[Congressional Record Volume 142, Number 44 (Wednesday, March 27, 1996)]
[House]
[Pages H2951-H2965]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               AMENDMENTS

  Under clause 6 of rule XXIII, proposed amendments were submitted as 
follows:

                               H.R. 3103

                        Offered By: Mr. Dingell

       Amendment No. 2: Strike all after the enacting clause and 
     insert the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Health Insurance Reform Act 
     of 1996''.

       TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

                       TABLE OF CONTENTS OF TITLE

Sec. 100. Definitions.

                     Subtitle A--Group Market Rules

Sec. 101. Guaranteed availability of health coverage.
Sec. 102. Guaranteed renewability of health coverage.
Sec. 103. Portability of health coverage and limitation on preexisting 
              condition exclusions.
Sec. 104. Special enrollment periods.
Sec. 105. Disclosure of information.

                  Subtitle B--Individual Market Rules

Sec. 110. Individual health plan portability.
Sec. 111. Guaranteed renewability of individual health coverage.
Sec. 112. State flexibility in individual market reforms.
Sec. 113. Definition.

                    Subtitle C--COBRA Clarifications

Sec. 121. Cobra clarification.

        Subtitle D--Private Health Plan Purchasing Cooperatives

Sec. 131. Private health plan purchasing cooperatives.

          Subtitle E--Application and Enforcement of Standards

Sec. 141. Applicability.
Sec. 142. Enforcement of standards.

                  Subtitle F--Miscellaneous Provisions

Sec. 191. Health coverage availability study.
Sec. 192. Effective date.
Sec. 193. Severability.

     SEC. 100. DEFINITIONS.

       As used in this title:
       (1) Beneficiary.--The term ``beneficiary'' has the meaning 
     given such term under section 3(8) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(8)).
       (2) Employee.--The term ``employee'' has the meaning given 
     such term under section 3(6) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(6)).
       (3) Employer.--The term ``employer'' has the meaning given 
     such term under section 3(5) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(5)), except that 
     such term shall include only employers of two or more 
     employees.
       (4) Employee health benefit plan.--
       (A) In general.--The term ``employee health benefit plan'' 
     means any employee welfare benefit plan, governmental plan, 
     or church plan (as defined under paragraphs (1), (32), and 
     (33) of section 3 of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1002 (1), (32), and (33))) that 
     provides or pays for health benefits (such as provider and 
     hospital benefits) for participants and beneficiaries 
     whether--
       (i) directly;
       (ii) through a group health plan offered by a health plan 
     issuer as defined in paragraph (8); or
       (iii) otherwise.
       (B) Rule of construction.--An employee health benefit plan 
     shall not be construed to be a group health plan, an 
     individual health plan, or a health plan issuer.
       (C) Arrangements not included.--Such term does not include 
     the following, or any combination thereof:
       (i) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (ii) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).
       (iii) Coverage issued as a supplement to liability 
     insurance.
       (iv) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (v) Workers compensation or similar insurance.
       (vi) Automobile medical payment insurance.
       (vii) Coverage for a specified disease or illness.
       (viii) Hospital or fixed indemnity insurance.
       (ix) Short-term limited duration insurance.
       (x) Credit-only, dental-only, or vision-only insurance.
       (xi) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.
       (5) Family.--
       (A) In general.--The term ``family'' means an individual, 
     the individual's spouse, and the child of the individual (if 
     any).
       (B) Child.--For purposes of subparagraph (A), the term 
     ``child'' means any individual who is a child within the 
     meaning of section 151(c)(3) of the Internal Revenue Code of 
     1986.
       (6) Group health plan.--
       (A) In general.--The term ``group health plan'' means any 
     contract, policy, certificate or other arrangement offered by 
     a health plan issuer to a group purchaser that provides or 
     pays for health benefits (such as provider and hospital 
     benefits) in connection with an employee health benefit plan.
       (B) Arrangements not included.--Such term does not include 
     the following, or any combination thereof;
       (i) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (ii) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).
       (iii) Coverage issued as a supplement to liability 
     insurance.
       (iv) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (v) Workers compensation or similar insurance.
       (vi) Automobile medical payment insurance.
       (vii) Coverage for a specified disease or illness.
       (ix) Short-term limited duration insurance.
       (x) Credit-only, dental-only, or vision-only insurance.
       (xi) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.
       (7) Group purchaser.--The term ``group purchaser'' means 
     any person (as defined under paragraph (9) of section 3 of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1002(9)) or entity that purchases or pays for health 
     benefits (such as provider or hospital benefits) on behalf of 
     two or more participants or beneficiaries in connection with 
     an employee health benefit plan. A health plan purchasing 
     cooperative established under section 131 shall not be 
     considered to be a group purchaser.
       (8) Health plan issuer.--The term ``health plan issuer'' 
     means any entity that is licensed (prior to or after the date 
     of enactment of this Act) by a State to offer a group health 
     plan or an individual health plan.
       (9) Health status.--The term ``health status'' includes. 
     with respect to an individual, medical condition, claims 
     experience, receipt of health care, medical history, genetic 
     information, evidence of insurability (including conditions 
     arising out of acts of domestic violence), or disability.
       (10) Participant.--The term ``participant'' has the meaning 
     given such term under section 3(7) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(7)).
       (11) Plan sponsor.--The term ``plan sponsor'' has the 
     meaning given such term under section 3(16)(B) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1002(16)(B)).
       (12) Secretary.--The term ``Secretary'', unless 
     specifically provided otherwise, means the Secretary of 
     Labor.
       (13) State.--The term ``State'' means each of the several 
     States, the District of Columbia, Puerto Rico, the United 
     States Virgin Islands, Guam, American Samoa, and the 
     Commonwealth of the Northern Mariana Islands.

                     Subtitle A--Group Market Rules

     SECTION 101. GUARANTEED AVAILABILITY OF HEALTH COVERAGE.

       In General.--
       (1) Nondiscrimination.--Except as provided in subsection 
     (b), section 102 and section 103--
       (A) a health plan issuer offering a group health plan may 
     not decline to offer whole group coverage to a group 
     purchaser desiring to purchase such coverage; and
       (B) an employee health benefit plan or a health plan issuer 
     offering a group health plan may establish eligibility, 
     continuation of eligibility, enrollment, or premium; 
     contribution requirements under the terms of such plan, 
     except that such requirements shall not be based on health 
     status (as defined in section 100(9)).

[[Page H2952]]

       (2) Health promotion and disease prevention.--Nothing in 
     this subsection shall prevent an employee health benefit plan 
     or a health plan issuer from establishing premium; discounts 
     or modifying otherwise applicable copayments or deductibles 
     in return for adherence to programs of health promotion and 
     disease prevention.
       (b) Application of Capacity Limits.--
       (1) In general.--Subject to paragraph (2), a health plan 
     issuer offering a group health plan may cease offering 
     coverage to group purchasers under the plan if--
       (A) the health plan issuer ceases to offer coverage to any 
     additional group purchasers; and
       (B) the health plan issuer can demonstrate to the 
     applicable certifying authority (as defined in section 
     142(d)), if required, that its financial or provider capacity 
     to serve previously covered participants and beneficiaries 
     (and additional participants and beneficiaries who will be 
     expected to enroll because of their affiliation with a group 
     purchaser or such previously covered participants or 
     beneficiaries) will be impaired if the health plan issuer is 
     required to offer coverage to additional group purchasers.

     Such health plan issuer shall be prohibited from offering 
     coverage after a cessation in offering coverage under this 
     paragraph for a 6-month period or until the health plan 
     issuer can demonstrate to the applicable certifying authority 
     (as defined in section 142(d)) that the health plan issuer 
     has adequate capacity, whichever is later.
       (2) First-come-first-served.--A health plan issuer offering 
     a group health plan is only eligible to exercise the 
     limitations provided for in paragraph (1) if the health plan 
     issuer offers coverage to group purchasers under such plan on 
     a first-come-first-served basis or other basis established by 
     a State to ensure a fair opportunity to enroll in the plan 
     and avoid risk selection.
       (e) Construction.--
       (1) Marketing of group health plans.--Nothing in this 
     section shall be construed to prevent a State from requiring 
     health plan issuers offering group health plans to actively 
     market such plans.
       (2) Involuntary offering of group health plans.--Nothing is 
     this section shall be construed to require a health plan 
     issuer to involuntarily offer group health plans in a 
     particular market. For the purposes of this paragraph, the 
     term ``market'' means either the large employer market or the 
     small employer market (as defined under applicable State law, 
     or if not so defined, an employer with not more than 50 
     employees).

     SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COVERAGE.

       (A) In General.--
       (1) Group purchaser.--Subject to subsections (b) and (c), a 
     group health plan shall be renewed or continued in force by a 
     health plan issuer at the option of the group purchaser, 
     except that the requirement of this subparagraph shall not 
     apply in the case of--
       (A) the nonpayment of premiums or contributions by the 
     group purchaser in accordance with the terms of the group 
     health plan or where the health plan issuer has not received 
     timely premium payments;
       (B) fraud or misrepresentation of material fact on the part 
     of the group purchaser;
       (C) the termination of the group health plan in accordance 
     with subsection (b); or
       (D) the failure of the group purchaser to meet contribution 
     or participation requirements in accordance with paragraph 
     (3).
       (2) Paricipant.--Subject to subsections (b) and (c), 
     coverage under an employee health benefit plan or group 
     health plan shall be renewed or continued in force, if the 
     group purchaser elects to continue to provide coverage under 
     such plan, at the option of the participant (or beneficiary 
     where such right exists under the terms of the plan or under 
     applicable law), except that the requirement of this 
     paragraph shall not apply in the case of--
       (A) the nonpayment of premiums or contributions by the 
     participant or beneficiary in accordance with the terms of 
     the employee health benefit plan or group health plan or 
     where such plan has not received timely premium payments.
       (B) fraud or misrepresentation of material fact on the part 
     of the participant or beneficiary relating to an application 
     for coverage or claim for benefits;
       (C) the termination of the employee health benefit plan or 
     group health plan;
       (D) loss of eligibility for continuation coverage as 
     described in part 6 of subtitle B of title I of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1161 et 
     seq.); or
       (E) failure of a participant or beneficiary to meet 
     requirements for eligibility for coverage under an employee 
     health benefit plan or group health plan that are not 
     prohibited by this title.
       (3) Rules of construction.--Nothing in this subsection, nor 
     in section 101(a), shall be construed to--
       (A) preclude a health plan issuer from establishing 
     employer contribution rules or group participation rules for 
     group health plans as allowed under applicable State law;
       (B) preclude a plan defined in section 3(37) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1102(37)) from establishing employer contribution rules or 
     group participation rules; or
       (C) permit individuals to decline coverage under an 
     employee health benefit plan if such right is not otherwise 
     available under such plan.
       (b) Termination of Group Health Plans.--
       (1) Particular type of group health plan not offered.--In 
     any case in which a health plan issuer decides to discontinue 
     offering a particular type of group health plan. A group 
     health plan of such type may be discontinued by the health 
     plan issuer only if--
       (A) the health plan issuer provides notice to each group 
     purchaser covered under a group health plan of this type (and 
     participants and beneficiaries covered under such group 
     health plan) of such discontinuation at least 90 days prior 
     to the date of the discontinuation of such plan;
       (B) the health plan issuer offers to each group purchaser 
     covered under a group health plan of this type, the option to 
     purchase any other group health plan currently being offered 
     by the health plan issuer; and
       (C) in exercising the option to discontinue a group health 
     plan of this type and in offering one or more replacement 
     plans, the health plan issuer acts uniformly without regard 
     to the health status of participants or beneficiaries covered 
     under the group health plan, or new participants or 
     beneficiaries who may become eligible for coverage under the 
     group health plan.
       (2) Discontinuance of all group health plans.--
       (A) In general.--In any case in which a health plan issuer 
     elects to discontinue offering all group health plans in a 
     State, a group health plan may be discontinued by the health 
     plan issuer only if--
       (i) the health plan issuer provides notice to the 
     applicable certifying authority (as defined in section 
     142(d)) and to each group purchaser (and participants and 
     beneficiaries covered under such group health plan) of such 
     discontinuation at least 180 days prior to the date of the 
     expiration of such plan, and
       (ii) all group health plans issued or delivered for 
     issuance in the State or discontinued and coverage under such 
     plans is not renewed.
       (B) Application of provisions.--The provisions of this 
     paragraph and paragraph (3) may be applied separately by a 
     health plan issuer--
       (i) to all group health plans offered to small employers 
     (as defined under applicable State law, or if not so defined, 
     an employer with not more than 50 employees); or
       (ii) to all other group health plans offered by the health 
     plan issuer in the State.
       (3) Prohibition on market reentry.--In the case of a 
     discontinuation under paragraph (2), the health plan issuer 
     may not provide for the issuance of any group health plan in 
     the market sector (as described in paragraph (2)(B)) in which 
     issuance of such group health plan was discontinued in the 
     State involved during the 5-year period beginning on the date 
     of the discontinuation of the last group health plan not so 
     renewed.
       Treatment of Network Plans.--
       (1) Geographic limitations.--A network plan (as defined in 
     paragraph (2)) may deny continued participation under such 
     plan to participants or beneficiaries who neither live, 
     reside, nor work in an area in which such network plan is 
     offered, but only if such denial is applied uniformly, 
     without regard to health status of particular participants or 
     beneficiaries.
       (2) Network plan.--As used in paragraph (1), the term 
     ``network plan'' means an employee health benefit plan or a 
     group health plan that arranges for the financing and 
     delivery of health care services to participants or 
     beneficiaries covered under such plan, in whole or in part, 
     through arrangements with providers.
       (d) COBRA Coverage.--Nothing in subsection (a)(2)(E) or 
     subsection (c) shall be construed to affect any right to 
     COBRA continuation coverage as described in part 6 of 
     subtitle B of title I of the employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1161 et seq.).

     SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMITATION ON 
                   PREEXISTING CONDITION EXCLUSIONS.

       (a) In General.--An employee health benefit plan or a 
     health plan issuer offering a group health plan may impose a 
     limitation or exclusion of benefits relating to treatment of 
     a preexisting condition based on the fact that the condition 
     existed prior to the coverage of the participant or 
     beneficiary under the plan only if--
       (1) the limitation or exclusion extends for a period of not 
     more than 12 months after the date of enrollment in the plan;
       (2) the limitation or exclusion does not apply to an 
     individual who, within 30 days of the date of birth or 
     placement for adoption (as determined under section 
     609(c)(3)(B) of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1169(c)(3)(B)), was covered under the 
     plan; and
       (3) the limitation or exclusion does not apply to a 
     pregnancy.
       (b) Crediting of Previous Qualifying Coverage.--
       (1) In general.--Subject to paragraph (4), an employee 
     health benefit plan or a health plan issuer offering a group 
     health plan shall provide that if a participant or 
     beneficiary is in a period of previous qualifying coverage as 
     of the date of enrollment under such plan, any period of 
     exclusion or limitation of coverage with respect to a 
     preexisting condition shall be reduced by 1 month for each 
     month in which the participant or beneficiary was in the 
     period of previous qualifying coverage. With respect to an 
     individual described in subsection (a)(2) who maintains 
     continuous coverage, no limitation or exclusion of benefits 
     relating to treatment of a preexisting condition may be 
     applied to a child within

[[Page H2953]]

     the child's first 12 months of life or within 12 months after 
     the placement of a child for adoption.
       (2) Discharge of duty.--An employee health benefit plan 
     shall provide documentation of coverage to participants and 
     beneficiaries who coverage is terminated under the plan. 
     Pursuant to regulations promulgated by the Secretary, the 
     duty of an employee health benefit plan to verify previous 
     qualifying coverage with respect to a participant or 
     beneficiary is effectively discharged when such 
     employee health benefit plan provides documentation to a 
     participant or beneficiary that includes the following 
     information:
       (A) the dates that the participant or beneficiary was 
     covered under the plan; and
       (B) the benefits and cost-sharing arrangement available to 
     the participant or beneficiary under such plan.
     An employee health benefit plan shall retain the 
     documentation provided to a participant or beneficiary under 
     subparagraphs (A) and (B) for at least the 12-month period 
     following the date on which the participant or beneficiary 
     ceases to be covered under the plan. Upon request, an 
     employee health benefit plan shall provide a second copy of 
     such documentation or such participant or beneficiary within 
     the 12-month period following the date of such ineligibility.
       (3) Definitions.--As used in this section:
       (A) Previous qualifying coverage.--The term ``previous 
     qualifying coverage'' means the period beginning on the 
     date--
       (i) a participant or beneficiary is enrolled under an 
     employee health benefit plan or a group health plan, and 
     ending on the date the participant or beneficiary is not so 
     enrolled; or
       (ii) an individual is enrolled under an individual health 
     plan (as defined in section 113) or under a public or private 
     health plan established under Federal or State law, and 
     ending on the date the individual is not so enrolled;

     for a continuous period of more than 30 days (without regard 
     to any waiting period).
       (B) Limitation or exclusion of benefits relating to 
     treatment of a preexisting condition.--The term ``limitation 
     or exclusion of benefits relating to treatment of a 
     preexisting condition'' means a limitation or exclusion of 
     benefits imposed on an individual based on a preexisting 
     condition of such individual.
       (4) Effect of previous coverage.--An employee health 
     benefit plan or a health plan issuer offering a group health 
     plan may impose a limitation or exclusion of benefits 
     relating to the treatment of a preexisting condition, subject 
     to the limits in subsection (a)(1), only to the extent that 
     such service or benefit was not previously covered under the 
     group health plan, employee health benefit plan, or 
     individual health plan in which the participant or 
     beneficiary was enrolled immediately prior to enrollment in 
     the plan involved.
       (c) Late Enrollees.--Except as provided in section 104, 
     with respect to a participant or beneficiary enrolling in an 
     employee health benefit plan or group health plan during a 
     time that is other than the first opportunity to enroll 
     during an enrollment period of at least 30 days, coverage 
     with respect to benefits or services relating to the 
     treatment of a preexisting condition in accordance with 
     subsection (a) and (b) may be excluded except the period of 
     such exclusion may not exceed 18 months beginning on the date 
     of coverage under the plan.
       (d) Affiliation Periods.--With respect to a participant or 
     beneficiary who would otherwise be eligible to receive 
     benefits under an employee health benefit plan or a group 
     health plan but for the operation of a preexisting condition 
     limitation or exclusion, if such plan does not utilize a 
     limitation or exclusion of benefits relating to the treatment 
     of a preexisting condition, such plan may impose an 
     affiliation period on such participant or beneficiary not to 
     exceed 60 days (or in the case of a late participant or 
     beneficiary described in subsection (c), 90 days) from the 
     date on which the participant or beneficiary would otherwise 
     be eligible to receive benefits under the plan. An employee 
     health benefit plan or a health plan issuer offering a group 
     health plan may also use alternative methods to address 
     adverse section as approved by the applicable certifying 
     authority (as defined in section 142(d)). During such an 
     affiliation period, the plan may not be required to provide 
     health care services or benefits and no premium shall be 
     charged to the participant or beneficiary.
       (e) Preexisting Conditions.--For purposes of this section, 
     the term ``preexisting condition'' means a condition, 
     regardless of the cause of the condition, for which medical 
     advice, diagnosis, care, or treatment was recommended or 
     received within the 6-month period ending on the day before 
     the effective date of the coverage (without regard to any 
     waiting period).
       (f) State Flexibility.--Nothing in this section shall be 
     construed to preempt State laws that--
       (1) require health plan issuers to impose a limitation or 
     exclusion of benefits relating to the treatment of a 
     preexisting condition for periods that are shorter than those 
     provided for under this section; or
       (2) allow individuals, participants, and beneficiaries to 
     be considered to be in a period of previous qualifying 
     coverage if such individual, participant, or beneficiary 
     experiences a lapse in coverage that is greater than the 30-
     day period provided for under subsection (b)(3);

     unless such laws are preempted by section 514 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1144).

     SEC. 104. SPECIAL ENROLLMENT PERIODS.

       In the case of a participant, beneficiary or family member 
     who--
       (1) through marriage, separation, divorce, death, birth or 
     placement of a child for adoption, experiences a change in 
     family composition affecting eligibility under a group health 
     plan, individual health plan, or employee health benefit 
     plan;
       (2) experiences a change in employment status, as described 
     in section 603(2) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1163(2)), that causes the loss of 
     eligibility for coverage, other than COBRA continuation 
     coverage under a group health plan, individual health plan, 
     or employee health benefit plan; or
       (3) experiences a loss of eligibility under a group health 
     plan, individual health plan, or employee health benefit plan 
     because of a change in the employment status of a family 
     member;

     each employee health benefit plan and each group health plan 
     shall provide for a special enrollment period extending for a 
     reasonable time after such event that would permit the 
     participant to change the individual or family basis of 
     coverage or to enroll in the plan if coverage would have been 
     available to such individual, participant, or beneficiary but 
     for failure to enroll during a previous enrollment period. 
     Such a special enrollment period shall ensure that a child 
     born or placed for adoption shall be deemed to be covered 
     under the plan as of the date of such birth or placement for 
     adoption if such child is enrolled within 30 days of the date 
     of such birth or placement for adoption.

     SEC. 105. DISCLOSURE OF INFORMATION.

       (a) Disclosure of Information by Health Plan Issuer.--
       (1) In general.--In connection with the offering of any 
     group health plan to a small employer (as defined under 
     applicable State law, or if not so defined, an employer with 
     not more than 50 employees), a health plan issuer shall make 
     a reasonable disclosure to such employer, as part of its 
     solicitation and sales materials, of--
       (A) the provisions of such group health plan concerning the 
     health plan issuer's right to change premium rates and the 
     factors that may affect changes in premium rates.
       (B) the provisions of such group health plan relating to 
     renewability of coverage;
       (C) the provisions of such group health plan relating to 
     any preexisting condition provision; and
       (D) descriptive information about the benefits and premiums 
     available under all group health plans for which the employer 
     is qualified.

     Information shall be provided to small employers under this 
     paragraph in a manner determined to be understandable by the 
     average small employer, and shall be sufficiently accurate 
     and comprehensive to reasonably inform small employers, 
     participants and beneficiaries of their rights and 
     obligations under the group health plan.
       (2) Exception.--With respect to the requirement of 
     paragraph (1), any information that is proprietary and trade 
     secret information under applicable law shall not be subject 
     to the disclosure requirements of such paragraph.
       (3) Construction.--Nothing in this subsection shall be 
     construed to preempt State reporting and disclosure 
     requirements to the extent that such requirements are not 
     preempted under section 514 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1144).
       (b) Disclosure of Information to Participants and 
     Beneficiaries.--
       (1) In general.--Section 104(b)(1) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) 
     is amended in the matter following subparagraph (B)--
       (A) by striking ``102(a)(1),'' and inserting ``102(a)(1) 
     that is not a material reduction in covered services or 
     benefits provided,''; and
       (B) by adding at the end thereof the following new 
     sentences: ``If there is a modification or change described 
     in section 102(a)(1) that is a material reduction in covered 
     services or benefits provided, a summary description of such 
     modification or change shall be furnished to participants not 
     later than 60 days after the date of the adoption of the 
     modification or change. In the alternative, the plan sponsors 
     may provide such description at regular intervals of not more 
     than 90 days. The Secretary shall issue regulations within 
     180 days after the date of enactment of the Health Insurance 
     Reform Act of 1996, providing alternative mechanisms to 
     delivery by mail through which employee health benefit plans 
     may notify participants of material reductions in covered 
     services or benefits.''.
       (2) Plan description and summary.--Section 102(b) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1022(b)) is amended--
       (A) by inserting ``including the office or title of the 
     individual who is responsible for approving or denying claims 
     for coverage of benefits'' after ``type of administration of 
     the plan'';
       (B) by inserting ``including the name of the organization 
     responsible for financing claims'' after ``source of 
     financing of the plan''; and
       (C) by inserting ``including the office, contact, or title 
     of the individual at the Department of Labor through which 
     participants

[[Page H2954]]

     may seek assistance or information regarding their rights 
     under this Act and title I of the Health Insurance Reform Act 
     of 1996 with respect to health benefits that are not offered 
     through a group health plan.'' after ``benefits under the 
     plan''.

                  Subtitle B--Individual Market Rules

     SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

       (a) Limitation on Requirements.--
       (1) In general.--Except as provided in subsections (b) and 
     (c), a health plan issuer described in paragraph (3) may not, 
     with respect to an eligible individual (as defined in 
     subsection (b)) desiring to enroll in an individual health 
     plan--
       (A) decline to offer coverage to such individual, or deny 
     enrollment to such individual based on the health status of 
     the individual; or
       (B) impose a limitation or exclusion of benefits otherwise 
     covered under the plan for the individual based on a 
     preexisting condition unless such limitation or exclusion 
     could have been imposed if the individual remained covered 
     under a group health plan or employee health benefit plan 
     (including providing credit for previous coverage in the 
     manner provided under subtitle A).
       (2) Health promotion and disease prevention.--Nothing in 
     this subsection shall be construed to prevent a health plan 
     issuer offering an individual health plan from establishing 
     premium discounts or modifying otherwise applicable 
     copayments or deductibles in return for adherence to programs 
     of health promotion or disease prevention.
       (3) Health plan issuer.--A health plan issuer described in 
     this paragraph in a health plan issuer that issues or renews 
     individual health plans.
       (4) Premiums.--Nothing in this subsection shall be 
     construed to affect the determination of a health plan issuer 
     as to the amount of the premium payable under an individual 
     health plan under applicable State law.
       (b) Definition of Eligible Individual.--As used in 
     subsection (a)(1), the term ``eligible individual'' means an 
     individual who--
       (1) was a participant or beneficiary enrolled under one or 
     more group health plans, employee health benefit plans, or 
     public plans established under Federal or State law, for not 
     less than 18 months (without a lapse in coverage of more than 
     30 consecutive days) immediately prior to the date on which 
     the individual desired to enroll in the individual health 
     plan.
       (2) is not eligible for coverage under a group health plan 
     or an employee health benefit plan;
       (3) has not had coverage terminated under a group health 
     plan or employee health benefit plan for failure to make 
     required premium payments or contributions, or for fraud or 
     misrepresentation of material fact; and
       (4) has, if applicable, accepted and exhausted the maximum 
     required period of continuous coverage as described in 
     section 602(2)(A) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1162(2)(A)) or under an equivalent 
     State program.
       (c) Applicable of Capacity Limit.--
       (1) In general.--Subject to paragraph (2), a health plan 
     issuer offering coverage to individuals under an individual 
     health plan may cease enrolling individuals under the plan 
     if--
       (A) the health plan issuer ceases to enroll any new 
     individuals; and
       (B) the health plan issuer can demonstrate to the 
     applicable certifying authority (as defined in section 
     142(d)), if required, that its financial or provider capacity 
     to serve previously covered individuals will be impaired if 
     the health plan issuer is required to enroll additional 
     individuals.

     Such a health plan issuer shall be prohibited from offering 
     coverage after a cessation in offering coverage under this 
     paragraph for a 6-month period or until the health plan 
     issuer can demonstrate to the applicable certifying authority 
     (as defined in section 142(d)) that the health plan issuer 
     has adequate capacity, whichever is later.
       (2) First-come-first-served.--A health plan issuer offering 
     coverage to individuals under an individual health plan is 
     only eligible to exercise the limitations provided for in 
     paragraph (1) if the health plan issuer provides for 
     enrollment of individuals under such plan on a first-come-
     first-served basis or other basis established by a State to 
     ensure a fair opportunity to enroll in the plan and avoid 
     risk selection.
       (d) Market Requirement.--
       (1) In general.--The provisions of subsection (a) shall not 
     be construed to require that a health plan issuer offering 
     group health plans to group purchasers offer individual 
     health plans to individuals.
       (2) Conversion policies.--A health plan issuer offering 
     group health plans to group purchasers under this title shall 
     not be deemed to be a health plan issuer offering an 
     individual health plan solely because such health plan 
     issuer offers a conversion policy.
       (3) Marketing of plans.--Nothing in this section shall be 
     construed to prevent a State from requiring health plan 
     issuers offering coverage to individuals under an individual 
     health plan to actively market such plan.

     SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH 
                   COVERAGE.

       (a) In General.--Subject to subsections (b) and (c), 
     coverage for individuals under an individual health plan 
     shall be renewed or continued in force by a health plan 
     issuer at the option of the individual, except that the 
     requirement of this subsection shall not apply in the case 
     of--
       (1) the nonpayment of premiums or contributions by the 
     individual in accordance with the terms of the individual 
     health plan or where the health plan issuer has not received 
     timely premium payments;
       (2) fraud or misrepresentation of material fact on the part 
     of the individual; or
       (3) the termination of the individual health plan in 
     accordance with subsection (b).
       (b) Termination of Individual Health Plans.--
       (1) Particular type of individual health plan not 
     offered.--In any case in which a health plan issuer decides 
     to discontinue offering a particular type of individual 
     health plan to individuals, an individual health plan may be 
     discontinued by the health plan issuer only if--
       (A) the health plan issuer provides notice to each 
     individual covered under the plan of such discontinuation at 
     least 90 days prior to the date of the expiration of the 
     plan.
       (B) the health plan issuer offers to each individual 
     covered under the plan the option to purchase any other 
     individual health plan currently being offered by the health 
     plan issuer to individuals; and
       (C) in exercising the option to discontinue the individual 
     health plan and in offering one or more replacement plans, 
     the health plan issuer acts uniformly without regard to the 
     health status of particular individuals.
       (21) Discontinuance of all individual health plans.--In any 
     case in which a health plan issuer elects to discontinue all 
     individual health plans in a State, an individual health plan 
     may be discontinued by the health plan issuer only if--
       (A) the health plan issuer provides notice to the 
     applicable certifying authority (as defined in section 
     142(d)) and to each individual covered under the plan of such 
     discontinuation at least 180 days prior to the date of the 
     discontinuation of the plan; and
       (B) all individual health plans issued or delivered for 
     issuance in the State are discontinued and coverage under 
     such plans is not renewed.
       (3) Prohibition on market reentry.--In the case of a 
     discontinuation under paragraph (2), the health plan issuer 
     may not provide for the issuance of any individual health 
     plan in the State involved during the 5-year period beginning 
     on the date of the discontinuation of the last plan not so 
     renewed.
       (c) Treatment of Network Plans.--
       (1) Geographic limitations.--A health plan issuer which 
     offers a network plan (as defined in paragraph (2)) may deny 
     continued participation under the plan to individuals who 
     neither live, reside, nor work in an area in which the 
     individual health plan is offered, but only if such denial is 
     applied uniformly, without regard to health status of 
     particular individuals.
       (2) Network play.--As used in paragraph (1), the term 
     ``network plan'' means an individual health plan that 
     arranges for the financing and delivery of health care 
     services to individuals covered under such health plan, in 
     whole or in part, through arrangements with providers.

     SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

       (a) In General.--With respect to any State law with respect 
     to which the Governor of the State notifies the Secretary of 
     Health and Human Services that such State law will achieve 
     the goals of sections 110 and 111, and that is in effect on, 
     or enacted after, the date of enactment of this Act (such as 
     laws providing for guaranteed issue, open enrollment by one 
     or more health plan issuers, high-risk pools, or mandatory 
     conversion policies), such State law shall apply in lieu of 
     the standards described in sections 110 and 111 unless the 
     Secretary of Health and Human Services determines, after 
     considering the criteria described in subsection (b)(1), in 
     consultation with the Governor and Insurance Commissioner or 
     chief insurance regulatory official of the State, that such 
     State law does not achieve the goals of providing access to 
     affordable health care coverage for those individuals 
     described in sections 110 and 111.
       (b) Determination.--
       (1) In general.--In making a determination under subsection 
     (a), the Secretary of Health and Human Services shall only--
       (A) evaluate whether the State law or program provides 
     guaranteed access to affordable coverage to individuals 
     described in sections 110 and 111;
       (B) evaluate whether the State law or program provides 
     coverage for preexisting conditions (as defined in section 
     103(e)) that were covered under the individuals' previous 
     group health plan or employee health benefit plan for 
     individuals described in sections 110 and 111.
       (C) evaluate whether the State law or program provides 
     individuals described in sections 110 and 111 with a choice 
     of health plans or a health plan providing comprehensive 
     coverage, and
       (D) evaluate whether the application of the standards 
     described in sections 110 and 111 will have an adverse impact 
     on the number of individuals in such State having access to 
     affordable coverage.
       (2) Notice of intent.--If, within 6 months after the date 
     of enactment of this Act, the Governor of a State notifies 
     the Secretary of Health and Human Services that the State 
     intends to enact a law, or modify an existing law, described 
     in subsection (a), the Secretary of Health and Human Services 
     may not make a determination under such subsection until the 
     expiration of the 12-month period beginning on the date on 
     which such

[[Page H2955]]

     notification is made, or until January 1, 1998, whichever is 
     later. With respect to a State that provides notice under 
     this paragraph and that has a legislature that does not meet 
     within the 12-month period beginning on the date of enactment 
     of this Act, the Secretary shall not make a determination 
     under subsection (a) prior to January 1, 1998.
       (3) Notice to state.--If the Secretary of Health and Human 
     Services determines that a State law or program does not 
     achieve the goals described in subsection (a), the Secretary 
     of Health and Human Services shall provide the State with 
     adequate notice and reasonable opportunity to modify such law 
     or program to achieve such goals prior to making a final 
     determination under subsection (a).
       (c) Adoption of NAIC Model.--If, not later than 9 months 
     after the date of enactment of this Act--
       (1) the National Association of Insurance Commissioners 
     (hereafter referred to as the ``NAIC''), through a process 
     which the Secretary of Health and Human Services determines 
     has included consultation with representatives of the 
     insurance industry and consumer groups, adopts a model 
     standard or standards for reform of the individual health 
     insurance market, and
       (2) the Secretary of Health and Human Services determines, 
     within 30 days of the adoption of such NAIC standard or 
     standards, that such standards comply with the goals of 
     sections 110 and 111:

     a State that elects to adopt such model standards or 
     substantially adopt such model standards shall be deemed to 
     have met the requirements of sections 110 and 111 and shall 
     be subject to a determination under subsection (a).

     SEC. 113. DEFINITION.

       (a) In General.--As used this title, the term ``individual 
     health plan'' means any contract, policy, certificate or 
     other arrangement offered to individuals by a health plan 
     issuer that provides or pays for health benefits (such as 
     provider and hospital benefits) and that is not a group 
     health plan under section 2(6).
       (b) Arrangements Not Included.--Such term does not include 
     the following, or any combination thereof:
       (1) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (2) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).
       (3) Coverage issued as a supplement to liability insurance.
       (4) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (5) Workers' compensation or similar insurance.
       (6) Automobile medical payment insurance.
       (7) Coverage for a specified disease or illness.
       (8) Hospital of fixed indemnity insurance.
       (9) Short-term limited duration insurance.
       (10) Credit-only, dental-only, or vision-only insurance.
       (11) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.

                    Subtitle C--COBRA Clarifications

     SEC. 121. COBRA CLARIFICATIONS.

       (a) Public Health Service Act.--
       (1) Period of coverage.--Section 2202(2) of the Public 
     Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
       (A) in subparagraph (A)--
       (i) by transferring the sentence immediately preceding 
     clause (iv) so as to appear immediately following such clause 
     (iv); and
       (ii) in the last sentence (as so transferred)--
       (I) by inserting ``, or a beneficiary-family member of the 
     individual,'' after ``an individual''; and
       (II) by striking ``at the time of a qualifying event 
     described in section 2203(2)'' and inserting ``at any time 
     during the initial 18-month period of continuing coverage 
     under this title'';
       (B) in subparagraph (D)(i), by inserting before ``, or'' 
     the following: ``, except that the exclusion or limitation 
     contained in this clause shall not be considered to apply to 
     a plan under which a preexisting condition or exclusion does 
     not apply to an individual otherwise eligible for 
     continuation coverage under this section because of the 
     provision of the Health Insurance Reform Act of 1996'', and
       (C) in subparagraph (E), by striking ``at the time of a 
     qualifying event described in section 2203(2)'' and inserting 
     ``at any time during the initial 18-month period of 
     continuing coverage under this title'',
       (2) Election.--Section 2205(1)(C) of the Public Health 
     Service Act (42 U.S.C. 300bb-5(1)(C)) is amended--
       (A) in clause (i), by striking ``or'' at the end thereof.
       (B) in clause (ii), by striking the period and inserting 
     ``, or'', and
       (C) by adding at the end thereof the following new clause:
       ``(iii) in the case of an individual described in the last 
     sentence of section 2202(2)(A), or a beneficiary-family 
     member of the individual, the date such individual is 
     determined to have been disabled.''.
       (3) Notices.--Section 2206(3) of the Public Health Service 
     Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the 
     time of a qualifying event described in section 2203(2)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this title''.
       (4) Birth or adoption of a child.--Section 2208(3)(A) of 
     the Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is 
     amended by adding at the end thereof the following new flush 
     sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered employee during the 
     period of continued coverage under this title.''.
       (b) Employee Retirement Income Security Act of 1974.--
       (1) Period of coverage.--Section 602(2) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is 
     amended--
       (A) in the last sentence of subparagraph (A)--
       (i) by inserting ``, or a beneficiary-family member of the 
     individual.'' after ``an individual''; and
       (ii) by striking ``at the time of a qualifying event 
     described in section 603(2)'' and inserting ``at any time 
     during the initial 18-month period of continuing coverage 
     under this part'',
       (B) in subparagraph (D)(i), by inserting before, ``, or'' 
     the following ``, except that the exclusion or limitation 
     contained in this clause shall not be considered to apply to 
     a plan under which a preexisting condition or exclusion does 
     not apply to an individual otherwise eligible for 
     continuation coverage under this section because of the 
     provision of the Health Insurance Reform Act of 1996''; and
       (C) in subparagraph (E), by striking ``at the time of a 
     qualifying event described in section 603(2)'' and inserting 
     ``at any time during the initial 18-month period of 
     continuing coverage under this part''.
       (2) Election.--Section 605(1)(C) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1165(1)(C)) is 
     amended--
       (A) in clause (i), by striking ``or'' at the end thereof;
       (B) in clause (ii), by striking the period and inserting 
     ``, or''; and
       (C) by adding at the end thereof the following new clause:
       ``(iii) in the case of an individual described in the last 
     sentence of section 602(2)(A), or a beneficiary-family member 
     of the individual, the date such individual is determined to 
     have been disabled.''.
       (3) Notices.--Section 606(3) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1166(3)) is amended by 
     striking ``at the time of a qualifying event described in 
     section 603(2)'' and inserting ``at any time during the 
     initial 18-month period of continuing coverage under this 
     part''.
       (4) Birth or adoption of a child.--Section 607(3)(A) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1167(3)) is amended by adding at the end thereof the 
     following new flush sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered employee during the 
     period of continued coverage under this part.''.
       (c) Internal Revenue Code of 1986.--
       (1) Period of coverage.--Section 4980B(f)(2)(B) of the 
     Internal Revenue Code of 1986 is amended--
       (A) in the last sentence of clause (i) by striking ``at the 
     time of a qualifying event described in paragraph (3)(B)'' 
     and inserting ``at any time during the initial 18-month 
     period of continuing coverage under this section''.
       (B) in clause (iv)(I), by inserting before ``, or'' the 
     following: ``, except that the exclusion or limitation 
     contained in this subclause shall not be considered to apply 
     to a plan under which a preexisting condition or exclusion 
     does not apply to an individual otherwise eligible for 
     continuation coverage under this subsection because of the 
     provision of the Health Insurance Reform Act of 1996''; and
       (C) in clause (v), by striking ``at the time of a 
     qualifying event described in paragraph (3)(B)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this section''.
       (2) Election.--Section 4980B(f)(5)(A)(ii) of the Internal 
     Revenue Code of 1986 is amended--
       (A) in subclause (I), by striking ``or'' at the end 
     thereof;
       (B) in subclause (II), by striking the period and inserting 
     ``, or'', and
       (C) by adding at the end thereof the following new 
     subclause:
       ``(III) in the case of an qualified beneficiary described 
     in the last sentence of paragraph (2)(B)(i), the date such 
     individual is determined to have been disabled.''.
       (3) Notices.--Section 4980B(f)(6)(C) of the Internal 
     Revenue Code of 1986 is amended by striking ``at the time of 
     a qualifying event described in paragraph (3)(B)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this section''.
       (4) Birth or adoption of a child.--Section 4980B(g)(1)(A) 
     of the Internal Revenue Code of 1986 is amended by adding at 
     the end thereof the following new flush sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered employee during the 
     period of continued coverage under this section.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to qualifying events occurring on or after the 
     date of enactment of this Act for plan years beginning after 
     December 31, 1997.
       (e) Notification of Changes.--Not later than 60 days prior 
     to the date on which this

[[Page H2956]]

     section becomes effective, each group health plan (covered 
     under title XXII of the Public Health Service Act, part 6 of 
     subtitle B of title I of the Employee Retirement Income 
     Security Act of 1974, and section 4980B(f) of the Internal 
     Revenue Code of 1986) shall notify each qualified beneficiary 
     who has elected continuation coverage under such title, part 
     or section of the amendments made by this section.

        Subtitle D--Private Health Plan Purchasing Cooperatives

     SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERATIVES.

       (a) Definition.--As used in this title, the term ``health 
     plan purchasing cooperative'' means a group of individuals or 
     employers that, on a voluntary basis and in accordance with 
     this section, form a cooperative for the purpose of 
     purchasing individual health plans or group health plans 
     offered by health plan issuers. A health plan issuer, agent, 
     broker or any other individual or entity engaged in the sale 
     of insurance may not underwrite a cooperative.
       (b) Certification.--
       (1) In general.--If a group described in subsection (a) 
     desires to form a health plan purchasing cooperative in 
     accordance with this section and such group appropriately 
     notifies the State and the Secretary of such desire, the 
     State, upon a determination that such group meets the 
     requirements of this section, shall certify the group as a 
     health plan purchasing cooperative. The State shall make a 
     determination of whether such group meets the requirements of 
     this section in a timely fashion. Each such cooperative shall 
     also be registered with the Secretary.
       (2) State refusal to certify.--If a State fails to 
     implement a program for certifying health plan purchasing 
     cooperatives in accordance with the standards under this 
     title, the Secretary shall certify and oversee the operations 
     of such cooperative in such State.
       (3) Interstate cooperatives.--For purposes of this section 
     a health plan purchasing cooperative operating in more than 
     one State shall be certified by the State in which the 
     cooperative is domiciled. States may enter into cooperative 
     agreements for the purpose of certifying and overseeing the 
     operation of such cooperatives. For purposes of this 
     subsection, a cooperative shall be considered to be domiciled 
     in the State in which most of the members of the cooperative 
     reside.
       (c) Board of Directors.--
       (1) In general.--Each health plan purchasing cooperative 
     shall be governed by a Board of Directors that shall be 
     responsible for ensuring the performance of the duties of the 
     cooperative under this section. The Board shall be composed 
     of a board cross-section of representatives of employers, 
     employees, and individuals participating in the cooperative. 
     A health plan issuer, agent, broker or any other individual 
     or entity engaged in the sale of individual health plans or 
     group health plans may not hold or control any right to vote 
     with respect to a cooperative.
       (2) Limitation on compensation.--A health plan purchasing 
     cooperative may not provide compensation to members of the 
     Board of Directors. The cooperative may provide 
     reimbursements to such members for the reasonable and 
     necessary expenses incurred by the members in the performance 
     of their duties as members of the Board.
       (3) Conflict of interest.--No member of the Board of 
     Directors (or family members of such members) nor any 
     management personnel of the cooperative may be employed by, 
     be a consultant of, be a member of the board of directors or, 
     be affiliated with an agent of, or otherwise be a 
     representative of any health plan issuer, health care 
     provider, or agent or broker. Nothing in the preceding 
     sentence shall limit a member of the Board from purchasing 
     coverage offered through the cooperative.
       (d) Membership and Marketing Area.--
       (1) Membership.--A health plan purchasing cooperative may 
     establish limits on the maximum size of employers who may 
     become members of the cooperative, and may determine whether 
     to permit individuals to become members. Upon the 
     establishment of such membership requirements, the 
     cooperative shall, except as provided in subparagraph (B), 
     accept all employers (or individuals) residing within the 
     area served by the cooperative who meet such requirements as 
     members on a first-come, first-served basis, or on another 
     basis established by the State to ensure equitable access to 
     the cooperative.
       (2) Marketing area.--A State may establish rules regarding 
     the geographic area that must be served by a health plan 
     purchasing cooperative. With respect to a State that has not 
     established such rules, a health plan purchasing cooperative 
     operating in the State shall define the boundaries of the 
     area to be served by the cooperative, except that such 
     boundaries may not be established on the basis of health 
     status of the populations that reside in the area.
       (e) Duties and Responsibilities.--
       (1) In general.--A health plan purchasing cooperative 
     shall--
       (A) enter into agreements with multiple, unaffiliated 
     health plan issuers, except that the requirement of this 
     subparagraph shall not apply in regions (such as remote or 
     frontier areas) in which compliance with such requirement is 
     not possible.
       (B) enter into agreements with employers and individuals 
     who become members of the cooperative;
       (C) participate in any program of risk-adjustment or 
     reinsurance, or any similar program, that is established by 
     the State.
       (D) prepare and disseminate comparative health plan 
     materials (including information about cost, quality, 
     benefits, and other information concerning group health plans 
     and individual health plans offered through the cooperative);
       (E) actively market to all eligible employers and 
     individuals residing within the service area; and
       (F) act as an ombudsman for group health plan or individual 
     health plan enrollees.
       (2) Permissible activities.--A health plan purchasing 
     cooperative may perform such other functions as necessary to 
     further the purposes of this title, including--
       (A) collecting and distributing premiums and performing 
     other administrative functions;
       (B) collecting and analyzing surveys of enrollee 
     satisfaction;
       (C) charging membership fee to enrollees (such fees may not 
     be based on health status) and charging participation fees to 
     health plan issuers;
       (D) cooperating with (or accepting as members) employers 
     who provide health benefits directly to participants and 
     beneficiaries only for the purpose of negotiating with 
     providers, and
       (E) negotiating with health care providers and health plan 
     issuers.
       (f) Limitations on Cooperative Activities.--A health plan 
     purchasing cooperative shall not--
       (1) perform any activity relating to the licensing of 
     health plan issuers.
       (2) assume financial risk directly or indirectly on behalf 
     of members of a health plan purchasing cooperative relating 
     to any group health plan or individual health plan;
       (3) establish eligibility, continuation of eligibility, 
     enrollment, or premium contribution requirements for 
     participants, beneficiaries, or individuals based on health 
     status;
       (4) operate on a for-profit or other basis where the legal 
     structure of the cooperative permits profits to be made and 
     not returned to the members of the cooperative, except that a 
     for-profit health plan purchasing cooperative may be formed 
     by a nonprofit organization--
       (A) in which membership in such organization is not based 
     on health status; and
       (B) that accepts as members all employers or individuals on 
     a first-come, first-served basis, subject to any established 
     limit on the maximum size of and employer that may become a 
     member; or
       (5) perform any other activities that conflict or are 
     inconsistent with the performance of its duties under this 
     title.
       (g) Limited Preemptions of Certain State Laws.--
       (1) In general.--With respect to a health plan purchasing 
     cooperative that meets the requirements of this section, 
     State fictitious group laws shall be preempted.
       (2) Health plan issuers.--
       (A) Rating.--With respect to a health plan issuer offering 
     a group health plan or individual health plan through a 
     health plan purchasing cooperative that meets the 
     requirements of this section. State premium rating 
     requirement laws, except to the extent provided under 
     subparagraph (B), shall be preempted unless such laws permit 
     premium rates negotiated by the cooperative to be less than 
     rates that would otherwise be permitted under State law, if 
     such rating differential is not based on differences in 
     health status or demographic factors.
       (B) Exception.--State laws referred to in subparagraph (A) 
     shall not be preempted if such laws--
       (i) prohibit the variance of premium rates among employers, 
     plan sponsors, or individuals that are members of health plan 
     purchasing cooperative in excess of the amount of such 
     variations that would be permitted under such State rating 
     laws among employers, plan sponsors, and individuals that are 
     not members of the cooperative; and
       (ii) prohibit a percentage increase in premium rates for a 
     new rating period that is in excess of that which would be 
     permitted under State rating laws.
       (C) Benefits.--Except as provided in subparagraph (D), a 
     health plan issuer offering a group health plan or individual 
     health plan through a health plan purchasing cooperative 
     shall comply with all State mandated benefit laws that 
     require the offering of any services, category or care, or 
     services of any class or type of provider.
       (D) Exception.--In those states that have enacted laws 
     authorizing the issuance of alternative benefit plans to 
     small employers, health plan issuers may offer such 
     alternative benefit plans through a health plan purchasing 
     cooperative that meets the requirements of this section.
       (h) Rules of Construction.--Nothing in this section shall 
     be construed to--
       (1) require that a State organize, operate, or otherwise 
     create health plan purchasing cooperatives;
       (2) otherwise require the establishment of health plan 
     purchasing cooperatives.
       (3) require individuals, plan sponsors, or employers to 
     purchase group health plans or individual health plans 
     through a health plan purchasing cooperative;
       (4) require that a health plan purchasing cooperative be 
     the only type of purchasing arrangement permitted to operate 
     in a State.
       (5) confer authority upon a State that the State would not 
     otherwise have to regulate health plan issuers or employee 
     health benefits plans, or

[[Page H2957]]

       (6) confer authority up a State (or the Federal Government) 
     that the State (or Federal Government) would not otherwise 
     have to regulate group purchasing arrangements, coalitions, 
     or other similar entities that do not desire to become a 
     health plan purchasing cooperative in accordance with this 
     section.
       (i) Application of ERISA.--For purposes of enforcement 
     only, the requirements of parts 4 and 5 of subtitle B of 
     title I of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1101) shall apply to a health pan purchasing 
     cooperative as if such plan were an employee welfare benefit 
     plan.

          Subtitle E--Application and Enforcement of Standards

     SEC. 141. APPLICABILITY.

       (A) Construction.--
       (1) Enforcement.--
       (A) In general.--A requirement or standard imposed under 
     this title on a group health plan or individual health plan 
     offered by a health plan issuer shall be deemed to be a 
     requirement or standard imposed on the health plan issuer. 
     Such requirements or standards shall be enforced by the State 
     insurance commissioner for the State involved or the official 
     or officials designated by the State to enforce the 
     requirements of this title. In the case of a group health 
     plan offered by a health plan issuer in connection with an 
     employee health benefit plan, the requirements of standards 
     imposed under the title shall be enforced with respect to the 
     health plan issuer by the State insurance commissioner for 
     the State involved or the official of officials designated by 
     the State to enforce the requirements of this title.
       (B) Limitation.--Except as provided in subsection (c), the 
     Secretary shall not enforce the requirements or standards of 
     this title as they relate to health plan issuers, group 
     health plans, or individual health plans. In no case shall a 
     Sate enforce the requirements or standards of this title as 
     they relate to employee health benefit plans.
       (2) Preemption of state law.--Nothing in this title shall 
     be construed to prevent a State from establishing, 
     implementing, or continuing in effect standards and 
     requirements--
       (A) not prescribed in this title; or
       (B) related to the issuance, renewal, or portability of 
     health insurance or the establishment or operation of group 
     purchasing arrangements, that are consistent with, and are 
     not in direct conflict with, this title and provide greater 
     protection or benefit to participants, beneficiaries or 
     individuals.
       (b) Rule of Construction.--Nothing in this title shall be 
     construed to affect or modify the provisions of section 514 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1144).
       (c) Continuation.--Nothing in this title shall be construed 
     as requiring a group health plan or an employee health 
     benefit plan to provide benefits to a particular participant 
     or beneficiary in excess of those provided under the terms of 
     such plan.

     SEC. 202. ENFORCEMENT OF STANDARDS.

       (a) Health Plan Issuers.--Each State shall require that 
     each group health plan and individual health plan issued, 
     sold, renewed, offered for sale or operated in such State by 
     a health plan issuer meet the standards established under 
     this title pursuant to an enforcement plan filed by the State 
     with the Secretary. A State shall submit such information as 
     required by the Secretary demonstrating effective 
     implementation of the State enforcement law.
       (b) Employee Health Benefit Plans.--With respect to 
     employee health benefit plans, the Secretary shall enforce 
     the reform standards established under this title in the same 
     manner as provided for under sections 502, 504, 506, and 510 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1132, 1134, 1136, and 1140). The civil penalties 
     contained in paragraphs (1) and (2) of section 502(c) of such 
     Act (29 U.S.C. 1132(c) (1) and (2)) shall apply to any 
     information required by the Secretary to be disclosed and 
     reported under this section.
       (c) Failure to Implement Plan.--In the case of the failure 
     of a State to substantially enforce the standards and 
     requirements set forth in this title with respect to group 
     health plans and individual health plans as provided for 
     under the State enforcement plan filed under subsection (a), 
     the Secretary, in consultation with the Secretary of Health 
     and Human Services, shall implement an enforcement plan 
     meeting the standards of this title in such State. In the 
     case of a State that fails to substantially enforce the 
     standards and requirements set forth in this title, each 
     health plan issuer operating in such State shall be subject 
     to civil enforcement as provided for under sections 502, 504, 
     506, and 510 of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil 
     penalties contained in paragraphs (1) and (2) of section 
     502(c) of such Act (29 U.S.C. 1132(c) (1) and (2)) shall 
     apply to any information required by the Secretary to be 
     disclosed and reported under this section.
       (d) Applicable Certifying Authority.--As used in this 
     title, the term ``applicable certifying authority''means, 
     with respect to--
       (1) health plan issuers, the State insurance commissioner 
     or official or officials designated by the State to enforce 
     the requirements of this title for the State involved; and
       (2) an employee health benefit, plan, the Secretary.
       (e) Regulations.--The Secretary may promulgate such 
     regulations as may be necessary or appropriate to carry out 
     this title.
       (f) Technical Amendment.--Section 508 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1138) is 
     amended by inserting ``and under the Health Insurance Reform 
     Act of 1996'' before the period.

                  Subtitle F--Miscellaneous Provisions

     SEC. 191. HEALTH COVERAGE AVAILABILITY STUDY.

       (a) In General.--The Secretary of Health and Human 
     Services, in consultation with the Secretary, representatives 
     of State officials, consumers, and other representatives of 
     individuals and entities that have expertise in health 
     insurance and employee benefits, shall conclude a two-part 
     study, and prepare and submit reports, in accordance with 
     this section.
       (b) Evaluation of Availability.--Not later than January 1, 
     1998, the Secretary of Health and Human Services shall 
     prepare and submit to the appropriate committees of Congress 
     a report, concerning--
       (1) an evaluation, based on the experience of States, 
     expert opinions, and such additional data as may be 
     available, of the various mechanisms used to ensure the 
     availability of reasonably priced health coverage to 
     employers purchasing group coverage and to individuals 
     purchasing coverage on a non-group basis; and
       (2) whether standards that limit the variation in premiums 
     will further the purposes of this Act.
       (c) Evaluation of Effectiveness.--Not later than January 1, 
     1999, the Secretary of Health and Human Services shall 
     prepare and submit to the appropriate committees of Congress 
     a report, concerning the effectiveness of the provisions of 
     this Act and the various State laws, in ensuring the 
     availability of reasonably priced health coverage to 
     employers purchasing group coverage and individuals 
     purchasing coverage on a nongroup basis.

     SEC. 192. EFFECTIVE DATE.

       Except as otherwise provided for in this title, the 
     provisions of this title shall apply as follows:
       (1) With respect to group health plans and individual 
     health plans, such provisions shall apply to plans offered, 
     sold, issued, renewed, in effect, or operated on or after 
     January 1, 1997, and
       (2) With respect to employee health benefit plans, on the 
     first day of the first plan year beginning on or after 
     January 1, 1997.

     SEC. 193. SEVERABILITY.

       If any provision of this title or the application of such 
     provision to any person or circumstance is held to be 
     unconstitutional, the remainder of this title and the 
     application of the provisions of such to any person or 
     circumstance shall not be affected thereby.

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


                       table of contents of title

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

Sec. 200. Amendment of 1986 Code.

 Subtitle A--Increase in Deduction For Health Insurance Costs of Self-
                          Employed Individuals

Sec. 201. Increase in deduction for health insurance costs of self-
              employed individuals.

                      Subtitle B--Revenue Offsets

           Chapter 1--Treatment of Individuals Who Expatriate

Sec. 211. Revision of tax rules on expatriation.
Sec. 212. Information on individuals expatriating.

                Chapter 2--Foreign Trust Tax Compliance

Sec. 221. Improved information reporting on foreign trusts.
Sec. 222. Modifications of rules relating to foreign trusts having one 
              or more United States beneficiary.
Sec. 223. Foreign persons not to be treated as owners under grantor 
              trust rules.
Sec. 224. Information reporting regarding foreign gifts.
Sec. 225. Modification of rules relating to foreign trusts which are 
              not grantor trusts.
Sec. 226. Residence of estates and trusts, etc.

    Chapter 3--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

Sec. 231. Repeal of bad debt reserve method for thrift savings 
              associations.

     SEC. 200. AMENDMENT OF 1986 CODE.

       Except as otherwise expressly provided, whenever in this 
     title 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.

 Subtitle A--Increase in Deduction For Health Insurance Costs of Self-
                          Employed Individuals

     SEC. 201. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF 
                   SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) is amended 
     to read as follows:
       ``(1) Allowance of deduction.--
       ``(A) In general.--In the case of an individual who is an 
     employee within the meaning of section 401(c)(1), there shall 
     be allowed as a deduction under this section an amount

[[Page H2958]]

     equal to the applicable percentage of the amount paid during 
     the taxable year for insurance which constitutes medical care 
     for the taxpayer, his spouse, and dependents.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined under the 
     following table:

The applicable percentage is--in calendar year--
50 percent.and before 2002.............................................
80 percent.''after.....................................................

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

                      Subtitle B--Revenue Offsets

           CHAPTER 1--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

     SEC. 211. REVISION OF TAX RULES ON EXPATRIATION.

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

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

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsection 
     (f), all property of a covered expatriate to which this 
     section applies shall be treated as sold on the expatriation 
     date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale unless such gain is excluded 
     from gross income under part III of subchapter B, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply (and section 1092 shall apply) to any such 
     loss.
       ``(3) Exclusion for certain gain.--The amount which would 
     (but for this paragraph) be includible in the gross income of 
     any individual by reason of this section shall be reduced 
     (but not below zero) by $600,000. For purposes of this 
     paragraph, allocable expatriation gain taken into account 
     under subsection (f)(2) shall be treated in the same manner 
     as an amount required to be includible in gross income.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If an expatriate elects the application 
     of this paragraph--
       ``(i) this section (other than this paragraph) shall not 
     apply to the expatriate, but
       ``(ii) the expatriate shall be subject to tax under this 
     title, with respect to property to which this section would 
     apply but for such election, in the same manner as if the 
     individual were a United States citizen.
       ``(B) Limitation on amount of estate, gift, and generation-
     skipping transfer taxes.--The aggregate amount of taxes 
     imposed under subtitle B with respect to any transfer of 
     property by reason of an election under subparagraph (A) 
     shall not exceed the amount of income tax which would be due 
     if the property were sold for its fair market value 
     immediately before the time of the transfer or death (taking 
     into account the rules of paragraph (2)).
       ``(c) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(D) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election to Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property--
       ``(A) no amount shall be required to be included in gross 
     income under subsection (a)(1) with respect to the gain for 
     such property for the taxable year of the sale, but
       ``(B) the taxpayer's tax for the taxable year in which such 
     property is disposed of shall be increased by the deferred 
     tax amount with respect to the property.

     Except to the extent provided in regulations, subparagraph 
     (B) shall apply to a disposition whether or not gain or loss 
     is recognized in whole or in part on the disposition.
       ``(2) Deferred tax amount.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `deferred tax amount' means, with respect to any property, an 
     amount equal to the sum of--
       ``(i) the difference between the amount of tax paid for the 
     taxable year described in paragraph (1)(A) and the amount 
     which would have been paid for such taxable year if the 
     election under paragraph (1) had not applied to such 
     property, plus
       ``(ii) an amount of interest on the amount described in 
     clause (i) determined for the period--
       ``(I) beginning on the 91st day after the expatriation 
     date, and
       ``(II) ending on the due date for the taxable year 
     described in paragraph (1)(B),

     by using the rates and method applicable under section 6621 
     for underpayments of tax for such period.

     For purposes of clause (ii), the due date is the date 
     prescribed by law (determined without regard to extension) 
     for filing the return of the tax imposed by this chapter for 
     the taxable year.
       ``(B) Allocation of losses.--For purposes of subparagraph 
     (A), any losses described in subsection (a)(2)(B) shall be 
     allocated ratably among the gains described in subsection 
     (a)(2)(A).
       ``(3) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2)(A) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(4) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(5) Dispositions.--For purposes of this subsection, a 
     taxpayer making an election under this subsection with 
     respect to any property shall be treated as having disposed 
     of such property--
       ``(A) immediately before death if such property is held at 
     such time, and
       ``(B) at any time the security provided with respect to the 
     property fails to meet the requirements of paragraph (3) and 
     the taxpayer does not correct such failure within the time 
     specified by the Secretary.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be under paragraph (1) 
     with respect to an interest in a trust with respect to which 
     gain is required to be recognized under subsection (f)(1).
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--The term `covered expatriate' means an 
     expatriate--
       ``(A) whose average annual net income tax (as defined in 
     section 38(c)(1)) for the period of 5 taxable years ending 
     before the expatriation date is greater than $100,000, or
       ``(B) whose net worth as of such date is $500,000 or more.

     If the expatriation date is after 1996, such $100,000 and 
     $500,000 amounts 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 `1995' for `1992' in subparagraph (B) 
     thereof. Any increase under the preceding sentence shall be 
     rounded to the nearest multiple of $1,000.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has been a resident of the United Stats (as defined 
     in section 7701(b)(1)(A)(ii)) for not more than 8 taxable 
     years during the 15-taxable year period ending with the 
     taxable year during which the expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Property to Which Section Applies.--For purposes of 
     this section--
       ``(1) In general.--Except as otherwise provided by the 
     Secretary, this section shall apply to--
       ``(A) any interest in property held by a covered expatriate 
     on the expatriation date the gain from which would be 
     included in the gross income of the expatriate if such 
     interest had been sold for its fair market value on such data 
     in a transaction in which gain is recognized in whole or in 
     part, and
       ``(B) any other interest in a trust to which subsection (f) 
     applies.
       ``(2) Exceptions.--This section shall not apply to the 
     following property:
       ``(A) United States real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the expatriation date, 
     meet the requirements of section 897(c)(2).
       ``(B) Interest in certain retirement plans.--
       ``(i) In general.--Any interest in a qualified retirement 
     plan (as defined in section 4974(c)), other than any interest 
     attributable to contributions which are in excess of any 
     limitation or which violate any condition for tax-favored 
     treatment.
       ``(ii) Foreign pension plans.--
       ``(I) In general.--Under regulations prescribed by the 
     Secretary, interests in foreign

[[Page H2959]]

     pension plans or similar retirement arrangements or programs.
       ``(II) Limitation.--The value of property which is treated 
     as not sold by reason of this subparagraph shall not exceed 
     $500,000.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes his 
     citizenship, or
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing his United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces his United States 
     nationality before a diplomatic or consular officer of the 
     United States pursuant to paragraph (5) of section 349(a) of 
     the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)).
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)).
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--
       ``(A) In general.--The term `long-term resident' means any 
     individual (other than a citizen of the United States) who is 
     a lawful permanent resident of the United States in at least 
     8 taxable years during the period of 15 taxable years ending 
     with the taxable year during which the expatriation date 
     occurs. For purposes of the preceding sentence, an individual 
     shall not be treated as a lawful permanent resident for any 
     taxable year if such individual is treated as a resident of a 
     foreign country for the taxable year under the provisions of 
     a tax treaty between the United States and the foreign 
     country and does not waive the benefits of such treaty 
     applicable to residents of the foreign country.
       ``(B) Special rule.--For purposes of subparagraph (A), 
     there shall not be taken into account--
       ``(i) any taxable year during which any prior sale is 
     treated under subsection (a)(1) as occurring, or
       ``(ii) any taxable year prior to the taxable year referred 
     to in clause (i).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets immediately before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii).
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year in which the expatriation date occurs, 
     multiplied by the amount of the distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest in an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--
       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.
       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust in the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--
       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.
       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the 
     expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.

     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rule.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust--
       ``(I) which is organized under, and governed by, the laws 
     of the United States or a State, and
       ``(II) with respect to which the trust instrument requires 
     that at least 1 trustee of the trust be an individual citizen 
     of the United States or a domestic corporation.
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the expatriation date, is vested in 
     the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1)--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar advisor.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

[[Page H2960]]

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.
       ``(g) Termination of Deferrals, Etc.--On the date any 
     property held by an individual is treated as sold under 
     subsection (a), notwithstanding any other provision of this 
     title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply and the unpaid portion of such tax shall be due and 
     payable at the time and in the manner prescribed by the 
     Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Coordination With Estate and Gift Taxes.--If 
     subsection (a) applies to property held by an individual for 
     any taxable year and--
       ``(1) such property is includible in the gross estate of 
     such individual solely by reason of section 2107, or
       ``(2) section 2501 applies to a transfer of such property 
     by such individual solely by reason of section 2501(a)(3).

     then there shall be allowed as a credit against the 
     additional tax imposed by section 2101 or 2501, whichever is 
     applicable, solely by reason of section 2107 or 2501(a)(3) an 
     amount equal to the increase in the tax imposed by this 
     chapter for such taxable year by reason of this section.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) to prevent double taxation by ensuring that--
       ``(A) appropriate adjustments are made to basis to reflect 
     gain recognized by reason of subsection (a) and the exclusion 
     provided by subsection (a)(3), and
       ``(B) any gain by reason of a deemed sale under subsection 
     (a) of an interest in a corporation, partnership, trust, or 
     estate is reduced to reflect that portion of such gain which 
     is attributable to an interest in a trust which a 
     shareholder, partner, or beneficiary is treated as holding 
     directly under subsection (f)(3)(B)(i), and
       ``(2) which provide for the proper allocation of the 
     exclusion under subsection (a)(3) to property to which this 
     section applies.
       ``(k) Cross Reference.--

  ``For income tax treatment of individuals who terminate United States 
citizenship, see section 7701(a)(47).''.

       (b) Inclusion in Income of Gifts and Inheritances From 
     Covered Expatriates.--Section 102 (relating to gifts, etc. 
     not included in gross income) is amended by adding at the end 
     the following new subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
     Subsection (a) shall not exclude from gross income the value 
     of any property acquired by gift, bequest, devise, or 
     inheritance from a covered expatriate after the expatristion 
     date. For purposes of this subsection, any term used in 
     this subsection which is also used in section 877A shall 
     have the same meaning as when used in section 877A.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(47) Termination of united states citizenship.--An 
     individual shall not cease to be treated as a United States 
     citizen before the date on which the individual's citizenship 
     is treated as relinquished under section 877A(e)(3).''.
       (d) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     individual who relinquishes (within the meaning of section 
     877A(e)(3)) United States citizenship on or after February 6, 
     1995.''.
       (2) Section 2107(c) is amended by adding at the end the 
     following new paragraph:
       ``(3) Cross reference.--For credit against the tax imposed 
     by subsection (a) for expatriation tax, see section 
     877A(i).''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new flush sentence: ``For credit against the tax 
     imposed under this section by reason of this paragraph, see 
     section 877A(i).''.
       (4) Paragraph (10) of section 7701(b) is amended by adding 
     at the end the following new sentence: ``This paragraph shall 
     not apply to any long-term resident of the United States who 
     is an expatriate (as defined in section 877A(e)(1)).''.
       (e) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (f) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after February 
     6, 1995.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to amounts received from expatriates (as so defined) whose 
     expatriation date (as so defined) occurs on and after 
     February 6, 1995.
       (3) Special rules relating to certain acts occurring before 
     february 6, 1995.--In the case of an individual who took an 
     act of expatriation specified in paragraph (1), (2), (3), or 
     (4) of section 349(a) of the Immigration and Nationality Act 
     (8 U.S.C. 1481(a) (1)-(4)) before February 6, 1995, but whose 
     expatriation date (as so defined) occurs after February 6, 
     1995--
       (A) the amendment made by subsection (c) shall not apply,
       (B) the amendment made by subsection (d)(1) shall not apply 
     for any period prior to the expatriation date, and
       (C) the other amendments made by this section shall apply 
     as of the expatriation date.
       (4) Due date for tentative tax.--The due date under section 
     877A(h)(2) of such Code shall in no event occur before the 
     90th day after the date of the enactment of this Act.

     SEC. 212. INFORMATION ON INDIVIDUALS EXPATRIATING.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6039E the 
     following new section:

     ``SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.

       ``(a) Requirement.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, any expatriate (within the meaning of section 
     877A(e)(1)) shall provide a statement which includes the 
     information described in subsection (b).
       ``(2) Timing.--
       ``(A) Citizens.--In the case of an expatriate described in 
     section 877(e)(1)(A), such statement shall be--
       ``(i) provided not later than the expatriation date (within 
     the meaning of section 877A(e)(2)), and
       ``(ii) provided to the person or court referred to in 
     section 877A(e)(3).
       ``(B) Noncitizens.--In the case of an expatriate described 
     in section 877A(e)(1)(B), such statement shall be provided to 
     the Secretary with the return of tax imposed by chapter 1 for 
     the taxable year during which the event described in such 
     section occurs.
       ``(b) Information To Be Provided.--Information required 
     under subsection (a) shall include--
       ``(1) the taxpayer's TIN,
       ``(2) the mailing address of such individual's principal 
     foreign residence,
       ``(3) the foreign country in which such individual is 
     residing,
       ``(4) the foreign country of which such individual is a 
     citizen,
       ``(5) in the case of an individual having a net worth of at 
     lease the dollar amount applicable under section 
     877A(c)(1)(B), information detailing the assets and 
     liabilities of such individual, and
       ``(6) such other information as the Secretary may 
     prescribe.
       ``(c) Penalty.--Any individual failing to provide a 
     statement required under subsection (a) shall be subject to a 
     penalty for each year during any portion of which such 
     failure continues in an amount equal to the greater of--
       ``(1) 5 percent of the additional tax required to be paid 
     under section 877A for such year, or
       ``(2) $1,000, unless it is shown that such failure is due 
     to reasonable cause and not to willful neglect.
       ``(d) Information To Be Provided to Secretary.--
     Notwithstanding any other provision of law--
       ``(1) any Federal agency or court which collects (or is 
     required to collect) the statement under subsection (a) shall 
     provide to the Secretary--
       ``(A) a copy of any such statement, and
       ``(B) the name (and any other identifying information) of 
     any individual refusing to comply with the provisions of 
     subsection (a),
       ``(2) the Secretary of State shall provide to the Secretary 
     a copy of each certificate as to the loss of American 
     nationality under section 358 of the Immigration and 
     Nationality Act which is approved by the Secretary of State, 
     and
       ``(3) the Federal agency primarily responsible for 
     administering the immigration laws shall provide to the 
     Secretary the name of each lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)) 
     whose status as such has been revoked or has been 
     administratively or judicially determined to have been 
     abandoned.

     Notwithstanding any other provision of law, not later than 30 
     days after the close of each

[[Page H2961]]

     calendar quarter, the Secretary shall publish in the Federal 
     Register the name of each individual relinquishing United 
     States citizenship (within the meaning of section 877A(e)(3)) 
     with respect to whom the Secretary receives information under 
     the preceding sentence during such quarter.
       ``(e) Exemption.--The Secretary may by regulations exempt 
     any class of individuals from the requirements of this 
     section if the Secretary determines that applying this 
     section to such individuals is not necessary to carry out the 
     purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart A is amended by inserting after the item relating to 
     section 6039E the following new item:

``Sec. 6039F. Information on individuals expatriating.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to individuals to whom section 877A of the 
     Internal Revenue Code of 1986 applies and whose expatriation 
     date (as defined in section 877A(e)(2)) occurs on or after 
     February 6, 1995, except that no statement shall be required 
     by such amendments before the 90th day after the date of the 
     enactment of this Act.

                CHAPTER 2--FOREIGN TRUST TAX COMPLIANCE

     SEC. 221. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

       (a) In General.--Section 6048 (relating to returns as to 
     certain foreign trusts) is amended to read as follows:

     ``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN 
                   TRUSTS.

       ``(a) Notice of Certain Events.--
       ``(1) General rule.--On or before the 90th day (or such 
     later day as the Secretary may prescribe) after any 
     reportable event, the responsible party shall provide written 
     notice of such event to the Secretary in accordance with 
     paragraph (2).
       ``(2) Contents of notice.--The notice required by paragraph 
     (1) shall contain such information as the Secretary may 
     prescribe, including--
       ``(A) the amount of money or other property (if any) 
     transferred to the trust in connection with the reportable 
     event, and
       ``(B) the identify of the trust and of each trustee and 
     beneficiary or class of beneficiaries) of the trust.
       ``(3) Reportable event.--For purposes of this subsection--
       ``(A) In general.--The term `reportable event' means--
       ``(i) the creation of any foreign trust by a United States 
     person,
       ``(ii) the transfer of any money or property (directly or 
     indirectly) to a foreign trust by a United States person, 
     including a transfer by reason of death, and
       ``(iii) the death of a citizen or resident of the United 
     States if--
       ``(I) the decedent was treated as the owner of any portion 
     of a foreign trust under the rules of subpart E of part I of 
     subchapter J of chapter 1, or
       ``(II) any portion of a foreign trust was included in the 
     gross estate of the decedent.
       ``(B) Exceptions.--
       ``(i) Fair market value sales.--Subparagraph (A)(ii) shall 
     not apply to any transfer of property to a trust in exchange 
     for consideration of at least the fair market value of the 
     transferred property. For purposes of the preceding sentence, 
     consideration other than cash shall be taken into account at 
     its fair market value and the rules of section 679(a)(3) 
     shall apply.
       ``(ii) Deferred compensation and charitable trusts.--
     Subparagraph (A) shall not apply with respect to a trust 
     which is--
       ``(I) described in section 402(b), 404(a)(4), or 404A, or
       ``(II) determined by the Secretary to be described in 
     section 501(c)(3).
       ``(4) Responsible party.--For purposes of this subsection, 
     the term `responsible party' means--
       ``(A) the grantor in the case of the creation of an inter 
     vivos trust.
       ``(B) the transferor in the case of a reportable event 
     described in paragraph (3)(A)(ii) other than a transfer by 
     reason of death, and
       ``(C) the executor of the decedent's estate in any other 
     case.
       ``(b) United States Grantor of Foreign Trust.--
       ``(1) In general.--If, at any time during any taxable year 
     of a United States person, such person is treated as the 
     owner of any portion of a foreign trust under the rules of 
     subpart E of part I of subchapter J of chapter 1, such person 
     shall be responsible to ensure that
       ``(A) such trust makes a return for such year which sets 
     forth a full and complete accounting of all trust activities 
     and operations for the year, the name of the United States 
     agent for such trust, and such other information as the 
     Secretary may prescribe, and
       ``(B) such trust furnishes such information as the 
     Secretary may prescribe to each United States person (i) who 
     is treated as the owner of any portion of such trust or (ii) 
     who receives (directly or indirectly) any distribution from 
     the trust.
       ``(2) Trusts not having united states agent.--
       ``(A) In general.--If the rules of this paragraph apply to 
     any foreign trust, the determination of amounts required to 
     be taken into account with respect to such trust by a United 
     States person under the rules of subpart E of part I of 
     subchapter J of chapter 1 shall be determined by the 
     Secretary.
       ``(B) United States agent required.--The rules of this 
     paragraph shall apply to any foreign trust to which paragraph 
     (1) applies unless such trust agrees (in such manner, subject 
     to such conditions, and at such time as the Secretary shall 
     prescribe) to authorize a United States person to act as such 
     trust's limited agent solely for purposes of applying 
     sections 7602, 7603, and 7604 with respect to--
       ``(i) any request by the Secretary to examine records or 
     produce testimony related to the proper treatment of amounts 
     required to be taken into account under the rules referred to 
     in subparagraph (A), or
       ``(ii) any summons by the Secretary for such records or 
     testimony.

     The appearance of persons or production of records by reason 
     of a United States person being such an agent shall not 
     subject such persons or records to legal process for any 
     purpose other than determining the correct treatment under 
     this title of the amounts required to be taken into account 
     under the rules referred to in subparagraph (A). A foreign 
     trust which appoints an agent described in this subparagraph 
     shall not be considered to have an office or a permanent 
     establishment in the United States, or to be engaged in a 
     trade or business in the United States, solely because of the 
     activities of such agent pursuant to this subsection.
       ``(C) Other rules to apply.--Rules similar to the rules of 
     paragraphs (2) and (4) of section 6038A(e) shall apply for 
     purposes of this paragraph.
       ``(c) Reporting by United States Beneficiaries of Foreign 
     Trusts.--
       ``(1) In general.--If any United States person receives 
     (directly or indirectly) during any taxable year of such 
     person any distribution from a foreign trust, such person 
     shall make a return with respect to such trust for such year 
     which includes--
       ``(A) the name of such trust,
       ``(B) the aggregate amount of the distributions so received 
     from such trust during such taxable year, and
       ``(C) such other information as the Secretary may 
     prescribe.
       ``(2) Inclusion in income if records not provided.--
       ``(A) In general.--If applicable records are not provided 
     to the Secretary to determine the proper treatment of any 
     distribution from a foreign trust, such distribution shall be 
     treated as an accumulation distribution includable in the 
     gross income of the distributee under chapter 1. To the 
     extent provided in regulations, the preceeding sentence shall 
     not apply if the foreign trust elects to be subject to rules 
     similar to the rules of subsection (b)(2)(B).
       ``(B) Application of accumulation distribution rules.--For 
     purposes of applying section 668 in a case to which 
     subparagraph (A) applies, the applicable number of years for 
     purposes of section 668(a) shall be \1/2\ of the number of 
     years the trust has been in existence.
       ``(d) Special Rules.--
       ``(1) Determination of whether united states person 
     receives distribution.--For purposes of this section, in 
     determining whether a United States person receives a 
     distribution from a foreign trust, the fact that a portion of 
     such trust is treated as owned by another person under the 
     rules of subpart E of part I of subchapter J of chapter 1 
     shall be disregarded.
       ``(2) Domestic trusts with foreign activities.--To the 
     extent provided in regulations, a trust which is a United 
     States person shall be treated as a foreign trust for 
     purposes of this section and section 6677 if such trust has 
     substantial activities, or holds substantial property, 
     outside the United States.
       ``(3) Time and manner of filing information.--Any notice or 
     return required under this section shall be made at such time 
     and in such manner as the Secretary shall prescribe.
       ``(4) Modification of return requirements.--The Secretary 
     is authorized to suspend or modify any requirement of this 
     section if the Secretary determines that the United States 
     has no significant tax interest in obtaining the required 
     information.''.
       (b) Increased Penalties.--Section 6677 (relating to failure 
     to file information returns with respect to certain foreign 
     trusts) is amended to read as follows:

     ``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO 
                   CERTAIN FOREIGN TRUSTS.

       ``(a) Civil Penalty.--In addition to any criminal penalty 
     provided by law, if any notice or return required to be filed 
     by section 6048--
       ``(1) is not filed on or before the time provided in such 
     section, or
       ``(2) does not include all the information required 
     pursuant to such section or includes incorrect information.

     the person required to file such notice or return shall pay a 
     penalty equal to 35 percent of the gross reportable amount. 
     If any failure described in the preceding sentence continues 
     for more than 90 days after the day on which the Secretary 
     mails notice of such failure to the person required to pay 
     such penalty, such person shall pay a penalty (in addition to 
     the amount determined under the preceding sentence) of 
     $10,000 for each 30-day period (or fraction thereof) during 
     which such failure continues after the expiration of such 90-
     day period. In no event shall the penalty under this 
     subsection with respect to any failure exceed the gross 
     reportable amount.
       ``(b) Special Rules for Returns Under Section 6048(b).--In 
     the case of a return required under section 6048(b)--

[[Page H2962]]

       ``(1) the United States person referred to in such section 
     shall be liable for the penalty imposed by subsection (a), 
     and
       ``(2) subsection (a) shall be applied by substituting `5 
     percent' for `35 percent'.
       ``(c) Gross Reportable Amount.--For purposes of subsection 
     (a), the term `gross reportable amount' means--
       ``(1) the gross value of the property involved in the event 
     (determined as of the date of the event) in the case of a 
     failure relating to section 6048(a),
       ``(2) the gross value of the portion of the trust's assets 
     at the close of the year treated as owned by the United 
     States person in the case of a failure relating to section 
     6048(b)(1), and
       ``(3) the gross amount of the distributions in the case of 
     a failure relating to section 6048(c).
       ``(d) Reasonable Cause Exception.--No penalty shall be 
     imposed by this section on any failure which is shown to be 
     due to reasonable cause and not due to willful neglect. The 
     fact that a foreign jurisdiction would impose a civil or 
     criminal penalty on the taxpayer (or any other person) for 
     disclosing the required information is not reasonable cause.
       ``(e) Deficiency Procedures Not To Apply.--Subchapter B of 
     chapter 63 (relating to deficiency procedures for income, 
     estate, gift, and certain excise taxes) shall not apply in 
     respect of the assessment or collection of any penalty 
     imposed by subsection (a).''.
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 6724(d), as amended by 
     sections 11004 and 11045, is amended by striking ``or'' at 
     the end of subparagraph (U), by striking the period at the 
     end of subparagraph (V) and inserting ``,or'', and by 
     inserting after subparagraph (V) the following new 
     subparagraph:
       ``(W) section 6048(b)(1)(B) (relating to foreign trust 
     reporting requirements).''.
       (2) The table of sections for subpart B of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to section 6048 and inserting the following new 
     item:

``Sec. 604 Information with respect to certain foreign trusts.''.

       (3) The table of sections for part I of subchapter B of 
     chapter 68 is amended by striking the item relating to 
     section 6677 and inserting the following new item:

``Sec. 6677. Failure to file information with respect to certain 
              foreign trusts''

       (d) Effective Dates.--
       (1) Reportable events.--To the extent related to subsection 
     (a) of section 6048 of the Internal Revenue Code of 1986, as 
     amended by this section, the amendments made by this section 
     shall apply to reportable events (as defined in such section 
     6048) occurring after the date of the enactment of this Act.
       (2) Grantor trust reporting.--To the extent related to 
     subsection (b) of such section 6048, the amendments made by 
     this section shall apply to taxable years of United States 
     persons beginning after the date of the enactment of this 
     Act.
       (3) Reporting by united states beneficiaries.--To the 
     extent related to subsection (c) of such section 6048, the 
     amendments made by this section shall apply to distributions 
     received after the date of the enactment of this Act.

     SEC. 222. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS 
                   HAVING ONE OR MORE UNITED STATES BENEFICIARIES.

       (a) Treatment of Trust Obligations, Etc.--
       (1) Paragraph (2) of section 679(a) is amended by striking 
     subparagraph (B) and inserting the following:
       ``(B) Transfers at fair market value.--To any transfer of 
     property to a trust in exchange for consideration of at least 
     the fair market value of the transferred property. For 
     purposes of the preceding sentence, consideration other than 
     cash shall be taken into account at its fair market value.''.
       (2) Subsection (a) of section 679 (relating to foreign 
     trusts having one or more United States beneficiaries) is 
     amended by adding at the end the following new paragraph:
       ``(3) Certain obligations not taken into account under fair 
     market value exceptions.--
       ``(A) In general.--In determining whether paragraph (2)(B) 
     applies to any transfer by a person described in clause (ii) 
     or (iii) of subparagraph (C), there shall not be taken into 
     account--
       ``(i) except as provided in regulations, any obligation of 
     a person described in subparagraph (C), and
       ``(ii) to the extent provided in regulations, any 
     obligation which is guaranteed by a person described in 
     subparagraph (C).
       ``(B) Treatment of principal payments on obligation.--
     Principal payments by the trust on any obligation referred to 
     in subparagraph (A) shall be taken into account on and after 
     the date of the payment in determining the portion of the 
     trust attributable to the property transferred.
       ``(C) Persons described.--The persons described in this 
     subparagraph are--
       ``(i) the trust,
       ``(ii) any grantor or beneficiary of the trust, and
       ``(iii) any person who is related (within the meaning of 
     section 643(i)(2)(B)) to any grantor or beneficiary of the 
     trust.''.
       (b) Exemption of Transfers to Charitable Trusts.--
     Subsection (a) of section 679 is amended by striking 
     ``section 404(a)(4) or 404A'' and inserting ``section 
     6048(a)*(3)(B)(ii)''.
       (c) Other Modifications.--Subsection (a) of section 679 is 
     amended by adding at the end the following new paragraphs:
       ``(4) Special rules applicable to foreign grantor who later 
     becomes a united states person.--
       ``(A) In general.--If a nonresident alien individual has a 
     residency starting date within 5 years after directly or 
     indirectly transferring property to a foreign trust, this 
     section and section 6048 shall be applied as if such 
     individual transferred to such trust on the residency 
     starting date an amount equal to the portion of such trust 
     attributable to the property transferred by such individual 
     to such trust in such transfer.
       ``(B) Treatment of undistributed income.--For purposes of 
     this section, undistributed net income for periods before 
     such individual's residency starting date shall be taken into 
     account in determining the portion of the trust which is 
     attributable to property transferred by such individual to 
     such trust but shall not otherwise be taken into account.
       ``(C) Residency starting date.--For purposes of this 
     paragraph, an individual's residency starting date is the 
     residency starting date determined under section 
     7701(b)(2)(A).
       ``(5) Outbound trust migrations.--If--
       ``(A) an individual who is a citizen or resident of the 
     United States transferred property to a trust which was not a 
     foreign trust, and
       ``(B) such trust becomes a foreign trust while such 
     individual is alive,

     then this section and section 6048 shall be applied as if 
     such individual transferred to such trust on the date such 
     trust becomes a foreign trust an amount equal to the portion 
     of such trust attributable to the property previously 
     transferred by such individual to such trust. A rule similar 
     to the rule of paragraph (4)(B) shall apply for purposes of 
     this paragraph.''.
       (d) Modification Relating to Whether Trust Has United 
     States Beneficiaries.--Subsection (c) of section 679 is 
     amended by adding at the end the following new paragraph:
       ``(3) Certain united states beneficiaries disregarded.--A 
     beneficiary shall not be treated as a United States person in 
     applying this section with respect to any transfer of 
     property to foreign trust if such beneficiary first became a 
     United States person more than 5 years after the date of such 
     transfer.''.
       (e) Technical Amendment.--Subparagraph (A) of section 
     679(c)(2) is amended to read as follows:
       ``(A) in the case of a foreign corporation, such 
     corporation is a controlled foreign corporation (as defined 
     in section 957(a)),''.
       (f) Regulations.--Section 679 is amended by adding at the 
     end the following new subsection:
       ``(d) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to transfers of property after February 6, 1995.

     SEC. 233. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER 
                   GRANTOR TRUST RULES.

       (a) General Rule.--
       (1) Subsection (f) of section 672 (relating to special rule 
     where grantor is foreign person) is amended to read as 
     follows:
       ``(f) Subpart Not To Result in Foreign Ownership.--
       ``(1) In general.--Notwithstanding any other provision of 
     this subpart, this subpart shall apply only to the extent 
     such application results in an amount being currently taken 
     into account (directly or through 1 or more entities) under 
     this chapter in computing the income of a citizen or resident 
     of the United States or a domestic corporation.
       ``(2) Exceptions.--
       ``(A) Certain revocable and irrevocable trusts.--Paragraph 
     (1) shall not apply to any trust if--
       ``(i) the power to revest absolutely in the grantor title 
     to the trust property is exercisable solely by the grantor 
     without the approval or consent of any other person or with 
     the consent of a related or subordinate party who is 
     subservient to the grantor, or
       ``(ii) the only amounts distributable from such trust 
     (whether income or corpus) during the lifetime of the grantor 
     are amounts distributable to the grantor or the spouse of the 
     grantor.
       ``(B) Compensatory trusts.--Except as provided in 
     regulations, paragraph (1) shall not apply to any portion of 
     a trust distributions from which are taxable as compensation 
     for services rendered.
       ``(3) Special rules.--Except as otherwise provided in 
     regulations prescribed by the Secretary--
       ``(A) a controlled foreign corporation (as defined in 
     section 957) shall be treated as a domestic corporation for 
     purposes of paragraph (1), and
       ``(B) paragraph (1) shall not apply for purposes of 
     applying section 1296.
       ``(4) Recharacterization of purported gifts.--In the case 
     of any transfer directly or indirectly from a partnership or 
     foreign corporation which the transferee treats as a gift or 
     bequest, the Secretary may recharacterize such transfer in 
     such circumstances as the Secretary determines to be 
     appropriate to prevent the avoidance of the purposes of this 
     subsection.
       ``(5) Special rule where grantor is foreign person.--If--

[[Page H2963]]

       ``(A) but for this subsection, a foreign person would be 
     treated as the owner of any portion of a trust, and
       ``(B) such trust has a beneficiary who is a United States 
     person,

     such beneficiary shall be treated as the grantor of such 
     portion to the extent such beneficiary has made transfers of 
     property by gift (directly or indirectly) to such foreign 
     person. For purposes of the preceding sentence, any gift 
     shall not be taken into account to the extent such gift would 
     be excluded from taxable gifts under section 2503(b).
       ``(6) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection, including regulations 
     providing that paragraph (1) shall not apply in appropriate 
     cases.''.
       (2) The last sentence of subsection (c) of section 672 of 
     such Code is amended by inserting ``subsection (f) and'' 
     before ``sections 674''.
       (b) Credit for Certain Taxes.--Paragraph (2) of section 
     665(d) is amended by adding at the end the following new 
     sentence: ``Under rules or regulations prescribed by the 
     Secretary, in the case of any foreign trust of which the 
     settlor or another person would be treated as owner of any 
     portion of the trust under subpart E but for section 672(f), 
     the term `taxes imposed on the trust' includes the allocable 
     amount of any income, war profits, and excess profits taxes 
     imposed by any foreign country or possession of the United 
     States on the settlor or such other person in respect of 
     trust gross income.''.
       (c) Distribution by Certain Foreign Trusts Through 
     Nominees.--
       (1) Section 643 is amended by adding at the end the 
     following new subsection:
       ``(h) Distribution by Certain Foreign Trusts Through 
     Nominees.--For purposes of this part, any amount paid to a 
     United States person which is derived directly or indirectly 
     from a foreign trust of which the payor is not the grantor 
     shall be deemed in the year of payment to have been directly 
     paid by the foreign trust to such United States person.''.
       (2) Section 665 is amended by striking subsection (c).
       (d) Effective Date.--
       (1) In general.--Except as provided by paragraph (2), the 
     amendments made by this section shall take effort on the date 
     of the enactment of this Act.
       (2) Exception for certain trusts.--The amendments made by 
     this section shall not apply to any trust--
       (A) which is treated as owned by the grantor or another 
     person under section 676 or 677 (other than subsection (a)(3) 
     thereof) of the Internal Revenue Code of 1986, and
       (B) which is in existence on September 19, 1995.

     The preceding sentence shall not apply to the portion of any 
     such trust attributable to any transfer to such trust after 
     September 19, 1995.
       (e) Transitional Rule.--If--
       (1) by reason of the amendments made by this section, any 
     person other than a United States person ceases to be treated 
     as the owner of a portion of a domestic trust, and
       (2) before January 1, 1997, such trust becomes a foreign 
     trust, or the assets of such trust are transferred to a 
     foreign trust,

     no tax shall be imposed by section 1491 of the Internal 
     Revenue Code of 1986 by reason of such trust becoming a 
     foreign trust or the assets of such trust being transferred 
     to a foreign trust.

     SEC. 224. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6039F the 
     following new section:

     ``SEC. 6039G. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.

       ``(a) In General.--If the value of the aggregate foreign 
     gifts received by a United States person (other than an 
     organization described in section 501(c) and exempt from tax 
     under section 501(a)) during any taxable year exceeds 
     $10,000, such United States person shall furnish (at such 
     time and in such manner as the Secretary shall prescribe) 
     such information as the Secretary may prescribe regarding 
     each foreign gift received during such year.
       ``(b) Foreign Gift.--For purposes of this section, the term 
     `foreign gift' means any amount received from a person other 
     than a United States person which the recipient treats as a 
     gift or bequest. Such term shall not include any qualified 
     transfer (within the meaning of section 2503(e)(2)).
       ``(c) Penalty for Failure To File Information.--
       ``(1) In general.--If a United States person fails to 
     furnish the information required by subsection (a) with 
     respect to any foreign gift within the time prescribed 
     therefor (including extensions)--
       ``(A) the tax consequences of the receipt of such gift 
     shall be determined by the Secretary in the Secretary's sole 
     discretion from the Secretary's own knowledge or from such 
     information as the Secretary may obtain through testimony or 
     otherwise, and
       ``(B) such United States person shall pay (upon notice and 
     demand by the Secretary and in the same manner as tax) an 
     amount equal to 5 percent of the amount of such foreign gift 
     for each month for which the failure continues (not to exceed 
     25 percent of such amount in the aggregate).
       ``(2) Reasonable cause exception.--Paragraph (1) shall not 
     apply to any failure to report a foreign gift if the United 
     States person shows that the failure is due to reasonable 
     cause and not due to willful neglect.
       ``(d) Cost-of-Living Adjustment.--In the case of any 
     taxable year beginning after December 31, 1996, the $10,000 
     amount under subsection (a) shall be increased by an amount 
     equal to the product of such amount and the cost-of-living 
     adjustment for such taxable year under section 1(f)(3), 
     except that subparagraph (B) thereof shall be applied by 
     substituting `1995' for `1992'.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       ``(b) Clerical Amendment.--The table of sections for such 
     subpart is amended by inserting after the item relating to 
     section 6039F the following new item:

``Sec. 6039G. Notice of large gifts received from foreign persons.''.

       ``(c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after the date of the 
     enactment of this Act in taxable years ending after such 
     date.

     SEC. 225. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS 
                   WHICH ARE NOT GRANTOR TRUSTS.

       ``(a) Modification of Interest Charge on Accumulation 
     Distributions.--Subsection (a) of section 668 (relating to 
     interest charge on accumulation distributions from foreign 
     trusts) is amended to read as follows:
       ``(a) General Rule.--For purposes of the tax determined 
     under section 667(a)--
       ``(1) Interest determined using underpayment rates.--The 
     interest charge determined under this section with respect to 
     any distribution is the amount of interest which would be 
     determined on the partial tax computed under section 667(b) 
     for the period described in paragraph (2) using the rates and 
     the method under section 6621 applicable to underpayments of 
     tax.
       ``(2) Period.--For purposes of paragraph (1), the period 
     described in this paragraph is the period which begins on the 
     date which is the applicable number of years before the date 
     of the distribution and which ends on the date of the 
     distribution.
       ``(3) Applicable number of years.--For purposes of 
     paragraph (2)--
       ``(A) In general.--The applicable number of years with 
     respect to a distribution is the number determined by 
     dividing--
       ``(i) the sum of the products described in subparagraph (B) 
     with respect to each undistributed income year, by
       ``(ii) the aggregate undistributed net income.

     The quotient determined under the preceding sentence shall be 
     rounded under procedures prescribed by the Secretary.
       ``(B) Product described.--For purposes of subparagraph (A), 
     the product described in this subparagraph with respect to 
     any undistributed income year is the product of--
       ``(i) the undistributed net income for such year, and
       ``(ii) the sum of the number of taxable years between such 
     year and the taxable year of the distribution (counting in 
     each case the undistributed income year but not counting the 
     taxable year of the distribution).
       ``(4) Undistributed income year.--For purposes of this 
     subsection, the term `undistributed income year' means any 
     prior taxable year of the trust for which there is 
     undistributed net income, other than a taxable year during 
     all of which the beneficiary receiving the distribution was 
     not a citizen or resident of the United States.
       ``(5) Determination of undistributed net income.--
     Notwithstanding section 666, for purposes of this subsection, 
     an accumulation distribution from the trust shall be treated 
     as reducing proportionately the undistributed net income for 
     undistributed income years.
       ``(6) Periods before 1996.--Interest for the portion of the 
     period described in paragraph (2) which occurs before January 
     1, 1996, shall be determined--
       ``(A) by using an interest rate of 6 percent, and
       ``(B) without compounding until January 1, 1996.''.
       (b) Abusive Transactions.--Section 643(a) is amended by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) Abusive transactions.--The Secretary shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of this part, including regulations to 
     prevent avoidance of such purposes.''.
       (c) Treatment of Loans From Trusts.--
       (1) In general.--Section 643 (relating to definitions 
     applicable to subparts A, B, C, and D) is amended by adding 
     at the end the following new subsection:
       ``(i) Loans From Foreign Trusts.--For purposes of subparts 
     B, C, and D--
       ``(1) General rule.--Except as provided in regulations, if 
     a foreign trust makes a loan of cash or marketable securities 
     directly or indirectly to--
       ``(A) any grantor or beneficiary of such trust who is a 
     United States person, or
       ``(B) any United States person not described in 
     subparagraph (A) who is related to such grantor or 
     beneficiary,

     the amount of such loan shall be treated as a distribution by 
     such trust to such grantor or beneficiary (as the case may 
     be).
       ``(2) Definitions and special rules.--For purposes of this 
     subsection--

[[Page H2964]]

       ``(A) Cash.--The term `cash' includes foreign currencies 
     and cash equivalents.
       ``(B) Related person.--
       ``(i) In general.--A person is related to another person if 
     the relationship between such persons would result in a 
     disallowance of losses under section 267 or 707(b). In 
     applying section 267 for purposes of the preceding sentence, 
     section 267(c)(4) shall be applied as if the family of an 
     individual includes the spouses of the members of the family.
       ``(ii) Allocation.--If any person described in paragraph 
     (1)(B) is related to more than one person, the grantor or 
     beneficiary to whom the treatment under this subsection 
     applies shall be determined under regulations prescribed by 
     the Secretary.
       ``(C) Exclusion of tax-exempts.--The term `United States 
     person' does not include any entity exempt from tax under 
     this chapter.
       ``(D) Trust not treated as simple trust.--Any trust which 
     is treated under this subsection as making a distribution 
     shall be treated as not described in section 651.
       ``(3) Subsequent transactions regarding loan principal.--If 
     any loan is taken into account under paragraph (1), any 
     subsequent transaction between the trust and the original 
     borrower regarding the principal of the loan (by way of 
     complete or partial repayment, satisfaction, cancellation, 
     discharge, or otherwise) shall be disregarded for purposes of 
     this title.''
       (2) Technical amendment.--Paragraph (8) of section 7872(f) 
     is amended by inserting ``, 643(i).'' before ``or 1274'' each 
     place it appears.
       (d) Effective Dates.--
       (1) Interest charge.--The amendment made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (2) Abusive transactions.--The amendment made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.
       (3) Loans from trusts.--The amendment made by subsection 
     (c) shall apply to loans of cash or marketable securities 
     after September 19, 1995.

     SEC. 226. RESIDENCE OF ESTATES AND TRUSTS, ETC.

       (a) Treatment as United States Person.--
       (1) In general.--Paragraph (30) of section 7701(a) is 
     amended by striking subparagraph (D) and by inserting after 
     subparagraph (C) the following:
       ``(D) any estate or trust if--
       ``(i) a court within the United States is able to exercise 
     primary supervision over the administration of the estate or 
     trust, and
       ``(ii) in the case of a trust, one or more United States 
     fiduciaries have the authority to control all substantial 
     decisions of the trust.''.
       (2) Conforming amendment.--Paragraph (31) of section 
     7701(a) is amended to read as follows:
       ``(31) Foreign estate or trust.--The term `foreign estate' 
     or `foreign trust' means any estate or trust other than an 
     estate or trust described in section 7701(a)(30)(D).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply--
       (A) to taxable years beginning after December 31, 1996, or
       (B) at the election of the trustee of a trust, to taxable 
     years ending after the date of the enactment of this Act.

     Such an election, once made, shall be irrevocable.
       (b) Dometic Trusts Which Become Foreign Trusts.--
       (1) In general.--Section 1491 (relating to imposition of 
     tax on transfers to avoid income tax) is amended by adding at 
     the end the following new flush sentence:

     ``If a trust which is not a foreign trust becomes a foreign 
     trust, such trust shall be treated for purposes of this 
     section as having transferred, immediately before becoming a 
     foreign trust, all of its assets to a foreign trust.''.
       (2) Penalty.--Section 1494 is amended by adding at the end 
     the following new subsection:
       ``(c) Penalty.--In the case of any failure to file a return 
     required by the Secretary with respect to any transfer 
     described in section 1491 with respect to a trust, the person 
     required to file such return shall be liable for the 
     penalties provided in section 6677 in the same manner as if 
     such failure were a failure to file a return under section 
     6048(a).''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.

    CHAPTER 3--REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
                              ASSOCIATIONS

     SEC. 231. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT 
                   SAVINGS ASSOCIATIONS.

       (a) In General.--Section 593 (relating to reserves for 
     losses on loans) is amended by adding at the end the 
     following new subsections:
       ``(f) Termination of Reserve Method.--Subsections (a), (b), 
     (c), and (d) shall not apply to any taxable year beginning 
     after December 31, 1995.
       ``(g) 6-Year Spread of Adjustments.--
       ``(1) In general.--In the case of any taxpayer who is 
     required by reason of subsection (f) to change its method of 
     computing reserves for bad debts--
       ``(A) such change shall be treated as a change in a method 
     of accounting,
       ``(B) such change shall be treated as initiated by the 
     taxpayer and as having been made with the consent of the 
     Secretary, and
       ``(C) the net amount of the adjustments required to be 
     taken into account by the taxpayer under section 481(a)--
       ``(i) shall be determined by taking into account only 
     applicable excess reserves, and
       ``(ii) as so determined, shall be taken into account 
     ratably over the 6-taxable year period beginning with the 
     first taxable year beginning after December 31, 1995.
       ``(2) Applicable excess reserves.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `applicable excess reserves' means the excess (if any) of--
       ``(i) the balance of the reserves described in subsection 
     (c)(1) (other than the supplemental reserve) as of the close 
     of the taxpayer's last taxable year beginning before December 
     31, 1995, over
       ``(ii) the lesser of--
       ``(I) the balance of such reserves as of the close of the 
     taxpayer's last taxable year beginning before January 1, 
     1988, or
       ``(II) the balance of the reserves described in subclause 
     (I), reduced in the same manner as under section 
     585(b)(2)(B)(ii) on the basis of the taxable years described 
     in clause (i) and this clause.
       ``(B) Special rule for thrifts which become small banks.--
     In the case of a bank (as defined in section 581) which was 
     not a large bank (as defined in section 585(c)(2)) for its 
     first taxable year beginning after December 31, 1995--
       ``(i) the balance taken into account under subparagraph 
     (A)(ii) shall not be less than the amount which would be the 
     balance of such reserves as of the close of its last taxable 
     year beginning before such date if the additions to such 
     reserves for all taxable years had been determined under 
     section 585(b)(2)(A), and
       ``(ii) the opening balance of the reserve for bad debts as 
     of the beginning of such first taxable year shall be the 
     balance taken into account under subparagraph (A)(ii) 
     (determined after the application of clause (i) of this 
     subparagraph).

     The preceding sentence shall not apply for purposes of 
     paragraphs (5) and (6) or subsection (e)(1).
       ``(3) Recapture of pre-1988 reserves where taxpayer ceases 
     to be bank.--If, during any taxable year beginning after 
     December 31, 1995, a taxpayer to which paragraph (1) applied 
     is not a bank (as defined in section 581), paragraph (1) 
     shall apply to the reserves described in paragraph (2)(A)(ii) 
     and the supplemental reserve: except that such reserves shall 
     be taken into account ratably over the 6-taxable year period 
     beginning with such taxable year.
       ``(4) Suspension of recapture if residential loan 
     requirement met.--
       ``(A) In general.-- In the case of a bank which meets the 
     residential loan requirement of subparagraph (B) for the 
     first taxable year beginning after December 31, 1995, or for 
     the following taxable year--
       ``(i) no adjustment shall be taken into account under 
     paragraph (1) for such taxable year, and
       ``(ii) such taxable year shall be disregarded in 
     determining--
       ``(I) whether any other taxable year is a taxable year for 
     which an adjustment is required to be taken into account 
     under paragraph (1), and
       ``(II) the amount of such adjustment.
       ``(B) Residential loan requirement.--A taxpayer meets the 
     residential loan requirement of this subparagraph for any 
     taxable year if the principal amount of the residential loans 
     made by the taxpayer during such year is not less than the 
     base amount for such year.
       ``(C) Residential loan.--For purposes of this paragraph, 
     the term `residential loan' means any loan described in 
     clause (v) of section 7701(a)(19)(C) but only if such loan is 
     incurred in acquiring, constructing, or improving the 
     property described in such clause.
       ``(D) Base amount.--For purposes of subparagraph (B), the 
     base amount is the average of the principal amounts of the 
     residential loans made by the taxpayer during the 6 
     most recent taxable years beginning on or before December 
     31, 1995. At the election of the taxpayer who made such 
     loans during each of such 6 taxable years, the preceding 
     sentence shall be applied without regard to the taxable 
     year in which such principal amount was the highest and 
     the taxable year in such principal amount was the lowest. 
     Such an election may be made only for the first taxable 
     year beginning after such date, and, if made for such 
     taxable year, shall apply to the succeeding taxable year 
     unless revoked with the consent of the Secretary.
       ``(E) Controlled groups.--In the case of a taxpayer which 
     is a member of any controlled group of corporations described 
     in section 1563(a)(1), subparagraph (B) shall be applied with 
     respect to such group.
       ``(5) Continued application of fresh start under section 
     585 transitional rules.--In the case of a taxpayer to which 
     paragraph (1) applied and which was not a large bank (as 
     defined in section 585(c)(2)) for its first taxable year 
     beginning after December 31, 1995.
       ``(A) In general.--For purposes of determining the net 
     amount of adjustments referred to in section 
     585(c)(3)(A)(iii), there shall be taken into account only the 
     excess (if any) of the reserve for bad debts as of the close 
     of the last taxable year before the disqualification year 
     over the balance taken into account by such taxpayer under 
     paragraph (2)(A)(ii) of this subsection.

[[Page H2965]]

       ``(B) Treatment under elective cutoff method.--For purposes 
     of applying section 585(c)(4)--
       ``(i) the balance of the reserve taken into account under 
     subparagraph (B) thereof shall be reduced by the balance 
     taken into account by such taxpayer under paragraph 
     (2)(A)(ii) of this subsection, and
       ``(ii) no amount shall be includable in gross income by 
     reason of such reduction.
       ``(6) Suspended reserve included as section 381(c) items.--
     The balance taken into account by a taxpayer under paragraph 
     (2)(A)(ii) of this subsection and the supplemental reserve 
     shall be treated as items described in section 381(c).
       ``(7) Conversions to credit unions.--In the case of a 
     taxpayer to which paragraph (1) applied which becomes a 
     credit union described in section 501(c) and exempt from 
     taxation under section 501(a)--
       ``(A) any amount required to be included in the gross 
     income of the credit union by reason of this subsection shall 
     be treated as derived from an unrelated trade or business (as 
     defined in section 513), and
       ``(B) for purposes of paragraph (3), the credit union shall 
     not be treated as if it were a bank.
       ``(8) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out this subsection 
     and subsection (e), including regulations providing for the 
     application of such subsections in the case of acquisitions, 
     mergers, spinoffs, and other reorganizations.''
       (b) Conforming Amendments.--
       (1) Subsection (d) of section 50 is amended by adding at 
     the end the following new sentence:

     ``Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) 
     referred to in paragraph (1) of this subsection shall not 
     apply to any taxable year beginning after December 31, 
     1995.''
       (2) Subsection (e) of section 52 is amended by striking 
     paragraph (1) and by redesignating paragraph (2) and (3) as 
     paragraphs (1) and (2), respectively.
       (3) Subsection (a) of section 57 is amended by striking 
     paragraph (4).
       (4) Section 246 is amended by striking subsection (f).
       (5) Clause (i) of section 291(e)(1)(B) is amended by 
     striking ``or to which section 593 applies''.
       (6) Subparagraph (A) of section 585(a)(2) is amended by 
     striking ``other than an organization to which section 593 
     applies''.
       (7)(A) The material preceding subparagraph (A) of section 
     593(e)(1) is amended by striking ``by a domestic building and 
     loan association or an institution that is treated as a 
     mutual savings bank under section 591(b)'' and inserting ``by 
     a taxpayer having a balance described in subsection 
     (g)(2)(A)(ii)''.
       (B) Subparagraph (B) of section 593(e)(1) is amended to 
     read as follows:
       (B) then out of the balance taken into account under 
     subsection (g)(2)(A)(ii) (properly adjusted for amounts 
     charged against such reserves for taxable years beginning 
     after December 31, 1987).''.
       (C) Paragraph (1) of section 593(e) is amended by adding at 
     the end the following new sentence: ``This paragraph shall 
     not apply to any distribution of all of the stock of a bank 
     (as defined in section 581 to another corporation if, 
     immediately after the distribution, such bank and such other 
     corporation are members of the same affiliated group (as 
     defined in section 1504) and the provisions of section 5(e) 
     of the Federal Deposit Insurance Act (as in effect on 
     December 31, 1995) or similar provisions are in effect.''.
       (8) Section 595 is hereby repealed.
       (9) Section 596 is hereby repealed.
       (10) Subsection (a) of section 860E is amended--
       (A) by striking ``Except as provided in paragraph (2), 
     the'' in paragraph (1) and inserting ``The''.
       (B) by striking paragraphs (2) and (4) and redesignating 
     paragraphs (3) and (5) as paragraphs (2) and (3), 
     respectively, and
       (C) by striking in paragraph (2) (as so redesignated) all 
     that follows ``subsection'' and inserting a period.
       (11) Paragraph (3) of section 992(d) is amended by striking 
     ``or 593''.
       (12) Section 1038 is amended by striking subsection (f).
       (13) Clause (ii) of section 1042(c)(4)(B) is amended by 
     striking ``or 593''.
       (14) Subsection (c) of section 1277 is amended by striking 
     ``or to which section 593 applies''.
       (15) Subparagraph (B) of section 1361(b)(2) is amended by 
     striking ``or to which section 593 applies''.
       (16) The table of sections for part II of subchapter H of 
     chapter 1 is amended by striking the items relating to 
     sections 595 and 596.
       (c) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to taxable years beginning after December 31, 1995.
       (2) Subsection  (b)(7).--The amendments made by subsection 
     (b)(7) shall not apply to any distribution with respect to 
     preferred stock if--
       (A) such stock is outstanding at all times after October 
     31, 1995, and before the distribution, and
       (B) such distribution is made before the date which is 1 
     year after the date of the enactment of this Act (or, in the 
     case of stock which may be redeemed, if later, the date which 
     is 30 days after the earliest date that such stock may be 
     redeemed).
       (3) Subsection   (b)(8).--The amendment made by subsection 
     (b)(8) shall apply to property acquired in taxable years 
     beginning after December 31, 1995.
       (4) Subsection  (b)(10).--The amendments made by subsection 
     (b)(10) shall not apply to any residual interest held by a 
     taxpayer if such interest has been held by such taxpayer at 
     all times after October 31, 1995.