[Congressional Record Volume 141, Number 156 (Tuesday, October 10, 1995)]
[Senate]
[Pages S14883-S14906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. PRYOR:
  S. 1299. A bill to amend the Internal Revenue Code of 1986 to bring 
opportunity to small business and taxpayers; to the Committee on 
Finance.


    THE BRINGING OPPORTUNITY TO OUR SMALL BUSINESS AND TAXPAYERS ACT

  Mr. PRYOR. Madam President, on December 27, 1994, while in Arkansas 
over the last Christmas holiday, I announced one of the most important 
legislative initiatives for the 104th Congress. I call it, Bringing 
Opportunity to Our Small Businesses and Taxpayers--or BOOST.
  BOOST is a five-point initiative that addresses problems faced by 
everyday individual taxpayers, small businesses, and family farms.
  Madam President, BOOST delivers a much-needed dose of fairness to 
small taxpayers, and it provides a clear path toward capitalizing on 
two of our country's greatest assets--small business and the family 
farm.
  Over these past 9 months, I have worked with my colleagues on both 
sides of the aisle to introduce the five bills which make up the BOOST 
package. Today, I am introducing these five important bills as a 
combined package. I believe this is important because it represents a 
collective vision for helping small business and the average individual 
taxpayer--one which we can do quickly with bipartisan support while 
causing very little drain, if any, or the Federal budget.
  We can act quickly because the Finance Committee will meet this week 
to consider tax legislation as part of the budget reconciliation 
package which will soon come to the Senate floor. Madam President, the 
issues raised by the BOOST package are not politically charged, in 
fact, they are all issues that can pull us together.
  The five bills I am referring to are as follows:
  First, the Taxpayer Bill of Rights II, S. 258, introduced by Senator 
Grassley and myself;
  Second, a bill to make the 100 percent health care deduction for the 
self-employed, S. 262, introduced by Senator Grassley, Senator Roth, 
and myself;
  Third, the S Corporation Reform Act of 1995, S. 758, introduced by 
Senator Hatch and myself;
  Fourth, the Pension Simplification Act of 1995, S. 1006, introduced 
by Senator Hatch and myself; and

[[Page S 14884]]

  Fifth, the American Family-Owned Business Act of 1995, S. 1086, 
introduced by Senator Dole and myself.
  Madam President, each of these bills enjoys a broad base of support 
from small business and agriculture organizations; each has a balanced 
cosponsor list of both Republican and Democratic Senators; and each has 
been introduced in the House of Representatives with similar strong 
bipartisan support.
  The bills have three primary goals.
  The first is to create capital formation opportunities for American 
small business owners and their employees. The resulting payoff will be 
more jobs created in a sector that already creates over one-half of all 
new jobs in our country.
  The second is to simplify the rules that small businesses must comply 
with in dealing with the Internal Revenue Service, resulting in reduced 
cost to small business whose resources may be better spent on business 
expansion and their employees' retirement savings.
  And third, a very important goal of the BOOST package is to safeguard 
the rights of smaller taxpayers in their dealings with the IRS. The 
goal: to inspire greater taxpayer confidence in our tax system by 
making it more fair and more accountable.
  Of course, these are all goals that every one of us can support in 
principle. But it is important to point out that BOOST is more than 
just a set of worthy goals. It is an actual nuts and bolts proposal 
which has attracted strong and broad bipartisan support. And even more 
than that, it carries only a modest revenue cost in times when it is 
very difficult to act in light of our Federal budget deficit.
  Madam President, the enactment of BOOST will send a message that 
Congress can work together to achieve practical solutions to the very 
real problems faced by American small business and the individual 
American taxpayer. I hope we can enact this legislation very soon and 
send this message.
  Madam President, I do want to comment on each of the five-points of 
the BOOST package.


                       taxpayer bill of rights ii

  On January 23 of this year, Senator Grassley and I came to the Senate 
floor and introduced the Taxpayer Bill of Rights II, along with 20 
cosponsors--12 Democrats and 8 Republicans. The Taxpayer Bill of Rights 
II builds on the foundation laid by the original Taxpayer Bill of 
Rights passed in 1988 and is the next natural step in requiring the IRS 
achieve higher standards of accuracy, timeliness and fair play in 
providing taxpayer service.
  The Taxpayer Bill of Rights II achieves these new standards through 
27 provisions, including:
  First, expanding the authority of the Taxpayer Advocate to prevent 
hardships on taxpayers.
  Second, requiring the IRS to abate interest when it has made an 
unreasonable error or delay, and enable the courts the power to review 
the interest abatement determination.
  Third, strengthen the code so a taxpayer can recover out-of-pocket 
costs incurred in a case in which the IRS position was not 
substantially justified.
  Finally, prohibit the IRS from issuing retroactive proposed 
regulations.
  Madam President, the Taxpayer Bill of Rights II contains many more 
commonsense provisions designed to safeguard the rights of taxpayers 
and instill some confidence into our system of taxation.
  Madam President, I would like to point out that the Taxpayer Bill of 
Rights II was passed twice in 1992 but was vetoed because it was 
included as part of two large tax bills with which President Bush did 
not agree. I believe the time is now to enact this legislation, and I 
am committed to work along with my friend Senator Grassley to push the 
Taxpayer Bill of Rights II into law.


                100 Percent Deduction for Self-Employed

  The next important piece of the BOOST package is a bill, introduced 
by Senator Grassley, Senator Roth, and myself to make the health 
insurance premiums for the self-employed 100 percent deductible.
  Earlier this year, the Congress passed, and the President signed into 
law, H.R. 831 which restored the 25 percent care deduction in 1994, 
increased the deduction to 30 percent for 1995, and permanently 
extended the 30 percent deduction for all years in the future. This was 
an important and positive step. The fact that the Senate could move 
such a tax bill without amendment underscored the widespread bipartisan 
support and importance of this effort.
  It is now important to take the next step of making health insurance 
premiums 100 percent deductible for the self-employed.
  Madam President, large corporations now enjoy a 100 percent 
deduction, and on top of this, they typically pay smaller insurance 
premiums because they have a larger number of employees.
  So, the self-employed pay higher insurance premiums, and to compound 
it, they can only take a 30 percent tax deduction for premiums paid--a 
double penalty. These over 9 million self-employed small businessmen 
and women are innovators and job creators--people we should encourage, 
not penalize. That is why BOOST contains this important provision to 
make the deduction 100 percent.


                  the s corporation reform act of 1995

  On May 4, 1995, my friend and colleague, Senator Hatch, and I 
introduced the S Corporation Reform Act of 1995, S. 758.
  The bill is endorsed by the U.S. Chamber of Commerce, National 
Federation of Independent Business, the American Institute of Certified 
Public Accountants, and the members of the S Corporation Subcommittee 
of the American Bar Association. Today, we have 32 Senate cosponsors--
12 Democrats and 20 Republicans.
  As you can tell, this legislation is the culmination of the efforts 
of many, and certainly represents a step Congress can and should take 
in order to capitalize on one of our country's most valuable 
resources--small business.
  Today, close to 2 million U.S. businesses are S Corporations, and 
these businesses are still subject to many of the oppressive restraints 
which date back to its original enactment in 1958.
  Madam President, it goes without saying that times have changed since 
1958. The financial environment is far more complex, and the 1950's Sub 
S limitations restrict growth opportunities. Frankly, Sub S needs an 
overhaul.
  This legislation is the overhaul we need. It is an overhaul that is 
doable. And it is an overhaul that can give a boost to our economic 
recovery by creating more opportunities for capital growth and jobs in 
our country.


               Pension Simplification for Small business

  On June 30, 1995, Senator Hatch and I introduced the Pension 
Simplification Act of 1995. This legislation contains provisions that 
target complex and costly rules effecting pension plans offered by 
small businesses--and there is a very good reason for this action.
  In 1993, 83 percent of companies with 100 or more employees offered 
some type of retirement plan. In contrast, in businesses with less than 
25 employees, only 19.6 percent of these employees had an employer-
provided pension plan available to them, and only 15 percent of these 
employees participated in the plan.
  A major factor contributing to this dismal statistic is the sky-high 
per-participant cost of establishing and maintaining a pension plan for 
small business. This legislation alleviates the high cost barriers for 
small business by creating a tax credit which can be applied toward the 
start-up costs of providing a new plan for employers with 50 or fewer 
employees.
  Next, the bill slashes extensive annual nondiscrimination testing 
requirements for firms where no employee is highly compensated. These 
two provisions alone will significantly reduce the cost of starting up 
and maintaining a retirement plan for employers of small business. With 
these barriers lowered, we will be encouraging retirement savings for 
our Nation's small business worker.


                   american family-owned business act

  The fifth point of BOOST was introduced on July 28, 1995, by Senator 
Dole and myself--we call it the American Family-Owned Business Act.
  Madam President, the impact of the estate tax on a family-owned 
business is devastating because of one simple fact--the rates are too 
high. The rates reach 55 percent of the value of an estate very 
quickly, and the tax bill comes due abruptly on the death of a loved 
one who also happens to be an invaluable asset to the family business.

[[Page S 14885]]

  For families whose major asset is its business, many times these 
enterprises are literally forced out of business because of the 
imposition of the estate tax. The effect is a disruption in not only 
the family's life but the lives of the employees of the business and 
the community that depends on or enjoys the goods or services provided 
by the business.
  Contrast this scenario with the little to no impact the estate tax 
has on widely held businesses and you discover a disturbing reality in 
our current tax code--we place closely-held, family-owned businesses at 
a significant disadvantage when compared to widely held businesses.
  Senator Dole and I introduced the American Family-Owned Business Act 
with 44 cosponsors. Virtually every small business and agriculture 
organization in America has endorsed this bill. It carefully targets 
estate tax relief to family businesses whose major asset is its 
business and whose family members will materially participate in the 
business for years to come.
  The message of the American Family-Owned Business Act is that we will 
treat family businesses more fairly, and in doing so, we will foster an 
environment which encourages family entrepreneurship. I am proud to 
work with the Majority Leader on this effort and I look forward to its 
passage.


                                pay-for

  Madam President, although BOOST package has only a moderate cost to 
the Federal Treasury, I do believe we must pay for these tax code 
reforms through cuts in spending.
  I propose to pay for these important reforms from the provisions from 
my bill, S. 573, the Spending Reductions Act of 1996, which would save 
$5.374 billion in fiscal year 1996.
  In order to achieve these savings, I first proposed a modest 
reduction in the Government's spending on Federal contractors. This is 
a broad topic I have focused on for over 14 years. But today, I am not 
proposing to address all of the problems involved with the Federal 
Government's extensive reliance on contractors and consultants. I 
simply want to address the concern expressed by the voters in the 1992 
and 1994 elections to shrink the size of Government.
  The Congress only acted half-way in responding to this message when 
it voted to cut the number of Federal employees by 12 percent, because 
Congress has yet to order a corresponding reduction in the contractor 
work force. This contractor work force has been growing at a rapid rate 
over the past 10 years, while at the same time, the number of Federal 
workers has actually declined. In the early 1980's, the Federal 
Government spent roughly $40 billion on service contracts. Last year, 
in fiscal year 1994, the Federal Government spent $110 billion on 
service contracts. My proposal is to reduce this amount for 1996, a 
modest 4.5 percent.
  Madam President, this reduction will still permit agencies to get 
their work done, but it will also reduce some of the waste that comes 
from too much money being spent without adequate oversight. For 
example, at my request, the inspector general at the Pentagon has been 
looking at some contracts awarded by the star wars program. Listen to 
some of the problems they found with the three contracts they audited:
  First, cost overruns on the contracts totalled $3.1 million.
  Second, the contractor awarded prohibited subcontracts worth several 
million dollars.
  Third, one contractor charged the Government for 588 hours of work 
that it did not actually perform.
  I believe a reduction in spending, as I have proposed, will force 
agencies to spend money more wisely and eliminate such waste.
  My next spending cut proposal will reduce spending on Federally 
Funded Research and Development Centers [FFRDC's] at the Department of 
Defense. FFRDC's, like Mitre, Rand, and the Center for Naval Analysis 
are contractors who work solely for the Federal Government. While these 
contractors perform some valuable service, I believe it is appropriate 
to cut back a modest amount on these in-house consulting companies, as 
we have on the Federal work force and as I am proposing on service 
contracts.
  Madam President, our taxpayers should not continue being billed for 
the very high salaries and overhead being charged by these Government-
run consulting firms. For example, the head of Aerospace made $230,000 
in 1991 and $265,000 in 1992. I have no idea what they made in 1993 and 
1994, but I imagine the increase has been alarming. This in-house 
Government contractor was making more than the President of the United 
States. My proposal would reduce spending on FFRDC's by $162.7 million 
from the amount authorized by the Department of Defense authorization 
bill. This would still leave over $1 billion for these companies.
  Madam President, my final proposal to reduce spending involves an 
issue that I have worked on for a number of years--the export of arms 
to countries around the world. I am not proud of the fact that the 
United States is the leading arms exporter. We sell 53 percent of all 
the arms in international trade. However, my proposal is not targeted 
at totally reforming this arms trade, that is a battle for the future. 
I simply propose that we reduce the spending in our foreign military 
financing program by $271.5 million from the total budget of $3.7 
billion.
  Taken together, these spending reductions amount to over $5 billion 
in 1996. It is more than enough to cover the costs of the BOOST package 
for this year and to give the small family owned business and the 
family farmers a real break that they justly deserve.


                               conclusion

  In conclusion, I would just like to say that--while some in 
Washington are consumed with passing or blocking the huge tax cuts 
reported on the front page of every newspaper, we, in Congress, should 
all be concerned with the practical, commonsense, and relatively 
inexpensive changes that will help the American taxpayer believe that 
Government can work for, not against, them. Also, to allow and to 
encourage those entrepreneurs to create jobs for people who will be 
paying taxes and who will be boosting our local communities.
  Our program, the BOOST program, is such a change. It offers an 
opportunity. It gives people a chance, it should give people hope where 
hope has not been present. It reaffirms a commitment to fairness for 
small taxpayers and capitalizes on one of our country's greatest 
assets--small business and the family farm.
  I am urging, Madam President, my colleagues to join me in supporting 
BOOST to be included in any tax legislation sent from this Senate. 
Madam President, I ask unanimous consent that a copy of the bill and a 
brief summary be included in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1299

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

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Bringing 
     Opportunity to Our Small Business and Taxpayers (BOOST) 
     Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

                   TITLE I--TAXPAYER BILL OF RIGHTS 2

Sec. 1001. Short title.

                     Subtitle A--Taxpayer Advocate

Sec. 1011. Establishment of position of Taxpayer Advocate within 
              Internal Revenue Service.
Sec. 1012. Expansion of authority to issue taxpayer assistance orders.

     Subtitle B--Modifications to Installment Agreement Provisions

Sec. 1021. Taxpayer's right to installment agreement.
Sec. 1022. Running of failure to pay penalty suspended during period 
              installment agreement in effect.
Sec. 1023. Notification of reasons for termination or denial of 
              installment agreements.
Sec. 1024. Administrative review of denial of request for, or 
              termination of, installment agreement.

[[Page S 14886]]


                          Subtitle C--Interest

Sec. 1031. Expansion of authority to abate interest.
Sec. 1032. Extension of interest-free period for payment of tax after 
              notice and demand.

                       Subtitle D--Joint Returns

Sec. 1041. Disclosure of collection activities.
Sec. 1042. Joint return may be made after separate returns without full 
              payment of tax.

                   Subtitle E--Collection Activities

Sec. 1051. Modifications to lien and levy provisions.
Sec. 1052. Offers-in-compromise.
Sec. 1053. Notification of examination.
Sec. 1054. Increase in limit on recovery of civil damages for 
              unauthorized collection actions.
Sec. 1055. Safeguards relating to designated summons.

                    Subtitle F--Information Returns

Sec. 1061. Phone number of person providing payee statements required 
              to be shown on such statement.
Sec. 1062. Civil damages for fraudulent filing of information returns.
Sec. 1063. Requirement to conduct reasonable investigations of 
              information returns.

  Subtitle G--Modifications to Penalty for Failure To Collect and Pay 
                                Over Tax

Sec. 1071. Preliminary notice requirement.
Sec. 1072. Disclosure of certain information where more than 1 person 
              subject to penalty.
Sec. 1073. Penalties under section 6672.

             Subtitle H--Awarding of Costs and Certain Fees

Sec. 1081. Motion for disclosure of information.
Sec. 1082. Increased limit on attorney fees.
Sec. 1083. Failure to agree to extension not taken into account.
Sec. 1084. Authority for court to award reasonable administrative 
              costs.
Sec. 1085. Effective date.

                      Subtitle I--Other Provisions

Sec. 1091. Required content of certain notices.
Sec. 1092. Treatment of substitute returns under section 6651.
Sec. 1093. Relief from retroactive application of Treasury Department 
              regulations.
Sec. 1094. Required notice of certain payments.
Sec. 1095. Unauthorized enticement of information disclosure.

                Subtitle J--Form Modifications; Studies

Sec. 1100. Definitions.

                     Chapter 1--Form Modifications

Sec. 1101. Explanation of certain provisions.
Sec. 1102. Improved procedures for notifying service of change of 
              address or name.
Sec. 1103. Rights and responsibilities of divorced individuals.

                           Chapter 2--Studies

Sec. 1111. Pilot program for appeal of enforcement actions.
Sec. 1112. Study on taxpayers with special needs.
Sec. 1113. Reports on taxpayer-rights education program.
Sec. 1114. Biennial reports on misconduct by Internal Revenue Service 
              employees.
Sec. 1115. Study of notices of deficiency.
Sec. 1116. Notice and form accuracy study.

  TITLE II--INCREASE OF DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                          EMPLOYED INDIVIDUALS

Sec. 2001. Increase of deduction for health insurance costs of self-
              employed individuals.

              TITLE III--S CORPORATION REFORM ACT OF 1995

Sec. 3001. Short title.

           Subtitle A--Eligible Shareholders of S Corporation

                   Chapter 1--Number of Shareholders

Sec. 3101. S corporations permitted to have 50 shareholders.
Sec. 3102. Members of family treated as 1 shareholder.

               Chapter 2--Persons Allowed as Shareholders

Sec. 3111. Certain exempt organizations.
Sec. 3112. Financial institutions.
Sec. 3113. Nonresident aliens.
Sec. 3114. Electing small business trusts.

                      Chapter 3--Other Provisions

Sec. 3121. Expansion of post-death qualification for certain trusts.

     Subtitle B--Qualification and Eligibility Requirements for S 
                              Corporations

                     Chapter 1--One Class of Stock

Sec. 3201. Issuance of preferred stock permitted.
Sec. 3202. Financial institutions permitted to hold safe harbor debt.

                 Chapter 2--Elections And Terminations

Sec. 3211. Rules relating to inadvertent terminations and invalid 
              elections.
Sec. 3212. Agreement to terminate year.
Sec. 3213. Expansion of post-termination transition period.
Sec. 3214. Repeal of excessive passive investment income as a 
              termination event.

                      Chapter 3--Other Provisions

Sec. 3221. S corporations permitted to hold subsidiaries.
Sec. 3222. Treatment of distributions during loss years.
Sec. 3223. Consent dividend for AAA bypass election.
Sec. 3224. Treatment of S corporations under subchapter C.
Sec. 3225. Elimination of pre-1983 earnings and profits.
Sec. 3226. Allowance of charitable contributions of inventory and 
              scientific property.
Sec. 3227. C corporation rules to apply for fringe benefit purposes.

           Subtitle C--Taxation of S Corporation Shareholders

Sec. 3301. Uniform treatment of owner-employees under prohibited 
              transaction rules.
Sec. 3302. Treatment of losses to shareholders.

                       Subtitle D--Effective Date

Sec. 3401. Effective date.

                    TITLE IV--PENSION SIMPLIFICATION

       Subtitle A--Simplification of Nondiscrimination Provisions

Sec. 4000. Short title.
Sec. 4001. Definition of highly compensated employees; repeal of family 
              aggregation.

    Subtitle B--Targeted Access to Pension Plans for Small Employers

Sec. 4011. Credit for pension plan start-up costs of small employers.
Sec. 4012. Modifications of simplified employee pensions.
Sec. 4013. Exemption from top-heavy plan requirements.
Sec. 4014. Regulatory treatment of small employers.

        TITLE V--ESTATE TAX EXCLUSION FOR FAMILY-OWNED BUSINESS

Sec. 5001. Short title.
Sec. 5002. Family-owned business exclusion.

                     TITLE VI--SPENDING REDUCTIONS

Sec. 6001. Short title.
Sec. 6002. Service contracts.
Sec. 6003. Federally funded research and development centers.
Sec. 6004. Foreign military financing.
                   TITLE I--TAXPAYER BILL OF RIGHTS 2

     SEC. 1001. SHORT TITLE.

       This title may be cited as the ``Taxpayer Bill of Rights 
     2''.
                     Subtitle A--Taxpayer Advocate

     SEC. 1011. ESTABLISHMENT OF POSITION OF TAXPAYER ADVOCATE 
                   WITHIN INTERNAL REVENUE SERVICE.

       (a) General Rule.--Section 7802 (relating to Commissioner 
     of Internal Revenue; Assistant Commissioner (Employee Plans 
     and Exempt Organizations)) is amended by adding at the end 
     the following new subsection:
       ``(d) Office of Taxpayer Advocate.--
       ``(1) In general.--There is established in the Internal 
     Revenue Service an office to be known as the `Office of the 
     Taxpayer Advocate'. Such office, including all problem 
     resolution officers, shall be under the supervision and 
     direction of an official to be known as the `Taxpayer 
     Advocate' who shall report directly to the Commissioner of 
     Internal Revenue. The Taxpayer Advocate shall be entitled to 
     compensation at the same rate as the Chief Counsel for the 
     Internal Revenue Service.
       ``(2) Functions of office.--
       ``(A) In general.--It shall be the function of the Office 
     of Taxpayer Advocate to--
       ``(i) assist taxpayers in resolving problems with the 
     Internal Revenue Service,
       ``(ii) identify areas in which taxpayers have problems in 
     dealings with the Internal Revenue Service,
       ``(iii) to the extent possible, propose changes in the 
     administrative practices of the Internal Revenue Service to 
     mitigate problems identified under clause (ii), and
       ``(iv) identify potential legislative changes which may be 
     appropriate to mitigate such problems.
       ``(B) Annual reports.--
       ``(i) Objectives.--Not later than June 30 of each calendar 
     year after 1995, the Taxpayer Advocate shall report to the 
     Committee on Ways and Means of the House of Representatives 
     and the Committee on Finance of the Senate on the objectives 
     of the Taxpayer Advocate for the fiscal year beginning in 
     such calendar year. Any such report shall contain full and 
     substantive analysis, in addition to statistical information.
       ``(ii) Activities.--Not later than December 31 of each 
     calendar year after 1995, the Taxpayer Advocate shall report 
     to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate on 
     the activities of the Taxpayer Advocate during the fiscal 
     year ending during such calendar year. Any such report shall 
     contain full and substantive analysis, in addition to 
     statistical information, and shall--

       ``(I) identify the initiatives the Taxpayer Advocate has 
     taken on improving taxpayer services and Internal Revenue 
     Service responsiveness,
       ``(II) contain recommendations received from individuals 
     with the authority to issue taxpayer assistance orders under 
     section 7811,
       ``(III) contain a summary of at least 20 of the most 
     serious problems encountered by taxpayers, including a 
     description of the nature of such problems,
       ``(IV) contain an inventory of the items described in 
     subclauses (I), (II), and (III) for which action has been 
     taken and the result of such action,
       ``(V) contain an inventory of the items described in 
     subclauses (I), (II), and (III) for 

[[Page S 14887]]
     which action remains to be completed and the period during which each 
     item has remained on such inventory,
       ``(VI) contain an inventory of the items described in 
     subclauses (II) and (III) for which no action has been taken, 
     the period during which each item has remained on such 
     inventory, the reasons for the inaction, and identify any 
     Internal Revenue Service official who is responsible for such 
     inaction,
       ``(VII) identify any Taxpayer Assistance Order which was 
     not honored by the Internal Revenue Service in a timely 
     manner, as specified under section 7811(b),
       ``(VIII) contain recommendations for such administrative 
     and legislative action as may be appropriate to resolve 
     problems encountered by taxpayers, and
       ``(IX) include such other information as the Taxpayer 
     Advocate may deem advisable.

       ``(iii) Report to be submitted directly.--Each report 
     required under this subparagraph shall be provided directly 
     to the Committees referred to in clauses (i) and (ii) without 
     any prior review or comment from the Commissioner of the 
     Internal Revenue Service, the Secretary of the Treasury, any 
     other officer or employee of the Department of the Treasury, 
     or the Office of Management and Budget.
       ``(3) Responsibilities of commissioner of internal revenue 
     service.--The Commissioner of Internal Revenue shall 
     establish procedures requiring a formal response to all 
     recommendations submitted to the Commissioner by the Taxpayer 
     Advocate.''
       (b) Conforming Amendments.--
       (1) Section 7811 (relating to taxpayer assistance orders) 
     is amended--
       (A) by striking ``the Office of Ombudsman'' in subsection 
     (a) and inserting ``the Office of the Taxpayer Advocate'', 
     and
       (B) by striking ``Ombudsman'' each place it appears 
     (including in the headings of subsections (e) and (f)) and 
     inserting ``Taxpayer Advocate''.
       (2) The heading for section 7802 is amended to read as 
     follows:

     ``SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT 
                   COMMISSIONERS; TAXPAYER ADVOCATE.''

       (3) The table of sections for subchapter A of chapter 80 of 
     subtitle F is amended by striking the item relating to 
     section 7802 and inserting the following new item:

``Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioners; 
              Taxpayer Advocate.''
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1012. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER 
                   ASSISTANCE ORDERS.

       (a) Taxpayer's Hardship.--Section 7811(a) (relating to 
     authority to issue) is amended by striking ``significant''.
       (b) Terms of Orders.--Subsection (b) of section 7811 
     (relating to terms of taxpayer assistance orders) is 
     amended--
       (1) by inserting ``within a specified time period'' after 
     ``the Secretary'', and
       (2) by inserting ``take any action as permitted by law,'' 
     after ``cease any action,''.
       (c) Limitation on Authority To Modify or Rescind.--Section 
     7811(c) (relating to authority to modify or rescind) is 
     amended to read as follows:
       ``(c) Authority To Modify or Rescind.--Any Taxpayer 
     Assistance Order issued by the Taxpayer Advocate under this 
     section may be modified or rescinded only by the Taxpayer 
     Advocate, the Commissioner, or any superior of either.''
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
     Subtitle B--Modifications to Installment Agreement Provisions

     SEC. 1021. TAXPAYER'S RIGHT TO INSTALLMENT AGREEMENT.

       (a) In General.--Subsection (a) of section 6159 (relating 
     to agreements for payment of tax liability in installments) 
     is amended to read as follows:
       ``(a) In General.--
       ``(1) Authorization of agreements.--The Secretary is 
     authorized to enter into written agreements with any taxpayer 
     under which such taxpayer is allowed to satisfy liability for 
     payment of any tax in installment payments if the Secretary 
     determines that such agreement will facilitate collection of 
     such liability.
       ``(2) Agreement as a matter of right.--In the case of any 
     taxpayer other than a corporation, the Secretary shall enter 
     into such an agreement if--
       ``(A) the taxpayer requests such an agreement,
       ``(B) the tax liability is attributable to the tax imposed 
     under chapter 1 and is less than $10,000, and
       ``(C) the taxpayer has paid any tax liability for the 3 
     preceding taxable years at the time such liability was due.
       ``(3) Notice.--The Secretary shall include in the 
     instructions for returns of the tax imposed under chapter 1 
     the rights of taxpayers under this subsection and the steps 
     necessary to exercise those rights.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 1022. RUNNING OF FAILURE TO PAY PENALTY SUSPENDED DURING 
                   PERIOD INSTALLMENT AGREEMENT IN EFFECT.

       (a) General Rule.--Section 6651 (relating to penalty for 
     failure to file tax return or to pay tax) is amended by 
     adding at the end the following new subsection:
       ``(g) Treatment of Installment Agreements Under Section 
     6159.--If--
       ``(1) an agreement is entered into under section 6159 for 
     the payment of any tax in installments, and
       ``(2) the taxpayer requested the Secretary to enter into 
     the agreement on or before the due date (including 
     extensions) for the return of the tax,

     the period during which such agreement is in effect shall be 
     disregarded in determining the amount of any addition under 
     paragraph (2) or (3) of subsection (a) with respect to such 
     tax.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to installment agreements entered into after the 
     date of the enactment of this Act.

     SEC. 1023. NOTIFICATION OF REASONS FOR TERMINATION OR DENIAL 
                   OF INSTALLMENT AGREEMENTS.

       (a) Terminations.--Subsection (b) of section 6159 (relating 
     to extent to which agreements remain in effect) is amended by 
     adding at the end the following new paragraph:
       ``(5) Notice requirements.--The Secretary may not take any 
     action under paragraph (2), (3), or (4) unless--
       ``(A) a notice of such action is provided to the taxpayer 
     not later than the day 30 days before the date of such 
     action, and
       ``(B) such notice includes an explanation why the Secretary 
     intends to take such action.

     The preceding sentence shall not apply in any case in which 
     the Secretary believes that collection of any tax to which an 
     agreement under this section relates is in jeopardy.''
       (b) Denials.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     adding at the end the following new subsection:
       ``(c) Notice Requirements for Denials.--The Secretary may 
     not deny any request for an installment agreement under this 
     section unless--
       ``(1) a notice of the proposed denial is provided to the 
     taxpayer not later than the day 30 days before the date of 
     such denial,
       ``(2) such notice includes an explanation why the Secretary 
     intends to deny such request, and
       ``(3) such notice includes a statement of the taxpayer's 
     right to administrative review under subsection (d).

     The preceding sentence shall not apply in any case in which 
     the Secretary believes that collection of any tax to which a 
     request for an agreement under this section relates is in 
     jeopardy.''
       (c) Conforming Amendment.--Paragraph (3) of section 6159(b) 
     is amended to read as follows:
       ``(3) Subsequent change in financial conditions.--If the 
     Secretary makes a determination that the financial condition 
     of a taxpayer with whom the Secretary has entered into an 
     agreement under subsection (a) has significantly changed, the 
     Secretary may alter, modify, or terminate such agreement.''
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date 6 months after the date of the 
     enactment of this Act.

     SEC. 1024. ADMINISTRATIVE REVIEW OF DENIAL OF REQUEST FOR, OR 
                   TERMINATION OF, INSTALLMENT AGREEMENT.

       (a) General Rule.--Section 6159 (relating to agreements for 
     payment of tax liability in installments), as amended by 
     section 1023(b), is amended by adding at the end the 
     following new subsection:
       ``(d) Administrative Review.--The Secretary shall establish 
     procedures for an independent administrative review of 
     denials of requests for, or terminations of, installment 
     agreements under this section.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 1996.
                          Subtitle C--Interest

     SEC. 1031. EXPANSION OF AUTHORITY TO ABATE INTEREST.

       (a) General Rule.--Paragraph (1) of section 6404(e) 
     (relating to abatement of interest in certain cases) is 
     amended--
       (1) by inserting ``unreasonable'' before ``error'' each 
     place it appears in subparagraphs (A) and (B), and
       (2) by striking ``in performing a ministerial act'' each 
     place it appears.
       (b) Mandatory Abatement for Small Taxpayers.--The first 
     sentence of section 6404(e)(1) is amended by inserting ``in 
     the case of a taxpayer not described in section 
     7430(c)(4)(A)(iii) and shall abate the assessment of such 
     interest until the date demand for payment is made in the 
     case of a taxpayer described in section 7430(c)(4)(A)(iii)'' 
     before the period at the end.
       (c) Clerical Amendment.--The subsection heading for 
     subsection (e) of section 6404 is amended by striking 
     ``Assessments'' and inserting ``Abatement''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to interest accruing with respect to deficiencies 
     or payments for taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 1032. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF 
                   TAX AFTER NOTICE AND DEMAND.

       (a) General Rule.--Paragraph (3) of section 6601(e) 
     (relating to payments made within 10 days after notice and 
     demand) is amended to read as follows:
       ``(3) Payments made within specified period after notice 
     and demand.--If notice 

[[Page S 14888]]
     and demand is made for payment of any amount and if such amount is paid 
     within 21 days (10 days if the amount for which such notice 
     and demand is made equals or exceeds $100,000) after the date 
     of such notice and demand, interest under this section on the 
     amount so paid shall not be imposed for the period after the 
     date of such notice and demand.''
       (b) Conforming Amendment.--Paragraph (3) of section 6651(a) 
     (relating to addition to tax for failure to file tax return 
     or pay tax) is amended by striking ``10 days'' and inserting 
     ``21 days (10 days if the amount for which such notice and 
     demand is made equals or exceeds $100,000)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply in the case of any notice and demand given after 
     December 31, 1995.
                       Subtitle D--Joint Returns

     SEC. 1041. DISCLOSURE OF COLLECTION ACTIVITIES.

       (a) General Rule.--Subsection (e) of section 6103 (relating 
     to disclosure to persons having material interest) is amended 
     by adding at the end the following new paragraph:
       ``(8) Disclosure of collection activities with respect to 
     joint return.--If any deficiency of tax with respect to a 
     joint return is assessed and the individuals filing such 
     return are no longer married or no longer reside in the same 
     household, upon request in writing of either of such 
     individuals, the Secretary may disclose in writing to the 
     individual making the request whether the Secretary has 
     attempted to collect such deficiency from such other 
     individual, the general nature of such collection activities, 
     and the amount collected.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 1042. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS 
                   WITHOUT FULL PAYMENT OF TAX.

       (a) General Rule.--Paragraph (2) of section 6013(b) 
     (relating to limitations on filing of joint return after 
     filing separate returns) is amended by striking subparagraph 
     (A) and redesignating the following subparagraphs 
     accordingly.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                   Subtitle E--Collection Activities

     SEC. 1051. MODIFICATIONS TO LIEN AND LEVY PROVISIONS.

       (a) Withdrawal of Certain Notices.--Section 6323 (relating 
     to validity and priority against certain persons) is amended 
     by adding at the end the following new subsection:
       ``(j) Withdrawal of Notice in Certain Circumstances.--
       ``(1) In general.--The Secretary may withdraw a notice of a 
     lien filed under this section and this chapter shall be 
     applied as if the withdrawn notice had not been filed, if the 
     Secretary determines that--
       ``(A) the filing of such notice was premature or otherwise 
     not in accordance with administrative procedures of the 
     Secretary,
       ``(B) the taxpayer has entered into an agreement under 
     section 6159 to satisfy the tax liability for which the lien 
     was imposed by means of installment payments, unless such 
     agreement provides otherwise,
       ``(C) the withdrawal of such notice will facilitate the 
     collection of the tax liability, or
       ``(D) with the consent of the taxpayer or the Taxpayer 
     Advocate, the withdrawal of such notice would be in the best 
     interests of the taxpayer (as determined by the Taxpayer 
     Advocate) and the United States.

     Any such withdrawal shall be made by filing notice at the 
     same office as the withdrawn notice. A copy of such notice of 
     withdrawal shall be provided to the taxpayer.
       ``(2) Notice to credit agencies, etc.--Upon written request 
     by the taxpayer with respect to whom a notice of a lien was 
     withdrawn under paragraph (1), the Secretary shall promptly 
     make reasonable efforts to notify credit reporting agencies, 
     and any financial institution or creditor whose name and 
     address is specified in such request, of the withdrawal of 
     such notice. Any such request shall be in such form as the 
     Secretary may prescribe.''
       (b) Return of Levied Property in Certain Cases.--Section 
     6343 (relating to authority to release levy and return 
     property) is amended by adding at the end the following new 
     subsection:
       ``(d) Return of Property in Certain Cases.--If--
       ``(1) any property has been levied upon, and
       ``(2) the Secretary determines that--
       ``(A) the levy on such property was premature or otherwise 
     not in accordance with administrative procedures of the 
     Secretary,
       ``(B) the taxpayer has entered into an agreement under 
     section 6159 to satisfy the tax liability for which the levy 
     was imposed by means of installment payments, unless such 
     agreement provides otherwise,
       ``(C) the return of such property will facilitate the 
     collection of the tax liability, or
       ``(D) with the consent of the taxpayer or the Taxpayer 
     Advocate, the return of such property would be in the best 
     interests of the taxpayer (as determined by the Taxpayer 
     Advocate) and the United States,

     the provisions of subsection (b) shall apply in the same 
     manner as if such property had been wrongly levied upon, 
     except that no interest shall be allowed under subsection 
     (c).''
       (c) Modifications in Certain Levy Exemption Amounts.--
       (1) Fuel, etc.--Paragraph (2) of section 6334(a) (relating 
     to fuel, provisions, furniture, and personal effects exempt 
     from levy) is amended--
       (A) by striking ``If the taxpayer is the head of a family, 
     so'' and inserting ``So'', and
       (B) by striking ``$1,650 ($1,550 in the case of levies 
     issued during 1989)'' and inserting ``$1,750''.
       (2) Books, etc.--Paragraph (3) of section 6334(a) (relating 
     to books and tools of a trade, business, or profession exempt 
     from levy) is amended by striking ``$1,100 ($1,050 in the 
     case of levies issued during 1989)'' and inserting 
     ``$1,250''.
       (3) Indexed for inflation.--Section 6334 (relating to 
     property exempt from levy) is amended by adding at the end 
     the following new subsection:
       ``(f) Inflation Adjustments.--
       ``(1) In general.--In the case of any calendar year 
     beginning after 1996, each dollar amount referred to in 
     paragraphs (2) and (3) of subsection (a) 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 such calendar year, by substituting 
     `calendar year 1995' for `calendar year 1992' in subparagraph 
     (B) thereof.
       ``(2) Rounding.--If any dollar amount after being increased 
     under paragraph (1) is not a multiple of $10, such dollar 
     amount shall be rounded to the nearest multiple of $10 (or, 
     if such dollar amount is a multiple of $5, such dollar amount 
     shall be increased to the next higher multiple of $10).''
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall take effect on the date 
     of the enactment of this Act.
       (2) Exempt amounts.--The amendments made by subsection (c) 
     shall take effect with respect to levies issued after 
     December 31, 1995.

     SEC. 1052. OFFERS-IN-COMPROMISE.

       (a) General Rule.--Subsection (a) of section 7122 (relating 
     to compromises) is amended by adding at the end the following 
     new sentence: ``The Secretary may make such a compromise in 
     any case where the Secretary determines that such compromise 
     would be in the best interests of the United States.''
       (b) Review Requirements.--Subsection (b) of section 7122 
     (relating to records) is amended by striking ``$500.'' and 
     inserting ``$50,000. However, such compromise shall be 
     subject to continuing quality review by the Secretary.''
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1053. NOTIFICATION OF EXAMINATION.

       (a) In General.--Section 7605 (relating to restrictions on 
     examination of taxpayer) is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Notification Requirement.--No examination described 
     in subsection (a) shall be made unless the Secretary notifies 
     the taxpayer in writing by mail to an address determined 
     under section 6212(b) that the taxpayer is under examination 
     and provides the taxpayer with an explanation of the process 
     as described in section 7521(b)(1). The preceding sentence 
     shall not apply in the case of any examination if the 
     Secretary determines that--
       ``(1) such examination is in connection with a criminal 
     investigation or is with respect to a tax the collection of 
     which is in jeopardy, or
       ``(2) the application of the preceding sentence would be 
     inconsistent with national security needs or would interfere 
     with the effective conduct of a confidential law enforcement 
     or foreign counterintelligence activity.''
       (b) Conforming Amendment.--Paragraph (1) of section 7521(b) 
     (relating to safeguards) is amended by striking ``or at''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1054. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES FOR 
                   UNAUTHORIZED COLLECTION ACTIONS.

       (a) General Rule.--Subsection (b) of section 7433 (relating 
     to damages) is amended by striking ``$100,000'' and inserting 
     ``$1,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to actions by officers or employees of the 
     Internal Revenue Service after the date of the enactment of 
     this Act.

     SEC. 1055. SAFEGUARDS RELATING TO DESIGNATED SUMMONS.

       (a) Standard of Review.--Subparagraph (A) of section 
     6503(k)(2) (defining designated summons) is amended by 
     redesignating clauses (i) and (ii) as clauses (ii) and (iii), 
     respectively, and by inserting before clause (ii) (as so 
     redesignated) the following new clause:
       ``(i) the issuance of such summons is preceded by a review 
     of such issuance by the regional counsel of the Office of 
     Chief Counsel for the region in which the examination of the 
     corporation is being conducted,''.
       (b) Notice Requirements for Issuance.--Section 6503(k) is 
     amended by adding at the end the following new paragraph:
       ``(4) Notice requirements.--With respect to any summons 
     referred to in paragraph (1)(A) issued to any person other 
     than the corporation, the Secretary shall promptly notify the 
     corporation, in writing, that such summons has been issued 
     with respect to such corporation's return of tax.''

[[Page S 14889]]

       (c) Effective Date.--The amendments made by this section 
     shall apply to summons issued after the date of the enactment 
     of this Act.
                    Subtitle F--Information Returns

     SEC. 1061. PHONE NUMBER OF PERSON PROVIDING PAYEE STATEMENTS 
                   REQUIRED TO BE SHOWN ON SUCH STATEMENT.

       (a) General Rule.--The following provisions are each 
     amended by striking ``name and address'' and inserting 
     ``name, address, and phone number of the information 
     contact'':
       (1) Section 6041(d)(1).
       (2) Section 6041A(e)(1).
       (3) Section 6042(c)(1).
       (4) Section 6044(e)(1).
       (5) Section 6045(b)(1).
       (6) Section 6049(c)(1)(A).
       (7) Section 6050B(b)(1).
       (8) Section 6050H(d)(1).
       (9) Section 6050I(e)(1).
       (10) Section 6050J(e).
       (11) Section 6050K(b)(1).
       (12) Section 6050N(b)(1).
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to statements required to be furnished after 
     December 31, 1995 (determined without regard to any 
     extension).

     SEC. 1062. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION 
                   RETURNS.

       (a) General Rule.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties) is amended by 
     redesignating section 7434 as section 7435 and by inserting 
     after section 7433 the following new section:

     ``SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF 
                   INFORMATION RETURNS.

       ``(a) In General.--If any person willfully files a false or 
     fraudulent information return with respect to payments 
     purported to be made to any other person, such other person 
     may bring a civil action for damages against the person so 
     filing such return.
       ``(b) Damages.--In any action brought under subsection (a), 
     upon a finding of liability on the part of the defendant, the 
     defendant shall be liable to the plaintiff in an amount equal 
     to the greater of $5,000 or the sum of--
       ``(1) any actual damages sustained by the plaintiff as a 
     proximate result of the filing of the false or fraudulent 
     information return (including any costs attributable to 
     resolving deficiencies asserted as a result of such filing), 
     and
       ``(2) the costs of the action.
       ``(c) Period for Bringing Action.--Notwithstanding any 
     other provision of law, an action to enforce the liability 
     created under this section may be brought without regard to 
     the amount in controversy and may be brought only within the 
     later of--
       ``(1) 6 years after the date of the filing of the false or 
     fraudulent information return, or
       ``(2) 1 year after the date such false or fraudulent 
     information return would have been discovered by exercise of 
     reasonable care.
       ``(d) Copy of Complaint Filed With IRS.--Any person 
     bringing an action under subsection (a) shall provide a copy 
     of the complaint to the Internal Revenue Service upon the 
     filing of such complaint with the court.
       ``(e) Finding of Court To Include Correct Amount of 
     Payment.--The judgment of the court in an action brought 
     under subsection (a) shall include a finding of the correct 
     amount which should have been reported in the information 
     return.
       ``(f) Information Return.--For purposes of this section, 
     the term `information return' means any statement described 
     in section 6724(d)(1)(A).''
       (b) Clerical Amendment.--The table of sections for 
     subchapter B of chapter 76 is amended by striking the item 
     relating to section 7434 and inserting the following:

``Sec. 7434. Civil damages for fraudulent filing of information 
              returns.
``Sec. 7435. Cross references.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to false or fraudulent information returns filed 
     after the date of the enactment of this Act.

     SEC. 1063. REQUIREMENT TO CONDUCT REASONABLE INVESTIGATIONS 
                   OF INFORMATION RETURNS.

       (a) General Rule.--Section 6201 (relating to assessment 
     authority) is amended by redesignating subsection (d) as 
     subsection (e) and by inserting after subsection (c) the 
     following new subsection:
       ``(d) Required Reasonable Investigation of Information 
     Returns.--If a taxpayer asserts a reasonable dispute with 
     respect to any item of income reported on an information 
     return filed with the Secretary under chapter 61 by a third 
     party, the Secretary, when making a determination of a 
     deficiency based on such information return, shall have the 
     burden of proof with respect to such determination unless the 
     Secretary has conducted a reasonable investigation to 
     corroborate the accuracy of such information return.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
  Subtitle G--Modifications to Penalty for Failure To Collect and Pay 
                                Over Tax

     SEC. 1071. PRELIMINARY NOTICE REQUIREMENT.

       (a) In General.--Section 6672 (relating to failure to 
     collect and pay over tax, or attempt to evade or defeat tax) 
     is amended by redesignating subsection (b) as subsection (c) 
     and by inserting after subsection (a) the following new 
     subsection:
       ``(b) Preliminary Notice Requirement.--
       ``(1) In general.--No penalty shall be imposed under 
     subsection (a) unless the Secretary notifies the taxpayer in 
     writing by mail to an address as determined under section 
     6212(b) that the taxpayer shall be subject to an assessment 
     of such penalty.
       ``(2) Timing of notice.--The mailing of the notice 
     described in paragraph (1) shall precede any notice and 
     demand of any penalty under subsection (a) by at least 60 
     days.
       ``(3) Statute of limitations.--If a notice described in 
     paragraph (1) with respect to any penalty is mailed before 
     the expiration of the period provided by section 6501 for the 
     assessment of such penalty (determined without regard to this 
     paragraph), the period provided by such section for the 
     assessment of such penalty shall not expire before the date 
     90 days after the date on which such notice was mailed.
       ``(4) Exception for jeopardy.--This subsection shall not 
     apply if the Secretary finds that the collection of the 
     penalty is in jeopardy.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to assessments made after December 31, 1995.

     SEC. 1072. DISCLOSURE OF CERTAIN INFORMATION WHERE MORE THAN 
                   1 PERSON SUBJECT TO PENALTY.

       (a) In General.--Subsection (e) of section 6103 (relating 
     to disclosure to persons having material interest), as 
     amended by section 1041(a), is amended by adding at the end 
     the following new paragraph:
       ``(9) Disclosure of certain information where more than 1 
     person subject to penalty under section 6672.--If the 
     Secretary determines that a person is liable for a penalty 
     under section 6672(a) with respect to any failure, upon 
     request in writing of such person, the Secretary shall 
     disclose in writing to such person--
       ``(A) the name of any other person whom the Secretary has 
     determined to be liable for such penalty with respect to such 
     failure, and
       ``(B) whether the Secretary has attempted to collect such 
     penalty from such other person, the general nature of such 
     collection activities, and the amount collected.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 1073. PENALTIES UNDER SECTION 6672.

       (a) Public Information Requirements.--The Secretary of the 
     Treasury or the Secretary's delegate (hereafter in this 
     section referred to as the ``Secretary'') shall take such 
     actions as may be appropriate to ensure that employees are 
     aware of their responsibilities under the Federal tax 
     depository system, the circumstances under which employees 
     may be liable for the penalty imposed by section 6672 of the 
     Internal Revenue Code of 1986, and the responsibility to 
     promptly report to the Internal Revenue Service any failure 
     referred to in subsection (a) of such section 6672. Such 
     actions shall include--
       (1) printing of a warning on deposit coupon booklets and 
     the appropriate tax returns that certain employees may be 
     liable for the penalty imposed by such section 6672, and
       (2) the development of a special information packet.
       (b) Board Members of Tax-Exempt Organizations.--
       (1) Voluntary board members.--
       (A) In general.--The penalty under section 6672 of the 
     Internal Revenue Code of 1986 shall not be imposed on unpaid, 
     volunteer members of any board of trustees or directors of an 
     organization referred to in section 501 of such Code to the 
     extent such members are solely serving in an honorary 
     capacity, do not participate in the day-to-day or financial 
     operations of the organization, and do not have actual 
     knowledge of the failure on which such penalty is imposed.
       (B) Application of paragraph.--This paragraph shall not 
     apply if it results in no person being held liable for the 
     penalty described in section 6672(a) of the Internal Revenue 
     Code of 1986.
       (2) Development of explanatory materials.--The Secretary 
     shall develop materials explaining the circumstances under 
     which board members of tax-exempt organizations (including 
     voluntary and honorary members) may be subject to penalty 
     under section 6672 of such Code. Such materials shall be made 
     available to tax-exempt organizations.
       (3) IRS instructions.--The Secretary shall clarify the 
     instructions to Internal Revenue Service employees on the 
     application of the penalty under section 6672 of such Code 
     with regard to voluntary members of boards of trustees or 
     directors of tax- exempt organizations.
       (c) Prompt Notification.--To the maximum extent 
     practicable, the Secretary shall notify all persons who have 
     failed to make timely and complete deposit of any taxes 
     described in section 6672 of the Internal Revenue Code of 
     1986 of such failure within 30 days after the return was 
     filed reflecting such failure or after the date on which the 
     Secretary is first aware of such failure. If the person 
     failing to make the deposit is not an individual, the 
     Secretary shall notify the entity subject to such deposit 
     requirement and that entity shall notify, within 15 days of 
     the notification by the Secretary, all officers, general 
     partners, trustees, or other managers of the failure.
     
[[Page S 14890]]

             Subtitle H--Awarding of Costs and Certain Fees

     SEC. 1081. MOTION FOR DISCLOSURE OF INFORMATION.

       Paragraph (4) of section 7430(c) (defining prevailing 
     party) is amended by adding at the end the following new 
     subparagraph:
       ``(C) Motion for disclosure of information.--Once a 
     taxpayer substantially prevails as described in subparagraph 
     (A)(ii), the taxpayer may file a motion for an order 
     requiring the disclosure (within a reasonable period of time 
     specified by the court) of all information and copies of 
     relevant records in the possession of the Internal Revenue 
     Service with respect to such taxpayer's case and the 
     substantial justification for the position taken by the 
     Internal Revenue Service.''

     SEC. 1082. INCREASED LIMIT ON ATTORNEY FEES.

       Paragraph (1) of section 7430(c) (defining reasonable 
     litigation costs) is amended--
       (1) by striking ``$75'' in clause (iii) of subparagraph (B) 
     and inserting ``$110'',
       (2) by striking ``an increase in the cost of living or'' in 
     clause (iii) of subparagraph (B), and
       (3) by adding after clause (iii) the following:

     ``In the case of any calendar year beginning after 1995, the 
     dollar amount referred to in clause (iii) shall be increased 
     by an amount equal to such dollar amount multiplied by the 
     cost-of-living adjustment determined under section 1(f)(3) 
     for such calendar year, by substituting `calendar year 1994' 
     for `calendar year 1992' in subparagraph (B) thereof. If any 
     dollar amount after being increased under the preceding 
     sentence is not a multiple of $10, such dollar amount shall 
     be rounded to the nearest multiple of $10 (or, if such dollar 
     amount is a multiple of $5, such dollar amount shall be 
     increased to the next higher multiple of $10).''

     SEC. 1083. FAILURE TO AGREE TO EXTENSION NOT TAKEN INTO 
                   ACCOUNT.

       Paragraph (1) of section 7430(b) (relating to requirement 
     that administrative remedies be exhausted) is amended by 
     adding at the end the following new sentence: ``Any failure 
     to agree to an extension of the time for the assessment of 
     any tax shall not be taken into account for purposes of 
     determining whether the prevailing party meets the 
     requirements of the preceding sentence.''

     SEC. 1084. AUTHORITY FOR COURT TO AWARD REASONABLE 
                   ADMINISTRATIVE COSTS.

       Section 7430(c)(7)(B) is amended to read as follows:
       ``(B) the position taken in an administrative proceeding to 
     which subsection (a) applies.''

     SEC. 1085. EFFECTIVE DATE.

       The amendments made by this subtitle shall apply in the 
     case of proceedings commenced after the date of the enactment 
     of this Act.
                      Subtitle I--Other Provisions

     SEC. 1091. REQUIRED CONTENT OF CERTAIN NOTICES.

       (a) General Rule.--Subsection (a) of section 7522 (relating 
     to content of tax due, deficiency, and other notices) is 
     amended by striking ``shall describe the basis for, and 
     identify'' and inserting ``shall set forth the adjustments 
     which are the basis for, and shall identify''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to notices sent after the date 6 months after the 
     date of the enactment of this Act.

     SEC. 1092. TREATMENT OF SUBSTITUTE RETURNS UNDER SECTION 
                   6651.

       (a) General Rule.--Section 6651 (relating to failure to 
     file tax return or to pay tax), as amended by section 
     1022(a), is amended by adding at the end the following new 
     subsection:
       ``(h) Treatment of Returns Prepared by Secretary Under 
     Section 6020(b).--In the case of any return made by the 
     Secretary under section 6020(b)--
       ``(1) such return shall be disregarded for purposes of 
     determining the amount of the addition under paragraph (1) of 
     subsection (a), but
       ``(2) such return shall be treated as the return filed by 
     the taxpayer for purposes of determining the amount of the 
     addition under paragraphs (2) and (3) of subsection (a).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply in the case of any return the due date for which 
     (determined without regard to extensions) is after the date 
     of the enactment of this Act.

     SEC. 1093. RELIEF FROM RETROACTIVE APPLICATION OF TREASURY 
                   DEPARTMENT REGULATIONS.

       (a) In General.--Subsection (b) of section 7805 (relating 
     to rules and regulations) is amended to read as follows:
       ``(b) Retroactivity of Regulations.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, no temporary, proposed, or final regulation 
     relating to the internal revenue laws shall apply to any 
     taxable period ending before the earliest of the following 
     dates:
       ``(A) The date on which such regulation is filed with the 
     Federal Register.
       ``(B) In the case of any final regulation, the date on 
     which any proposed or temporary regulation to which such 
     final regulation relates was filed with the Federal Register.
       ``(C) The date on which any notice substantially describing 
     the expected contents of any temporary, proposed, or final 
     regulation is issued to the public.
       ``(2) Prevention of abuse.--The Secretary may provide that 
     any regulation may take effect or apply retroactively to 
     prevent abuse of a statute to which the regulation relates.
       ``(3) Correction of procedural defects.--The Secretary may 
     provide that any regulation may apply retroactively to 
     correct a procedural defect in the issuance of any prior 
     regulation.
       ``(4) Internal regulations.--The limitation of paragraph 
     (1) shall not apply to any regulation relating to internal 
     Treasury Department policies, practices, or procedures.
       ``(5) Congressional authorization.--The limitation of 
     paragraph (1) may be superseded by a legislative grant from 
     Congress authorizing the Secretary to prescribe the effective 
     date with respect to any regulation.
       ``(6) Election to apply retroactively.--The Secretary may 
     provide for any taxpayer to elect to apply any regulation 
     before the dates specified in paragraph (1).
       ``(7) Application to rulings.--The Secretary may prescribe 
     the extent, if any, to which any ruling (including any 
     judicial decision or any administrative determination other 
     than by regulation) relating to the internal revenue laws 
     shall be applied without retroactive effect.''
       (b) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendment made by subsection (a) shall apply with respect 
     to--
       (A) any temporary or proposed regulation filed on or after 
     January 5, 1993, and
       (B) any temporary or proposed regulation filed before 
     January 5, 1993, and filed as a final regulation after such 
     date.
       (2) Special rule.--Section 7805(b)(2) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)) shall apply 
     only to statutes enacted on or after the date of the 
     enactment of this Act.

     SEC. 1094. REQUIRED NOTICE OF CERTAIN PAYMENTS.

       If any payment is received by the Secretary of the Treasury 
     or the Secretary's delegate (hereafter in this section 
     referred to as the ``Secretary'') from any taxpayer and the 
     Secretary cannot associate such payment with any outstanding 
     tax liability of such taxpayer, the Secretary shall make 
     reasonable efforts to notify the taxpayer of such inability 
     within 60 days after the receipt of such payment.

     SEC. 1095. UNAUTHORIZED ENTICEMENT OF INFORMATION DISCLOSURE.

       (a) In General.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties), as amended by 
     section 1062(a), is amended by redesignating section 7435 as 
     section 7436 and by inserting after section 7434 the 
     following new section:

     ``SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICEMENT OF 
                   INFORMATION DISCLOSURE.

       ``(a) In General.--If any officer or employee of the United 
     States intentionally compromises the determination or 
     collection of any tax due from an attorney, certified public 
     accountant, or enrolled agent representing a taxpayer in 
     exchange for information conveyed by the taxpayer to the 
     attorney, certified public accountant, or enrolled agent for 
     purposes of obtaining advice concerning the taxpayer's tax 
     liability, such taxpayer may bring a civil action for damages 
     against the United States in a district court of the United 
     States. Such civil action shall be the exclusive remedy for 
     recovering damages resulting from such actions.
       ``(b) Damages.--In any action brought under subsection (a), 
     upon a finding of liability on the part of the defendant, the 
     defendant shall be liable to the plaintiff in an amount equal 
     to the lesser of $500,000 or the sum of--
       ``(1) actual, direct economic damages sustained by the 
     plaintiff as a proximate result of the information 
     disclosure, and
       ``(2) the costs of the action.

     Damages shall not include the taxpayer's liability for any 
     civil or criminal penalties, or other losses attributable to 
     incarceration or the imposition of other criminal sanctions.
       ``(c) Payment Authority.--Claims pursuant to this section 
     shall be payable out of funds appropriated under section 1304 
     of title 31, United States Code.
       ``(d) Period for Bringing Action.--Notwithstanding any 
     other provision of law, an action to enforce liability 
     created under this section may be brought without regard to 
     the amount in controversy and may be brought only within 2 
     years after the date the actions creating such liability 
     would have been discovered by exercise of reasonable care.
       ``(e) Mandatory Stay.--Upon a certification by the 
     Commissioner or the Commissioner's delegate that there is an 
     ongoing investigation or prosecution of the taxpayer, the 
     district court before which an action under this section is 
     pending, shall stay all proceedings with respect to such 
     action pending the conclusion of the investigation or 
     prosecution.
       ``(f) Crime-Fraud Exception.--Subsection (a) shall not 
     apply to information conveyed to an attorney, certified 
     public accountant, or enrolled agent for the purpose of 
     perpetrating a fraud or crime.''
       (b) Clerical Amendment.--The table of sections for 
     subchapter B of chapter 76, as amended by section 1062(b), is 
     amended by striking the item relating to section 7435 and by 
     adding at the end the following new items:


[[Page S 14891]]

``Sec. 7435. Civil damages for unauthorized enticement of information 
              disclosure.
``Sec. 7436. Cross references.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions after the date of the enactment of 
     this Act.
                Subtitle J--Form Modifications; Studies

     SEC. 1100. DEFINITIONS.

       For purposes of this subtitle:
       (1) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or his delegate.
       (2) 1986 code.--The term ``1986 Code'' means the Internal 
     Revenue Code of 1986.
       (3) Tax-writing committees.--The term ``tax-writing 
     Committees'' means the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate.

                     CHAPTER 1--FORM MODIFICATIONS

     SEC. 1101. EXPLANATION OF CERTAIN PROVISIONS.

       (a) General Rule.--The Secretary shall take such actions as 
     may be appropriate to ensure that taxpayers are aware of the 
     provisions of the 1986 Code permitting payment of tax in 
     installments, extensions of time for payment of tax, and 
     compromises of tax liability. Such actions shall include 
     revising the instructions for filing income tax returns so 
     that such instructions include an explanation of--
       (1) the procedures for requesting the benefits of such 
     provisions, and
       (2) the terms and conditions under which the benefits of 
     such provisions are available.
       (b) Collection Notices.--In any notice of an underpayment 
     of tax or proposed underpayment of tax sent by the Secretary 
     to any taxpayer, the Secretary shall include a notification 
     of the availability of the provisions of sections 6159, 6161, 
     and 7122 of the 1986 Code.

     SEC. 1102. IMPROVED PROCEDURES FOR NOTIFYING SERVICE OF 
                   CHANGE OF ADDRESS OR NAME.

       The Secretary shall provide improved procedures for 
     taxpayers to notify the Secretary of changes in names and 
     addresses. Not later than June 30, 1997, the Secretary shall 
     institute procedures for timely updating all Internal Revenue 
     Service records with change-of-address information provided 
     to the Secretary by taxpayers.

     SEC. 1103. RIGHTS AND RESPONSIBILITIES OF DIVORCED 
                   INDIVIDUALS.

       The Secretary shall include in the Internal Revenue Service 
     publication entitled ``Your Rights As A Taxpayer'' a section 
     on the rights and responsibilities of divorced individuals.

                           CHAPTER 2--STUDIES

     SEC. 1111. PILOT PROGRAM FOR APPEAL OF ENFORCEMENT ACTIONS.

       (a) General Rule.--The Secretary shall establish a 1-year 
     pilot program for appeals of enforcement actions (including 
     lien, levy, and seizure actions) to the Appeals Division of 
     the Internal Revenue Service--
       (1) where the deficiency was assessed without actual 
     knowledge of the taxpayer,
       (2) where the deficiency was assessed without an 
     opportunity for administrative appeal, and
       (3) in other appropriate circumstances.
       (b) Report.--Not later than June 30, 1997, the Secretary 
     shall submit to the tax-writing Committees a report on the 
     pilot program established under subsection (a), together with 
     such recommendations as he may deem advisable.

     SEC. 1112. STUDY ON TAXPAYERS WITH SPECIAL NEEDS.

       (a) General Rule.--The Secretary shall conduct a study on 
     ways to assist the elderly, physically impaired, foreign-
     language speaking, and other taxpayers with special needs to 
     comply with the internal revenue laws.
       (b) Report.--Not later than June 30, 1996, the Secretary 
     shall submit to the tax-writing Committees a report on the 
     study conducted under subsection (a), together with such 
     recommendations as he may deem advisable.

     SEC. 1113. REPORTS ON TAXPAYER-RIGHTS EDUCATION PROGRAM.

       Not later than April 1, 1996, the Secretary shall submit a 
     report to the tax-writing Committees on the scope and content 
     of the Internal Revenue Service's taxpayer-rights education 
     program for its officers and employees. Not later than June 
     30, 1996, the Secretary shall submit a report to the tax-
     writing Committees on the effectiveness of the program 
     referred to in the preceding sentence.

     SEC. 1114. BIENNIAL REPORTS ON MISCONDUCT BY INTERNAL REVENUE 
                   SERVICE EMPLOYEES.

       Not later than June 30, 1996, and during June of each 
     second calendar year thereafter, the Secretary shall report 
     to the tax-writing Committees on all cases involving 
     complaints about misconduct of Internal Revenue Service 
     employees and the disposition of such complaints.

     SEC. 1115. STUDY OF NOTICES OF DEFICIENCY.

       (a) General Rule.--The Comptroller General shall conduct a 
     study on--
       (1) the effectiveness of current Internal Revenue Service 
     efforts to notify taxpayers with regard to tax deficiencies 
     under section 6212 of the 1986 Code,
       (2) the number of registered or certified letters and other 
     notices returned to the Internal Revenue Service as 
     undeliverable,
       (3) any followup action taken by the Internal Revenue 
     Service to locate taxpayers who did not receive actual 
     notice,
       (4) the effect that failures to receive notice of such 
     deficiencies have on taxpayers, and
       (5) recommendations to improve Internal Revenue Service 
     notification of taxpayers.
       (b) Report.--Not later than June 30, 1996, the Comptroller 
     General shall submit to the tax-writing Committees a report 
     on the study conducted under subsection (a), together with 
     such recommendations as he may deem advisable.

     SEC. 1116. NOTICE AND FORM ACCURACY STUDY.

       (a) General Rule.--The Comptroller General shall conduct 
     annual studies of the accuracy of 25 of the most commonly 
     used Internal Revenue Service forms, notices, and 
     publications. In conducting any such study, the Comptroller 
     General shall examine the suitability and usefulness of 
     Internal Revenue Service telephone numbers on Internal 
     Revenue Service notices and shall solicit and consider the 
     comments of organizations representing taxpayers, employers, 
     and tax professionals.
       (b) Reports.--The Comptroller General shall submit to the 
     tax-writing Committees a report on each study conducted under 
     subsection (a), together with such recommendations as he may 
     deem advisable. The first such report shall be submitted not 
     later than June 30, 1996.
  TITLE II--INCREASE OF DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                          EMPLOYED INDIVIDUALS

     SEC. 2001. INCREASE OF DEDUCTION FOR HEALTH INSURANCE COSTS 
                   OF SELF-EMPLOYED INDIVIDUALS.

       (a) Increase in Deduction.--Section 162(l) is amended--
       (1) by striking ``30 percent'' in paragraph (1) and 
     inserting ``the applicable percentage'', and
       (2) by adding at the end the following new paragraph:
       ``(6) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be determined as 
     follows:

    ``For taxable years                                  The applicable
      beginning in:                                      percentage is:
      1996......................................................75     
      1997 and thereafter....................................100.''    
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.
              TITLE III--S CORPORATION REFORM ACT OF 1995

     SEC. 3001. SHORT TITLE.

       This title may be cited as the ``S Corporation Reform Act 
     of 1995''.
           Subtitle A--Eligible Shareholders of S Corporation

                   CHAPTER 1--NUMBER OF SHAREHOLDERS

     SEC. 3101. S CORPORATIONS PERMITTED TO HAVE 50 SHAREHOLDERS.

       Subparagraph (A) of section 1361(b)(1) (defining small 
     business corporation) is amended by striking ``35 
     shareholders'' and inserting ``50 shareholders''.

     SEC. 3102. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.

       Paragraph (1) of section 1361(c) (relating to special rules 
     for applying subsection (b)) is amended to read as follows:
       ``(1) Members of family treated as 1 shareholder.--
       ``(A) In general.--For purposes of subsection (b)(1)(A)--
       ``(i) except as provided in clause (ii), a husband and wife 
     (and their estates) shall be treated as 1 shareholder, and
       ``(ii) in the case of a family with respect to which an 
     election is in effect under subparagraph (E), all members of 
     the family shall be treated as 1 shareholder.
       ``(B) Members of the family.--For purposes of subparagraph 
     (A)(ii), the term `members of the family' means the lineal 
     descendants of the common ancestor and the spouses (or former 
     spouses) of such lineal descendants or common ancestor.
       ``(C) Common ancestor.--For purposes of this paragraph, an 
     individual shall not be considered a common ancestor if, as 
     of the later of the effective date of this paragraph or the 
     time the election under section 1362(a) is made, the 
     individual is more than 6 generations removed from the 
     youngest generation of shareholders.
       ``(D) Effect of adoption, etc.--In determining whether any 
     relationship specified in subparagraph (B) or (C) exists, the 
     rules of section 152(b)(2) shall apply.
       ``(E) Election.--An election under subparagraph (A)(ii)--
       ``(i) must be made with the consent of all shareholders,
       ``(ii) shall remain in effect until terminated, and
       ``(iii) shall apply only with respect to 1 family in any 
     corporation.''.

               CHAPTER 2--PERSONS ALLOWED AS SHAREHOLDERS

     SEC. 3111. CERTAIN EXEMPT ORGANIZATIONS.

       (a) Certain Exempt Organizations Allowed To Be 
     Shareholders.--
       (1) In general.--Subparagraph (B) of section 1361(b)(1) 
     (defining small business corporation) is amended to read as 
     follows:
       ``(B) have as a shareholder a person (other than an estate, 
     a trust described in subsection (c)(2), or an organization 
     described in subsection (c)(7)) who is not an individual,''.
       (2) Eligible exempt organizations.--Section 1361(c) 
     (relating to special rules for applying subsection (b)) is 
     amended by adding at the end the following new paragraph:
       ``(7) Certain exempt organizations permitted as 
     shareholders.--For purposes of subsection (b)(1)(B), an 
     organization described in section 401(a) or 501(c)(3) may be 
     a shareholder in an S corporation.''

[[Page S 14892]]

       (b) Contributions of S Corporation Stock.--Section 
     170(e)(1) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by adding at the 
     end the following sentence: ``For purposes of applying this 
     paragraph in the case of a charitable contribution of stock 
     in an S corporation, rules similar to the rules of section 
     751 shall apply in determining whether gain on such stock 
     would have been long-term capital gain if such stock were 
     sold by the taxpayer.''
       (c) Special Rules Applicable to Partnerships and S 
     Corporations.--
       (1) In general.--Subsection (c) of section 512 (relating to 
     unrelated business tax income) is amended--
       (A) by inserting ``or S corporation'' after ``partnership'' 
     each place it appears in paragraphs (1) and (3),
       (B) by inserting ``or shareholder'' after ``member'' in 
     paragraph (1), and
       (C) by inserting ``and S Corporations'' after 
     ``Partnerships'' in the heading.
       (2) Reporting requirement.--Section 6037 (relating to 
     return of S corporation) is amended by adding at the end the 
     following new subsection:
       ``(c) Separate Statement of Items of Unrelated Business 
     Taxable Income.--In the case of any S corporation regularly 
     carrying on a trade or business (within the meaning of 
     section 512(c)(1)), the information required under subsection 
     (b) to be furnished to any shareholder described in section 
     1361(c)(7) shall include such information as is necessary to 
     enable the shareholder to compute its pro rata share of the 
     corporation's income or loss from the trade or business in 
     accordance with section 512(a)(1), but without regard to the 
     modifications described in paragraphs (8) through (15) of 
     section 512(b).''

     SEC. 3112. FINANCIAL INSTITUTIONS.

       Subparagraph (B) of section 1361(b)(2) (defining ineligible 
     corporation) is amended to read as follows:
       ``(B) a financial institution which uses the reserve method 
     of accounting for bad debts described in section 585 or 
     593,''.

     SEC. 3113. NONRESIDENT ALIENS.

       (a) Nonresident Aliens Allowed To Be Shareholders.--
       (1) In general.--Paragraph (1) of section 1361(b) (defining 
     small business corporation) is amended--
       (A) by adding ``and'' at the end of subparagraph (B),
       (B) by striking subparagraph (C), and
       (C) by redesignating subparagraph (D) as subparagraph (C).
       (2) Conforming amendments.--Paragraphs (4) and (5)(A) of 
     section 1361(c) (relating to special rules for applying 
     subsection (b)) are each amended by striking ``subsection 
     (b)(1)(D)'' and inserting ``subsection (b)(1)(C)''.
       (b) Nonresident Alien Shareholder Treated as Engaged in 
     Trade or Business Within United States.--
       (1) In general.--Section 875 is amended--
       (A) by striking ``and'' at the end of paragraph (1),
       (B) by striking the period at the end of paragraph (2) and 
     inserting ``, and'', and
       (C) by adding at the end the following new paragraph:
       ``(3) a nonresident alien individual shall be considered as 
     being engaged in a trade or business within the United States 
     if the S corporation of which such individual is a 
     shareholder is so engaged.''
       (2) Application of withholding tax on nonresident alien 
     shareholders.--Section 1446 (relating to withholding tax on 
     foreign partners' share of effectively connected income) is 
     amended by redesignating subsection (f) as subsection (g) and 
     by inserting after subsection (e) the following new 
     subsection:
       ``(f) S Corporation Treated as Partnership, Etc.--For 
     purposes of this section--
       ``(1) an S corporation shall be treated as a partnership,
       ``(2) the shareholders of such corporation shall be treated 
     as partners of such partnership, and
       ``(3) any reference to section 704 shall be treated as a 
     reference to section 1366.''
       (3) Conforming amendments.--
       (A) The heading of section 875 is amended to read as 
     follows:

     ``SEC. 875. PARTNERSHIPS; BENEFICIARIES OF ESTATES AND 
                   TRUSTS; S CORPORATIONS.''

       (B) The heading of section 1446 is amended to read as 
     follows:

     ``SEC. 1446. WITHHOLDING TAX ON FOREIGN PARTNERS' AND S 
                   CORPORATE SHAREHOLDERS' SHARE OF EFFECTIVELY 
                   CONNECTED INCOME.''

       (4) Clerical amendments.--
       (A) The item relating to section 875 in the table of 
     sections for subpart A of part II of subchapter N of chapter 
     1 is amended to read as follows:

``Sec. 875. Partnerships; beneficiaries of estates and trusts; S 
              corporations.''
       (B) The item relating to section 1446 in the table of 
     sections for subchapter A of chapter 3 is amended to read as 
     follows:

``Sec. 1446. Withholding tax on foreign partners' and S corporate 
              shareholders' share of effectively connected income.''

       (c) Permanent Establishment of Partners and S Corporation 
     Shareholders.--Section 894 (relating to income affected by 
     treaty) is amended by adding at the end the following new 
     subsection:
       ``(c) Permanent Establishment of Partners and S Corporation 
     Shareholders.--If a partnership or S corporation has a 
     permanent establishment in the United States (within the 
     meaning of a treaty to which the United States is a party) at 
     any time during a taxable year of such entity, a nonresident 
     alien individual or foreign corporation which is a partner in 
     such partnership, or a nonresident alien individual who is a 
     shareholder in such S corporation, shall be treated as having 
     a permanent establishment in the United States for purposes 
     of such treaty.''

     SEC. 3114. ELECTING SMALL BUSINESS TRUSTS.

       (a) General Rule.--Subparagraph (A) of section 1361(c)(2) 
     (relating to certain trusts permitted as shareholders) is 
     amended by inserting after clause (iv) the following new 
     clause:
       ``(v) An electing small business trust.''
       (b) Current Beneficiaries Treated as Shareholders.--
     Subparagraph (B) of section 1361(c)(2) is amended by adding 
     at the end the following new clause:
       ``(v) In the case of a trust described in clause (v) of 
     subparagraph (A), each potential current beneficiary of such 
     trust shall be treated as a shareholder; except that, if for 
     any period there is no potential current beneficiary of such 
     trust, such trust shall be treated as the shareholder during 
     such period.''
       (c) Electing Small Business Trust Defined.--Section 1361 
     (defining S corporation) is amended by adding at the end the 
     following new subsection:
       ``(e) Electing Small Business Trust Defined.--
       ``(1) Electing small business trust.--For purposes of this 
     section--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `electing small business trust' means any trust if--
       ``(i) such trust does not have as a beneficiary any person 
     other than an individual, an estate, or an organization 
     described in section 401(a) or 501(c)(3),
       ``(ii) no interest in such trust was acquired by purchase, 
     and
       ``(iii) an election under this subsection applies to such 
     trust.
       ``(B) Certain trusts not eligible.--The term `electing 
     small business trust' shall not include--
       ``(i) any qualified subchapter S trust (as defined in 
     subsection (d)(3)) if an election under subsection (d)(2) 
     applies to any corporation the stock of which is held by such 
     trust, and
       ``(ii) any trust exempt from tax under this subtitle.
       ``(C) Purchase.--For purposes of subparagraph (A), the term 
     `purchase' means any acquisition if the basis of the property 
     acquired is determined under section 1012.
       ``(2) Potential current beneficiary.--For purposes of this 
     section, the term `potential current beneficiary' means, with 
     respect to any period, any person who at any time during such 
     period is entitled to, or at the discretion of any person may 
     receive, a distribution from the principal or income of the 
     trust. If a trust disposes of all of the stock which it holds 
     in an S corporation, then, with respect to such corporation, 
     the term `potential current beneficiary' does not include any 
     person who first met the requirements of the preceding 
     sentence during the 60-day period ending on the date of such 
     disposition.
       ``(3) Election.--An election under this subsection shall be 
     made by the trustee in such manner and form, and at such 
     time, as the Secretary may prescribe. Any such election shall 
     apply to the taxable year of the trust for which made and all 
     subsequent taxable years of such trust unless revoked with 
     the consent of the Secretary.
       ``(4) Cross reference.--

  ``For special treatment of electing small business trusts, see 
section 641(d).''

       (d) Taxation of Electing Small Business Trusts.--Section 
     641 (relating to imposition of tax on trusts) is amended by 
     adding at the end the following new subsection:
       ``(d) Special Rules for Taxation of Electing Small Business 
     Trusts.--
       ``(1) In general.--For purposes of this chapter--
       ``(A) the portion of any electing small business trust 
     which consists of stock in 1 or more S corporations shall be 
     treated as a separate trust, and
       ``(B) the amount of the tax imposed by this chapter on such 
     separate trust shall be determined with the modifications of 
     paragraph (2).
       ``(2) Modifications.--For purposes of paragraph (1), the 
     modifications of this paragraph are the following:
       ``(A) Except as provided in section 1(h), the amount of the 
     tax imposed by section 1(e) shall be determined by using the 
     highest rate of tax set forth in section 1(e).
       ``(B) The exemption amount under section 55(d) shall be 
     zero.
       ``(C) The only items of income, loss, deduction, or credit 
     to be taken into account are the following:
       ``(i) The items required to be taken into account under 
     section 1366.
       ``(ii) Any gain or loss from the disposition of stock in an 
     S corporation.
       ``(iii) To the extent provided in regulations, State or 
     local income taxes or administrative expenses to the extent 
     allocable to items described in clauses (i) and (ii).

     No deduction or credit shall be allowed for any amount not 
     described in this paragraph, and no item described in this 
     paragraph shall be apportioned to any beneficiary. 

[[Page S 14893]]

       ``(D) No amount shall be allowed under paragraph (1) or (2) 
     of section 1211(b).
       ``(3) Treatment of remainder of trust and distributions.--
     For purposes of determining--
       ``(A) the amount of the tax imposed by this chapter on the 
     portion of any electing small business trust not treated as a 
     separate trust under paragraph (1), and
       ``(B) the distributable net income of the entire trust,

     the items referred to in paragraph (2)(C) shall be excluded. 
     Except as provided in the preceding sentence, this subsection 
     shall not affect the taxation of any distribution from the 
     trust.
       ``(4) Treatment of unused deductions where termination of 
     separate trust.--If a portion of an electing small business 
     trust ceases to be treated as a separate trust under 
     paragraph (1), any carryover or excess deduction of the 
     separate trust which is referred to in section 642(h) shall 
     be taken into account by the entire trust.
       ``(5) Electing small business trust.--For purposes of this 
     subsection, the term `electing small business trust' has the 
     meaning given such term by section 1361(e)(1).''

                      CHAPTER 3--OTHER PROVISIONS

     SEC. 3121. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN 
                   TRUSTS.

       Subparagraph (A) of section 1361(c)(2) (relating to certain 
     trusts permitted as shareholders) is amended--
       (1) by striking ``60-day period'' each place it appears in 
     clauses (ii) and (iii) and inserting ``2-year period'', and
       (2) by striking the last sentence in clause (ii).
     Subtitle B--Qualification and Eligibility Requirements for S 
                              Corporations

                     CHAPTER 1--ONE CLASS OF STOCK

     SEC. 3201. ISSUANCE OF PREFERRED STOCK PERMITTED.

       (a) In General.--Section 1361(c), as amended by section 
     3111(a)(2), is amended by adding at the end the following new 
     paragraph:
       ``(8) Treatment of qualified preferred stock.--
       ``(A) In general.--Notwithstanding subsection (b)(1)(D), an 
     S corporation may issue qualified preferred stock.
       ``(B) Qualified preferred stock defined.--For purposes of 
     this paragraph, the term `qualified preferred stock' means 
     stock described in section 1504(a)(4) which is issued to a 
     person eligible to hold common stock of an S corporation.
       ``(C) Distributions.--A distribution (not in part or full 
     payment in exchange for stock) made by the corporation with 
     respect to qualified preferred stock shall be includible as 
     interest income of the holder and deductible to the 
     corporation as interest expense in computing taxable income 
     under section 1363(b) in the year such distribution is 
     received.''
       (b) Conforming Amendments.--
       (1) Subparagraph (C) of section 1361(b)(1), as redesignated 
     by section 3113(a)(1)(C), is amended by inserting ``except as 
     provided in paragraph (8),'' before ``have''.
       (2) Subsection (a) of section 1366 is amended by adding at 
     the end the following new paragraph:
       ``(3) Allocation with respect to qualified preferred 
     stock.--The holders of qualified preferred stock shall not, 
     with respect to such stock, be allocated any of the items 
     described in paragraph (1).''

     SEC. 3202. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE 
                   HARBOR DEBT.

       Subparagraph (B) of section 1361(c)(5) (defining straight 
     debt) is amended by adding ``and'' at the end of clause (i) 
     and by striking clauses (ii) and (iii) and inserting the 
     following:
       ``(ii) in any case in which the terms of such promise 
     include a provision under which the obligation to pay may be 
     converted (directly or indirectly) into stock of the 
     corporation, such terms, taken as a whole, are substantially 
     the same as the terms which could have been obtained on the 
     effective date of the promise from a person which is not a 
     related person (within the meaning of section 465(b)(3)(C)) 
     to the S corporation or its shareholders, and
       ``(iii) the creditor is--

       ``(I) an individual,
       ``(II) an estate,
       ``(III) a trust described in paragraph (2), or
       ``(IV) a person which is actively and regularly engaged in 
     the business of lending money.''

                 CHAPTER 2--ELECTIONS AND TERMINATIONS

     SEC. 3211. RULES RELATING TO INADVERTENT TERMINATIONS AND 
                   INVALID ELECTIONS.

       (a) General Rule.--Subsection (f) of section 1362 (relating 
     to inadvertent terminations) is amended to read as follows:
       ``(f) Inadvertent Invalid Elections or Terminations.--If--
       ``(1) an election under subsection (a) by any corporation--
       ``(A) was not effective for the taxable year for which made 
     (determined without regard to subsection (b)(2)) by reason of 
     a failure to meet the requirements of section 1361(b) or to 
     obtain shareholder consents, or
       ``(B) was terminated under paragraph (2) of subsection (d),
       ``(2) the Secretary determines that the circumstances 
     resulting in such ineffectiveness or termination were 
     inadvertent,
       ``(3) no later than a reasonable period of time after 
     discovery of the circumstances resulting in such 
     ineffectiveness or termination, steps were taken--
       ``(A) so that the corporation is a small business 
     corporation, or
       ``(B) to acquire the required shareholder consents, and
       ``(4) the corporation, and each person who was a 
     shareholder in the corporation at any time during the period 
     specified pursuant to this subsection, agrees to make such 
     adjustments (consistent with the treatment of the corporation 
     as an S corporation) as may be required by the Secretary with 
     respect to such period,

     then, notwithstanding the circumstances resulting in such 
     ineffectiveness or termination, such corporation shall be 
     treated as an S corporation during the period specified by 
     the Secretary.''
       (b) Late Elections.--Subsection (b) of section 1362 is 
     amended by adding at the end the following new paragraph:
       ``(5) Authority to treat late elections as timely.--If--
       ``(A) an election under subsection (a) is made for any 
     taxable year (determined without regard to paragraph (3)) 
     after the date prescribed by this subsection for making such 
     election for such taxable year, and
       ``(B) the Secretary determines that there was reasonable 
     cause for the failure to timely make such election,

     the Secretary may treat such election as timely made for such 
     taxable year (and paragraph (3) shall not apply).''
       (c) Automatic Waivers.--The Secretary of the Treasury shall 
     provide for an automatic waiver procedure under section 
     1362(f) of the Internal Revenue Code of 1986 in cases in 
     which the Secretary determines appropriate.
       (d) Effective Date.--The amendments made by subsection (a) 
     and (b) shall apply with respect to elections for taxable 
     years beginning after December 31, 1982.

     SEC. 3212. AGREEMENT TO TERMINATE YEAR.

       Paragraph (2) of section 1377(a) (relating to pro rata 
     share) is amended to read as follows:
       ``(2) Election to terminate year.--
       ``(A) In general.--Under regulations prescribed by the 
     Secretary, if any shareholder terminates the shareholder's 
     interest in the corporation during the taxable year and all 
     affected shareholders agree to the application of this 
     paragraph, paragraph (1) shall be applied to the affected 
     shareholders as if the taxable year consisted of 2 taxable 
     years the first of which ends on the date of the termination.
       ``(B) Affected shareholders.--For purposes of subparagraph 
     (A), the term `affected shareholders' means the shareholder 
     whose interest is terminated and all shareholders to whom 
     such shareholder has transferred shares during the taxable 
     year. If such shareholder has transferred shares to the 
     corporation, the term `affected shareholders' shall include 
     all persons who are shareholders during the taxable year.''

     SEC. 3213. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

       (a) In General.--Paragraph (1) of section 1377(b) (relating 
     to post-termination transition period) is amended by striking 
     ``and'' at the end of subparagraph (A), by redesignating 
     subparagraph (B) as subparagraph (C), and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) the 120-day period beginning on the date of any 
     determination pursuant to an audit of the taxpayer which 
     follows the termination of the corporation's election and 
     which adjusts a subchapter S item of income, loss, or 
     deduction of the corporation arising during the S period (as 
     defined in section 1368(e)(2)), and''.
       (b) Determination Defined.--Paragraph (2) of section 
     1377(b) is amended by striking subparagraphs (A) and (B), by 
     redesignating subparagraph (C) as subparagraph (B), and by 
     inserting before subparagraph (B) (as so redesignated) the 
     following new subparagraph:
       ``(A) a determination as defined in section 1313(a), or''.
       (c) Repeal of Special Audit Provisions for Subchapter S 
     Items.--
       (1) General rule.--Subchapter D of chapter 63 (relating to 
     tax treatment of subchapter S items) is hereby repealed.
       (2) Consistent treatment required.--Section 6037 (relating 
     to return of S corporation), as amended by section 
     3111(c)(2), is amended by adding at the end the following new 
     subsection:
       ``(d) Shareholder's Return Must Be Consistent With 
     Corporate Return or Secretary Notified of Inconsistency.--
       ``(1) In general.--A shareholder of an S corporation shall, 
     on such shareholder's return, treat a subchapter S item in a 
     manner which is consistent with the treatment of such item on 
     the corporate return.
       ``(2) Notification of inconsistent treatment.--
       ``(A) In general.--In the case of any subchapter S item, 
     if--
       ``(i)(I) the corporation has filed a return but the 
     shareholder's treatment on his return is (or may be) 
     inconsistent with the treatment of the item on the corporate 
     return, or
       ``(II) the corporation has not filed a return, and
       ``(ii) the shareholder files with the Secretary a statement 
     identifying the inconsistency,

     paragraph (1) shall not apply to such item.
       ``(B) Shareholder receiving incorrect information.--A 
     shareholder shall be treated as having complied with clause 
     (ii) of subparagraph (A) with respect to a subchapter S item 
     if the shareholder--

[[Page S 14894]]

       ``(i) demonstrates to the satisfaction of the Secretary 
     that the treatment of the subchapter S item on the 
     shareholder's return is consistent with the treatment of the 
     item on the schedule furnished to the shareholder by the 
     corporation, and
       ``(ii) elects to have this paragraph apply with respect to 
     that item.
       ``(3) Effect of failure to notify.--In any case--
       ``(A) described in subparagraph (A)(i)(I) of paragraph (2), 
     and
       ``(B) in which the shareholder does not comply with 
     subparagraph (A)(ii) of paragraph (2),

     any adjustment required to make the treatment of the items by 
     such shareholder consistent with the treatment of the items 
     on the corporate return shall be treated as arising out of 
     mathematical or clerical errors and assessed according to 
     section 6213(b)(1). Paragraph (2) of section 6213(b) shall 
     not apply to any assessment referred to in the preceding 
     sentence.
       ``(4) Subchapter s item.--For purposes of this subsection, 
     the term `subchapter S item' means any item of an S 
     corporation to the extent that regulations prescribed by the 
     Secretary provide that, for purposes of this subtitle, such 
     item is more appropriately determined at the corporation 
     level than at the shareholder level.
       ``(5) Addition to tax for failure to comply with section.--

  ``For addition to tax in the case of a shareholder's negligence in 
connection with, or disregard of, the requirements of this section, see 
part II of subchapter A of chapter 68.''

       (3) Conforming amendments.--
       (A) Section 1366 is amended by striking subsection (g).
       (B) Subsection (b) of section 6233 is amended to read as 
     follows:
       ``(b) Similar Rules in Certain Cases.--If a partnership 
     return is filed for any taxable year but it is determined 
     that there is no entity for such taxable year, to the extent 
     provided in regulations, rules similar to the rules of 
     subsection (a) shall apply.''
       (C) The table of subchapters for chapter 63 is amended by 
     striking the item relating to subchapter D.

     SEC. 3214. REPEAL OF EXCESSIVE PASSIVE INVESTMENT INCOME AS A 
                   TERMINATION EVENT.

       (a) In General.--Section 1362(d) (relating to termination) 
     is amended by striking paragraph (3).
       (b) Modification of Tax Imposed on Excessive Passive 
     Investment Income.--
       (1) Increase in threshold.--Subsections (a)(2) and 
     (b)(1)(A)(i) of section 1375 (relating to tax imposed when 
     passive investment income of a corporation having subchapter 
     C earnings and profits exceeds 25 percent of gross receipts) 
     are each amended by striking ``25 percent'' and inserting 
     ``50 percent''.
       (2) Tax rate increase after third consecutive year.--
     Section 1375 is amended by redesignating subsections (c) and 
     (d) as subsections (d) and (e), respectively, and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Tax Rate Increase After Third Consecutive Year.--
       ``(1) In general.--If an S corporation is described in 
     subsection (a) for more than 3 consecutive taxable years, 
     then the rate of tax imposed under subsection (a) with 
     respect to each succeeding consecutive taxable year (if any) 
     shall be determined under the following table:

The rate of tax imposed under subsection (a) shall be equal to such 
    rate of tax for the 3rd taxable year, plus the following percentage 
    points:
  4th taxable year..............................................10 ....

  5th taxable year..............................................20 ....

  6th taxable year..............................................30 ....

  7th taxable year..............................................40 ....

  8th taxable year and thereafter...............................50.....

       ``(2) Years taken into account.--No tax shall be increased 
     under paragraph (1) for any taxable year beginning before 
     January 1, 1996.''
       (c) Conforming Amendments.--
       (1) Section 1362(f)(1) is amended by striking ``or (3)''.
       (2) Subsection (b) of section 1375 is amended by striking 
     paragraphs (3) and (4) and inserting the following new 
     paragraphs:
       ``(3) Subchapter c earnings and profits.--The term 
     `subchapter C earnings and profits' means earnings and 
     profits of any corporation for any taxable year with respect 
     to which an election under section 1362(a) (or under section 
     1372 of prior law) was not in effect.
       ``(4) Gross receipts from sales of capital assets (other 
     than stock and securities).--In the case of dispositions of 
     capital assets (other than stock and securities), gross 
     receipts from such dispositions shall be taken into account 
     only to the extent of the capital gain net income therefrom.
       ``(5) Passive investment income defined.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, the term `passive investment income' means gross 
     receipts derived from royalties, rents, dividends, interest, 
     and annuities.
       ``(B) Exception for interest on notes from sales of 
     inventory.--The term `passive investment income' shall not 
     include interest on any obligation acquired in the ordinary 
     course of the corporation's trade or business from its sale 
     of property described in section 1221(1).
       ``(C) Treatment of certain lending or finance companies.--
     If the S corporation meets the requirements of section 
     542(c)(6) for the taxable year, the term `passive investment 
     income' shall not include gross receipts for the taxable year 
     which are derived directly from the active and regular 
     conduct of a lending or finance business (as defined in 
     section 542(d)(1)).
       ``(D) Special rule for options and commodity dealings.--
       ``(i) In general.--In the case of any options dealer or 
     commodities dealer, passive investment income shall be 
     determined by not taking into account any gain or loss (in 
     the normal course of the taxpayer's activity of dealing in or 
     trading section 1256 contracts) from any section 1256 
     contract or property related to such a contract.
       ``(ii) Definitions.--For purposes of this subparagraph--

       ``(I) Options dealer.--The term `options dealer' has the 
     meaning given such term by section 1256(g)(8).
       ``(II) Commodities dealer.--The term `commodities dealer' 
     means a person who is actively engaged in trading section 
     1256 contracts and is registered with a domestic board of 
     trade which is designated as a contract market by the 
     Commodities Futures Trading Commission.
       ``(III) Section 1256 contract.--The term `section 1256 
     contract' has the meaning given to such term by section 
     1256(b).

       ``(E) Coordination with section 1374.--The amount of 
     passive investment income shall be determined by not taking 
     into account any recognized built-in gain or loss of the S 
     corporation for any taxable year in the recognition period. 
     Terms used in the preceding sentence shall have the same 
     respective meaning as when used in section 1374.''
       (3) The heading for section 1375 is amended by striking 
     ``25'' and inserting ``50''.
       (4) The table of sections for part III of subchapter S of 
     chapter 1 is amended by striking ``25'' in the item relating 
     to section 1375 and inserting ``50''.
       (5) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(D)'' and inserting ``section 
     1375(b)(5)''.

                      CHAPTER 3--OTHER PROVISIONS

     SEC. 3221. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

       (a) In General.--Paragraph (2) of section 1361(b) (defining 
     ineligible corporation), as amended by section 3112, is 
     amended by striking subparagraph (A) and by redesignating 
     subparagraphs (B), (C), (D), and (E) as subparagraphs (A), 
     (B), (C), and (D), respectively.
       (b) Treatment of Certain Wholly Owned S Corporation 
     Subsidiaries.--Section 1361(b) (defining small business 
     corporation) is amended by adding at the end the following 
     new subsection:
       ``(3) Treatment of certain wholly owned subsidiaries.--
       ``(A) In general.--For purposes of this title--
       ``(i) a corporation which is a qualified subchapter S 
     subsidiary shall not be treated as a separate corporation, 
     and
       ``(ii) all assets, liabilities, and items of income, 
     deduction, and credit of a qualified subchapter S subsidiary 
     shall be treated as assets, liabilities, and such items (as 
     the case may be) of the S corporation.
       ``(B) Qualified subchapter s subsidiary.--For purposes of 
     this subsection, the term `qualified subchapter S subsidiary' 
     means any corporation 100 percent of the stock of which is 
     held by an S corporation as of the later of the effective 
     date of the S election of the S corporation or the 
     acquisition of the subsidiary, and at all times thereafter.
       ``(C) Treatment of terminations of qualified subchapter s 
     subsidiary status.--For purposes of this subtitle, if any 
     corporation which was a qualified subchapter S subsidiary 
     ceases to meet the requirements of subparagraph (B), such 
     corporation shall be treated as a new corporation acquiring 
     all of its assets (and assuming all of its liabilities) 
     immediately before such cessation from the S corporation in 
     exchange for its stock.''.
       (c) Certain Dividends Not Treated as Passive Investment 
     Income.--Section 1375(b)(5) (defining passive investment 
     income), as added by section 3214(c)(2), is amended by adding 
     at the end the following new subparagraph:
       ``(F) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.''
       (d) Conforming Amendments.--
       (1) Subsection (c) of section 1361, as amended by sections 
     3111(a)(2) and 3201(a), is amended by striking paragraph (6) 
     and redesignating paragraphs (7) and (8) as paragraphs (6) 
     and (7), respectively.
       (2) Subsection (b) of section 1504 (defining includible 
     corporation) is amended by adding at the end the following 
     new paragraph:
       ``(8) An S corporation.''

     SEC. 3222. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

       (a) Adjustments for Distributions Taken Into Account Before 
     Losses.--

[[Page S 14895]]

       (1) Subparagraph (A) of section 1366(d)(1) (relating to 
     losses and deductions cannot exceed shareholder's basis in 
     stock and debt) is amended by striking ``paragraph (1)'' and 
     inserting ``paragraphs (1) and (2)(A)''.
       (2) Subsection (d) of section 1368 (relating to certain 
     adjustments taken into account) is amended by adding at the 
     end the following new sentence:

     ``In the case of any distribution made during any taxable 
     year, the adjusted basis of the stock shall be determined 
     with regard to the adjustments provided in paragraph (1) of 
     section 1367(a) for the taxable year.''
       (b) Accumulated Adjustments Account.--Paragraph (1) of 
     section 1368(e) (relating to accumulated adjustments account) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Net loss for year disregarded.--
       ``(i) In general.--In applying this section to 
     distributions made during any taxable year, the amount in the 
     accumulated adjustments account as of the close of such 
     taxable year shall be determined without regard to any net 
     negative adjustment for such taxable year.
       ``(ii) Net negative adjustment.--For purposes of clause 
     (i), the term `net negative adjustment' means, with respect 
     to any taxable year, the excess (if any) of--
       ``(I) the reductions in the account for the taxable year 
     (other than for distributions), over
       ``(II) the increases in such account for such taxable 
     year.''
       (c) Conforming Amendments.--Subparagraph (A) of section 
     1368(e)(1) is amended--
       (1) by striking ``as provided in subparagraph (B)'' and 
     inserting ``as otherwise provided in this paragraph'', and
       (2) by striking ``section 1367(b)(2)(A)'' and inserting 
     ``section 1367(a)(2)''.

     SEC. 3223. CONSENT DIVIDEND FOR AAA BYPASS ELECTION.

       Section 1368(e)(3) (relating to election to distribute 
     earnings first) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Consent dividend.--Under regulations prescribed by 
     the Secretary, an S corporation may, subject to the election 
     under this paragraph, consent to treat as a distribution the 
     amount specified in such consent, to the extent such amount 
     does not exceed the accumulated earnings and profits of such 
     corporation. The amount so specified shall be considered--
       ``(i) as distributed in money by the corporation to its 
     shareholders on the last day of the taxable year of the 
     corporation and as contributed to the capital of the 
     corporation by the shareholders on such day, and
       ``(ii) if any such shareholder is an organization described 
     in section 511(a)(2), as unrelated business taxable income 
     (as defined in section 512) to such shareholder.''

     SEC. 3224. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

       Subsection (a) of section 1371 (relating to application of 
     subchapter C rules) is amended to read as follows:
       ``(a) Application of Subchapter C Rules.--Except as 
     otherwise provided in this title, and except to the extent 
     inconsistent with this subchapter, subchapter C shall apply 
     to an S corporation and its shareholders.''

     SEC. 3225. ELIMINATION OF PRE-1983 EARNINGS AND PROFITS.

       (a) In General.--If--
       (1) a corporation was an electing small business 
     corporation under subchapter S of chapter 1 of the Internal 
     Revenue Code of 1986 for any taxable year beginning before 
     January 1, 1983, and
       (2) such corporation is an S corporation under subchapter S 
     of chapter 1 of such Code for its first taxable year 
     beginning after December 31, 1995,

     the amount of such corporation's accumulated earnings and 
     profits (as of the beginning of such first taxable year) 
     shall be reduced by an amount equal to the portion (if any) 
     of such accumulated earnings and profits which were 
     accumulated in any taxable year beginning before January 1, 
     1983, for which such corporation was an electing small 
     business corporation under such subchapter S.
       (b) Conforming Amendments.--
       (1)(A) Subsection (a) of section 1375 is amended by 
     striking ``subchapter C'' in paragraph (1) and inserting 
     ``accumulated''.
       (B) Subsection (b) of section 1375, as amended by section 
     3214(c)(2), is amended by striking paragraph (3) and by 
     redesignating paragraphs (4) and (5) as paragraphs (3) and 
     (4), respectively.
       (C) The section heading for section 1375 is amended by 
     striking ``subchapter c'' and inserting ``accumulated''.
       (D) The table of sections for part III of subchapter S of 
     chapter 1 is amended by striking ``subchapter C'' in the item 
     relating to section 1375 and inserting ``accumulated''.
       (2) Clause (i) of section 1042(c)(4)(A), as amended by 
     section 3214(c)(5), is amended by striking ``section 
     1375(b)(5)'' and inserting ``section 1375(b)(4)''.

     SEC. 3226. ALLOWANCE OF CHARITABLE CONTRIBUTIONS OF INVENTORY 
                   AND SCIENTIFIC PROPERTY.

       (a) In General.--Section 170(e) (relating to certain 
     contributions of ordinary income and capital gain property) 
     is amended--
       (1) by striking ``(other than a corporation which is an S 
     corporation)'' in paragraph (3)(A), and
       (2) by striking clause (i) of paragraph (4)(D) and by 
     redesignating clauses (ii) and (iii) of such paragraph as 
     clauses (i) and (ii), respectively.
       (b) Stock Basis Adjustment.--Paragraph (1) of section 
     1367(a) (relating to adjustments to basis of stock of 
     shareholders, etc.) is amended by striking ``and'' at the end 
     of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(D) the excess of the deductions for charitable 
     contributions over the basis of the property contributed.''

     SEC. 3227. C CORPORATION RULES TO APPLY FOR FRINGE BENEFIT 
                   PURPOSES.

       (a) In General.--Section 1372 (relating to partnership 
     rules to apply for fringe benefit purposes) is repealed.
       (b) Partnership Rules To Apply For Health Insurance Costs 
     of Certain S Corporation Shareholders.--Paragraph (5) of 
     section 162(l) is amended to read as follows:
       ``(5) Treatment of certain S corporation shareholders.--
       ``(A) In general.--This subsection shall apply in the case 
     of any 2-percent shareholder of an S corporation, except 
     that--
       ``(i) for purposes of this subsection, such shareholder's 
     wages (as defined in section 3121) from the S corporation 
     shall be treated as such shareholder's earned income (within 
     the meaning of section 401(c)(1)), and
       ``(ii) there shall be such adjustments in the application 
     of this subsection as the Secretary may by regulations 
     prescribe.
       ``(B) 2-percent shareholder defined.--For purposes of this 
     paragraph, the term `2-percent shareholder' means any person 
     who owns (or is considered as owning within the meaning of 
     section 318) on any day during the taxable year of the S 
     corporation more than 2 percent of the outstanding stock of 
     such corporation or stock possessing more than 2 percent of 
     the total combined voting power of all stock of such 
     corporation.''
       (b) Conforming Amendment.--The table of sections for part 
     III of subchapter S of chapter 1 is amended by striking the 
     item relating to section 1372.
           Subtitle C--Taxation of S Corporation Shareholders

     SEC. 3301. UNIFORM TREATMENT OF OWNER-EMPLOYEES UNDER 
                   PROHIBITED TRANSACTION RULES.

       The last sentence of section 4975(d) (relating to 
     exemptions from prohibited transactions) is amended by 
     striking ``a shareholder-employee (as defined in section 
     1379, as in effect on the day before the date of the 
     enactment of the Subchapter S Revision Act of 1982),''.

     SEC. 3302. TREATMENT OF LOSSES TO SHAREHOLDERS.

       (a) Treatment of Losses in Liquidations.--Section 331 
     (relating to gain or loss to shareholders in corporate 
     liquidations) is amended by redesignating subsection (c) as 
     subsection (d) and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Losses on Liquidations of S Corporation.--
       ``(1) In general.--The portion of any loss recognized by a 
     shareholder of an S corporation (as defined in section 
     1361(a)(1)) on amounts received by such shareholder in a 
     distribution in complete liquidation of such S corporation 
     which does not exceed the ordinary income basis of stock of 
     such S corporation in the hands of such shareholder shall not 
     be treated as a loss from the sale or exchange of a capital 
     asset but shall be treated as an ordinary loss.
       ``(2) Ordinary income basis.--For purposes of this 
     subsection, the ordinary income basis of stock of an S 
     corporation in the hands of a shareholder of such S 
     corporation shall be an amount equal to the portion of such 
     shareholder's basis in such stock which is equal to the 
     aggregate increases in such basis under section 1367(a)(1) 
     resulting from such shareholder's pro rata share of ordinary 
     income of such S corporation attributable to the complete 
     liquidation.''
       (b) Carryover of Disallowed Losses and Deductions Under At-
     Risk Rules Allowed.--Paragraph (3) of section 1366(d) 
     (relating to carryover of disallowed losses and deductions to 
     post-termination transition period) is amended by adding at 
     the end the following new subparagraph:
       ``(D) At-risk limitations.--To the extent that any increase 
     in adjusted basis described in subparagraph (B) would have 
     increased the shareholder's amount at risk under section 465 
     if such increase had occurred on the day preceding the 
     commencement of the post-termination transition period, rules 
     similar to the rules described in subparagraphs (A) through 
     (C) shall apply to any losses disallowed by reason of section 
     465(a).''
                       Subtitle D--Effective Date

     SEC. 3401. EFFECTIVE DATE.

       (a) In General.--Except as otherwise provided in this 
     title, the amendments made by this title shall apply to 
     taxable years beginning after December 31, 1995.
       (b) Treatment of Certain Elections Under Prior Law.--For 
     purposes of section 1362(g) of the Internal Revenue Code of 
     1986 (relating to election after termination), any 
     termination under section 1362(d) of such Code (as in effect 
     on the day before the date of the enactment of this Act) 
     shall not be taken into account.
                    TITLE IV--PENSION SIMPLIFICATION
       Subtitle A--Simplification of Nondiscrimination Provisions

     SEC. 4000. SHORT TITLE.

       This title may be cited as the ``Pension Simplification Act 
     of 1995''.
     
[[Page S 14896]]


     SEC. 4001. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL 
                   OF FAMILY AGGREGATION.

       (a) In General.--Paragraph (1) of section 414(q) (defining 
     highly compensated employee) is amended to read as follows:
       ``(1) In general.--The term `highly compensated employee' 
     means any employee who--
       ``(A) was a 5-percent owner at any time during the year or 
     the preceding year,
       ``(B) had compensation for the preceding year from the 
     employer in excess of $80,000, or
       ``(C) was the most highly compensated officer of the 
     employer for the preceding year.

     The Secretary shall adjust the $80,000 amount under 
     subparagraph (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 October 1, 1995.''
       (b) Special Rule Where No Employee Has Compensation Over 
     Specified Amount.--Paragraph (2) of section 414(q) is amended 
     to read as follows:
       ``(2) Special rule if no employee has compensation over 
     specified amount.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if a defined benefit plan or a defined contribution plan 
     meets the requirements of sections 401(a)(4) and 410(b) with 
     respect to the availability of contributions, benefits, and 
     other plan features, then for all other purposes, 
     subparagraphs (A) and (C) of paragraph (1) shall not apply to 
     such plan.
       ``(B) Exception.--Subparagraph (A) shall not apply to a 
     plan to the extent provided in regulations that are 
     prescribed by the Secretary to prevent the evasion of the 
     purposes of this paragraph.''
       (c) Repeal of Family Aggregation Rules.--
       (1) In general.--Paragraph (6) of section 414(q) is hereby 
     repealed.
       (2) Compensation limit.--Paragraph (17)(A) of section 
     401(a) is amended by striking the last sentence.
       (3) Deduction.--Subsection (l) of section 404 is amended by 
     striking the last sentence.
       (d) Conforming Amendments.--
       (1) Paragraphs (4), (5), (8), and (12) of section 414(q) 
     are hereby repealed.
       (2)(A) Section 414(r) is amended by adding at the end the 
     following new paragraph:
       ``(9) Excluded employees.--For purposes of this subsection, 
     the following employees shall be excluded:
       ``(A) Employees who have not completed 6 months of service.
       ``(B) Employees who normally work less than 17\1/2\ hours 
     per week.
       ``(C) Employees who normally work not more than 6 months 
     during any year.
       ``(D) Employees who have not attained the age of 21.
       ``(E) Except to the extent provided in regulations, 
     employees who are included in a unit of employees covered by 
     an agreement which the Secretary of Labor finds to be a 
     collective bargaining agreement between employee 
     representatives and the employer.

     Except as provided by the Secretary, the employer may elect 
     to apply subparagraph (A), (B), (C), or (D) by substituting a 
     shorter period of service, smaller number of hours or months, 
     or lower age for the period of service, number of hours or 
     months, or age (as the case may be) specified in such 
     subparagraph.''
       (B) Subparagraph (A) of section 414(r)(2) is amended by 
     striking ``subsection (q)(8)'' and inserting ``paragraph 
     (9)''.
       (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
     amended by adding at the end the following new sentence: 
     ``Any reference in this paragraph to section 414(q) shall be 
     treated as a reference to such section as in effect before 
     the Pension Simplification Act of 1995.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995, 
     except that in determining whether an employee is a highly 
     compensated employee for years beginning in 1996, such 
     amendments shall be treated as having been in effect for 
     years beginning in 1995.
    Subtitle B--Targeted Access to Pension Plans for Small Employers

     SEC. 4011. CREDIT FOR PENSION PLAN START-UP COSTS OF SMALL 
                   EMPLOYERS.

       (a) Allowance of Credit.--Section 38(b) (defining current 
     year business credit) is amended by striking ``plus'' at the 
     end of paragraph (10), by striking the period at the end of 
     paragraph (11) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(12) the small employer pension plan start-up cost 
     credit.''
       (b) Small Employer Pension Plan Start-Up Cost Credit.--
     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. 45C. SMALL EMPLOYER PENSION PLAN START-UP COST CREDIT.

       ``(a) Amount of Credit.--For purposes of section 38--
       ``(1) In general.--The small employer pension plan start-up 
     cost credit for any taxable year is an amount equal to the 
     qualified start-up costs of an eligible employer in 
     establishing a qualified pension plan.
       ``(2) Aggregate limitation.--The amount of the credit under 
     paragraph (1) for any taxable year shall not exceed $1,000, 
     reduced by the aggregate amount determined under this section 
     for all preceding taxable years of the taxpayer.
       ``(b) Qualified Start-Up Costs; Qualified Pension Plan.--
     For purposes of this section--
       ``(1) Qualified start-up costs.--The term `qualified start-
     up costs' means any ordinary and necessary expenses of an 
     eligible employer which--
       ``(A) are paid or incurred in connection with the 
     establishment of a qualified pension plan, and
       ``(B) are of a nonrecurring nature.
       ``(2) Qualified pension plan.--The term `qualified pension 
     plan' means--
       ``(A) a plan described in section 401(a) which includes a 
     trust exempt from tax under section 501(a), or
       ``(B) a simplified employee pension (as defined in section 
     408(k)).
       ``(c) Eligible Employer.--For purposes of this section--
       ``(1) In general.--The term `eligible employer' means an 
     employer which--
       ``(A) had an average daily number of employees during the 
     preceding taxable year not in excess of 50, and
       ``(B) did not make any contributions on behalf of any 
     employee to a qualified pension plan during the 2 taxable 
     years immediately preceding the taxable year.
       ``(2) Professional service employers excluded.--Such term 
     shall not include an employer substantially all of the 
     activities of which involve the performance of services in 
     the fields of health, law, engineering, architecture, 
     accounting, actuarial science, performing arts, or 
     consulting.
       ``(d) 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.
       ``(2) Disallowance of deduction.--No deduction shall be 
     allowable under this chapter for any qualified start-up costs 
     for which a credit is allowable under subsection (a).''
       (c) Conforming Amendments.--
       (1) Section 39(d) is amended by adding at the end the 
     following new paragraph:
       ``(7) No carryback of pension credit.--No portion of the 
     unused business credit for any taxable year which is 
     attributable to the small employer pension plan start-up cost 
     credit determined under section 45C may be carried back to a 
     taxable year ending before the date of the enactment of 
     section 45C.''
       (2) 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. 45C. Small employer pension plan start-up cost credit.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to costs incurred after the date of the enactment 
     of this Act in taxable years ending after such date.

     SEC. 4012. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

       (a) Increase in Number of Allowable Participants for Salary 
     Reduction Arrangements.--Section 408(k)(6)(B) is amended by 
     striking ``25'' each place it appears in the text and heading 
     thereof and inserting ``100''.
       (b) Repeal of Participation Requirement.--
       (1) In general.--Section 408(k)(6)(A) is amended by 
     striking clause (ii) and by redesignating clauses (iii) and 
     (iv) as clauses (ii) and (iii), respectively.
       (2) Conforming amendments.--Clause (ii) of section 
     408(k)(6)(C) and clause (ii) of section 408(k)(6)(F) are each 
     amended by striking ``subparagraph (A)(iii)'' and inserting 
     ``subparagraph (A)(ii)''.
       (c) Alternative Test.--Clause (ii) of section 408(k)(6)(A), 
     as redesignated by subsection (b)(1), is amended by adding at 
     the end the following new flush sentence:

     ``The requirements of the preceding sentence are met if the 
     employer makes contributions to the simplified employee 
     pension meeting the requirements of sections 401(k)(11) (B) 
     or (C), 401(k)(11)(D), and 401(m)(10)(B).''
       (d) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 4013. EXEMPTION FROM TOP-HEAVY PLAN REQUIREMENTS.

       (a) Exemption From Top-Heavy Plan Requirements.--Section 
     416(g) (defining top-heavy plans) is amended by adding at the 
     end the following new paragraph:
       ``(3) Exemption for certain plans.--A plan shall not be 
     treated as a top-heavy plan if, for such plan year, the 
     employer has no highly compensated employees (as defined in 
     section 414(q)) by reason of section 414(q)(2).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 4014. REGULATORY TREATMENT OF SMALL EMPLOYERS.

       (a) In General.--Section 7805(f) (relating to review of 
     impact of regulations on small business) is amended by adding 
     at the end the following new subparagraph:
       ``(4) Special rule for pension regulations.--
       ``(A) In general.--Any regulation proposed to be issued by 
     the Secretary which relates to qualified pension plans shall 
     not take effect unless the Secretary includes provisions to 
     address any special needs of the small employers.
       ``(B) Qualified pension plan.--For purposes of this 
     paragraph, the term `qualified pension plan' means-- 

[[Page S 14897]]

       ``(i) any plan which includes a trust described in section 
     401(a) which is exempt from tax under section 501(a), or
       ``(ii) any simplified employee pension (as defined in 
     section 408(k)).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to regulations issued after the date of the 
     enactment of this Act.
        TITLE V--ESTATE TAX EXCLUSION FOR FAMILY-OWNED BUSINESS

     SEC. 5001. SHORT TITLE.

       This title may be cited as the ``American Family-Owned 
     Business Act''.

     SEC. 5002. FAMILY-OWNED BUSINESS EXCLUSION.

       (a) In General.--Part III of subchapter A of chapter 11 
     (relating to gross estate) is amended by inserting after 
     section 2033 the following new section:

     ``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

       ``(a) In General.--In the case of an estate of a decedent 
     to which this section applies, the value of the gross estate 
     shall not include the lesser of--
       ``(1) the adjusted value of the qualified family-owned 
     business interests of the decedent otherwise includible in 
     the estate, or
       ``(2) the sum of--
       ``(A) $1,500,000, plus
       ``(B) 50 percent of the excess (if any) of the adjusted 
     value of such interests over $1,500,000.
       ``(b) Estates to Which Section Applies.--This section shall 
     apply to an estate if--
       ``(1) the decedent was (at the date of the decedent's 
     death) a citizen or resident of the United States,
       ``(2) the excess of--
       ``(A) the sum of--
       ``(i) the adjusted value of the qualified family-owned 
     business interests which--

       ``(I) are included in determining the value of the gross 
     estate (without regard to this section), and
       ``(II) are acquired by a qualified heir from, or passed to 
     a qualified heir from, the decedent (within the meaning of 
     section 2032A(e)(9)), plus

       ``(ii) the amount of the adjusted taxable gifts of such 
     interests from the decedent to members of the decedent's 
     family taken into account under subsection 2001(b)(1)(B), to 
     the extent such interests are continuously held by such 
     members between the date of the gift and the date of the 
     decedent's death, over
       ``(B) the amount included in the gross estate under section 
     2035,

     exceeds 50 percent of the adjusted gross estate, and
       ``(3) during the 8-year period ending on the date of the 
     decedent's death there have been periods aggregating 5 years 
     or more during which--
       ``(A) such interests were owned by the decedent or a member 
     of the decedent's family, and
       ``(B) there was material participation (within the meaning 
     of section 2032A(e)(6)) by the decedent or a member of the 
     decedent's family in the operation of the business to which 
     such interests relate.
       ``(c) Adjusted Gross Estate.--For purposes of this section, 
     the term `adjusted gross estate' means the value of the gross 
     estate (determined without regard to this section)--
       ``(1) reduced by any amount deductible under section 
     2053(a)(4), and
       ``(2) increased by the excess of--
       ``(A) the sum of--
       ``(i) the amount taken into account under subsection 
     (b)(2)(B)), plus
       ``(ii) the amount of other gifts from the decedent to the 
     decedent's spouse (at the time of the gift) within 10 years 
     of the date of the decedent's death, plus
       ``(iii) the amount of other gifts (not included under 
     clause (i) or (ii)) from the decedent within 3 years of such 
     date, over
       ``(B) the amount included in the gross estate under section 
     2035.
       ``(d) Adjusted Value of the Qualified Family-Owned Business 
     Interests.--For purposes of this section, the adjusted value 
     of any qualified family-owned business interest is the value 
     of such interest for purposes of this chapter (determined 
     without regard to this section), reduced by the excess of--
       ``(1) any amount deductible under section 2053(a)(4), over
       ``(2) the sum of--
       ``(A) any indebtedness on any qualified residence of the 
     decedent the interest on which is deductible under section 
     163(h)(3), plus
       ``(B) any indebtedness to the extent the taxpayer 
     establishes that the proceeds of such indebtedness were used 
     for the payment of educational and medical expenses of the 
     decedent, the decedent's spouse, or the decedent's dependents 
     (within the meaning of section 152), plus
       ``(C) any indebtedness not described in subparagraph (A) or 
     (B), to the extent such indebtedness does not exceed $10,000.
       ``(e) Qualified Family-Owned Business Interest.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified family-owned business interest' means--
       ``(A) an interest as a proprietor in a trade or business 
     carried on as a proprietorship, or
       ``(B) an interest as a partner in a partnership, or stock 
     in a corporation, carrying on a trade or business, if--
       ``(i) at least--

       ``(I) 50 percent of such partnership or corporation is 
     owned (directly or indirectly) by the decedent or members of 
     the decedent's family,
       ``(II) 70 percent of such partnership or corporation is so 
     owned by 2 families (including the decedent's family), or
       ``(III) 90 percent of such partnership or corporation is so 
     owned by 3 families (including the decedent's family), and

       ``(ii) at least 30 percent of such partnership or 
     corporation is so owned by each family described in subclause 
     (II) or (III) of clause (i).
       ``(2) Limitation.--Such term shall not include--
       ``(A) any interest in a trade or business the principal 
     place of business of which is not located in the United 
     States,
       ``(B) any interest in--
       ``(i) an entity which had, or
       ``(ii) an entity which is a member of a controlled group 
     (as defined in section 267(f)(1)) which had,

     readily tradable stock or debt on an established securities 
     market or secondary market (as defined by the Secretary) 
     within 3 years of the date of the decedent's death,
       ``(C) any interest in a trade or business not described in 
     section 542(c)(2), if more than 35 percent of the adjusted 
     ordinary gross income of such trade or business for the 
     taxable year which includes the date of the decedent's death 
     would qualify as personal holding company income (as defined 
     in section 543(a)), and
       ``(D) that portion of an interest in a trade or business 
     that is attributable to cash or marketable securities, or 
     both, in excess of the reasonably expected day-to-day working 
     capital needs of such trade or business.
       ``(3) Ownership rules.--
       ``(A) Indirect ownership.--For purposes of determining 
     indirect ownership under paragraph (1), rules similar to the 
     rules of paragraphs (2) and (3) of section 447(e) shall 
     apply.
       ``(B) Tiered entities.--For purposes of this section, if--
       ``(i) a qualified family-owned business holds an interest 
     in another trade or business, and
       ``(ii) such interest would be a qualified family-owned 
     business interest if held directly by the family (or 
     families) holding interests in the qualified family-owned 
     business meeting the requirements of paragraph (1)(B),

     then the value of the qualified family-owned business shall 
     include the portion attributable to the interest in the other 
     trade or business.
       ``(f) Tax Treatment of Failure To Materially Participate in 
     Business or Dispositions of Interests.--
       ``(1) In general.--There is imposed an additional estate 
     tax if, within 10 years after the date of the decedent's 
     death and before the date of the qualified heir's death--
       ``(A) the qualified heir ceases to use for the qualified 
     use (within the meaning of section 2032A(c)(6)(B)) the 
     qualified family-owned business interest which was acquired 
     (or passed) from the decedent, or
       ``(B) the qualified heir disposes of any portion of a 
     qualified family-owned business interest (other than by a 
     disposition to a member of the qualified heir's family or 
     through a qualified conservation contribution under section 
     170(h)).
       ``(2) Additional estate tax.--The amount of the additional 
     estate tax imposed by paragraph (1) shall be equal to--
       ``(A) the adjusted tax difference attributable to the 
     qualified family-owned business interest (as determined under 
     rules similar to the rules of section 2032A(c)(2)(B)), plus
       ``(B) interest on the amount determined under subparagraph 
     (A) at the annual rate of 4 percent for the period beginning 
     on the date the estate tax liability was due under this 
     chapter and ending on the date such additional estate tax is 
     due.
       ``(g) Other Definitions and Applicable Rules.--For purposes 
     of this section--
       ``(1) Qualified heir.--The term `qualified heir'--
       ``(A) has the meaning given to such term by section 
     2032A(e)(1), and
       ``(B) includes any active employee of the trade or business 
     to which the qualified family-owned business interest relates 
     if such employee has been employed by such trade or business 
     for a period of at least 10 years before the date of the 
     decedent's death.
       ``(2) Member of the family.--The term `member of the 
     family' has the meaning given to such term by section 
     2032A(e)(2).
       ``(3) Applicable rules.--Rules similar to the following 
     rules shall apply:
       ``(A) Section 2032A(b)(4) (relating to decedents who are 
     retired or disabled).
       ``(B) Section 2032A(b)(5) (relating to special rules for 
     surviving spouses).
       ``(C) Section 2032A(c)(2)(D) (relating to partial 
     dispositions).
       ``(D) Section 2032A(c)(3) (relating to only 1 additional 
     tax imposed with respect to any 1 portion).
       ``(E) Section 2032A(c)(4) (relating to due date).
       ``(F) Section 2032A(c)(5) (relating to liability for tax; 
     furnishing of bond).
       ``(G) Section 2032A(c)(7) (relating to no tax if use begins 
     within 2 years; active management by eligible qualified heir 
     treatment as material participation).
       ``(H) Section 2032A(e)(10) (relating to community 
     property).
       ``(I) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(J) Section 2032A(f) (relating to statute of 
     limitations).

[[Page S 14898]]

       ``(K) Section 6166(b)(3) (relating to farmhouses and 
     certain other structures taken into account).
       ``(L) Subparagraphs (B), (C), and (D) of section 6166(g)(1) 
     (relating to acceleration of payment).''
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by inserting after 
     the item relating to section 2033 the following new item:

``Sec. 2033A. Family-owned business exclusion.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1995.
                     TITLE VI--SPENDING REDUCTIONS

     SEC. 6001. SHORT TITLE.

       This title may be cited as the ``Spending Reductions Act of 
     1995''.

     SEC. 6002. SERVICE CONTRACTS.

       Notwithstanding any other provision of law, of the funds 
     available for fiscal year 1996, the total amount available 
     for service contracts shall not exceed $105,000,000,000.

     SEC. 6003. FEDERALLY FUNDED RESEARCH AND DEVELOPMENT CENTERS.

       Notwithstanding any other provision of law, of the funds 
     available for the Department of Defense for fiscal year 1996, 
     the total amount available for procurement of work from 
     federally funded research and development centers shall not 
     exceed $1,000,000,000.

     SEC. 6004. FOREIGN MILITARY FINANCING.

       Notwithstanding any other provision of law, of the funds 
     available for fiscal year 1996, the total amount available 
     for the Foreign Military Financing Program under section 23 
     of the Arms Export Control Act shall not exceed 
     $3,500,000,000.
                                                                    ____


                         BOOST--Five-Point Plan

       1. Taxpayer Bill of Rights 2 (T2). Laws ensuring the IRS 
     treats taxpayers with respect are the key to making our tax 
     system work. The original Taxpayer Bill of Rights, enacted in 
     1988, took the first step in the battle to achieve this goal. 
     T2 is the next natural step toward requiring the IRS to meet 
     new standards of timeliness, accuracy, and accountability.
       2. 100% Health Care Deduction for Self-Employed. Today, 
     large corporations may deduct 100% of the cost of their 
     employees' health care premiums while the self-employed may 
     deduct only 30% of their health insurance costs. There is no 
     reason for treating self-employed workers differently than 
     large corporations. BOOST provides a 75% deduction in 1996 
     and a permanent 100% deduction for 1997 and thereafter for 
     the self-employed.
       3. S Corporation Reform Act. In 1958, S Corporations were 
     first created in the tax law to help small U.S. companies. 
     The S corp rules have been extremely helpful to small 
     businesses. Today, close to $2 million U.S. companies are S 
     Corps. However, as written in 1958, S corps are very limited 
     and operating as an S corp contains many pitfalls. The S 
     Corporation Reform Act overhauls these outdated rules so 
     small business can better compete in today's financial 
     environment.
       4. Small Businesses Pensions. In businesses with less than 
     25 employees, only 19.6% of the employees have any employer 
     provided pension available, and only 15% of these employees 
     participated in the plan. A major contributing factor to this 
     dismal statistic is the sky-high cost of establishing and 
     maintaining a pension plan for a small business. BOOST 
     provides a maximum $1000 tax credit for the start-up costs of 
     providing a new plan for employers with 50 or fewer 
     employees, and it slashes annual nondiscrimination testing 
     requirements for firms where no employee is highly 
     compensated. Thus, BOOST alleviates high cost barriers for 
     small businesses wishing to provide employees a pension.
       5. American Family-Owned Business Act. The impact of the 
     estate tax on a family-owned business is devastating because 
     of one simple fact--the rates are too high. On top of this, 
     the tax bill oftentimes comes due abruptly and at a time when 
     the business has lost one of its key assets. The tremendous 
     financial strain causes many family-owned businesses to 
     close. The effect is that jobs are lost, and the community 
     loses the goods and/or services provided by the business. The 
     American Family-Owned Business Act carefully targets estate 
     tax relief to estates whose major asset is its business and 
     whose family members will materially participate in the 
     business in the coming years.
                                 ______

      By Mr. BREAUX:
  S. 1300. A bill to amend the Internal Revenue Code of 1986 to 
simplify the method of payment of taxes on distilled spirits; to the 
Committee on Finance.


      the distilled spirits tax payment simplification act of 1995

 Mr. BREAUX. Mr. President, I introduce the Distilled Spirits 
Tax Payment Simplification Act of 1995, a bill more readily known as 
all-in-bond. The bill would streamline the way in which the Government 
collects the Federal excise tax on distilled spirits by extending the 
current system of collection now applicable only to imported products 
to domestic products as well.
  Today wholesalers purchase foreign bottled distilled spirits in 
bond--tax-free--paying the Federal excise tax directly after sale to a 
retailer. In contrast, when the wholesaler buys domestically bottled 
spirits--nearly 86 percent of total inventory--the price includes the 
Federal excise tax, prepaid by the distiller. This means that hundreds 
of U.S. family owned wholesale businesses increase their inventory 
carrying costs by 40 percent when buying U.S. products, which must be 
financed through borrowing.
  Under my bill, wholesalers would be allowed to purchase domestically 
bottled distilled spirits in-bond from distillers just as they are now 
permitted to purchase foreign produced spirits. Products would become 
subject to tax on removal from the wholesale premises. Additionally, 
the Federal tax collection process would be simplified by providing 
that only one Federal agency collect the tax.
  All-in-bond is an equitable and sound way in which to remove the 
burden of prepayment of the Federal excise tax on domestically bottled 
spirits while streamlining our tax collection system. I hope my 
colleagues will join me in cosponsoring this important 
legislation.
                                 ______

      By Mr. SPECTER:
  S. 1301. A bill to amend the Goals 2000: Educate America Act to 
eliminate the National Education Standards and Improvement Council and 
requirements concerning opportunity-to-learn standards, to limit the 
authority of the Secretary of Education to review and approve State 
plans, to permit certain local educational agencies to receive funding 
directly from the Secretary of Education, and for other purposes; to 
the Committee on Labor and Human Resources.


                         goals 2000 legislation

  Mr. SPECTER. Mr. President, back in 1983, when President Reagan's 
Education Secretary, Terrell Bell, issued that now-famous report on the 
problems of education in this country he called that report ``A Nation 
at Risk.'' Not a school district at risk. Not a State at risk. But a 
nation at risk.
  Recognizing the need to improve educational achievement of this 
Nation's children, Governors of both parties launched a program to 
raise the achievement standards in American schools and a national 
education goals effort was embraced at the 1989 education summit in 
Charlottesville.
  That effort culminated early last year, when a bipartisan majority in 
Congress voted to approve Goals 2000 legislation. That legislation 
supports development of model national academic standards in 13 
subjects, standards that any school district may use as guides.
  The Goals 2000 legislation also authorizes grants to States to help 
reform their schools so they can achieve their education goals. 
Participating States must develop challenging State content and 
performance standards and assessments aligned with those standards.
  Since the passage of Goals 2000, 48 States have applied for and 
received funding. Two States, Virginia and New Hampshire, have refused 
the funds and have taken issue with the intent of Goals 2000, citing 
fears of Federal intrusion. A third State, Montana, has declined to 
receive 2d year funding; and a fourth State, Alabama, announced last 
week that it was ending its participation. In addition, a number of 
organizations have leveled a wide assortment of charges against Goals 
2000.
  Some say the legislation usurps State and local control over 
education. Others say it does no such thing and represents 
unprecedented flexibility in Federal legislation.
  All of the concerns expressed, however, ultimately focus on what is 
the most appropriate and effective Federal role in elementary and 
secondary education.
  By way of background and to help put this in context, let me review a 
few facts.
  States now contribute about 36 percent of the cost of running our 
schools; local agencies contribute 26 percent, and private institutions 
account for 30 percent. The Federal Government's financial stake 
amounts to less than 10 percent.
  If one agrees with the old adage that money is power, then it appears 
that the principal responsibility for running our schools continues to 
rest with the States and with local communities.

[[Page S 14899]]


  Where the Federal Government has traditionally played an important 
role is in helping to build partnerships among States, communities, and 
private institutions; and in helping to disseminate information on what 
works in one part of the country to others which may be struggling with 
the same problem. In that regard, I have always believed that the 
Federal Government can play an important part in helping to ensure a 
degree of fairness and equity for all our children.
  The Labor, Health, and Human Services and Education Subcommittee 
which I chair recently held a hearing on the Goals 2000 issue. To help 
us better understand the controversy surrounding goals, the 
subcommittee heard from two witnesses.
  Our first witness was Education Secretary Richard Riley, who 
testified in support of the Goals 2000 legislation and the 
administration's request of $750 million for fiscal year 1996.
  Our second witness was Mr. Ovide Lamontagne, who chairs the New 
Hampshire State Board of Education. Specifically, Mr. Lamontagne raised 
concerns about the Secretary of Education's ability to review and 
approve a State's plan for its entire educational system, which he 
considered unprecedented. After much discussion with Mr. Lamontagne and 
Secretary Riley, the Secretary seemed to think he could live without 
that provision. Mr. Lamontagne also stated that eliminating secretarial 
review and approval would go a long way toward improving the 
legislation.
  We also addressed the issue of school districts receiving funds 
directly from the Secretary, if their States chose not to participate 
in Goals 2000. In addition, discussions were held concerning the 
National Education Standards and Improvement Council [NESIC] and both 
the Secretary and Mr. Lamontagne agreed that eliminating the Council 
would be desirable.
  The legislation which I am introducing today addresses the concerns 
of States that have chosen not to participate in Goals 2000. 
Specifically, the legislation:
  Permits school districts, in States that elect not to participate in 
the Goals 2000 Program, to apply directly to the Secretary of Education 
for Goals 2000 funding.
  Eliminates the requirement that States submit their plans to the 
Secretary of Education.
  Removes the authority of the Secretary of Education to review and 
approve State plans.
  Deletes the requirements for the composition of State and local 
panels that develop State and local improvement plans.
  Eliminates the National Education Standards and Improvement Council 
[NESIC], which was to certify national and State standards, and which 
some viewed as a national school board.
  Removes the requirement for States to develop opportunity-to-learn 
standards. These standards would specify the educational resources--
such as funding, facilities, and materials--deemed necessary for local 
schools to achieve State or national content and performance standards.
  It is my hope that this legislation will improve Goals 2000 so that 
all States will feel they are able to participate in this important 
program because it strikes the proper balance between State and local 
responsibility for education and Federal leadership.
                                 ______

      By Ms. MIKULSKI:
  S. 1302. A bill to restore competitiveness to the sugar industry by 
reforming the Federal Sugar Program and thereby ensuring that consumers 
have an uninterrupted supply of sugar at reasonable prices, and for 
other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.


                 the sugar competitiveness act of 1995

 Ms. MIKULSKI. Mr. President, today I may introducing 
legislation to dramatically reform the sugar program run by the 
Department of Agriculture. My bill, the Sugar Competitiveness Act, is 
designed to restore competitiveness to the sugar industry by reducing 
Government intervention in the marketplace.
  Since the present sugar policy was enacted in 1981 we have seen 10 of 
the sugar refining industry's 22 refineries close. Another refinery is 
scheduled to close permanently in the near future. The industry has 
lost over 40 percent of its capacity, not to mention the thousands of 
blue-collar jobs that go with it.
  My own hometown of Baltimore is home to a sugar refining plant. 
Generations of workers have walked through the gates of Domino sugar 
every morning to give an honest day's work for an honest day's pay. My 
bill is designed to save those jobs and preserve the future of the 
sugar refining industry.
  Today, refiners are being forced to operate under an absurd situation 
in which the Department of Agriculture is forcing up the price of their 
raw material--raw cane sugar--to a level higher than the price of 
refined beet sugar. The USDA creates this artificial shortage by 
tightly restricting imports.
  As a result of this Government-inflicted shortage of raw sugar, it 
has become impossible for refiners to compete. All refiners have been 
losing money for months.
  Recently, refiners have been forced to pay 24 to 25 cents per pound 
for raw sugar, while their competitors, the beet sugar processors, have 
been selling refined sugar at those levels. It is impossible for 
refiners to cover these increased raw sugar costs in the refined sugar 
market.
  But, there is more at stake here than the survival of the refining 
industry and its labor. Refiners provide over 50 percent of the sugar 
marketed in the United States. They play an important and unique role 
in ensuring that food processors and consumers have an uninterrupted 
supply of sugar under all circumstances.

  When there is a domestic crop shortage, caused by a freeze or 
drought, as there often is, food processors depend upon the refiners to 
fill the void by importing more sugar. Any further loss of refining 
capacity will seriously endanger the Nation's sugar supply, to the 
detriment of consumers and food processors throughout the country.
  The first thing my bill would do is eliminate USDA marketing 
allotments. These allotments limit the amount of sugar that domestic 
surgarcane and sugar beet processors can sell.
  The second thing the bill does is to reduce the raw sugar cane loan 
rate from 18 cents to 12 cents per pound in stages, 2 cents per year 
for 3 years. Currently the USDA offers loans at a floor of 18 cents per 
pound for raw cane sugar, which is nearly double the world price of 
sugar. These loans set minimum prices that sugar processors must pay to 
producers, which drive up the cost of sugar for consumers.
  Third, my bill regulates sugar imports to ensure that the market for 
raw cane sugar does not exceed the loan rate or the world market price, 
whichever is higher. Because the sugar program is designed as a no-net-
cost subsidy, and the loans are non-recourse, the USDA keeps the market 
price for sugar processors much higher than necessary.
  The fourth effect this legislation would have is to provide for 3-
month CCC loans, and convert those loans from a non-recourse to a 
recourse basis. Under the current loan structure, sugar processors must 
put up sugar as collateral for loans. At the end of the present 9-month 
loan, the processor must decide to do one of two things, pay back the 
loan with interest or forfeit the sugar they put up as collateral. 
Processors can choose to simply hold on to the Government's money and 
forfeit the sugar collateral if it is more profitable.
  If the processor forfeits, the disposition of the collateral sugar 
would fall to USDA. In order to avoid that possibility USDA maintains 
the market price much higher than the loan rate. Why should the 
taxpayer subsidize non-recourse loans to corporations? My bill would 
correct the situation to the benefit of consumers by changing the loan 
structure to a recourse loan, which requires that processors repay the 
loan instead of simply forfeiting the sugar to USDA.
  Finally, the proposed legislation increases the sugar marketing 
assessment, and extends it to imported sugar. The sugar marketing 
assessment is a fee paid by domestic processors to the CCC. Currently 
foreign processors who are allowed to sell limited amounts of sugar in 
the United States do not have to pay this. This bill levels the playing 
field between foreign and domestic processors.
  Mr. President, America is at the crossroads. Over the past decade we 

[[Page S 14900]]
  have seen manufacturing jobs disappear in city after city. We have seen 
good paying jobs move out of our urban areas if not out of the country. 
Cities are being decimated by the flight of the middle class. Plants 
are closing and the jobs that honest, hard-working Americans rely on to 
feed their kids and put food on the table are disappearing.
  I've decided that I'm not just going to stand by and watch. This 
Congress owes it to working men and women to do all we can to preserve 
those jobs, to level the playing field and to allow those that have 
made America a world economic leader to continue that job. When we talk 
about the current sugar program we're talking about a bad Federal 
policy that tears at the backbone of American manufacturing.
  I think this bill moves the sugar program toward a more competitive 
base and will have dramatic impacts on lowering the price of sugar to 
consumers by letting market conditions dictate sugar prices instead of 
the U.S. Government.
                                 ______

      By Mr. McCAIN (for himself, Mr. Baucus, Mr. Bingaman, Mr. 
        Campbell, Mr. Inouye, Mr. Kyl, Mr. Stevens, and Mr. Thomas):
  S. 1303. A bill to amend the Internal Revenue Code of 1986 to provide 
tax credits for Indian investment and employment, and for other 
purposes; to the Committee on Finance.
                                 ______

      By Mr. McCAIN (for himself, Mr. Baucus, Mr. Bingaman, Mr. 
        Domenici, Mr. Feingold, Mr. Inouye, Mr. Kohl, Mr. Kyl, Mr. 
        Stevens, and Mr. Thomas):
  S. 1304. A bill to provide for the treatment of Indian tribal 
governments under section 403(b) of the Internal Revenue Code of 1986; 
to the Committee on Finance.
                                 ______

      By Mr. McCAIN (for himself, Mr. Baucus, Mr. Campbell, Mr. 
        Domenici, Mr. Inouye, Mr. Kyl, Mr. Stevens, and Mr. Thomas):
  S. 1305. A bill to amend the Internal Revenue Code of 1986 to treat 
for unemployment compensation purposes Indian tribal governments the 
same as State or local units of government or nonprofit organizations; 
to the Committee on Finance.
                                 ______

      By Mr. McCAIN (for himself, Mr. Baucus, Mr. Campbell, Mr. 
        Domenici, Mr. Inouye, and Mr. Kyl):
  S. 1306. A bill to amend the Internal Revenue Code of 1986 to provide 
for the issuance of tax-exempt bonds by Indian tribal governments, and 
for other purposes; to the Committee on Finance.
                                 ______

      By Mr. McCAIN (for himself, Mr. Baucus, Mr. Domenici, and Mr. 
        Inouye):
  S. 1307. A bill to amend the Internal Revenue Code of 1986 to exempt 
from income taxation income derived by a member of an Indian tribe 
directly or through a qualified Indian entity derived from natural 
resource activities; to the Committee on Finance.


            indian tribal reservation tax relief legislation

 Mr. McCAIN. Mr. President, I introduce a series of tax relief 
bills designed to encourage investment and economic development and 
growth on Indian Reservations and other native American communities 
throughout the United States.
  Let me put it in plain and simple terms, native Americans as a group 
have experienced a grinding poverty of epidemic proportions since the 
days when they were first uprooted from their homelands or overrun by 
settlers. The treaties that the United States made with tribes in 
exchange for their land and peace have been honored, for most part, 
only in the breach.
  The economic conditions on Indian reservations have not been improved 
by the occasional periods of economic growth that have swept much of 
the rest of our Nation. Instead, Indians have long suffered the 
indignity of promises broken, treaties discarded, and a hopelessness 
that reaches tragic, personal dimensions. Many Indian reservations are, 
relatively speaking, islands of poverty in the ocean of wealth that is 
the rest of America.
  On repeated occasions in the last several sessions of the Congress, I 
have offered amendments to the Federal Tax Code that would create 
incentives for private sector investment on Indian reservations and 
that would remove inequities in the Federal Tax Code so that tribal 
governments can enjoy the same tax benefits accorded other non-taxable 
government entities. I have offered these provisions, not to authorize 
any particular advantage to Indians, but merely to give them the same 
kind of tax incentives and benefits the Congress has given other 
economically depressed areas and other units of government. Given the 
extremely under-developed nature of the economies in native American 
communities, I believe the tax relief we have promised the American 
people must include reasonable measures to stimulate economic growth 
and productivity for Indians.
  Today I am introducing a series of measures that are designed to 
amend the Tax Code to give Indian tribes some tools with which to join 
with the private sector in improving their economies.


                   reservation investment tax credit

  I rise today on behalf of myself, Senator Baucus, Senator Bingaman, 
Senator Campbell, Senator Inouye, Senator Kyl, Senator Stevens, and 
Senator Thomas, to introduce the Indian Reservation Jobs and Investment 
Act of 1995. This bill is identical to provisions that passed the 
Congress in 1992 and were sent to the White House where they were 
vetoed because they were part of a larger bill containing other 
provisions opposed by the Bush administration. The measure I am 
reintroducing today would provide tax credits to otherwise taxable 
business enterprises if they locate certain kinds of income-producing 
property on Indian reservations. Credits would be extended to 
businesses placing new personal property, new construction property, 
and infrastructure investment property on Indian reservations.
  The bill does not provide any tax credit for reservation property 
used in connection with gaming activities. The credits are available 
for expenditures related to personal property used in a business or 
trade on an Indian reservation, related to new construction of property 
to be used in a business or trade on an Indian reservation, or related 
to investment in reservation infrastructure that is available for use 
by the general public and is placed in serve in connection with a 
reservation business or trade.
  The bill limits these credits to those reservations where there is 
economic need. The full credit is available to those reservations whose 
Indian unemployment rate exceeds the Nation's average unemployment by 
300 percent. One-half of the credit is available on reservations where 
the unemployment rate is 150 to 300 percent of the national average. No 
investment tax credit is provided taxpayers on reservations where the 
Indian unemployment rate is less than 150 percent of the national 
average.
  Mr. President, I am very concerned by how little private enterprise 
is present on Indian reservations. Typically the only economic activity 
is the generated by Federal or tribal government employment. I 
understand why this is the case, but I don't like the fact that it is 
the main way jobs and wealth are created in Indian country. By their 
very nature, governments, including tribal governments, simply are not 
good at running businesses. I know this is acknowledged by many tribes, 
who, consistent with their cultural traditions, have created tribal 
corporations or cooperative ventures that mix private sector business 
with tribal principles. But we must begin to see private investment 
being attracted to Indian reservations if we are to see any significant 
improvement in the economies of Indian tribes. The reservation tax 
credit provisions I am introducing today are designed to act as an 
incentive to encourage the private business sector to plow through many 
of the known obstacles to reservation economic development.


                     section 403(b) pension relief

  On a second measure, I rise today on behalf of myself, Senator 
Baucus, Senator Bingaman, Senator Domenici, Senator Feingold, Senator 
Inouye, Senator Kohl, Senator Kyl, Senator Stevens, and Senator Thomas, 
to introduce the Indian Tribal Government Pension Tax Relief Amendments 
of 1995. This bill would help address some very serious ambiguities 
currently found in the Tax Code relating to the 

[[Page S 14901]]
availability of pension plans for Indian tribal governments and their 
employees. Under current law, there are no salary deferred pension 
plans expressly made available to Indian tribal governments and their 
employees.
  Employees of Indian tribal governments are perhaps the only group of 
workers in America for whom current Federal tax law does not provide 
express authority for a tax-deferred pension plan. Commercial for-
profit corporations and partnerships can offer section 401(k) 
retirement benefits to their employees. Public school systems and tax-
exempt charitable and educational organizations can offer section 
403(b) pension plans to their employees. State government employees 
have access to similar pension benefits under section 457. But people 
who work for tribal governments are not expressly authorized to have 
favorable Federal income tax treatment on their pension plans.
  The bill also addresses an additional problem that has arisen from 
the fact that several tribes have participated in plans provided for 
under Section 403(b) of the Code and promoted by insurance 
underwriters, only later to find that such plans were not expressly 
intended for their use as governmental employees involved in activities 
other than education. Those retirement funds, affecting several tribes 
and the retirement savings of thousands of tribal employees, are now in 
jeopardy.

  The pension relief measure I am introducing would enable tribal 
governments to compete, on the same terms, with other private and 
public sectors employers in attracting qualified employees. Let me be 
clear--this measure would give tribal workers no more tax relief than 
is already offered every other group of workers in our country. Mr. 
President, as we all know, many individuals choose who they will work 
for based on what employment benefits are offered, including retirement 
and pension plans. Many tribes have been trying to raise their salary 
and health benefits to competitive levels. But the Federal Tax Code has 
been increasingly interpreted by the Internal Revenue Service to 
prohibit tribes from offering their employees any form of the typical 
salary reduction pension plans, one of the most sought after benefits 
offered to prospective employees. Other units of government and tax 
exempt organizations are permitted to offer such plans. The fact that 
tribal governments are precluded from doing so is simply unfair. This 
injustice would be corrected by enactment of the Indian Tribal 
Government Pension Tax Relief Amendments of 1995.
  The bill would expressly qualify, as tax-sheltered annuities under 
section 403(b) of the Internal Revenue Code, those annuity contracts 
purchased by employees of tribal governments. The Joint Committee on 
Tax has estimated that proposals largely identical to this one would 
have a negligible revenue effect on Federal fiscal year budget 
receipts. I am pleased to introduce this measure and urge my colleagues 
to support it and include it in the pending tax relief legislation 
under consideration.


               tribal unemployment tax equity and relief

  Mr. President, on a third measure, I rise today on behalf of myself, 
Senator Baucus, Senator Campbell, Senator Domenici, Senator Inouye, 
Senator Kyl, Senator Stevens, and Senator Thomas, to introduce the 
Indian Tribal Government Unemployment Compensation Act Tax Relief 
Amendments of 1995. This bill would correct a serious oversight in the 
way the Internal Revenue Code treats Indian tribal governments for 
unemployment tax purposes under the unique, State-Federal unemployment 
program authorized by the Federal Unemployment Tax Act [FUTA]. It would 
clarify existing tax statutes so that tribal governments are treated 
just as State and local units of governments are treated for 
unemployment tax purposes.
  It is well-settled that tribal governments are not taxable entities 
under the Federal Tax Code because of their governmental status. But in 
recent years, the Internal Revenue Service has begun to advance an 
interpretation of FUTA that is particularly burdensome to Indian tribal 
governments. While FUTA expressly exempts all tax-exempt charitable 
organizations and all State and local units of government from paying 
the Federal portion of the FUTA tax, it does not expressly mention 
tribal governments.
  FUTA involves a joint Federal-State taxation system that levies two 
taxes on most employers: An 0.8 percent unemployment tax and a State 
unemployment tax ranging up to more than 9 percent of a portion of an 
employer's payroll. Since its enactment in the 1930s, FUTA has treated 
foreign, Federal, State, and local government employers differently 
from private commercial business employers. It exempts all foreign, 
Federal, State, and local government employers from the 0.8 percent 
Federal FUTA tax. It exempts foreign and Federal Government employers 
from State unemployment programs and allows State and local government 
employers to pay lower State unemployment taxes. FUTA also treats 
income tax-exempt charitable organizations the same as State and local 
governments. All other private sector employers pay both the Federal 
and State FUTA tax rates. The FUTA statute does not expressly include 
tribal government employers within the definition of government 
employers.
  The IRS has chosen in recent years to pursue some tribal governments 
for unpaid FUTA taxes who has proceeded on the good faith assumption 
that they, as units of government, were immune from the Federal portion 
of the tax. Some tribal governments also chose not to participate in 
the State unemployment programs. In such cases, former employees of the 
tribal governments, who were otherwise eligible for unemployment 
benefits, were denied benefits by many State unemployment programs 
because they had worked for what the States deemed an exempt employer--
a tribal government. While this caused hardship on the former employees 
of tribal governments, it meant that the State unemployment funds were 
held harmless.

  The IRS interpretation has caused another problem in recent years, as 
tribal governments have been subject to differing interpretations over 
whether and how they are covered under FUTA. The interpretations of 
FUTA made by State governments, the U.S. Internal Revenue Service, and 
the U.S. Department of Labor have varied from region to region and 
State to State, resulting in differing treatment of Indian tribal 
governments in different periods of time. This has led to considerable 
confusion among tribal governments about the amount they are supposed 
to pay. Some tribes have paid the Federal FUTA tax and then 
successfully obtained tax refunds because they were deemed exempt. Some 
tribes have not paid, assuming they were exempt, and then have been 
investigated by the IRS for nonpayment of hundreds of thousands of 
dollars in unemployment taxes, plus penalties and interest. Some tribes 
have paid taxes; other tribes have not had to pay. In each case, the 
tribes are identically situated but are treated differently simply 
because they are located within differing IRS regions or have been 
scrutinized by different IRS agents. This inconsistency of 
interpretation has also resulted in many former tribal government 
employees being denied eligibility to receive unemployment benefits.
  Now the IRS has begun to pursue these tribes to collect unpaid 
assessments in the form of a penal tax under FUTA's unique enforcement 
mechanisms. Under FUTA, none of the funds assessed and collected would 
be paid as unemployment benefits to former employees of a tribal 
government that had not participated under FUTA. Nor would these 
dollars return to the State funds in which the tribes did not 
participate. Instead, the Federal IRS would collect the highest 
possible State and Federal unemployment taxes and place all of these 
funds directly into the U.S. Treasury without credit or benefit to any 
workers, Indian or otherwise. No one can reasonably argue that it is 
fair to impose this kind of taxation without benefit on the meager 
funds of an Indian tribal government simply because it has followed an 
interpretation of FUTA that some regional offices of the IRS and the 
States previously followed but now have abandoned.
  The bill would also expressly authorize tribal governments, like 
State and local units of government, and like charitable organizations, 
to contribute to a State fund on a reimbursable basis for unemployment 
benefits actually paid out. Private sector employers 

[[Page S 14902]]
typically must pay an unemployment tax in advance. The rationale for 
reimburser status is that governmental employers, like tribes and 
States, have a far more stable employment environment than that of the 
private sector, and that governmental revenue should not be committed 
to such purposes in advance of when the obligation to pay arises. Let 
me be clear, this bill would ensure that tribes participate in the 
unemployment compensation system. Many now do not do so. Their 
participation would be on the same terms that other governments 
participate.
  The bill I am introducing today would permanently resolve this matter 
across the Nation for every Indian tribal government. For unemployment 
tax purposes, it would require that federally recognized Indian tribal 
government employers be treated the same way Federal, State, local 
government, and other tax-exempt organizations are treated. It would 
also remove an unemployment tax liability of tribal governments who did 
not pay unemployment compensation taxes in the past in the belief that 
they were exempt, provided that no benefits were paid to their former 
employer. I have requested a revenue estimate from the Joint Committee 
on Taxation. I believe, however, that the bill would have only a 
negligible effect on revenues.
  Unless this problem is resolved, many former tribal government 
employees will continue to be denied benefits by State unemployment 
funds. I believe Indian and non-Indian workers who are separated from 
tribal governmental employment should be included within our Nation's 
comprehensive unemployment benefit system, and this bill will go a long 
way toward ensuring mandatory participation by tribal governments on a 
fair and equitable basis in the Federal-State unemployment fund system. 
I can think of nothing more fair than the approach clarified in this 
bill. I urge my colleagues to support it and include it in the pending 
tax relief legislation under consideration.


                    Tribal Tax-Exempt Bond Authority

  Mr. President, on a fourth measure, I rise today on behalf of myself, 
Senator Baucus, Senator Campbell, Senator Domenici, Senator Inouye, and 
Senator Kyl, to introduce the Tribal Government Tax-Exempt Bond 
Authority Amendments Act of 1995. This bill would bring new investment 
dollars to Indian reservations where capital formation is so 
desperately needed. The bill would replace the current restrictions on 
the issuance of tax-exempt bonds by tribes and tribal subdivisions with 
a provision that such bonds are to be issued under slightly more 
restrictive conditions than those that now apply to States and their 
political subdivisions. In 1982, the Congress adopted the Indian Tribal 
Governmental Tax Status Act of 1982--Public Law 97-473--which, among 
other things, authorized tribes and tribal subdivisions to issue tax-
exempt bonds for certain purposes. In 1987, the Congress amended that 
act in Public Law 100-203, limiting the purposes for which tribes and 
tribal subdivisions could issue tax-exempt bonds to two: First, 
essential governmental functions, defined as functions customarily 
performed by State and local governments with general taxing powers, 
and second, certain tribally owned manufacturing facilities. The 1987 
amendments were adopted to address perceived abuses in the issuance of 
tax-exempt bonds by tribes for purposes not related to their 
reservations and for the earning of arbitrage by issuing tax-exempt 
bonds at low rates for the purpose of investing the proceeds in higher-
yielding, taxable obligations. The fact of the matter is that these 
abuses were effectively curtailed by the amendment to section 103 of 
the Internal Revenue Code enacted in 1986 and subsequently implemented 
and enforced. Tribes have informed the Committee on Indian Affairs that 
the 1987 restrictions on tribal government bonds are unfairly 
restrictive, in that the interpretation of what is an ``essential 
governmental function'' has been unduly limiting, given the type of 
activities that are customarily carried out by tribal governments for 
the benefit of their members and their reservations. Mr. President, 
there are serious deficiencies in the basic infrastructure on Indian 
reservations, primarily because increasingly tight fiscal restraints 
have limited the ability of the United States, through direct annual 
appropriations, to fund construction and other activities. Reservations 
lag far behind the rest of the United States in terms of sanitation, 
housing, roads, basic utilities, and public service facilities 
necessary to support a civilized society and a competitive economy. I 
believe that providing additional tax-exempt bond authority to tribal 
governments will go a long way toward attracting new sources of capital 
to Indian reservations. I urge my colleagues to support this bill and 
to include it in the pending tax relief legislation under 
consideration.


                   tribal natural resource tax relief

  Mr. President, on a fifth measure, I rise today on behalf of myself, 
Senator Baucus, Senator Domenici, and Senator Inouye to introduce the 
Treatment of Indian Tribal Natural Resource Income Act of 1995. This 
bill would extend an exemption to income derived by individual Indians 
from the harvest of natural resources from tribal trust land that is 
now extended to income derived by individual Indians from treaty-
protected Indian fishing activity. In 1988 Congress amended the 
Internal Revenue Code to provide the treaty fishing exemption under 
section 7873, which serves as a model for this bill.
  With most Indian reservations, tribes signing treaties with the 
United States assumed that the natural resources of the reservation, 
including timber and minerals, would be available for the use of the 
tribe and its members without taxation or other burden imposed by the 
United States. Accordingly, due to their status as nontaxable sovereign 
nations, tribal governments are not subject to Federal income tax under 
current law and practice on revenues generated when the tribal 
government carries out natural resource activities on the tribal trust 
land. However, in those cases where a tribe issues a subsistence permit 
or license to individual tribal members to harvest or process natural 
resources held in trust for the tribe by the United States, the 
Internal Revenue Service has been imposing a tax on that individual 
Indian's income. Such a tax is unfair and arbitrary, since in a 1956 
case, Squire versus Capoeman, the U.S. Supreme Court ruled that natural 
resource income earned by individual Indians from their own individual 
allotments held in trust for them by the United States is exempt. That 
case did not deal with individual income derived from lands held in 
trust for an entire tribe. Recently the IRS has begun to take 
enforcement action to collect income taxes from Indian individuals 
harvesting the fruits of tribal trust lands. The effect of this IRS 
interpretation has been to impose a tax on income from Indian tribal 
trust lands which were never broken up and allotted, but not from 
allotted trust lands held for an individual Indian.
  The bill I am introducing today would apply only to tribal members 
and only with regard to natural resources, underlying title to which is 
owned by the United States in trust for a tribe. It would remove the 
existing anomaly which allows a tribe as a whole to harvest or process 
such resources free of tax, but imposes an income tax on an individual 
tribal member of that tribe carrying out activity permitted by the 
tribe. I urge my colleagues to support this bill and to include it in 
the pending tax relief legislation under consideration.
  Mr. President, I ask unanimous consent that a copy of each of the 
five bills I am introducing today, as well as a section-by-section 
description of each bill's provisions, be inserted in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1303

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Indian Reservation Jobs and 
     Investment Act of 1995''.

     SEC. 2. INVESTMENT TAX CREDIT FOR PROPERTY ON INDIAN 
                   RESERVATIONS.

       (a) Allowance of Indian Reservation Credit.--Section 46 of 
     the Internal Revenue Code of 1986 (relating to investment 
     credits) is amended by striking ``and'' at the end of 
     paragraph (2), by striking the period at the end of paragraph 
     (3) and inserting ``, and'', and by adding after paragraph 
     (3) the following new paragraph:
       ``(4) the Indian reservation credit.''.
       (b) Amount of Indian Reservation Credit.--

[[Page S 14903]]

       (1) In general.--Section 48 of such Code (relating to the 
     energy credit and the reforestation credit) is amended by 
     adding after subsection (b) the following new subsection:
       ``(c) Indian Reservation Credit.--
       ``(1) In general.--For purposes of section 46, the Indian 
     reservation credit for any taxable year is the Indian 
     reservation percentage of the qualified investment in 
     qualified Indian reservation property placed in service 
     during such taxable year, determined in accordance with the 
     following table:

The Indian reservation percentage is--rvation property which is--
  Reservation personal property..................................10....

  New reservation construction property..........................15....

  Reservation infrastructure investment..........................15....

       ``(2) Qualified investment in qualified Indian reservation 
     property defined.--For purposes of this subpart--
       ``(A) In general.--The term `qualified Indian reservation 
     property' means property--
       ``(i) which is--

       ``(I) reservation personal property;
       ``(II) new reservation construction property; or
       ``(III) reservation infrastructure investment; and

       ``(ii) not acquired (directly or indirectly) by the 
     taxpayer from a person who is related to the taxpayer (within 
     the meaning of section 465(b)(3)(C)).

     The term `qualified Indian reservation property' does not 
     include any property (or any portion thereof) placed in 
     service for purposes of conducting or housing class I, II, or 
     III gaming (as defined in section 4 of the Indian Gaming 
     Regulatory Act (25 U.S.C. 2703)).
       ``(B) Qualified investment.--The term `qualified 
     investment' means--
       ``(i) in the case of reservation infrastructure investment, 
     the amount expended by the taxpayer for the acquisition or 
     construction of the reservation infrastructure investment; 
     and
       ``(ii) in the case of all other qualified Indian 
     reservation property, the taxpayer's basis for such property.
       ``(C) Reservation personal property.--The term `reservation 
     personal property' means qualified personal property which is 
     used by the taxpayer predominantly in the active conduct of a 
     trade or business within an Indian reservation.

     Property shall not be treated as `reservation personal 
     property' if it is used or located outside the Indian 
     reservation on a regular basis.
       ``(D) Qualified personal property.--The term `qualified 
     personal property' means property--
       ``(i) for which depreciation is allowable under section 
     168;
       ``(ii) which is not--

       ``(I) nonresidential real property;
       ``(II) residential rental property; or
       ``(III) real property which is not described in (I) or (II) 
     and which has a class life of more than 12.5 years.

     For purposes of this subparagraph, the terms `nonresidential 
     real property', `residential rental property', and `class 
     life' have the respective meanings given such terms by 
     section 168.
       ``(E) New reservation construction property.--The term `new 
     reservation construction property' means qualified real 
     property--
       ``(i) which is located in an Indian reservation;
       ``(ii) which is used by the taxpayer predominantly in the 
     active conduct of a trade or business within an Indian 
     reservation; and
       ``(iii) which is originally placed in service by the 
     taxpayer.
       ``(F) Qualified real property.--The term `qualified real 
     property' means property for which depreciation is allowable 
     under section 168 and which is described in clause (I), (II), 
     or (III) of subparagraph (D)(ii).
       ``(G) Reservation infrastructure investment.--
       ``(i) In general.--The term `reservation infrastructure 
     investment' means qualified personal property or qualified 
     real property which--

       ``(I) benefits the tribal infrastructure;
       ``(II) is available to the general public; and
       ``(III) is placed in service in connection with the 
     taxpayer's active conduct of a trade or business within an 
     Indian reservation.

       ``(ii) Property may be located outside the reservation.--
     Qualified personal property and qualified real property used 
     or located outside an Indian reservation shall be reservation 
     infrastructure investment only if its purpose is to connect 
     to existing tribal infrastructure in the reservation, and 
     shall include, but not be limited to, roads, power lines, 
     water systems, railroad spurs, and communications facilities.
       ``(H) Coordination with other credits.--The term `qualified 
     Indian reservation property' shall not include any property 
     with respect to which the energy credit or the rehabilitation 
     credit is allowed.
       ``(3) Real estate rentals.--For purposes of this section, 
     the rental to others of real property located within an 
     Indian reservation shall be treated as the active conduct of 
     a trade or business in an Indian reservation.
       ``(4) Indian reservation defined.--For purposes of this 
     subpart, the term `Indian reservation' means a reservation, 
     as defined in--
       ``(A) section 3(d) of the Indian Financing Act of 1974 (25 
     U.S.C. 1452(d)); or
       ``(B) section 4(10) of the Indian Child Welfare Act of 1978 
     (25 U.S.C. 1903(10)).
       ``(5) Limitation based on unemployment.--
       ``(A) General rule.--The Indian reservation credit allowed 
     under section 46 for any taxable year shall equal--
       ``(i) if the Indian unemployment rate on the applicable 
     Indian reservation for which the credit is sought exceeds 300 
     percent of the national average unemployment rate at any time 
     during the calendar year in which the property is placed in 
     service or during the immediately preceding 2 calendar years, 
     100 percent of such credit;
       ``(ii) if such Indian unemployment rate exceeds 150 percent 
     but not 300 percent, 50 percent of such credit; and
       ``(iii) if such Indian unemployment rate does not exceed 
     150 percent, 0 percent of such credit.
       ``(B) Special rule for large projects.--In the case of a 
     qualified Indian reservation property which has (or is a 
     component of a project which has) a projected construction 
     period of more than 2 years or a cost of more than 
     $1,000,000, subparagraph (A) shall be applied by substituting 
     `during the earlier of the calendar year in which the 
     taxpayer enters into a binding agreement to make a qualified 
     investment or the first calendar year in which the taxpayer 
     has expended at least 10 percent of the taxpayer's qualified 
     investment, or the preceding calendar year' for `during the 
     calendar year in which the property is placed in service or 
     during the immediately preceding 2 calendar years'.
       ``(C) Determination of Indian unemployment.--For purposes 
     of this paragraph, with respect to any Indian reservation, 
     the Indian unemployment rate shall be based upon Indians 
     unemployed and able to work, and shall be certified by the 
     Secretary of the Interior.
       ``(6) Coordination with nonrevenue laws.--Any reference in 
     this subsection to a provision not contained in this title 
     shall be treated for purposes of this subsection as a 
     reference to such provision as in effect on the date of the 
     enactment of this paragraph.''.
       (2) Lodging to qualify.--Paragraph (2) of section 50(b) of 
     such Code (relating to property used for lodging) is 
     amended--
       (A) by striking `and' at the end of subparagraph (C);
       (B) by striking the period at the end of subparagraph (D) 
     and inserting ``; and'' and
       (C) by adding at the end the following subparagraph:
       ``(E) new reservation construction property.''.
       (c) Recapture.--Subsection (a) of section 50 of such Code 
     (relating to recapture in case of dispositions, etc.), is 
     amended by adding at the end the following new paragraph:
       ``(6) Special rules for Indian reservation property.--
       ``(A) In general.--If, during any taxable year, property 
     with respect to which the taxpayer claimed an Indian 
     reservation credit--
       ``(i) is disposed of; or
       ``(ii) in the case of reservation personal property--

       ``(I) otherwise ceases to be investment credit property 
     with respect to the taxpayer; or
       ``(II) is removed from the Indian reservation, converted, 
     or otherwise ceases to be Indian reservation property, the 
     tax under this chapter for such taxable year shall be 
     increased by the amount described in subparagraph (B).

       ``(B) Amount of increase.--The increase in tax under 
     subparagraph (A) shall equal the aggregate decrease in the 
     credits allowed under section 38 by reason of section 48(c) 
     for all prior taxable years which would have resulted had the 
     qualified investment taken into account with respect to the 
     property been limited to an amount which bears the same ratio 
     to the qualified investment with respect to such property as 
     the period such property was held by the taxpayer bears to 
     the applicable recovery period under section 168(g).
       ``(C) Coordination with other recapture provisions.--In the 
     case of property to which this paragraph applies, paragraph 
     (1) shall not apply and the rules of paragraphs (3), (4), and 
     (5) shall apply.''.
       (d) Basis Adjustment To Reflect Investment Credit.--
     Paragraph (3) of section 50(c) of such Code (relating to 
     basis adjustment to investment credit property) is amended by 
     striking `energy credit or reforestation credit' and 
     inserting `energy credit, reforestation credit, or Indian 
     reservation credit other than with respect to any expenditure 
     for new reservation construction property''.
       (e) Certain Governmental Use Property To Qualify.--
     Paragraph (4) of section 50(b) of such Code (relating to 
     property used by governmental units or foreign persons or 
     entities) is amended by redesignating subparagraphs (D) and 
     (E) as subparagraphs (E) and (F), respectively, and inserting 
     after subparagraph (C) the following new subparagraph:
       ``(D) Exception for reservation infrastructure 
     investment.--This paragraph shall not apply for purposes of 
     determining the Indian reservation credit with respect to 
     reservation infrastructure investment.''.
       (f) Application of At-Risk Rules.--Subparagraph (C) of 
     section 49(a)(1) of such Code is amended by striking `and' at 
     the end of clause (ii), by striking the period at the end of 
     clause (iii) and inserting ``, and'', and by adding at the 
     end the following new clause:
       ``(iv) the qualified investment in qualified Indian 
     reservation property.''.
       (g) Clerical Amendments.--

[[Page S 14904]]

       (1) Section 48 of such Code is amended by striking the 
     heading and inserting the following:

     ``SEC. 48. ENERGY CREDIT; REFORESTATION CREDIT; INDIAN 
                   RESERVATION CREDIT.''.

       (2) The table of sections for subpart E of part IV of 
     subchapter A of chapter 1 is amended by striking the item 
     relating to section 48 and inserting the following:

``Sec. 48. Energy credit; reforestation credit; Indian reservation 
              credit.''.

       (h) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     1995.
                                                                    ____


Section-by-Section Analysis--Indian Reservation Jobs and Investment Act 
                                of 1995

       Section 1 sets forth the short title of the Act.
       Section 2(a) amends Section 46 of the Internal Revenue Code 
     of 1986 (relating to investment credits) by adding new 
     authority for an Indian reservation tax credit. This tax 
     credit is designed to attract private industry and capital, 
     expand existing industry, and make the private sector a 
     permanent source of economic development on Indian 
     reservations.
       Section 2(b) establishes a 10% tax credit for personal 
     property on reservations, and a 15% credit is provided for 
     new construction property and infrastructure investment on 
     reservations. The tax credit is not available for property 
     acquired by the taxpayer from a person who is related to the 
     taxpayer, nor for the development or operation of tribal 
     gaming establishments authorized under the Indian Gaming 
     Regulatory Act of 1988. The tax credit is allowed for 
     investments used to acquire or construct reservation 
     infrastructure, and for expenditures on personal property and 
     new construction real property used predominately in the 
     active conduct of a trade or business within an Indian 
     reservation. The credits would extend to all 32 States in 
     which the 555 federally-recognized tribes are located, using 
     the definition of Indian reservation codified in section 3 
     (d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d)) 
     and section 4 (10) of the Indian Child Welfare Act of 1978 
     (25 U.S.C. 1903 (10)). The full tax credit is available only 
     on an Indian reservation in which the Indian unemployment 
     rate exceeds 300 percent of the national average unemployment 
     rate at any time during the year in which the property is 
     placed in service or during the immediately preceding two 
     calendar years. A one-half tax credit (50%) is available to 
     those reservations where the Indian unemployment rate exceeds 
     150 percent but not 300 percent of the national rate during 
     the same period. No tax credit is extended under the bill to 
     any property on reservations where the Indian unemployment 
     rate does not exceed 150 percent of the national rate during 
     that period. The subsection provides a special timing rule 
     for large construction projects. All Indian unemployment 
     rates must be certified by the Secretary of the Interior.
       Section 2(c) amends section 50 of the Internal Revenue Code 
     (relating to recapture in case of dispositions) by providing 
     authority for the recapture of tax credits through increased 
     taxes if the property is disposed of, ceases to be investment 
     credit property of the taxpayer, or is removed from the 
     Indian reservation, converted, or otherwise ceases to be 
     Indian reservation property.
       Section 2(d) amends Section 50(c) of the Internal Revenue 
     Code (relating to basis adjustment to investment credit 
     property) to add Indian reservation credits to the types of 
     property subject to basis adjustment.
       Section 2(e) amends Section 50(b) of the Internal Revenue 
     Code (relating to property used by governmental units or 
     foreign persons or entities) to add a conforming exception 
     for Indian reservation infrastructure investment.
       Section 2(f) amends Section 49(a) (1) of the Internal 
     Revenue Code of the Internal Revenue Code (relating to the 
     application of at-risk rules) to make a conforming addition 
     for qualified investment in qualified Indian reservation 
     property.
       Section 2(g) amends Section 48 of the Internal Revenue Code 
     to make several conforming clerical changes.
       Section 2(h) provides an effective date of this measure, so 
     that it applies only to property placed in service after 
     December 31, 1995.
                                                                    ____


                                S. 1304

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Indian Tribal Government 
     Pension Tax Relief Amendments of 1995''.

     SEC. 2. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER SECTION 
                   403(b).

       In the case of any contract purchased in a plan year 
     beginning before January 1, 1996, section 403(b) of the 
     Internal Revenue Code of 1986 shall be applied as if any 
     reference to an employer described in section 501(c)(3) of 
     the Internal Revenue Code of 1986 which is exempt from tax 
     under section 501 of such Code included a reference to an 
     employer which is an Indian tribal government (as defined by 
     section 7701(a)(40) of such Code), a subdivision of an Indian 
     tribal government (determined in accordance with section 
     7871(d) of such Code), an agency or instrumentality of an 
     Indian tribal government or subdivision thereof, or a 
     corporation chartered under Federal, State, or tribal law 
     which is owned in whole or in part by any of the foregoing.
                                                                    ____


   Section-by-Section Analysis--Indian Tribal Government Pension Tax 
                       Relief Amendments of 1995

       Section 1 sets forth the short title of the Act.
       Section 2 would expressly qualify, as tax-sheltered 
     annuities under section 403(b) of the Internal Revenue Code, 
     those annuity contracts purchased by employees of a 
     federally-recognized Indian tribal government (as defined by 
     section 7701(a)(4) of such Code), a subdivision of such 
     tribal government (as defined by section 7871(d) of such 
     Code), an agency or instrumentality of such tribal government 
     or subdivision, or a corporation chartered under Federal, 
     State, or tribal law which is owned in whole or in part by 
     such tribal government or subdivision.
                                                                    ____


                                S. 1305

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Indian Tribal Government 
     Unemployment Compensation Act Tax Relief Amendments of 
     1995''.

     SEC. 2. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER FEDERAL 
                   UNEMPLOYMENT TAX ACT.

       (a) In General.--Section 3306(c)(7) of the Internal Revenue 
     Code of 1986 (defining employment) is amended--
       (1) by inserting ``or in the employ of an Indian tribe,'' 
     after ``service performed in the employ of a State, or any 
     political subdivision thereof,''; and
       (2) by inserting ``or Indian tribes'' after ``wholly owned 
     by one or more States or political subdivisions''.
       (b) Payments in Lieu of Contributions.--Section 3309 of the 
     Internal Revenue Code of 1986 (relating to State law coverage 
     of services performed for nonprofit organizations or 
     governmental entities) is amended--
       (1) in subsection (a)(2) by inserting ``, including an 
     Indian tribe,'' after `the State law shall provide that a 
     governmental entity';
       (2) in subsection (b)(3)(B) by inserting ``, or of an 
     Indian tribe' after ``of a State or political subdivision 
     thereof'';
       (3) in subsection (b)(3)(E) by inserting ``or the tribe's'' 
     after ``the State''; and
       (4) in subsection (b)(5) by inserting ``or of an Indian 
     tribe'' after ``an agency of a State or political subdivision 
     thereof''.
       (c) State Law Coverage.--Section 3309 of the Internal 
     Revenue Code of 1986 (relating to State law coverage of 
     services performed for nonprofit organizations or 
     governmental entities) is amended by adding at the end the 
     following new subsection:
       ``(d) Election by Indian Tribe.--The State law shall 
     provide that an Indian tribe may elect to make contributions 
     for employment as if the employment is within the meaning of 
     section 3306 of the Internal Revenue Code of 1986 or to make 
     payments in lieu of contributions under this section, and 
     shall provide that an Indian tribe may make separate 
     elections for itself and each subdivision, subsidiary, or 
     business enterprise chartered and wholly owned by such Indian 
     tribe. State law may require an electing tribe to post a 
     payment bond or take other reasonable measures to assure the 
     making of payments in lieu of contributions under this 
     section.''.
       (d) Definitions.--Section 3306 of the Internal Revenue Code 
     of 1986 (relating to definitions) is amended by adding at the 
     end the following new subsection:
       ``(t) Indian Tribe.--For purposes of this chapter, the term 
     ``Indian tribe'' has the meaning given to such term by 
     section 4(e) of the Indian Self-Determination and Education 
     Assistance Act (25 U.S.C. 450b(e)), and includes any 
     subdivision, subsidiary, or business enterprise chartered and 
     wholly owned by such an Indian tribe.''
       (e) Transition Rule.--For purposes of the Federal 
     Unemployment Tax Act, service performed in the employ of an 
     Indian tribe (as defined in section 3306(t) of the Internal 
     Revenue Code of 1986 (as added by this Act)) shall not be 
     treated as employment (within the meaning of section 3306 of 
     such Code) if--
       (1) it is service which is performed before the date of 
     enactment of this Act and with respect to which the tax 
     imposed under the Federal Unemployment Tax Act has not been 
     paid; and
       (2) such Indian tribe reimburses a State unemployment fund 
     for unemployment benefits paid for service attributable to 
     such tribe for such period.
                                                                    ____


  Section-by-Section Analysis--Indian Tribal Government Unemployment 
             Compensation Act Tax Relief Amendments of 1995

       Section 1 sets forth the short title of the Act.
       Section 2. Treatment of Indian Tribal Governments Under 
     Federal Unemployment Tax Act.
       Subsection 2(a) In General.--This subsection (a) amends 
     section 3306(c)(7) of the Internal Revenue Code. Section 
     3306(c)(7) provides an exemption from the 0.8% federal 
     unemployment tax for employment for a state, any of its 
     political subdivisions, or any of its wholly-owned 
     instrumentalities. This subsection of the bill would make 
     employment for a tribal government or any political 
     subdivision or wholly tribally owned subsidiary thereof 
     likewise exempt from the 0.8% federal unemployment tax.
       Subsection 2(b). Payments in Lieu of Contributions.--This 
     subsection amends several 

[[Page S 14905]]
     provisions of section 3309 of the Internal Revenue Code. Section 
     3309(a)(2) of the Internal Revenue Code now requires a state 
     unemployment fund to offer coverage and benefits to employees 
     of a state government, its political subdivisions and wholly-
     owned instrumentalities, and to employees of a religious, 
     charitable, educational or other income tax exempt 
     organization described in Section 501(c)(3) of the Internal 
     Revenue Code. These employers may then elect to either pay a 
     flat tax rate as do private, for-profit commercial 
     businesses, or to make contributions, on a reimbursable 
     basis, for all benefits paid out to their former employees.
       Subsection 2(b)(1) of the bill would provide the same 
     options to a tribal government or any political subdivision 
     or wholly tribally owned subsidiary thereof. Section 
     3309(b)(3)(B) of the Internal Revenue Code now exempts from 
     all unemployment taxes service performed by members of a 
     State or political subdivision legislative body or judiciary.
       Subsection 2(b)(2) of the bill would provide the same 
     exemption to a tribal government's legislative body or 
     judiciary. Section 3309(b)(3)(E) of the Internal Revenue Code 
     now exempts from all unemployment taxes service designated by 
     State law to be a major nontenured policymaking or advisory 
     position or a policymaking or advisory position that 
     ordinarily does not require more than 8 hours per week.
       Subsection 2(b)(3) of the bill would provide the same 
     exemption to the same service so designated by tribal law. 
     Section 3309(b)(5) of the Internal Revenue Code now exempts 
     from all unemployment taxes service that is part of an 
     unemployment work-relief or work-training program assisted or 
     financed in whole or in part by any Federal or state agency.
       Subsection 2(b)(4) of the bill would provide the same 
     exemption to the same service assisted or financed in whole 
     or in part by a tribal government.
       Subsection 2(c). State Law Coverage.--This subsection adds 
     a new subsection to section 3309 of the Internal Revenue 
     Code. Section 3309 contains provisions relating to State law 
     coverage of services performed for non-profit organizations 
     or governmental entities. Subsection (e) of the bill extends 
     to tribal governments and their subsidiaries certain 
     flexibilities now extended to other governments and to 
     charitable organizations. The new subsection provides that a 
     state must permit a tribe to choose to pay the comparable tax 
     rate paid by commercial businesses under the Act, or to 
     choose to reimburse, like other governments and charitable 
     organizations, the State fund in lieu of such contributions 
     with amounts equal to the compensation attributable under 
     State law to such service. The new subsection also provides 
     that a tribe may make separate elections for itself and one 
     or more of its enterprises, subsidiaries, or subdivisions.
       Subsection 2(d). Definitions.--This subsection amends 
     section 3306 of the Internal Revenue Code. Section 3306 
     contains definitions relating to the Federal Unemployment Tax 
     Act provisions. Subsection (c) of the bill would add a 
     definition of an ``Indian tribe'' to mean for these purposes 
     a federally recognized Indian tribal government, adopting the 
     same definition of a tribe as that used in 25 U.S.C. 450b(e), 
     the Indian Self-Determination Act. The bill clarifies that, 
     just as the subdivisions of a state government are included 
     within the definition of a state, and consistent with federal 
     Indian law provisions recognizing the unique nature of tribal 
     government, included within the bill's definition of a tribe 
     are its subdivisions, subsidiaries and enterprises wholly 
     owned by the tribal government.
       Subsection 2(e). Transition Rule.--This subsection of the 
     bill provides tax relief to those tribal governments who in 
     good faith did not pay federal or state unemployment taxes 
     deemed due by the U.S. Internal Revenue Service under the 
     Federal Unemployment Tax Act. It ceases all federal 
     assessment and collection actions aimed at extracting non-
     federal funds from tribal governments who have not paid 
     unemployment taxes provided they reimburse a state fund for 
     all benefits paid to otherwise eligible former tribal 
     employees during this period of non-payment. This relief is 
     available only for periods prior to the date of enactment of 
     this bill. The bill does not authorize refund actions for 
     taxes already paid nor relief from a tribe's obligation to 
     reimburse a state unemployment fund for benefits paid to 
     former tribal employees.

                                S. 1306

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Tribal Government Tax-Exempt 
     Bond Authority Amendments Act of 1995''.

     SEC. 2. MODIFICATIONS OF AUTHORITY OF INDIAN TRIBAL 
                   GOVERNMENTS TO ISSUE TAX-EXEMPT BONDS.

       (a) General Provision.--Subsection (c) of section 7871 of 
     the Internal Revenue Code of 1986 (relating to Indian tribal 
     governments treated as States for certain purposes) is 
     amended to read as follows:
       ``(c) Additional Requirements for Tax-Exempt Bonds.--
       ``(1) In general.--Subsection (a) of section 103 shall 
     apply to any obligation issued by an Indian tribal government 
     (or subdivision thereof) only if such obligation is part of 
     an issue 95 percent or more of the net proceeds of which are 
     to be used to finance facilities located on land within or in 
     close proximity to the exterior boundaries of an Indian 
     reservation.
       ``(2) Private activity bonds.--Any private activity bond 
     (as defined in section 141(a)) issued by an Indian tribal 
     government (or subdivision thereof) shall be treated as a 
     qualified bond for purposes of section 103(b)(1) to which 
     section 146 does not apply if--
       ``(A) General restrictions.--The requirements of section 
     144(a)(8)(B) and section 147 are met with respect to the 
     issue.
       ``(B) Specific restrictions.--
       ``(i) Ownership.--In the case of an issue the net proceeds 
     of which exceed $500,000, 50 percent or more of the profits  
     or capital interests in the facilities to be financed 
     thereby (or in the entity owning the facilities) are owned 
     either by an Indian tribe, a subdivision thereof, a 
     corporation chartered under section 17 of the Indian 
     Reorganization Act of 1934 (25 U.S.C. 477) or section 3 of 
     the Oklahoma Welfare Act (25 U.S.C. 503), individual 
     enrolled members of an Indian tribe, an entity wholly-
     owned by any of the foregoing, or any combination thereof.
       ``(ii) Employment test.--It is reasonably expected (at the 
     time of issuance of the obligations) that for each $100,000 
     of net proceeds of the issue at least 1 employee rendering 
     services at the financed facilities is an enrolled member of 
     an Indian tribe or the spouse of an enrolled member of an 
     Indian tribe.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Indian tribe.--The term `Indian tribe' means any 
     Indian tribe, band, nation, pueblo, or other organized group 
     or community, including any Alaska Native village, or 
     regional or village corporation, as defined in, or 
     established pursuant to, the Alaska Native Claims Settlement 
     Act (43 U.S.C. 1601 et seq.) which is recognized as eligible 
     for the special programs and services provided by the United 
     States to Indians because of their status as Indians.
       ``(B) Indian reservation.--The term `Indian reservation' 
     means a reservation, as defined in--
       ``(i) section 3(d) of the Indian Financing Act of 1974 (25 
     U.S.C. 1452(d)); or
       ``(ii) section 4(10) of the Indian Child Welfare Act of 
     1978 (25 U.S.C. 1903(10)).
       ``(C) In close proximity to.--The term `in close proximity 
     to' means--
       ``(i) in the case of an Indian reservation, or portion 
     thereof, located within a metropolitan statistical area 
     (within the meaning of section 143(k)(2)(B)), within 1 mile 
     of the boundaries of such reservation, or portion thereof; 
     and
       ``(ii) in the case of an Indian reservation, or portion 
     thereof, located within a nonmetropolitan area (as defined in 
     section 42(d)(5)(C)(iv)(IV)), within 15 miles of the 
     boundaries of such reservation, or portion thereof.
       ``(D) Net proceeds.--The term `net proceeds' has the 
     meaning given such term by section 150(a)(3).''.
       (b) Conforming Amendment.--Paragraph (3) of section 149(b) 
     of the Internal Revenue Code of 1986 (relating to federally 
     guaranteed bond is not exempt) is amended by redesignating 
     subparagraph (D) as subparagraph (E) and by inserting after 
     subparagraph (C) the following new subparagraph:
       ``(D) Exception for bonds issued by indian tribal 
     governments.--Paragraph (1) shall not apply to any bond 
     issued by an Indian tribal government (or subdivision 
     thereof) unless it is federally guaranteed within the meaning 
     of paragraph (2)(B)(ii).''.

     SEC. 3. EXEMPTION FROM REGISTRATION REQUIREMENTS.

       The first sentence of section 3(a)(2) of the Securities Act 
     of 1933 (15 U.S.C. 77c(a)(2)) is amended by inserting ``or by 
     any Indian tribal government or subdivision thereof (within 
     the meaning of section 7871 of the Internal Revenue Code of 
     1986),'' after ``or territories,''.

     SEC. 4. EFFECTIVE DATE.

       The amendments made by this Act shall apply to obligations 
     issued after the date of the enactment of this Act.
                                                                    ____


    Section-by-Section Analysis--Tribal Government Tax-Exempt Bond 
                    Authority Amendments Act of 1995

       Section 1 sets forth the short title of the Act.
       Section 2 amends Section 7871 of the Internal Revenue Code 
     (relating to Indian tribal governments treated as States for 
     certain purposes) by applying existing tax-exempt bond 
     authority in Section 103(a) to those obligations issued by an 
     Indian tribal government, or its subdivision, that are part 
     of an issue 95 percent or more of the net proceeds of which 
     are to be used to finance facilities located on land within 
     or in close proximity to an Indian reservation. It would 
     replace the current restrictions on the issuance of tax-
     exempt bonds by tribes and tribal subdivisions with a 
     provision that such bonds are to be issued under slightly 
     more restrictive conditions than those that now apply to 
     States and their political subdivisions.
       Section 3 amends section 3(a)(2) of the Securities Act of 
     1993 to exempt from the general registration requirements, as 
     are other governmental bonds, those bonds issued under 
     authority of these amendments.
       Section 4 provides that these amendments shall apply to 
     obligations issued after the date of enactment of this bill.
                                                                    ____

                                  
[[Page S 14906]]


                                S. 1307

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Treatment of Indian Tribal 
     Natural Resource Income Act of 1995''.

     SEC. 2. FEDERAL TAX TREATMENT OF INCOME DERIVED BY INDIANS 
                   FROM NATURAL RESOURCES ACTIVITIES.

       (a) In General.--Subchapter C of chapter 80 of the Internal 
     Revenue Code of 1986 (relating to provisions affecting more 
     than one subtitle) is amended by adding at the end the 
     following new section:

     ``SEC. 7874. FEDERAL TAX TREATMENT OF INCOME DERIVED BY 
                   INDIANS FROM THE HARVEST OF TRIBALLY OWNED 
                   NATURAL RESOURCES.

       ``(a) In General.--
       ``(1) Income and self-employment taxes.--No tax shall be 
     imposed by subtitle A on income derived from a natural 
     resources-related activity conducted--
       ``(A) by a member of an Indian tribe directly or through a 
     qualified Indian entity; or
       ``(B) by a qualified Indian entity.
       ``(2) Employment taxes.--No tax shall be imposed by 
     subtitle C on remuneration paid for services performed in 
     natural resources-related activity by one member of a tribe 
     for another member of such tribe or for a qualified Indian 
     entity.
       ``(b) Definitions.--For purpose of this section.
       ``(1) Natural resources-related activity.--The term 
     `natural resources-related activity' means, with respect to 
     an Indian tribe, any activity directly related to 
     cultivating, harvesting, processing, extracting, or 
     transporting natural resources held in trust by the United 
     States for the benefit of such tribe or directly related 
     to selling such natural resources but only if 
     substantially all of the selling activity is performed by 
     members of such tribe.
       ``(2) Qualified indian entity.--
       ``(A) In general.--The term `qualified Indian entity' means 
     an entity--
       ``(i) engaged in a natural resources-related activity of 
     one or more Indian tribes;
       ``(ii) all of whose equity interests are owned by such 
     tribes or members of such tribes; and
       ``(iii) substantially all of the management functions of 
     the entity are performed by members of such tribes.
       ``(B) Entities engaged in processing or transportation.--
     Except as provided in regulations similar to regulations in 
     effect under section 7873(b)(3)(A)(iii) on the date of the 
     enactment of this section, if an entity is engaged to any 
     extent in any processing or transporting of natural 
     resources, the term `qualified Indian entity' shall also 
     include an entity whose annual gross receipts are 90 percent 
     or more derived from natural resources-related activities of 
     one or more Indian tribes each of which owns at least 10 
     percent of the equity interests in the entity. For purposes 
     of this subparagraph, equity interests owned by a member of 
     such a tribe shall be treated as owned by the tribe.
       ``(c) Special Rules.--
       ``(1) Distributions from qualified indian entity.--For 
     purposes of this section, any distribution with respect to an 
     equity interest in a qualified Indian entity of one or more 
     Indian tribes to a member of one of such tribes shall be 
     treated as derived by such member from a natural resources-
     related activity to the extent such distribution is 
     attributable to income derived by such entity from a natural 
     resources-related activity.
       ``(2) De minimis unrelated amounts may be excluded.--If, 
     but for this paragraph, all but a de minimis amount derived 
     by a qualified Indian tribal entity or by a tribal member 
     through such entity, or paid to an individual for services, 
     would be entitled to the benefits of subsection (a), then the 
     entire amount shall be so entitled.
       ``(d) No Inference Created.--Nothing in this title shall 
     create any inference as to the existence or non-existence or 
     scope of any exemption from tax for income derived from 
     tribal rights secured as of January 1, 1995, by any treaty, 
     law, or Executive Order.''.
       (b) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 of such Code is amended by adding 
     at the end the following new item:

``Sec. 7874. Federal tax treatment of income derived by Indians from 
              the harvest of tribally owned natural resources.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to periods before, on, or after the date of the 
     enactment of this Act.
                                                                    ____


    Section-by-Section Analysis--Treatment of Indian Tribal Natural 
                      Resource Income Act of 1995

       Section 1 sets forth the short title of the Act.
       Section 2 amends subchapter C of chapter 80 of the Internal 
     Revenue Code to add a new section 7874 which would provide 
     individual members of Federally-recognized tribal governments 
     with an exemption from Federal income and employments taxes 
     on income derived from certain economic activities related to 
     natural resources held in trust for a tribe by the United 
     States. These activities include those directly related to 
     cultivating, harvesting, processing, extracting, or 
     transporting such trust resources, and the selling of such 
     resources if substantially all of the selling activity is 
     performed by tribal members. The exemption covers both self-
     employment income and income paid to an individual by a 
     qualified Indian entity, which by definition is limited to an 
     entity engaged in such activity that is owned and controlled 
     by a tribe or members of a tribe. Unless regulations in 
     effect upon the date of enactment provide otherwise, income 
     from entities engaged in processing or transportation is also 
     exempt if the entity's gross receipts are 90 percent or more 
     derived from the trust resources of one or more tribes each 
     of which owns at least 10 percent of the equity interests in 
     the entity. To the extent that it is derived from such a 
     natural resources activity, individual income from a 
     distribution made by a tribe to its members from an equity 
     interest in a qualified Indian entity is treated as exempt.
       Section 2(b) sets forth a conforming amendment to the table 
     of sections in the Internal Revenue Code.
       Section 2(c) provides that these amendments shall apply to 
     periods before, on, or after the date of enactment of the 
     Act.

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