property' means property--
                            ``(i) which passes from the decedent, and
                            ``(ii) in which the surviving spouse has a 
                        qualifying income interest for life.
                    ``(B) Qualifying income interest for life.--The 
                surviving spouse has a qualifying income interest for 
                life if--
                            ``(i) the surviving spouse is entitled to 
                        all the income from the property, payable 
                        annually or at more frequent intervals, or has 
                        a usufruct interest for life in the property, 
                        and
                            ``(ii) no person has a power to appoint any 
                        part of the property to any person other than 
                        the surviving spouse.
                Clause (ii) shall not apply to a power exercisable only 
                at or after the death of the surviving spouse. To the 
                extent provided in regulations, an annuity shall be 
                treated in a manner similar to an income interest in 
                property (regardless of whether the property from which 
                the annuity is payable can be separately identified).
                    ``(C) Property includes interest therein.--The term 
                `property' includes an interest in property.
                    ``(D) Specific portion treated as separate 
                property.--A specific portion of property shall be 
                treated as separate property. For purposes of the 
                preceding sentence, the term `specific portion' only 
                includes a portion determined on a fractional or 
                percentage basis.
    ``(d) Definitions and Special Rules for Application of Subsections 
(b) and (c).--
            ``(1) Property to which subsections (b) and (c) apply.--
                    ``(A) In general.--The basis of property acquired 
                from a decedent may be increased under subsection (b) 
                or (c) only if the property was owned by the decedent 
                at the time of death.
                    ``(B) Rules relating to ownership.--
                            ``(i) Jointly held property.--In the case 
                        of property which was owned by the decedent and 
                        another person as joint tenants with right of 
                        survivorship or tenants by the entirety--
                                    ``(I) if the only such other person 
                                is the surviving spouse, the decedent 
                                shall be treated as the owner of only 
                                50 percent of the property,
                                    ``(II) in any case (to which 
                                subclause (I) does not apply) in which 
                                the decedent furnished consideration 
                                for the acquisition of the property, 
                                the decedent shall be treated as the 
                                owner to the extent of the portion of 
                                the property which is proportionate to 
                                such consideration, and
                                    ``(III) in any case (to which 
                                subclause (I) does not apply) in which 
                                the property has been acquired by gift, 
                                bequest, devise, or inheritance by the 
                                decedent and any other person as joint 
                                tenants with right of survivorship and 
                                their interests are not otherwise 
                                specified or fixed by law, the decedent 
                                shall be treated as the owner to the 
                                extent of the value of a fractional 
                                part to be determined by dividing the 
                                value of the property by the number of 
                                joint tenants with right of 
                                survivorship.
                            ``(ii) Revocable trusts.--The decedent 
                        shall be treated as owning property transferred 
                        by the decedent during life to a qualified 
                        revocable trust (as defined in section 
                        645(b)(1)).
                            ``(iii) Powers of appointment.--The 
                        decedent shall not be treated as owning any 
                        property by reason of holding a power of 
                        appointment with respect to such property.
                            ``(iv) Community property.--Property which 
                        represents the surviving spouse's one-half 
                        share of community property held by the 
                        decedent and the surviving spouse under the 
                        community property laws of any State or 
                        possession of the United States or any foreign 
                        country shall be treated for purposes of this 
                        section as owned by, and acquired from, the 
                        decedent if at least one-half of the whole of 
                        the community interest in such property is 
                        treated as owned by, and acquired from, the 
                        decedent without regard to this clause.
                    ``(C) Property acquired by decedent by gift within 
                3 years of death.--
                            ``(i) In general.--Subsections (b) and (c) 
                        shall not apply to property acquired by the 
                        decedent by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth during the 3-year period 
                        ending on the date of the decedent's death.
                            ``(ii) Exception for certain gifts from 
                        spouse.--Clause (i) shall not apply to property 
                        acquired by the decedent from the decedent's 
                        spouse unless, during such 3-year period, such 
                        spouse acquired the property in whole or in 
                        part by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth.
                    ``(D) Stock of certain entities.--Subsections (b) 
                and (c) shall not apply to--
                            ``(i) stock or securities a foreign 
                        personal holding company,
                            ``(ii) stock of a DISC or former DISC,
                            ``(iii) stock of a foreign investment 
                        company, or
                            ``(iv) stock of a passive foreign 
                        investment company unless such company is a 
                        qualified electing fund (as defined in section 
                        1295) with respect to the decedent.
            ``(2) Fair market value limitation.--The adjustments under 
        subsections (b) and (c) shall not increase the basis of any 
        interest in property acquired from the decedent above its fair 
        market value in the hands of the decedent as of the date of the 
        decedent's death.
            ``(3) Allocation rules.--
                    ``(A) In general.--The executor shall allocate the 
                adjustments under subsections (b) and (c) on the return 
                required by section 6018.
                    ``(B) Changes in allocation.--Any allocation made 
                pursuant to subparagraph (A) may be changed only as 
                provided by the Secretary.
            ``(4) Inflation adjustment of basis adjustment amounts.--
                    ``(A) In general.--In the case of decedents dying 
                in a calendar year after 2011, the $1,300,000, $60,000, 
                and $3,000,000 dollar amounts in subsections (b) and 
                (c)(2)(B) shall each be increased by an amount equal to 
                the product of--
                            ``(i) such dollar amount, and
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year, determined by substituting 
                        `2010' for `1992' in subparagraph (B) thereof.
                    ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of--
                            ``(i) $100,000 in the case of the 
                        $1,300,000 amount,
                            ``(ii) $5,000 in the case of the $60,000 
                        amount, and
                            ``(iii) $250,000 in the case of the 
                        $3,000,000 amount,
                such increase shall be rounded to the next lowest 
                multiple thereof.
    ``(e) Property Acquired From the Decedent.--For purposes of this 
section, the following property shall be considered to have been 
acquired from the decedent:
            ``(1) Property acquired by bequest, devise, or inheritance, 
        or by the decedent's estate from the decedent.
            ``(2) Property transferred by the decedent during his 
        lifetime--
                    ``(A) to a qualified revocable trust (as defined in 
                section 645(b)(1)), or
                    ``(B) to any other trust with respect to which the 
                decedent reserved the right to make any change in the 
                enjoyment thereof through the exercise of a power to 
                alter, amend, or terminate the trust.
            ``(3) Any other property passing from the decedent by 
        reason of death to the extent that such property passed without 
        consideration.
    ``(f) Coordination With Section 691.--This section shall not apply 
to property which constitutes a right to receive an item of income in 
respect of a decedent under section 691.
    ``(g) Certain Liabilities Disregarded.--
            ``(1) In general.--In determining whether gain is 
        recognized on the acquisition of property--
                    ``(A) from a decedent by a decedent's estate or any 
                beneficiary other than a tax-exempt beneficiary, and
                    ``(B) from the decedent's estate by any beneficiary 
                other than a tax-exempt beneficiary,
        and in determining the adjusted basis of such property, 
        liabilities in excess of basis shall be disregarded.
            ``(2) Tax-exempt beneficiary.--For purposes of paragraph 
        (1)(B)--
                    ``(A) In general.--The term `tax-exempt 
                beneficiary' means--
                            ``(i) the United States, any State or 
                        political subdivision thereof, any possession 
                        of the United States, any Indian tribal 
                        government (within the meaning of section 
                        7871), or any agency or instrumentality of any 
                        of the foregoing,
                            ``(ii) an organization (other than a 
                        cooperative described in section 521) which is 
                        exempt from tax imposed by chapter 1, and
                            ``(iii) any foreign person or entity 
                        (within the meaning of section 168(h)(2)).
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Information Returns, Etc.--
            (1) Large transfers at death.--So much of subpart C of part 
        II of subchapter A of chapter 61 as precedes section 6019 is 
        amended to read as follows:

   ``Subpart C--Returns Relating to Transfers During Life or at Death

                              ``Sec. 6018. Returns relating to large 
                                        transfers at death.
                              ``Sec. 6019. Gift tax returns.

``SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.

    ``(a) In General.--If this section applies to property acquired 
from a decedent, the executor of the estate of such decedent shall make 
a return containing the information specified in subsection (c) with 
respect to such property.
    ``(b) Property to Which Section Applies.--
            ``(1) Large transfers.--This section shall apply to all 
        property (other than cash) acquired from a decedent if the fair 
        market value of such property acquired from the decedent 
        exceeds the dollar amount applicable under section 
        1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
            ``(2) Transfers of certain gifts received by decedent 
        within 3 years of death.--This section shall apply to any 
        appreciated property acquired from the decedent if--
                    ``(A) subsections (b) and (c) of section 1022 do 
                not apply to such property by reason of section 
                1022(d)(1)(C), and
                    ``(B) such property was required to be included on 
                a return required to be filed under section 6019.
            ``(3) Nonresidents not citizens of the united states.--In 
        the case of a decedent who is a nonresident not a citizen of 
        the United States, paragraphs (1) and (2) shall be applied--
                    ``(A) by taking into account only--
                            ``(i) tangible property situated in the 
                        United States, and
                            ``(ii) other property acquired from the 
                        decedent by a United States person, and
                    ``(B) by substituting the dollar amount applicable 
                under section 1022(b)(3) for the dollar amount referred 
                to in paragraph (1).
            ``(4) Returns by trustees or beneficiaries.--If the 
        executor is unable to make a complete return as to any property 
        acquired from or passing from the decedent, the executor shall 
        include in the return a description of such property and the 
        name of every person holding a legal or beneficial interest 
        therein. Upon notice from the Secretary, such person shall in 
        like manner make a return as to such property.
    ``(c) Information Required To Be Furnished.--The information 
specified in this subsection with respect to any property acquired from 
the decedent is--
            ``(1) the name and TIN of the recipient of such property,
            ``(2) an accurate description of such property,
            ``(3) the adjusted basis of such property in the hands of 
        the decedent and its fair market value at the time of death,
            ``(4) the decedent's holding period for such property,
            ``(5) sufficient information to determine whether any gain 
        on the sale of the property would be treated as ordinary 
        income,
            ``(6) the amount of basis increase allocated to the 
        property under subsection (b) or (c) of section 1022, and
            ``(7) such other information as the Secretary may by 
        regulations prescribe.
    ``(d) Property Acquired From Decedent.--For purposes of this 
section, section 1022 shall apply for purposes of determining the 
property acquired from a decedent.
    ``(e) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
            ``(1) the name, address, and phone number of the person 
        required to make such return, and
            ``(2) the information specified in subsection (c) with 
        respect to property acquired from, or passing from, the 
        decedent to the person required to receive such statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.''.
            (2) Gifts.--Section 6019 (relating to gift tax returns) is 
        amended--
                    (A) by striking ``Any individual'' and inserting 
                ``(a) In General.--Any individual'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(b) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
            ``(1) the name, address, and phone number of the person 
        required to make such return, and
            ``(2) the information specified in such return with respect 
        to property received by the person required to receive such 
        statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.''.
            (3) Time for filing section 6018 returns.--
                    (A) Returns relating to large transfers at death.--
                Subsection (a) of section 6075 is amended to read as 
                follows:
    ``(a) Returns Relating to Large Transfers at Death.--The return 
required by section 6018 with respect to a decedent shall be filed with 
the return of the tax imposed by chapter 1 for the decedent's last 
taxable year or such later date specified in regulations prescribed by 
the Secretary.''.
                    (B) Conforming amendments.--Paragraph (3) of 
                section 6075(b) is amended--
                                    (I) by striking ``estate tax 
                                return'' in the heading and inserting 
                                ``section 6018 return'', and
                                    (II) by striking ``(relating to 
                                estate tax returns)'' and inserting 
                                ``(relating to returns relating to 
                                large transfers at death)''.
            (4) Penalties.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by adding at the 
        end the following new section:

``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
              TRANSFERS AT DEATH AND GIFTS.

    ``(a) Information Required To Be Furnished to the Secretary.--Any 
person required to furnish any information under section 6018 who fails 
to furnish such information on the date prescribed therefor (determined 
with regard to any extension of time for filing) shall pay a penalty of 
$10,000 ($500 in the case of information required to be furnished under 
section 6018(b)(2)) for each such failure.
    ``(b) Information Required To Be Furnished to Beneficiaries.--Any 
person required to furnish in writing to each person described in 
section 6018(e) or 6019(b) the information required under such section 
who fails to furnish such information shall pay a penalty of $50 for 
each such failure.
    ``(c) Reasonable Cause Exception.--No penalty shall be imposed 
under subsection (a) or (b) with respect to any failure if it is shown 
that such failure is due to reasonable cause.
    ``(d) Intentional Disregard.--If any failure under subsection (a) 
or (b) is due to intentional disregard of the requirements under 
sections 6018 and 6019(b), the penalty under such subsection shall be 5 
percent of the fair market value (as of the date of death or, in the 
case of section 6019(b), the date of the gift) of the property with 
respect to which the information is required.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by this section.''.
            (5) Clerical amendments.--
                    (A) The table of sections for part I of subchapter 
                B of chapter 68 is amended by adding at the end the 
                following new item:

                              ``Sec. 6716. Failure to file information 
                                        with respect to certain 
                                        transfers at death and 
                                        gifts.''.
                    (B) The item relating to subpart C in the table of 
                subparts for part II of subchapter A of chapter 61 is 
                amended to read as follows:

                              ``Subpart C. Returns relating to 
                                        transfers during life or at 
                                        death.''.
    (c) Exclusion of Gain on Sale of Principal Residence Made Available 
to Heir of Decedent in Certain Cases.--Subsection (d) of section 121 
(relating to exclusion of gain from sale of principal residence) is 
amended by adding at the end the following new paragraph:
            ``(9) Property acquired from a decedent.--The exclusion 
        under this section shall apply to property sold by--
                    ``(A) the estate of a decedent, and
                    ``(B) any individual who acquired such property 
                from the decedent (within the meaning of section 1022),
        determined by taking into account the ownership and use by the 
        decedent.''.
    (d) Transfers of Appreciated Carryover Basis Property To Satisfy 
Pecuniary Bequest.--
            (1) In general.--Section 1040 (relating to transfer of 
        certain farm, etc., real property) is amended to read as 
        follows:

``SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY 
              PECUNIARY BEQUEST.

    ``(a) In General.--If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest with 
appreciated property, then gain on such exchange shall be recognized to 
the estate only to the extent that, on the date of such exchange, the 
fair market value of such property exceeds such value on the date of 
death.
    ``(b) Similar Rule for Certain Trusts.--To the extent provided in 
regulations prescribed by the Secretary, a rule similar to the rule 
provided in subsection (a) shall apply where--
            ``(1) by reason of the death of the decedent, a person has 
        a right to receive from a trust a specific dollar amount which 
        is the equivalent of a pecuniary bequest, and
            ``(2) the trustee of a trust satisfies such right with 
        property.
    ``(c) Basis of Property Acquired in Exchange Described in 
Subsection (a) or (b).--The basis of property acquired in an exchange 
with respect to which gain realized is not recognized by reason of 
subsection (a) or (b) shall be the basis of such property immediately 
before the exchange increased by the amount of the gain recognized to 
the estate or trust on the exchange.''.
            (2) The item relating to section 1040 in the table of 
        sections for part III of subchapter O of chapter 1 is amended 
        to read as follows:

                              ``Sec. 1040. Use of appreciated carryover 
                                        basis property to satisfy 
                                        pecuniary bequest.''.
    (e) Miscellaneous Amendments Related to Carryover Basis.--
            (1) Recognition of gain on transfers to nonresidents.--
                    (A) Subsection (a) of section 684 is amended by 
                inserting ``or to a nonresident alien'' after ``or 
                trust''.
                    (B) Subsection (b) of section 684 is amended by 
                striking ``any person'' and inserting ``any United 
                States person''.
                    (C) The section heading for section 684 is amended 
                by inserting ``and nonresident aliens'' after 
                ``estates''.
                    (D) The item relating to section 684 in the table 
                of sections for subpart F of part I of subchapter J of 
                chapter 1 is amended by inserting ``and nonresident 
                aliens'' after ``estates''.
            (2) Capital gain treatment for inherited art work or 
        similar property.--
                    (A) In general.--Subparagraph (C) of section 
                1221(a)(3) (defining capital asset) is amended by 
                inserting ``(other than by reason of section 1022)'' 
                after ``is determined''.
                    (B) Coordination with section 170.--Paragraph (1) 
                of section 170(e) (relating to certain contributions of 
                ordinary income and capital gain property) is amended 
                by adding at the end the following: ``For purposes of 
                this paragraph, the determination of whether property 
                is a capital asset shall be made without regard to the 
                exception contained in section 1221(a)(3)(C) for basis 
                determined under section 1022.''.
            (3) Definition of executor.--Section 7701(a) (relating to 
        definitions) is amended by adding at the end the following:
            ``(47) Executor.--The term `executor' means the executor or 
        administrator of the decedent, or, if there is no executor or 
        administrator appointed, qualified, and acting within the 
        United States, then any person in actual or constructive 
        possession of any property of the decedent.''.
            (4) Certain trusts.--Subparagraph (A) of section 4947(a)(2) 
        is amended by inserting ``642(c),'' after ``170(f)(2)(B),''.
            (5) Other amendments.--
                    (A) Section 1246 is amended by striking subsection 
                (e).
                    (B) Subsection (e) of section 1291 is amended--
                            (i) by striking ``(e),''; and
                            (ii) by striking ``; except that'' and all 
                        that follows and inserting a period.
                    (C) Section 1296 is amended by striking subsection 
                (i).
            (6) Clerical amendment.--The table of sections for part II 
        of subchapter O of chapter 1 is amended by inserting after the 
        item relating to section 1021 the following new item:

                              ``Sec. 1022. Treatment of property 
                                        acquired from a decedent dying 
                                        after December 31, 2010.''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to estates of 
        decedents dying after December 31, 2010.
            (2) Transfers to nonresidents.--The amendments made by 
        subsection (e)(1) shall apply to transfers after December 31, 
        2010.
            (3) Section 4947.--The amendment made by subsection (e)(4) 
        shall apply to deductions for taxable years beginning after 
        December 31, 2010.

                   Subtitle F--Conservation Easements

SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Repeal of Certain Restrictions on Where Land Is Located.--
Clause (i) of section 2031(c)(8)(A) (defining land subject to a 
qualified conservation easement) is amended to read as follows:
                            ``(i) which is located in the United States 
                        or any possession of the United States,''.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--Section 2031(c)(2) (defining applicable percentage) is 
amended by adding at the end the following new sentence: ``The values 
taken into account under the preceding sentence shall be such values as 
of the date of the contribution referred to in paragraph (8)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2000.

     Subtitle G--Modifications of Generation-Skipping Transfer Tax

SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO 
              TRUSTS; RETROACTIVE ALLOCATIONS.

    (a) In General.--Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating subsection (c) 
as subsection (e) and by inserting after subsection (b) the following 
new subsections:
    ``(c) Deemed Allocation to Certain Lifetime Transfers to GST 
Trusts.--
            ``(1) In general.--If any individual makes an indirect skip 
        during such individual's lifetime, any unused portion of such 
        individual's GST exemption shall be allocated to the property 
        transferred to the extent necessary to make the inclusion ratio 
        for such property zero. If the amount of the indirect skip 
        exceeds such unused portion, the entire unused portion shall be 
        allocated to the property transferred.
            ``(2) Unused portion.--For purposes of paragraph (1), the 
        unused portion of an individual's GST exemption is that portion 
        of such exemption which has not previously been--
                    ``(A) allocated by such individual,
                    ``(B) treated as allocated under subsection (b) 
                with respect to a direct skip occurring during or 
                before the calendar year in which the indirect skip is 
                made, or
                    ``(C) treated as allocated under paragraph (1) with 
                respect to a prior indirect skip.
            ``(3) Definitions.--
                    ``(A) Indirect skip.--For purposes of this 
                subsection, the term `indirect skip' means any transfer 
                of property (other than a direct skip) subject to the 
                tax imposed by chapter 12 made to a GST trust.
                    ``(B) GST trust.--The term `GST trust' means a 
                trust that could have a generation-skipping transfer 
                with respect to the transferor unless--
                            ``(i) the trust instrument provides that 
                        more than 25 percent of the trust corpus must 
                        be distributed to or may be withdrawn by one or 
                        more individuals who are non-skip persons--
                                    ``(I) before the date that the 
                                individual attains age 46,
                                    ``(II) on or before one or more 
                                dates specified in the trust instrument 
                                that will occur before the date that 
                                such individual attains age 46, or
                                    ``(III) upon the occurrence of an 
                                event that, in accordance with 
                                regulations prescribed by the 
                                Secretary, may reasonably be expected 
                                to occur before the date that such 
                                individual attains age 46,
                            ``(ii) the trust instrument provides that 
                        more than 25 percent of the trust corpus must 
                        be distributed to or may be withdrawn by one or 
                        more individuals who are non-skip persons and 
                        who are living on the date of death of another 
                        person identified in the instrument (by name or 
                        by class) who is more than 10 years older than 
                        such individuals,
                            ``(iii) the trust instrument provides that, 
                        if one or more individuals who are non-skip 
                        persons die on or before a date or event 
                        described in clause (i) or (ii), more than 25 
                        percent of the trust corpus either must be 
                        distributed to the estate or estates of one or 
                        more of such individuals or is subject to a 
                        general power of appointment exercisable by one 
                        or more of such individuals,
                            ``(iv) the trust is a trust any portion of 
                        which would be included in the gross estate of 
                        a non-skip person (other than the transferor) 
                        if such person died immediately after the 
                        transfer,
                            ``(v) the trust is a charitable lead 
                        annuity trust (within the meaning of section 
                        2642(e)(3)(A)) or a charitable remainder 
                        annuity trust or a charitable remainder 
                        unitrust (within the meaning of section 
                        664(d)), or
                            ``(vi) the trust is a trust with respect to 
                        which a deduction was allowed under section 
                        2522 for the amount of an interest in the form 
                        of the right to receive annual payments of a 
                        fixed percentage of the net fair market value 
                        of the trust property (determined yearly) and 
                        which is required to pay principal to a non-
                        skip person if such person is alive when the 
                        yearly payments for which the deduction was 
                        allowed terminate.
                For purposes of this subparagraph, the value of 
                transferred property shall not be considered to be 
                includible in the gross estate of a non-skip person or 
                subject to a right of withdrawal by reason of such 
                person holding a right to withdraw so much of such 
                property as does not exceed the amount referred to in 
                section 2503(b) with respect to any transferor, and it 
                shall be assumed that powers of appointment held by 
                non-skip persons will not be exercised.
            ``(4) Automatic allocations to certain gst trusts.--For 
        purposes of this subsection, an indirect skip to which section 
        2642(f) applies shall be deemed to have been made only at the 
        close of the estate tax inclusion period. The fair market value 
        of such transfer shall be the fair market value of the trust 
        property at the close of the estate tax inclusion period.
            ``(5) Applicability and effect.--
                    ``(A) In general.--An individual--
                            ``(i) may elect to have this subsection not 
                        apply to--
                                    ``(I) an indirect skip, or
                                    ``(II) any or all transfers made by 
                                such individual to a particular trust, 
                                and
                            ``(ii) may elect to treat any trust as a 
                        GST trust for purposes of this subsection with 
                        respect to any or all transfers made by such 
                        individual to such trust.
                    ``(B) Elections.--
                            ``(i) Elections with respect to indirect 
                        skips.--An election under subparagraph 
                        (A)(i)(I) shall be deemed to be timely if filed 
                        on a timely filed gift tax return for the 
                        calendar year in which the transfer was made or 
                        deemed to have been made pursuant to paragraph 
                        (4) or on such later date or dates as may be 
                        prescribed by the Secretary.
                            ``(ii) Other elections.--An election under 
                        clause (i)(II) or (ii) of subparagraph (A) may 
                        be made on a timely filed gift tax return for 
                        the calendar year for which the election is to 
                        become effective.
    ``(d) Retroactive Allocations.--
            ``(1) In general.--If--
                    ``(A) a non-skip person has an interest or a future 
                interest in a trust to which any transfer has been 
                made,
                    ``(B) such person--
                            ``(i) is a lineal descendant of a 
                        grandparent of the transferor or of a 
                        grandparent of the transferor's spouse or 
                        former spouse, and
                            ``(ii) is assigned to a generation below 
                        the generation assignment of the transferor, 
                        and
                    ``(C) such person predeceases the transferor,
        then the transferor may make an allocation of any of such 
        transferor's unused GST exemption to any previous transfer or 
        transfers to the trust on a chronological basis.
            ``(2) Special rules.--If the allocation under paragraph (1) 
        by the transferor is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for gifts made 
        within the calendar year within which the non-skip person's 
        death occurred--
                    ``(A) the value of such transfer or transfers for 
                purposes of section 2642(a) shall be determined as if 
                such allocation had been made on a timely filed gift 
                tax return for each calendar year within which each 
                transfer was made,
                    ``(B) such allocation shall be effective 
                immediately before such death, and
                    ``(C) the amount of the transferor's unused GST 
                exemption available to be allocated shall be determined 
                immediately before such death.
            ``(3) Future interest.--For purposes of this subsection, a 
        person has a future interest in a trust if the trust may permit 
        income or corpus to be paid to such person on a date or dates 
        in the future.''.
    (b) Conforming Amendment.--Paragraph (2) of section 2632(b) is 
amended by striking ``with respect to a prior direct skip'' and 
inserting ``or subsection (c)(1)''.
    (c) Effective Dates.--
            (1) Deemed allocation.--Section 2632(c) of the Internal 
        Revenue Code of 1986 (as added by subsection (a)), and the 
        amendment made by subsection (b), shall apply to transfers 
        subject to chapter 11 or 12 made after December 31, 2000, and 
        to estate tax inclusion periods ending after December 31, 2000.
            (2) Retroactive allocations.--Section 2632(d) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        shall apply to deaths of non-skip persons occurring after 
        December 31, 2000.

SEC. 562. SEVERING OF TRUSTS.

    (a) In General.--Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following new 
paragraph:
            ``(3) Severing of trusts.--
                    ``(A) In general.--If a trust is severed in a 
                qualified severance, the trusts resulting from such 
                severance shall be treated as separate trusts 
                thereafter for purposes of this chapter.
                    ``(B) Qualified severance.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term `qualified 
                        severance' means the division of a single trust 
                        and the creation (by any means available under 
                        the governing instrument or under local law) of 
                        two or more trusts if--
                                    ``(I) the single trust was divided 
                                on a fractional basis, and
                                    ``(II) the terms of the new trusts, 
                                in the aggregate, provide for the same 
                                succession of interests of 
                                beneficiaries as are provided in the 
                                original trust.
                            ``(ii) Trusts with inclusion ratio greater 
                        than zero.--If a trust has an inclusion ratio 
                        of greater than zero and less than 1, a 
                        severance is a qualified severance only if the 
                        single trust is divided into two trusts, one of 
                        which receives a fractional share of the total 
                        value of all trust assets equal to the 
                        applicable fraction of the single trust 
                        immediately before the severance. In such case, 
                        the trust receiving such fractional share shall 
                        have an inclusion ratio of zero and the other 
                        trust shall have an inclusion ratio of 1.
                            ``(iii) Regulations.--The term `qualified 
                        severance' includes any other severance 
                        permitted under regulations prescribed by the 
                        Secretary.
                    ``(C) Timing and manner of severances.--A severance 
                pursuant to this paragraph may be made at any time. The 
                Secretary shall prescribe by forms or regulations the 
                manner in which the qualified severance shall be 
                reported to the Secretary.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to severances after December 31, 2000.

SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.

    (a) Gifts for Which Gift Tax Return Filed or Deemed Allocation 
Made.--Paragraph (1) of section 2642(b) (relating to valuation rules, 
etc.) is amended to read as follows:
            ``(1) Gifts for which gift tax return filed or deemed 
        allocation made.--If the allocation of the GST exemption to any 
        transfers of property is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for such transfer 
        or is deemed to be made under section 2632 (b)(1) or (c)(1)--
                    ``(A) the value of such property for purposes of 
                subsection (a) shall be its value as finally determined 
                for purposes of chapter 12 (within the meaning of 
                section 2001(f)(2)), or, in the case of an allocation 
                deemed to have been made at the close of an estate tax 
                inclusion period, its value at the time of the close of 
                the estate tax inclusion period, and
                    ``(B) such allocation shall be effective on and 
                after the date of such transfer, or, in the case of an 
                allocation deemed to have been made at the close of an 
                estate tax inclusion period, on and after the close of 
                such estate tax inclusion period.''.
    (b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is 
amended to read as follows:
                    ``(A) Transfers at death.--If property is 
                transferred as a result of the death of the transferor, 
                the value of such property for purposes of subsection 
                (a) shall be its value as finally determined for 
                purposes of chapter 11; except that, if the 
                requirements prescribed by the Secretary respecting 
                allocation of post-death changes in value are not met, 
                the value of such property shall be determined as of 
                the time of the distribution concerned.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers subject to chapter 11 or 12 of the Internal Revenue 
Code of 1986 made after December 31, 2000.

SEC. 564. RELIEF PROVISIONS.

    (a) In General.--Section 2642 is amended by adding at the end the 
following new subsection:
    ``(g) Relief Provisions.--
            ``(1) Relief from late elections.--
                    ``(A) In general.--The Secretary shall by 
                regulation prescribe such circumstances and procedures 
                under which extensions of time will be granted to 
                make--
                            ``(i) an allocation of GST exemption 
                        described in paragraph (1) or (2) of subsection 
                        (b), and
                            ``(ii) an election under subsection (b)(3) 
                        or (c)(5) of section 2632.
                Such regulations shall include procedures for 
                requesting comparable relief with respect to transfers 
                made before the date of the enactment of this 
                paragraph.
                    ``(B) Basis for determinations.--In determining 
                whether to grant relief under this paragraph, the 
                Secretary shall take into account all relevant 
                circumstances, including evidence of intent contained 
                in the trust instrument or instrument of transfer and 
                such other factors as the Secretary deems relevant. For 
                purposes of determining whether to grant relief under 
                this paragraph, the time for making the allocation (or 
                election) shall be treated as if not expressly 
                prescribed by statute.
            ``(2) Substantial compliance.--An allocation of GST 
        exemption under section 2632 that demonstrates an intent to 
        have the lowest possible inclusion ratio with respect to a 
        transfer or a trust shall be deemed to be an allocation of so 
        much of the transferor's unused GST exemption as produces the 
        lowest possible inclusion ratio. In determining whether there 
        has been substantial compliance, all relevant circumstances 
        shall be taken into account, including evidence of intent 
        contained in the trust instrument or instrument of transfer and 
        such other factors as the Secretary deems relevant.''.
    (b) Effective Dates.--
            (1) Relief from late elections.--Section 2642(g)(1) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        shall apply to requests pending on, or filed after, December 
        31, 2000.
            (2) Substantial compliance.--Section 2642(g)(2) of such 
        Code (as so added) shall apply to transfers subject to chapter 
        11 or 12 of the Internal Revenue Code of 1986 made after 
        December 31, 2000. No implication is intended with respect to 
        the availability of relief from late elections or the 
        application of a rule of substantial compliance on or before 
        such date.

        Subtitle H--Extension of Time for Payment of Estate Tax

SEC. 571. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT FOR ESTATES 
              WITH INTERESTS QUALIFYING LENDING AND FINANCE BUSINESSES.

    (a) In General.--Section 6166(b) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraph:
            ``(10) Stock in qualifying lending and finance business 
        treated as stock in an active trade or business company.--
                    ``(A) In general.--If the executor elects the 
                benefits of this paragraph, then--
                            ``(i) Stock in qualifying lending and 
                        finance business treated as stock in an active 
                        trade or business company.--For purposes of 
                        this section, any asset used in a qualifying 
                        lending and finance business shall be treated 
                        as an asset which is used in carrying on a 
                        trade or business.
                            ``(ii) 5-year deferral for principal not to 
                        apply.--The executor shall be treated as having 
                        selected under subsection (a)(3) the date 
                        prescribed by section 6151(a).
                            ``(iii) 5 equal installments allowed.--For 
                        purposes of applying subsection (a)(1), `5' 
                        shall be substituted for `10'.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Qualifying lending and finance 
                        business.--The term `qualifying lending and 
                        finance business' means a lending and finance 
                        business, if--
                                    ``(I) based on all the facts and 
                                circumstances immediately before the 
                                date of the decedent's death, there was 
                                substantial activity with respect to 
                                the lending and finance business, or
                                    ``(II) during at least 3 of the 5 
                                taxable years ending before the date of 
                                the decedent's death, such business had 
                                at least 1 full-time employee 
                                substantially all of the services of 
                                whom were in the active management of 
                                such business, 10 full-time, nonowner 
                                employees substantially all of the 
                                services of whom were directly related 
                                to such business, and $5,000,000 in 
                                gross receipts from activities 
                                described in clause (ii).
                            ``(ii) Lending and finance business.--The 
                        term `lending and finance business' means a 
                        trade or business of--
                                    ``(I) making loans,
                                    ``(II) purchasing or discounting 
                                accounts receivable, notes, or 
                                installment obligations,
                                    ``(III) engaging in rental and 
                                leasing of real and tangible personal 
                                property, including entering into 
                                leases and purchasing, servicing, and 
                                disposing of leases and leased assets,
                                    ``(IV) rendering services or making 
                                facilities available in the ordinary 
                                course of a lending or finance 
                                business, and
                                    ``(V) rendering services or making 
                                facilities available in connection with 
                                activities described in subclauses (I) 
                                through (IV) carried on by the 
                                corporation rendering services or 
                                making facilities available, or another 
                                corporation which is a member of the 
                                same affiliated group (as defined in 
                                section 1504 without regard to section 
                                1504(b)(3)).
                            ``(iii) Limitation.--The term `qualifying 
                        lending and finance business' shall not include 
                        any interest in an entity, if the stock or debt 
                        of such entity or a controlled group (as 
                        defined in section 267(f)(1)) of which such 
                        entity was a member was readily tradable on an 
                        established securities market or secondary 
                        market (as defined by the Secretary) at any 
                        time within 3 years before the date of the 
                        decedent's death.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after December 31, 2001.

SEC. 572. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAYMENT.

    (a) In General.--Subparagraph (B) of section 6166(b)(8) (relating 
to all stock must be non-readily-tradable stock) is amended to read as 
follows:
                    ``(B) All stock must be non-readily-tradable 
                stock.--
                            ``(i) In general.--No stock shall be taken 
                        into account for purposes of applying this 
                        paragraph unless it is non-readily-tradable 
                        stock (within the meaning of paragraph (7)(B)).
                            ``(ii) Special application where only 
                        holding company stock is non-readily-tradable 
                        stock.--If the requirements of clause (i) are 
                        not met, but all of the stock of any holding 
                        company taken into account is non-readily-
                        tradable, then this paragraph shall apply, but 
                        subsection (a)(1) shall be applied by 
                        substituting `5' for `10'.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after December 31, 2001.

          Subtitle I--Compliance With Congressional Budget Act

SEC. 581. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 582. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 581 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

   TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

               Subtitle A--Individual Retirement Accounts

SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.

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

                ``For taxable years
                                                         The deductible
                  beginning in:
                                                           amount is:  
                    2002 through 2005......................     $2,500 
                    2006 and 2007..........................     $3,000 
                    2008 and 2009..........................     $3,500 
                    2010...................................     $4,000 
                    2011 and thereafter....................     $5,000.
                    ``(B) Catch-up contributions for individuals 50 or 
                older.--
                            ``(i) In general.--In the case of an 
                        individual who has attained the age of 50 
                        before the close of the taxable year, the 
                        deductible amount for such taxable year shall 
be increased by the applicable amount.
                            ``(ii) Applicable amount.--For purposes of 
                        clause (i), the applicable amount shall be the 
                        amount determined in accordance with the 
                        following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                           amount is:  
                    2002 through 2005......................       $500 
                    2006 through 2009......................     $1,000 
                    2010...................................     $1,500 
                    2011 and thereafter....................     $2,000.
                    ``(C) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2011, the $5,000 amount under subparagraph (A) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2010' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.''.
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking ``$2,000'' in the 
        matter following paragraph (4) and inserting ``the dollar 
        amount in effect under section 219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking ``$2,000''.
            (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 602. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
            ``(1) General rule.--If--
                    ``(A) a qualified employer plan elects to allow 
                employees to make voluntary employee contributions to a 
                separate account or annuity established under the plan, 
                and
                    ``(B) under the terms of the qualified employer 
                plan, such account or annuity meets the applicable 
                requirements of this section or section 408A for an 
                individual retirement account or annuity,
        then such account or annuity shall be treated for purposes of 
        this title in the same manner as an individual retirement plan 
        and not as a qualified employer plan (and contributions to such 
        account or annuity as contributions to an individual retirement 
        plan and not to the qualified employer plan). For purposes of 
        subparagraph (B), the requirements of subsection (a)(5) shall 
        not apply.
            ``(2) Special rules for qualified employer plans.--For 
        purposes of this title, a qualified employer plan shall not 
        fail to meet any requirement of this title solely by reason of 
        establishing and maintaining a program described in paragraph 
        (1).
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Qualified employer plan.--The term `qualified 
                employer plan' has the meaning given such term by 
                section 72(p)(4); except such term shall only include 
                an eligible deferred compensation plan (as defined in 
                section 457(b)) which is maintained by an eligible 
                employer described in section 457(e)(1)(A).
                    ``(B) Voluntary employee contribution.--The term 
                `voluntary employee contribution' means any 
                contribution (other than a mandatory contribution 
                within the meaning of section 411(c)(2)(C))--
                            ``(i) which is made by an individual as an 
                        employee under a qualified employer plan which 
                        allows employees to elect to make contributions 
                        described in paragraph (1), and
                            ``(ii) with respect to which the individual 
                        has designated the contribution as a 
                        contribution to which this subsection 
                        applies.''.
    (b) Amendment of ERISA.--
            (1) In general.--Section 4 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1003) is amended by 
adding at the end the following new subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as provided 
in section 408(q) of the Internal Revenue Code of 1986, such accounts 
and annuities (and contributions thereto) shall not be treated as part 
of such plan (or as a separate pension plan) for purposes of any 
provision of this title other than section 403(c), 404, or 405 
(relating to exclusive benefit, and fiduciary and co-fiduciary 
responsibilities).''.
            (2) Conforming amendment.--Section 4(a) of such Act (29 
        U.S.C. 1003(a)) is amended by inserting ``or (c)'' after 
        ``subsection (b)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2002.

SEC. 603. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
              FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--In the case of a qualified 
                charitable distribution from an individual retirement 
                account to an organization described in section 170(c), 
                no amount shall be includible in the gross income of 
                the account holder or beneficiary.
                    ``(B) Special rules relating to charitable 
                remainder trusts, pooled income funds, and charitable 
                gift annuities.--
                            ``(i) In general.--In the case of a 
                        qualified charitable distribution from an 
                        individual retirement account--
                                    ``(I) to a charitable remainder 
                                annuity trust or a charitable remainder 
                                unitrust (as such terms are defined in 
                                section 664(d)),
                                    ``(II) to a pooled income fund (as 
                                defined in section 642(c)(5)), or
                                    ``(III) for the issuance of a 
                                charitable gift annuity (as defined in 
                                section 501(m)(5)),
                        no amount shall be includible in gross income 
                        of the account holder or beneficiary. The 
                        preceding sentence shall apply only if no 
                        person holds any interest in the amounts in the 
                        trust, fund, or annuity attributable to such 
                        distribution other than one or more of the 
                        following: the individual for whose benefit 
                        such account is maintained, the spouse of such 
                        individual, or any organization described in 
                        section 170(c).
                            ``(ii) Determination of inclusion of 
                        amounts distributed.--In determining the amount 
                        includible in the gross income of the 
                        distributee of a distribution from a trust 
                        described in clause (i)(I) or an annuity 
                        described in clause (i)(III), the portion of 
                        any qualified charitable distribution to such 
                        trust or for such annuity which would (but for 
                        this subparagraph) have been includible in 
                        gross income--
                                    ``(I) in the case of any such 
                                trust, shall be treated as income 
                                described in section 664(b)(1), or
                                    ``(II) in the case of any such 
                                annuity, shall not be treated as an 
                                investment in the contract.
                            ``(iii) No inclusion for distribution to 
                        pooled income fund.--No amount shall be 
                        includible in the gross income of a pooled 
                        income fund (as so defined) by reason of a 
                        qualified charitable distribution to such fund.
                    ``(C) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement account--
                            ``(i) which is made on or after the date 
                        that the individual for whose benefit the 
                        account is maintained has attained age 70\1/2\, 
                        and
                            ``(ii) which is a charitable contribution 
                        (as defined in section 170(c)) made directly 
                        from the account to--
                                    ``(I) an organization described in 
                                section 170(c), or
                                    ``(II) a trust, fund, or annuity 
                                described in subparagraph (B).
                    ``(D) Denial of deduction.--The amount allowable as 
                a deduction to the taxpayer for the taxable year under 
                section 170 (before the application of section 170(b)) 
                for qualified charitable distributions shall be reduced 
                (but not below zero) by the sum of the amounts of the 
                qualified charitable distributions during such year 
                which (but for this paragraph) would have been 
                includible in the gross income of the taxpayer for such 
                year.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2009.

                     Subtitle B--Expanding Coverage

SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
            (1) Dollar limit.--
                    (A) Subparagraph (A) of section 415(b)(1) (relating 
                to limitation for defined benefit plans) is amended by 
                striking ``$90,000'' and inserting ``the applicable 
                limit''.
                    (B) Section 415(b) is amended by adding at the end 
                the following new paragraph:
            ``(12) Applicable limit.--For purposes of paragraph (1)(A), 
        the applicable limit shall be determined in accordance with the 
        following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                            limit is:  
                    2002, 2003, and 2004...................   $150,000 
                    2005 and thereafter....................$160,000.''.
                    (C) Subparagraphs (C) and (D) of section 415(b)(2) 
                are each amended--
                            (i) in the headings, by striking 
                        ``$90,000'' and inserting ``applicable'',
                            (ii) by striking ``$90,000 limitation'' 
                        each place it appears and inserting 
                        ``limitation'', and
                            (iii) by striking ``a $90,000 annual 
                        benefit'' each place it appears and inserting 
                        ``an annual benefit equal to the applicable 
                        limit''.
                    (D) Paragraph (7) of section 415(b) (relating to 
                benefits under certain collectively bargained plans) is 
                amended by striking ``the greater of $68,212 or one-
                half the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000''' and inserting 
                ``one-half the amount otherwise applicable for such 
                year under paragraph (1)(A) for `the applicable 
                limit'''.
            (2) Limit reduced when benefit begins before age 62.--
        Subparagraph (C) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 62'' and by striking 
        the second sentence.
            (3) Limit increased when benefit begins after age 65.--
        Subparagraph (D) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 65''.
            (4) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                    (A) by striking ``$90,000'' in paragraph (1)(A) and 
                inserting ``applicable limit''; and
                    (B) in paragraph (3)(A)--
                            (i) by striking ``$90,000'' in the heading 
                        and inserting ``applicable limit''; and
                            (ii) by striking ``October 1, 1986'' and 
                        inserting ``July 1, 2004''.
            (5) Conforming amendments.--
                    (A) Section 415(b)(2) is amended by striking 
                subparagraph (F).
                    (B) Section 415(b)(9) is amended to read as 
                follows:
            ``(9) Special rule for commercial airline pilots.--In the 
        case of any participant who is a commercial airline pilot, if, 
        as of the time of the participant's retirement, regulations 
        prescribed by the Federal Aviation Administration require an 
        individual to separate from service as a commercial airline 
        pilot after attaining any age occurring on or after age 60 and 
        before age 62, paragraph (2)(C) shall be applied by 
        substituting such age for age 62.''.
                    (C) Section 415(b)(10)(C)(i) is amended by striking 
                ``applied without regard to paragraph (2)(F)''.
    (b) Qualified Trusts.--
            (1) Compensation limit.--
                    (A) Section 401(a)(17) is amended--
                            (i) in subparagraph (A), by striking 
                        ``$150,000'' and inserting ``the applicable 
                        dollar amount'',
                            (ii) in subparagraph (B), by striking 
                        ``$150,000'' and inserting ``the applicable 
                        dollar'', and
                            (iii) by adding at the end the following:
                    ``(C) Applicable dollar amount.--For purposes of 
                this paragraph, the applicable dollar amount shall be 
                determined in accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                    2002...................................   $180,000 
                    2003...................................   $190,000 
                    2004 or thereafter.....................$200,000.''.
                    (B) Section 404(l) is amended--
                            (i) by striking the second sentence,
                            (ii) by striking ``$150,000'' and inserting 
                        ``the applicable dollar amount in effect under 
                        section 401(a)(17)(A)'', and
                            (iii) by striking ``the preceding 
                        sentence'' and inserting ``section 
                        401(a)(17)(B)''.
                    (C) Section 408(k) is amended--
                            (i) in each of paragraphs (3)(C) and 
                        (6)(D)(ii), by striking ``$150,000'' each place 
                        it appears and inserting ``amount of 
                        compensation equal to the applicable dollar 
                        amount in effect under section 401(a)(17)(A)'', 
                        and
                            (ii) in paragraph (8), by striking ``and 
                        shall adjust'' and all that follows through 
                        ``section 401(a)(17)(B)''.
                    (D) Section 505(b)(7) is amended--
                            (i) by striking ``$150,000'' and inserting 
                        ``the applicable dollar amount in effect under 
                        section 401(a)(17)(A)'', and
                            (ii) by striking the second sentence.
            (2) Base period and rounding of cost-of-living 
        adjustment.--Subparagraph (B) of section 401(a)(17) is 
        amended--
                    (A) by striking ``The Secretary'' and inserting 
                ``In calendar years beginning after 2005, the 
                Secretary'',
                    (B) by striking ``October 1, 1993'' and inserting 
                ``July 1, 2005''; and
                    (C) by striking ``$10,000'' both places it appears 
                and inserting ``$5,000''.
    (c) Elective Deferrals.--
            (1) In general.--Paragraph (1) of section 402(g) (relating 
        to limitation on exclusion for elective deferrals) is amended 
        to read as follows:
            ``(1) In general.--
                    ``(A) Limitation.--Notwithstanding subsections 
                (e)(3) and (h)(1)(B), the elective deferrals of any 
                individual for any taxable year shall be included in 
                such individual's gross income to the extent the amount 
                of such deferrals for the taxable year exceeds the 
                applicable dollar amount.
                    ``(B) Applicable dollar amount.--For purposes of 
                subparagraph (A), the applicable dollar amount shall be 
                the amount determined in accordance with the following 
                table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                    2002...................................    $11,000 
                    2003...................................    $11,500 
                    2004...................................    $12,000 
                    2005...................................    $12,500 
                    2006...................................    $13,000 
                    2007...................................    $13,500 
                    2008...................................    $14,000 
                    2009...................................    $14,500 
                    2010 or thereafter..................... $15,000.''.
            (2) Cost-of-living adjustment.--Paragraph (5) of section 
        402(g) is amended to read as follows:
            ``(5) Cost-of-living adjustment.--In the case of taxable 
        years beginning after December 31, 2010, the Secretary shall 
        adjust the $15,000 amount under paragraph (1)(B) at the same 
        time and in the same manner as under section 415(d), except 
        that the base period shall be the calendar quarter beginning 
        July 1, 2009, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next lowest 
        multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Section 402(g) (relating to limitation on 
                exclusion for elective deferrals), as amended by 
                paragraphs (1) and (2), is further amended by striking 
                paragraph (4) and redesignating paragraphs (5), (6), 
                (7), (8), and (9) as paragraphs (4), (5), (6), (7), and 
                (8), respectively.
                    (B) Paragraph (2) of section 457(c) is amended by 
                striking ``402(g)(8)(A)(iii)'' and inserting 
                ``402(g)(7)(A)(iii)''.
                    (C) Clause (iii) of section 501(c)(18)(D) is 
                amended by striking ``(other than paragraph (4) 
                thereof)''.
    (d) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
            (1) In general.--Section 457 (relating to deferred 
        compensation plans of State and local governments and tax-
        exempt organizations) is amended--
                    (A) in subsections (b)(2)(A) and (c)(1) by striking 
                ``$7,500'' each place it appears and inserting ``the 
                applicable dollar amount''; and
                    (B) in subsection (b)(3)(A) by striking ``$15,000'' 
                and inserting ``twice the dollar amount in effect under 
                subsection (b)(2)(A)''.
            (2) Applicable dollar amount; cost-of-living adjustment.--
        Paragraph (15) of section 457(e) is amended to read as follows:
            ``(15) Applicable dollar amount.--
                    ``(A) In general.--The applicable dollar amount 
                shall be the amount determined in accordance with the 
                following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                    2002...................................     $9,000 
                    2003...................................     $9,500 
                    2004...................................    $10,000 
                    2005...................................    $10,500 
                    2006...................................    $11,000 
                    2007...................................    $12,000 
                    2008...................................    $13,000 
                    2009...................................    $14,000 
                    2010 or thereafter.....................    $15,000.
                    ``(B) Cost-of-living adjustments.--In the case of 
                taxable years beginning after December 31, 2010, the 
                Secretary shall adjust the $15,000 amount under 
                subparagraph (A) at the same time and in the same 
                manner as under section 415(d), except that the base 
                period shall be the calendar quarter beginning July 1, 
                2009, and any increase under this paragraph which is 
                not a multiple of $500 shall be rounded to the next 
                lowest multiple of $500.''.
    (e) Simple Retirement Accounts.--
            (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
        (relating to general rule for qualified salary reduction 
        arrangement) is amended by striking ``$6,000'' and inserting 
        ``the applicable dollar amount''.
            (2) Applicable dollar amount.--Subparagraph (E) of 
        408(p)(2) is amended to read as follows:
                    ``(E) Applicable dollar amount; cost-of-living 
                adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable dollar 
                        amount shall be the amount determined in 
                        accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                            2002 and 2003..................     $7,000 
                            2004 and 2005..................     $8,000 
                            2006 and 2007..................     $9,000 
                            2008 or thereafter.............    $10,000.
                            ``(ii) Cost-of-living adjustment.--In the 
                        case of a year beginning after December 31, 
                        2008, the Secretary shall adjust the $10,000 
                        amount under clause (i) at the same time and in 
                        the same manner as under section 415(d), except 
                        that the base period taken into account shall 
                        be the calendar quarter beginning July 1, 2007, 
                        and any increase under this subparagraph which 
                        is not a multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Subclause (I) of section 401(k)(11)(B)(i) is 
                amended by striking ``$6,000'' and inserting ``the 
                amount in effect under section 408(p)(2)(A)(ii)''.
                    (B) Section 401(k)(11) is amended by striking 
                subparagraph (E).
    (f) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
            ``(4) Rounding.--
                    ``(A) Applicable limit amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                    ``(B) $30,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not a 
                multiple of $1,000 shall be rounded to the next lowest 
                multiple of $1,000.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
              PROPRIETORS.

    (a) In General.--Subparagraph (B) of section 4975(f)(6) (relating 
to exemptions not to apply to certain transactions) is amended by 
adding at the end the following new clause:
                            ``(iii) Loan exception.--For purposes of 
                        subparagraph (A)(i), the term `owner-employee' 
                        shall only include a person described in 
                        subclause (II) or (III) of clause (i).''.
    (b) Amendment of ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is 
amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-employee' 
shall only include a person described in clause (ii) or (iii) of 
subparagraph (A).''.
    (c) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 613. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
            (1) In general.--Section 416(i)(1)(A) (defining key 
        employee) is amended--
                    (A) by striking ``or any of the 4 preceding plan 
                years'' in the matter preceding clause (i);
                    (B) by striking clause (i) and inserting the 
                following:
                            ``(i) an officer of the employer having an 
                        annual compensation greater than the amount in 
                        effect under section 414(q)(1)(B)(i) for such 
                        plan year,'';
                    (C) by striking clause (ii) and redesignating 
                clauses (iii) and (iv) as clauses (ii) and (iii), 
                respectively;
                    (D) by striking the second sentence in the matter 
                following clause (iii), as redesignated by subparagraph 
                (C); and
                    (E) by adding at the end the following: ``For 
                purposes of this subparagraph, in the case of an 
                employee who is not employed during the preceding plan 
                year or is employed for a portion of such year, such 
                employee shall be treated as a key employee if it can 
                be reasonably anticipated that such employee will be 
                described in 1 of the preceding clauses for the current 
                plan year.''.
            (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
        amended by striking ``and subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
    (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
            (1) In general.--Paragraph (3) of section 416(g) is amended 
        to read as follows:
            ``(3) Distributions during last year before determination 
        date taken into account.--
                    ``(A) In general.--For purposes of determining--
                            ``(i) the present value of the cumulative 
                        accrued benefit for any employee, or
                            ``(ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased by the 
                aggregate distributions made with respect to such 
                employee under the plan during the 1-year period ending 
                on the determination date. The preceding sentence shall 
                also apply to distributions under a terminated plan 
                which if it had not been terminated would have been 
                required to be included in an aggregation group.
                    ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution made for 
                a reason other than separation from service, death, or 
                disability, subparagraph (A) shall be applied by 
                substituting `5-year period' for `1-year period'.''.
            (2) Benefits not taken into account.--Subparagraph (E) of 
        section 416(g)(4) is amended--
                    (A) by striking ``last 5 years'' in the heading and 
                inserting ``last year before determination date''; and
                    (B) by striking ``5-year period'' and inserting 
                ``1-year period''.
    (d) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
                    (A) by striking ``clause (ii)'' in clause (i) and 
                inserting ``clause (ii) or (iii)''; and
                    (B) by adding at the end the following:
                            ``(iii) Exception for frozen plan.--For 
                        purposes of determining an employee's years of 
                        service with the employer, any service with the 
                        employer shall be disregarded to the extent 
                        that such service occurs during a plan year 
                        when the plan benefits (within the meaning of 
                        section 410(b)) no key employee or former key 
                        employee.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
              DEDUCTION LIMITS.

    (a) In General.--Section 404 (relating to deduction for 
contributions of an employer to an employees' trust or annuity plan and 
compensation under a deferred payment plan) is amended by adding at the 
end the following new subsection:
    ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--
            ``(1) In general.--The applicable percentage of the amount 
        of any elective deferrals (as defined in section 402(g)(3)) 
        shall not be subject to any limitation contained in paragraph 
        (3), (7), or (9) of subsection (a), and such elective deferrals 
        shall not be taken into account in applying any such limitation 
        to any other contributions.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be determined in 
        accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                       percentage is:  
                    2002 through 2010...................... 25 percent 
                    2011 and thereafter.................100 percent.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
              PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
              ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations), as amended by section 611, is amended to read as 
follows:
    ``(c) Limitation.--The maximum amount of the compensation of any 
one individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2001.

SEC. 616. DEDUCTION LIMITS.

    (a) Modification of Limits.--
            (1) Stock bonus and profit sharing trusts.--
                    (A) In general.--Subclause (I) of section 
                404(a)(3)(A)(i) (relating to stock bonus and profit 
                sharing trusts) is amended by striking ``15 percent'' 
                and inserting ``25 percent''.
                    (B) Conforming amendment.--Subparagraph (C) of 
                section 404(h)(1) is amended by striking ``15 percent'' 
                each place it appears and inserting ``25 percent''.
            (2) Defined contribution plans.--
                    (A) In general.--Clause (v) of section 404(a)(3)(A) 
                (relating to stock bonus and profit sharing trusts) is 
                amended to read as follows:
                            ``(v) Defined contribution plans subject to 
                        the funding standards.--Except as provided by 
                        the Secretary, a defined contribution plan 
                        which is subject to the funding standards of 
                        section 412 shall be treated in the same manner 
                        as a stock bonus or profit-sharing plan for 
                        purposes of this subparagraph.''
                    (B) Conforming amendments.--
                            (i) Section 404(a)(1)(A) is amended by 
                        inserting ``(other than a trust to which 
                        paragraph (3) applies)'' after ``pension 
                        trust''.
                            (ii) Section 404(h)(2) is amended by 
                        striking ``stock bonus or profit-sharing 
                        trust'' and inserting ``trust subject to 
                        subsection (a)(3)(A)''.
                            (iii) The heading of section 404(h)(2) is 
                        amended by striking ``stock bonus and profit-
                        sharing trust'' and inserting ``certain 
                        trusts''.
    (b) Compensation.--
            (1) In general.--Section 404(a) (relating to general rule) 
        is amended by adding at the end the following:
            ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term `compensation' 
        shall include amounts treated as `participant's compensation' 
        under subparagraph (C) or (D) of section 415(c)(3).''.
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 404(a)(3) is 
                amended by striking the last sentence thereof.
                    (B) Clause (i) of section 4972(c)(6)(B) is amended 
                by striking ``(within the meaning of section 404(a))'' 
                and inserting ``(within the meaning of section 404(a) 
                and as adjusted under section 404(a)(12))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH 
              CONTRIBUTIONS.

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

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

    ``(a) General Rule.--If an applicable retirement plan includes a 
qualified Roth contribution program--
            ``(1) any designated Roth contribution made by an employee 
        pursuant to the program shall be treated as an elective 
        deferral for purposes of this chapter, except that such 
        contribution shall not be excludable from gross income, and
            ``(2) such plan (and any arrangement which is part of such 
        plan) shall not be treated as failing to meet any requirement 
        of this chapter solely by reason of including such program.
    ``(b) Qualified Roth Contribution Program.--For purposes of this 
section--
            ``(1) In general.--The term `qualified Roth contribution 
        program' means a program under which an employee may elect to 
        make designated Roth contributions in lieu of all or a portion 
        of elective deferrals the employee is otherwise eligible to 
        make under the applicable retirement plan.
            ``(2) Separate accounting required.--A program shall not be 
        treated as a qualified Roth contribution program unless the 
        applicable retirement plan--
                    ``(A) establishes separate accounts (`designated 
                Roth accounts') for the designated Roth contributions 
                of each employee and any earnings properly allocable to 
                the contributions, and
                    ``(B) maintains separate recordkeeping with respect 
                to each account.
    ``(c) Definitions and Rules Relating to Designated Roth 
Contributions.--For purposes of this section--
            ``(1) Designated roth contribution.--The term `designated 
        Roth contribution' means any elective deferral which--
                    ``(A) is excludable from gross income of an 
                employee without regard to this section, and
                    ``(B) the employee designates (at such time and in 
                such manner as the Secretary may prescribe) as not 
                being so excludable.
            ``(2) Designation limits.--The amount of elective deferrals 
        which an employee may designate under paragraph (1) shall not 
        exceed the excess (if any) of--
                    ``(A) the maximum amount of elective deferrals 
                excludable from gross income of the employee for the 
                taxable year (without regard to this section), over
                    ``(B) the aggregate amount of elective deferrals of 
                the employee for the taxable year which the employee 
                does not designate under paragraph (1).
            ``(3) Rollover contributions.--
                    ``(A) In general.--A rollover contribution of any 
                payment or distribution from a designated Roth account 
                which is otherwise allowable under this chapter may be 
                made only if the contribution is to--
                            ``(i) another designated Roth account of 
                        the individual from whose account the payment 
                        or distribution was made, or
                            ``(ii) a Roth IRA of such individual.
                    ``(B) Coordination with limit.--Any rollover 
                contribution to a designated Roth account under 
                subparagraph (A) shall not be taken into account for 
                purposes of paragraph (1).
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        designated Roth account shall not be includible in gross 
        income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' has the meaning given such term by 
                section 408A(d)(2)(A) (without regard to clause (iv) 
                thereof).
                    ``(B) Distributions within nonexclusion period.--A 
                payment or distribution from a designated Roth account 
                shall not be treated as a qualified distribution if 
                such payment or distribution is made within the 5-
                taxable-year period beginning with the earlier of--
                            ``(i) the first taxable year for which the 
                        individual made a designated Roth contribution 
                        to any designated Roth account established for 
                        such individual under the same applicable 
                        retirement plan, or
                            ``(ii) if a rollover contribution was made 
                        to such designated Roth account from a 
                        designated Roth account previously established 
                        for such individual under another applicable 
                        retirement plan, the first taxable year for 
                        which the individual made a designated Roth 
                        contribution to such previously established 
                        account.
                    ``(C) Distributions of excess deferrals and 
                contributions and earnings thereon.--The term 
                `qualified distribution' shall not include any 
                distribution of any excess deferral under section 
                402(g)(2) or any excess contribution under section 
                401(k)(8), and any income on the excess deferral or 
                contribution.
            ``(3) Treatment of distributions of certain excess 
        deferrals.--Notwithstanding section 72, if any excess deferral 
        under section 402(g)(2) attributable to a designated Roth 
        contribution is not distributed on or before the 1st April 15 
        following the close of the taxable year in which such excess 
        deferral is made, the amount of such excess deferral shall--
                    ``(A) not be treated as investment in the contract, 
                and
                    ``(B) be included in gross income for the taxable 
                year in which such excess is distributed.
            ``(4) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments from a 
        designated Roth account and other distributions and payments 
        from the plan.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Applicable retirement plan.--The term `applicable 
        retirement plan' means--
                    ``(A) an employees' trust described in section 
                401(a) which is exempt from tax under section 501(a), 
                and
                    ``(B) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
            ``(2) Elective deferral.--The term `elective deferral' 
        means any elective deferral described in subparagraph (A) or 
        (C) of section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
            (1) by adding at the end of paragraph (1)(A) (as added by 
        section 201(c)(1)) the following new sentence: ``The preceding 
        sentence shall not apply the portion of such excess as does not 
        exceed the designated Roth contributions of the individual for 
        the taxable year.''; and
            (2) by inserting ``(or would be included but for the last 
        sentence thereof)'' after ``paragraph (1)'' in paragraph 
        (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
                ``If any portion of an eligible rollover distribution 
                is attributable to payments or distributions from a 
                designated Roth account (as defined in section 402A), 
                an eligible retirement plan with respect to such 
                portion shall include only another designated Roth 
                account and a Roth IRA.''.
    (d) Reporting Requirements.--
            (1) W-2 information.--Section 6051(a)(8) is amended by 
        inserting ``, including the amount of designated Roth 
        contributions (as defined in section 402A)'' before the comma 
        at the end.
            (2) Information.--Section 6047 is amended by redesignating 
        subsection (f) as subsection (g) and by inserting after 
        subsection (e) the following new subsection:
    ``(f) Designated Roth Contributions.--The Secretary shall require 
the plan administrator of each applicable retirement plan (as defined 
in section 402A) to make such returns and reports regarding designated 
Roth contributions (as defined in section 402A) to the Secretary, 
participants and beneficiaries of the plan, and such other persons as 
the Secretary may prescribe.''.
    (e) Conforming Amendments.--
            (1) Section 408A(e) is amended by adding after the first 
        sentence the following new sentence: ``Such term includes a 
        rollover contribution described in section 402A(c)(3)(A).''.
            (2) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 is amended by inserting after the 
        item relating to section 402 the following new item:

                              ``Sec. 402A. Optional treatment of 
                                        elective deferrals as Roth 
                                        contributions.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE 
              DEFERRALS AND IRA CONTRIBUTIONS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits), as amended by section 
432, is amended by inserting after section 25B the following new 
section:

``SEC. 25C. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
              INDIVIDUALS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the applicable 
percentage of so much of the qualified retirement savings contributions 
of the eligible individual for the taxable year as do not exceed 
$2,000.
    ``(b) Applicable Percentage.--For purposes of this section, the 
applicable percentage is the percentage determined in accordance with 
the following table:


------------------------------------------------------------------------
                    Adjusted Gross Income
-------------------------------------------------------------
    Joint return           Head of a        All other cases   Applicable
---------------------      household     -------------------- percentage
                     --------------------
   Over     Not over    Over    Not over    Over    Not over
------------------------------------------------------------------------
$0         $30,000    $0        $22,500   $0        $15,000          50
 30,000     32,500     22,500    24,375    15,000    16,250          20
 32,500     50,000     24,375    37,500    16,250    25,000          10
 50,000    .........   37,500   ........   25,000   ........          0
------------------------------------------------------------------------


    ``(c) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual if such individual has attained the age of 18 as of 
        the close of the taxable year.
            ``(2) Dependents and full-time students not eligible.--The 
        term `eligible individual' shall not include--
                    ``(A) any individual with respect to whom a 
                deduction under section 151 is allowed to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins, 
                and
                    ``(B) any individual who is a student (as defined 
                in section 151(c)(4)).
    ``(d) Qualified Retirement Savings Contributions.--For purposes of 
this section--
            ``(1) In general.--The term `qualified retirement savings 
        contributions' means, with respect to any taxable year, the sum 
        of--
                    ``(A) the amount of the qualified retirement 
                contributions (as defined in section 219(e)) made by 
                the eligible individual,
                    ``(B) the amount of--
                            ``(i) any elective deferrals (as defined in 
                        section 402(g)(3)) of such individual, and
                            ``(ii) any elective deferral of 
                        compensation by such individual under an 
                        eligible deferred compensation plan (as defined 
                        in section 457(b)) of an eligible employer 
                        described in section 457(e)(1)(A), and
                    ``(C) the amount of voluntary employee 
                contributions by such individual to any qualified 
                retirement plan (as defined in section 4974(c)).
            ``(2) Reduction for certain distributions.--
                    ``(A) In general.--The qualified retirement savings 
                contributions determined under paragraph (1) shall be 
                reduced (but not below zero) by the sum of--
                            ``(i) any distribution from a qualified 
                        retirement plan (as defined in section 
                        4974(c)), or from an eligible deferred 
                        compensation plan (as defined in section 
                        457(b)), received by the individual during the 
                        testing period which is includible in gross 
                        income, and
                            ``(ii) any distribution from a Roth IRA 
                        received by the individual during the testing 
                        period which is not a qualified rollover 
                        contribution (as defined in section 408A(e)) to 
                        a Roth IRA.
                    ``(B) Testing period.--For purposes of subparagraph 
                (A), the testing period, with respect to a taxable 
                year, is the period which includes--
                            ``(i) such taxable year,
                            ``(ii) the 2 preceding taxable years, and
                            ``(iii) the period after such taxable year 
                        and before the due date (including extensions) 
                        for filing the return of tax for such taxable 
                        year.
                    ``(C) Excepted distributions.--There shall not be 
                taken into account under subparagraph (A)--
                            ``(i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 
                        404(k), or 408(d)(4), and
                            ``(ii) any distribution to which section 
                        408A(d)(3) applies.
                    ``(D) Treatment of distributions received by spouse 
                of individual.--For purposes of determining 
                distributions received by an individual under 
                subparagraph (A) for any taxable year, any distribution 
                received by the spouse of such individual shall be 
                treated as received by such individual if such 
                individual and spouse file a joint return for such 
                taxable year and for the taxable year during which the 
                spouse receives the distribution.
    ``(e) Adjusted Gross Income.--For purposes of this section, 
adjusted gross income shall be determined without regard to sections 
911, 931, and 933.
    ``(f) Investment in the Contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution shall not 
fail to be included in determining the investment in the contract for 
purposes of section 72 by reason of the credit under this section.
    ``(g) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2006.''.
    (b) Credit Allowed Against Regular Tax and Alternative Minimum 
Tax.--
            (1) In general.--Section 25C, as added by subsection (a), 
        is amended by inserting after subsection (f) the following new 
        subsection:
    ``(g) Limitation Based on Amount of Tax.--The aggregate credit 
allowed by this section for the taxable year shall not exceed the sum 
of--
            ``(1) the taxpayer's regular tax liability for the taxable 
        year reduced by the sum of the credits allowed by sections 21, 
        22, 23, 24, 25, 25A, and 25B plus
            ``(2) the tax imposed by section 55 for such taxable 
        year.''
            (2) Conforming amendments.--
                    (A) Section 26(a)(1), as amended by section 201, is 
                amended by inserting ``or section 25C'' after ``section 
                24''.
                    (B) Section 23(c), as amended by section 201, is 
                amended by striking ``sections 24'' and inserting 
                ``sections 24, 25C,''.
                    (C) Section 25(e)(1)(C), as amended by section 201, 
                is amended by inserting ``25C,'' after ``24,''.
                    (D) Section 904(h), as amended by section 201, is 
                amended by inserting ``or 25C'' after ``section 24''.
                    (E) Section 1400C(d), as amended by section 201, is 
                amended by inserting ``and section 25C'' after 
                ``section 24''.
    (c) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1, as amended by section 432, is 
amended by inserting after the item relating to section 25B the 
following new item:

                              ``Sec. 25C. Elective deferrals and IRA 
                                        contributions by certain 
                                        individuals.''

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 619. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL 
              EMPLOYERS.

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

``SEC. 45E. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan contribution credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the amount which would (but for subsection (f)(1)) be 
allowed as a deduction under section 404 for such taxable year for 
qualified employer contributions made to any qualified retirement plan 
on behalf of any employee who is not a highly compensated employee.
    ``(b) Credit Limited to 3 Years.--The credit allowable by this 
section shall be allowed only with respect to the period of 3 taxable 
years beginning with the first taxable year for which a credit is 
allowable with respect to a plan under this section.
    ``(c) Qualified Employer Contribution.--For purposes of this 
section--
            ``(1) Defined contribution plans.--In the case of a defined 
        contribution plan, the term `qualified employer contribution' 
        means the amount of nonelective and matching contributions to 
        the plan made by the employer on behalf of any employee who is 
        not a highly compensated employee to the extent such amount 
        does not exceed 3 percent of such employee's compensation from 
        the employer for the year.
            ``(2) Defined benefit plans.--In the case of a defined 
        benefit plan, the term `qualified employer contribution' means 
        the amount of employer contributions to the plan made on behalf 
        of any employee who is not a highly compensated employee to the 
        extent that the accrued benefit of such employee derived from 
        employer contributions for the year does not exceed the 
        equivalent (as determined under regulations prescribed by the 
        Secretary and without regard to contributions and benefits 
        under the Social Security Act) of 3 percent of such employee's 
        compensation from the employer for the year.
    ``(d) Qualified Retirement Plan.--
            ``(1) In general.--The term `qualified retirement plan' 
        means any plan described in section 401(a) which includes a 
        trust exempt from tax under section 501(a) if the plan meets--
                    ``(A) the contribution requirements of paragraph 
                (2),
                    ``(B) the vesting requirements of paragraph (3), 
                and
                    ``(C) the distribution requirements of paragraph 
                (4).
            ``(2) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) the employer is required to make 
                        nonelective contributions of at least 1 percent 
                        of compensation (or the equivalent thereof in 
                        the case of a defined benefit plan) for each 
                        employee who is not a highly compensated 
                        employee who is eligible to participate in the 
                        plan, and
                            ``(ii) allocations of nonelective employer 
                        contributions, in the case of a defined 
                        contribution plan, are either in equal dollar 
                        amounts for all employees covered by the plan 
                        or bear a uniform relationship to the total 
                        compensation, or the basic or regular rate of 
                        compensation, of the employees covered by the 
                        plan (and an equivalent requirement is met with 
                        respect to a defined benefit plan).
                    ``(B) Compensation limitation.--The compensation 
                taken into account under subparagraph (A) for any year 
                shall not exceed the limitation in effect for such year 
                under section 401(a)(17).
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met if the plan satisfies the requirements of 
        either of the following subparagraphs:
                    ``(A) 3-year vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee who 
                has completed at least 3 years of service has a 
                nonforfeitable right to 100 percent of the employee's 
                accrued benefit derived from employer contributions.
                    ``(B) 5-year graded vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee has a 
                nonforfeitable right to a percentage of the employee's 
                accrued benefit derived from employer contributions 
                determined under the following table:

                                                     The nonforfeitable
``Years of service:                                      percentage is:
    1.............................................                  20 
    2.............................................                  40 
    3.............................................                  60 
    4.............................................                  80 
    5.............................................                 100.
            ``(4) Distribution requirements.--In the case of a profit-
        sharing or stock bonus plan, the requirements of this paragraph 
        are met if, under the plan, qualified employer contributions 
        are distributable only as provided in section 401(k)(2)(B).
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Eligible employer.--
                    ``(A) In general.--The term `eligible employer' 
                means, with respect to any year, an employer which has 
                no more than 20 employees who received at least $5,000 
                of compensation from the employer for the preceding 
                year.
                    ``(B) Requirement for new qualified employer 
                plans.--Such term shall not include an employer if, 
                during the 3-taxable year period immediately preceding 
                the 1st taxable year for which the credit under this 
                section is otherwise allowable for a qualified employer 
                plan of the employer, the employer or any member of any 
                controlled group including the employer (or any 
                predecessor of either) established or maintained a 
                qualified employer plan with respect to which 
                contributions were made, or benefits were accrued, for 
                substantially the same employees as are in the 
                qualified employer plan.
            ``(2) Highly compensated employee.--The term `highly 
        compensated employee' has the meaning given such term by 
        section 414(q) (determined without regard to section 
        414(q)(1)(B)(ii)).
    ``(f) Special Rules.--
            ``(1) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified employer 
        contributions paid or incurred for the taxable year which is 
        equal to the credit determined under subsection (a).
            ``(2) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.
            ``(3) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52, or 
        subsection (n) or (o) of section 414, shall be treated as one 
        person. All eligible employer plans shall be treated as 1 
        eligible employer plan.
    ``(g) Recapture of Credit on Forfeited Contributions.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        any accrued benefit which is forfeitable by reason of 
        subsection (d)(3) is forfeited, the employer's tax imposed by 
        this chapter for the taxable year in which the forfeiture 
        occurs shall be increased by 35 percent of the employer 
        contributions from which such benefit is derived to the extent 
        such contributions were taken into account in determining the 
        credit under this section.
            ``(2) Reallocated contributions.--Paragraph (1) shall not 
        apply to any contribution which is reallocated by the employer 
        under the plan to employees who are not highly compensated 
        employees.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``plus'' at the end of paragraph (12), by striking the period at the 
end of paragraph (13) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(14) in the case of an eligible employer (as defined in 
        section 45E(e)), the small employer pension plan contribution 
        credit determined under section 45E(a).''
    (c) Conforming Amendments.--
            (1) Section 39(d) is amended by adding at the end the 
        following new paragraph:
            ``(10) No carryback of small employer pension plan 
        contribution credit before january 1, 2003.--No portion of the 
        unused business credit for any taxable year which is 
        attributable to the small employer pension plan contribution 
        credit determined under section 45E may be carried back to a 
        taxable year beginning before January 1, 2003.''
            (2) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (8), by striking the period at 
        the end of paragraph (9) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
            ``(10) the small employer pension plan contribution credit 
        determined under section 45E(a).''
            (3) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

                              ``Sec. 45E. Small employer pension plan 
                                        contributions.''
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions paid or incurred in taxable years beginning 
after December 31, 2002.

SEC. 620. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 619, is 
amended by adding at the end the following new section:

``SEC. 45F. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan startup cost credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the qualified startup costs paid or incurred by the 
taxpayer during the taxable year.
    ``(b) Dollar Limitation.--The amount of the credit determined under 
this section for any taxable year shall not exceed--
            ``(1) $500 for the first credit year and each of the 2 
        taxable years immediately following the first credit year, and
            ``(2) zero for any other taxable year.
    ``(c) Eligible Employer.--For purposes of this section--
            ``(1) In general.--The term `eligible employer' has the 
        meaning given such term by section 408(p)(2)(C)(i).
            ``(2) Requirement for new qualified employer plans.--Such 
        term shall not include an employer if, during the 3-taxable 
        year period immediately preceding the 1st taxable year for 
        which the credit under this section is otherwise allowable for 
        a qualified employer plan of the employer, the employer or any 
        member of any controlled group including the employer (or any 
        predecessor of either) established or maintained a qualified 
        employer plan with respect to which contributions were made, or 
        benefits were accrued, for substantially the same employees as 
        are in the qualified employer plan.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Qualified startup costs.--
                    ``(A) In general.--The term `qualified startup 
                costs' means any ordinary and necessary expenses of an 
                eligible employer which are paid or incurred in 
                connection with--
                            ``(i) the establishment or administration 
                        of an eligible employer plan, or
                            ``(ii) the retirement-related education of 
                        employees with respect to such plan.
                    ``(B) Plan must have at least 1 participant.--Such 
                term shall not include any expense in connection with a 
                plan that does not have at least 1 employee eligible to 
                participate who is not a highly compensated employee.
            ``(2) Eligible employer plan.--The term `eligible employer 
        plan' means a qualified employer plan within the meaning of 
        section 4972(d).
            ``(3) First credit year.--The term `first credit year' 
        means--
                    ``(A) the taxable year which includes the date that 
                the eligible employer plan to which such costs relate 
                becomes effective, or
                    ``(B) at the election of the eligible employer, the 
                taxable year preceding the taxable year referred to in 
                subparagraph (A).
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52, or 
        subsection (n) or (o) of section 414, shall be treated as one 
        person. All eligible employer plans shall be treated as 1 
        eligible employer plan.
            ``(2) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified startup costs paid or 
        incurred for the taxable year which is equal to the credit 
        determined under subsection (a).
            ``(3) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.''
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit), as amended by section 
619, is amended by striking ``plus'' at the end of paragraph (13), by 
striking the period at the end of paragraph (14) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(15) in the case of an eligible employer (as defined in 
        section 45F(c)), the small employer pension plan startup cost 
        credit determined under section 45F(a).''
    (c) Conforming Amendments.--
            (1) Section 39(d), as amended by section 619(c), is amended 
        by adding at the end the following new paragraph:
            ``(11) No carryback of small employer pension plan startup 
        cost credit before january 1, 2002.--No portion of the unused 
        business credit for any taxable year which is attributable to 
        the small employer pension plan startup cost credit determined 
        under section 45F may be carried back to a taxable year 
        beginning before January 1, 2002.''
            (2) Subsection (c) of section 196, as amended by section 
        619(c), is amended by striking ``and'' at the end of paragraph 
        (9), by striking the period at the end of paragraph (10) and 
        inserting ``, and'', and by adding at the end the following new 
        paragraph:
            ``(11) the small employer pension plan startup cost credit 
        determined under section 45F(a).''
            (3) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1, as amended by section 619(c), is 
        amended by adding at the end the following new item:

                              ``Sec. 45F. Small employer pension plan 
                                        startup costs.''
    (d) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2001, with respect to qualified employer plans established 
after such date.

SEC. 621. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING NEW 
              PENSION PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment of user 
fees under the program established under section 10511 of the Revenue 
Act of 1987 for requests to the Internal Revenue Service for ruling 
letters, opinion letters, and determination letters or similar requests 
with respect to the qualified status of a new pension benefit plan or 
any trust which is part of the plan.
    (b) New Pension Benefit Plan.--For purposes of this section--
            (1) In general.--The term ``new pension benefit plan'' 
        means a pension, profit-sharing, stock bonus, annuity, or 
        employee stock ownership plan which is maintained by one or 
        more eligible employers if such employer (or any predecessor 
        employer) has not made a prior request described in subsection 
        (a) for such plan (or any predecessor plan).
            (2) Eligible employer.--
                    (A) In general.--The term ``eligible employer'' 
                means an employer which has--
                            (i) no more than 100 employees for the 
                        preceding year, and
                            (ii) at least one employee who is not a 
                        highly compensated employee (as defined in 
                        section 414(q)) and is participating in the 
                        plan.
                    (B) New plan requirement.--The term ``eligible 
                employer'' shall not include an employer if, during the 
                3-taxable year period immediately preceding the taxable 
                year in which the request is made, the employer or any 
                member of any controlled group including the employer 
                (or any predecessor of either) established or 
                maintained a qualified employer plan with respect to 
                which contributions were made, or benefits were accrued 
                for service, for substantially the same employees as 
                are in the qualified employer plan.
    (c) Determination of Average Fees Charged.--For purposes of any 
determination of average fees charged, any request to which subsection 
(a) applies shall not be taken into account.
    (d) Effective Date.--The provisions of this section shall apply 
with respect to requests made after December 31, 2001.

SEC. 622. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL 
              TRANSPORTATION SERVICES.

    (a) Exclusion From Income Sourcing Rules.--The second sentence of 
section 861(a)(3) (relating to gross income from sources within the 
United States) is amended by striking ``except for purposes of sections 
79 and 105 and subchapter D,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to remuneration for services performed in plan years beginning 
after December 31, 2001.

                Subtitle C--Enhancing Fairness for Women

SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(v) Catch-up Contributions for Individuals Age 50 or Over.--
            ``(1) In general.--An applicable employer plan shall not be 
        treated as failing to meet any requirement of this title solely 
        because the plan permits an eligible participant to make 
        additional elective deferrals in any plan year.
            ``(2) Limitation on amount of additional deferrals.--
                    ``(A) In general.--A plan shall not permit 
                additional elective deferrals under paragraph (1) for 
                any year in an amount greater than the lesser of--
                            ``(i) the applicable dollar amount, or
                            ``(ii) the excess (if any) of--
                                    ``(I) the participant's 
                                compensation (as defined in section 
                                415(c)(3)) for the year, over
                                    ``(II) any other elective deferrals 
                                of the participant for such year which 
                                are made without regard to this 
                                subsection.
                    ``(B) Applicable dollar amount.--For purposes of 
                this paragraph, the applicable dollar amount shall be 
                determined in accordance with the following table:

``For taxable years                                      The applicable
beginning in:                                         dollar amount is:
    2002, 2003, and 2004..........................                $500 
    2005 and 2006.................................              $1,000 
    2007..........................................              $2,000 
    2008..........................................              $3,000 
    2009..........................................              $4,000 
    2010 and thereafter...........................              $7,500.

            ``(3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1)--
                    ``(A) such contribution shall not, with respect to 
                the year in which the contribution is made--
                            ``(i) be subject to any otherwise 
                        applicable limitation contained in section 
                        402(g), 402(h), 403(b), 404(a), 404(h), 408(k), 
                        408(p), 415, or 457, or
                            ``(ii) be taken into account in applying 
                        such limitations to other contributions or 
                        benefits under such plan or any other such 
                        plan, and
                    ``(B) such plan shall not be treated as failing to 
                meet the requirements of section 401(a)(4), 401(a)(26), 
                401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 
                408(k), 408(p), 408B, 410(b), or 416 by reason of the 
                making of (or the right to make) such contribution.
            ``(4) Eligible participant.--For purposes of this 
        subsection, the term `eligible participant' means, with respect 
        to any plan year, a participant in a plan--
                    ``(A) who has attained the age of 50 before the 
                close of the plan year, and
                    ``(B) with respect to whom no other elective 
                deferrals may (without regard to this subsection) be 
                made to the plan for the plan year by reason of the 
                application of any limitation or other restriction 
                described in paragraph (3) or comparable limitation or 
                restriction contained in the terms of the plan.
            ``(5) Other definitions and rules.--For purposes of this 
        subsection--
                    ``(A) Applicable employer plan.--The term 
                `applicable employer plan' means--
                            ``(i) an employees' trust described in 
                        section 401(a) which is exempt from tax under 
                        section 501(a),
                            ``(ii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                            ``(iii) an eligible deferred compensation 
                        plan under section 457 of an eligible employer 
                        described in section 457(e)(1)(A), and
                            ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                    ``(B) Elective deferral.--The term `elective 
                deferral' has the meaning given such term by subsection 
                (u)(2)(C).
                    ``(C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable employer 
                plan described in subparagraph (A)(iii) for any year to 
                which section 457(b)(3) applies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2001.

SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
              CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
            (1) In general.--Subparagraph (B) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``25 percent'' and inserting ``the 
        applicable percentage''.
            (2) Applicable percentage.--Section 415(c) is amended by 
        adding at the end the following new paragraph:
            ``(8) Applicable percentage.--For purposes of paragraph 
        (1)(B), the applicable percentage shall be determined in 
        accordance with the following table:

``For years                                              The applicable
beginning in:                                            percentage is:
    2002 through 2010.............................          50 percent 
    2011 and thereafter...........................      100 percent.''.

            (3) Application to section 403(b).--Section 403(b) is 
        amended--
                    (A) by striking ``the exclusion allowance for such 
                taxable year'' in paragraph (1) and inserting ``the 
                applicable limit under section 415'',
                    (B) by striking paragraph (2), and
                    (C) by inserting ``or any amount received by a 
                former employee after the fifth taxable year following 
                the taxable year in which such employee was 
                terminated'' before the period at the end of the second 
                sentence of paragraph (3).
            (4) Conforming amendments.--
                    (A) Subsection (f) of section 72 is amended by 
                striking ``section 403(b)(2)(D)(iii))'' and inserting 
                ``section 403(b)(2)(D)(iii), as in effect before the 
                enactment of the Restoring Earnings to Lift Individuals 
                and Empower Families Act of 2001)''.
                    (B) Section 404(a)(10)(B) is amended by striking 
                ``, the exclusion allowance under section 403(b)(2),''.
                    (C) Section 415(a)(2) is amended by striking ``, 
                and the amount of the contribution for such portion 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2)''.
                    (D) Section 415(c)(3) is amended by adding at the 
                end the following new subparagraph:
                    ``(E) Annuity contracts.--In the case of an annuity 
                contract described in section 403(b), the term 
                `participant's compensation' means the participant's 
                includible compensation determined under section 
                403(b)(3).''.
                    (E) Section 415(c) is amended by striking paragraph 
                (4).
                    (F) Section 415(c)(7) is amended to read as 
                follows:
            ``(7) Certain contributions by church plans not treated as 
        exceeding limit.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this subsection, at the election of a 
                participant who is an employee of a church or a 
                convention or association of churches, including an 
                organization described in section 414(e)(3)(B)(ii), 
                contributions and other additions for an annuity 
                contract or retirement income account described in 
                section 403(b) with respect to such participant, when 
                expressed as an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual addition is 
                not in excess of $10,000.
                    ``(B) $40,000 aggregate limitation.--The total 
                amount of additions with respect to any participant 
                which may be taken into account for purposes of this 
                subparagraph for all years may not exceed $40,000.
                    ``(C) Annual addition.--For purposes of this 
                paragraph, the term `annual addition' has the meaning 
                given such term by paragraph (2).''.
                    (G) Subparagraph (B) of section 402(g)(7) (as 
                redesignated by section 611(c)(3)) is amended by 
                inserting before the period at the end the following: 
                ``(as in effect before the enactment of the Restoring 
                Earnings to Lift Individuals and Empower Families Act 
                of 2001)''.
                    (H) Section 664(g) is amended--
                            (i) in paragraph (3)(E) by striking 
                        ``limitations under section 415(c)'' and 
                        inserting ``applicable limitation under 
                        paragraph (7)'', and
                            (ii) by adding at the end the following new 
                        paragraph:
            ``(7) Applicable limitation.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(E), the applicable limitation under this paragraph 
                with respect to a participant is an amount equal to the 
                lesser of--
                            ``(i) $30,000, or
                            ``(ii) 25 percent of the participant's 
                        compensation (as defined in section 415(c)(3)).
                    ``(B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the $30,000 amount under 
                subparagraph (A)(i) at the same time and in the same 
                manner as under section 415(d), except that the base 
                period shall be the calendar quarter beginning October 
                1, 1993, and any increase under this subparagraph which 
                is not a multiple of $5,000 shall be rounded to the 
                next lowest multiple of $5,000.''.
            (5) Effective date.--
                    (A) Except as provided in subparagraph (B), the 
                amendments made by this subsection shall apply to years 
                beginning after December 31, 2001.
                    (B) The amendments made by paragraphs (3) and (4) 
                shall apply to years beginning after December 31, 2010.
    (b) Special Rules for Sections 403(b) and 408.--
            (1) In general.--Subsection (k) of section 415 is amended 
        by adding at the end the following new paragraph:
            ``(4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract described in 
        section 403(b) for the benefit of a participant shall be 
        treated as a defined contribution plan maintained by each 
        employer with respect to which the participant has the control 
        required under subsection (b) or (c) of section 414 (as 
        modified by subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee pension 
        plan for an individual for a taxable year shall be treated as 
        an employer contribution to a defined contribution plan for 
        such individual for such year.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by paragraph 
                (1) shall apply to limitation years beginning after 
                December 31, 2000.
                    (B) Exclusion allowance.--Effective for limitation 
                years beginning in 2001, in the case of any annuity 
                contract described in section 403(b) of the Internal 
                Revenue Code of 1986, the amount of the contribution 
                disqualified by reason of section 415(g) of such Code 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
            (3) Modification of 403(b) exclusion allowance to conform 
        to 415 modification.--The Secretary of the Treasury shall 
        modify the regulations regarding the exclusion allowance under 
        section 403(b)(2) of the Internal Revenue Code of 1986 to 
        render void the requirement that contributions to a defined 
        benefit pension plan be treated as previously excluded amounts 
        for purposes of the exclusion allowance. For taxable years 
        beginning after December 31, 2000, such regulations shall be 
        applied as if such requirement were void.
    (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
            (1) In general.--Subparagraph (B) of section 457(b)(2) 
        (relating to salary limitation on eligible deferred 
        compensation plans) is amended by striking ``33\1/3\ percent'' 
        and inserting ``the applicable percentage''.
            (2) Applicable percentage.--Section 457 is amended by 
        adding at the end the following new subsection:
    ``(h) Applicable Percentage.--For purposes of subsection (b)(2)(A), 
the applicable percentage shall be determined in accordance with the 
following table:

``For years                                              The applicable
beginning in:                                            percentage is:
    2002 through 2010.............................          50 percent 
    2011 and thereafter...........................      100 percent.''.

            (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.

SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

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

                  
                                                     The nonforfeitable
                ``Years of service:
                                                       percentage is:  
                    2......................................         20 
                    3......................................         40 
                    4......................................         60 
                    5......................................         80 
                    6......................................     100.''.
    (b) Amendment of ERISA.--Section 203(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
            (1) in paragraph (2), by striking ``A plan'' and inserting 
        ``Except as provided in paragraph (4), a plan'', and
            (2) by adding at the end the following:
            ``(4) In the case of matching contributions (as defined in 
        section 401(m)(4)(A) of the Internal Revenue Code of 1986), 
        paragraph (2) shall be applied--
                    ``(A) by substituting `3 years' for `5 years' in 
                subparagraph (A), and
                    ``(B) by substituting the following table for the 
                table contained in subparagraph (B):

                                                     The nonforfeitable
``Years of service:                                      percentage is:
    2.............................................                  20 
    3.............................................                  40 
    4.............................................                  60 
    5.............................................                  80 
    6.............................................              100.''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to contributions 
        for plan years beginning after December 31, 2001.
            (2) Collective bargaining agreements.--In the case of a 
        plan maintained pursuant to one or more collective bargaining 
        agreements between employee representatives and one or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        contributions on behalf of employees covered by any such 
        agreement for plan years beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of the 
                        enactment); or
                            (ii) January 1, 2002; or
                    (B) January 1, 2006.
            (3) Service required.--With respect to any plan, the 
        amendments made by this section shall not apply to any employee 
        before the date that such employee has 1 hour of service under 
        such plan in any plan year to which the amendments made by this 
        section apply.

SEC. 634. MODIFICATIONS TO MINIMUM DISTRIBUTION RULES.

    (a) Life Expectancy Tables.--The Secretary of the Treasury shall 
modify the life expectancy tables under the regulations relating to 
minimum distribution requirements under sections 401(a)(9), 408(a)(6) 
and (b)(3), 403(b)(10), and 457(d)(2) of the Internal Revenue Code to 
reflect current life expectancy.
    (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
            (1) In general.--Subparagraph (B) of section 401(a)(9) is 
        amended by striking clause (i) and redesignating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
            (2) Conforming changes.--
                    (A) Clause (i) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                            (i) by striking ``for other cases'' in the 
                        heading; and
                            (ii) by striking ``the distribution of the 
                        employee's interest has begun in accordance 
                        with subparagraph (A)(ii)'' and inserting ``his 
                        entire interest has been distributed to him''.
                    (B) Clause (ii) of section 401(a)(9)(B) (as so 
                redesignated) is amended by striking ``clause (ii)'' 
                and inserting ``clause (i)''.
                    (C) Clause (iii) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                            (i) by striking ``clause (iii)(I)'' and 
                        inserting ``clause (ii)(I)'';
                            (ii) by striking ``clause (iii)(III)'' in 
                        subclause (I) and inserting ``clause 
                        (ii)(III)'';
                            (iii) by striking ``the date on which the 
                        employee would have attained age 70\1/2\,'' in 
                        subclause (I) and inserting ``April 1 of the 
                        calendar year following the calendar year in 
                        which the spouse attains 70\1/2\,''; and
                            (iv) by striking ``the distributions to 
                        such spouse begin,'' in subclause (II) and 
                        inserting ``his entire interest has been 
                        distributed to him,''.
            (3) Effective date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to years beginning after December 31, 2001.
                    (B) Distributions to surviving spouse.--
                            (i) In general.--In the case of an employee 
                        described in clause (ii), distributions to the 
                        surviving spouse of the employee shall not be 
                        required to commence prior to the date on which 
                        such distributions would have been required to 
                        begin under section 401(a)(9)(B) of the 
                        Internal Revenue Code of 1986 (as in effect on 
                        the day before the date of the enactment of 
                        this Act).
                            (ii) Certain employees.--An employee is 
                        described in this clause if such employee dies 
                        before--
                                    (I) the date of the enactment of 
                                this Act, and
                                    (II) the required beginning date 
                                (within the meaning of section 
                                401(a)(9)(C) of the Internal Revenue 
                                Code of 1986) of the employee.

SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
              PLAN BENEFITS UPON DIVORCE.

    (a) In General.--Section 414(p)(11) (relating to application of 
rules to governmental and church plans) is amended--
            (1) by inserting ``or an eligible deferred compensation 
        plan (within the meaning of section 457(b))'' after 
        ``subsection (e))''; and
            (2) in the heading, by striking ``governmental and church 
        plans'' and inserting ``certain other plans''.
    (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
    (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
            ``(12) Tax treatment of payments from a section 457 plan.--
        If a distribution or payment from an eligible deferred 
        compensation plan described in section 457(b) is made pursuant 
        to a qualified domestic relations order, rules similar to the 
        rules of section 402(e)(1)(A) shall apply to such distribution 
        or payment.''.
    (d) Effective Date.--
            (1) In general.--The amendment made by subsection (c) shall 
        apply to transfers, distributions, and payments made after 
        December 31, 2001.
            (2) Amendments relating to assignments in divorce, etc., 
        proceedings.--The amendments made by subsections (a) and (b) 
        shall take effect on January 1, 2002, except that in the case 
        of a domestic relations order entered before such date, the 
        plan administrator--
                    (A) shall treat such order as a qualified domestic 
                relations order if such administrator is paying 
                benefits pursuant to such order on such date, and
                    (B) may treat any other such order entered before 
                such date as a qualified domestic relations order even 
                if such order does not meet the requirements of such 
                amendments.

SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

    (a) Safe Harbor Relief.--
            (1) In general.--The Secretary of the Treasury shall revise 
        the regulations relating to hardship distributions under 
        section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 
        1986 to provide that the period an employee is prohibited from 
        making elective and employee contributions in order for a 
        distribution to be deemed necessary to satisfy financial need 
        shall be equal to 6 months.
            (2) Effective date.--The revised regulations under this 
        subsection shall apply to years beginning after December 31, 
        2001.
    (b) Hardship Distributions Not Treated as Eligible Rollover 
Distributions.--
            (1) Modification of definition of eligible rollover.--
        Subparagraph (C) of section 402(c)(4) (relating to eligible 
        rollover distribution) is amended to read as follows:
                    ``(C) any distribution which is made upon hardship 
                of the employee.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to distributions made after December 31, 2001.

SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR 
              SIMILAR WORKERS.

    (a) In General.--Section 4972(c)(6) (relating to exceptions to 
nondeductible contributions), as amended by section 502, is amended by 
striking ``or'' at the end of subparagraph (A), by striking the period 
and inserting ``, or'' at the end of subparagraph (B), and by inserting 
after subparagraph (B) the following new subparagraph:
                    ``(C) so much of the contributions to a simple 
                retirement account (within the meaning of section 
                408(p)) or a simple plan (within the meaning of section 
                401(k)(11)) which are not deductible when contributed 
                solely because such contributions are not made in 
                connection with a trade or business of the employer.''
    (b) Exclusion of Certain Contributions.--Section 4972(c)(6), as 
amended by subsection (a), is amended by adding at the end the 
following new sentence: ``Subparagraph (C) shall not apply to 
contributions made on behalf of the employer or a member of the 
employer's family (as defined in section 447(e)(1)).''.
    (c) No Inference.--Nothing in the amendments made by this section 
shall be construed to infer the proper treatment of nondeductible 
contributions under the laws in effect before such amendments.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

          Subtitle D--Increasing Portability for Participants

SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
            (1) Rollovers from section 457 plans.--
                    (A) In general.--Section 457(e) (relating to other 
                definitions and special rules) is amended by adding at 
                the end the following:
            ``(16) Rollover amounts.--
                    ``(A) General rule.--In the case of an eligible 
                deferred compensation plan established and maintained 
                by an employer described in subsection (e)(1)(A), if--
                            ``(i) any portion of the balance to the 
                        credit of an employee in such plan is paid to 
                        such employee in an eligible rollover 
                        distribution (within the meaning of section 
                        402(c)(4) without regard to subparagraph (C) 
                        thereof),
                            ``(ii) the employee transfers any portion 
                        of the property such employee receives in such 
                        distribution to an eligible retirement plan 
                        described in section 402(c)(8)(B), and
                            ``(iii) in the case of a distribution of 
                        property other than money, the amount so 
                        transferred consists of the property 
                        distributed,
                then such distribution (to the extent so transferred) 
                shall not be includible in gross income for the taxable 
                year in which paid.
                    ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) and (9) of section 402(c) 
                and section 402(f) shall apply for purposes of 
                subparagraph (A).
                    ``(C) Reporting.--Rollovers under this paragraph 
                shall be reported to the Secretary in the same manner 
                as rollovers from qualified retirement plans (as 
                defined in section 4974(c)).''.
                    (B) Deferral limit determined without regard to 
                rollover amounts.--Section 457(b)(2) (defining eligible 
                deferred compensation plan) is amended by inserting 
                ``(other than rollover amounts)'' after ``taxable 
                year''.
                    (C) Direct rollover.--Paragraph (1) of section 
                457(d) is amended by striking ``and'' at the end of 
                subparagraph (A), by striking the period at the end of 
                subparagraph (B) and inserting ``, and'', and by 
                inserting after subparagraph (B) the following:
                    ``(C) in the case of a plan maintained by an 
                employer described in subsection (e)(1)(A), the plan 
                meets requirements similar to the requirements of 
                section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee transfer 
        in accordance with section 401(a)(31) shall not be includible 
        in gross income for the taxable year of transfer.''.
                    (D) Withholding.--
                            (i) Paragraph (12) of section 3401(a) is 
                        amended by adding at the end the following:
                    ``(E) under or to an eligible deferred compensation 
                plan which, at the time of such payment, is a plan 
                described in section 457(b) which is maintained by an 
                eligible employer described in section 457(e)(1)(A), 
                or''.
                            (ii) Paragraph (3) of section 3405(c) is 
                        amended to read as follows:
            ``(3) Eligible rollover distribution.--For purposes of this 
        subsection, the term `eligible rollover distribution' has the 
        meaning given such term by section 402(f)(2)(A).''.
                            (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) is 
                        amended by striking ``or'' at the end of clause 
                        (ii), by striking the period at the end of 
                        clause (iii) and inserting ``, or'', and by 
                        adding at the end the following:
                            ``(iv) section 457(b) and which is 
                        maintained by an eligible employer described in 
                        section 457(e)(1)(A).''.
            (2) Rollovers to section 457 plans.--
                    (A) In general.--Section 402(c)(8)(B) (defining 
                eligible retirement plan) is amended by striking 
                ``and'' at the end of clause (iii), by striking the 
                period at the end of clause (iv) and inserting ``, 
                and'', and by inserting after clause (iv) the following 
                new clause:
                            ``(v) an eligible deferred compensation 
                        plan described in section 457(b) which is 
                        maintained by an eligible employer described in 
                        section 457(e)(1)(A).''.
                    (B) Separate accounting.--Section 402(c) is amended 
                by adding at the end the following new paragraph:
            ``(11) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately account for 
        amounts rolled into such plan from eligible retirement plans 
        not described in such clause, the plan described in such clause 
        may not accept transfers or rollovers from such retirement 
        plans.''.
                    (C) 10 percent additional tax.--Subsection (t) of 
                section 72 (relating to 10-percent additional tax on 
                early distributions from qualified retirement plans) is 
                amended by adding at the end the following new 
                paragraph:
            ``(9) Special rule for rollovers to section 457 plans.--For 
        purposes of this subsection, a distribution from an eligible 
        deferred compensation plan (as defined in section 457(b)) of an 
        eligible employer described in section 457(e)(1)(A) shall be 
        treated as a distribution from a qualified retirement plan 
        described in 4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible deferred 
        compensation plan from a qualified retirement plan (as defined 
        in section 4974(c)).''.
    (b) Allowance of Rollovers From and to 403(b) Plans.--
            (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
        striking ``such distribution'' and all that follows and 
        inserting ``such distribution to an eligible retirement plan 
        described in section 402(c)(8)(B), and''.
            (2) Rollovers to section 403(b) plans.--Section 
        402(c)(8)(B) (defining eligible retirement plan), as amended by 
        subsection (a), is amended by striking ``and'' at the end of 
        clause (iv), by striking the period at the end of clause (v) 
        and inserting ``, and'', and by inserting after clause (v) the 
        following new clause:
                            ``(vi) an annuity contract described in 
                        section 403(b).''.
    (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) is amended 
by striking ``and'' at the end of subparagraph (C), by striking the 
period at the end of subparagraph (D) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
                    ``(E) of the provisions under which distributions 
                from the eligible retirement plan receiving the 
                distribution may be subject to restrictions and tax 
                consequences which are different from those applicable 
                to distributions from the plan making such 
                distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover 
where spouse receives distribution after death of employee) is amended 
by striking ``; except that'' and all that follows up to the end 
period.
    (e) Conforming Amendments.--
            (1) Section 72(o)(4) is amended by striking ``and 
        408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
        457(e)(16)''.
            (2) Section 219(d)(2) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
            (3) Section 401(a)(31)(B) is amended by striking ``and 
        403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
        457(e)(16)''.
            (4) Subparagraph (A) of section 402(f)(2) is amended by 
        striking ``or paragraph (4) of section 403(a)'' and inserting 
        ``, paragraph (4) of section 403(a), subparagraph (A) of 
        section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
            (5) Paragraph (1) of section 402(f) is amended by striking 
        ``from an eligible retirement plan''.
            (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
        amended by striking ``another eligible retirement plan'' and 
        inserting ``an eligible retirement plan''.
            (7) Subparagraph (B) of section 403(b)(8) is amended to 
        read as follows:
                    ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) and (9) of section 402(c) 
                and section 402(f) shall apply for purposes of 
                subparagraph (A), except that section 402(f) shall be 
                applied to the payor in lieu of the plan 
                administrator.''.
            (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
            (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
        amended by striking ``and 408(d)(3)'' and inserting 
        ``403(b)(8), 408(d)(3), and 457(e)(16)''.
            (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
            (11) Section 4973(b)(1)(A) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
    (f) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
            (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of any amendment made by this section.

SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

    (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                            ``(ii) the entire amount received 
                        (including money and any other property) is 
                        paid into an eligible retirement plan for the 
                        benefit of such individual not later than the 
                        60th day after the date on which the payment or 
distribution is received, except that the maximum amount which may be 
paid into such plan may not exceed the portion of the amount received 
which is includible in gross income (determined without regard to this 
paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' means an eligible retirement plan 
                described in clause (iii), (iv), (v), or (vi) of 
                section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 403(b) is amended by striking 
        ``section 408(d)(3)(A)(iii)'' and inserting ``section 
        408(d)(3)(A)(ii)''.
            (2) Clause (i) of section 408(d)(3)(D) is amended by 
        striking ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
            (3) Subparagraph (G) of section 408(d)(3) is amended to 
        read as follows:
                    ``(G) Simple retirement accounts.--In the case of 
                any payment or distribution out of a simple retirement 
                account (as defined in subsection (p)) to which section 
                72(t)(6) applies, this paragraph shall not apply unless 
                such payment or distribution is paid into another 
                simple retirement account.''.
    (c) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
            (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of the amendments made by this section.

SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
                    ``(A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified trust which 
                is part of a plan which is a defined contribution plan 
                and which agrees to separately account for amounts so 
                transferred, including separately accounting for the 
                portion of such distribution which is includible in 
                gross income and the portion of such distribution which 
                is not so includible, or
                    ``(B) such portion is transferred to an eligible 
                retirement plan described in clause (i) or (ii) of 
                paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply to such distribution if the plan to which such 
distribution is transferred--
                            ``(i) agrees to separately account for 
                        amounts so transferred, including separately 
                        accounting for the portion of such distribution 
                        which is includible in gross income and the 
                        portion of such distribution which is not so 
                        includible, or
                            ``(ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of section 
                        402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of 
section 408(d) (relating to special rules for applying section 72) is 
amended by inserting at the end the following:
                    ``(H) Application of section 72.--
                            ``(i) In general.--If--
                                    ``(I) a distribution is made from 
                                an individual retirement plan, and
                                    ``(II) a rollover contribution is 
                                made to an eligible retirement plan 
                                described in section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect to all 
                                or part of such distribution,
                        then, notwithstanding paragraph (2), the rules 
                        of clause (ii) shall apply for purposes of 
                        applying section 72.
                            ``(ii) Applicable rules.--In the case of a 
                        distribution described in clause (i)--
                                    ``(I) section 72 shall be applied 
                                separately to such distribution,
                                    ``(II) notwithstanding the pro rata 
                                allocation of income on, and investment 
                                in, the contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an eligible 
                                retirement plan described in clause (i) 
                                shall be treated as from income on the 
                                contract (to the extent of the 
                                aggregate income on the contract from 
                                all individual retirement plans of the 
                                distributee), and
                                    ``(III) appropriate adjustments 
                                shall be made in applying section 72 to 
                                other distributions in such taxable 
                                year and subsequent taxable years.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2001.

SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
            ``(3) Transfer must be made within 60 days of receipt.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply to any 
                transfer of a distribution made after the 60th day 
                following the day on which the distributee received the 
property distributed.
                    ``(B) Hardship exception.--The Secretary may waive 
                the 60-day requirement under subparagraph (A) where the 
                failure to waive such requirement would be against 
                equity or good conscience, including casualty, 
                disaster, or other events beyond the reasonable control 
                of the individual subject to such requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 643, is amended by adding after 
subparagraph (H) the following new subparagraph:
                    ``(I) Waiver of 60-day requirement.--The Secretary 
                may waive the 60-day requirement under subparagraphs 
                (A) and (D) where the failure to waive such requirement 
                would be against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to such 
                requirement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
            (1) Amendment of internal revenue code.--Paragraph (6) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended by adding at the end the following:
                    ``(D) Plan transfers.--
                            ``(i) In general.--A defined contribution 
                        plan (in this subparagraph referred to as the 
                        `transferee plan') shall not be treated as 
                        failing to meet the requirements of this 
                        subsection merely because the transferee plan 
                        does not provide some or all of the forms of 
                        distribution previously available under another 
                        defined contribution plan (in this subparagraph 
                        referred to as the `transferor plan') to the 
                        extent that--
                                    ``(I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the account 
                                of a participant or beneficiary under 
                                the transferor plan that was 
                                transferred from the transferor plan to 
                                the transferee plan pursuant to a 
                                direct transfer rather than pursuant to 
                                a distribution from the transferor 
                                plan,
                                    ``(II) the terms of both the 
                                transferor plan and the transferee plan 
                                authorize the transfer described in 
                                subclause (I),
                                    ``(III) the transfer described in 
                                subclause (I) was made pursuant to a 
                                voluntary election by the participant 
                                or beneficiary whose account was 
                                transferred to the transferee plan,
                                    ``(IV) the election described in 
                                subclause (III) was made after the 
                                participant or beneficiary received a 
                                notice describing the consequences of 
                                making the election, and
                                    ``(V) the transferee plan allows 
                                the participant or beneficiary 
                                described in subclause (III) to receive 
                                any distribution to which the 
                                participant or beneficiary is entitled 
                                under the transferee plan in the form 
                                of a single sum distribution.
                            ``(ii) Special rule for mergers, etc.--
                        Clause (i) shall apply to plan mergers and 
                        other transactions having the effect of a 
                        direct transfer, including consolidations of 
                        benefits attributable to different employers 
                        within a multiple employer plan.''.
            (2) Amendment of erisa.--Section 204(g) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
        amended by adding at the end the following:
    ``(4)(A) A defined contribution plan (in this subparagraph referred 
to as the `transferee plan') shall not be treated as failing to meet 
the requirements of this subsection merely because the transferee plan 
does not provide some or all of the forms of distribution previously 
available under another defined contribution plan (in this subparagraph 
referred to as the `transferor plan') to the extent that--
            ``(i) the forms of distribution previously available under 
        the transferor plan applied to the account of a participant or 
        beneficiary under the transferor plan that was transferred from 
        the transferor plan to the transferee plan pursuant to a direct 
        transfer rather than pursuant to a distribution from the 
        transferor plan;
            ``(ii) the terms of both the transferor plan and the 
        transferee plan authorize the transfer described in clause (i);
            ``(iii) the transfer described in clause (i) was made 
        pursuant to a voluntary election by the participant or 
        beneficiary whose account was transferred to the transferee 
        plan;
            ``(iv) the election described in clause (iii) was made 
        after the participant or beneficiary received a notice 
        describing the consequences of making the election; and
            ``(v) the transferee plan allows the participant or 
        beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a single sum 
        distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including 
consolidations of benefits attributable to different employers within a 
multiple employer plan.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.
    (b) Regulations.--
            (1) Amendment of internal revenue code.--The last sentence 
        of paragraph (6)(B) of section 411(d) (relating to accrued 
        benefit not to be decreased by amendment) is amended to read as 
        follows: ``The Secretary shall by regulations provide that this 
        subparagraph shall not apply to any plan amendment which 
        reduces or eliminates benefits or subsidies which create 
        significant burdens or complexities for the plan and plan 
        participants, unless such amendment adversely affects the 
        rights of any participant in a more than de minimis manner.''.
            (2) Amendment of erisa.--The last sentence of section 
        204(g)(2) of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1054(g)(2)) is amended to read as follows: 
        ``The Secretary of the Treasury shall by regulations provide 
        that this paragraph shall not apply to any plan amendment which 
        reduces or eliminates benefits or subsidies which create 
        significant burdens or complexities for the plan and plan 
        participants, unless such amendment adversely affects the 
        rights of any participant in a more than de minimis manner.''.
            (3) Secretary directed.--Not later than December 31, 2002, 
        the Secretary of the Treasury is directed to issue regulations 
        under section 411(d)(6) of the Internal Revenue Code of 1986 
        and section 204(g) of the Employee Retirement Income Security 
        Act of 1974, including the regulations required by the 
        amendment made by this subsection. Such regulations shall apply 
        to plan years beginning after December 31, 2002, or such 
        earlier date as is specified by the Secretary of the Treasury.

SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
            (1) Section 401(k).--
                    (A) Section 401(k)(2)(B)(i)(I) (relating to 
                qualified cash or deferred arrangements) is amended by 
                striking ``separation from service'' and inserting 
                ``severance from employment''.
                    (B) Subparagraph (A) of section 401(k)(10) 
                (relating to distributions upon termination of plan or 
                disposition of assets or subsidiary) is amended to read 
                as follows:
                    ``(A) In general.--An event described in this 
                subparagraph is the termination of the plan without 
                establishment or maintenance of another defined 
                contribution plan (other than an employee stock 
                ownership plan as defined in section 4975(e)(7)).''.
                    (C) Section 401(k)(10) is amended--
                            (i) in subparagraph (B)--
                                    (I) by striking ``An event'' in 
                                clause (i) and inserting ``A 
                                termination''; and
                                    (II) by striking ``the event'' in 
                                clause (i) and inserting ``the 
                                termination'';
                            (ii) by striking subparagraph (C); and
                            (iii) by striking ``or disposition of 
                        assets or subsidiary'' in the heading.
            (2) Section 403(b).--
                    (A) Paragraphs (7)(A)(ii) and (11)(A) of section 
                403(b) are each amended by striking ``separates from 
                service'' and inserting ``has a severance from 
                employment''.
                    (B) The heading for paragraph (11) of section 
                403(b) is amended by striking ``separation from 
                service'' and inserting ``severance from employment''.
            (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
        amended by striking ``is separated from service'' and inserting 
        ``has a severance from employment''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
              PLANS.

    (a) 403(b) Plans.--Subsection (b) of section 403 is amended by 
adding at the end the following new paragraph:
            ``(13) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                    ``(B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.''.
    (b) 457 Plans.--Subsection (e) of section 457, as amended by 
section 401, is amended by adding after paragraph (16) the following 
new paragraph:
            ``(17) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
by reason of a direct trustee-to-trustee transfer to a defined benefit 
governmental plan (as defined in section 414(d)) if such transfer is--
                    ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                    ``(B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to trustee-to-trustee transfers after December 31, 2001.

SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
              AMOUNTS.

    (a) Qualified Plans.--
            (1) Amendment of internal revenue code.--Section 411(a)(11) 
        (relating to restrictions on certain mandatory distributions) 
        is amended by adding at the end the following:
                    ``(D) Special rule for rollover contributions.--A 
                plan shall not fail to meet the requirements of this 
                paragraph if, under the terms of the plan, the present 
                value of the nonforfeitable accrued benefit is 
                determined without regard to that portion of such 
                benefit which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes of this 
                subparagraph, the term `rollover contributions' means 
                any rollover contribution under sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
                457(e)(16).''.
            (2) Amendment of erisa.--Section 203(e) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
        amended by adding at the end the following:
    ``(4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value of the 
nonforfeitable accrued benefit is determined without regard to that 
portion of such benefit which is attributable to rollover contributions 
(and earnings allocable thereto). For purposes of this subparagraph, 
the term `rollover contributions' means any rollover contribution under 
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
              457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
            ``(2) Minimum distribution requirements.--A plan meets the 
        minimum distribution requirements of this paragraph if such 
        plan meets the requirements of section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
            (1) Year of inclusion.--Subsection (a) of section 457 
        (relating to year of inclusion in gross income) is amended to 
        read as follows:
    ``(a) Year of Inclusion in Gross Income.--
            ``(1) In general.--Any amount of compensation deferred 
        under an eligible deferred compensation plan, and any income 
        attributable to the amounts so deferred, shall be includible in 
        gross income only for the taxable year in which such 
        compensation or other income--
                    ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an eligible 
                employer described in subsection (e)(1)(A), and
                    ``(B) is paid or otherwise made available to the 
                participant or other beneficiary, in the case of a plan 
                of an eligible employer described in subsection 
                (e)(1)(B).
            ``(2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply to any 
        amount includible in gross income under this subsection.''.
            (2) Conforming amendments.--
                    (A) So much of paragraph (9) of section 457(e) as 
                precedes subparagraph (A) is amended to read as 
                follows:
            ``(9) Benefits of tax exempt organization plans not treated 
        as made available by reason of certain elections, etc.--In the 
        case of an eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(B)--''.
                    (B) Section 457(d) is amended by adding at the end 
                the following new paragraph:
            ``(3) Special rule for government plan.--An eligible 
        deferred compensation plan of an employer described in 
        subsection (e)(1)(A) shall not be treated as failing to meet 
the requirements of this subsection solely by reason of making a 
distribution described in subsection (e)(9)(A).''.
    (c) Modification of Transition Rules for Existing 457 Plans.--
            (1) In general.--Section 1107(c)(3)(B) of the Tax Reform 
        Act of 1986 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) are deferred pursuant to an 
                        agreement with an individual covered by an 
                        agreement described in clause (ii), to the 
                        extent the annual amount under such agreement 
                        with the individual does not exceed--
                                    ``(I) the amount described in 
                                clause (ii)(II), multiplied by
                                    ``(II) the cumulative increase in 
                                the Consumer Price Index (as published 
                                by the Bureau of Labor Statistics of 
                                the Department of Labor).''.
            (2) Conforming amendment.--The fourth sentence of section 
        1107(c)(3)(B) of the Tax Reform Act of 1986 is amended by 
        striking ``This subparagraph'' and inserting ``Clauses (i) and 
        (ii) of this subparagraph''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act with respect to increases in the Consumer 
        Price Index after September 30, 1993.
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to distributions after December 31, 2001.

       Subtitle E--Strengthening Pension Security and Enforcement

                       PART I--GENERAL PROVISIONS

SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

    (a) Amendments to Internal Revenue Code.--Section 412(c)(7) 
(relating to full-funding limitation) is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of plan 
        years beginning before January 1, 2005, the applicable 
        percentage''; and
            (2) by amending subparagraph (F) to read as follows:
                    ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                    2002...................................       160  
                    2003...................................       165  
                    2004...................................     170.''.
    (b) Amendment of ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is 
amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of plan 
        years beginning before January 1, 2005, the applicable 
        percentage'', and
            (2) by amending subparagraph (F) to read as follows:
                    ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                    2002...................................        160 
                    2003...................................        165 
                    2004...................................     170.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
              ALL DEFINED BENEFIT PLANS.

    (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
                    ``(D) Special rule in case of certain plans.--
                            ``(i) In general.--In the case of any 
                        defined benefit plan, except as provided in 
                        regulations, the maximum amount deductible 
                        under the limitations of this paragraph shall 
                        not be less than the unfunded termination 
                        liability (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee Retirement 
                        Income Security Act of 1974 were the last day 
                        of the plan year).
                            ``(ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan which has 
                        less than 100 participants for the plan year, 
                        termination liability shall not include the 
                        liability attributable to benefit increases for 
                        highly compensated employees (as defined in 
                        section 414(q)) resulting from a plan amendment 
                        which is made or becomes effective, whichever 
                        is later, within the last 2 years before the 
                        termination date.
                            ``(iii) Rule for determining number of 
                        participants.--For purposes of determining 
                        whether a plan has more than 100 participants, 
                        all defined benefit plans maintained by the 
                        same employer (or any member of such employer's 
                        controlled group (within the meaning of section 
                        412(l)(8)(C))) shall be treated as one plan, 
                        but only employees of such member or employer 
                        shall be taken into account.
                            ``(iv) Plans maintained by professional 
                        service employers.--Clause (i) shall not apply 
                        to a plan described in section 4021(b)(13) of 
                        the Employee Retirement Income Security Act of 
                        1974.''.
    (b) Conforming Amendment.--Paragraph (6) of section 4972(c) is 
amended to read as follows:
            ``(6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there shall 
        not be taken into account so much of the contributions to one 
        or more defined contribution plans which are not deductible 
when contributed solely because of section 404(a)(7) as does not exceed 
the greater of--
                    ``(A) the amount of contributions not in excess of 
                6 percent of compensation (within the meaning of 
                section 404(a)) paid or accrued (during the taxable 
                year for which the contributions were made) to 
                beneficiaries under the plans, or
                    ``(B) the sum of--
                            ``(i) the amount of contributions described 
                        in section 401(m)(4)(A), plus
                            ``(ii) the amount of contributions 
                        described in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits under 
        section 404(a)(7) shall first be applied to amounts contributed 
        to a defined benefit plan and then to amounts described in 
        subparagraph (B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
            ``(7) Defined benefit plan exception.--In determining the 
        amount of nondeductible contributions for any taxable year, an 
        employer may elect for such year not to take into account any 
        contributions to a defined benefit plan except to the extent 
        that such contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard to 
        subparagraph (A)(i)(I) thereof). For purposes of this 
        paragraph, the deductible limits under section 404(a)(7) shall 
        first be applied to amounts contributed to defined contribution 
        plans and then to amounts described in this paragraph. If an 
        employer makes an election under this paragraph for a taxable 
        year, paragraph (6) shall not apply to such employer for such 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--
            (1) In general.--Paragraph (11) of section 415(b) (relating 
        to limitation for defined benefit plans) is amended to read as 
        follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental plan (as 
        defined in section 414(d)) or a multiemployer plan (as defined 
        in section 414(f)), subparagraph (B) of paragraph (1) shall not 
        apply.''.
            (2) Conforming amendment.--Section 415(b)(7) (relating to 
        benefits under certain collectively bargained plans) is amended 
        by inserting ``(other than a multiemployer plan)'' after 
        ``defined benefit plan'' in the matter preceding subparagraph 
        (A).
    (b) Combining and Aggregation of Plans.--
            (1) Combining of plans.--Subsection (f) of section 415 
        (relating to combining of plans) is amended by adding at the 
        end the following:
            ``(3) Exception for multiemployer plans.--Notwithstanding 
        paragraph (1) and subsection (g), a multiemployer plan (as 
        defined in section 414(f)) shall not be combined or aggregated 
        with any other plan maintained by an employer for purposes of 
        applying subsection (b)(1)(B) to such plan or any other such 
        plan.''.
            (2) Conforming amendment for aggregation of plans.--
        Subsection (g) of section 415 (relating to aggregation of 
        plans) is amended by striking ``The Secretary'' and inserting 
        ``Except as provided in subsection (f)(3), the Secretary''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
              PLANS.

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

SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

    (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Prohibited Allocations of Securities in an S Corporation.--
            ``(1) In general.--An employee stock ownership plan holding 
        employer securities consisting of stock in an S corporation 
        shall provide that no portion of the assets of the plan 
        attributable to (or allocable in lieu of) such employer 
        securities may, during a nonallocation year, accrue (or be 
        allocated directly or indirectly under any plan of the employer 
        meeting the requirements of section 401(a)) for the benefit of 
        any disqualified person.
            ``(2) Failure to meet requirements.--
                    ``(A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall be 
                treated as having distributed to any disqualified 
                person the amount allocated to the account of such 
                person in violation of paragraph (1) at the time of 
                such allocation.
                    ``(B) Cross reference.--

                                ``For excise tax relating to violations 
of paragraph (1) and ownership of synthetic equity, see section 4979A.
            ``(3) Nonallocation year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonallocation year' 
                means any plan year of an employee stock ownership plan 
                if, at any time during such plan year--
                            ``(i) such plan holds employer securities 
                        consisting of stock in an S corporation, and
                            ``(ii) disqualified persons own at least 50 
                        percent of the number of shares of stock in the 
                        S corporation.
                    ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The rules of section 
                        318(a) shall apply for purposes of determining 
                        ownership, except that--
                                    ``(I) in applying paragraph (1) 
                                thereof, the members of an individual's 
                                family shall include members of the 
                                family described in paragraph (4)(D), 
                                and
                                    ``(II) paragraph (4) thereof shall 
                                not apply.
                            ``(ii) Deemed-owned shares.--
                        Notwithstanding the employee trust exception in 
                        section 318(a)(2)(B)(i), an individual shall be 
                        treated as owning deemed-owned shares of the 
                        individual.
                Solely for purposes of applying paragraph (5), this 
                subparagraph shall be applied after the attribution 
                rules of paragraph (5) have been applied.
            ``(4) Disqualified person.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `disqualified person' 
                means any person if--
                            ``(i) the aggregate number of deemed-owned 
                        shares of such person and the members of such 
                        person's family is at least 20 percent of the 
                        number of deemed-owned shares of stock in the S 
                        corporation, or
                            ``(ii) in the case of a person not 
                        described in clause (i), the number of deemed-
                        owned shares of such person is at least 10 
                        percent of the number of deemed-owned shares of 
                        stock in such corporation.
                    ``(B) Treatment of family members.--In the case of 
                a disqualified person described in subparagraph (A)(i), 
                any member of such person's family with deemed-owned 
                shares shall be treated as a disqualified person if not 
                otherwise treated as a disqualified person under 
                subparagraph (A).
                    ``(C) Deemed-owned shares.--
                            ``(i) In general.--The term `deemed-owned 
                        shares' means, with respect to any person--
                                    ``(I) the stock in the S 
                                corporation constituting employer 
                                securities of an employee stock 
                                ownership plan which is allocated to 
                                such person under the plan, and
                                    ``(II) such person's share of the 
                                stock in such corporation which is held 
                                by such plan but which is not allocated 
                                under the plan to participants.
                            ``(ii) Person's share of unallocated 
                        stock.--For purposes of clause (i)(II), a 
                        person's share of unallocated S corporation 
                        stock held by such plan is the amount of the 
                        unallocated stock which would be allocated to 
                        such person if the unallocated stock were 
                        allocated to all participants in the same 
                        proportions as the most recent stock allocation 
                        under the plan.
                    ``(D) Member of family.--For purposes of this 
                paragraph, the term `member of the family' means, with 
                respect to any individual--
                            ``(i) the spouse of the individual,
                            ``(ii) an ancestor or lineal descendant of 
                        the individual or the individual's spouse,
                            ``(iii) a brother or sister of the 
                        individual or the individual's spouse and any 
                        lineal descendant of the brother or sister, and
                            ``(iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally separated from 
                such individual under a decree of divorce or separate 
                maintenance shall not be treated as such individual's 
                spouse for purposes of this subparagraph.
            ``(5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who owns 
        synthetic equity in the S corporation, except to the extent 
        provided in regulations, the shares of stock in such 
        corporation on which such synthetic equity is based shall be 
        treated as outstanding stock in such corporation and deemed-
        owned shares of such person if such treatment of synthetic 
        equity of 1 or more such persons results in--
                    ``(A) the treatment of any person as a disqualified 
                person, or
                    ``(B) the treatment of any year as a nonallocation 
                year.
        For purposes of this paragraph, synthetic equity shall be 
        treated as owned by a person in the same manner as stock is 
        treated as owned by a person under the rules of paragraphs (2) 
        and (3) of section 318(a). If, without regard to this 
        paragraph, a person is treated as a disqualified person or a 
        year is treated as a nonallocation year, this paragraph shall 
        not be construed to result in the person or year not being so 
        treated.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Employee stock ownership plan.--The term 
                `employee stock ownership plan' has the meaning given 
                such term by section 4975(e)(7).
                    ``(B) Employer securities.--The term `employer 
                security' has the meaning given such term by section 
                409(l).
                    ``(C) Synthetic equity.--The term `synthetic 
                equity' means any stock option, warrant, restricted 
                stock, deferred issuance stock right, or similar 
                interest or right that gives the holder the right to 
                acquire or receive stock of the S corporation in the 
                future. Except to the extent provided in regulations, 
                synthetic equity also includes a stock appreciation 
                right, phantom stock unit, or similar right to a future 
                cash payment based on the value of such stock or 
                appreciation in such value.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection.''.
    (b) Coordination With Section 4975(e)(7).--The last sentence of 
section 4975(e)(7) (defining employee stock ownership plan) is amended 
by inserting ``, section 409(p),'' after ``409(n)''.
    (c) Excise Tax.--
            (1) Application of tax.--Subsection (a) of section 4979A 
        (relating to tax on certain prohibited allocations of employer 
        securities) is amended--
                    (A) by striking ``or'' at the end of paragraph (1), 
                and
                    (B) by striking all that follows paragraph (2) and 
                inserting the following:
            ``(3) there is any allocation of employer securities which 
        violates the provisions of section 409(p), or a nonallocation 
        year described in subsection (e)(2)(C) with respect to an 
        employee stock ownership plan, or
            ``(4) any synthetic equity is owned by a disqualified 
        person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 
50 percent of the amount involved.''.
            (2) Liability.--Section 4979A(c) (defining liability for 
        tax) is amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid--
            ``(1) in the case of an allocation referred to in paragraph 
        (1) or (2) of subsection (a), by--
                    ``(A) the employer sponsoring such plan, or
                    ``(B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), 
        and
            ``(2) in the case of an allocation or ownership referred to 
        in paragraph (3) or (4) of subsection (a), by the S corporation 
        the stock in which was so allocated or owned.''.
            (3) Definitions.--Section 4979A(e) (relating to 
        definitions) is amended to read as follows:
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Except as provided in paragraph (2), 
        terms used in this section have the same respective meanings as 
        when used in sections 409 and 4978.
            ``(2) Special rules relating to tax imposed by reason of 
        paragraph (3) or (4) of subsection (a).--
                    ``(A) Prohibited allocations.--The amount involved 
                with respect to any tax imposed by reason of subsection 
                (a)(3) is the amount allocated to the account of any 
                person in violation of section 409(p)(1).
                    ``(B) Synthetic equity.--The amount involved with 
                respect to any tax imposed by reason of subsection 
                (a)(4) is the value of the shares on which the 
                synthetic equity is based.
                    ``(C) Special rule during first nonallocation 
                year.--For purposes of subparagraph (A), the amount 
                involved for the first nonallocation year of any 
                employee stock ownership plan shall be determined by 
                taking into account the total value of all the deemed-
                owned shares of all disqualified persons with respect 
                to such plan.
                    ``(D) Statute of limitations.--The statutory period 
                for the assessment of any tax imposed by this section 
                by reason of paragraph (3) or (4) of subsection (a) 
                shall not expire before the date which is 3 years from 
                the later of--
                            ``(i) the allocation or ownership referred 
                        to in such paragraph giving rise to such tax, 
                        or
                            ``(ii) the date on which the Secretary is 
                        notified of such allocation or ownership.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2002.
            (2) Exception for certain plans.--In the case of any--
                    (A) employee stock ownership plan established after 
                July 11, 2000, or
                    (B) employee stock ownership plan established on or 
                before such date if employer securities held by the 
                plan consist of stock in a corporation with respect to 
                which an election under section 1362(a) of the Internal 
                Revenue Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan years 
        ending after July 11, 2000.

SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DISTRIBUTIONS.

    (a) Direct Transfers of Mandatory Distributions.--
            (1) In general.--Section 401(a)(31) (relating to optional 
        direct transfer of eligible rollover distributions), as amended 
        by section 643, is amended by redesignating subparagraphs (B), 
        (C), and (D) as subparagraphs (C), (D), and (E), respectively, 
        and by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Certain mandatory distributions.--
                            ``(i) In general.--In case of a trust which 
                        is part of an eligible plan, such trust shall 
                        not constitute a qualified trust under this 
                        section unless the plan of which such trust is 
                        a part provides that if--
                                    ``(I) a distribution described in 
                                clause (ii) in excess of $1,000 is 
                                made, and
                                    ``(II) the distributee does not 
                                make an election under subparagraph (A) 
                                and does not elect to receive the 
                                distribution directly,
                        the plan administrator shall make such transfer 
                        to an individual retirement account or annuity 
                        of a designated trustee or issuer and shall 
                        notify the distributee in writing (either 
                        separately or as part of the notice under 
                        section 402(f)) that the distribution may be 
                        transferred without cost or penalty to another 
                        individual account or annuity.
                            ``(ii) Eligible plan.--For purposes of 
                        clause (i), the term `eligible plan' means a 
                        plan which provides that any nonforfeitable 
                        accrued benefit for which the present value (as 
                        determined under section 411(a)(11)) does not 
                        exceed $5,000 shall be immediately distributed 
                        to the participant.''.
            (2) Conforming amendments.--
                    (A) The heading of section 401(a)(31) is amended by 
                striking ``Optional direct'' and inserting ``Direct''.
                    (B) Section 401(a)(31)(C), as redesignated by 
                paragraph (1), is amended by striking ``Subparagraph 
                (A)'' and inserting ``Subparagraphs (A) and (B)''.
    (b) Notice Requirement.--Section 402(f)(1) (relating to written 
explanation to recipients of distributions eligible for rollover 
treatment) is amended by striking ``and'' at the end of subparagraph 
(C), by striking the period at the end of subparagraph (D), and by 
adding at the end the following new subparagraph:
                    ``(E) if applicable, of the provision requiring a 
                direct trustee-to-trustee transfer of a distribution 
                under section 401(a)(31)(B) unless the recipient elects 
                otherwise.''.
    (c) Fiduciary Rules.--
            (1) In general.--Section 404(c) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended by 
        adding at the end the following new paragraph:
            ``(3) In the case of a pension plan which makes a transfer 
        to an individual retirement account or annuity of a designated 
        trustee or issuer under section 401(a)(31)(B) of the Internal 
        Revenue Code of 1986, the participant or beneficiary shall, for 
        purposes of paragraph (1), be treated as exercising control 
        over the assets in the account or annuity upon the earlier of--
                    ``(A) a rollover of all or a portion of the amount 
                to another individual retirement account or annuity; or
                    ``(B) one year after the transfer is made.''.
            (2) Regulations.--
                    (A) Automatic rollover safe harbor.--The Secretary 
                of Labor shall promulgate regulations to provide 
                guidance regarding meeting the fiduciary requirements 
                of section 404(a) of the Employee Retirement Income 
                Security Act of 1974 (29 U.S.C. 1104(a)) in the case of 
                a pension plan which makes a transfer under section 
                401(a)(31)(B) of the Internal Revenue Code of 1986.
                    (B) Use of low-cost individual retirement plans.--
                The Secretary of the Treasury and the Secretary of 
                Labor shall promulgate such regulations as necessary to 
                encourage the use of low-cost individual retirement 
                plans for purposes of transfers under section 
                401(a)(31)(B) of the Internal Revenue Code of 1986 and 
                for other uses as appropriate to promote the 
                preservation of assets for retirement income purposes.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after final regulations implementing 
subsection (c) are prescribed.

SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO MULTIEMPLOYER 
              PLAN.

    (a) Not Considered Method of Accounting.--For purposes of section 
446 of the Internal Revenue Code of 1986, a determination under section 
404(a)(6) of such Code regarding the taxable year with respect to which 
a contribution to a multiemployer pension plan is deemed made shall not 
be treated as a method of accounting of the taxpayer. No deduction 
shall be allowed for any taxable year for any contribution to a 
multiemployer pension plan with respect to which a deduction was 
previously allowed.
    (b) Regulations.--The Secretary of the Treasury shall promulgate 
such regulations as necessary to clarify that a taxpayer shall not be 
allowed, with respect to any taxable year, an aggregate amount of 
deductions for contributions to a multiemployer pension plan which 
exceeds the amount of such contributions made or deemed made under 
section 404(a)(6) of the Internal Revenue Code of 1986 to such plan.
    (c) Effective Date.--Subsection (a), and any regulations 
promulgated under subsection (b), shall be effective for years ending 
after the date of the enactment of this Act.

 PART II--TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS

SEC. 659. NOTICE REQUIRED FOR PENSION PLAN AMENDMENTS HAVING THE EFFECT 
              OF SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

    (a) Excise Tax.--
            (1) In general.--Chapter 43 (relating to qualified pension, 
        etc., plans) is amended by adding at the end the following new 
        section:

``SEC. 4980F. FAILURE TO PROVIDE NOTICE OF PENSION PLAN AMENDMENTS 
              REDUCING BENEFIT ACCRUALS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of an applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        individual shall be $100 for each day in the noncompliance 
        period with respect to such failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the notice to which the failure 
        relates is provided or the failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        person subject to liability for the tax under subsection (d) 
        did not know that the failure existed and exercised reasonable 
        diligence to meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the notice described in 
                subsection (e) during the 30-day period beginning on 
                the first date such person knew, or exercising 
                reasonable diligence would have known, that such 
                failure existed.
            ``(3) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice Requirements for Plan Amendments Significantly 
Reducing Benefit Accruals.--
            ``(1) In general.--If the sponsor of an applicable pension 
        plan adopts an amendment which has the effect of significantly 
        reducing the rate of future benefit accrual of 1 or more 
        participants, the plan administrator shall, not later than the 
        45th day before the effective date of the amendment, provide 
        written notice to each applicable individual (and to each 
        employee organization representing applicable individuals) 
        which--
                    ``(A) sets forth a summary of the plan amendment 
                and the effective date of the amendment,
                    ``(B) includes a statement that the plan amendment 
                is expected to significantly reduce the rate of future 
                benefit accrual,
                    ``(C) includes a description of the classes of 
                employees reasonably expected to be affected by the 
                reduction in the rate of future benefit accrual,
                    ``(D) sets forth examples illustrating how the plan 
                will change benefits for such classes of employees,
                    ``(E) if paragraph (2) applies to the plan 
                amendment, includes a notice that the plan 
                administrator will provide a benefit estimation tool 
                kit described in paragraph (2)(B) to each applicable 
                individual no later than the date required under 
                paragraph (2)(A), and
                    ``(F) includes a notice of each applicable 
                individual's right under Federal law to receive, and of 
                the procedures for requesting, an annual benefit 
                statement.
            ``(2) Requirement to provide benefit estimation tool kit.--
                    ``(A) In general.--If a plan amendment results in 
                the significant restructuring of the plan benefit 
                formula (as determined under regulations prescribed by 
                the Secretary), the plan administrator shall, not later 
                than the 15th day before the effective date of the 
                amendment, provide a benefit estimation tool kit 
                described in subparagraph (B) to each applicable 
                individual. If such plan amendment occurs within 12 
                months of an event described in section 410(b)(6)(C), 
                the plan administrator shall in no event be required to 
                provide the benefit estimation tool kit to applicable 
                individuals affected by the event before the date which 
                is 12 months after the date on which notice under 
                paragraph (1) is given to such applicable individuals.
                    ``(B) Benefit estimation tool kit.--The benefit 
                estimation tool kit described in this subparagraph 
                shall include the following information:
                            ``(i) Sufficient information to enable an 
                        applicable individual to estimate the 
                        individual's projected benefits under the terms 
                        of the plan in effect both before and after the 
                        adoption of the amendment.
                            ``(ii) The formulas and actuarial 
                        assumptions necessary to estimate under both 
                        such plan terms a single life annuity at 
                        appropriate ages, and, when available, a lump 
                        sum distribution.
                            ``(iii) The interest rate used to compute a 
                        lump sum distribution and information as to 
                        whether the value of any early retirement 
                        benefit or retirement-type subsidy (within the 
                        meaning of section 411(d)(6)(B)(i)) is included 
                        in the lump sum distribution.
            ``(3) Notice to designee.--Any notice under paragraph (1) 
        or (2) may be provided to a person designated, in writing, by 
        the person to which it would otherwise be provided.
            ``(4) Form of explanation.--The information required to be 
        provided under this subsection shall be provided in a manner 
        calculated to be reasonably understood by the average plan 
        participant.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable individual.--
                    ``(A) In general.--The term `applicable individual' 
                means, with respect to any plan amendment--
                            ``(i) each participant in the plan, and
                            ``(ii) any beneficiary who is an alternate 
                        payee (within the meaning of section 414(p)(8)) 
                        under an applicable qualified domestic 
                        relations order (within the meaning of section 
                        414(p)(1)(A)),
                whose rate of future benefit accrual under the plan may 
                reasonably be expected to be significantly reduced by 
                such plan amendment.
                    ``(B) Exception for participants with less than 1 
                year of participation.--Such term shall not include a 
                participant who has less than 1 year of participation 
                (within the meaning of section 411(b)(4)) under the 
                plan as of the effective date of the plan amendment.
            ``(2) Applicable pension plan.--The term `applicable 
        pension plan' means--
                    ``(A) a defined benefit plan, or
                    ``(B) an individual account plan which is subject 
                to the funding standards of section 412.
        Such term shall not include a governmental plan (within the 
meaning of section 414(d)), a church plan (within the meaning of 
section 414(e)) with respect to which an election under section 410(d) 
has not been made, or any other plan to which section 204(h) of the 
Employee Retirement Income Security Act of 1974 does not apply.
            ``(3) Early retirement.--A plan amendment which eliminates 
        or significantly reduces any early retirement benefit or 
        retirement-type subsidy (within the meaning of section 
        411(d)(6)(B)(i)) shall be treated as having the effect of 
        significantly reducing the rate of future benefit accrual.
    ``(g) Regulations.--The Secretary shall, not later than 1 year 
after the date of the enactment of this section, issue--
            ``(1) the regulations described in subsection (e)(2)(A) and 
        section 204(h)(2)(A) of the Employee Retirement Income Security 
        Act of 1974, and
            ``(2) guidance for both of the examples described in 
        subsection (e)(1)(D) and section 204(h)(1)(D) of the Employee 
        Retirement Income Security Act of 1974 and the benefit 
        estimation tool kit described in subsection (e)(2)(B) and 
        section 204(h)(2)(B) of the Employee Retirement Income Security 
        Act of 1974.
    ``(h) New Technologies.--The Secretary may by regulation allow any 
notice under paragraph (1) or (2) of subsection (e) to be provided by 
using new technologies. Such regulations shall ensure that at least one 
option for providing such notice is not dependent on new 
technologies.''
            (2) Conforming amendment.--The table of sections for 
        chapter 43 is amended by adding at the end the following new 
        item:

                              ``Sec. 4980F. Failure to provide notice 
                                        of pension plan amendments 
                                        reducing benefit accruals.''
    (b) Amendment of ERISA.--Section 204(h) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054(h)) is amended to read as 
follows:
    ``(h)(1) If an applicable pension plan is amended so as to provide 
a significant reduction in the rate of future benefit accrual of 1 or 
more participants, the plan administrator shall, not later than the 
45th day before the effective date of the amendment, provide written 
notice to each applicable individual (and to each employee organization 
representing applicable individuals) which--
            ``(A) sets forth a summary of the plan amendment and the 
        effective date of the amendment,
            ``(B) includes a statement that the plan amendment is 
        expected to significantly reduce the rate of future benefit 
        accrual,
            ``(C) includes a description of the classes of employees 
        reasonably expected to be affected by the reduction in the rate 
        of future benefit accrual,
            ``(D) sets forth examples illustrating how the plan will 
        change benefits for such classes of employees,
            ``(E) if paragraph (2) applies to the plan amendment, 
        includes a notice that the plan administrator will provide a 
        benefit estimation tool kit described in paragraph (2)(B) to 
        each applicable individual no later than the date required 
        under paragraph (2)(A), and
            ``(F) includes a notice of each applicable individual's 
        right under Federal law to receive, and of the procedures for 
        requesting, an annual benefit statement.
    ``(2)(A) If a plan amendment results in the significant 
restructuring of the plan benefit formula (as determined under 
regulations prescribed by the Secretary of the Treasury), the plan 
administrator shall, not later than the 15th day before the effective 
date of the amendment, provide a benefit estimation tool kit described 
in subparagraph (B) to each applicable individual. If such plan 
amendment occurs within 12 months of an event described in section 
410(b)(6)(C) of the Internal Revenue Code of 1986, the plan 
administrator shall in no event be required to provide the benefit 
estimation tool kit to applicable individuals affected by the event 
before the date which is 12 months after the date on which notice under 
paragraph (1) is given to such applicable individuals.
    ``(B) The benefit estimation tool kit described in this 
subparagraph shall include the following information:
            ``(i) Sufficient information to enable an applicable 
        individual to estimate the individual's projected benefits 
        under the terms of the plan in effect both before and after the 
        adoption of the amendment.
            ``(ii) The formulas and actuarial assumptions necessary to 
        estimate under both such plan terms a single life annuity at 
        appropriate ages, and, when available, a lump sum distribution.
            ``(iii) The interest rate used to compute a lump sum 
        distribution and information as to whether the value of any 
        early retirement benefit or retirement-type subsidy (within the 
        meaning of subsection (g)(2)(A)) is included in the lump sum 
        distribution.
    ``(3) Any notice under paragraph (1) or (2) may be provided to a 
person designated, in writing, by the person to which it would 
otherwise be provided.
    ``(4) The information required to be provided under this subsection 
shall be provided in a manner calculated to be reasonably understood by 
the average participant.
    ``(5)(A) In the case of any failure to exercise due diligence in 
meeting any requirement of this subsection with respect to any plan 
amendment, the provisions of the applicable pension plan shall be 
applied as if such plan amendment entitled all applicable individuals 
to the greater of--
            ``(i) the benefits to which they would have been entitled 
        without regard to such amendment, or
            ``(ii) the benefits under the plan with regard to such 
        amendment.
    ``(B) For purposes of subparagraph (A), there is a failure to 
exercise due diligence in meeting the requirements of this subsection 
if such failure is within the control of the plan sponsor and is--
            ``(i) an intentional failure (including any failure to 
        promptly provide the required notice or information after the 
        plan administrator discovers an unintentional failure to meet 
        the requirements of this subsection),
            ``(ii) a failure to provide most of the individuals with 
        most of the information they are entitled to receive under this 
        subsection, or
            ``(iii) a failure to exercise due diligence which is 
        determined under regulations prescribed by the Secretary of the 
        Treasury.
    ``(C) For excise tax on failure to meet requirements, see section 
4980F of the Internal Revenue Code of 1986.
    ``(5)(A) For purposes of this subsection, the term `applicable 
individual' means, with respect to any plan amendment--
            ``(i) each participant in the plan, and
            ``(ii) any beneficiary who is an alternate payee (within 
        the meaning of section 206(d)(3)(K)) under an applicable 
        qualified domestic relations order (within the meaning of 
        section 206(d)(3)(B)),
whose rate of future benefit accrual under the plan may reasonably be 
expected to be significantly reduced by such plan amendment.
    ``(B) Such term shall not include a participant who has less than 1 
year of participation (within the meaning of subsection (b)(4)) under 
the plan as of the effective date of the plan amendment.
    ``(6) For purposes of this subsection, the term `applicable pension 
plan' means--
            ``(A) a defined benefit plan, or
            ``(B) an individual account plan which is subject to the 
        funding standards of section 302.
    ``(7) For purposes of this subsection, a plan amendment which 
eliminates or significantly reduces any early retirement benefit or 
retirement-type subsidy (within the meaning of section 204(g)(2)(A)) 
shall be treated as having the effect of significantly reducing the 
rate of future benefit accrual.
    ``(8) The Secretary of the Treasury may by regulation allow any 
notice under this subsection to be provided by using new technologies. 
Such regulation shall ensure that at least one option for providing 
such notice is not dependent on new technologies.''
    (c) Regulations Relating to Early Retirement Subsidies.--The 
Secretary of the Treasury or the Secretary's delegate shall, not later 
than 1 year after the date of the enactment of this Act, issue 
regulations relating to early retirement benefits or retirement-type 
subsidies described in section 411(d)(6)(B)(i) of the Internal Revenue 
Code of 1986 and section 204(g)(2)(A) of the Employee Retirement Income 
Security Act of 1974.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
            (2) Transition.--Until such time as the Secretary of the 
        Treasury issues regulations under section 4980F(e)(2) of the 
        Internal Revenue Code of 1986 and section 204(h)(2) of the 
        Employee Retirement Income Security Act of 1974 (as added by 
        the amendments made by this section), a plan shall be treated 
        as meeting the requirements of such sections if it makes a good 
        faith effort to comply with such requirements.
            (3) Special notice rules.--The period for providing any 
        notice required by the amendments made by this section shall 
        not end before the date which is 3 months after the date of the 
        enactment of this Act.
    (d) Study.--The Secretary of the Treasury shall prepare a report on 
the effects of significant restructurings of plan benefit formulas of 
traditional defined benefit plans. Such study shall examine the effects 
of such restructurings on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time after 
restructuring. As soon as practicable, but not later than one year 
after the date of enactment of this Act, the Secretary shall submit 
such report, together with recommendations thereon, to the Committee on 
Ways and Means and the Committee on Education and the Workforce of the 
House of Representatives and the Committee on Finance and the Committee 
on Health, Education, Labor, and Pensions of the Senate.

                Subtitle F--Reducing Regulatory Burdens

SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Paragraph (9) of section 412(c) (relating to 
annual valuation) is amended to read as follows:
            ``(9) Annual valuation.--
                    ``(A) In general.--For purposes of this section, a 
                determination of experience gains and losses and a 
                valuation of the plan's liability shall be made not 
                less frequently than once every year, except that such 
                determination shall be made more frequently to the 
                extent required in particular cases under regulations 
                prescribed by the Secretary.
                    ``(B) Valuation date.--
                            ``(i) Current year.--Except as provided in 
                        clause (ii), the valuation referred to in 
                        subparagraph (A) shall be made as of a date 
                        within the plan year to which the valuation 
                        refers or within one month prior to the 
                        beginning of such year.
                            ``(ii) Election to use prior year 
                        valuation.--The valuation referred to in 
                        subparagraph (A) may be made as of a date 
                        within the plan year prior to the year to which 
                        the valuation refers if--
                                    ``(I) an election is in effect 
                                under this clause with respect to the 
                                plan, and
                                    ``(II) as of such date, the value 
                                of the assets of the plan are not less 
                                than 125 percent of the plan's current 
                                liability (as defined in paragraph 
                                (7)(B)).
                            ``(iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                            ``(iv) Election.--An election under clause 
                        (ii), once made, shall be irrevocable without 
                        the consent of the Secretary.''.
    (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
amended--
            (1) by inserting ``(A)'' after ``(9)'', and
            (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), the valuation referred 
to in subparagraph (A) shall be made as of a date within the plan year 
to which the valuation refers or within one month prior to the 
beginning of such year.
    ``(ii) The valuation referred to in subparagraph (A) may be made as 
of a date within the plan year prior to the year to which the valuation 
refers if--
            ``(I) an election is in effect under this clause with 
        respect to the plan, and
            ``(II) as of such date, the value of the assets of the plan 
        are not less than 125 percent of the plan's current liability 
        (as defined in paragraph (7)(B)).
    ``(iii) Information under clause (ii) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant differences 
in participants.
    ``(iv) An election under clause (ii), once made, shall be 
irrevocable without the consent of the Secretary of the Treasury.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
              DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                            ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                    ``(I) payable as provided in clause 
                                (i) or (ii), or
                                    ``(II) paid to the plan and 
                                reinvested in qualifying employer 
                                securities, or''.
    (b) Limitation on Amount of Deduction.--Section 404(k)(1) (relating 
to deduction for dividends paid on certain employer securities) is 
amended to read as follows:
            ``(1) Deduction allowed.--
                    ``(A) In general.--In the case of a C corporation, 
                there shall be allowed as a deduction for the taxable 
                year an amount equal to--
                            ``(i) the amount of any applicable dividend 
                        described in clause (i), (ii), or (iv) of 
                        paragraph (2)(A), and
                            ``(ii) the applicable percentage of any 
                        applicable dividend described in clause (iii),
                paid in cash by such corporation during the taxable 
                year with respect to applicable employer securities. 
                Such deduction shall be in addition to the deduction 
                allowed subsection (a).
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                       percentage is:  
                    2002, 2003, and 2004................... 25 percent 
                    2005, 2006, and 2007................... 50 percent 
                    2008, 2009, and 2010................... 75 percent 
                    2011 and thereafter.................100 percent.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
              COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to plan years beginning after December 31, 2001.

SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES.

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

SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
              ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at the end 
of paragraph (5), by striking the period at the end of paragraph (6) 
and inserting ``, or'', and by adding at the end the following new 
paragraph:
            ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
    ``(m) Qualified Retirement Planning Services.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified retirement planning services' means any retirement 
        planning advice or information provided to an employee and his 
        spouse by an employer maintaining a qualified employer plan.
            ``(2) Nondiscrimination rule.--Subsection (a)(7) shall 
        apply in the case of highly compensated employees only if such 
        services are available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.
            ``(3) Qualified employer plan.--For purposes of this 
        subsection, the term `qualified employer plan' means a plan, 
        contract, pension, or account described in section 
        219(g)(5).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 666. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
            (1) In general.--The Secretary of the Treasury shall modify 
        the requirements for filing annual returns with respect to one-
        participant retirement plans to ensure that such plans with 
        assets of $250,000 or less as of the close of the plan year and 
        each plan year beginning on or after January 1, 1994, need not 
        file a return for that year.
            (2) One-participant retirement plan defined.--For purposes 
        of this subsection, the term ``one-participant retirement 
        plan'' means a retirement plan that--
                    (A) on the first day of the plan year--
                            (i) covered only the employer (and the 
                        employer's spouse) and the employer owned the 
                        entire business (whether or not incorporated); 
                        or
                            (ii) covered only one or more partners (and 
                        their spouses) in a business partnership 
                        (including partners in an S or C corporation);
                    (B) meets the minimum coverage requirements of 
                section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business;
                    (C) does not provide benefits to anyone except the 
                employer (and the employer's spouse) or the partners 
                (and their spouses);
                    (D) does not cover a business that is a member of 
                an affiliated service group, a controlled group of 
                corporations, or a group of businesses under common 
                control; and
                    (E) does not cover a business that leases 
                employees.
            (3) Other definitions.--Terms used in paragraph (2) which 
        are also used in section 414 of the Internal Revenue Code of 
        1986 shall have the respective meanings given such terms by 
        such section.
    (b) Effective Date.--The provisions of this section shall take 
effect on January 1, 2002.

SEC. 667. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

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

SEC. 668. REPEAL OF THE MULTIPLE USE TEST.

    (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
            ``(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection and subsection (k), including regulations 
        permitting appropriate aggregation of plans and 
        contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 669. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
              BUSINESS RULES.

    (a) Nondiscrimination.--
            (1) In general.--The Secretary of the Treasury shall, by 
        regulation, provide that a plan shall be deemed to satisfy the 
        requirements of section 401(a)(4) of the Internal Revenue Code 
        of 1986 if such plan satisfies the facts and circumstances test 
        under section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                    (A) the plan satisfies conditions prescribed by the 
                Secretary to appropriately limit the availability of 
                such test; and
                    (B) the plan is submitted to the Secretary for a 
                determination of whether it satisfies such test.
        Subparagraph (B) shall only apply to the extent provided by the 
        Secretary.
            (2) Effective dates.--
                    (A) Regulations.--The regulation required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2001.
                    (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                paragraph (1)(A) shall not apply before the first year 
                beginning not less than 120 days after the date on 
                which such condition is prescribed.
    (b) Coverage Test.--
            (1) In general.--Section 410(b)(1) (relating to minimum 
        coverage requirements) is amended by adding at the end the 
        following:
                    ``(D) In the case that the plan fails to meet the 
                requirements of subparagraphs (A), (B) and (C), the 
                plan--
                            ``(i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment of the 
                        Tax Reform Act of 1986,
                            ``(ii) is submitted to the Secretary for a 
                        determination of whether it satisfies the 
                        requirement described in clause (i), and
                            ``(iii) satisfies conditions prescribed by 
                        the Secretary by regulation that appropriately 
                        limit the availability of this subparagraph.
                Clause (ii) shall apply only to the extent provided by 
                the Secretary.''.
            (2) Effective dates.--
                    (A) In general.--The amendment made by paragraph 
                (1) shall apply to years beginning after December 31, 
                2001.
                    (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                regulations prescribed by the Secretary under section 
                410(b)(1)(D) of the Internal Revenue Code of 1986 shall 
                not apply before the first year beginning not less than 
                120 days after the date on which such condition is 
                prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury shall, 
on or before December 31, 2001, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 670. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
              APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE 
              TO STATE AND LOCAL PLANS.

    (a) In General.--
            (1) Subparagraph (G) of section 401(a)(5) and subparagraph 
        (H) of section 401(a)(26) are each amended by striking 
        ``section 414(d))'' and all that follows and inserting 
        ``section 414(d)).''.
            (2) Subparagraph (G) of section 401(k)(3) and paragraph (2) 
        of section 1505(d) of the Taxpayer Relief Act of 1997 are each 
        amended by striking ``maintained by a State or local government 
        or political subdivision thereof (or agency or instrumentality 
        thereof)''.
    (b) Conforming Amendments.--
            (1) The heading for subparagraph (G) of section 401(a)(5) 
        is amended to read as follows: ``Governmental plans''.
            (2) The heading for subparagraph (H) of section 401(a)(26) 
        is amended to read as follows: ``Exception for governmental 
        plans''.
            (3) Subparagraph (G) of section 401(k)(3) is amended by 
        inserting ``Governmental plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

                   Subtitle G--Other ERISA Provisions

SEC. 681. MISSING PARTICIPANTS.

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

SEC. 682. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

    (a) In General.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
            (1) in clause (i), by inserting ``other than a new single-
        employer plan (as defined in subparagraph (F)) maintained by a 
        small employer (as so defined),'' after ``single-employer 
        plan,'',
            (2) in clause (iii), by striking the period at the end and 
        inserting ``, and'', and
            (3) by adding at the end the following new clause:
            ``(iv) in the case of a new single-employer plan (as 
        defined in subparagraph (F)) maintained by a small employer (as 
        so defined) for the plan year, $5 for each individual who is a 
        participant in such plan during the plan year.''.
    (b) Definition of New Single-Employer Plan.--Section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)) is amended by adding at the end the following new 
subparagraph:
    ``(F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years if, during the 36-
month period ending on the date of the adoption of such plan, the 
sponsor or any member of such sponsor's controlled group (or any 
predecessor of either) did not establish or maintain a plan to which 
this title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new single-employer 
plan.
    ``(ii)(I) For purposes of this paragraph, the term `small employer' 
means an employer which on the first day of any plan year has, in 
aggregation with all members of the controlled group of such employer, 
100 or fewer employees.
    ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plans established after December 31, 2001.

SEC. 683. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

    (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following new 
clause:
    ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an amount equal 
to the product of the amount determined under clause (ii) and the 
applicable percentage. For purposes of this clause, the term 
`applicable percentage' means--
            ``(I) 0 percent, for the first plan year.
            ``(II) 20 percent, for the second plan year.
            ``(III) 40 percent, for the third plan year.
            ``(IV) 60 percent, for the fourth plan year.
            ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in 
section 3(35)) maintained by a contributing sponsor shall be treated as 
a new defined benefit plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption of the 
plan, the sponsor and each member of any controlled group including the 
sponsor (or any predecessor of either) did not establish or maintain a 
plan to which this title applies with respect to which benefits were 
accrued for substantially the same employees as are in the new plan.''.
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), as amended 
by section 682(b), is amended--
            (1) by striking ``The'' in subparagraph (E)(i) and 
        inserting ``Except as provided in subparagraph (G), the'', and
            (2) by inserting after subparagraph (F) the following new 
        subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer employees 
on the first day of the plan year, the additional premium determined 
under subparagraph (E) for each participant shall not exceed $5 
multiplied by the number of participants in the plan as of the close of 
the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 25 or 
fewer employees on the first day of the plan year is determined taking 
into consideration all of the employees of all members of the 
contributing sponsor's controlled group. In the case of a plan 
maintained by two or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether the 25-or-fewer-employees 
limitation has been satisfied.''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to plans established after December 31, 2001.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2001.

SEC. 684. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
              REFUNDS.

    (a) In General.--Section 4007(b) of the Employment Retirement 
Income Security Act of 1974 (29 U.S.C. 1307(b)) is amended--
            (1) by striking ``(b)'' and inserting ``(b)(1)'', and
            (2) by inserting at the end the following new paragraph:
    ``(2) The corporation is authorized to pay, subject to regulations 
prescribed by the corporation, interest on the amount of any 
overpayment of premium refunded to a designated payor. Interest under 
this paragraph shall be calculated at the same rate and in the same 
manner as interest is calculated for underpayments under paragraph 
(1).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to interest accruing for periods beginning not earlier than the 
date of the enactment of this Act.

SEC. 685. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

    (a) Modification of Phase-In of Guarantee.--Section 4022(b)(5) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1322(b)(5)) is amended to read as follows:
    ``(5)(A) For purposes of this paragraph, the term `majority owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
            ``(i) owns the entire interest in an unincorporated trade 
        or business,
            ``(ii) in the case of a partnership, is a partner who owns, 
        directly or indirectly, 50 percent or more of either the 
        capital interest or the profits interest in such partnership, 
        or
            ``(iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of clause (iii), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).
    ``(B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal the 
product of--
            ``(i) a fraction (not to exceed 1) the numerator of which 
        is the number of years from the later of the effective date or 
        the adoption date of the plan to the termination date, and the 
denominator of which is 10, and
            ``(ii) the amount of benefits that would be guaranteed 
        under this section if the participant were not a majority 
        owner.''.
    (b) Modification of Allocation of Assets.--
            (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
        striking ``section 4022(b)(5)'' and inserting ``section 
        4022(b)(5)(B)''.
            (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
        amended--
                    (A) by striking ``(5)'' in paragraph (2) and 
                inserting ``(4), (5),'', and
                    (B) by redesignating paragraphs (3) through (6) as 
                paragraphs (4) through (7), respectively, and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) If assets available for allocation under paragraph 
        (4) of subsection (a) are insufficient to satisfy in full the 
        benefits of all individuals who are described in that 
        paragraph, the assets shall be allocated first to benefits 
        described in subparagraph (A) of that paragraph. Any remaining 
        assets shall then be allocated to benefits described in 
        subparagraph (B) of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full the 
        benefits described in that subparagraph, the assets shall be 
        allocated pro rata among individuals on the basis of the 
        present value (as of the termination date) of their respective 
        benefits described in that subparagraph.''.
    (c) Conforming Amendments.--
            (1) Section 4021 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1321) is amended--
                    (A) in subsection (b)(9), by striking ``as defined 
                in section 4022(b)(6)'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(d) For purposes of subsection (b)(9), the term `substantial 
owner' means an individual who, at any time during the 60-month period 
ending on the date the determination is being made--
            ``(1) owns the entire interest in an unincorporated trade 
        or business,
            ``(2) in the case of a partnership, is a partner who owns, 
        directly or indirectly, more than 10 percent of either the 
        capital interest or the profits interest in such partnership, 
        or
            ``(3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of paragraph (3), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).''.
            (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
        is amended by striking ``section 4022(b)(6)'' and inserting 
        ``section 4021(d)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan 
        terminations--
                    (A) under section 4041(c) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1341(c)) with respect to which notices of intent to 
                terminate are provided under section 4041(a)(2) of such 
                Act (29 U.S.C. 1341(a)(2)) after December 31, 2001, and
                    (B) under section 4042 of such Act (29 U.S.C. 1342) 
                with respect to which proceedings are instituted by the 
                corporation after such date.
            (2) Conforming amendments.--The amendments made by 
        subsection (c) shall take effect on January 1, 2002.

                  Subtitle H--Miscellaneous Provisions

SEC. 691. TAX TREATMENT AND INFORMATION REQUIREMENTS OF ALASKA NATIVE 
              SETTLEMENT TRUSTS.

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

``SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--If an election under this section is in effect 
with respect to any Settlement Trust, the provisions of this section 
shall apply in determining the income tax treatment of the Settlement 
Trust and its beneficiaries with respect to the Settlement Trust.
    ``(b) Taxation of Income of Trust.--Except as provided in 
subsection (f)(1)(B)(ii)--
            ``(1) In general.--There is hereby imposed on the taxable 
        income of an electing Settlement Trust, other than its net 
        capital gain, a tax at the lowest rate specified in section 
        1(c).
            ``(2) Capital gain.--In the case of an electing Settlement 
        Trust with a net capital gain for the taxable year, a tax is 
        hereby imposed on such gain at the rate of tax which would 
        apply to such gain if the taxpayer were subject to a tax on its 
        other taxable income at only the lowest rate specified in 
        section 1(c).
Any such tax shall be in lieu of the income tax otherwise imposed by 
this chapter on such income or gain.
    ``(c) One-Time Election.--
            ``(1) In general.--A Settlement Trust may elect to have the 
        provisions of this section apply to the trust and its 
        beneficiaries.
            ``(2) Time and method of election.--An election under 
        paragraph (1) shall be made by the trustee of such trust--
                    ``(A) on or before the due date (including 
                extensions) for filing the Settlement Trust's return of 
                tax for the first taxable year of such trust ending 
                after the date of the enactment of this section, and
                    ``(B) by attaching to such return of tax a 
                statement specifically providing for such election.
            ``(3) Period election in effect.--Except as provided in 
        subsection (f), an election under this subsection--
                    ``(A) shall apply to the first taxable year 
                described in paragraph (2)(A) and all subsequent 
                taxable years, and
                    ``(B) may not be revoked once it is made.
    ``(d) Contributions to Trust.--
            ``(1) Beneficiaries of electing trust not taxed on 
        contributions.--In the case of an electing Settlement Trust, no 
        amount shall be includible in the gross income of a beneficiary 
        of such trust by reason of a contribution to such trust.
            ``(2) Earnings and profits.--The earnings and profits of 
        the sponsoring Native Corporation shall not be reduced on 
        account of any contribution to such Settlement Trust:
    ``(e) Tax Treatment of Distributions to Beneficiaries.--Amounts 
distributed by an electing Settlement Trust during any taxable year 
shall be considered as having the following characteristics in the 
hands of the recipient beneficiary:
            ``(1) First, as amounts excludable from gross income for 
        the taxable year to the extent of the taxable income of such 
        trust for such taxable year (decreased by any income tax paid 
        by the trust with respect to the income) plus any amount 
        excluded from gross income of the trust under section 103.
            ``(2) Second, as amounts excludable from gross income to 
        the extent of the amount described in paragraph (1) for all 
        taxable years for which an election is in effect under 
        subsection (c) with respect to the trust, and not previously 
        taken into account under paragraph (1).
            ``(3) Third, as amounts distributed by the sponsoring 
        Native Corporation with respect to its stock (within the 
        meaning of section 301(a)) during such taxable year and taxable 
        to the recipient beneficiary as amounts described in section 
        301(c)(1), to the extent of current or accumulated earnings and 
        profits of the sponsoring Native Corporation as of the close of 
        such taxable year after proper adjustment is made for all 
        distributions made by the sponsoring Native Corporation during 
        such taxable year.
            ``(4) Fourth, as amounts distributed by the trust in excess 
        of the distributable net income of such trust for such taxable 
        year.
Amounts distributed to which paragraph (3) applies shall not be treated 
as a corporate distribution subject to section 311(b), and for purposes 
of determining the amount of a distribution for purposes of paragraph 
(3) and the basis to the recipients, section 643(e) and not section 
301(b) or (d) shall apply.
    ``(f) Special Rules Where Transfer Restrictions Modified.--
            ``(1) Transfer of beneficial interests.--If, at any time, a 
        beneficial interest in an electing Settlement Trust may be 
        disposed of to a person in a manner which would not be 
        permitted by section 7(h) of the Alaska Native Claims 
        Settlement Act (43 U.S.C. 1606(h)) if such interest were 
        Settlement Common Stock--
                    ``(A) no election may be made under subsection (c) 
                with respect to such trust, and
                    ``(B) if such an election is in effect as of such 
                time--
                            ``(i) such election shall cease to apply as 
                        of the first day of the taxable year in which 
                        such disposition is first permitted,
                            ``(ii) the provisions of this section shall 
                        not apply to such trust for such taxable year 
                        and all taxable years thereafter, and
                            ``(iii) the distributable net income of 
                        such trust shall be increased by the current or 
                        accumulated earnings and profits of the 
                        sponsoring Native Corporation as of the close 
                        of such taxable year after proper adjustment is 
                        made for all distributions made by the 
                        sponsoring Native Corporation during such 
                        taxable year.
        In no event shall the increase under clause (iii) exceed the 
        fair market value of the trust's assets as of the date the 
        beneficial interest of the trust first becomes so disposable. 
        The earnings and profits of the sponsoring Native Corporation 
        shall be adjusted as of the last day of such taxable year by 
        the amount of earnings and profits so included in the 
        distributable net income of the trust.
            ``(2) Stock in corporation.--If--
                    ``(A) stock in the sponsoring Native Corporation 
                may be disposed of to a person in a manner which would 
                not be permitted by section 7(h) of the Alaska Native 
                Claims Settlement Act (43 U.S.C. 1606(h)) if such stock 
                were Settlement Common Stock, and
                    ``(B) at any time after such disposition of stock 
                is first permitted, such corporation transfers assets 
                to a Settlement Trust,
        paragraph (1)(B) shall be applied to such trust on and after 
        the date of the transfer in the same manner as if the trust 
        permitted dispositions of beneficial interests in the trust in 
        a manner not permitted by such section 7(h).
            ``(3) Certain distributions.--For purposes of this section, 
        the surrender of an interest in a Native Corporation or an 
        electing Settlement Trust in order to accomplish the whole or 
        partial redemption of the interest of a shareholder or 
        beneficiary in such corporation or trust, or to accomplish the 
        whole or partial liquidation of such corporation or trust, 
        shall be deemed to be a transfer permitted by section 7(h) of 
        the Alaska Native Claims Settlement Act.
    ``(g) Taxable Income.--For purposes of this title, the taxable 
income of an electing Settlement Trust shall be determined under 
section 641(b) without regard to any deduction under section 651 or 
661.
    ``(h) Definitions.--For purposes of this section--
            ``(1) Electing settlement trust.--The term `electing 
        Settlement Trust' means a Settlement Trust which has made the 
        election, effective for a taxable year, described in subsection 
        (c).
            ``(2) Native corporation.--The term `Native Corporation' 
        has the meaning given such term by section 3(m) of the Alaska 
        Native Claims Settlement Act (43 U.S.C. 1602(m)).
            ``(3) Settlement common stock.--The term `Settlement Common 
        Stock' has the meaning given such term by section 3(p) of the 
        Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
            ``(4) Settlement trust.--The term `Settlement Trust' means 
        a trust that constitutes a settlement trust under section 3(t) 
        of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(t)).
            ``(5) Sponsoring native corporation.--The term `sponsoring 
        Native Corporation' means the Native Corporation which 
        transfers assets to an electing Settlement Trust.
    ``(i) Special Loss Disallowance Rule.--Any loss that would 
otherwise be recognized by a shareholder upon a disposition of a share 
of stock of a sponsoring Native Corporation shall be reduced (but not 
below zero) by the per share loss adjustment factor. The per share loss 
adjustment factor shall be the aggregate of all contributions to all 
electing Settlement Trusts sponsored by such Native Corporation made on 
or after the first day each trust is treated as an electing Settlement 
Trust expressed on a per share basis and determined as of the day of 
each such contribution.
    ``(j) Cross Reference.--

                                ``For information required with respect 
to electing Settlement Trusts and sponsoring Native Corporations, see 
section 6039H.''.
    (b) Reporting.--Subpart A of part III of subchapter A of chapter 61 
of subtitle F (relating to information concerning persons subject to 
special provisions) is amended by inserting after section 6039G the 
following new section:

``SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE SETTLEMENT 
              TRUSTS AND SPONSORING NATIVE CORPORATIONS.

    ``(a) Requirement.--The fiduciary of an electing Settlement Trust 
(as defined in section 646(h)(1)) shall include with the return of 
income of the trust a statement containing the information required 
under subsection (c).
    ``(b) Application With Other Requirements.--The filing of any 
statement under this section shall be in lieu of the reporting 
requirements under section 6034A to furnish any statement to a 
beneficiary regarding amounts distributed to such beneficiary (and such 
other reporting rules as the Secretary deems appropriate).
    ``(c) Required Information.--The information required under this 
subsection shall include--
            ``(1) the amount of distributions made during the taxable 
        year to each beneficiary,
            ``(2) the treatment of such distribution under the 
        applicable provision of section 646, including the amount that 
        is excludable from the recipient beneficiary's gross income 
        under section 646, and
            ``(3) the amount (if any) of any distribution during such 
        year that is deemed to have been made by the sponsoring Native 
        Corporation (as defined in section 646(h)(5)).
    ``(d) Sponsoring Native Corporation.--
            ``(1) In general.--The electing Settlement Trust shall, on 
        or before the date on which the statement under subsection (a) 
        is required to be filed, furnish such statement to the 
        sponsoring Native Corporation (as so defined).
            ``(2) Distributees.--The sponsoring Native Corporation 
        shall furnish each recipient of a distribution described in 
        section 646(e)(3) a statement containing the amount deemed to 
        have been distributed to such recipient by such corporation for 
        the taxable year.''.
    (c) Clerical Amendment.--
            (1) The table of sections for subpart A of part I of 
        subchapter J of chapter 1 of such Code is amended by adding at 
        the end the following new item:

                              ``Sec. 646. Tax treatment of electing 
                                        Alaska Native Settlement 
                                        Trusts.''.
            (2) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 of subtitle F of such Code is 
        amended by inserting after the item relating to section 6039G 
        the following new item:

                              ``Sec. 6039H. Information with respect to 
                                        Alaska Native Settlement Trusts 
                                        and sponsoring Native 
                                        Corporations.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act and to contributions made to electing Settlement Trusts for such 
year or any subsequent year.

          Subtitle I--Compliance With Congressional Budget Act

SEC. 695. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 696. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 695 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

                   TITLE VII--ALTERNATIVE MINIMUM TAX

                         Subtitle A--In General

SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION.

    (a) In General.--
            (1) Subparagraph (A) of section 55(d)(1) (relating to 
        exemption amount for taxpayers other than corporations) is 
        amended by striking ``$45,000'' and inserting ``$45,000 
        ($49,000 in the case of taxable years beginning in 2001, 2002, 
        2003, 2004, 2005, and 2006)''.
            (2) Subparagraph (B) of section 55(d)(1) (relating to 
        exemption amount for taxpayers other than corporations) is 
        amended by striking ``$33,750'' and inserting ``$33,750 
        ($35,750 in the case of taxable years beginning in 2001, 2002, 
        2003, 2004, 2005, and 2006)''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 55(d) is amended by striking 
        ``and'' at the end of subparagraph (B), by striking 
        subparagraph (C), and by inserting after subparagraph (B) the 
        following new subparagraphs:
                    ``(C) 50 percent of the dollar amount applicable 
                under paragraph (1)(A) in the case of a married 
                individual who files a separate return, and
                    ``(D) $22,500 in the case of an estate or trust.''.
            (2) Subparagraph (C) of section 55(d)(3) is amended by 
        striking ``paragraph (1)(C)'' and inserting ``subparagraph (C) 
        or (D) of paragraph (1)''.
            (3) The last sentence of section 55(d)(3) is amended--
                    (A) by striking ``paragraph (1)(C)(i)'' and 
                inserting ``paragraph (1)(C)''; and
                    (B) by striking ``$165,000 or (ii) $22,500'' and 
                inserting ``the minimum amount of such income (as so 
                determined) for which the exemption amount under 
                paragraph (1)(C) is zero, or (ii) such exemption amount 
                (determined without regard to this paragraph)''.
    (c) Effective Date.--The amendments made by this section title 
shall apply to taxable years beginning after December 31, 2000.

          Subtitle B--Compliance With Congressional Budget Act

SEC. 711. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 712. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 711 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.

                      TITLE VIII--OTHER PROVISIONS

                         Subtitle A--In General

SEC. 801. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986--
            (1) 70 percent of the amount of any required installment of 
        corporate estimated tax which is otherwise due in September 
        2001 shall not be due until October 1, 2001; and
            (2) 20 percent of the amount of any required installment of 
        corporate estimated tax which is otherwise due in September 
        2004 shall not be due until October 1, 2004.

SEC. 802. EXPANSION OF AUTHORITY TO POSTPONE CERTAIN TAX-RELATED 
              DEADLINES BY REASON OF PRESIDENTIALLY DECLARED DISASTER.

    (a) In General.--Section 7508A (relating to authority to postpone 
certain tax-related deadlines by reason of presidentially declared 
disaster) is amended by adding at the end the following new subsection:
    ``(c) Duties of Disaster Response Team.--The Secretary shall 
establish as a permanent office in the national office of the Internal 
Revenue Service a disaster response team which, in coordination with 
the Federal Emergency Management Agency, shall assist taxpayers in 
clarifying and resolving Federal tax matters associated with or 
resulting from any Presidentially declared disaster (as so defined). 
One of the duties of the disaster response team shall be to extend in 
appropriate cases the 90-day period described in subsection (a) by not 
more than 30 days.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of enactment of this Act.

          Subtitle B--Compliance With Congressional Budget Act

SEC. 811. SUNSET OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which are in 
effect on September 30, 2011, shall cease to apply as of the close of 
September 30, 2011.

SEC. 812. RESTORATION OF PROVISIONS OF TITLE.

    All provisions of, and amendments made by, this title which were 
terminated under section 811 shall begin to apply again as of October 
1, 2011, as provided in each such provision or amendment.




                                                        Calendar No. 43

107th CONGRESS

  1st Session

                                 S. 896

_______________________________________________________________________

                                 A BILL

To provide for reconciliation pursuant to section 103 of the concurrent 
    resolution on the budget for fiscal year 2002 (H. Con. Res. 83).

_______________________________________________________________________

                 May 16 (legislative day, May 15), 2001

                 Read twice and placed on the calendar