[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.
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