[Congressional Record Volume 142, Number 99 (Monday, July 8, 1996)]
[Senate]
[Pages S7366-S7413]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               SMALL BUSINESS JOB PROTECTION ACT OF 1996

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
proceed to the consideration of H.R. 3448, which the clerk will report.
  The assistant legislative clerk read as follows:

       A bill (H.R. 3448) to provide tax relief for small 
     businesses, to protect jobs, to create opportunities, to 
     increase the take home pay of workers, to amend the Portal-
     to-Portal Act of 1947 relating to the payment of wages to 
     employees who use employers owned vehicles, and to amend the 
     Fair Labor Standards Act of 1938 to increase the minimum wage 
     rate and to prevent job loss by providing flexibility to 
     employers in complying with minimum wage and overtime 
     requirements under that Act.
  The Senate proceeded to consider the bill which had been reported 
from the Committee on Finance with an amendment; as follows:

                               H.R. 3448

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

         (a) Short Title.--This Act may be cited as the ``Small 
     Business Job Protection Act of 1996''.
       (b) Table of Contents.--

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.

                      Subtitle A--Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of dues paid to agricultural or horticultural 
              organizations.
Sec. 1114. Clarification of employment tax status of certain fishermen.
Sec. 1115. Modifications of tax-exempt bond rules for first-time 
              farmers.
Sec. 1116. Newspaper distributors treated as direct sellers.
Sec. 1117. Application of involuntary conversion rules to 
              presidentially declared disasters.
Sec. 1118. Class life for gas station convenience stores and similar 
              structures.
Sec. 1119. Treatment of abandonment of lessor improvements at 
              termination of lease.
Sec. 1120. Deductibility of business meal expenses for certain seafood 
              processing facilities.
Sec. 1121. Clarification of tax treatment of hard cider.
Sec. 1122. Special rules relating to determination whether individuals 
              are employees for purposes of employment taxes.

          Subtitle B--Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. Research credit.
Sec. 1204. Orphan drug tax credit.
Sec. 1205. Contributions of stock to private foundations.
Sec. 1206. Extension of binding contract date for biomass and coal 
              facilities.
Sec. 1207. Moratorium for excise tax on diesel fuel sold for use or 
              used in diesel-powered motorboats.

           Subtitle C--Provisions Relating to S Corporations

Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.

[[Page S7367]]

Sec. 1305. Rules relating to inadvertent terminations and invalid 
              elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk 
              rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain 
              items of income.
Sec. 1314. S corporations eligible for rules applicable to real 
              property subdivided for sale by noncorporate taxpayers.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.

                   Subtitle D--Pension Simplification

                Chapter 1--Simplified Distribution Rules

Sec. 1401. Repeal of 5-year income averaging for lump-sum 
              distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under 
              certain employer plans.
Sec. 1404. Required distributions.

            Chapter 2--Increased Access to Retirement Plans


                   SUBCHAPTER A--SIMPLE SAVINGS PLANS

Sec. 1421. Establishment of savings incentive match plans for employees 
              of small employers.
Sec. 1422. Extension of simple plan to 401(k) arrangements.


                     SUBCHAPTER B--OTHER PROVISIONS

Sec. 1426. Tax-exempt organizations eligible under section 401(k).
Sec. 1427. Homemakers eligible for full IRA deduction.

                Chapter 3--Nondiscrimination Provisions

Sec. 1431. Definition of highly compensated employees; repeal of family 
              aggregation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred 
              arrangements and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.

                  Chapter 4--Miscellaneous Provisions

Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local 
              governments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State 
              and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 
              415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Waiver of minimum period for joint and survivor annuity 
              explanation before annuity starting date.
Sec. 1452. Repeal of limitation in case of defined benefit plan and 
              defined contribution plan for same employee; excess 
              distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension 
              reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net 
              earnings from self-employment.
Sec. 1457. Model forms for spousal consent and qualified domestic 
              relations forms.
Sec. 1458. Treatment of length of service awards to volunteers 
              performing fire fighting or prevention services, 
              emergency medical services, or ambulance services.
Sec. 1459. Date for adoption of plan amendments.

                      Subtitle E--Revenue Offsets

                       Part I--General Provisions

Sec. 1601. Modifications of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire 
              employer securities.
Sec. 1603. Repeal of exclusion for punitive damages.
Sec. 1604. Extension and phasedown of luxury passenger automobile tax.
Sec. 1605. Termination of future tax-exempt bond financing for local 
              furnishers of electricity and gas.
Sec. 1606. Repeal of financial institution transition rule to interest 
              allocation rules.
Sec. 1607. Extension of airport and airway trust fund excise taxes.
Sec. 1608. Basis adjustment to property held by corporation where stock 
              in corporation is replacement property under involuntary 
              conversion rules.
Sec. 1609. Extension of withholding to certain gambling winnings.
Sec. 1610. Treatment of certain insurance contracts on retired lives.
Sec. 1611. Treatment of contributions in aid of construction.

          Part II--Financial Asset Securitization Investments

Sec. 1621. Financial asset securitization investment trusts.

           Part III--Treatment of Individuals Who Expatriate

Sec. 1631. Revision of tax rules on expatriation.
Sec. 1632. Information on individuals expatriating.
Sec. 1633. Report on tax compliance by United States citizens and 
              residents living abroad.

                   Subtitle F--Technical Corrections

Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.

                      Subtitle G--Other Provisions

Sec. 1801. Exemption from diesel fuel dyeing requirements with respect 
              to certain States.
Sec. 1802. Treatment of certain university accounts.
Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.
Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration 
              facility.
Sec. 1805. Nonrecognition treatment for certain transfers by common 
              trust funds to regulated investment companies.
Sec. 1806. Qualified State tuition programs.

                       TITLE II--PAYMENT OF WAGES

Section 1. Short title.
Sec. 2. Proper compensation for use of employer vehicles.
Sec. 3. Effective date.
Sec. 4. Minimum wage increase.
Sec. 5. Fair Labor Standards Act Amendments.
            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

     SEC. 1101. 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.

     SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

       No addition to the tax shall be made under section 6654 or 
     6655 of the Internal Revenue Code of 1986 (relating to 
     failure to pay estimated tax) with respect to any 
     underpayment of an installment required to be paid before the 
     date of the enactment of this Act to the extent such 
     underpayment was created or increased by any provision of 
     this title.
                      Subtitle A--Expensing; Etc.

     SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL 
                   BUSINESSES.

       (a) General Rule.--Paragraph (1) of section 179(b) 
     (relating to dollar limitation) is amended to read as 
     follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed the following applicable amount:

                                                  ``If thThe applicable
                                                             amount is:
      1997..................................................... 18,000 
      1998..................................................... 18,500 
      1999..................................................... 19,000 
      2000..................................................... 20,000 
      2001..................................................... 24,000 
      2002..................................................... 24,000 
      2003 or thereafter..................................... 25,000.''

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

     SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

       (a) Employee Cash Tips.--
       (1) Reporting requirement not considered.--Subparagraph (A) 
     of section 45B(b)(1) (relating to excess employer social 
     security tax) is amended by inserting ``(without regard to 
     whether such tips are reported under section 6053)'' after 
     ``section 3121(q)''.
       (2) Taxes paid.--Subsection (d) of section 13443 of the 
     Revenue Reconciliation Act of 1993 is amended by inserting 
     ``, with respect to services performed before, on, or after 
     such date'' after ``1993''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect as if included in the amendments made by, 
     and the provisions of, section 13443 of the Revenue 
     Reconciliation Act of 1993.
       (b) Tips for Employees Delivering Food or Beverages.--
       (1) In general.--Paragraph (2) of section 45B(b) is amended 
     to read as follows:
       ``(2) Only tips received for food or beverages taken into 
     account.--In applying paragraph (1), there shall be taken 
     into account only tips received from customers in connection 
     with the delivering or serving of

[[Page S7368]]

     food or beverages for consumption if the tipping of employees 
     delivering or serving food or beverages by customers is 
     customary.''
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to tips received for services performed after 
     December 31, 1996.

     SEC. 1113. TREATMENT OF DUES PAID TO AGRICULTURAL OR 
                   HORTICULTURAL ORGANIZATIONS.

       (a) General Rule.--Section 512 (defining unrelated business 
     taxable income) is amended by adding at the end the following 
     new subsection:
       ``(d) Treatment of Dues of Agricultural or Horticultural 
     Organizations.--
       ``(1) In general.--If--
       ``(A) an agricultural or horticultural organization 
     described in section 501(c)(5) requires annual dues to be 
     paid in order to be a member of such organization, and
       ``(B) the amount of such required annual dues does not 
     exceed $100,

     in no event shall any portion of such dues be treated as 
     derived by such organization from an unrelated trade or 
     business by reason of any benefits or privileges to which 
     members of such organization are entitled.
       ``(2) Indexation of $100 amount.--In the case of any 
     taxable year beginning in a calendar year after 1995, the 
     $100 amount in paragraph (1) shall be increased by an amount 
     equal to--
       ``(A) $100, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 1994' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(3) Dues.--For purposes of this subsection, the term 
     `dues' means any payment (whether or not designated as dues) 
     which is required to be made in order to be recognized by the 
     organization as a member of the organization.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1994.

     SEC. 1114. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN 
                   FISHERMEN.

       (a) Clarification of Employment Tax Status.--
       (1) Amendments of internal revenue code of 1986.--
       (A) Determination of size of crew.--Subsection (b) of 
     section 3121 (defining employment) is amended by adding at 
     the end the following new sentence:

     ``For purposes of paragraph (20), the operating crew of a 
     boat shall be treated as normally made up of fewer than 10 
     individuals if the average size of the operating crew on 
     trips made during the preceding 4 calendar quarters consisted 
     of fewer than 10 individuals.''.
       (B) Certain cash remuneration permitted.--Subparagraph (A) 
     of section 3121(b)(20) is amended to read as follows:
       ``(A) such individual does not receive any cash 
     remuneration other than as provided in subparagraph (B) and 
     other than cash remuneration--
       ``(i) which does not exceed $100 per trip;
       ``(ii) which is contingent on a minimum catch; and
       ``(iii) which is paid solely for additional duties (such as 
     mate, engineer, or cook) for which additional cash 
     remuneration is traditional in the industry,''.
       (C) Conforming amendment.--Section 6050A(a) is amended by 
     striking ``and'' at the end of paragraph (3), by striking the 
     period at the end of paragraph (4) and inserting ``; and'', 
     and by adding at the end the following new paragraph:
       ``(5) any cash remuneration described in section 
     3121(b)(20)(A).''.
       (2) Amendment of social security act.--
       (A) Determination of size of crew.--Subsection (a) of 
     section 210 of the Social Security Act is amended by adding 
     at the end the following new sentence:

     ``For purposes of paragraph (20), the operating crew of a 
     boat shall be treated as normally made up of fewer than 10 
     individuals if the average size of the operating crew on 
     trips made during the preceding 4 calendar quarters consisted 
     of fewer than 10 individuals.''.
       (B) Certain cash remuneration permitted.--Subparagraph (A) 
     of section 210(a)(20) of such Act is amended to read as 
     follows:
       ``(A) such individual does not receive any additional 
     compensation other than as provided in subparagraph (B) and 
     other than cash remuneration--
       ``(i) which does not exceed $100 per trip;
       ``(ii) which is contingent on a minimum catch; and
       ``(iii) which is paid solely for additional duties (such as 
     mate, engineer, or cook) for which additional cash 
     remuneration is traditional in the industry,''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to remuneration paid after December 31, 1994.

     SEC. 1115. MODIFICATIONS OF TAX-EXEMPT BOND RULES FOR FIRST-
                   TIME FARMERS.

       (a) Acquisition From Related Person Allowed.--Section 
     147(c)(2) (relating to exception for first-time farmers) is 
     amended by adding at the end the following new subparagraph:
       ``(G) Acquisition from related person.--For purposes of 
     this paragraph and section 144(a), the acquisition by a 
     first-time farmer of land or personal property from a related 
     person (within the meaning of section 144(a)(3)) shall not be 
     treated as an acquisition from a related person, if--
       ``(i) the acquisition price is for the fair market value of 
     such land or property, and
       ``(ii) subsequent to such acquisition, the related person 
     does not have a financial interest in the farming operation 
     with respect to which the bond proceeds are to be used.''
       (b) Substantial Farmland Amount Doubled.--Clause (i) of 
     section 147(c)(2)(E) (defining substantial farmland) is 
     amended by striking ``15 percent'' and inserting ``30 
     percent''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 1116. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.

       (a) In General.--Section 3508(b)(2)(A) is amended by 
     striking ``or'' at the end of clause (i), by inserting ``or'' 
     at the end of clause (ii), and by inserting after clause (ii) 
     the following new clause:
       ``(iii) is engaged in the trade or business of the 
     delivering or distribution of newspapers or shopping news 
     (including any services directly related to such trade or 
     business),''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to services performed after December 31, 1995.

     SEC. 1117. APPLICATION OF INVOLUNTARY CONVERSION RULES TO 
                   PRESIDENTIALLY DECLARED DISASTERS.

       (a) In General.--Section 1033(h) is amended by 
     redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4) and by inserting after paragraph (1) the following new 
     paragraph:
       ``(2) Trade or business and investment property.--If a 
     taxpayer's property held for productive use in a trade or 
     business or for investment is compulsorily or involuntarily 
     converted as a result of a Presidentially declared disaster, 
     tangible property of a type held for productive use in a 
     trade or business shall be treated for purposes of subsection 
     (a) as property similar or related in service or use to the 
     property so converted.''.
       (b) Conforming Amendments.--Section 1033(h) is amended--
       (1) by striking ``residence'' in paragraph (3) (as 
     redesignated by subsection (a)) and inserting ``property'',
       (2) by striking ``Principal Residences'' in the heading and 
     inserting ``Property'', and
       (3) by striking ``(1) In general.--'' and inserting ``(1) 
     Principal residences.--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to disasters declared after December 31, 1994, in 
     taxable years ending after such date.

     SEC. 1118. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND 
                   SIMILAR STRUCTURES.

       (a) In General.--Section 168(e)(3)(E) (classifying certain 
     property as 15-year property) is amended by striking ``and'' 
     at the end of clause (i), by striking the period at the end 
     of clause (ii) and inserting ``, and'', and by adding at the 
     end the following new clause:
       ``(iii) any section 1250 property which is a retail motor 
     fuels outlet (whether or not food or other convenience items 
     are sold at the outlet).''
       (b) Conforming Amendment.--Subparagraph (B) of section 
     168(g)(3) is amended by inserting after the item relating to 
     subparagraph (E)(ii) in the table contained therein the 
     following new item:

``(E)(iii) . . . . . . . . . . . . . . . . . 20''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property which is placed in service on or 
     after the date of the enactment of this Act and to which 
     section 168 of the Internal Revenue Code of 1986 applies 
     after the amendment made by section 201 of the Tax Reform Act 
     of 1986. A taxpayer may elect (in such form and manner as the 
     Secretary of the Treasury may prescribe) to have such 
     amendments apply with respect to any property placed in 
     service before such date and to which such section so 
     applies.

     SEC. 1119. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT 
                   TERMINATION OF LEASE.

       (a) In General.--Paragraph (8) of section 168(i) is amended 
     to read as follows:
       ``(8) Treatment of leasehold improvements.--
       ``(A) In general.--In the case of any building erected (or 
     improvements made) on leased property, if such building or 
     improvement is property to which this section applies, the 
     depreciation deduction shall be determined under the 
     provisions of this section.
       ``(B) Treatment of lessor improvements which are abandoned 
     at termination of lease.--An improvement--
       ``(i) which is made by the lessor of leased property for 
     the lessee of such property, and
       ``(ii) which is irrevocably disposed of or abandoned by the 
     lessor at the termination of the lease by such lessee,

     shall be treated for purposes of determining gain or loss 
     under this title as disposed of by the lessor when so 
     disposed of or abandoned.''
       (b) Effective Date.--Subparagraph (B) of section 168(i)(8) 
     of the Internal Revenue Code of 1986, as added by the 
     amendment made by subsection (a), shall apply to improvements 
     disposed of or abandoned after June 12, 1996.

     SEC. 1120. DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                   CERTAIN SEAFOOD PROCESSING FACILITIES.

       (a) In General.--Subparagraph (E) of section 274(n)(2) is 
     amended by striking ``or'' at the end of clause (iii), by 
     striking the period

[[Page S7369]]

     at the end of clause (iv) and inserting ``, or'', and by 
     inserting after clause (iv) the following new clause:
       ``(v) provided at a remote seafood processing facility 
     located in the United States north of 53 degrees north 
     latitude.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 1121. CLARIFICATION OF TAX TREATMENT OF HARD CIDER.

       (a) Hard Cider Containing Not More Than 7 Percent Alcohol 
     Taxed as Wine.--Subsection (b) of section 5041 (relating to 
     imposition and rate of tax) is amended by striking ``and'' at 
     the end of paragraph (4), by striking the period at the end 
     of paragraph (5) and inserting ``; and'', and by adding at 
     the end the following new paragraph:
       ``(6) On hard cider derived primarily from apples or apple 
     concentrate and water, containing no other fruit product, and 
     containing at least one-half of 1 percent and not more than 7 
     percent of alcohol by volume, 22.6 cents per wine gallon.''
       (b) Exclusion From Small Producer Credit.--Paragraph (1) of 
     section 5041(c) (relating to credit for small domestic 
     producers) is amended by striking ``subsection (b)(4)'' and 
     inserting ``paragraphs (4) and (6) of subsection (b)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1997.

     SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER 
                   INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF 
                   EMPLOYMENT TAXES.

       (a) In General.--Section 530 of the Revenue Act of 1978 is 
     amended by adding at the end the following new subsection:
       ``(e) Special Rules for Application of Section.--
       ``(1) Notice requirements.--
       ``(A) Written agreement required between taxpayer and 
     individual.--The provisions of subsection (a)(1) shall not 
     apply with respect to a taxpayer and any individual unless 
     such taxpayer and individual sign a statement (at such time 
     and in such form as the Secretary may prescribe) which 
     provides that such individual will not be treated as an 
     employee of the taxpayer for purposes of employment taxes.
       ``(B) Notice of availability of section.--An officer or 
     employee of the Internal Revenue Service shall, before or at 
     the commencement of any audit relating to the employment 
     status of one or more individuals who perform services for 
     the taxpayer, provide the taxpayer with a written notice of 
     the provisions of this section.
       ``(2) Rules relating to statutory standards.--For purposes 
     of subsection (a)(2)--
       ``(A) a taxpayer may not rely on an audit commenced after 
     December 31, 1996, for purposes of subparagraph (B) thereof 
     unless such audit included an examination for employment tax 
     purposes of whether the individual involved (or any 
     individual holding a position substantially similar to the 
     position held by the individual involved) should be treated 
     as an employee of the taxpayer,
       ``(B) in no event shall the significant segment requirement 
     of subparagraph (C) thereof be construed to require a 
     reasonable showing of the practice of more than 25 percent of 
     the industry (determined by not taking into account the 
     taxpayer), and
       ``(C) in applying the long-standing recognized practice 
     requirement of subparagraph (C) thereof--
       ``(i) such requirement shall not be construed as requiring 
     the practice to have continued for more than 10 years, and
       ``(ii) a practice shall not fail to be treated as long-
     standing merely because such practice began after 1978.
       ``(3) Availability of safe harbors.--Nothing in this 
     section shall be construed to provide that subsection (a) 
     only applies where the individual involved is otherwise an 
     employee of the taxpayer.
       ``(4) Burden of proof.--
       ``(A) In general.--If--
       ``(i) a taxpayer establishes a prima facie case that it was 
     reasonable not to treat an individual as an employee for 
     purposes of this section, and
       ``(ii) the taxpayer has fully cooperated with reasonable 
     requests from the Secretary of the Treasury or his delegate,

     then the burden of proof with respect to such treatment shall 
     be on the Secretary.
       ``(B) Exception for other reasonable basis.--In the case of 
     any issue involving whether the taxpayer had a reasonable 
     basis not to treat an individual as an employee for purposes 
     of this section, subparagraph (A) shall only apply for 
     purposes of determining whether the taxpayer meets the 
     requirements of subparagraph (A), (B), or (C) of 
     subsection (a)(2).''
       (b) Effective Dates.--
       (1) In general.--The amendment made by this section shall 
     apply to periods after December 31, 1996.
       (2) Notice requirements.--
       (A) Written agreement.--In the case of individuals who 
     first perform services for a taxpayer before January 1, 1997, 
     the requirements of section 530(e)(1)(A) of the Revenue Act 
     of 1978 (as added by subsection (a)) shall not apply before 
     January 1, 1998, unless the taxpayer elects to apply such 
     requirements before such date.
       (B) Notice by internal revenue service.--Section 
     530(e)(1)(B) of the Revenue Act of 1978 (as added by 
     subsection (a)) shall apply to audits which commence after 
     December 31, 1996.
       (3) Burden of proof.--
       (A) In general.--Section 530(e)(4) of the Revenue Act of 
     1978 (as added by subsection (a)) shall apply to disputes 
     involving periods after December 31, 1996.
       (B) No inference.--Nothing in the amendments made by this 
     section shall be construed to infer the proper treatment of 
     the burden of proof with respect to disputes involving 
     periods before January 1, 1997.
          Subtitle B--Extension of Certain Expiring Provisions

     SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

       (a) Amount of Credit.--Subsection (a) of section 51 
     (relating to amount of credit) is amended by striking ``40 
     percent'' and inserting ``35 percent''.
       (b) Members of Targeted Groups.--Subsection (d) of section 
     51 is amended to read as follows:
       ``(d) Members of Targeted Groups.--For purposes of this 
     subpart--
       ``(1) In general.--An individual is a member of a targeted 
     group if such individual is--
       ``(A) a qualified IV-A recipient,
       ``(B) a qualified veteran,
       ``(C) a qualified ex-felon,
       ``(D) a high-risk youth,
       ``(E) a vocational rehabilitation referral,
       ``(F) a qualified summer youth employee, or
       ``(G) a qualified food stamp recipient.
       ``(2) Qualified iv-a recipient.--
       ``(A) In general.--The term `qualified IV-A recipient' 
     means any individual who is certified by the designated local 
     agency as being a member of a family receiving assistance 
     under a IV-A program for at least a 9-month period ending 
     during the 9-month period ending on the hiring date.
       ``(B) IV-A program.--For purposes of this paragraph, the 
     term `IV-A program' means any program providing assistance 
     under a State plan approved under part A of title IV of the 
     Social Security Act (relating to assistance for needy 
     families with minor children) and any successor of such 
     program.
       ``(3) Qualified veteran.--
       ``(A) In general.--The term `qualified veteran' means any 
     veteran who is certified by the designated local agency as 
     being--
       ``(i) a member of a family receiving assistance under a IV-
     A program (as defined in paragraph (2)(B)) for at least a 9-
     month period ending during the 12-month period ending on the 
     hiring date, or
       ``(ii) a member of a family receiving assistance under a 
     food stamp program under the Food Stamp Act of 1977 for at 
     least a 3-month period ending during the 12-month period 
     ending on the hiring date.
       ``(B) Veteran.--For purposes of subparagraph (A), the term 
     `veteran' means any individual who is certified by the 
     designated local agency as--
       ``(i)(I) having served on active duty (other than active 
     duty for training) in the Armed Forces of the United States 
     for a period of more than 180 days, or
       ``(II) having been discharged or released from active duty 
     in the Armed Forces of the United States for a service-
     connected disability, and
       ``(ii) not having any day during the 60-day period ending 
     on the hiring date which was a day of extended active duty in 
     the Armed Forces of the United States.

     For purposes of clause (ii), the term `extended active duty' 
     means a period of more than 90 days during which the 
     individual was on active duty (other than active duty for 
     training).
       ``(4) Qualified ex-felon.--The term `qualified ex-felon' 
     means any individual who is certified by the designated local 
     agency--
       ``(A) as having been convicted of a felony under any 
     statute of the United States or any State,
       ``(B) as having a hiring date which is not more than 1 year 
     after the last date on which such individual was so convicted 
     or was released from prison, and
       ``(C) as being a member of a family which had an income 
     during the 6 months immediately preceding the earlier of the 
     month in which such income determination occurs or the month 
     in which the hiring date occurs, which, on an annual basis, 
     would be 70 percent or less of the Bureau of Labor Statistics 
     lower living standard.

     Any determination under subparagraph (C) shall be valid for 
     the 45-day period beginning on the date such determination is 
     made.
       ``(5) High-risk youth.--
       ``(A) In general.--The term `high-risk youth' means any 
     individual who is certified by the designated local agency--
       ``(i) as having attained age 18 but not age 25 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone or enterprise community.
       ``(B) Youth must continue to reside in zone.--In the case 
     of a high-risk youth, the term `qualified wages' shall not 
     include wages paid or incurred for services performed while 
     such youth's principal place of abode is outside an 
     empowerment zone or enterprise community.
       ``(6) Vocational rehabilitation referral.--The term 
     `vocational rehabilitation referral' means any individual who 
     is certified by the designated local agency as--
       ``(A) having a physical or mental disability which, for 
     such individual, constitutes or results in a substantial 
     handicap to employment, and
       ``(B) having been referred to the employer upon completion 
     of (or while receiving) rehabilitative services pursuant to--

[[Page S7370]]

       ``(i) an individualized written rehabilitation plan under a 
     State plan for vocational rehabilitation services approved 
     under the Rehabilitation Act of 1973, or
       ``(ii) a program of vocational rehabilitation carried out 
     under chapter 31 of title 38, United States Code.
       ``(7) Qualified summer youth employee.--
       ``(A) In general.--The term `qualified summer youth 
     employee' means any individual--
       ``(i) who performs services for the employer between May 1 
     and September 15,
       ``(ii) who is certified by the designated local agency as 
     having attained age 16 but not 18 on the hiring date (or if 
     later, on May 1 of the calendar year involved),
       ``(iii) who has not been an employee of the employer during 
     any period prior to the 90-day period described in 
     subparagraph (B)(i), and
       ``(iv) who is certified by the designated local agency as 
     having his principal place of abode within an empowerment 
     zone or enterprise community.
       ``(B) Special rules for determining amount of credit.--For 
     purposes of applying this subpart to wages paid or incurred 
     to any qualified summer youth employee--
       ``(i) subsection (b)(2) shall be applied by substituting 
     `any 90-day period between May 1 and September 15' for `the 
     1-year period beginning with the day the individual begins 
     work for the employer', and
       ``(ii) subsection (b)(3) shall be applied by substituting 
     `$3,000' for `$6,000'.

     The preceding sentence shall not apply to an individual who, 
     with respect to the same employer, is certified as a member 
     of another targeted group after such individual has been a 
     qualified summer youth employee.
       ``(C) Youth must continue to reside in zone.--Paragraph 
     (5)(B) shall apply for purposes of subparagraph (A)(iv).
       ``(8) Qualified food stamp recipient.--
       ``(A) In general.--The term `qualified food stamp 
     recipient' means any individual who is certified by the 
     designated local agency--
       ``(i) as having attained age 18 but not age 25 on the 
     hiring date, and
       ``(ii) as being a member of a family receiving assistance 
     under a food stamp program under the Food Stamp Act of 1977 
     for the 3-month period ending on the hiring date.
       ``(B) Participation information.--Notwithstanding any other 
     provision of law, the Secretary of the Treasury and the 
     Secretary of Agriculture shall enter into an agreement to 
     provide information to designated local agencies with respect 
     to participation in the food stamp program.
       ``(9) Hiring date.--The term `hiring date' means the day 
     the individual is hired by the employer.
       ``(10) Designated local agency.--The term `designated local 
     agency' means a State employment security agency established 
     in accordance with the Act of June 6, 1933, as amended (29 
     U.S.C. 49-49n).
       ``(11) Special rules for certifications.--
       ``(A) In general.--An individual shall not be treated as a 
     member of a targeted group unless--
       ``(i) on or before the day on which such individual begins 
     work for the employer, the employer has received a 
     certification from a designated local agency that such 
     individual is a member of a targeted group, or
       ``(ii)(I) on or before the day the individual is offered 
     employment with the employer, a pre-screening notice is 
     completed by the employer with respect to such individual, 
     and
       ``(II) not later than the 21st day after the individual 
     begins work for the employer, the employer submits such 
     notice, signed by the employer and the individual under 
     penalties of perjury, to the designated local agency as part 
     of a written request for such a certification from such 
     agency.

     For purposes of this paragraph, the term `pre-screening 
     notice' means a document (in such form as the Secretary shall 
     prescribe) which contains information provided by the 
     individual on the basis of which the employer believes that 
     the individual is a member of a targeted group.
       ``(B) Incorrect certifications.--If--
       ``(i) an individual has been certified by a designated 
     local agency as a member of a targeted group, and
       ``(ii) such certification is incorrect because it was based 
     on false information provided by such individual,

     the certification shall be revoked and wages paid by the 
     employer after the date on which notice of revocation is 
     received by the employer shall not be treated as qualified 
     wages.
       ``(C) Explanation of denial of request.--If a designated 
     local agency denies a request for certification of membership 
     in a targeted group, such agency shall provide to the person 
     making such request a written explanation of the reasons for 
     such denial.''
       (c) Minimum Employment Period.--Paragraph (3) of section 
     51(i) (relating to certain individuals ineligible) is amended 
     to read as follows:
       ``(3) Individuals not meeting minimum employment period.--
     No wages shall be taken into account under subsection (a) 
     with respect to any individual unless such individual 
     either--
       ``(A) is employed by the employer at least 180 days (20 
     days in the case of a qualified summer youth employee), or
       ``(B) has completed at least 375 hours (120 hours in the 
     case of a qualified summer youth employee) of services 
     performed for the employer.''
       (d) Termination.--Paragraph (4) of section 51(c) (relating 
     to wages defined) is amended to read as follows:
       ``(4) Termination.--The term `wages' shall not include any 
     amount paid or incurred to an individual who begins work for 
     the employer--
       ``(A) after December 31, 1994, and before October 1, 1996, 
     or
       ``(B) after September 30, 1997.''
       (e) Redesignation of Credit.--
       (1) Sections 38(b)(2) and 51(a) are each amended by 
     striking ``targeted jobs credit'' and inserting ``work 
     opportunity credit''.
       (2) The subpart heading for subpart F of part IV of 
     subchapter A of chapter 1 is amended by striking ``Targeted 
     Jobs Credit'' and inserting ``Work Opportunity Credit''.
       (3) The table of subparts for such part IV is amended by 
     striking ``targeted jobs credit'' and inserting ``work 
     opportunity credit''.
       (4) The heading for paragraph (3) of section 1396(c) is 
     amended by striking ``targeted jobs credit'' and inserting 
     ``work opportunity credit''.
       (f) Technical Amendment.--Paragraph (1) of section 51(c) is 
     amended by striking ``, subsection (d)(8)(D),''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after September 30, 1996.

     SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

       (a) Extension.--Subsection (d) of section 127 (relating to 
     educational assistance programs) is amended by striking 
     ``December 31, 1994'' and inserting ``December 31, 1996''.
       (b) Effective Dates.--
       (1) Extension.--The amendment made by subsection (a) shall 
     apply to taxable years beginning after December 31, 1994.
       (2) Expedited procedures.--The Secretary of the Treasury 
     shall establish expedited procedures for the refund of any 
     overpayment of taxes imposed by the Internal Revenue Code of 
     1986 which is attributable to amounts excluded from gross 
     income during 1995 or 1996 under section 127 of such Code, 
     including procedures waiving the requirement that an employer 
     obtain an employee's signature where the employer 
     demonstrates to the satisfaction of the Secretary that any 
     refund collected by the employer on behalf of the employee 
     will be paid to the employee.

     SEC. 1203. RESEARCH CREDIT.

       (a) In General.--Subsection (h) of section 41 (relating to 
     credit for research activities) is amended to read as 
     follows:
       ``(h) Termination.--
       ``(1) In general.--This section shall not apply to any 
     amount paid or incurred--
       ``(A) after June 30, 1995, and before July 1, 1996, or
       ``(B) after June 30, 1997.''
       ``(2) Computation of base amount.--In the case of any 
     taxable year with respect to which this section applies to a 
     number of days which is less than the total number of days in 
     such taxable year, the base amount with respect to such 
     taxable year shall be the amount which bears the same ratio 
     to the base amount for such year (determined without regard 
     to this paragraph) as the number of days in such taxable year 
     to which this section applies bears to the total number of 
     days in such taxable year.''
       (b) Base Amount for Start-Up Companies.--Clause (i) of 
     section 41(c)(3)(B) (relating to start-up companies) is 
     amended to read as follows:
       ``(i)  Taxpayers to which subparagraph applies.--The fixed-
     base percentage shall be determined under this subparagraph 
     if--

       ``(I) the first taxable year in which a taxpayer had both 
     gross receipts and qualified research expenses begins after 
     December 31, 1983, or
       ``(II) there are fewer than 3 taxable years beginning after 
     December 31, 1983, and before January 1, 1989, in which the 
     taxpayer had both gross receipts and qualified research 
     expenses.''

       (c) Election of Alternative Incremental Credit.--Subsection 
     (c) of section 41 is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (5) and (6), respectively, and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Election of alternative incremental credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     the sum of--
       ``(i) 1.65 percent of so much of the qualified research 
     expenses for the taxable year as exceeds 1 percent of the 
     average described in subsection (c)(1)(B) but does not exceed 
     1.5 percent of such average,
       ``(ii) 2.2 percent of so much of such expenses as exceeds 
     1.5 percent of such average but does not exceed 2 percent of 
     such average, and
       ``(iii) 2.75 percent of so much of such expenses as exceeds 
     2 percent of such average.
       ``(B) Election.--An election under this paragraph may be 
     made only for the first taxable year of the taxpayer 
     beginning after June 30, 1996. Such an election shall apply 
     to the taxable year for which made and all succeeding taxable 
     years unless revoked with the consent of the Secretary.''
       (d) Increased Credit for Contract Research Expenses With 
     Respect to Certain Research Consortia.--Paragraph (3) of 
     section 41(b) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Amounts paid to certain research consortia.--
       ``(i) In general.--Subparagraph (A) shall be applied by 
     substituting `75 percent' for `65

[[Page S7371]]

     percent' with respect to amounts paid or incurred by the 
     taxpayer to a qualified research consortium for qualified 
     research on behalf of the taxpayer and 1 or more unrelated 
     taxpayers. For purposes of the preceding sentence, all 
     persons treated as a single employer under subsection (a) 
     or (b) of section 52 shall be treated as related 
     taxpayers.
       ``(ii) Qualified research consortium.--The term `qualified 
     research consortium' means any organization which--

       ``(I) is described in section 501(c)(3) or 501(c)(6) and is 
     exempt from tax under section 501(a),
       ``(II) is organized and operated primarily to conduct 
     scientific research, and
       ``(III) is not a private foundation.''

       (e)  Conforming Amendment.--Subparagraph (D) of section 
     28(b)(1) is amended by inserting ``, and before July 1, 1996, 
     and periods after June 30, 1997'' after ``June 30, 1995''.
       (f) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     ending after June 30, 1996.
       (2) Subsections (c) and (d).--The amendments made by 
     subsections (c) and (d) shall apply to taxable years 
     beginning after June 30, 1996.

     SEC. 1204. ORPHAN DRUG TAX CREDIT.

       (a) Recategorized as a Business Credit.--
       (1) In general.--Section 28 (relating to clinical testing 
     expenses for certain drugs for rare diseases or conditions) 
     is transferred to subpart D of part IV of subchapter A of 
     chapter 1, inserted after section 45B, and redesignated as 
     section 45C.
       (2) Conforming amendment.--Subsection (b) of section 38 
     (relating to general business credit) is amended by striking 
     ``plus'' at the end of paragraph (10), by striking the period 
     at the end of paragraph (11) and inserting ``, plus'', and by 
     adding at the end the following new paragraph:
       ``(12) the orphan drug credit determined under section 
     45C(a).''
       (3) Clerical amendments.--
       (A) The table of sections for subpart B of such part IV is 
     amended by striking the item relating to section 28.
       (B) The table of sections for subpart D of such part IV is 
     amended by adding at the end the following new item:

``Sec. 45C. Clinical testing expenses for certain drugs for rare 
              diseases or conditions.''

       (b) Credit Termination.--Subsection (e) of section 45C, as 
     redesignated by subsection (a)(1), is amended to read as 
     follows:
       ``(e) Termination.--This section shall not apply to any 
     amount paid or incurred--
       ``(A) after December 31, 1994, and before July 1, 1996, or
       ``(B) after June 30, 1997.''
       (c) No Pre-July 1, 1996 Carrybacks.--Subsection (d) of 
     section 39 (relating to carryback and carryforward of unused 
     credits) is amended by adding at the end the following new 
     paragraph:
       ``(7) No carryback of section 45c credit before july 1, 
     1996.--No portion of the unused business credit for any 
     taxable year which is attributable to the orphan drug credit 
     determined under section 45C may be carried back to a taxable 
     year ending before July 1, 1996.''
       (d) Additional Conforming Amendments.--
       (1) Section 45C(a), as redesignated by subsection (a)(1), 
     is amended by striking ``There shall be allowed as a credit 
     against the tax imposed by this chapter for the taxable 
     year'' and inserting ``For purposes of section 38, the credit 
     determined under this section for the taxable year is''.
       (2) Section 45C(d), as so redesignated, is amended by 
     striking paragraph (2) and by redesignating paragraphs (3), 
     (4), and (5) as paragraphs (2), (3), and (4).
       (3) Section 29(b)(6)(A) is amended by striking ``sections 
     27 and 28'' and inserting ``section 27''.
       (4) Section 30(b)(3)(A) is amended by striking ``sections 
     27, 28, and 29'' and inserting ``sections 27 and 29''.
       (5) Section 53(d)(1)(B) is amended--
       (A) by striking ``or not allowed under section 28 solely by 
     reason of the application of section 28(d)(2)(B),'' in clause 
     (iii), and
       (B) by striking ``or not allowed under section 28 solely by 
     reason of the application of section 28(d)(2)(B)'' in clause 
     (iv)(II).
       (6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
       (7) Section 280C(b) is amended--
       (A) by striking ``section 28(b)'' in paragraph (1) and 
     inserting ``section 45C(b)'',
       (B) by striking ``section 28'' in paragraphs (1) and (2)(A) 
     and inserting ``section 45C(b)'', and
       (C) by striking ``subsection (d)(2) thereof'' in paragraphs 
     (1) and (2)(A) and inserting ``section 38(c)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     ending after June 30, 1996.

     SEC. 1205. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

       (a) In General.--Subparagraph (D) of section 170(e)(5) 
     (relating to special rule for contributions of stock for 
     which market quotations are readily available) is amended to 
     read as follows:
       ``(D) Termination.--This paragraph shall not apply to 
     contributions made--
       ``(A) after December 31, 1994, and before July 1, 1996, or
       ``(B) after June 30, 1997.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after June 30, 1996.

     SEC. 1206. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND 
                   COAL FACILITIES.

       (a) In General.--Subparagraph (A) of section 29(g)(1) 
     (relating to extension of certain facilities) is amended by 
     striking ``January 1, 1997'' and inserting ``January 1, 
     1998'' and by striking ``January 1, 1996'' and inserting 
     ``the date which is 6 months after the date of the enactment 
     of the Small Business Job Protection Act of 1996''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1207. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR 
                   USE OR USED IN DIESEL-POWERED MOTORBOATS.

       (a) In General.--Subparagraph (D) of section 4041(a)(1) 
     (relating to the imposition of tax on diesel fuel and special 
     motor fuels) is amended by redesignating clauses (i) and (ii) 
     as clauses (ii) and (iii), respectively, and by inserting 
     before clause (ii) (as redesignated) the following new 
     clause:
       ``(i) no tax shall be imposed by subsection (a) or (d)(1) 
     during the period after June 30, 1996, and before July 1, 
     1997,''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 1996.
           Subtitle C--Provisions Relating to S Corporations

     SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

       Subparagraph (A) of section 1361(b)(1) (defining small 
     business corporation) is amended by striking ``35 
     shareholders'' and inserting ``75 shareholders''.

     SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

       (a) General Rule.--Subparagraph (A) of section 1361(c)(2) 
     (relating to certain trusts permitted as shareholders) is 
     amended by inserting after clause (iv) the following new 
     clause:
       ``(v) An electing small business trust.''.
       (b) Current Beneficiaries Treated as Shareholders.--
     Subparagraph (B) of section 1361(c)(2) is amended by adding 
     at the end the following new clause:
       ``(v) In the case of a trust described in clause (v) of 
     subparagraph (A), each potential current beneficiary of such 
     trust shall be treated as a shareholder; except that, if for 
     any period there is no potential current beneficiary of such 
     trust, such trust shall be treated as the shareholder during 
     such period.''.
       (c) Electing Small Business Trust Defined.--Section 1361 
     (defining S corporation) is amended by adding at the end the 
     following new subsection:
       ``(e) Electing Small Business Trust Defined.--
       ``(1) Electing small business trust.--For purposes of this 
     section--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `electing small business trust' means any trust if--
       ``(i) such trust does not have as a beneficiary any person 
     other than (I) an individual, (II) an estate, or (III) an 
     organization described in paragraph (2), (3), (4), or (5) of 
     section 170(c) which holds a contingent interest and is not a 
     potential current beneficiary,
       ``(ii) no interest in such trust was acquired by purchase, 
     and
       ``(iii) an election under this subsection applies to such 
     trust.
       ``(B) Certain trusts not eligible.--The term `electing 
     small business trust' shall not include--
       ``(i) any qualified subchapter S trust (as defined in 
     subsection (d)(3)) if an election under subsection (d)(2) 
     applies to any corporation the stock of which is held by 
     such trust, and
       ``(ii) any trust exempt from tax under this subtitle.
       ``(C) Purchase.--For purposes of subparagraph (A), the term 
     `purchase' means any acquisition if the basis of the property 
     acquired is determined under section 1012.
       ``(2) Potential current beneficiary.--For purposes of this 
     section, the term `potential current beneficiary' means, with 
     respect to any period, any person who at any time during such 
     period is entitled to, or at the discretion of any person may 
     receive, a distribution from the principal or income of the 
     trust. If a trust disposes of all of the stock which it holds 
     in an S corporation, then, with respect to such corporation, 
     the term `potential current beneficiary' does not include any 
     person who first met the requirements of the preceding 
     sentence during the 60-day period ending on the date of such 
     disposition.
       ``(3) Election.--An election under this subsection shall be 
     made by the trustee. Any such election shall apply to the 
     taxable year of the trust for which made and all subsequent 
     taxable years of such trust unless revoked with the consent 
     of the Secretary.
       ``(4) Cross reference.--

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

       (d) Taxation of Electing Small Business Trusts.--Section 
     641 (relating to imposition of tax on trusts) is amended by 
     adding at the end the following new subsection:
       ``(d) Special Rules for Taxation of Electing Small Business 
     Trusts.--
       ``(1) In general.--For purposes of this chapter--
       ``(A) the portion of any electing small business trust 
     which consists of stock in 1 or more S corporations shall be 
     treated as a separate trust, and

[[Page S7372]]

       ``(B) the amount of the tax imposed by this chapter on such 
     separate trust shall be determined with the modifications of 
     paragraph (2).
       ``(2) Modifications.--For purposes of paragraph (1), the 
     modifications of this paragraph are the following:
       ``(A) Except as provided in section 1(h), the amount of the 
     tax imposed by section 1(e) shall be determined by using the 
     highest rate of tax set forth in section 1(e).
       ``(B) The exemption amount under section 55(d) shall be 
     zero.
       ``(C) The only items of income, loss, deduction, or credit 
     to be taken into account are the following:
       ``(i) The items required to be taken into account under 
     section 1366.
       ``(ii) Any gain or loss from the disposition of stock in an 
     S corporation.
       ``(iii) To the extent provided in regulations, State or 
     local income taxes or administrative expenses to the extent 
     allocable to items described in clauses (i) and (ii).

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

     the items referred to in paragraph (2)(C) shall be excluded. 
     Except as provided in the preceding sentence, this subsection 
     shall not affect the taxation of any distribution from the 
     trust.
       ``(4) Treatment of unused deductions where termination of 
     separate trust.--If a portion of an electing small business 
     trust ceases to be treated as a separate trust under 
     paragraph (1), any carryover or excess deduction of the 
     separate trust which is referred to in section 642(h) shall 
     be taken into account by the entire trust.
       ``(5) Electing small business trust.--For purposes of this 
     subsection, the term `electing small business trust' has the 
     meaning given such term by section 1361(e)(1).''.
       (e) Technical Amendment.--Paragraph (1) of section 1366(a) 
     is amended by inserting ``, or of a trust or estate which 
     terminates,'' after ``who dies''.

     SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN 
                   TRUSTS.

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

     SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE 
                   HARBOR DEBT.

       Clause (iii) of section 1361(c)(5)(B) (defining straight 
     debt) is amended by striking ``or a trust described in 
     paragraph (2)'' and inserting ``a trust described in 
     paragraph (2), or a person which is actively and regularly 
     engaged in the business of lending money''.

     SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND 
                   INVALID ELECTIONS.

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

     then, notwithstanding the circumstances resulting in such 
     ineffectiveness or termination, such corporation shall be 
     treated as an S corporation during the period specified by 
     the Secretary.''.
       (b) Late Elections, Etc.--Subsection (b) of section 1362 is 
     amended by adding at the end the following new paragraph:
       ``(5) Authority to treat late elections, etc., as timely.--
     If--
       ``(A) an election under subsection (a) is made for any 
     taxable year (determined without regard to paragraph (3)) 
     after the date prescribed by this subsection for making such 
     election for such taxable year or no such election is made 
     for any taxable year, and
       ``(B) the Secretary determines that there was reasonable 
     cause for the failure to timely make such election,

     the Secretary may treat such an election as timely made for 
     such taxable year (and paragraph (3) shall not apply).''.
       (c) Effective Date.--The amendments made by subsection (a) 
     and (b) shall apply with respect to elections for taxable 
     years beginning after December 31, 1982.

     SEC. 1306. AGREEMENT TO TERMINATE YEAR.

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

     SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

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

     paragraph (1) shall not apply to such item.
       ``(B) Shareholder receiving incorrect information.--A 
     shareholder shall be treated as having complied with clause 
     (ii) of subparagraph (A) with respect to a subchapter S item 
     if the shareholder--
       ``(i) demonstrates to the satisfaction of the Secretary 
     that the treatment of the subchapter S item on the 
     shareholder's return is consistent with the treatment of the 
     item on the schedule furnished to the shareholder by the 
     corporation, and
       ``(ii) elects to have this paragraph apply with respect to 
     that item.
       ``(3) Effect of failure to notify.--In any case--
       ``(A) described in subparagraph (A)(i)(I) of paragraph (2), 
     and
       ``(B) in which the shareholder does not comply with 
     subparagraph (A)(ii) of paragraph (2),

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


[[Page S7373]]


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

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

     SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

       (a) In General.--Paragraph (2) of section 1361(b) (defining 
     ineligible corporation) is amended by striking subparagraph 
     (A) and by redesignating subparagraphs (B), (C), (D), and (E) 
     as subparagraphs (A), (B), (C), and (D), respectively.
       (b) Treatment of Certain Wholly Owned S Corporation 
     Subsidiaries.--Section 1361(b) (defining small business 
     corporation) is amended by adding at the end the following 
     new paragraph:
       ``(3) Treatment of certain wholly owned subsidiaries.--
       ``(A) In general.--For purposes of this title--
       ``(i) a corporation which is a qualified subchapter S 
     subsidiary shall not be treated as a separate corporation, 
     and
       ``(ii) all assets, liabilities, and items of income, 
     deduction, and credit of a qualified subchapter S subsidiary 
     shall be treated as assets, liabilities, and such items (as 
     the case may be) of the S corporation.
       ``(B) Qualified subchapter s subsidiary.--For purposes of 
     this paragraph, the term `qualified subchapter S subsidiary' 
     means any domestic corporation which is not an ineligible 
     corporation (as defined in paragraph (2)), if--
       ``(i) 100 percent of the stock of such corporation is held 
     by the S corporation, and
       ``(ii) the S corporation elects to treat such corporation 
     as a qualified subchapter S subsidiary.
       ``(C) Treatment of terminations of qualified subchapter s 
     subsidiary status.--For purposes of this title, if any 
     corporation which was a qualified subchapter S subsidiary 
     ceases to meet the requirements of subparagraph (B), such 
     corporation shall be treated as a new corporation acquiring 
     all of its assets (and assuming all of its liabilities) 
     immediately before such cessation from the S corporation in 
     exchange for its stock.
       ``(D) Election after termination.--If a corporation's 
     status as a qualified subchapter S subsidiary terminates, 
     such corporation (and any successor corporation) shall not be 
     eligible to make--
       ``(i) an election under subparagraph (B)(ii) to be treated 
     as a qualified subchapter S subsidiary, or
       ``(ii) an election under section 1362(a) to be treated as 
     an S corporation,

     before its 5th taxable year which begins after the 1st 
     taxable year for which such termination was effective, unless 
     the Secretary consents to such election.''
       (c) Certain Dividends Not Treated as Passive Investment 
     Income.--Paragraph (3) of section 1362(d) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.''.
       (d) Conforming Amendments.--
       (1) Subsection (c) of section 1361 is amended by striking 
     paragraph (6).
       (2) Subsection (b) of section 1504 (defining includible 
     corporation) is amended by adding at the end the following 
     new paragraph:
       ``(8) An S corporation.''.

     SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

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

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

     SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

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

     SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

       (a) In General.--If--
       (1) a corporation was an electing small business 
     corporation under subchapter S of chapter 1 of the Internal 
     Revenue Code of 1986 for any taxable year beginning before 
     January 1, 1983, and
       (2) such corporation is an S corporation under subchapter S 
     of chapter 1 of such Code for its first taxable year 
     beginning after December 31, 1996,

     the amount of such corporation's accumulated earnings and 
     profits (as of the beginning of such first taxable year) 
     shall be reduced by an amount equal to the portion (if any) 
     of such accumulated earnings and profits which were 
     accumulated in any taxable year beginning before January 1, 
     1983, for which such corporation was an electing small 
     business corporation under such subchapter S.
       (b) Conforming Amendments.--
       (1) Paragraph (3) of section 1362(d), as amended by section 
     1308, is amended--
       (A) by striking ``subchapter c'' in the paragraph heading 
     and inserting ``accumulated'',
       (B) by striking ``subchapter C'' in subparagraph (A)(i)(I) 
     and inserting ``accumulated'', and
       (C) by striking subparagraph (B) and redesignating the 
     following subparagraphs accordingly.
       (2)(A) Subsection (a) of section 1375 is amended by 
     striking ``subchapter C'' in paragraph (1) and inserting 
     ``accumulated''.
       (B) Paragraph (3) of section 1375(b) is amended to read as 
     follows:
       ``(3) Passive investment income, etc.--The terms `passive 
     investment income' and `gross receipts' have the same 
     respective meanings as when used in paragraph (3) of section 
     1362(d).''.
       (C) The section heading for section 1375 is amended by 
     striking ``subchapter c'' and inserting ``accumulated''.
       (D) The table of sections for part III of subchapter S of 
     chapter 1 is amended by striking ``subchapter C'' in the item 
     relating to section 1375 and inserting ``accumulated''.
       (3) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(D)'' and inserting ``section 
     1362(d)(3)(C)''.

     SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS 
                   UNDER AT-RISK RULES ALLOWED.

       Paragraph (3) of section 1366(d) (relating to carryover of 
     disallowed losses and deductions to post-termination 
     transition period) is amended by adding at the end the 
     following new subparagraph:
       ``(D) At-risk limitations.--To the extent that any increase 
     in adjusted basis described in subparagraph (B) would have 
     increased the shareholder's amount at risk under section 465 
     if such increase had occurred on the day preceding the 
     commencement of the post-termination transition period, rules 
     similar to the rules described in subparagraphs (A) through 
     (C) shall apply to any losses disallowed by reason of section 
     465(a).''.

     SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO 
                   REFLECT CERTAIN ITEMS OF INCOME.

       (a) In General.--Subsection (b) of section 1367 (relating 
     to adjustments to basis of stock of shareholders, etc.) is 
     amended by adding at the end the following new paragraph:
       ``(4) Adjustments in case of inherited stock.--
       ``(A) In general.--If any person acquires stock in an S 
     corporation by reason of the death of a decedent or by 
     bequest, devise, or inheritance, section 691 shall be applied 
     with respect to any item of income of the S corporation in 
     the same manner as if the decedent had held directly his pro 
     rata share of such item.
       ``(B) Adjustments to basis.--The basis determined under 
     section 1014 of any stock in an S corporation shall be 
     reduced by the portion of the value of the stock which is 
     attributable to items constituting income in respect of the 
     decedent.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply in the case of decedents dying after the date of 
     the enactment of this Act.

[[Page S7374]]

     SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO 
                   REAL PROPERTY SUBDIVIDED FOR SALE BY 
                   NONCORPORATE TAXPAYERS.

       (a) In General.--Subsection (a) of section 1237 (relating 
     to real property subdivided for sale) is amended by striking 
     ``other than a corporation'' in the material preceding 
     paragraph (1) and inserting ``other than a C corporation''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     1237(a)(2) is amended by inserting ``an S corporation which 
     included the taxpayer as a shareholder,'' after ``controlled 
     by the taxpayer,''.

     SEC. 1315. FINANCIAL INSTITUTIONS.

       Subparagraph (A) of section 1361(b)(2) (defining ineligible 
     corporation), as redesignated by section 1308(a), is amended 
     to read as follows:
       ``(A) a financial institution which uses the reserve method 
     of accounting for bad debts described in section 585 or 
     593,''.

     SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE 
                   SHAREHOLDERS.

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

     may be a shareholder in an S corporation.''
       (b) Contributions of S Corporation Stock.--Section 
     170(e)(1) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by adding at the 
     end the following new sentence: ``For purposes of applying 
     this paragraph in the case of a charitable contribution of 
     stock in an S corporation, rules similar to the rules of 
     section 751 shall apply in determining whether gain on such 
     stock would have been long-term capital gain if such stock 
     were sold by the taxpayer.''
       (c) Treatment of Income.--Section 512 (relating to 
     unrelated business taxable income), as amended by section 
     1113, is amended by adding at the end the following new 
     subsection:
       ``(e) Special Rules Applicable to S Corporations.--
       ``(1) In general.--If an organization described in section 
     1361(c)(7) holds stock in an S corporation--
       ``(A) such interest shall be treated as an interest in an 
     unrelated trade or business; and
       ``(B) notwithstanding any other provision of this part, all 
     items of income, loss, deduction or credit taken into account 
     under section 1366(a) and any gain or loss on the disposition 
     of the stock in the S corporation shall be taken into account 
     in computing the unrelated business taxable income of such 
     organization.
       ``(2) Disposition gain.--For purposes of paragraph (1), 
     gain on the sale or other disposition of C corporation stock 
     which was an S corporation at any time the organization held 
     such stock shall be treated as gain from the disposition of 
     stock in an S corporation to the extent of any gain which the 
     organization would have realized if it had sold the stock for 
     fair market value as of the last day of the corporation's 
     last taxable year as an S corporation.''
       (d) Certain Benefits not Applicable to S Corporations.--
       (1) Contribution to esops.--Paragraph (9) of section 404(a) 
     (relating to certain contributions to employee ownership 
     plans) is amended by inserting at the end the following new 
     subparagraph:
       ``(C) S corporations.--This paragraph shall not apply to an 
     S corporation.''
       (2) Dividends on employer securities.--Paragraph (1) of 
     section 404(k) (relating to deduction for dividends on 
     certain employer securities) is amended by striking ``a 
     corporation'' and inserting ``a C corporation''.
       (3) Exchange treatment.--Subparagraph (A) of section 
     1042(c)(1) (defining qualified securities) is amended by 
     striking ``domestic corporation'' and inserting ``domestic C 
     corporation''.
       (e) Conforming Amendment.--Clause (i) of section 
     1361(e)(1)(A), as added by section 1302, is amended by 
     striking ``which holds a contingent interest and is not a 
     potential current beneficiary''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1317. EFFECTIVE DATE.

       (a) In General.--Except as otherwise provided in this 
     subtitle, the amendments made by this subtitle shall apply to 
     taxable years beginning after December 31, 1996.
       (b) Treatment of Certain Elections Under Prior Law.--For 
     purposes of section 1362(g) of the Internal Revenue Code of 
     1986 (relating to election after termination), any 
     termination under section 1362(d) of such Code in a taxable 
     year beginning before January 1, 1997, shall not be taken 
     into account.
                   Subtitle D--Pension Simplification

                CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES

     SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
                   DISTRIBUTIONS.

       (a) In General.--Subsection (d) of section 402 (relating to 
     taxability of beneficiary of employees' trust) is amended to 
     read as follows:
       ``(d) Taxability of Beneficiary of Certain Foreign Situs 
     Trusts.--For purposes of subsections (a), (b), and (c), a 
     stock bonus, pension, or profit-sharing trust which would 
     qualify for exemption from tax under section 501(a) except 
     for the fact that it is a trust created or organized outside 
     the United States shall be treated as if it were a trust 
     exempt from tax under section 501(a).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (D) of section 402(e)(4) (relating to 
     other rules applicable to exempt trusts) is amended to read 
     as follows:
       ``(D) Lump-sum distribution.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `lump sum distribution' means 
     the distribution or payment within one taxable year of the 
     recipient of the balance to the credit of an employee which 
     becomes payable to the recipient--

       ``(I) on account of the employee's death,
       ``(II) after the employee attains age 59\1/2\,
       ``(III) on account of the employee's separation from 
     service, or
       ``(IV) after the employee has become disabled (within the 
     meaning of section 72(m)(7)),

     from a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 501 
     or from a plan described in section 403(a). Subclause (III) 
     of this clause shall be applied only with respect to an 
     individual who is an employee without regard to section 
     401(c)(1), and subclause (IV) shall be applied only with 
     respect to an employee within the meaning of section 
     401(c)(1). For purposes of this clause, a distribution to two 
     or more trusts shall be treated as a distribution to one 
     recipient. For purposes of this paragraph, the balance to the 
     credit of the employee does not include the accumulated 
     deductible employee contributions under the plan (within the 
     meaning of section 72(o)(5)).
       ``(ii) Aggregation of certain trusts and plans.--For 
     purposes of determining the balance to the credit of an 
     employee under clause (i)--

       ``(I) all trusts which are part of a plan shall be treated 
     as a single trust, all pension plans maintained by the 
     employer shall be treated as a single plan, all profit-
     sharing plans maintained by the employer shall be treated 
     as a single plan, and all stock bonus plans maintained by 
     the employer shall be treated as a single plan, and

       ``(II) trusts which are not qualified trusts under section 
     401(a) and annuity contracts which do not satisfy the 
     requirements of section 404(a)(2) shall not be taken into 
     account.

       ``(iii) Community property laws.--The provisions of this 
     paragraph shall be applied without regard to community 
     property laws.
       ``(iv) Amounts subject to penalty.--This paragraph shall 
     not apply to amounts described in subparagraph (A) of section 
     72(m)(5) to the extent that section 72(m)(5) applies to such 
     amounts.
       ``(v) Balance to credit of employee not to include amounts 
     payable under qualified domestic relations order.--For 
     purposes of this paragraph, the balance to the credit of an 
     employee shall not include any amount payable to an alternate 
     payee under a qualified domestic relations order (within the 
     meaning of section 414(p)).
       ``(vi) Transfers to cost-of-living arrangement not treated 
     as distribution.--For purposes of this paragraph, the balance 
     to the credit of an employee under a defined contribution 
     plan shall not include any amount transferred from such 
     defined contribution plan to a qualified cost-of-living 
     arrangement (within the meaning of section 415(k)(2)) under a 
     defined benefit plan.
       ``(vii) Lump-sum distributions of alternate payees.--If any 
     distribution or payment of the balance to the credit of an 
     employee would be treated as a lump-sum distribution, then, 
     for purposes of this paragraph, the payment under a qualified 
     domestic relations order (within the meaning of section 
     414(p)) of the balance to the credit of an alternate payee 
     who is the spouse or former spouse of the employee shall be 
     treated as a lump-sum distribution. For purposes of this 
     clause, the balance to the credit of the alternate payee 
     shall not include any amount payable to the employee.''.
       (2) Section 402(c) (relating to rules applicable to 
     rollovers from exempt trusts) is amended by striking 
     paragraph (10).
       (3) Paragraph (1) of section 55(c) (defining regular tax) 
     is amended by striking ``shall not include any tax imposed by 
     section 402(d) and''.
       (4) Paragraph (8) of section 62(a) (relating to certain 
     portion of lump-sum distributions from pension plans taxed 
     under section 402(d)) is hereby repealed.
       (5) Section 401(a)(28)(B) (relating to coordination with 
     distribution rules) is amended by striking clause (v).
       (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
     distributions that must be lump-sum distributions) is amended 
     to read as follows:
       ``(ii) Lump-sum distribution.--For purposes of this 
     subparagraph, the term `lump-sum distribution' has the 
     meaning given such term by section 402(e)(4)(D) (without 
     regard to subclauses (I), (II), (III), and (IV) of clause (i) 
     thereof).''.

[[Page S7375]]

       (7) Section 406(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.
       (8) Section 407(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.
       (9) Section 691(c) (relating to deduction for estate tax) 
     is amended by striking paragraph (5).
       (10) Paragraph (1) of section 871(b) (relating to 
     imposition of tax) is amended by striking ``section 1, 55, or 
     402(d)(1)'' and inserting ``section 1 or 55''.
       (11) Subsection (b) of section 877 (relating to alternative 
     tax) is amended by striking ``section 1, 55, or 402(d)(1)'' 
     and inserting ``section 1 or 55''.
       (12) Section 4980A(c)(4) is amended--
       (A) by striking ``to which an election under section 
     402(d)(4)(B) applies'' and inserting ``(as defined in section 
     402(e)(4)(D)) with respect to which the individual elects to 
     have this paragraph apply'',
       (B) by adding at the end the following new flush sentence:

     ``An individual may elect to have this paragraph apply to 
     only one lump-sum distribution.'', and
       (C) by striking the heading and inserting:
       ``(4) Special one-time election.--''.
       (13) Section 402(e) is amended by striking paragraph (5).
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1999.
       (2) Retention of certain transition rules.--The amendments 
     made by this section shall not apply to any distribution for 
     which the taxpayer is eligible to elect the benefits of 
     section 1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986. 
     Notwithstanding the preceding sentence, individuals who elect 
     such benefits after December 31, 1999, shall not be eligible 
     for 5-year averaging under section 402(d) of the Internal 
     Revenue Code of 1986 (as in effect immediately before such 
     amendments).

     SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH 
                   BENEFITS.

       (a) In General.--Subsection (b) of section 101 is hereby 
     repealed.
       (b) Conforming Amendments.--
       (1) Subsection (c) of section 101 is amended by striking 
     ``subsection (a) or (b)'' and inserting ``subsection (a)''.
       (2) Sections 406(e) and 407(e) are each amended by striking 
     paragraph (2) and by redesignating paragraph (3) as paragraph 
     (2).
       (3) Section 7701(a)(20) is amended by striking ``, for the 
     purpose of applying the provisions of section 101(b) with 
     respect to employees' death benefits''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to decedents dying after the date of 
     the enactment of this Act.

     SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS 
                   UNDER CERTAIN EMPLOYER PLANS.

       (a) General Rule.--Subsection (d) of section 72 (relating 
     to annuities; certain proceeds of endowment and life 
     insurance contracts) is amended to read as follows:
       ``(d) Special Rules for Qualified Employer Retirement 
     Plans.--
       ``(1) Simplified method of taxing annuity payments.--
       ``(A) In general.--In the case of any amount received as an 
     annuity under a qualified employer retirement plan--
       ``(i) subsection (b) shall not apply, and
       ``(ii) the investment in the contract shall be recovered as 
     provided in this paragraph.
       ``(B) Method of recovering investment in contract.--
       ``(i) In general.--Gross income shall not include so much 
     of any monthly annuity payment under a qualified employer 
     retirement plan as does not exceed the amount obtained by 
     dividing--

       ``(I) the investment in the contract (as of the annuity 
     starting date), by
       ``(II) the number of anticipated payments determined under 
     the table contained in clause (iii) (or, in the case of a 
     contract to which subsection (c)(3)(B) applies, the number of 
     monthly annuity payments under such contract).

       ``(ii) Certain rules made applicable.--Rules similar to the 
     rules of paragraphs (2) and (3) of subsection (b) shall apply 
     for purposes of this paragraph.
       ``(iii) Number of anticipated payments.--

``If the age of the pri-                                               
  mary annuitant on                                       The number of
  the annuity start-                                        anticipated
  ing date is:                                             payments is:
           Not more than 55........................................360 
           More than 55 but not more than 60.......................310 
           More than 60 but not more than 65.......................260 
           More than 65 but not more than 70.......................210 
           More than 70............................................160.

       ``(C) Adjustment for refund feature not applicable.--For 
     purposes of this paragraph, investment in the contract shall 
     be determined under subsection (c)(1) without regard to 
     subsection (c)(2).
       ``(D) Special rule where lump sum paid in connection with 
     commencement of annuity payments.--If, in connection with the 
     commencement of annuity payments under any qualified employer 
     retirement plan, the taxpayer receives a lump sum payment--
       ``(i) such payment shall be taxable under subsection (e) as 
     if received before the annuity starting date, and
       ``(ii) the investment in the contract for purposes of this 
     paragraph shall be determined as if such payment had been so 
     received.
       ``(E) Exception.--This paragraph shall not apply in any 
     case where the primary annuitant has attained age 75 on the 
     annuity starting date unless there are fewer than 5 years of 
     guaranteed payments under the annuity.
       ``(F) Adjustment where annuity payments not on monthly 
     basis.--In any case where the annuity payments are not made 
     on a monthly basis, appropriate adjustments in the 
     application of this paragraph shall be made to take into 
     account the period on the basis of which such payments are 
     made.
       ``(G) Qualified employer retirement plan.--For purposes of 
     this paragraph, the term `qualified employer retirement plan' 
     means any plan or contract described in paragraph (1), (2), 
     or (3) of section 4974(c).
       ``(2) Treatment of employee contributions under defined 
     contribution plans.--For purposes of this section, employee 
     contributions (and any income allocable thereto) under a 
     defined contribution plan may be treated as a separate 
     contract.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply in cases where the annuity starting date is after 
     the 90th day after the date of the enactment of this Act.

     SEC. 1404. REQUIRED DISTRIBUTIONS.

       (a) In General.--Section 401(a)(9)(C) (defining required 
     beginning date) is amended to read as follows:
       ``(C) Required beginning date.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `required beginning date' means 
     April 1 of the calendar year following the later of--

       ``(I) the calendar year in which the employee attains age 
     70\1/2\, or
       ``(II) the calendar year in which the employee retires.

       ``(ii) Exception.--Subclause (II) of clause (i) shall not 
     apply--

       ``(I) except as provided in section 409(d), in the case of 
     an employee who is a 5-percent owner (as defined in section 
     416) with respect to the plan year ending in the calendar 
     year in which the employee attains age 70\1/2\, or
       ``(II) for purposes of section 408 (a)(6) or (b)(3).

       ``(iii) Actuarial adjustment.--In the case of an employee 
     to whom clause (i)(II) applies who retires in a calendar year 
     after the calendar year in which the employee attains age 
     70\1/2\, the employee's accrued benefit shall be actuarially 
     increased to take into account the period after age 70\1/2\ 
     in which the employee was not receiving any benefits under 
     the plan.
       ``(iv) Exception for governmental and church plans.--
     Clauses (ii) and (iii) shall not apply in the case of a 
     governmental plan or church plan. For purposes of this 
     clause, the term `church plan' means a plan maintained by a 
     church for church employees, and the term `church' means any 
     church (as defined in section 3121(w)(3)(A)) or qualified 
     church-controlled organization (as defined in section 
     3121(w)(3)(B)).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1996.

            CHAPTER 2--INCREASED ACCESS TO RETIREMENT PLANS

                   Subchapter A--Simple Savings Plans

     SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR 
                   EMPLOYEES OF SMALL EMPLOYERS.

       (a) In General.--Section 408 (relating to individual 
     retirement accounts) is amended by redesignating subsection 
     (p) as subsection (q) and by inserting after subsection (o) 
     the following new subsection:
       ``(p) Simple Retirement Accounts.--
       ``(1) In general.--For purposes of this title, the term 
     `simple retirement account' means an individual retirement 
     plan (as defined in section 7701(a)(37))--
       ``(A) with respect to which the requirements of paragraphs 
     (3), (4), and (5) are met; and
       ``(B) with respect to which the only contributions allowed 
     are contributions under a qualified salary reduction 
     arrangement.
       ``(2) Qualified salary reduction arrangement.--
       ``(A) In general.--For purposes of this subsection, the 
     term `qualified salary reduction arrangement' means a written 
     arrangement of an eligible employer under which--
       ``(i) an employee eligible to participate in the 
     arrangement may elect to have the employer make payments--

       ``(I) as elective employer contributions to a simple 
     retirement account on behalf of the employee, or
       ``(II) to the employee directly in cash,

       ``(ii) the amount which an employee may elect under clause 
     (i) for any year is required to be expressed as a percentage 
     of compensation and may not exceed a total of $6,000 for any 
     year,
       ``(iii) the employer is required to make a matching 
     contribution to the simple retirement account for any year in 
     an amount equal to so much of the amount the employee elects 
     under clause (i)(I) as does not exceed the applicable 
     percentage of compensation for the year, and
       ``(iv) no contributions may be made other than 
     contributions described in clause (i) or (iii).

[[Page S7376]]

       ``(B) Employer may elect 2-percent nonelective 
     contribution.--
       ``(i) In general.--An employer shall be treated as meeting 
     the requirements of subparagraph (A)(iii) for any year if, in 
     lieu of the contributions described in such clause, the 
     employer elects to make nonelective contributions of 2 
     percent of compensation for each employee who is eligible to 
     participate in the arrangement and who has at least $5,000 of 
     compensation from the employer for the year. If an employer 
     makes an election under this subparagraph for any year, the 
     employer shall notify employees of such election within a 
     reasonable period of time before the 60-day period for such 
     year under paragraph (5)(C).
       ``(ii) Compensation limitation.--The compensation taken 
     into account under clause (i) for any year shall not exceed 
     the limitation in effect for such year under section 
     401(a)(17).
       ``(C) Definitions.--For purposes of this subsection--
       ``(i) Eligible employer.--

       ``(I) In general.--The term `eligible employer' means, with 
     respect to any year, an employer which had no more than 100 
     employees who received at least $5,000 of compensation from 
     the employer for the preceding year.
       ``(II) 2-year grace period.--An eligible employer who 
     establishes and maintains a plan under this subsection for 1 
     or more years and who fails to be an eligible employer for 
     any subsequent year shall be treated as an eligible employer 
     for the 2 years following the last year the employer was an 
     eligible employer. If such failure is due to any acquisition, 
     disposition, or similar transaction involving an eligible 
     employer, the preceding sentence shall apply only in 
     accordance with rules similar to the rules of section 
     410(b)(6)(C)(i).

       ``(ii) Applicable percentage.--

       ``(I) In general.--The term `applicable percentage' means 3 
     percent.
       ``(II) Election of lower percentage.--An employer may elect 
     to apply a lower percentage (not less than 1 percent) for any 
     year for all employees eligible to participate in the plan 
     for such year if the employer notifies the employees of such 
     lower percentage within a reasonable period of time before 
     the 60-day election period for such year under paragraph 
     (5)(C). An employer may not elect a lower percentage under 
     this subclause for any year if that election would result in 
     the applicable percentage being lower than 3 percent in more 
     than 2 of the years in the 5-year period ending with such 
     year.
       ``(III) Special rule for years arrangement not in effect.--
     If any year in the 5-year period described in subclause (II) 
     is a year prior to the first year for which any qualified 
     salary reduction arrangement is in effect with respect to the 
     employer (or any predecessor), the employer shall be treated 
     as if the level of the employer matching contribution was 
     at 3 percent of compensation for such prior year.
       ``(D) Arrangement may be only plan of employer.--
       ``(i) In general.--An arrangement shall not be treated as a 
     qualified salary reduction arrangement for any year if the 
     employer (or any predecessor employer) maintained a qualified 
     plan with respect to which contributions were made, or 
     benefits were accrued, for service in any year in the period 
     beginning with the year such arrangement became effective and 
     ending with the year for which the determination is being 
     made.
       ``(ii) Qualified plan.--For purposes of this subparagraph, 
     the term `qualified plan' means a plan, contract, pension, or 
     trust described in subparagraph (A) or (B) of section 
     219(g)(5).
       ``(E) Cost-of-living adjustment.--The Secretary shall 
     adjust the $6,000 amount under subparagraph (A)(ii) at the 
     same time and in the same manner as under section 415(d), 
     except that the base period taken into account shall be the 
     calendar quarter ending September 30, 1996, and any increase 
     under this subparagraph which is not a multiple of $500 shall 
     be rounded to the next lower multiple of $500.
       ``(3) Vesting requirements.--The requirements of this 
     paragraph are met with respect to a simple retirement account 
     if the employee's rights to any contribution to the simple 
     retirement account are nonforfeitable. For purposes of this 
     paragraph, rules similar to the rules of subsection (k)(4) 
     shall apply.
       ``(4) Participation requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any simple retirement account for a year 
     only if, under the qualified salary reduction arrangement, 
     all employees of the employer who--
       ``(i) received at least $5,000 in compensation from the 
     employer during any 2 preceding years, and
       ``(ii) are reasonably expected to receive at least $5,000 
     in compensation during the year,

     are eligible to make the election under paragraph (2)(A)(i) 
     or receive the nonelective contribution described in 
     paragraph (2)(B).
       ``(B) Excludable employees.--An employer may elect to 
     exclude from the requirement under subparagraph (A) employees 
     described in section 410(b)(3).
       ``(5) Administrative requirements.--The requirements of 
     this paragraph are met with respect to any simplified 
     retirement account if, under the qualified salary reduction 
     arrangement--
       ``(A) an employer must--
       ``(i) make the elective employer contributions under 
     paragraph (2)(A)(i) not later than the close of the 30-day 
     period following the last day of the month with respect to 
     which the contributions are to be made, and
       ``(ii) make the matching contributions under paragraph 
     (2)(A)(iii) or the nonelective contributions under paragraph 
     (2)(B) not later than the date described in section 
     404(m)(2)(B),
       ``(B) an employee may elect to terminate participation in 
     such arrangement at any time during the year, except that if 
     an employee so terminates, the arrangement may provide that 
     the employee may not elect to resume participation until the 
     beginning of the next year, and
       ``(C) each employee eligible to participate may elect, 
     during the 60-day period before the beginning of any year 
     (and the 60-day period before the first day such employee is 
     eligible to participate), to participate in the arrangement, 
     or to modify the amounts subject to such arrangement, for 
     such year.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Compensation.--
       ``(i) In general.--The term `compensation' means amounts 
     described in paragraphs (3) and (8) of section 6051(a).
       ``(ii) Self-employed.--In the case of an employee described 
     in subparagraph (B), the term `compensation' means net 
     earnings from self-employment determined under section 
     1402(a) without regard to any contribution under this 
     subsection.
       ``(B) Employee.--The term `employee' includes an employee 
     as defined in section 401(c)(1).
       ``(C) Year.--The term `year' means the calendar year.
       ``(7) Use of designated financial institution.--A plan 
     shall not be treated as failing to satisfy the requirements 
     of this subsection or any other provision of this title 
     merely because the employer makes all contributions to the 
     individual retirement accounts or annuities of a designated 
     trustee or issuer. The preceding sentence shall not apply 
     unless each plan participant is notified in writing (either 
     separately or as part of the notice under subsection 
     (l)(2)(C)) that the participant's balance may be transferred 
     without cost or penalty to another individual account or 
     annuity in accordance with section 408(d)(3)(G).''
       (b) Tax Treatment of Simple Retirement Accounts.--
       (1) Deductibility of contributions by employees.--
       (A) Section 219(b) (relating to maximum amount of 
     deduction) is amended by adding at the end the following new 
     paragraph:
       ``(4) Special rule for simple retirement accounts.--This 
     section shall not apply with respect to any amount 
     contributed to a simple retirement account established under 
     section 408(p).''.
       (B) Section 219(g)(5)(A) (defining active participant) is 
     amended by striking ``or'' at the end of clause (iv) and by 
     adding at the end the following new clause:
       ``(vi) any simple retirement account (within the meaning of 
     section 408(p)), or''.
       (2) Deductibility of employer contributions.--Section 404 
     (relating to deductions for contributions of an employer to 
     pension, etc. plans) is amended by adding at the end the 
     following new subsection:
       ``(m) Special Rules for Simple Retirement Accounts.--
       ``(1) In general.--Employer contributions to a simple 
     retirement account shall be treated as if they are made to a 
     plan subject to the requirements of this section.
       ``(2) Timing.--
       ``(A) Deduction.--Contributions described in paragraph (1) 
     shall be deductible in the taxable year of the employer with 
     or within which the calendar year for which the contributions 
     were made ends.
       ``(B) Contributions after end of year.--For purposes of 
     this subsection, contributions shall be treated as made for a 
     taxable year if they are made on account of the taxable year 
     and are made not later than the time prescribed by law for 
     filing the return for the taxable year (including extensions 
     thereof).''.
       (3) Contributions and distributions.--
       (A) Section 402 (relating to taxability of beneficiary of 
     employees' trust) is amended by adding at the end the 
     following new subsection:
       ``(k) Treatment of Simple Retirement Accounts.--Rules 
     similar to the rules of paragraphs (1) and (3) of subsection 
     (h) shall apply to contributions and distributions with 
     respect to a simple retirement account under section 
     408(p).''.
       (B) Section 408(d)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(G) Simple retirement accounts.--This paragraph shall not 
     apply to any amount paid or distributed out of a simple 
     retirement account (as defined in section 408(p)) unless--
       ``(i) it is paid into another simple retirement account, or
       ``(ii) in the case of any payment or distribution to which 
     section 72(t)(6) does not apply, it is paid into an 
     individual retirement plan.''.
       (C) Clause (i) of section 457(c)(2)(B) is amended by 
     striking ``section 402(h)(1)(B)'' and inserting ``section 
     402(h)(1)(B) or (k)''.
       (4) Penalties.--
       (A) Early withdrawals.--Section 72(t) (relating to 
     additional tax in early distributions) is amended by adding 
     at the end the following new paragraph:

[[Page S7377]]

       ``(6) Special rules for simple retirement accounts.--In the 
     case of any amount received from a simple retirement account 
     (within the meaning of section 408(p)) during the 2-year 
     period beginning on the date such individual first 
     participated in any qualified salary reduction arrangement 
     maintained by the individual's employer under section 
     408(p)(2), paragraph (1) shall be applied by substituting `25 
     percent' for `10 percent'.''.
       (B) Failure to report.--Section 6693 is amended by 
     redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Penalties Relating to Simple Retirement Accounts.--
       ``(1) Employer penalties.--An employer who fails to provide 
     1 or more notices required by section 408(l)(2)(C) shall pay 
     a penalty of $50 for each day on which such failures 
     continue.
       ``(2) Trustee penalties.--A trustee who fails--
       ``(A) to provide 1 or more statements required by the last 
     sentence of section 408(i) shall pay a penalty of $50 for 
     each day on which such failures continue, or
       ``(B) to provide 1 or more summary descriptions required by 
     section 408(l)(2)(B) shall pay a penalty of $50 for each day 
     on which such failures continue.
       ``(3) Reasonable cause exception.--No penalty shall be 
     imposed under this subsection with respect to any failure 
     which the taxpayer shows was due to reasonable cause.''.
       (5) Reporting requirements.--
       (A) Section 408(l) is amended by adding at the end the 
     following new paragraph:
       ``(2) Simple retirement accounts.--
       ``(A) No employer reports.--Except as provided in this 
     paragraph, no report shall be required under this section by 
     an employer maintaining a qualified salary reduction 
     arrangement under subsection (p).
       ``(B) Summary description.--The trustee of any simple 
     retirement account established pursuant to a qualified salary 
     reduction arrangement under subsection (p) shall provide to 
     the employer maintaining the arrangement, each year a 
     description containing the following information:
       ``(i) The name and address of the employer and the trustee.
       ``(ii) The requirements for eligibility for participation.
       ``(iii) The benefits provided with respect to the 
     arrangement.
       ``(iv) The time and method of making elections with respect 
     to the arrangement.
       ``(v) The procedures for, and effects of, withdrawals 
     (including rollovers) from the arrangement.
       ``(C) Employee notification.--The employer shall notify 
     each employee immediately before the period for which an 
     election described in subsection (p)(5)(C) may be made of the 
     employee's opportunity to make such election. Such notice 
     shall include a copy of the description described in 
     subparagraph (B).''.
       (B) Section 408(l) is amended by striking ``An employer'' 
     and inserting the following:
       ``(1) In general.--An employer''.
       (6) Reporting requirements.--Section 408(i) is amended by 
     adding at the end the following new flush sentence:

     ``In the case of a simple retirement account under subsection 
     (p), only one report under this subsection shall be required 
     to be submitted each calendar year to the Secretary (at the 
     time provided under paragraph (2)) but, in addition to the 
     report under this subsection, there shall be furnished, 
     within 30 days after each calendar year, to the individual on 
     whose behalf the account is maintained a statement with 
     respect to the account balance as of the close of, and the 
     account activity during, such calendar year.''.
       (7) Exemption from top-heavy plan rules.--Section 416(g)(4) 
     (relating to special rules for top-heavy plans) is amended by 
     adding at the end the following new subparagraph:
       ``(G) Simple retirement accounts.--The term `top-heavy 
     plan' shall not include a simple retirement account under 
     section 408(p).''.
       (8) Employment taxes.--
       (A) Paragraph (5) of section 3121(a) is amended by striking 
     ``or'' at the end of subparagraph (F), by inserting ``or'' at 
     the end of subparagraph (G), and by adding at the end the 
     following new subparagraph:
       ``(H) under an arrangement to which section 408(p) applies, 
     other than any elective contributions under paragraph 
     (2)(A)(i) thereof,''.
       (B) Section 209(a)(4) of the Social Security Act is amended 
     by inserting ``; or (J) under an arrangement to which section 
     408(p) of such Code applies, other than any elective 
     contributions under paragraph (2)(A)(i) thereof'' before the 
     semicolon at the end thereof.
       (C) Paragraph (5) of section 3306(b) is amended by striking 
     ``or'' at the end of subparagraph (F), by inserting ``or'' at 
     the end of subparagraph (G), and by adding at the end the 
     following new subparagraph:
       ``(H) under an arrangement to which section 408(p) applies, 
     other than any elective contributions under paragraph 
     (2)(A)(i) thereof,''.
       (D) Paragraph (12) of section 3401(a) is amended by adding 
     the following new subparagraph:
       ``(D) under an arrangement to which section 408(p) applies; 
     or''.
       (9) Conforming amendments.--
       (A) Section 280G(b)(6) is amended by striking ``or'' at the 
     end of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, or'' and by adding after 
     subparagraph (C) the following new subparagraph:
       ``(D) a simple retirement account described in section 
     408(p).''.
       (B) Section 402(g)(3) is amended by striking ``and'' at the 
     end of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding after 
     subparagraph (C) the following new subparagraph:
       ``(D) any elective employer contribution under section 
     408(p)(2)(A)(i).''.
       (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of 
     section 414 are each amended by inserting ``408(p),'' after 
     ``408(k),''.
       (D) Section 4972(d)(1)(A) is amended by striking ``and'' at 
     the end of clause (ii), by striking the period at the end of 
     clause (iii) and inserting ``, and'', and by adding after 
     clause (iii) the following new clause:
       ``(iv) any simple retirement account (within the meaning of 
     section 408(p)).''.
       (c) Repeal of Salary Reduction Simplified Employee 
     Pensions.--Section 408(k)(6) is amended by adding at the end 
     the following new subparagraph:
       ``(H) Termination.--This paragraph shall not apply to years 
     beginning after December 31, 1996. The preceding sentence 
     shall not apply to a simplified employee pension if the terms 
     of such pension, as in effect on December 31, 1996, provide 
     that an employee may make the election described in 
     subparagraph (A).''.
       (d) Modifications of ERISA.--
       (1) Reporting requirements.--Section 101 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1021) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Simple Retirement Accounts.--
       ``(1) No employer reports.--Except as provided in this 
     subsection, no report shall be required under this section by 
     an employer maintaining a qualified salary reduction 
     arrangement under section 408(p) of the Internal Revenue Code 
     of 1986.
       ``(2) Summary description.--The trustee of any simple 
     retirement account established pursuant to a qualified salary 
     reduction arrangement under section 408(p) of such Code shall 
     provide to the employer maintaining the arrangement each year 
     a description containing the following information:
       ``(A) The name and address of the employer and the trustee.
       ``(B) The requirements for eligibility for participation.
       ``(C) The benefits provided with respect to the 
     arrangement.
       ``(D) The time and method of making elections with respect 
     to the arrangement.
       ``(E) The procedures for, and effects of, withdrawals 
     (including rollovers) from the arrangement.
       ``(3) Employee notification.--The employer shall notify 
     each employee immediately before the period for which an 
     election described in section 408(p)(5)(C) of such Code may 
     be made of the employee's opportunity to make such election. 
     Such notice shall include a copy of the description described 
     in paragraph (2).''
       (2) Fiduciary duties.--Section 404(c) of such Act (29 
     U.S.C. 1104(c)) is amended by inserting ``(1)'' after 
     ``(c)'', by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively, and by adding at the 
     end the following new paragraph:
       ``(2) In the case of a simple retirement account 
     established pursuant to a qualified salary reduction 
     arrangement under section 408(p) of the Internal Revenue Code 
     of 1986, a participant or beneficiary shall, for purposes of 
     paragraph (1), be treated as exercising control over the 
     assets in the account upon the earliest of--
       ``(A) an affirmative election with respect to the initial 
     investment of any contribution,
       ``(B) a rollover to any other simple retirement account or 
     individual retirement plan, or
       ``(C) one year after the simple retirement account is 
     established.

     No reports, other than those required under section 101(g), 
     shall be required with respect to a simple retirement account 
     established pursuant to such a qualified salary reduction 
     arrangement.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

       (a) Alternative Method of Satisfying Section 401(k) 
     Nondiscrimination Tests.--Section 401(k) (relating to cash or 
     deferred arrangements) is amended by adding at the end the 
     following new paragraph:
       ``(11) Adoption of simple plan to meet nondiscrimination 
     tests.--
       ``(A) In general.--A cash or deferred arrangement 
     maintained by an eligible employer shall be treated as 
     meeting the requirements of paragraph (3)(A)(ii) if such 
     arrangement meets--
       ``(i) the contribution requirements of subparagraph (B),
       ``(ii) the exclusive plan requirements of subparagraph (C), 
     and
       ``(iii) the vesting requirements of section 408(p)(3).
       ``(B) Contribution requirements.--
       ``(i) In general.--The requirements of this subparagraph 
     are met if, under the arrangement--

[[Page S7378]]

       ``(I) an employee may elect to have the employer make 
     elective contributions for the year on behalf of the employee 
     to a trust under the plan in an amount which is expressed as 
     a percentage of compensation of the employee but which in no 
     event exceeds $6,000,
       ``(II) the employer is required to make a matching 
     contribution to the trust for the year in an amount equal to 
     so much of the amount the employee elects under subclause (I) 
     as does not exceed 3 percent of compensation for the year, 
     and
       ``(III) no other contributions may be made other than 
     contributions described in subclause (I) or (II).

       ``(ii) Employer may elect 2-percent nonelective 
     contribution.--An employer shall be treated as meeting the 
     requirements of clause (i)(II) for any year if, in lieu of 
     the contributions described in such clause, the employer 
     elects (pursuant to the terms of the arrangement) to make 
     nonelective contributions of 2 percent of compensation for 
     each employee who is eligible to participate in the 
     arrangement and who has at least $5,000 of compensation from 
     the employer for the year. If an employer makes an election 
     under this subparagraph for any year, the employer shall 
     notify employees of such election within a reasonable period 
     of time before the 60th day before the beginning of such 
     year.
       ``(C) Exclusive plan requirement.--The requirements of this 
     subparagraph are met for any year to which this paragraph 
     applies if no contributions were made, or benefits were 
     accrued, for services during such year under any qualified 
     plan of the employer on behalf of any employee eligible to 
     participate in the cash or deferred arrangement, other than 
     contributions described in subparagraph (B).
       ``(D) Definitions and special rule.--
       ``(i) Definitions.--For purposes of this paragraph, any 
     term used in this paragraph which is also used in section 
     408(p) shall have the meaning given such term by such 
     section.
       ``(ii) Coordination with top-heavy rules.--A plan meeting 
     the requirements of this paragraph for any year shall not be 
     treated as a top-heavy plan under section 416 for such 
     year.''.
       (b) Alternative Methods of Satisfying Section 401(m) 
     Nondiscrimination Tests.--Section 401(m) (relating to 
     nondiscrimination test for matching contributions and 
     employee contributions) is amended by redesignating paragraph 
     (10) as paragraph (11) and by adding after paragraph (9) the 
     following new paragraph:
       ``(10) Alternative method of satisfying tests.--A defined 
     contribution plan shall be treated as meeting the 
     requirements of paragraph (2) with respect to matching 
     contributions if the plan--
       ``(A) meets the contribution requirements of subparagraph 
     (B) of subsection (k)(11),
       ``(B) meets the exclusive plan requirements of subsection 
     (k)(11)(C), and
       ``(C) meets the vesting requirements of section 
     408(p)(3).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 1996.

                     Subchapter B--Other Provisions

     SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 
                   401(k).

       (a) In General.--Subparagraph (B) of section 401(k)(4) is 
     amended to read as follows:
       ``(B) Eligibility of state and local governments and tax-
     exempt organizations.--
       ``(i) Tax-exempts eligible.--Except as provided in clause 
     (ii), any organization exempt from tax under this subtitle 
     may include a qualified cash or deferred arrangement as part 
     of a plan maintained by it.
       ``(ii) Governments ineligible.--A cash or deferred 
     arrangement shall not be treated as a qualified cash or 
     deferred arrangement if it is part of a plan maintained by a 
     State or local government or political subdivision thereof, 
     or any agency or instrumentality thereof. This clause shall 
     not apply to a rural cooperative plan or to a plan of an 
     employer described in clause (iii).
       ``(iii) Treatment of indian tribal governments.--An 
     employer which is an Indian tribal government (as defined in 
     section 7701(a)(40)), a subdivision of an Indian tribal 
     government (determined in accordance with section 7871(d)), 
     an agency or instrumentality of an Indian tribal government 
     or subdivision thereof, or a corporation chartered under 
     Federal, State, or tribal law which is owned in whole or in 
     part by any of the foregoing may include a qualified cash or 
     deferred arrangement as part of a plan maintained by the 
     employer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to plan years beginning after December 31, 1996, 
     but shall not apply to any cash or deferred arrangement to 
     which clause (i) of section 1116(f)(2)(B) of the Tax Reform 
     Act of 1986 applies.

     SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

       (a) Spousal IRA Computed on Basis of Compensation of Both 
     Spouses.--Subsection (c) of section 219 (relating to special 
     rules for certain married individuals) is amended to read as 
     follows:
       ``(c) Special Rules for Certain Married Individuals.--
       ``(1) In general.--In the case of an individual to whom 
     this paragraph applies for the taxable year, the limitation 
     of paragraph (1) of subsection (b) shall be equal to the 
     lesser of--
       ``(A) the dollar amount in effect under subsection 
     (b)(1)(A) for the taxable year, or
       ``(B) the sum of--
       ``(i) the compensation includible in such individual's 
     gross income for the taxable year, plus
       ``(ii) the compensation includible in the gross income of 
     such individual's spouse for the taxable year reduced by the 
     amount allowed as a deduction under subsection (a) to such 
     spouse for such taxable year.
       ``(2) Individuals to whom paragraph (1) applies.--Paragraph 
     (1) shall apply to any individual if--
       ``(A) such individual files a joint return for the taxable 
     year, and
       ``(B) the amount of compensation (if any) includible in 
     such individual's gross income for the taxable year is less 
     than the compensation includible in the gross income of such 
     individual's spouse for the taxable year.''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 219(f) (relating to other 
     definitions and special rules) is amended by striking 
     ``subsections (b) and (c)'' and inserting ``subsection (b)''.
       (2) Section 219(g)(1) is amended by striking ``(c)(2)'' and 
     inserting ``(c)(1)(A)''.
       (3) Section 408(d)(5) is amended by striking ``$2,250'' and 
     inserting ``the dollar amount in effect under section 
     219(b)(1)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

                CHAPTER 3--NONDISCRIMINATION PROVISIONS

     SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL 
                   OF FAMILY AGGREGATION.

       (a) In General.--Paragraph (1) of section 414(q) (defining 
     highly compensated employee) is amended to read as follows:
       ``(1) In general.--The term `highly compensated employee' 
     means any employee who--
       ``(A) was a 5-percent owner at any time during the year or 
     the preceding year, or
       ``(B) for the preceding year had compensation from the 
     employer in excess of $80,000.
     The Secretary shall adjust the $80,000 amount under 
     subparagraph (B) at the same time and in the same manner as 
     under section 415(d), except that the base period shall be 
     the calendar quarter ending September 30, 1996.''.
       (b) Repeal of Family Aggregation Rules.--
       (1) In general.--Paragraph (6) of section 414(q) is hereby 
     repealed.
       (2) Compensation limit.--Paragraph (17)(A) of section 
     401(a) is amended by striking the last sentence.
       (3) Deduction.--Subsection (l) of section 404 is amended by 
     striking the last sentence.
       (c) Conforming Amendments.--
       (1)(A) Subsection (q) of section 414 is amended by striking 
     paragraphs (2), (4), (5), (8), and (12) and by redesignating 
     paragraphs (3), (7), (9), (10), and (11) as paragraphs (2) 
     through (6), respectively.
       (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), 
     and 416(i)(1)(D) are each amended by striking ``section 
     414(q)(7)'' and inserting ``section 414(q)(3)''.
       (C) Section 416(i)(1)(A) is amended by striking ``section 
     414(q)(8)'' and inserting ``section 414(r)(9)''.
       (2)(A) Section 414(r) is amended by adding at the end the 
     following new paragraph:
       ``(9) Excluded employees.--For purposes of paragraph 
     (2)(A), the following employees shall be excluded:
       ``(A) Employees who have not completed 6 months of service.
       ``(B) Employees who normally work less than 17\1/2\ hours 
     per week.
       ``(C) Employees who normally work not more than 6 months 
     during any year.
       ``(D) Employees who have not attained the age of 21.
       ``(E) Except to the extent provided in regulations, 
     employees who are included in a unit of employees covered by 
     an agreement which the Secretary of Labor finds to be a 
     collective bargaining agreement between employee 
     representatives and the employer.

     Except as provided by the Secretary, the employer may elect 
     to apply subparagraph (A), (B), (C), or (D) by substituting a 
     shorter period of service, smaller number of hours or months, 
     or lower age for the period of service, number of hours or 
     months, or age (as the case may be) specified in such 
     subparagraph.''.
       (B) Subparagraph (A) of section 414(r)(2) is amended by 
     striking ``subsection (q)(8)'' and inserting ``paragraph 
     (9)''.
       (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
     amended by adding at the end the following new sentence: 
     ``Any reference in this paragraph to section 414(q) shall be 
     treated as a reference to such section as in effect on the 
     day before the date of the enactment of the Small Business 
     Job Protection Act of 1996.''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 1996, except that 
     in determining whether an employee is a highly compensated 
     employee for years beginning in 1997, such amendments shall 
     be treated as having been in effect for years beginning in 
     1996.
       (2) Family aggregation.--The amendments made by subsection 
     (b) shall apply to years beginning after December 31, 1996.

[[Page S7379]]

     SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION 
                   REQUIREMENTS.

       (a) General Rule.--Section 401(a)(26)(A) (relating to 
     additional participation requirements) is amended to read as 
     follows:
       ``(A) In general.--In the case of a trust which is a part 
     of a defined benefit plan, such trust shall not constitute a 
     qualified trust under this subsection unless on each day of 
     the plan year such trust benefits at least the lesser of--
       ``(i) 50 employees of the employer, or
       ``(ii) the greater of--

       ``(I) 40 percent of all employees of the employer, or

       ``(II) 2 employees (or if there is only 1 employee, such 
     employee).''.

       (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
     (relating to separate line of business) is amended by 
     striking ``paragraph (7)'' and inserting ``paragraph (2)(A) 
     or (7)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1996.

     SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR 
                   DEFERRED ARRANGEMENTS AND MATCHING 
                   CONTRIBUTIONS.

       (a) Alternative Methods of Satisfying Section 401(k) 
     Nondiscrimination Tests.--Section 401(k) (relating to cash or 
     deferred arrangements), as amended by section 1422, is 
     amended by adding at the end the following new paragraph:
       ``(12) Alternative methods of meeting nondiscrimination 
     requirements.--
       ``(A) In general.--A cash or deferred arrangement shall be 
     treated as meeting the requirements of paragraph (3)(A)(ii) 
     if such arrangement--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C), and
       ``(ii) meets the notice requirements of subparagraph (D).
       ``(B) Matching contributions.--
       ``(i) In general.--The requirements of this subparagraph 
     are met if, under the arrangement, the employer makes 
     matching contributions on behalf of each employee who is not 
     a highly compensated employee in an amount equal to--

       ``(I) 100 percent of the elective contributions of the 
     employee to the extent such elective contributions do not 
     exceed 3 percent of the employee's compensation, and
       ``(II) 50 percent of the elective contributions of the 
     employee to the extent that such elective contributions 
     exceed 3 percent but do not exceed 5 percent of the 
     employee's compensation.

       ``(ii) Rate for highly compensated employees.--The 
     requirements of this subparagraph are not met if, under the 
     arrangement, the rate of matching contribution with respect 
     to any elective contribution of a highly compensated employee 
     at any rate of elective contribution is greater than that 
     with respect to an employee who is not a highly compensated 
     employee.
       ``(iii) Alternative plan designs.--If the rate of any 
     matching contribution with respect to any rate of elective 
     contribution is not equal to the percentage required under 
     clause (i), an arrangement shall not be treated as failing to 
     meet the requirements of clause (i) if--

       ``(I) the rate of an employer's matching contribution does 
     not increase as an employee's rate of elective contributions 
     increase, and
       ``(II) the aggregate amount of matching contributions at 
     such rate of elective contribution is at least equal to the 
     aggregate amount of matching contributions which would be 
     made if matching contributions were made on the basis of the 
     percentages described in clause (i).

       ``(C) Nonelective contributions.--The requirements of this 
     subparagraph are met if, under the arrangement, the employer 
     is required, without regard to whether the employee makes an 
     elective contribution or employee contribution, to make a 
     contribution to a defined contribution plan on behalf of each 
     employee who is not a highly compensated employee and who is 
     eligible to participate in the arrangement in an amount equal 
     to at least 3 percent of the employee's compensation.
       ``(D) Notice requirement.--An arrangement meets the 
     requirements of this paragraph if, under the arrangement, 
     each employee eligible to participate is, within a reasonable 
     period before any year, given written notice of the 
     employee's rights and obligations under the arrangement 
     which--
       ``(i) is sufficiently accurate and comprehensive to 
     appraise the employee of such rights and obligations, and
       ``(ii) is written in a manner calculated to be understood 
     by the average employee eligible to participate.
       ``(E) Other requirements.--
       ``(i) Withdrawal and vesting restrictions.--An arrangement 
     shall not be treated as meeting the requirements 
     of subparagraph (B) or (C) of this paragraph unless the 
     requirements of subparagraphs (B) and (C) of paragraph (2) 
     are met with respect to all employer contributions 
     (including matching contributions) taken into account in 
     determining whether the requirements of subparagraphs (B) 
     and (C) of this paragraph are met.
       ``(ii) Social security and similar contributions not taken 
     into account.--An arrangement shall not be treated as meeting 
     the requirements of subparagraph (B) or (C) unless such 
     requirements are met without regard to subsection (l), and, 
     for purposes of subsection (l), employer contributions under 
     subparagraph (B) or (C) shall not be taken into account.
       ``(F) Other plans.--An arrangement shall be treated as 
     meeting the requirements under subparagraph (A)(i) if any 
     other plan maintained by the employer meets such requirements 
     with respect to employees eligible under the arrangement.''.
       (b) Alternative Methods of Satisfying Section 401(m) 
     Nondiscrimination Tests.--Section 401(m) (relating to 
     nondiscrimination test for matching contributions and 
     employee contributions), as amended by this section 1422(b), 
     is amended by redesignating paragraph (11) as paragraph (12) 
     and by adding after paragraph (10) the following new 
     paragraph:
       ``(11) Alternative method of satisfying tests.--
       ``(A) In general.--A defined contribution plan shall be 
     treated as meeting the requirements of paragraph (2) with 
     respect to matching contributions if the plan--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C) of subsection (k)(12),
       ``(ii) meets the notice requirements of subsection 
     (k)(12)(D), and
       ``(iii) meets the requirements of subparagraph (B).
       ``(B) Limitation on matching contributions.--The 
     requirements of this subparagraph are met if--
       ``(i) matching contributions on behalf of any employee may 
     not be made with respect to an employee's contributions or 
     elective deferrals in excess of 6 percent of the employee's 
     compensation,
       ``(ii) the rate of an employer's matching contribution does 
     not increase as the rate of an employee's contributions or 
     elective deferrals increase, and
       ``(iii) the matching contribution with respect to any 
     highly compensated employee at any rate of an employee 
     contribution or rate of elective deferral is not greater than 
     that with respect to an employee who is not a highly 
     compensated employee.''.
       (c) Year for Computing Nonhighly Compensated Employee 
     Percentage.--
       (1) Cash or deferred arrangements.--Section 401(k)(3)(A) is 
     amended--
       (A) by striking ``such year'' in clause (ii) and inserting 
     ``the plan year'',
       (B) by striking ``for such plan year'' in clause (ii) and 
     inserting ``for the preceding plan year'', and
       (C) by adding at the end the following new sentence: ``An 
     arrangement may apply clause (ii) by using the plan year 
     rather than the preceding plan year if the employer so 
     elects, except that if such an election is made, it may not 
     be changed except as provided by the Secretary.''.
       (2) Matching and employee contributions.--Section 
     401(m)(2)(A) is amended--
       (A) by inserting ``for such plan year'' after ``highly 
     compensated employees'',
       (B) by inserting ``for the preceding plan year'' after 
     ``eligible employees'' each place it appears in clause (i) 
     and clause (ii), and
       (C) by adding at the end the following flush sentence:
     ``This subparagraph may be applied by using the plan year 
     rather than the preceding plan year if the employer so 
     elects, except that if such an election is made, it may not 
     be changed except as provided the Secretary.''.
       (d) Special Rule for Determining Average Deferral 
     Percentage for First Plan Year, Etc.--
       (1) Paragraph (3) of section 401(k) is amended by adding at 
     the end the following new subparagraph:
       ``(E) For purposes of this paragraph, in the case of the 
     first plan year of any plan (other than a successor plan), 
     the amount taken into account as the actual deferral 
     percentage of nonhighly compensated employees for the 
     preceding plan year shall be--
       ``(i) 3 percent, or
       ``(ii) if the employer makes an election under this 
     subclause, the actual deferral percentage of nonhighly 
     compensated employees determined for such first plan year.''.
       (2) Paragraph (3) of section 401(m) is amended by adding at 
     the end the following: ``Rules similar to the rules of 
     subsection (k)(3)(E) shall apply for purposes of this 
     subsection.''.
       (e) Distribution of Excess Contributions and Excess 
     Aggregate Contributions.--
       (1) Subparagraph (C) of section 401(k)(8) (relating to 
     arrangement not disqualified if excess contributions 
     distributed) is amended by striking ``on the basis of the 
     respective portions of the excess contributions attributable 
     to each of such employees'' and inserting ``on the basis of 
     the amount of contributions by, or on behalf of, each of such 
     employees''.
       (2) Subparagraph (C) of section 401(m)(6) (relating to 
     method of distributing excess aggregate contributions) is 
     amended by striking ``on the basis of the respective portions 
     of such amounts attributable to each of such employees'' and 
     inserting ``on the basis of the amount of contributions on 
     behalf of, or by, each such employee''.
       (f) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 1998.
       (2) Exceptions.--The amendments made by subsections (c), 
     (d), and (e) shall apply to years beginning after December 
     31, 1996.

     SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 
                   PURPOSES.

       (a) General Rule.--Section 415(c)(3) (defining 
     participant's compensation) is amended by adding at the end 
     the following new subparagraph:

[[Page S7380]]

       ``(D) Certain deferrals included.--The term `participant's 
     compensation' shall include--
       ``(i) any elective deferral (as defined in section 
     402(g)(3)), and
       ``(ii) any amount which is contributed or deferred by the 
     employer at the election of the employee and which is not 
     includible in the gross income of the employee by reason of 
     section 125 or 457.''.
       (b) Conforming Amendments.--
       (1) Section 414(q)(3), as redesignated by section 1431, is 
     amended to read as follows:
       ``(4) Compensation.--For purposes of this subsection, the 
     term `compensation' has the meaning given such term by 
     section 415(c)(3).''.
       (2) Section 414(s)(2) is amended by inserting ``not'' after 
     ``elect'' in the text and heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

                  CHAPTER 4--MISCELLANEOUS PROVISIONS

     SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

       (a) Aggregation Rules.--Section 401(d) (relating to 
     additional requirements for qualification of trusts and plans 
     benefiting owner-employees) is amended to read as follows:
       ``(d) Contribution Limit on Owner-Employees.--A trust 
     forming part of a pension or profit-sharing plan which 
     provides contributions or benefits for employees some or all 
     of whom are owner-employees shall constitute a qualified 
     trust under this section only if, in addition to meeting the 
     requirements of subsection (a), the plan provides that 
     contributions on behalf of any owner-employee may be made 
     only with respect to the earned income of such owner-employee 
     which is derived from the trade or business with respect to 
     which such plan is established.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1996.

     SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR 
                   MULTIEMPLOYER PLANS.

       (a) Amendments to 1986 Code.--Paragraph (2) of section 
     411(a) (relating to minimum vesting standards) is amended--
       (1) by striking ``subparagraph (A), (B), or (C)'' and 
     inserting ``subparagraph (A) or (B)''; and
       (2) by striking subparagraph (C).
       (b) Amendments to ERISA.--Paragraph (2) of section 203(a) 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1053(a)) is amended--
       (1) by striking ``subparagraph (A), (B), or (C)'' and 
     inserting ``subparagraph (A) or (B)''; and
       (2) by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning on or after the earlier 
     of--
       (1) the later of--
       (A) January 1, 1997, or
       (B) the date on which the last of the collective bargaining 
     agreements pursuant to which the plan is maintained 
     terminates (determined without regard to any extension 
     thereof after the date of the enactment of this Act), or
       (2) January 1, 1999.

     Such amendments shall not apply to any individual who does 
     not have more than 1 hour of service under the plan on or 
     after the 1st day of the 1st plan year to which such 
     amendments apply.

     SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

       (a) Distributions for Hardship or After a Certain Age.--
     Section 401(k)(7) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Special rule for certain distributions.--A rural 
     cooperative plan which includes a qualified cash or deferred 
     arrangement shall not be treated as violating the 
     requirements of section 401(a) or of paragraph (2) merely by 
     reason of a hardship distribution or a distribution to a 
     participant after attainment of age 59\1/2\. For purposes of 
     this section, the term `hardship distribution' means a 
     distribution described in paragraph (2)(B)(i)(IV) (without 
     regard to the limitation of its application to profit-sharing 
     or stock bonus plans).''.
       (b) Public Utility Districts.--Clause (i) of section 
     401(k)(7)(B) (defining rural cooperative) is amended to read 
     as follows:
       ``(i) any organization which--

       ``(I) is engaged primarily in providing electric service on 
     a mutual or cooperative basis, or
       ``(II) is engaged primarily in providing electric service 
     to the public in its area of service and which is exempt from 
     tax under this subtitle or which is a State or local 
     government (or an agency or instrumentality thereof), other 
     than a municipality (or an agency or instrumentality 
     thereof),''.

       (c) Effective Dates.--
       (1) Distributions.--The amendments made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (2) Public utility districts.--The amendments made by 
     subsection (b) shall apply to plan years beginning after 
     December 31, 1996.

     SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

       (a) Compensation Limit.--Subsection (b) of section 415 is 
     amended by adding immediately after paragraph (10) the 
     following new paragraph:
       ``(11) Special limitation rule for governmental plans.--In 
     the case of a governmental plan (as defined in section 
     414(d)), subparagraph (B) of paragraph (1) shall not 
     apply.''.
       (b) Treatment of Certain Excess Benefit Plans.--
       (1) In general.--Section 415 is amended by adding at the 
     end the following new subsection:
       ``(m) Treatment of Qualified Governmental Excess Benefit 
     Arrangements.--
       ``(1) Governmental plan not affected.--In determining 
     whether a governmental plan (as defined in section 414(d)) 
     meets the requirements of this section, benefits provided 
     under a qualified governmental excess benefit arrangement 
     shall not be taken into account. Income accruing to a 
     governmental plan (or to a trust that is maintained solely 
     for the purpose of providing benefits under a qualified 
     governmental excess benefit arrangement) in respect of a 
     qualified governmental excess benefit arrangement shall 
     constitute income derived from the exercise of an essential 
     governmental function upon which such governmental plan (or 
     trust) shall be exempt from tax under section 115.
       ``(2) Taxation of participant.--For purposes of this 
     chapter--
       ``(A) the taxable year or years for which amounts in 
     respect of a qualified governmental excess benefit 
     arrangement are includible in gross income by a participant, 
     and
       ``(B) the treatment of such amounts when so includible by 
     the participant,
     shall be determined as if such qualified governmental excess 
     benefit arrangement were treated as a plan for the deferral 
     of compensation which is maintained by a corporation not 
     exempt from tax under this chapter and which does not meet 
     the requirements for qualification under section 401.
       ``(3) Qualified governmental excess benefit arrangement.--
     For purposes of this subsection, the term `qualified 
     governmental excess benefit arrangement' means a portion of a 
     governmental plan if--
       ``(A) such portion is maintained solely for the purpose of 
     providing to participants in the plan that part of the 
     participant's annual benefit otherwise payable under the 
     terms of the plan that exceeds the limitations on benefits 
     imposed by this section,
       ``(B) under such portion no election is provided at any 
     time to the participant (directly or indirectly) to defer 
     compensation, and
       ``(C) benefits described in subparagraph (A) are not paid 
     from a trust forming a part of such governmental plan unless 
     such trust is maintained solely for the purpose of providing 
     such benefits.''.
       (2) Coordination with section 457.--Subsection (e) of 
     section 457 is amended by adding at the end the following new 
     paragraph:
       ``(14) Treatment of qualified governmental excess benefit 
     arrangements.--Subsections (b)(2) and (c)(1) shall not apply 
     to any qualified governmental excess benefit arrangement (as 
     defined in section 415(m)(3)), and benefits provided under 
     such an arrangement shall not be taken into account in 
     determining whether any other plan is an eligible deferred 
     compensation plan.''.
       (3) Conforming amendment.--Paragraph (2) of section 457(f) 
     is amended by striking ``and'' at the end of subparagraph 
     (C), by striking the period at the end of subparagraph (D) 
     and inserting ``, and'', and by inserting immediately 
     thereafter the following new subparagraph:
       ``(E) a qualified governmental excess benefit arrangement 
     described in section 415(m).''.
       (c) Exemption for Survivor and Disability Benefits.--
     Paragraph (2) of section 415(b) is amended by adding at the 
     end the following new subparagraph:
       ``(I) Exemption for survivor and disability benefits 
     provided under governmental plans.--Subparagraph (C) of this 
     paragraph and paragraph (5) shall not apply to--
       ``(i) income received from a governmental plan (as defined 
     in section 414(d)) as a pension, annuity, or similar 
     allowance as the result of the recipient becoming disabled by 
     reason of personal injuries or sickness, or
       ``(ii) amounts received from a governmental plan by the 
     beneficiaries, survivors, or the estate of an employee as the 
     result of the death of the employee.''.
       (d) Revocation of Grandfather Election.--
       (1) In general.--Subparagraph (C) of section 415(b)(10) is 
     amended by adding at the end the following new clause:
       ``(ii) Revocation of election.--An election under clause 
     (i) may be revoked not later than the last day of the third 
     plan year beginning after the date of the enactment of this 
     clause. The revocation shall apply to all plan years to which 
     the election applied and to all subsequent plan years. Any 
     amount paid by a plan in a taxable year ending after the 
     revocation shall be includible in income in such taxable year 
     under the rules of this chapter in effect for such taxable 
     year, except that, for purposes of applying the limitations 
     imposed by this section, any portion of such amount which is 
     attributable to any taxable year during which the election 
     was in effect shall be treated as received in such taxable 
     year.''.
       (2) Conforming amendment.--Subparagraph (C) of section 
     415(b)(10) is amended by striking ``This'' and inserting:
       ``(i) In general.--This''.
       (e) Effective Date.--
       (1) In general.--The amendments made by subsections (a), 
     (b), and (c) shall apply to years beginning after December 
     31, 1994. The amendments made by subsection (d) shall

[[Page S7381]]

     apply with respect to revocations adopted after the date of 
     the enactment of this Act.
       (2) Treatment for years beginning before january 1, 1995.--
     Nothing in the amendments made by this section shall be 
     construed to imply that a governmental plan (as defined in 
     section 414(d) of the Internal Revenue Code of 1986) fails to 
     satisfy the requirements of section 415 of such Code for any 
     taxable year beginning before January 1, 1995.

     SEC. 1445. UNIFORM RETIREMENT AGE.

       (a) Discrimination Testing.--Paragraph (5) of section 
     401(a) (relating to special rules relating to 
     nondiscrimination requirements) is amended by adding at the 
     end the following new subparagraph:
       ``(F) Social security retirement age.--For purposes of 
     testing for discrimination under paragraph (4)--
       ``(i) the social security retirement age (as defined in 
     section 415(b)(8)) shall be treated as a uniform retirement 
     age, and
       ``(ii) subsidized early retirement benefits and joint and 
     survivor annuities shall not be treated as being unavailable 
     to employees on the same terms merely because such benefits 
     or annuities are based in whole or in part on an employee's 
     social security retirement age (as so defined).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1996.

     SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

       (a) All Disabled Participants Receiving Contributions.--
     Section 415(c)(3)(C) is amended by adding at the end the 
     following: ``If a defined contribution plan provides for the 
     continuation of contributions on behalf of all participants 
     described in clause (i) for a fixed or determinable period, 
     this subparagraph shall be applied without regard to clauses 
     (ii) and (iii).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1996.

     SEC. 1447. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE 
                   AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                   ORGANIZATIONS.

       (a) Special Rules for Plan Distributions.--Paragraph (9) of 
     section 457(e) (relating to other definitions and special 
     rules) is amended to read as follows:
       ``(9) Benefits not treated as made available by reason of 
     certain elections, etc.--
       ``(A) Total amount payable is $3,500 or less.--The total 
     amount payable to a participant under the plan shall not be 
     treated as made available merely because the participant may 
     elect to receive such amount (or the plan may distribute such 
     amount without the participant's consent) if--
       ``(i) such amount does not exceed $3,500, and
       ``(ii) such amount may be distributed only if--

       ``(I) no amount has been deferred under the plan with 
     respect to such participant during the 2-year period ending 
     on the date of the distribution, and
       ``(II) there has been no prior distribution under the plan 
     to such participant to which this subparagraph applied.

     A plan shall not be treated as failing to meet the 
     distribution requirements of subsection (d) by reason of a 
     distribution to which this subparagraph applies.
       ``(B) Election to defer commencement of distributions.--The 
     total amount payable to a participant under the plan shall 
     not be treated as made available merely because the 
     participant may elect to defer commencement of distributions 
     under the plan if--
       ``(i) such election is made after amounts may be available 
     under the plan in accordance with subsection (d)(1)(A) and 
     before commencement of such distributions, and
       ``(ii) the participant may make only 1 such election.''.
       (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
     Subsection (e) of section 457, as amended by section 
     1444(b)(2) (relating to governmental plans), is amended by 
     adding at the end the following new paragraph:
       ``(15) Cost-of-living adjustment of maximum deferral 
     amount.--The Secretary shall adjust the $7,500 amount 
     specified in subsections (b)(2) and (c)(1) at the same time 
     and in the same manner as under section 415(d), except that 
     the base period shall be the calendar quarter ending 
     September 30, 1994, and any increase under this paragraph 
     which is not a multiple of $500 shall be rounded to the next 
     lowest multiple of $500.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS 
                   OF STATE AND LOCAL GOVERNMENTS.

       (a) In General.--Section 457 is amended by adding at the 
     end the following new subsection:
       ``(g) Governmental Plans Must Maintain Set-Asides for 
     Exclusive Benefit of Participants.--
       ``(1) In general.--A plan maintained by an eligible 
     employer described in subsection (e)(1)(A) shall not be 
     treated as an eligible deferred compensation plan unless all 
     assets and income of the plan described in subsection (b)(6) 
     are held in trust for the exclusive benefit of participants 
     and their beneficiaries.
       ``(2) Taxability of trusts and participants.--For purposes 
     of this title--
       ``(A) a trust described in paragraph (1) shall be treated 
     as an organization exempt from taxation under section 501(a), 
     and
       ``(B) notwithstanding any other provision of this title, 
     amounts in the trust shall be includible in the gross income 
     of participants and beneficiaries only to the extent, and at 
     the time, provided in this section.
       ``(3) Custodial accounts and contracts.--For purposes of 
     this subsection, custodial accounts and contracts described 
     in section 401(f) shall be treated as trusts under rules 
     similar to the rules under section 401(f).''.
       (b) Conforming Amendment.--Paragraph (6) of section 457(b) 
     is amended by inserting ``except as provided in subsection 
     (g),'' before ``which provides that''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to assets and 
     income described in section 457(b)(6) of the Internal Revenue 
     Code of 1986 held by a plan on and after the date of the 
     enactment of this Act.
       (2) Transition rule.--In the case of a plan in existence on 
     the date of the enactment of this Act, a trust need not be 
     established by reason of the amendments made by this section 
     before January 1, 1999.

     SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS 
                   UNDER SECTION 415 LIMITATIONS.

       (a) In General.--Subparagraph (A) of section 767(d)(3) of 
     the Uruguay Round Agreements Act is amended to read as 
     follows:
       ``(A) Exception.--A plan that was adopted and in effect 
     before December 8, 1994, shall not be required to apply the 
     amendments made by subsection (b) with respect to benefits 
     accrued before the earlier of--
       ``(i) the later of the date a plan amendment applying the 
     amendments made by subsection (b) is adopted or made 
     effective, or
       ``(ii) the first day of the first limitation year beginning 
     after December 31, 1999.
     Determinations under section 415(b)(2)(E) of the Internal 
     Revenue Code of 1986 before such earlier date shall be made 
     with respect to such benefits on the basis of such section as 
     in effect on December 7, 1994 (except that the modification 
     made by section 1449(b) of the Small Business Job Protection 
     Act of 1996 shall be taken into account), and the provisions 
     of the plan as in effect on December 7, 1994, but only if 
     such provisions of the plan meet the requirements of such 
     section (as so in effect).''.
       (b) Modification of Certain Assumptions for Adjusting 
     Benefits of Defined Benefit Plans for Early Retirees.--
     Subparagraph (E) of section 415(b)(2) (relating to limitation 
     on certain assumptions) is amended--
       (1) by striking ``Except as provided in clause (ii), for 
     purposes of adjusting any benefit or limitation under 
     subparagraph (B) or (C),'' in clause (i) and inserting ``For 
     purposes of adjusting any limitation under subparagraph (C) 
     and, except as provided in clause (ii), for purposes of 
     adjusting any benefit under subparagraph (B),'', and
       (2) by striking ``For purposes of adjusting the benefit or 
     limitation of any form of benefit subject to section 
     417(e)(3),'' in clause (ii) and inserting ``For purposes of 
     adjusting any benefit under subparagraph (B) for any form of 
     benefit subject to section 417(e)(3),''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of section 
     767 of the Uruguay Round Agreements Act.
       (d) Transitional Rule.--In the case of a plan that was 
     adopted and in effect before December 8, 1994, if--
       (1) a plan amendment was adopted or made effective on or 
     before the date of the enactment of this Act applying the 
     amendments made by section 767 of the Uruguay Round 
     Agreements Act, and
       (2) within 1 year after the date of the enactment of this 
     Act, a plan amendment is adopted which repeals the amendment 
     referred to in paragraph (1),

     the amendment referred to in paragraph (1) shall not be taken 
     into account in applying section 767(d)(3)(A) of the Uruguay 
     Round Agreements Act, as amended by subsection (a).

     SEC. 1450. MODIFICATIONS OF SECTION 403(b).

       (a) Multiple Salary Reduction Agreements Permitted.--
       (1) General rule.--For purposes of section 403(b) of the 
     Internal Revenue Code of 1986, the frequency that an employee 
     is permitted to enter into a salary reduction agreement, the 
     salary to which such an agreement may apply, and the ability 
     to revoke such an agreement shall be determined under the 
     rules applicable to cash or deferred elections under 
     section 401(k) of such Code.
       (2) Constructive receipt.--Section 402(e)(3) is amended by 
     inserting ``or which is part of a salary reduction agreement 
     under section 403(b)'' after ``section 401(k)(2))''.
       (3) Effective date.--This subsection shall apply to taxable 
     years beginning after December 31, 1995.
       (b) Treatment of Indian Tribal Governments.--
       (1) In general.--Subparagraph (A) of section 403(b)(1) 
     (relating to taxability of beneficiary under annuity 
     purchased by section 501(c)(3) organization or public school) 
     is amended by striking ``or'' at the end of clause (i), by 
     inserting ``or'' at the end of clause (ii), and by adding at 
     the end the following new clause:
       ``(iii) for an employee by an employer which is an Indian 
     tribal government (as defined in section 7701(a)(40)), a 
     subdivision of an Indian tribal government (determined in 
     accordance with section 7871(d)), an agency

[[Page S7382]]

     or instrumentality of an Indian tribal government or 
     subdivision thereof, or a corporation chartered under 
     Federal, State, or tribal law which is owned in whole or part 
     by any of the foregoing,''.
       (2) Conforming amendment.--The heading for section 403(b) 
     is amended by striking ``or Public School'' and inserting ``, 
     Public School, or Indian Tribe''.
       (3) Effective dates.--
       (A) In general.--The amendments made by this section shall 
     apply to plan years beginning after December 31, 1996.
       (B) Transition rules.--
       (i) In general.--In the case of any contract purchased in a 
     plan year beginning before January 1, 1997, section 403(b) of 
     the Internal Revenue Code of 1986 shall be applied as if any 
     reference to an employer described in section 501(c)(3) of 
     the Internal Revenue Code of 1986 which is exempt from tax 
     under section 501 of such Code included a reference to an 
     employer which is an Indian tribal government (as defined by 
     section 7701(a)(40) of such Code), a subdivision of an Indian 
     tribal government (determined in accordance with section 
     7871(d) of such Code), an agency or instrumentality of an 
     Indian tribal government or subdivision thereof, or a 
     corporation chartered under Federal, State, or tribal law 
     which is owned in whole or in part by any of the foregoing.
       (ii) Rollovers.--Solely for purposes of applying section 
     403(b)(8) of such Code to a contract to which clause (i) 
     applies, a qualified cash or deferred arrangement under 
     section 401(k) of such Code shall be treated as if it were a 
     plan or contract described in clause (ii) of section 
     403(b)(8)(A) of such Code.
       (c) Elective Deferrals.--
       (1) In general.--Subparagraph (E) of section 403(b)(1) is 
     amended to read as follows:
       ``(E) in the case of a contract purchased under a salary 
     reduction agreement, the contract meets the requirements of 
     section 401(a)(30),''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 1995, 
     except a contract shall not be required to meet any change in 
     any requirement by reason of such amendment before the 90th 
     day after the date of the enactment of this Act.

     SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR 
                   ANNUITY EXPLANATION BEFORE ANNUITY STARTING 
                   DATE.

       (a) General Rule.--For purposes of section 417(a)(3)(A) of 
     the Internal Revenue Code of 1986 (relating to plan to 
     provide written explanations), the minimum period prescribed 
     by the Secretary of the Treasury between the date that the 
     explanation referred to in such section is provided and the 
     annuity starting date shall not apply if waived by the 
     participant and, if applicable, the participant's spouse.
       (b) Effective Date.--Subsection (a) shall apply to plan 
     years beginning after December 31, 1996.

     SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT 
                   PLAN AND DEFINED CONTRIBUTION PLAN FOR SAME 
                   EMPLOYEE; EXCESS DISTRIBUTIONS.

       (a) In General.--Section 415(e) is repealed.
       (b) Excess Distributions.--Section 4980A is amended by 
     adding at the end the following new subsection:
       ``(g) Limitation on Application.--This section shall not 
     apply to distributions during years beginning after December 
     31, 1996, and before January 1, 2000, and such distributions 
     shall be treated as made first from amounts not described 
     in subsection (f).''.
       (c) Conforming Amendments.--
       (1) Paragraph (1) of section 415(a) is amended--
       (A) by adding ``or'' at the end of subparagraph (A),
       (B) by striking ``, or'' at the end of subparagraph (B) and 
     inserting a period, and
       (C) by striking subparagraph (C).
       (2) Subparagraph (B) of section 415(b)(5) is amended by 
     striking ``and subsection (e)''.
       (3) Paragraph (1) of section 415(f) is amended by striking 
     ``subsections (b), (c), and (e)'' and inserting ``subsections 
     (b) and (c)''.
       (4) Subsection (g) of section 415 is amended by striking 
     ``subsections (e) and (f)'' in the last sentence and 
     inserting ``subsection (f)''.
       (5) Clause (i) of section 415(k)(2)(A) is amended to read 
     as follows:
       ``(i) any contribution made directly by an employee under 
     such an arrangement shall not be treated as an annual 
     addition for purposes of subsection (c), and''.
       (6) Clause (ii) of section 415(k)(2)(A) is amended by 
     striking ``subsections (c) and (e)'' and inserting 
     ``subsection (c)''.
       (7) Section 416 is amended by striking subsection (h).
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to limitation 
     years beginning after December 31, 1999.
       (2) Excess distributions.--The amendment made by subsection 
     (b) shall apply to years beginning after December 31, 1996.

     SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

       (a) In General.--Section 4975(a) is amended by striking ``5 
     percent'' and inserting ``10 percent''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to prohibited transactions occurring after the 
     date of the enactment of this Act.

     SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

       (a) General Rule.--Subparagraph (C) of section 414(n)(2) 
     (defining leased employee) is amended to read as follows:
       ``(C) such services are performed under primary direction 
     or control by the recipient.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1996, but 
     shall not apply to any relationship determined under an 
     Internal Revenue Service ruling issued before the date of the 
     enactment of this Act pursuant to section 414(n)(2)(C) of the 
     Internal Revenue Code of 1986 (as in effect on the day before 
     such date) not to involve a leased employee.

     SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN 
                   PENSION REPORTING REQUIREMENTS.

       (a) Penalties.--
       (1) Statements.--Paragraph (1) of section 6724(d) is 
     amended by striking ``and'' at the end of subparagraph (A), 
     by striking the period at the end of subparagraph (B) and 
     inserting ``, and'', and by inserting after subparagraph (B) 
     the following new subparagraph:
       ``(C) any statement of the amount of payments to another 
     person required to be made to the Secretary under--
       ``(i) section 408(i) (relating to reports with respect to 
     individual retirement accounts or annuities), or
       ``(ii) section 6047(d) (relating to reports by employers, 
     plan administrators, etc.).''.
       (2) Reports.--Paragraph (2) of section 6724(d) is amended 
     by striking ``or'' at the end of subparagraph (S), by 
     striking the period at the end of subparagraph (T) and 
     inserting a comma, and by inserting after subparagraph (T) 
     the following new subparagraphs:
       ``(U) section 408(i) (relating to reports with respect to 
     individual retirement plans) to any person other than the 
     Secretary with respect to the amount of payments made to such 
     person, or
       ``(V) section 6047(d) (relating to reports by plan 
     administrators) to any person other than the Secretary with 
     respect to the amount of payments made to such person.''.
       (b) Modification of Reportable Designated Distributions.--
       (1) Section 408.--Subsection (i) of section 408 (relating 
     to individual retirement account reports) is amended by 
     inserting ``aggregating $10 or more in any calendar year'' 
     after ``distributions''.
       (2) Section 6047.--Paragraph (1) of section 6047(d) 
     (relating to reports by employers, plan administrators, etc.) 
     is amended by adding at the end the following new 
     sentence: ``No return or report may be required under the 
     preceding sentence with respect to distributions to any 
     person during any year unless such distributions aggregate 
     $10 or more.''.
       (c) Qualifying Rollover Distributions.--Section 6652(i) is 
     amended--
       (1) by striking ``the $10'' and inserting ``$100'', and
       (2) by striking ``$5,000'' and inserting ``$50,000''.
       (d) Conforming Amendments.--
       (1) Paragraph (1) of section 6047(f) is amended to read as 
     follows:

  ``(1) For provisions relating to penalties for failures to file 
returns and reports required under this section, see sections 6652(e), 
6721, and 6722.''.

       (2) Subsection (e) of section 6652 is amended by adding at 
     the end the following new sentence: ``This subsection shall 
     not apply to any return or statement which is an information 
     return described in section 6724(d)(1)(C)(ii) or a payee 
     statement described in section 6724(d)(2)(V).''.
       (3) Subsection (a) of section 6693 is amended by adding at 
     the end the following new sentence: ``This subsection shall 
     not apply to any report which is an information return 
     described in section 6724(d)(1)(C)(i) or a payee statement 
     described in section 6724(d)(2)(U).''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to returns, reports, and other statements the due 
     date for which (determined without regard to extensions) is 
     after December 31, 1996.

     SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO 
                   TAX ON NET EARNINGS FROM SELF-EMPLOYMENT.

       (a) In General.--Section 1402(a)(8) (defining net earning 
     from self-employment) is amended by inserting ``, but shall 
     not include in such net earnings from self-employment the 
     rental value of any parsonage or any parsonage allowance 
     (whether or not excludable under section 107) provided after 
     the individual retires, or any other retirement benefit 
     received by such individual from a church plan (as defined in 
     section 414(e)) after the individual retires'' before the 
     semicolon at the end.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning before, on, or after December 
     31, 1994.

     SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND QUALIFIED 
                   DOMESTIC RELATIONS FORMS.

       (a) Development of Forms.--Not later than January 1, 1997, 
     the Secretary of the Treasury shall develop--
       (1) a model form for the spousal consent required under 
     section 417(a)(2) of the Internal Revenue Code of 1986 and 
     section 205(c)(2) of the Employee Retirement Income Security 
     Act of 1974 which--
       (A) is written in a manner calculated to be understood by 
     the average person, and
       (B) discloses in plain form--
       (i) whether the waiver to which the spouse consents is 
     irrevocable, and

[[Page S7383]]

       (ii) whether such waiver may be revoked by a qualified 
     domestic relations order, and
       (2) a model form for a qualified domestic relations order 
     described in section 414(p)(1)(A) of such Code and section 
     206(d)(3)(B)(i) of such Act which--
       (A) meets the requirements contained in such sections, and
       (B) the provisions of which focus attention on the need to 
     consider the treatment of any lump sum payment, qualified 
     joint and survivor annuity, or qualified preretirement 
     survivor annuity.
       (b) Publicity.--The Secretary of the Treasury shall include 
     publicity for the model forms developed under subsection (a) 
     in the pension outreach efforts undertaken by the Secretary.

     SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS TO 
                   VOLUNTEERS PERFORMING FIRE FIGHTING OR 
                   PREVENTION SERVICES, EMERGENCY MEDICAL 
                   SERVICES, OR AMBULANCE SERVICES.

       (a) In General.--Paragraph (11) of section 457(e) (relating 
     to deferred compensation plans of State and local governments 
     and tax-exempt organizations) is amended to read as follows:
       ``(11) Certain plans excluded.--
       ``(A) In general.--The following plans shall be treated as 
     not providing for the deferral of compensation:
       ``(i) Any bona fide vacation leave, sick leave, 
     compensatory time, severance pay, disability pay, or death 
     benefit plan.
       ``(ii) Any plan paying solely length of service awards to 
     bona fide volunteers (or their beneficiaries) on account of 
     qualified services performed by such volunteers.
       ``(B) Special rules applicable to length of service award 
     plans.--
       ``(i) Bona fide volunteer.--An individual shall be treated 
     as a bona fide volunteer for purposes of subparagraph (A)(ii) 
     if the only compensation received by such individual for 
     performing qualified services is in the form of--

       ``(I) reimbursement for (or a reasonable allowance for) 
     reasonable expenses incurred in the performance of such 
     services, or
       ``(II) reasonable benefits (including length of service 
     awards), and nominal fees for such services, customarily paid 
     by eligible employers in connection with the performance of 
     such services by volunteers.

       ``(ii) Limitation on accruals.--A plan shall not be treated 
     as described in subparagraph (A)(ii) if the aggregate amount 
     of length of service awards accruing with respect to any year 
     of service for any bona fide volunteer exceeds $3,000.
       ``(C) Qualified services.--For purposes of this paragraph, 
     the term `qualified services' means fire fighting and 
     prevention services, emergency medical services, and 
     ambulance services.''
       (b) Exemption From Social Security Taxes.--
       (1) Subsection (a)(5) of section 3121, as amended by 
     section 1421, is amended by striking ``(or)'' at the end of 
     subparagraph (G), by inserting ``or'' at the end of 
     subparagraph (H), and by adding at the end the following new 
     subparagraph:
       ``(I) under a plan described in section 457(e)(11)(A)(ii) 
     and maintained by an eligible employer (as defined in section 
     457(e)(1)).''.
       (2) Section 209(a)(4) of the Social Security Act is amended 
     by inserting ``; or (K) under a plan described in section 
     457(e)(11)(A)(ii) of the Internal Revenue Code of 1986 and 
     maintained by an eligible employer (as defined in section 
     457(e)(1) of such Code)'' before the semicolon at the end 
     thereof.
       (c) Effective Date.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to accruals of length of service awards after 
     December 31, 1996.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to remuneration paid after December 31, 1996.

     SEC. 1459. DATE FOR ADOPTION OF PLAN AMENDMENTS.

       If any amendment made by this subtitle requires an 
     amendment to any plan or annuity contract, such amendment 
     shall not be required to be made before the first day of the 
     first plan year beginning on or after January 1, 1997, if--
       (1) during the period after such amendment takes effect and 
     before such first plan year, the plan or contract is operated 
     in accordance with the requirements of such amendment, and
       (2) such amendment applies retroactively to such period.

     In the case of a governmental plan (as defined in section 
     414(d) of the Internal Revenue Code of 1986), this section 
     shall be applied by substituting ``1999'' for ``1997''.
                      Subtitle E--Revenue Offsets

                       PART I--GENERAL PROVISIONS

     SEC. 1601. MODIFICATIONS OF PUERTO RICO AND POSSESSION TAX 
                   CREDIT.

       (a) In General.--Section 936 is amended by adding at the 
     end the following new subsection:
       ``(j) Termination of QPSII and Reduced Credit; Reduction in 
     Economic Activity Credit.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, this section shall not apply to any taxable year 
     beginning after December 31, 1995.
       ``(2) Special rules for active business income credit.--
     Except as provided in paragraph (3)--
       ``(A) Economic activity credit.--In the case of an existing 
     credit claimant--
       ``(i) with respect to a possession other than Puerto Rico, 
     and
       ``(ii) to which subsection (a)(4)(B) does not apply,

     the credit determined under subsection (a)(1)(A) shall be 
     allowed for taxable years beginning after December 31, 1995, 
     except that in the case of taxable years beginning after 
     December 31, 2005, subsection (a)(4)(A)(i) shall be applied 
     by substituting `40 percent' for `60 percent'.
       ``(B) Reduced credit.--
       ``(i) In general.--In the case of an existing credit 
     claimant to which subsection (a)(4)(B) applies, the credit 
     determined under subsection (a)(1)(A) shall be allowed for 
     taxable years beginning after December 31, 1995, and before 
     January 1, 2006.
       ``(ii) Election irrevocable after 1997.--An election under 
     subsection (a)(4)(B)(iii) which is in effect for 
     the taxpayer's last taxable year beginning before 1997 may 
     not be revoked unless it is revoked for the taxpayer's 
     first taxable year beginning in 1997 and all subsequent 
     taxable years.
       ``(C) Economic activity credit for puerto rico.--

  ``For economic activity credit for Puerto Rico, see section 30A.

       ``(3) Additional restriction on credit.--
       ``(A) In general.--In the case of an existing credit 
     claimant, the aggregate amount of taxable income taken into 
     account under subsection (a)(1)(A) shall not exceed the 
     adjusted base period income of such claimant--
       ``(i) in the case of the credit described in paragraph 
     (2)(A), for any taxable year beginning after December 31, 
     2001, and
       ``(ii) in the case of the credit described in paragraph 
     (2)(B), for any taxable year beginning after December 31, 
     1997.
       ``(B) Coordination with subsection (a)(4).--The amount of 
     income described in subsection (a)(1)(A) which is taken into 
     account in applying subsection (a)(4) shall be such income as 
     reduced under this paragraph.
       ``(4) Adjusted base period income.--For purposes of 
     paragraph (3)--
       ``(A) In general.--The term `adjusted base period income' 
     means the average of the inflation-adjusted possession 
     incomes of the corporation for each base period year.
       ``(B) Inflation-adjusted possession income.--For purposes 
     of subparagraph (A), the inflation-adjusted possession income 
     of any corporation for any base period year shall be an 
     amount equal to the sum of--
       ``(i) the possession income of such corporation for such 
     base period year, plus
       ``(ii) such possession income multiplied by the inflation 
     adjustment percentage for such base period year.
       ``(C) Inflation adjustment percentage.--For purposes of 
     subparagraph (B), the inflation adjustment percentage for any 
     base period year means the percentage (if any) by which--
       ``(i) the CPI for 1995, exceeds
       ``(ii) the CPI for the calendar year in which the base 
     period year for which the determination is being made ends.

     For purposes of the preceding sentence, the CPI for any 
     calendar year is the CPI (as defined in section 1(f)(5)) for 
     such year under section 1(f)(4).
       ``(D) Increase in inflation adjustment percentage for 
     growth during base years.--The inflation adjustment 
     percentage (determined under subparagraph (C) without regard 
     to this subparagraph) for each of the 5 taxable years 
     referred to in paragraph (5)(A) shall be increased by--
       ``(i) 5 percentage points in the case of a taxable year 
     ending during the 1-year period ending on October 13, 1995;
       ``(ii) 10.25 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1994;
       ``(iii) 15.76 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1993;
       ``(iv) 21.55 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1992; and
       ``(v) 27.63 percentage points in the case of a taxable year 
     ending during the 1-year period ending on October 13, 1991.
       ``(5) Base period year.--For purposes of this subsection--
       ``(A) In general.--The term `base period year' means each 
     of 3 taxable years which are among the 5 most recent taxable 
     years of the corporation ending before October 14, 1995, 
     determined by disregarding--
       ``(i) one taxable year for which the corporation had the 
     largest inflation-adjusted possession income, and
       ``(ii) one taxable year for which the corporation had the 
     smallest inflation-adjusted possession income.
       ``(B) Corporations not having significant possession income 
     throughout 5-year period.--
       ``(i) In general.--If a corporation does not have 
     significant possession income for each of the most recent 5 
     taxable years ending before October 14, 1995, then, in lieu 
     of applying subparagraph (A), the term `base period year' 
     means only those taxable years (of such 5 taxable years) for 
     which the corporation has significant possession income; 
     except that, if such corporation has significant 
     possession income for 4 of such 5 taxable years, the rule 
     of subparagraph (A)(ii) shall apply.
       ``(ii) Special rule.--If there is no year (of such 5 
     taxable years) for which a corporation has significant 
     possession income--

       ``(I) the term `base period year' means the first taxable 
     year ending on or after October 14, 1995, but

[[Page S7384]]

       ``(II) the amount of possession income for such year which 
     is taken into account under paragraph (4) shall be the amount 
     which would be determined if such year were a short taxable 
     year ending on September 30, 1995.

       ``(iii) Significant possession income.--For purposes of 
     this subparagraph, the term `significant possession income' 
     means possession income which exceeds 2 percent of the 
     possession income of the taxpayer for the taxable year (of 
     the period of 6 taxable years ending with the first taxable 
     year ending on or after October 14, 1995) having the greatest 
     possession income.
       ``(C) Election to use one base period year.--
       ``(i) In general.--At the election of the taxpayer, the 
     term `base period year' means--

       ``(I) only the last taxable year of the corporation ending 
     in calendar year 1992, or
       ``(II) a deemed taxable year which includes the first ten 
     months of calendar year 1995.

       ``(ii) Base period income for 1995.--In determining the 
     adjusted base period income of the corporation for the deemed 
     taxable year under clause (i)(II), the possession income 
     shall be annualized and shall be determined without regard to 
     any extraordinary item.
       ``(iii) Election.--An election under this subparagraph by 
     any possession corporation may be made only for the 
     corporation's first taxable year beginning after December 31, 
     1995, for which it is a possession corporation. The rules of 
     subclauses (II) and (III) of subsection (a)(4)(B)(iii) shall 
     apply to the election under this subparagraph.
       ``(D) Acquisitions and dispositions.--Rules similar to the 
     rules of subparagraphs (A) and (B) of section 41(f)(3) shall 
     apply for purposes of this subsection.
       ``(6) Possession income.--For purposes of this subsection, 
     the term `possession income' means, with respect to any 
     possession, the income referred to in subsection (a)(1)(A) 
     determined with respect to that possession. In no event shall 
     possession income be treated as being less than zero.
       ``(7) Short years.--If the current year or a base period 
     year is a short taxable year, the application of this 
     subsection shall be made with such annualizations as the 
     Secretary shall prescribe.
       ``(8) Special rules for certain possessions.--
       ``(A) In general.--In the case of an existing credit 
     claimant with respect to an applicable possession--
       ``(i) this section (other than the preceding paragraphs of 
     this subsection) shall apply to such claimant with respect to 
     such applicable possession for taxable years beginning after 
     December 31, 1995, and before January 1, 2006, and
       ``(ii) this section (including the preceding paragraphs of 
     this subsection) shall apply to such claimant with respect to 
     such applicable possession for taxable years beginning after 
     December 31, 2005.
       ``(B) Applicable possession.--For purposes of this 
     paragraph, the term `applicable possession' means Guam, 
     American Samoa, and the Commonwealth of the Northern Mariana 
     Islands.
       ``(9) Existing credit claimant.--For purposes of this 
     subsection--
       ``(A) In general.--The term `existing credit claimant' 
     means a corporation--
       ``(i) which was actively conducting a trade or business in 
     a possession on October 13, 1995, and
       ``(ii) with respect to which an election under this section 
     is in effect for the corporation's taxable year which 
     includes October 13, 1995.
       ``(B) New lines of business prohibited.--If, after October 
     13, 1995, a corporation which would (but for this 
     subparagraph) be an existing credit claimant adds a 
     substantial new line of business, such corporation shall 
     cease to be treated as an existing credit claimant as of the 
     close of the taxable year ending before the date of such 
     addition.
       ``(C) Binding contract exception.--If, on October 13, 1995, 
     and at all times thereafter, there is in effect with respect 
     to a corporation a binding contract for the acquisition of 
     assets to be used in, or for the sale of assets to be 
     produced from, a trade or business, the corporation shall be 
     treated for purposes of this paragraph as actively conducting 
     such trade or business on October 13, 1995. The preceding 
     sentence shall not apply if such trade or business is not 
     actively conducted before January 1, 1996.
       ``(10) Separate application to each possession.--For 
     purposes of determining--
       ``(A) whether a taxpayer is an existing credit claimant, 
     and
       ``(B) the amount of the credit allowed under this section,

     this subsection (and so much of this section as relates to 
     this subsection) shall be applied separately with respect to 
     each possession.''.
       (b) Economic Activity Credit for Puerto Rico.--
       (1) In general.--Subpart B of part IV of subchapter A of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

       ``(a) Allowance of Credit.--
       ``(1) In general.--Except as otherwise provided in this 
     section, if the conditions of both paragraph (1) and 
     paragraph (2) of subsection (b) are satisfied with respect to 
     a qualified domestic corporation, there shall be allowed as a 
     credit against the tax imposed by this chapter an amount 
     equal to the portion of the tax which is attributable to the 
     taxable income, from sources without the United States, 
     from--
       ``(A) the active conduct of a trade or business within 
     Puerto Rico, or
       ``(B) the sale or exchange of substantially all of the 
     assets used by the taxpayer in the active conduct of such 
     trade or business.

     In the case of any taxable year beginning after December 31, 
     2001, the aggregate amount of taxable income taken into 
     account under the preceding sentence (and in applying 
     subsection (d)) shall not exceed the adjusted base period 
     income of such corporation, as determined in the same manner 
     as under section 936(j).
       ``(2) Qualified domestic corporation.--For purposes of 
     paragraph (1), the term `qualified domestic corporation' 
     means a domestic corporation--
       ``(A) which is an existing credit claimant with respect to 
     Puerto Rico, and
       ``(B) with respect to which section 936(a)(4)(B) does not 
     apply for the taxable year.
       ``(3) Separate application.--For purposes of determining--
       ``(A) whether a taxpayer is an existing credit claimant 
     with respect to Puerto Rico, and
       ``(B) the amount of the credit allowed under this section,

     this section (and so much of section 936 as relates to this 
     section) shall be applied separately with respect to Puerto 
     Rico.
       ``(b) Conditions Which Must Be Satisfied.--The conditions 
     referred to in subsection (a) are--
       ``(1) 3-year period.--If 80 percent or more of the gross 
     income of the qualified domestic corporation for the 3-year 
     period immediately preceding the close of the taxable year 
     (or for such part of such period immediately preceding the 
     close of such taxable year as may be applicable) was derived 
     from sources within a possession of the United States 
     (determined without regard to section 904(f)).
       ``(2) Trade or business.--If 75 percent or more of the 
     gross income of the qualified domestic corporation for such 
     period or such part thereof was derived from the active 
     conduct of a trade or business within a possession of the 
     United States.
       ``(c) Credit Not Allowed Against Certain Taxes.--The credit 
     provided by subsection (a) shall not be allowed against the 
     tax imposed by--
       ``(1) section 59A (relating to environmental tax),
       ``(2) section 531 (relating to the tax on accumulated 
     earnings),
       ``(3) section 541 (relating to personal holding company 
     tax), or
       ``(4) section 1351 (relating to recoveries of foreign 
     expropriation losses).
       ``(d) Limitations on Credit.--The amount of the credit 
     determined under subsection (a) for any taxable year shall 
     not exceed the sum of the following amounts:
       ``(1) 60 percent (40 percent in the case of taxable years 
     beginning after December 31, 2005) of the sum of--
       ``(A) the aggregate amount of the qualified domestic 
     corporation's qualified possession wages for such taxable 
     year, plus
       ``(B) the allocable employee fringe benefit expenses of the 
     qualified domestic corporation for such taxable year.
       ``(2) The sum of--
       ``(A) 15 percent of the depreciation allowances for the 
     taxable year with respect to short-life qualified tangible 
     property,
       ``(B) 40 percent of the depreciation allowances for the 
     taxable year with respect to medium-life qualified tangible 
     property, and
       ``(C) 65 percent of the depreciation allowances for the 
     taxable year with respect to long-life qualified tangible 
     property.
       ``(3) If the qualified domestic corporation does not have 
     an election to use the method described in section 
     936(h)(5)(C)(ii) (relating to profit split) in effect for the 
     taxable year, the amount of the qualified possession income 
     taxes for the taxable year allocable to nonsheltered income.
       ``(e) Administrative Provisions.--For purposes of this 
     title (other than section 27)--
       ``(1) the provisions of section 936 (including any 
     applicable election thereunder) shall apply in the same 
     manner as if the credit under this section were a credit 
     under section 936(a)(1)(A) for a domestic corporation to 
     which section 936(a)(4)(A) applies,
       ``(2) the credit under this section shall be treated in the 
     same manner as the credit under section 936, and
       ``(3) a corporation to which this section applies shall be 
     treated in the same manner as if it were a corporation 
     electing the application of section 936.
       ``(f) Definitions.--For purposes of this section, any term 
     used in this section which is also used in section 936 shall 
     have the same meaning given such term by section 936.
       ``(g) Application of Section.--This section shall apply to 
     taxable years beginning after December 31, 1995.''
       (2) Conforming amendments.--
       (A) Paragraph (1) of section 55(c) is amended by striking 
     ``and the section 936 credit allowable under section 27(b)'' 
     and inserting ``, the section 936 credit allowable under 
     section 27(b), and the Puerto Rican economic activity 
     credit under section 30A''.
       (B) Subclause (I) of section 56(g)(4)(C)(ii) is amended--
       (i) by inserting ``30A,'' before ``936'', and
       (ii) by striking ``and (i)'' and inserting ``, (i), and 
     (j)''.
       (C) Clause (iii) of section 56(g)(4)(C) is amended by 
     adding at the end the following new subclause:

[[Page S7385]]

       ``(VI) Application to section 30a corporations.--References 
     in this clause to section 936 shall be treated as including 
     references to section 30A.''.

       (D)(i) Subsection (b) of section 59 is amended by striking 
     ``section 936,'' and all that follows and inserting ``section 
     30A or 936, alternative minimum taxable income shall not 
     include any income with respect to which a credit is 
     determined under section 30A or 936.''.
       (ii) The heading for section 59(b) is amended by inserting 
     ``30A or'' before ``936''.
       (E) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 30A. Puerto Rican economic activity credit.''.

       (F)(i) The heading for subpart B of part IV of subchapter A 
     of chapter 1 is amended to read as follows:

                     ``Subpart B--Other Credits''.

       (ii) The table of subparts for part IV of subchapter A of 
     chapter 1 is amended by striking the item relating to subpart 
     B and inserting the following new item:

``Subpart B. Other credits.''.

       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1995.
       (2) Special rule for qualified possession source investment 
     income.--The amendments made by this section shall not apply 
     to qualified possession source investment income received or 
     accrued before July 1, 1996, without regard to the taxable 
     year in which received or accrued.

     SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO 
                   ACQUIRE EMPLOYER SECURITIES.

       (a) In General.--Section 133 (relating to interest on 
     certain loans used to acquire employer securities) is hereby 
     repealed.
       (b) Conforming Amendments.--
       (1) Subparagraph (B) of section 291(e)(1) is amended by 
     striking clause (iv) and by redesignating clause (v) as 
     clause (iv).
       (2) Section 812 is amended by striking subsection (g).
       (3) Paragraph (5) of section 852(b) is amended by striking 
     subparagraph (C).
       (4) Paragraph (2) of section 4978(b) is amended by striking 
     subparagraph (A) and all that follows and inserting the 
     following:
       ``(A) first from qualified securities to which section 1042 
     applied acquired during the 3-year period ending on the date 
     of the disposition, beginning with the securities first so 
     acquired, and
       ``(B) then from any other employer securities.

     If subsection (d) applies to a disposition, the disposition 
     shall be treated as made from employer securities in the 
     opposite order of the preceding sentence.''.
       (5)(A) Section 4978B (relating to tax on disposition of 
     employer securities to which section 133 applied) is hereby 
     repealed.
       (B) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4978B.
       (6) Subsection (e) of section 6047 is amended by striking 
     paragraphs (1), (2), and (3) and inserting the following new 
     paragraphs:
       ``(1) any employer maintaining, or the plan administrator 
     (within the meaning of section 414(g)) of, an employee stock 
     ownership plan which holds stock with respect to which 
     section 404(k) applies to dividends paid on such stock, or
       ``(2) both such employer or plan administrator,''.
       (7) Subsection (f) of section 7872 is amended by striking 
     paragraph (12).
       (8) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     133.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to loans made after the date of the enactment of this 
     Act.
       (2) Refinancings.--The amendments made by this section 
     shall not apply to loans made after the date of the enactment 
     of this Act to refinance securities acquisition loans 
     (determined without regard to section 133(b)(1)(B) of the 
     Internal Revenue Code of 1986, as in effect on the day before 
     the date of the enactment of this Act) made on or before such 
     date or to refinance loans described in this paragraph if--
       (A) the refinancing loans meet the requirements of section 
     133 of such Code (as so in effect),
       (B) immediately after the refinancing the principal amount 
     of the loan resulting from the refinancing does not exceed 
     the principal amount of the refinanced loan (immediately 
     before the refinancing), and
       (C) the term of such refinancing loan does not extend 
     beyond the last day of the term of the original securities 
     acquisition loan.

     For purposes of this paragraph, the term ``securities 
     acquisition loan'' includes a loan from a corporation to an 
     employee stock ownership plan described in section 133(b)(3) 
     of such Code (as so in effect).
       (3) Exception.--Any loan made pursuant to a binding written 
     contract in effect before June 10, 1996, and at all times 
     thereafter before such loan is made, shall be treated for 
     purposes of paragraphs (1) and (2) as a loan made on or 
     before the date of the enactment of this Act.

     SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.

       (a) In General.--Paragraph (2) of section 104(a) (relating 
     to compensation for injuries or sickness) is amended to read 
     as follows:
       ``(2) the amount of any damages (other than punitive 
     damages) received (whether by suit or agreement and whether 
     as lump sums or as periodic payments) on account of personal 
     injuries or sickness;''.
       (b) Application of Prior Law for States in Which Only 
     Punitive Damages May Be Awarded in Wrongful Death Actions.--
     Section 104 is amended by redesignating subsection (c) as 
     subsection (d) and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Application of Prior Law in Certain Cases.--
     Notwithstanding subsection (a)(2), gross income shall not 
     include punitive damages awarded in a civil action--
       ``(1) which is a wrongful death action, and
       ``(2) with respect to which applicable State law (as in 
     effect on September 13, 1995 and without regard to any 
     modification after such date) provides, or has been construed 
     to provide by a court of competent jurisdiction pursuant to a 
     decision issued on or before September 13, 1995, that only 
     punitive damages may be awarded in such an action.

     This subsection shall cease to apply to any civil action 
     filed on or after the first date on which the applicable 
     State law ceases to provide (or is no longer construed to 
     provide) the treatment described in paragraph (2).''.
       (c) Conforming Amendment.--Section 104(a) is amended by 
     striking the last sentence.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to amounts 
     received after June 30, 1996, in taxable years ending after 
     such date.
       (2) Exception.--The amendments made by this section shall 
     not apply to any amount received under a written binding 
     agreement, court decree, or mediation award in effect on (or 
     issued on or before) September 13, 1995.

     SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER 
                   AUTOMOBILE TAX.

       (a) Extension.--Subsection (f) of section 4001 is amended 
     by striking ``1999'' and inserting ``2002''.
       (b) Phasedown.--Section 4001 is amended by redesignating 
     subsection (f) (as amended by subsection (a) of this section) 
     as subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Phasedown.--For sales occurring after June 30 in 
     calendar year 1996, and in calendar years after 1996 and 
     before 2003, subsection (a) shall be applied by substituting 
     for `10 percent' the percentage determined in accordance with 
     the following table:

``If the calendar year is:                           The percentage is:
  1996...................................................9 percent     
  1997...................................................8 percent     
  1998...................................................7 percent     
  1999...................................................6 percent     
  2000...................................................5 percent     
  2001...................................................4 percent     
  2002...................................................3 percent.''  

       (c) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 1996.

     SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING 
                   FOR LOCAL FURNISHERS OF ELECTRICITY AND GAS.

       Section 142(f) (relating to local furnishing of electric 
     energy or gas) is amended by adding at the end the following 
     new paragraphs:
       ``(3) Termination of future financing.--For purposes of 
     this section, no bond may be issued as part of an issue 
     described in subsection (a)(8) with respect to a facility for 
     the local furnishing of electric energy or gas on or after 
     the date of the enactment of this paragraph unless--
       ``(A) the facility will--
       ``(i) be used by a person who is engaged in the local 
     furnishing of that energy source on such date, and
       ``(ii) be used to provide service within the area served by 
     such person on such date, or
       ``(B) the facility will be used by a successor in interest 
     to such person for the same use and within the same service 
     area as described in subparagraph (A).
       ``(4) Election to terminate tax-exempt bond financing by 
     certain furnishers.--
       ``(A) In general.--In the case of a facility financed with 
     bonds issued before the date of the enactment of this 
     paragraph which would cease to be tax-exempt by reason of the 
     failure to meet the local furnishing requirement of 
     subsection (a)(8) as a result of a service area expansion, 
     such bonds shall not cease to be tax-exempt bonds (and 
     section 150(b)(4) shall not apply) if the person engaged in 
     such local furnishing by such facility makes an election 
     described in subparagraph (B).
       ``(B) Election.--An election is described in this 
     subparagraph if it is an election made in such manner as the 
     Secretary prescribes, and such person (or its predecessor in 
     interest) agrees that--
       ``(i) such election is made with respect to all facilities 
     for the local furnishing of electric energy or gas, or both, 
     by such person,
       ``(ii) no bond exempt from tax under section 103 and 
     described in subsection (a)(8) may be issued on or after the 
     date of the enactment of this paragraph with respect to all 
     such facilities of such person,
       ``(iii) any expansion of the service area--

       ``(I) is not financed with the proceeds of any exempt 
     facility bond described in subsection (a)(8), and
       ``(II) is not treated as a nonqualifying use under the 
     rules of paragraph (2), and

       ``(iv) all outstanding bonds used to finance the facilities 
     for such person are redeemed not later than 6 months after 
     the later of--

[[Page S7386]]

       ``(I) the earliest date on which such bonds may be 
     redeemed, or
       ``(II) the date of the election.

       ``(C) Related persons.--For purposes of this paragraph, the 
     term `person' includes a group of related persons (within the 
     meaning of section 144(a)(3)) which includes such person.''

     SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO 
                   INTEREST ALLOCATION RULES.

       (a) In General.--Paragraph (5) of section 1215(c) of the 
     Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is 
     hereby repealed.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE 
                   TAXES.

       (a) Fuel Tax.--
       (1) Subparagraph (A) of section 4091(b)(3) is amended to 
     read as follows:
       ``(A) The rate of tax specified in paragraph (1) shall be 
     4.3 cents per gallon--
       ``(i) after December 31, 1995, and before the date which is 
     7 days after the date of the enactment of the Small Business 
     Job Protection Act of 1996, and
       ``(ii) after December 31, 1996.''
       (2) Section 4081(d) is amended--
       (A) by adding at the end the following new paragraph:
       ``(3) Aviation gasoline.--After December 31, 1996, the rate 
     of tax specified in subsection (a)(2)(A)(i) on aviation 
     gasoline shall be 4.3 cents per gallon.'', and
       (B) by inserting ``(other than the tax on aviation 
     gasoline)'' after ``subsection (a)(2)(A)''.
       (3) Section 4041(c)(5) is amended by inserting ``, and 
     during the period beginning on the date which is 7 days after 
     the date of the enactment of the Small Business Job 
     Protection Act of 1996 and ending on December 31, 1996'' 
     after ``December 31, 1995''.
       (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each 
     amended by striking ``January 1, 1996'' and inserting 
     ``January 1, 1996, and to transportation beginning on or 
     after the date which is 7 days after the date of the 
     enactment of the Small Business Job Protection Act of 1996 
     and before January 1, 1997''.
       (c) Transfers to Airport and Airway Trust Fund.--
       (1) Subsection (b) of section 9502 is amended by striking 
     ``January 1, 1996'' each place it appears and inserting 
     ``January 1, 1997''.
       (2) Paragraph (3) of section 9502(f) is amended to read as 
     follows:
       ``(3) Termination.--Notwithstanding the preceding 
     provisions of this subsection, the Airport and Airway Trust 
     Fund financing rate shall be zero with respect to--
       ``(A) taxes imposed after December 31, 1995, and before the 
     date which is 7 days after the date of the enactment of the 
     Small Business Job Protection Act of 1996, and
       ``(B) taxes imposed after December 31, 1996.''
       (3) Subsection (d) of section 9502 is amended by adding at 
     the end the following new paragraph:
       ``(5) Transfers from airport and airway trust fund on 
     account of refunds of taxes on transportation by air.--The 
     Secretary of the Treasury shall pay from time to time from 
     the Airport and Airway Trust Fund into the general fund of 
     the Treasury amounts equivalent to the amounts paid after 
     December 31, 1995, under section 6402 (relating to authority 
     to make credits or refunds) or section 6415 (relating to 
     credits or refunds to persons who collected certain taxes) in 
     respect of taxes under sections 4261 and 4271.''
       (d) Excise Tax Exemption for Certain Emergency Medical 
     Transportation by Air Ambulance.--Subsection (f) of section 
     4261 (relating to imposition of tax on transportation by air) 
     is amended to read as follows:
       ``(f) Exemption for Air Ambulances Providing Certain 
     Emergency Medical Transportation.--No tax shall be imposed 
     under this section or section 4271 on any air transportation 
     for the purpose of providing emergency medical services--
       ``(1) by helicopter, or
       ``(2) by a fixed-wing aircraft equipped for and exclusively 
     dedicated to acute care emergency medical services.''
       (e) Exemption for Certain Helicopter Uses.--Subsection (e) 
     of section 4261 is amended by adding at the end the following 
     new sentence: ``In the case of helicopter transportation 
     described in paragraph (1), this subsection shall be applied 
     by treating each flight segment as a distinct flight.''
       (f) Floor Stocks Taxes on Aviation Fuel.--
       (1) Imposition of tax.--In the case of aviation fuel on 
     which tax was imposed under section 4091 of the Internal 
     Revenue Code of 1986 before the tax-increase date described 
     in paragraph (3)(A)(i) and which is held on such date by any 
     person, there is hereby imposed a floor stocks tax of 17.5 
     cents per gallon.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--A person holding aviation fuel on a 
     tax-increase date to which the tax imposed by paragraph (1) 
     applies shall be liable for such tax.
       (B) Method of payment.--The tax imposed by paragraph (1) 
     shall be paid in such manner as the Secretary shall 
     prescribe.
       (C) Time for payment.--The tax imposed by paragraph (1) 
     with respect to any tax-increase date shall be paid on or 
     before the first day of the 7th month beginning after such 
     tax-increase date.
       (3) Definitions.--For purposes of this subsection--
       (A) Tax increase date.--The term ``tax-increase date'' 
     means the date which is 7 days after the date of the 
     enactment of this Act.
       (B) Aviation fuel.--The term ``aviation fuel'' has the 
     meaning given such term by section 4093 of such Code.
       (C) Held by a person.--Aviation fuel shall be considered as 
     ``held by a person'' if title thereto has passed to such 
     person (whether or not delivery to the person has been made).
       (D) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or his delegate.
       (4) Exception for exempt uses.--The tax imposed by 
     paragraph (1) shall not apply to aviation fuel held by any 
     person on any tax-increase date exclusively for any use for 
     which a credit or refund of the entire tax imposed by section 
     4091 of such Code is allowable for aviation fuel purchased on 
     or after such tax-increase date for such use.
       (5) Exception for certain amounts of fuel.--
       (A) In general.--No tax shall be imposed by paragraph (1) 
     on aviation fuel held on any tax-increase date by any person 
     if the aggregate amount of aviation fuel held by such person 
     on such date does not exceed 2,000 gallons. The preceding 
     sentence shall apply only if such person submits to the 
     Secretary (at the time and in the manner required by the 
     Secretary) such information as the Secretary shall require 
     for purposes of this paragraph.
       (B) Exempt fuel.--For purposes of subparagraph (A), there 
     shall not be taken into account fuel held by any person which 
     is exempt from the tax imposed by paragraph (1) by reason of 
     paragraph (4).
       (C) Controlled groups.--For purposes of this paragraph--
       (i) Corporations.--

       (I) In general.--All persons treated as a controlled group 
     shall be treated as 1 person.
       (II) Controlled group.--The term ``controlled group'' has 
     the meaning given to such term by subsection (a) of section 
     1563 of such Code; except that for such purposes the phrase 
     ``more than 50 percent'' shall be substituted for the phrase 
     ``at least 80 percent'' each place it appears in such 
     subsection.

       (ii) Nonincorporated persons under common control.--Under 
     regulations prescribed by the Secretary, principles similar 
     to the principles of clause (i) shall apply to a group of 
     persons under common control where 1 or more of such persons 
     is not a corporation.
       (6) Other law applicable.--All provisions of law, including 
     penalties, applicable with respect to the taxes imposed by 
     section 4091 of such Code shall, insofar as applicable and 
     not inconsistent with the provisions of this subsection, 
     apply with respect to the floor stock taxes imposed by 
     paragraph (1) to the same extent as if such taxes were 
     imposed by such section 4091.
       (g) Effective Date.--The amendments made by this section 
     shall take effect 7 days after the date of the enactment of 
     this Act, except that the amendment made by subsection (b) 
     shall not apply to any amount paid on or before such date.

     SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION 
                   WHERE STOCK IN CORPORATION IS REPLACEMENT 
                   PROPERTY UNDER INVOLUNTARY CONVERSION RULES.

       (a) In General.--Subsection (b) of section 1033 is amended 
     to read as follows:
       ``(b) Basis of Property Acquired Through Involuntary 
     Conversion.--
       ``(1) Conversions described in subsection (a)(1).--If the 
     property was acquired as the result of a compulsory or 
     involuntary conversion described in subsection (a)(1), the 
     basis shall be the same as in the case of the property so 
     converted--
       ``(A) decreased in the amount of any money received by the 
     taxpayer which was not expended in accordance with the 
     provisions of law (applicable to the year in which such 
     conversion was made) determining the taxable status of the 
     gain or loss upon such conversion, and
       ``(B) increased in the amount of gain or decreased in the 
     amount of loss to the taxpayer recognized upon such 
     conversion under the law applicable to the year in which such 
     conversion was made.
       ``(2) Conversions described in subsection (a)(2).--In the 
     case of property purchased by the taxpayer in a transaction 
     described in subsection (a)(2) which resulted in the 
     nonrecognition of any part of the gain realized as the result 
     of a compulsory or involuntary conversion, the basis shall be 
     the cost of such property decreased in the amount of the gain 
     not so recognized; and if the property purchased consists of 
     more than 1 piece of property, the basis determined under 
     this sentence shall be allocated to the purchased properties 
     in proportion to their respective costs.
       ``(3) Property held by corporation the stock of which is 
     replacement property.--
       ``(A) In general.--If the basis of stock in a corporation 
     is decreased under paragraph (2), an amount equal to such 
     decrease shall also be applied to reduce the basis of 
     property held by the corporation at the time the taxpayer 
     acquired control (as defined in subsection (a)(2)(E)) of such 
     corporation.
       ``(B) Limitation.--Subparagraph (A) shall not apply to the 
     extent that it would (but for this subparagraph) require a 
     reduction in the aggregate adjusted bases of the property of 
     the corporation below the taxpayer's adjusted basis of the 
     stock in the corporation (determined immediately after such 
     basis is decreased under paragraph (2)).
       ``(C) Allocation of basis reduction.--The decrease required 
     under subparagraph (A) shall be allocated--

[[Page S7387]]

       ``(i) first to property which is similar or related in 
     service or use to the converted property,
       ``(ii) second to depreciable property (as defined in 
     section 1017(b)(3)(B)) not described in clause (i), and
       ``(iii) then to other property.
       ``(D) Special rules.--
       ``(i) Reduction not to exceed adjusted basis of property.--
     No reduction in the basis of any property under this 
     paragraph shall exceed the adjusted basis of such property 
     (determined without regard to such reduction).
       ``(ii) Allocation of reduction among properties.--If more 
     than 1 property is described in a clause of subparagraph (C), 
     the reduction under this paragraph shall be allocated among 
     such property in proportion to the adjusted bases of such 
     property (as so determined).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to involuntary conversions occurring after the 
     date of the enactment of this Act.

     SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING 
                   WINNINGS.

       (a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) 
     of section 3402(q) is amended to read as follows:
       ``(5) Exemption for slot machines.--The tax imposed under 
     paragraph (1) shall not apply to winnings from a slot 
     machine.''.
       (b) Threshold Amount.--Paragraph (3) of section 3402(q) is 
     amended--
       (1) by striking ``(B) and (C)'' in subparagraph (A) and 
     inserting ``(B), (C), and (D)'', and
       (2) by adding at the end the following new subparagraph:
       ``(D) Bingo and keno.--Proceeds of more than $5,000 from a 
     wager placed in a bingo or keno game.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the 30th day after the date of the 
     enactment of this Act.

     SEC. 1610. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON 
                   RETIRED LIVES.

       (a) General Rule.--
       (1) Paragraph (2) of section 817(d) (defining variable 
     contract) is amended by striking ``or'' at the end of 
     subparagraph (A), by striking ``and'' at the end of 
     subparagraph (B) and inserting ``or'', and by inserting after 
     subparagraph (B) the following new subparagraph:
       ``(C) provides for funding of insurance on retired lives as 
     described in section 807(c)(6), and''.
       (2) Paragraph (3) of section 817(d) is amended by striking 
     ``or'' at the end of subparagraph (A), by striking the period 
     at the end of subparagraph (B) and inserting ``, or'', and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) in the case of funds held under a contract described 
     in paragraph (2)(C), the amounts paid in, or the amounts paid 
     out, reflect the investment return and the market value of 
     the segregated asset account.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.

       (a) Treatment of Contributions in Aid of Construction.--
       (1) In general.--Section 118 (relating to contributions to 
     the capital of a corporation) is amended--
       (A) by redesignating subsection (c) as subsection (e), and
       (B) by inserting after subsection (b) the following new 
     subsections:
       ``(c) Special Rules for Water and Sewerage Disposal 
     Utilities.--
       ``(1) General rule.--For purposes of this section, the term 
     `contribution to the capital of the taxpayer' includes any 
     amount of money or other property received from any person 
     (whether or not a shareholder) by a regulated public utility 
     which provides water or sewerage disposal services if--
       ``(A) such amount is a contribution in aid of construction,
       ``(B) in the case of contribution of property other than 
     water or sewerage disposal facilities, such amount meets the 
     requirements of the expenditure rule of paragraph (2), and
       ``(C) such amount (or any property acquired or constructed 
     with such amount) is not included in the taxpayer's rate base 
     for ratemaking purposes.
       ``(2) Expenditure rule.--An amount meets the requirements 
     of this paragraph if--
       ``(A) an amount equal to such amount is expended for the 
     acquisition or construction of tangible property described in 
     section 1231(b)--
       ``(i) which is the property for which the contribution was 
     made or is of the same type as such property, and
       ``(ii) which is used predominantly in the trade or business 
     of furnishing water or sewerage disposal services,
       ``(B) the expenditure referred to in subparagraph (A) 
     occurs before the end of the second taxable year after the 
     year in which such amount was received, and
       ``(C) accurate records are kept of the amounts contributed 
     and expenditures made, the expenditures to which 
     contributions are allocated, and the year in which the 
     contributions and expenditures are received and made.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Contribution in aid of construction.--The term 
     `contribution in aid of construction' shall be defined by 
     regulations prescribed by the Secretary, except that such 
     term shall not include amounts paid as service charges for 
     starting or stopping services.
       ``(B) Predominantly.--The term `predominantly' means 80 
     percent or more.
       ``(C) Regulated public utility.--The term `regulated public 
     utility' has the meaning given such term by section 
     7701(a)(33), except that such term shall not include any 
     utility which is not required to provide water or sewerage 
     disposal services to members of the general public in its 
     service area.
       ``(4) Disallowance of deductions and credits; adjusted 
     basis.--Notwithstanding any other provision of this subtitle, 
     no deduction or credit shall be allowed for, or by reason of, 
     any expenditure which constitutes a contribution in aid of 
     construction to which this subsection applies. The adjusted 
     basis of any property acquired with contributions in aid of 
     construction to which this subsection applies shall be zero.
       ``(d) Statute of Limitations.--If the taxpayer for any 
     taxable year treats an amount as a contribution to the 
     capital of the taxpayer described in subsection (c), then--
       ``(1) the statutory period for the assessment of any 
     deficiency attributable to any part of such amount shall not 
     expire before the expiration of 3 years from the date the 
     Secretary is notified by the taxpayer (in such manner as the 
     Secretary may prescribe) of--
       ``(A) the amount of the expenditure referred to in 
     subparagraph (A) of subsection (c)(2),
       ``(B) the taxpayer's intention not to make the expenditures 
     referred to in such subparagraph, or
       ``(C) a failure to make such expenditure within the period 
     described in subparagraph (B) of subsection (c)(2), and
       ``(2) such deficiency may be assessed before the expiration 
     of such 3-year period notwithstanding the provisions of any 
     other law or rule of law which would otherwise prevent such 
     assessment.''.
       (2) Conforming amendment.--Section 118(b) is amended by 
     inserting ``except as provided in subsection (c),'' before 
     ``the term''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts received after June 12, 1996.
       (b) Recovery Method and Period for Water Utility 
     Property.--
       (1) Requirement to use straight line method.--Section 
     168(b)(3) is amended by adding at the end the following new 
     subparagraph:
       ``(F) Water utility property described in subsection 
     (e)(5).''.
       (2) 25-year recovery period.--The table contained in 
     section 168(c)(1) is amended by inserting the following item 
     after the item relating to 20-year property:

  ``Water utility property..............................25 years''.....

       (3) Water utility property.--
       (A) In general.--Section 168(e) is amended by adding at the 
     end the following new paragraph:
       ``(5) Water utility property.--The term `water utility 
     property' means property--
       ``(A) which is an integral part of the gathering, 
     treatment, or commercial distribution of water, and which, 
     without regard to this paragraph, would be 20-year property, 
     and
       ``(B) any municipal sewer.''.
       (B) Conforming amendments.--Section 168 is amended--
       (i) by striking subparagraph (F) of subsection (e)(3), and
       (ii) by striking the item relating to subparagraph (F) in 
     the table in subsection (g)(3).
       (4) Alternative system.--Clause (iv) of section 
     168(g)(2)(C) is amended by inserting ``or water utility 
     property'' after ``tunnel bore''.
       (5) Effective date.--The amendments made by this subsection 
     shall apply to property placed in service after June 12, 
     1996, other than property placed in service pursuant to a 
     binding contract in effect before June 10, 1996, and at all 
     times thereafter before the property is placed in service.

          PART II--FINANCIAL ASSET SECURITIZATION INVESTMENTS

     SEC. 1621. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

       (a) In General.--Subchapter M of chapter 1 is amended by 
     adding at the end the following new part:

       ``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS

``Sec. 860H. Taxation of a FASIT; other general rules.
``Sec. 860I. Gain recognition on contributions to and distributions 
              from a FASIT and in other cases.
``Sec. 860J. Non-FASIT losses not to offset certain FASIT inclusions.
``Sec. 860K. Treatment of transfers of high-yield interests to 
              disqualified holders.
``Sec. 860L. Definitions and other special rules.

     ``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

       ``(a) Taxation of FASIT.--A FASIT as such shall not be 
     subject to taxation under this subtitle (and shall not be 
     treated as a trust, partnership, corporation, or taxable 
     mortgage pool).
       ``(b) Taxation of Holder of Ownership Interest.--In 
     determining the taxable income

[[Page S7388]]

     of the holder of the ownership interest in a FASIT--
       ``(1) all assets, liabilities, and items of income, gain, 
     deduction, loss, and credit of a FASIT shall be treated as 
     assets, liabilities, and such items (as the case may be) of 
     such holder,
       ``(2) the constant yield method (including the rules of 
     section 1272(a)(6)) shall be applied under an accrual method 
     of accounting in determining all interest, acquisition 
     discount, original issue discount, and market discount and 
     all premium deductions or adjustments with respect to all 
     debt instruments of the FASIT,
       ``(3) there shall not be taken into account any item of 
     income, gain, or deduction allocable to a prohibited 
     transaction, and
       ``(4) interest accrued by the FASIT which is exempt from 
     tax imposed by this subtitle shall, when taken into account 
     by such holder, be treated as ordinary income.

     For purposes of this subtitle, securities treated as held by 
     such holder under paragraph (1) shall be treated as held for 
     investment.
       ``(c) Treatment of Regular Interests.--For purposes of this 
     title--
       ``(1) a regular interest in a FASIT, if not otherwise a 
     debt instrument, shall be treated as a debt instrument,
       ``(2) section 163(e)(5) shall not apply to such an 
     interest, and
       ``(3) amounts includible in gross income with respect to 
     such an interest shall be determined under an accrual method 
     of accounting.

     ``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO AND 
                   DISTRIBUTIONS FROM A FASIT AND IN OTHER CASES.

       ``(a) Treatment of Property Acquired by FASIT.--
       ``(1) Property acquired from holder of ownership interest 
     or related person.--If property is sold or contributed to a 
     FASIT by the holder of the ownership interest in such FASIT 
     (or by a related person) gain (if any) shall be recognized to 
     such holder (or person) in an amount equal to the excess (if 
     any) of such property's value under subsection (d) on the 
     date of such sale or contribution over its adjusted basis on 
     such date.
       ``(2) Property acquired other than from holder of ownership 
     interest or related person.--Property which is acquired by a 
     FASIT other than in a transaction to which paragraph (1) 
     applies shall be treated--
       ``(A) as having been acquired by the holder of the 
     ownership interest in the FASIT for an amount equal to the 
     FASIT's adjusted basis in such property as of the date such 
     property is acquired by the FASIT, and
       ``(B) as having been sold by such holder to the FASIT at 
     its value under subsection (d) on such date.
       ``(b) Gain Recognition on Property Outside FASIT Which 
     Supports Regular Interests.--If property held by the holder 
     of the ownership interest in a FASIT (or by any person 
     related to such holder) supports any regular interest in such 
     FASIT--
       ``(1) gain shall be recognized to such holder in the same 
     manner as if such holder had sold such property at its value 
     under subsection (d) on the earliest date such property 
     supports such an interest, and
       ``(2) such property shall be treated as held by such FASIT 
     for purposes of this part.
       ``(c) Deferral of Gain Recognition.--The Secretary may 
     prescribe regulations which--
       ``(1) provide that gain otherwise recognized under 
     subsection (a) or (b) shall not be recognized before the 
     earliest date on which such property supports any regular 
     interest in such FASIT or any indebtedness of the holder of 
     the ownership interest (or of any person related to such 
     holder), and
       ``(2) provide such adjustments to the other provisions of 
     this part to the extent appropriate in the context of the 
     treatment provided under paragraph (1).
       ``(d) Valuation.--For purposes of this section--
       ``(1) In general.--The value of any property under this 
     subsection shall be--
       ``(A) in the case of a debt instrument which is not traded 
     on an established securities market, the sum of the present 
     values of the reasonably expected payments under such 
     instrument determined (in the manner provided by regulations 
     prescribed by the Secretary)--
       ``(i) as of the date of the event resulting in the gain 
     recognition under this section, and
       ``(ii) by using a discount rate equal to 120 percent of the 
     applicable Federal rate (as defined in section 1274(d)), or 
     such other discount rate specified in such regulations, 
     compounded semiannually, and
       ``(B) in the case of any other property, its fair market 
     value.
       ``(2) Special rule for revolving loan accounts.--For 
     purposes of paragraph (1)--
       ``(A) each extension of credit (other than the accrual of 
     interest) on a revolving loan account shall be treated as a 
     separate debt instrument, and
       ``(B) payments on such extensions of credit having 
     substantially the same terms shall be applied to such 
     extensions beginning with the earliest such extension.
       ``(e) Special Rules.--
       ``(1) Nonrecognition rules not to apply.--Gain required to 
     be recognized under this section shall be recognized 
     notwithstanding any other provision of this subtitle.
       ``(2) Basis adjustments.--The basis of any property on 
     which gain is recognized under this section shall be 
     increased by the amount of gain so recognized.

     ``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT 
                   INCLUSIONS.

       ``(a) In General.--The taxable income of the holder of the 
     ownership interest or any high-yield interest in a FASIT for 
     any taxable year shall in no event be less than such holder's 
     taxable income determined solely with respect to such 
     interests.
       ``(b) Coordination With Section 172.--Any increase in the 
     taxable income of any holder of the ownership interest or a 
     high-yield interest in a FASIT for any taxable year by reason 
     of subsection (a) shall be disregarded--
       ``(1) in determining under section 172 the amount of any 
     net operating loss for such taxable year, and
       ``(2) in determining taxable income for such taxable year 
     for purposes of the 2nd sentence of section 172(b)(2).
       ``(c) Coordination With Minimum Tax.--For purposes of part 
     VI of subchapter A of this chapter--
       ``(1) the reference in section 55(b)(2) to taxable income 
     shall be treated as a reference to taxable income determined 
     without regard to this section,
       ``(2) the alternative minimum taxable income of any holder 
     of the ownership interest or a high-yield interest in a FASIT 
     for any taxable year shall in no event be less than such 
     holder's taxable income determined solely with respect to 
     such interests, and
       ``(3) any increase in taxable income under this section 
     shall be disregarded for purposes of computing the 
     alternative tax net operating loss deduction.

     ``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS 
                   TO DISQUALIFIED HOLDERS.

       ``(a) General Rule.--In the case of any high-yield interest 
     which is held by a disqualified holder--
       ``(1) the gross income of such holder shall not include any 
     income (other than gain) attributable to such interest, and
       ``(2) amounts not includible in the gross income of such 
     holder by reason of paragraph (1) shall be included (at the 
     time otherwise includible under paragraph (1)) in the gross 
     income of the most recent holder of such interest which is 
     not a disqualified holder.
       ``(b) Exceptions.--Rules similar to the rules of paragraphs 
     (4) and (7) of section 860E(e) shall apply to the tax imposed 
     by reason of subsection (a).
       ``(c) Disqualified Holder.--For purposes of this section, 
     the term `disqualified holder' means any holder other than--
       ``(1) an eligible corporation (as defined in section 
     860L(a)(2)), or
       ``(2) a FASIT.
       ``(d) Treatment of Interests Held By Securities Dealers.--
       ``(1) In general.--Subsection (a) shall not apply to any 
     high-yield interest held by a disqualified holder if such 
     holder is a dealer in securities who acquired such interest 
     exclusively for sale to customers in the ordinary course of 
     business (and not for investment).
       ``(2) Change in dealer status.--
       ``(A) In general.--In the case of a dealer in securities 
     which is not an eligible corporation (as defined in section 
     860L(a)(2)), if--
       ``(i) such dealer ceases to be a dealer in securities, or
       ``(ii) such dealer commences holding the high-yield 
     interest for investment,
     there is hereby imposed (in addition to other taxes) an 
     excise tax equal to the product of the highest rate of tax 
     specified in section 11(b)(1) and the income of such dealer 
     attributable to such interest for periods after the date of 
     such cessation or commencement.
       ``(B) Holding for 31 days or less.--For purposes of 
     subparagraph (A)(ii), a dealer shall not be treated as 
     holding an interest for investment before the 32d day after 
     the date such dealer acquired such interest unless such 
     interest is so held as part of a plan to avoid the purposes 
     of this paragraph.
       ``(C) Administrative provisions.--The deficiency procedures 
     of subtitle F shall apply to the tax imposed by this 
     paragraph.
       ``(e) Treatment of High-Yield Interests in Pass-Thru 
     Entities.--
       ``(1) In general.--If a pass-thru entity (as defined in 
     section 860E(e)(6)) issues a debt or equity interest--
       ``(A) which is supported by any regular interest in a 
     FASIT, and
       ``(B) which has an original yield to maturity which is 
     greater than each of--
       ``(i) the sum determined under clauses (i) and (ii) of 
     section 163(i)(1)(B) with respect to such debt or equity 
     interest, and
       ``(ii) the yield to maturity to such entity on such regular 
     interest (determined as of the date such entity acquired such 
     interest),

     there is hereby imposed on the pass-thru entity a tax (in 
     addition to other taxes) equal to the product of the highest 
     rate of tax specified in section 11(b)(1) and the income of 
     the holder of such debt or equity interest which is properly 
     attributable to such regular interest. For purposes of the 
     preceding sentence, the yield to maturity of any equity 
     interest shall be determined under regulations prescribed by 
     the Secretary.
       ``(2) Exception.--The Secretary may provide that paragraph 
     (1) shall not apply to arrangements not having as a principal 
     purpose the avoidance of the purposes of this subsection.

     ``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

       ``(a) FASIT.--
       ``(1) In general.--For purposes of this title, the terms 
     `financial asset

[[Page S7389]]

     securitization investment trust' and `FASIT' mean any 
     entity--
       ``(A) for which an election to be treated as a FASIT 
     applies for the taxable year,
       ``(B) all of the interests in which are regular interests 
     or the ownership interest,
       ``(C) which has only 1 ownership interest and such 
     ownership interest is held directly by an eligible 
     corporation,
       ``(D) as of the close of the 3rd month beginning after the 
     day of its formation and at all times thereafter, 
     substantially all of the assets of which (including assets 
     treated as held by the entity under section 860I(c)(2)) 
     consist of permitted assets, and
       ``(E) which is not described in section 851(a).

     A rule similar to the rule of the last sentence of section 
     860D(a) shall apply for purposes of this paragraph.
       ``(2) Eligible corporation.--For purposes of paragraph 
     (1)(C), the term `eligible corporation' means any domestic C 
     corporation other than--
       ``(A) a corporation which is exempt from, or is not subject 
     to, tax under this chapter,
       ``(B) an entity described in section 851(a) or 856(a),
       ``(C) a REMIC, and
       ``(D) an organization to which part I of subchapter T 
     applies.
       ``(3) Election.--An entity (otherwise meeting the 
     requirements of paragraph (1)) may elect to be treated as a 
     FASIT. Except as provided in paragraph (5), such an election 
     shall apply to the taxable year for which made and all 
     subsequent taxable years unless revoked with the consent of 
     the Secretary.
       ``(4) Termination.--If any entity ceases to be a FASIT at 
     any time during the taxable year, such entity shall not be 
     treated as a FASIT for such taxable year or any succeeding 
     taxable year.
       ``(5) Inadvertent terminations, etc.--Rules similar to the 
     rules of section 860D(b)(2)(B) shall apply to inadvertent 
     failures to qualify or remain qualified as a FASIT.
       ``(b) Interests in FASIT.--For purposes of this part--
       ``(1) Regular interest.--
       ``(A) In general.--The term `regular interest' means any 
     interest which is issued by a FASIT after the startup date 
     with fixed terms and which is designated as a regular 
     interest if--
       ``(i) such interest unconditionally entitles the holder to 
     receive a specified principal amount (or other similar 
     amount),
       ``(ii) except as otherwise provided by the Secretary--

       ``(I) in the case of a FASIT which would be treated as a 
     REMIC if an election under section 860D(b) had been made, 
     interest payments (or other similar amounts), if any, with 
     respect to such interest at or before maturity meet the 
     requirements applicable under clause (i) or (ii) of section 
     860G(a)(1)(B), or
       ``(II) in the case of any other FASIT, interest payments 
     (or other similar amounts), if any, with respect to such 
     interest are determined based on a fixed rate, a current rate 
     which is reasonably expected to measure contemporaneous 
     variations in the cost of newly borrowed funds in the 
     currency in which the regular interest is denominated, or any 
     combination of such rates,

       ``(iii) such interest does not have a stated maturity 
     (including options to renew) greater than 30 years (or such 
     longer period as may be permitted by regulations),
       ``(iv) the issue price of such interest does not exceed 125 
     percent of its stated principal amount, and
       ``(v) the yield to maturity on such interest is less than 
     the sum determined under section 163(i)(1)(B) with respect to 
     such interest.

     An interest shall not fail to meet the requirements of clause 
     (i) merely because the timing (but not the amount) of the 
     principal payments (or other similar amounts) may be 
     contingent on the extent that payments on debt instruments 
     held by the FASIT are made in advance of anticipated payments 
     and on the amount of income from permitted assets.
       ``(B) High-yield interests.--
       ``(i) In general.--The term `regular interest' includes any 
     high-yield interest.
       ``(ii) High-yield interest.--The term `high-yield interest' 
     means any interest which would be described in subparagraph 
     (A) but for failing to meet the requirements of one or more 
     of clauses (i), (iv), or (v) thereof.
       ``(2) Ownership interest.--The term `ownership interest' 
     means the interest issued by a FASIT after the startup day 
     which is designated as an ownership interest and which is not 
     a regular interest.
       ``(c) Permitted Assets.--For purposes of this part--
       ``(1) In general.--The term `permitted asset' means--
       ``(A) cash or cash equivalents,
       ``(B) any debt instrument (as defined in section 
     1275(a)(1)) under which interest payments (or other similar 
     amounts), if any, at or before maturity meet the requirements 
     applicable under clause (i) or (ii) of section 860G(a)(1)(B),
       ``(C) foreclosure property,
       ``(D) any asset--
       ``(i) which is an interest rate or foreign currency 
     notional principal contract, letter of credit, insurance, 
     guarantee against payment defaults, or other similar 
     instrument permitted by the Secretary, and
       ``(ii) which is reasonably required to guarantee or hedge 
     against the FASIT's risks associated with being the obligor 
     on interests issued by the FASIT,
       ``(E) contract rights to acquire debt instruments described 
     in subparagraph (B) or assets described in subparagraph (D), 
     and
       ``(F) any regular interest in another FASIT.
       ``(2) Debt issued by holder of ownership interest not 
     permitted asset.--The term `permitted asset' shall not 
     include any debt instrument issued by the holder of the 
     ownership interest in the FASIT or by any person related to 
     such holder or any direct or indirect interest in such a debt 
     instrument. The preceding sentence shall not apply to cash 
     equivalents and to any other investment specified in 
     regulations prescribed by the Secretary.
       ``(3) Foreclosure property.--The term `foreclosure 
     property' means property--
       ``(A) which would be foreclosure property under section 
     856(e) (determined without regard to paragraph (5) thereof) 
     if acquired by a real estate investment trust, and
       ``(B) which is acquired in connection with the default or 
     imminent default of a debt instrument held by the FASIT 
     unless the security interest in such property was created for 
     the principal purpose of permitting the FASIT to invest in 
     such property.

     Solely for purposes of subsection (a)(1), the determination 
     of whether any property is foreclosure property shall be made 
     without regard to section 856(e)(4).
       ``(d) Startup Day.--For purposes of this part--
       ``(1) In general.--The term `startup day' means the date 
     designated in the election under subsection (a)(3) as the 
     startup day of the FASIT. Such day shall be the beginning of 
     the first taxable year of the FASIT.
       ``(2) Treatment of property held on startup day.--All 
     property held (or treated as held under section 860I(c)(2)) 
     by an entity as of the startup day shall be treated as 
     contributed to such entity on such day by the holder of the 
     ownership interest in such entity.
       ``(e) Tax on Prohibited Transactions.--
       ``(1) In general.--There is hereby imposed for each taxable 
     year of a FASIT a tax equal to 100 percent of the net income 
     derived from prohibited transactions. Such tax shall be paid 
     by the holder of the ownership interest in the FASIT.
       ``(2) Prohibited transactions.--For purposes of this part, 
     the term `prohibited transaction' means--
       ``(A) the receipt of any income derived from any asset that 
     is not a permitted asset,
       ``(B) except as provided in paragraph (3), the disposition 
     of any permitted asset,
       ``(C) the receipt of any income derived from any loan 
     originated by the FASIT, and
       ``(D) the receipt of any income representing a fee or other 
     compensation for services (other than any fee received as 
     compensation for a waiver, amendment, or consent under 
     permitted assets (other than foreclosure property) held by 
     the FASIT).
       ``(3) Exception for income from certain dispositions.--
       ``(A) In general.--Paragraph (2)(B) shall not apply to a 
     disposition which would not be a prohibited transaction (as 
     defined in section 860F(a)(2)) by reason of--
       ``(i) clause (ii), (iii), or (iv) of section 860F(a)(2)(A), 
     or
       ``(ii) section 860F(a)(5),

     if the FASIT were treated as a REMIC and debt instruments 
     described in subsection (c)(1)(B) were treated as qualified 
     mortgages.
       ``(B) Substitution of debt instruments; reduction of over-
     collateralization.--Paragraph (2)(B) shall not apply to--
       ``(i) the substitution of a debt instrument described in 
     subsection (c)(1)(B) for another debt instrument which is a 
     permitted asset, or
       ``(ii) the distribution of a debt instrument contributed by 
     the holder of the ownership interest to such holder in order 
     to reduce over-collateralization of the FASIT,

     but only if a principal purpose of acquiring the debt 
     instrument which is disposed of was not the recognition of 
     gain (or the reduction of a loss) as a result of an increase 
     in the market value of the debt instrument after its 
     acquisition by the FASIT.
       ``(C) Liquidation of class of regular interests.--Paragraph 
     (2)(B) shall not apply to the complete liquidation of any 
     class of regular interests.
       ``(4) Net income.--For purposes of this subsection, net 
     income shall be determined in accordance with section 
     860F(a)(3).
       ``(f) Coordination With Wash Sales Rules.--Rules similar to 
     the rules of section 860F(d) shall apply to the ownership 
     interest in a FASIT.
       ``(g) Related Person.--For purposes of this part, a person 
     (hereinafter in this subsection referred to as the `related 
     person') is related to any person if--
       ``(1) the related person bears a relationship to such 
     person specified in section 267(b) or section 707(b)(1), or
       ``(2) the related person and such person are engaged in 
     trades or businesses under common control (within the meaning 
     of subsections (a) and (b) of section 52).

     For purposes of paragraph (1), in applying section 267(b) or 
     707(b)(1), `20 percent' shall be substituted for `50 
     percent'.
       ``(h) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this part, including regulations to prevent 
     the abuse of the purposes of this part through transactions 
     which are not primarily related to securitization of debt 
     instruments by a FASIT.''.

[[Page S7390]]

       (b) Technical Amendments.--
       (1) Paragraph (2) of section 26(b) is amended by striking 
     ``and'' at the end of subparagraph (M), by striking the 
     period at the end of subparagraph (N) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(O) section 860K (relating to treatment of transfers of 
     high-yield interests to disqualified holders).''.
       (2) Paragraph (6) of section 56(g) is amended by striking 
     ``or REMIC'' and inserting ``REMIC, or FASIT''.
       (3) Clause (ii) of section 382(l)(4)(B) is amended by 
     striking ``or a REMIC to which part IV of subchapter M 
     applies'' and inserting ``a REMIC to which part IV of 
     subchapter M applies, or a FASIT to which part V of 
     subchapter M applies''.
       (4) Paragraph (1) of section 582(c) is amended by inserting 
     ``, and any regular or ownership interest in a FASIT,'' after 
     ``REMIC''.
       (5) Subparagraph (E) of section 856(c)(6) is amended by 
     adding at the end the following new sentence: ``The 
     principles of the preceding provisions of this subparagraph 
     shall apply to regular and ownership interests in a FASIT.''.
       (6) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``or REMIC'' and inserting ``REMIC, or FASIT''.
       (7) Clause (xi) of section 7701(a)(19)(C) is amended to 
     read as follows:
       ``(xi) any regular or residual interest in a REMIC, and any 
     regular or ownership interest in a FASIT, but only in the 
     proportion which the assets of such REMIC or FASIT consist of 
     property described in any of the preceding clauses of this 
     subparagraph; except that if 95 percent or more of the assets 
     of such REMIC or FASIT are assets described in clauses (i) 
     through (x), the entire interest in the REMIC or FASIT shall 
     qualify.''.
       (8) Subparagraph (A) of section 7701(i)(2) is amended by 
     inserting ``or a FASIT'' after ``a REMIC''.
       (c) Clerical Amendment.--The table of parts for subchapter 
     M of chapter 1 is amended by adding at the end the following 
     new item:

``Part V. Financial asset securitization investment trusts.''.

       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
       (e) Treatment of Existing Securitization Entities.--
       (1) In general.--In the case of the holder of the ownership 
     interest in a pre-effective date FASIT--

       (A) gain shall not be recognized under section 860L(d)(2) 
     of the Internal Revenue Code of 1986 on property deemed 
     contributed to the FASIT, and
       (B) gain shall not be recognized under section 860I of such 
     Code on property contributed to such FASIT,
     until such property (or portion thereof) ceases to be 
     properly allocable to a pre-FASIT interest.
       (2) Allocation of property to pre-fasit interest.--For 
     purposes of paragraph (1), property shall be allocated to a 
     pre-FASIT interest in such manner as the Secretary of the 
     Treasury may prescribe, except that all property in a FASIT 
     shall be treated as properly allocable to pre-FASIT interests 
     if the fair market value of all such property does not exceed 
     107 percent of the aggregate principal amount of all 
     outstanding pre-FASIT interests.
       (3) Definitions.--For purposes of this subsection--
       (A) Pre-effective date fasit.--The term ``pre-effective 
     date FASIT'' means any FASIT if the entity (with respect to 
     which the election under section 860L(a)(3) of such Code was 
     made) was in existence on June 10, 1996.
       (B) Pre-fasit interest.--The term ``pre-FASIT interest'' 
     means any interest in the entity referred to in subparagraph 
     (A) which was issued before the startup day (other than any 
     interest held by the holder of the ownership interest in the 
     FASIT).

           PART III--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

     SEC. 1631. 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 from 
     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.

[[Page S7391]]

       ``(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 States (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 
     includible in the gross income of the expatriate if such 
     interest had been sold for its fair market value on such date 
     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 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 is 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 is 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--

[[Page S7392]]

       ``(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--

       ``(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 expatriation 
     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.

[[Page S7393]]

     SEC. 1632. 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 
     least 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 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.

     SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS 
                   AND RESIDENTS LIVING ABROAD.

       Not later than 90 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall prepare and 
     submit to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate a 
     report--
       (1) describing the compliance with subtitle A of the 
     Internal Revenue Code of 1986 by citizens and lawful 
     permanent residents of the United States (within the meaning 
     of section 7701(b)(6) of such Code) residing outside the 
     United States, and
       (2) recommending measures to improve such compliance 
     (including improved coordination between executive branch 
     agencies).
                   Subtitle F--Technical Corrections

     SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

       For purposes of applying the amendments made by any 
     subtitle of this title other than this subtitle, the 
     provisions of this subtitle shall be treated as having been 
     enacted immediately before the provisions of such other 
     subtitles.

     SEC. 1702. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT 
                   OF 1990.

       (a) Amendments Related to Subtitle A.--
       (1) Subparagraph (B) of section 59(j)(3) is amended by 
     striking ``section 1(i)(3)(B)'' and inserting ``section 
     1(g)(3)(B)''.
       (2) Clause (i) of section 151(d)(3)(C) is amended by 
     striking ``joint of a return'' and inserting ``joint 
     return''.
       (b) Amendments Related to Subtitle B.--
       (1) Paragraph (1) of section 11212(e) of the Revenue 
     Reconciliation Act of 1990 is amended by striking ``Paragraph 
     (1) of section 6724(d)'' and inserting ``Subparagraph (B) of 
     section 6724(d)(1)''.
       (2)(A) Subparagraph (B) of section 4093(c)(2), as in effect 
     before the amendments made by the Revenue Reconciliation Act 
     of 1993, is amended by inserting before the period ``unless 
     such fuel is sold for exclusive use by a State or any 
     political subdivision thereof''.
       (B) Paragraph (4) of section 6427(l), as in effect before 
     the amendments made by the Revenue Reconciliation Act of 
     1993, is amended by inserting before the period ``unless such 
     fuel was used by a State or any political subdivision 
     thereof''.
       (3) Paragraph (1) of section 6416(b) is amended by striking 
     ``chapter 32 or by section 4051'' and inserting ``chapter 31 
     or 32''.
       (4) Section 7012 is amended--
       (A) by striking ``production or importation of gasoline'' 
     in paragraph (3) and inserting ``taxes on gasoline and diesel 
     fuel'', and
       (B) by striking paragraph (4) and redesignating paragraphs 
     (5) and (6) as paragraphs (4) and (5), respectively.
       (5) Subsection (c) of section 5041 is amended by striking 
     paragraph (6) and by inserting the following new paragraphs:
       ``(6) Credit for transferee in bond.--If--
       ``(A) wine produced by any person would be eligible for any 
     credit under paragraph (1) if removed by such person during 
     the calendar year,
       ``(B) wine produced by such person is removed during such 
     calendar year by any other person (hereafter in this 
     paragraph referred to as the `transferee') to whom such wine 
     was transferred in bond and who is liable for the tax imposed 
     by this section with respect to such wine, and
       ``(C) such producer holds title to such wine at the time of 
     its removal and provides to the transferee such information 
     as is necessary to properly determine the transferee's credit 
     under this paragraph,

     then, the transferee (and not the producer) shall be allowed 
     the credit under paragraph (1) which would be allowed to the 
     producer if the wine removed by the transferee had been 
     removed by the producer on that date.
       ``(7) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection, including regulations--
       ``(A) to prevent the credit provided in this subsection 
     from benefiting any person who produces more than 250,000 
     wine gallons of wine during a calendar year, and
       ``(B) to assure proper reduction of such credit for persons 
     producing more than 150,000 wine gallons of wine during a 
     calendar year.''.
       (6) Paragraph (3) of section 5061(b) is amended to read as 
     follows:
       ``(3) section 5041(f),''.
       (7) Section 5354 is amended by inserting ``(taking into 
     account the appropriate amount of credit with respect to such 
     wine under section 5041(c))'' after ``any one time''.
       (c) Amendments Related to Subtitle C.--
       (1) Paragraph (4) of section 56(g) is amended by 
     redesignating subparagraphs (I) and (J) as subparagraphs (H) 
     and (I), respectively.
       (2) Subparagraph (B) of section 6724(d)(1) is amended--
       (A) by striking ``or'' at the end of clause (xii), and
       (B) by striking the period at the end of clause (xiii) and 
     inserting ``, or''.
       (3) Subsection (g) of section 6302 is amended by inserting 
     ``, 22,'' after ``chapters 21''.
       (4) The earnings and profits of any insurance company to 
     which section 11305(c)(3) of the Revenue Reconciliation Act 
     of 1990 applies shall be determined without regard to any 
     deduction allowed under such section; except that, for 
     purposes of applying sections 56 and 902, and subpart F of 
     part III of subchapter N of chapter 1 of the Internal Revenue 
     Code of 1986, such deduction shall be taken into account.
       (5) Subparagraph (D) of section 6038A(e)(4) is amended--
       (A) by striking ``any transaction to which the summons 
     relates'' and inserting ``any affected taxable year'', and
       (B) by adding at the end thereof the following new 
     sentence: ``For purposes of this subparagraph, the term 
     `affected taxable year' means any taxable year if the 
     determination of the amount of tax imposed for such taxable 
     year is affected by the treatment of the transaction to which 
     the summons relates.''.
       (6) Subparagraph (A) of section 6621(c)(2) is amended by 
     adding at the end thereof the following new flush sentence:


[[Page S7394]]


     ``The preceding sentence shall be applied without regard to 
     any such letter or notice which is withdrawn by the 
     Secretary.''.
       (7) Clause (i) of section 6621(c)(2)(B) is amended by 
     striking ``this subtitle'' and inserting ``this title''.
       (d) Amendments Related to Subtitle D.--
       (1) Notwithstanding section 11402(c) of the Revenue 
     Reconciliation Act of 1990, the amendment made by section 
     11402(b)(1) of such Act shall apply to taxable years ending 
     after December 31, 1989.
       (2) Clause (ii) of section 143(m)(4)(C) is amended--
       (A) by striking ``any month of the 10-year period'' and 
     inserting ``any year of the 4-year period'',
       (B) by striking ``succeeding months'' and inserting 
     ``succeeding years'', and
       (C) by striking ``over the remainder of such period (or, if 
     lesser, 5 years)'' and inserting ``to zero over the 
     succeeding 5 years''.
       (e) Amendments Related to Subtitle E.--
       (1)(A) Clause (ii) of section 56(d)(1)(B) is amended to 
     read as follows:
       ``(ii) appropriate adjustments in the application of 
     section 172(b)(2) shall be made to take into account the 
     limitation of subparagraph (A).''.
       (B) For purposes of applying sections 56(g)(1) and 56(g)(3) 
     of the Internal Revenue Code of 1986 with respect to taxable 
     years beginning in 1991 and 1992, the reference in such 
     sections to the alternative tax net operating loss deduction 
     shall be treated as including a reference to the deduction 
     under section 56(h) of such Code as in effect before the 
     amendments made by section 1915 of the Energy Policy Act of 
     1992.
       (2) Clause (i) of section 613A(c)(3)(A) is amended by 
     striking ``the table contained in''.
       (3) Section 6501 is amended--
       (A) by striking subsection (m) (relating to deficiency 
     attributable to election under section 44B) and by 
     redesignating subsections (n) and (o) as subsections (m) and 
     (n), respectively, and
       (B) by striking ``section 40(f) or 51(j)'' in subsection 
     (m) (as redesignated by subparagraph (A)) and inserting 
     ``section 40(f), 43, or 51(j)''.
       (4) Subparagraph (C) of section 38(c)(2) (as in effect on 
     the day before the date of the enactment of the Revenue 
     Reconciliation Act of 1990) is amended by inserting before 
     the period at the end of the first sentence the following: 
     ``and without regard to the deduction under section 56(h)''.
       (5) The amendment made by section 1913(b)(2)(C)(i) of the 
     Energy Policy Act of 1992 shall apply to taxable years 
     beginning after December 31, 1990.
       (f) Amendments Related to Subtitle F.--
       (1)(A) Section 2701(a)(3) is amended by adding at the end 
     thereof the following new subparagraph:
       ``(C) Valuation of qualified payments where no liquidation, 
     etc. rights.--In the case of an applicable retained interest 
     which is described in subparagraph (B)(i) but not 
     subparagraph (B)(ii), the value of the distribution right 
     shall be determined without regard to this section.''.
       (B) Section 2701(a)(3)(B) is amended by inserting 
     ``certain'' before ``qualified'' in the heading thereof.
       (C) Sections 2701 (d)(1) and (d)(4) are each amended by 
     striking ``subsection (a)(3)(B)'' and inserting ``subsection 
     (a)(3) (B) or (C)''.
       (2) Clause (i) of section 2701(a)(4)(B) is amended by 
     inserting ``(or, to the extent provided in regulations, the 
     rights as to either income or capital)'' after ``income and 
     capital''.
       (3)(A) Section 2701(e)(3) is amended--
       (i) by striking subparagraph (B), and
       (ii) by striking so much of paragraph (3) as precedes 
     ``shall be treated as holding'' and inserting:
       ``(3) Attribution of indirect holdings and transfers.--An 
     individual''.
       (B) Section 2704(c)(3) is amended by striking ``section 
     2701(e)(3)(A)'' and inserting ``section 2701(e)(3)''.
       (4) Clause (i) of section 2701(c)(1)(B) is amended to read 
     as follows:
       ``(i) a right to distributions with respect to any interest 
     which is junior to the rights of the transferred interest,''.
       (5)(A) Clause (i) of section 2701(c)(3)(C) is amended to 
     read as follows:
       ``(i) In general.--Payments under any interest held by a 
     transferor which (without regard to this subparagraph) are 
     qualified payments shall be treated as qualified payments 
     unless the transferor elects not to treat such payments as 
     qualified payments. Payments described in the preceding 
     sentence which are held by an applicable family member shall 
     be treated as qualified payments only if such member elects 
     to treat such payments as qualified payments.''.
       (B) The first sentence of section 2701(c)(3)(C)(ii) is 
     amended to read as follows: ``A transferor or applicable 
     family member holding any distribution right which (without 
     regard to this subparagraph) is not a qualified payment may 
     elect to treat such right as a qualified payment, to be paid 
     in the amounts and at the times specified in such 
     election.''.
       (C) The time for making an election under the second 
     sentence of section 2701(c)(3)(C)(i) of the Internal Revenue 
     Code of 1986 (as amended by subparagraph (A)) shall not 
     expire before the due date (including extensions) for filing 
     the transferor's return of the tax imposed by section 2501 of 
     such Code for the first calendar year ending after the date 
     of enactment.
       (6) Section 2701(d)(3)(A)(iii) is amended by striking ``the 
     period ending on the date of''.
       (7) Subclause (I) of section 2701(d)(3)(B)(ii) is amended 
     by inserting ``or the exclusion under section 2503(b),'' 
     after ``section 2523,''.
       (8) Section 2701(e)(5) is amended--
       (A) by striking ``such contribution to capital or such 
     redemption, recapitalization, or other change'' in 
     subparagraph (A) and inserting ``such transaction'', and
       (B) by striking ``the transfer'' in subparagraph (B) and 
     inserting ``such transaction''.
       (9) Section 2701(d)(4) is amended by adding at the end 
     thereof the following new subparagraph:
       ``(C) Transfer to transferors.--In the case of a taxable 
     event described in paragraph (3)(A)(ii) involving a transfer 
     of an applicable retained interest from an applicable family 
     member to a transferor, this subsection shall continue to 
     apply to the transferor during any period the transferor 
     holds such interest.''.
       (10) Section 2701(e)(6) is amended by inserting ``or to 
     reflect the application of subsection (d)'' before the period 
     at the end thereof.
       (11)(A) Section 2702(a)(3)(A) is amended--
       (i) by striking ``to the extent'' and inserting ``if'' in 
     clause (i),
       (ii) by striking ``or'' at the end of clause (i),
       (iii) by striking the period at the end of clause (ii) and 
     inserting ``, or'', and
       (iv) by adding at the end thereof the following new clause:
       ``(iii) to the extent that regulations provide that such 
     transfer is not inconsistent with the purposes of this 
     section.''.
       (B)(i) Section 2702(a)(3) is amended by striking 
     ``incomplete transfer'' each place it appears and inserting 
     ``incomplete gift''.
       (ii) The heading for section 2702(a)(3)(B) is amended by 
     striking ``Incomplete transfer'' and inserting ``Incomplete 
     gift''.
       (g) Amendments Related to Subtitle G.--
       (1)(A) Subsection (a) of section 1248 is amended--
       (i) by striking ``, or if a United States person receives a 
     distribution from a foreign corporation which, under section 
     302 or 331, is treated as an exchange of stock'' in paragraph 
     (1), and
       (ii) by adding at the end thereof the following new 
     sentence: ``For purposes of this section, a United States 
     person shall be treated as having sold or exchanged any stock 
     if, under any provision of this subtitle, such person is 
     treated as realizing gain from the sale or exchange of such 
     stock.''.
       (B) Paragraph (1) of section 1248(e) is amended by striking 
     ``, or receives a distribution from a domestic corporation 
     which, under section 302 or 331, is treated as an exchange of 
     stock''.
       (C) Subparagraph (B) of section 1248(f)(1) is amended by 
     striking ``or 361(c)(1)'' and inserting ``355(c)(1), or 
     361(c)(1)''.
       (D) Paragraph (1) of section 1248(i) is amended to read as 
     follows:
       ``(1) In general.--If any shareholder of a 10-percent 
     corporate shareholder of a foreign corporation exchanges 
     stock of the 10-percent corporate shareholder for stock of 
     the foreign corporation, such 10-percent corporate 
     shareholder shall recognize gain in the same manner as if the 
     stock of the foreign corporation received in such exchange 
     had been--
       ``(A) issued to the 10-percent corporate shareholder, and
       ``(B) then distributed by the 10-percent corporate 
     shareholder to such shareholder in redemption or liquidation 
     (whichever is appropriate).

     The amount of gain recognized by such 10-percent corporate 
     shareholder under the preceding sentence shall not exceed the 
     amount treated as a dividend under this section.''.
       (2) Section 897 is amended by striking subsection (f).
       (3) Paragraph (13) of section 4975(d) is amended by 
     striking ``section 408(b)'' and inserting ``section 
     408(b)(12)''.
       (4) Clause (iii) of section 56(g)(4)(D) is amended by 
     inserting ``, but only with respect to taxable years 
     beginning after December 31, 1989'' before the period at the 
     end thereof.
       (5)(A) Paragraph (11) of section 11701(a) of the Revenue 
     Reconciliation Act of 1990 (and the amendment made by such 
     paragraph) are hereby repealed, and section 7108(r)(2) of the 
     Revenue Reconciliation Act of 1989 shall be applied as if 
     such paragraph (and amendment) had never been enacted.
       (B) Subparagraph (A) shall not apply to any building if the 
     owner of such building establishes to the satisfaction of the 
     Secretary of the Treasury or his delegate that such owner 
     reasonably relied on the amendment made by such paragraph 
     (11).
       (h) Amendments Related to Subtitle H.--
       (1)(A) Clause (vi) of section 168(e)(3)(B) is amended by 
     striking ``or'' at the end of subclause (I), by striking the 
     period at the end of subclause (II) and inserting ``, or'', 
     and by adding at the end thereof the following new subclause:

       ``(III) is described in section 48(l)(3)(A)(ix) (as in 
     effect on the day before the date of the enactment of the 
     Revenue Reconciliation Act of 1990).''.

       (B) Subparagraph (B) of section 168(e)(3) (relating to 5-
     year property) is amended by adding at the end the following 
     flush sentence:

     ``Nothing in any provision of law shall be construed to treat 
     property as not being described in clause (vi)(I) (or the 
     corresponding

[[Page S7395]]

     provisions of prior law) by reason of being public utility 
     property (within the meaning of section 48(a)(3)).''.
       (C) Subparagraph (K) of section 168(g)(4) is amended by 
     striking ``section 48(a)(3)(A)(iii)'' and inserting ``section 
     48(l)(3)(A)(ix) (as in effect on the day before the date of 
     the enactment of the Revenue Reconciliation Act of 1990)''.
       (2) Clause (ii) of section 172(b)(1)(E) is amended by 
     striking ``subsection (m)'' and inserting ``subsection (h)''.
       (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and 
     832(b)(5)(D)(ii)(II) are each amended by striking 
     ``243(b)(5)'' and inserting ``243(b)(2)''.
       (4) Subparagraph (A) of section 243(b)(3) is amended by 
     inserting ``of'' after ``In the case''.
       (5) The subsection heading for subsection (a) of section 
     280F is amended by striking ``Investment Tax Credit and''.
       (6) Clause (i) of section 1504(c)(2)(B) is amended by 
     inserting ``section'' before ``243(b)(2)''.
       (7) Paragraph (3) of section 341(f) is amended by striking 
     ``351, 361, 371(a), or 374(a)'' and inserting ``351, or 
     361''.
       (8) Paragraph (2) of section 243(b) is amended to read as 
     follows:
       ``(2) Affiliated group.--For purposes of this subsection:
       ``(A) In general.--The term `affiliated group' has the 
     meaning given such term by section 1504(a), except that for 
     such purposes sections 1504(b)(2), 1504(b)(4), and 1504(c) 
     shall not apply.
       ``(B) Group must be consistent in foreign tax treatment.--
     The requirements of paragraph (1)(A) shall not be treated as 
     being met with respect to any dividend received by a 
     corporation if, for any taxable year which includes the day 
     on which such dividend is received--
       ``(i) 1 or more members of the affiliated group referred to 
     in paragraph (1)(A) choose to any extent to take the benefits 
     of section 901, and
       ``(ii) 1 or more other members of such group claim to any 
     extent a deduction for taxes otherwise creditable under 
     section 901.''.
       (9) The amendment made by section 11813(b)(17) of the 
     Revenue Reconciliation Act of 1990 shall be applied as if the 
     material stricken by such amendment included the closing 
     parenthesis after ``section 48(a)(5)''.
       (10) Paragraph (1) of section 179(d) is amended by striking 
     ``in a trade or business'' and inserting ``a trade or 
     business''.
       (11) Subparagraph (E) of section 50(a)(2) is amended by 
     striking ``section 48(a)(5)(A)'' and inserting ``section 
     48(a)(5)''.
       (12) The amendment made by section 11801(c)(9)(G)(ii) of 
     the Revenue Reconciliation Act of 1990 shall be applied as if 
     it struck ``Section 422A(c)(2)'' and inserted ``Section 
     422(c)(2)''.
       (13) Subparagraph (B) of section 424(c)(3) is amended by 
     striking ``a qualified stock option, an incentive stock 
     option, an option granted under an employee stock purchase 
     plan, or a restricted stock option'' and inserting ``an 
     incentive stock option or an option granted under an employee 
     stock purchase plan''.
       (14) Subparagraph (E) of section 1367(a)(2) is amended by 
     striking ``section 613A(c)(13)(B)'' and inserting ``section 
     613A(c)(11)(B)''.
       (15) Subparagraph (B) of section 460(e)(6) is amended by 
     striking ``section 167(k)'' and inserting ``section 
     168(e)(2)(A)(ii)''.
       (16) Subparagraph (C) of section 172(h)(4) is amended by 
     striking ``subsection (b)(1)(M)'' and inserting ``subsection 
     (b)(1)(E)''.
       (17) Section 6503 is amended--
       (A) by redesignating the subsection relating to extension 
     in case of certain summonses as subsection (j), and
       (B) by redesignating the subsection relating to cross 
     references as subsection (k).
       (18) Paragraph (4) of section 1250(e) is hereby repealed.
       (19) Paragraph (1) of section 179(d) is amended by adding 
     at the end the following new sentence: ``Such term shall not 
     include any property described in section 50(b) and shall not 
     include air conditioning or heating units.''.
       (i) Effective Date.--Except as otherwise expressly 
     provided--
       (1) the amendments made by this section shall be treated as 
     amendments to the Internal Revenue Code of 1986 as amended by 
     the Revenue Reconciliation Act of 1993; and
       (2) any amendment made by this section shall apply to 
     periods before the date of the enactment of this section in 
     the same manner as if it had been included in the provision 
     of the Revenue Reconciliation Act of 1990 to which such 
     amendment relates.

     SEC. 1703. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT 
                   OF 1993.

       (a) Amendment Related to Section 13114.--Paragraph (2) of 
     section 1044(c) is amended to read as follows:
       ``(2) Purchase.--The taxpayer shall be considered to have 
     purchased any property if, but for subsection (d), the 
     unadjusted basis of such property would be its cost within 
     the meaning of section 1012.''.
       (b) Amendments Related to Section 13142.--
       (1) Subparagraph (B) of section 13142(b)(6) of the Revenue 
     Reconciliation Act of 1993 is amended to read as follows:
       ``(B) Full-time students, waiver authority, and prohibited 
     discrimination.--The amendments made by paragraphs (2), (3), 
     and (4) shall take effect on the date of the enactment of 
     this Act.''.
       (2) Subparagraph (C) of section 13142(b)(6) of such Act is 
     amended by striking ``paragraph (2)'' and inserting 
     ``paragraph (5)''.
       (c) Amendment Related to Section 13161.--
       (1) In general.--Subsection (e) of section 4001 (relating 
     to inflation adjustment) is amended to read as follows:
       ``(e) Inflation Adjustment.--
       ``(1) In general.--The $30,000 amount in subsection (a) and 
     section 4003(a) shall be increased by an amount equal to--
       ``(A) $30,000, multiplied by
       ``(B) the cost-of-living adjustment under section 1(f)(3) 
     for the calendar year in which the vehicle is sold, 
     determined by substituting `calendar year 1990' for `calendar 
     year 1992' in subparagraph (B) thereof.
       ``(2) Rounding.--If any amount as adjusted under paragraph 
     (1) is not a multiple of $2,000, such amount shall be rounded 
     to the next lowest multiple of $2,000.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of this Act.
       (d) Amendment Related to Section 13201.--Clause (ii) of 
     section 135(b)(2)(B) is amended by inserting before the 
     period at the end thereof the following: ``, determined by 
     substituting `calendar year 1989' for `calendar year 1992' in 
     subparagraph (B) thereof''.
       (e) Amendments Related to Section 13203.--Subsection (a) of 
     section 59 is amended--
       (1) by striking ``the amount determined under section 
     55(b)(1)(A)'' in paragraph (1)(A) and (2)(A)(i) and inserting 
     ``the pre-credit tentative minimum tax'',
       (2) by striking ``specified in section 55(b)(1)(A)'' in 
     paragraph (1)(C) and inserting ``specified in subparagraph 
     (A)(i) or (B)(i) of section 55(b)(1) (whichever applies)'',
       (3) by striking ``which would be determined under section 
     55(b)(1)(A)'' in paragraph (2)(A)(ii) and inserting ``which 
     would be the pre-credit tentative minimum tax'', and
       (4) by adding at the end thereof the following new 
     paragraph:
       ``(3) Pre-credit tentative minimum tax.--For purposes of 
     this subsection, the term `pre-credit tentative minimum tax' 
     means--
       ``(A) in the case of a taxpayer other than a corporation, 
     the amount determined under the first sentence of section 
     55(b)(1)(A)(i), or
       ``(B) in the case of a corporation, the amount determined 
     under section 55(b)(1)(B)(i).''.
       (f) Amendment Related to Section 13221.--Sections 1201(a) 
     and 1561(a) are each amended by striking ``last sentence'' 
     each place it appears and inserting ``last 2 sentences''.
       (g) Amendments Related to Section 13222.--
       (1) Subparagraph (B) of section 6033(e)(1) is amended by 
     adding at the end thereof the following new clause:
       ``(iii) Coordination with section 527(f).--This subsection 
     shall not apply to any amount on which tax is imposed by 
     reason of section 527(f).''.
       (2) Clause (i) of section 6033(e)(1)(B) is amended by 
     striking ``this subtitle'' and inserting ``section 501''.
       (h) Amendment Related to Section 13225.--Paragraph (3) of 
     section 6655(g) is amended by striking all that follows `` 
     `3rd month' '' in the sentence following subparagraph (C) and 
     inserting ``, subsection (e)(2)(A) shall be applied by 
     substituting `2 months' for `3 months' in clause (i)(I), the 
     election under clause (i) of subsection (e)(2)(C) may be made 
     separately for each installment, and clause (ii) of 
     subsection (e)(2)(C) shall not apply.''.
       (i) Amendments Related to Section 13231.--
       (1) Subparagraph (G) of section 904(d)(3) is amended by 
     striking ``section 951(a)(1)(B)'' and inserting 
     ``subparagraph (B) or (C) of section 951(a)(1)''.
       (2) Paragraph (1) of section 956A(b) is amended to read as 
     follows:
       ``(1) the amount (not including a deficit) referred to in 
     section 316(a)(1) to the extent such amount was accumulated 
     in prior taxable years beginning after September 30, 1993, 
     and''.
       (3) Subsection (f) of section 956A is amended by inserting 
     before the period at the end thereof: ``and regulations 
     coordinating the provisions of subsections (c)(3)(A) and 
     (d)''.
       (4) Subsection (b) of section 958 is amended by striking 
     ``956(b)(2)'' each place it appears and inserting 
     ``956(c)(2)''.
       (5)(A) Subparagraph (A) of section 1297(d)(2) is amended by 
     striking ``The adjusted basis of any asset'' and inserting 
     ``The amount taken into account under section 1296(a)(2) with 
     respect to any asset''.
       (B) The paragraph heading of paragraph (2) of section 
     1297(d) is amended to read as follows:
       ``(2) Amount taken into account.--''.
       (6) Subsection (e) of section 1297 is amended by inserting 
     ``For purposes of this 
     part--'' after the subsection heading.
       (j) Amendment Related to Section 13241.--Subparagraph (B) 
     of section 40(e)(1) is amended to read as follows:
       ``(B) for any period before January 1, 2001, during which 
     the rates of tax under section 4081(a)(2)(A) are 4.3 cents 
     per gallon.''.
       (k) Amendment Related to Section 13242.--Paragraph (4) of 
     section 6427(f) is amended by striking ``1995'' and inserting 
     ``1999''.
       (l) Amendment Related to Section 13261.--Clause (iii) of 
     section 13261(g)(2)(A) of the Revenue Reconciliation Act of 
     1993 is

[[Page S7396]]

     amended by striking ``by the taxpayer'' and inserting ``by 
     the taxpayer or a related person''.
       (m) Amendment Related to Section 13301.--Subparagraph (B) 
     of section 1397B(d)(5) is amended by striking ``preceding''.
       (n) Clerical Amendments.--
       (1) Subsection (d) of section 39 is amended--
       (A) by striking ``45'' in the heading of paragraph (5) and 
     inserting ``45A'', and
       (B) by striking ``45'' in the heading of paragraph (6) and 
     inserting ``45B''.
       (2) Subparagraph (A) of section 108(d)(9) is amended by 
     striking ``paragraph (3)(B)'' and inserting ``paragraph 
     (3)(C)''.
       (3) Subparagraph (C) of section 143(d)(2) is amended by 
     striking the period at the end thereof and inserting a comma.
       (4) Clause (ii) of section 163(j)(6)(E) is amended by 
     striking ``which is a'' and inserting ``which is''.
       (5) Subparagraph (A) of section 1017(b)(4) is amended by 
     striking ``subsection (b)(2)(D)'' and inserting ``subsection 
     (b)(2)(E)''.
       (6) So much of section 1245(a)(3) as precedes subparagraph 
     (A) thereof is amended to read as follows:
       ``(3) Section 1245 property.--For purposes of this section, 
     the term `section 1245 property' means any property which is 
     or has been property of a character subject to the allowance 
     for depreciation provided in section 167 and is either--''.
       (7) Paragraph (2) of section 1394(e) is amended--
       (A) by striking ``(i)'' and inserting ``(A)'', and
       (B) by striking ``(ii)'' and inserting ``(B)''.
       (8) Subsection (m) of section 6501 (as redesignated by 
     section 1602) is amended by striking ``or 51(j)'' and 
     inserting ``45B, or 51(j)''.
       (9)(A) The section 6714 added by section 13242(b)(1) of the 
     Revenue Reconciliation Act of 1993 is hereby redesignated as 
     section 6715.
       (B) The table of sections for part I of subchapter B of 
     chapter 68 is amended by striking ``6714'' in the item added 
     by such section 13242(b)(2) of such Act and inserting 
     ``6715''.
       (10) Paragraph (2) of section 9502(b) is amended by 
     inserting ``and before'' after ``1982,''.
       (11) Subsection (a)(3) of section 13206 of the Revenue 
     Reconciliation Act of 1993 is amended by striking ``this 
     section'' and inserting ``this subsection''.
       (12) Paragraph (1) of section 13215(c) of the Revenue 
     Reconciliation Act of 1993 is amended by striking ``Public 
     Law 92-21'' and inserting ``Public Law 98-21''.
       (13) Paragraph (2) of section 13311(e) of the Revenue 
     Reconciliation Act of 1993 is amended by striking ``section 
     1393(a)(3)'' and inserting ``section 1393(a)(2)''.
       (14) Subparagraph (B) of section 117(d)(2) is amended by 
     striking ``section 132(f)'' and inserting ``section 132(h)''.
       (o) Effective Date.--Any amendment made by this section 
     shall take effect as if included in the provision of the 
     Revenue Reconciliation Act of 1993 to which such amendment 
     relates.

     SEC. 1704. MISCELLANEOUS PROVISIONS.

       (a) Application of Amendments Made by Title XII of Omnibus 
     Budget Reconciliation Act of 1990.--Except as otherwise 
     expressly provided, whenever in title XII of the Omnibus 
     Budget Reconciliation Act of 1990 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.
       (b) Treatment of Certain Amounts Under Hedge Bond Rules.--
       (1) Clause (iii) of section 149(g)(3)(B) is amended to read 
     as follows:
       ``(iii) Amounts held pending reinvestment or redemption.--
     Amounts held for not more than 30 days pending reinvestment 
     or bond redemption shall be treated as invested in bonds 
     described in clause (i).''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 7651 of the 
     Omnibus Budget Reconciliation Act of 1989.
       (c) Treatment of Certain Distributions Under Section 
     1445.--
       (1) In general.--Paragraph (3) of section 1445(e) is 
     amended by adding at the end thereof the following new 
     sentence: ``Rules similar to the rules of the preceding 
     provisions of this paragraph shall apply in the case of any 
     distribution to which section 301 applies and which is not 
     made out of the earnings and profits of such a domestic 
     corporation.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (d) Treatment of Certain Credits Under Section 469.--
       (1) In general.--Subparagraph (B) of section 469(c)(3) is 
     amended by adding at the end thereof the following new 
     sentence: ``If the preceding sentence applies to the net 
     income from any property for any taxable year, any credits 
     allowable under subpart B (other than section 27(a)) or D of 
     part IV of subchapter A for such taxable year which are 
     attributable to such property shall be treated as credits not 
     from a passive activity to the extent the amount of such 
     credits does not exceed the regular tax liability of the 
     taxpayer for the taxable year which is allocable to such net 
     income.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to taxable years beginning after December 31, 
     1986.
       (e) Treatment of Dispositions Under Passive Loss Rules.--
       (1) In general.--Subparagraph (A) of section 469(g)(1) is 
     amended to read as follows:
       ``(A) In general.--If all gain or loss realized on such 
     disposition is recognized, the excess of--
       ``(i) any loss from such activity for such taxable year 
     (determined after the application of subsection (b)), over
       ``(ii) any net income or gain for such taxable year from 
     all other passive activities (determined after the 
     application of subsection (b)),
     shall be treated as a loss which is not from a passive 
     activity.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to taxable years beginning after December 31, 
     1986.
       (f) Miscellaneous Amendments to Foreign Provisions.--
       (1) Coordination of unified estate tax credit with 
     treaties.--Subparagraph (A) of section 2102(c)(3) is amended 
     by adding at the end thereof the following new sentence: 
     ``For purposes of the preceding sentence, property shall not 
     be treated as situated in the United States if such property 
     is exempt from the tax imposed by this subchapter under any 
     treaty obligation of the United States.''.
       (2) Treatment of certain interest paid to related person.--
       (A) Subparagraph (B) of section 163(j)(1) is amended by 
     inserting before the period at the end thereof the following: 
     ``(and clause (ii) of paragraph (2)(A) shall not apply for 
     purposes of applying this subsection to the amount so 
     treated)''.
       (B) Subsection (j) of section 163 is amended by 
     redesignating paragraph (7) as paragraph (8) and by inserting 
     after paragraph (6) the following new paragraph:
       ``(7) Coordination with passive loss rules, etc.--This 
     subsection shall be applied before sections 465 and 469.''.
       (C) The amendments made by this paragraph shall apply as if 
     included in the amendments made by section 7210(a) of the 
     Revenue Reconciliation Act of 1989.
       (3) Treatment of interest allocable to effectively 
     connected income.--
       (A) In general.--
       (i) Subparagraph (B) of section 884(f)(1) is amended by 
     striking ``to the extent'' and all that follows down through 
     ``subparagraph (A)'' and inserting ``to the extent that the 
     allocable interest exceeds the interest described in 
     subparagraph (A)''.
       (ii) The second sentence of section 884(f)(1) is amended by 
     striking ``reasonably expected'' and all that follows down 
     through the period at the end thereof and inserting 
     ``reasonably expected to be allocable interest.''
       (iii) Paragraph (2) of section 884(f) is amended to read as 
     follows:
       ``(2) Allocable interest.--For purposes of this subsection, 
     the term `allocable interest' means any interest which is 
     allocable to income which is effectively connected (or 
     treated as effectively connected) with the conduct of a trade 
     or business in the United States.''.
       (B) Effective date.--The amendments made by subparagraph 
     (A) shall take effect as if included in the amendments made 
     by section 1241(a) of the Tax Reform Act of 1986.
       (4) Clarification of source rule.--
       (A) In general.--Paragraph (2) of section 865(b) is amended 
     by striking ``863(b)'' and inserting ``863''.
       (B) Effective date.--The amendment made by subparagraph (A) 
     shall take effect as if included in the amendments made by 
     section 1211 of the Tax Reform Act of 1986.
       (5) Repeal of obsolete provisions.--
       (A) Paragraph (1) of section 6038(a) is amended by striking 
     ``, and'' at the end of subparagraph (E) and inserting a 
     period, and by striking subparagraph (F).
       (B) Subsection (b) of section 6038A is amended by adding 
     ``and'' at the end of paragraph (2), by striking ``, and'' at 
     the end of paragraph (3) and inserting a period, and by 
     striking paragraph (4).
       (g) Treatment of Assignment of Interest in Certain Bond-
     Financed Facilities.--
       (1) In general.--Subparagraph (A) of section 1317(3) of the 
     Tax Reform Act of 1986 is amended by adding at the end 
     thereof the following new sentence: ``A facility shall not 
     fail to be treated as described in this subparagraph by 
     reason of an assignment (or an agreement to an assignment) by 
     the governmental unit on whose behalf the bonds are issued of 
     any part of its interest in the property financed by such 
     bonds to another governmental unit.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in such section 1317 on the 
     date of the enactment of the Tax Reform Act of 1986.
       (h) Clarification of Treatment of Medicare Entitlement 
     Under COBRA Provisions.--
       (1) In general.--
       (A) Subclause (V) of section 4980B(f)(2)(B)(i) is amended 
     to read as follows:

       ``(V) Medicare entitlement followed by qualifying event.--
     In the case of a qualifying event described in paragraph 
     (3)(B) that occurs less than 18 months after the date the 
     covered employee became entitled to benefits under title 
     XVIII of the Social Security Act, the period of coverage for 
     qualified beneficiaries other than the covered employee shall 
     not terminate under this clause

[[Page S7397]]

     before the close of the 36-month period beginning on the date 
     the covered employee became so entitled.''.

       (B) Clause (v) of section 602(2)(A) of the Employee 
     Retirement Income Security Act of 1974 is amended to read as 
     follows:
       ``(v) Medicare entitlement followed by qualifying event.--
     In the case of a qualifying event described in section 603(2) 
     that occurs less than 18 months after the date the covered 
     employee became entitled to benefits under title XVIII of the 
     Social Security Act, the period of coverage for qualified 
     beneficiaries other than the covered employee shall not 
     terminate under this subparagraph before the close of the 36-
     month period beginning on the date the covered employee 
     became so entitled.''.
       (C) Clause (iv) of section 2202(2)(A) of the Public Health 
     Service Act is amended to read as follows:
       ``(iv) Medicare entitlement followed by qualifying event.--
     In the case of a qualifying event described in section 
     2203(2) that occurs less than 18 months after the date the 
     covered employee became entitled to benefits under title 
     XVIII of the Social Security Act, the period of coverage for 
     qualified beneficiaries other than the covered employee shall 
     not terminate under this subparagraph before the close of the 
     36-month period beginning on the date the covered employee 
     became so entitled.''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to plan years beginning after December 31, 1989.
       (i) Treatment of Certain REMIC Inclusions.--
       (1) In general.--Subsection (a) of section 860E is amended 
     by adding at the end thereof the following new paragraph:
       ``(6) Coordination with minimum tax.--For purposes of part 
     VI of subchapter A of this chapter--
       ``(A) the reference in section 55(b)(2) to taxable income 
     shall be treated as a reference to taxable income determined 
     without regard to this subsection,
       ``(B) the alternative minimum taxable income of any holder 
     of a residual interest in a REMIC for any taxable year shall 
     in no event be less than the excess inclusion for such 
     taxable year, and
       ``(C) any excess inclusion shall be disregarded for 
     purposes of computing the alternative tax net operating loss 
     deduction.

     The preceding sentence shall not apply to any organization to 
     which section 593 applies, except to the extent provided in 
     regulations prescribed by the Secretary under paragraph 
     (2).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the amendments made by 
     section 671 of the Tax Reform Act of 1986 unless the taxpayer 
     elects to apply such amendment only to taxable years 
     beginning after the date of the enactment of this Act.
       (j) Exemption From Harbor Maintenance Tax for Certain 
     Passengers.--
       (1) In general.--Subparagraph (D) of section 4462(b)(1) 
     (relating to special rule for Alaska, Hawaii, and 
     possessions) is amended by inserting before the period the 
     following: ``, or passengers transported on United States 
     flag vessels operating solely within the State waters of 
     Alaska or Hawaii and adjacent international waters''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the amendments made by 
     section 1402(a) of the Harbor Maintenance Revenue Act of 
     1986.
       (k) Amendments Related to Revenue Provisions of Energy 
     Policy Act of 1992.--
       (1) Effective with respect to taxable years beginning after 
     December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) 
     is amended to read as follows:

       ``(II) the adjusted net minimum tax for any taxable year is 
     the amount of the net minimum tax for such year increased in 
     the manner provided in clause (iii).''.

       (2) Subsection (g) of section 179A is redesignated as 
     subsection (f).
       (3) Subparagraph (E) of section 6724(d)(3) is amended by 
     striking ``section 6109(f)'' and inserting ``section 
     6109(h)''.
       (4)(A) Subsection (d) of section 30 is amended--
       (i) by inserting ``(determined without regard to subsection 
     (b)(3))'' before the period at the end of paragraph (1) 
     thereof, and
       (ii) by adding at the end thereof the following new 
     paragraph:
       ``(4) Election to not take credit.--No credit shall be 
     allowed under subsection (a) for any vehicle if the taxpayer 
     elects to not have this section apply to such vehicle.''.
       (B) Subsection (m) of section 6501 (as redesignated by 
     section 1602) is amended by striking ``section 40(f)'' and 
     inserting ``section 30(d)(4), 40(f)''.
       (5) Subclause (III) of section 501(c)(21)(D)(ii) is amended 
     by striking ``section 101(6)'' and inserting ``section 
     101(7)'' and by striking ``1752(6)'' and inserting 
     ``1752(7)''.
       (6) Paragraph (1) of section 1917(b) of the Energy Policy 
     Act of 1992 shall be applied as if ``at a rate'' appeared 
     instead of ``at the rate'' in the material proposed to be 
     stricken.
       (7) Paragraph (2) of section 1921(b) of the Energy Policy 
     Act of 1992 shall be applied as if a comma appeared after 
     ``(2)'' in the material proposed to be stricken.
       (8) Subsection (a) of section 1937 of the Energy Policy Act 
     of 1992 shall be applied as if ``Subpart B'' appeared instead 
     of ``Subpart C''.
       (l) Treatment of Qualified Football Coaches Plan.--
       (1) In general.--For purposes of the Internal Revenue Code 
     of 1986, a qualified football coaches plan--
       (A) shall be treated as a multiemployer collectively 
     bargained plan, and
       (B) notwithstanding section 401(k)(4)(B) of such Code, may 
     include a qualified cash and deferred arrangement under 
     section 401(k) of such Code.
       (2) Qualified football coaches plan.--For purposes of this 
     subsection, the term ``qualified football coaches plan'' 
     means any defined contribution plan which is established and 
     maintained by an organization--
       (A) which is described in section 501(c) of such Code,
       (B) the membership of which consists entirely of 
     individuals who primarily coach football as full-time 
     employees of 4-year colleges or universities described in 
     section 170(b)(1)(A)(ii) of such Code, and
       (C) which was in existence on September 18, 1986.
       (3) Effective date.--This subsection shall apply to years 
     beginning after December 22, 1987.
       (m) Determination of Unrecovered Investment in Annuity 
     Contract.--
       (1) In general.--Subparagraph (A) of section 72(b)(4) is 
     amended by inserting ``(determined without regard to 
     subsection (c)(2))'' after ``contract''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the amendments made by 
     section 1122(c) of the Tax Reform Act of 1986.
       (n) Modifications to Election To Include Child's Income on 
     Parent's Return.--
       (1) Eligibility for election.--Clause (ii) of section 
     1(g)(7)(A) (relating to election to include certain unearned 
     income of child on parent's return) is amended to read as 
     follows:
       ``(ii) such gross income is more than the amount described 
     in paragraph (4)(A)(ii)(I) and less than 10 times the amount 
     so described,''.
       (2) Computation of tax.--Subparagraph (B) of section 
     1(g)(7) (relating to income included on parent's return) is 
     amended--
       (A) by striking ``$1,000'' in clause (i) and inserting 
     ``twice the amount described in paragraph (4)(A)(ii)(I)'', 
     and
       (B) by amending subclause (II) of clause (ii) to read as 
     follows:

       ``(II) for each such child, 15 percent of the lesser of the 
     amount described in paragraph (4)(A)(ii)(I) or the excess of 
     the gross income of such child over the amount so described, 
     and''.

       (3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is 
     amended by striking ``$1,000'' and inserting ``twice the 
     amount in effect for the taxable year under section 
     63(c)(5)(A)''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     1995.
       (o) Treatment of Certain Veterans' Reemployment Rights.--
       (1) In general.--Section 414 is amended by adding at the 
     end the following new subsection:
       ``(u) Special Rules Relating to Veterans' Reemployment 
     Rights Under USERRA.--
       ``(1) Treatment of certain contributions made pursuant to 
     veterans' reemployment rights.--If any contribution is made 
     by an employer or an employee under an individual account 
     plan with respect to an employee, or by an employee to a 
     defined benefit plan that provides for employee 
     contributions, and such contribution is required by reason of 
     such employee's rights under chapter 43 of title 38, United 
     States Code, resulting from qualified military service, 
     then--
       ``(A) such contribution shall not be subject to any 
     otherwise applicable limitation contained in section 402(g), 
     402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall 
     not be taken into account in applying such limitations to 
     other contributions or benefits under such plan or any other 
     plan, with respect to the year in which the contribution is 
     made,
       ``(B) such contribution shall be subject to the limitations 
     referred to in subparagraph (A) with respect to the year to 
     which the contribution relates (in accordance with rules 
     prescribed by the Secretary), and
       ``(C) such plan shall not be treated as failing to meet the 
     requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 
     401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 
     408(k)(6), 408(p), 410(b), or 416 by reason of the making of 
     (or the right to make) such contribution.
     For purposes of the preceding sentence, any elective deferral 
     or employee contribution made under paragraph (2) shall be 
     treated as required by reason of the employee's rights under 
     such chapter 43.
       ``(2) Reemployment rights under userra with respect to 
     elective deferrals.--
       ``(A) In general.--For purposes of this subchapter and 
     section 457, if an employee is entitled to the benefits of 
     chapter 43 of title 38, United States Code, with respect to 
     any plan which provides for elective deferrals, the employer 
     sponsoring the plan shall be treated as meeting the 
     requirements of such chapter 43 with respect to such elective 
     deferrals only if such employer--
       ``(i) permits such employee to make additional elective 
     deferrals under such plan (in the amount determined under 
     subparagraph (B) or such lesser amount as is elected by the 
     employee) during the period which begins on

[[Page S7398]]

     the date of the reemployment of such employee with such 
     employer and has the same length as the lesser of--

       ``(I) the product of 3 and the period of qualified military 
     service which resulted in such rights, and
       ``(II) 5 years, and

       ``(ii) makes a matching contribution with respect to any 
     additional elective deferral made pursuant to clause (i) 
     which would have been required had such deferral actually 
     been made during the period of such qualified military 
     service.
       ``(B) Amount of makeup required.--The amount determined 
     under this subparagraph with respect to any plan is the 
     maximum amount of the elective deferrals that the individual 
     would have been permitted to make under the plan in 
     accordance with the limitations referred to in paragraph 
     (1)(A) during the period of qualified military service if the 
     individual had continued to be employed by the employer 
     during such period and received compensation as determined 
     under paragraph (7). Proper adjustment shall be made to the 
     amount determined under the preceding sentence for any 
     elective deferrals actually made during the period of such 
     qualified military service.
       ``(C) Elective deferral.--For purposes of this paragraph, 
     the term `elective deferral' has the meaning given such term 
     by section 402(g)(3); except that such term shall include any 
     deferral of compensation under an eligible deferred 
     compensation plan (as defined in section 457(b)).
       ``(D) After-tax employee contributions.--References in 
     subparagraphs (A) and (B) to elective deferrals shall be 
     treated as including references to employee contributions.
       ``(3) Certain retroactive adjustments not required.--For 
     purposes of this subchapter and subchapter E, no provision of 
     chapter 43 of title 38, United States Code, shall be 
     construed as requiring--
       ``(A) any crediting of earnings to an employee with respect 
     to any contribution before such contribution is actually 
     made, or
       ``(B) any allocation of any forfeiture with respect to the 
     period of qualified military service.
       ``(4) Loan repayment suspensions permitted.--If any plan 
     suspends the obligation to repay any loan made to an employee 
     from such plan for any part of any period during which such 
     employee is performing service in the uniformed services (as 
     defined in chapter 43 of title 38, United States Code), 
     whether or not qualified military service, such suspension 
     shall not be taken into account for purposes of section 
     72(p), 401(a), or 4975(d)(1).
       ``(5) Qualified military service.--For purposes of this 
     subsection, the term `qualified military service' means any 
     service in the uniformed services (as defined in chapter 43 
     of title 38, United States Code) by any individual if such 
     individual is entitled to reemployment rights under such 
     chapter with respect to such service.
       ``(6) Individual account plan.--For purposes of this 
     subsection, the term `individual account plan' means any 
     defined contribution plan (including any tax-sheltered 
     annuity plan under section 403(b), any simplified employee 
     pension under section 408(k), any qualified salary reduction 
     arrangement under section 408(p), and any eligible deferred 
     compensation plan (as defined in section 457(b)).
       ``(7) Compensation.--For purposes of sections 403(b)(3), 
     415(c)(3), and 457(e)(5), an employee who is in qualified 
     military service shall be treated as receiving compensation 
     from the employer during such period of qualified military 
     service equal to--
       ``(A) the compensation the employee would have received 
     during such period if the employee were not in qualified 
     military service, determined based on the rate of pay the 
     employee would have received from the employer but for 
     absence during the period of qualified military service, or
       ``(B) if the compensation the employee would have received 
     during such period was not reasonably certain, the employee's 
     average compensation from the employer during the 12-month 
     period immediately preceding the qualified military service 
     (or, if shorter, the period of employment immediately 
     preceding the qualified military service).
       ``(8) USERRA requirements for qualified retirement plans.--
     For purposes of this subchapter and section 457, an employer 
     sponsoring a retirement plan shall be treated as meeting the 
     requirements of chapter 43 of title 38, United States Code, 
     only if each of the following requirements is met:
       ``(A) An individual reemployed under such chapter is 
     treated with respect to such plan as not having incurred a 
     break in service with the employer maintaining the plan by 
     reason of such individual's period of qualified military 
     service.
       ``(B) Each period of qualified military service served by 
     an individual is, upon reemployment under such chapter, 
     deemed with respect to such plan to constitute service with 
     the employer maintaining the plan for the purpose of 
     determining the nonforfeitability of the individual's accrued 
     benefits under such plan and for the purpose of determining 
     the accrual of benefits under such plan.
       ``(C) An individual reemployed under such chapter is 
     entitled to accrued benefits that are contingent on the 
     making of, or derived from, employee contributions or 
     elective deferrals only to the extent the individual makes 
     payment to the plan with respect to such contributions or 
     deferrals. No such payment may exceed the amount the 
     individual would have been permitted or required to 
     contribute had the individual remained continuously employed 
     by the employer throughout the period of qualified military 
     service. Any payment to such plan shall be made during the 
     period beginning with the date of reemployment and whose 
     duration is 3 times the period of the qualified military 
     service (but not greater than 5 years).
       ``(9) Plans not subject to title 38.--This subsection shall 
     not apply to any retirement plan to which chapter 43 of title 
     38, United States Code, does not apply.
       ``(10) References.--For purposes of this section, any 
     reference to chapter 43 of title 38, United States Code, 
     shall be treated as a reference to such chapter as in effect 
     on December 12, 1994 (without regard to any subsequent 
     amendment).''.
       (2) Effective date.--The amendment made by this subsection 
     shall be effective as of December 12, 1994.
       (p) Reporting of Real Estate Transactions.--
       (1) In general.--Paragraph (3) of section 6045(e) (relating 
     to prohibition of separate charge for filing return) is 
     amended by adding at the end the following new sentence: 
     ``Nothing in this paragraph shall be construed to prohibit 
     the real estate reporting person from taking into account its 
     cost of complying with such requirement in establishing its 
     charge (other than a separate charge for complying with such 
     requirement) to any customer for performing services in the 
     case of a real estate transaction.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in section 1015(e)(2)(A) of 
     the Technical and Miscellaneous Revenue Act of 1988.
       (q) Clarification of Denial of Deduction for Stock 
     Redemption Expenses.
       (1) In general.--Paragraph (1) of section 162(k) is amended 
     by striking ``the redemption of its stock'' and inserting 
     ``the reacquisition of its stock or of the stock of any 
     related person (as defined in section 465(b)(3)(C))''.
       (2) Certain deductions permitted.--Subparagraph (A) of 
     section 162(k)(2) is amended by striking ``or'' at the end of 
     clause (i), by redesignating clause (ii) as clause (iii), and 
     by inserting after clause (i) the following new clause:
       ``(ii) deduction for amounts which are properly allocable 
     to indebtedness and amortized over the term of such 
     indebtedness, or''.
       (3) Clerical amendment.--The subsection heading for 
     subsection (k) of section 162 is amended by striking 
     ``Redemption'' and inserting ``Reacquisition''.
       (4) Effective date.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to amounts 
     paid or incurred after September 13, 1995, in taxable years 
     ending after such date.
       (B) Paragraph (2).--The amendment made by paragraph (2) 
     shall take effect as if included in the amendment made by 
     section 613 of the Tax Reform Act of 1986.
       (r) Clerical Amendment to Section 404.--
       (1) In general.--Paragraph (1) of section 404(j) is amended 
     by striking ``(10)'' and inserting ``(9)''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the amendments made by 
     section 713(d)(4)(A) of the Deficit Reduction Act of 1984.
       (s) Passive Income Not To Include FSC Income, Etc.--
       (1) In general.--Paragraph (2) of section 1296(b) is 
     amended by striking ``or'' at the end of subparagraph (B), by 
     striking the period at the end of subparagraph (C) and 
     inserting ``, or'', and by inserting after subparagraph (C) 
     the following new subparagraph:
       ``(D) which is foreign trade income of a FSC or export 
     trade income of an export trade corporation (as defined in 
     section 971).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the amendments made by 
     section 1235 of the Tax Reform Act of 1986.
       (t) Miscellaneous Clerical Amendments.--
       (1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by 
     striking ``of the subclause'' and inserting ``of subclause''.
       (2) Paragraph (2) of section 72(m) is amended by inserting 
     ``and'' at the end of subparagraph (A), by striking 
     subparagraph (B), and by redesignating subparagraph (C) as 
     subparagraph (B).
       (3) Paragraph (2) of section 86(b) is amended by striking 
     ``adusted'' and inserting ``adjusted''.
       (4)(A) The heading for section 112 is amended by striking 
     ``combat pay'' and inserting ``combat zone compensation''.
       (B) The item relating to section 112 in the table of 
     sections for part III of subchapter B of chapter 1 is amended 
     by striking ``combat pay'' and inserting ``combat zone 
     compensation''.
       (C) Paragraph (1) of section 3401(a) is amended by striking 
     ``combat pay'' and inserting ``combat zone compensation''.
       (5) Clause (i) of section 172(h)(3)(B) is amended by 
     striking the comma at the end thereof and inserting a period.
       (6) Clause (ii) of section 543(a)(2)(B) is amended by 
     striking ``section 563(c)'' and inserting ``section 563(d)''.
       (7) Paragraph (1) of section 958(a) is amended by striking 
     ``sections 955(b)(1) (A) and (B), 955(c)(2)(A)(ii), and 
     960(a)(1)'' and inserting ``section 960(a)(1)''.

[[Page S7399]]

       (8) Subsection (g) of section 642 is amended by striking 
     ``under 2621(a)(2)'' and inserting ``under section 
     2621(a)(2)''.
       (9) Section 1463 is amended by striking ``this subsection'' 
     and inserting ``this section''.
       (10) Subsection (k) of section 3306 is amended by inserting 
     a period at the end thereof.
       (11) The item relating to section 4472 in the table of 
     sections for subchapter B of chapter 36 is amended by 
     striking ``and special rules''.
       (12) Paragraph (3) of section 5134(c) is amended by 
     striking ``section 6662(a)'' and inserting ``section 
     6665(a)''.
       (13) Paragraph (2) of section 5206(f) is amended by 
     striking ``section 5(e)'' and inserting ``section 105(e)''.
       (14) Paragraph (1) of section 6050B(c) is amended by 
     striking ``section 85(c)'' and inserting ``section 85(b)''.
       (15) Subsection (k) of section 6166 is amended by striking 
     paragraph (6).
       (16) Subsection (e) of section 6214 is amended to read as 
     follows:
       ``(e) Cross Reference.--

  ``For provision giving Tax Court jurisdiction to order a refund of an 
overpayment and to award sanctions, see section 6512(b)(2).''.
       (17) The section heading for section 6043 is amended by 
     striking the semicolon and inserting a comma.
       (18) The item relating to section 6043 in the table of 
     sections for subpart B of part III of subchapter A of chapter 
     61 is amended by striking the semicolon and inserting a 
     comma.
       (19) The table of sections for part I of subchapter A of 
     chapter 68 is amended by striking the item relating to 
     section 6662.
       (20)(A) Section 7232 is amended--
       (i) by striking ``lubricating oil,'' in the heading, and
       (ii) by striking ``lubricating oil,'' in the text.
       (B) The table of sections for part II of subchapter A of 
     chapter 75 is amended by striking ``lubricating oil,'' in the 
     item relating to section 7232.
       (21) Paragraph (1) of section 6701(a) of the Omnibus Budget 
     Reconciliation Act of 1989 is amended by striking ``subclause 
     (IV)'' and inserting ``subclause (V)''.
       (22) Clause (ii) of section 7304(a)(2)(D) of such Act is 
     amended by striking ``subsection (c)(2)'' and inserting 
     ``subsection (c)''.
       (23) Paragraph (1) of section 7646(b) of such Act is 
     amended by striking ``section 6050H(b)(1)'' and inserting 
     ``section 6050H(b)(2)''.
       (24) Paragraph (10) of section 7721(c) of such Act is 
     amended by striking ``section 6662(b)(2)(C)(ii)'' and 
     inserting ``section 6661(b)(2)(C)(ii)''.
       (25) Subparagraph (A) of section 7811(i)(3) of such Act is 
     amended by inserting ``the first place it appears'' before 
     ``in clause (i)''.
       (26) Paragraph (10) of section 7841(d) of such Act is 
     amended by striking ``section 381(a)'' and inserting 
     ``section 381(c)''.
       (27) Paragraph (2) of section 7861(c) of such Act is 
     amended by inserting ``the second place it appears'' before 
     ``and inserting''.
       (28) Paragraph (1) of section 460(b) is amended by striking 
     ``the look-back method of paragraph (3)'' and inserting ``the 
     look-back method of paragraph (2)''.
       (29) Subparagraph (C) of section 50(a)(2) is amended by 
     striking ``subsection (c)(4)'' and inserting ``subsection 
     (d)(5)''.
       (30) Subparagraph (B) of section 172(h)(4) is amended by 
     striking the material following the heading and preceding 
     clause (i) and inserting ``For purposes of subsection 
     (b)(2)--''.
       (31) Subparagraph (A) of section 355(d)(7) is amended by 
     inserting ``section'' before ``267(b)''.
       (32) Subparagraph (C) of section 420(e)(1) is amended by 
     striking ``mean'' and inserting ``means''.
       (33) Paragraph (4) of section 537(b) is amended by striking 
     ``section 172(i)'' and inserting ``section 172(f)''.
       (34) Subparagraph (B) of section 613(e)(1) is amended by 
     striking the comma at the end thereof and inserting a period.
       (35) Paragraph (4) of section 856(a) is amended by striking 
     ``section 582(c)(5)'' and inserting ``section 582(c)(2)''.
       (36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are 
     each amended by inserting ``(as in effect on the day before 
     the date of the enactment of the Revenue Reconciliation Act 
     of 1990)'' after ``section 172(h)''.
       (37) Subsection (b) of section 936 is amended by striking 
     ``subparagraphs (D)(ii)(I)'' and inserting ``subparagraphs 
     (D)(ii)''.
       (38) Subsection (c) of section 2104 is amended by striking 
     ``subparagraph (A), (C), or (D) of section 861(a)(1)'' and 
     inserting ``section 861(a)(1)(A)''.
       (39) Subparagraph (A) of section 280A(c)(1) is amended to 
     read as follows:
       ``(A) as the principal place of business for any trade or 
     business of the taxpayer,''.
       (40) Section 6038 is amended by redesignating the 
     subsection relating to cross references as subsection (f).
       (41) Clause (iv) of section 6103(e)(1)(A) is amended by 
     striking all that follows ``provisions of'' and inserting 
     ``section 1(g) or 59(j);''.
       (42) The subsection (f) of section 6109 of the Internal 
     Revenue Code of 1986 which was added by section 2201(d) of 
     Public Law 101-624 is redesignated as subsection (g).
       (43) Subsection (b) of section 7454 is amended by striking 
     ``section 4955(e)(2)'' and inserting ``section 4955(f)(2)''.
       (44) Subsection (d) of section 11231 of the Revenue 
     Reconciliation Act of 1990 shall be applied as if ``comma'' 
     appeared instead of ``period'' and as if the paragraph (9) 
     proposed to be added ended with a comma.
       (45) Paragraph (1) of section 11303(b) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if 
     ``paragraph'' appeared instead of ``subparagraph'' in the 
     material proposed to be stricken.
       (46) Subsection (f) of section 11701 of the Revenue 
     Reconciliation Act of 1990 is amended by inserting 
     ``(relating to definitions)'' after ``section 6038(e)''.
       (47) Subsection (i) of section 11701 of the Revenue 
     Reconciliation Act of 1990 shall be applied as if 
     ``subsection'' appeared instead of ``section'' in the 
     material proposed to be stricken.
       (48) Subparagraph (B) of section 11801(c)(2) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if ``section 
     56(g)'' appeared instead of ``section 59(g)''.
       (49) Subparagraph (C) of section 11801(c)(8) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if 
     ``reorganizations'' appeared instead of ``reorganization'' in 
     the material proposed to be stricken.
       (50) Subparagraph (H) of section 11801(c)(9) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if ``section 
     1042(c)(1)(B)'' appeared instead of ``section 
     1042(c)(2)(B)''.
       (51) Subparagraph (F) of section 11801(c)(12) of the 
     Revenue Reconciliation Act of 1990 shall be applied as if 
     ``and (3)'' appeared instead of ``and (E)''.
       (52) Subparagraph (A) of section 11801(c)(22) of the 
     Revenue Reconciliation Act of 1990 shall be applied as if 
     ``chapters 21'' appeared instead of ``chapter 21'' in the 
     material proposed to be stricken.
       (53) Paragraph (3) of section 11812(b) of the Revenue 
     Reconciliation Act of 1990 shall be applied by not executing 
     the amendment therein to the heading of section 42(d)(5)(B).
       (54) Clause (i) of section 11813(b)(9)(A) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if a comma 
     appeared after ``(3)(A)(ix)'' in the material proposed to be 
     stricken.
       (55) Subparagraph (F) of section 11813(b)(13) of the 
     Revenue Reconciliation Act of 1990 shall be applied as if 
     ``tax'' appeared after ``investment'' in the material 
     proposed to be stricken.
       (56) Paragraph (19) of section 11813(b) of the Revenue 
     Reconciliation Act of 1990 shall be applied as if ``Paragraph 
     (20) of section 1016(a), as redesignated by section 11801,'' 
     appeared instead of ``Paragraph (21) of section 1016(a)''.
       (57) Paragraph (5) section 8002(a) of the Surface 
     Transportation Revenue Act of 1991 shall be applied as if 
     ``4481(e)'' appeared instead of ``4481(c)''.
       (58) Section 7872 is amended--
       (A) by striking ``foregone'' each place it appears in 
     subsections (a) and (e)(2) and inserting ``forgone'', and
       (B) by striking ``Foregone'' in the heading for subsection 
     (e) and the heading for paragraph (2) of subsection (e) and 
     inserting ``Forgone''.
       (59) Paragraph (7) of section 7611(h) is amended by 
     striking ``approporiate'' and inserting ``appropriate''.
       (60) The heading of paragraph (3) of section 419A(c) is 
     amended by striking ``severence'' and inserting 
     ``severance''.
       (61) Clause (ii) of section 807(d)(3)(B) is amended by 
     striking ``Commissoners' '' and inserting ``Commissioners' 
     ''.
       (62) Subparagraph (B) of section 1274A(c)(1) is amended by 
     striking ``instument'' and inserting ``instrument''.
       (63) Subparagraph (B) of section 724(d)(3) by striking 
     ``Subparagaph'' and inserting ``Subparagraph''.
       (64) The last sentence of paragraph (2) of section 42(c) is 
     amended by striking ``of 1988''.
       (65) Paragraph (1) of section 9707(d) is amended by 
     striking ``diligence,'' and inserting ``diligence''.
       (66) Subsection (c) of section 4977 is amended by striking 
     ``section 132(i)(2)'' and inserting ``section 132(h)''.
       (67) The last sentence of section 401(a)(20) is amended by 
     striking ``section 211'' and inserting ``section 521''.
       (68) Subparagraph (A) of section 402(g)(3) is amended by 
     striking ``subsection (a)(8)'' and inserting ``subsection 
     (e)(3)''.
       (69) The last sentence of section 403(b)(10) is amended by 
     striking ``an direct'' and inserting ``a direct''.
       (70) Subparagraph (A) of section 4973(b)(1) is amended by 
     striking ``sections 402(c)'' and inserting ``section 
     402(c)''.
       (71) Paragraph (12) of section 3405(e) is amended by 
     striking ``(b)(3)'' and inserting ``(b)(2)''.
       (72) Paragraph (41) of section 521(b) of the Unemployment 
     Compensation Amendments of 1992 shall be applied as if 
     ``section'' appeared instead of ``sections'' in the material 
     proposed to be stricken.
       (73) Paragraph (27) of section 521(b) of the Unemployment 
     Compensation Amendments of 1992 shall be applied as if 
     ``Section 691(c)(5)'' appeared instead of ``Section 691(c)''.
       (74) Paragraph (5) of section 860F(a) is amended by 
     striking ``paragraph (1)'' and inserting ``paragraph (2)''.
       (75) Paragraph (1) of section 415(k) is amended by adding 
     ``or'' at the end of subparagraph (C), by striking 
     subparagraphs (D) and (E), and by redesignating subparagraph 
     (F) as subparagraph (D).
       (76) Paragraph (2) of section 404(a) is amended by striking 
     ``(18),''.

[[Page S7400]]

       (77) Clause (ii) of section 72(p)(4)(A) is amended to read 
     as follows:
       ``(ii) Special rule.--The term `qualified employer plan' 
     shall include any plan which was (or was determined to be) a 
     qualified employer plan or a government plan.''.
       (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each 
     amended by striking ``section 6662(d)(2)(C)(ii)'' and 
     inserting ``section 6662(d)(2)(C)(iii)''.
       (79) Subsection (a) of section 164 is amended by striking 
     the paragraphs relating to the generation-skipping tax and 
     the environmental tax imposed by section 59A and by inserting 
     after paragraph (3) the following new paragraphs:
       ``(4) The GST tax imposed on income distributions.
       ``(5) The environmental tax imposed by section 59A.''.
       (80) Subclause (I) of section 936(a)(4)(A)(ii) is amended 
     by striking ``deprecation'' and inserting ``depreciation''.
                      Subtitle G--Other Provisions

     SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS 
                   WITH RESPECT TO CERTAIN STATES.

       (a) In General.--Section 4082 (relating to exemptions for 
     diesel fuel) is amended by redesignating subsections (c) and 
     (d) as subsections (d) and (e), respectively, and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
     subsection (a) shall not apply with respect to any diesel 
     fuel--
       ``(1) removed, entered, or sold in a State for ultimate 
     sale or use in an area of such State during the period such 
     area is exempted from the fuel dyeing requirements under 
     subsection (i) of section 211 of the Clean Air Act (as in 
     effect on the date of the enactment of this subsection) by 
     the Administrator of the Environmental Protection Agency 
     under paragraph (4) of such subsection (i) (as so in effect), 
     and
       ``(2) the use of which is certified pursuant to regulations 
     issued by the Secretary.''
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to fuel removed, entered, or sold on 
     or after the first day of the first calendar quarter 
     beginning after the date of the enactment of this Act.

     SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY ACCOUNTS.

       (a) In General.--For purposes of subsection (s) of section 
     3121 of the Internal Revenue Code of 1986 (relating to 
     concurrent employment by 2 or more employers)--
       (1) the following entities shall be deemed to be related 
     corporations that concurrently employ the same individual:
       (A) a State university which employs health professionals 
     as faculty members at a medical school, and
       (B) an agency account of a State university which is 
     described in subparagraph (A) and from which there is 
     distributed to such faculty members payments forming a part 
     of the compensation that the State, or such State university, 
     as the case may be, agrees to pay to such faculty members, 
     but only if--
       (i) such agency account is authorized by State law and 
     receives the funds for such payments from a faculty practice 
     plan described in section 501(c)(3) of such Code and exempt 
     from tax under section 501(a) of such Code,
       (ii) such payments are distributed by such agency account 
     to such faculty members who render patient care at such 
     medical school, and
       (iii) such faculty members comprise at least 30 percent of 
     the membership of such faculty practice plan, and
       (2) remuneration which is disbursed by such agency account 
     to any such faculty member of the medical school described in 
     paragraph (1)(A) shall be deemed to have been actually 
     disbursed by the State, or such State university, as the case 
     may be, as a common paymaster and not to have been actually 
     disbursed by such agency account.
       (b) Effective Date.--The provisions of subsection (a) shall 
     apply to remuneration paid after December 31, 1996.

     SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING 
                   CHEMICALS.

       (a) Recycled Halon.--
       (1) In general.--Section 4682(d)(1) (relating to recycling) 
     is amended by inserting ``, or on any recycled halon imported 
     from any country which is a signatory to the Montreal 
     Protocol on Substances that Deplete the Ozone Layer'' before 
     the period at the end.
       (2) Certification system.--The Secretary of the Treasury, 
     after consultation with the Administrator of the 
     Environmental Protection Agency, shall develop a 
     certification system to ensure compliance with the recycling 
     requirement for imported halon under section 4682(d)(1) of 
     the Internal Revenue Code of 1986, as amended by paragraph 
     (1).
       (b) Chemicals Used as Propellants in Metered-Dose Inhalers 
     Tax-Exempt.--Paragraph (4) of section 4682(g) (relating to 
     phase-in of tax on certain substances) is amended to read as 
     follows:
       ``(4) Chemicals used as propellants in metered-dose 
     inhalers.--
       ``(A) Tax-exempt.--
       ``(i) In general.--No tax shall be imposed by section 4681 
     on--

       ``(I) any use of any substance as a propellant in metered-
     dose inhalers, or
       ``(II) any qualified sale by the manufacturer, producer, or 
     importer of any substance.

       ``(ii) Qualified sale.--For purposes of clause (i), the 
     term `qualified sale' means any sale by the manufacturer, 
     producer, or importer of any substance--

       ``(I) for use by the purchaser as a propellant in metered-
     dose inhalers, or
       ``(II) for resale by the purchaser to a 2d purchaser for 
     such use by the 2d purchaser.

     The preceding sentence shall apply only if the manufacturer, 
     producer, and importer, and the 1st and 2d purchasers (if 
     any) meet such registration requirements as may be prescribed 
     by the Secretary.
       ``(B) Overpayments.--If any substance on which tax was paid 
     under this subchapter is used by any person as a propellant 
     in metered-dose inhalers, credit or refund without interest 
     shall be allowed to such person in an amount equal to the 
     excess of--
       ``(i) the tax paid under this subchapter on such substance, 
     over
       ``(ii) the tax (if any) which would be imposed by section 
     4681 if such substance were used for such use by the 
     manufacturer, producer, or importer thereof on the date of 
     its use by such person.
     Amounts payable under the preceding sentence with respect to 
     uses during the taxable year shall be treated as described in 
     section 34(a) for such year unless claim thereof has been 
     timely filed under this subparagraph.''
       (c) Effective Dates.--
       (1) Recycled halon.--The amendment made by subsection 
     (a)(1) shall take effect on January 1, 1997.
       (2) Metered-dose inhalers.--The amendment made by 
     subsection (b) shall take effect on the 7th day after the 
     date of the enactment of this Act.

     SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER 
                   ADMINISTRATION FACILITY.

       Sections 142(f)(3) (as added by section 1605) and 147(d) of 
     the Internal Revenue Code of 1986 shall not apply in 
     determining whether any private activity bond issued after 
     the date of the enactment of this Act and used to finance the 
     acquisition of the Snettisham hydroelectric project from the 
     Alaska Power Administration is a qualified bond for purposes 
     of such Code.

     SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY 
                   COMMON TRUST FUNDS TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) General Rule.--Section 584 (relating to common trust 
     funds) is amended by redesignating subsection (h) as 
     subsection (i) and by inserting after subsection (g) the 
     following new subsection:
       ``(h) Nonrecognition Treatment for Certain Transfers to 
     Regulated Investment Companies.--
       ``(1) In general.--If--
       ``(A) a common trust fund transfers substantially all of 
     its assets to one or more regulated investment companies in 
     exchange solely for stock in the company or companies to 
     which such assets are so transferred, and
       ``(B) such stock is distributed by such common trust fund 
     to participants in such common trust fund in exchange solely 
     for their interests in such common trust fund,
     no gain or loss shall be recognized by such common trust fund 
     by reason of such transfer or distribution, and no gain or 
     loss shall be recognized by any participant in such common 
     trust fund by reason of such exchange.
       ``(2) Basis rules.--
       ``(A) Regulated investment company.--The basis of any asset 
     received by a regulated investment company in a transfer 
     referred to in paragraph (1)(A) shall be the same as it would 
     be in the hands of the common trust fund.
       ``(B) Participants.--The basis of the stock which is 
     received in an exchange referred to in paragraph (1)(B) shall 
     be the same as that of the property exchanged. If stock in 
     more than one regulated investment company is received in 
     such exchange, the basis determined under the preceding 
     sentence shall be allocated among the stock in each such 
     company on the basis of respective fair market values.
       ``(3) Treatment of assumptions of liability.--
       ``(A) In general.--In determining whether the transfer 
     referred to in paragraph (1)(A) is in exchange solely for 
     stock in one or more regulated investment companies, the 
     assumption by any such company of a liability of the common 
     trust fund, and the fact that any property transferred by the 
     common trust fund is subject to a liability, shall be 
     disregarded.
       ``(B) Special rule where assumed liabilities exceed 
     basis.--
       ``(i) In general.--If, in any transfer referred to in 
     paragraph (1)(A), the assumed liabilities exceed the 
     aggregate adjusted bases (in the hands of the common trust 
     fund) of the assets transferred to the regulated investment 
     company or companies--

       ``(I) notwithstanding paragraph (1), gain shall be 
     recognized to the common trust fund on such transfer in an 
     amount equal to such excess,
       ``(II) the basis of the assets received by the regulated 
     investment company or companies in such transfer shall be 
     increased by the amount so recognized, and
       ``(III) any adjustment to the basis of a participant's 
     interest in the common trust fund as a result of the gain so 
     recognized shall be treated as occurring immediately before 
     the exchange referred to in paragraph (1)(B).

     If the transfer referred to in paragraph (1)(A) is to two or 
     more regulated investment companies, the basis increase under 
     subclause (II) shall be allocated among such companies on the 
     basis of the respective fair market

[[Page S7401]]

     values of the assets received by each of such companies.
       ``(ii) Assumed liabilities.--For purposes of clause (i), 
     the term `assumed liabilities' means the aggregate of--

       ``(I) any liability of the common trust fund assumed by any 
     regulated investment company in connection with the transfer 
     referred to in paragraph (1)(A), and
       ``(II) any liability to which property so transferred is 
     subject.

       ``(4) Common trust fund must meet diversification rules.--
     This subsection shall not apply to any common trust fund 
     which would not meet the requirements of section 
     368(a)(2)(F)(ii) if it were a corporation. For purposes of 
     the preceding sentence, Government securities shall not be 
     treated as securities of an issuer in applying the 25-percent 
     and 50-percent test and such securities shall not be excluded 
     for purposes of determining total assets under clause (iv) of 
     section 368(a)(2)(F).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transfers after December 31, 1995.

     SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.

       (a) In General.--Subchapter F of chapter 1 (relating to 
     exempt organizations) is amended by adding at the end the 
     following new part:

             ``PART VIII--QUALIFIED STATE TUITION PROGRAMS

``Sec. 529. Qualified State tuition programs.

     ``SEC. 529. QUALIFIED STATE TUITION PROGRAMS.

       ``(a) General Rule.--A qualified State tuition program 
     shall be exempt from taxation under this subtitle. 
     Notwithstanding the preceding sentence, such program shall be 
     subject to the taxes imposed by section 511 (relating to 
     imposition of tax on unrelated business income of charitable 
     organizations).
       ``(b) Qualified State Tuition Program.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified State tuition 
     program' means a program established and maintained by a 
     State or agency or instrumentality thereof--
       ``(A) under which a person--
       ``(i) may purchase tuition credits or certificates on 
     behalf of a designated beneficiary which entitle the 
     beneficiary to the waiver or payment of qualified higher 
     education expenses of the beneficiary, or
       ``(ii) may make contributions to an account which is 
     established for the sole purpose of meeting the qualified 
     higher education expenses of the designated beneficiary of 
     the account, and
       ``(B) which meets the other requirements of this 
     subsection.
       ``(2) Cash contributions.--A program shall not be treated 
     as a qualified State tuition program unless it provides that 
     purchases or contributions may only be made in cash.
       ``(3) Refunds.--A program shall not be treated as a 
     qualified State tuition program unless it imposes a more than 
     de minimis penalty on any refund of earnings from the account 
     which are not--
       ``(A) used for qualified higher education expenses of the 
     designated beneficiary,
       ``(B) made on account of the death or disability of the 
     designated beneficiary, or
       ``(C) made on account of a scholarship received by the 
     designated beneficiary to the extent the amount of the refund 
     does not exceed the amount of the scholarship used for 
     qualified higher education expenses.
       ``(4) Separate accounting.--A program shall not be treated 
     as a qualified State tuition program unless it provides 
     separate accounting for each designated beneficiary.
       ``(5) No investment direction.--A program shall not be 
     treated as a qualified State tuition program unless it 
     provides that any contributor to, or designated beneficiary 
     under, such program may not direct the investment of any 
     contributions to the program (or any earnings thereon).
       ``(6) No pledging of interest as security.--A program shall 
     not be treated as a qualified State tuition program if it 
     allows any interest in the program or any portion thereof to 
     be used as security for a loan.
       ``(c) Tax Treatment of Designated Beneficiaries and 
     Contributors.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, no amount shall be includible in gross income 
     of--
       ``(A) a designated beneficiary under a qualified State 
     tuition program, or
       ``(B) a contributor to such program on behalf of a 
     designated beneficiary,
     with respect to any contribution to, or earnings under, such 
     program.
       ``(2) Distributions.--
       ``(A) In general.--Any distribution under a qualified State 
     tuition program shall be includible in the gross income of 
     the distributee in the same manner as provided under section 
     72 to the extent not excluded from gross income under any 
     other provision of this chapter.
       ``(B) In-kind distributions.--The furnishing of education 
     to a designated beneficiary under a qualified State tuition 
     program shall be treated as a distribution to the 
     beneficiary.
       ``(C) Change in beneficiaries.--
       ``(i) Rollovers.--Subparagraph (A) shall not apply to that 
     portion of any distribution which, within 60 days of such 
     distribution, is transferred to the credit of another 
     designated beneficiary under a qualified State tuition 
     program who is a member of the same family as the designated 
     beneficiary with respect to which the distribution was made.
       ``(ii) Change in designated beneficiaries.--Any change in 
     the designated beneficiary of an interest in a qualified 
     State tuition program shall not be treated as a distribution 
     for purposes of subparagraph (A) if the new beneficiary is a 
     member of the same family as the old beneficiary.
       ``(D) Operating rules.--For purposes of applying section 
     72--
       ``(i) all qualified State tuition programs of which an 
     individual is a designated beneficiary shall be treated as 
     one program,
       ``(ii) all distributions during a taxable year shall be 
     treated as one distribution, and
       ``(iii) the value of the contract, income on the contract, 
     and investment in the contract shall be computed as of the 
     close of the calendar year in which the taxable year begins.
       ``(3) Gift tax treatment.--Any contribution on behalf of a 
     designated beneficiary to a qualified State tuition program 
     shall be treated as a qualified transfer for purposes of 
     section 2503(e).
       ``(d) Reporting Requirements.--
       ``(1) In general.--If--
       ``(A) a designated beneficiary is furnished education under 
     a qualified State tuition program during any calendar year, 
     or
       ``(B) there is a distribution to any individual with 
     respect to an interest in such program during any calendar 
     year,
     each officer or employee having control of the qualified 
     State tuition program or their designee shall make such 
     reports as the Secretary may require regarding such education 
     or distribution to the Secretary and to the designated 
     beneficiary or the individual to whom the distribution was 
     made. Any such report shall include such information as the 
     Secretary may prescribe.
       ``(2) Timing of reports.--Any report required by this 
     subsection--
       ``(A) shall be filed at such time and in such matter as the 
     Secretary prescribes, and
       ``(B) shall be furnished to individuals not later than 
     January 31 of the calendar year following the calendar year 
     to which such report relates.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Designated beneficiary.--The term `designated 
     beneficiary' means--
       ``(A) the individual designated at the commencement of 
     participation in the qualified State tuition program as the 
     beneficiary of amounts paid (or to be paid) to the program,
       ``(B) in the case of a change in beneficiaries described in 
     subsection (c)(2)(C)(ii), the individual who is the new 
     beneficiary, and
       ``(C) in the case of an interest in a qualified State 
     tuition program purchased by a State or local government or 
     an organization described in section 501(c)(3) and exempt 
     from taxation under section 501(a) as part of a scholarship 
     program operated by such government or organization, the 
     individual receiving such interest as a scholarship.
       ``(2) Member of family.--The term `member of family' has 
     the same meaning given such term as section 2032A(e)(2).
       ``(3) Qualified higher education expenses.--The term 
     `qualified higher education expenses' means tuition, fees, 
     books, supplies, and equipment required for the enrollment or 
     attendance of a designated beneficiary at an eligible 
     education institution (as defined in section 135(c)(3)).
       ``(4) Application of section 514.--An interest in a 
     qualified State tuition program shall not be treated as debt 
     for purposes of section 514.''
       (b) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Transition rule.--If--
       (A) a State or agency or instrumentality thereof maintains, 
     on the date of the enactment of this Act, a program under 
     which persons may purchase tuition credits or certificates on 
     behalf of, or make contributions for education expenses of, a 
     designated beneficiary, and
       (B) such program meets the requirements of a qualified 
     State tuition program before the later of--
       (i) the date which is 1 year after such date of enactment, 
     or
       (ii) the first day of the first calendar quarter after the 
     close of the first regular session of the State legislature 
     that begins after such date of enactment,
     the amendments made by this section shall apply to 
     contributions (and earnings allocable thereto) made before 
     the later of such dates without regard to whether any 
     requirements of such amendments are met with respect to such 
     contributions and earnings. For purposes of subparagraph 
     (B)(ii), if a State has a 2-year legislative session, each 
     year of such session shall be deemed to be a separate regular 
     session of the State legislature.
                       TITLE II--PAYMENT OF WAGES

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Employee Commuting 
     Flexibility Act of 1996''.

     SEC. 2. PROPER COMPENSATION FOR USE OF EMPLOYER VEHICLES.

       Section 4(a) of the Portal-to-Portal Act of 1947 (29 U.S.C. 
     254(a)) is amended by adding at the end the following: ``For 
     purposes of this subsection, the use of an employer's vehicle 
     for travel by an employee and activities performed by an 
     employee which are incidental to the use of such vehicle for 
     commuting shall not be considered part of the employee's 
     principal activities if the use of such vehicle for travel is 
     within the normal

[[Page S7402]]

     commuting area for the employer's business or establishment 
     and the use of the employer's vehicle is subject to an 
     agreement on the part of the employer and the employee or 
     representative of such employee.''.

     SEC. 3. EFFECTIVE DATE.

       The amendment made by section 1 shall take effect on the 
     date of the enactment of this Act and shall apply in 
     determining the application of section 4 of the Portal-to-
     Portal Act of 1947 to an employee in any civil action brought 
     before such date of enactment but pending on such date.

     SEC. 4. MINIMUM WAGE INCREASE.

       (a) Short Title.--This section may be cited as the 
     ``Minimum Wage Increase Act of 1996''.
       (b) Amendment.--Paragraph (1) of section 6(a) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 206(a)) is amended to 
     read as follows:
       ``(1) except as otherwise provided in this section, not 
     less than $4.25 an hour during the period ending on June 30, 
     1996, not less than $4.75 an hour during the year beginning 
     on July 1, 1996, and not less than $5.15 an hour after the 
     expiration of such year;''.

     SEC. 5. FAIR LABOR STANDARDS ACT AMENDMENTS.

       (a) Computer Professionals.--Section 13(a) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 213(a)) is amended by 
     striking the period at the end of paragraph (16) and 
     inserting ``; or'' and by adding after that paragraph the 
     following:
       ``(17) any employee who is a computer systems analyst, 
     computer programmer, software engineer, or other similarly 
     skilled worker, whose primary duty is--
       ``(A) the application of systems analysis techniques and 
     procedures, including consulting with users, to determine 
     hardware, software, or system functional specifications;
       ``(B) the design, development, documentation, analysis, 
     creation, testing, or modification of computer systems or 
     programs, including prototypes, based on and related to user 
     or system design specifications;
       ``(C) the design, documentation, testing, creation, or 
     modification of computer programs related to machine 
     operating systems; or
       ``(D) a combination of duties described in subparagraphs 
     (A), (B), and (C) the performance of which requires the same 
     level of skills, and
     who, in the case of an employee who is compensated on an 
     hourly basis, is compensated at a rate of not less than 
     $27.63 an hour.''.
       (b) Tip Credit.--The next to last sentence of section 3(m) 
     of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) is 
     amended to read as follows: ``In determining the wage an 
     employer is required to pay a tipped employee, the amount 
     paid such employee by the employee's employer shall be an 
     amount equal to--
       ``(1) the cash wage paid such employee which for purposes 
     of such determination shall be not less than the cash wage 
     required to be paid such an employee on the date of the 
     enactment of this paragraph; and
       ``(2) an additional amount on account of the tips received 
     by such employee which amount is equal to the difference 
     between the wage specified in paragraph (1) and the cash wage 
     in effect under section 6(a)(1).
     The additional amount on account of tips may not exceed the 
     value of the tips actually received by an employee.''.
       (c) Opportunity Wage.--Section 6 of the Fair Labor 
     Standards Act of 1938 (29 U.S.C. 206) is amended by adding at 
     the end the following:
       ``(g)(1) In lieu of the rate prescribed by subsection 
     (a)(1), any employer may pay any employee of such employer, 
     during the first 90 consecutive calendar days after such 
     employee is initially employed by such employer, a wage which 
     is not less than $4.25 an hour.
       ``(2) No employer may take any action to displace employees 
     (including partial displacements such as reduction in hours, 
     wages, or employment benefits) for purposes of hiring 
     individuals at the wage authorized in paragraph (1).
       ``(3) Any employer who violates this subsection shall be 
     considered to have violated section 15(a)(3).
       ``(4) This subsection shall only apply to an employee who 
     has not attained the age of 20 years.''.

  Mr. MOYNIHAN. Mr. President, I yield to the Senator from 
Massachusetts such time as he may require.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Mr. KENNEDY. Mr. President, I thank the Senator from New York.


                           Amendment No. 4435

(Purpose: To amend the Fair Labor Standards Act of 1938 to provide for 
      an increase in the minimum wage rate and to exempt computer 
professionals from the minimum wage and maximum hour requirements, and 
 to amend the Portal-to-Portal Act of 1947 relating to the payment of 
          wages to employees who use employer-owned vehicles)

  Mr. KENNEDY. Mr. President, I understand there is a consent agreement 
which has been announced by the majority leader. I believe it is 
appropriate at this time to ask for the consideration of my amendment 
that is currently held at the desk, and I believe the process in terms 
of the consideration of that amendment has been worked out by the 
majority and minority leaders.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Massachusetts [Mr. Kennedy] proposes an 
     amendment numbered 4435.

  Mr. KENNEDY. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       Strike Title II and replace with the following:

                       Title II--Labor Provisions

     SECTION 1. INCREASE IN THE MINIMUM WAGE RATE.

       (a) In General.--Section 6(a)(1) of the Fair Labor 
     Standards Act of 1938 (29 U.S.C. 206(a)(1)) is amended to 
     read as follows:
       ``(1) except as otherwise provided in this section, not 
     less than $4.25 an hour during the period ending July 4, 
     1996, not less than $4.70 an hour during the year beginning 
     July 5, 1996, and not less than $5.15 an hour after July 4, 
     1997;''.
       (b) Employees Who Are Youths.--Section 6(a) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 206(a)) is amended--
       (1) in paragraph (4), by striking ``; or'' and inserting a 
     semicolon;
       (2) in paragraph (5), by striking the period at the end 
     thereof and inserting ``; or''; and
       (3) by adding at the end thereof the following new 
     paragraph:
       ``(6) if the employee--
       ``(A) is not a migrant agricultural worker or a seasonal 
     agricultural worker (as defined in paragraphs (8) and (10) of 
     section 3 of the Migrant and Seasonal Agricultural Worker 
     Protection Act (29 U.S.C. 1802 (8) and (10)) without regard 
     to subparagraph (B) of such paragraphs and is not a 
     nonimmigrant described in section 101(a)(15)(H)(ii)(a) of the 
     Immigration and Nationality Act (8 U.S.C. 
     1101(a)(15)(H)(ii)(a)); and
       ``(B) has not attained the age of 20 years, not less than 
     $4.25 an hour during the first 30 days in which the employee 
     is employed by the employer, and, thereafter, not less than 
     the applicable wage rate described in paragraph (1).''.
       (c) Employees in Puerto Rico.--Section 6(c) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 206(c)) is amended to 
     read as follows:
       ``(c) The rate or rates provided by subsection (a)(1) shall 
     be applicable in the case of any employee in Puerto Rico 
     except an employee described in subsection (a)(2).''.

     SEC. 2. EXEMPTION OF COMPUTER PROFESSIONALS FROM CERTAIN WAGE 
                   REQUIREMENTS.

       Section 13(a) of the Fair Labor Standards Act of 1938 (29 
     U.S.C. 213(a)) is amended--
       (1) by striking the period at the end of paragraph (16) and 
     inserting ``; or''; and
       (2) by adding at the end thereof the following new 
     paragraph:
       ``(17) any employee who is a computer systems analyst, 
     computer programer, software engineer, or other similarly 
     skilled worker, whose primary duty is--
       ``(A) the application of systems analysis techniques and 
     procedures, including consulting with users, to determine 
     hardware, software, or system functional specifications;
       ``(B) the design, development, documentation, analysis, 
     creation, testing, or modification of computer systems or 
     programs, including prototypes, based on and related to user 
     or system design specifications;
       ``(C) the design, documentation, testing, creation, or 
     modification of computer programs related to machine 
     operating systems; or
       ``(D) a combination of duties described in subparagraph 
     (A), (B), and (C) the performance of which requires the same 
     level of skills, and

     who, in the case of an employee who is compensated on an 
     hourly basis, is compensated at a rate of not less than 
     $27.63 an hour.''.

     SEC. 3. USE OF AN EMPLOYER-OWNED VEHICLE.

       (a) In General.--Section 4 of the Portal-to-Portal Act of 
     1947 (29 U.S.C. 254) is amended by inserting at the end of 
     the following:
       ``(e) For purposes of subsection (a), the use by an 
     employee of an employer-owned vehicle to initially travel to 
     the actual place of performance of the principal activity 
     which such employee is employed to perform at the start of 
     the workday and to ultimately travel to the home of the 
     employee from the actual place of performance of the 
     principal activity which such employee is employed to perform 
     at the end of the workday shall not be considered an activity 
     for which the employer is required to pay the minimum wage or 
     overtime compensation if--
       ``(1) such employee has chosen to drive such vehicle 
     pursuant to a knowing and voluntary agreement between such 
     employer and such employee or the representative of such 
     employee and such agreement is not a condition of employment;
       ``(2) such employee incurs no costs for driving, parking, 
     or otherwise maintaining the vehicle of such employer;
       ``(3) the worksites to which such employee is commuting to 
     or from are within the normal commuting area of the 
     establishment of such employer; and

[[Page S7403]]

       ``(4) such vehicle is of a type that does not impose 
     substantially greater difficulties to drive than the type of 
     vehicle that is normally used by individuals for 
     commuting.''.
       ``(b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act and 
     shall apply in determining the application of section 4 of 
     the Portal-to-Portal Act of 1947 (29 U.S.C. 254) to an 
     employee in any civil action brought before such date of 
     enactment but pending on such date.

  Mr. KENNEDY. Mr. President, at the appropriate place in the Record, I 
will introduce the statement that does a line-by-line analysis of that 
so that the Members will have that information before them.
  Mr. President, I want to just take a moment of the Senate's time to 
respond to a letter that was written by my friend, the majority leader, 
Senator Lott, to President Clinton differing with the President on his 
position with regard to the minimum wage. This letter was made 
available this afternoon and distributed to the members of the press 
and to the interested Members. I want to take just a moment of time to 
make some rather brief comments about the letter because I am somewhat 
amazed at the letter and its conclusion.
  I will include the whole letter in the Record.
  Mr. President, in paragraph 1 Senator Lott points out:

       It is, of course, dismaying that you regard a measure to 
     protect small businesses from the job killing consequences of 
     the minimum wage as a poison pill.

  What we have tried to do in the course of the earlier debate is to 
point out what the impact would be of the increase in the minimum wage 
which the President, Senator Daschle, myself, and others support.
  In the earlier part of the day we put in the Record the Salomon Bros. 
estimate. I just quote their first paragraph.

       We believe that many retailers, especially discounters, 
     would benefit from an increase in the minimum wage due to the 
     enhanced purchasing power you create for many low-income 
     consumers.

  Their basic point is that it would enhance the economy.
  The article I included in there from Business Week, the minimum wage 
argument you have not heard before:

       As long as it's not overdone, lifting the minimum wage may 
     create overall economic gains that outweigh any short-term 
     job losses.

  That is an excellent article in Business Week.
  I also included the excellent Wharton School analysis that was done 
earlier in this year with regard to job loss. Their estimate is that 
the total job loss may be as little as 20,000 jobs nationwide--
effectively de minimis when we see the growth of 10 million jobs over 
the period of the last 4 years. They have also pointed out that under 
the current proposal the inflation rise would be one-tenth of 1 
percent. While in 1996 and 1997 over the longer term the impact would 
be nil, virtually no inflation. One-tenth of 1 percent would mean that 
what you pay $1,000 for you pay $1,001 for. So that is the economic 
impact on this.
  I also referred to the Center on Budget and Policy Priorities, their 
whole statement which I have included in the Record, three Nobel 
laureates, some of the most distinguished economists in the country. 
Specifically, the proposed income in the minimum wage over a 2-year 
period falls within the range of alternatives from the overall effects 
in the labor market, and the effect on workers and the economy would be 
positive.
  So I just hope those who are opposed to the position of Senator 
Daschle, myself, and others who support the minimum wage, would come 
out here and justify their position as being the job killing 
consequences.
  Then they talk about election-year politics and the administration 
policies. All we say is we have been trying to get this up for over a 
year and a half. It was not the Democrats who have made this a measure 
that is up in July prior to the November election. We have been trying 
to get this up for over a year and a half.
  The second paragraph goes on to talk about ``Your chief counsel for 
advocacy on Small Business Administration supports the exemption 
applying to small businesses grossing under $500,000 a year, precisely 
what Senator Bond's amendment would provide.''
  That is a completely inaccurate statement. Our program continues the 
existing exemption on those under $500,000 with the exception of those 
that are involved in interstate commerce. That is what the President's 
position is. We want to keep that provision. So Senator Bond's 
amendment would dramatically change that. That is not a fair reflection 
of what the Small Business Administration Administrator has suggested, 
or Secretary Reich has suggested.
  Then the next paragraph: ``Similarly, you claim such exemption would 
include two-thirds of all firms in the U.S. as if they employ two-
thirds of all workers.''
  Of course, there is no such claim in the President's letter. So I do 
not know what they are referring to.
  Senator Bond advises me that the labor statistics data show that only 
3 percent of all workers are paid the minimum wage, and that only 8 
percent of our Nation's work force are employed by businesses grossing 
less than $500,000. That is exactly what we said. If you take 8 percent 
of $126 million, you come out with $8.6 million.
  The Bureau of Labor Statistics has talked between 9.7 and 10, which 
would include not only the hourly but the salaried workers. There is 
some spillover, some relationship. But if they want to settle for 8.6 
million on that, I am glad to accept those figures at 9 million, 
referring to that particular provision of the program. That represents 
about 2 million children that will be affected, whose parent is the 
principal supplier for resources of that family.
  As we mentioned earlier in the debate, this is an issue about 
children. It is an issue about women. It is an issue about fairness. It 
is an issue about the economy certainly. But when we talk about 
hundreds of thousands of children, I find it unpersuasive to state that 
number to be a relatively small share of the economy. Those 8, 10, or 
12 million American children whose lives are going to be affected, the 
300,000 who will come out of poverty, the children from over 100,000 
families. I think it means something to those families. I would take 
issue with this attitude.
  Finally, it continues:

       What Senator Bond has done is to propose a way to keep the 
     current floor of the minimum wage for everybody.

  Of course, that is not what it has done. It has what they call a 180-
day opportunity wage. As I mentioned earlier in this discussion, this 
will be about 40 percent of all minimum wage workers who move or get 
another minimum wage job over the course of the year. And this, of 
course, will be an invitation to those employers to get rid of their 
workers after 6 months so they can get somebody else in there for the 
next 6 months. They will only have to pay them $4.25 and not the 
livable wage of $5.15.
  So if you take the carveout on the opportunity wage, you take the 
carveout in the Bond amendment for small business, and you also take 
the carveout on the restaurant workers, It does not keep the current 
floor for everyone. The tip-credit provision will prevent the minimum 
wage increase for tip-employees at restaurants so they are only 
required to pay $2.13 an hour--that is a special provision for the 
restaurants even though the profits of that business have gone up over 
the period of the last 3 or 4 years.
  So it finally ends up:

       To veto the legislation over a measure so modest will be 
     difficult to explain to the American people and the millions 
     of small businessmen and women. I urge you to reconsider.

  My only point, Mr. President, is that we hope our Republican friends 
would have the similar attitude of Dwight Eisenhower, Richard Nixon, 
and George Bush, all who supported an increase in the minimum wage and 
the overwhelming majority of Republicans, including Bob Dole in 1989 
and Speaker Gingrich, that supported the increase in the minimum wage 
when our economy was not nearly as robust and secure.
  This again comes down to an issue of equity and fairness. It comes 
down to whether we are going to honor work. Are we going to say to men 
and women who work hard, play by the rules, work 40 hours a week, 52 
weeks of the year, they deserve a livable wage. Republicans and 
Democrats over the length and the history of this program have 
supported that position.
  I find it extraordinary once again that the same forces, the same 
voices,

[[Page S7404]]

the same old, tired arguments that were used against Social Security, 
used against the Medicare Program, have been used against the minimum 
wage. We are hearing those same tired, old arguments again.
  I hope that tomorrow, when the Senate has an opportunity to act on 
it, we will say to American working families that we honor work. We 
must say that this is one of the best ways to get welfare reform. We 
must say to those working families who are trying to provide for 
themselves and for their children that we believe in them and that the 
members of the Senate will support a livable minimum wage increase.
  I again thank my colleague and friend from New York for the 
opportunity to make these observations.
  Mr. MOYNIHAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. MOYNIHAN. Could I just say that the present reports on the 
unemployment rate at 5.3 percent and the increasing reports of labor 
shortages around the country mean if ever there was a moment in which 
to make this appropriate adjustment, maintaining the value of the 
minimum wage, this is the moment. And the Senator from Massachusetts 
could not be more congratulated, in my view, for the energy with which 
he has pressed it. Let us hope tomorrow we pass it.
  Mr. KENNEDY. I thank the Senator.
  Mrs. KASSEBAUM addressed the Chair.
  The PRESIDING OFFICER (Mr. Coverdell). The Senator from Kansas.
  Mrs. KASSEBAUM. Mr. President, if I may just respond to the minimum 
wage debate without addressing any of the particular amendments. I 
certainly hope the argument I make will not be viewed as just another 
tired, old argument, because I believe it is not a question of whether 
we raise the minimum wage--I think most in this Chamber would believe 
the minimum wage should be increased--but how it is done.
  I have felt for some time that we need to be very sensitive to the 
changes that are taking place in the labor markets, including the need 
for higher skills. These are things that we hopefully have addressed 
with the job training initiatives that we have considered in the 
Senate, and have now been in conference for some months. Those 
initiatives are the things that will help workers get good-paying jobs.
  We have also talked about welfare reform, and the senior Senator from 
New York knows this issue better than anyone. We need--I believe, if we 
are going to do welfare reform in a meaningful way--to have job 
opportunities where workers can enter at entry level positions and be 
able to have the training and the skills to rise in the labor market.
  I would not want to make the argument that a family can live on $4.25 
per hour, which is the current minimum wage, or at $5.15 per hour, 
which it would be after the next 2 years. But, that is not really the 
point. The point is, we need to see that young people and those 
reentering the labor market are able to have the opportunity to develop 
the discipline and the skills that they need in a changing workplace 
with the demands of a high technology environment.
  So we need to think carefully as we debate about this increase, which 
in some ways may not seem large. Many States, including, I believe, New 
York State, have a State minimum wage higher than the $5.15 we are 
talking about as the Federal minimum wage. New York may need a higher 
wage to attract workers into the workplace than, say, Kansas. We have 
very different needs in our urban areas versus our rural areas.
  That is why I would argue we really should not increase the Federal 
minimum wage but allow for this diversity among the States to take 
place. The Federal minimum wage should, perhaps, be a target, allowing 
States to set the wage level that they believe is important to attract 
a work force that will benefit their State and their businesses as well 
as those entering the work force.
  I want to be clear. I have not supported this increase in the minimum 
wage. I oppose it because I think it is the wrong time for us to 
potentially shut off job opportunities for those we are suggesting move 
off welfare rolls. If we pass Federal legislation--and many States have 
already passed significant welfare reform--individuals will need entry 
level jobs in which they can begin to progress back up the ladder in 
the work force.
  I think increasing the minimum wage will raise the lowest rung on the 
economic ladder and thus potentially leave behind those just trying to 
gain a foothold either for their first job or going back in and 
retraining for another type of job. Although well-intended, this 
increase--I believe--will cause a loss of entry level jobs and will 
limit job opportunities for low-skilled workers. This, I would suggest, 
will not help raise living standards for the poor, and that is really 
what we wish to see happen.
  That is why I feel so strongly about the need to have some really 
very innovative, thought-through, carefully designed job training 
initiatives. We also have to give a greater emphasis in our educational 
system, which is really the foundation, to being able to enter a work 
force with a good-paying job that can support a family as we move into 
a new age of technology that we are facing--a revolution really of 
technology today and into the next century.
  Let me just give you an example. Last December, the Senate labor 
committee held a hearing on the minimum wage. We heard from a small 
restaurant chain owner named Kenneth James who took his first job in 
high school in the restaurant business and now runs a restaurant chain 
that employees 160 people. He testified that he will have fewer workers 
in his restaurants if we increase the minimum wage.

  Due to competition, he and other restaurant employers cannot raise 
prices and pass the costs along to consumers. The big loser, as I said 
earlier, will be those low-skilled workers who are never hired for 
their first job. They are the ones I think we need to be concerned 
about.
  Mr. James estimated that each of his restaurants would have three 
fewer workers if we raise the minimum wage as proposed. That argument 
can be refuted. How do we really know? But I think we have already seen 
many changes that have occurred. For example, when one pumps her own 
gas or when one takes care of his own tray at fast food restaurants. 
All of these things have entered into ways we see businesses changing.
  I do not know what the answer is, but I am concerned we are doing 
this now at a time when we are putting more and more people, because of 
welfare reform initiatives, out into the marketplace without the 
necessary skills. Skills that will allow them to have the good-paying 
jobs that should be had without the training for work that they have 
not had. They will need entry-level wages. They will need those, 
whether they are first-time job-seekers or whether they have not been 
working for a number of years and need to get back into the work force.
  If we want to develop the highly skilled work force and employ more 
young men and women and move people off the welfare rolls, we need to 
open more doors so individuals can get the basic skills that will 
enable them to climb the job ladder. Raising the minimum wage will 
only, I think, shut the door on those trying to get started.
  The Congressional Budget Office reviewed this proposed increase and 
reached a similar conclusion. CBO estimates that raising the minimum 
wage will result in the loss of potentially 100,000 to 500,000 jobs. 
According to CBO:

       Another consequence might be that employers respond to the 
     mandate by reducing employment opportunities for the least 
     skilled job seekers and the ones who could most benefit from 
     the work experience. To the extent that low-skilled workers 
     are shut out of employment opportunities, their total incomes 
     might fall, even though their hourly wage rates while working 
     increased.

  CBO concludes that this minimum wage increase will be an unfunded 
mandate on State and local governments, as well as the private sector. 
It estimates the cost to the private sector will be more than $12 
billion over the next 5 years.
  Someone has to pay this cost, and I fear that the most vulnerable 
will pay the price in lost jobs. That, I suggest, is something we 
should consider carefully as we debate the question, not of whether the 
minimum wage should be increased, but how.
  I yield the floor.

[[Page S7405]]

  The PRESIDING OFFICER. Who yields time? The Chair recognizes the 
Senator from New York.
  Mr. MOYNIHAN. Mr. President, there are 2 hours reserved for debate on 
the minimum wage aspect of this bill, is that not the case?
  The PRESIDING OFFICER. The Chair advises the Senator from New York 
that there is 1 hour on the Kennedy amendment, equally divided, and 1 
hour on the bill, equally divided.
  Mr. MOYNIHAN. May I ask the Chair, we have only 2 hours of debate on 
this entire matter?
  The PRESIDING OFFICER. That would be correct.
  Mr. MOYNIHAN. That is divided on each side.
  The PRESIDING OFFICER. Equally to each side.
  Mr. MOYNIHAN. I ask the distinguished Senator from Maryland how much 
time he might wish to speak.
  Mr. SARBANES. I see the Senator from North Dakota on the floor as 
well. Ten minutes?
  Mr. MOYNIHAN. I will be happy to yield 10 minutes to the Senator from 
Maryland. I see the distinguished chair of the committee has risen.
  Mrs. KASSEBAUM. Mr. President, I want to suggest the time I took 
should come out of the time allotted to our side in opposition, of 
course.
  Mr. MOYNIHAN. How generous and characteristic. Opposition to the 
amendment.
  Mrs. KASSEBAUM. I assume that will be the case.
  Mr. MOYNIHAN. The Senator will support the bill itself that Senator 
Roth and I are bringing forward for this purpose.
  Mrs. KASSEBAUM. Mr. President, I thank the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from 
Maryland.
  Mr. SARBANES. Mr. President, I rise in support of the Kennedy 
amendment and, of course, in very strong support of the effort to raise 
the minimum wage. Historically, Congress has acted to guarantee minimum 
standards of decency for working Americans. The object of a Federal 
minimum wage is to make work pay well enough to keep families out of 
poverty and off of Government assistance. It is really an effort to 
ensure that any individual who works hard and plays by the rules should 
be assured of a standard of living for his or her family that is above 
the poverty line.
  It is very important to understand that this effort to provide a 
floor has marked our national policy now for almost six decades. I know 
many people think it is an imposition upon employers, but we had some 
interesting testimony this morning at a news conference from some small 
business people who came and testified in favor of the minimum wage. As 
one of the ladies who was there pointed out, they are caught by what 
their competitors do. Many of them would like to raise the wages of 
their workers of their own accord, but they have difficulty in doing 
this if their competitors do not do likewise. So they welcome a raise 
in the minimum wage because it, in effect, levels the playing field and 
ensures that the employer who is not concerned about providing a living 
wage for his employee will not dictate the standard of the industry.
  The minimum wage does not lift people very far, but it does lift them 
far enough so that there is the hope they will be able to work 
themselves out of poverty and stay off of dependency. It has been a 
national commitment now, as I said, for almost six decades.
  I think it is long past time to raise the minimum wage again. The 
minimum wage was last raised in 1989, if I am not mistaken. The minimum 
wage increase being proposed now is equivalent to what people got in 
1989. In other words, the 1989 increase has, in effect, been used up by 
the rise in prices over the intervening 7 years. So you, in effect, are 
no better off at the minimum wage today than you were in 1989, when it 
was raised.
  In fact, the current level for the minimum wage in real terms--in 
other words, in purchasing power--is the lowest it has been in 40 
years. Of course, this is at the very time, we are reading newspapers, 
magazines, and story after story about the incredible compensation the 
chief executives are receiving. Yet here we are, now, arguing about 
basic fairness and equity for the lowest paid workers, those at the 
very bottom of the pay scale.
  No one asserts that raising the minimum wage will correct everything, 
but it certainly will make an important difference to those who are on 
the low end of the income scale. It is argued, of course, that raising 
the minimum wage is going to cost jobs. Actually, there are studies 
that go both ways on this. Recently, there have been some very 
reputable studies that have found no evidence that the increase in 
wages results in reduced employment opportunities. One study in 
particular analyzed wage increases that were made in New Jersey and 
reached that conclusion.

  Others have found that during the late 1980's, moderate legislative 
increases did not reduce employment and were, if anything, associated 
with higher unemployment in some locales.
  Robert Solo, a distinguished Nobel laureate, distinguished professor 
of economics at MIT, was quoted in the New York Times as saying:

       The main thing about minimum wage research is that the 
     evidence of job loss is weak and the fact that evidence is 
     weak suggests that the impact on jobs is small.

  So I want to try to lay to one side this constant assertion that if 
you raise the minimum wage, you are going to cost a lot of people jobs.
  The counter to that, in addition to not costing them a lot of jobs, 
is that you will significantly improve the living standards of people 
receiving the minimum wage. Of course, as I have indicated, this is a 
two-step increase that is proposed in the Kennedy amendment, a 45-cent 
increase from $4.25 to $4.70 now and another 45-cent increase from 
$4.70 to $5.15 in the middle of next year. So you would have a two-step 
process to take the minimum wage from $4.25 an hour to $5.15 an hour.
  Mr. President, I do not think we need a long argument about the 
equity and fairness of doing this. The statistics are very clear on 
that point. We know that people have been, in effect, slipping backward 
as a consequence of not raising the minimum wage now for 7 years, going 
on 8 years, this is the situation we are now confronting.
  But the real difficulty occurs in the amendment that is going to be 
offered by my colleagues on the other side, the Republican amendment, 
which they portray as their having a commitment to raising the minimum 
wage, but they just want to make some fine-tuning of it. Let us take a 
look at the fine-tuning, because it really is a shell game and the 
consequences of it would be very detrimental.
  First of all, they propose an exemption for employees who are on the 
job in the first 6 months. In other words, the first 180 days, you 
would get a subminimum wage. That is for workers of all ages.
  Previously, we have had a lesser wage for a very limited period of 
time for young workers; very limited, both in time and to the age group 
to which it applies, a so-called training wage. Unfortunately, a lot of 
training never took place, but, in any event, that was the theory of 
it.
  Now we are confronted with an exemption that would deny a minimum 
wage increase to all workers--all workers--regardless of age or 
experience for the first 6 months of their employment with any 
employer. In effect, you could begin to create a permanent class of 
subminimum wage workers. In fact, at the lower wages, workers are often 
changing jobs. They would be recirculated during this 180-day 
exemption. They would be kept at $4.25. This is a very bad concept, and 
it opens up an incredible loophole that could be exploited in the law 
to violate the very spirit of raising the minimum wage.
  The other proposal, as I understand it, in the Republican amendment 
which will be offered by my colleagues on the other side of the aisle, 
is to deny a minimum wage increase to employees in any company with 
less than $500,000 in annual revenues. So anyone who works in a company 
that has less than $500,000 in annual revenues--that is $10,000 a week 
in annual revenues, and we are talking now about a number of small 
businesses, well over 10 million employees--would be excluded 
altogether. They would just be exempted. Now, that means that many 
employees now covered by the minimum wage provisions--in other words, 
who receive the benefit of current law that requires they be paid the 
minimum wage--

[[Page S7406]]

would then be placed outside of the parameters with respect to any 
increases in the minimum wage.
  So, in effect, while asserting that they are extending the minimum 
wage on the one hand, they are taking it away on the other with respect 
to employees now covered in businesses that have revenues of less than 
$500,000 a year, and there are a significant number of such employees--
in the millions, in the millions.

  So, for the first time since the minimum wage was instituted in the 
1930's, we are actually reducing coverage in a significant and 
substantial manner. That is why so many of us are asserting that what 
we really ought to do is have a clean minimum wage bill, and that is 
what the President has indicated he very much wants. We have done that 
in the past in Republican and Democratic administrations.
  The PRESIDING OFFICER. The Chair advises the Senator from Maryland 
that he has utilized his 10 minutes.
  Mr. MOYNIHAN. I will be happy to yield another 5 minutes.
  Mr. SARBANES. I appreciate it.
  So in the past, in both Democratic and Republican administrations, we 
have increased the minimum wage. We usually have argued about how much 
to increase it and when to make it effective, and that usually has been 
the limit of the debate.
  Now we are confronted with a situation in which there is an effort to 
increase it, which, by every survey, commands overwhelming support 
amongst the American people, and then we are confronted with, as it 
were, the subterfuges which will erode the meaning of the extension in 
the minimum wage.
  The provision that I made reference to of a 180-day period at the old 
wage for everyone, regardless of age, and for the exclusion from 
coverage of this increase in the minimum wage of any business with 
revenues of under $500,000 a year, many of the workers of such 
businesses are today covered under the minimum wage law. But by the 
provisions of the amendment to be offered by my Republican colleagues, 
they would then be excluded.
  It ought not to be necessary to go through the really heart-rending 
stories of people trying to make it on a minimum wage in order to see 
the decency of enacting this modest increase.
  Forty percent of those at minimum wage salaries are single parents 
trying to support their children. At a minimum wage today they have a 
year-round income of $8,500. This places them well below the poverty 
level. This effort here, of course, to raise the minimum wage and bring 
additional income to these families would help them to meet their bills 
and in effect to begin to see some light at the end of the tunnel.
  I know this measure is opposed by some of the small business 
associations, although I am interested to note that a number of small 
businesses are in support of this proposition. As I indicated, at a 
press conference earlier today, there was testimony by a number of 
owners of small businesses in support of this measure.
  The decrease in the value of the minimum wage has served to widen the 
gulf between the wealthiest and the poorest in our society. In fact, as 
I indicated earlier, the real value of the minimum wage has 
deteriorated markedly. It will be at its lowest real value in the last 
40 years if Congress fails to take action.
  In the late 1950's, in fact, the real value of the minimum wage was 
more than $5 an hour by today's standards. In the mid-1960's it peaked 
at $6.28. If you were making the minimum wage in the mid-1960's, to 
have that purchasing power today, you would have to have a minimum wage 
of $6.28 an hour.
  So it is not as though we are asking for some extraordinary thing 
here. It is not as though the increases that are being sought are out 
of some long-term trend. If anything, they are exceedingly modest. In 
the late 1950's, the minimum wage available then in purchasing power 
was better than $5 an hour at today's purchasing power levels. By the 
mid-1960's it was $6.28 an hour.
  Congress has failed to respond to the erosion of the value of the 
minimum wage over time. We now confront the situation where $4.25 an 
hour in purchasing power is the least it has been in 40 years.
  More than 70 percent of all minimum wage earners are 20 or above. The 
vast majority, about 60 percent, are women, many of them single heads 
of households. The time has come and gone for an increase in this 
minimum wage. It was last modestly raised in the Bush administration. I 
think obviously we need to raise it again.
  We need especially not to support this effort by my Republican 
colleagues in their amendment to carve out exemptions that, in effect, 
will render much of this meaningless. I mentioned two things: the 
exclusion of employees of businesses earning below $500,000 a year, 
which takes any increases in minimum wage protection away from workers 
now covered; a substantial number of workers. I also mentioned, of 
course, the fact that there is a subminimum wage for 180 days, for 6 
months. Then, if that worker moves, because often those jobs come and 
go, they move into another low-wage job and get another 180 days at a 
subminimum wage.
  The third thing, which was not mentioned earlier in my references, is 
the effective date for the application of the minimum wage. The 
proposal of my Republican colleagues is to delay it until the beginning 
of next year, delay it for 6 months, in effect. This would obviously 
cost a minimum wage employee about $875 in the course of that period of 
time, just deny that increase. I defy anyone to make the case that 
someone should be able to support a family on $8,500 a year, which 
is what the current minimum wage works out to, $8,500 a year.

  So, Mr. President, I very much hope when the Senate comes to the 
vote, that the Republican amendment will be rejected, that we will 
support the proposition put forward by the Senator from Massachusetts 
and the Senate will finally approve an increase in the minimum wage, 
which is so important for literally millions of workers and their 
families across our country. I thank the distinguished ranking member 
for yielding to me.
  Mr. MOYNIHAN. I thank my friend from Maryland.
  Mr. President, the distinguished Senator from North Dakota would like 
to speak at this point. Could I ask how much time he might require?
  Mr. DORGAN. Mr. President, 7 minutes, 8 minutes.
  Mr. MOYNIHAN. Fine. Could I ask it be charged against the amendment 
of the Senator from Massachusetts as we are running out of time?
  The PRESIDING OFFICER. The Chair recognizes the Senator from North 
Dakota.
  Mr. DORGAN. I very much appreciate the courtesy of the Senator from 
New York.
  Mr. President, I thought I would read a couple of paragraphs from a 
letter to demonstrate that this debate is not about theory, although we 
debate a lot of theory here on the floor of the Senate. This debate is 
about the financial circumstances of a lot of families in our country. 
This letter comes from a woman in North Dakota who describes the debate 
pretty well.
  She said,

       Today it takes every dime we make to make ends meet, and 
     that is only if we stretch it to the breaking point. We don't 
     have any credit cards. We drive 10- to 15-year-old vehicles, 
     so my husband has recycled. We shop only in thrift stores and 
     at garage sales, and we do a lot of praying. We're better 
     off, I know than a lot of other people who, for instance, 
     have to live on the street. But how far are we from that? We 
     are in the forgotten group of people called the working poor, 
     the people that fall through the cracks of government. I beg 
     you shamelessly, for the sake of my children, to please help 
     us find a glimmer of hope to help us dig our way out of this 
     hopelessly grim situation.

  This from a mother of three children, struggling at the bottom rung 
of the economic ladder, who is trying to make ends meet and finding it 
very, very difficult.
  Recently there was a story in the Washington Post with a headline 
that said that CEO's salaries were up 23 percent last year. The chief 
executive officers of the major corporations in America received a 23-
percent increase in their compensation in 1 year.
  This woman, and others like her, who are struggling to raise a family 
at the minimum wage and trying to make ends meet, who are working and 
not on welfare, did not receive a 23-percent increase last year. They 
did not receive a 1-percent raise last year, not a 1-percent raise the 
year before. It has been

[[Page S7407]]

7 years since an adjustment in the minimum wage was made. In late 1989, 
Congress adjusted the minimum wage. That's one adjustment in 17 years.
  Again, this debate is not about theory for a family who is trying to 
raise children. This person whose letter I read got pregnant in high 
school, made some mistakes, never got employment skills. Her husband 
never got job skills. So they entered the job market relatively 
unskilled, and have always been somewhere at the bottom of the economic 
ladder.
  It is almost as if we have two economies in our country; one doing 
very, very well, with 23 percent raises and the stock market at a 
record high. Then we see others at the bottom rung of the economic 
ladder just struggling day after day after day to try to keep up and to 
make ends meet.
  The Senator from New York, Senator Moynihan, has spent a good deal of 
his life talking about the issue of reforming our welfare system. There 
is no one whose opinion I respect more than the Senator from New York 
on these subjects. He would know, especially of all the Members of the 
Senate, that the vote that we will take in the Senate is a vote that 
evaluates the question, Do we value work over welfare?
  The Senator from New York has made a career of trying to figure at 
how we can fix this welfare system and make it work, so you move people 
from welfare rolls to payrolls. Most people on welfare I know do not 
want to be on welfare. They much prefer to have the skills needed to 
get a good job and take care of their families.
  We must talk about the question of welfare reform and enact 
legislation that does the right things to try to address the welfare 
problem in this country, and does it, as the Senator from New York 
says, without abandoning our children. Two-thirds of the welfare 
expenditures in this country are for kids under 16 years of age. Would 
we have people tell us those folks ought to go out and get a job--10- 
and 12-year-old kids? Most people would say, ``Let's help those 
children.''
  Others on welfare are stuck in the cycle. To the extent we want them 
to move from a welfare roll to a payroll, we want them to get a job, 
then we have to value work over welfare. One way we can do that in this 
Congress is to decide that we will not keep people stuck at the bottom 
rung of the economic ladder without even a 1-percent increase in the 
minimum wage in 7 years. We will finally make some appropriate and 
modest adjustments.
  This is truly a vote, it seems to me, that does determine, do we 
value work over welfare? You cannot talk about this and then try to 
undercut the earned income tax credit and try to ignore the issue of 
the minimum wage and the problems people have at the bottom of the 
economic ladder.
  I was in a pizza parlor in North Dakota. A fellow that ran the pizza 
parlor said to me that he supported an increase in the minimum wage. I 
thought to myself, this is very unusual, this is a very small pizza 
parlor. He said, ``The fact is, the folks that come in and buy pizza, I 
want them to do well, and I have a lot of folks who do not make a lot 
of money. I figure if we have an increase or an adjustment in the 
minimum wage in an appropriate way, I figure it will help me, as 
well.''
  I went to a small dressshop while I was touring Main Street of one of 
our towns in North Dakota, stopping and visiting with some people. The 
manager of the dressshop and I were chatting about the minimum wage and 
she said, ``I don't own the shop, I manage the shop, but our owner has 
three shops like this, and our owner says he thinks it is probably a 
pretty decent thing because the kind of people who shop in our stores 
will probably do a little more shopping in our stores if they get an 
adjustment in minimum wage. Our owner says it is probably something 
that is overdue.''
  I thought to myself, this is kind of interesting. You find businesses 
as disparate as a pizza parlor and a small dressshop in a small town 
where they say that a minimum wage adjustment makes sense. I suppose 
that this is reflected in the polls that show that 80 to 85 percent of 
the American people think it makes sense to have an adjustment in the 
minimum wage.
  I am not unmindful of the burdens that small business owners face in 
our country. To the extent that we can, we always ought to be concerned 
about the small business owners who risk their money and their assets 
in order to try to make a living. Many of them work long hours without 
great compensation. Many of them are very levelheaded people. Most of 
them are thoughtful, good people, who also understand there is a reason 
we have a minimum wage in our country.
  If you believe there ought to be a minimum wage, the only question 
before us is, How often should we adjust it? Once every 7 years, or 
once every 70 years? That is the question.
  There are some Members of the Senate, I assume, who believe there 
ought not be a minimum wage. There is a Member of the other body, a 
prominent Member, who believes the minimum wage is an awful thing and 
there ought not be any minimum wage at all. There are some people who 
think there ought not be any prohibition on hiring kids to work at 12 
cents an hour. There are some with that kind of radical notion. But 
most of this country has moved well beyond that, and we have child 
labor laws that are thoughtful, and we have minimum wage provisions 
that are thoughtful and modest.

  The discussion now between those of us who believe a minimum wage is 
appropriate is, at what level should the minimum wage be set? Should we 
adjust it after 7 years, after the 1989 adjustment, after virtually all 
of the gain from that adjustment has been wiped out? Should we make 
another adjustment--a thoughtful, moderate adjustment?
  I think most people come down on the side of saying, yes, this makes 
a lot of sense. This is not radical. It is not politics. It is about 
people's financial circumstances, as they sit around and eat supper and 
talk about their lot in life. For many of them, it is talking about 
what their salary is, what their opportunities are.
  So, to conclude, a few of us had a press conference this morning, and 
we had some small business people who made the case, I thought 
eloquently, that they supported a moderate adjustment in the minimum 
wage. I found that walking up and down Main Streets and talking to 
people, that people who think this through believe what is fair is 
fair.
  We are not asking for the moon here. We are responding to this 
woman--and millions of others, undoubtedly--who says, ``I beg you, for 
the sake of my children, please help us find a glimmer of hope to help 
us dig our way out of this hopelessly grim situation.'' She is just 
asking that maybe she and her husband, who do not have it so good--they 
lost their trailer house in a fire, are having trouble buying clothes 
for her kids, are having trouble paying the rent and buying food--that 
maybe we will not let them see a little more opportunity.
  The adjustment in the minimum wage is a small price to pay, in this 
body, to begin to honor work above welfare. This family and so many 
millions of others are working. They are not on the welfare rolls. And 
this amendment, this adjustment will say to them, ``We give great merit 
to work, sufficiently so that we believe those of you at the bottom 
rung of the economic ladder, after 7 years, deserve a modest 
increase.''
  We stand for work, not welfare. That is what this vote will be.
  I appreciate the generosity of the Senator from New York. I yield the 
floor.
  The PRESIDING OFFICER. The Chair recognizes the Senator from New 
York.
  Mr. MOYNIHAN. Mr. President, I wanted for say how emphatically I 
support each of the statements we have just heard. It is embarrassing 
at this point in the 20th century that we have to go to this effort 
just to maintain the value of an economic guarantee that has been with 
us for 60 years. It is as if the 20th century did not happen on the 
other side of the aisle, or should not have.
  I hope the woman, the lady who wrote the Senator, will not have done 
so in vain. A beautiful letter and beautifully described.
  Mr. SARBANES. Will the Senator yield?
  Mr. MOYNIHAN. I am happy to yield to the Senator.
  Mr. SARBANES. Mr. President, I want to add an additional point. That 
is, I think many employers are supportive of an increase in the minimum 
wage.

[[Page S7408]]

  In fact, the employers who spoke at this press conference this 
morning indicated they were in favor of raising the minimum wage. One 
of the press people said, ``If you are in favor of it, why do you not 
just go ahead and do it, and voluntarily raise it in your business?''
  This lady had an immediate comeback, right on point. She said, ``If 
all my competitors will raise their wages, their payrolls, then I am 
quite prepared to do it. Otherwise, I am placed at a competitive 
disadvantage.''
  In effect, under the current system, the only employer who is not 
responsive to the needs of his employee, in effect, dictates the 
standard, and it is all brought down to the lowest common denominator. 
For many employers, this enables them to do what they think ought to be 
done in any event--that is, give their employees a better wage. It will 
be done with a level playing field in terms of competition, so that 
employer--and I think there are not all that many--if they refuse to go 
up, they can be at a competitive advantage against those people who are 
more responsive to the needs of their employee and who understand the 
pressures that are upon them in today's age.
  This, in many respects, for many employers, means they have an 
opportunity to do what they think ought to be done, in any event. I 
want to make it clear, I think there are a great many employers across 
the country who take that position. They are not opposed to raising the 
minimum wage. They recognize that by raising the minimum wage, you keep 
the competition on a level playing field, and therefore they support 
the measure that is before the Senate.
  I very much hope, as the Senator from New York said, when we meet 
tomorrow we will be able to act in a positive manner on this very 
important matter.
  Mr. MOYNIHAN. If I may say to my friend from Maryland, for a century 
it has been a well-understood principle that with respect to labor 
legislation, its primary purpose is not to put at a disadvantage 
employers who will provide better wages and conditions. We have done 
this not only internally, but through the International Labor 
Organization. We had labor treaties to do just that. We had to deal 
with child labor in those terms so that the employer would not put 12-
year-olds in coal mines, which we had, would not be at a disadvantage 
more than one who would.

  Mr. SARBANES. If the Senator will yield, is that not exactly what 
this legislation does?
  Mr. MOYNIHAN. Exactly. What I cannot understand--and I do not think 
the Senator from Maryland can help me--is that I thought this was all 
understood 50 years ago. Evidently not. We will find out tomorrow.
  Mr. SARBANES. Actually, the proposal, I think, coming from our 
colleagues on the Republican side is really a radical proposal.
  Mr. MOYNIHAN. This has been a consensus on both sides of the aisle 
for 60 years, including President Eisenhower, President Nixon and 
President Bush. We will see.
  Mr. President, I ask unanimous consent to speak, with the time to be 
allocated against the underlying bill, H.R. 3448, the Small Business 
Job Protection Act of 1996.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. MOYNIHAN. Mr. President, this bill, H.R. 3448, the Small Business 
Protection Job Act of 1996, has two titles. Title I is Small Business 
and Other Tax Provisions. This was considered on June 12 by the 
Committee on Finance, which reported the bill unanimously with a 
committee amendment. Title II, Payment of Wages, contains the increase 
in the minimum wage we have been discussing.
  I want to address some of the more important provisions in the small 
business portion of the bill, and then make a more general point about 
the provision increasing the minimum wage.
  Section 1202 of this bill extends employer-provided educational 
assistance until December 31, 1996. That is for the remainder of this 
year. It also applies the provision to graduate education, which the 
House bill did not. At this point, about one-quarter of the employees 
sent to teaching institutions, institutions of higher learning, are, in 
fact, in graduate school, and the value of this program is particularly 
evident in the case of persons sent to do postgraduate work in highly 
technical areas. Employers recognize the abilities of the individuals, 
see the opportunities for bringing them to higher levels of 
productivity, and pay them more in the process.
  This measure, which is one of the least known but exceptionally 
rewarding features of our Tax Code was first enacted in 1978. We have 
never made it a permanent provision. We ought to do that. It ought to 
be one of the first businesses of the next Congress, because, absent 
the additional extension I will describe in a moment, it will have 
expired once again by the time the next Congress convenes. Employer-
provided educational assistance is in this measure made retroactive, 
permitting employees to exclude from their income up to $5,250 in 
tuition paid for by their employers. In other words, it allows 
employers to send employees to college or graduate school tax free.
  I venture to say that the employer-provided educational assistance 
program is one of the most successful efforts ever undertaken by the 
Federal Government in this area. Some 800,000 employees benefit from 
this provision every year. And they benefit in the most auspicious of 
circumstances. An employer says, ``Will you go to graduate school and 
get an advanced degree in chemistry so we can put you in a higher 
position than you are now in? Then you will be in the higher position 
and earn more money and, in time, the Federal Government gets it 
back.''
  So many of our job training programs have depended on hoping that in 
the aftermath of the training there will be a job. Here you have a 
situation where the employer already has the worker and the employee 
sees the opportunity to enlarge his or her situation, and to do so in a 
way that is optimal for all concerned. Now, 95 percent of the persons 
involved are pursuing a degree or certificate; 35 percent are enrolled 
in business and business-related fields, such as accounting, finance, 
marketing, and business administration; 12 percent are enrolled in 
health care-related curricula; another 18 percent are in engineering 
and other technical fields.
  I say, once again, this is a program that works. It administers 
itself. It has the least possible overlay of bureaucracy; it has none. 
There is no bureau of employer-provided education benefits in the 
Department of Education. There is nothing except individual contracts, 
employee and employer, with a great value added. I say again that it 
pays for itself.
  I am happy to say that the managers' amendment, which we expect will 
be adopted tomorrow, will provide for an extension through the end of 
1997. So it would be a good thing if we would look to the next Congress 
to make this a permanent arrangement. Right now, almost a million 
employees do not know whether or not they owe income tax on the 
benefits--the educational tuition paid for them in the course of this 
previous year. We now do it retroactively. But this is something that 
can be made a permanent part of the Tax Code. I think the distinguished 
Presiding Officer would know that universities find this an 
exceptionally rewarding arrangement and, particularly, in the technical 
fields where serious job skill training takes place.
  I also mention that the Senate version of the expatriation tax 
proposal has been included in this bill. Earlier in this Congress, 
there was some question about whether the Finance Committee was going 
to address this matter, and we had rather a lively exchange on this 
floor to that effect. I said at the time that we would, and we have 
done it. This is a variation of a bill I first introduced in 1995 to 
address the problem presented when wealthy citizens renounce their U.S. 
citizenship and move abroad in order to escape taxation. Although 
expatriation to avoid taxes occurs infrequently, and it is not a seemly 
act, it does occur, and it is a genuine abuse.
  I would like to say for the Record that this is important, Mr. 
President. When the issue first arose in 1995, we had meant to move 
directly at that time. Then-chairman of the Finance Committee, Senator 
Bob Packwood of Oregon, and I said this is something to be dealt with 
directly. At that time, a number of legal scholars in the field of

[[Page S7409]]

international law raised questions concerning the propriety under 
international law of restricting the rights of persons to leave the 
country of which they are a citizen. We took this seriously, as we were 
required to, and put off the legislation until we could satisfy 
ourselves--and the critics who had offered good faith comments--that we 
were doing something that would pass muster as not restricting the 
right of emigration. This bill does that, in our judgment, and does it 
very well indeed.

  One might think this is a small measure, and perhaps some have 
suggested it was. But this provision, the expatriation provision in the 
Senate bill, raises $1.57 billion over 10 years. The modified provision 
in managers' amendment that will be offered tomorrow increases that to 
a total of $1.71 billion, which suggests that what may have been a 
relatively rare event up until recently is gathering momentum, and we 
will now stop it. And stop it we ought. The idea of millionaires, 
multimillionaires, renouncing their citizenship and moving to the 
Bahamas is--well, it is not seemly. I need say no more.
  A final observation about the small business title of the bill. To 
pay for the small business tax relief provisions, which will cost 
approximately $17 billion, we are providing for a tax cut of $17 
billion. We are phasing out section 936 of the Internal Revenue Code 
over 10 years.
  This measure, which dates from the 1920's, was originally intended to 
encourage American business to locate in the Philippines. For a 
generation now, it has been almost entirely a matter of Puerto Rican 
business activity, and has been very important to the economy of Puerto 
Rico.
  On the other hand, there comes a time when a measure of this sort has 
been in place long enough and it is recognized--not precipitously but 
with good notice--that the time has come to phase it out. The division 
of opinion on this question in Puerto Rico is probably associated with 
proponents of statehood and proponents of maintaining the commonwealth 
relationship. We have done our best to accommodate the people of Puerto 
Rico and their elected officials. They are not represented on the 
Senate floor. We have a profound responsibility to that possession 
which we obtained just short of 100 years ago in the aftermath of the 
Spanish-American War.
  I might add again, Mr. President, that this bill was reported from 
the Committee of Finance unanimously. It was bipartisan. It was the 
judgment of persons we found most persuasive that we should follow the 
shift we made in 1993 by encouraging the tax credit for actual job 
creation as against the depreciation of patents and other arrangements 
which had been possible under the earlier regime.
  I have been on the Senate floor for 20 years talking about this 
matter. I have tried to make it clear that the United States had an 
obligation not simply to the people of Puerto Rico but to the 
international community. Every President since Harry S. Truman has said 
that the people of Puerto Rico are free to remain a commonwealth--if 
they choose--to become a State, or to choose independence. And that 
option exists to this moment.
  But the time for this particular tax subsidy in this form seems now 
to have reached a point where we would say, ``All right, let us have 
done with it in the early 21st century.'' And this legislation does so. 
It is bipartisan. We hope it works. We have concerned ourselves solely, 
or I would like to think primarily, with what seems to be the best 
interests of Puerto Rico. And we have consulted with their elected 
representatives in this regard.
  I would particularly like to express my appreciation to Chairman 
Roth, who has been wholly cooperative in this matter and in particular 
in making the wage-based credit permanent for existing companies.
  I hope that at a later time we can work together to do more to 
provide incentives for new investment for Puerto Rico, not just for 
existing companies but for new companies as well, but that, too, is for 
the next Congress. I look forward to working with our committee and the 
Senate itself in this regard.
  I say once again that we must remain conscious of a very solemn 
responsibility to the people of Puerto Rico, who are not represented in 
this Chamber but who are American citizens, who have the right to be 
respected, whose rights are to be respected, and whose interests are to 
be advanced.
  This brings me to the minimum wage title of the bill, which after all 
is the reason we have taken the trouble to write a package of small 
business tax relief provisions. Many members of the majority, 
particularly in the other body, believe that an increase in the minimum 
wage would harm small businesses. Therefore they demanded offsetting 
tax relief for those businesses.
  Senators on our side did not feel any sweetener should be required in 
order to pass a long overdue increase in the minimum wage, but even so 
we tried to be accommodating. We worked on a bipartisan basis to craft 
a small business tax relief bill all Senators could support.
  Yet now we are told this is not enough. The price for passage of the 
minimum wage increase keeps going up. Tomorrow the Senate will vote on 
an amendment to exempt from the minimum wage businesses with less than 
$500,000 per year in sales; permit a subminimum wage of $4.25 per hour 
for newly hired workers; and delay the increase in the minimum wage for 
6 months.
  I hope Senators will keep this minimum wage increase in perspective. 
Yes, an increase in the minimum wage will reduce demand for labor 
somewhat. But if you are looking for a painless time to do it, now is 
the time. The current economic expansion is in its 65th month. 
Unemployment is down to 5.3 percent. Two weeks ago, the Washington Post 
reported that serious labor shortages are developing around the United 
States, so much so that some fast-food franchises are paying 
substantial signing bonuses to new employees. So now is the time to 
phase in a higher minimum wage. Our expanding economy will easily 
adjust to it.
  When the Finance Committee took up this legislation 3 weeks ago, we 
understood that the small business provisions were necessary to get the 
minimum wage increase enacted. And we reported the bill unanimously. I 
hope the Senate will defeat the amendment of the Senator from Missouri 
tomorrow, and that we will then approve H.R. 3448 overwhelmingly and 
without further delay.
  Mr. President, I believe my time may have expired.
  The PRESIDING OFFICER. The Chair advises the Senator from New York 
that there are 6 minutes remaining on the Kennedy amendment.
  Mr. MOYNIHAN. Mr. President, I will now suggest the absence of a 
quorum as I see no Senator wishing to be heard. I ask that the time be 
equally divided.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. MOYNIHAN. Mr. President, I think we are going to find ourselves 
in a situation where we will want to add to the time available for 
debate tomorrow. But I do not see anyone on the floor at this point. I 
suggest the absence of a quorum, and I will return momentarily with 
some thought.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. BOND. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 4272

         (Purpose: To modify the payment of wages provisions.)

  Mr. BOND. Mr. President, earlier today the majority leader submitted 
my amendment to this bill, amendment No. 4272. I believe it is held at 
the desk. I would like to call up that amendment now, please.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from Missouri [Mr. Bond] proposes an amendment 
     numbered 4272.

  Mr. BOND. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       Strike title II and insert the following:

                       TITLE II--PAYMENT OF WAGES

     SEC. 2101. PROPER COMPENSATION FOR USE OF EMPLOYER VEHICLES.

       (a) Short Title.--This section may be cited as the 
     ``Employee Commuting Flexibility Act of 1996''.

[[Page S7410]]

       (b) Use of Employer Vehicles.--Section 4(a) of the Portal-
     to-Portal Act of 1947 (29 U.S.C. 254(a)) is amended by adding 
     at the end the following: ``For purposes of this subsection, 
     the use of an employer's vehicle for travel by an employee 
     and activities performed by an employee which are incidental 
     to the use of such vehicle for commuting shall not be 
     considered part of the employee's principal activities if the 
     use of such vehicle for travel is within the normal commuting 
     area for the employer's business or establishment and the use 
     of the employer's vehicle is subject to an agreement on the 
     part of the employer and the employee or representative of 
     such employee.''.
       (c) Effective Date.--The amendment made by subsection (b) 
     shall take effect on the date of the enactment of this Act 
     and shall apply in determining the application of section 4 
     of the Portal-to-Portal Act of 1947 to an employee in any 
     civil action brought before such date of enactment but 
     pending on such date.

     SEC. 2102. MINIMUM WAGE INCREASE.

       (a) Short Title.--This section may be cited as the 
     ``Minimum Wage Increase Act of 1996''.
       (b) Amendment to Minimum Wage.--Section 6(a) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 206(a)) is amended by 
     striking ``(a) Every'' and all that follows through ``$4.25 
     an hour after March 31, 1991;'' and inserting the following: 
     ``(a) An employer shall pay to an employee of the employer 
     the following wage rate in accordance with the requirements 
     of this subsection:
       ``(1)(A) in the case of an employee who in any workweek is 
     employed in an enterprise engaged in commerce or in the 
     production of goods for commerce, not less than $4.25 an hour 
     during the period ending on December 31, 1996, not less than 
     $4.75 an hour during the year beginning on January 1, 1997, 
     and not less than $5.15 an hour after December 31, 1997;
       ``(B) in the case of an employee who in any workweek is 
     engaged in commerce or in the production of goods for 
     commerce, but is not employed in an enterprise engaged in 
     commerce or in the production of goods for commerce, not less 
     than $4.25 an hour;''.
       (c) Construction.--Section 6 of the Fair Labor Standards 
     Act of 1938 (29 U.S.C. 206) is amended by adding at the end 
     thereof the following new subsection:
       ``(h) Nothing in this section shall be construed as 
     affecting any exemption provided under section 13.''.

     SEC. 2103. FAIR LABOR STANDARDS ACT AMENDMENTS.

       (a) Computer Professionals.--Section 13(a) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 213(a)) is amended--
       (1) by striking the period at the end of paragraph (16) and 
     inserting ``; or''; and
       (2) by adding at the end thereof the following new 
     paragraph:
       ``(17) any employee--
       ``(A) who is a computer systems analyst, computer 
     programmer, software engineer, or other similarly skilled 
     worker;
       ``(B) whose primary duty is--
       ``(i) the application of systems analysis techniques and 
     procedures, including consulting with users, to determine 
     hardware, software, or system functional specifications;
       ``(ii) the design, development, documentation, analysis, 
     creation, testing, or modification of computer systems or 
     programs, including prototypes, based on and related to user 
     or system design specifications;
       ``(iii) the design, documentation, testing, creation, or 
     modification or computer programs related to machine 
     operating systems; or
       ``(iv) a combination of duties described in clauses (i), 
     (ii), and (iv) the performance of which requires the same 
     level of skills; and
       ``(C) who is compensated on an hourly basis and is 
     compensated at a rate of not less than $27.63 an hour.''.
       (b) Tip Credit.--Section 3(m) of the Fair Labor Standards 
     Act of 1938 (29 U.S.C. 203(m)) is amended--
       (1) by striking ``(m) `Wage' paid'' and inserting ``(m)(1) 
     `Wage' paid''; and
       (2) by striking ``In determining the wage'' and all that 
     follows through ``who customarily and regularly receive 
     tips.'' and inserting the following:
       ``(2)(A) In determining the wage an employer is required to 
     pay a tipped employee, the amount paid such employee by the 
     employee's employer shall be an amount equal to--
       ``(i) the cash wage paid such employee which for purposes 
     of such determination shall be not less than the cash wage 
     required to be paid such an employee on the day preceding the 
     date of enactment of this paragraph; and
       ``(ii) an additional amount on account of the tips received 
     by such employee which amount is equal to the difference 
     between the wage specified in subclause (i) and the cash wage 
     in effect under section 6(a)(1).
       ``(B) Subparagraph (A) shall not apply with respect to any 
     tipped employee unless--
       ``(i) such employee has been informed by the employer of 
     the provisions of this subsection; and
       ``(ii) all tips received by such employee have been 
     retained by the employee, except that this subsection shall 
     not be construed to prohibit the pooling of tips among 
     employees who customarily and regularly receive tips.''
       (c) Opportunity Wage.--Section 6 of the Fair Labor 
     Standards Act of 1938 (29 U.S.C. 206) is amended by inserting 
     after subsection (f) the following new subsection:
       ``(g)(1) In lieu of the rate prescribed by subsection 
     (a)(1), any employer may pay any employee of such employer, 
     during the first 180 consecutive calendar days after such 
     employee is initially employed by such employer, a wage which 
     is not less than $4.25 an hour.
       ``(2) No employer may take any action to displace employees 
     (including partial displacements such as a reduction in 
     hours, wages, or employment benefits) for purposes of hiring 
     individuals at the wage authorized in paragraph (1).
       ``(3) Any employer who violates this subsection shall be 
     deemed to have violated section 15(a)(3).''.

  Mr. BOND. Mr. President, this is an amendment that merely carries out 
the intent that Congress has shown on many occasions to exclude the 
smallest of the small employers from the burdens of a minimum wage. 
Basically, it says that for firms grossing less than $500,000, the 
small mom and pop businesses, the folks in your neighborhood, the 
people who are just getting by and providing a few jobs in their 
community, will not be subjected to the increase in the minimum wage. 
This does not say that their workers will not be protected by the 
current minimum wage or by Federal overtime provisions. It just says 
that we are not going to put another burden on the backs of those very 
small employers by ordering them to add 20 percent to their payroll 
costs for those who are employed at minimum wage.
  As the Clinton administration's own Administrator of the Small 
Business Administration, Phil Lader, said, this kind of exemption, this 
two-tiered system makes sense. It protects minimum wage jobs in the 
smallest business and it protects small business.
  Those of us who have talked with and, more importantly, listened to 
small business people throughout this country know that the burdens of 
Government regulation, Government mandates fall very heavily on small 
business. This amendment just says we are not going to put another 
mandate, another heavy financial burden, on the very smallest of the 
small employers on Main Street in your community and my community.
  Earlier today, the Senators from Massachusetts and South Dakota 
stated the reasons they opposed my amendment. I am here to set the 
record straight about what my amendment does and does not do.
  First, contrary to their assertions, this amendment is not a killer 
amendment. It simply means that the smallest of the small businesses 
will not have to lay off some of their workers in order to comply with 
the law.
  Who says that is a killer amendment? What forces are telling the 
President that he cannot protect the smallest of the small businesses 
and give all of the rest of minimum wage workers a minimum wage 
increase? What kind of logic would say that you cannot have it for 
anybody if you protect just the employees and the smallest businesses 
grossing under $500,000?
  The Senators from Massachusetts and South Dakota would have you 
believe that the debate is only about whether or not people should be 
paid more. Would I like to see working Americans earn more money? 
Absolutely. I believe that everybody who has joined me as a cosponsor 
of this amendment and who will vote for this amendment would agree. But 
the way to get increases in wages is through increases in productivity, 
getting the training, getting the experience that often minimum wage 
workers are getting in their very first job. We expand the opportunity 
for a training wage so people can get off welfare and into work or 
start on the work ladder. That experience is vital to getting them 
better paying jobs in the future. If you increase the minimum wage for 
the smallest of the employers, there are real tradeoffs. The smallest 
of the small employers, American businesses grossing under $500,000 per 
year, will, in my view, be forced to lay off workers. That is the 
bottom line. An increase in wages with no increase in productivity and 
revenues means lost jobs.
  Here is how it works. Say your neighbors own a small grocery store. 
They have a payroll budget of $85,000 available for wages. How do we 
know what is available for wages? Well, that is about how much they can 
pay after they figure out how much they are taking in, the costs of 
goods that they sell, what their operating costs are, and what they 
need to live on. At the current minimum wage, they could afford

[[Page S7411]]

to hire about 10 workers. It comes out to a minimum wage, 40 hours per 
week, 50 weeks per year, of about $8,500. If the minimum wage were to 
be increased by mandate on them by 90 cents, there is added $1,800 per 
employee to the grocer's cost. But raising that wage does not sell more 
groceries or anything else in the store.

  So how many people will they be able to afford to hire? Only eight. A 
20-percent increase in the minimum wage means they will have to lay off 
20 percent of their minimum wage workers, or two people. A small 
business employing only five would have too lay off one. To suggest 
that a minimum wage increase has no effect on employment in the 
smallest of small businesses is just plain wrong. A mandatory minimum 
wage increase for the smallest employers means job loss.
  The Senator from Massachusetts would also have you believe that we 
have locked out millions from increases in the minimum wage, 
``employees of fully two-thirds of all firms in the United States.''
  Come now, Mr. President, the truth is this amendment only applies to 
those firms that take in revenues of $500,000 per year or less. These 
firms employ only about 8 percent of the American work force. The 
percentage of those earning the minimum wage at those firms is even 
smaller.
  The Advocacy Council at the Small Business Administration says only 
about 10 percent of the small business employees are at minimum wage. 
So we are talking, probably--we do not have exact figures from the 
Bureau of Labor Statistics--less than a million people.
  I also find it somewhat odd that my Democratic colleagues are 
complaining about the amendment as a poison pill. Many of them happily 
voted for similar poison last time we passed a minimum wage increase in 
1989. And many of them supported a bill authored by Senator Bumpers, my 
distinguished ranking member on the Small Business Committee, in 1991. 
That amendment clarified the need for a small business exemption. If it 
was not poison then, why is it poison now?
  I think it is very unfortunate that this administration is ignoring 
the advice of its own top small business spokesman, Philip Lader, the 
administrator of the Small Business Administration, who says:

       An exemption for the smallest of small businesses makes 
     sense. Exempting small businesses from a mandatory wage 
     increase for minimum wage workers means that firms at the 
     margin will not be forced to cut jobs or not grow.

  So there you have it. The view of the need for a small business 
exemption from the Clinton administration's own spokesman on small 
business.
  We, on our side of the aisle, believe the minimum wage is a floor. 
Apparently some on the other side view it as a ceiling. There are some 
Democrats who would have you believe that Americans are locked into 
minimum wage jobs, in some cases for life. Those just are not the 
facts. Most Americans do not earn the minimum wage. Many of them start 
there and they move up the scale. They have to get a start somewhere. 
That is why the minimum wage and the training wage is so important. 
Those who obtain minimum wage jobs learn the skills and, as they become 
productive, go on to better jobs at better pay.
  Who is it that is saying this is a poison pill? Common sense sure 
does not. I cannot believe the President would deny the minimum wage 
increase he so robustly seeks for the very large percentage of minimum 
wage workers who are not employed by the smallest of the small.
  Mr. President, we will, I understand, have an opportunity to discuss 
this matter further tomorrow. At this point, I yield the floor and 
suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mrs. HUTCHISON. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. HUTCHISON. Mr. President, I am taking the floor today to speak 
in favor of the Bond amendment. I certainly am speaking for the small 
business people of this country when I support the exemption that is 
provided in this amendment.
  I think it is very important that we look at the big picture when we 
are making law that is going to affect the economy of our country and 
most certainly the workplace of our country.
  We have passed free trade agreements, so we are now going to be in 
competition with businesses throughout the world. Many of these 
businesses have lower standards than we do. They have lower wage 
scales. I think America should keep our high standards, but I also 
think if we are going to keep jobs in America through export markets 
rather than shipping the jobs overseas--rather, export our products 
instead of our jobs--if we are going to do that, we have to look at the 
big picture and look at what we have done in this country over the last 
3 or 4 years.
  In fact, what we are doing is increasing the cost of doing business 
in America. So if we pass the minimum wage increase, we are going to 
add one more increase to the cost of doing business that will make us 
less competitive in the global marketplace.
  I was a candy manufacturer. I did export into Canada, for instance, 
but I also competed, Mr. President, with candy that was made in South 
America and Mexico, and it was very difficult to compete with candy 
that was made at much lower cost because I had to be price competitive. 
So I am very hopeful that we will look at this competition that we have 
created as we are taking up an increase the size of a minimum wage that 
we are talking about today.
  So if we increase the minimum wage at the same time that we have 
increased taxes--that has already been done--we have more regulatory 
costs, and that has been proven, as well, pretty soon we are going to 
see our jobs exported rather than our products exported from America--
products made with American labor.
  I think we have to be very careful. I appreciate the fact that 
Senator Bond and Senator Lott are working on an amendment that would 
give our small businesses a break. By having the $500,000 exemption, we 
are taking the businesses that are most vulnerable to the margins of 
profit and we are going to give them a break. I think that is very 
important.
  I have seen that small businesses have a harder time competing for 
export markets anyway because they do not have the size that makes for 
more efficiencies. So if we can give them this bit of help--$500,000 is 
a very small company, especially if that is your gross receipts, that 
is a small company--I think if we can give our small businesses the 
advantage of an exemption, then maybe we will be able to get the best 
of both worlds with this overall minimum wage increase.
  I also like the provision in the amendment that says we will have a 
training wage for 180 days. A training wage is an entry wage. You do 
not find experienced people making the minimum wage; you find people 
who have no experience whatsoever making the minimum wage, and they 
quickly move on if they learn fast and show that they are able to take 
on more responsibility.
  So I think the training wage is very important for our entry level 
people, our young people who are trying to get their first experience 
or our older employees who might be coming back into the marketplace. 
Getting that first bit of training and allowing the leeway to get that 
training, I think, is going to be a very important mitigating factor 
for the companies to be able to say, yes, I can take a chance and hire 
someone at the $4.25 level because I know that if they prove that they 
are worth something, I will then be able to pay more. But that gives me 
time to get the product on the market and productivity up and find out 
if I am going to be able to afford this and then hopefully be able to 
make the increase at the end of the 180 days.

  I also think, Mr. President, that this folds into the welfare reform 
that we have been talking about. If we are going to put limits on the 
amount of time that a person can be on welfare, if we are going to 
encourage people who are able-bodied to go into the job market rather 
than staying in a cycle of welfare, we have to have the jobs available 
for these people to enter the workplace.
  They are the very people that need that entry-level wage. People who

[[Page S7412]]

would be making a transition from welfare into the job market ought to 
be able to get that training wage, get that experience. Their employers 
hopefully would be able to take a chance at this lower level of the 
wage, and give them that opportunity to pull themselves up by their 
bootstraps to become citizens of this country who are taking a 
responsibility and providing their fair share of the workload for this 
country.
  So I urge my colleagues to support this very important amendment, and 
help us make sure that we keep the strength of our economy as we are 
moving into this higher minimum wage level. Let us have time for people 
to prepare. I think increasing the minimum wage immediately could put a 
very big hardship on some of our small businesses that they would not 
be able to immediately cover.
  But if we give time for these businesses to plan for the increase, 
and see how they are going to be able to increase their prices in order 
to make up for the higher costs, that we will be doing something that 
will not hurt the small businesses of this country nearly as much, and 
it will not hurt so badly our businesses that might be competitive in 
the international marketplace either.
  Many people are concerned that if we raise the minimum wage, it will 
increase the cost of employing even people who are not making the 
minimum wage. We are going to start a ratchet effect so that every 
level of wage is going to go up. Well, that is good, but it is also 
something that we have to look at very carefully to make sure that our 
businesses can absorb these higher costs. We need to give them the 
ability to raise the price of their product in time so that they will 
not be in a loss situation and have to actually lay people off and 
eliminate jobs. That is certainly not what we want the outcome of the 
minimum wage increase to be.
  So I think the delay, giving business a chance to prepare for the 
minimum wage increase, keeping the training wage are very important. I 
think the $500,000 and below exemption is very important for helping 
our small businesses to be able to keep their small businesses going 
and increase employment rather than have to lay people off. More than 
seventy percent of the new jobs in this country are created by small 
business. So the last thing we want to do is hurt that economic 
machine, that job-creating machine that is the small business of this 
country. So we want our small businesses to be able to plan for this 
increase, to have the ability to absorb the increase in costs that will 
happen. I think this is the responsible way to do it.
  Mr. President, before I end, I would like to say that I am also very, 
very pleased about another part of this bill. It does not really relate 
to the minimum wage, but in the business tax part of the bill that will 
be introduced tomorrow. I just want to commend Senator Roth, the 
chairman of the Finance Committee, for including the Hutchison-Mikulski 
homemaker IRA bill.
  I have been fighting for 3 years to give the homemakers of this 
country the ability to retire in security the same as if they had 
worked outside the home, because there is no question in my mind that 
the work done inside the home is as much a part of the American family, 
if not more important to the American family, than the work done 
outside the home. But ever since IRA's have been allowed in this 
country that would allow people to set aside $2,000 a year, tax free, 
for their retirement security, ever since we have authorized those, we 
have not allowed the homemaker, who works inside the home, to be able 
to contribute that same $2,000 a year.

  We are trying to correct that inequity. Senator Mikulski, Senator 
Feinstein, Senator Kassebaum, Senator Snowe, and Senator Gramm have all 
signed on to be cosponsors of that bill. Senator Roth especially has 
been very helpful, not only in putting that in the original tax cut 
bill that was vetoed by President Clinton last year, but he has also 
included it in this bill. If this bill can be signed by the President 
then we will have our homemaker IRA's.
  So I am hopeful that this is a bill that will include the Lott-Bond 
amendment so they will help the small businesses be able to prepare for 
this minimum wage increase and give the exemptions for small business 
to be able to continue to pay the lower minimum wage, and then if we 
can have the homemaker IRA that will really make a difference in the 
savings in this country and in the security of our one-income-earner 
families and not only that, but when you take everything into 
consideration, it is just a matter of equity.
  It is just flat equity that every person who is working in our 
country, whether it is inside the home or outside the home, should have 
the same opportunities for saving for retirement, tax free. And that is 
exactly what we will be doing if we are able to pass this bill with 
that very fine amendment that will be sponsored by Senator Roth 
tomorrow.
  So I am very pleased to be supportive of this measured minimum wage 
increase because I believe that it can be good for our country if we do 
it in just the right way. So I thank the sponsors of the amendment, and 
I yield the floor.
  Mr. NICKLES addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from 
Oklahoma.
  Mr. NICKLES. Mr. President, I inquire how much time remains on both 
sides?
  The PRESIDING OFFICER. There are 9 minutes 7 seconds for the majority 
side and 30 minutes for the minority.
  Mr. NICKLES. Mr. President, thank you.
  I wish to compliment my colleague from Texas for an outstanding 
statement and also for her leadership on this issue and for the fact 
that she has some business experience to rely on. I think that 
certainly is needed. I hope that her advice, as far as voting on these 
amendments, will be taken to heart by our colleagues.
  Mr. President, I rise in opposition to a 21-percent increase in the 
minimum wage. That does not mean that I do not want individuals that 
make the minimum wage to make more money. I hope that they do. I hope 
they make a lot more. I hope we are not satisfied with them making 
$5.15. I would like for them to make a lot more.
  But what I would hate to do is to pass a Federal law that says it is 
illegal for them to work for $5. In other words, if the economic 
situation in some area will only allow a job to pay $5 or $4.50, I do 
not think we should pass a Federal law to say it is illegal for them to 
take the job.
  That is exactly what we are doing. I have heard some of our 
colleagues say, ``Well, this is supported by an overwhelming majority 
of people. Eighty percent of the people support the minimum wage.'' I 
want people who make minimal amounts of money to make more money as 
well. But suppose the pollster phrased it like this: Should the Federal 
Government make it illegal for an individual to work for $4.80 an hour 
in rural Montana if that is the best that that employer can pay and the 
best that that employee can make? Most people would say, no, you should 
not make it illegal.
  I just say that I believe the reason why we are here is not really to 
raise minimum wages. I believe it is political. I believe our 
colleagues on the Democrat side, including the President, are playing 
politics. They are trying to score political points. Maybe they have 
been successful. I do not know.
  Interesting coincidence of timing. The Democrats controlled the 
Senate, both Houses of Congress, in 1993 and 1994. They could have 
raised this issue at any time during then. The majority leader could 
have called it up. The Speaker in the House could have called it up at 
any point. They controlled both Houses of Congress. President Clinton 
and the Democrats said they were in favor of it. They could have moved 
at that time. They could have pulled it up, and both Houses would have 
considered it, would have voted on it, or at least it would have been 
up for consideration. They did not do it in 1993. They did not do it in 
1994. They did it, I believe, for political purposes, about the same 
time after organized labor came into town and said they would commit 
$35 million to try to retake both the House and the Senate. Interesting 
timing.

  All of a sudden, here come the amendments, and we will have this

[[Page S7413]]

amendment on everything, we will make it illegal for anybody in America 
to work for $5 an hour because somebody in this Chamber has determined 
you should not have a job if it is only $5 an hour. I disagree with 
that philosophy. I disagree with it very strongly.
  Now, if the Senator from Massachusetts or the Senator from any other 
State, if their State wants to raise minimum wage to $5.25, which I 
think they have done in the State of Massachusetts, they are scheduled 
to go to $5.25, that is fine. If the State of New York wants a minimum 
wage of $6 an hour, they have the right to do so. Why in the world 
should we make it national? What about the State of Montana, or some 
rural town in Montana? Maybe they have different economic 
circumstances, which they most certainly do, than, say, New York City 
or Washington, DC.
  Why should we presuppose we have all the wisdom and we should mandate 
what the wages should be nationally, and make it is against the law for 
you to have a job even if you are 16 years old and want to get started 
climbing the economic ladder? We are going to say, ``No, if you cannot 
get a job that pays at least $5.15 an hour, you cannot have a job. The 
Federal Government has determined it is better for you to stay at home, 
not work. If you cannot get a job at $5.15 an hour, we prefer you not 
to have a job. It is against the law for you to have a job.''
  I think that is a mistake. I think it is a serious mistake. I think 
it will cost jobs. I do not know how many jobs it will cost. The 
Congressional Budget Office estimates employment losses for a 90-cent-
per-hour increase in minimum wage from roughly 100,000 to 500,000 jobs. 
That is a pretty significant economic impact on that 100,000 or that 
500,000 people who lose a job.
  Those are people that may need the job more than anything. Maybe they 
are people that want to start climbing the economic ladder, and we will 
say, ``No, you need not apply. That job is not worth it.'' Maybe it was 
pumping gas, sacking groceries, or some menial task. That first job can 
be one of the most important, in fact, maybe the most important job 
somebody will have because they start learning skills. They might learn 
they need more education, or have an idea, ``Wait, I need to make more 
money, so therefore I better go back to school,'' or vo-tech, or finish 
high school, or maybe go to college. No, we will have a Federal law 
that says if you do not make at least $5.15 an hour, we have determined 
you should not have a job. As a matter of fact, it is illegal for you 
to have a job. I think that is wrong.
  The Employment Policies Institute estimates that the job loss for an 
increase of 90 cents is over 600,000, if Senator Kennedy's amendment 
passes. Mr. President, 10,000 are in Oklahoma, 18,000 would be in 
Georgia. I do not want to pass a law that will put 10,000 Oklahomans 
out of work. Again, if they want to do that in the State of 
Massachusetts, power to them. If they want to do it in other States, 
they have that right to do so. We should not interfere with that.
  What about States rights? The 10th amendment of the Constitution says 
all the rights and powers are reserved to the States and the people. 
They did not envision the Federal Government mandating that if you do 
not make $5.15 an hour, you cannot have a job. That is what Senator 
Kennedy's amendment would do.
  Senator Kennedy's amendment is even worse than the language that 
already passed the House, which President Clinton said he would sign. 
The House bill at least has a training wage of 90 days; Senator Kennedy 
only has one for 30 days. The House bill does not hit the restaurant 
owners and workers; it allows a tip credit. Most people that work in 
restaurants make $8 or $9 an hour on average. They are not minimum 
wage, so they keep the tip credit at $2.13. Senator Kennedy has that 
increased. That would be a big hit on somebody that has a small 
restaurant. My point being that his language is even worse than what 
passed the House. The net result is you will put hundreds of thousands 
of people out of work.

  I believe that is a serious, serious mistake. Not only that, but now 
it would be retroactive. So, think of that. You have a small business. 
Senator Kennedy does not give a small business exemption, no matter how 
small. My colleagues know I used to have a janitorial service. We did 
not pay minimum wage. I used to work for a janitorial service that did 
pay minimum wage. Senator Kennedy's bill would make it retroactive. 
That might be nice if you got the wage, but what about the employer 
that could not cover it?
  I remember asking my boss, when I was making $1.60 an hour, for a 
raise, and after a couple weeks he gave me a nickel-an-hour raise. 
Senator Kennedy will mandate they have to give 45 cents retroactive to 
July 5. What if they cannot afford that? Sorry, you just lost a job, 
thanks to Senator Kennedy's amendment.
  We should not allow that to happen. We should not be passing laws 
around this place that will put hundreds of thousands of people out of 
work. We should not be passing laws around this place that say it is 
illegal for you to have a job that pays $5.10 an hour because the 
Federal Government has determined that any job that is worth having 
should pay at least $5.15 an hour.
  I believe that is very bad economics. It does not make sense. I do 
not believe we can repeal the law of supply and demand. If we can, why 
stop at $5.15? Maybe we should have another amendment that says make it 
$10 an hour if there is no negative impact on a 21-percent increase in 
the minimum wage. Increase it 100 percent--make it $10 an hour or $20 
an hour. Anybody making $5 an hour, I would like them to make $10 or 
$20. I would like them to be better off financially. If there are no 
negative economic consequences, why not do it? We are not going to do 
it because people know it would have a negative economic consequence. 
We know we would be putting people out of work, and there are certain 
jobs in certain places that cannot afford to pay it.
  The people we will hurt the most are the people we should be hurting 
the least. We will be hurting a little restaurant or grocery store that 
is competing in some rural town, trying to stay alive, competing 
against Wal-Mart. Some big business comes in and the little guy is 
having a hard time staying alive. Yet, we are going to mandate a 21-
percent increase in minimum wage. Maybe they were hiring some young 
people, 16 and 17 years old, that wanted to earn some money in the 
summertime, and we will tell them, ``No, you cannot do that. It is 
against the law. Unless you pay at least $5.15 an hour, we have 
determined that job is not worth having.'' We have decided that in 
Washington, DC, because we are the source of all wisdom.
  What is right about $5.15? Why not make it $6 or $7 or $8 or $10? It 
just does not make sense. If you repeal the law of supply and demand, 
we should make it $10 or $20, but we cannot. It will cost jobs. If we 
pass the increase in minimum wage, it will cost jobs. We will put 
people out of work, people that need to work the most, people that want 
to start climbing the economic ladder. That is a serious mistake.
  I mentioned, Mr. President, I worked for a janitorial service in 
Stillwater, OK, and the 1968 minimum wage was $1.60. My wife and I both 
had a job there. We worked at it a month before we asked for the raise. 
We got the nickel. We decided that was not enough, so we started our 
own janitorial service and we made a lot more money working for 
ourselves. We got started low on the economic ladder, but we were able 
to climb up. I am glad the Federal Government did not come in and say 
they wanted the minimum wage at that time to be much, much higher. I 
might not have gotten that job. I might not have gotten the training, 
and I might not have started my own janitorial service and put myself 
and several other people through school.
  We should not deny people economic opportunities. We should not be 
passing laws that will be putting people out of work. That is exactly 
what we will be doing if we pass this increase in minimum wage. I hope 
we will not do it. I urge my colleagues to vote no on the Kennedy 
amendment tomorrow.

                          ____________________